ConocoPhillips — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; interim financial statements are unaudited. Comparisons below are with Q1 2023 unless otherwise stated. ConocoPhillips is a global exploration and production company operating in 13 countries.
Key financial and operating metrics
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenues and other income | $14.476 billion | $15.517 billion, down 7% |
| Net income | $2.551 billion | $2.920 billion, down 13% |
| Diluted EPS | $2.15 | $2.38 |
| Cash provided by operating activities | $4.985 billion | $5.403 billion |
| Capital expenditures and investments | $2.916 billion | $2.897 billion |
| Production | 1.902 million BOE per day | 1.792 million; up 6% reported and 2% excluding acquisitions/dispositions |
| Average realized price | $56.60 per BOE | $60.86 per BOE |
| Total debt | $18.417 billion | $18.937 billion at December 31, 2023 |
| Cash and cash equivalents; short-term investments | $5.574 billion; $0.487 billion | $5.635 billion; $0.971 billion at December 31, 2023 |
| Total assets; total equity | $95.348 billion; $49.325 billion | $95.924 billion; $49.279 billion at December 31, 2023 |
The filing does not report a consolidated operating margin. The effective tax rate was 33%, compared with 36% a year earlier. Q1 included a $76 million Malaysian investment tax incentive benefit. Cash, cash equivalents, restricted cash and short-term investments totaled approximately $6.3 billion at quarter-end; total liquidity, including the undrawn credit facility, was $11.6 billion. The $5.5 billion revolving facility is available through February 2027.
Changes and drivers versus the prior period
- Earnings declined by $369 million. Management cited lower realized natural gas and NGL prices, lower commercial performance and timing, higher DD&A and operating costs, and lower LNG sales prices at equity affiliates. Higher crude and bitumen prices, increased sales volumes, and the Malaysian tax benefit partly offset these pressures.
- Henry Hub natural gas averaged $2.25 per MMBTU, down 35%; Brent averaged $83.24 per barrel, up 2%; and WTI averaged $76.96, up 1%. Realized bitumen pricing rose 50% to $44.30 per barrel.
- Production growth reflected new wells and the 2023 Surmont acquisition. Canada production rose to 170 MBOED from 89 MBOED, and Canada segment earnings increased to $180 million from $6 million. Lower 48 earnings fell to $1.381 billion from $1.852 billion, principally amid weaker gas and NGL pricing and higher costs.
- Operating cash flow decreased by $418 million, primarily due to lower realized natural gas prices, partly offset by higher bitumen prices and production. Investing cash outflow was $2.141 billion; financing cash outflow was $2.825 billion.
Capital allocation, outlook and management commentary
- Q1 shareholder distributions totaled approximately $2.2 billion: $1.325 billion of share repurchases and $0.924 billion of dividends paid. The quarter’s declared per-share amounts were a $0.58 ordinary dividend and a $0.20 variable return of cash (VROC).
- Management reconfirmed expected 2024 shareholder returns of at least $9 billion and full-year capital expenditure guidance of $11.0–$11.5 billion. It said all full-year guidance items remained unchanged.
- Q2 2024 production guidance is 1.91–1.95 million BOE per day. No numerical full-year production guidance is stated in the supplied filing text.
- Management describes commodity prices as cyclical and volatile, says the company is unhedged, and emphasizes balance-sheet strength, disciplined investment and shareholder distributions. It reported progress at the Willow project and ramp-ups from recent international project start-ups.
- The company retired $461 million principal amount of 2.125% notes at maturity. Debt represented 27% of debt plus equity at March 31. Credit ratings were Fitch A, S&P A- and Moody’s A2, all with stable outlooks.
Risks, contingencies and unusual items
- Commodity-price, production, operating-cost, geopolitical, regulatory, weather, supply-chain and foreign-exchange volatility may affect earnings and cash flow. Management cautions that actual outcomes may differ materially from forward-looking statements.
- Legal matters include climate-change and Louisiana coastal claims, royalty and tax disputes, Winter Storm Uri force-majeure disputes, and a securities class action relating to Concho. The company says it will vigorously defend these matters; it states that known contingent exposures are not expected to have a material adverse effect, while acknowledging uncertainty in certain claims.
- ConocoPhillips reports a Venezuelan ICSID award of approximately $8.5 billion plus interest; enforcement and annulment proceedings remain ongoing. It has received approximately $777 million under a separate PDVSA settlement and reports that PDVSA defaulted on that settlement. Recovery timing and amounts remain uncertain.
- Environmental accruals for U.S. and Canadian remediation were $184 million. The company identifies 15 U.S. potentially responsible-party sites and expects substantial remediation spending over the next 30 years. Potential guarantee exposures include APLNG and other arrangements; some maximum amounts are substantial or unlimited, though management describes certain payments as unlikely or remote.
- Q1 included an $18 million dry-hole expense for the Busta discovery well and a $230 million foreign-currency translation loss in other comprehensive income. Surmont acquisition contingent consideration had a $305 million fair value at quarter-end, with payments tied in part to WCS pricing and production targets.
- Disclosure controls were assessed as effective at March 31, 2024. A multi-year ERP implementation is continuing; management expects related process and control changes as implementation progresses. No material changes to the previously disclosed risk factors were reported.
Important facts for investors to verify
- How production, realized prices and operating costs develop relative to Q2 guidance and the unchanged full-year capital plan.
- Whether operating cash flow supports the at-least-$9-billion 2024 shareholder-return plan while funding capital spending and debt obligations.
- The sensitivity of earnings and cash generation to natural gas, crude, NGL and bitumen prices, given the company’s unhedged position.
- Progress and cost execution at Willow, Surmont and LNG projects, including the effect of project ramp-ups on production and DD&A.
- Developments in Venezuelan award enforcement and other significant litigation, environmental obligations and guarantee exposures.