ConocoPhillips Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2022

There are 19 speakers on the call.

Operator

Welcome to the Q3 2022 ConocoPhillips Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer I will now turn the call over to Phil Gresh, Vice President, Investor Relations. Sir, you may begin.

Speaker 1

Yes. Thank you, Richard, and welcome to everyone joining us for our Q3 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO Bill Bullock, Executive Vice President and Chief Financial Officer Dominic Macklin, Executive Vice President Strategy, Sustainability and Technology Nick Olds, Executive Vice President of Global Operations Jack Harper, Executive Vice President of Lower forty eight and Tim Leach, Advisor to the CEO. Ryan and Bill will kick off the call with opening remarks, after which the team will be available for your questions. Just a few quick reminders.

Speaker 1

First, along with today's release, We published supplemental financial materials and a presentation, which you can find on our Investor Relations website. 2nd, during this call, we will be making forward looking statements Based on current expectations, actual results may differ due to factors noted in today's release and in our periodic SEC filings. Finally, we will make reference to some non GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure

Speaker 2

For the quarter, including record production, I'd like to touch on a few big picture thoughts that are top of mind for us. First, inflation and supply chain constraints continue across the entire economy and our industry. This is particularly true in the U. S. Shale, We're rapidly escalating costs combined with extremely tight supply are limiting the pace of industry wide production growth.

Speaker 2

2nd, we believe that the world is going to need investments in medium and long cycle production in addition to U. S. Shale plays. The depth and quality of our U. S.

Speaker 2

Unconventional inventory, combined with our diverse global portfolio, Has us well positioned to meet these long term supply challenges. And finally, a successful energy transition must meet This requires an all the above solution. Obstacles that prevent the global market from functioning properly are not going to help the American consumer and would be disastrous for our allies. Governments can help by enacting policies that encourage investments in developing lower emission oil and gas resources an all the above solution. Now against this backdrop, we believe that ConocoPhillips is well positioned to win in any environment.

Speaker 2

We remain committed to delivering on our triple mandate of responsibly and reliably meeting energy transition pathway demand, Delivering competitive returns on and of capital and progressing towards achieving our net zero operational emissions ambition. As further evidence of this commitment, our 3rd quarter results demonstrated record total company production. Lower forty eight production hit a milestone at over 1,000,000 barrels of oil equivalent per day, and we anticipate further growth in the 4th quarter. On returns, we generated a trailing 12 month ROCE of 27%. We increased our ordinary dividend by 11% to $0.51 per share.

Speaker 2

And we announced a $0.70 per share of VEROC for the Q1 of 2023, And we increased our share buyback authorization by $20,000,000,000 Additionally, we'll return $15,000,000,000 of capital for 2022, which represents over 50% of our projected CFO, well in excess of our greater than 30% annual commitment. Now we believe that our CFO based returns framework differentiates us relative to peers. And finally, our net zero operational emissions ambition, We recently announced a new medium term methane intensity commitment consistent with our recent objectives of joining OGMP 2.0. From a strategic perspective, I want to provide an update on our global LNG initiatives. First, we were recently selected to and Qatar's Northfield South project, following our selection earlier this year to participate in the Northfield East, which adds to our long positive relationship with Qatar Energy.

Speaker 2

2nd, we agreed to terminal services for a 15 year period at the prospective Bruttonsbottle LNG import terminal in Germany. And third, we continue to progress our Port Arthur LNG project with Sempra, which we expect to reach FID by early next year. Now overall, we continue to believe the substitution of natural gas in place of coal Represents an opportunity for significant reductions in global greenhouse gas emissions. This should drive global LNG demand and related opportunities well into the future. Putting this all together, we remain constructive on the outlook for the industry And we have a deep portfolio of short, medium and longer cycle low cost to supply assets that generate strong cash flow as we continue to deliver on our triple mandate.

Speaker 2

Now let me turn the call over to Bill to cover our overall performance for the quarter.

Speaker 3

Well, thanks, Ryan. From a financial standpoint, we had a solid Q3. We generated $3.60 Per share and adjusted earnings, production was over 1,750,000 barrels of oil equivalent per day, which included our previously guided approximately 15,000 barrels of oil equivalent per day impact from scheduled turnarounds as well as some impacts From the temporary force majeure in Libya in July. For the Q4, we do not expect any material turnaround impacts. Lower forty eight production averaged a record 1,013,000 barrels of oil equivalent per day, including 668,000 from the Permian, $224,000 from the Eagle Ford $96,000 from the Bakken.

Speaker 3

Cash provided from operating activities was $8,700,000,000 Now this included a $15,000,000,000 benefit from working capital, primarily related to the timing of Norway tax payments and lower receivables. Excluding working capital, Cash from operations was $7,200,000,000 APLNG distributions were $257,000,000 in the quarter And we expect 4th quarter distributions to be about $600,000,000 On capital, We invested $2,500,000,000 back into the business in the 3rd quarter, including around $300,000,000 for acquisitions. This resulted in free cash flow of $4,700,000,000 which more than covered the $4,300,000,000 we returned to shareholders in the quarter. Factoring in $400,000,000 of disposition proceeds, ending cash and short term investments were $10,700,000,000 at September 30, up from $8,500,000,000 at June 30. Turning to guidance, we still expect Full year production of 1,740,000 barrels oil equivalent per day with a 4th quarter guidance range of 1.74000000 to 1.8 $7,700,000,000 from $7,500,000,000 and this is driven by inflationary impacts.

