Q3 2020 ConocoPhillips Earnings Call

[music].

Good morning, and welcome to the Q3 2020 Conoco Phillips earnings Conference call. My name is in there and I'll be the operator for today's call. At this time all participants are in a listen only mode.

Later, we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone. Please note. This conference is being recorded.

Now I'll turn the call over time as Ellen de thing does Mr., Dan the sentence you may begin.

Thanks, Laura Hello, and welcome this morning to our listeners.

Well first introduce the members of the clinical Phillips executive team, who are on today's call. We have Ryan Lance our chairman and CEO, Matt talk sorry, VP and Chief operating Officer, Bill Bullock, Our executive Vice President and Chief Financial Officer, We have Dominic locker room, our senior Vice President of strategy.

She exploration and technology and Nicole its our senior Vice President of global operations.

Well I will open this morning with some prepared remarks, and then the team will take your questions before.

Before I turn the call over to Ryan a few reminders.

In conjunction with this mornings press release, we posted a short deck of supplemental material regarding the quarter onto our website. That's available for your access next we will make some forward looking statements. This morning based on current expectations as well as statements about the proposed business combination announced last week.

Between conical Phillips and Concho, but.

But its script one of the risks associated with forward looking statements and other important information about the proposed transaction can be found in today's press release, all of which are incorporated by reference for purposes of this call will also refer to some non-GAAP financial measures today and reconciliations to the next.

As corresponding GAAP measure can be found in this mornings press release and also on our website.

Thank you and now I will turn the call over to Ryan.

Thank you Olivier and good morning to our listeners.

Before we get into our third quarter results will take a few minutes to address last weeks announcement of our combination with Concho resources.

We spent a lot of time talking to the market over the past several days and I'm pleased to say that the feedback has been positive.

By the way earlier this week, we added some adaptations to our transaction deck for clarification.

Today's call is a great opportunity to reflect on our conversations and reiterate the compelling merits of the transaction for both sets of shareholders.

At the highest level.

We announced a transaction with Concho combines two widely recognized leaders in the sector.

Conoco Phillips has been a recognized leader in the returns and returns of capital model for the business.

Then concho has been a recognized leader in the Permian pure play class.

Yes, well, we're both best in class companies on a standalone basis by scaling up our existing returns focused business model, we are stronger and more investable within this sector characterized by frequent price cycles industry maturity capital intensity and he is to focus.

We will be a nearly 60 billion dollar enterprise that is uniquely positioned to create sustained value by embracing what we believe are the three essential future mandates for our sector.

And these mandates are first providing affordable energy to the world second committed to U.S.G. excellence and third delivering competitive returns.

We believe the transaction accelerates our ability to successfully and simultaneously deliver on all three of these mandates thats, how we will win.

Now let me take these mandates one by one in the context of our transaction.

It all future LNG scenarios, we know the world will need hydrocarbons as part of the energy mix for a long time, even as we see increasing adoption of low carbon energy sources.

However, we also recognize that the energy transition means the winners will be those companies with resources that can be affordably developed.

Transition in any transition scenario, including a less than two degrees scenario thats. The reason, we've always been committed to having the lowest cost of supply resource base in the industry.

The company will have a 23 billion barrel resource base for the cost of supply in less than $40 a barrel.

Concho gets the benefits of our global diverse and lower capital intensity portfolio attributes Conoco Phillips gets the benefit of adding some of the best resources in the world.

And by the way we've studied rock quality everywhere.

Now, let's move on to the second mandate a commitment to MSG excellence.

Conjunction with last week's transaction, we announced we're adopting a paris aligned climate risk framework.

We're the first us based on a gas company to do so.

Our framework includes specific emissions intensity reduction goals, a commitment to know routine flaring permanently installed methane monitoring and advocating for a well designed carbon price in the us.

This framework is in service to our ambition to reach a net zero operational emissions target by 2050.

So we've been asked at our engagement meetings. We have this framework included the portfolio effects of the Concho assets.

Explicit answer is no we were preparing to issue our new climate risk framework before the transaction was agreed.

Where we see the addition of Concho is assets as being consistent with and accretive to these goals.

The production initiatives of the U.S. Unconventionals are among the lowest ghd intensity assets in the world. So. The addition of these resources will be a benefit to our projections plans and targets.

Now the third mandate delivering competitive returns is an imperative for attracting and retaining investors to the sector our.

Our company has been all about returns and that won't change.

In fact, the combined company will be uniquely positioned to deliver on the proven returns focused value proposition, we know investors want from our sector because of several advantage attributes and demonstrated priorities for example.

As I just described the transaction creates a massive brasilia low cost of supply resource base.

I discussed this was part of mandate one.

But also add that low cost of supply is the best assurance by definition for delivering competitive financial returns through price cycles.

After the deal closes, we'll publish our combined cost of supply curve.

No doubt it will be best in class.

By the way we've been asked about how we view risk in the event of a change in leadership in Washington.

Our view is that while it might create some headwinds for the industry, our company's global diversification and our mix of private state and federal leases in the US for sure is that we are competitively positioned for that outcome.

And we accounted for this potential risk in our evaluation of the overall transaction.

Diversification and low capital intensity matters and as I just mentioned, we preserve those portfolio characteristics.

Adding contours unconventional assets into our portfolio will not make a material difference to our base decline rate.

That means we retain our diversification and low capital intensity advantage for the benefit of both shareholders.

We'll apply our disciplined and consistent approach to future investment programs.

Capital will be allocated first on a basis of cost for supplier and then based on secondary criteria, such as flexibility capital intensity asset optimization affordability and free cash flow generation.

And our expanded Permian program, resulting from the transaction will be integrated within the total company plan to optimize overall outcomes and value.

The combination creates greater visibility on earnings expansion and free cash flow generation.

Factoring in our announced 500 million targeted cost and capital savings.

The transaction is accretive on all key consensus financial metrics, including earnings free cash flow and free cash flow yield.

Finally, our strong balance sheet, plus free cash flow generation means we're even better positioned to give investors what they want from this business returns of capital.

Transaction enhances our ability to meet our stated target of returning more than 30% of our CFO to our owners annually and this target isn't an ambition it's.

It's what we've been doing for the past four years in fact, we returned over 40% of our CFO to owners over that period and it will remain a key part of our future offerings.

The bottom line.

This transaction creates a best in class competitors scale to thrive in a new energy future that is compelling for shareholders for both companies.

Now a few comments on what to expect next our S. Four filing should be filed in the next couple of weeks and we expect the transaction to close in the first quarter of 2021.

Integration planning is already underway Dominic Macklin lead the effort for Conoco Philips and will drove will lead the effort for Concho.

Both sides are excited and committed to a very successful integration.

As part of the integration planning will begin to evaluate how best to optimize our future investment programs, we would expect to announce pro forma capex for next year shortly after closing.

But directionally on a standalone conoco Phillips spaces, we remain cautious on the pace and timing of recovery. So as the place to start. We're currently thinking we entered 2021 capex at a level that is roughly similar to this year's capital, meaning little to no production growth on a standalone basis.

Of course, we retain the flexibility to adjust as the year progresses.

We have the capital flexibility in the balance sheet and the cash on hand to respond as necessary to changes in the macro while meeting our capital return priorities.

And that brings me to a few comments on the third quarter results.

Concerned a bit of all year for the business as we all know.

The company took some significant actions to respond to the downturn, including production curtailments.

And over the past couple of quarters, we also carried out our major seasonal turnarounds.

So a bit of noise in the second quarter and third quarter numbers, but by the end of the third quarter. The containment program was behind us.

The seasonal turnarounds were complete and the underlying business was running very well and as you saw in this mornings release third quarter results were in alignment with expectations.

We've reinstated guidance that you should think of anyone should take the fourth quarter as the new baseline for 21 capital and production those.

Those I, just mentioned that thats subject to ongoing monitoring and market conditions.

We look forward to keeping you updated on our integration progress and our future plans for the business and finally, we hope everyone safe and well.

And now I'll turn it over to the operator for today.

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

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

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

Waiting on standby for any question.

And our first question comes from Phil Gresh from Jpmorgan. Please go ahead. Your line is open.

Yes Hello.

First question just wanted to ask about the quarter here.

It looks like there's some moving pieces around cash flows.

Distributions and some other factors there. So I was wondering if you could give a little bit more color there and help us think about how you define a clean CFO in the quarter.

Yeah, Thanks, Phil I'll, let bill double I can answer that for you. Thanks, Hi, Phil.

So you have for that for the quarter cash from operations ex working capital was about $1.230 billion.

And we had a couple of one time benefits in the quarter, a legal settlement and an audit settlement totaling a 130 million of that.

But we also.

Had curtailments in the quarter of about 90000 barrels a day. So the foregone cash flow for that would have been about $150 million of cash.

So if you think of a clean run rate number for the quarter. Good place to be thinking is about $1.250 billion for the quarter.

Now you asked about equity distributions, we did have a distribution from LNG in the quarter.

We received distributions.

