ConocoPhillips Reports 4th Quarter & Full-Year 2020 Results

Source: www.gulfoilandgas.com 2/2/2021, Location: North America

ConocoPhillips reported a fourth-quarter 2020 loss of $0.8 billion, or ($0.72) per share, compared with fourth-quarter 2019 earnings of $0.7 billion, or $0.65 per share. Excluding special items, fourth-quarter 2020 adjusted earnings were a loss of $0.2 billion, or ($0.19) per share, compared with fourth-quarter 2019 adjusted earnings of $0.8 billion, or $0.76 per share. Special items for the current quarter were primarily due to non-cash impairments related to the Alaska North Slope Gas asset and non-core assets in Lower 48, in addition to exploration-related expenses in Other International, partially offset by an unrealized gain on Cenovus Energy equity.

Full-year 2020 earnings were a loss of $2.7 billion, or ($2.51) per share, compared with full-year 2019 earnings of $7.2 billion, or $6.40 per share. Excluding special items, full-year 2020 adjusted earnings were a loss of $1.0 billion, or ($0.97) per share, compared with full-year 2019 adjusted earnings of $4.0 billion, or $3.59 per share.

“I want to thank our workforce for their efforts in the face of a most challenging year,” said Ryan Lance, chairman and chief executive officer. “Throughout 2020, they protected each other, helped mitigate the spread of COVID-19 and safely executed our business as we adapted to changing market conditions. There was nothing easy about 2020, but the lessons from the year served to strengthen our conviction that ConocoPhillips offers the right value proposition for this volatile business -- free cash flow generation, a strong balance sheet, commitment to differential returns of and on capital and ESG leadership.

“Despite the significant industry-wide downturn in 2020, we successfully delivered this value proposition and remain committed to it. As we enter 2021, our ability to lead the sector in value creation is enhanced by the recent Concho acquisition that creates a best-in-class competitor of scale to thrive in the new energy future.”

Full-Year 2020 Summary and Recent Announcements
- Enhanced both our portfolio and financial framework through the acquisition of Concho in an all-stock transaction, as well as purchasing bolt-on acreage in Canada and Lower 48.
- Full-year production, excluding Libya, of 1,118 MBOED; curtailed approximately 80 MBOED during the year.
- Cash provided by operating activities was $4.8 billion. Excluding working capital, cash from operations (CFO) of $5.2 billion exceeded capital expenditures and investments of $4.7 billion, generating free cash flow of $0.5 billion.
- Generated $1.3 billion in disposition proceeds from non-core asset sales.
- Distributed $1.8 billion in dividends and repurchased $0.9 billion of shares, representing a 53 percent return of CFO to shareholders.
- Ended the year with cash, cash equivalents and restricted cash totaling $3.3 billion and short-term investments of $3.6 billion, equaling $6.9 billion in ending cash and short-term investments.
- Announced two significant discoveries in Norway and achieved first production at Tor II; continued appraisal drilling and started up first pads and related infrastructure in Montney.
- Adopted a Paris-aligned climate risk framework with ambition to achieve net-zero operated emissions by 2050 as part of our commitment to ESG excellence.

Quarterly Dividend
ConocoPhillips announced a quarterly dividend of 43 cents per share, payable March 1, 2021, to stockholders of record at the close of business on Feb. 12, 2021.

Fourth-Quarter Review
- Production excluding Libya for the fourth quarter of 2020 was 1,144 thousand barrels of oil equivalent per day (MBOED), a decrease of 145 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions, fourth-quarter 2020 production decreased 88 MBOED or 7 percent from the same period a year ago. This decrease was primarily due to normal field decline partially offset by new production from the Lower 48 and other development programs across the portfolio. Production from Libya averaged 25 MBOED.
- In the Lower 48, production averaged 395 MBOED including Eagle Ford of 183 MBOED, Bakken of 94 MBOED and Permian of 88 MBOED. At Montney, the first phase of development continued as drilling and completion operations progressed as planned, with the third pad on track to come on line in the first quarter of 2021. In Norway, in addition to achieving first oil at Tor II, the company made two significant discoveries with an estimated total resource of between 125 million and 390 million barrels of oil equivalent (BOE). In China, first oil was achieved at Bohai Phase 4A.

- Earnings decreased from fourth-quarter 2019 due to lower realized prices and reduced volumes, as well as non-cash impairments in Alaska and Lower 48. These decreases were partially offset by the increase in Cenovus Energy equity market value. Excluding special items, adjusted earnings were lower compared with fourth-quarter 2019 due to lower realized prices and reduced volumes, partially offset by a decrease in operating costs associated with reduced volumes. The company’s total average realized price was $33.21 per BOE, 29 percent lower than the $47.01 per BOE realized in the fourth quarter of 2019, reflecting lower marker prices.

