Conoco 2022 plans - more capex, more shareholder payouts

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• With $7.2B planned for 2022 capex ($6.5B excluding the Shell Permian acquisition), COP is penciling in a firm 36% increase in capex for the year (22% adjusting for the Permian purchase).
• However, with capex up 20%+, the Company only expects organic production growth in the low-single digits, reflecting a similar announcement by Baytex (OTCPK:BTEGF) last week, where capital spend is expected to balloon ~30% with production only growing ~3%.
• Both Baytex and Conoco cite inflation pressure as a reason for higher capital budgets, with little associated production growth, supporting the thesis that cost curves are shifting higher on shortages and supply-chain bottlenecks.
• With the announcement, COP provides a re-engineered shareholder return plan with 1) base dividend of $2.4B (2.5% of market cap) 2) share buyback of $3.5B (3.7% of market cap) 3) quarter-ahead, variable dividend of 20c/s (1.1% of current market cap, annualized); if sustained, this positions COP shareholders for a 7.3% payout with little production growth.
• COP's payout compares favorably to CVX at 6.4% (dividend + buyback) but light to XOM at 7.7%, assuming the midpoint of respective buyback ranges; all three companies providing a relatively flat organic production profile.

Comments

[Pocoloco45]

Maybe neither of us are missing the point; it’s more what we look at and measure, and when we got in. Plot up five - six year stock performance— COP vs EOG. COP is up 97%; EOG up 27 %. Bought in during the 2016 dip. Bought COP at about $37 avg; paid about $70avg for EOG. COP buybacks were likely a factor in the more significant price appreciation. COP paid a higher dividend over most of that time frame. When I factor that all in, my investment in COP has performed significantly better. We shall see how “special” vs “ variable” performs over time ( factoring in base dividend as well). EOG is a good company, but I think COP was a leader in recognizing where the O&G industry was heading. It think EOG got hurt when it was learned how they were flowing their new wells to establish IP rates. Don’t disagree that COP should shift more of free cash to dividend vs buybacks, but my view on that only changed with the recent stock price run up.

[Poster 137]

I agree with Caracer - Share buy backs are not share holder payouts!! I can understand that buybacks should increase the value of my holdings but even the shares of companies without buybacks go up. But in the makret ALL of those shares can go back down and then I have nothing. I think this idea of somehow putting a measurement on the amount of buybacks as a percentage of my return is madness - the return is not mine until I see the cash. As far as I know there has not been a company that has asked its shareholders to return the dividend check.

[fliboy]

@Poster 137 A lot of the time the share buyback just makes up for the stock management is awarded, which would otherwise be dilutive.

[caracer]

Share buy backs are not share holder payouts!!

[Mike Walker]

I don't complain about 'just' 20 cents a share when COP added a massive new position in the Delaware in 2021 via the Concho / Shell acquisitions.

Core acreage in some of the best tight oil geology of North America. Priceless.

[JOHN KONG]

Inflation that can’t be this is what’s causing inflation Oil prices Elmer Fudd God bless us all

[RightWingAnon]

If this is a trend for the entire industry, we could see some very high oil prices next year as OPEC lacks the spare capacity the market seems to think it has. This omicron crap was a hell of a buying opportunity.

[Charliedon'tsurf]

XOM, EPD, GLP for me.

[DKnewb]

The question to be pondered: Who's payout is most sustainable? COP, CVX, or XOM? Who is best positioned to ride the NG/LNG wave? Who is playing patty fingers with Engine 1 and ESG?

[PT Larry]

Sorry Lance, you’re too late. Now you can do all the buybacks you like. I’m gone to where they pay dividends

[pat 2010]

@PT Larry hope you voted against him before you left.

[cenc]

This is showing that the production is requiring more capital just to hold the line. It was pretty obvious the 2020-21 tricks where not sustainable (e.g. acquisitions, DUC inventory). we should start seeing corresponding announcements from the oil service sector regarding their 2022 protections and capx. time for someone to start drilling.

[John Cirone]

Can someone tell me if a 7.3% payout is good? I keep reading articles on SA telling me COP isn't a good investment.....

[Michael Fitzsimmons]

While $0.20/share is better than nothing, not by much (note EOG shareholders got $2/share last quarter). Read my breakdown of this announcement in the first comment I just left to my recent article on COP:

seekingalpha.com/...

[Pocoloco45]

@Michael Fitzsimmons I think you are missing the point that the base dividend will be maintained and the variable is an adder.

[coolcat28]

ConocoPhillips ( COP ) said it expects to return capital of about $7 billion to shareholders next year, and added its first variable return of cash of 20 cents per share would be paid on Jan. 14.

That would be on top of about $2.4 billion the company plans to pay in ordinary dividends and share repurchases of about $3.5 billion.

[Michael Fitzsimmons]

@Pocoloco45 - umm, no, I didn't miss that point at all. You must not be a follower: I have been on COP to pay out a variable or special dividend for years now.

The only thing I am missing from COP is the dividend income the CEO has been blowing on share buybacks. Like I said, EOG (which also has an ordinary dividend...) paid out a special dividend of $2/share last quarter, COP shareholders got $0.20. EOG paid out more in dividends last quarter than COP paid out all YEAR.

Now, what is it that you are missing?