Houston, Texas, is the heart of the U.S. energy sector. Many oil and gas companies call the city their home, including ConocoPhillips (COP 3.65%), which has its corporate headquarters in the Texas metropolis.
The global oil and gas giant has a very bright future, fueled in part by its operations in the Lone Star State. That's why it's one of my top picks among energy stocks.
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Drilling deep in the heart of Texas
ConocoPhillips has built one of the deepest, most durable, and diverse portfolios in the oil and gas sector through a series of acquisitions, including its $22.5 billion acquistion of Marathon, which closed late last year. It now holds a treasure trove of oil and gas resources with supply costs below $40 a barrel. That gives the oil company decades of inventory to maintain and grow its production base.
Its leading position in Texas is crucial to its current operations and future growth. ConocoPhillips owns 792,000 net acres in the Delaware Basin side of the Permian Basin in west Texas and southeast New Mexico, making it the largest Tier 1 inventory holder in that region -- land with the highest estimated recoverable oil per drillable foot. It also ranks as the leading Tier 1 acreage holder in the Eagle Ford Shale in southern Texas with 484,000 net acres. Meanwhile, in the Midland portion of the Permian in central Texas, it holds 265,000 net acres, ranking it as the No. 3 Tier 1 acreage holder there. ConocoPhillips holds more top-tier inventory than any other producer in the lower 48 states, when adding in its Bakken acreage in North Dakota. These assets will drive continued production and free-cash-flow growth in the coming years, aided by the expected $1 billion of additional cost savings from its Marathon deal that it anticipates capturing by the end of next year.
NYSE: COP
Key Data Points
Another notable growth driver for the company is its 30% interest in Phase 1 of Port Arthur LNG. The company and its partner Sempra Energy are building the 13.5 million-ton-per-day liquefied natural gas (LNG) export terminal in Port Arthur, Texas, which should come online in 2027. ConocoPhillips also recently agreed to purchase additional LNG from the upcoming Phase 2 of the project. This LNG export terminal will enable ConocoPhillips to sell more of the natural gas it produces in Texas to higher priced global markets.
Texas is only part of the growth story
While Texas is a big part of ConocoPhillips' portfolio and growth story, it's not the only region fueling the company's bright future. The energy giant is expanding its global LNG business to capitalize on growing demand for the cleaner-burning fuel. Energy market forecasters expect demand for LNG to double by 2040, growing from 400 million tons per year to as much as 800 million tons over the next 15 years.
In addition to Port Arthur LNG, ConocoPhillips is also investing in two LNG projects in Qatar. The North Field East and North Field South expansions should start coming online next year. The company has also signed several deals to sell LNG to customers in Asia and Europe. Its investments in LNG will provide it with $2 billion of incremental annual free cash flow in the coming years once all three new projects are operational.
Meanwhile, the company is also investing heavily in Alaska. The biggest project is its Willow hub, which will allow it to tap into a 600 million-barrel resource of low-cost oil supply. The company expects the $7 billion project will come online in 2029. This new hub could generate over $4 billion in annual free cash flow starting that year.
The coming free-cash-flow gusher
ConocoPhillips' Texas-heavy operations currently generate about $7 billion in free cash flow. That number could double by 2029 as its investments to grow its global LNG business and new oil hub in Alaska come online. That robust growth profile makes it one of my top picks in the energy sector.
