ConocoPhillips — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; comparisons are with the corresponding 2021 periods. ConocoPhillips is an independent oil and gas exploration and production company operating in 13 countries.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted otherwise.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales and other operating revenues | $21,013 | $11,326 | $59,936 | $30,708 |
| Total revenues and other income | $21,614 | $11,616 | $62,894 | $32,386 |
| Net income | $4,527 | $2,379 | $15,431 | $5,452 |
| Diluted earnings per share | $3.55 | $1.78 | $11.93 | $4.09 |
| Cash provided by operating activities | $8.7 billion | Not stated here | $21.7 billion | $11.1 billion |
| Capital expenditures and investments | $2.5 billion | Not stated here | $7.6 billion | $3.8 billion |
- Production and pricing: Q3 production was 1.754 million BOE per day, up 14% year over year; adjusted for acquisitions, dispositions and Concho volume accounting changes, production rose 2%. Average realized price increased to $83.07 per BOE from $56.92.
- Liquidity and debt at September 30: Cash and cash equivalents were $8.0 billion and short-term investments $2.4 billion. Total debt was $17.0 billion, down from $19.9 billion at December 31, 2021. Total liquidity was $15.9 billion, including $5.5 billion of available revolving credit capacity. Debt-to-capital was 26%, versus 31% at year-end 2021.
- Cash returns: In Q3, the company returned $1.5 billion through ordinary and variable dividends and $2.8 billion through share repurchases. Nine-month repurchases totaled $6.5 billion and dividends paid totaled $3.3 billion.
- Margins: The filing does not provide a clear consolidated operating-margin figure.
Material changes and notable items
- Q3 net income increased $2.1 billion year over year, primarily on higher realized commodity prices, higher sales volumes—particularly from the Shell Permian acquisition—and increased affiliate earnings. Higher operating costs, production taxes, depreciation and income taxes partly offset the gains.
- Nine-month operating cash flow rose to $21.7 billion from $11.1 billion, primarily reflecting higher prices and volumes and the absence of 2021 cash settlements on acquired Concho hedges; higher tax and royalty payments partly offset the increase.
- Q3 production growth included Shell Permian volumes and new wells. Lower 48 production exceeded 1.0 million BOE per day. Nine-month production, after specified acquisition, disposition, accounting and weather adjustments, was down 1% year over year.
- Nine-month results included a $534 million pretax gain on the Indonesia divestiture and other disposition-related gains, plus a $515 million tax benefit following closure of an IRS audit. The company also fully sold its Cenovus shares in Q1, receiving $1.4 billion; prior-period Cenovus gains did not recur.
- The company reduced debt by about $3.0 billion through refinancing and retirements. Moody’s upgraded its long-term rating to A2 with a stable outlook; Fitch and S&P ratings were A and A-, respectively, both stable.
Outlook, management commentary and risks
- Production guidance: Q4 2022 expected production is 1.74–1.80 million BOE per day; full-year guidance remained 1.74 million BOE per day.
- Capital guidance: 2022 operating capital guidance increased to $8.1 billion from $7.8 billion, reflecting inflation and Lower 48 partner-operated well mix. It excludes approximately $1.7 billion of acquisition capital. 2022 DD&A guidance decreased to $7.5 billion from $7.6 billion.
- Management cited volatile commodity prices, the Ukraine conflict, OPEC+ actions, inflation, supply-chain disruption, changing demand and energy-transition developments as important operating and market considerations. The company said it remains unhedged and emphasizes capital discipline and balance-sheet strength.
- The company raised expected 2022 total shareholder distributions to $15 billion. In November, it declared an 11% increase in the quarterly ordinary dividend to $0.51 per share and a first-quarter 2023 variable return of cash of $0.70 per share. The share-repurchase authorization was increased from $25 billion to $45 billion in October.
- Potential Port Arthur LNG participation remains preliminary and non-binding, subject to definitive agreements, financing, construction contracts and a final investment decision. Qatar LNG joint ventures are subject to regulatory approvals.
- Risks include commodity-price and production volatility, permitting and transportation constraints, operational and geopolitical disruptions, environmental and climate regulation, and litigation. The company reported no material change to the risk factors in its 2021 Form 10-K.
- Environmental remediation accruals were $182 million. The filing describes climate and coastal claims, other litigation and unresolved Venezuela-related awards, including an ICSID award of approximately $8.5 billion plus interest and a separate PDVSA settlement in default. Timing and recoverability of Venezuela-related amounts remain uncertain.
Investor verification priorities
- Verify the assumptions behind production and capital guidance, including inflation, partner-operated activity, and potential short-term Permian takeaway constraints.
- Assess how commodity-price movements, regional gas differentials and cost inflation affect realized prices, operating costs and cash generation.
- Track execution of the $15 billion 2022 capital-return plan, the increased repurchase authorization, and the stated debt-reduction objective.
- Review the status, costs and potential outcomes of Venezuela awards, climate and coastal litigation, and environmental obligations.
- Confirm the approvals, definitive agreements and investment commitments for the proposed LNG projects and Port Arthur arrangement.