01—Abstract
Summary
Summary of the 10-K filed February 19, 2019. Cited figures are marked; the original filing is the authoritative source.
ConocoPhillips (COP) reported a strong 2018 financial turnaround in its 10-K filed February 19, 2019.
Net income attributable to ConocoPhillips rose to $6,257 milliona from a $855 million loss in 2017, driven mainly by higher realized prices (worldwide realized price up 37% to $53.88 per BOE), the absence of 2017 impairments (total impairments fell to $27 million from $6,601 million), a $774 million after-tax gain on the Clair Field disposition to BP, and a $417 million after-tax settlement with PDVSA. Cash provided by operating activities nearly doubled to $12.9 billion, comfortably covering $6.8 billion of capital expenditures and investments plus $3.0 billion of share repurchases and $1.4 billion of dividends. Balance sheet deleveraging was a central theme.
Total debt was cut by $4.7 billion to $15.0 billionb, reaching the $15 billion target 18 months early, and the company received credit rating upgrades from Fitch, Moody's and S&P. The debt-to-capital ratio fell to 32% from 39%. The Board also raised the quarterly dividend 15% to $0.305 per share and authorized an incremental $9 billion of buybacks, bringing the total program to $15 billion, with $3 billion expected to be executed in 2019.
Looking forward, the company guided 2019 production to 1,300 to 1,350 MBOED excluding Libya (versus 1,242 MBOED in 2018) on a $6.1 billionc capital budget, which is lower than 2018 spending. The plan assumes cash from operations exceeds capital spending at prices above $40 per barrel WTI. Key risks flagged include commodity price volatility (the sharp fourth-quarter 2018 oil price drop), a Lower 48 reserve revision tied to development timing, the Lost Cabin Gas Plant fire, pending asset sales (Golden Pass LNG stake, Greater Sunrise), and ongoing climate-related litigation.
02—Key points
Key Highlights
- Net income attributable to ConocoPhillips of $6,257 million in 2018, versus a $855 million loss in 2017, reflecting higher realized prices and the absence of 2017 impairments.
- Worldwide realized price rose 37% to $53.88 per BOE, with crude oil up 31% to $68.13 per barrel, supported by a shift toward a more liquids-weighted portfolio.
- Cash provided by operating activities of $12.9 billion (up 83%) covered $6.8 billion of capital spending, $3.0 billion of buybacks and $1.4 billion of dividends.
- Total debt reduced by $4.7 billion to $15.0 billion, hitting the $15 billion target 18 months ahead of plan; Fitch, Moody's and S&P all upgraded ratings in 2018.
- Quarterly dividend increased 15% to $0.305 per share, and the Board authorized an additional $9 billion of share repurchases, for a total program of $15 billion.
- Year-end 2018 proved reserves of 5.3 billion BOE, a 147% total reserve replacement ratio and 109% organic replacement ratio.
- 2019 capital budget of $6.1 billion targets production of 1,300 to 1,350 MBOED excluding Libya, versus 1,242 MBOED in 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 19, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $36.42B$29.11B | +25.1% |
| Cost of Revenue | $14.29B$12.47B | +14.6% |
| Gross Profit | $22.12B$16.63B | +33.0% |
| R&D Expenses | $78.00M$100.00M | −22.0% |
| SG&A Expenses | $401.00M$427.00M | −6.1% |
| Interest Expense | $838.00M$1.11B | −24.8% |
| Net Income | $6.26B-$855.00M | +831.8% |
| EPS (Basic) | $5.36$-0.70 | +865.7% |
| EPS (Diluted) | $5.32$-0.70 | +860.0% |
| Shares Outstanding (Basic) | 1.17M1.22M | −4.5% |
| Shares Outstanding (Diluted) | 1.18M1.22M | −3.7% |
05—Questions
Frequently Asked Questions
How did ConocoPhillips' profitability change in 2018 and what drove it?
Net income attributable to ConocoPhillips swung to $6,257 million from a $855 million loss in 2017. The main drivers were higher realized commodity prices on a more crude-weighted portfolio, the absence of roughly $6.6 billion of 2017 impairments, a $774 million after-tax gain on the Clair Field sale, and a $417 million after-tax PDVSA settlement recognition. These were partly offset by the absence of 2017 disposition gains and tax benefits, and an $437 million unrealized loss on Cenovus shares.
Is the company's dividend and buyback program sustainable?
Management states that 2018 dividends, buybacks and the capital program were fully funded by operating cash flow, which totaled $12.9 billion against $4.4 billion of dividends and repurchases. The 2019 plan assumes operating cash flow exceeds capital spending at prices above $40 per barrel WTI. The filing notes, however, that dividends and repurchases are at the Board's discretion and could be reduced if commodity prices fall.
What are the main risks investors should monitor?
Key risks include commodity price volatility, which the filing highlights after the sharp fourth-quarter 2018 crude price decline; potential future impairments if prices remain low; the 2018 Lower 48 reserve revisions caused by development timing changes; the Lost Cabin Gas Plant fire, which will cut about 7 MBOED of 2019 production; the ability to complete pending asset sales such as the Golden Pass LNG stake and Greater Sunrise; PDVSA payment collection risk on the roughly $2 billion settlement; and climate-related lawsuits from several US cities, counties and states.
What is the outlook for production and capital spending in 2019?
The company expects 2019 production excluding Libya of 1,300 to 1,350 MBOED, up from 1,242 MBOED in 2018, with a first-quarter dip to 1,290 to 1,330 MBOED due to a Qatar turnaround and Canadian government-mandated curtailments. The capital budget is $6.1 billion, roughly 70% of which goes to development drilling, mainly in Lower 48 unconventionals (Eagle Ford, Bakken and Delaware), with the remainder for base maintenance, major projects and exploration.
How strong is the balance sheet after the 2018 debt reduction?
Total debt fell to $14,968 million at year-end 2018 from $19,703 million a year earlier, and total debt to capital dropped to 32% from 39%. Cash and cash equivalents were $5.9 billion, with $6.0 billion of undrawn revolving credit capacity and no commercial paper outstanding. The company has no ratings triggers on its corporate debt that would cause an automatic default on a downgrade.
06—Continue