Wells Fargo---COP: Issues 2022 Capex Outlook; Offers Up Variable Payout Option Initial Thoughts COP remains one of the large cap E&Ps doing the right things by itself, investors, and the industry. Instituting a variable payout, a structure of which we are not big fans, does provide investors with a pathway to additional cash returns if oil prices surprise to the upside in 2022 and appears to be more in line with other E&Ps.
Capex budget of $7.2bn compares to our $7.0bn forecast—management sees capex as consistent with prior guidance. The difference in our estimates appears to be attributable to an incremental $0.2bn directed towards lower carbon (Scope 1 & 2 reductions) investments and the Permian acquisition from RDSb. The Permian acquisition closed for cash of $8.6bn, which was $0.2bn below our estimate. Thus net cash requirements are in line with our expectations.
Variable payout coming in Q1 2022 at $0.20/share. This compares to the regular quarterly dividend of $0.46/share. Goal is to return cash to shareholders quickly when commodity prices and company performance allow. Initial guidance for 2022 (based on >30% return of CFFO) would be $2.4bn for the regular dividend, $3.5bn of share repurchases and $1.0bn of variable dividend.
Production guidance of 1.8boed is in line with our expectations.
Our Call We have been and remain positive on COP as demonstrated by our $84 price target and Overweight rating.