ConocoPhillips (NYSE:COP)

Short-term debt

Short-term debt exhibited notable fluctuations over the analyzed period. Beginning at $619 million in 2020, it increased sharply to $1,200 million in 2021, followed by a significant decline to $417 million in 2022. Subsequently, there was a pronounced rise again to $1,074 million in 2023, with a slight decrease to $1,035 million in 2024. This pattern indicates volatility in the company’s short-term borrowing, with peaks in odd years and troughs in even years.

Long-term debt

The long-term debt showed an overall increasing trend with some variability. Starting at $14,750 million in 2020, it rose substantially to $18,734 million in 2021. A decrease was observed in 2022, dropping to $16,226 million, but this was followed by an increase to $17,863 million in 2023. The most significant rise occurred in 2024, reaching $23,289 million. This demonstrates an overall strategy leaning towards increased long-term financing, despite some interim reductions.

Total debt, including finance leases (carrying amount)

Total debt, which aggregates short-term and long-term borrowings including finance leases, mirrored the trends observed in the components. The total debt increased from $15,369 million in 2020 to $19,934 million in 2021, then decreased to $16,643 million in 2022. This was followed by a rise to $18,937 million in 2023 and a further significant increase to $24,324 million in 2024. The fluctuations in total debt correspond closely to the movements in both short-term and long-term debt, with a marked upward trend over the five-year span.

Overall observations

The company’s debt structure reflects active management with fluctuations in short-term debt that may relate to operational financing needs or refinancing activities. The long-term debt trend suggests a growing reliance on longer-term obligations, particularly notable in 2024. The overall debt trajectory points towards increased leverage, as total debt expanded significantly from 2020 through 2024. This could indicate strategic decisions to finance growth or capital expenditures, though it also implies higher debt service obligations going forward.

The analysis of annual interest costs reveals distinctive trends in three related financial metrics: interest expensed, interest capitalized, and total interest incurred over the five-year period from 2020 to 2024.

Interest Expensed

The interest expense exhibits moderate fluctuation across the years. Starting at 806 million US dollars in 2020, it increases to 884 million in 2021. However, the following years show a downward adjustment with values of 805 million in 2022 and further decreases to 780 million in 2023. In 2024, there is a slight rise to 783 million. Overall, the interest expensed remains relatively stable with a minor declining trend post-2021.

Interest Capitalized

Interest capitalized displays a noticeable upward trend. Beginning at 55 million US dollars in 2020, it climbs gradually to 62 million in 2021 and slightly decreases to 58 million in 2022. From 2022 onwards, significant increases occur, with the amount reaching 153 million in 2023, followed by a further substantial rise to 248 million in 2024. This pattern suggests an increasing portion of interest costs being capitalized, which may indicate growth in capital projects or assets under construction.

Total Interest Incurred

The total interest incurred, combining both expensed and capitalized interest, shows an overall increasing trajectory. From 861 million US dollars in 2020, the value rises to 946 million in 2021, dips slightly to 863 million in 2022, but then grows noticeably to 933 million in 2023 and further to 1031 million in 2024. The upward momentum in total interest incurred primarily reflects the substantial increases in interest capitalization, despite relatively stable interest expenses.

In summary, the data indicates a strategic shift towards capitalizing more interest costs over the recent years while maintaining a relatively stable interest expense. This results in a rising total interest burden, potentially associated with increased investment activity or capital expenditure projects. The trends suggest careful monitoring of capitalized interest is warranted to assess its impact on future financial statements and asset valuations.

Interest Coverage Ratio (without capitalized interest)

The ratio demonstrated significant volatility over the analyzed period. It started with a negative value of -2.9 in 2020, indicating an inability to cover interest expenses during that year. There was a notable improvement in 2021, with the ratio rising sharply to 15.38. This upward trend continued into 2022, reaching a peak of 36.07, which suggests a strong capacity to meet interest obligations. However, in 2023 and 2024, the ratio declined to 21.88 and then to 18.46 respectively, indicating a reduction in interest coverage strength compared to the peak but maintaining a healthy buffer above the critical threshold.

Adjusted Interest Coverage Ratio (with capitalized interest)

This ratio followed a similar pattern to the non-adjusted interest coverage ratio but consistently presented slightly lower values. Beginning with a negative figure of -2.71 in 2020, the ratio improved to 14.37 in 2021 and then surged to 33.64 in 2022. Following this peak, the ratio decreased to 18.29 in 2023 and further to 14.02 in 2024. The declining trend post-2022 suggests a relative weakening in the company's adjusted capability to cover interest expenses when accounting for capitalized interest, though it remains positive and significantly improved compared to the initial negative position.

Overall Observations

Both ratios reflect an initially challenging financial position in 2020, followed by marked improvements through 2021 and 2022. The peak in 2022 indicates a period of strong financial health with respect to debt servicing. Subsequent declines in 2023 and 2024, while still indicating coverage above minimal levels, suggest emerging pressures or increased interest expenses relative to earnings. The consistent difference between the adjusted and unadjusted ratios highlights the impact of capitalized interest on financial performance metrics.