Business Context and Reporting Period
This Form 8-K, filed on January 4, 2021, by ConocoPhillips (COP), addresses "Other Events" related to the proposed merger with Concho Resources Inc. (Concho). The filing provides supplemental disclosures to the Definitive Proxy Statement filed on December 11, 2020, in response to litigation challenging the merger. A special meeting of stockholders for both companies is scheduled for January 15, 2021.
Key Financial Metrics and Forecasts
The filing does not report historical revenue, profit, or cash flow for ConocoPhillips. Instead, it presents unaudited forecasted financial information for ConocoPhillips, Concho, and the combined entity under various scenarios (Cases A-D) used in financial advisor valuations.
| Metric | ConocoPhillips (2021E) | Concho (2021E) | Combined (2021E) |
|---|---|---|---|
| Daily Production (Mboe/d) | 1,225 | 304 | 1,529 |
| EBITDAX ($ millions) | 7,503 | 2,313 | 9,851 |
| Cash from Operating Activities ($ millions) | 6,207 | 2,160 | 8,402 |
| Capital Expenditures ($ millions) | (5,011) | (1,498) | (6,459) |
| Levered Free Cash Flow - Post Dividends ($ millions) | (609) | 505 | (352) |
Note: Forecasts are based on specific commodity price and production assumptions defined in the proxy statement. The filing does not provide current debt or liquidity balances, only references to net debt adjustments in valuation models.
Material Changes and Litigation
The primary material event is the disclosure of seven lawsuits filed between November 23 and December 28, 2020, alleging that the Definitive Proxy Statement contained false or misleading information regarding financial projections, advisor conflicts, and the sales process. One lawsuit (Garfield v. Bunch et al.) was voluntarily dismissed with prejudice following the supplemental disclosures provided in this filing. The remaining lawsuits seek injunctive relief to stop the merger or rescind it.
Guidance, Outlook, and Risks
Management Commentary: ConocoPhillips and Concho maintain that the claims in the pending lawsuits are without merit and that no further disclosure is required under applicable law. The filing includes detailed methodologies used by financial advisors (Goldman Sachs, Credit Suisse, J.P. Morgan) to value the companies, including discount rates, terminal multiples, and implied share price ranges.
Financial Advisor Fees and Conflicts: The filing discloses fees paid to advisors over the preceding two years:
- Credit Suisse: Approximately $1.85 million from Concho and $750,000 from ConocoPhillips.
- J.P. Morgan: Approximately $712,000 from Concho and $2.8 million from ConocoPhillips. A transaction fee of $25 million is agreed upon for the merger.
Risks: The filing reiterates standard forward-looking statement risks, including commodity price volatility, regulatory changes, environmental liabilities, and the risk that the merger may not close or achieve expected synergies.
Investor Verification Checklist
- Verify the status of the six remaining lawsuits challenging the merger and any potential for injunctive relief.
- Review the specific commodity price assumptions underlying the "Case A" forecasts, as these drive the projected EBITDAX and cash flow figures.
- Confirm the final vote results from the special meetings scheduled for January 15, 2021.
- Examine the full Definitive Proxy Statement for details on the exchange ratio and tax implications of the merger.
- Monitor for any further SEC filings regarding the dismissal or settlement of the pending litigation.