ConocoPhillips Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2023

There are 19 speakers on the call.

Operator

Welcome to the Q4 2022 Konakou Phillips Earnings Conference Call. My name is Michelle, 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

Yes. Thank you, operator, and welcome to everyone joining us for our Q4 2022 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 of Strategy, Sustainability and Technology Nick Olds, Executive Vice President of Lower forty eight Andy O'Brien, Senior Vice President of Global Operations 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. 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'll 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 can be found in today's release and on our website.

Speaker 1

With that, I will turn the call over to Ryan.

Speaker 2

Thanks, Phil, and thank you to everyone for joining our Q4 2022 earnings conference call. As we sit here today, there are a number of cross Currents in the global economy. While the energy sector is not immune to potential macro headwinds, our fundamental outlook remains constructive. On the demand side, we think that growth will continue in 2023 aided by a normalization in China Mobility following the loosening of COVID restrictions. On the supply side, we believe the continued producer discipline and the expected impacts of Russian oil and product sanctions We're likely to keep balances tight.

Speaker 2

So while commodity prices are currently not as high as they averaged in 2022, we see duration to this upcycle. Now stepping back, we remain steadfast in our view that a successful energy transition must meet society's fundamental need for secure, Reliable and affordable energy while also progressing toward a lower carbon future. While we all recognize the challenges that global energy Policymakers faced to achieve the goals of the Paris Agreement, it is clear that doing so requires an all the above approach. This can be done by enacting policies that encourage the development of lower emission energy sources and oil and gas resources. These policies should include efforts aimed at fiscal stability, streamlining of the permitting process, increased transparency on timelines and supporting critical infrastructure.

Speaker 2

These are not just necessary for the oil and gas industry, but also for nuclear, hydrogen and renewables, all of which will be necessary to deliver on the energy transition. At the end of the day, it's critical for our administration to remember that North American energy production It's a stabilizing force for both global energy security and meeting energy transition demand. Meeting that demand will require investments in medium and long cycle projects in addition to short cycle U. S. Shale.

Speaker 2

This is why you see ConocoPhillips leaning a bit further across our deep A diversified portfolio in 2023. Whether it's the Lower forty 8 where we achieved record production in 2022 For our diversified global portfolio, ConocoPhillips is well positioned to meet the world's long term energy needs, while also reducing our own emissions footprint. Shifting to our 2022 performance, ConocoPhillips showed continuous strong execution across our triple mandate. We generated a trailing 12 month return on Employed of 27%, the highest since the spin. We delivered on our plan to return $15,000,000,000 of capital to our shareholders, which represented 53% of our CFO, while in excess of our greater than 30% annual through the cycle commitment.

Speaker 2

And we further advanced our net zero operational emissions ambition with a new medium term methane intensity target consistent with our recent commitment to joining OGMP 2.0. Now looking ahead, ConocoPhillips Well positioned to further deliver on our triple mandate in 2023 with a well balanced capital allocation strategy. This morning, we announced a plan to return $11,000,000,000 of capital to shareholders, which represents about 50% of our forecasted CFO at $80 WTI. The other half of our cash flow will be dedicated to reinvesting in the business. From a portfolio perspective, our deep and well diversified asset base is well positioned to generate solid cash flow growth for decades to come.

Speaker 2

This is further evidenced by our organic reserve replacement ratio of 177% in 2022. We're also enthusiastic about our new LNG opportunities we are participating in, in Qatar and the United States, which are highly complementary to our existing LNG business. And we look forward to providing you a comprehensive update about our long term strategy and our financial outlook at our upcoming Analyst and Investor Meeting on April 12 at the New York Stock Exchange. Now let me turn the call over to Bill to cover our 4th quarter performance and 2023 guidance in a bit more detail.

Speaker 3

Thanks, Ryan. Starting with 4th quarter results, we generated $2.71 in adjusted earnings per share. 4th quarter production was 1,758,000 barrels of oil equivalent per day, which included a 27,000 barrel a day negative impact from weather in the Lower forty eight. Lower forty eight production averaged 997,000 including 671 from the Permian, 214 from the Eagle Ford and 96,000 from the Bakken. Moving to cash flow, 4th quarter CFO was $6,500,000,000 excluding working capital At an average WTI price of $83 per barrel.

Speaker 3

APLNG distributions were $639,000,000 And 4th quarter capital expenditures were $2,500,000,000 including $2,100,000,000 of base capital And $300,000,000 for acquisitions and Northfield East payments. On capital allocation, we returned 5 $100,000,000 to shareholders through ordinary dividends, DRock payments and share buybacks, while also reducing gross debt by $400,000,000 Full year CFO was 28,500,000,000 Excluding working capital, at an average WTI price of $94 per barrel in 2022. Full year APLNG distributions were $2,200,000,000 and full year total CapEx was $10,200,000,000 With base CapEx achieving our guidance of $8,100,000,000 $2,100,000,000 of acquisitions in Northfield East Payments. Full year return of capital was $15,000,000,000 while $3,400,000,000 went to debt reduction With cash and short term investments ending the year at $9,500,000,000 Turning to 2023 guidance, we forecast full year production will be in a range of 1.76000000 to 1,800,000 barrels of oil equivalent per day, which represents 1% to 4% of organic growth. Our first quarter production guidance range It's $1,720,000 to $1,760,000 which includes $35,000 of planned maintenance primarily in Qatar and the Lower 40 8.

