ConocoPhillips (COP) reported fourth-quarter 2021 earnings of $2.6 billion, or $1.98 per share, compared with a fourth-quarter 2020 loss of $0.8 billion, or ($0.72) per share. Excluding special items, fourth-quarter 2021 adjusted earnings were $3.0 billion, or $2.27 per share, compared with a fourth-quarter 2020 adjusted loss of $0.2 billion, or ($0.19) per share. Special items for the current quarter were primarily comprised of non-cash impairments related to the company’s existing investment in APLNG and noncore assets in Lower 48, partially offset by a gain on Cenovus Energy (CVE) equity.
Full-year 2021 earnings were $8.1 billion, or $6.07 per share, compared with a full-year 2020 loss of $2.7 billion, or ($2.51) per share. Excluding special items, full-year 2021 adjusted earnings were $8.0 billion, or $6.01 per share, compared with a full-year 2020 adjusted loss of $1.0 billion, or ($0.97) per share.
In addition, ConocoPhillips today announced a $1 billion increase in expected 2022 return of capital to shareholders to a new total of $8 billion, an increase of more than 30% over 2021. The company declared both an ordinary dividend of 46 cents per share and a second-quarter variable return of cash (VROC) payment of 30 cents per share, a 50% increase over the first-quarter VROC. Combined, the targeted 2022 ordinary dividend and VROC represent a more than 50% increase in cash return to shareholders compared to 2021.
“Our strong fourth-quarter results capped a transformative year for our company as we continue to deliver on our Triple Mandate,” said Ryan Lance, ConocoPhillips chairman and chief executive officer. “During 2021, we strengthened our outstanding low cost of supply portfolio. We closed and successfully integrated the Concho acquisition while exceeding our synergy targets, acquired and began to integrate the accretive Shell Permian position into our portfolio, and announced both the sale of our Indonesia assets and acquisition of additional interest in APLNG. We generated a 14% return on capital employed and returned $6 billion, or 38% of our cash from operations, to shareholders through ordinary dividends and share repurchases, and today announced an expected $8 billion total return of capital to shareholders in 2022. We continued to advance our commitment to ESG excellence, announcing plans to further reduce both our net and gross emissions intensity by 2030. It has been a remarkable year for the company, and I could not be more proud of our employees.”
Full-Year 2021 Summary and Recent Announcements
- Announced an increase to expected 2022 return of capital to shareholders to a total of $8 billion, with the incremental $1 billion to be distributed through share repurchases and VROC tiers.
- Acquired and integrated Concho, capturing over $1 billion of savings ahead of schedule; acquired Shell’s Permian assets on Dec. 1, 2021.
- Exercised preemption right to purchase additional 10% shareholding interest in APLNG, expected to close in the first quarter of 2022.
- Generated $0.3 billion in disposition proceeds from noncore asset sales and entered into agreements to sell an additional $1.8 billion in assets, subject to customary closing adjustments.
- Delivered strong operational performance across the company’s asset base, resulting in full-year production of 1,527 MBOED, excluding Libya.
- Achieved first production from GMT2, Malikai Phase 2 and SNP Phase 2; completed Tor II project and started production from a third Montney multi-well pad.
- Generated cash provided by operating activities of $17.0 billion and cash from operations (CFO) of $15.7 billion, exceeding capital expenditures and investments of $5.3 billion, yielding free cash flow of $10.4 billion.
- Achieved 14% return on capital employed; 16% cash-adjusted return on capital employed.
- Distributed $6.0 billion to shareholders through $2.4 billion in dividends and $3.6 billion of share repurchases, representing a 38% return of CFO.
- Ended the year with cash, cash equivalents and restricted cash totaling $5.4 billion and short-term investments of $0.4 billion, totaling $5.8 billion in ending cash and short-term investments.
- Initiated paced monetization of the company’s CVE investment, generating $1.1 billion in proceeds through sale of 117 million shares, with the funds applied to share repurchases; 91 million CVE shares remained outstanding at year-end 2021.
- Advanced the company’s net-zero ambition with an increase in Scope 1 and 2 greenhouse gas emissions-intensity reduction targets to 40-50% from a 2016 baseline on a net equity and gross operated basis by 2030, from the previous target of 35-45% on only a gross operated basis.
Quarterly Dividend and Variable Return of Cash
ConocoPhillips announced a quarterly ordinary dividend of 46 cents per share, payable March 1, 2022, to stockholders of record at the close of business on Feb. 14, 2022. In addition, the company announced a second-quarter VROC of 30 cents per share, payable April 14, 2022, to stockholders of record at the close of business on March 31, 2022.