And through the second quarter of about 500 million from eight the LNG and for the remainder of the year, we're expecting a little under 200 million in the fourth quarter that would give a full year distribution of somewhere around 680 to 700 million for the year.

Okay, great very helpful.

I guess this kind of dovetails into my second question, which is.

We continue to get some questions here around this pro forma CFO guidance that you provided.

And so if I look at the B results you just talked about the 1.25.

And with Concho reported the other night, which I think ex hedges is around 500.

Perhaps you could help US bridge these results, which I think are about $41 W. T I.

Two.

The 7 billion $40 WT guidance you provided.

Yeah. Thanks, Phil I know, there's a number of moving parts there as you described and.

Yes, we've had a few people point out that they thought the seven day in that $40 a barrel for the combined company look a little bit light. So that we see in the third quarter. If you adjust for account shows hedging benefits and what Bill just described on our equity affiliates I think you get something closer to the mid to high Sevens.

At at $40, So maybe I'll, let Matt add a little bit of color too.

Those details.

Yes.

If you if you look at the clean.

Okay.

I am.

For both companies have been explained.

It would imply somewhere between 770.

Book to Bill for bone.

Now that the range is basically that.

Based on the uncertainty in the equity affiliates distribution if it goes similar distributions.

This year would be the top into that range.

These these numbers also include the pro forma assumption that we get this who view these cost savings.

That we in institutions June 50 million of cash and that's what shows up in these numbers as those with $150 million of capital the dozens and dozens of big CFO directly.

Does that does that helpful.

Okay guys, yes.

I hope so.

Yes.

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

Good morning, everybody.

Morning, Doug.

One of the hallmarks Rhino Conoco Phillips before the merger and even after the split in 2012 as been corporate agility is the way I'd like to think about it and the ability to create value and strategic transactions over the near and medium term periods.

At this point what are you guys have been pretty clear about the operating and capital cost benefits that youre going to get as well as some of the enhancements that you're going to get from a higher quality investment portfolio.

My question is whether they're areas that you're optimistic about that may or may not be as obvious that stand to deliver further.

Further upside areas that you really confident about similar to situations that you had in the past with other transactions and then second what are the two to three most important things that you think that the new management group brings to the organization. So two questions.

Yes, Thanks, Doug I'll, maybe start let Dominic add a few comments you're right. When we put out the synergy number we we see a lot of others synergy numbers that people put out there and.

It seems like a fair amount of our unwavering we wanted to be pretty specific about the $500 million that.

That we described but if you're the second page, which I think is what you're alluding to a little bit that I can let dominate ad.

Add on as we fully expect that we're going to get additional opportunity either through price uplift or various other forms to add to add incremental value to this transaction Dominic maybe you could describe a little bit of what the integration team is going to be looking at yes. Thanks. Thanks, Ryan Doug. Thanks for the question honestly, we're very.

Focused on delivering these five on remembering that we have put out there is a commitment, but certainly we see opportunity beyond that I think we kind of outlined those in.

Deck I think just to talk more about those specifically I think the ones that were most optimistic about in on the marketing side Concho typically sells their product to the wellhead, we sell further down the value chain to improved realization. So we have a very strong commercial group Conoco Phillips so.

We're certainly excited about about that.

I'm sure, we'll be doing extremely well in the Permian on their drilling completion cost and performance has been excellent and that further down the learning curve than us. There. So we do expect to see that accelerate the performance on our acreage too and of course, we expect.

Improved performance across the lower 48 from sharing best practices and technologies between Eagle Ford and the Permian and the Bakken and so on so definitely operational efficiencies and then on the supply chain side, obviously, we're going to have increased purchasing power scale flexibility. So we're anticipating.

Upside in all these areas and some additional land is to know that we will be working on in the in the coming months here. So we'll eni already talking about these were pretty excited about it and.

Well look forward to see how these develops through next year.

And maybe your last question, Doug, Yes, as Dominic mentioned will were and then what Tim.

We really appreciate out of what they bring to our company is some incredible Permian expertise and experience. They have the networks they have broader and deeper networks that we really have in in the Permian given their long time Association and presence there and what Tim has built as a as you know two or three goes at it and what he has done over the last.

30 years in the Permian Basin, and I'll tell you that I've had a lot of conversations with Ceos over the course of the last couple of years and what I've come to appreciate Tim shares a passion for this business and a vision for what's going to what it's going to take to be successful over the next decade and beyond that is really consistent with my view or our view, but what.

It's going to take to really succeed and beat the competition. So and then I'd say finally, probably we're both very committed to a successful deal and if we're both committed to getting the secret sauce business Conoco Phillips combined with the secret sauce that is concho and make something that's even better going forward.

Thank you. Our next question comes from Neil Mehta from Goldman Sachs. Please go ahead. Your line is open.

Great. Thanks, guys. Appreciate you taking the questions. So the first is a follow up on that.

Distributions, including from me just equity affiliates broadly.

How do you how do you think about that you made a comment in the deck that we should expect that to be ratable you talk about different oil price levels and how we should think about modeling this distributions coming in.

Yes sure Neal this is bill.

I think as you're thinking about equity affiliates that we've talked in the past and how they arent ratable.

Should we be thinking about the distributions may be LNG in terms of being a more significant in the second and fourth quarter and lighter in the first and third.

But as you think about them going into next year and you look at more like strip prices for next year, if you're thinking.

The range at 600 800 million from equity affiliates at those kind of pricing that's going to that's gets you into it that ballpark obviously depends on how they are performing are on terms of the markets and how we are optimizing our capital over an eight LNG, but that will get you pretty close.

Great Alan.

Ryan as of June.

Just just as a reminder, we just as a reminder, we do have a sensitivity for that in our price deck.

For the pricing.

That's right that's right now in your supplemental materials being 30 today.

Great guys and then you'll get a second follow yes. It was really just about Alaska and I know a couple of days away from the election that.

Great topic, just your temperature.

On on on the Fair share Act and just in general your message around Alaska, and you think about the cadence of spend and investment there.

Yes, you bet I'll, let Matt Matt Thats been following that closely I have to but that's got to get a good answer.

Yes, I knew that I mean, as you know the really screen. Thanks.

The optical business is the ballot initiatives to increase the production tax the status of the WEHLU project.

And there is the impact if any on of a change in administration, if that happens on federal land payments, So probably should silicon both for the use of them. So that we can hopefully cleanup Alaska with this with this one.

Question.

So as you know the ballot measure with improves at tax increase in production.

The and that's going to have to.

Openings to address the fix is going to be just the competitiveness of investments in Alaska, and it's going to increase on certainty and stability and so that's not going to be good.

Use of development opportunities lift from Alaska, but a shift of captain from Alaska deals, who is going to be rational if taxes, an increase I mean this is a production. Thanks.

Well your tax move you get less so so.

That should be expected to lose advocating for this for the proposal should understand that.

And we are being pretty clear.

Oh.

Void any day in Alaska that if the measure passes.

Drilling in the Big City fields.

So the tax increase is not going to be resuming 2021.

And maybe beyond that so.

So the.

Alaska jokes contract labor leaders, who see these services are going to be adversely impacted by this change.

And the contract as the unions all the other businesses up there I understand this and they proposed for the most by opposing the change in the tax regime is now up to the late to the saving them.

Elections have consequences, so we're getting them into the value here and we really feel as if we have to be we have to be cleared with the.

In Alaska.

And on the Willow project. So the we passed the milestone earlier. This week. We go ahead Steve.

Uhhuh record of decision from the BLM after more than two years of that process. So that keeps us on track with the project timeline and it's understandable that payment was received under the SEC team at integrated activity plan. So the national Petroleum was in those rules.

I would say on to the abandonment administration, so they should stand up well to screw in the owned or change in administration if that happens.

So we're working towards that that concept selection and moving could feed by the end of this year.

This assumes the ballot measure.

The fields and taxes and increased.

Passes we will they will need to be considered the timing because a loop willow isn't directly.

You see by the tax increases is going to be knock on effects on the other fields because of the lack of the vehicle available capital.

And the last one is the federal land and permitting in Alaska.

Yeah.

More generally if there's a change in ministration, we would expect that to be relatively limited impact on us I mean, although 65% in the movie is on federal land only represents about 5% of your production.

Some coming production GMT two in particular.

Is on federal land, but its well underway flush production will be the end of next year. So we don't expect that will be affected the tool.

We'll lose on federal land of coolers, and but neither will know TNT wonder GMP to the federal line the drill sites is the.

Nothing other than conventional that simulation techniques.

Officials about fracking they shouldn't be influenced by now.

And so again.

We've been clearly Alaska electric, but the implications of ballot measure one.

We expect any implications of the change in administration and DC Teva relatively limited impact on us.

Thank you. Our next question comes from Jeanine Wai from Barclays. Please go ahead. Your line is open.

Hi, Good morning, good afternoon, everyone. Thanks for taking my call.

Hi, good morning, Janine good morning.

Maybe sorry, just one more on Alaska, if I could real quick follow up on NEALS question.

