Free cash flow doubled, capex collapsed by 75%, and the Hormuz reopening this week reframes the entire 2026 setup for US independents.
ConocoPhillips reported $58.7 billion in fiscal 2025 revenue, $16.8 billion of free cash flow, and a capex number of just $3.0 billion, down from $12.1 billion the prior year. The FCF print is a 110% year-over-year increase. The capex collapse is a 75% reduction. And the results landed the same week that Donald Trump confirmed the reopening of the Strait of Hormuz and oil settled below $90 for the first time in three months.
Those two data points together reshape the 2026 setup for every US independent, but particularly for Conoco. The FY25 FCF run-rate was achieved with Brent averaging approximately $78 over the year. A lower 2026 average oil price will compress cash flow somewhat, but the capex discipline that produced the FY25 print is structural, not transitory. The Signals Desk view is that Conoco has transitioned from a growth-investment cycle into a harvest cycle. That transition is exactly what the market rewards in integrated-adjacent E&P businesses.
We are buyers at current levels (MA50 of $119) and see fair value of $145-155 over 12 months.
Conoco spent $5.3 billion on capex in FY21. That stepped up to $10.2 billion in FY22 during the post-COVID reinvestment surge. FY23 and FY24 held at roughly $11-12 billion. Then FY25 dropped to $3.0 billion.
The decline is partly lumpy asset timing (the Willow project in Alaska, LNG commitments in Port Arthur, the Surmont expansion phase). Phase-specific capital spending ends when projects go into production, and FY25 saw several major projects complete that transition. But the decline also reflects management's explicit commitment to capital discipline after the 2022-2024 investment cycle.
The result is a cash flow profile that looks completely different from what the market priced during the investment cycle. $16.8 billion of FCF at $78 oil is materially higher than the FY22 print of $18.2 billion at $95 oil. That is the signal: the business has become more capital-efficient through the investment cycle, and the FCF-to-oil-price elasticity has shifted favourably.
The Marathon Oil acquisition (closed November 2024) added approximately 200,000 boe/d of production and has been cash flow accretive from day one. The combined entity is now one of the largest US onshore producers with a shale-dominant portfolio that is structurally short-cycle.
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Oil prices dropped below $90 this week on the Hormuz reopening confirmation. The S&P hit record highs on the same news. The reflex trade was to sell energy stocks on peace-optionality.
That framing is backwards for Conoco specifically. The FY25 print already assumed normal Middle East supply routing. Oil above $90 was a short-term premium that was never in the ConocoPhillips P&L. Lower structural oil prices in the low-to-mid-$70s are the regime the business was built to operate profitably in.
The breakeven analysis tells the story. Conoco's all-in cost of supply across the integrated portfolio is approximately $40-45 per barrel including dividend requirements. At $75 Brent, the business generates approximately $12-14 billion of FCF. At $65 Brent, approximately $8-10 billion. At $55 Brent, approximately $5-6 billion. Even in a substantial downside oil scenario, the business remains cash-flow positive and the dividend is covered.
Historically, integrated and large-cap E&P stocks have decoupled from spot oil price during harvest cycles. The share-price sensitivity to oil tightens when capex declines and FCF becomes the dominant driver. The 2016-2018 period is the textbook case; large-cap E&P equities outperformed both spot oil and their own 2019-2022 peaks because FCF distribution exceeded earnings multiples. We expect similar dynamics for Conoco through 2026-2027.
In the US integrated and large-cap E&P peer group, Conoco is structurally differentiated on three dimensions.
First, portfolio breadth. Conoco operates meaningful positions across the Permian, Eagle Ford, Bakken, Alaska, and international LNG/deepwater. That diversification smooths the cash flow profile compared to pure Permian plays like Pioneer (now part of Exxon) or Diamondback. Diversification has a cost (slightly lower IRRs on average) but produces materially lower production-volatility.
Second, capital discipline. The FY25 capex cut was ahead of peers. EOG Resources, Conoco's closest peer by scale, maintained capex at $6.1 billion in FY25 versus $3.0 billion at Conoco. The relative discipline is meaningful; at equivalent realised prices, Conoco produces substantially more free cash flow per dollar of revenue.
Third, shareholder return. Conoco's capital return framework commits at least 30% of operating cash flow to dividends and buybacks. FY25 total return to shareholders was approximately $10.5 billion, or 7.4% of current market cap. That is well above the peer average of 5-6%. The dividend yield at 2.6% understates the total yield because the buyback component is structural.
The nearest alternative for an oil investor looking for US scale plus dividend is Exxon at 3.2% yield or Chevron at 4.1% yield. Both are more oil-exposed to downside (less capital-efficient E&P positioning) and both have heavier downstream exposure that hurts in a weaker oil environment. Conoco is the better risk-reward setup at current levels.
The selloff in energy names on the Hormuz peace news has created an entry point. Conoco at $119 on the 50-day moving average is trading at 12.5x forward earnings, 8.4x forward FCF, and yielding 2.6%. All three metrics are attractive relative to the peer group and to the company's own history.
Three catalysts to watch through 2026.
First, Q1 2026 FCF guidance. Management's capex framework for 2026 is likely to confirm the disciplined trajectory that produced the FY25 print. A guide of $4-5 billion in capex would validate the harvest-cycle thesis.
Second, LNG production ramp. Port Arthur LNG ramping through FY26 adds approximately $2 billion of annual EBITDA at full run-rate. The cash flow acceleration is well-modelled by the sell side but still not fully priced.
Third, capital return acceleration. If FCF runs at $14-16 billion in FY26, the special dividend (or accelerated buyback) potential is meaningful. A 10% total shareholder return yield is achievable without any multiple expansion.
Fair value is $145-155 over 12 months. Buy at current levels, accumulate on any weakness below $115. The FY25 print is the inflection; the market is underpricing it because energy sentiment is distracted by Hormuz.
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Capex collapsed from $12.1 billion in 2024 to $3.0 billion in 2025 as the Marathon Oil integration closed and the major Willow and LNG capex waves finished. Free cash flow jumped to $16.8 billion. The off-cycle is the story.
ConocoPhillips, Schlumberger, and Chevron each offer a different angle on the Hormuz thesis: pure-play E&P leverage, oilfield services recovery, and integrated yield defence. All three trade below historical averages.
Marathon synergies are running 20% ahead of target. Production crossed 2 million BOE/d. We're raising our target to $145.