01—Abstract
Summary
Summary of the 10-K filed February 25, 2014. Cited figures are marked; the original filing is the authoritative source.
ConocoPhillips (COP) reported 2013 results that reflect a company in active portfolio transition: it sold roughly $10.2 billiona of non-core assets in 2013 (including its 8.4% Kashagan stake and Algeria business), bringing 2012–2013 disposition proceeds to $12.4 billion, above its $8–10 billion goal.
Income from continuing operations rose 7% to $8.0 billionb ($6.43 diluted EPS), helped by lower impairments, higher natural gas prices and a richer mix of liquids-weighted, higher-margin production, partly offset by lower gains on asset sales and lower crude and NGL prices. Total net income attributable to ConocoPhillips was $9.2 billion, including $1.2 billion from discontinued operations. Operationally, average production from continuing operations was 1,502 MBOED, down 2% year over year due to field decline, dispositions and the Libya shut-in, though up about 2% on an adjusted basis.
The company achieved a 179% organic reserve replacement ratio and grew proved reserves to 8.9 billion BOE. Cash from continuing operations rose 17% to $15.8 billionc, which covered a $16.9 billion capital program, $3.3 billion in dividends and the $2.8 billion prepayment of the FCCL joint venture acquisition obligation. The quarterly dividend was raised 4.5% to $0.69 per share.
Looking ahead, management guided to 3–5% annual production and margin growth beginning in 2014, with a 2014 capital budget of $16.7 billiond (about 55% North America) and full-year 2014 production expected near 1,550 MBOED excluding Libya. Key watch items for investors include the Libya Es Sider shutdown, the pending Nigeria sale, a roughly $540 million after-tax charge tied to the Freeport LNG regasification termination, and the early-stage Alaska LNG and Australia Pacific LNG projects, which depend on large future capital commitments.
02—Key points
Key Highlights
- Disposition program exceeded target: $10.2 billion of 2013 asset sale proceeds (Kashagan, Algeria, Cedar Creek Anticline, Clyden, Phoenix Park) brought the 2012–2013 total to $12.4 billion versus a $8–10 billion goal.
- Earnings up 7%: income from continuing operations of $8.0 billion ($6.43 diluted EPS), vs. $7.5 billion in 2012, aided by lower impairments and higher natural gas prices.
- Production of 1,502 MBOED from continuing operations was down 2% year over year, but grew about 2% when adjusted for dispositions, downtime and the Libya Es Sider closure.
- Strong reserve replacement: 179% organic reserve replacement and total proved reserves of 8.9 billion BOE, with 37% of proved reserves classified as proved undeveloped.
- Cash generation and returns: $15.8 billion of operating cash flow from continuing operations (up 17%), $3.3 billion of dividends, and a 4.5% quarterly dividend increase to $0.69 per share.
- Balance sheet: total debt of $21.7 billion at a 29% debt-to-capital ratio, A1/A ratings, and $7.5 billion of undrawn revolving credit capacity; $2.8 billion FCCL obligation prepaid in December 2013.
- 2014 outlook: $16.7 billion capital budget and guidance for 3–5% annual production and margin growth, with 2014 production expected around 1,550 MBOED excluding Libya.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 25, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $54.41B$57.97B | −6.1% |
| R&D Expenses | $258.00M$221.00M | +16.7% |
| SG&A Expenses | $854.00M$1.11B | −22.8% |
| Operating Expenses | $43.80B$46.58B | −6.0% |
| Operating Income | $7.98B$7.41B | +7.6% |
| Interest Expense | $1.09B$1.17B | −7.1% |
| Net Income | $9.16B$8.43B | +8.6% |
| EPS (Basic) | $7.43$6.77 | +9.7% |
| EPS (Diluted) | $7.38$6.72 | +9.8% |
| Shares Outstanding (Basic) | 1.23M1.24M | −1.0% |
| Shares Outstanding (Diluted) | 1.24M1.25M | −1.1% |
05—Questions
Frequently Asked Questions
How much did ConocoPhillips earn in 2013, and what drove the change?
Income from continuing operations was $8.0 billion, or $6.43 per diluted share, up 7% from $7.5 billion in 2012. Net income attributable to ConocoPhillips was $9.2 billion, including $1.2 billion from discontinued operations. Drivers included lower impairments ($289 million after-tax versus $900 million in 2012), higher natural gas prices and a greater share of higher-margin liquids. These were partly offset by lower gains on asset sales ($1.1 billion versus $1.6 billion), higher operating expenses and lower crude and NGL prices.
Is production growing, and what is the 2014 outlook?
Reported 2013 production from continuing operations fell 2% to 1,502 MBOED, mainly because of normal field decline, asset sales and the Libya shut-in after the Es Sider terminal closed. Excluding those factors, production grew about 2%. For 2014, management expects full-year production of roughly 1,550 MBOED excluding Libya, and it targets 3–5% annual production and margin growth starting in 2014. First-quarter 2014 production is guided to 1,490–1,530 MBOED.
What are the main risks and one-time charges investors should watch?
Key items include the continued Libya production shut-in, the Freeport LNG regasification agreement termination (expected to cost about $600 million in fees and a roughly $540 million after-tax charge in the second half of 2014), and the pending sale of the Nigeria business, expected to generate about $1.5 billion plus Brass LNG proceeds. The company also faces exposure to commodity price volatility, ongoing international expropriation arbitrations with Venezuela and Ecuador, and large-scale capital commitments to projects such as APLNG, Surmont, and the proposed Alaska LNG project.
How is ConocoPhillips funding its capital program and returning cash to shareholders?
The company funded a $16.9 billion capital program in 2013 using $15.8 billion of operating cash flow and $10.2 billion of asset sale proceeds. It paid $3.3 billion in dividends and prepaid the remaining $2.8 billion FCCL joint venture obligation. Share repurchases under the $10 billion program were not made in 2013; about $5.1 billion had been bought back since the program began in 2011, and the program expired in December 2013. The 2014 capital budget of $16.7 billion is roughly flat versus 2013.
How strong is the balance sheet and what are the credit ratings?
Total debt was $21.7 billion at year-end 2013, roughly flat with 2012, and the debt-to-capital ratio improved to 29% from 31%. Senior long-term debt is rated A1 by Moody's and A by S&P and Fitch. The company has a $7.5 billion revolving credit facility expiring in August 2016, with $6.5 billion of available capacity after $961 million of commercial paper outstanding. Cash and equivalents rose to $6.2 billion at year-end 2013.
06—Continue