Why Shares of ConocoPhillips Slumped Today

Key Points

• A lower-oil-price environment would not be good news for ConocoPhillips and its integration of Marathon Oil.

• A heavy reliance on U.S. assets leaves the company uniquely vulnerable to a lower oil price.

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Shares in ConocoPhillips (NYSE: COP) were lower by more than 4% at noon today. The decline comes on the day news broke that eight OPEC+ members will meet on Sunday and discuss a production hike. While there's no guarantee that a production increase will be agreed upon, or that any such increase will put pressure on the price of oil, the threat of it is enough to spook oil investors.

Why ConocoPhillips is uniquely exposed

Because ConocoPhillips isn't an integrated oil major (meaning it doesn't have substantive midstream or downstream assets), investors tend to value it based on its reserves (mainly crude oil and natural gas), an assumption about the long-term oil price (which many investors assume is the current price), and an approximation of its break-even price of oil (the price at which its costs and financial obligations are covered).

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OPEC+ is reportedly considering raising production to lower the price of oil, as its collective competitive advantage as a relatively lower-cost producer would result in its winning market share back from producers in higher-cost countries like the U.S. Those producers include ConocoPhillips, which generates the majority of its earnings from the U.S.

For example, last year the United States, excluding Hawaii and Alaska, generated $5.2 billion in earnings for the company, with Alaska contributing $1.3 billion, while the pre-corporate-expense company total was $10.1 billion.

Image source: Getty Images.

OPEC+'s actions could result in competitive pressure on ConocoPhillips, particularly at a time when it is integrating Marathon Oil, a company it recently acquired for $22.5 billion to consolidate its presence in the U.S.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.