ConocoPhillips Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 16 speakers on the call.

Operator

Welcome to the Third Quarter 2023 ConocoPhillips Earnings Conference Call. My name is Liz, and I will 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 session. I will now turn the call over to Phil Gresh, Vice President, Investor Relations.

Operator

Sir, you may begin.

Speaker 1

Thank you, and welcome to everyone to our Q3 2023 earnings conference call. On the call today are several members The ConocoPhillips leadership team, including Ryan 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 Olts, Executive Vice President of Lower forty eight Andy O'Brien, Senior Vice President of Global Operations Kirk Johnson, Senior Vice President, Lower Freight, Assets and Operations and Will Giroux, Senior Vice President, Corporate Planning and Development. Brian and Bill will kick it off with opening remarks, after which the team will be available for your questions. A few quick reminders. First, 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'll make reference to some non GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website. And before I turn it over, just want to flag for today, we will do one question per caller.

Speaker 1

So with that, let me turn it over to Ryan.

Speaker 2

Thank you, Phil, and thank you to everyone for joining our Q3 2023 earnings conference call. It was another solid quarter for ConocoPhillips as the team continued to deliver strong underlying performance across the portfolio. And we have achieved several additional project milestones in our international portfolio in early October. Now before I get into the details, I wanted to address the topical news in the industry, which has been the M and A headlines in recent weeks. This is not a surprise to us.

Speaker 2

We have long said that we expect to see further industry consolidation. Calico Philips remains steadfast in our returns focused value proposition and cost to supply principles, which creates a high bar for M and A. And as a reminder, we've been actively high grading our own portfolio over the past several years. And as a recent example, We are pleased to have closed on the acquisition of the remaining 50% of Surmont in early October. An opportunity came along to acquire this asset at a Very attractive price that fit our financial framework, an asset we can make better through our full ownership And an acquisition that makes our 10 year plan even better.

Speaker 2

Surmont is a long life, low declining and low capital intensity asset that we know well. We achieved first steam from pad 267 in the Q3 and production is expected to start up in the Q1 of 2024. This is our first new pads addition since 2016. And as we said at our recent analyst meeting, we can leverage existing infrastructure Add additional pads with very limited capital requirements in the years ahead. Now moving to Global LNG, We've also continued to progress our strategy securing 1.5 MTPA regas capacity at the Gate LNG terminal in the Netherlands.

Speaker 2

This will take our total European regas capacity to 4.3 MTPA. We have now We secured destinations for nearly half of our Port Arthur LNG offtake commitment in the 1st 6 months since we sanctioned the project. Now elsewhere in the international portfolio, we started up our 2nd central processing facility, CPF II in the Montney. And in Norway, we just announced that we have started up 3 project developments ahead of schedule in October. This includes the company operated Tomiletan Alpha A Subsea tieback project at Equifax, which is nearly 6 months earlier than originally planned as well as 2 non operated projects.

Speaker 2

Finally, in China, our partner started at Bohai Phase 4B ahead of schedule in October. So as you can see, our diversified international portfolio Continues to be a strong differentiator for our company. Shifting to results, we have record Global and Lower forty eight production in the 3rd quarter And we raised our full year production guidance to account for the closing of the Surmont acquisition. All this while achieving continued capital efficiency improvements as our full year capital guidance remains unchanged. We also continued to deliver on our returns to our shareholders.

Speaker 2

We increased our quarterly ordinary dividend by 14%, consistent with our long term objective to deliver top quartile increases relative to the S and P 500. We have distributed $8,500,000,000 in dividends and buybacks year to date and we remain on track for our $11,000,000,000 full year target. And we did this while funding the shorter and longer term organic capital growth opportunities that we see across the entire portfolio. The team continues to execute well. Our deep, durable and diversified asset base continues to get better and better And we are well positioned to generate competitive returns and cash flow for decades to come.

Speaker 2

Now let me turn the call over to Bill to

Speaker 3

Thanks, Ryan. In the 3rd quarter, We generated $2.16 per share in adjusted earnings. We produced 1,806,000 barrels of oil equivalent per day, representing 3% underlying growth year over year. Planned turnarounds were successfully completed in Norway and Alaska And Lower forty eight production averaged 1,083,000 barrels a day equivalent per day, Including 722,000 from the Permian, 232,000 from the Eagle Ford and 111,000 from the Bakken. Lower forty eight underlying production grew 8% year on year with new wells online and strong well performance relative to our expectations.

