ConocoPhillips

ConocoPhillips expanded its stock buyback authorization after planning to spend $15 billion on dividends and buybacks in 2022

ConocoPhillips CEO boasted of the record oil production and increasing their stock buyback authorization by $20 billion.“Ryan Lance — Chairman and Chief Executive Officer: As further evidence of this commitment, our third quarter results demonstrated record total company production. Lower 48 production hit a milestone in over 1 million barrels of oil equivalent per day, and we anticipate further growth in the fourth quarter. On returns, we generated a trailing 12 month ROCE of 27%. We increased our ordinary dividend by 11% to $0.51 per share. And we announced a $0.70 per share VROC for the first quarter of 2023, and we increased our share buyback authorization by $20 billion. Additionally, we’ll return 15-day in the capital for 2022, which represents over 50% of our projected CFO, well in excess of our greater than 30% annual commitment. Now, we believe that our CFO-based returns framework differentiates us relative to peers.” (ConocoPhillips Q3 2022 Earnings Call, 11/3/2022)

ConocoPhillips predicted a similar amount of cash distributions to investors in 2023.“Ryan Lance — Chairman and Chief Executive Officer: Yeah. Stephen, I think if we have a macro environment today that’s similar to next year, that’s similar to the average over the course of 2022, I think you should expect a similar level of distributions. And I think we, you know, signaled that a little bit with setting the first quarter of VROC at $0.70 a share. You know, that this 10 seconds, we look at the macro. And if it’s going to be similar next year, you ought to expect a similar level of distributions, which is in excess of our 30% commitment. But, you know, we’re going to watch the macro because we think it’s going to be incredibly volatile. But we think we’ve got the right value proposition and combination of VROC, base dividend, and how we’re thinking about buying our shares back, that it’s well set up for the kind of volatility we may see. But that would be sort of my comment as you think about going into 2023.” (ConocoPhillips Q3 2022 Earnings Call, 11/3/2022)

ConocoPhillips planned to funnel $15 billion to shareholders through dividends and buybacks in 2022. “Bill Bullock — Executive Vice President and Chief Financial Officer: Yeah, sure. Jeanine, this is Bill. So, first, based on our four prices, we’d expect to end the year with roughly $10 billion of cash. Also, the same — roughly the same amount that you noted for the end of third quarter. And that’s a — I know it is predicated on us achieving our $15 billion of distributions to shareholders this year. Now, the framework of how we think about allocation of cash balance really hasn’t changed. It’s continuing to be guided by our priorities of having a competitive shareholder distribution, strong balance sheet strength, and efficient organic and inorganic capital allocations. And the framework that we’ve laid out of intending to carry $1 billion for operating cash, $3 billion of reserve cash, and anything above that is strategic cash, continues to be the way that we think about that.” (ConocoPhillips Q3 2022 Earnings Call, 11/3/2022)

ConocoPhillips told analysts it had no plans to significantly increase oil production

ConocoPhillips CEO told analysts they could “ramp more” production but “in this environment, it just doesn’t make sense to be doing that right now.” “Ryan Lance — Chairman and Chief Executive Officer: Yeah. Thanks, Neal. No, I think, you know, we’ve tried to describe that in the release. We feel like, you know, obviously, we could ramp more in the Lower 48. But in this environment, it just doesn’t make sense to be doing that right now. We just want to run efficient, stable programs right there. We do have opportunities to invest in more medium- and longer-cycle projects. We describe those around Willow and Sempra, and then the Qatari projects as well. So, you know, we are leaning into — you know, we’re going to need to supply long term as an industry. And we think these are important, and we believe our company, with our global diverse portfolio, has the kind of opportunities that are low cost to supply, fit our GHG emissions intensity profile, and our reductions that we’re trying to make in that particular area. And these are going to be needed assets that we want to invest in to ensure that the supply is there long term.” (ConocoPhillips Q3 2022 Earnings Call, 11/3/2022)

ConocoPhillips said it was seeking a “disciplined kind of growth” in their oil production

ConocoPhillips said the company was not seeking to increase production quickly: “companies like ours and other large companies kind of think more of a sustainable growth rate..”“Tim Leach — Executive Vice President of Lower 48: Yeah. I don’t really have a whole lot to add other than to just remind you that underlying decline rate on the Permian is pretty substantial. And so, the increase in activity that we’ve seen from the privates and such will generate more production, and you’ve seen that show up in the numbers. But I think companies like ours and other large companies kind of think more of a sustainable growth rate because that’s really where you get your efficiency is a disciplined kind of growth that allows you to move down the learning curve and lower your cost of supply. ” (ConocoPhillips Q4 2021 Earnings Call, 2/3/2022) 

