ConocoPhillips (COP -0.13%) is cashing in on higher oil prices. The oil giant produced a prodigious $15.7 billion in cash from operations last year. That covered its capital expenses with $10.4 billion to spare. It returned $6 billion of that windfall to investors via dividends and its share repurchase program.
With oil prices even higher this year, ConocoPhillips will have an even bigger cash flow gusher to return to investors in 2022. Here's a look at what the oil company is doing will its growing cash flow.
A cash flow machine
Last year was a transformational one for ConocoPhillips. In early January, it closed its $9.7 billion all-stock acquisition of Concho Resources, a leading producer in the low-cost Permian Basin. Meanwhile, it wrapped up its $9.5 billion all-cash purchase of Shell's (RDS.A) (RDS.B) Permian Basin assets in December. These deals positioned the company to cash in on higher oil prices.
Overall, the oil giant produced $15.7 billion in cash from operations in 2021. The main fuel was higher oil prices. The company realized $65.56 per barrel of oil equivalent during the fourth quarter, up 97% year over year. That cash flow gusher covered its $5.3 billion of capital expenses with $10.4 billion to spare. The company also generated $1.1 billion in cash by selling off some of its stake in Canadian oil sands producer Cenovus Energy (CVE 2.41%) and roughly $300 million from selling other non-core assets.
ConocoPhillips returned $6 billion of its cash flow gusher to shareholders. It paid $2.4 billion in dividends -- increasing its quarterly payout by 7% to $0.46 per share in November -- and repurchased $3.6 billion in shares. That still left it with $5.8 billion in cash and short-term investments at the end of the year.
An even bigger payday in 2022
ConocoPhillips expects to generate even more cash in 2022. A big driver is higher oil prices. Crude oil soared another 17% in January and was recently near $90 a barrel.
However, higher oil prices are only part of the story. ConocoPhillips is already ahead of schedule on capturing the expected $1 billion in cost savings from its merger with Concho. Meanwhile, Shell's assets will provide several billion dollars of incremental cash flow this year.
Because of these factors, ConocoPhillips expects to be in the position to return $8 billion to shareholders this year even as capital spending rises to $7.2 billion due to inflation, growth, and emissions-related increases. That's $2 billion more than last year and $1 billion above its prior forecast. The company initially planned to pay $2.4 billion in dividends, repurchase $3.5 billion of shares with $1 billion funded by the sale of its remaining Cenovus stock, and a variable return of cash (VROC) of around $1 billion. It now expects to spread that additional $1 billion cash return across those last two buckets.
In January, the company paid its first VROC of $0.20 per share. In April, it expects to make its second payment of $0.30 per share, a 50% increase. It has the flexibility to further increase this payment in the future or allocate more capital to share repurchases. Meanwhile, the company will likely increase its quarterly dividend payment later this year.
Reaping the windfall
ConocoPhillips is rewarding investors as oil prices rise. It now expects to distribute $1 billion more to shareholders this year, with some of that windfall coming via a 50% higher VROC payment in April. That ability to immediately benefit from higher oil prices makes ConocoPhillips an ideal oil stock to buy in an environment where oil prices rise.