ConocoPhillips Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

Key Takeaways

  • ConocoPhillips reported $2.40 per share in adjusted Q4 earnings, generated $5.5 billion in operating cash flow, and achieved 4% year-over-year production growth to 1.902 MMboe/d.
  • The company delivered a 123% preliminary reserve replacement ratio for 2023 and progressed key strategic projects, including LNG expansion at Qatar & Port Arthur, sanctioning the Willow project, and acquiring the remaining 50% of Surmont.
  • ConocoPhillips returned $11 billion to shareholders in 2023 (exceeding its 30% target) and initiated a $9 billion distribution plan for 2024 with a $0.20 per share Q1 VROC payment.
  • 2024 guidance includes production of 1.91–1.95 MMboe/d (2–4% growth), full-year capex of $11–11.5 billion, flat operating costs ($8.9–9.1 billion), and effective cash tax rate of 33–34%.
  • The company strengthened its GHG emissions intensity target to a 50–60% reduction from 2016 levels and earned the Gold Standard designation from OGMP 2.0 for methane management.
AI Generated. May Contain Errors.
Earnings Conference Call
ConocoPhillips Q4 2023
00:00 / 00:00

There are 18 speakers on the call.

Operator

Welcome to the 4th Quarter 2023 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. I will now turn the call over to Phil Gresh, Vice President, Investor Relations. Sir, you may begin.

Speaker 1

Thank you, Liz, and welcome, everyone, to our Q4 2023 Earnings Conference Call. On the call today are several members of the ConocoPhillips leadership team, including Brian Lance, Chairman and CEO Tim Leach, Advisor to the CEO Bill Bullock, Executive Vice President and Chief Financial Officer Dominic Macklin, Executive Vice President of Strategy, Sustainability and Technology Nick Olds, Executive Vice President of Lower forty eight Andy O'Brien, Senior Vice President of Global Operations Kirk Johnson, Senior Vice President, Lower 488 Assets and Operations and Will Giraud, Senior Vice President, Corporate Planning and Development. Ryan and Bill will kick it off with opening remarks, after which the team will be available for your questions. A few quick reminders. 1st, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website.

Speaker 1

2nd, during this call, we will make 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. We will make reference to some non GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found today's release and on our website. And 3rd, when we move to Q and A after the prepared remarks, we'll be taking one question per caller.

Speaker 1

With that, I will turn it over to Ryan.

Speaker 2

Thanks, Phil, and thank you to everyone for joining our Q4 2023 earnings conference call. It was another strong quarter for ConocoPhillips as the team continued to execute on its commitment to deliver returns to our shareholders. Now stepping back and looking at 2023, ConocoPhillips demonstrated solid execution across all aspects of our triple mandate. We reported record production and achieved several milestones across our global asset base. And We delivered a preliminary reserve replacement ratio of 123%, highlighting our ability to continue to replace reserves across our deep, durable and diversified portfolio.

Speaker 2

We're also progressing several key strategic initiatives. We advanced our global LNG strategy through expansion in Qatar, FID at Port Arthur and several offtake and regasification agreements. We have ID ed the Willow project in Alaska and have been ramping up construction this winter season. And we opportunistically acquired the remaining 50% of at an attractive price that fit our financial framework. We were able to accomplish all of this while delivering our returns focused value proposition to our shareholders.

Speaker 2

We generated a trailing 12 month return on capital employed of 17% or 19% on a cash adjusted basis. We also delivered on our plan to return $11,000,000,000 of capital to our shareholders, which was well in excess of our greater than 30% annual through the cycle commitment. Last spring, We further strengthened our GHG emissions intensity targets to a 50% to 60% reduction from a 2016 baseline And we were recently awarded the gold standard pathway designation by the Oil and Gas Initiative Methane Partnership 2.0. Now looking ahead to 2024, this morning, we announced a plan to distribute $9,000,000,000 to shareholders this year. We also announced a VEROC of $0.20 per share for the Q1.

Speaker 2

The remainder of our cash flow will be reinvested into the business as we continue to execute on our plan to grow earnings and cash flows as we outlined at our Analyst and Investor Meeting last year. In conclusion, once again, I'm proud of the accomplishments of the entire organization. Our portfolio is well positioned to generate competitive returns and cash flow for decades to come. Now let me turn the call over to Bill to cover our Q4 performance and our 2024 guidance in more detail.