Speaker 3

Our full year planned maintenance is expected to be similar to 2022. On capital spending, We expect a range of $10,700,000,000 to $11,300,000,000 which I will discuss in more detail in a moment. We expect operating costs of $8,200,000,000 DD and A of $8,100,000,000 and Corporate segment net loss of 900,000,000 For 2023 cash flow, we forecast $22,000,000,000 in CFO at $80 barrel WTI, 85 Brent and 3.25 Henry Hub at current strip prices for regional differentials. Included in our cash flow forecast is $1,900,000,000 in APLNG distributions with $600,000,000 expected in the Q1. Now regarding CapEx, we provide a waterfall in our prepared materials bridging 2022 actual spending to 2023 guidance.

Speaker 3

Starting with base capital spending, we forecast an increase from $8,100,000,000 in 2022 To a range of $9,100,000,000 to $9,300,000,000 in 2023. The remaining $1,600,000,000 to 2 point $1,000,000,000 is allocated longer term projects. Of this amount, dollars 1,500,000,000 to $1,600,000,000 is for LNG projects, which includes Port Arthur, Northfield East and Northfield South. For Port Arthur specifically, After factoring in expected project financing, we forecast that ConocoPhillips net investment will be just under $2,000,000,000 over the 5 year investment period. However, more than half of this capital investment will be in 2023.

Speaker 3

For Willow, we're guiding to $100,000,000 to $400,000,000 of incremental spending with the higher end of this range assuming that the project is sanctioned this year. In summary, we're happy with our strong 2022 results, which would not be possible without the hard work and dedication of our talented workforce. And we are well positioned to balance investing in our deep and diversified portfolio this year, while also continuing to return capital to our shareholders. That concludes our prepared remarks. I'll now turn the call back over to Phil.

Speaker 1

Great. Thanks, Bill. As a reminder, just before we go to the Q and A, we ask that you please keep it to one question and the follow-up. With that, Michelle, we're ready to turn over to you for Q and A.

Operator

Thank you. We will now begin the question and answer Our first question will come from Neil Mehta with Goldman Sachs. Your line is now open.

Speaker 4

Yes. Good morning team and thanks for taking the time. Our first question is around Willow And recognize, there's still some gating factors to getting it towards FID, but it seems to be moving in the right direction. So Just talk about, how you're thinking about that project? What remains outstanding to get it to FID?

Speaker 4

And then any thoughts on costs as well? The latest number we have is $8,000,000,000 all in. Is that still good to go by or how should we think about that?

Speaker 5

Hey, Neil, this is Andy. Yes, there's been a lot of moving parts on Widows Since the last earnings call. So let me just step through where we are in the overall approval process and then I can clear where we are with CapEx and scope. So with the approval process, I think most people saw that the final supplemental environmental impact statement was released by the Biden administration earlier this week. Now that should be published in the federal register in the next day or so and then that starts the required 30 day clock before the ROD can be issued.

Speaker 5

Now given the Biden administration's commitment to the Alaska congressional delegation, we then expect to receive that ROD in the 1st week of March. Once the ROD has been issued, our focus for 2023 will be to immediately initiate gravel road construction, Ramp up fabrication and supply chain activities.

Speaker 6

Now we need to take

Speaker 5

a look at the rod in some detail, But assuming it's consistent with the BLM's 3 pad preferred alternative and there are no new unworkable restrictions added, We will then proceed to final investment decision. So switching to CapEx, 2023 is very dependent on the rod timing. As Bill mentioned, we've given a range. So with the rod timing, any resolutions of outstanding issues, what we're guiding is about $100,000,000 to $400,000,000 of incremental spend in 2023. In terms of the total project costs, we have recently gone out to market to update our cost estimates And we have seen some inflationary pressures.

Speaker 5

We've also refined the scope, including an update to accommodate the BLM's 3 pad preferred alternative. So we're in the process of finalizing our cost estimates, but we'd anticipate the AFE to first production to be in the $7,000,000,000 to $7,500,000,000 range. Now the increase versus the update we provided in 2021 It's been about fifty-fifty between inflation and scope refinement.

Speaker 7

So I hope that gives you a

Speaker 5

pretty good update on where we are with Willow and then at our April Investor Day, we'll be happy to go into some more details.

Speaker 4

And that 7.5% Andy compares to the 6% before, it sounds like, would be the apples to apples. And then

Speaker 5

That's correct. That's an apple.

Speaker 4

Okay. That's great. And then the follow-up is just around return of capital. Last year was Standing here, 53 percent back to shareholders and, of the cash flow. And the guidance this year, dollars 11,000,000,000 also implies Very strong return of capital number.