ConocoPhillip’s CEO said he was “concerned” and “worried” about the possibility of increasing oil supply in the US

A Wall Street analyst asked ConocoPhillips “are you concerned about the U.S. going back to that level of growth, given the recent history of growth for growth’s sake?” “Doug Leggate — Bank of America Merrill Lynch — Analyst: Thank you. Good morning. Happy New Year, everybody. Ryan, I want to come back to your comments about the Permian. And I just want to ask you philosophically, are you concerned about the U.S. going back to that level of growth, given the recent history of growth for growth’s sake? And we all know how Saudi responded to that in that global market, which despite the post-COVID recovery, still has a relatively pedestrian long-term growth outlook. And how does that play into your strategy? ” (ConocoPhillips Q4 2021 Earnings Call, 2/3/2022) 

ConocoPhillips CEO: I am absolutely concerned…certainly, if we’re getting back to the level of growth in the U.S. that if you’re not worried about it, you should be and be thinking about.”“Ryan Lance — Chairman and Chief Executive Officer: Yeah. Doug, thanks. No, I am. I think that sits very — not so much at the back of our mind, but right at the front of our mind, I am absolutely concerned about. I think the one change maybe relative to late 2014 and ’15, the last time we were kind of at these levels is just what is the spare capacity sitting in the OPEC+ group. It was quite a different number back at that point in time, and you can — we can all debate what that number is. And the fact that the inventories are down quite a bit globally and certainly here in the U.S. So, I think there’s a little bit of time that we have associated with that. But certainly, if we’re getting back to the level of growth in the U.S. that if you’re not worried about it, you should be and be thinking about. ” (ConocoPhillips Q4 2021 Earnings Call, 2/3/2022) 

The analyst replied “Yes. Well, I hope your peers are listening.” “Doug Leggate — Bank of America Merrill Lynch — Analyst: Yes. Well, I hope your peers are listening. ” (ConocoPhillips Q4 2021 Earnings Call, 2/3/2022) 

ConocoPhillips stopped hedging so shareholders could “fully capture the upside of” high oil prices

ConocoPhillips CEO said the company was no longer hedging prices because “shareholders ought to expect full exposure to the upside that we’re experiencing to date.”“Ryan Lance — Chairman and Chief Executive Officer: Yeah, we’re unhedged, Neal. We think shareholders buy our shares because of the upside that it represents in the commodity price and the torque that we have to the upside in the way we set up the company. So, no, we prefer to remain unhedged, and frankly, hedging would do little help. So, we have a very strong balance sheet, which helps us on the downside, and shareholders ought to expect full exposure to the upside that we’re experiencing to date.” (ConocoPhillips Q4 2021 Earnings Call, 2/3/2022) 

ConocoPhillips’s CEO said the company was no longer hedging for lower prices: “we expect to fully capture the upside of the current price environment.” “Ryan Lance — Chairman and Chief Executive Officer: Now, demonstrating this point and appreciating that it’s helpful for the market to have an accurate sense of our stronger CFO generating capacity, at a WTI price of $75 a barrel with a $3 differential to Brent and a Henry Hub price of $3.75, we estimate our 2022 full-year cash from operations would be approximately $21 billion, which reflects us reentering a tax-paying position in the U.S. this year at those price levels. And our free cash flow for the year would be roughly $14 billion. And of course, we continue to be unhedged across our global diverse production base, so we expect to fully capture the upside of the current price environment. ” (ConocoPhillips Q4 2021 Earnings Call, 2/3/2022) 

ConocoPhillips spent billions on dividends and buybacks in 2022 and predicted more of the same as long as oil prices remained high

ConocoPhillips reported spending $15 billion on dividends and stock buybacks in 2022. “Ryan Lance — Chairman and Chief Executive Officer: Shifting to our 2022 performance, ConocoPhillips showed continuous strong execution across our triple mandate. We generated a trailing 12-month return on capital employed of 27%, the highest since the spin. We delivered on our plan to return 15 billion of capital to our shareholders, which represented 53% of our CFO, well in excess of our greater than 30% annual through-the-cycle commitment. And we further advanced our net zero operational emissions ambition with a new medium-term methane intensity target consistent with our recent commitment to joining OGMP 2.0.” (ConocoPhillips Q4 2022 Earnings Call, 2/2/2023)

