ConocoPhillips Announces Significant Enhancement to Multi-Year Plan with All-Cash Permian Asset Acquisition; Increases Ordinary Dividend; Improves 2030 Emissions Intensity Reduction Target
A complementary, highly accretive acquisition of Shell Enterprises LLC’s prolific
Delawarebasin position for $9.5 billionin 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 centsper share to 46 centsper 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
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
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 $50per 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 billionwith free cash flow of $1.9 billionbased 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 billionin 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 billionto $4-5 billionby 2023. The incremental $2 billionof planned dispositions are expected to be sourced primarily from the Permian Basinas 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.”
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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