Speaker 3

Moving to cash flows, 3rd quarter CFO was $5,500,000,000 including APLNG distributions of 442,000,000 3rd quarter capital expenditures were $2,500,000,000 which included $360,000,000 for longer cycle projects. And through the end of the Q3, we have now funded $875,000,000 for Port Arthur LNG out of our planned $1,100,000,000 for the year. Regarding returns of capital, we delivered $2,600,000,000 to shareholders in the 3rd quarter. This was via $1,300,000,000 in share buybacks and $1,300,000,000 in ordinary dividends and DRock payments. And today, as Ryan said, we announced an increase to our ordinary dividend of 14% to $0.58 per share.

Speaker 3

We ended the quarter with cash and short term investments of $9,700,000,000 which included proceeds from the $2,700,000,000 in long term debt that we issued to fund the Sermon acquisition, which closed in early October. Before shifting to guidance, I do want to take a quick A moment to update about our VROC. Beginning in 2024, we will be aligning both the announcement timing And subsequent payment of our DRock with our ordinary dividend. Therefore, you can expect us to provide details on our Q1 DRock payment On the Q4 call in February. Now turning to guidance, which now reflects additional 50% of Surmont starting in early October, We forecast 4th quarter production to be in a range of 1.86000000 to 1,900,000 barrels of oil equivalent per day.

Speaker 3

Full year production guidance is now roughly 1,820,000 barrels of oil equipment today. And to put this production guidance into context, we expect underlying growth for both the Q4 and the full year To be roughly 4% year over year, which includes Lower forty eight production growth of roughly 7%. And this is very consistent with our full year guidance and our long term plan we laid out at our Analyst and Investor Meeting. For APLNG, we expect distributions of $300,000,000 in the 4th quarter $1,900,000,000 for the full year. And while APLNG distributions can vary quarter to quarter, a normalized run rate to think about moving forward It's around $400,000,000 per quarter at current price levels.

Speaker 3

Shifting to adjusted operating costs, We raised our full year guidance by $300,000,000 to $8,600,000,000 This was driven by our increased working interest in Surmont, Increased Lower forty eight non operated activity and inflationary impacts in the Lower forty eight. We've also raised our DD and A guidance by 100,000,000 $8,300,000,000 which is also primarily due to Surma. And full year adjusted corporate net loss guidance remains unchanged At roughly $800,000,000 and the second half run rate is a good starting point for 2024. Finally, our full year capital spending guidance range is also unchanged. To wrap up, we had another solid operational quarter.

Speaker 3

We continue to deliver on our strategic initiatives across our diverse portfolio And we remain highly competitive on our shareholder distributions. That concludes our prepared remarks. I'll now 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. Our first question comes from the line of Neil Mehta with Goldman Sachs.

Speaker 4

Thank you very much. There's been a lot of variability in Lower forty eight results From some of your competitors and you guys have been very steady tracking at this 7% growth rate. Just love your perspective and walking through the basins, particularly the Permian. What is working? What's not for you guys?

Speaker 4

And how do you feel about the plan as you move into 2024?

Speaker 1

Yes, Neal, this is Nick. You're right. I mean, Overall, if you look at our performance across all our basins, it's been strong and in line with prior year performance across again all those Lower forty eight I'd also mention that it's been in line with our tight curve expectations. I'll call out for example, Delaware well performance is showing top quartile on volumes produced not only on a barrel of oil per basis, but also on a BOE per basis So we're seeing very encouraging results there. And I think the key point too is this strong performance reinforces our Strong focus on the returns, capital efficient environment that we've set there.

Speaker 2

And I would add, Neil, It speaks again to the quality of the and the depth of the inventory in the company. We've got we're prosecuting some of the best acreage in the basin and And doing it in such a way that's focused on capital efficiency and returns as Nick described.

Operator

Our next question comes from the line of John Royall with JPMorgan.

Speaker 2

Hi, good afternoon. Thanks for taking my question. You've had a handful of international project startups that you touched on in the release. If you If you could give us some more color on these projects, that would be helpful. And maybe if you could tie that into a growth outlook for the international business in 2024 as well, that would be helpful.

Speaker 5

Thanks, John. This is Andy. I can take that one. It's a little early to be getting into full year guidance for 2024. Liz, as you mentioned, we have had some pretty good news across our Alaskan International projects.

Speaker 5

We've made some pretty significant progress They're across the portfolio and it really is nice to see so many of those projects achieve major milestones on or ahead of schedule and budget. Ryan touched on Norway. There we achieved 1st production ahead of schedule on 3 of our oil subsea tiebacks And we expect the 4th one to come online as planned in Q2 2024. So we expect those 4 projects in aggregate to add about 20,000 barrels a day of production next year, which should more than offset normal decline in 2024. We also had some good news in China where our partner operated Bohai Phase 4b achieved 1st production ahead of schedule from the first platform.