Speaker 3

We have also increased full year organic CapEx to $8,100,000,000 from $7,800,000,000 also driven by inflationary impacts and partner operated working interests. Partially offsetting these increases, we have reduced full year DD and A guidance from $7,600,000,000 to $7,500,000,000 In terms of 2023 guidance, we anticipate providing full details with our Q4 earnings call in early February. We will also be hosting an Analyst and Investor Meeting next spring at the New York Stock Exchange. So please stay tuned for more details. And with that, I'll turn the call back to Ryan.

Speaker 2

Thank you, Bill. Now before we go to Q and A, I wanted to spend a minute discussing a few important organizational announcements. First, Jack Harper, our EVP of the Lower forty eight, informed me that he will be leaving the company due to a family medical situation. And I know I speak on behalf of the entire organization when I say that Jack will be greatly missed. Now in conjunction with this announcement, Nick Olds, Currently, our Executive Vice President of Global Operations will become the Executive Vice President of Lower forty eight and Andy O'Brien, currently our Vice President and Treasurer He'll become Senior Vice President, Global Operations and join the executive leadership team.

Speaker 2

Now with that, I'd be I wanted to turn the call over to Jack and give him the

Speaker 4

Thanks, Ryan. As Ryan mentioned, I will be leaving ConocoPhillips due to a family medical situation. With ConocoPhillips, we did so because we believe that the transaction would create a uniquely strong and differentiated company and I could not feel better about how this has played out. This may be one of the most dynamic times that we've ever seen in the industry and my competitive side certainly makes me wish that I could stay on board for what is ahead. However, I'm confident that we have set up the team for success with our organizational structure and planned transition over the next few months.

Speaker 4

With that, let me turn the call back over to Ryan.

Speaker 2

Thank you, Jack. And I know I speak for everybody at ConocoPhillips. We have you and your family in all our prayers. So With that, let me turn it back over to Phil, and we'll get going with the Q and A.

Speaker 1

Great. Thanks, Ryan. Just as a reminder, We ask that you ask one question and one follow-up. And with that, Richard, we'll turn it back to you.

Operator

Thank you. We will now begin the question and answer session. And our first question online comes from Neil Mehta from Goldman Sachs.

Speaker 5

Good morning, team. Ryan, I want to kick off with you on the LNG strategy. And we've seen a lot of interesting individual announcements. Maybe you could pull it all together and talk about how you see these coming together for how Conoco thinks about LNG as a part of its portfolio. And as it relates to that, maybe you could talk about risks around long term LNG as we have a lot of new supply coming in from Qatar In the U.

Speaker 5

S. By the middle of the decade and do you worry about spending on these projects into what could be a sloppier market

Speaker 2

Thank you, Neil. Appreciate the question. Yes, I think for some context around the We've been involved in LNG for a long, long time. You think about our liquefaction technology that we have that's being used by many, many operators around the world today. We effectively started this business back in the 60s with our project up in Kenai and delivering 40 years of gas to our Japan Marketing friends, so we've been in this business for a long time.

Speaker 2

And then when you look at the transactions that we've done over the last We have a growing resource position in the U. S, so creating more demand and it just makes a lot of sense So as we step back and we started thinking about it, combined with our views of the energy transition and the view that LNG is going to be The necessary fuel that can replace coal, similar to the way the gas has done that in the United States and reduced the emissions profile in the U. S. So We think this is something the globe is going to be needing as we go through this energy transition. So you put all that together and we Sat back over a year ago and said this was a piece that we wanted to grow in our portfolio.

Speaker 2

So it started with the opportunity at APLNG. We picked up some more interest there. And we got named in the Northfield expansion project and then more recently here in the Northfield South. And then Combined with wanting to do something in the U. S.

Speaker 2

To take advantage of a position that we have here and develop more demand for the product in the U. S, We looked at who we thought was the best positioned with permits and opportunity and that's when we decided to join up with And as you've seen, we expect to reach FID early next year at Port Arthur, and that gives us some optionality also on The West Coast of Mexico opportunity that they have as well. So when we looked at all this, trying to build this business For the long term and complemented now by our German regas opportunity that we've entered into. So we want to get into that full value chain. We've got a great commercial organization that can optimize around this, and we just think this is going to be a business that's going to be long term And going to be substantial well into the future.

Speaker 2

Now it's going to be there's going to be periods of time when supply exceeds demand and when demand exceeds supply. And that's more to your point. There may be a period coming later this decade for a year or 2 where the pricing may be get a little Because of a lot of projects are coming in, but again, we're rendering it this into 20 30 year contracts. So we just have a long term view that this is going to be a really good business And one that ConocoPhillips can excel at given our history and the capability inside the company and we expect to want to try to build more of this business over time.

