ConocoPhillips — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results; comparisons are with the corresponding 2022 periods. ConocoPhillips is a global exploration and production company operating in 13 countries.
Financial performance
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Sales and other operating revenues | $14.25B | $21.01B | $41.41B | $59.94B |
| Net income | $2.80B | $4.53B | $7.95B | $15.43B |
| Diluted EPS | $2.32 | $3.55 | $6.54 | $11.93 |
| Net cash from operating activities | $5.4B, per management | Not stated for Q3 | $14.70B | $21.72B |
| Capital expenditures and investments | $2.5B, per management | Not stated for Q3 | $8.37B | $7.63B |
Q3 net margin was approximately 19.6%, calculated as net income divided by sales and other operating revenues; the comparable 2022 figure was approximately 21.5%. Q3 production was 1.806 million BOE per day, up 3% year over year, while the average realized price fell to $60.05/BOE from $83.07/BOE.
At September 30, cash and cash equivalents were $8.83B and short-term investments $0.62B. Total debt was $19.06B, up from $16.64B at year-end 2022; debt-to-capital was 29%, versus 26%. Total liquidity was $14.9B, including $5.5B of undrawn revolving-credit capacity. Total assets were $93.65B and equity $47.75B.
Changes versus prior comparable periods
- Q3 revenue declined about 32% and net income about 38%; nine-month revenue declined about 31% and net income about 48%.
- Management attributed lower earnings primarily to lower realized commodity prices, lower LNG affiliate earnings, higher DD&A, and higher production and operating expenses. Higher sales volumes, mainly in the Lower 48, and certain tax benefits partly offset the declines.
- Q3 production increased 52 MBOED year over year; organic growth more than offset normal decline and downtime. Lower 48 Q3 production rose to 1.083 million BOE per day.
- Nine-month operating cash flow decreased $7.0B, primarily reflecting lower commodity prices. Capital spending and investments increased about $0.7B.
Outlook, capital allocation and notable items
- Q4 2023 production guidance is 1.86–1.90 million BOE per day; full-year guidance is approximately 1.82 million BOE per day, raised from 1.80–1.81 million following the Surmont transaction. Full-year DD&A guidance increased to $8.3B from $8.2B; capital guidance remained $10.8–$11.2B.
- Management reconfirmed expected 2023 shareholder returns of $11B. In November, it announced a 14% increase in the quarterly ordinary dividend to $0.58 per share, payable December 1, 2023. From Q1 2024, ordinary dividends and VROC are planned to be paid concurrently.
- On October 4, 2023, after quarter-end, the company completed its purchase of the remaining 50% of Surmont for approximately $2.7B cash, plus contingent payments of up to approximately $0.3B. Q3 debt issuance of $2.7B was intended to fund the acquisition.
- The company reported a $92M Canadian tax benefit and a $52M Malaysia tax benefit in Q3. It also disclosed an additional $203M tax benefit expected in Q4 following an October statute-of-limitations expiry.
- Environmental remediation accruals were $187M. The company faces climate-related, environmental, royalty/tax, contract, and other litigation. Separately, it continues efforts to enforce Venezuela-related arbitration awards, including an $8.5B award plus interest; collection timing and amount are uncertain.
- Management cited volatile commodity prices, geopolitical conflicts, OPEC+ supply decisions, demand, inflation, regulation, operational disruptions and climate policy as risks. It said there were no material changes to the risk factors in its 2022 Form 10-K. A multi-year ERP implementation began in Q3; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether commodity prices and realized margins support the production and cash-flow outlook, particularly given the year-over-year decline in realized prices.
- Surmont’s post-acquisition production, costs, contingent payments and effect on debt and capital spending; the stated capital guidance excludes transaction impacts.
- Progress toward the $11B 2023 shareholder-return expectation and the sustainability of ordinary dividends and discretionary VROC.
- Cash generation relative to planned capital investment, debt obligations and shareholder distributions.
- Developments in tax audits and the realization of the disclosed benefits, as well as material changes in litigation, environmental obligations or Venezuela award recoveries.