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    Conocophillips (COP)

    Business Description

    ConocoPhillips is an independent exploration and production (E&P) company operating in 13 countries, focusing on a diverse, low-cost supply portfolio . The company explores for, produces, transports, and markets crude oil, bitumen, natural gas, LNG, and NGLs worldwide . ConocoPhillips manages its operations through six geographic segments, with significant contributions from its Lower 48 segment .

    1. Crude Oil - Explores, produces, and markets crude oil globally, serving as the largest revenue contributor.
    2. Lower 48 Segment - Manages exploration and production operations in the contiguous United States, significantly impacting overall sales.
    3. Natural Gas - Engages in the exploration, production, and marketing of natural gas across various regions.
    4. Natural Gas Liquids (NGLs) - Produces and markets NGLs, contributing to the company's diverse energy portfolio.
    5. Other Products - Includes bitumen and power, adding to the company's range of energy offerings.
    6. Alaska Segment - Oversees exploration and production activities in Alaska, contributing to the company's North American operations.
    7. Canada Segment - Focuses on oil sands and other conventional assets in Canada.
    8. Europe Segment - Manages conventional asset operations in Europe.
    9. Middle East and North Africa Segment - Engages in exploration and production activities in the Middle East and North Africa.
    10. Asia Pacific Segment - Oversees operations in Asia, including LNG developments.
    11. Other International Segment - Includes global exploration prospects outside the primary geographic segments.

    Q3 2024 Summary

    Initial Price$115.04July 1, 2024
    Final Price$109.37October 1, 2024
    Price Change$-5.67
    % Change-4.93%

    What went well

    • ConocoPhillips has effectively doubled the expected synergies from its Marathon acquisition to $1 billion, primarily through capital expenditure reductions and operating cost efficiencies, enhancing shareholder value.
    • The company plans to lower its free cash flow breakeven to the low $30s per barrel, which, along with increased synergies, supports a 34% increase in the ordinary dividend, demonstrating strong financial health and commitment to shareholder returns.
    • ConocoPhillips is experiencing strong operational performance, with the Surmont ramp-up coming online faster than originally predicted, and plans to add new pads every 12 to 18 months over the next 5 to 10 years, indicating sustainable growth potential.

    What went wrong

    • Potential oversupply in global LNG markets by 2027-2028 could negatively impact ConocoPhillips's LNG investments and profitability.
    • Uncertainty in future shareholder returns due to volatile commodity prices and market conditions. The company is unable to provide clear guidance on 2025 shareholder returns, citing factors like backwardation in oil prices and contango in gas prices.
    • Synergies from the Marathon acquisition may be overestimated, as they are based on pre-close assessments without a complete understanding of the acquired assets. The company acknowledges they haven't "gotten a complete look under the hood" yet.

    Q&A Summary

    1. Marathon Acquisition Synergies
      Q: Can you unpack the doubling of expected synergies from the Marathon acquisition?
      A: ConocoPhillips has identified clear opportunities to double expected synergies from the Marathon acquisition to $1 billion. This includes the original $500 million in run-rate savings within a year of closing and an additional $500 million reduction in 2025 capital spend, primarily from the Eagle Ford and Bakken. The reductions come from needing fewer rigs and frac crews to achieve the same outcomes, reflecting optimized costs and efficiencies.

    2. Dividend Breakeven Improvement
      Q: How does the increased synergies affect your portfolio breakeven?
      A: The long-term average free cash flow breakeven, excluding dividends, is now expected to be in the low $30s per barrel, down from the mid-$30s, due to the Marathon transaction and increased synergies. Adding the dividend brings the breakeven to about $40 per barrel. This improvement supports the 34% increase in the ordinary dividend and commitment to top-quartile dividend growth.

    3. 2025 Capital Allocation Plans
      Q: How are you thinking about capital allocation in 2025 amid market conditions?
      A: ConocoPhillips expects 2025 capital expenditures to be less than $13 billion, down from the combined $13.5 billion guidance for ConocoPhillips and Marathon in 2024. The reduction is driven by synergies and optimized activity in the Lower 48. The company plans for low single-digit production growth, balanced across the Lower 48 and A&I, while managing investments in projects like Willow, Port Arthur LNG, and Qatar expansions.