Speaker 4

I know we often anchor to the 30% or greater than 30%, But is the message we should be interpreting that there's a new normal here around return of capital and the bar has been reset higher?

Speaker 2

No, we're not trying to message that, Neil. What I remind people is the 30% commitment that we have is a through the cycle commitment. We've also signaled to we've also told the shareholders that when prices are above our mid cycle price, you should Our distributions for the company, and that's consistent with what we've done over the last number of years. So as we look today Where the strip is trading, where the regional differentials are at, we've kind of picked $11,000,000,000 at an $80 price deck. So That's how we're going into the year.

Speaker 2

It represents about 50% of our cash flow. But again, that $80,000,000 is well above our mid cycle price and our commitments tied to through the cycle Got a mid cycle price call. And it just represents that we are constructive with the environment that we see today, and we expect the prices to be above our mid cycle price call, which should inform that the distributions would be above that 30% as well. Great. Thanks,

Speaker 1

Neil. Next question?

Operator

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

Speaker 8

Well, thank you. Good morning, everyone. Happy New Year, guys. So Bill, I think I didn't actually get to write down the numbers quickly enough. Could you just go through again the Expected cadence of the 3 LNG projects, full disclosure, I think we had expected a slower pace On Sempra or on Port Arthur, I guess.

Speaker 8

So can you just walk us through what you how you expect that cadence to look, please? That would be really helpful. I've got a follow-up, please.

Speaker 3

Yes, sure, Doug. I'm happy to. So let me just kind of start with a bit of a high level view. We Bridge from 2022 to 2023 in our documents for today. And I'll start with kind of our exit rate.

Speaker 3

So if you look at our Q4 base capital spend, that would annualize out to about $8,900,000,000 with a low single digit inflation rate versus 2022 exit rate. And we've got some phasing in Norway and the additional incremental emissions reduction that gets you to about 9.2, which is Midpoint of our guidance. And then really the incremental spend is on LNG projects in Willow and that gets us to $11,000,000,000 midpoint of the guidance range. And I think the primary issue here on cadence is likely the front end nature of Port Arthur LNG spend, Which really the market had no way of knowing. So as you'll recall, Sempra has communicated a Phase 1 gross cost $10,500,000,000 for the EPC, on top of which there's going to be owners' costs and other miscellaneous costs to bring the project online.

Speaker 3

And Doug, the project is currently lining up debt financing for a portion of the spend. So you roll that all together, We would expect our 30% share of the net equity capital to be just under $2,000,000,000 Over the 5 year investment period, but the front end nature of the equity component is going to result in over half Of that $2,000,000,000 occurring in 2023, that's what we've included in our 2023 capital and guidance. Now the project is still waiting on FID, but we do expect that in the Q1 and we will be talking to you more about this in April. But if you've been modeling a more ratable spend over 5 years for Port Arthur, that would be about $400,000,000 in 2023 Are about $600,000,000 to $700,000,000 less than our guidance.

Speaker 4

So I

Speaker 3

think that that might be some of what you're seeing in kind of the LNG spend. And I think it's obvious with over half of the Port Arthur spend in 2023, obviously, the spending 2024 and beyond It is going to be less than a ratable rate, but I think that's probably the main gap in LNG spending that you're seeing.

Speaker 8

That's really helpful, Bill. And you're exactly right. We were not expecting half, but of course that means that the other half It's probably more ratable, I'm guessing over time, but that's really helpful. My follow-up is a favorite topic of mine, Bill. I hate to get in the weeds here, but again another sizable deferred tax credit this quarter, Although it does kind of look a little bit more like you're almost like you're moving to a new normal based on your U.

Speaker 8

S. Spending, thinking IDCs and things of that nature. Can you just am I thinking about that right? Should we be expecting us at a ratable deferred tax credit going forward in your cash flow?

Speaker 9

And I'll leave it there. Thank you.

Speaker 3

Well, yes, so deferred taxes were a source of $500,000,000 in the 4th quarter, Doug, we had a source of about $700,000,000 in the 3rd quarter. Now the source of those deferred taxes is primarily due Active intangible drilling costs generating deferred tax liabilities now that we're in a U. S. Cash tax paying position. Now as we look at 2023 at current investment levels, we'd expect deferred taxes are going to continue to generate a source of cash on a normalized basis, but I'd expect the deferred tax source full year to be lower in 2022.

Speaker 3

Now we are in a U. S. Cash tax paying position for the full year, but we also utilized all significant U. S. Net operating losses, NOLs and EOR credit carry forwards in 2022 And that utilization generated a larger source of cash last year compared to what we're going to be seeing in 2023.

Operator

Our next question comes from Steve Richardson with Evercore. Your line is now open.

Speaker 10

Thank you. Ryan, there's been a lot of focus on the Permian Basin of late, certainly from an industry perspective And not all of it has been good, we'd say. And I'd love if you just took a moment and help us differentiate Conoco's asset in the basin, what you're seeing from your asset and certainly some of the performance speaks for itself, but I'd love if you could address that today.

