ConocoPhillips (NYSE: COP) today announced several actions to
further enhance its compelling, distinctive investment proposition.
The actions are consistent with the company’s financial framework,
its stated capital allocation priorities and its commitment to
playing a valued role in the energy transition. Materials
describing today’s actions are provided at
www.conocophillips.com/investor. The actions include:
- A complementary, highly accretive acquisition of Shell
Enterprises LLC’s prolific Delaware basin position for $9.5 billion
in cash. The assets include ~225,000 net acres and producing
properties located entirely in Texas, as well as over 600 miles of
operated crude, gas and water pipelines and infrastructure.
Estimated 2022 production from these assets is expected to be
approximately 200 MBOED, roughly half of which is operated.
- An increase in the company’s quarterly ordinary dividend from
43 cents per share to 46 cents per share, representing a ~7%
increase and a current dividend yield of 3%. The dividend is
payable on Dec. 1, 2021, to stockholders of record at the close of
business on Oct. 28, 2021.
- In conjunction with this transaction, the company also
announced it will improve its Scope 1 and 2 GHG emissions intensity
reduction targets. The prior 2030 reduction target of 35-45% on a
gross operated basis will be increased to 40-50%, versus a 2016
baseline, on both a net equity and gross operated basis.
“We were presented with a unique opportunity to add premium
assets at a value that meets our strict cost of supply framework
and brings financial and operational metrics that are highly
accretive to our multi-year plan,” said Ryan Lance, ConocoPhillips
chairman and chief executive officer. “Our financial strength
allowed us to structure a competitive offer for this transaction
and we are very excited to enhance our position in one of the best
basins in the world with the addition of Shell’s high-quality
assets and talented workforce. The transaction will be funded from
available cash while still retaining a significant level of cash on
the balance sheet for general purposes. Our underlying business
drivers will be stronger and the expanded cash flows derived from
this transaction mean shareholders will benefit from higher returns
of capital consistent with our commitment to return of capital of
at least 30% of cash from operations.”
Lance added, “In addition to enhancing our base plan, this
transaction also enhances our ability as an E&P company to have
a valued role in energy transition by accelerating progress on our
Triple Mandate. The objectives of the mandate are to responsibly
produce energy to meet transition demand, generate compelling
returns on and of capital, and achieve our Paris-aligned targets
and 2050 net zero ambition. The assets we’re adding are consistent
with our low cost of supply strategy, which is designed to position
our portfolio as the most likely to be developed as the energy
transition progresses and the need for oil and gas is reduced over
time. The assets we’re adding improve our ability to generate
returns that are consistent with what investors demand through
cycles. And the assets we’re adding will bring more low GHG
intensity barrels to our mix. This deal hits on all the objectives
of our mandate.”
Transaction Highlights and Benefits
- The transaction significantly enhances the company’s 10-year
plan announced on June 30, 2021, which was based on an oil price of
$50 per barrel WTI. Based on the same oil price assumption, this
acquisition is highly accretive on earnings, operating cash flow,
free cash flow, return on capital employed and returns of capital
to shareholders versus the prior plan. Key metrics can be found on
page 4 of the previously mentioned supplemental materials.
- At recent strip pricing and estimated 2022 production, next
year’s cash from operations from the acquired assets is estimated
at $2.6 billion with free cash flow of $1.9 billion based on a
preliminary estimate of 2022 capital.
- The company expects to deliver significant incremental upside
when the acquired assets are combined with its premier multi-basin
Lower 48 portfolio and further operating efficiencies are
identified and implemented. The company also expects to achieve
additional value over time by applying its commercial expertise to
optimize acreage positions, the acquired infrastructure and offtake
arrangements.
- The effective date of the transaction is July 1, 2021, and
closing is expected in the fourth quarter of 2021 subject to
regulatory clearance and the satisfaction of other customary
closing conditions. The final cash due at closing will reflect
adjustments from the effective date and other customary
adjustments.
- Post-closing, based on recent strip prices, the company expects
to have approximately $4 billion in cash and short-term investments
at year-end 2021, excluding proceeds from potential unannounced
dispositions.
