ConocoPhillips Reports Fourth-Quarter and Full-Year 2018 Results; Announces Preliminary 2018 Year-End Reserves
ConocoPhillips (NYSE: COP) today reported fourth-quarter 2018 earnings of $1.9 billion, or $1.61 per share, compared with fourth-quarter 2017 earnings of $1.6 billion, or $1.32 per share. Excluding special items, fourth-quarter 2018 adjusted earnings were $1.3 billion, or $1.13 per share, compared with fourth-quarter 2017 adjusted earnings of $0.5 billion, or $0.45 per share. Special items for the current quarter included a gain from the sale of a partial interest in the United Kingdom Clair Field, deferred tax adjustments and amounts recognized from the PDVSA International Chamber of Commerce (ICC) settlement, partially offset by unrealized losses on Cenovus Energy equity.
Full-year 2018 earnings were $6.3 billion, or $5.32 per share, compared with a full-year 2017 net loss of $0.9 billion, or ($0.70) per share. Excluding special items, full-year 2018 adjusted earnings were $5.3 billion, or $4.54 per share, compared with full-year 2017 adjusted earnings of $0.7 billion, or $0.60 per share.
Full-Year 2018 Summary
- Cash provided by operating activities was $12.9 billion. Excluding working capital, cash from operations (CFO) of $12.3 billion exceeded capital expenditures and investments, generating free cash flow of $5.5 billion.
- Repurchased $3 billion of shares and paid $1.4 billion in dividends funded entirely from free cash flow, representing a return of CFO to shareholders of 35 percent.
- Paid down $4.7 billion of balance sheet debt, achieving $15 billion debt target 18 months ahead of plan.
- Received credit rating upgrades to single “A” from Fitch, Moody’s and S&P.
- Full-year production excluding Libya of 1,242 MBOED; underlying production grew 18 percent on a production per debt-adjusted share basis.
- Increased full-year Lower 48 Big 3 production by 37 percent.
- Achieved first production from Bayu-Undan final development phase, GMT-1, Bohai Phase 3, Aasta Hansteen and Clair Ridge.
- Acquired additional working interest in our legacy assets in Alaska and increased our acreage in the liquids-rich Montney play in Canada and in the early-lifecycle unconventional Louisiana Austin Chalk.
- Executed successful exploration program in Alaska and started drilling in Louisiana Austin Chalk.
- Reached a settlement agreement with PDVSA to fully recover the ICC arbitration award of approximately $2 billion; recognized $430 million toward the settlement.
- Generated disposition proceeds of $1.1 billion from non-core asset sales.
- Announced preliminary year-end proved reserves of 5.3 billion BOE; 147 percent total reserve replacement and 109 percent organic replacement ratio.
- Achieved 12.6 percent return on capital employed.
“I am proud of our organization for safely delivering exceptional results in 2018,” said Ryan Lance, chairman and chief executive officer. “Our accomplishments reflect our clear commitment to a value proposition that is focused on returns and free cash flow generation, and that balances investments with returning cash flow to shareholders through price cycles. This is our formula for offering investors a compelling way to invest in our sector. We look forward to delivering another strong year of performance in 2019.”
Preliminary 2018 year-end proved reserves are 5.3 billion barrels of oil equivalent (BOE). The total reserve replacement ratio, including a net increase of 0.2 billion BOE from closed acquisitions and dispositions (A&D), is expected to be 147 percent. Increased crude oil reserves accounted for over 90 percent of the total change in reserves.
Excluding A&D impacts, the organic reserve replacement ratio is expected to be 109 percent. Approximately 33 percent of organic reserve additions are from Lower 48 unconventional assets, 29 percent from Alaska and 22 percent from Asia Pacific and Middle East.
Final information related to the company’s 2018 oil and gas reserves, as well as costs incurred, will be provided in ConocoPhillips’ Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission in late February.
Production excluding Libya for the fourth quarter of 2018 was 1,313 MBOED, an increase of 94 MBOED compared with the same period a year ago. The volume impact from A&D was a net benefit of 5 MBOED. Excluding the A&D impact, underlying production grew more than 7 percent. The increase was primarily due to growth from the Big 3 unconventionals, development programs primarily in Europe and Alaska, and production from major project startups. These more than offset normal field decline. Production achieved the high end of guidance largely due to partner-operated production in Lower 48 and resumption of gas exports at the Kebabangan (KBB) Field in Malaysia. Production from Libya was 44 MBOED.
