ConocoPhillips — Q3 2021 Form 10-Q
Business context and period. This unaudited quarterly filing covers the three and nine months ended September 30, 2021. ConocoPhillips is a global independent exploration and production company operating in 14 countries. Results include Concho Resources from its January 15, 2021 acquisition.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales and other operating revenues | $11.326B | $4.386B | $30.708B | $13.293B |
| Total revenues and other income | $11.616B | $4.380B | $32.386B | $13.207B |
| Net income (loss) attributable to ConocoPhillips | $2.379B | $(450)M | $5.452B | $(1.929)B |
| Diluted earnings (loss) per share | $1.78 | $(0.42) | $4.09 | $(1.79) |
| Net cash provided by operating activities | $4.8B | Not stated clearly for the quarter | $11.128B | $3.130B |
| Capital expenditures and investments | $1.3B | Not stated clearly for the quarter | $3.767B | $3.657B |
Management attributed the earnings recovery principally to higher realized commodity prices and higher sales volumes, including Concho production and the absence of prior-year curtailments. Q3 total production was 1.544 million BOE per day, up 45% year over year; average realized price was $56.92 per BOE versus $30.94. Brent averaged $73.47 per barrel and Henry Hub natural gas $4.02 per MMBTU.
At September 30, cash and cash equivalents were $9.833B, short-term investments $678M, and total debt $19.668B, compared with $15.369B at December 31, 2020. Total debt to capital was 31%, versus 34%. Current assets were $20.181B and current liabilities $10.449B. The company reported approximately $16.5B of liquidity, including $6.0B of available revolving-credit capacity.
For the first nine months, the company paid $1.750B in dividends and repurchased $2.224B of shares. It reported a 35% effective tax rate for the nine-month period, compared with 8% in 2020.
Material changes versus the prior comparable period
- Revenue and earnings rose sharply as oil and gas prices recovered from 2020 levels; nine-month operating cash flow increased to $11.1B from $3.1B.
- Production increased with the Concho acquisition and recovery from North American curtailments. On a basis adjusted for acquisitions, dispositions, and curtailments, Q3 production excluding Libya rose 2% year over year.
- Concho added substantial Lower 48 assets and $4.7B of debt at acquisition-date fair value. Total debt increased to $19.7B from $15.4B at year-end.
- Q3 included a $17M after-tax gain on Cenovus Energy shares, compared with a $162M loss a year earlier. For nine months, the corresponding gain was $743M versus a $1.302B loss.
- Comparisons also reflect unusual 2020 items, including a $597M after-tax gain from the Australia-West divestiture, and 2021 restructuring, acquisition, and acquired-derivative costs.
Outlook, management commentary, risks and unusual items
- Guidance: Q4 2021 production is expected at 1.53–1.57 million BOE per day, excluding Libya and pending acquisitions. Full-year capital spending guidance was $5.3B, excluding the Shell acquisition; 2021 DD&A guidance was reduced by $0.3B to $7.1B following reserve revisions.
- Capital allocation and transactions: The company planned approximately $6B of 2021 shareholder distributions and raised its quarterly dividend 7% to $0.46 per share. It stated an intention to reduce gross debt by $5B over five years and target $4–$5B of asset-sale proceeds by 2023. The planned $9.5B all-cash Shell Permian acquisition was expected to close in Q4, subject to approvals and customary conditions; a $475M deposit had been paid.
- Unusual costs and accounting effects: Nine-month Concho-related transaction and restructuring costs were $366M before tax ($157M and $209M, respectively). The company also recorded $305M of losses on acquired Concho derivatives and paid $761M to settle those positions during the first half. These items affected comparability.
- Market and execution risks: Management described commodity prices as cyclical and volatile and noted that demand had not yet returned to pre-pandemic levels. Production and cash flow remain exposed to prices, operational disruptions, field decline, weather, political instability, and regulatory changes.
- Acquisition and legal contingencies: Shell closing and integration benefits are uncertain; the filing warns that failure to close under specified circumstances could result in forfeiture of the deposit. The company is pursuing an $8.5B-plus-interest ICSID award against Venezuela, whose enforcement stay was lifted in September 2021; collection remains uncertain. It also reported climate-related and Louisiana coastal litigation, among other claims, and said the Barossa $200M FID bonus remained unpaid and subject to arbitration.
- Climate commitments: The company set a target to reduce gross-operated and net-equity operational emissions intensity 40–50% from 2016 levels by 2030, with a net-zero operational emissions ambition for 2050. These are targets, not guaranteed outcomes.
Important facts for investors to verify
- Whether the Shell Permian transaction closed as expected, its final purchase price, funding impact, and realized integration benefits.
- Whether commodity prices, production, and operating cash flow support the company’s stated production, capital-spending, and shareholder-return plans.
- Progress toward debt reduction and planned asset-sale proceeds, including the pace and value of remaining Cenovus share sales.
- Cash recovery, timing, and enforceability of the Venezuela awards and the disputed Barossa payment.
- Developments in climate, environmental, and other litigation, along with any resulting financial exposure.