It's a little bit different but I mean last year on the analyst day, you talked about how low would be contingent upon selling down 25% of your position in Alaska, and we know that any resolution on ballot measure one first.

But is that 25% sell down still the case now that you have concho assets in the portfolio and then maybe just on that on the ballot measure one we know with US citizen ballot measure and do you think that it could be likely that the legislature would potentially overturn any decision.

And Jimmy this is Max again.

Within that we didn't really see the Ics.

Specifically tie you will lose decision to sell them and the book, but we are still anticipating that we will do a sale than Alaska were just slowed the timing of that and until we get some of these.

Uncertainties results, who is still on the cards that will make an adjustment to equity and in the in Alaska and that but we may still continue to proceed with the project in the meantime, and so the timing of the project isn't contingent on the sale then I guess is what I'm seeing on the battle.

Ballot measure one and can move could the legislature will rule, there and no not really.

Take a little bit of time for that we would have to come up with an annual payments of businesses that we assume so.

Substantially similar.

Or the.

So it wouldn't this unlikely that we would then move or term.

But look still come down.

Okay, Great. That's really helpful. Thank you very much my follow up question is just on the cash allocation priorities and you indicated in your prepared remarks that tiny tiny on capex should be about similar to 2020 with little to no production growth.

Mr. It moves around a lot kind of moving against US all today, but is the right way generally to think about it is that in the mid fortys rational that that threshold that you have for production growth, it's a hard and fast criteria that needs to be met or are there just a bunch of other considerations that we would need to factor into the decision making process.

Yes, I think we you know as I tried to describe we've basically use cost to supply. It I think is we as we think about the forward curve were.

In thinking about our plans for 2020 and again I mentioned those on a standalone basis for Conoco Phillips us kind of how we're thinking about it going into next year. It's just not not cost of supply, but its also what kind of cash flow are we projecting to make and.

You know we have the we have the benefit of a very strong balance sheet. So we can use some of that should we need to but certainly we'd be also trying to balance the cash we're making with the capex that we're spending in the in the dividend that today SAP.

Satisfies 30% of our return criteria and more given the guidance at prices that we're seeing so certainly some headwinds into the.

Commodity price outlook right now some.

With Cobian resurge in some demand certainly hasn't started to recover and depending on what no pecker OPEC does on on the supply side and what the U.S. responses were watching all of that really closely to make sure that whatever program. We put in place for 21, we can balance with the cash flows that we expect that make sure that we're investing in the.

Lowest cost to supply things that we have in the portfolio only.

Thank you. Our next question comes from Josh Silverstein from Wolfe Research. Please go ahead. Your line is open.

Yes.

Yes. Thanks, guys, maybe just just given up that last question. There you mentioned that.

For for Conoco Standalone Capex it would be very similar on a year over year basis, what would the economist and on volumes look like relative to the fourth.

Quarter 20 volumes under that scenario.

Okay.

Hey.

Yes, Joe should that we would we'd be we'd expect that under that scenario to be and similar to first quarter or second half.

Of the year, so weeks that sort of level. So that would be roughly 4.3 is what we're spending this year and which is a bit above our sustaining capital and busiest sounds good so like a good opportunity to clean up.

The flat production and above our sustaining capital. So let me try and maybe explain why those different. So if we were to if we were going to execute a long term sustaining strategy for the company.

And we need to be 3.8.

For preclinical Phillips stand alone and that will sustain production that we have been one point roughly of that blue 1.2 million bonds would be.

The and but with the low cost of supply that we have in the portfolio. We don't expect that are long term strategy will be to simply sustain production.

The investment opportunities are too competitive for that.

Well Ryan is really indicate and as we could execute tactical Sustainment program much like we have this year.

In that state.

Stat, trendy trendy with that sort of tactical and assisting them program and then see how demand.

Company and supply is going to ship and what will be the distinction between the sort of tactical and strategic and sustained improvement is kind of tactical sustaining program, we would still keep production.

Production flat, but we will completely shut down and it projects like nimble exploration activity.

Those things, we still continue to stick with the anticipation that the ultimately we'd move away from simply sustaining and back to some and motors group. So those are the things that we're working through just now in the in the plan and as Ryan said, we shouldn't expect us to communicate 2021 capital guidance certainly for the combined company.

Sometime after the transaction closes.

Great. Thanks.

Yes, I would add to add Josh you know, we have a lot of flexibility with the balance sheet, which is why if we go in at a similar level of capital to this year. It you know it may be flat to modest growth. So it doesn't necessarily equal flat production at the at the capital level going in next year, but that's something we'll we'll continue to watch is the is the macro.

Evolves around us.

That's fair and then you mentioned that the both the lower 48 assets I guess on conventional assets are the lowest machine part of the portfolio and.

The concho assets on to that.

I'm curious with the highs that Michigan asset is and any sort of.

I'm getting something in the international portfolio.

Do you think about M&A in that regard as well and maybe those are more divesture candidates, they kind of accelerate to gold from CNG or your 2030.

Yes, so the the highest emissions assets in the portfolio just in the operating portfolio is really is an oil sands. The that's why we're so focused on on there looking at ways to bring olson's emissions than and the and we've got the look of the.

Yes in the fire there and we're going to we're going to extend their non conventional gas injection, which brings doing steam oil ratio.

By keeping seats in the reservoir and of course this is steam oil ratios that drives the admissions and currency.

We're also going to be deploying and more.

PC will control the bases.

To bring that brings is this the more reissue then we're moving to add some sustaining pads or some of the pads get older steam oil ratio increases when you through new pads on the decremental, maybe boost the movie issue and as other technologies that we're looking at Israel. So what we're doing basically across the board as we're looking at all of the.

Greenhouse gas intensity across every asset we have and we're asking ourselves what can we do and to cost effectively bring that down the road and that's where our group, but the thing that process together in what we call our marginal cost curve.

And and then we have about 100 projects in there just know that some of them are desktop exercises and looks at that feasibility studies and we spent about $90 million this year between capital and operating cost on those projects and the.

But we look across the whole asset base to clean things leased to bring that then.

At our targets, Josh you know that we established the 35% to 45% reduction that doesn't require major portfolio changes to go do that so we're not talking about having to sell certain assets that Matt described it thats thats things that we have identified inside the.

Portfolio to work on with the portfolio being relatively constant over this time.

It's actually that's a good 0.9 is mostly driven by the fact that we are it is a strategic shift in Korea, we're investing we're investing in newer companies that greenhouse gas intensity places like the unconventionals in the U.S. in Canada and Lake were a little up in Alaska, and maybe little intensity Israel.

So the percentage of production, that's maybe Lou intensity increases over time, and when you combine that with reducing the emissions intensity of existing assets like yours since it.

That said, we have delivered to the Uh huh.

The reduction in emissions intensity over the next 10 years.

No it's not.

Looking at wind and we've said that had it.

And Matt described sort of the the cost and capital is small amounts to get this plan, we're not talking about spending hundreds of millions of dollars capital go deliver this this is a small projects that that are currently baked into our plans.

Thank you. Our next question comes from Roger read from Wells Fargo. Please go ahead. Your line is open.

Hey, Thank you and good morning.

Part of our business.

I'd like to kick on really kind of a follow up when you talk about with Josh there as you think about 21, Capex roughly flat and you said you ought to be nimble next year for what comps.

What.

What would be the things you would be looking at I mean, presumably not simply oil price up or down I mean, it's I assume it's a macro factors maybe.

Maybe help us kind of understand sort of the signals you might look for for getting more optimistic and 21.

Yes, I mean is it with the macro event that you see.

The.

The.

Demand responds to the universe looks like.

At the slower response from people were hoping for and especially with Europe and possibly the units coming so we've got these be cautious about that we have to look at the.

The Russian will pick him respond I mean, they they have a move coming up to the end of November.

And see when we get back to sort of drilling than the inventory so.

The view of their position as the Luca incredible flexibility, we've got to do a little breakeven price to cover for flat production and to cover the dividend.

Thats sustained from the two the two companies together.

So, we actually having that flexibility and the ability to school and two and for the the market is going to give us as they go forward. So we're not going to rush headlong into.

Trying to grow production into this it doesn't make any sense goes we'll see how things Cleo here over the next day.

Several months and then we'll make we will make adjustments. They then between or low breakeven and our balance sheet, we will be in that we'll be in very good shape to.

To assess that as we go through.

Okay, and I would add Roger there so.

So sorry, I would add to that.

Well, it's it's it's not so much even just what what's the strip look like or what what it looks like for next year, but it's sort of the longer term trajectory back to what we believe is a reasonable mid cycle price and we'll be reassessing, what that mid cycle looks like depending on where the demand and supply fundamentals start to.

Kind of shake out with the U.S. tight oil going down you know.

What happens to the election in Canada, and Alaska and then.

It's going to make up for them, it's going to make eminent amount of sensors, we combined with concho to optimize and figure out what the what the right level of activity is between the two companies. So there you're right. There is a number of factors that will be putting into the mix as we look at not only 2021 plans, but but the next couple three years look like.

As we as this business recovers back to a mid cycle and whether it overshoots or undershoots.

