ConocoPhillips 2018 Form 10-K Summary
Business context and reporting period
ConocoPhillips is a global exploration and production company operating in 16 countries across six geographic segments. This 10-K covers the fiscal year ended December 31, 2018; quarterly figures below identify the fourth quarter where available. The company reported approximately 10,800 employees and $70.0 billion in total assets at year-end.
Financial and operating highlights
| Metric | 2018 | 2017 |
|---|---|---|
| Sales and other operating revenues | $36.417 billion | $29.106 billion |
| Net income attributable to ConocoPhillips | $6.257 billion | $(855) million |
| Diluted earnings per share | $5.32 | $(0.70) |
| Cash provided by operating activities | $12.934 billion | $7.077 billion |
| Capital expenditures and investments | $6.750 billion | $4.591 billion |
| Total debt | $14.968 billion | $19.703 billion |
| Cash and cash equivalents | $5.915 billion | $6.325 billion |
| Total proved reserves | 5.263 billion BOE | 5.038 billion BOE |
- Fourth-quarter 2018 revenue was $9.666 billion; net income attributable to the company was $1.868 billion, or $1.62 basic and $1.61 diluted per share.
- Worldwide average realized price rose 37% to $53.88 per BOE. Average crude oil, NGL, bitumen and natural gas realized prices were $68.13 per barrel, $30.48 per barrel, $22.29 per barrel and $5.65 per MCF, respectively.
- Total production, including Libya, averaged 1.283 million BOE per day, down 7% year over year. Production excluding Libya was 1.242 million BOE per day; underlying production, excluding full-year acquisition, disposition and Libya impacts, grew more than 5%.
- Production and operating expenses were $5.213 billion, up 1%; DD&A was $5.956 billion, down from $6.845 billion. Total impairments fell to $27 million from $6.601 billion.
- Current assets were $13.274 billion and current liabilities $7.395 billion. The company reported $6.0 billion of available borrowing capacity under its revolving credit facility and no outstanding commercial paper or revolver borrowings at year-end.
- The company paid $1.363 billion in dividends and repurchased $2.999 billion of shares. The quarterly dividend increased to $0.305 per share in October. The board had authorized $15 billion in total repurchases, with $9 billion remaining at year-end.
Material changes versus the prior comparable period
- Revenue increased 25%, driven mainly by higher realized commodity prices and a more liquids-weighted portfolio. Net income attributable to ConocoPhillips improved by $7.112 billion, from a loss to profit.
- The earnings turnaround reflects stronger prices and the absence of major 2017 impairments, including the $2.5 billion after-tax Lower 48 charge and $2.384 billion APLNG investment impairment. It also includes a $774 million after-tax gain on the Clair transaction and $417 million after-tax income related to the PDVSA settlement.
- Operating cash flow rose 83%. Capital spending increased to $6.750 billion, while total debt declined by $4.735 billion; management said it achieved its $15 billion debt-reduction target 18 months early. Fitch, Moody’s and S&P upgraded the company’s debt ratings.
- Production declined because of 2017 asset sales, field decline and unplanned downtime, partly offset by growth in the Lower 48, Alaska and other development programs. Underlying production growth does not negate the reported decline in total production.
- Year-end reserves increased 4% to 5.263 billion BOE. Total reserve replacement was 147%, including purchases and sales; organic replacement was 109%.
Outlook, commentary, risks and unusual items
- Management’s 2019 production guidance, excluding Libya, was 1.300–1.350 million BOE per day; first-quarter guidance was 1.290–1.330 million. The first quarter includes estimated impacts from a Qatar turnaround and Canadian production curtailments.
- The 2019 capital budget was set at $6.1 billion, including $3.8 billion of sustaining capital. Management said the plan anticipates cash from operations exceeding capital spending and investments at WTI prices above $40 per barrel. The company expected to execute $3 billion of its remaining share-repurchase authorization in 2019, subject to conditions.
- Management emphasized returns, cost control, disciplined investment, balance-sheet strength and shareholder distributions. It described 2018 commodity markets as volatile, with crude prices falling sharply in the fourth quarter amid oversupply and economic-growth concerns.
- Key exposures include volatile oil and gas prices, production and reserve uncertainty, asset impairment risk, political and regulatory changes, environmental and climate requirements, hydraulic-fracturing restrictions, transportation constraints, operational hazards, cyber threats, joint-venture risks and counterparty defaults.
- PDVSA agreed to pay approximately $2 billion over four and a half years under a settlement; about $430 million was collected and recognized in 2018. Continued collection depends on PDVSA meeting future payment obligations.
- Other notable items include a $437 million pretax unrealized loss on Cenovus shares; a $60 million expected loss in first-quarter 2019 from the planned Golden Pass sale; and an estimated $7 MBOED 2019 production loss associated with the Lost Cabin gas plant fire. The Greater Sunrise sale for $350 million remained conditional on funding and regulatory approvals.
- Environmental remediation liabilities were $178 million at year-end; the company reported 14 U.S. sites where it was identified as a potentially responsible party under CERCLA or comparable laws. It said known legal proceedings were not expected to materially affect consolidated financial position, while noting outcomes remain uncertain. Climate-related lawsuits were being defended.
- Adoption of the new lease standard on January 1, 2019 was expected to add approximately $1 billion of operating lease liabilities and corresponding right-of-use assets to the balance sheet.
Most important facts for investors to verify
- How much of the 2018 earnings and cash-flow improvement was attributable to recurring operations versus price changes, asset-sale gains, settlements, tax effects and the prior-year impairment comparison.
- Whether 2019 production, sustaining-capital needs and cash generation meet management’s ranges under lower commodity prices, and how Canadian curtailments and operational downtime develop.
- The execution, cost and reserve assumptions behind the $6.1 billion capital budget, 109% organic reserve replacement and expected production growth.
- PDVSA’s payment performance and the collectability and timing of the remaining settlement balance.
- The value and timing of planned dispositions, including Greater Sunrise and Golden Pass, and the effect of proceeds or losses on liquidity and future earnings.
- Current debt, liquidity and shareholder returns after planned repayments, dividends and repurchases; also assess the long-dated asset-retirement obligations, reported at $7.908 billion.