ConocoPhillips 2021 Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter report. ConocoPhillips is an independent exploration and production company operating in 14 countries. It completed the $13.1 billion all-stock Concho acquisition in January and the $8.7 billion cash acquisition of Shell’s Delaware Basin assets in December, materially expanding its Permian position.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Sales and other operating revenues | $45.8 billion | $18.8 billion |
| Net income (loss) attributable to ConocoPhillips | $8.08 billion | $(2.70) billion |
| Diluted earnings (loss) per share | $6.07 | $(2.51) |
| Cash provided by operating activities | $17.0 billion | $4.8 billion |
| Capital expenditures and investments | $5.3 billion | $4.7 billion |
| Total debt | $19.9 billion | $15.4 billion |
| Cash and cash equivalents | $5.0 billion | $3.0 billion |
| Short-term investments | $0.4 billion | $3.6 billion |
Reported net income margin was approximately 17.6% in 2021, calculated as net income attributable to ConocoPhillips divided by sales and other operating revenues. Production averaged 1.567 million barrels of oil equivalent per day (MMBOED), up 39% from 1.127 MMBOED, largely reflecting Concho, fewer curtailments and higher Libyan production. Excluding Libya, production averaged 1.527 MMBOED; management said adjusted production growth, accounting for acquisitions, dispositions and other specified impacts, was 2%.
Worldwide average realized price increased 70% to $54.63 per BOE. Brent averaged $70.73 per barrel versus $41.68, and Henry Hub natural gas averaged $3.85 per MMBTU versus $2.08. The filing does not provide a single company-wide operating-margin measure.
Year-end liquidity was approximately $11.5 billion, comprising cash, short-term investments and $6.0 billion of undrawn credit capacity. Debt-to-capital was 31%, compared with 34% in 2020. Shareholders received $2.4 billion in ordinary dividends and $3.6 billion in repurchases. Proved reserves increased to 6.101 billion BOE from 4.459 billion BOE, reflecting acquisitions, development, revisions and price effects.
Material changes versus 2020
- Revenue, operating cash flow and earnings recovered sharply alongside higher commodity prices and increased sales volumes. Net income swung from a $2.70 billion loss to $8.08 billion of income.
- Lower 48 production more than doubled to 780 MBOED from 385 MBOED, principally due to Concho and new wells. Lower 48 segment earnings rose to $4.93 billion from a $1.12 billion loss.
- Debt increased by $4.6 billion, mainly from debt assumed in the Concho acquisition; the Shell purchase was funded with cash.
- Exploration expense fell to $344 million from $1.46 billion, largely because significant 2020 impairments and exploration costs did not recur.
- Asia Pacific earnings declined to $453 million from $962 million, including a $688 million APLNG investment impairment and the absence of the 2020 Australia-West divestiture gain.
Outlook, commentary and risks
- For 2022, management guided to production of 1.8 MMBOED, including Libya, before the impacts of the pending Indonesia sale and proposed additional APLNG interest; first-quarter guidance was 1.75–1.79 MMBOED. The 2022 capital budget is $7.2 billion, including $0.2 billion for emissions-reduction and early-stage low-carbon initiatives.
- Management set expected 2022 shareholder returns at approximately $8 billion under a three-tier framework of ordinary dividends, repurchases and discretionary variable return of cash (VROC). These returns are subject to Board discretion and market conditions. The company also committed to reduce gross debt by $5 billion over five years.
- Management described commodity prices as cyclical and volatile, said the company was unhedged, and emphasized capital discipline, balance-sheet strength and returns through price cycles. It reported more than $1 billion of Concho synergies and savings captured ahead of schedule.
- Key risks include commodity-price volatility, COVID-19 impacts, reserve and production uncertainty, acquisition integration, regulatory and climate-transition costs, permitting and transportation constraints, geopolitical developments, operational hazards, cybersecurity, and counterparty or financing risks.
- Notable contingencies include Venezuela-related awards and collection risk: the ICSID award stood at approximately $8.5 billion plus interest, while the company had received approximately $768 million under a separate PDVSA settlement before PDVSA defaulted. Recovery timing and amount remain uncertain. Other matters include climate and Louisiana coastal lawsuits, and arbitration over an unpaid $200 million Australia-West FID bonus.
- The planned Willow project in Alaska had its federal approval vacated by a court; the company continued FEED work while the supplemental environmental review proceeded. Environmental remediation accruals were $187 million, and asset retirement obligations were $5.93 billion.
Investor verification priorities
- Confirm reported production, including the distinction between 1.567 MMBOED including Libya and management’s adjusted or Libya-excluded figures.
- Assess whether 2022 production and capital-spending guidance is achieved, especially given pending asset transactions and operational risks.
- Review acquisition integration, purchase-price assumptions and realized Concho synergies; the Shell-acquired assets represented about 10% of year-end consolidated assets and were excluded from management’s internal-control assessment.
- Test the sustainability of cash flow and shareholder returns under lower commodity prices; VROC and repurchases are discretionary.
- Monitor APLNG valuation and impairment assumptions, reserve revisions, and the outcome and collectability of material legal awards and claims.