CONOCO NET LOSS $855 MLN
CONOCOPHILLIPS - ConocoPhillips (NYSE: COP) today reported fourth-quarter 2017 earnings of $1.6 billion, or $1.32 per share, compared with a fourth-quarter 2016 net loss of $35 million, or ($0.03) per share. Excluding special items, fourth-quarter 2017 adjusted earnings were $0.5 billion, or $0.45 per share, compared with a fourth-quarter 2016 adjusted net loss of $0.3 billion, or ($0.26) per share. Special items for the current quarter were primarily driven by benefits from U.S. tax reform and the settlement of Ecuador arbitration.
Full-year 2017 earnings were a net loss of $0.9 billion, or ($0.70) per share, compared with a full-year 2016 net loss of $3.6 billion, or ($2.91) per share. Excluding special items, full-year 2017 adjusted earnings were $0.7 billion, or $0.60 per share, compared with a full-year 2016 adjusted net loss of $3.3 billion, or ($2.66) per share.
Consistent with the company's returns-focused value proposition and strategic priorities, ConocoPhillips announced an increase in its distributions to shareholders, consisting of an increase to the quarterly dividend and an increase in the previously announced planned 2018 share repurchases.
The board of directors approved a 7.5 percent increase to the quarterly dividend, from 26.5 cents to 28.5 cents per share. The dividend is payable on March 1, 2018 to stockholders of record at the close of business on Feb. 12, 2018.
The company expanded its previously announced 2018 share repurchases by 33 percent, from $1.5 billion to $2.0 billion.
Preliminary 2017 year-end proved reserves are 5.0 billion barrels of oil equivalent (BOE). The total reserve replacement ratio, including a reduction of 1.9 billion BOE from dispositions, is expected to be a negative 168 percent. Excluding disposition impacts, the organic reserve replacement ratio is expected to be a positive 200 percent. Excluding disposition impacts and market factors, replacement from net additions is expected to be a positive 117 percent.
Net additions excluding market factors and dispositions are expected to be 605 million BOE, approximately 70 percent of which are from Lower 48 unconventional assets and 15 percent from assets in the Asia Pacific and Middle East segment. Market factors increased reserves by an additional 431 million BOE. These were primarily related to increased commodity prices across North American assets.
Final information related to the company's 2017 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.
Bolt-On Transaction in Alaska
The company also announced it has signed a definitive agreement with Anadarko Petroleum Corporation (NYSE: APC) to acquire its 22 percent nonoperated interest in the Western North Slope of Alaska, as well as its interest in the Alpine pipeline, for $400 million in cash, before customary adjustments. The transaction is subject to regulatory approval, and has an effective date of Oct. 1, 2017. In 2017, the gross daily production from these assets was 63 thousand barrels of oil equivalent per day (MBOED). In addition, ConocoPhillips will have 100 percent interest in approximately 1.2 million acres of exploration and development lands, including the Willow discovery.
Full-Year 2017 Summary
- Achieved full-year production excluding Libya of 1,356 MBOED; underlying production excluding the impact of closed and planned dispositions grew 19 percent on a production per debt-adjusted share basis and 3 percent overall.
- Cash provided by operating activities exceeded capital expenditures by $2.5 billion, and exceeded capital expenditures and dividends by $1.2 billion.
- Paid down $7.6 billion of balance sheet debt, ending the year with debt of $19.7 billion.
- Generated $16 billion from asset dispositions.
- Announced preliminary year-end proved reserves of 5.0 billion BOE.
- Repurchased $3 billion of shares; reduced ending share count by 5 percent year-over-year.
- Reached settlement on Ecuador arbitration for $337 million.
"2017 was a very successful year by all measures," said Ryan Lance, chairman and chief executive officer. "We accelerated our disciplined, returns-focused value proposition and delivered on our strategic priorities. We transformed our portfolio, strengthened our balance sheet, returned 61 percent of cash flow from operations to shareholders through our dividend and buyback program, and achieved our operational milestones, including 200 percent organic reserve replacement."
