After experiencing a lot of volatility, ConocoPhillips (NYSE:COP) shares spiked more than 4.5% in the latest session, bolstered by the production cut deal to stabilize global crude supplies. ConocoPhillips is the largest North American exploration and production company that needs crude oil prices around $50 a barrel to remain cash flows positive.
The production deal has allowed crude oil prices to strike the physiological mark of $50 a barrel during the Wednesday’s trade. OPEC producers agreed to slash their production to 32.5 million barrels a day, indicating a cut of 1.3 million barrels a day. Crude oil prices surged more than 8% during Wednesday on the back of the output cut deal.
U.S. producers were desperately seeking crude oil prices to move towards $50 a barrel to make a break-even. COP has significantly slashed its cost structure and altered its asset portfolio to lower its break-even point around $50 a barrel from above $70 a barrel last year. However, COP’s management believes that they have the potential to break-even under $50 a barrel after their massive cost cuttings.
In the latest quarter, ConocoPhillips reduced production and operating expenses by almost 17%, while its adjusted operating costs also declined 18% compared with the year-ago period. In addition, the company’s production efficiencies, disciplined capital allocation and portfolio move towards higher margin assets are also supporting its potential to profit at lower prices.
Ryan Lance, chairman and chief executive officer said “In the third quarter we achieved cash flow neutrality, with operating cash flow covering capital expenditures and the dividend. For the second quarter in a row, we are lowering 2016 guidance on our capital expenditures and adjusted operating costs, while increasing our 2016 production guidance”.
Overall, ConocoPhillips looks in a very strong position to establish strong footholds for the potential growth, thanks to the production deal and its lower breakeven point. Crude oil prices are likely to gain further momentum in the coming days, as OPEC producers are stressing non-OPEC players to play their role in stabilizing crude oil prices.
The author does not have any positions in the above mentioned companies.