Speaker 2

Yes. Thanks, Steve. Let me make a couple of comments, and then I'll turn it over to Nick for Maybe a couple of his thoughts in a bit more detail. We're not worried about our long term development plans in the Lower forty eight. We see durability to our plans and I know there's been a bit of noise about productivity and length and durability and We've been there for a long time.

Speaker 2

We know what we're doing after the acquisitions that we made over the last year and a half. And No, I don't have any concerns about the durability, the length, the efficiency of our program and maybe I'll let Nick Provide a few more detail and color on that comment.

Speaker 11

Yes. Good morning, Steve. Yes, so I'll give a little more color on that one. Let me start with just the well performance that we're seeing versus the type curves. So if you look at our 2022 development wells, they've been performing slightly above The curve expectations across all four basins including the Permian Basin and that strong performance reinforces and validates the development plans that Ryan just mentioned, which is our focus on maximizing returns and recovery while minimizing the future interference.

Speaker 11

So if we step back in time, we've been incorporating a lot of the learning curve from our developments over the past 3 to 4 years. In fact, when you look at our accelerated learning curve, we've drilled the most horizontal wells in the Delaware and Midland Basin More than any other company. So when you combine that data along with our significant operated by others portfolio And then the learnings in our mature development in Eagle Ford and Bakken, that's really helped us hone in on the best development approach of the STACK. So in summary, Steve, if you look at our production performance at or slightly exceeding type curve expectations, Combined with the development strategy, we're very confident in our long term outlook for these assets and we'll update you more at AIM.

Speaker 10

That's great. Thanks. I really appreciate it. I mean if I could just one quick follow-up Nick. Could you just address the 25,000 acres Of swaps and coring up that you mentioned this morning.

Speaker 10

I would I mean one of the questions I guess is

Speaker 3

Sorry. Steve, you got me up.

Speaker 2

Sorry. No, we didn't catch your question. Thanks.

Speaker 10

Sorry, it must be the phone line. The question is on the Yes, the 25,000 acres on the core up. And I'm just wondering if we could address, Nick, How much more to go is there on that side and where are you just looking at the checkerboard of the map down there?

Speaker 11

Yes, Steve. Maybe I'll just go back for the whole audience on what we've done in that space. We've been very focused on the acreage optimization, As you mentioned on trades and swaps, last year we completed 15 trades and that gives us Total that 25,000 acres since the Concho transaction. Now a couple of points I just want to address. These core ups have doubled the average lateral length Of more than a year's worth of inventory, that's at our current level of drilling activity.

Speaker 11

Now the ability to drill In the Permian has an inventory with roughly 60% of our wells that are greater than 2 mile laterals, 60%. And then if you look at 1.5 miles or greater, that's an additional 20%. So that's a robust inventory that we have out there. Now if you will continue to, as you mentioned, the core up in 2023 through acreage and swaps there, but we've got Significant deep robust inventory with those longer laterals.

Speaker 10

Thanks so much.

Speaker 5

Great. Thanks, Steve.

Speaker 1

Next question.

Operator

Our next question comes from John Royall with JPMorgan. Your line is open.

Speaker 12

Hey guys, good morning. Thanks for taking my question. So my first question is just kind of a broad one on the upcoming You guys haven't done one for several years. Anything on what we can expect from the presentation in terms of the longer term plan or Maybe a breakdown of certain assets or projects, just any color on that would be great.

Speaker 2

Yes. John, thanks. So we I think we'll show why we're pretty excited about where the company has gone. We've got a better plan. It's the strategic and the financial plan of the company are Got better duration, better depth and we'll show that to you what it means for the company for decades to come.

Speaker 2

I mean, So we're pretty excited about where it's at. We'll do a deeper dive into where we're at in the Lower forty eight, our global portfolio As well as the LNG business that we've been developing here over the last year and a half. So I look forward to sharing Kind of our excitement around our plans, where it's headed and just the quality of what we're doing both strategically and financially.

Speaker 12

Great. Thanks, Ryan. And then just a question on the guidance for 1Q production, A little bit below the full year guide and you guys called out the maintenance number there. But maybe just some color on would be helpful On how you expect production to phase in throughout the year, should we expect it to be more back end loaded or maybe more towards the middle given the later 1Q?

Speaker 7

Hey, John. It's Dominic here. So yes, I think as Bill remarked, we do have above normal seasonal maintenance In the Q1, that's at Qatar Trains 6 and 7, but also Eagle Ford Shigalov, our stabilizer facility down there. We've actually been Preparing that for a bit of expansion. So that explains the Q1 rate, but thereafter our Expectation is that each quarter will be around 2% to 3% year on year growth.

Speaker 7

So that's really our base case.

Speaker 1

Okay. Thanks, John. Next question?

Operator

Our next question comes from Jeanine Wai with Barclays. Your line is now open.

Speaker 13

Hi, good morning. Good afternoon, everyone. Thanks for taking our questions. Our question our first one good morning, Ryan. Our first one maybe following up on Neil's question on the cash return for the year.

