Q4 2019 Earnings Call

For today's call.

At this time all participants are in a listen only mode.

Later, we will conduct a question answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.

Please note that this conference is being recorded I'll now turn the call over to MS. Ellen distinct us Ellen you may begin.

Thanks in our total our listeners and welcome to today's call with me in the room today are Ryan Lance our chairman and CEO.

John will lead our SVP and Chief Financial Officer, Matt Fox, Our SVP and Chief operating officer.

Bill Bullock, our president of the Asia Pacific Middle East region, and Michael Hatfield, The President of our Alaska, Canada and Europe region are also with US today, Dominic Macklin President of our lower 48 region was unable to join today's call.

Page two of the presentation deck contains our cautionary statement, we will make some forward looking statements. During this morning's call actual results could differ due to the factors described on the slide and also in our periodic filings with the FCC. We will also referred to some non-GAAP financial measures today.

Reconciliations to the nearest corresponding GAAP measure can be found in this mornings press release and on our website and without them going to turn the call over to Ryan.

Thanks, Bill and welcome a gym to all our listeners.

While it's early early in the new year on their sector is already off to another volatile Bert volatility can certainly be tough on an industry or company. If you're not built for well were built for us with clear resilience to lower prices fall upside through higher prices and a shareholder friendly frame framework that works through the cycle.

Yes.

All of our usual results and outlook details can be found in today's published materials, we're going to keep our prepared remarks pretty short.

Our main goal is to reinforce why Conoco Phillips offers an attractive way to invest in this cyclical business. That's the key theme as we reflect on 29 team and we look forward to the future.

For the 19 capped off a successful three year period in which we transformed our business model and significantly improve the underlying performance drivers across our entire business.

Slide three summarizes those 2019 results that contributed to this transformation.

In the finance recall, we delivered strong earnings and we generated cash from operations of 11.7 billion delivering free cash flow of over 5 billion.

Our balance sheet got stronger.

We ended 2019 with over $8 billion of cash and short term investments and lowered our asset retirement obligation by almost 30% largely due to this positions.

And our Northstar return on capital employed was 11%.

We delivered on our volume projections for the year with roughly 5% underlying growth, including 22% growth from the big three unconventionals.

The rest of our portfolio delivered strong base performance and we progress new projects that exploration opportunities across our regions.

Our world class portfolio keeps getting better as part of our high grading efforts, we generated over 3 billion of disposition proceeds and we have another $2 billion of announced dispositions that we expect to close in early 2020.

But we're not just selling we're also on the look out for opportunities to add low cost with supply resources to the portfolio like we did last year in the lower 48, Alaska and internationally.

And when reserves closed for the year, we replaced a 117% of our production organically.

2019 was another outstanding year for delivering on our disciplined shareholder friendly strategy.

We returned 43% of our CFO to our shareholders, that's essentially all of our free cash flow.

We paid 1.5 billion in dividends, including a 30% increase in our quarterly dividend and we repurchased 3.5 billion of shares.

In today's announcement you saw our board approved an increase of our existing repurchase authorization by 10 million to a total of 25 billion.

This demonstrates our commitment to executing a consistent long term buyback program.

Finally, our execution focus goes beyond just the numbers, we continue to take leadership role in environmental social and governance matters through target setting engagement disclosure advocacy and stakeholder alignment.

We call this performance with purpose and it's an imperative.

So 2019 is over and we're in the starting gates for new year, and a new decade.

In November we laid out a powerful tenure plan that can deliver on all the elements. We believe investors want from this sector a.

A disciplined strategy framework consistent execution strong free cash flow and compelling returns of and returns on capital.

That's the path we set for ourselves in 2016, Thats, what we delivered in 2017 18 and 19.

And that's what we're ready to do again in 2020.

We're focused on executing a strategy that we believe is right for the feature of our industry and certainly right for Conoco Phillips than our investors.

So with that let's go to your questions.

Thank you we will now begin the question answer session. If you have a question. Please press Star then one on your Touchtone phone.

If you wish to be removed from the Q2 press the pound sign or the hash key.

If you using a speaker phone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press Star then one on your Touchtone phone.

And our first question comes from Doug Lucky from Bank of America. Please go ahead, Sir your line is open.

Thank you good morning, everybody hi.

We should the opportunity for Atlantic Kuni session. So I'm just going to couple on now let someone else jump on.

I guess first of all the risks.

A number of headlines have been circuit leasing for quite a while not around Alaska tax.

Thats, obviously, a little different from.

The last time you presented to is back in November. So I'm. Just wondering if you can offer your perspectives as to how you think you things going on there how do you think about please out whether they get signatures and what the implications could be as to how you respond to that.

My second one is really on the production outlook for 2020, obviously that the Malaysia pipeline issue appears to be back on the table again. So I'm just wondering if you could walk us through the cadence of how we should expect production to levels through the year I'll leave it there. Thank you.

Yes. Thanks, Doug This is Michael I'll I'll answer the first question about the Alaska tax.

So you asked where we are in this process the division of elections in Alaska is currently certifying signatures now.

