01—Abstract
Summary
Summary of the 10-K filed February 19, 2013. Cited figures are marked; the original filing is the authoritative source.
ConocoPhillips' 2012 Form 10-K (filed February 19, 2013) describes a company that has reshaped itself into a pure-play independent exploration and production (E&P) company following the April 30, 2012 separation of its Downstream business into Phillips 66.
Reported figures for continuing operations show income of $7.5 billiona in 2012, up 4% from $7.2 billion in 2011, helped by $1.6 billion of after-tax-equivalent asset disposition gains, a $236 million tax loss carryforward benefit, and a $235 million after-tax favorable claims resolution. Total net income attributable to ConocoPhillips was $8.4 billion, and the company describes itself as the world's largest independent E&P company by proved reserves and liquids and natural gas production. Year-end proved reserves were 8.6 billion BOE, with an organic reserve replacement of 156 percent in 2012, and production averaged 1.58 million BOE per day including discontinued operations.
The filing shows a weaker operating backdrop and significant balance-sheet changes. Continuing-operations sales and other operating revenues fell 10 percent to $58.0 billionb, driven by lower natural gas, natural gas liquids and bitumen prices, while Henry Hub gas prices dropped 31 percent. Canada posted a $684 million loss, largely due to a $520 million after-tax impairment of the Mackenzie Gas Project and lower gas prices.
Total assets declined to $117.1 billionc from $153.2 billion, and total equity fell to $48.4 billion from $65.7 billion, reflecting the Downstream spin-off and $5.1 billion of share repurchases (80 million shares). Long-term debt declined to $20.8 billion, and total debt-to-capital rose to 31 percent from 26 percent. Management's strategy centers on a $8 to $10 billion asset disposition program through 2013, with $2.1 billion of proceeds realized in 2012 and about $9.6 billion of additional sales announced for closing by mid-2013 (including Kashagan, Nigeria, Algeria, and Cedar Creek Anticline).
The 2013 capital program is $15.8 billiond, with guidance for 2013 continuing-operations production of 1.475 to 1.525 million BOE per day and a 3 to 5 percent annual production and margin growth ambition over five years. Investors should weigh the attractive growth pipeline in shale plays, LNG and oil sands against near-term price pressure, impairments, and execution risk on large projects and asset sales.
02—Key points
Key Highlights
- Completed the April 30, 2012 separation of the Downstream business into Phillips 66; Downstream results are reported as discontinued operations for all periods.
- Continuing-operations income of $7.5 billion (diluted EPS $5.91) rose 4% year over year, aided by $1.6 billion in gains on asset dispositions.
- Sales and other operating revenues fell 10% to $58.0 billion, reflecting lower natural gas, NGL and bitumen prices, with Henry Hub gas down 31%.
- Year-end proved reserves were 8.6 billion BOE, with 156% organic reserve replacement; production from continuing operations averaged 1,527 MBOED.
- Returned capital through $5.1 billion of share repurchases (80 million shares) and $3.3 billion of dividends (66 cents quarterly).
- Announced roughly $9.6 billion of additional asset sales expected to close by mid-2013, building toward an $8 to $10 billion disposition target through 2013.
- Total assets fell to $117.1 billion and total debt-to-capital rose to 31% from 26%, while the 2013 capital program is set at $15.8 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 19, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $57.97B$64.20B | −9.7% |
| R&D Expenses | $221.00M$193.00M | +14.5% |
| SG&A Expenses | $1.11B$865.00M | +27.9% |
| Operating Expenses | $46.58B$50.67B | −8.1% |
| Operating Income | $7.41B$7.13B | +4.0% |
| Interest Expense | $1.17B$1.23B | −4.9% |
| Net Income | $8.43B$12.44B | −32.2% |
| EPS (Basic) | $6.77$9.04 | −25.1% |
| EPS (Diluted) | $6.72$8.97 | −25.1% |
| Shares Outstanding (Basic) | 1.24M1.38M | −9.5% |
| Shares Outstanding (Diluted) | 1.25M1.39M | −9.7% |
05—Questions
Frequently Asked Questions
How did the Downstream separation change ConocoPhillips as an investment?
After the April 30, 2012 spin-off of Phillips 66, ConocoPhillips became a pure-play independent E&P company focused on exploration, development and production of crude oil, bitumen, natural gas and LNG. Shareholders received one Phillips 66 share for every two ConocoPhillips shares, and the company received a $7.8 billion special cash distribution, of which $748 million remained as restricted cash at year-end. Prior periods were restated so refining, marketing and midstream results appear as discontinued operations, which makes continuing-operations results more comparable going forward.
What drove the 2012 earnings and what weighed on performance?
Earnings rose 4% to $7.5 billion, mainly from higher gains on asset sales ($1.6 billion after-tax versus $141 million in 2011), higher LNG and crude prices, lower production taxes, a $236 million tax loss carryforward benefit and $235 million in favorable claim settlements. These were offset by lower volumes from dispositions and China curtailments, lower natural gas, NGL and bitumen prices, higher SG&A including pension settlement and separation costs, and higher impairments of about $900 million after-tax, including the $520 million Mackenzie Gas Project write-down.
What is the outlook for production and capital spending?
For 2013, management expects continuing-operations production of 1.475 to 1.525 million BOE per day, roughly consistent with 2012 adjusted for dispositions. The capital program is $15.8 billion including $0.8 billion for FCCL contributions, with about $14.7 billion for continuing operations, 4% above 2012 actual spending. About 60% is directed to North America, focused on Eagle Ford, Bakken, Permian, Niobrara and Alaska, while the remainder targets APLNG in Australia, Norway, the U.K., Malaysia, China and exploration. Management targets 3 to 5 percent annual production and margin growth over five years, to be funded organically.
What are the main risks and legal or contingent exposures highlighted?
Key risks include commodity price volatility, reserve replacement risk, environmental and climate regulation, hydraulic fracturing rules, and political or fiscal changes abroad, with about 56% of 2012 hydrocarbon production and 57% of proved reserves outside the U.S. Specific exposures include the Venezuela ICSID arbitration (with a $173 million after-tax reversal of a contingent accrual and $68 million received from PDVSA), the Ecuador expropriation case where liability was found in Burlington's favor with damages still to be determined, a Timor-Leste tax arbitration over about $227 million paid under protest, and several U.S. state and federal environmental enforcement matters. Management states that none is expected to have a material adverse effect on consolidated financial position.
How does the company's balance sheet and shareholder return policy look after 2012?
Long-term debt declined to $20.8 billion, and total debt was $21.7 billion at year-end, with commercial paper and a $7.5 billion revolving facility providing liquidity. Credit ratings were A1 (Moody's) and A (S&P and Fitch). Total equity dropped to $48.4 billion from $65.7 billion, reflecting the spin-off and buybacks, and debt-to-capital rose to 31%. Management said it has no current plans for further repurchases beyond opportunistic buybacks dependent on commodity prices and asset disposition proceeds, and the quarterly dividend was maintained at $0.66 per share.
06—Continue