    4. Shareholder Returns Outlook
      Q: How are you thinking about pro forma shareholder returns post-Marathon acquisition?
      A: ConocoPhillips remains committed to returning a significant portion of cash flow to shareholders, historically about 45% of CFO. Despite commodity price volatility, the company plans to continue offering a compelling value proposition, with distributions likely exceeding the 30% floor target. Final decisions will consider market conditions and are expected to be communicated early next year.

    5. Capital Allocation to Marathon Assets
      Q: How will you manage capital allocation to the Marathon properties?
      A: ConocoPhillips will apply a steady-state, level-loaded approach to the Marathon assets, enhancing operational efficiencies. Unlike Marathon's previous front-loaded activity, this method has improved drilling and frac efficiencies in their existing operations. The company sees competitive cost of supply across all basins and plans to rationalize rig and frac activity while achieving modest production growth.

    6. LNG Market Outlook
      Q: Should we expect a surge of liquefaction capacity in the LNG market?
      A: ConocoPhillips anticipates some additional LNG supply coming online in the 2027–2028 timeframe if projects progress as planned. However, project delays are common, and the company expects periods of both over- and undersupply in the LNG market. Committed to LNG for long-term demand growth, they are investing across the value chain, including liquefaction, shipping, and regasification.

    7. Lower 48 Production Growth
      Q: What's driving your strong production growth in the Lower 48?
      A: The strong Lower 48 production is attributed to operational efficiencies, including more feet drilled per day and more stages fractured per day. With flat activity levels compared to 2023, they are achieving over 10% more activity. Record production was achieved in both the Permian and Eagle Ford, with improved drilling performance and efficient turnaround operations.

    8. Asset Dispositions and Portfolio Optimization
      Q: How are you approaching asset sales and portfolio optimization?
      A: ConocoPhillips has announced a target of around $2 billion in non-core asset dispositions over the next several years. Activities are well underway on multiple disposition candidates, though specifics are not disclosed due to commercial sensitivities. The Marathon transaction provides further opportunities to high-grade the portfolio.

    9. Alaska Working Interest Acquisitions
      Q: Can you discuss the recent working interest acquisitions in Alaska?
      A: ConocoPhillips exercised preemptive rights to acquire Chevron's non-operated interests in the Greater Prudhoe Area for approximately $300 million, increasing their ownership in assets they know well. The transaction, valued at a PDP-only valuation, offers compelling returns due to low cost of supply developments and premium pricing for Alaska oil.

    10. 2025 Supply-Demand Balance Outlook
      Q: What's your view on the crude oil supply-demand balance over the next few years?
      A: ConocoPhillips expects demand growth of about 1 million barrels per day in 2024, slightly softer due to factors like China's economic slowdown. With spare capacity in OPEC+ and market volatility, the company remains constructive on prices, anticipating them to be above equilibrium mid-cycle prices in the coming years.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Alaska1,7351,7091,8011,8537,0981,6701,7831,481
    Lower 4810,0458,3889,8839,92138,2379,3089,0539,080
    Canada8434498089063,006936941660
    Europe, Middle East and North Africa1,7021,3691,2111,5725,8541,4571,2961,337
    Asia Pacific4644325444731,913474543478
    Other International00--0---
    Corporate and Other2243433345
    Intersegment Eliminations(344)(402)0-(1,874)---
    Crude Oil8,9048,96510,0279,93737,8339,56310,1129,806
    Natural Gas4,4121,8602,2092,24410,7251,8821,1751,290
    Natural Gas Liquids6955826776552,609680662693
    Other (includes bitumen and power)8009441,3371,8934,9741,7231,6711,252
    Other (includes LNG and bitumen)--------
    Total Revenue14,81112,35114,25014,72956,14113,84813,62013,041
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    U.S.11,80210,04011,55011,70945,10110,98010,77610,445
    Canada8434498089063,006936941660
    China202244225281952213275261
    Libya3704473925211,730500470307
    Malaysia261189319192961261268217
    Norway6515775895912,408624514640
    U.K.6814043665271,978333374510
    Other foreign countries11125121
    Alaska----7,098-1,783-
    Lower 48----38,244-9,053-
    Europe, Middle East, N. Africa----5,854-1,296-
    Asia Pacific----1,913-543-
    Other International----0---
    Corporate and Other----33-4-
    Total Revenue14,81112,35114,25014,72956,14113,84813,62013,041
    KPIs - Metric / PeriodFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Average Net Production of Crude oil (MBD)937931927949-944955957
    Average Net Production of Natural gas (MMCFD)3,0883,1473,1413,161-3,3023,3703,381
    Average Sales Price - Crude oil ($ per bbl)77.6074.1983.1580.83-78.6481.3176.78
    Average Sales Price - Natural gas liquids ($ per bbl)24.9720.0522.5221.22-23.3521.8421.93
    Average Sales Price - Natural gas ($ per MCF)5.655.045.063.75-5.021.881.99
    Average Net Production - Natural gas liquids (MBD)271283291301-279295310