Well, if you will and just curious I will definitely do one or the other and maybe but.

One quick kind of.

Follow up unrelated to the first question, but related to the merger some of the savings.

Paul that you cited we're going to be you know.

Exploration appraisal spending that doesn't have to happen.

Just curious for the assets that you won't be spending any money on in the near future.

They just go back into the resource base or where is that something that may be becomes more likely to be.

Disposed of Yo monetized in a different way.

Yeah, Roger its dominant can't thank you. So what we said was that we will continue focusing our exploration effort on our existing business units, such as Alaska, Norway in Malaysia, So that will allow us to about half.

Exploration capital from 300 to 150, so those.

Those areas such as.

Well done in South America, Colombia, Argentina, and so on we will be working sort of managed exits from those areas of course, we have a lot of value. There we see a lot of value. There is a lot of good good acreage there but.

We'll be working to preserve value as we think about how to.

Exit those areas in the future. So more a question of dispositions in a managed way rather than those resources staying in the portfolio. We have such a strong portfolio, we will with concho.

You know that we just think it's appropriate that we focus the exploration efforts.

Every advantage those are there whether theres not a theres not excessive capital employed associated with those assets, but we'll as Dominic said, we'll we're going to do everything we can to monetize them as best we can.

And we don't have any resource associated with any of those assets in the moment.

And our supply co dismal reserves associated with.

Thank you. Our next question comes from Scott Hanold from RBC Capital markets. Please go ahead. Your line is open.

Thanks could you give us some color on internet use natural gas pricing has been pretty strong in your ability for conoco to flex for that a little bit or is there where is your opportunity outside of associated gas or is that really the opportunity.

Yes, I think the main opportunity for that Scott is associated gas, we would probably have a little bit in the Anadarko basin, but thats not capturing a lot of our capital right now so.

It mostly for US where is still a pretty big.

Big marketers. So we we were moving it over eight Bcf of gas a day. So we see a lot of that so we're getting we're getting some uplift on the commercial side of our business with some of the transport capacity. We have it takes gas from the Permian to the west coast and down South to Arizona, and even even into May.

Yes. It goes so that's how we're kind of taking advantage of of the kind of market as we see it today and but that just an absolute production side, we're not looking to ramp up.

Dry gas and it's mostly coming from the associated gas with.

Conventional production.

Yes, you could you quantify some of the marketing benefits you'll see.

Sure I can let bill you said of our commercial organization to maybe provide a bit of color there yeah sure. So.

Scott we have a very active commercial organization, Brian mentioned that we're moving a little over eight Bcf a day, where the fifth largest gas marketer to us and we provide a variety of services to various customers ranging from asset management agreements to talk off take agreements and that provides an ability to one half insight into the market and also to go.

Gain margin across moving across pipelines.

So we continue to look at that and continue move and we were shipping gas for a profit.

Okay.

Up.

So.

That 808, eight Bcf a day 500 million cubic feet a day if it is ours. The rest of its third party volume and so were in and out of the market on both sides on a daily basis.

Thank you. Our next question comes from Doug Lucky from Bank of America. Please go ahead. Your line is open.

Hi, good morning, everybody.

I Wonder Bill maybe I could start off with you and ask you to maybe elaborate a little bit on Brian's comments around potential election outcomes and I'm thinking specifically about tax.

I'm sure you guys have looked at this but the thing that strikes me as a little bit disturbing is the potential for a minimum 15% personnel tax the sante wells onto.

A bit of a spotlight. So I'm just wondering if you guys have full anywhere about not any scenarios that you've run.

Outcomes that you might expect.

Well.

Yes sure.

We've certainly taken a look at the various tax proposals out there, including the Biden tax proposal.

There's two primary elements of that debt that would impact us Doug at that first one is obviously the change in the corporate tax rate from 21% to 28% in the second window would be fairly significant would be removal idcs, particularly in our capital program and and.

Needing to.

Depreciate those over time those are the two main aspects as we look through it that really would have an impact on us.

Yes, I guess I should have been clear I was talking about a potential Biden administration and.

And then maybe as a follow up then I know something that is a little bit too obvious, but we don't maybe you are asking else Ryan would when you sell from Woodmont put together the tidal waves scenarios and all the other scenarios that.

But you laid out at the strategy day.

We've seen what we think is a lot of the signs of a bottom cycle coming so our Baltimore if you like with consolidation your sales being partners on how does this what you are seeing right now beyond cools it.

Influence your thoughts on longer term supply demand as you think about scenario planning I'll leave it there. Thanks.

Yes, thank Doug ill, maybe add a few comments, Matt can jump in as well, but yes. We spent a lot of time trying to think about what the trajectory of the recovery looks like and.

A couple of competing factors, we certainly see demand recovery, we uncertain, whether it gets fully back to 100 million barrels a day, but probably taking a bit of a bit of time to get there and then I think equally important then maybe over looked a little bit is what's happening on the supply side.

Maybe masked a little bit today by DUC inventory, but when.

When the declines the declines are it again and it was masked by curtailments coming back on you know there is going to be a drop in U.S. supply as well. So I can Matt can probably chime in and.

Describe a little bit about the net effect to the scenarios that we're thinking about is be a debate our capital program and how much to put back to work.

Yes, Doug is having the day I think you and I discussed this in the past that the if you look at the.

Her expectations for the exit rate for this year for you as tight oil.

Somewhere between six and a half and 7 million barrels a day and they look at the movies the cake better calibration on that you have been because it proves into the year.

That compares to over 8 million barrels a day in December last year the point.

And and to some extent that draw factors to disease, because people were still Britain, bringing wells on in the first quarter and into the second quarter.

Yeah. So there's a significant underlying decline going on here than we modeled this and I know that you do too and the strip prices in the low Fortys and we think the industry is going to struggle to maintain flat production does and those rates through 21, and then to 20 to 21 will get a bit of a lift from that.

And the but people are going to live within cash flow is going to be a real challenge stick to that 'cause see tight oil 7 million barrels a day and this is likely to be less than that and 2021 and translate to if you compare that to the trajectory. We were on this at least 4 million bottles the less than that.

Cool, but trained and that's just us take oil and we respond more quickly here because of the decline rates and the capital flexibility for that but the similar issues happening elsewhere. So although those definitely uncertainty and then once the demand will be.

And is likely to be less of a demand to fit then the supply epic sitting over the next few years. So because of the premise of your question initially youre.

Are we setting up for the bottom of the cycle here.

But the sentiment fuse on it because they know exactly when it turns will be dependent upon the end.

Demand in the cooler than what we've baked in the short term, but the we're certainly say enough for a tighter and tighter supply demand balance in a year or so if not before then.

Yeah. So so short medium term all about demand medium longer term you know supply starts to enter the picture as Matt described and.

We have a couple of couple two three scenarios around how we how we think about that sloping trajectory look like.

Thank you. Our next question comes from Paul Cheng from Scotia Bank. Please go ahead. Your line is open.

Hey, guys good morning.

Morning, Paul why why is that that maybe is there anything else a curve ball here.

If we look at the casing and optimization all commercial operation historically that the U.S. looking at that actually call Center.

Only for let's say patients that European on dancing, a more aggressive approach and looking again at the pump ascend.

And they seem to be doing quite well and have a good logic to carry along youre kolasa so from that standpoint.

We'll call Nicole should look that.

That operation and see what that it can allow you to have a higher performing and higher return or that you think.

So the patient gets better and you don't want to take on that swing you know anything.

The higher grades so thats the first question.

The second question.

With the less.

Let's for argument sake, maybe side.

Your longer term 10 year plan change into a different market condition and that such that your future growth rate is going to be lower.

With the addition of sequential offset what what the offset in your portfolio.

We take more of the backseat and see lesser 10 billion investment you can cite saying the.

Number one number two on that.

As possible. Thank you.

Yes, So let me take the first Robin.

Maybe Matt can chime in on the second one on the capital investment. So the first part yes, we're looking at the commercial space and with the addition of Concho.

It is a yeah as you described Paula kind of a cost center inside the company, but we're looking at expanding that.

As we think about the future and what the contrast of spring I think as Dominic described earlier they sell mostly at the wellhead. So we've got some opportunity to add value there to both the gas and the oil side.

We're building more export capacity as a company and.

We have in fact, we have done some sales to a point in sales to customers, where we take the middle man out of the equation and we have found that quite margin enhancing as we go forward as well so with the growing use production.

That we would have with the combination with concho it absolutely represents say.

A big part of it.

That's how we can expand the commercial organization and think about it differently too I.

I mean, bill described the market share that we have already and that's only going to get bigger as we go forward. So we're looking for more contribution from the commercial side across the whole portfolio.

Maybe Matt if you want to take the capital allocation as a result of integrating the Contra assets you know again I go back to our it's a it's a cost to supply primary criteria that I can provide a bit more details about what what might fall out.

Yes, Paul is it that as you know what we do is we try to optimize each of their individual it into an individual parts of the portfolio.

I get the optimum piece.