Production excluding Libya for the fourth quarter of 2021 was 1,567 thousand barrels of oil equivalent per day (MBOED), an increase of 423 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions as well as impacts from converting previously acquired Concho two-stream contracted volumes to a three-stream basis, fourth-quarter 2021 production increased by 70 MBOED, or 5% from the same period a year ago. This increase was primarily due to new production from Lower 48 and other development programs across the portfolio, partially offset by normal field decline. Production from Libya averaged 41 MBOED.
In the Lower 48, production averaged 818 MBOED, including 483 MBOED from the Permian, 213 MBOED from the Eagle Ford and 100 MBOED from the Bakken. Lower 48 ended the quarter with 20 drilling rigs and nine frac crews at work, including ongoing activity on the Permian assets acquired in the fourth quarter. In Alaska, GMT2 achieved first oil on schedule at rates in line with expectations.
Earnings and adjusted earnings increased from fourth-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 $65.56 per barrel of oil equivalent (BOE), 97% higher than the $33.21 per BOE realized in the fourth quarter of 2020, as production remains unhedged and thus realizes the full benefit of higher marker prices.
For the quarter, cash provided by operating activities was $5.9 billion. Excluding a $0.4 billion change in operating working capital, ConocoPhillips generated CFO of $5.5 billion. CFO included a $0.2 billion benefit from commercial and inventory timing, which was offset in operating working capital. Dispositions generated $0.9 billion primarily from sale of CVE shares, with the proceeds from CVE sales applied to additional share repurchases. The company completed the all-cash Shell Permian acquisition by making an $8.2 billion payment at closing, funded $1.6 billion of capital expenditures and investments, paid $0.6 billion in dividends and repurchased $1.4 billion of shares.
Production excluding Libya for 2021 was 1,527 MBOED. After adjusting for closed acquisitions and dispositions, impacts from 2020 curtailments, 2021 Winter Storm Uri and the conversion of Concho two-stream contracted volumes to a three-stream basis, production increased by 28 MBOED or 2%. This increase was primarily due to new production from Lower 48 and other development programs across the portfolio, partially offset by normal field decline. Production from Libya averaged 40 MBOED in 2021.
The company’s total realized price for 2021 was $54.63 per BOE, 70% higher than the $32.15 per BOE realized in 2020, as production remains unhedged and thus realizes the full benefit of higher marker prices.
In 2021, cash provided by operating activities was $17.0 billion. Excluding a $1.3 billion change in operating working capital, ConocoPhillips generated CFO of $15.7 billion. CFO was reduced by approximately $1.2 billion due to transaction and restructuring expenses and realized losses on the commodity hedging portfolio acquired from Concho. Dispositions generated $1.7 billion primarily from sale of CVE shares, with the proceeds from CVE sales applied to additional share repurchases. The company completed the Shell Permian acquisition for total net cash of $8.7 billion, funded capital expenditures and investments of $5.3 billion, paid dividends of $2.4 billion and repurchased shares of $3.6 billion.
Preliminary 2021 year-end proved reserves are approximately 6.1 billion BOE, with total reserve replacement of 377%, including closed acquisitions and dispositions and market factors.
Reserve changes excluding closed acquisitions and dispositions as well as market factors are expected to add 0.4 billion BOE, resulting in an organic reserve replacement ratio of approximately 68%. Market factors represent the use of historical 12-month pricing in measuring proved reserves as prescribed by Securities and Exchange Commission (SEC) guidelines that increased reserves by 0.7 billion BOE.
Final information related to the company’s 2021 oil and gas reserves, as well as costs incurred, will be provided in ConocoPhillips’ Annual Report on Form 10-K, to be filed with the SEC in February.
The company’s 2022 operating plan capital budget is $7.2 billion. The plan includes funding for ongoing development drilling programs, major projects, exploration and appraisal activities, base maintenance and $0.2 billion for projects to reduce the company’s Scope 1 and 2 emissions intensity and fund investments in several early-stage low-carbon opportunities that address end-use emissions.
The company’s 2022 production guidance is 1.8 million barrels of oil equivalent per day (MMBOED), including Libya but excluding impacts from the pending Indonesia disposition and acquisition of additional APLNG shareholding interest. First-quarter 2022 production is expected to be 1.75 MMBOED to 1.79 MMBOED, essentially flat to fourth-quarter 2021 on a pro forma basis.
Guidance for 2022 includes adjusted operating cost of $7.3 billion reflecting increased production, costs incurred following conversion of previously acquired Concho two-stream contracted volumes to a three-stream basis, and some anticipated inflation; adjusted corporate segment net loss of $1.0 billion; and depreciation, depletion and amortization of $7.9 billion. Guidance excludes potential special items.