ConocoPhillips — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The interim financial statements are unaudited. ConocoPhillips is a global exploration and production company operating in 13 countries.
Financial and operating highlights
| Metric | Q1 2023 | Q1 2022 / comparator |
|---|---|---|
| Sales and other operating revenues | $14.811 billion | $17.762 billion |
| Total revenues and other income | $15.517 billion | $19.291 billion |
| Net income | $2.920 billion | $5.759 billion |
| Diluted EPS | $2.38 | $4.39 |
| Net margin, calculated as net income / sales and operating revenues | 19.7% | 32.4% |
| Cash provided by operating activities | $5.403 billion | $5.068 billion |
| Capital expenditures and investments | $2.897 billion | $3.161 billion |
| Total production | 1.792 million BOE per day | 1.747 million BOE per day |
| Average realized price | $60.86 per BOE | $76.99 per BOE |
Cash and cash equivalents were $6.974 billion and short-term investments were $1.635 billion at March 31. Total debt was $16.583 billion, versus $16.643 billion at year-end 2022; debt-to-capital was 26%. Total liquidity, including $5.5 billion of undrawn revolving credit capacity, was $14.1 billion. The company reported no commercial paper outstanding or direct borrowings under the facility.
Operating cash flow exceeded capital expenditures and investments by approximately $2.5 billion. Financing cash outflows included $1.700 billion of share repurchases and $1.488 billion of dividends paid. The company reported $7.219 billion of cash, cash equivalents and restricted cash at quarter-end in its cash flow statement.
Changes versus the prior-year quarter
- Net income fell $2.839 billion, and sales and other operating revenues declined $2.951 billion. Management cited lower commodity prices, prior-year disposition and investment gains, and the absence of a $515 million tax benefit recognized in Q1 2022. Higher production and operating costs and DD&A also weighed on earnings.
- Benchmark prices were lower: Brent averaged $81.27 per barrel, down 20%; WTI averaged $76.13, down 19%; and Henry Hub natural gas averaged $3.44 per MMBTU, down 31%.
- Production rose 45 thousand BOE per day, or 3%, to a company record. Excluding closed acquisitions and dispositions, management reported growth of 65 thousand BOE per day, or 4%, led by Lower 48 development and improved well performance.
- Operating cash flow increased $335 million, primarily due to the absence of prior-year Libya tax and royalty payments for earlier periods and higher Lower 48 sales volumes, partly offset by lower realized prices.
- Cash returns to shareholders totaled about $3.2 billion: $1.7 billion in repurchases and $1.5 billion in ordinary and variable dividends. The company invested $2.9 billion in capital expenditures and investments.
Outlook, management commentary and notable items
- Q2 2023 production guidance is 1.77–1.81 million BOE per day. Full-year guidance was raised by 10 thousand BOE per day at the midpoint to 1.78–1.80 million BOE per day; other guidance was unchanged.
- 2023 capital expenditure guidance is $10.7–$11.3 billion. Management reaffirmed expected 2023 shareholder returns of $11 billion, based on $80 WTI. This is a plan, not a guarantee.
- The company said it remains unhedged and expects commodity prices to remain cyclical and volatile. It highlighted macroeconomic conditions, demand, OPEC+ supply, weather, inflation, supply-chain constraints and geopolitical developments as factors affecting markets and cash flows.
- In March, ConocoPhillips acquired a 30% interest in the Port Arthur LNG Phase 1 joint venture and invested about $0.4 billion. It also entered into a 20-year agreement for 5 MTPA of LNG offtake when the project begins operating. Phase 1 is designed for up to 13.5 MTPA under optimal conditions.
- Management reported a positive federal record of decision for the Willow project in Alaska and commencement of construction. The company also announced plans, subject to approvals and closing conditions, to take over APLNG upstream operatorship and acquire up to an additional 2.49% interest.
- In April, the company raised its 2030 operational emissions-intensity reduction target to 50–60% from 2016 levels, from the previous 40–50% target. It retains an ambition for net-zero operational emissions by 2050.
- Environmental remediation accruals for the U.S. and Canada were $182 million. The filing describes climate-related lawsuits, Louisiana coastal claims, other litigation and environmental exposures; management says it believes known contingency costs are remote from exceeding accruals by a materially adverse amount, while noting estimates may change.
- ConocoPhillips reported an $8.5 billion Venezuela ICSID award plus interest, with annulment proceedings underway. It also reported that PDVSA had defaulted on a separate settlement; the company had received approximately $775 million related to the ICC award to date. Collection timing and outcome remain uncertain.
- The company said the Barossa bonus arbitration was resolved in April 2023 to its satisfaction. It also disclosed that tax audits could change unrecognized tax benefits within the next 12 months, with the amount not estimable and potentially significant relative to those benefits.
Most important facts for investors to verify
- Whether commodity prices, realized prices and production volumes support the updated full-year production range and planned $11 billion shareholder return.
- Execution, cost, schedule, regulatory approvals and commercial terms for Willow, Port Arthur LNG and the proposed APLNG changes.
- Progress toward the $5 billion debt-reduction target announced in 2021; management reported $3.3 billion of reductions through Q1 2023.
- Cash generation and liquidity under lower-price scenarios, including the company’s capacity to sustain capital spending, dividends and buybacks.
- Developments in Venezuela award enforcement and collection, environmental and climate litigation, Louisiana claims, and tax audits.
- The assumptions and progress underlying the accelerated emissions-intensity target and the company’s operational net-zero ambition.