ConocoPhillips — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 18, 2020. The filing reports full-year results and selected fourth-quarter data. ConocoPhillips is a global independent exploration and production company operating in 17 countries.
Financial and operating performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Sales and other operating revenues | $32.567 billion | $36.417 billion | Down 11% |
| Net income attributable to ConocoPhillips | $7.189 billion | $6.257 billion | Up 15% |
| Diluted earnings per share | $6.40 | $5.32 | Up 20% |
| Cash from operating activities | $11.104 billion | $12.934 billion | Down 14% |
| Capital expenditures and investments | $6.636 billion | $6.750 billion | Down 2% |
| Total debt | $14.895 billion | $14.968 billion | Down $73 million |
| Total assets | $70.514 billion | $69.980 billion | Up $534 million |
- Cash and cash equivalents were $5.088 billion, with $3.028 billion in short-term investments; total equity was $35.050 billion. Debt was 30% of debt plus equity, versus 32% in 2018. The company had $6.0 billion of unused revolving-credit capacity and no commercial paper outstanding at year-end.
- Operating cash flow exceeded capital expenditures and investments by approximately $4.468 billion. The company repurchased $3.5 billion of shares and paid $1.5 billion in dividends, together 45% of operating cash flow.
- Net margin was approximately 22.1%, compared with 17.2% in 2018; the comparison is materially affected by disposition gains and other unusual items.
- Average production was 1.348 million BOE per day, up 5%; underlying production, excluding Libya and acquisition/disposition effects, also grew 5% to 1.254 million BOE per day. Higher Lower 48 and Alaska volumes and Norway production contributed to growth.
- Worldwide realized price declined 9% to $48.78 per BOE. Realized crude oil prices fell 10% to $60.99 per barrel, NGL prices fell 34% to $20.09 per barrel, and natural gas prices fell 11% to $5.03 per MCF; bitumen prices rose 42% to $31.72 per barrel.
- Proved reserves were 5.262 billion BOE, essentially unchanged from 5.263 billion BOE. Total reserve replacement was 100%; organic replacement was 117%.
Fourth-quarter and year-over-year changes
- Fourth-quarter 2019 revenue was $7.708 billion and net income attributable to ConocoPhillips was $720 million, compared with $9.666 billion and $1.868 billion, respectively, in fourth-quarter 2018.
- Full-year earnings increased despite lower revenue and prices. Key contributors included a $2.1 billion after-tax gain on the U.K. subsidiary sale, a $649 million after-tax unrealized gain on Cenovus shares (versus a $436 million loss in 2018), and higher production volumes. Offsets included lower realized prices, the absence of a $774 million after-tax Clair disposition gain recorded in 2018, and impairment and exploration charges.
- Impairments were $405 million in 2019 versus $27 million in 2018. The company recorded a $379 million pretax impairment on Niobrara assets held for sale and incurred $141 million of leasehold impairment and $111 million of dry-hole costs after discontinuing Central Louisiana Austin Chalk exploration.
- Dispositions generated $3.012 billion in cash proceeds. The U.K. sale closed for $2.2 billion after adjustments and produced a $1.7 billion pretax gain. The company also sold its Greater Sunrise interest for $350 million and received contingent Cenovus payments.
Outlook, risks and contingencies
- For 2020, management forecast production of 1.230–1.270 million BOE per day for the full year and 1.240–1.280 million for the first quarter; guidance excludes Libya and includes the expected impact of the third-party Kebabangan pipeline outage.
- 2020 operating-plan capital was set at $6.5–$6.7 billion, excluding acquisitions. Management expected first-quarter spending to be higher, largely due to Alaska winter construction and exploration and appraisal drilling.
- The company planned $3 billion of 2020 share repurchases. In February 2020, the board increased total repurchase authorization from $15 billion to $25 billion; repurchases remain discretionary. The quarterly dividend was increased 38% in October 2019 to $0.42 per share.
- Management emphasized financial returns, capital discipline, portfolio optimization, balance-sheet strength, and shareholder distributions amid commodity-price volatility. Brent averaged about $64 per barrel in 2019, down 9% year over year.
- In October 2019, ConocoPhillips agreed to sell Australia-West assets to Santos for $1.39 billion plus customary adjustments and a potential $75 million Barossa-related payment; closing was expected in first-quarter 2020, subject to approvals. The Niobrara sale was also expected to close in first-quarter 2020. These were pending at the filing date.
- PDVSA had defaulted on remaining obligations under a $2 billion settlement; ConocoPhillips had collected approximately $754 million and resumed enforcement actions. Separately, an ICSID award against Venezuela stood at $8.5 billion plus interest after rectification, with annulment proceedings sought by Venezuela. Recovery timing and amounts remain uncertain.
- Libya production and exports face civil unrest and interruptions; the company declared force majeure after the Es Sider export-terminal blockade in January 2020. Other material risks include commodity-price declines, reserve and impairment uncertainty, environmental and climate regulation and litigation, operational hazards, and third-party infrastructure disruptions.
- Year-end asset retirement obligations were $6.206 billion; accrued environmental costs were $171 million. Management stated that known contingencies were not expected to exceed current accruals by a material amount, while noting that outcomes remain uncertain.
Important facts for investors to verify
- Separate recurring operating performance from the U.K. sale gain, Cenovus share-price gain, tax benefits, and impairment and exploration charges.
- Confirm completion and final proceeds for the Australia-West, Niobrara, and other announced asset sales, including associated production, reserves, and liabilities transferred.
- Assess actual 2020 production and capital spending against guidance, particularly the Malaysia pipeline outage and Libya’s uncertain production and exports.
- Monitor PDVSA settlement collections and enforcement, and the status and recoverability of the separate Venezuela arbitration award.
- Review commodity-price sensitivity, reserve assumptions and replacement trends, and the sustainability of dividends and share repurchases under lower-price conditions.