And using the same decision criteria, but the most important of which is that we're not going to invest above an incremental cost of supply $40 bottle. When we disclosed that the to some land back in November of last year and so we look at the optimization of each and then we put it together and we and we need to make a huge.

Westminster were try new owner of the optimum each of the assets and there is flexibility across the portfolio and the piece you can we can adjust the piece of any given project by Universal we can adjust the degree to which we increased the ramp in the number of rigs.

Total any specific I say, if we decide that we want to grew at.

2%, instead of 4% or something like that the a and the flexibility across the portfolio to do that and that and so on are the criteria that that wouldn't bus the criteria. The obvious places a little for the Alaska as with the flexibility mostly exists and maybe in Canada, as well, but I wouldn't and I.

Really call it a specific asset we're trying to do and we're trying to optimize across the portfolio.

Yes, you is if you know optimize and across a diverse group, who then you're the Max.

Maximizing the value that the diversification brings you should we and Thats were trying to do is to make sure that we're running each of these assets have an optimum.

Thank you. Our next question comes from Jeoffrey Lambujon from Tudor Pickering. Please go ahead. Your line is open.

Good morning, Thanks for taking my questions. My first one is on E.S.G. and that the parents a line item in their strategy and I think your commentary earlier you answered a lot of what I'm looking for now with the oil sands specific examples and just your comments on investment decisions.

But is there anything incrementally you can share at this point on other operational changes that you're undertaking.

And focusing on for that the broader portfolio just trying to get a sense for the the scope of some of these projects you mentioned again in terms of what's in focus whether that's new technology around monitoring retrofitting equipment for emissions control or what have you.

Yes, thanks, its dominant kill I'll, just take that you know [noise] reach.

Recently I was very much involved in the lower 48, and there's some really some important progress we're making there I think Kim.

I think we we.

And then just a couple of things here along with our new.

Paris aligned strategy and one was.

You know commitment to zero routine flaring and that's the World Bank initiative, there so weve committed to that and the other one was new introduction of continuous methane monitoring. So this is a real breakthrough for US we're able to do this now turn very reasonable cost and were able to know basically.

In our key sites will have this implemented I think we'll have about 65% of our lower 48 production covered.

By early next year and this technology at very low cost allows us to sample the emissions around sites looking from ethane every 15 seconds and from that we can respond very quickly to any aberrations that we can address very quickly. So the the those are.

A couple of really important initiatives for us that contribute to that overall AG.

Commitment we have to reduce.

Ghd intensity by 35% to 45%.

By 2030.

And they really have first mover on this as you all know Jeff you know.

We were the first to us based on the L. and gas company to set a GHG intensity target and we're the first us based oil and gas company to to commit to being powers aligned.

Yes.

Thank you. Our next question comes from Pavel Molchanov from Raymond James. Please go ahead. Your line is open.

For the question I got two quick ones, both regarding Europe, I get about 10% of your gas volumes.

No one has the accustomed to seeing north sea gas prices below $3, an mcf, but we've had that the last few quarters.

Is that is that corporate related high demand situation or if theres something more structural in that market.

Yes, I think that this is bill I think that as you think about that that's that's more of what we've seen with covered related to demand related issues right now as we think about long term the macro supply around the world.

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We would see markets.

Tend to have more arbitrage off of the us Gulf coast with LNG markets are starting to move volumes, both into Europe and into Asia incremental barrel. So I think that what you're saying is a short term response to supply demand and not a long term structural change.

Okay, and a follow up on that.

In about six weeks the European climate law will be approved by the EIA leaders, which will make the north sea. The one part of your portfolio that is covered by a net zero mandate.

That change anything in terms of how you're thinking about that asset given the decarbonization target.

For the like the whole.

No not really I think we're continuing to make adjustments what we're left within your portfolio is our Norwegian assets and.

You know at some of the lowest.

Carbon intensity assets, we have that are off shore and looking at other options to continue to reduce.

Reduce our emissions through electrification and.

Additions there, but as we look at it. It's minimal addition to the cost of supply and it's quite manageable and Norway is still as a very competitive in the portfolio.

Hi. This is Alan will go ahead and take our last question. If you don't mind. Thank you.

Absolutely. Thank you. Our next question comes from.

Phillips Johnston from capital one. Please go ahead. Your line is now open.

Hey, guys. Thanks, just one question for me as it relates to your future return.

Capital to shareholders.

In the last five years, you guys have repurchased a little over $2 billion for the stock at an average price of around 62 a share.

At today's share price the paper loss in that program is pretty substantial.

I realize you guys plan to repurchase more stock in the fourth quarter, but.

I wanted to ask if theres any appetite at the board level too.

To scrap the idea on share repurchases and instead.

Particularly fixed cost variable dividend strategy.

That would target paying out a certain percentage of your free cash flow directly to shareholders each quarter.

Yes, I think the you know the most important thing is your last piece of that where we are targeting over 30% of our cash back to the shareholder that's what we've committed to and delivered on in excess over the last three to four years since we kind of came out to reestablish a new value proposition for this business and.

But I think the dividend today is certainly covering a large share that I also think that buying our shares back at this kind of level is is it is an important thing to do to because the shares are certainly well undervalued. It certainly relative to where we think mid cycle price should be so I don't think we'll give up on share repurchases completely he made a real point I mean, we.

We wanted to buy buy our shares through through the cycle and.

This was a pretty significant downturn with curtailed production in the light going on in the second quarter. So we did suspend for a while we wanted to restart up because the benefits are really buying your shares is not just buy them when you're at AD at mid cycle price, but continue to buy him through the local both low end of the cycle because that's what brings down.

The average cost here your shares obviously, so we still think it is going to be a piece of our return to shareholder pie and the question begins to you know what happens on on future excess returns when if there is another big cycle and we started to exceed our mid cycle price call and now we've had conversations.

Around that with the market. We continue to look at all the different ways to do that and continue to be open to all the different ways to do that but at this 10 seconds the dividend more than satisfies our return to shareholders.

Okay.

Thank you we have makes an Irish real time I'd like to turn the call back over to Ellen Thank you great.

Great. Thanks in our thanks to our listeners by all means to reach back to US. If you have any follow up questions and we really appreciate your interest and support and Conoco Phillips. Thank you.

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

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Good morning, and welcome to the Q3 2020 conical Phillips earnings Conference call. My name is to know and I'll be the operator for today's call.

This time, all participants are in a listen only mode.

Later, we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone. Please note. This conference is being recorded.

I'll now turn the call over to much I want to find us, but that's the thing just you may begin.

Hi, good Laura Hello, and welcome this morning to our listeners.

Well first to introduce the members of the clinical Phillips executive team, who are on today's call.

We have Ryan Lance, our chairman and CEO Matt.

Now lets talk sorry, VP and Chief operating Officer, Bill Bullock, our executive Vice President and Chief Financial Officer.

Dominic <unk>, our senior Vice President of strategy exploration in technology, and Nicole its our senior Vice President of global operations.

Well they will open this morning with some prepared remarks, and then the team will take your questions.

Before I turn the call over to Ryan a few reminders.

In conjunction with this mornings press release, we posted a short deck of supplemental material.

During the quarter onto our website that's available for your access no.

Next we will make some forward looking statements. This morning based on current expectations as well as statements about the proposed business combination announced last week between conical Phillips and Concho.

A description of the risks associated with forward looking statements and other important information about the proposed transaction can be found in today's press release, all of which are incorporated by reference for purposes of this call.

I'll also refer to some non-GAAP financial measures today and reconciliations to the nearest corresponding GAAP measure can be found in this mornings press release and also on our website. Thank.

Thank you and now I will turn the call over to Ryan.

Oh, Thank you Olivier and good morning to our listeners.

Before we get into our third quarter results I'll take a few minutes to address last weeks announcement of our combination with Concho resources.

We spent a lot of time talking to the market over the past several days and I'm pleased to say that the feedback has been positive.

The way earlier this week, we added some adaptations to our transaction deck for clarification.

Today's call is a great opportunity to reflect on our conversations and reiterate the compelling merits of the transaction for both sets of shareholders I'll start at the highest level.

Our announced a transaction with Concho combines two widely recognized leaders in the sector.

Conoco Phillips has been a recognized leader in the returns on and returns of capital model for the business.

And Concho has been a recognized leader in the Permian pure play class.

Yeah, well, we're both best in class companies on a standalone basis by scaling up our existing returns focused business model, we are stronger and more investable within that sector characterized by Freeport price cycles industry maturity capital intensity and he has to focus.

Well be a nearly 16 billion dollar enterprise that is uniquely positioned to create sustained value by embracing what we believe are the three essential creature mandates for our sector.

And these mandates are first providing affordable energy to the world second committed to yesterday excellence and third delivering competitive returns.

We believe the transaction accelerates our ability to successfully and simultaneously deliver on all three of these mandates thats, how we will win.

Now let me take these mandates one by one in the context of our transaction.

It all future LNG scenarios, we know the world will need hydrocarbons as part of the energy mix for a long time, even as we see increasing adoption of low carbon energy sources.