Speaker 3

Thanks, Ryan. In the Q4, we generated $2.40 per share in adjusted earnings. We produced 1,902,000 barrels of oil equivalent per day, representing 4% underlying growth year over year. This was consistent with our full year 2023 underlying growth rate of 4% also. 4th quarter Lower forty eight production averaged 1,086,000 barrels of oil equivalent per day, which 9% underlying growth year over year.

Speaker 3

We produced 750,000 from the Permian, 211,000 from the Eagle Ford $110,000 from the Bakken. Full year 2023 underlying growth for the Lower forty eight was roughly 8%. Moving to cash flows, 4th quarter CFO was $5,500,000,000 and this included of $281,000,000 4th quarter capital expenditures were $2,900,000,000 which included $573,000,000 for longer cycle projects. Full year capital expenditures were $11,200,000,000 which included $2,000,000,000 for longer cycle projects. Now regarding returns of capital, We delivered $11,000,000,000 to shareholders in 2023.

Speaker 3

For the Q4, we returned $2,500,000,000 This was via $1,100,000,000 in share buybacks and $1,400,000,000 in ordinary dividends and VROC payments. We ended the year with cash and short term investments of $6,900,000,000 as well as $1,000,000,000 in long term investments. Turning to guidance, we forecast 2024 production to be in a range of 1.91000000to1.95000000 barrels of oil equivalent per day. This translates to 2% to 4% underlying growth pro form a for acquisitions and dispositions. We expect this growth to be well balanced between both Lower 48 and International.

Speaker 3

Our full year forecast includes turnaround impacts of 25,000 to 30,000 barrels per day, which is about 10,000 higher than in 2023. Now turnarounds are expected to be concentrated in the 3rd quarter, when Surmont completes a 1 month turnaround and that turnaround occurs once every 5 years. For the Q1, production guidance is in a range of 1.88000000 to 1.92000000 barrels of oil equivalent per day, a roughly 1% to 3% underlying growth. While the Q1 will have minimal turnarounds similar to the 4th quarter, It does include a 20,000 barrel per day headwind from January weather impacts. For APLNG, We expect distributions of $400,000,000 in the Q1 $1,300,000,000 for the full year.

Speaker 3

Now shifting to cost guidance, we see full year adjusted operating costs in a range of $8,900,000,000 to $9,100,000,000 representing essentially flat unit costs on a year over year basis. Full year cash expiration expenses are expected to be $300,000,000 to $400,000,000 And DD and A expense is expected to be in a range of $9,400,000,000 to 9,600,000,000 Full year adjusted corporate segment net loss guidance is $1,000,000,000 to $1,100,000,000 And for taxes, We expect our effective corporate tax rate to be in the 36% to 37% range of strip prices, and that's excluding any one time items. And that's with an effective cash tax rate in the 33% to 34% range. For capital spending, our full year guidance range is between $11,000,000,000 to $11,500,000,000 which includes $200,000,000 to $300,000,000 of capitalized interest. Now on slide 8 of the presentation, we provide a bridge from 2023 to 2024 with some of the key year over year variables, most of which we've discussed on prior earnings calls.

Speaker 3

These include our of $200,000,000 $300,000,000 in deflation benefits primarily in the Lower forty eight $200,000,000 to $300,000,000 of lower spending in Norway following the start up of our 4 subsea tieback projects and $500,000,000 to $600,000,000 in lower LNG spending, mostly at Port Arthur. These decreases are offset by $900,000,000 to $1,000,000,000 increase at Willow and a $100,000,000 to $200,000,000 increase in candidates account for the acquisition of the remaining 50% of Surmod and the addition of a second rig in the Montney. For Willow, we expect spending to be more heavily weighted to the Q1 and this is consistent with the normal timing of winter construction season. And for Port Arthur, we expect that our $400,000,000 of equity contributions in 2024 will also be weighted towards the first half of the year. Now as a result, 1st quarter CapEx could be a bit above $3,000,000,000 So to wrap up, We ended the year with another solid operational quarter.

Speaker 3

We continue to deliver on our strategic initiatives across our deep, durable and diverse portfolio, And we remain highly competitive on our shareholder distributions. Now that concludes our prepared remarks. I'll turn it back over to the operator to start the Q and A.