Speaker 13

We realize that it's still early in the year, but you've already declared the vROC for the 1st part of the year. How are you ultimately thinking about the Split of the $11,000,000,000 of total cash return between cash and buyback. And is the buyback more of a function of your mid cycle price assumptions?

Speaker 2

Yes. I think the majority of our buyback is tied back to ratably buying our shares at our mid cycle price assumption. We try to ratably buy some shares as we go through the year and then we buy some variable shares depending on where we see the market. I would say as we're going into 2023 right now, we're thinking roughly 50%, 50% between cash and shares In terms of the absolute return back to the shareholders, so the $11,000,000,000 would be split roughly $5,500,000 $5,500,000 That's our thinking As we start the year, but we'll watch the commodity price and where things develop as we go through the course of the year.

Speaker 13

Okay, very helpful. Thank you. I'll pencil that in. Our second question sticking with 23, but moving to CapEx here. We noticed that there is about $500,000,000 to $600,000,000 of incremental inflation included in the budget versus 2022.

Speaker 13

And there's some noise with the categorization of the Port Arthur spend, but it looks like Lower forty eight will comprise about 60% of Total CapEx for 23. And so our question is how much of that $500,000,000 to $600,000,000 of incremental inflation is in the Permian and Lower 48 Versus maybe other parts of your portfolio and what's your estimate on how inflation ended up by region in 2022 and Maybe any assumptions that you have in your budget for 2023 inflation? Thank you.

Speaker 2

Yes. Let me take a quick high level shot.

Speaker 1

I think if you're kind

Speaker 2

of looking at Exit rates from 2022 going into 2023, it's kind of low single digits. If you're kind of looking at what's the increase annually year over year, it's more like Mid single digits, I think the difference we're seeing this year maybe relative to last year is we see that mid single digit inflation applying Across the whole global portfolio, and it's slightly higher in the Permian to the question that you asked. So, yes, we're in We're seeing some categories of spend that are key to the company actually start to plateau and maybe even roll over a little bit. One that one we're watching pretty closely is OCTG, tubulars, some of the raw materials that are going into making those are starting Come down and deflate a little bit, so we're starting to see that category of spend sort of roll over. We're seeing the rate of increase Got it in the onshore rig market start to lessen a little bit, which is good.

Speaker 2

We need that. And so when we kind of wrap All those categories of spend together for the company, it kind of manifests itself in a year annual year over year inflation in the mid single digits.

Speaker 13

Great. Thank

Speaker 1

you. Thanks, Janine. Next question?

Operator

Our next question comes from Ryan Todd with Piper Sandler.

Speaker 14

Thank you. Maybe a follow-up on the Permian. I'm not sure if you mentioned this earlier, but can you talk A little bit about what is assumed in your current guidance, I guess, both capital and production for the year. It sounds like the guide assumes Flat activity levels in the Permian versus late 2022, is that correct In terms of how we should think about activity levels and how should we think about the trajectory of production in the Permian over the course of 2023?

Speaker 11

Yes, Ryan, this is Nick. Yes, let me walk you through that. So as you mentioned, we've assumed A level loaded steady state program for 2023 based on that second half of twenty twenty two for rigs and frac crews. The focus for this year will really be around improving capital and operating efficiency. Now we do expect some modest growth And partner activity as the year progresses.

Speaker 11

And then we have some larger operated pads that will come online in kind of 2Q, 3Q. So our Lower forty eight plan will deliver production in that mid single digits with the majority of that growth weighted to the Permian. Now with respect to the profile shape, it will be kind of mid to back end weighted in 2023. And as we About, Dominic mentioned this, we do have that Eagle Ford Sugar Loaf Stabilizer maintenance that's going on. And actually, I'm pleased to mention that the turnaround that Dominic referred to is 5 days and we completed that successfully in January.

Speaker 11

Now we will have A little bit of brownfield modifications on that stabilizer through mid February as well. And then I'll mention too kind of month The month will have wells a little bit of lumpiness, but in the back end will be weighted in 2023 for a production profile.

Speaker 14

Great. Thank you. That's very helpful. And then, as we think about your emerging kind of global gas strategy, How should we think about your approach to the gas portfolio on these projects? Should we expect the majority sold under long term contracts with a percentage held for spot sales?

Speaker 14

Will you look to correspondingly build out your global gas trading capabilities similar to European peers? And maybe as you're out marketing these volumes, Are you seeing anything to comment on in terms of the environment, whether global gas tightness is helping Sales pricing out there, so any high level views on your global gas strategy there would be great.

Speaker 3

Yes, sure. This is Bill. So I'll just start with, we've got a really strong understanding and presence in the LNG market and Have had for several years. We're regularly selling spot volumes into Asia off of our APLNG Venture and we do think that Europe is going to be a long term market for U. S.

Speaker 3

Gulf Coast. And you will have seen where we recently secured regas capacity in Germany, which we're really Happy about and excited about. So we're looking at the best options in terms of long term placement, but these are 20 year projects off the Gulf Coast. And So we think that the long term strength of international pricing relative to U. S.