Speaker 5

Now that's going to be 2 platforms tied back to our central processing facility and we'd expect the second platform to come on in the Q1. And then with that, we'll then have the opportunity to drill new wells in Bohai for the next 4 to 5 years. And then we also had some pretty big major milestones in Canada with CPF2 in the Montney and PAD267 in Cervont. So CPF2 was successfully started up in September and that's going to add 100,000,000 cubic feet a day of gas processing and about 30,000 barrels of condensate and water handling capacity. So in the Montney, we averaged about 20,000 barrels a day of production in Q3 and we're going to substantially grow that next year.

Speaker 5

And then finally with CERMON PAD-two sixty seven, we achieved first steam in September or get first oil in early 2024. Now with 267 online, we'd expect to see Sermon grow certainly 5000, 10000 barrels a day next year. And importantly, that's inclusive of a month long turnaround that we conduct every 5 years and so on. So I'm really proud of what we're doing and executing across these projects. I think the whole list of them here is a really good sort of example of how we leverage our existing infrastructure to deliver on our low cost supply opportunities.

Speaker 5

So hoping that gives you a feel for sort of the momentum we're building going into next year.

Operator

Our next question comes from the line of Steve Richardson with Evercore ISI.

Speaker 6

Hi, thanks for the time. Bill, I was wondering if maybe you could help us on a little bit of broad strokes on 2024 CapEx thoughts, I think in the past you've talked about kind of flattish CapEx around $11,000,000,000 with admitting there's a lot of moving parts in an $80 environment. Maybe you could just talk a little bit about that as you're thinking forward.

Speaker 7

Yes, it's Dominic here, Stephen. What we'd say is very consistent with the A. M. Framework we laid out on CapEx. Just to recap the moving parts, We've got several moving pieces.

Speaker 7

We've got assuming Willow is sanctioned, which we expect, spending on that project will be higher. And then, of course, you have the incremental $100,000,000 or so for the other 50 percent of the Sermon that we're adding. And those increases will be mostly offset by we're going to see lower spending on our LNG projects And roll off of the project capital at Norway. So, but I think the key message there is really very much in line with the framework we laid out at AIM. Of course, you do have the addition of the of Sumant, extra 50% there.

Operator

Our next question comes from the line of Doug Leggate with Bank of America.

Speaker 8

Good morning, everyone. Thanks for having me on. Although Phil has gone to the dark side with the one question rule,

Speaker 9

Sir, I have

Speaker 2

one man opinion, Doug.

Speaker 3

If I may, I'd like

Speaker 8

to make one comment and ask one question. My one comment is your stock is up almost 5% this morning. I think acknowledging your dividend move, ordinary dividend move is gaining recognition in the market and congratulations on Taking that step, we'd like to see more of it. Okay. With that, my question is simply this.

Speaker 8

One of my peers asked a question earlier about performance in the Permian. I'd like to ask it a little differently. One of your very large peers had some non operated portfolio problems in the quarter. You guys have got a large part of your production that comes from non operated production. Is there any discernible difference between your operated performance and your non operated performance that's driven this Reliable production growth year over year.

Speaker 2

Yes. So I can't resist, but to comment on your comment Doug and then I'll let Nick To answer your question on the Lower forty eight, but it's exactly what we thought should happen with top quartile targeted dividend growth As a company relative to the S and P 500, so that's been our plan and we're sticking to it and executing on that plan. But Yes, I can let Nick comment on your question about not off and off in the Permian.

Speaker 1

Yes, Doug, good question. I mean, I think you're looking at the Q2 to Q3 performance this year. We were up 2%, So sequential growth and as Bill mentioned in his prepared remarks, we're seeing 7% year over year. Obviously, that has a combination of our operated and non operated Portfolio both are performing well. Specifically Doug in Q2 to Q3, a large component Of that increase was our operated Permian program as well as OBO.

Speaker 1

So we're seeing increases in the operated by others and a little bit of Bakken As well. I mean these operated by other assets are very competitive. We look at every ballot. We benchmark each And it performs well within our cost supply framework. As a reminder, if you look at Permian in general, about 30% of our production is coming from operated by other within the Permian.