Operator

Thank you. We will now begin the question and answer session. In the interest of time, we ask that you limit yourself to one question. Our first question comes from Neil Mehta

Speaker 4

Thank you and good morning team. Ryan, I want to ask you about the Lower 48. Last year, you correctly predicted that many of us who thought production was going to be up 400000 to 500000 barrels a day. We're wrong and the number ended up being closer to your number of 800,000 to 900,000 barrels a day. So as you think about exit to exit this year, how are you thinking about The U.

Speaker 4

S. Oil production and tie that into your own Lower forty eight development plans. How are you thinking about prosecuting that acreage over the course of the year?

Speaker 2

Yes. Thanks, Neil. No, we see a bit of deacceleration in the growth rate coming from the U. S. Driven by a number of factors around efficiency and the rig rates.

Speaker 2

So we would peg the growth, but we're still growing in the Lower We've pegged that growth between 300,000 to 500,000 barrels of oil equivalent. That's total liquids. So yes, we still see some growth coming from the U. S. Shale, the Lower 40, primarily driven in the out of the Permian, But more modest relative to last year's growth.

Speaker 2

Relative to our expected Lower 48, We're in that kind of same range low to single digit kind of growth rates coming out of that on Pretty much similar activity level to what we entered into 2023. So we don't intend at this time, we don't intend to be ramping our program in the Lower forty eight and are coming into the year at a similar level to what we exited 2023 at.

Speaker 4

Thanks, Ryan.

Operator

Thank you. Our next question will come from the line of Doug Leggate with Bank of America. Your line is now open.

Speaker 5

Thank you. Good morning, everyone. I guess either thanks, Ryan. Ryan or Bill, I'm not sure who wants to take this one. So we're always interested to know how you see your portfolio breakeven evolving as it relates to not so much current capital, but sustaining capital.

Speaker 5

And what we're really trying to get to is That dividend breakeven, that post dividend breakeven level, if I may, maybe as a part B to that, I'm curious whether cash in the balance sheet Benefits or is that priority currently as it relates to how you think about cash returns in that dividend context, given that you're entering a period of elevated spending here for a couple of years?

Speaker 2

Yes. Thanks, Doug. I'll let Dominic roll We can give you some specifics around the breakeven, but at our mid cycle price kind of deck, I think it's pretty consistent with what we laid out at AIM and I can let Navinik, give you a few more details to answer that question more specifically.

Speaker 6

Yes. Good morning, Doug. So maybe starting with Our free cash flow breakeven, I take you back to analyst meeting last April, for our 10 year plan and at mid cycle prices,

Speaker 7

we highlighted our free cash flow breakeven.

Speaker 6

Average is about An average is about $35 WTI. That is higher through the first half of the plan, as you mentioned, as we have the sort of pre productive capital in the first half of the plan and then lower during the second half of that 10 year plan as those projects increasingly come on stream. So that's our free cash flow breakeven. And for our dividend, you would add an additional sort of $8 to $9 on that right now.

Speaker 5

That's helpful. Maybe on the cash on the balance sheet?

Speaker 3

Yes, sure. We're really happy with where we're at on the balance sheet right now, Doug. So we exited the year with $6,900,000,000 of cash and $1,000,000,000 worth of Long term investments, like I mentioned, our net debt to CFO ratio is in a really good spot. We're at 0.5 turns and that's post Surmont. So we're quite happy where the balance sheet is at right now and having a strong balance sheet is a strategic asset for the company.

Speaker 3

We continue to view it as such And that's fundamentally one of the reasons why we feel really good about $9,000,000,000 of distributions this year.

Speaker 2

Yes, in light of a arguably a softer commodity price relative to where we started in 2023.

Operator

Thank you. Our next question will come from the line of Roger Read With Wells Fargo. Your line is now open.

Speaker 8

Yes. Thank you. Good morning. I guess I'd like to get your thoughts, Ryan, on the M and A side. Obviously, you did the Sermon thing last year.

Speaker 8

There's still transactions going on and just how you think about your cost of supply approach to anything on the acquisition front that's out there, be it Lower 48 or elsewhere?

Speaker 2

Yes, Roger. I appreciate, there's Obviously, a lot of M and A activity going on. It's not surprising in our business. And we've said that all along that we think There's going to be more even yet to come as we think about the consolidation that's needed in the business. Our approach hasn't changed.