- In conjunction with this transaction, the company plans to
increase its targeted level of dispositions from the previously
announced $2-3 billion to $4-5 billion by 2023. The incremental $2
billion of planned dispositions are expected to be sourced
primarily from the Permian Basin as part of the company’s ongoing
portfolio high-grading efforts. Proceeds will be used in accordance
with the company’s priorities, including returns of capital to
shareholders and reduction of gross debt.
- The transaction does not impact the company’s previously
announced intention to reduce gross debt over the next several
years.
Lance continued, “Our company is unique among independent
E&P companies. We have a diversified, low cost of supply
conventional and unconventional portfolio, tremendous financial
strength and a track record of successfully executing on our proven
value proposition for this business. Everything we do is in service
to delivering superior returns to shareholders through cycles while
continuously lowering our emissions intensity, especially as the
energy transition plays out. The opportunity to announce a very
attractive acquisition in conjunction with an ordinary dividend
increase and an improved emissions intensity reduction target
speaks to the strength of our company and a clear commitment to
delivering on all aspects of our Triple Mandate. We’re again
building upon our competitive advantages and our unbeatable
combination of resilience, returns and ESG excellence. That’s the
combination it will take to adapt, thrive and win in the new energy
future.”
ConocoPhillips will host a conference call tomorrow at 10 a.m.
Eastern time to discuss this announcement. To listen to the call
and view related presentation materials, go to
www.conocophillips.com/investor.
Goldman Sachs & Co. LLC is serving as ConocoPhillips’
exclusive financial advisor and Baker Botts L.L.P. is serving as
ConocoPhillips’ legal advisor for the acquisition.
-- # # # --
About ConocoPhillips
Headquartered in Houston, Texas, ConocoPhillips had operations
and activities in 15 countries, $85 billion of total assets, and
approximately 10,100 employees at June 30, 2021. Production
excluding Libya averaged 1,518 MBOED for the six months ended June
30, 2021, and proved reserves were 4.5 BBOE as of Dec. 31, 2020.
For more information, go to www.conocophillips.com.
Forward-Looking
Statements
This news release contains forward-looking statements as defined
under the federal securities laws. Forward-looking statements
relate to future events, plans and anticipated results of
operations, business strategies, and other aspects of our
operations or operating results. Words and phrases such as
“anticipate," “estimate,” “believe,” “budget,” “continue,” “could,”
“intend,” “may,” “plan,” “potential,” “predict," “seek,” “should,”
“will,” “would,” “expect,” “objective,” “projection,” “forecast,”
“goal,” “guidance,” “outlook,” “effort,” “target” and other similar
words can be used to identify forward-looking statements. However,
the absence of these words does not mean that the statements are
not forward-looking. Where, in any forward-looking statement, the
company expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed
to be reasonable at the time such forward-looking statement is
made. However, these statements are not guarantees of future
performance and involve certain risks, uncertainties and other
factors beyond our control. Therefore, actual outcomes and results
may differ materially from what is expressed or forecast in the
forward-looking statements. Factors that could cause actual results
or events to differ materially from what is presented include the
impact of public health crises, including pandemics (such as
COVID-19) and epidemics and any related company or government
policies or actions; global and regional changes in the demand,
supply, prices, differentials or other market conditions affecting
oil and gas, including changes resulting from a public health
crisis or from the imposition or lifting of crude oil production
quotas or other actions that might be imposed by OPEC and other
producing countries and the resulting company or third-party
actions in response to such changes; changes in commodity prices,
including a prolonged decline in these prices relative to
historical or future expected levels; changes in expected levels of
oil and gas reserves or production; potential failures or delays in
achieving expected reserve or production levels from existing and
future oil and gas developments, including due to operating
hazards, drilling risks or unsuccessful exploratory activities;
unexpected cost increases or technical difficulties in
constructing, maintaining or modifying company facilities;
legislative and regulatory initiatives addressing global climate
change or other environmental concerns; investment in and
development of competing or alternative energy sources; disruptions
or interruptions impacting the transportation for our oil and gas
production; international monetary conditions and exchange rate
fluctuations; changes in international trade relationships,
including the imposition of trade restrictions or tariffs on any
materials or products (such as aluminum and steel) used in the
operation of our business; our ability to collect payments when due
under our settlement agreement with PDVSA; our ability to collect
payments from the government of Venezuela as ordered by the ICSID;
