ConocoPhillips Market Update Reaffirms Commitment to Disciplined, Returns-Focused Strategy with Compelling 2022-2031 Plan
ConocoPhillips (NYSE: COP) is hosting a market update to reaffirm its disciplined, returns-focused strategy initiated in 2016. Key highlights include increasing the anticipated annual synergies from the Concho acquisition to $1 billion, alongside reductions in capital expenditures and operating costs by $200 million and $100 million, respectively. The company plans to increase share repurchases by $1 billion, totaling approximately $6 billion in distributions for 2021. Over a 10-year plan, it's projected to generate $145 billion in cash from operations and return over $65 billion to shareholders, while targeting net-zero emissions by 2050.
- Increasing annual synergies from the Concho acquisition to $1 billion.
- Reducing 2021 capital expenditures and operating costs guidance by $200 million and $100 million, respectively.
- Planned share repurchases increased by $1 billion, totaling approximately $6 billion in distributions for 2021.
- Projected cash from operations of ~$145 billion and free cash flow of ~$70 billion over the 10-year plan.
- Expected annual capital expenditures averaging approximately $7 billion, enabling ~3% annual production growth.
- Estimated shareholder returns of over $65 billion across the plan period, funded by cash from operations.
- Annual growth of return on capital employed projected at 1 to 2 percentage points.
- None.
ConocoPhillips (NYSE: COP) will host a market update today to reaffirm its commitment to the disciplined, returns-focused strategy it launched in 2016. The company will outline details of a compelling 2022-2031 operating and financial plan that reflects numerous transformational activities undertaken over the past 18 months, most notably the acquisition of Concho.
“We’re looking forward to providing today’s market update, which comes at a defining moment for our sector,” said Ryan Lance, chairman and chief executive officer. “We believe we’re entering a constructive environment for the business, but we also recognize that we’re in a period of evolving energy transition. ConocoPhillips is meeting this moment with a very compelling plan that is resilient and durable, but also flexible. We can and will adapt as the future plays out, all while remaining focused on delivering superior returns to shareholders through cycles. We don’t believe any other company in our E&P sector offers a more investable plan for this vital business.”
Today’s market update includes the following highlights:
-
Increasing anticipated Concho transaction-related synergies and savings to
$1 billion annually; -
Reducing 2021 capital expenditures and adjusted operating cost guidance by
$200 million and$100 million , respectively, due to stronger-than-projected business execution; -
Increasing 2021 planned share repurchases by
$1 billion , bringing total planned distributions for the year to approximately$6 billion , or7% of current market capitalization; -
Expected cash from operations of ~
$145 billion and free cash flow of ~$70 billion over the 10-year plan period at$50 per barrel WTI based on 2020 real prices, escalating at2% annually; -
Capital expenditures expected to average approximately
$7 billion annually, resulting in approximately3% compounded annual production growth at an average reinvestment rate of ~50% ; -
Over
$65 billion in estimated shareholder returns of capital across the plan period, fully funded from cash from operations; - Return on capital employed projected to grow 1 to 2 percentage points annually, with balance sheet strength further improving throughout the plan period; and
- Progress on the company’s ambition to become net-zero for operational (Scope 1 and 2) emissions by 2050.
Lance continued, “We have embraced a new imperative for the business that we call the Triple Mandate. We want to play a valued role in whatever pathway the energy transition takes by investing in the lowest cost of supply barrels, delivering competitive returns of and on capital, and achieving our net-zero emissions ambition. Since 2016, we’ve been on a continuous path to be the most relevant, sustainable E&P company in the business. Today’s strong 10-year plan takes another step forward in that direction.”
The ConocoPhillips market update will begin at 9:00 a.m. Central time and is expected to be roughly two hours in duration, including a question-and-answer session. A link to the live webcast and slide deck will be available on the ConocoPhillips Investor Relations website, www.conocophillips.com/investor, roughly 15 minutes prior to the start of the webcast. The event will also be archived and available for replay later in the day, with a transcript posted shortly afterward.
