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Summary
- ConocoPhillips targets $7 billion free cash flow growth by 2029
- Expensive Alaska oil project accounts for large portion of FCF growth plan
- Recent share lag versus Exxon and Chevron reflects heavy spending, analyst says
(Reuters) – Andy O’Brien will succeed longtime ConocoPhillips CEO Ryan Lance next month and will inherit a major Alaska oil project to complete, costs to control and a share price that has recently lagged peers, analysts and investors said.
The largest independent oil exploration and production company in the U.S. announced the succession plan on Thursday alongside its biggest quarterly net income since 2022, lifted by higher crude prices due to the Iran war. O’Brien, currently chief financial officer and a nearly 30-year company veteran, will take over on September 1 when Lance steps down after 14 years as CEO to become executive chairman.
The timing of the move has surprised some analysts, as ConocoPhillips is partway through a multiyear plan to add $7 billion in free cash flow by 2029.
Reaching that goal depends on the company completing the pricey Willow oil project in Alaska, analysts said. ConocoPhillips is also contending with disruptions at two large liquefied natural gas expansions in Qatar stemming from the Middle East conflict.
“His plate is full and investors might be a little critical if things don’t go smoothly,” said Scott Hanold, a managing director with RBC Capital Markets. Shareholders placed a lot of trust in Lance, and O’Brien will have to navigate their high expectations, he added.
A ConocoPhillips spokesperson, asked for comment about the succession, referred to the earnings call on Thursday, when O’Brien said his priority was achieving the company’s outlined goals.
“We’ve got to deliver our major projects and cost reduction program that underpin our $7 billion free cash flow inflection — that is on track,” O’Brien said. “That is going to be sort of hyper focus for the team and myself.”
Lance said on Thursday he thought the company was in its strongest position. “And I wouldn’t leave if I didn’t think that was the case.”
CONOCOPHILLIPS HAS RECENTLY UNDERPERFORMED PEERS
ConocoPhillips’ stock has outperformed peers during Lance’s tenure since 2012, trailing only EOG Resources.
In the past three years, however, the company’s shares have underperformed ExxonMobil and Chevron. Hanold said heavy spending to generate free cash flow may be responsible, as investors wait for results before buying the stock.
In 2023, ConocoPhillips approved Willow, which is expected to produce 600 million barrels over its lifetime from the remote Alaska North Slope. Last year, the company raised the estimated project cost to up to $9 billion — an increase of $1.5 billion from its previous forecast — because of rising inflation and supply chain costs.
Willow underpins nearly 75% of ConocoPhillips’ free cash flow growth plan, making its completion critical, Barclays analyst Betty Jiang wrote in a note on Friday. The company is targeting production to start in 2029.
ConocoPhillips has also been cutting costs. Last year, it announced it would lay off up to 25% of global staff.
Lance told staff at the time that the company had fallen behind competitors and needed to streamline and control costs, which had crept up $2 per barrel over three years.
The oil industry is set for more consolidation over the next few years as producers chase scale. ConocoPhillips may feel pressure to pursue another acquisition, said Bill Smead, chief investment officer at Smead Capital Management, which holds about $220 million of the stock according to LSEG data.
“That’s a dynamic this particular new CEO will need to deal with,” Smead said.
Reporting by Sheila Dang in Houston; Editing by Nathan Crooks and Rod Nickel
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