Speaker 2

Our approach is We think about cost of supply. We think about the framework that we've laid out to the market over the last 4, 5 years. That's how we've some of our M and A activities. So again, it's got to fit that financial framework, how we think about mid cycle price. It's got to make our 10 year plan better.

Speaker 2

The plan that we outlined to the market last year, we think, is Pretty strong and it's underpinned by a low cost of supply diverse asset base. We got to see a way to make that plan better through any inorganic M and A. And then finally, we got to see a way to make the asset better. And that's really dictated how we've approached M and A over the last number of years. And I think as we think about it going forward, that approach is consistent.

Speaker 7

Thank you.

Operator

Thank you. Our next question will come from the line of Bittan Kumar with Mizuho. Your line is now open.

Speaker 9

Good morning, guys, and thanks for taking my question. Ryan or Bill, I don't know who wants to take this one, but you reduced the Cash return target from $11,000,000,000 to $9,000,000,000 Last year, it was very evenly distributed between your dividends, Both the fixed and variable and the buyback, how should we think about the mix across those three channels in 2024?

Speaker 3

Yes. So, Nitin, first, we think the most important thing continues to be the total quantum of distribution. That's what we focus on. We think that that's what matters most and we're really happy to start the year with an initial plan to return $9,000,000,000 to shareholders. Now when it comes to mix, we look at a number of different factors and commodity prices, our own stock price and other considerations.

Speaker 3

And so For 2024, you've seen that we've shifted our mix to be a bit more weighted towards buybacks, about 60% of our total planned distributions. That would put our buybacks essentially flat with what we spent in 2023 at about $5,300,000,000 $5,400,000,000 And that's we continue to like the value of our shares. So against that, the total cash component represents about 40% of our expected distributions and that's with $0.20 per share on VROC and we think that represents a really solid mix of both cash and buybacks. As we've always said, BROC provides a really flexible tool to achieve our distribution targets as prices adjust through the cycles. It's continued to serve us well in balancing our mix.

Speaker 9

Great. Thanks for the color.

Operator

Thank you. Our next question will come from the line of Lloyd Byrne with Jefferies. Your line is now open.

Speaker 10

Good afternoon, everyone, and thanks for all the detail so far. Ryan, I was hoping just to get your thoughts on the administration's LNG pause and then in particular Conoco's positioning and maybe whether there's any impact on your plans or your capital going forward?

Speaker 2

Yes. Thanks, Lloyd. I can chime in, maybe ask Bill to add a few more details as well. But It's unfortunate. It's clearly more politically driven than fundamental.

Speaker 2

But I think we feel pretty good. It just makes us feel a little bit better about what we're doing on the LNG side because of what we do have permitted. I think it's Quite short sighted in the short term, hopefully, it will be fixed in the long term. I can Bill can provide maybe a few more specifics around how we're thinking about Port Arthur Phase 1, Phase 2 as we think about the implications of what was announced. Yes, sure, We're really pleased that Port Arthur Phase 1, it's fully permitted.

Speaker 2

It's got

Speaker 3

not only its free trade agreement permit, but it's non free trade agreement permit, got environmental permits in place. So we're quite pleased to be investing in Port Arthur Phase 1. We think that actually what you're seeing right now makes that more valuable and so it's a good fit in our portfolio. And we're continuing to look at developing supply portfolio of uptake, we remain interested in a number of LNG opportunities because we think the market is going to be strong for decades to come. We're focusing on low cost supply, low greenhouse gas intensity resources that meet that transition Pathway, you saw us last year announced 2,200,000 tons from NPL Saguaro.

Speaker 3

And in the Q4, we signed 200,000 tons off of Sempra's ECA project on the West Coast of Mexico for 5 years. We're continuing to look for opportunities that really fit that framework. But regarding your question on permitting right now, Port Arthur is in a great spot.

Speaker 10

Okay, great. So it doesn't change any plans going forward?

Speaker 3

It's not impacting us right now.

Speaker 11

Thank you.

Operator

Thank you. Our next question will come from the line of John Royall with JPMorgan.

Speaker 12

Hi, thanks for taking my question. So my question is on Willow. You have the sanction out of the way now And even post sanction, we've seen some news flow around lawsuits, which I assume you have some confidence in as an organization that won't any delays, but maybe you can confirm that. And then beyond that, maybe we can just speak to you can just speak to the construction plan for the year and What you're hoping to accomplish in terms of the progression of the build in 2024 specifically?

