CONOCOPHILLIPS annual report, FY2020

ConocoPhillips — 2020 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; the provided text does not give a clear standalone fourth-quarter income statement.

Business context

ConocoPhillips is an independent exploration and production company operating across six geographic segments and 15 countries. At year-end it reported approximately 9,700 employees and $62.6 billion in total assets. Its portfolio includes North American unconventional and conventional production, oil sands, LNG and international assets.

Financial and operating performance

Metric20202019
Sales and other operating revenues$18.8 billion$32.6 billion
Net income (loss) attributable to ConocoPhillips($2.7 billion)$7.2 billion
Cash provided by operating activities$4.8 billion$11.1 billion
Capital expenditures and investments$4.7 billion$6.6 billion
Year-end cash and cash equivalents$3.0 billion$5.1 billion
Short-term investments$3.6 billion$3.0 billion
Total debt$15.4 billion$14.9 billion
Total equity$29.8 billion$35.1 billion
Average production1,127 MBOED1,348 MBOED
Average realized price$32.15 per BOE$48.78 per BOE

Available liquidity at year-end exceeded $12 billion, including cash, short-term investments and $5.7 billion of available credit-facility capacity. The company reported a 34% debt-to-capital ratio, compared with 30% in 2019. It paid $1.8 billion in dividends and repurchased $892 million of shares. No single consolidated operating margin is stated in the provided filing text.

Material changes versus 2019

  • Revenue fell 42%; the company moved from $7.2 billion of attributable net income to a $2.7 billion loss. Operating cash flow declined 57%.
  • Management attributed the deterioration principally to lower commodity prices, lower sales volumes, asset dispositions and production curtailments, as well as the absence of the prior-year U.K. sale gain and PDVSA settlement income.
  • Brent averaged $41.68 per barrel versus $64.30; WTI averaged $39.37 versus $57.02. Worldwide realized crude oil price fell to $39.54 per barrel from $60.99; realized bitumen price fell to $8.02 from $31.72.
  • Production declined 16%, reflecting field decline, divestitures, approximately 80 MBOED of full-year curtailments and reduced Libyan output. Lower production and operating expenses partly offset weaker prices and volumes.
  • ConocoPhillips reported $813 million of pre-tax impairments and significant exploration charges, including an $828 million pre-tax write-off of the Alaska North Slope Gas asset. Management cited total after-tax impairments of proved and unproved properties of $1.3 billion.
  • Proved reserves fell to 4.459 billion BOE from 5.262 billion BOE. Reserve replacement was negative 86%, with lower prices accounting for a substantial portion of the reduction.

Outlook, commentary and risks

  • In February 2021, management guided to $5.5 billion of operating-plan capital for the combined company and approximately 1.5 MMBOED of 2021 production, excluding Libya. The plan includes $5.1 billion to sustain production and $0.4 billion for major projects.
  • The Concho acquisition closed January 15, 2021, after the reporting period. The all-stock transaction was valued at $13.1 billion; ConocoPhillips issued approximately 286 million shares and assumed Concho debt recorded at $4.7 billion fair value. Management expects approximately $750 million of annual cost and capital savings by 2022; realization and integration remain uncertain.
  • Management expects commodity prices to remain cyclical and volatile. Key exposures include COVID-19-related demand uncertainty, supply decisions, field decline, reserve revisions, operating and transportation disruptions, geopolitical events and regulatory or climate-transition costs.
  • The company adopted a climate 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.
  • PDVSA had defaulted on remaining payments under a settlement; ConocoPhillips reported collecting approximately $754 million of the approximately $2 billion settlement. A separate Venezuela ICSID award stood at $8.5 billion plus interest, with annulment proceedings underway and no collections reported.
  • Environmental, climate-related and other litigation is ongoing. Management stated known contingency exposures were not expected to exceed current accruals by a material amount, while noting outcomes cannot be predicted with certainty.
  • The company expected significant, not-yet-quantified 2021 Concho-related restructuring and transaction costs, with most expected in the first quarter.

Important facts for investors to verify

  • Review the full financial statements and notes for the composition and cash-flow effects of the impairments, exploration charges, tax benefit and Cenovus investment loss.
  • Assess liquidity and leverage after incorporating Concho’s assumed debt, integration costs, and the combined company’s capital and production plans.
  • Track commodity prices, production restoration and decline, reserve revisions, and whether the 2021 production and savings expectations are achieved.
  • Monitor recovery of PDVSA amounts, the ICSID award proceedings, and material environmental, climate and other litigation developments.
  • Evaluate dividend and repurchase capacity against operating cash flow, capital requirements and debt service; repurchases were suspended around the Concho transaction and resumed in February 2021.