CONOCOPHILLIPS (COP) Earnings Summary for Q3 FY2024

Key Metrics

• Total Production: 1,917 MBOED (6% yoy)
• Oil (Crude Oil): 957 MBD
• Bitumen: 87 MBD
• NGLs (Natural Gas Liquids): 310 MBD
• Natural Gas: 3,381 MMCFD
• Average Realized Price (incl. hedge):
  • Oil: $76.77 per bbl (decreased by 8% yoy)
  • Bitumen: $47.32 per bbl (decreased by 18% yoy)
  • NGLs: $21.93 per bbl (decreased by 4.7% yoy)
  • Natural Gas: $4.42 per MCF (decreased by 15% yoy)
  • Total Average Realized Price: $54.18 per BOE (decreased by 10% yoy)
• Cash from Operations: $5.8 billion (decreased from $14.7 billion yoy)
• Capex (Capital Expenditures): $2.9 billion (decreased from $8.365 billion yoy)

Forward guidance

1. Production Guidance: Q4 production expected to be between 1.99 million to 2.03 million barrels per day. Full year production now projected at 1.94 million to 1.95 million barrels per day, an increase of 10,000 barrels per day from prior guidance.
2. Cash Flow Guidance: Full year APLNG distributions increased by $100 million to $1.5 billion, with over $200 million expected in Q4.
3. Capital Expenditures: Pro-forma CapEx for 2025 expected to be less than $13 billion, down from $13.5 billion for the combined ConocoPhillips and Marathon guidance for 2024.
4. Synergies from Marathon Acquisition: Initial synergy guidance of at least $500 million expected to double to $1 billion, primarily from capital optimization and operational efficiencies.
5. Dividend Growth: Commitment to grow ordinary dividend at a top quartile rate relative to the S&P 500, with a 34% increase in the ordinary dividend announced.
6. Share Repurchase Program: Planned share repurchases in Q4 will approach $2 billion, with an increased share repurchase authorization of up to $20 billion.
7. Operational Efficiency: Expectation of modest production growth in 2025 at a low-single-digit rate, supported by operational efficiencies and capital optimization strategies.

Key takeaways

• Positives:
  • Ryan Lance highlighted strong operational execution, exceeding production guidance and raising full-year outlook, particularly in the Lower 48, which achieved record production of 1,147,000 barrels of oil equivalent per day, reflecting a 6% year-over-year growth.
  • The planned acquisition of Marathon Oil is on track, with integration planning progressing well. Andy O’Brien noted that initial synergy guidance of $500 million is expected to double to $1 billion, driven by capital optimization and operational efficiencies.
  • ConocoPhillips is committed to returning at least $9 billion to shareholders in 2024, with a planned $2 billion in share repurchases in Q4 and a 34% increase in the ordinary dividend, indicating strong cash flow management.
  • Bill Bullock reported a significant cash flow of over $4.7 billion in Q3, with a strong balance sheet of $7.1 billion in cash and short-term investments, positioning the company well for future investments and shareholder returns.
• Negatives:
  • The company faced a significant impact from turnarounds, with an estimated loss of 85,000 barrels per day in Q3, including a major turnaround at Surmont, which could affect production consistency.
  • Lower 48 gas realizations dropped significantly to 8% of Henry Hub prices due to pipeline constraints, indicating potential challenges in gas pricing and market access.
  • Ryan Lance acknowledged a softer demand growth outlook for 2024, revising expectations from 1.2-1.3 million barrels per day to around 1 million, influenced by a slowdown in China and other global factors.
  • The volatility in commodity prices and the uncertain macroeconomic environment could impact future cash flows and capital allocation decisions, as noted by Lance's comments on the need to assess market conditions before finalizing 2025 guidance.

Peer Summary

• Commodity Price Pressures: ExxonMobil noted, "liquid prices and refining margins" are declining, reflecting broader sector challenges in maintaining profitability amid fluctuating prices.
• Production Challenges: Chevron highlighted potential "downtime" in Q4 due to maintenance, which could impact production, indicating sector-wide operational risks.
• Cost Management Focus: Both Chevron and Occidental Petroleum emphasized significant cost reduction targets, with Chevron projecting "$2 to $3 billion in structural cost reductions," suggesting a trend towards tighter cost controls across the industry.
• Market Demand Concerns: Devon Energy expressed caution regarding "commodity price volatility," while Occidental cited "challenging economic conditions in China," indicating a softening demand outlook affecting multiple players.
• Operational Efficiency Gains: Devon reported a "14% reduction in drilling days," reflecting a sector-wide push for improved efficiencies to counteract rising costs and maintain production levels.
• Shareholder Returns Commitment: Competitors like Chevron and Devon are increasing share repurchase programs, with Chevron planning "$4 billion to $4.75 billion" in Q4, indicating a strong focus on returning capital to shareholders amidst uncertain market conditions.