We also recognize that the energy transition means the winners will be those companies with resources that can be affordably develop in a transition in any transition scenario, including at less than two degrees scenario.

That's the reason, we've always been committed to having the lowest cost will supply resource base in the industry.

The company will have a 23 billion barrel resource base for the cost of supply and less than $40 a barrel.

Joe gets the benefits of our global diverse and lower capital intensity portfolio attributes Conoco Phillips gets the benefit of adding some of the best resources in the world.

And by the way we've studied rock quality everywhere.

Now, let's move on to the second mandate a commitment to MSG excellence.

In conjunction with last week's transaction, we announced we're adopting a paris aligned climate risk framework.

For the first U.S. based on the gas company to do so.

Our framework includes specific emissions intensity reduction goals, a commitment to know routine flaring permit.

Permanently installed methane monitoring and advocating for a well designed carbon price in the U.S.

This framework is in service to our ambition to reach a net zero operational emissions target by 2015.

So we've announced at our engagement meetings. If this framework included the portfolio effects of the Concho assets.

It's supposed to answer is no we were preparing to issue our new climate risk framework before the transaction was agreed.

However, we see any additional contracts assets as being consistent with and accretive to these goals.

The production emissions of the U.S. Unconventionals are among the lowest ghd intensity assets in the world. So. The addition of these resources will be a benefit to our projections plans and targets.

Now the third mandate delivering competitive returns is an imperative for attracting and retaining investors to the sector.

Our company has been all about returns and that won't change.

In fact, the combined company will be uniquely positioned to deliver on the proven returns focused value proposition, we know investors want from our sector because of several advantage attributes and demonstrated prior ends for example.

As I just described the transaction creates a massive brasilia low cost of supply resource base.

I discussed this was part of mandate one, but also add that low cost of supply is the best assurance by definition for delivering competitive financial returns through price cycles.

After the deal closes, we'll publish our combined cost of supply curve.

No doubt it will be best in class.

By the way we've been asked about how we view risk in the event of a change in leadership in Washington.

Our view is that while it might create some headwinds for the industry, our company's global diversification and our mix of private and state and federal leases in the U.S. assures that we are competitively positioned for that outcome.

And we accounted for this potential risk in our evaluation of the overall transaction.

Diversification and low capital intensity matters and as I just mentioned, we preserve those portfolio characteristics, adding cancers unconventional assets into our portfolio will not make a material difference to our base decline rate.

That means we retain our diversification and low capital intensity advantage for the benefit of both shareholders.

Well apply our disciplined and consistent approach to future investment programs.

Capital will be allocated first on the basis of Casa supplier and then based on secondary criteria, such as flexibility capital intensity asset optimization.

Portability and free cash flow generation.

And our expanded Permian program, resulting from the transaction will be integrated within the total company plan to optimize overall outcomes and value.

The combination creates greater visibility on earnings expansion and free cash flow generation.

Factoring in our announced 500 million targeted cost and capital savings.

The transaction is accretive on all key consensus financial metrics, including earnings free cash flow and free cash flow yield.

Finally, our strong balance sheet, plus free cash flow generation means we're even better positioned to give investors what they want from this business returns of capital.

Transaction enhances our ability to meet our stated target of returning more than 30% of our CFO to our owners annually.

And this target isn't an ambition it's.

It's what we've been doing for the past four years in fact, we returned over 40% of our CFO to owners over that period and it will remain a key part of our future offerings combined.

The bottom line.

This transaction creates a best in class competitors scale to thrive in a new energy future that is compelling for shareholders for both companies.

Now a few comments on what to expect next.

For filing should be filed in the next couple of weeks and we expect the transaction to close in the first quarter of 2021.

Integration planning is already underway Dominic Macklin will lead the effort for Conoco Philips and will draw will lead the effort for culture.

Both sides are excited and committed to a very successful integration.

As part of the integration planning will begin to evaluate how best to optimize our future investment programs, we would expect to announce pro forma capex for next year shortly after closing.

But directionally on a standalone conoco Phillips basis, we remain cautious on the pace and timing of a recovery. So as a place to start. We're currently thinking we entered 2021 capex at a level that is roughly similar to this year's capital, meaning little to no production growth on a standalone basis.

Of course, we retain the flexibility to adjust as the year progresses.

We have the capital flexibility in the balance sheet and the cash on hand to respond as necessary to changes in the macro while meeting our capital return priorities.

And that brings me to a few comments on the third quarter results.

It's certainly been a volunteer for the business as we all know the company took seven significant actions to respond to the downturn, including production curtailments at.

And over the past couple of quarters, we also carried out our major seasonal turnarounds.

So a bit of noise in the second quarter and third quarter numbers, but by the end of the third quarter. The containment program was behind us.

The seasonal turnarounds were complete and the underlying business was running very well as you saw in this mornings release third quarter results were in alignment with expectations.

We've reinstated guidance that you should think of and then should take the fourth quarter as the new baseline for 21 capital and production those.

Though as I, just mentioned that subject to ongoing monitoring and market conditions.

We look forward to keeping you updated on our integration progress and our future plans for the business and finally, we hope everyone safe.

And now I'll turn it over to the operator for today.

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

If you are using the speakerphone, 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.

Waiting on standby for any question.

And our first question comes from Phil Gresh from Jpmorgan. Please go ahead. Your line is open.

Yes Hello.

First question just wanted to ask about the quarter here.

It looks like there's some moving pieces around cash flows.

Distributions and some other factors there. So I was wondering if you could give a little bit more color there and help us think about how you define a clean CFO in the quarter.

Yeah, Thanks, Phil I'll, let bill double I can answer that for you. Thanks, Hi, Phil.

So yes for the for the quarter cash from operations ex working capital was about $1.230 billion.

And we had a couple of onetime benefits in the quarter, a legal settlement and an audit settlement totaling $130 million of that.

But we also.

Had curtailments in the quarter of about 90000 barrels a day. So the foregone cash flow for that would have been about $150 million of cash.

So if you think of a clean run rate number for the quarter. Good place to be thinking is about $1.250 billion for the quarter.

Now you asked about equity distributions, we did have a distribution from LNG in the quarter.

We received distributions.

And through the second quarter of about $500 million may be LNG and for the remainder of the year, we're expecting a little under 200 million in the fourth quarter that would give a full year distribution of somewhere around 680 to 700 million for the year.

Okay, great very helpful.

I guess this kind of dovetails into my second question, which is.

We continue to get some questions here around this pro forma CFO guidance that you provided.

And so if I look at the B results you just talked about the 1.25.

And with Concho reported the other night, which I think ex hedges around 500.

Perhaps you could help US bridge these results, which I think are about $41 Wi Fi.

Two to.

7 billion $40 WT guidance you provided.

Yeah. Thanks, Phil I know there is a number of moving parts there as you described and.

Yes, we've had a few people point out that they thought the seven day in that $40 a barrel for the combined company look a little bit light. So that we see in the third quarter. If you adjust for Concho is hedging benefits and what Bill just described on our equity affiliates I think you get something closer to the mid to high Sevens.

At that $40, so maybe I'll, let Matt add a little bit of color too.

Those details.

Yes, if you if you look at the clean.

Okay.

For both companies Bill explained.

That would imply somewhere between seven and a half in seven eight.

For $2 per barrel.

Now that the range is basically that.

Based on the uncertainty in the equity affiliates distribution.

Because similar distributions.

This year, we'd be at the top into that range.

These these numbers also include the pro forma assumption that would get you to the expected cost savings.

In institutions 250 million of cash and that's what shows up in these numbers is also the $150 million of capital that doesn't dilute fixed see it directly.

Is that helpful.

Okay.

Hi, Yes, I hope so.

Uh huh.

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

Good morning, everybody.

Morning, Doug.

One of the hallmarks Rhino Conoco Phillips before the merger and even after the split in 2012 as been corporate agility is the way I like to think about it and the ability to create value and strategic transactions over the near and medium term periods.

On this point, while you guys have been pretty clear about the operating and capital cost benefits that youre going to get as well as some of the enhancements that you're going to get from a higher quality investment portfolio.

Hi, My question is whether they're areas that you're optimistic about that may or may not be as obvious that stand to deliver further.

Further upside area that you're really confident about similar to situations that you had in the past with other transactions and then second what are the two to three most important things that you think that the new management group brings to the organization. So two questions.

Yes, Thanks, Doug I'll, maybe start let Dominic add a few comments you're right. When we put out the synergy number we we see a lot of other synergy numbers that people put out there and.

It seems like a fair amount of our unwavering we wanted to be pretty specific about the $500 million that.

We described but if you're the second page, which I think is what youre alluding to a little bit, but I can let dominate ad.

Add on as we fully expect that we're going to get additional opportunity either through price uplift or various other forms to add to add incremental value to this transaction Dominic maybe you could describe a little bit of what the integration team is going to be looking at yes. Thanks. Thanks, Ryan Doug. Thanks for the question obviously were very.

Focused on delivering the 500 million that we have put out there as a commitment, but certainly we see opportunity beyond that I think we kind of.