Speaker 1

And if I take you back a little bit in time to the Analyst Investor Day, when you think about the split between the two basins, we've got 2 thirds of our Torees in the Delaware, 1 third in the Midland Basin to generate the full Lower forty eight Grid of 5%. But Bottom line, Doug, is that they're both competing well. We will review every ballot to make sure we're investing the right capital and drive that capital efficiency.

Operator

Our next question comes from the line of Lloyd Byrne with Jefferies.

Speaker 9

Hey, good morning guys.

Speaker 10

Good morning.

Speaker 9

Ryan, you mentioned it in your prepared remarks, but I'm hoping you can Comment further on international gas integration strategy and I recognize it's early, But by our numbers, it seems like a lot of option value there. So maybe just thought process behind it and maybe any targets you might have to Help us think about the future there.

Speaker 2

Yes, I can let Bill give you some details there Lloyd. But yes, we're excited about the opportunity to add the Regas capacity in the Netherlands at the Gate LNG complements well our German addition and we're looking elsewhere as we try to Build out and move the Port Arthur volumes and the volumes we have in other places around the globe into that Which we think is going to be a strong market for many decades to come, which is why we're moving into this second. Bill can be a bit more specific to your question on the details there.

Speaker 3

Yes, I'm happy to put a bit more color on that. We're very focused on developing market. And as we've talked about, we like to do this in a stair step fashion with how we Originate Supply, you've seen us announce Port Arthur LNG and Saguaro LNG. We're making really strong progress, 2,800,000 tons per annum of regas capacity at German LNG, 2 of that is dedicated to supporting our LNG SPA is out of Qatar that leaves 0.8 at Germany. We've just added 1,500,000 tons of regas capacity at gate.

Speaker 3

So that's 2.3, that's roughly half of Port Arthur. And I think importantly, we're continuing to see a lot of interest and strong demand For LNG. As we've talked, we're looking to develop a diversified portfolio that's both sales into Europe And also sales into Asia, perhaps some FOB sales at the facility and having a mix of variety of term links in that. And so I'm just I'm really pleased with the progress we're making within 6 months of kind of FID of Port Arthur, we've got roughly half of it placed. I think the way to think about that, just going back to the vignette I showed at AIM is, you look at the capacity that we have into Germany and to TTF, The way to think about that as you're modeling returns, as you start with the Henry Hub price, you add liquefaction toll shipping and regas, You compare that to what you think European gas price will be.

Speaker 3

That's going to give you your base CFO for volumes into Europe Before adding any diversion optionality onto that, you can do a similar type analysis going to Asia. So Yes. We share your view here that these are very interesting additions to our portfolio and we're really pleased with the progress we're making.

Operator

Our next question comes from the line of Devin McDermott with Morgan Stanley.

Speaker 10

Hey, thanks for taking my question. So I want to echo the earlier comment on the dividend raise and ask a question on the shareholder return. So it's good to see the 14 I was wondering if this large change in the dividend is more tied to incremental cash flow on Surmont or There's been a broader change in how you're thinking about the target payout or dividend breakeven as you look out at the business over the next few years. And just as Maybe you can give us an update on your broader thinking on shareholder return strategy and the breakdown of dividend, DRock and buybacks in the context of today's increase.

Speaker 2

Yes, Devin, no, I don't think anything has changed in our framework, which we outlined I think pretty extensively in our last analyst meeting. So based on our Mid cycle price call, you can expect us to deliver at least 30% of our cash flow back to our shareholders. And then we've said When the prices are in excess of our mid cycle price call, which is where the prices are today and where they've been over the last few years, You should expect us to be delivering more of our cash back and that's in fact what we've done over the last 5 to 6 years, delivered mid-forty percent, 45% or so of our cash has gone back to our shareholders and it's done that in a form of both the cash and buying our shares back. So our construct around that really hasn't changed. We'd like to provide a affordable, reliable, ordinary dividend that Rose competitive with the top quartile of the S and P 500 over time.

Speaker 2

We like to buy some of our shares back through the cycle In a mid cycle construct and then we introduced the 3rd leg, V Rock, to add additional return back to our shareholders when prices are above our Our mid cycle price call. So that's the construct we have and as we and we're sticking to that, we think it served the company pretty well and And provides like this year, we expect cash flow of close to $22,000,000,000 and we're giving half of that back to our shareholders. So That's probably not a bad starting point for next year.

Operator

Our next question comes from the line of Nitin Kumar with Mizuho.

Speaker 11

Hi, good morning. Thanks for taking my question. I guess, just sticking with the theme of M and A and I appreciate Brian You touched on it in your comments. But one of your peers out there has talked about improving recoveries in the Permian to the tune of 20% or higher than everybody else. You operate across the entire Permian Basin.

