10-QPeriod: Q2 FY2019

CONOCOPHILLIPS Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 1, 2019For Securities:COP

Summary

ConocoPhillips reported solid financial results for the second quarter and first half of 2019, demonstrating resilience amidst volatile oil prices. The company generated strong operating cash flow, which comfortably covered capital expenditures and allowed for significant shareholder returns through dividends and share repurchases. A notable event during the quarter was the recognition of a substantial U.S. tax benefit related to the planned sale of its U.K. subsidiaries, which positively impacted net income. The company continues to focus on its value proposition of returns, financial strength, and disciplined growth, with management confident in its ability to navigate market uncertainties. Strategically, ConocoPhillips is actively managing its portfolio through asset dispositions and bolt-on acquisitions, exemplified by the sale of its U.K. assets and the purchase of acreage in Alaska. The company's production growth, particularly in the Lower 48 unconventional plays, remains a key driver of performance. ConocoPhillips maintained a strong liquidity position with a significant cash balance and an undrawn credit facility, reinforcing its financial stability.

Financial Statements
Beta

Key Highlights

  • 1Net income attributable to ConocoPhillips was $1.58 billion ($1.40 per diluted share) for the second quarter of 2019, a slight decrease from $1.64 billion ($1.39 per diluted share) in the prior year's second quarter.
  • 2For the six months ended June 30, 2019, net income attributable to ConocoPhillips increased to $3.41 billion ($3.00 per diluted share) from $2.53 billion ($2.13 per diluted share) in the same period of 2018, driven by higher volumes and a significant U.S. tax benefit.
  • 3Total revenues and other income for Q2 2019 were $8.38 billion, down from $9.24 billion in Q2 2018, primarily due to lower realized commodity prices.
  • 4Operating cash flow for the first six months of 2019 was $5.79 billion, a slight increase from $5.74 billion in the prior year, demonstrating consistent operational performance.
  • 5The company repurchased $1.2 billion of its common stock and paid $0.3 billion in dividends in Q2 2019, reflecting a commitment to shareholder returns.
  • 6ConocoPhillips recognized a $234 million U.S. tax benefit related to the planned sale of its U.K. subsidiaries, a significant factor contributing to the improved net income for the six-month period.
  • 7Production excluding Libya increased by 4% year-over-year on an underlying basis in Q2 2019, with a notable 26% growth from the Lower 48 Big 3 unconventional plays.

Frequently Asked Questions

The significant increase in net income for the first six months of 2019 was primarily driven by higher crude oil sales volumes, a $234 million U.S. tax benefit related to the planned sale of U.K. subsidiaries, and other income from a settlement agreement with PDVSA. These factors more than offset lower realized commodity prices and increased operating expenses.

The planned sale of ConocoPhillips' U.K. subsidiaries resulted in a $234 million U.S. tax benefit recognized in the second quarter of 2019. The company anticipates recognizing an additional gain of approximately $2 billion upon completion of the sale, subject to customary adjustments and regulatory approvals.

ConocoPhillips' priorities for allocating cash flows are to invest capital to maintain flat production and pay dividends, grow the dividend, maintain financial strength, repurchase shares, and invest for growth. In Q2 2019, cash flow from operations exceeded capital expenditures, allowing the company to return $1.2 billion to shareholders through share repurchases and $0.3 billion through dividends.

The company maintained a strong liquidity position with $6.2 billion in cash, cash equivalents, and restricted cash, along with $0.7 billion in short-term investments at the end of Q2 2019. Total debt remained stable at $14.9 billion, with debt to capital at 31%, indicating a strong financial position. ConocoPhillips also has access to a $6.0 billion undrawn revolving credit facility.