ConocoPhillips — 2022 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2022, filed February 16, 2023. ConocoPhillips is an independent exploration and production company operating in 13 countries, managed through six geographic segments. Production averaged 1.738 million barrels of oil equivalent per day (MMBOED). The filing is an annual report, not a standalone fourth-quarter report.
Key financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Sales and other operating revenues | $78.494 billion | $45.828 billion |
| Net income attributable to ConocoPhillips | $18.680 billion | $8.079 billion |
| Diluted earnings per share | $14.57 | $6.07 |
| Cash provided by operating activities | $28.314 billion | $16.996 billion |
| Capital expenditures and investments | $10.159 billion | $5.324 billion |
| Total debt | $16.643 billion | $19.934 billion |
| Cash and cash equivalents | $6.458 billion | $5.028 billion |
| Short-term investments | $2.785 billion | $0.446 billion |
| Total assets | $93.829 billion | $90.661 billion |
| Total production | 1.738 MMBOED | 1.567 MMBOED |
| Worldwide average realized price | $79.82/BOE | $54.63/BOE |
Calculated net income margin was approximately 23.8% of sales and other operating revenues, compared with approximately 17.6% in 2021. The effective tax rate was 33.8%. Year-end liquidity was approximately $14.8 billion, comprising cash, short-term investments and $5.5 billion of available revolving-credit capacity. Total debt to capital declined to 26% from 31%.
Material changes versus the prior comparable period
- Sales and other operating revenues rose approximately 71%, net income rose approximately 131%, and operating cash flow increased approximately 67%, primarily reflecting higher realized commodity prices and higher sales volumes.
- Production increased 11%, mainly from the Shell Permian acquisition, additional APLNG ownership, and development activity. Excluding specified acquisition, divestiture, accounting-basis and prior-year weather effects, production declined 1% year over year, principally due to Lower 48 weather and downtime late in 2022.
- Brent and WTI averaged $101.19 and $94.23 per barrel, respectively, versus $70.73 and $67.92 in 2021. Henry Hub averaged $6.65/MMBTU versus $3.85. The company’s worldwide realized price rose 46%.
- Debt fell $3.3 billion through repayments, refinancing and maturities. Share repurchases rose to $9.3 billion from $3.6 billion; dividends and variable return of cash (VROC) totaled $5.7 billion in 2022.
- Portfolio changes included acquiring an additional 10% of APLNG, increasing ownership to 47.5%; selling the Indonesia business; and divesting Lower 48 noncore assets. The Indonesia sale generated a $534 million pretax gain.
Outlook, management commentary, risks and unusual items
- For 2023, management guided to production of 1.76–1.80 MMBOED and operating-plan capital expenditures of $10.7–$11.3 billion, including $1.6–$2.0 billion for major projects such as Qatar LNG, Port Arthur LNG and Willow. First-quarter production guidance was 1.72–1.76 MMBOED.
- Management describes its priorities as responsibly meeting energy demand, delivering competitive returns, maintaining balance-sheet strength and pursuing net-zero operational emissions by 2050. It targets a 40–50% reduction in GHG emissions intensity by 2030 from a 2016 baseline and set a 2030 methane-intensity target of approximately 0.15% of gas produced.
- Commodity prices remain the principal earnings and cash-flow sensitivity; management stated the company was unhedged and expects prices to remain cyclical and volatile. Other material risks include inflation and supply constraints, operational and weather disruptions, joint-venture dependence, permitting and environmental regulation, climate-related litigation, political and geopolitical events, and cybersecurity incidents.
- Notable items affecting comparisons include a $515 million tax benefit from closing the 2017 U.S. federal tax audit, the Indonesia divestiture gain, and the absence of a $688 million after-tax APLNG impairment recorded in 2021. The filing also reports higher exploration expense, including impairment of aged suspended wells in Canada and dry-hole costs from Norway exploration.
- Environmental remediation accruals were $182 million; asset retirement obligations were $6.380 billion. The company reported pending climate-related and Louisiana coastal claims, among other litigation, and said outcomes and potential exposure are uncertain. Venezuela-related matters include an ICSID award of approximately $8.5 billion plus interest and a separate PDVSA settlement in default; collections on the latter were approximately $774 million to date. Recovery timing and collectability are uncertain.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified asset retirement obligations for certain offshore properties and DD&A based on proved-reserve estimates as critical audit matters.
Investor facts to verify
- How much of 2022’s earnings and cash generation is sustainable at lower commodity prices, given the company’s unhedged exposure and the high-price environment.
- Whether the 2023 production and capital-spending plans are achieved, particularly amid weather, downtime, inflation and major-project execution risks.
- Capital-return levels and debt-reduction progress; dividends, VROC and repurchases remain subject to Board discretion and market conditions.
- Project milestones, financing and final investment decisions for Port Arthur LNG and Qatar developments, as well as the timing and cost of Alaska’s Willow project.
- Potential financial effects and collection prospects for Venezuela-related awards, climate and coastal litigation, environmental obligations and other contingencies.