ConocoPhillips (COP) reported third-quarter 2021 earnings of $2.4 billion, or $1.78 per share, compared with a third-quarter 2020 loss of $0.5 billion, or ($0.42) per share. Excluding special items, third-quarter 2021 adjusted earnings were $2.4 billion, or $1.77 per share, compared with a third-quarter 2020 adjusted loss of $0.3 billion, or ($0.31) per share. Special items for the current quarter included a contingent payment from Cenovus associated with the 2017 Canadian disposition and a non-cash impairment credit, partially offset by a loss on asset sales and transaction and restructuring expenses.
“This third quarter was very significant for ConocoPhillips,” said Ryan Lance, chairman and chief executive officer. “While we benefited from the constructive price environment, the quarter’s important feature was that our underlying performance achieved our ‘new’ baseline for ConocoPhillips post-Concho. The previously announced operating cost synergies have now been delivered, we continue successfully executing our core programs across every part of the business and our returns on and of capital remain peer-leading. This positive performance momentum established an exceptional platform for the pending acquisition of Shell’s Permian properties that we announced in the quarter and expect to close in the fourth quarter. This transaction will spur another phase of positive performance as we head into 2022 and further strengthen our ability to deliver our distinctive triple mandate: meet future energy demand with the lowest cost of supply production through the energy transition, deliver competitive returns and meet our net zero ambition on operational emissions. These objectives, in addition to our well-established capital allocation priorities, ideally position us to remain a sector leader in any environment.”
Third-Quarter Highlights & Recent Announcements
- Delivered strong operational performance across the company’s asset base, including successful planned maintenance turnarounds, resulting in third-quarter production of 1,507 MBOED, excluding Libya.
- Cash provided by operating activities was $4.8 billion. Excluding working capital, cash from operations (CFO) of $4.1 billion exceeded capital expenditures and investments of $1.3 billion, generating free cash flow (FCF) of $2.8 billion. CFO was reduced by approximately $0.2 billion due to non-recurring impacts further explained in the Third-Quarter Review section below.
- Distributed a total of $4.0 billion to shareholders year to date, comprised of $2.2 billion in share repurchases and $1.8 billion in dividends as part of the company’s plan to return approximately $6 billion to shareholders during 2021.
- Increased the quarterly dividend by 7% to 46 cents per share.
- Ended the quarter with combined cash, cash equivalents and restricted cash of $10.2 billion and short-term investments of $0.7 billion, totaling $10.9 billion in ending cash and short-term investments.
- As part of a commitment to ESG excellence, announced an improvement to the company’s Scope 1 and 2 greenhouse gas emissions-intensity reduction targets from a 2016 baseline to 40-50% on a net equity and gross operated basis by 2030, from the previous target of 35-45% on only a gross operated basis.
- Announced highly accretive pending acquisition of Shell Enterprises LLC’s (Shell) complementary Delaware Basin position in the Permian for $9.5 billion in cash, before customary closing adjustments.
- Generated approximately $0.2 billion in disposition proceeds from Lower 48 non-core asset sales as part of the company’s targeted dispositions. Production from the disposed assets averaged approximately 15 MBOED in the first nine months of 2021.
Production excluding Libya for the third quarter of 2021 was 1,507 thousand barrels of oil equivalent per day (MBOED), an increase of 441 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions as well as impacts from the 2020 curtailment program, third-quarter 2021 production increased 26 MBOED or 2% from the same period a year ago. This increase was primarily due to new production from the Lower 48 and other development programs across the portfolio, partially offset by normal field decline. Production from Libya averaged 37 MBOED.
In the Lower 48, production averaged 790 MBOED, including 445 MBOED from the Permian, 217 MBOED from the Eagle Ford and 95 MBOED from the Bakken. Lower 48 development progressed as planned and the quarter ended with 15 drilling rigs and seven frac crews at work. In Alaska, drilling continued at GMT2 with first oil on track for the fourth quarter of 2021. Turnarounds were successfully completed during the quarter in Alaska and the Asia Pacific region.
Earnings and adjusted earnings increased from third-quarter 2020 due to higher realized prices and volumes, partially offset by higher operating costs associated with the higher volumes. The company’s total average realized price was $56.92 per BOE, 84% higher than the $30.94 per BOE realized in the third quarter of 2020, as our production remains unhedged and thus realizes the benefit of higher marker prices.
For the quarter, cash provided by operating activities was $4.8 billion. Excluding working capital, ConocoPhillips generated CFO of $4.1 billion. CFO was reduced by approximately $0.2 billion due to expected payment timing of a previously announced dispute settlement, which was offset in operating working capital, and a discretionary pension plan contribution during the period. The company also funded $1.3 billion of capital expenditures and investments, repurchased $1.2 billion of shares, paid $0.6 billion in dividends and made a $0.5 billion deposit under terms of the Shell Permian acquisition agreement. In addition, the company reported $1.5 billion in net sales of investments in financial instruments and generated $0.6 billion in disposition proceeds.
ConocoPhillips’ nine-month 2021 earnings were $5.5 billion, or $4.09 per share, compared with a nine-month 2020 loss of $1.9 billion, or ($1.79) per share. Nine-month 2021 adjusted earnings were $5.0 billion, or $3.75 per share, compared with a nine-month 2020 adjusted earnings loss of $0.8 billion, or ($0.78) per share.
Production excluding Libya for the nine months of 2021 was 1,514 MBOED, an increase of 406 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions, as well as impacts from the 2020 curtailment program and 2021 Winter Storm Uri, production increased 17 MBOED or 1% from the same period a year ago. This increase was primarily due to new production from the Lower 48 and other development programs across the portfolio, partially offset by normal field decline. Production from Libya averaged 39 MBOED.
The company’s total realized price during this period was $50.92 per BOE, 60% higher than the $31.76 per BOE realized in the first nine months of 2020, as our production remains unhedged and thus realizes the benefit of higher marker prices.
In the first nine months of 2021, cash provided by operating activities was $11.1 billion. Excluding a $0.9 billion change in working capital, ConocoPhillips generated CFO of $10.2 billion. CFO was reduced by approximately $1.1 billion due to transaction and restructuring expenses and realized losses on the commodity hedging portfolio acquired from Concho. The company funded $3.8 billion of capital expenditures and investments, repurchased $2.2 billion of shares, paid $1.8 billion in dividends and reported $2.8 billion in net sales of investments in financial instruments. In addition, the company generated $0.8 billion in disposition proceeds.
Fourth-quarter 2021 production is expected to be 1.53 to 1.57 MMBOED, excluding Libya as well as impacts from the pending Shell Permian acquisition.
This guidance includes the impact of planned conversion of the significant majority of previously acquired Concho two-stream contracted volumes to a three-stream (crude oil, natural gas and natural gas liquids) reporting basis as Concho volumes are integrated into the company’s commercial activities. The conversion to three-stream reporting is neutral to earnings. Effective in the fourth quarter, this conversion is expected to add production of approximately 40 MBOED and increase both revenue and operating costs by roughly $70 million.
The company updated its 2021 depreciation, depletion and amortization expense guidance to $7.1 billion versus the prior guidance of $7.4 billion, reflecting positive revisions to proved reserves as a result of higher commodity prices. The company’s other guidance items are unchanged.