Why ConocoPhillips Rallied Double-Digits in January

Shares of oil and gas major ConocoPhillips (NYSE: COP) rallied 11.3% in January, according to data from S&P Global Market Intelligence.

Conoco didn't report fourth-quarter earnings until last week, on Feb. 5. Still, January was filled with news for the oil and gas industry generally, and for Conoco specifically, as two significant geopolitical events sent most oil and gas names higher.

Venezuela's regime change and Iran's potential regime change

The price of oil rallied from about $57 to $65 in January amid two potentially significant geopolitical events. First, on Jan. 2, U.S. special forces ousted Venezuelan President Nicolás Maduro, bringing him and his family to the U.S., where he will be brought up on narco-terrorism and other charges.

That event is actually a mixed signal for oil prices. While political disruption in any oil producer could cause supply to go offline, Venezuela is also home to the world's largest oil reserves -- even larger than Saudi Arabia's. Yet, it produces only about 1% of the world's oil today. So, the prospect of some supply disruption is countered by the prospect of regime change unlocking more of Venezuela's unexploited reserves.

Venezuela produces so little oil relative to its potential because the Communist regime under former President Hugo Chavez essentially nationalized the country's oil and gas industry in 2007, effectively seizing Conoco's assets and those of other companies. While some large players continued to operate in Venezuela on highly unfavorable terms, the country's nationalization scared away most large oil and gas companies with expertise, leaving Venezuela's vast reserves largely unexploited.

On the news, Conoco rose more than other large oil and gas companies, as the potential for regime change also raised the prospect of Conoco collecting on the $10 billion it is owed by Venezuela, as ruled by an international arbitration court in 2019.

In addition to the events in Venezuela, on Dec. 28, protests broke out in Iran, which then escalated throughout January to the most serious challenge to Iran's ruling regime in many years. That may also have lifted oil prices, as Iran is the world's ninth-largest oil producer, accounting for about 4% of global oil supply.

Image source: Getty Images.

What ConocoPhillips had to say last week

Last week, ConocoPhillips reported earnings, with adjusted earnings per share of $1.02 missing analyst estimates by $0.08. However, the stock didn't go down, as these earnings reflect fourth-quarter oil prices, which were generally in the mid-to-high $50 range, well below the $65 price today.

On the earnings call, CEO Ryan Lance noted that before Conoco would consider reentering Venezuela, it would first seek to cover the $10 billion it is owed. That makes sense, given the high uncertainty in that country at the moment. Of note, $10 billion would be a significant amount, representing 7.4% of the company's current market cap.

With oil prices now at $65 and in an apparent uptrend, political instability only worsening, and the potential for Conoco to recover some or all of the $10 billion arbitration award, it's no wonder the stock appreciated in January and held those gains in February, despite the earnings miss.

Billy Duberstein and/or his clients have positions in ConocoPhillips. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.