01—Abstract
Summary
Summary of the 10-K filed February 23, 2011. Cited figures are marked; the original filing is the authoritative source.
ConocoPhillips (COP) closed 2010 with net income attributable to the company of $11.4 billiona ($7.62 diluted EPS), up sharply from $4.4 billion in 2009, driven by higher crude, natural gas and LNG prices, $4.6 billion after-tax gains from asset sales and LUKOIL share sales, and a stronger domestic refining margin environment.
Those gains were partly offset by $1.9 billionb of after-tax impairments, most notably a $1.5 billion writedown of the Wilhelmshaven refinery in Germany, and by declining production, which fell to 1.75 million BOE per day from 1.85 million. Operating cash flow rose 37% to $17.0 billion, and the company generated about $15.4 billion of asset sale proceeds, including roughly $8.3 billion from its LUKOIL stake. The balance sheet improved meaningfully.
Total debt fell $5.1 billion to $23.6 billionc, bringing the debt-to-capital ratio to 25%, inside management's 20–25% target range. The company also raised its quarterly dividend 20% to $0.66 per share and announced a new authorization to repurchase up to $10 billion of stock over two years, on top of the $5 billion program running through 2011. Management guides to a 2011 capital program of $13.5 billion and production of about 1.7 million BOE per day, excluding further dispositions, while continuing to pursue a $10 billion asset disposition target through 2011.
Key risks for investors include commodity price exposure, a shrinking proved reserve base after the LUKOIL and Syncrude sales (total proved reserves fell to 8.3 billion BOE from 10.3 billion), the expropriation disputes in Venezuela and Ecuador, and regulatory delays to deepwater Gulf of Mexico drilling following the Deepwater Horizon incident. Production has declined, and the outlook depends on successful development of shale plays and large projects such as Qatargas 3, Kashagan and the Australia Pacific LNG venture.
02—Key points
Key Highlights
- 2010 net income attributable to ConocoPhillips of $11.4 billion, or $7.62 per diluted share, versus $4.4 billion ($2.94 per share) in 2009.
- Asset sales and LUKOIL share sales generated $15.4 billion in proceeds, including the $4.6 billion Syncrude sale and roughly $8.3 billion from LUKOIL, with $4.6 billion of after-tax gains.
- Total debt reduced by $5.1 billion to $23.6 billion; debt-to-capital ratio fell to 25% from 31%, within the 20–25% target range.
- Dividend raised 20% to $0.66 per quarter; new $10 billion share repurchase authorization announced in February 2011 on top of the $5 billion program.
- Total proved reserves fell to 8.3 billion BOE from 10.3 billion, driven by LUKOIL and asset dispositions; reserve replacement excluding LUKOIL was 111% over five years.
- 2011 capital program budgeted at $13.5 billion, up from $10.7 billion in 2010, with production guided to about 1.7 million BOE per day before further asset sales.
- Impairments of $2.4 billion before tax in 2010, including $1.5 billion on the Wilhelmshaven refinery and $0.6 billion on the NMNG equity investment.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 23, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $56.22B$149.34B | −62.4% |
| R&D Expenses | $172.00M$190.00M | −9.5% |
| SG&A Expenses | $809.00M$1.83B | −55.8% |
| Operating Expenses | $45.46B$41.89B | +8.5% |
| Operating Income | $10.25B$3.72B | +175.3% |
| Interest Expense | $1.40B$1.49B | −5.7% |
| Net Income | $11.36B$4.41B | +157.3% |
| EPS (Basic) | $7.68$2.96 | +159.5% |
| EPS (Diluted) | $7.62$2.94 | +159.2% |
| Shares Outstanding (Basic) | 1.48M1.49B | −99.9% |
| Shares Outstanding (Diluted) | 1.49M1.50B | −99.9% |
05—Questions
Frequently Asked Questions
How did ConocoPhillips perform financially in 2010?
Net income attributable to ConocoPhillips rose to $11.4 billion ($7.62 diluted EPS) from $4.4 billion in 2009. The improvement came mainly from higher commodity prices and about $4.6 billion of after-tax gains from asset and LUKOIL sales, partly offset by $1.9 billion of after-tax impairments. Operating cash flow was $17.0 billion, up 37%.
Is the company's balance sheet getting stronger?
Yes. Total debt fell $5.1 billion to $23.6 billion, and the debt-to-capital ratio dropped to 25% from 31%, back inside the company's 20–25% target. Cash and short-term investments were $10.4 billion at year-end, and the company has no ratings triggers on its corporate debt.
What is the outlook for shareholder returns?
The quarterly dividend was raised 20% to $0.66 per share in February 2011. The company repurchased about $3.9 billion of stock in 2010 under its $5 billion program and, in February 2011, authorized up to $10 billion more over two years. Management expects a significant portion of year-end cash to go toward buybacks.
What are the main risks to production and reserves?
Production fell to 1.75 million BOE per day in 2010 from 1.85 million, due to field decline, higher prices affecting production-sharing contracts, and asset sales. Proved reserves declined to 8.3 billion BOE. Other risks include expropriation proceedings in Venezuela and Ecuador, permitting delays for Gulf of Mexico deepwater drilling after Deepwater Horizon, and Alaska permitting issues such as the Alpine West CD5 project.
What major projects could drive future growth?
Key growth initiatives include the Eagle Ford, Bakken and Barnett shale plays, with Eagle Ford targeting peak production in 2013; Surmont and FCCL oil sands in Canada; Qatargas 3, which began production in October 2010; the Australia Pacific LNG coalbed methane and LNG project, with a final investment decision planned for mid-2011; Kashagan in Kazakhstan, expected to start production in late 2012; and the Jasmine and Gumusut developments.
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