Outlined those in.

In our deck I think just to talk more about those specifically I think ones that were most optimistic about it on the marketing side Concho typically sells their product to the wellhead, we sell further down the value chain to improve realization. So we have a very strong commercial group Conoco Phillips so with.

Were certainly excited about about that.

<unk> been doing extremely well in the Permian on their drilling completion cost and performance has been excellent and that further down the learning curve than us. There. So we do expect to see that accelerate the performance on our acreage too and of course, we expect.

Ill improved performance across the lower 48 from sharing best practices and technologies between Eagle Ford and the Permian and the Bakken and so on so definitely operational efficiencies and then on the supply chain side, obviously, we're going to have increased purchasing power scale flexibility. So we're anticipating.

Upside in all these areas and some additional areas to that that we will be working on on the in the coming months here, so well and I already talking about these were pretty excited about it and.

Well look forward to see how these developed through next year.

And maybe your last question, Doug, Yes, as Dominic mentioned well were and then what Tim.

What we really appreciate out of what they bring to our company is some incredible Permian expertise and experience. They have the networks they have broader and deeper networks than we really haven't in the Permian given their long time, a association and presence there and what Tim has built as as you know two or three goes at it and what he has done over the last.

30 years in the Permian Basin that day, and I've had a lot of conversations with Ceos over the course of the last couple of years and what I've come to appreciate Tim shares a passion for this business and a vision for what's going to what it's going to take to be successful over the next decade and beyond that is really consistent with what my view or our view, but what.

It's going to take to really succeed and beat the competition. So and then I'd say finally, probably we're both very committed to a successful deal and we're both committed to getting the secret sauce that as Conoco Phillips combined with the secret sauce that as Concho and make something that's even better going forward.

Thank you. Our next question comes from Neil Mehta from Goldman Sachs. Please go ahead. Your line is open.

Great. Thanks, guys. Appreciate you guys, taking the questions. So the first is a follow up on that.

Okay distributions, including maybe able to cheaper just equity affiliates broadly.

How do you how do you think about that you made a comment in the deck that we should expect that to be ratable talk about different oil price levels and how we should think about modeling those distributions coming in.

Yes.

Yes sure Neal this is bill.

I think as you're thinking about equity affiliates that we've talked in the past and how they arent ratable.

I should be thinking about the distributions may be LNG in terms of being more significant in the second and fourth quarter and lighter in the first and third.

But as you think about going into next year and you look at more like strip prices for next year, if you're thinking.

The range at 600 $800 million from equity affiliates at those kind of pricing that's going to that's gets funded that ballpark, obviously depends on how they are performing on terms of the markets and how we're optimizing our capital over an eight LNG, but that will get you pretty close.

Great Alan.

Ryan as John just.

Just as a reminder, we just as a reminder, we do have a sensitivity for that in our price deck.

For the pricing.

That's right that's right in the supplemental materials being 30 today.

Great guys I've got a second follow yes. It was really just about Alaska and I know a couple of days away from the election that is.

Great topic, because sorry your temperature.

On on on the Fair share Act and just in general your message around Alaska, and you think about the cadence of spend and investments there.

Yes, you bet I'll, let Matt.

It's a med that's been following that closely I have to but that's got to.

Kevin can answer.

Yes, I knew that I mean, as you know the release removes mix.

The optical business there's.

As the ballot initiatives to increase the production tax.

Basis of the loop project and.

And there is the impact if any on of a change in administration if that happens on federal land pin so probably should talk about for years and so that we can hopefully cleanup Alaska with this with this one.

Question.

So as you know the ballot measure with improves at tax increase in production.

And that's going to have to programs to address the fix is.

He is going to reduce the competitiveness of investments in Alaska, and it's going to increase on 17 and stability.

So that's not going to be good and use of development opportunities lift from the Alaska, but a shift of captain from Alaska sales, who is going to be rational if taxes, an increase I mean this is a production tax and what your tax move you get less so so that.

That should be expected to lose advocating for this and for the proposal should understand that.

We are being pretty clear so that the to avoid any day in Alaska that if the measure passes drill.

Drilling in the Big city fields. The target. So the tax increase is not going to be resuming 2021, and maybe beyond that.

So the.

[music].

Alaska drugs contract Labor Bill the associate these services are going to be adversely impacted by this change.

And the contractors the unions all the other businesses up there understand us and they oppose for.

For the most opposing the change in the tax regime that is now up to the late to the STPP in them.

Actions have consequences. So we're getting done in the <unk> and we really feel as if we have to be you have to be clear with the.

Alaska.

And on the Willow project sales the with the past that milestone in later this week, we go to Steve who received a decision from the BLM after more than two years of that process. So that keeps us on track with the project timeline.

And it's worth understanding that that payment was received under the 2017.

Integrated activity plan, so the national Petroleum reserve and those are the rules that were sailings in the advancement and administration. So they should stand up well to screw in the on the change in administration if that happens.

So we're working towards that concept selection and moving could feet by the end of this year.

This assumes the ballot measure.

Fields in Texas and will increase.

Passes will they will need to be considered the timing because a little willow isn't directly.

You can see by the tax increases is going to be knock on effects on the other fields because of the lack of available capital.

And the last one is the federal land and permitting in Alaska.

And more generally if there's a change in ministration, we would expect that to have a relatively limited impact on us in the low 65% of acreage is on federal land only represents about 5% of their production.

Some coming production GMT two in particular.

As on federal land, but its well underway flush production will be the end of next year. So we don't expect that will be affected the tool.

We'll lose on federal lands of course.

But neither will know TMT wonder GNP to the federal line the drill sites is the.

In this and other than conventional that stimulation techniques. So officials about fracking they shouldn't be influenced by that.

And so I guess.

We've been clearly Alaska electric light the implications of ballot measure in one.

The.

Expect any implications of the change in administration to NDC Teva relatively limited impact on us.

Thank you. Our next question comes from Jeanine Wai from Barclays. Please go ahead. Your line is open.

Hi, Good morning, good afternoon, everyone. Thanks for taking my call.

Good morning, Janine good morning Manny.

Sorry, just one more on Alaska, if I could real quick follow up on NEALS question.

It's a little bit different but I mean last year on the analyst day, you talked about how willow would be contingent upon selling down 25% of your position in Alaska, and we know that any resolution on ballot measure one first.

But is that 25% sell down still the case now that you have concho assets in the portfolio and then maybe just on that front.

Ballot measure one we know with US citizen ballot measure and do you think that it could be likely that the legislature would potentially overturned any decision.

And Jimmy this is Max again.

Within that isn't really sequence the explicitly tire resolute decision to sell them and the book, but we were still anticipating that we will do a sale than Alaska were just slowed the timing of that and until we get some of these uncertainties.

Uncertainties results.

Still on the kinds that we'll make an adjustment to equity and than they are in Alaska and that but we may still continue to proceed with the project in the meantime, and so this was the sort of the timing of the project isn't contingent on the sales and I guess, what I'm seeing on the.

Ballot measure one and can they could the legislature will rule that.

No not really.

Take a little bit of time for that we would have to come up with a lots and lots of businesses that loosen.

Substantially similar.

Or the and so it wouldnt this unlikely that that would then move retirement.

Look silicon Valley.

Okay, Great. That's really helpful. Thank you very much my follow up question is just on the cash allocation priorities and you indicated in your prepared remarks that you plan on Capex should be about similar to 2020 with little to no production growth.

Mr. It moves around a lot kind of moving against US all today, but is the right way generally to think about it is that in the mid fortys threshold that that threshold that you have from production growth, it's a hard and fast criteria that need to be met or are there just a bunch of other considerations that we would need to factor into the decision making process.

Yes, I think we.

I tried to describe we basically use cost to supply and I think as we as we think about the forward curve were.

And thinking about our plans for 2020 and again I I mentioned those on a standalone basis for Conoco Phillips, that's kind of how we're thinking about it going into next year. It's just not not cost of supply, but its also what kind of cash flow are we projecting to make and.

We have the we have the benefit of a very strong balance sheet. So we can use some of that should we need to but certainly we'd be also trying to balance the cash from making where the capex that we're spending in the in the dividend that to.

Today.

Satisfies 30% of our return criteria and more given the guidance at prices that we're seeing so certainly some headwinds into the.

Commodity price outlook right now some of it.

Kobin resurgence on demand certainly hasn't started to recover and depending on what no pack or OPEC does on on the supply side and what the U.S. responses were watching all of that really closely to make sure that whatever program. We put in place for 21, we can balance with the cash flows that we expect that make sure that we're investing in the low.

Discuss the supply things that we have in the portfolio only.

Thank you. Our next question comes from Josh Silverstein from Wolfe Research. Please go ahead. Your line is open.

Yes. Thanks guidance, maybe this is getting off that last question there you've mentioned that.

For Conoco Standalone Capex it would be very similar on a year over year basis.

The conoco stand on volumes look like relative to the fourth quarter 20 volumes under that scenario.

[music].

Hey.

Yes, Josh that we would.

We'd be we'd expect that under that scenario to be.

