ConocoPhillips Earnings: Results Fall on Lower Oil Prices; Cash Continues To Flow to Shareholders

ConocoPhillips COP reported first-quarter adjusted earnings decreased to $2.9 billion from $4.3 billion a year earlier, largely on lower oil and gas prices. Following its three-tier capital return framework, it paid out $1.5 billion in dividends and variable return of cash and repurchased $1.7 billion in shares.

Cash returns will fall with lower oil prices and lower cash flow given the 30% capital return target, but Conoco’s low breakeven level keeps the ordinary dividend safe. During its annual update in April, management advised it could continue to meet its payout target through dividends and repurchases at oil prices of $40/bbl for two years with a manageable leverage increase.

Production during the quarter grew by 45 thousand barrels of oil equivalent per day to 1,792 mboe/d, boosted by new wells in the lower 48 and improved well performance. Adjusting for acquisitions and dispositions, production increased 65 mboe/d, or 4%. Conoco raised guidance on full-year production, now anticipating 1.78 to 1.80 mboe/d, as compared with prior guidance of 1.76 to 1.80 mboe/d.

Capital spending was $2.9 billion in the quarter, including $0.4 billion for a 30% equity interest in Port Arthur LNG. Construction commenced on the Willow project after receiving government approval, an assumption in the 2023 capital spending increase. Full year capital expenditures guidance of $10.7 billion to $11.3 billion is unchanged from prior guidance, which marked an increase to accommodate new projects.

Operating cash flow excluding working capital changes totaled $5.7 billion during the quarter, slightly less than the $2.9 billion of capital spending and $3.2 billion in shareholder returns.

We plan to incorporate the latest results into our model along with an updated price deck, but we do not anticipate a material change in our fair value estimate of $96. Our narrow moat rating is unchanged. Shares have sold off recently with weaker oil prices, bringing them closer to our fair value estimate.