Capital Markets | Capital Expenditure | Capital Expenditure - 2022

ConocoPhillips Bolsters Spending by 30% for 2022; Bets Bulk on Lower 48

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   |    Monday,December 06,2021

ConocoPhillips has detailed its 2022 capital plan on the heels of closing its multi-billion dollar acquisition of Shell's Permian assets.

2022 Plans

- Capital Budget: $7.2 billion - up 31% from $5.5 billion in spending for 2021

• Lower 48 Unconventional: ~$4.32 billion (60%)

• Alaska & International: ~$2.88 billion (40%) - Funds will be allocated toward mid- and longer-cycle projects across the company's diverse Alaska and International regions, including ongoing project and development activity in Alaska, a second Central Processing Facility in the Montney play, bolt-on developments in Asia Pacific, and both project and development activity in Norway

• $0.7 billion is earmarked for costs relating to the recent Permian transaction

• Emission Reduction Projects: ~$200 million

- Production: Annual average production of ~1.8 MMBOED

• This includes expected annual production from the recent Permian transaction of approximately 200 MBOED

- Shareholder Returns: Expected 2022 return of capital to shareholders of ~$7 billion, representing a ~16% increase versus 2021. The company is initiating a three-tier capital return program that will consist of a compelling ordinary dividend tier, a share repurchase tier, and a newly authorized quarterly variable return of cash (VROC) tier. The first VROC of $0.20 per share will be paid on Jan. 14, 2022, to shareholders of record as of Jan. 3, 2022.

ConocoPhillips CEO and Chairman Ryan Lance commented, "At mid-year, we presented a truly differential 10-year plan that embraced our Triple Mandate for how we will play a valued role in the energy transition: safely produce low cost of supply, low-GHG-intensity barrels to the market, deliver compelling financial and capital returns to investors, and meet a net-zero ambition. Today's announcement builds upon each element of the Triple Mandate and supports our belief that ConocoPhillips is the most durable, investable company in the E&P business. With the recent Permian acquisition, we're in an even stronger position to build upon our success in 2021 as we head into next year."

Three-Tiered Returns of Capital Framework

The company also announced its expected 2022 returns of capital program and the initiation of a three-tier returns of capital framework. The three-tier framework is structured to continue delivering a compelling, growing ordinary dividend and through-cycle share repurchases, now with the addition of a variable return of cash (VROC) tier. The VROC tier will provide another flexible tool for meeting the company's commitment of returning greater than 30% of CFO during periods when commodity prices are meaningfully higher than the company's planning price range.

The VROC will be determined and approved each quarter by the board of directors at the same time the ordinary dividend is reviewed. The factors considered in determining the VROC will include the anticipated level of distributions required to meet the company's capital returns commitment, forward prices, balance sheet cash and total yield. The VROC will be announced at the same time as the ordinary dividend, but the quarterly payout will be staggered from the ordinary dividend payout, resulting in up to eight cash distributions to shareholders throughout the year.

As the company considers the business outlook, including forward commodity prices, it has set its expected 2022 capital returns to shareholders at ~$7 billion. This would represent a ~16% increase in returns of capital versus 2021 and is expected to be allocated roughly equally between cash and share repurchases across the three distribution tiers as follows:

• The annualized current ordinary dividend, estimated at ~$2.4 billion subject to board review and approval;
• Expected share repurchases of approximately $3.5 billion, including approximately $1 billion funded through remaining Cenovus share sales, and;
• A VROC of approximately $1 billion subject to board review and approval, anticipated to be distributed ratably on a quarterly basis.
• The first VROC payment of $0.20 per share is payable on Jan. 14, 2022, to shareholders of record as of Jan. 3, 2022.

Lance added: "Over the past five years we have consistently delivered on our commitment to return greater than 30% of CFO to shareholders through our attractive ordinary dividend and almost $13 billion of share repurchases. We have been recognized for our through-cycle returns of capital and remain fully committed to this priority. We believe the greatest sustained value from a capital returns program comes from consistent execution and a compelling level of payout, but we also recognize that meeting our returns commitment in the current favorable commodity price environment creates a need for a variable cash tier. The basis of our capital returns approach is CFO-driven, and our new three-tier framework can more easily flex distributions with commodity prices, while retaining some discretion in allocation across the tiers. We are excited to initiate the three-tier program with an immediate cash distribution.

Lance concluded, "We are exiting 2021 after a truly exceptional year with a differential long-term plan built around our Triple Mandate. We expect to play an essential role in the energy transition by executing sound investment plans, delivering superior and consistent returns through cycles and meeting our net-zero ambition, while retaining the flexibility to successfully adapt as the future unfolds."