Conoco sweetens shareholder returns by $5 billion as profit jumps

© Reuters. FILE PHOTO: The logo for ConocoPhillips is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., January 13, 2020. REUTERS/Brendan McDermid

(Reuters) -ConocoPhillips on Thursday raised its shareholder payout target by 50% after the largest U.S. independent oil producer beat Wall Street's earnings estimates on surging energy prices.

Oil and gas prices have jumped with Western sanctions on Russia throttling energy supply amid a rebound in demand. Oil is trading about 25% higher since the start of the year and natural gas demand and prices have jumped on hot weather and Russian shortages.

Conoco this year will devote $15 billion of cash from operations to shareholder returns, up from $10 billion originally set, it said, joining a parade of big energy companies using the price surge to reward investors.

The payouts are fueling criticisms from officials around the world. Lawmakers have called for windfall profit taxes on energy profits, and a top official of the United Nations yesterday called soaring oil profits "immoral."

Conoco shares were up a fraction at $91.65 in afternoon trading after the company trimmed its forecast for full-year production. It expects output to average 1.74 million barrels per day (mboed), compared to 1.567 mboed in 2021.

Chief Executive Ryan Lance in remarks to analysts on a conference call said oil and gas demand will remain strong while warning of higher volatility and costs. Expenses for materials and labor are expected to boost costs by 7% to 8% this year.

The company aims to increase its exposure to natural gas markets, pledging to invest in two liquefied natural gas (LNG) projects. Conoco is discussing a gas-supply agreement as well as an investment with a U.S. Gulf Coast LNG developer.

"We hope to be pivoting over time to even supply a lot of this gas" to the U.S. LNG project," said CEO Lance, citing gas from its recent acquisitions in Texas.

The investments will boost future spending. Conoco faces an about $900 million tab for participation in a second LNG project, in Qatar, officials said. A bill could come later this year or early next, said Executive Vice President Nick Olds, which will add to its existing budget.

Houston, Texas-based ConocoPhillips (NYSE:COP) said the average price received for a barrel of oil and gas rose 77% from a year earlier to $88.57. The company has not hedged any of its oil and gas sales to make the most of higher market prices, it said.

Production of 1.69 million barrels of oil and gas per day (mboed) was in line with Wall Street estimates. The company forecast the current quarter's output would be in a range of 1.71 to 1.76 mboed.

The company's second-quarter adjusted earnings of $3.91 per share beat Wall Street estimates of $3.80 per share, according to Refintiv IBES data.