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About ConocoPhillips
Headquartered in Houston, Texas, ConocoPhillips had operations and activities in 15 countries,
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Use of Non-GAAP Financial Information – This news release contains certain financial measures that are not prepared in accordance with GAAP, including operating costs, adjusted operating costs, cash from operations, free cash flow and return on capital employed (ROCE).
The company believes that the non-GAAP measures operating costs and adjusted operating costs are useful to investors to help facilitate comparisons of the company’s operating performance associated with the company’s core business operations across periods on a consistent basis and with the performance and cost structures of peer companies by excluding items that do not directly relate to the company’s core business operations. Operating costs is defined by the company as the sum of production and operating expenses, selling, general and administrative expenses, exploration general and administrative expenses, geological and geophysical, lease rentals and other exploration expenses. Adjusted operating costs is defined as the company’s operating costs further adjusted to exclude expenses that do not directly relate to the company’s core business operations and are included as adjustments to arrive at adjusted earnings to the extent those adjustments impact operating costs. The company further believes that the non-GAAP measure cash from operations is useful to investors to help understand changes in cash provided by operating activities excluding the timing effects associated with operating working capital changes across periods on a consistent basis and with the performance of peer companies. The company believes free cash flow is useful to investors in understanding how existing cash from operations is utilized as a source for sustaining our current capital plan and future development growth. Free Cash Flow is defined as cash from operations net of capital expenditures and investments. Free cash flow is not a measure of cash available for discretionary expenditures since the company has certain non-discretionary obligations such as debt service that are not deducted from the measure. The company believes that ROCE is a good indicator of long-term company and management performance. ROCE is a measure of the profitability of ConocoPhillips’ capital employed in its business. ConocoPhillips calculates ROCE as a ratio, the numerator of which is historically reported or forecasted net income plus after-tax interest expense and the denominator of which is average total equity plus total debt. The company believes that the above-mentioned non-GAAP measures, when viewed in combination with the company’s results prepared in accordance with GAAP, provides a more complete understanding of the factors and trends affecting the company’s business and performance. The company’s Board of Directors and management also use these non-GAAP measures to analyze the company’s operating performance across periods when overseeing and managing the company’s business.
Each of the non-GAAP measures included in this news release has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the company’s presentation of non-GAAP measures in this news release and the accompanying supplemental financial information may not be comparable to similarly titled measures disclosed by other companies, including companies in our industry. The company may also change the calculation of any of the non-GAAP measures included in this news release and the accompanying supplemental financial information from time to time in light of its then existing operations to include other adjustments that may impact its operations.
Any non-GAAP measures related to current period included herein will be accompanied by a reconciliation to the nearest corresponding GAAP measure at the end of this news release. For forward-looking non-GAAP measures, we are unable to provide a reconciliation to the most comparable GAAP financial measures because the information needed to reconcile these measures is dependent on future events, many of which are outside management’s control as described above. Additionally, estimating such GAAP measures and providing a meaningful reconciliation consistent with our accounting policies for future periods is extremely difficult and requires a level of precision that is unavailable for these future periods and cannot be accomplished without unreasonable effort. Forward looking non-GAAP measures are estimated consistent with the relevant definitions and assumptions.
| ConocoPhillips | ||||||
| Table 1: Reconciliation of production and operating expenses to adjusted operating costs | ||||||
| $ millions, except as indicated | ||||||
| 2021 FY Guidance |
||||||
| Production and operating expenses | ~5,575 | |||||
| Adjustments: | ||||||
| Selling, general and administrative (G&A) expenses | ~625 | |||||
| Exploration G&A, G&G and lease rentals | ~275 | |||||
| Operating costs | ~6,475 | |||||
| Adjustments to exclude special items: | ||||||
| Transaction and restructuring expenses | ~(375) | |||||
| Adjusted operating costs | ~6,100 | |||||
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