Speaker 11

I'm curious, Are you deploying or seeing others deploy technologies that you think can improve recovery rates that significantly?

Speaker 2

Yes. I'll let Nick respond to that specifically. And I guess I'd make this one broad comment is, I think as we Talk about this topic, I think in the companies and a lot of people are guilty of this conflation a bit between recovery And recovery rate or recovery factor. So I think you have to be really careful when we talk about this in light of these unconventional. We're doing everything we can to improve the recovery that we get from the wells, the acreage, the blocks, the layers That we have within our portfolio and but be careful not to conflate that to recovery factor or recovery rate and I can have Nick speak a bit more specifically about the things we're doing to make sure we get maximum recovery

Speaker 1

Out of our assets. Thanks, Ryan. Yes, Nitin, our asset teams, as Ryan mentioned, are very focused on optimizing recovery Our wells and our development projects across all the Lower 48 assets, I think it's important too is we seek to maximize recovery, But also driving improvement in capital and that's part of our returns focused strategy and the cost supply framework that we judge every decision Against. We look at kind of improving recovery across kind of 3 primary buckets. So I'll take you through that what we're looking at, what we're deploying Within our assets.

Speaker 1

So first, we look at development decisions, it is our first bucket. Secondly is How do we optimize the reservoir? That's our second bucket. And then the third one is really when we look at enhanced oil recovery, but that's more longer term. Now, Nitin, one of the things that we obviously have within the Permian and we mentioned this at the Analyst Investor Day We have 2 decades of inventory within the Permian at current big activities level.

Speaker 1

So we have a lot of focus on development decisions and the reservoir optimization Couple of things, well lateral length is critical. We speak to about the inventory length More you can go from a 1 lateral to a 2 to a 3 mile lateral, you increase the recovery per well. And as we've mentioned before, You go from a 1 to a 3, we improve our cost to supply, which drives capital efficiency by 30% to 40%. So we're doing that. As a reminder, we've got 80% of our Permian well inventory is 1.5 miles or greater and 60% It's 2 miles or greater and we're continuing to execute 3 mile laterals year to year growth on those as well.

Speaker 1

On the well completion side, again, this still sits in that development decision bucket. We're doing some interesting work in the Bakken as an example using multi This is where we optimize completion design to maximize both recovery and capital efficiency and seeing recent completion results Very favorable in that space. And then the kind of last item I'll address on the development decisions is around spacing and stacking. One thing that we do out in Midland Basin that you've heard here recently is co development. Co development allows us to minimize the parent child impacts While improving recovery as well as capital efficiency.

Speaker 1

And we've demonstrated over the last 4 years both in the Midland Basin As well as the Delaware Basin around improved performance there. On the second component that we're focusing in on reservoir optimization, I'll draw your attention to Eagle Ford. We're using kind of techniques where we refrac these wells, kind of late life in the wells And we're seeing improved well performance on expected ultimate recovery by 60%, which is very competitive in our cost supply framework. And then I'll take you up to the Bakken. We're using infill wells and upcoming edge wells To further increase overall recovery and these are also competitive in cost of supply.

Speaker 1

Again, that's increasing the recovery per pad. And then the final bucket that enhanced oil recovery A component where we've done many pilot studies mainly in the Eagle Ford around gas injection huff and puff And we've seen technical success. We've seen injectivity and then the corresponding oil response. But I'll leave you with this on the enhanced oil recovery. These projects don't compete within our expansive Drill 1 inventory at this point in time.

Speaker 1

We'll continue to study it and analyze it. That's something we can address in the future. So from long laterals to improved completion design to infill wells, we're improving recovery in our assets.

Operator

Our next question comes from the line of Roger Read with Wells Fargo.

Speaker 3

Hi, good morning everybody.

Speaker 2

Good morning Roger.

Speaker 5

A lot of

Speaker 12

this has been hit, but I guess I'll just ask about Alaska. There's been a little more noise up there on the, I I don't know if you call it regulatory legislative side, and then we're about to head into the winter season. So I was just curious, Willow and other things what's

Speaker 5

Roger, this is Andy. So yes, let me take that one. I'll start with the legal and then we'll give you a bit of an update of where we are with the project. So on the legal side, I've talked about this on previous calls. There are lawsuits challenging the federal government's approval of the project.