Speaker 7

Hey, John, this is Andy. I can take that question. So yes, it is pretty nice to also be at a point now where we can start talking about the project and not just give you a legal update, but We will give you a question. I'll start with a bit of a legal update because as you mentioned, we had a fair bit of positive activity in the Q4 on that front. So just to sort of summarize where we are right now is that we're very pleased that both the Alaska District Court and the 9th Circuit allowed construction work to proceed on the North Slope.

Speaker 7

And then separately, the Alaska District Court upheld the legality of the ROD issued by the BOM. So as you mentioned, this is currently being appealed to the 9th Circuit. But as we said before, we believe the BLM and the cooperating agencies conducted A really thorough process to satisfy all the legal requirements for them to grant their approvals. So these positive rulings gave us the certainty to make the FID decision. Now then in terms of the second part of your question on the execution itself, since taking the FID, we're really pleased with how quickly we've ramped up the activity.

Speaker 7

We're now into our 2nd winter construction season on the North Slope and we're mobilizing 1200 workers right now who are going to be building gravel roads, gravel pads for the facilities and beginning laying pipelines. We're also making some pretty significant progress with our modular facility fabrications. So we do expect 20 24 to be in the upper end of the previously communicated annual ranges of $1,000,000,000 to $1,500,000,000 per year. But our estimate for the capital to first production remains unchanged at $7,000,000,000 to $7,500,000,000 And then just to give you a bit more color in terms of the progress, we're now at a point where we have 3 quarters of the project scope under firm contract and expect to have 90% of that under contract by the end of 2024. And of those contracts that we've issued so far, 70% are either lump sum or unit rate contracts.

Speaker 7

And then these kind of contracts, we've agreed a price now, so we have limited exposure to future inflation. So it's still very early, but like with all major projects, it's really important we get off to a fast start and we're really pleased that's exactly what we're doing with Willow. Just to wrap it up, it's great to see at this point now our team is in full execution mode focused on actually building Willow.

Speaker 2

Thank you.

Operator

Thank you. Our next question will come from the line of Neal Dingmann with Truist Securities. Your line is now open.

Speaker 13

Good morning. Thanks for taking my question. My question is more as to what kind of how you're thinking about production growth. You certainly have laid out Pretty what I call stable to flattish plan for the year for Q1 for the year. I guess kind of questions, Ron.

Speaker 13

1, if you continue to be more efficient as you have been, would you take those savings and plow back to the ground and boost production a bit more or would that or would those savings go back to the shareholders in some fashion? And then secondly, Couple of your large peers continue to be growing even a bit more than you in the Permian. I'm just wondering how you view Starting from a macro position, your responsibility when it comes to production growth?

Speaker 6

Yes, Neal, it's Dominic here. I think, I mean, first of all, I think it's probably 3 questions there actually, but I'll take the activity We're holding our Lower 48 activity flat this year versus last year. We like that. We're still seeing some modest growth there and we get we're really focused on efficiency there. And so if we did get more efficient and we felt there was some capital headroom there, I think I suspect that we would pretty much hold things flat because headroom there, I think I suspect that we would pretty much hold things flat because we're just so focused on efficiency.

Speaker 6

We don't want to swing our programs around. In terms of the total growth rate, remember growth is an outcome of our plan. We're not chasing growth. It's really an outcome of a return that's focused on returns. And so we're pretty happy with that sort of modest level growth.

Speaker 6

It's pretty consistent with what we said at AIM. In terms of the overall profile, just give you a bit of color on that, I mean, Bill mentioned a lot of this in his prepared remarks, but we do expect sort of underlying production in the range of 2% to 4% growth this year versus last year. And the good thing about it is that we're seeing growth this year not coming from the Lower forty eight, but also from across our international portfolio. So it's nice to see the diversity of that portfolio coming through. And then of course, on top of that organic growth, we have the additional CERM on 50% interest on top of that.

Speaker 6

In terms of the shape for the year, fairly ratable year over year growth by quarter, except for Q1, we have the weather impacts. Bill mentioned that about 20,000 barrels a day weather we'll see in Q1. And then in Q3, we have our turnaround impacts. So we have about 25,000 to 30000 barrels a day of turnaround impacts this year. Most of that will be in the Q3.