Speaker 3

Gas is going to be pretty interesting. And that's the that driver and that strength in LNG, we think it's going to be driven by its role in energy transition, reducing carbon emissions. So As you see us build out our LNG portfolio over the next few years, we may take some longer term contract decisions in there. But right now, we're not really disclosing where we're at competitive reasons in terms of how we're developing that market.

Speaker 1

Great. Thanks, Ryan.

Speaker 5

Thanks.

Speaker 1

Michelle, next

Speaker 5

question.

Operator

Our next question comes from Devin McDermott with Morgan Stanley. Your line is now open.

Speaker 15

Hey, good morning. Thanks for taking my questions. So I wanted to first follow-up on some of the CapEx questions earlier. You laid out the $1,600,000,000 to $2,000,000,000 of spending this year on major projects and you talked with some good detail about Port Arthur. It's not necessarily ratable across the projects.

Speaker 15

But when you Put it all together, I was wondering if you could talk about how you see the magnitude of major project spend evolving or changing over the next few years outside of Port Arthur, what are some of the key moving pieces that we should

Speaker 2

I think we tried to explain kind of a bit about The front end loading on the Port Arthur project, so you ought to expect that's going to come down as you look into the 2, 3, 4 years. Some of the other moving pieces, we If the commodity price environment supports it, we want to see some ramp in our Lower forty eight activities up to our optimized Plateau across the various assets. You'll see Willow ramping up if we get an adequate project approval from the federal government. So that will come in and then obviously there's some inflationary forces as well as we think about where it's going. So There's a lot of moving pieces, but that's kind of how you should think of the different pieces that we're looking at as we kind of think about the longer term nature And we'll be prepared to talk about that at our Analyst Meeting coming up in April.

Speaker 15

Got it. Makes sense. Just a quick follow-up on NFE and NFS. Are those fairly ratable over the next few years? Any additional color on those projects specifically?

Speaker 3

Yes. So this is Bill. You saw us in the 4th quarter make Our initial catch up payment on NFV and then you should expect that those projects are funding through the next couple of years.

Speaker 16

Okay. Thank you.

Speaker 1

Thanks, Devin. Next question?

Operator

Our next question comes from Paul Cheng with Scotia General. Your line is now open.

Speaker 14

Hey guys.

Speaker 5

Good morning.

Speaker 9

Can I go back Maarten, can I go back into Permian? You guys talking about earlier in your prepared remarks on the inventory for the 2 mile well. I think the industry also think that the 3 mile may actually work even better. Can you talk about that? I mean, based on where you are today, what's The inventory that on the 3 miles and whether that there's a lot of opportunity there.

Speaker 9

You also don't know whether there's an update you can provide on the pet Longer term pet toll rate that you expect for Permian and that when that you will be able to get there? So that's the first question. The same question that I have to say, I was super impressed that your Bakken production is actually flat Sequentially from the Q3, given that the winter storm hit them so severely, I mean, out of the 27,000 barrels I mean, how much is on the Bakken and how you'll be able to get it so that you can actually get it flat?

Speaker 11

All right. Yes, this is Nick there. I'll just kind of walk you back through kind of the inventory related to our longer laterals as we've done the core up. Again, over 60% is greater than 2 mile laterals and that does include the 3 miles as well. So that's A significant part of our inventory in the Permian Basin.

Speaker 11

We've actually this last year in 2022 brought on I think more than 30 wells That are in the 3 mile category and are seeing very encouraging results. So we'll continue to execute those as we go forward. As we continue to core up and do swaps, that will give us more inventory as well for that longer lateral execution. Again, you will see By cost of supply of around 30% to 40% reduction as we drill those longer laterals.

Speaker 9

Dominic, for the I'm Sorry, Dominic, for the 60% you're talking about 2 mile per hour, how much of what percent of them is actually in the 3 miles category?

Speaker 11

Yes. Paul, I don't have that in front of me at this point in time, but let's wait till AIM, and I'll give you a further update on that overall 3 mile categorization.

Speaker 9

Okay.

Speaker 11

Okay. On your second part of that first question related to plateau, So again, we'll update the group on overall Permian Plateau, Eagle Ford and Bakken at the April 12 Investor Day. Obviously, there's a number of factors that go into that. The macro maintaining execution efficiency, continuing to capture the learning curve and capital efficiency. Right now with our mid single digit growth, we feel that's right in line with what we've communicated earlier.

Speaker 11

And then your second question was related to weather. Glad you brought that one up again. Bill, you had mentioned 27,000 barrels a day for 4th Quarter 2022, just a quick breakdown on that, that's 13,000 for Permian, 10,000 for Bakken And then Les, 4000 in Eagle Ford. I think you asked kind of maybe quarter to quarter, Q3 to Q4. You're right.

Speaker 11

It was flat. We're at 96,000 barrels equivalent per day. And Paul, the main driver for that is where we had some really Strong operated wells that carried into Q4 and then on the operated by others, we had some larger pad projects come online And Q4 that offset that weather.

