ConocoPhillips 10-Q 2022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2022

or

For the transition period from ___________________ to ___________________

Commission file number: 001-32395

ConocoPhillips

(Exact name of registrant as specified in its charter)

925 N. Eldridge Parkway, Houston, TX 77079

(Address of principal executive offices) (Zip Code)

281-293-1000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 1,293,449,547 shares of common stock, $.01 par value, outstanding at March 31, 2022.

Table of Contents

Commonly Used Abbreviations

The following industry-specific, accounting and other terms, and abbreviations may be commonly used in this report.

PART I. Financial Information

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

Showing the first 8K of 116K characters. Open the full section

Management’s Discussion and Analysis is the company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the financial statements and notes. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “budget,” “continue,” “could,” “effort,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “target,” “will,” “would,” and similar expressions identify forward-looking statements. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,” beginning on page 51**.

The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss).

Business Environment and Executive Overview

ConocoPhillips is the world’s largest independent E&P company with operations and activities in 13 countries. Our diverse, low cost of supply portfolio includes resource-rich unconventional plays in North America; conventional assets in North America, Europe, and Asia; LNG developments; oil sands in Canada; and an inventory of global conventional and unconventional exploration prospects. Headquartered in Houston, Texas, at March 31, 2022, we employed approximately 9,400 people worldwide and had total assets of $93 billion.

Overview

Commodity prices in the first quarter of 2022 increased to levels not seen since 2014, in part due to impacts associated with the Russian invasion and conflict in Ukraine and sanctions levied against Russia as a result of the conflict. We anticipate that prices will continue to be cyclical and volatile and our view is that a successful business strategy in the E&P industry must be resilient in lower price environments, while also retaining upside during periods of higher prices. As such, we are unhedged, remain highly disciplined in our investment decisions and continue to monitor market fundamentals including the impacts associated with the conflict in Ukraine, OPEC plus supply updates, global demand for our products, oil and gas inventory levels, inflation, supply chain disruptions and the fluctuating global COVID-19 impacts.

The energy macro-environment, including energy transition, continues to evolve. We believe ConocoPhillips will play a valued role in the energy transition. We are guided by our triple mandate that simultaneously calls for us to reliably and responsibly deliver oil and gas production to meet energy transition pathway demand, deliver competitive returns on and of capital, and do so with a resilient and sustainable portfolio enabling us to achieve our net-zero operating emissions ambition. Our triple mandate is supported by financial principles and capital allocation priorities designed to allow us to deliver superior returns through the price cycles. Our financial principles consist of maintaining balance sheet strength, providing peer-leading distributions, making disciplined investments, and demonstrating ESG leadership, all of which are in service to generating competitive financial returns through the price cycles.

In the first quarter, total company production was 1,747 MBOED, resulting in cash provided by operating activities of $5.1 billion, with $0.9 billion returned to shareholders through our ordinary dividend and a VROC and $1.4 billion through share repurchases. We ended the quarter with cash, cash equivalents and short-term investments totaling $7.1 billion.

In May 2022, we announced an increase to our 2022 expected distributions through our three-tier return of capital framework of $2 billion, now totaling $10 billion for the year. This framework includes our ordinary dividend, share repurchases and the VROC tier that was introduced last December. In May, we declared our ordinary dividend of 46 cents per share and a third quarter VROC payment of 70 cents per share.

During the first quarter of 2022, we completed our monetization program for the Cenovus Energy (CVE) common shares that we obtained as partial consideration in a 2017 asset divestiture, selling our remaining 91 million shares and recognizing proceeds of $1.4 billion. Since we began selling shares in May 2021, we have generated total proceeds of $2.5 billion. Proceeds from the disposition of CVE shares were deployed towards share repurchases. See Note 5.

Additionally in the first quarter, we demonstrated our commitment to enhancing balance sheet strength by executing a debt refinancing comprised of concurrent transactions including new debt issuances, a cash tender offer and debt exchange offers. Part of the cash consideration in the cash tender and debt exchange offers was satisfied with current cash balances. In aggregate, the transactions reduced the company's total debt by $1.2 billion. The refinancing facilitates our ability to achieve our previously announced $5 billion debt reduction target by the end of 2026 while also reducing the company's annual cash interest expense. See Note 6.

In April 2022, we provided formal notice to holders of our 4.95% Notes due 2026 with principal of $1,250 million that we would retire this debt in full per the provisions in the bond indenture, with settlement scheduled for May 2022. Retirement of this bond will be sourced from cash and further accelerates progress towards our debt reduction target.

As part of our ongoing portfolio high-grading and optimization efforts, in the first quarter of 2022 we closed two transactions in our Asia Pacific segment, further strengthening our diverse, global asset portfolio. This included exercising our preemption right to purchase an additional 10 percent interest in Australia Pacific LNG Pty Ltd (APLNG) for approximately $1.4 billion after customary adjustments, and the sale of our interests in Indonesia for approximately

$0.7 billion after customary adjustments. In addition to these transactions, in the first quarter we entered into a divestiture agreement to sell our interest in noncore assets within our Lower 48 segment for $440 million before customary adjustments, which closed in April 2022. For more information on APLNG, see Note 4 and for more information on acquisition and disposition activity, see Note 3.

In 2021, we announced a target to dispose of $4 to $5 billion in assets by year-end 2023. Through the first quarter of 2022, we have disposed of $1.7 billion in assets, generating approximately $1.0 billion in disposition proceeds. We received $0.8 billion in proceeds in the current period primarily from the sale of our Indonesia assets. The proceeds from these transactions will be used in accordance with the company’s priorities

Showing the first 8K of 87K characters. Open the full section

Information about market risks for the three months ended March 31, 2022 does not differ materially from that discussed under Item 7A in our 2021 Annual Report on Form 10-K.

We maintain disclosure controls and procedures designed to ensure information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. At March 31, 2022, with the participation of our management, our Chairman and Chief Executive Officer (principal executive officer) and our Executive Vice President and Chief Financial Officer (principal financial officer) carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of ConocoPhillips’ disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded our disclosure controls and procedures were operating effectively at March 31, 2022.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

The interim-period financial information presented in the financial statements included in this report is unaudited. There are no new material legal proceedings or material developments with respect to matters previously disclosed in Item 3 of our 2021 Annual Report on Form 10-K.

There have been no material changes from the risk factors disclosed in Item 1A of our 2021 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

*There were no repurchases of common stock from company employees in connection with the company's broad-based employee incentive plans.

In late 2016, we initiated our current share repurchase program, which has a total program authorization of $25 billion of our common stock. As of March 31, 2022, we had repurchased $15.6 billion of shares. Repurchases are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Except as limited by applicable legal requirements, repurchases may be increased, decreased or discontinued at any time without prior notice. Shares of stock repurchased under the plan are held as treasury shares. See Part I—Item 1A—Risk Factors – “Our ability to execute our capital return program is subject to certain considerations” in our 2021 Annual Report on Form 10-K.

** Filed herewith.*

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.