Business context and reporting period
ConocoPhillips is an independent exploration and production company operating in 15 countries. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods unless noted. Results reflect the COVID-19 demand shock, oil-market disruption, production curtailments and asset sales.
Financial and operating performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Sales and other operating revenues | $4.386B | $7.756B | $13.293B | $24.859B |
| Net income (loss) attributable to ConocoPhillips | $(450)M | $3.056B | $(1.929)B | $6.469B |
| Diluted EPS | $(0.42) | $2.74 | $(1.79) | $5.72 |
| Operating cash flow | $0.9B | Not stated here | $3.130B | $8.122B |
| Capital expenditures and investments | $1.1B | Not stated here | $3.657B | $5.041B |
| Total production | 1,067 MBOED | 1,366 MBOED | 1,112 MBOED | 1,353 MBOED |
The filing does not present a consolidated operating-margin measure. Nine-month operating cash flow less capital expenditures and investments was approximately negative $527 million.
Balance sheet and liquidity
At September 30, cash and cash equivalents were $2.490B, short-term investments $4.032B, total debt $15.387B and total equity $30.783B. Debt was up from $14.895B at December 31, 2019; debt-to-capital rose to 33% from 30%. The company reported more than $12B of liquidity, including $5.7B of available revolving-credit capacity. The $6B facility expires in May 2023; $300M of commercial paper was outstanding.
Material changes versus prior period
- Q3 revenue fell about 43% and nine-month revenue about 47%; attributable earnings shifted from profit to loss in both comparisons. Management cited lower realized prices and volumes, curtailments and divestitures, alongside the absence of large 2019 U.K. sale gains.
- Nine-month operating cash flow fell to $3.130B from $8.122B, mainly due to weaker commodity prices, lower production, asset sales and the absence of PDVSA settlement receipts.
- ConocoPhillips recorded a $1.302B pretax unrealized loss on its Cenovus shares in the first nine months, versus a $489M gain in 2019; the investment was valued at $809M at quarter-end.
- Nine-month impairments were $521M, including a $511M first-quarter write-down of Lower 48 natural-gas assets. Australia-West divestiture generated a $587M pretax gain; Niobrara sale generated a $38M pretax loss.
- Production fell 22% in Q3 year over year. Adjusting for estimated curtailments, acquisitions and divestitures, and Libya, management said production would have been down 4%.
Outlook, management commentary and risks
- 2020 operating-plan capital guidance was reduced to $4.3B from an original $6.5B–$6.7B; this excludes about $0.5B of acquisition capital. Q4 production guidance is 1,125–1,165 MBOED and full-year guidance 1,115–1,125 MBOED, both excluding Libya.
- Management said voluntary curtailments ended during Q3 as prices stabilized near $40 per barrel. Q3 average realized price was $30.94/BOE, versus $47.07/BOE a year earlier. Commodity prices, demand recovery, field decline and possible further curtailments remain significant uncertainties.
- On October 19, 2020, the company announced an all-stock agreement to acquire Concho Resources, valued at $9.7B based on then-current share prices, at 1.46 ConocoPhillips shares per Concho share, and to assume about $3.9B of Concho debt. Closing was anticipated in Q1 2021, subject to approvals and other conditions. Management projected $500M of annual cost and capital savings by 2022. Certain termination scenarios could require a $450M fee or $142.5M expense reimbursement.
- Share repurchases were suspended amid the downturn and again pending the Concho transaction. The quarterly dividend was raised from $0.42 to $0.43 per share, payable December 1, 2020.
- Management announced a climate-risk framework targeting a 35%–45% reduction in operated Scope 1 and 2 emissions intensity from 2016 levels by 2030, with an ambition for net-zero operated emissions by 2050; it also supports zero routine gas flaring by 2030.
- Risks include continued COVID-19 effects, volatile oil and gas prices, potential further impairments and reserve-related DD&A increases, climate regulation and litigation, and execution, approval and integration risks related to Concho. Environmental remediation accruals were $177M.
- ConocoPhillips reported an $8.5B ICSID award plus interest against Venezuela after rectification; annulment proceedings were underway and enforcement stayed. Separately, PDVSA had defaulted on a settlement; the company reported resuming enforcement actions. Recovery and timing are uncertain.
Investor verification checklist
- Confirm the Concho transaction’s closing conditions, assumed debt, share issuance, expected savings and any changes to capital-return plans.
- Track commodity prices, production guidance, Libya restart, curtailment effects and the pace of production decline.
- Assess cash generation against capital spending, dividends, debt maturities and liquidity needs.
- Review Cenovus investment valuation, further impairment exposure and reserve/ DD&A assumptions.
- Monitor Venezuela award and settlement recoveries, climate and coastal litigation, environmental obligations, and the company’s stated climate targets.