ConocoPhillips’ 1Q2021 profit marked its first amid the coronavirus pandemic and reflected both a pickup in global oil demand and a winter spike in domestic natural gas prices.
The Houston-based energy giant in the first quarter also closed its $ 9.7 billion acquisition of Concho Resources Inc., forming a Permian Basin power plant that will rival the output of the world’s largest oilfield players. productive Lower 48.
“The first quarter has been a momentous one for ConocoPhillips,” said CEO Ryan Lance.
The world’s largest independent said the average price of its crude and natural gas liquids in the first quarter was $ 45.36 / bbl, 17% higher than the boe of $ 38.81 achieved in the last quarter. previous quarter. This reflects the rise in oil prices and the impacts of winter storm Uri on gas achievements.
Crude prices recovered in the second half of 2020 and continued to rise in the first quarter. Brent and West Texas Intermediate prices in April hovered around their respective high levels since mid-2019. While the continued recovery in crude remains uncertain, given ongoing virus outbreaks in highly populated countries such as India that could hamper demand, major producers largely expect demand to be strong in the region. second half of 2021, as vaccination programs expand globally.
In its latest weekly report on the state of oil, the US Energy Information Administration (EIA) said domestic demand increased by almost 9% week / week. Over the past four weeks, total oil demand has averaged 19.7 million bpd, up 36% from the same period last year, and consumption of motor gasoline averaged 8.9 million bpd, up 68% from the previous year period. .
Separately, the Organization of the Petroleum Exporting Countries and its allies, aka OPEC-plus, began ramping up production this month with plans to add more than 2 million bpd to the market by July. amid rising expectations of global economic growth and a corresponding jump in demand for oil.
ConocoPhillips said its total production in the first quarter, excluding war-torn Libya, was 1.49 million boe / d compared to 1.28 million boe / d a year earlier. The company expects 2Q2021 production, excluding Libya, to be 1.50 to 1.54 million boe / d, in part due to expected seasonal increases in demand as summer conditions loom. Annual production is expected to average 1.50 million boe / d.
Uri, meanwhile, launched an Arctic explosion in Texas in February, temporarily crippling the energy sector and boosting natural gas prices. The storm, however, also hampered production. ConocoPhillips said Uri cost it around 50,000 boe / d of oil and gas production in mid-February, mostly from wells in the Permian and the Eagle Ford Shale in Texas.
In Lower 48, production averaged 715,000 boe / d, including 405,000 boe / d from the Permian, 187,000 boe / d from the Eagle Ford and 86,000 boe / d from the Bakken Shale.
Closing of the Concho
The Permian numbers are sure to climb over the next few quarters with the integration of Concho, a Permian pure play. Concho was the fifth largest producer by volume in the massive field. This combination makes ConocoPhillips one of the dominant players in the Permian, alongside Chevron Corp., ExxonMobil and Occidental Petroleum Corp.
With the acquisition, ConocoPhillips’ Permian net acreage quadruples to 700,000 net acres. The pro forma production potential with Concho is estimated at over 1.5 million boe / d. The transaction is expected to generate cost and capital savings of $ 500 million by 2022 and prove accretive to earnings and free cash flow.
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“We are only a short time into the Concho integration, but we are already seeing the previously announced synergies materialize, and we expect to generate additional benefits as our integration progresses,” Lance said during ‘a call with analysts on Tuesday. “Our entire workforce is on a mission to emerge from the extreme volatility of the industry last year… as our company’s strongest competitor.”
ConocoPhillips has followed several other energy majors with a strong first quarter earnings report and higher production expectations. The company said it started the second quarter with 15 rigs – 11 in the Permian and four in the Eagle Ford.
Since last summer, producers have brought back online nearly 200 rigs that had been idle earlier in 2020 due to the pandemic, according to data from Baker Hughes Co. completed in April on 440 combined oil and gas platforms.
Also on Tuesday, ConocoPhillips said it would pay off its $ 5 billion gross debt over the next five years, about a quarter of its current debt level.
The company also plans to sell its shares of Cenovus Energy Inc. by the end of 2022. ConocoPhillips owns about 10% of the Calgary producer’s common stock, which has risen about 30% year-to-date to reach $ 8.00.
ConocoPhillips plans to use the proceeds to fund ongoing share buybacks. The company resumed its share buyback program earlier this year, repurchasing $ 400 million of its shares in the first quarter.
The company said operating cash flow of $ 2.1 billion exceeded capital expenditure (capex) and investments by $ 1.2 billion, generating free cash flow of $ 900 million in the 1Q2021.
Annual capex are estimated at $ 5.5 billion. Lance said on the call that 1Q2021 capex were “artificially low” due to Uri impacts in Lower 48.
ConocoPhillips reported 1Q2021 net profit of $ 982 million (75 cents / share), down from a loss of $ 1.7 billion (minus $ 1.60) a year earlier. Revenue climbed to $ 2.1 billion from $ 1.6 billion in 1Q2020.