Speaker 5

Yes, that's really clear, Ryan. The follow-up is just on capital spending for 2023 recognizing we're going More thoughts, it sounds like here in February on it, but if we took the 8.1 as the starting point, what are some of the moving pieces As you go into 'twenty three that we can break off.

Speaker 2

Yes, Neil, I would I guess I would start by saying I'd Probably take the last half of this year, that kind of pace, annualize that for our base business as we think about that Going into 2023, we're not looking at trying to add scope into our Lower 48 operation given The kind of environment on inflation that we see. So starting there, we'll assess what we think inflation looks like for next year. And importantly, we'll assess what our partners are doing in terms of the scope that they're trying to execute that we have to fund our share of. So Those are some unknowns that we're going to, but I'd say take the base business, which is kind of ratable off the second half of this year as you think about going into next year. And then the new businesses that we're trying to grow and expand and develop the company around NFE and NFS, the 2 Qatari projects, we'll be funding that Next year, again, we hope to reach FID at Sempra.

Speaker 2

So there will be some funding associated with that next year. And then finally, We hope to be getting into some construction and activities next year with Willow. Obviously, we won't do that until we have a permit in place that allows us To go start up funding of that project. So that's the base business and those are the kind of adders as we look into 2023.

Speaker 1

All right. Thanks, Neil.

Operator

Thank you. Our next question online comes from Stephen Richardson from Evercore ISI.

Speaker 6

Thank you. Ryan, I was wondering if you could maybe talk a little bit about how you're thinking about the cash return Envelope 423, just acknowledging there's a lot of variability in the environment, but obviously you've had a really strong year this year. And I think you talked last quarter about how we're trending kind of closer to 50% of cash flow from ops, certainly a lot higher than your baseline. And so I think we get this question a little bit is just how do we think about 2023 with the moving parts acknowledging what you just talked about with capital And the environment is uncertain, but if we have the environment that we have today into next year, I was wondering if you could maybe talk about how you're thinking about that?

Speaker 2

Yes, Stephen, I think if we have the macro environment today that's similar to next year that's similar to the average over course of 2022, I think you should expect a similar level of distributions. And I think we Signal that a little bit with setting the Q1 vROC at $0.70 a share. That this 10 seconds we look at the macro and It's going to be similar next year, you ought to expect a similar level of distributions, which is in excess of our 30% commitment. But We're going to watch the macro because we think it's going to be incredibly volatile, but we think we've just got the right value proposition in combination of vROC, Base dividend and how we're thinking about buying our shares back that it's well set up for the kind of volatility we may see, but that would be sort of My comment as you think about going into 2023, it's a function of the macro, which is reasonably strong right now.

Speaker 6

That's great. Thank you. Maybe just a follow-up on the Lower forty eight, obviously, you've had some really, really strong results and Can't say the same of what we've seen in some of the productivity updates from elsewhere in Lower forty eight across the industry this quarter. I was wondering if maybe you could talk a little bit about Performance versus just the timing of wells and kind of how you're seeing the program evolve, particularly in the Permian where the Lower forty

Speaker 4

Yes. Thanks, Steven. This is Jack. Yes. The production is back half loaded like we've been talking about.

Speaker 4

I hope you saw that in the quarter with the progression. We've also seen our OBO plans or partners targeting increasingly longer laterals than we first anticipated, which of course yields a lower cost of supply and more economic return. In the Lower forty eight, we do expect to see continued Growth, as Ryan mentioned, in the 4th quarter and in the Permian, should modestly See that kind of low single digits that we expect out of the Lower 48. In terms of well productivity, and our plans are progressing As we have planned, we monitor this very closely internally and with our peers externally and really like where we stack up.

Speaker 1

Great. Thanks, David. Next question?

Operator

Thank you. Our next question online comes from Doug Leggate from Bank of America. Please go ahead.

Speaker 7

Hey, good morning. And Jack, I wish you well, and I hope our paths cross again at some point. Good luck. I've got 2 quick questions, if I may. Bill, I wonder if I could deal first with the deferred tax in the quarter.

Speaker 7

I think we've heard you talk in the past about when you would hit full cash tax in the Lower 48. Has that been delayed somehow or maybe you could just walk through what happened in the quarter? It's quite a big deferred tax number, which we're happy to see obviously, but any updated guidance would be appreciated.

Speaker 3

Yes, sure. Happy to, Doug. So first, the increase in 3rd quarter tax rates On earnings reflects a shift in our geographic mix of earnings, primarily due to increase in Norway's pretax earnings. And you'd expect that given the high gas price environment seeing in Continental Europe. So as you know, Norway is a fairly high tax environment, so you've seen our effective tax rate increase from 39% in the third Quarter from 32% in the second quarter.

Speaker 3

Now moving forward, I'd expect our effective tax rate to be in the mid to upper 30s Range assuming a similar production level and that pricing holds with the forward curve. As you noted, the deferred tax for the quarter was a source of cash of just over $700,000,000 And I'd expect deferred taxes to be a source throughout the year. We did enter a tax cash paying position In the U. S. In the Q2, and we're now in a cash taxpaying position in most of our jurisdictions around the world.