Speaker 6

And that includes a sort of month long turnaround we have at Surmont, which occurs every 5 years. So But anyway, we're all very pleased with just where the growth is coming from. We're pleased with the level of growth. And I think we're pretty committed to keep the program steady, stable and focus on efficiency.

Speaker 2

Yes. And I'd just reiterate, We just don't want to whipsaw the teams, Neil, either up or down. We just like the constant pace of the execution and find that gets the efficiencies at a maximum gets our returns really maximizes our returns.

Speaker 13

It's great to hear that guys. It makes much more sense. Thank you so much.

Operator

Thank you. Our next question will come from the line of Josh Silverstein with UBS. Your line is now open.

Speaker 14

Thanks, everybody. So just wanted to touch on the Montney. This is one of growth areas that you had highlighted back in April last year. You mentioned the processing facility started up in the back half of the year as well. I know it's 60% liquids, but how has the lower natural gas price environment changed the way you're thinking about development there?

Speaker 14

And along those same lines, I know there's only a small uptick in Canadian spend for the year. I figured that that might be related to Surmod more than this. So Any help there would be great. Thanks.

Speaker 7

Yes. Hi, this is Andy. Maybe just taking the first part of your question, sort of The natural gas, it really doesn't impact our natural gas, it doesn't really impact our long term development plans. And then also putting that in context is sort of we have our position in CerroMon where we actually are a user of natural gas. So that doesn't really change our Our Montney development plans, I think in terms of the progress we're making on Montney, We are going to be ramping this year.

Speaker 7

We've just started the 2nd rig. And just to give you sort of some context of The numbers here were in our full year 2023 production was about 24,000 barrels a day. We averaged 33 1,000 barrels in the Q4 and that's we're expecting that to grow now throughout the year. And then in terms of the CapEx, the modest growth CapEx you're seeing in Canada, it is a combination of additional equity we have in Sirmon, but also adding the 2nd rig at the Montney.

Speaker 14

Got it. Thanks

Operator

guys. Thank you. Our next question will come from the line of Bob Brackett with Bernstein. Your line is now open.

Speaker 2

Hey, good morning. I was looking at the triple digit organic reserve placement ratio and wondering some of the moving parts. I'm kind of curious what impacted the sanctioning of Willow play in that?

Speaker 6

Bob, it's Dominic. Yes, I mean, we're very pleased to see strong organic and total reserve replacement again this year. And we're again this year. And we're seeing strong contributions from across the portfolio. So on the organic side, First of all, low 48 is doing well.

Speaker 6

With the advancement of our resource development plans, its organic replacement ratio is well in excess of 100%. We've got contributions from Montney. And then the Willow piece, yes, that's a really strategic piece So the way it works with bookings on major projects, you have an initial booking and then you book as the project develops. That's normal. So our initial booking was 160,000,000 about 160,000,000 barrels on Willa.

Speaker 6

So that's what we book on sanction. And then as we develop up The development wells and the project will see that approach towards our base case resource estimate of 600,000,000 barrels for Willow. So yes, very strong there. And of course, on the total reserves replacement, we add in A and D and we get the benefit of about 200,000,000 barrels of resource that came with reserves that came with the Sermon 50% acquisition. So Again, another year of strong total reserve replacement for us, which is good.

Speaker 2

Very clear. Thanks.

Operator

Thank you. Our next question will come from the line of Sam Margolin with Wolfe Research. Your line is now open.

Speaker 15

Hi. Thanks for taking the question and thanks for all the detail today. Maybe a follow-up on Lower forty eight Capital. There's some deflation that you've called out. It seems Like most of it right now is driven by consumables and commodities.

Speaker 15

But Ryan, you mentioned activity levels overall have cooled significantly over the course of the second half of twenty twenty three. And so I was wondering if you where you think we are in maybe the lifecycle of this lower 48 deflationary trend and maybe if that presents some opportunities to term out capacity and add even more visibility to the spending plan because as you mentioned, you're not really going to move activity around in different scenarios? Thank you.