Speaker 5

As I mentioned on the last call, we expect to see a ruling on this in November. The preliminary rulings in April were favorable And then the upcoming ruling will address the full scope of the legal challenge. Again, I'm repeating myself a little here, but as I said on the last call, We're very happy with how the BLM and the co operating agencies conducted the process and satisfied all the requirements to grant their approval. So we're confident and we're looking forward to those court rulings in November as we get ready for the 2024 season. And then I think the other part of the legal question you were alluding to is the separately in September, The Department of Interior proposed additional regulations for the management and protection of the MPRA.

Speaker 5

Now we don't expect these draft rules to impact Willow Or prevent our exploration program. It doesn't have any impact on the 10 year plan we've previously laid out at AIM. But that We are concerned if the rules are adopted as currently drafted, they could impact future developments beyond Willow in the National Petroleum Reserve Alaska. So we're going to be providing feedback to the Department of Interior to try and make the proposed rules more consistent with the existing statute. Again, I'll just finish the legal bit with that.

Speaker 5

As a reminder, the statute recognizes the primary purpose of the MPRA is to increase domestic oil supply. So that's kind of where we are on the legal side. And then just very quickly where we are in terms of the project. Taking a step back here, as I described back in our investor update, Wilho is the kind of project that's right in our wheelhouse. We've got no first of the kind type risk here.

Speaker 5

It's 3 drill sites to 1 new processing facility. And our track record in Alaska was excellent at delivering On schedule and on budget. So specifically to where we are right now, work is progressing well and our 2023 capital It's fully factored into the total company guidance we gave today. We started the first phase of module fabrication on the Gulf Coast. And then on the North Slope, we've successfully opened the gravel mine and we're preparing for the 24th construction season.

Speaker 5

We've already got over half of the project scope under firm contract and these contracts include clauses if we don't FID the project that we can exit. The auto contracts we've issued today, 75% from a lump sum or unit rate. For these type of contracts, we have agreed a price And I have limited exposure to future inflation. So as we continue the contract negotiations, our estimate of capital to first production Remains unchanged of $7,000,000,000 to $7,500,000,000 that we previously provided. So I think that probably gives you a good update on where we are on the legal and on the project side of things.

Operator

Our next question comes from the line of Ryan Todd with Piper Sandler.

Speaker 9

Sorry, I think that's it, Ryan, Todd. Maybe one for you, Ryan. You've been busy on the portfolio over the last few years across a wide range of regions And types of assets across the portfolio, as you and some of that is obviously opportunistic just when the timing of things like Surman and APLNG came up. But if you take a step back now and look, is there still more to do on the portfolio in terms of portfolio management? Are there Increased high grading opportunities on the divestiture side that we should expect as you continue to develop things Or any places that you would like to change or increase your exposure maybe as you look going forward down the line in terms of long term competitiveness?

Speaker 2

Yes, Ryan. I think as we tried to show you at the Analyst Meeting earlier this year, we're Pretty pleased with all the efforts we've made in the company over the last 4 to 5 years to really what we think has put out an extremely compelling 10 year plan. So I wouldn't describe the we really, really like where the portfolio has gotten to. It's got a it's global, it's diverse, it's got a great mix of short, Medium and longer cycle opportunities organically to invest in all those investments lead to 20,000,000,000 barrels less than $40 cost Supply. So we've got a lot of visibility into what we think is a great plan.

Speaker 2

We're ruthless high graders of the portfolio. If some doesn't compete, we're Looking for opportunities moving out, I wouldn't describe we've got anything significant inside the portfolio today that would fall into that Category and we're always looking and trying to be opportunistic, which I think describes to your point the APLNG Roper and the Surmont Roper that we hold. So you never quite know When your partners make a change that you didn't anticipate and you get a great opportunity to acquire an asset that you know really well And the one that we know we can make better if we have it under our control and ultimately as I said it makes our 10 year plan better. So We're always out looking to find, because you never quite know when these things might materialize, but we tend to be very opportunistic. And I just remind people, our framework is intact.

Speaker 2

It It has to meet our financial framework. We got to see a way clear to make the asset better and doesn't make that 10 year plan that we think is quite compelling, Does it make that 10 year plan better, which is a pretty high hurdle inside the company?

Operator

Our next question comes from the line of Paul Cheng with Scotiabank.

Speaker 5

Hello. Can you hear me?

Speaker 2

Yes, we sure can, Paul. Good morning.

Speaker 4

Hi. Thank you. Good morning. One, if I can go back into Permian. What's your average to NetSol Link now and then how much do you think you can improve or lengthen yield over the next Several years.