Speaker 3

So assuming that prices and our capital program stays around current levels, I think you could see deferred tax to remain a modest source of cash, Though cash taxes should be more close to our book taxes over time. And I do think it's important to note Trying to forecast deferred taxes and estimating cash tax ETR on a quarterly basis is pretty tough. It can be impacted by Number of items in any given quarter. So I'd really encourage you to think about that as our effective cash tax rate across an annual time period. And I expect that to be getting closer to what we're seeing our effective tax rate on an income basis.

Speaker 7

I understand the point about mix and that's actually really helpful. So thank you. I guess my follow-up, my question is on the Permian takeaway. We're obviously seeing a lot of Volatility around WAHA, but you guys have obviously had a lot of changes in your portfolio. Could you just give a quick refresh as What your takeaway looks like?

Speaker 7

I guess the differential widened a little bit this quarter in your realization. So just trying to get a handle on that. I'll leave it there. Thank you.

Speaker 3

Yes, sure. So as you know, we're a large globally diverse E and P, so the overall Cash flow impact from the Waha pricing differentials that we've seen this last quarter was relatively immaterial for us. But that said, In our presentation materials, our realizations in Lower forty eight relative to Henry Hub decreased by 6% from 96% in Q2 to 90% in Q3 and that's primarily driven by lower Permian in basin month average Expect to be in the upper 70s to low 80s as a percentage of Henry Hub for the Q4. So that's there's a lot of volatility around that Doug with What we're seeing in the market right now and I'd expect that volatility is going to continue until we see the additional Permian takeaway capacity come online later in 2023. And I guess the only thing that just as a reminder, we're the 2nd largest gas market in North America, we've got a really strong marketing position that's multiples of our portfolio and we think that's really beneficial in this situation.

Speaker 3

We've worked hard to build our gas marketing capability In the Permian Falling Wacker acquisitions and we leverage that to ensure we've got flow assurance through these pricing events. We're really very Confident with our in basin flow assurance and that we've got sufficient takeaway to manage through the short and medium term capacity constraints. So For ConocoPhillips, this is essentially a price issue, not a flow issue.

Speaker 1

Great. Thanks, Doug. Next question.

Operator

Thank you. Our next question comes from Jeanine Wai from Barclays.

Speaker 8

Hi, good morning everyone. Good afternoon. Thanks for taking our questions. Jack, thanks for the partnership and we wish you well. So our first question maybe just Following up on Willow, can you provide maybe an update on what the latest is on that project?

Speaker 8

You need high level commentary on what the moving The last detailed update we got on it was in June of 2021 and there was roughly a 6 year lead time from FID to first production and was about $8,000,000,000 capital estimate.

Speaker 9

Yes, Jeanine, this is Nick. Definitely, I'll go through that. Maybe as a reminder, I'll just walk back in time a little bit here. There was a key milestone that was accomplished in early July And that was at draft SEIS. The comment period has been completed as well.

Speaker 9

And as I mentioned in the 2Q call, the draft SEIS put forward A new 3 pad alternative reducing the footprint in that Teshepuk Lake special area and that is supported by ConocoPhillips. Now that addresses and is responsive to the Alaska District Court findings. Now with respect to schedule, We're still targeting the final SEIS in a supportive record of decision by the BLM end of this year. Janina, as I mentioned previously, we would only take FID following a final SEIS and support a record decision by the BLM And we are targeting FID early next year. Now pending that successful record of decision, we expect to have 2023 capital spend for this upcoming winter season and that's mainly focused on civil construction.

Speaker 9

So that will be opening up mine site laying some gravel roads. Now again, we won't take FID or make a significant investments until we have a clear path to development. We also continue to do detailed engineering and update our final cost estimates. I know that you referenced that. We've recently went to market related to the updated scope due to the BLM's alternative E in their draft SCIS.

Speaker 9

But I want to leave you with this, Despite all the cost pressures, the project remains very competitive in our $40 cost supply framework. And finally, we'll provide more details on Willow at the market update that Bill referenced for next year.

Speaker 8

Okay, great. Thank you for all that detail. The follow-up maybe just sticking with projects here. There's been a lot of investor conversations around Conoco's capital commitments for major capital projects such as the cutter project, Sempra, Willow, etcetera, and how that really impacts free cash flow and cash returns. So we know that Conoco's cash returns of course is on a CFO metric not a free cash flow metric, But it's all kind of circular in a way.

Speaker 8

So we just wanted to check-in again on just the level of strategic cash, that you want to hold. And is that the same as it was Previously because I guess post the Concho and Shell Permian deals you could argue that you don't need to hold as much. And then but on the other hand you've got Some major capital projects on the horizon that you need to reserve for. And so you ended the quarter with $10,700,000,000 of cash, so you have a lot of options there. Thank you.