Speaker 1

Thanks, Paul. Next question?

Operator

Our next question comes from Bob Brackett with Bernstein. Your line is now open.

Speaker 17

Hey, good morning. A bit of an old school question on your reserve replacement. Historically, LNG FIDs were big blocky Chunks of gas reserves going into the portfolio. That's not really going to be the case for a midstream asset like Port Arthur. But I'm curious, can you go into a little more detail on the oil gas mix shift on the reserve replacement and how to think about the cadence of LNG coming in through that.

Speaker 7

Hey, Bob, it's Dominic here. Yes, So let me talk a bit about that. I mean, we're obviously very pleased with our organic reserve replacement ratio this year, 177%. The real drivers for that, I mean obviously the LNG, we did have some booking there from NFE as we commenced payments on NFE. We also saw some bookings from APLNG performance and from for some project advancements in Norway.

Speaker 7

So our international I was contributing, but the main area this year was actually in the Lower forty eight development program And that's particularly in the Permian and that included an increase to our PUG bookings by extending the proved area we established Reliable Technology, which is an SEC term, so it's consistent with SEC requirements. And so basically, We have a very extensive geoscience and reservoir engineering dataset across the Permian that allows us to support that. So and you'll be aware, Bob, just The rigor and the process and the controls governing the reserves booking process. So this further demonstrates the depth and quality of our Lower forty eight Inventory, so that's really the story this year. Going forward, we'll continue to see bookings in the Lower 48.

Speaker 7

We'll see bookings in Alaska obviously with pending FIDs and then we'll continue to see some LNG bookings as well, On the resource project as we call them, NFV and NFS, you're absolutely right what you're saying about Port Alfa. So I think you'll see a mix going forward. Right. As it stands now, our Lower 48 represents about 46% of our reserves and the remainder across international. So Yes, we are certainly appreciating the performance of our sort of diversified portfolio around our reserves bookings.

Speaker 7

So Thanks for the

Speaker 17

question. Very clear. A quick follow-up on the portfolio. Great opportunities in 2020 to rebuild the portfolio, 21 again in the Permian, 2022 was very much an LNG themed year. Is the star of the show for 2023 Willow FID Or how do you think about the portfolio where it stands today?

Speaker 2

We're pretty pleased where the portfolio is at. I mean, Dominique did Good job of kind of going across the globe. I think we spent a lot of time over the last 5 years really coring up the portfolio, Really focused on getting it as low cost of supply as we can, getting the margins as expanded as we can, Leading to kind of the returns and the productivity that we're seeing today. So we're just hyper focused on making sure the efficiencies are there and the returns are there And pretty happy with where we stand today. And then as you rightly note, Bob, we're leaning in a bit on some of these Mid and longer cycle projects because we're just very constructive.

Speaker 2

The world's going to need this oil. It's going to need low greenhouse Gas and emissions intensity oil is going to need low cost supply oil. That's what we're all about. That's what we're doing in our portfolio. And And most recently leaning in on the LNG side because we think the world is going to need this gas as part of the transition that we're going through.

Speaker 17

Thanks. Very clear.

Speaker 1

Thanks, Bob. Thanks. Next question?

Operator

Our next question comes from Neal Dingmann with Troost. Your line is now open.

Speaker 16

Good morning, Al. Thanks for the time. My question is around just production and maybe around the Permian item. I'm just trying to get a sense of You got I think the 1% to 4% type overall growth. I'm just trying to get a sense of expectation For the Permian, if you would back out, obviously, what's going on up in Alaska, have you all clarified or kind of said what the expectation is that?

Speaker 16

And Sounds like it's second part of that, it sounds like it's going to be pretty that growth you expect in the Permian, I assume it would be pretty linear for the entire year, if you can comment on those two things.

Speaker 11

Yes, Neal. This is Nick. Again, for the Lower forty eight, we'll deliver production growth net mid single digits. And again, the majority of that growth is going to be weighted to the Permian. With respect to the profile shape, it's going to be more mid to Back end weighted.

Speaker 11

So we've got some operated larger pads that are going to be coming on kind of the mid year to Q3. And then we've got a modest operated by other growth going through the year with more on the kind of the back end for Lower forty 8. Does that help?

Speaker 16

That's very clear. And then just one last one. You all are obviously in a fantastic position financially. We've done some really positive M and A deals in the past. I think actually in the last couple of years among the best that I've seen out there.

Speaker 16

My question when it comes to M and A, how do you view the landscape today? I mean, obviously, prices are up, maybe commodity prices are up, so maybe expectations are higher. But Just wondered overall how do you view the M and A landscape?

Speaker 2

Yes. Thanks, Neil. I mean, we're We're in the market every day. We're trading. We're thinking about the market.

Speaker 2

We see what's going on every day. We think Generally, there is more consolidation that's needed in our business. It's pretty tough at these kinds of elevated prices, but We watch it every day. I think it we've been pretty clear and consistent about our financial framework and how

Speaker 1

we think about M and A.

