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ConocoPhillips Second Quarter 2022 Results; $5.1 Billion in Earnings

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ConocoPhillips reported its second quarter 2022 results.

2Q Overview

The company reported second-quarter 2022 earnings of $5.1 billion, or $3.96 per share, compared with second-quarter 2021 earnings of $2.1 billion, or $1.55 per share. Excluding special items, second-quarter 2022 adjusted earnings were $5.1 billion, or $3.91 per share, compared with second-quarter 2021 adjusted earnings of $1.7 billion, or $1.27 per share. Special items for the current quarter were comprised of gains on asset sales including contingent payments related to prior dispositions, partially offset by a loss on debt extinguishment and a Norway tax reform-related adjustment.

In addition, ConocoPhillips today announced a $5 billion increase in planned 2022 return of capital to $15 billion. The company declared both a third-quarter ordinary dividend of 46 cents per share and a fourth-quarter variable return of cash (VROC) payment of $1.40 per share.

"The second quarter delivered strong financial results and presented outstanding opportunities to accelerate progress on our Triple Mandate to reliably and responsibly deliver oil and gas production to meet energy transition pathway demand, deliver competitive returns on and of capital for our shareholders, and achieve our net-zero operational emissions ambition," said Ryan Lance, chairman and chief executive officer. "We're increasing our targeted 2022 return to shareholders by an additional $5 billion while taking steps to meet transition demand with recent announcements to expand our global LNG portfolio. We also progressed our ESG priorities by committing to an important initiative to verifiably measure and report methane emissions and published both our 2021 Sustainability and Human Capital Management reports to share how we're meeting those priorities."

Second-Quarter Highlights and Recent Announcements:

• Announced a $5 billion increase in expected 2022 return of capital to shareholders to a total of $15 billion.
• Distributed $3.3 billion to shareholders through a three-tier framework, including $1.0 billion in cash through the ordinary dividend and VROC and $2.3 billion through share repurchases.
• Expanded global LNG portfolio through participation in QatarEnergy's North Field East LNG project and announced a non-binding Heads of Agreement with Sempra Infrastructure with opportunities to participate in large-scale LNG projects, an LNG offtake of approximately 5 million tonnes per annum and related carbon capture activities.
• As part of an ongoing commitment to ESG excellence and leadership, ConocoPhillips joined the Oil and Gas Methane Partnership (OGMP) 2.0 initiative.
• Generated cash provided by operating activities of $7.9 billion and cash from operations (CFO) of $7.8 billion.
• Delivered second-quarter production of 1,692 MBOED while successfully completing planned maintenance turnarounds.
• Continued progress toward the company's $5 billion debt reduction target through $1.8 billion of debt retirements during the quarter, now totaling $3 billion since announcing the target.
• Completed $0.4 billion of noncore asset sales during the quarter.
• Ended the quarter with cash and short-term investments of $8.5 billion

Quarterly Dividend and Variable Return of Cash

ConocoPhillips announced a quarterly ordinary dividend of 46 cents per share, payable Sept. 1, 2022, to stockholders of record at the close of business on Aug. 16, 2022. In addition, the company announced a fourth-quarter VROC of $1.40 per share, payable Oct. 14, 2022, to stockholders of record at the close of business on Sept. 29, 2022.

Second-Quarter Review

Production for the second quarter of 2022 was 1,692 thousand barrels of oil equivalent per day (MBOED), an increase of 104 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions and the conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis, second-quarter 2022 production decreased by 69 MBOED or 4% from the same period a year ago. Organic growth from Lower 48 and other development programs more than offset decline; however, production was lower overall primarily due to planned and unplanned downtime.

In the Lower 48, production averaged 977 MBOED, including 634 MBOED from the Permian, 233 MBOED from the Eagle Ford and 91 MBOED from the Bakken. In Canada, drilling and completion activities continued at Montney while construction progressed on the second phase of the company's processing facility. Turnarounds were successfully completed in Europe and Canada. In Qatar, the company signed an agreement with QatarEnergy to form a new joint venture that will participate with a 12.5% interest in the North Field East LNG project. Subject to regulatory approvals, ConocoPhillips will hold a 25% interest in this joint venture.

Earnings and adjusted earnings increased from second-quarter 2021 primarily due to higher realized prices. The company's total average realized price was $88.57 per barrel of oil equivalent (BOE), 77% higher than the $50.03 per BOE realized in the second quarter of 2021, as production remains unhedged and thus realizes the full impact of changes in marker prices.

For the quarter, cash provided by operating activities was $7.9 billion. Excluding a $0.1 billion change in operating working capital, ConocoPhillips generated CFO of $7.8 billion. Dispositions generated $0.6 billion from the sale of Lower 48 noncore assets and contingent payments received. The company funded $2.0 billion of capital expenditures and investments, paid $1.9 billion to reduce total debt, distributed $1.0 billion in ordinary dividends and VROC and repurchased $2.3 billion of shares.

Six-Month Review

ConocoPhillips' six-month 2022 earnings were $10.9 billion, or $8.36 per share, compared with six-month 2021 earnings of $3.1 billion, or $2.31 per share. Six-month 2022 adjusted earnings were $9.4 billion, or $7.18 per share, compared with six-month 2021 adjusted earnings of $2.6 billion, or $1.97 per share.

Production for the first six months of 2022 was 1,720 MBOED, an increase of 162 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions, the conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis, and 2021 Winter Storm Uri impacts, production decreased 53 MBOED or 3% from the same period a year ago. Organic growth from Lower 48 and other development programs more than offset decline; however, production was lower overall primarily due to planned and unplanned downtime.

The company's total realized price during this period was $82.70 per BOE, 73% higher than the $47.79 per BOE realized in the first six months of 2021, reflecting higher marker prices.

In the first half of 2022, cash provided by operating activities was $13.0 billion. Excluding a $1.9 billion change in working capital, ConocoPhillips generated CFO of $14.9 billion. Dispositions generated $3.0 billion, including $1.4 billion from sale of Cenovus Energy (CVE) shares, with the proceeds from CVE sales applied to share repurchases. The company funded $5.1 billion of capital expenditures and investments, comprised of $3.7 billion in operating capital and $1.4 billion to acquire an additional 10% interest in Australia Pacific LNG. In addition, the company paid $1.9 billion in ordinary dividends and VROC, repurchased $3.7 billion of shares and paid $2.9 billion to reduce total debt.

Outlook

Third-quarter 2022 production is expected to be 1.70 to 1.76 million barrels of oil equivalent per day (MMBOED), reflecting the impacts of planned seasonal turnarounds primarily in Alaska and the Asia-Pacific region. The company's full-year production is expected to be approximately 1.74 MMBOED reflecting uncertainty in Libya and modest updates across the portfolio.

The company updated its 2022 adjusted operating cost guidance to $7.5 billion versus the prior guidance of $7.3 billion, reflecting commodity price-related impacts. Full-year guidance for adjusted corporate segment net loss has been lowered to $0.9 billion from $1.0 billion primarily due to lower net interest expense. Full-year guidance for depreciation, depletion and amortization has decreased to $7.6 billion. Capital guidance remains unchanged.