Speaker 3

Yes, sure, Jeanine. This is Bill. So first, based on our forward prices, we'd expect to end the year with roughly $10,000,000,000 of cash also the same roughly the same amount that you noted for the end of Q3 and that's I'd note is predicated on us achieving our $15,000,000,000 of Now the framework of how we think about allocation of cash balance really hasn't changed. It's continuing to be guided by our Priorities of having a competitive shareholder distribution, strong balance sheet strength and efficient organic and inorganic capital allocations And the framework that we've laid out, intending to carry $1,000,000,000 for operating cash, dollars 3,000,000,000 Reserve cash and anything above that is strategic cash continues to be the way that we think about that. So when you think about strategic cash, we think about Therefore, the opportunity to capture value at enhancing opportunities like you saw us do with the Shell Permian acquisition is to fund our programs through cycles And to fund mid and long cycle projects.

Speaker 3

So the basic way that we think about our cash balances is unchanged.

Speaker 1

Great. Thanks, Janine. We're ready for next question.

Operator

Thank you. Our next question comes from Scott Hanold from RBC Capital Markets.

Speaker 10

Yes, thank you. I was wondering if we could go back to shareholder returns and Just give us a sense of how you think about the mix of the shareholder returns. I mean, obviously, there's some companies that are Highly formulaic with it, but as you look into sending that vROC for the Q1, like What goes into play when you think of like what level you want that set at?

Speaker 2

Well, I think we try to look at a couple of things, Scott. We're obviously where the macro is at and project our cash flows forward into next year. And Obviously, we're going to meet our 30% commitment and in these kinds of commodity price, we're well in excess of that. I think our 5 year average is in the mid-40s and this year we're 50% or more percent of the cash. So I think you ought to be thinking about if a similar environment Persist into next year with the same level of absolute distributions as I said earlier.

Speaker 2

In regards to the channel, again, we want We've got a growing and reliable base dividend that you can count on. You can count on through the cycles. It's going to be growable. It's going to be competitive with the best The S and P 500, and that's what we're trying to do on our base dividend. We want to buy some of our shares back.

Speaker 2

We want to buy through the cycles. We think about how much shares do we top up to hit our 30% commitment at a mid cycle price that we think about. And then at these elevated prices, we know we're getting more cash, and that's why we introduced the 3rd channel through the VROC. The VROC is usually is a combination of cash and shares, And it's got some flexibility because we're monitoring the market, we're monitoring the macro and we as we think about going forward into 2023. But We know it's going to be volatile.

Speaker 2

We could wake up. It could be $80, it could be $120 a barrel. So that's why the VLOC is there to be that variable channel, and we like Top up some of our cash as well as buy some shares as we think about it. As we said it for the Q1, That's kind of the ratable amount that we had through the course of last year, which should signal that we're pretty bullish on how we think about 2023.

Speaker 10

That's great color. I appreciate that. And actually before I get to my second question, I should have started out with this, but Jack, all the best to you and your family. I We've worked together over the past decade plus. So it was a pleasure working with you all these years and good luck.

Speaker 10

But my follow-up question then is looking at the opportunities that you all have in Norway, you look like you're progressing on Tom Aliden and El Fisk. Now can you give us a sense, is that more just a process of just maintaining production out there or is there an opportunity really Rob that and really part of sort of this global gas opportunity because I do believe it's a little bit more gassy in a lot of these new developments.

Speaker 9

Yes. This is Nick. I'll give you a quick update on those developments. We've got actually 4 developments that are in progress, 2 operated and 2 non operated. You referenced Tomileten, so you've got Tomileten Alpha and Elfis North.

Speaker 9

Both of those are sub developments that are all tied back to existing infrastructure, even the 2 non operated are tied back to existing infrastructure. That means a very low cost of supply. We're talking in the low-20s, very competitive in the global portfolio. We had a couple of key milestones here recently as well. We just set our subsea templates on both Tom Leitenhof and Elthifis North and we'll start drilling later this year.

Speaker 9

All 4 of those will come online throughout 2024, but the way I view that is probably more offsetting base Decline within the Greater Equifisc area as well as our partner operated assets, but again all four of those are very competitive.

Speaker 5

Great. Thank you.

Speaker 1

Next question?

Operator

Yes. Our next question comes from John Royall from JPMorgan.

Speaker 11

Hey guys, thanks for taking my question. So just on the CapEx increase, if you could maybe give a little bit of color on the split between the NOJV portion of it and the inflation piece. I mean, I know it's relatively small overall, but That might be helpful. And then on the non operated JV piece, is there any way to think about your exposure there in the Lower 48, maybe a Percentage of production or a percentage of CapEx or anything that could help us there?

Speaker 12

Yes, John, it's Dominic here. I think just in this the Split of capital in terms of the increase of $300,000,000 $200,000,000 is really related to inflation. And then about $100,000,000 related To a change in working interest, we're seeing in our OBO well mix. And I think probably we're seeing some of our Partners may be doing a little bit of capital management and shifting their own working interest down and that's causing us to go up a bit. But there's There's still good well.

