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ConocoPhillips First Quarter 2021 Results

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ConocoPhillips reported its first quarter 2021 results.

Conoco reported first-quarter 2021 earnings of $1.0 billion, or $0.75 per share, compared with a first-quarter 2020 loss of $1.7 billion, or ($1.60) per share. Excluding special items, first-quarter 2021 adjusted earnings were $0.9 billion, or $0.69 per share, compared with first-quarter 2020 adjusted earnings of $0.5 billion, or $0.45 per share. Special items for the current quarter included an unrealized gain on Cenovus Energy shares and a gain associated with the Australia-West divestiture following the buyer's final investment decision on the Barossa development project. Partially offsetting these benefits were previously announced transaction and restructuring expenses related to the acquisition of Concho and realized losses on the Concho hedging program related to positions for which the company accelerated settlement into the first quarter, in addition to deferred tax adjustments.

First-Quarter Highlights and Recent Announcements

• Completed the Concho acquisition, enhancing both our asset portfolio and financial framework.
• Cash provided by operating activities and cash from operations (CFO) of $2.1 billion, exceeded capital expenditures and investments of $1.2 billion, generating free cash flow (FCF) of $0.9 billion.
  • CFO and FCF include approximately $1.0 billion of cash outflows from previously announced one-time items in connection with the Concho acquisition.
• Produced 1,488 MBOED excluding Libya during the first quarter despite incurring approximately 50 MBOED of unplanned production downtime throughout Lower 48 caused by Winter Storm Uri.
• Ended the quarter with cash, cash equivalents and restricted cash totaling $3.2 billion and short-term investments of $4.1 billion, equaling $7.3 billion in ending cash and short-term investments.
• Resumed the share repurchase program at an annualized level of $1.5 billion.
• Distributed $0.6 billion in dividends and repurchased $0.4 billion of shares.
• Recognized by the Dow Jones Sustainability Index as the top U.S. ESG performer in the Oil and Gas Upstream and Integrated sector.
• Reaffirmed commitment to preserving a top-tier balance sheet with intent to reduce the company's gross debt by $5 billion over the next five years, driving a more resilient and efficient capital structure.
• Announced plans to sell its Cenovus Energy shares in the open market in a disciplined manner by year-end 2022 beginning in the second quarter of 2021, utilizing the proceeds to fund incremental ConocoPhillips share repurchases.

CEO Ryan Lance said: "The first quarter was a momentous one for ConocoPhillips with the closing of the Concho transaction, the better-than-expected pace and progress of integration activities companywide and the safe response to Winter Storm Uri. Our entire organization is focused on improving every aspect of our underlying business to make us the most competitive company in the industry: capturing additional synergies, lowering our sustaining price, increasing capital efficiency, generating free cash flow, strengthening our balance sheet, consistently delivering peer-leading return of capital to our owners and lowering emissions. These are the essential keys to long-term success in the business. We look forward to providing an update on our progress in June."

Quarterly Dividend

ConocoPhillips announced a quarterly dividend of 43 cents per share, payable June 1, 2021, to stockholders of record at the close of business on May 14, 2021.

First-Quarter Review

Production excluding Libya for the first quarter of 2021 was 1,488 thousand barrels of oil equivalent per day (MBOED), an increase of 210 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions, first-quarter 2021 production decreased 59 MBOED or 4% from the same period a year ago. This decrease was primarily due to normal field decline and production impacts from Winter Storm Uri, partially offset by new production from the Lower 48 and other development programs across the portfolio. Production from Libya averaged 39 MBOED.

In the Lower 48, production averaged 715 MBOED, including 405 MBOED from the Permian, 187 MBOED from the Eagle Ford and 86 MBOED from the Bakken. Weather-related impacts totaled approximately 50 MBOED throughout the Lower 48 with production fully restored in March. In Alaska, drilling at CD5 continued and progress was made on GMT2 infrastructure in advance of planned drilling in the second quarter. In Canada, we started up the third Montney pad and completed appraisal drilling on the fourth pad. At Surmont we continue experiencing positive results from non-condensable gas injection and we initiated a steam additives injection pilot intended to reduce emissions and costs. In Norway, Tor II drilling was completed and three additional wells brought on line during the quarter. In Malaysia, first oil was achieved at Malikai Phase 2.

Earnings increased from first-quarter 2020 due to an increase in Cenovus Energy equity market value and higher realized prices. Excluding special items, adjusted earnings were higher compared with first-quarter 2020 due to higher realized prices and higher volumes, partially offset by increased depreciation expense and operating costs associated with the higher volumes. The company's total average realized price was $45.36 per BOE, 17% higher than the $38.81 per BOE realized in the first quarter of 2020, reflecting higher marker prices and Winter Storm Uri's impacts on gas realizations.

For the quarter, cash provided by operating activities and CFO was $2.1 billion. CFO included a reduction of approximately $1.0 billion associated with transaction and restructuring expenses and realized losses on the commodity hedging portfolio acquired from Concho. The company has now settled all oil and gas hedging positions acquired from Concho. The company funded $1.2 billion of capital expenditures and investments, paid $0.6 billion in dividends, repurchased $0.4 billion of shares, reported $0.5 billion in net purchases of investments in financial instruments and increased cash by $0.4 billion resulting from the Concho acquisition.

Outlook

Second-quarter 2021 production excluding Libya is expected to be 1.50 to 1.54 MMBOED, reflecting the impact of seasonal turnarounds planned in Europe and the Asia Pacific region. All other guidance items are unchanged.

ConocoPhillips owns approximately 10% of Cenovus Energy (CVE) common shares, acquired as partial consideration in the 2017 disposition of the company's Foster Creek Christina Lake (FCCL) oil sands and western Canada Deep Basin natural gas assets. ConocoPhillips intends to sell its Cenovus shares in the open market beginning in the second quarter of 2021 and expects to complete the sale process by the fourth quarter of 2022, utilizing the proceeds to fund incremental repurchases of ConocoPhillips shares. The sales pace will be guided by market conditions with ConocoPhillips retaining discretion to adjust accordingly.

The company plans to reduce gross debt by $5 billion over the next five years, reaffirming its commitment to preserving its strong balance sheet while further reducing its sustaining price. The pace of debt reduction will be determined by market conditions.