Speaker 4

Is that one of the primary contributor that you think you could improve the result in your overall Permian operation? And also that whether you guys have tested because at some point, I would imagine it will reach this economy of Dale, when you get longer and longer, do you have any experiment that you guys have done that what that limit may be? Is it Four miles, is it longer than 4 miles or less than 4 miles? Thank you.

Speaker 2

Yes. Thanks, Paul. I can let Nick, kind of weigh in on some of that. We're not yes, I think lateral length is just one of the things that we're working on. Nick described a bunch more in an earlier Question around completion efficiency and how we're attacking the spacing and the stacking.

Speaker 2

So I think it's all of those things that we're Trying to attack and they're different depending on where you're at in the Bakken, the Eagle Ford or the Permian, but we have deep experience in all three of those basins And using all that knowledge to make sure we're maximizing the recovery and minimizing the cost of supply and maximizing the efficiency that we're getting out of it. Specifically on lateral lengths, I can let Nick weigh in on that.

Speaker 1

Yes, Paul, good morning. Just to reiterate again, we've got a significant deep Broad long lateral inventory across the assets. Just mentioned previously the 80% of Permian inventory is 1 point 5 miles were greater and the 60% greater than 2 miles and we continue to see more and more 3 mile laterals and are very We're seeing good results coming out of the 3 mile laterals, both from our 2022 program as well as 2023. And so we continue to see increases in that space. Our teams continue from a BD standpoint and a land standpoint, look at core opportunities.

Speaker 1

And this is not only in the Permian, But as Ryan just mentioned in the Bakken, Merlin, we just finished up some trades there to allow us to drill some 3 mile laterals in the future. So So we're increasing the portfolio of long laterals across all four assets. The thing that you had talked about related to how far can you go, I'll just step back. The 3 mile laterals that we're seeing over the last couple of years are performing well. We're very encouraged with the results.

Speaker 1

You want to make sure you get contribution Across that entire lateral length, as we would think about going further longer lateral lengths, I think you mentioned 4 miles, There's a trade off. You can potentially drive down and improve cost of supply. And then also you have to look through the lens Of operational risk, because that operational risk is also not only in development drilling, actually drilling the well, but also future workovers. And so We're looking at that in the future, but I'll leave you with the fact that the 3 mile laterals performed extremely well and we've got a very deep Inventory of long laterals as I mentioned earlier.

Operator

Our next question comes from the line of Josh Silverstein with UBS.

Speaker 13

Thanks guys. Ryan, I appreciate the comments before on the return to capital thoughts for next year. I was curious with the added debt from the Thermon transaction, how you might think of additional shareholder returns versus this year or the Want to build cash or pay down the debt there? Thanks.

Speaker 2

Yes. I think We're in that planning process as we kind of think about next year and all those moving pieces. So I try to say, it looks to me like at this 10 seconds, the Commodity prices are kind of very similar to where we were coming out at the end of last year coming into the beginning of 2023. So I think that Framework around total return as a starting point is pretty good for 2024. We'll just have to see what commodity prices are as we go forward.

Speaker 2

And We have a plan and Bill can address that to kind of pay off debt as it comes due over the next few years. It gets us down to our original target of $15,000,000,000 gross debt and we can continue to do that. And I think if we had a very large up Cycle to the price commodity price, we might look at adding more cash to the balance sheet as well. So I think all three of those Are in play as we think about what we do over the course of each quarter as we go into next year.

Operator

Our next question comes from the line of Sam Margolin with Wolfe Research.

Speaker 14

Hi, thanks for taking the question. I guess, I wanted to ask for an update maybe on The Venezuela process, it's come up in prior calls and the process is advancing. And I guess specifically I want to ask about a scenario where the assets that aren't strategic to you get returned Or surrender to creditors and what might be the path forward from there, because It's a large claim and it's material and it seems like it will be a good outcome for you, but might require some actions in the aftermath. Thank you.

Speaker 2

Yes, I'm sure I understand, Sam. But yes, we were in a process with the Venezuela right now. They also Several amount of money through both our ICSID and our ICC claims, approaching over $8,000,000,000 They owe us On the full judgment on the ICC, they still owe us $1,400,000,000 $1,500,000,000 So we're pursuing that pretty aggressively. I think we're watching the progress closely. Clearly, the U.

Speaker 2

S. Government has provided A lifting of some if not all of the sanctions here, waiting on results of what the Venezuelans do on the other end for free and So that may create a bit of an opening, but this is a long process, but We're pretty committed to doing everything we can to make sure we get our money out of Venezuela that they owe us And that's what we're focused on.

