ConocoPhillips — Q1 2022 Form 10-Q Summary
Reporting period: Three months ended March 31, 2022; interim financial statements are unaudited. ConocoPhillips is an independent exploration and production company operating across six geographic segments.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Sales and other operating revenues | $17.8 billion | $9.8 billion |
| Total revenues and other income | $19.3 billion | $10.6 billion |
| Net income | $5.76 billion; diluted EPS $4.39 | $982 million; diluted EPS $0.75 |
| Cash provided by operating activities | $5.07 billion | $2.08 billion |
| Capital expenditures and investments | $3.16 billion | $1.20 billion |
| Cash, cash equivalents and short-term investments | $7.14 billion at quarter-end | $5.47 billion at December 31, 2021 |
| Total debt | $18.75 billion | $19.93 billion at December 31, 2021 |
| Total equity | $49.22 billion | $45.41 billion at December 31, 2021 |
| Production | 1.747 million BOE per day | 1.527 million BOE per day |
Quarter-end liquidity, including $5.5 billion of unused revolving credit capacity, was $12.6 billion. Total debt to capital was 28%, down from 31% at year-end 2021. The company reported an effective tax rate of 27.1%, versus 42.7% a year earlier.
Performance and changes from the prior year
- Revenue and earnings rose sharply, mainly reflecting higher realized commodity prices and higher sales volumes, including the Shell Permian acquisition and the absence of 2021 Winter Storm Uri effects.
- Average realized price increased to $76.99 per BOE from $45.36. Brent averaged $101.40 per barrel, WTI $94.29 per barrel and Henry Hub gas $4.96 per MMBTU.
- Production increased 14% year over year, although adjusted for acquisitions, dispositions, Concho volume accounting and Winter Storm Uri, production was down 36 MBOED, or 2%, due mainly to downtime and seasonality.
- Net income included significant nonrecurring or discrete contributions: a $515 million tax benefit from the closing of an IRS audit, a $462 million after-tax gain on the Indonesia divestiture, contingent disposition payments, and a $62 million after-tax debt-refinancing gain. Results also benefited from the absence of Concho-related restructuring costs and acquired-hedge losses recorded in 2021.
- Operating cash flow increased by about $3.0 billion year over year, primarily due to prices, sales volumes and the absence of 2021 cash settlement of Concho-acquired hedges; higher receivables and timing of Libya tax and royalty payments partly affected cash flow.
Capital allocation, outlook and management commentary
- Q1 shareholder returns totaled about $2.3 billion: $864 million of dividends, including ordinary and variable return of cash (VROC), and $1.425 billion of share repurchases.
- In May, the company raised expected 2022 total shareholder distributions by $2 billion to $10 billion, through share repurchases and VROC. It declared a $0.46-per-share ordinary dividend and a $0.70-per-share third-quarter VROC.
- 2022 production guidance was approximately 1.76 million BOE per day; Q2 guidance was 1.67–1.73 million BOE per day, reflecting planned turnarounds and April weather impacts.
- 2022 operating capital guidance rose to $7.8 billion from $7.2 billion, citing higher partner-operated Lower 48 spending and inflation. This excludes $1.4 billion for the additional APLNG interest. Full-year DD&A guidance fell to $7.7 billion; other guidance was unchanged.
- The company completed a debt refinancing that reduced total debt by $1.2 billion, lowered expected annual cash interest expense and extended weighted-average debt maturity. It maintained a $5 billion debt-reduction target by the end of 2026; in April it gave notice to retire $1.25 billion of 2026 notes.
- Portfolio transactions included buying an additional 10% of APLNG for about $1.4 billion, bringing ownership to 47.5%; selling the Indonesia interests for $731 million net proceeds; and completing a Lower 48 noncore asset sale in April for $440 million before adjustments. The company said it had disposed of $1.7 billion of assets toward its $4–$5 billion disposal target by year-end 2023.
- Management described commodity prices as volatile and said the company remained unhedged. It cited the Russia-Ukraine conflict, sanctions, OPEC+ supply, demand, inflation, supply-chain disruption and COVID impacts among market uncertainties.
Risks, contingencies and unusual items
- Environmental remediation accruals were $184 million. The company noted possible future costs and uncertainty from environmental, tax and legal matters, while stating known contingency exposures were not expected to have a material adverse effect based on available information.
- Disclosed litigation includes climate-related claims, Louisiana coastal-damage lawsuits, a Concho-related securities class action, and disputes concerning offshore decommissioning and a Barossa project bonus. The company says it is defending these matters; some exposures remain difficult to estimate.
- ConocoPhillips continues enforcement efforts concerning Venezuela awards, including an $8.5 billion ICSID award plus interest and separate PDVSA awards. Collections remain uncertain; the company reported approximately $769 million received to date under the ICC settlement.
- In Alaska, a subsurface gas release at an Alpine drill-site well house was controlled on March 28; the well was scheduled for plugging and abandonment in Q2.
- The company’s risk factors were reported as unchanged from its 2021 Form 10-K. Risks include commodity-price volatility, operational and production uncertainty, inflation, geopolitical events, regulation and climate-related costs or litigation.
Important facts for investors to verify
- How much of Q1 earnings and cash flow is sustainable at lower commodity prices, given the discrete tax benefit and disposition-related gains.
- Whether production meets full-year guidance and how much underlying production growth offsets decline, downtime and seasonality.
- Execution of the increased $7.8 billion operating-capital plan amid inflation, and its effect on cash generation and shareholder returns.
- Progress toward the $5 billion debt-reduction target and $10 billion 2022 distribution plan, including the planned retirement of 2026 notes.
- Outcomes and potential financial exposure from Venezuela collections, environmental matters and significant litigation; no clear maximum exposure is provided for several matters.