Better oil prices have prompted ConocoPhillips to resume a shuttered share-repurchase program at an accelerated pace, according to a media release the company sent out Wednesday morning.
The program will buy back $1.5 billion shares annually. That’s a 50 percent increase in pace compared to fourth quarter 2020, when the program was suspended due to its pending Concho acquisition.
At the time of the acquisition, ConocoPhillips promised it would maintain distribution of greater than 30 percent of cash from operations. Resuming the share-repurchase program is part of keeping that commitment.
“It’s still early in the new year, but commodity prices have strengthened such that our dividend alone may not be sufficient to meet our return of capital commitment,” said Ryan Lance, chairman and chief executive officer of ConocoPhillips. “We will monitor the environment closely and retain the discretion to adjust our share repurchase program, as appropriate.”
While better oil prices are behind the resumption of ConocoPhillips share repurchase program, Lance said prices are not still not good enough to prompt increases to planned capital expenditures for 2021.That’s going to stay at $5.5 billion.
The company is not currently running any rigs in the Bakken. There are 15 rigs running as of Wednesday, according to the state’s active drilling rig list.
“We believe this market will favor companies who demonstrate sustainable discipline and strong free cash flow generation with a track record of predictable returns of capital,” Lance said. “At a time of reckoning for the sector, ConocoPhillips’ proven value proposition remains the right one for this volatile business.”
ConocoPhillips did bring all of its pandemic-curtailed production back online in the lower 48 states during the third quarter of 2020, and it was among the first oil and gas companies to resume stock repurchases after prices plummeted to historic lows in 2020.
The company suspended the program again in the fourth quarter of 2020, however, when it decided to acquire Concho Resources. That all-stock acquisition makes the combined entity one the largest of independent oil and gas companies, with production exceeding 1.5 million barrels of oil equivalent per day.
The combined company now holds about 23 billion barrels of oil equivalent, with an average cost of supply that is below $30 per barrel WTI, and that includes leading positions in both the Bakken and the Eagle Ford, as well as “core of the core” acreage in the Delaware and Midland.
In announcing the acquisition, ConocoPhillips took care to address climate change, noting that the two companies share “a track record of and commitment to ESG excellence” and that the combined entity will “adopt a Paris-aligned climate risk strategy,” with a goal of meeting net-zero emissions by 2050.
This follows a string of announcements by other companies such as BP and Equinor that they plan to reach net-zero emissions in a similar timeframe.
ConocoPhillips does have some federal land acreage, but said it has considered that risk in the transaction, and that it believes not only that its overall exposure is limited, but that those resources will ultimately be needed for future oil supply.
ConocoPhillips does plan to release updated guidance on its combined operations by the end of March, at which point there may be more clarity about what its 2021 operations in the Bakken will look like.