They were gathered as part of the initiative for this November valid we anticipate that the initiative Lee part of the balance. So they are in the process of certifying those now.

As we showed in November we're currently planning to invest about $25 billion a capital over the next 10 years in Alaska. These investments will increase the state's production to mitigate the current decline through taps in fact in 2020 alone our net capital and Opex spend in Alaska is expected to be roughly 3.4.

Billion dollars.

On a gross basis in 2020 total industry capital and Opex spend in Alaska is expected to be about $6 billion.

Now if there was a negative change in the fiscal regime, our investment plans will change but.

But we've been in Alaska for over 40 years, we know alaskans understand the industry. It's the lifeblood of the state's economy.

We believe alaskans will understand that short term revenue gain as a risky and fleeting proposition. If it comes at the cost of billions of dollars of investment over the coming years.

We've had ballot measure challenges over the past few years that would have negatively impacted our business and Alaska's economy.

After understanding the issues Alaska voters devoted no on all of them.

Now we're part of an industry group that will provide information to voters about the benefits of the current fiscal regime. The benefits that it has on jobs investment oil production and long term revenue to the state.

So the bottom line is we're working hard to ensure alaskans understand the significant benefits that investment by this industry brings to the people and the state of Alaska under the current fiscal structure.

So as things stand right now no change in your current plans more of a wait and see type situation.

That's correct. So in terms of our current plans, we're waiting to see we're executing on our current plans, but we are gearing up to help alaskans understand our view as the benefits at the current fiscal structure brings to the state and the people.

Okay. Thank you for that on the on the production kids.

Yes, Doug this is Matt the a can give you an update on that the so the most significant and updating their production guidance. As you mentioned was associated with the CPE production in Malaysia.

[music].

As you know most of QBE gas is sold through the third party service side.

At Pate linked to the Malaysia LNG plant in the and is exported from that plant.

So in normal operating conditions for 2020 wasn't we'd have anticipated about 20000 barrels of D.A. being being exported to and mailing G M.

Via the us episode.

The pipeline.

But the rate at the beginning of year, there was a seem the significant operational issue with the pipeline.

The so expectation for the year given that we don't know create that that expectation is that might not be repeated the told through the years. So that's where we're assuming at the moment.

That would hopefully we may get access to some domestic gas.

Offtake and by the magnitude of that and how long that may last us on soon.

So that's the vast majority of the adjustment to guidance. We also had some puts and takes across the business units and we also adjusted to the expectation for timing of dispositions.

But the new range of 12 subjects as Phil said, our base case at the moment of what we should expect for for this for this year and that's about 4% growth on an underlying pieces.

Okay, Matt I don't want to pass the topic, but are there any particular dips in the the quarterly cadence as we go through the year.

And well, we've obviously, we have a turnarounds as we as we go into the a and the middle of the year.

We have one in the first quarter, Qatar and then we have.

Usual turnarounds in Alaska and elsewhere as we go through the second and third quarter.

So it's a similar profile to previous years.

Okay. Thanks, everybody appreciate it.

Thank you. Our next question comes from Doug Terreson from Evercore ISI. Please go ahead. Your line is open.

Good morning, everybody.

Pardon Doug.

So Ron you guys are one of the few if not the only big oil Orient, the with higher rather than lower normalize returns on capital in recent years.

And why your stock has been a top performer and that's the energy three years in a row for this reason in my view.

Your cash position is building a strong you had better valuation in your equity than lot appears and so you you're basically better positioned than your Peter first interconnectivity.

At the same time, you guys outlined a pretty compelling multiyear investment plan in November which suggested that you can attain your return profile, even without meaningful strategic action. So my question is what the own ongoing decline in upstream values that we've seen in public and private BNP one if.

Did you get actions become more appealing compelled appealing to you guys.

Are they more compelling and what effect on return on capital employed is needed for you guys to move forward in this area. So two questions.

Well, thanks, Doug, Yes, I think we.

We believe we were on the right track with what we're doing in terms of what you describe our return profile focused on.

Shareholder distributions smoking a focus on free cash flow generation at a hyper focus on our return on capital employed as I said 2019 was 11% that is our guiding northstars, we think about how we're executing the business.

We have built a little bit of cash on the balance sheet. We believe we needed for the volatility we're experiencing in the marketplace. Just look at the month of January alone.

Early in the month I think people are thinking it was added to $70 a barrel and now people are thinking it might be going to $40 a barrels. So that's the kind of volatility we see in this business and we're keeping the balance sheet. So we can execute our consistent programs bear capital pay fund the dividend pay our buybacks backed ourselves. So we're executing that consistent program we.

Believing it that's what we set up to do and that's what we described everybody in November that it's not just a water a two year plan. This is the plan that's got a lot of legs and can go on for the next decade, we have the portfolio and the people to execute on that plan now we have been in the bolt on acquisition game. We've had some assets that I described in my opening.

Remarks, and we keep you know we keep on the look out for some of those kinds of opportunities, but we also I think laid out a pretty consistent framework at our analyst meeting in November about how we think about those of opportunity.