Speaker 12

In fact, Tom, maybe just ask Jack to comment a little bit on what we're seeing

Speaker 9

in our OBO program there. Yes, we're very pleased with

Speaker 4

the results And as I mentioned before, we have some longer lateral development going on in that OBO program. Some of those wells will Cross over into next year and hopefully provide a little bit of momentum.

Speaker 11

Great. That's helpful. Thank you. And then Maybe just switching over to LNG, a little bit of color will be helpful on the Western Mexico opportunity With Sempra and how that could take shape and how we should think about potential timing there of you're getting involved relative to the 1Q target that I think Sempra has put out there for the Port Arthur FID?

Speaker 2

Yes. I think the West Coast, John, is longer dated and That's an option we have to participate in expansion of that facility that is currently operating today and it would be like They're converting the regas portion of that into a small liquefaction plant and then looking at some expansion opportunities. So Our heads of agreement, our HOA that we have with Sempra gives us the opportunity to participate In that down the road when if and when they decide to build another train at that facility.

Speaker 1

Thanks, John. Next question?

Operator

Thank you. Our next question online comes from Brian Todd from Piper Sandler.

Speaker 13

Great, thanks. Maybe a follow-up on one of your earlier comments. In the Permian, it sounds like you're saying that at least for now the plan for What the trajectory would be for Permian volumes during 2023? And maybe are you seeing any Is it just a pricing issue or are you seeing tightness in the basin that's challenging your ability to execute anything that you'd like to?

Speaker 4

Yes, Brian. We're very happy with our execution out there and feel that it's prudent right now to keep a steady Amount of activity going into next year and I would say our internal plans this year and going into next are very consistent with our long term Our outlook on production out of the Permian in the Lower 48.

Speaker 13

Great. Thanks. And then Maybe just a follow-up on the cash returns. I mean, your position on the dividend has always It always seemed a little more reflective of your view on sustainability of the longer term outlook. Given the sizable dividend increase, can you talk a little bit about Maybe the read through of your outlook on commodity sustainability longer term is this as your longer term view improved And is that reflected in a nice uptick in the dividend?

Speaker 2

Yes, Ryan, I think we'll get a chance to talk more about that in our analyst meeting that we have that we talked about early in the spring of But yes, basically it's a longer term view given the dynamics that are going on the market today. We've had a Certain mid cycle price that we've talked about over the last 4 to 5 or 6 years, I think it is reflective that we think that mid cycle price has moved up a bit. And so as a result, we can afford more base dividend and reflective of the raise that we announced here in the 4th quarter.

Speaker 1

Great. Thanks, Ryan. Next question.

Operator

Thank you. Our next question online comes from Paul Cheng from Scotiabank.

Speaker 14

Hey, guys. Good morning.

Speaker 1

Good morning,

Speaker 14

Paul. Maybe good afternoon. Good question, please. The first one, maybe go back into the split between dividend and buyback. In the Q3, your speed is about 65% in buyback, 35% in dividend.

Speaker 14

If we're looking into the Future, is that a reasonable proxy that how should we look at it or that we can't really whip And saying that, okay, that's maybe what you guys going to do. So that's the first question. Second question is on the Qatar LNG Congratulations, you're getting into the Lawfield South. Is there any capital number that you can share? I think in the Law Lawfield Extension, your share of the commitment is about $900,000,000 And given that it's the Same warning, say, 1,000,000 tons here.

Speaker 14

So should we assume it's similar? And also whether that the terms between the Northview Northview expansion are basically the same. Is there anything that maybe you can share? And also that when that Spending on Northview Software kicked in because that I don't think will come on stream until 2028.

Speaker 2

Yes. Paul, let me try to take those. I may call a friend with Nick through part of that. So Yes. I think the first part split, I think, you had on the way we think about, I think that was vROC, So between share buybacks and dividends, I think the split that we've historically have, you mentioned 35, 65, I think Those are reasonable up to like a fifty-fifty split between cash and share buybacks is how we Nominally, think about the vROC, but that's subject to change based on how we see the macro and kind of how we see it, but nominally, that's Probably not a bad place to start.

Speaker 2

With respect to Qatar LNG, I think the Northfield South Trains are going to be replicated from the Northfield expansion trains. So relative to the same amount of capital, maybe adjusted for your view of inflation They will be a little bit later starting, but yes, they're going to be the same scope, same size and exact same kind of train. So That's how we think about it, very similar to the Northfield expansion project. And then What was the last one, Cutter? The timing.

Speaker 2

Yes, you're right on the timing. I don't think there's much capital in the next couple of years associated with NFS. Anything you'd add Nick?

Speaker 9

Yes. Just to add Paul, just on as we talked about in the Q2 call, Remember, Northfield expansion, that total nets $900,000,000 for us. We will have catch up payments. And so once the condition precedents are set, We'll reverse

Speaker 1

Qatar Energy for COP's share

Speaker 9

in those NFP project costs. That could happen early Next year or even late this year, again, dollars 900,000,000 net total for the project. Start up again for NFE is 2026 And then NFS will probably follow a year later.

Speaker 1

Thanks, Paul. Next question.

Operator

Thank you. Our next question comes from Rafael Dubois from Societe Generale.