Operator

Our next question comes from the line of Neal Dingmann with Truist Securities.

Speaker 12

It's Neil, David. Is this for me?

Speaker 2

Yes. Go ahead. Okay.

Speaker 12

Thanks guys. Ron, my question,

Speaker 1

you get on this

Speaker 12

a little bit. It's just on M and A specifically. Well, I appreciate your earlier comments About any assets needed to fit the 10 year plan, I'm just wondering is there a preference for when you're seeing things shorter or longer term cycle assets and just also curious How you view valuations of some of the recent public deals? Thanks.

Speaker 2

Well, certainly the way we look at it, Neil, Liz, we like a global, we like a diverse portfolio, we like it to be balanced. I think we're mostly focused on what's the cost of supply, Make sure it fits our framework around that and that any asset that you bring into the company make sure it can We compete for capital on an ongoing basis against a pretty rich deep durable long life A lot of inventory sitting in the company today. So as I said, it's a pretty high bar. I don't know quite how to comment on the recent deals that have been None. Those are transactions, those are really good companies that were bought.

Speaker 2

Clearly, they have good assets. We're pretty familiar with them. We've watched them for a long period of time and they're good companies with good assets. Transactions were In a part of the cycle that's a little frothy and probably at a higher mid cycle price than we would ascribe to them, I guess. Maybe that's all I should probably say.

Operator

Our next question comes from the line of Scott Hanold with RBC Capital Markets.

Speaker 9

Yes, thanks. I was just kind of curious, does consolidation that creates Larger peers in the Permian impact the competitiveness of COP's development and positioning, specifically if you look at services In midstream capacity, as you kind of move forward on your kind of 7% growth CAGR over the next decade plus?

Speaker 2

I don't think we see a huge issue there at all, Scott. There's a lot of operators already in the Permian Basin, and It seems like the service side of the business has been accommodating all the activity that we have out there. There's been periods of tightness On certain categories of spend or certain services that by and large we don't think it's going to be A big issue for us going forward. The advantage of being one of those large operators in the basin is you get the attention of the service It's because they know you've got a program that's durable. They know you've got a program that has some length to it.

Speaker 2

They know you're not going to be whip sawing them around And those are the kind of customers that they want to work for and then and those are the so they tend to work with us And so we don't see any exposure to the current consolidation trend in the Permian. It is going to continue, no question. So More probably needs to happen.

Operator

Our next question comes from the line of Kevin McCurdy with Pickering Energy Partners.

Speaker 12

Hey, good morning. I wonder if you can provide your current thoughts on adding activity in the Lower forty eight. I know you said that you can grow production without adding, But others are looking at the current service prices and commodity prices and seeing this is a good time to add. So just want to hear your most recent thoughts on that. Thank you.

Speaker 2

I think that will be part of the process we're going through right now, Kevin. I think we're trying to think about what 2024 looks like, but our starting point is We're seeing the efficiencies and we're seeing growth coming out of our assets. So we started a place that says let's just think about flat scope and then We'll think about these other drivers like commodity price or service capabilities to your point and make a decision as we go into next year about What the scope and the resulting capital will look like.

Operator

Our last question will come from the line of Leo Mariani with Roth MKM.

Speaker 5

Yes, hi. Well, I wondered if you

Speaker 15

could just comment on what you're seeing in terms of kind of lower 48 service cost trends. I think there was a lot of expectations a handful of months ago that Costs may be falling, but now kind of commodities have kind of recovered. So maybe just give us kind of your perspective of kind of what you're seeing there on leading edge costs?

Speaker 7

Yes, Lewa. It's Dominic here. So as we talked about the last quarter, we're certainly seeing some areas of deflation of the low 48. I think If you look at our capital spend this quarter, that's part of that trend is in there, in terms of being lower capital this quarter than the previous. But we still expect our overall company capital inflation to average out in the mid single digits this year over last year.

Speaker 7

And that's all reflected in our guidance. I would say that as we approach the end of the year, and this is something that is in our thought process right now as kind of Ryan was alluding to. We do think the market is kind of finely balanced. We do see some deflation coming through, but we have seen oil and gas prices recently strengthened. So What we're looking very hard is how we think that will trend into next year.

Speaker 7

But I think as I said earlier, in terms of our overall capital Expectations next year are very much in line with what we laid out at AIM, of course, plus our additional interest in Sermon. That's just something that we're watching closely, but that gives you a good sense of how we're thinking.

Operator

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

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Earnings Conference Call
ConocoPhillips Q3 2023
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