UBS Lowers ConocoPhillips Price Target but Keeps ‘Buy’ Rating as Willow Project Cost Rises

UBS has trimmed its 12-month price target for ConocoPhillips to $117 from $122 while reiterating a “Buy” recommendation, citing updated capital-expenditure figures for the company’s Willow oil and natural gas development on Alaska’s North Slope. The revised outlook, issued on November 12, follows ConocoPhillips’ disclosure that inflation and higher input costs have lifted the project’s estimated budget to as much as $9 billion.

The Willow project had originally been projected to require between $7 billion and $7.5 billion in capital spending. According to a November 6 report from Bloomberg, the company now anticipates total outlays in the range of $8.5 billion to $9 billion, with approximately $700 million of the increase linked directly to broader inflationary pressures.

UBS said the additional spending, while material, does not alter its constructive view on ConocoPhillips’ long-term cash-flow prospects. The bank characterized the stock as undervalued relative to its large-cap energy peers and argued that the expanded budget remains manageable within the company’s overall financial framework.

ConocoPhillips still expects first oil from Willow in early 2029. Production during the initial ramp-up phase will feed into existing North Slope infrastructure before scaling toward the project’s full target output. Over its projected 30-year life, Willow is expected to produce roughly 600 million barrels of crude, a volume that could reinforce U.S. domestic supply as shale resources in Texas and other mature basins gradually slow.

Developing a new source of long-duration barrels is a central component of ConocoPhillips’ portfolio strategy. Company executives have highlighted Willow’s relevance in balancing near-term shale production with longer-cycle assets that can deliver stable output well into the 2050s. The Alaska development is also geographically diversified, complementing the firm’s core Lower 48 shale holdings.

On the cost side, management has attributed the budget revision to labor, materials and logistics inflation that has persisted across the oil and gas industry. Market estimates compiled by the U.S. Energy Information Administration show steady increases in equipment and services pricing over the past two years, reflecting tight supply chains and elevated demand for drilling activity.

Even with the higher capital requirement, ConocoPhillips maintains that Willow can generate competitive returns under a variety of price scenarios. Break-even metrics released earlier in the planning process suggested the project could remain profitable at crude prices well below current market levels. UBS noted that the company’s balance sheet—strengthened by recent asset sales and disciplined spending in the Lower 48—provides flexibility to absorb the incremental costs without jeopardizing dividend commitments or share-repurchase plans.

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Beyond Willow, ConocoPhillips continues to explore, produce, transport and market crude oil, bitumen, natural gas, liquefied natural gas and natural-gas liquids across multiple regions. The company has emphasized a dual focus on low-cost supply additions and shareholder returns, allocating capital between short-cycle shale drilling and longer-cycle international projects.

Industry analysts will monitor forthcoming project milestones, including detailed engineering, procurement contracts and early construction activities on the North Slope. Any additional cost movements or schedule adjustments could influence future revisions to sell-side estimates and price targets, though UBS currently sees the latest projection as an adequate buffer against unforeseen inflationary surprises.

With Willow remaining on track for a 2029 start-up, ConocoPhillips’ near-term financial performance is expected to hinge on commodity prices, shale well productivity and ongoing efficiency initiatives. UBS forecasts that free cash flow from existing operations will continue to fund a mix of capital expenditures, dividends and opportunistic share buybacks while accommodating the expanded Alaska budget.

Crédito da imagem: ConocoPhillips