Speaker 15

Hello. Thank you very much for taking my questions. Seen from this side of the pond, it looks like there is a bit of a trade off between The industry increasing production of face windfall tax and or extra tax on distribution. Can you maybe explain what projects you could sanction if You were better incentivized to increase production. Are there any resources that you could monetize faster If you received some sort of guarantee from the U.

Speaker 15

S. Government in terms of permitting, as you mentioned in your remarks, Or in terms of tax stability, that would be my initial question.

Speaker 2

Yes, thanks. I think we're already growing our company. I think we're faced with some other issues in the short term around labor shortages, Supply chain and inflation, they're probably dictating the pace of the industry. I think generally your question more relates to a medium and a longer term outlook. Eventually, more infrastructure is going to need to continue the growth and the development of the U.

Speaker 2

S. Shale and then more Infrastructure needed for growth up in Canada and maybe even for exporting some of the product down into Mexico and Central America. So I think that's the issue we have with the policy choices that this administration is making and things they could do to help is give more certainty On the long term permitting and just the fiscal stability to make sure that we don't have large changes in the tax structure coming because These projects have cycle times and years associated with them. And the more risk you put in the front end, the less certainty you're going to have on executing some of that. That's why my remarks were around certainly around the fiscal stability.

Speaker 2

The whole conversation around windfall profits taxes is not a helpful conversation right now And then more certainty around permitting. And I would add on the permitting, if you want an energy transition, you need this permitting as well. Certainly, in the U. S, You need the permitting for onshoreoffshore wind, for solar installations, for high voltage transmission lines. So Permitting relief is required if you want any chance of going through an energy transition and having the support of trying to execute in all the above Energy strategy.

Speaker 2

So I think these are really important topics as we think about the next 3, 4, 5 years and the next decade or 2 For our business.

Speaker 15

Great. Thank you very much. My second question is Total Energy I was wondering if you could tell us what it might change for the way Cement is run And whether it's something you could also consider to lower your GSG emissions intensity?

Speaker 9

Yes, Rafael, maybe I'll start with the way we look at Surmont is obviously we value Surmont greatly. It's a low cost of supply low capital intensity asset that's in our diverse portfolio. Again, it offers up stable level loaded production With a significant resource position out there, we've continued to transform that asset through Technology applications, piloting emission reduction opportunities, including, I don't know if you follow this, joining the Pathways Alliance, which is 6 like minded companies coming together to lower emissions from overall oil sands industry net 0 by 2,050. The asset continues to perform extremely well. Actually back in September, we hit a record production day of 158,000 barrels a day growth.

Speaker 9

So We see this as staying in the portfolio. With respect to Total's SpinCo or NewCo plans, we're continuing to Understand what that looks like, and I can't comment further beyond that.

Speaker 2

I would say, Rafael, it does nothing for global emissions, What Total is trying to do.

Speaker 1

Thanks Rafael. Next question.

Operator

Thank you. Our next question online comes from Jeffrey Lambujon from Tudor, Pickering and Holt.

Speaker 16

Good morning, everyone, and thank you for taking my questions. My first one is just on portfolio management on the acquisition strategy. I know you've talked about bolt ons as more of the focus and we're obviously seeing that quarter to quarter, but wanted to get any updated views you might have on the environment as You see it for larger deals, particularly for upstream assets in the Permian. I don't know that the cost of supply framework continues to be kind of the focal point in assessing those in terms of Opportunities would need to hurdle, but anything you could say just around what you see today and where your results and your appetite might be,

Speaker 2

Yes, maybe I can start and then I'll ask Jack to comment on it as well, because I know his team has been very active in this space over the last year, year and a half. We continue to look For opportunities to bolt on acquisitions, we mentioned one, there was a small opportunity in the Eagle Ford to core up what we were doing there. So We went ahead and did that, but a lot of focus is going on what we're doing in the Permian. And let me let Jack kind of describe a little bit about what we're doing there.

Speaker 4

Thanks, Ryan. Yes, we're always opportunistically looking to add to our core areas. And as we've talked about in previous calls, we find the highest value right now in swaps The team has completed about 20 of these and that approach is 30,000 acres or so In court of land, it allows for longer lateral development and lower cost of supply development. So In addition to those 20 ish deals, we have about that many or more in the pipeline.

Speaker 16

Perfect. Appreciate that. And then lastly, just on the disposition side. I think the last time you all tallied up what's been done since setting the target End of next year was with last quarter's earnings about $2,400,000,000 With the non core sales in today's press release be incremental to that or is that included? And then I guess bigger picture, it seems like Lower forty eight non core positions represent kind of the main opportunities there.

Speaker 16

It looks like or at least half Over the recent past, is that the right way to think about some of those priorities going forward?

Speaker 12

Yes, Geoff, it's Dominic here. Yes, so the we've Well, since we closed the contra and then the Shell transactions, we obviously wanted to do a little bit of portfolio cleanup. We've sold $2,400,000,000 as you said of assets and that's inclusive of the $300,000,000 this quarter. And we're pretty pleased about that because they represent really the priority assets we had for sale, typically very mature, Low margin or high cost supplies, that's assets like Indonesia, the high H2S build in Madden, some legacy assets in Central Basin Platform and so on. So we've been pleased with that.

