ConocoPhillips (COP) Announces Significant Enhancement to Multi-Year Plan with All-Cash Permian Asset Acquisition; Increases Ordinary Dividend; Improves 2030 Emissions Intensity Reduction Target
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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.
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Create E-mail Alert Related CategoriesCorporate News, Dividend Hike, Guidance, Mergers and Acquisitions
Related EntitiesGoldman Sachs, Dividend, Crude Oil, OPEC, Earnings, Definitive Agreement
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