Business context and reporting period
ConocoPhillips’ Form 10-K covers the fiscal year ended December 31, 2015. The company is a global exploration and production business operating in 21 countries. Results reflect continuing operations; the downstream business had been separated into Phillips 66 in 2012.
Financial and operating performance
| Metric | 2015 | 2014 |
|---|---|---|
| Sales and other operating revenues | $29.564 billion | $52.524 billion |
| Income (loss) from continuing operations | $(4.371) billion | $5.807 billion |
| Net income (loss) attributable to ConocoPhillips | $(4.428) billion | $6.869 billion |
| Net cash from continuing operating activities | $7.572 billion | $16.412 billion |
| Capital expenditures and investments | $10.050 billion | $17.085 billion |
| Cash and cash equivalents at year-end | $2.368 billion | $5.062 billion |
| Total debt | $24.880 billion | $22.565 billion |
| Total equity | $40.082 billion | $52.273 billion |
| Debt to capital | 38% | 30% |
- Revenue fell 44%, primarily due to lower prices. Average realized price was $34.34 per BOE, down 47% from $64.59. Average realized crude oil, natural gas liquids, natural gas and bitumen prices declined 48%, 54%, 40% and 66%, respectively.
- Continuing-operations production averaged 1,589 MBOED, up from 1,540 MBOED in 2014 as reported (which included Libya); excluding Libya, production increased 4% from 1,532 MBOED. Growth from new developments and improved well performance was partly offset by field decline.
- Reported impairments were $2.245 billion, compared with $856 million in 2014. Exploration expense rose to $4.192 billion from $2.045 billion, including dry-hole and unproved-property charges. A $1.502 billion noncash impairment was recorded on the APLNG equity investment.
- Proved reserves totaled 8.180 billion BOE, down from 8.906 billion BOE. Total reserve replacement was negative 19%; organic reserve replacement, excluding purchases and sales, was 10%.
- Cash from operations declined 54%. The company spent $3.664 billion on dividends and received $1.952 billion from asset dispositions. Cash decreased by $2.694 billion during the year.
- At year-end, current assets were $8.789 billion and current liabilities were $9.256 billion. The company reported $6.2 billion of available borrowing capacity under its revolving credit facility, with $803 million of Qatar-program commercial paper outstanding.
Material changes, outlook and key risks
- In February 2016, management reduced 2016 capital-spending guidance to $6.4 billion from the previously announced $7.7 billion, 37% below 2015 actual spending. The company expects 2016 production to be flat with 2015’s 1,525 MBOED guidance baseline, excluding the full-year effect of completed dispositions; first-quarter guidance was 1,540–1,580 MBOED.
- The quarterly dividend was cut to $0.25 per share from $0.74, effective for the March 2016 payment. Management cited balance-sheet strength and financial flexibility. The board retains discretion over future dividends.
- Management targeted up to $1 billion in annual proceeds from ongoing non-core asset sales. The company also reported approximately $2 billion of completed 2015 dispositions and a $1 billion operating-cost reduction target versus 2014 achieved a year ahead of schedule.
- Management cited prolonged low and volatile commodity prices as the principal risk to earnings, cash flow, liquidity, reserves and asset values, and said further impairments were reasonably likely if prices remained weak. Other risks include operating and environmental incidents, regulation and climate policy, political instability, joint-venture execution, counterparties and access to capital.
- Material unusual items included the APLNG impairment, substantial exploration and dry-hole charges, U.K. and Canadian tax-law effects, restructuring and pension-settlement expenses, and gains and losses on asset sales. APLNG had drawn $8.4 billion of project financing; ConocoPhillips’ completion guarantee exposure was estimated at up to $3.2 billion.
- Other notable exposures include $9.911 billion of asset-retirement obligations and unresolved arbitrations involving Venezuela and Ecuador. Management stated known contingent exposures were not expected to have a material adverse effect on consolidated financial position. The financial-statement audit opinion was unqualified, and management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether production and cash generation can support the 2016 outlook under continued low commodity prices, and whether the reduced capital budget is achievable.
- The assumptions and valuation behind the APLNG impairment, project-finance guarantees, completion milestones and expected Train 2 startup.
- Further reserve revisions, impairment charges and the economics of proved undeveloped reserves, especially in oil sands and Lower 48 assets.
- Debt maturities, refinancing plans, credit-rating developments, available liquidity and the sustainability of the reduced dividend.
- Timing and proceeds from planned asset sales, and potential outcomes or recoveries from Venezuela, Ecuador and other legal or tax matters.