ConocoPhillips — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are with Q1 2020 unless noted. ConocoPhillips completed its all-stock acquisition of Concho Resources on January 15, 2021, adding significant Permian Basin operations.
Key financial and operating metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales and other operating revenues | $9.826 billion | $6.158 billion |
| Net income (loss) attributable to ConocoPhillips | $982 million | $(1.739) billion |
| Income (loss) before income taxes | $1.714 billion | $(1.563) billion |
| Net cash provided by operating activities | $2.080 billion | $2.105 billion |
| Capital expenditures and investments | $1.200 billion | $1.649 billion |
| Total production | 1,527 MBOED | 1,289 MBOED |
| Total debt at period end | $20.027 billion | $15.369 billion at Dec. 31, 2020 |
At March 31, cash and cash equivalents were $2.831 billion and short-term investments were $4.104 billion. Including $5.7 billion available under the revolving credit facility, reported liquidity exceeded $12 billion. Total equity was $43.155 billion; debt was 32% of debt plus equity.
Cash flow from operations less capital expenditures and investments was approximately $880 million. The company paid $588 million in dividends and repurchased $375 million of shares. The declared quarterly dividend was $0.43 per share.
Changes and drivers versus the prior period
- Revenue increased 60%, primarily from higher sales volumes and prices in the Lower 48, including production acquired from Concho. Production rose 18%; excluding Libya and adjusting for acquisitions and dispositions, production declined 59 MBOED, or 4%.
- The shift from a large prior-year loss to Q1 profit reflected higher realized commodity prices and volumes, lower impairments, and a favorable swing in the fair value of Cenovus Energy shares. The Cenovus investment generated a $308 million pretax unrealized gain versus a $1.691 billion pretax unrealized loss in Q1 2020.
- Operating cash flow was slightly lower year over year despite improved earnings. Management cited approximately $1 billion of non-recurring cash impacts associated with Concho hedging settlements, transaction and restructuring costs, as well as other operating factors.
- Debt increased by $4.6 billion from year-end, principally due to Concho debt assumed in the acquisition. ConocoPhillips issued approximately 286 million shares as acquisition consideration.
Outlook, management commentary and notable items
- Q2 2021 production guidance was 1.50–1.54 MMBOED, excluding Libya, with seasonal turnarounds expected in Europe, the Middle East and North Africa, and Asia Pacific.
- 2021 capital expenditures guidance was $5.5 billion: $5.1 billion to sustain production and $0.4 billion for major projects, primarily in Alaska. Management cited $750 million of annual cost and capital savings targeted by 2022 from the Concho transaction and reported progress toward that target.
- Management described commodity prices as cyclical and volatile and noted that demand had not yet recovered to pre-pandemic levels. Winter Storm Uri caused approximately 50 MBOED of Lower 48 production downtime during the quarter.
- In May 2021, the company reaffirmed its intent to reduce gross debt by $5 billion over five years. It also planned to sell its Cenovus shares by year-end 2022, subject to market conditions, and use proceeds for incremental share repurchases; this was subsequent to quarter-end.
- Concho-related transaction and restructuring expenses totaled $291 million pretax. The company also recorded $305 million of pretax losses on acquired Concho derivative positions; it paid $692 million to settle them in Q1 and expected to pay the remaining $69 million in Q2.
- A $200 million gain was recorded for a contingent payment connected to the 2020 Australia-West sale after the project reached final investment decision. The purchaser had not paid when due; ConocoPhillips said it intended to enforce its contractual right to payment plus interest.
- Environmental remediation accruals were $188 million. Disclosed contingencies include climate-related and Louisiana coastal litigation, environmental matters, and enforcement of Venezuela arbitration awards and a PDVSA settlement. The filing states the potential financial impact of certain claims is uncertain.
- S&P downgraded the company’s long-term rating from A to A- in February 2021, with a stable outlook. Management said a downgrade could raise borrowing costs or constrain commercial-paper access, but the company had no ratings-triggered automatic default provisions.
- The company reported an operational emissions-intensity reduction target of 35–45% from 2016 levels by 2030 and an ambition for net-zero operated emissions by 2050.
Important facts for investors to verify
- How Concho integration, production performance and the $750 million savings target progress against management’s plans.
- Whether commodity prices, production and operating cash flow support the $5.5 billion capital plan, dividends, repurchases and planned debt reduction.
- Cash-flow effects and remaining payment obligations from the acquired Concho hedges, and collection of the disputed $200 million Australia-West payment.
- Timing and realized proceeds from the planned Cenovus share sales, alongside the company’s share-repurchase pace.
- Developments in Venezuela recoveries, climate and coastal litigation, environmental obligations, and credit ratings.