During the quarter, the company achieved first production from three major projects including GMT-1, Aasta Hansteen and Clair Ridge. Additionally, production continued to ramp-up at Bohai Phase 3 and the final development phase at Bayu-Undan was completed. In the Lower 48, production from the company’s high-margin Big 3 unconventionals grew to 335 MBOED. In Alaska, the exploration program resumed and includes testing of the Kuparuk Cairn prospect and appraisal of the Narwhal and Greater Willow areas. The Cairn and Narwhal wells utilize existing pads, minimizing the environmental footprint while testing new resources.
Earnings were higher compared with the fourth quarter of 2017 due to a gain from the sale of a partial interest in the United Kingdom Clair Field and higher realized prices and sales volumes, partially offset by the absence of U.S. tax reform adjustments in 2017 and unrealized losses on Cenovus Energy equity. Adjusted earnings improved compared with fourth-quarter 2017 primarily due to higher realized prices and higher production. The company’s total realized price was $53.00 per BOE, 15 percent higher compared with $46.10 per BOE in the fourth quarter of 2017, largely due to higher crude prices and a higher weighting of crude volumes in the portfolio.
For the quarter, cash provided by operating activities was $3.8 billion. Excluding a $0.6 billion change in operating working capital, ConocoPhillips generated $3.2 billion in CFO. CFO included approximately $0.3 billion from APLNG distributions and $0.1 billion from the PDVSA ICC settlement. In addition, the company generated $0.7 billion in disposition proceeds largely related to customary adjustments from the United Kingdom Clair Field and Alaska Greater Kuparuk Area transactions, as well as from the sale of Barnett and other non-core assets in Lower 48. The company also incurred $1.6 billion in capital expenditures and investments, $0.9 billion for share repurchases and $0.4 billion for dividends.
Production excluding Libya for 2018 was 1,242 MBOED, 114 MBOED lower as compared with 1,356 MBOED for 2017. The volume from closed dispositions was approximately 200 MBOED in 2017 and 15 MBOED in 2018. The volume from acquisitions was less than 10 MBOED in 2018. Excluding these impacts, underlying production increased over 5 percent. The increase was primarily due to growth from the Big 3 unconventionals, development programs in Europe and Alaska, and ramp-up of major projects in Asia Pacific. These more than offset normal field decline. Production from Libya was 41 MBOED.
The company’s total realized price during 2018 was $53.88 per BOE, 37 percent higher compared with $39.19 per BOE in 2017. The improvement reflects stronger marker prices, as well as a shift in the portfolio toward a higher mix of crude oil and less of bitumen and natural gas.
In 2018, cash provided by operating activities was $12.9 billion. Excluding a $0.6 billion change in operating working capital, ConocoPhillips generated $12.3 billion in CFO. This exceeded $6.75 billion in capital expenditures and investments, $3.0 billion of repurchased shares and $1.36 billion of dividends by $1.2 billion. Capital expenditures and investments included approximately $0.6 billion for acquisitions, most notably the Alaska Western North Slope bolt-on acquisition for $0.4 billion and acquisition of additional acreage in the Montney in Canada for $0.1 billion. In addition, the company paid $5.0 billion to reduce debt, sold $1.6 billion of short-term investments and generated $1.1 billion from asset dispositions. ConocoPhillips ended the year with cash, cash equivalents and restricted cash totaling $6.2 billion and short-term investments of $0.2 billion, equating to $6.4 billion of ending cash and short-term investments.
The company’s 2019 guidance for capital expenditures is $6.1 billion. First-quarter 2019 production is expected to be 1,290 to 1,330 MBOED, reflecting the impacts of a planned turnaround in Qatar of approximately 15 MBOED and government-mandated production curtailment in Canada of approximately 10 MBOED. Production is expected to ramp-up in the second half of the year, with full-year 2019 production guidance unchanged from the previously communicated 1,300 to 1,350 MBOED. Production guidance for 2019 excludes Libya.
Guidance for 2019 production and operating expenses is $5.4 billion, which results in adjusted operating cost guidance of $6.1 billion; corporate segment net expense is $0.9 billion or $1.0 billion adjusted corporate segment net expense; depreciation, depletion and amortization is $6.3 billion; and exploration dry hole and leasehold impairment expense is $0.2 billion.
ConocoPhillips will host a conference call today at 12:00 p.m. EST to discuss this announcement. To listen to the call, as well as view related presentation materials and supplemental information, go to www.conocophillips.com/investor. A balance sheet schedule has been added to page 4 of the supplemental information.