01—Abstract
Summary
Summary of the 10-K filed February 24, 2015. Cited figures are marked; the original filing is the authoritative source.
ConocoPhillips (COP), the world's largest independent exploration and production company by proved reserves and production of liquids and natural gas, reported 2014 results that declined sharply from 2013 as commodity prices collapsed in the second half of the year.
Income from continuing operations fell 28 percent to $5.8 billiona, or $4.60 diluted per share, and net income attributable to ConocoPhillips was $6.9 billion. The decline was driven mainly by lower crude oil prices, lower asset-sale gains (about $70 million after-tax versus $1.1 billion in 2013), a $540 million after-tax charge from terminating the Freeport LNG regasification agreement, and higher impairments and exploration expenses. Production from continuing operations, excluding Libya, grew 4 percent to 1,532 MBOED, and the company achieved 124 percent organic reserve replacement.
The filing's forward-looking tone is markedly more cautious. Management cut its 2015 capital budget to $11.5 billionb, a 33 percent reduction from 2014 spending of $17.1 billion, and guided to only 2 to 3 percent production growth in 2015. The company says the dividend remains its top priority, having raised the quarterly payout 5.8 percent to $0.73 in July 2014, and it expects cash flow neutrality (operating cash covering dividends and capital) by 2017.
Balance sheet strength is a key support: total debt was $22.6 billionc, debt-to-capital was 30 percent, cash was $5.1 billion, and senior debt is rated A1/A/A. Key risks include continued price weakness (Brent and WTI were in the mid-$40s per barrel in early 2015), Libya production shut-ins, Venezuela and Ecuador expropriation arbitrations, and large capital-intensive projects such as APLNG and Surmont 2.
02—Key points
Key Highlights
- Income from continuing operations fell 28 percent to $5.8 billion ($4.60 diluted EPS) in 2014, versus $8.0 billion in 2013, mainly due to lower crude prices, smaller asset-sale gains and higher impairments.
- Production from continuing operations excluding Libya rose 4 percent to 1,532 MBOED, and organic reserve replacement was 124 percent, adding about 0.7 billion BOE.
- The 2015 capital budget was cut to $11.5 billion, down 33 percent from $17.1 billion spent in 2014, with 2015 production guided to grow 2 to 3 percent.
- The quarterly dividend was raised 5.8 percent to $0.73 per share in July 2014, and total 2014 dividends paid were $3.5 billion; management calls the dividend its top priority.
- Operating cash flow from continuing operations was $16.6 billion, helped by a one-time $1.3 billion distribution from the FCCL partnership; cash and equivalents ended the year at $5.1 billion.
- Total debt was $22.6 billion with a 30 percent debt-to-capital ratio, and the company issued $3.0 billion of low-rate notes in November 2014 to refinance the 4.60% notes due 2015.
- A $540 million after-tax charge was recognized for terminating the Freeport LNG regasification agreement, and the company completed its asset disposition program with about $14.0 billion in proceeds since 2012.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 24, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $52.52B$54.41B | −3.5% |
| R&D Expenses | $263.00M$258.00M | +1.9% |
| SG&A Expenses | $735.00M$854.00M | −13.9% |
| Operating Expenses | $46.13B$43.80B | +5.3% |
| Operating Income | $5.74B$7.98B | −28.1% |
| Interest Expense | $1.06B$1.09B | −2.2% |
| Net Income | $6.87B$9.16B | −25.0% |
| EPS (Basic) | $5.54$7.43 | −25.4% |
| EPS (Diluted) | $5.51$7.38 | −25.3% |
| Shares Outstanding (Basic) | 1.24M1.23M | +0.5% |
| Shares Outstanding (Diluted) | 1.25M1.24M | +0.5% |
05—Questions
Frequently Asked Questions
Why did ConocoPhillips' earnings decline in 2014?
Earnings from continuing operations fell 28 percent, mainly because crude oil prices were lower (realized crude averaged $92.80 per barrel versus $103.32 in 2013), gains from asset sales dropped from $1.1 billion after-tax to about $70 million, impairments rose to $662 million after-tax, and the Freeport LNG termination added a $540 million after-tax charge.
Is the dividend at risk given the oil price collapse?
Management states the dividend remains its top priority and it has not reduced the payout. However, it expects cash flow neutrality only in 2017 and says it will use further capital reductions or balance sheet flexibility if needed, so the company is relying on spending cuts and asset sales rather than debt-funded payouts in the near term.
How much production growth does the company expect in 2015?
The company expects 2 to 3 percent production growth in 2015 from continuing operations excluding Libya, with first-quarter 2015 output guided to 1,570 to 1,610 MBOED. Growth is supported by projects such as Eldfisk II, APLNG and Surmont 2, although much of the 2015 capital program has been deferred in North American unconventional plays.
What are the main geographic sources of production and risk?
About 54 percent of 2014 hydrocarbon production from continuing operations came from outside the United States, and 56 percent of proved reserves were located abroad. Libya production remained shut in after the Es Sider terminal closure, Venezuela and Ecuador expropriation claims are in arbitration, and the Timor-Leste tax arbitration is pending.
How strong is the balance sheet?
Total debt was $22.6 billion at year-end 2014, up $903 million, with 30 percent debt-to-capital and 5 percent floating-rate exposure. Senior debt is rated A1 by Moody's and A by S&P and Fitch, the company has no ratings triggers on corporate debt, and it had $6.1 billion of available borrowing capacity under its $7.0 billion revolving credit facility.
06—Continue