Speaker 2

That has not changed. So as we think about cost of supply, we think about assets that we can make better or can make our company better or improve Our long term plan, we know the assets that we like and so we watch those constantly. But It's a tougher market at these kinds of prices to transact. And some of the transactions that have occurred this year, we've looked at them, we've seen them, we've watched them. They just don't fit our framework.

Speaker 2

So they don't make us a better company.

Speaker 16

Thanks. Very clear. Thank you all.

Operator

Our next question comes from Paul Sankey with Sankey Research. Your line is now open.

Speaker 18

Hi, everyone, and thanks. There's always a great disclosure. In fact, you guys have been leaders In the industry in many ways, starting with really the first capital discipline cash return framework, You're in position to make acquisitions at the bottom of the cycle and now you're saying that you're leaning in, is the word Brian Rickwood's To sort of mega project development using an $85 oil price assumption, is this an indication that the industry is going to have to follow you? Or is it more that these major opportunities have come up in 2023? And further to the $85 price assumption, could you just Remind me what gas price assumption you're using and what would you cut if oil prices went to say 60 over the course of the year?

Speaker 18

Thanks.

Speaker 2

Yes. Thanks, Paul. No, I think we're yes, I think the our view is pretty constructive over the Number of years and through the decade. So the time you want to do some of these big projects sort of front end of the cycle, we probably are Given our global diversified portfolio, we have opportunities in Alaska and Norway, in the Far East, in the Middle East. We look at those, make sure they fit our framework around cost of supply and what we want to go invest in.

Speaker 2

And as we look forward, we believe now is the time to be doing these projects, Which is why you see us leaning in on the LNG side. We're constructive on the gas and why we're moving forward with our Willow project up in Alaska. I'll make a side comment. This is what the administration has asked us for, U. S.

Speaker 2

Production that's low GHG emission production. This is exactly what the administration has asked to do as an industry, and that's what we're trying to do as a company. Now looking forward, I think we'll talk at AIM about where we think mid cycle price is. And And frankly, we think it's probably come up from where we've been over the last 5, 6 years. We'll show that to you at AIM.

Speaker 2

And then finally, to your last question, yes, We've set a cash return target at 80 WTI, 85 Brent and I think it's 3.25 Henry Hub. Those are the assumptions we made that underpin the $11,000,000,000 The price would have to go down considerably. I mean, you said into the 60s full year average, I think, Before we would talk about changing that, and we're prepared to use our cash on the balance sheet to fund these projects. That's why we have that cash. That's why we have that financial strength and that resilience.

Speaker 2

So we're happy to use the cash if we need to. So I think it's resilient across A broad range of prices in terms of what we've established as our distribution target for the year.

Speaker 18

Great, Ryan. Thanks. And then following on the leadership, you were instrumental in the Tremendly in the export ban being lifted. Can you talk a little bit more about Willow? There's obviously some you mentioned low GHG.

Speaker 18

Can you talk a bit about how it fits alongside what you just said about the administration asking for this in terms of its environmental footprint? Thank you very much.

Speaker 2

Yes. No, it's it will be some of the lowest GHG emission production in the world, less than 10 kilograms per barrel. It's going to be something that we believe is what the world needs right now as we go through this energy transition. We need more oil and gas. We need more baseload to supply the world reliable and affordable energy.

Speaker 2

And coming from the United States and North America Broadly and in general is the right thing to be doing right now. And it comes from companies like ours that have over 40 year experience on the North Slope. We know how to do this. We know how to do it responsibly and all the stakeholders support it, including the native community on the North Slope, the congressional delegation, The union labor leaders who need this opportunity for employment in Alaska. So there's full alignment behind What we're trying to go do there, it's just the politics in D.

Speaker 2

C.

Speaker 10

Thank you, sir.

Speaker 1

Thanks, Paul. Michelle, I think we have time for one more question.

Operator

Our last question comes from Bill Janella with Credit Suisse. Your line is now open.

Speaker 6

Hey, good morning. Thank you. I wanted to ask on the pace of CapEx as you move through this year, I'm wondering with all of the major project components, if there are some quarters that might be chunkier than others or If there are any other timing or seasonal factors to consider, so any guidance you can give there in terms of how to think about the progression of Quarterly spending for some of those bigger ticket items as well as the base business would be very helpful. Thanks.

Speaker 7

Thanks, Bill. It's Dominic here. Yes, the way it's going to work out, we think is pretty ratable through the year. We've got consistent activity in the Lower forty eight level loaded. You're right, there is going to be a bit of lumpiness around some of the project spend.

Speaker 7

So for example, in the Q1, we do have a modest upfront payment in Q1 on Port Arthur, assuming that's sanctioned. But if you are running a fairly ratable profile, that would be a good estimate.

Speaker 6

Great. Thank

Speaker 7

you.

Speaker 1

Okay, great. Thank you. Operator, I think this would wrap up the call.

Operator

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 Q4 2022
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