- For the quarter, cash provided by operating activities and CFO was $1.7 billion. CFO included a benefit of $0.15 billion primarily due to favorable outcomes on dispute settlements, which were offset in operating working capital. The company funded $1.1 billion of capital expenditures and investments, paid $0.5 billion in dividends, repurchased $0.2 billion of shares and reported $0.4 billion in net sales of investments in financial instruments.

Full-Year Review
Production excluding Libya for 2020 was 1,118 MBOED. After adjusting for closed acquisitions and dispositions as well as estimated curtailments of approximately 80 MBOED, of which 55 MBOED were in the Lower 48, production for 2020 would have been 1,176 MBOED. This represents a 15 MBOED decrease from 2019. This decrease was primarily due to normal field decline partially offset by new production from the Lower 48 and other development programs across the portfolio. Production from Libya averaged 9 MBOED in 2020 as operations remained in force majeure for most of the year.

The company’s total realized price for 2020 was $32.15 per BOE, compared with $48.78 per BOE in 2019. This 34 percent reduction reflected lower marker prices.

In 2020, cash provided by operating activities was $4.8 billion. Excluding a $0.4 billion change in operating working capital, ConocoPhillips generated CFO of $5.2 billion. The company generated $1.3 billion in disposition proceeds, funded $4.7 billion of capital expenditures and investments (including bolt-on acquisitions of approximately $0.5 billion) and paid dividends of $1.8 billion. The company also repurchased shares of $0.9 billion and reported $0.7 billion in net purchases of investments in financial instruments.

Reserves Update
Preliminary 2020 year-end proved reserves are approximately 4.5 billion BOE. The total reserve replacement ratio, including market factors and closed acquisitions and dispositions, is expected to be negative 86 percent.

Reserve changes excluding market factors and closed acquisitions and dispositions are expected to add 0.3 billion BOE, resulting in an organic reserve replacement ratio of approximately 65 percent. Market factors represent the use of historical 12-month pricing in measuring proved reserves as prescribed by Securities and Exchange Commission (SEC) guidelines and reduced reserves by 0.6 billion BOE.

Outlook
On Jan. 15, 2021 ConocoPhillips closed the acquisition of Concho. That milestone initiated the process of fully integrating the company and developing forward-looking estimates for the combined entity, including customary guidance items for 2021. The company expects to provide additional guidance in March but is providing an outlook for expected combined company operating plan capital and annual production volumes at this time.

The company has set a 2021 operating plan capital budget of $5.5 billion. This includes $5.1 billion to sustain current production and $0.4 billion for investment in major projects, primarily in Alaska, in addition to ongoing exploration appraisal activity.

The operating plan capital budget of $5.5 billion is expected to maintain flat production as compared to 2020 pro forma production of approximately 1.5 million BOED. 2020 pro forma production assumes Concho reported production for the nine months ended Sep. 30, 2020 and ConocoPhillips full year production adjusted for Libya, closed dispositions and impact from curtailments.

Lance commented, “While the industry fundamentals have strengthened off the 2020 lows, we believe setting a sustaining capital program for 2021 is the right approach for our company. It clearly demonstrates our commitment to free cash flow generation and creates flexibility to return additional capital to shareholders at higher prices. Most importantly, the closing of the Concho transaction clears the way for us to begin comprehensive integration and optimization efforts across every part of our business. It’s early days post-closing, but our organization is working diligently to ensure we emerge from the integration as the strongest competitor in the business. We have already sourced the capital and cost reductions we announced at the time of the deal and now see a path to outperforming those expectations.”

Lance continued, “To put our current expectations into perspective, in 2019 the two companies’ combined pro forma 2019 adjusted operating costs were approximately $7 billion. We anticipate entering 2022 at an annual adjusted operating cost run rate of approximately $6 billion. Of this $1 billion reduction, approximately $0.4 billion was driven by actions taken by both companies prior to the deal announcement, with the remaining to be realized through cost reductions to be implemented in conjunction with the transaction. When combined, the $1 billion in lower annual expenses represents a major value upgrade for the new company and greatly enhances the competitiveness of our free cash flow generation capability. This is even more powerful considering that the 2022 run rate assumes roughly the same production level as 2019. We look forward to providing additional detail and periodic updates on the progress of these efforts during the coming months.”


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