    Executive Team

    NamePositionStart DateShort Bio
    Ryan M. LanceChairman of the Board of Directors and Chief Executive OfficerMay 2012Ryan M. Lance has been the CEO since May 2012. He previously served as Senior Vice President, Exploration and Production—International, and has held various executive roles in exploration, production, and technology .
    William L. Bullock, Jr.Executive Vice President and Chief Financial OfficerSeptember 2020William L. Bullock, Jr. was appointed CFO in September 2020. He previously served as President of Asia Pacific & Middle East and Vice President of Corporate Planning & Development .
    Christopher P. DelkVice President, Controller, and General Tax CounselNovember 2022Christopher P. Delk was appointed to his current position in November 2022, having previously served as Vice President and General Tax Counsel since July 2015 .
    C. William GiraudSenior Vice President, Corporate Planning and DevelopmentJune 2023C. William Giraud was appointed Senior Vice President in June 2023. He previously served as Vice President, Corporate Planning and Development and was the Executive Vice President and COO of Concho Resources .
    Heather G. HrapSenior Vice President, Human Resources and Real Estate and Facilities ServicesMarch 2022Heather G. Hrap was appointed to her current position in March 2022. She previously served as Vice President, Human Resources and as Human Resources General Manager .
    Kirk L. JohnsonSenior Vice President of Lower 48 Assets and OperationsMay 2022Kirk L. Johnson was appointed to his current position in May 2022. He previously served as Vice President, Corporate Planning and Development and as President of ConocoPhillips Canada .
    Andrew D. LundquistSenior Vice President, Government AffairsFebruary 2013Andrew D. Lundquist has been Senior Vice President, Government Affairs since February 2013. Before joining ConocoPhillips, he was the managing partner of BlueWater Strategies LLC .
    Dominic E. MacklonExecutive Vice President, Strategy, Sustainability and TechnologySeptember 2021Dominic E. Macklon was appointed to his current position in September 2021. He has held various roles including President, Lower 48, and announced his retirement effective May 1, 2024 .
    Andrew M. O'BrienSenior Vice President, Global OperationsNovember 2022Andrew M. O'Brien was appointed to his current position in November 2022. He previously served as Vice President and Treasurer, and as Vice President of Corporate Planning and Development .
    Nicholas G. OldsExecutive Vice President, Lower 48November 2022Nicholas G. Olds was appointed to his current position in November 2022. He previously served as Executive Vice President, Global Operations, and as Senior Vice President, Global Operations .
    Kelly B. RoseSenior Vice President, Legal, General Counsel, and Corporate SecretarySeptember 2018Kelly B. Rose has been in her current role since September 2018. Before joining ConocoPhillips, she was a senior partner at Baker Botts L.L.P., advising on corporate and securities matters .