our ability to liquidate the common stock issued to us by Cenovus
Energy Inc. at prices we deem acceptable, or at all; our ability to
complete the acquisition of assets from Shell (the “Shell
Acquisition”) or any announced or any future dispositions or
acquisitions on time, if at all; the possibility that regulatory
approvals for the Shell Acquisition or any announced or any future
dispositions or acquisitions will not be received on a timely
basis, if at all, or that such approvals may require modification
to the terms of the transactions or our remaining business;
business disruptions during or following the Shell Acquisition or
any other announced or any future dispositions or acquisitions,
including the diversion of management time and attention; the
ability to deploy net proceeds from our announced or any future
dispositions in the manner and timeframe we anticipate, if at all;
potential liability for remedial actions under existing or future
environmental regulations; potential liability resulting from
pending or future litigation, including litigation related to our
transaction with Concho Resources Inc. (Concho); the impact of
competition and consolidation in the oil and gas industry; limited
access to capital or significantly higher cost of capital related
to illiquidity or uncertainty in the domestic or international
financial markets; general domestic and international economic and
political conditions; the ability to successfully integrate the
assets from the Shell Acquisition or achieve the anticipated
benefits from the transaction; the ability to successfully
integrate the operations of Concho with our operations and achieve
the anticipated benefits from the transaction; unanticipated
difficulties or expenditures relating to the Shell Acquisition or
the Concho transaction; changes in fiscal regime or tax,
environmental and other laws applicable to our business; and
disruptions resulting from extraordinary weather events, civil
unrest, war, terrorism or a cyber attack; and other economic,
business, competitive and/or regulatory factors affecting our
business generally as set forth in our filings with the Securities
and Exchange Commission. Unless legally required, ConocoPhillips
expressly disclaims any obligation to update any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Cautionary Note to U.S. Investors – The SEC permits oil
and gas companies, in their filings with the SEC, to disclose only
proved, probable and possible reserves. We may use the term
"resource" in this news release that the SEC’s guidelines prohibit
us from including in filings with the SEC, and any reserve
estimates provided in this news release that are not specifically
designated as being estimates of proved reserves may include
“potential” reserves and/or other estimated reserves not
necessarily calculated in accordance with, or contemplated by, the
SEC’s latest reserve reporting guidelines. U.S. investors are urged
to consider closely the oil and gas disclosures in our Form 10-K
and other reports and filings with the SEC. Copies are available
from the SEC and from the ConocoPhillips website.
Use of Non-GAAP Financial Information – This news release
contains certain non-GAAP financial measures, including cash from
operations, free cash flow and returns on capital employed. Cash
from operations is defined as cash provided by operating activities
excluding the impact from changes in operating working capital.
Free cash flow is defined as cash from operations in excess of
capital expenditures and investments. Return on capital employed is
defined as the measure of profitability of the company’s average
capital employed in its business expressed as a ratio, the
numerator of which is historically reported or forecasted net
income plus after-tax interest expense, and the denominator of
which is average total equity plus total debt.
For full definitions and additional information about non-GAAP
measures and other terms included here-in, please visit our website
at www.conocophillips.com/nongaap. For forward-looking non-GAAP
measures we are unable to provide a reconciliation to the most
comparable GAAP financial measure because the information needed to
reconcile these measures is dependent upon future events, many of
which are outside of management’s control as described above.
Additionally, estimating such GAAP measures and providing a
meaningful reconciliation consistent with our accounting policies
for future periods is extremely difficult and requires a level of
precision that is unavailable for these future periods and cannot
be accomplished without unreasonable effort. Forward-looking
non-GAAP measures are estimated consistent with the relevant
definitions and assumptions.
Other commonly used performance measures and financial terms
include the following – Returns of capital (also referred to as
distributions) is defined as the total of dividends and share
repurchases. Dividend yield is calculated as the Company’s
dividends per share relative to the current stock price. Strip
pricing referenced in standalone transaction metrics based on
pricing as of September 15, 2021.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210920005925/en/
Dennis Nuss (media) 281-293-4733
dennis.nuss@conocophillips.com
Investor Relations 281-293-5000
investor.relations@conocophillips.com
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