Speaker 12

We've monetized those in a strong market. Going forward, I would say we're really just back into normal sort of high grade As usual, we're not focused on any target at this point. We're happy with where we are. We'll always look for opportunities, but So we're pretty happy that we've basically completed the main cleanup that we wanted to do after those 2 big transactions.

Speaker 1

Thanks, Jeffrey. Next question.

Operator

Thank you. Our next question comes from Neal Dingmann from Truist Securities.

Speaker 17

Thanks for the time. And again, Jack Perez with you and your family, football goes well. Ryan, my first question, I guess, I would call it for Top du jour on shareholder return capital allocation. Specifically, any change to how you all are thinking about the shareholder returns versus or specifically the buybacks versus just particularly maybe accelerate your growth opportunities. I say that obviously given the stocks hit an all time high and Knowing just the incredible high well opportunities high well return opportunities you all have.

Speaker 2

Yes. Thanks, Neil. No, I think we've tried to describe that in the release. We feel like obviously we could ramp more in the Lower 48, but in this environment it just doesn't make To be doing that right now, we just want to run efficient stable programs right there. We do have opportunities to Invest in more medium and longer cycle projects.

Speaker 2

We described those around Willow and Seppra and then the Qatari projects as well. We are leaning into we're going to need to supply long term as an industry and we think these are important and We believe our company with our global diverse portfolio has the kind of opportunities that are low cost to supply, fit our GHG emissions intensity profile Our reductions that we're trying to make in that particular area and these are going to be needed assets that we want to invest in to Ensure that the supply is there long term.

Speaker 17

Great to hear. And then my second question probably for Jack on the Permian And specifically the former Shell assets now purchased, I guess it was about a year ago. I'm just curious to now when you look at those Well returns that you've seen there, how those are stacking up versus those initial expectations maybe a year or more ago and How you guys are or if you all are utilizing, I think there was about, what is it, 600 or more miles of pipe there. I was wondering if that's being fully utilized.

Speaker 4

Yes. Thanks, Neil. Well, in general, we're very happy with that deal. It's fully integrated. I think we mentioned last quarter, we started to bring on some of the initial projects with our style of drilling and completion, and that continues.

Speaker 4

And the results are at least as strong as we had anticipated. And then on the other piece of that, the OBO, as I mentioned before, So far, an upside to the deal has been that we have seen lateral lengths extended by our partners, And that's better for everyone. So we'll continue to do that, but right now it's completely folded in and business as usual.

Speaker 1

Thanks, Neil. Operator, I think we have time for one more question.

Operator

Thank you. Our next question comes from Leo Mariani from MKM Partners.

Speaker 18

Hey, why don't you quickly follow-up

Speaker 12

around some

Speaker 18

of your prepared comments. You certainly discussed The LNG deals that you've entered into and you kind of alluded to the fact that there is some nice benefit with your kind of Production base, I guess, particularly for the Port Arthur project, just as you're thinking about that, I mean, do you think there's obviously an ability to kind Hold some of those volumes into that in the next couple of years and would you anticipate maybe trying to kind of increase some of your gas production as you look out into the middle

Speaker 2

Well, as we said, Leo, in our opening comments that we're we think the gas resource is pretty plentiful in the I don't think there is I wouldn't think about it as physical integration between our assets. The market in the U. S. Is a big liquid market. We want to create creating some of this more demand to exploit the resource in the U.

Speaker 2

S. Is a good thing and that's what we're trying to play. See the resource in the U. S. Being quite substantial.

Speaker 2

We want to be involved in the liquefaction of that resource and the shipping and then the regasification as we move it 2 higher valued markets around the world.

Speaker 18

Okay. That makes sense. And I guess you also talked in your prepared comments about, having to kind of start some of this Medium term major project capital in 2023 that we should kind of layer on top of this kind of second half twenty twenty two annualized spend, If you will, is it possible to offer any order of magnitude on this? In this major project spend, are we talking kind of in the 100 of 1,000,000 or potentially could this be North of $1,000,000,000

Speaker 2

Well, I think it's truly as Nick described in terms of some of the Nuances on Willow, when we get started, what we won't, do we have to do upfront payment, how big is that for Qatar. So it's a little bit early for us to be kind of telegraphing what an absolute we're just saying these are projects that make sense for us. We're going to fund them. We're going to lean in on some of these medium and longer cycle Projects, we think the world needs them. And again, the returns back to the shareholder aren't going to suffer because our value proposition is based on CFO.

Speaker 2

So it's not based on free cash flow.

Speaker 4

Okay. Thanks. As we have noted, I'll

Operator

turn it over to Phil for closing comments. Please go ahead.

Speaker 1

Thanks, operator. So this will wrap up the call today. If you have any questions, Investor Relations is around and we appreciate your time today.

Operator

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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Earnings Conference Call
ConocoPhillips Q3 2022
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