    Questions to Ask Management

    1. Given the potential oversupply in the LNG market expected in the 2027-2028 timeframe due to new liquefaction capacity coming online, how does ConocoPhillips plan to mitigate the risks of decreased LNG prices impacting returns on its long-term LNG investments?

    2. With the recent acquisition of Chevron's non-operated interests in Alaska for $300 million, how does ConocoPhillips evaluate the risks of investing additional capital in this region, and what is the expected impact on production and returns?

    3. Considering that Marathon's properties showed a reduction in drilling activity from 11-12 rigs in the first half to 5-6 rigs in the second half, how does ConocoPhillips plan to manage these assets to ensure sustainable production, and are there concerns about asset quality or resource depletion?

    4. Given that global oil demand growth forecasts have been adjusted downward to around 1 million barrels per day due to factors like China's economic slowdown, how will ConocoPhillips adjust its capital spending and production growth targets to navigate potential lower oil prices in the coming years?

    5. With expected production declines at APLNG starting around 2030 and long-term contracts extending through the mid-2030s, what specific backfill plans does ConocoPhillips have to ensure fulfillment of these contractual obligations, and are there risks to meeting them beyond the mid-2030s?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateLate 2016
    End Date/DurationOngoing
    Total Additional Amount$65 billion
    Remaining Authorization$12.678 billion
    DetailsThe program was increased in October 2024 by the lesser of $20 billion or the number of shares issued in the Marathon Oil transaction.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      1. Production:
        • Q4 2024: 1.99 million to 2.03 million barrels per day.
        • FY 2024: 1.94 million to 1.95 million barrels per day.
      2. APLNG Distributions:
        • FY 2024: Increased to $1.5 billion.
        • Q4 2024: Over $200 million expected.
      3. Capital Expenditures (CapEx):
        • FY 2025: Less than $13 billion.
      4. Shareholder Returns:
        • FY 2024: At least $9 billion.
      5. Marathon Oil Acquisition:
        • Expected to close in Q4 2024.
        • Synergies expected to be at least $500 million.
      6. Operating Costs:
        • FY 2024: Unchanged.
      7. Turnarounds:
        • Q4 2024: Impact of about 5,000 barrels per day.
      8. Oil Mix:
        • Consistent at 52% to 53% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Production:
        • Q3 2024: 1.87 million to 1.91 million barrels per day.
        • FY 2024: 1.93 million to 1.94 million barrels per day.
      2. Turnaround Forecast:
        • FY 2024: 30,000 barrels per day.
      3. Depreciation, Depletion, and Amortization (DD&A):
        • FY 2024: $9.3 billion to $9.4 billion.
      4. After-Tax Adjusted Corporate Segment Net Loss:
        • FY 2024: $800 million to $900 million.
      5. Adjusted Operating Costs:
        • FY 2024: $9.2 billion to $9.3 billion.
      6. Capital Expenditures (CapEx):
        • FY 2024: $11.5 billion.
      7. APLNG Distributions:
        • FY 2024: $1.4 billion.
      8. Pension Contribution:
        • Q3 2024: $100 million.
      9. Working Capital:
        • Q3 2024: $500 million outflow.
      10. Shareholder Distributions:
        • FY 2024: At least $9 billion .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Production:
        • FY 2024: 1.91 million to 1.95 million barrels per day.
        • Q2 2024: 1.91 million to 1.95 million barrels per day.
      2. Turnaround Forecast:
        • FY 2024: 30,000 barrels per day.
        • Q2 2024: 25,000 barrels per day.
        • Q3 2024: 90,000 barrels per day.
      3. Capital Expenditures (CapEx):
        • FY 2024: $11 billion to $11.5 billion.
      4. APLNG Distributions:
        • Q2 2024: $300 million.
        • FY 2024: $1.3 billion.
      5. Working Capital:
        • Q2 2024: $600 million outflow.
      6. Return of Capital:
        • FY 2024: At least $9 billion .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Production:
        • FY 2024: 1.91 to 1.95 million barrels per day.
        • Q1 2024: 1.88 to 1.92 million barrels per day.
      2. Cash Flows:
        • APLNG: $400 million in Q1 2024 and $1.3 billion for FY 2024.
      3. Operating Costs:
        • FY 2024: $8.9 billion to $9.1 billion.
      4. Exploration and Depreciation:
        • Exploration: $300 million to $400 million.
        • DD&A: $9.4 billion to $9.6 billion.
      5. Corporate Segment:
        • Net loss: $1 billion to $1.1 billion.
      6. Taxes:
        • Effective tax rate: 36% to 37%.
        • Cash tax rate: 33% to 34%.
      7. Capital Spending:
        • FY 2024: $11 billion to $11.5 billion.
      8. Deflation Benefits and Spending:
        • Deflation benefits: $200 million to $300 million.
        • Lower spending in Norway: $200 million to $300 million.
        • Lower LNG spending: $500 million to $600 million.
        • Increase at Willow: $900 million to $1 billion.
        • Increase in Canada: $100 million to $200 million .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Chevron
    • ExxonMobil
    • APA Corporation
    • Pioneer
    • Devon
    • Occidental
    • Hess
    • EOG