Speaker 2

Yes. Sam, I can let Nick follow-up on some of the details. But Certainly, we look at any opportunity to term out things when we see that opportunity. And I think the service side of the business, I think like Scottico Phillips because our plans don't change and we have consistent execution and consistent rig counts and frac spreads and all the other support activity that goes with the business. And the deflation, it's kind of a tale of a couple of different areas and certain commodities But I can let Nick chime in specific to the Lower 48 there.

Speaker 1

Yes, Sam. Like Ryan was mentioning, again, you look at our activity level, it's flat to 2023. So stable rigs, stable Frac crews and the teams are really just focusing on driving operating efficiency, capital efficiency and then capturing that deflation as you mentioned, As we showed in the prepared slides there that we posted, it's going to range across a number of spend categories. So we've got OCTG, We got some proppant as well as rig horsepower. We'll look at all the contracts across our vendors and see if we want to term up.

Speaker 1

Typically, we're Looking at well to well pad to pad as far as rigs, little longer term contracts on our frac spreads, especially the e fracs. But The key thing for us is really just focusing on operating efficiency and capital efficiency with the level loaded steady state program that we have in 2024.

Speaker 15

Thanks so much.

Operator

Thank you. Our next question will come from the line of Ryan Todd With Piper Sandler, your line is now open.

Speaker 13

Thanks. Maybe if I could ask On a couple of the Lower 48 assets, the Eagle Ford production has been declining over the last few quarters in 2023. What's the right way for us to think about direction of production there? Is the goal to hold it flat or modestly decline or grow going forward? And maybe the same question for the Bakken?

Speaker 1

Yes, Ryan, just talk first on Eagle Ford. When you look at Q3 to Q4, we had that 9% production drop. That met our type curve expectations. There's no productivity issues or operational concerns there. It was a conscious decision as we looked at the second half of twenty twenty three.

Speaker 1

And as we've talked about, the completion efficiencies are actually outpacing our drilling So it's a good problem to have. So we worked down through kind of our working level of DUCs and decided on the second half of twenty twenty three to take a, what I call an operational frac gap. So we built some DUCs in that period of time and then reinstated late 2023, the frac crews. So it's really intentional, really good performance from the Eagle Ford Going forward, Bakken, very similar. We've hit some production records.

Speaker 1

You think about a legacy asset like the Bakken, were hitting 110,000 barrels equivalent per day. We've got a long level of inventory. We'll have a steady program up there as well. Thank you.

Operator

Thank you. Our next question will come from the line of Alastair Syme with Citi. Your line is now open.

Speaker 16

Hi. I just wanted to return to the questions. I think people circle around a little bit on the Permian. You've mentioned Supply chain costs and sort of wrap it up with efficiency because you and I guess last April you presented these costs of supply numbers that includes some forward assumptions about cost and efficiency. So I just wanted to get a sense of where you think you stand relative to those assumptions, I.

Speaker 16

E. The Permian moving up, down or sideways on your cost of supply? Thank you.

Speaker 1

Yes, I'll first talk about just the overall efficiency assumptions that we have and what we're seeing out in the field. To remind you on both D and C, we continue to see Step changes in both the drilling side as well as the completion side, probably differential on the completion efficiencies, as I just mentioned, related to Eagle Ford. And we're leveraging all of the different kind of suite of opportunities to improve those frac efficiencies and drilling efficiency. I'll just mention a few. And the key thing here is that we're continuing to see improvement kind of quarter to quarter, year to year and that manifests itself into essentially a 10% to 15% improvement in our pumping hours per day year to year.

Speaker 1

Couple of items that we have out there, we continue to deploy Simofrac across the board, but also SuperZipper down in Eagle Ford. We've Had really good success of this particular application where we can hook up, for example, on a 4 well pad, we'll hook up all of the wells. If we have any operational downtime, we can quickly move from well to well and have high pumping hours and therefore more stages per day. So that's been really successful. On the we also remote frac, I've mentioned that before, seeing good success in that where we don't have to mow and demow the frac so we can move on to PADD II, PADD III without demoving it.

Speaker 1

And then finally, I'll just pivot to the drilling side. We've deployed that real time drilling intelligence group out in the Permian. We've got the entire rig fleet that we're monitoring 20 fourseven where we can optimize the plan, we can troubleshoot and we can steer the wells and we're seeing really promising results, 10% improvement in rate of penetration there. So combined through all of that, we are seeing improvement in those efficiencies And again, 10% to 15% improvement in pump hours per day as I mentioned on the completion side.