Lance continued, "We entered 2018 with strong operational and financial momentum. While the outlook for commodity prices has improved, our operating plan remains unchanged and we have already taken clear actions to demonstrate our commitment to maintain discipline and follow our priorities. Since the year began, we've paid down $2.25 billion of additional debt, raised our quarterly dividend rate by 7.5 percent, increased our planned 2018 share buybacks to $2 billion, and announced an attractive bolt-on transaction in a high-quality, legacy asset with significant exploration upside. We are focused on safely executing our 2018 operational and financial plan, which is designed to generate top-tier growth in free cash flow and production per debt-adjusted share, while delivering superior returns and a compelling payout to shareholders."
Production excluding Libya for the fourth quarter of 2017 was 1,219 MBOED, a decrease of 368 MBOED compared with the same period a year ago. The fourth-quarter volume impact from closed and planned dispositions was 14 MBOED in 2017 and 427 MBOED in 2016. Excluding the impact of dispositions, underlying production increased 45 MBOED, or 4 percent. The increase came from the ramp up of major projects and development programs, which more than offset normal field decline and downtime. Production from Libya was 37 MBOED.
In Alaska, first production was achieved from 1H NEWS and additional wells were brought online at CD-5. In Lower 48, the company acquired additional early life-cycle unconventional acreage to support future development. In Canada, record production levels were achieved at Surmont and exploration drilling progressed in the Montney. In Norway, the first well was spud at Aasta Hansteen and in Malaysia the final well was spud for the initial Malikai drilling campaign.
Earnings were higher compared with the fourth quarter of 2016 due to benefits from U.S. tax reform, higher realized prices and the settlement of the Ecuador arbitration. The U.S. tax reform non-cash benefit was approximately $0.9 billion, primarily resulting from the revaluation of deferred taxes at the lower 21 percent federal statutory rate. Adjusted earnings were improved compared with fourth-quarter 2016 primarily due to higher realized prices, higher underlying production, and lower depreciation expense. The company's total realized price was $46.10 per BOE, compared with $32.93 per BOE in the fourth quarter of 2016, reflecting higher average realized prices across all commodities.
For the quarter, cash provided by operating activities was $2.5 billion, exceeding $1.5 billion in capital expenditures and investments and $0.3 billion of dividends. In addition, the company repaid debt of $1.3 billion, repurchased company common stock for $1.0 billion, sold $0.8 billion of short-term investments and received proceeds from asset dispositions of $0.1 billion.
Production excluding Libya for 2017 was 1,356 MBOED, compared with 1,567 MBOED for the same period in 2016. The full-year volume impact from closed and planned dispositions was 191 MBOED in 2017 and 434 MBOED in 2016. Excluding the impact of dispositions, underlying production increased 32 MBOED, or 3 percent. The increase was a result of major projects, development programs and improved well performance, which more than offset normal field decline. Production from Libya was 21 MBOED.
The company's total realized price during 2017 was $39.19 per BOE, compared with $28.35 per BOE in 2016. This reflected higher average realized prices across all commodities.
In 2017, cash provided by operating activities was $7.1 billion, exceeding $4.6 billion in capital expenditures and investments and dividends of $1.3 billion. In addition, the company received cash proceeds from asset dispositions of $13.9 billion, paid $7.9 billion to reduce debt, repurchased company common stock for $3.0 billion, purchased a net $1.8 billion in short-term investments, and contributed $0.6 billion to the U.S. pension fund. At year-end 2017, ConocoPhillips had $6.3 billion of cash and cash equivalents, and $1.9 billion of short-term investments. In addition, the company held 208 million common shares of Cenovus Energy.
Full-year 2018 production is expected to be 1,195 to 1,235 MBOED. This results in approximately 5 percent growth compared with full-year 2017 underlying production, which excludes disposition impacts of 191 MBOED. First-quarter 2018 production is expected to be 1,180 to 1,220 MBOED. Production guidance for 2018 excludes Libya.
Guidance for 2018 production and operating expenses and 2018 adjusted operating cost is $5.7 billion.
The company's 2018 guidance for capital expenditures is $5.5 billion; corporate segment net expense is $1.2 billion or $1.0 billion adjusted corporate segment net expense; depreciation, depletion and amortization is $5.8 billion; and exploration dry hole and leasehold impairment expense is $0.2 billion.
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