    These companies are mentioned as part of ConocoPhillips' performance peer group, which is used for comparison in the stock performance graph .

    Latest news

    Recent developments and announcements about COP.

    Financial Actions

      Strategic Assets

      ·
      Nov 22, 2024, 10:12 PM

      ConocoPhillips Completes Acquisition of Marathon Oil Corporation

      On November 22, 2024, ConocoPhillips successfully completed its acquisition of Marathon Oil Corporation. This strategic move was executed through a merger, where Puma Merger Sub Corp., a wholly owned subsidiary of ConocoPhillips, merged with Marathon Oil, with Marathon Oil continuing as the surviving entity. The merger agreement, initially announced on May 28, 2024, stipulated that each share of Marathon Oil's common stock would be converted into 0.255 shares of ConocoPhillips' common stock, along with cash for any fractional shares .

      Financial and Operational Impact

      The acquisition is expected to significantly enhance ConocoPhillips' portfolio by adding high-quality, low-cost supply inventory, particularly in the U.S. unconventional sector. The company anticipates achieving over $1 billion in synergies on a run-rate basis within the next 12 months, primarily through the elimination of duplicate costs and integration efficiencies .

      The pro forma financial statements prepared for this transaction reflect the application of the acquisition method of accounting, with ConocoPhillips as the accounting acquirer. The assets and liabilities of Marathon Oil have been recorded at their estimated fair values as of the closing date. The preliminary merger consideration was approximately $16.558 billion, which includes the fair value of ConocoPhillips common stock issued and other cash considerations .

      Potential Effects on Financials

      The merger is expected to result in significant cost savings and operational efficiencies. However, the pro forma financial statements do not include potential cost savings from operating efficiencies or synergies, which are expected to be realized post-merger. These synergies are anticipated to result from the integration of personnel and the reduction of overlapping costs .

      Overall, this acquisition positions ConocoPhillips to strengthen its market position and enhance its operational capabilities, aligning with its strategic goals of expanding its asset base and optimizing its cost structure .

      Dividend Policy

      ·
      May 29, 2024, 12:00 AM

      ConocoPhillips Announces Dividend Increase

      ConocoPhillips has announced a significant change in its dividend policy. The company plans to increase its ordinary base dividend by 34% to 78 cents per share starting in the fourth quarter of 2024. This increase is independent of the company's recent transaction with Marathon Oil Corporation .

      Details of the Dividend Policy Change:

      • Dividend Increase: The ordinary base dividend will be raised by 34%, reaching 78 cents per share in Q4 2024 .
      • Share Repurchase Program: ConocoPhillips also plans to repurchase over $7 billion in shares in the first full year following the transaction, and over $20 billion in shares within the first three years .
      • Commitment to Shareholders: The company remains committed to returning greater than 30% of its cash from operations to shareholders, with a track record of returning over 40% since its 2016 strategy reset .

      This announcement reflects ConocoPhillips' ongoing commitment to providing substantial returns to its shareholders through both dividends and share repurchases.