Operator

Thank you. Our next question will come from the line of Paul Cheng with Scotiabank. Your line is now open.

Speaker 11

Thank you. Good morning, guys. Hi, Paul. Hi, Paul. Hi, Paul.

Speaker 11

Maybe it's for Phil or maybe it's for Ryan. Ryan, you have said that the industry will need more consolidation, and you have Proved in the past that you are not shy in doing your share. For the right deal, When you're looking at your balance sheet today, how much you're willing to put on the debt? Or how much are you willing to stretch your balance sheet From that standpoint, if it is a right deal, is there a number or a raise or anything that You can share so that at least we get some better understanding. And from a balance sheet standpoint, the RMB 9,000,000,000 of the distribution for this year, Is there a fixed amount or that it will fluctuate based on the commodity prices, either better or worse than your current assumption?

Speaker 11

Thank you.

Speaker 2

Yes. Kind of stuck in a couple there, Paul. But let me start with the last one first. The $9,000,000,000 as we said in our release is a starting point. We recognize the commodity prices are pretty volatile, both up and down.

Speaker 2

And I mean, we've seen WTI approaching 16, we've seen it approaching 80. So I think you view the 9,000,000,000 as A starting point and folks should feel pretty comfortable that we're well above our mid cycle price, we're well above our 30% commitment to return capital to the shareholders and again look at our history. So you should feel comfortable that we'll adjust. It's a starting point for us and we'll see how the commodity prices go through the remainder of the year. On the second part, look, We consider the balance sheet to be a pretty significant asset inside the company.

Speaker 2

We're we will maintain an A credit rating. The balance sheet is strong for the company. We've got a 2.5 net debt turn to cash. So we like where the balance sheet is at and it gives us the cushion in these volatile commodity price to be able to return the money that we're spending and sending both to grow the company organically And the distribution level that we're starting with at the $9,000,000,000 We'll again, on the M and A side, Paul, It's really what kind of opportunities present themselves that have to fit our financial framework. And if they fit our framework and there's something that can make better, makes our 10 year plan better.

Speaker 2

We've been willing to execute those. And but we'll look at the way we execute those on a case by case basis. Sir Bob, we funded with some debt, but it made sense for that particular asset to do that. We've done other we've used cash and other means to fund the acquisition. So it's pretty hard to say depending on any opportunities that present themselves what we might do.

Speaker 11

Ryan, is there a maximum debt you're willing to add based on a single transaction?

Speaker 2

Don't have a it depends on the circumstance, Paul. I don't. We're not going to stress the balance sheet. So we're not we've worked hard to get the balance sheet where it's at today. We're not I'm not interested in going back to where we were 7, 8 years ago on the balance sheet.

Speaker 11

Okay. Thank you.

Operator

Thank you. Our next question will come from the line of Leo Mariani with ROTH MKM. Your line is now open.

Speaker 17

Hi guys. You talked about having some pretty decent international growth this year, well and above the Lower 48, which obviously a nice contributor as well. It sounded like some of that's coming from the Montney in Canada. Can you maybe just detail Some of the other international growth that you're seeing, I imagine there could be some chunkier projects that might be coming online during the year.

Speaker 3

So any color around that would be helpful.

Speaker 7

Yes, Sean. This is Andy. I can take that question. We actually discussed this one in a bit of detail on our last quarterly call and You're right. We do have some good momentum on the Alaska and international projects.

Speaker 7

So just to give you a feel about where they're coming from across the portfolio. In Norway, we achieved 1st production ahead of schedule in 3 of the 4 subsea tiebacks and the 4th one is expected to come online as planned in the Q2. In China, our partner brought the 1st Bohai Phase 4b platform online in October And then the second one came on in December. Also in December, we achieved first half on pad 267 in Surmont We expect to gradually ramp that up over the coming months. And as I previously discussed in Montney, the start of the CPF-two Really it's allowed us to start ramping production there in the Q3 and we expect to see growth in 2024 In the Montney from the CPF II and also the 2nd rig.

Speaker 7

So we're really happy with sort of the spread we have across Alaska International with where the growth is coming from. And I think as we said in one of the earlier questions that ANI is going to be providing a significant part of the total company growth this year. Thank you.

Operator

Thank you. We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.

Operator

You may now disconnect.

Powered by Quartr