KEYFACT Energy
ConocoPhillips this week reported fourth-quarter 2019 earnings of $0.7 billion, or $0.65 per share, compared with fourth-quarter 2018 earnings of $1.9 billion, or $1.61 per share. Excluding special items, fourth-quarter 2019 adjusted earnings were $0.8 billion, or $0.76 per share, compared with fourth-quarter 2018 adjusted earnings of $1.3 billion, or $1.13 per share. Special items for the current quarter included primarily a non-cash impairment related to a planned Lower 48 disposition, partially offset by an unrealized gain on Cenovus Energy equity.
Full-year 2019 earnings were $7.2 billion, or $6.40 per share, compared with full-year 2018 earnings of $6.3 billion, or $5.32 per share. Excluding special items, full-year 2019 adjusted earnings were $4.0 billion, or $3.59 per share, compared with full-year 2018 adjusted earnings of $5.3 billion, or $4.54 per share.
Full-Year 2019 Summary
- Cash provided by operating activities was $11.1 billion. Excluding working capital, cash from operations (CFO) of $11.7 billion exceeded capital expenditures and investments, generating free cash flow of more than $5 billion.
- Repurchased $3.5 billion of shares and paid $1.5 billion in dividends fully funded from free cash flow, representing a return of 43 percent of CFO to shareholders.
- Increased the quarterly dividend by 38 percent to 42 cents per share.
- Achieved 100 percent total reserve replacement and 117 percent organic reserve replacement.
- Full-year production, excluding Libya, of 1,305 MBOED; underlying production grew 5 percent.
- Increased full-year Lower 48 Big 3 production by 22 percent.
- Executed successful Alaska appraisal program; conducted appraisal drilling and commissioned infrastructure at Montney in Canada.
- Completed Lower 48, Alaska and Argentina acquisitions; awarded a new 20-year Indonesia Corridor Block production sharing contract (PSC).
- Generated $3 billion in disposition proceeds; entered into agreements to sell Australia-West assets for $1.4 billion and Niobrara for $0.4 billion, both subject to customary closing adjustments, as well as regulatory and other approvals.
- Reduced asset retirement obligations by $2.3 billion primarily from closed and pending dispositions.
- Ended the year with cash, cash equivalents and restricted cash totaling $5.4 billion and short-term investments of $3 billion, equaling $8.4 billion of ending cash and short-term investments.
- Achieved 11 percent return on capital employed.
“Strong 2019 performance capped off a highly successful three-year period in which we transformed our business model and significantly improved our underlying performance drivers across the company,” said Ryan Lance, chairman and chief executive officer. “We’ve positioned ConocoPhillips to deliver sustained value through price cycles due to our strong balance sheet, focus on free cash flow generation, compelling returns of and returns on capital and our commitment to environmental, social and governance leadership. We have laid out a powerful 10-year plan based on our formula for value creation and we look forward to successfully delivering that plan in the quarters and years ahead.”
Reserves Update
Preliminary 2019 year-end proved reserves are approximately 5.3 billion barrels of oil equivalent (BOE), with total reserve replacement of 100 percent, including a net decrease of approximately 0.1 billion BOE from closed dispositions related largely to the United Kingdom divestiture.
Excluding disposition impacts, organic reserve replacement is 117 percent. Approximately 50 percent of organic reserve additions are from Lower 48 unconventional assets. The remaining additions were evenly spread across the other operating segments.
Final information related to the company’s 2019 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 Securities and Exchange Commission in February.
Fourth-Quarter Review
Production excluding Libya for the fourth quarter of 2019 was 1,289 thousand barrels of oil equivalent per day (MBOED), a decrease of 24 MBOED from the same period a year ago. Adjusting for closed dispositions and acquisitions, underlying production increased 24 MBOED primarily due to production growth from the Big 3, development programs and major projects in Alaska, Europe and Asia Pacific. This growth more than offset normal field decline. Production from Libya averaged 45 MBOED.
In the Lower 48, production from the Big 3 averaged 387 MBOED, including Eagle Ford of 221 MBOED, Bakken of 96 MBOED and Permian Unconventional of 70 MBOED. In Alaska, the company completed drilling a horizontal appraisal well into the recently discovered Narwhal trend. In Canada, the Surmont alternative diluent project started up, providing the flexibility to use both condensate and synthetic crude for bitumen blending. Additionally, in Indonesia a new 20-year Corridor Block PSC was awarded, extending the term to 2043.
Earnings decreased from fourth-quarter 2018 due to the absence of a gain on sale of partial interest in the United Kingdom Clair Field in 2018, as well as a non-cash impairment related to the pending sale of Niobrara, lower realized prices and reduced volumes as a result of dispositions. These decreases were partially offset by the change in Cenovus Energy equity market value. Excluding special items, adjusted earnings were lower compared with fourth-quarter 2018 due to lower realized prices and volumes. The company’s total realized price was $47.01 per BOE, 11 percent lower than the $53.00 per BOE realized in the fourth quarter of 2018, reflecting lower marker prices.
For the quarter, cash provided by operating activities was $3 billion. Excluding a $0.3 billion change in operating working capital, ConocoPhillips generated CFO of $2.7 billion. CFO did not include a quarterly payment required by the PDVSA International Chamber of Commerce (ICC) settlement. Capital expenditures and investments totaled $1.6 billion, share repurchases were $0.7 billion, and dividends were $0.5 billion.
Full-Year Review
Production excluding Libya for 2019 was 1,305 MBOED, a 63 MBOED increase from 1,242 MBOED in 2018. Adjusting for closed dispositions and acquisitions, underlying production increased 59 MBOED primarily due to growth from the Big 3, development programs and major projects in Alaska, Europe and Asia Pacific. This growth more than offset normal field decline. Production from Libya averaged 43 MBOED in 2019.
The company’s total realized price for 2019 was $48.78 per BOE, 9 percent lower than the $53.88 per BOE realized in 2018. This reduction reflected lower price realizations for crude, natural gas liquids and natural gas, partially offset by higher price realizations for bitumen and liquefied natural gas.
In 2019, cash provided by operating activities was $11.1 billion. Excluding a $0.6 billion change in operating working capital, ConocoPhillips generated $11.7 billion in CFO, exceeding the total of $6.6 billion in capital expenditures and investments, $3.5 billion in share repurchases and $1.5 billion in dividends. CFO included $325 million collected through September from the PDVSA ICC settlement. Capital expenditures and investments included approximately $0.3 billion primarily for acquisitions in Lower 48 and Alaska, as well as for the Indonesia PSC award. The company also generated $3 billion in disposition proceeds and purchased $2.9 billion of short-term and long-term financial instruments. This resulted in a year-end balance of $5.4 billion in cash, cash equivalents and restricted cash, as well as $3 billion in short-term investments.
Outlook
The company’s 2020 operating plan capital guidance is $6.5 billion to $6.7 billion. The plan includes funding for ongoing development drilling programs, major projects, exploration and appraisal activities, as well as base maintenance. Capital spend is expected to be higher in the first quarter largely from winter construction and exploration and appraisal drilling in Alaska. Guidance does not include capital for acquisitions.
The company’s 2020 production guidance is 1,230 MBOED to 1,270 MBOED, including the impact of a recent third-party pipeline outage on the Kebabangan Field in Malaysia. First-quarter 2020 production is expected to be 1,240 MBOED to 1,280 MBOED. Production guidance excludes Libya.
Guidance for 2020 operating cost is $5.9 billion; adjusted corporate segment net expense is $1 billion; depreciation, depletion and amortization is $6 billion; and exploration dry hole and leasehold impairment expense is $0.1 billion. Guidance excludes potential special items.