ConocoPhillips announced it would spend another $11 billion on dividends and stock buybacks, roughly half of their expected cash flow.“Ryan Lance — Chairman and Chief Executive Officer: Now, looking ahead, ConocoPhillips is well positioned to further deliver on our triple mandate in 2023 with a well-balanced capital allocation strategy. This morning, we announced a plan to return 11 billion of capital to shareholders, which represents about 50% of our forecast in CFO at $80 WTI. The other half of our cash flow will be dedicated to reinvesting in the business. From a portfolio perspective, our deep and well-diversified asset base is well positioned to generate solid cash flow growth for decades to come.” (ConocoPhillips Q4 2022 Earnings Call, 2/2/2023)

ConocoPhillips told analysts that as long as oil prices as high, “you should expect higher distributions from the company.” “Ryan Lance — Chairman and Chief Executive Officer: No, we’re not trying to message that, Neil. But what I remind people is the 30% commitment that we have is a through-the-cycle commitment. We’ve also signaled to our results and told the shareholders that when prices are above our mid-cycle price, you should expect higher distributions from the company. And that’s consistent with what we’ve done over the last number of years. So, as we look today at where the strip is trading, where the regional differentials are at, you know, we’ve kind of picked $11 billion at an $80 price deck. So, that’s how we’re going into the year. It represents about 50% of our cash flow. But, again, that 80 is well above our mid-cycle price, and our commitments tied to the through-the-cycle kind of mid-cycle price call.” (ConocoPhillips Q4 2022 Earnings Call, 2/2/2023)

ConocoPhillips credited “producer discipline” and sanctions for high oil prices

ConocoPhillips’ CEO told analysts he predicted continued high prices thanks to “continued producer discipline and the expected impacts of Russian oil and product sanctions.” “Ryan Lance — Chairman and Chief Executive Officer: On the supply side, we believe the continued producer discipline and the expected impacts of Russian oil and product sanctions are likely to keep balances tight. So, while commodity prices are currently not as high as they averaged in 2022, we see duration to this upcycle.” (ConocoPhillips Q4 2022 Earnings Call, 2/2/2023)

ConocoPhillips emphasized their oil production plans were based on “maximizing returns”

When asked about their production plans, a ConocoPhillips executive said, “our focus is on maximizing returns and recovery while minimizing future interference.” “Nick Olds — Executive Vice President, Lower 48: Yeah, good morning, Steve. So, I’ll give a little more color on that one. Let me start with just the well performance that we’re seeing versus the tight curves. So, if you look at our 2022 development wells, they have been performing, you know, slightly above the curve expectations across all four basins, including the Permian Basin. And that strong performance reinforces and validates the development plans that Ryan just mentioned, which is our focus on maximizing returns and recovery while minimizing future interference.” (ConocoPhillips Q4 2022 Earnings Call, 2/2/2023)

A ConocoPhillips executive described their 2023 production plans as focused “around improving capital and operating efficiency.”  “Nick Olds — Executive Vice President, Lower 48: Yeah, Ryan, this is Nick. Yes, let me walk you through that. So, as you mentioned, we’ve assumed a level-loaded steady-state program for 2023 based on the second half of 2022 for rigs and frac crews. The focus for this year will really be on improving capital and operating efficiency. Now, we do expect some modest growth in partner activity as the year progresses. And then, we have some larger operated pads that will come online in kind of 2Q, 3Q. So, our Lower 48 plan will deliver production in the mid-single digits, with the majority of that growth weighted to the Permian. Now, with respect to the profile shape, it will be kind of mid to back-end weighted in 2023.” (ConocoPhillips Q4 2022 Earnings Call, 2/2/2023)

ConocoPhillips’ CEO described their goal as “getting the margins as expanded as we can leading to kind of the returns and the productivity that we are seeing today.”  “Ryan Lance — Chairman and Chief Executive Officer: You know, we are pretty pleased where the portfolio is at. I mean, Dominic did a good job of kind of going across the globe. I think we spent a lot of time over the last five years really coring up the portfolio, really focused on getting it as low cost of supply as we can, getting the margins as expanded as we can leading to kind of the returns and the productivity that we are seeing today. So, we are just hyper-focused on making sure the efficiencies are there, and the returns are there.” (ConocoPhillips Q4 2022 Earnings Call, 2/2/2023)