Similar to first quarter or second half.

Of the year several weeks.

Thats all related so that would be roughly 4.3 is what we're spending this year and which is a bit of both our sustaining capital.

There is a bit like a good opportunity to clean up.

The flat production and above for sustaining capital, let me try and they explained by those different. So if we were if you were going to execute long term sustaining strategy for the company.

The we need to be 3.8.

For for clinical Phillips said stand alone and that we sustain production there.

Point, roughly that blue 1.2 million bonds would be.

Yeah, and but with the low cost of supply that we have in the portfolio. We don't expect that our long term strategy will be to simply sustain production.

The investment opportunities are too competitive for them.

But what range you indicated as we could execute tactical sustained and program much like we have this year.

And the stock trading trends with that sort of tactical and so.

Sustainment program, and then see how demand recovery and supplier who is going to shape.

And what will be the distinction between the sort of tactical and strategic.

Sustaining program is kind of tactical Sustainment program mood still keep.

Production flat, but we will completely shut down.

Objects like low exploration activity.

Those things, we still continue to stick with the anticipation that the ultimately would move away from simply sustaining and.

Back to some and Motors group. So those are the things that we're working through just now in the in the plan.

As Ryan said, we shouldn't expect us to communicate 2021 capital guidance certainly for the combined company until sometime after the transaction closes.

Great. Thanks, Yeah.

Yes, I would add to add Josh you know, we have a lot of flexibility with the balance sheet, which is why if we go in at a similar level of capital to this year. It you know it may be flat to modest growth. So it doesn't necessarily equal flat production at the at the capital level going in next year, but that's something we'll continue to watch is the is the macro Eva.

All those around us.

And then you mentioned that the both the lower 48 assets I guess on conventional assets.

The low emission part of the portfolio.

The tajo Athens, only add to that.

I'm curious on the highs that Michigan asset is and any sort of.

I'm getting something in the international portfolio.

Do you think about M&A in that regard as well and maybe those are for divesture candidates, they kind of accelerate to go towards into your 2030.

Yes, so the the highest emissions assets in the portfolio just now in the operating portfolio is really is the oil sands. The that's why we're so focused on on the looking at ways to bring oil sands emissions.

And the and we've got a lot of.

Items in the fire there.

And we're going to we're going to extend their non conventional gas injection, which brings doing steam oil ratio.

Keeping seats in the reservoir and of course as the steam oil ratio of good that drives the emissions intensity.

We're also going to be deploying and more.

PC for control devices and to bring that brings is this the MAU ratio down we're moving to add some sustaining kinds of some of the pads get older steam oil ratio increases when you through new pads on the decremental be maybe move steam oil ratio and as other technologies that we're looking at Israel. So what we're doing basically.

The board is we're looking at all of her.

Greenhouse gas intensity across every asset we have.

Asking ourselves what can we do.

To cost effectively bring that down the road and that's where our book, but we think that process together in what we call our marginal abatement cost curve.

And then we have about 100 projects in there just note that some of them are desktop exercises and looks at that feasibility studies and spent about $90 million. This year between capsule no claim cost on those projects.

The.

But if you look across the whole asset base between things leased to bring that down.

At our targets, Josh you know that we established the 35% to 45% reduction that doesn't require major portfolio changes to go do that so we're not talking about having to sell certain assets that Matt described but that's that's things that we have identified.

Inside the portfolio to work on with the portfolio being relatively constant over this time.

It's actually that's a good 0.9 was mostly driven by the fact that we are it is so strategic shift where we're investing we are investing in lieu of cap greenhouse gas intensity places like the unconventionals in the U.S. and Canada and late we're a little up in Alaska, and maybe little intensity as well.

So the percentage of production, that's maybe Lou intensity increases in that team and when you combine that with reducing the emissions intensity of existing assets like yours since.

That said, we have delivered to the.

The reduction in the emissions intensity over the next 10 years is.

It's not as though.

Yes.

And we've said that had it.

And Matt described sort of the the cost and capital is small amounts to get this plan, we're not talking about spending hundreds of millions of dollars capital to go deliver. This this is a small projects that are that are currently baked into our plans.

Thank you. Our next question comes from Roger read from Wells Fargo. Please go.

Ahead your line is open.

Hey, Thank you and good morning.

Good morning, Roger.

I'd like to kick on really kind of a follow up when you talk about with Josh there as you think about 21, Capex roughly flat and you said you ought to be nimble next year for what comps.

What.

What would be the things you would be looking at I mean, presumably not simply oil price up or down I mean, its I assume its some macro factors maybe.

Maybe help us kind of understand sort of the signals you might look for for getting more optimistic in 21.

Yeah, I mean is it with the macro event.

The.

They.

Demand responds to the universe looks like.

At the slower response, and people were hoping for and especially with Europe, and possibly the U.S. coming so we have to just be cautious about that we have to look at the.

The production will pick him respond I mean, they they have.

Have a move coming up to the end of November.

And see when we get back to sort of drawing the inventory. So the beauty of our position as the Luca incredible flexibility, we've got little breakeven price to cover that.

Production and to cover the dividend.

That's sustained from the two the two companies together.

So we are.

Actually having that flexibility and the ability to school and two.

For them the market is going to get those as they hit so we're not going to rush headlong into China.

Trying to grow production into this that doesn't make any sense to us we'll see how things play out here over the next day.

Several months and then we'll make we will make adjustments the between or low breakeven and our balance sheet, we will be in the we'll be in very good shape.

To assess that as we go through.

Okay, and I would add Roger that so.

Sorry, I would ask Roger that.

Well I'd say, it's not so much even just what what's the strip look like or what what it looks like for next year that it's sort of a longer term trajectory back to well what we believe is that reasonable mid cycle price and we'll be reassessing, what that mid cycle looks like.

Depending on where the demand and supply fundamentals start to kind of shake out with the U.S. tight oil going down.

What happens to the election in Canada, and Alaska and then.

It's going to make up for them, it's going to make eminent amount of senses, we combined with the concho to optimize and figure out what the what the right level of activity is between the two companies. So there youre right Theres a number of factors that will be putting into the mix as we look at not only 2021 plans, but but the next couple three years look like.

As we as this business recovers back to a mid cycle and whether it overshoots or undershoots.

Well its UL industry, instead, we'll definitely do one or the other and maybe but.

One quick kind of follow up unrelated to the first question, but related to the merger some of the savings.

The debt you cited we're going to be.

Exploration appraisal spending that doesn't have to happen I was curious for the assets that you won't be spending any money on in the near future and they just go back into the resource base or where is that something that maybe becomes more likely to be.

Disposed of.

Monetized in a different way.

Yes, Roger its dominant Kim. Thank you. So what we said was that we will continue focusing our exploration efforts on our existing business units, such as Alaska, Norway, Malaysia, So that will allow us to about half of it.

Exploration capital from 300 to 150, so those.

Those areas such as Dennis.

Done in South America, Colombia, Argentina, and so on we will be working sort of managed exits from those areas. Because we have a lot of value. There. We see a lot of value. There is a lot of good good acreage there, but we'll.

We'll be working to preserve value as we think about how to.

Exit those areas in the future. So more a question of dispositions in a managed way rather than those resources staying in the portfolio. We have such a strong portfolio, we will with concho.

You know that we just think it's appropriate that we focus the exploration efforts.

Every advantage those rather than whether theres not a there's not excessive capital employed associated with those assets, but we'll as Dominic said, we'll we're going to do everything we can to monetize them as best we can.

And we don't have any resource associated with any of those assets and the movement.

And our supply Cokers movies or this will say if you look.

Thank you. Our next question comes from Scott Hanold from RBC Capital markets. Please go ahead. Your line is open.

Thanks could you give us some color on internet use natural gas pricing has been pretty strong and use their ability for conoco to flex for that a little bit or is there where is your opportunity outside of associated gas or is that really the opportunity.

Yes, I think the opt made opportunity for that Scott is associated gas probably have a little bit in the Anadarko basin, but thats not capturing a lot of our capital right now so.

It mostly for US where is still a pretty big.

Big marketer. So we we were moving it over eight Bcf of gas a day. So we see a lot of that so we're getting we're getting some uplift on the commercial side of our business with some of the transport capacity. We have it takes gas from the Permian to the west coast and down South to Arizona, and even even into May.

Stucco. So that's how we're kind of taking advantage of of the kind of market as we see it today and but just an absolute production side, we're not looking to ramp up.

Dry gas and it's mostly coming from the associated gas with a conventional production.

Yes, you could you quantify some of the marketing benefits you'll see.

Sure I can let bill is head of our commercial organization to maybe provide a bit of color there yeah sure. So.

Scott we have a very active commercial organization, Brian mentioned that we're moving a little over eight Bcf a day, where the fifth largest gas market to us and we provide a variety of services to various customers ranging from asset management agreements to to offtake agreements and that provides an ability to one half insight into the market and also the game.

Margin across moving across pipelines.

So we continue to look at that and continue to move and we were shipping gas for a profit.

Okay.

Yep.

So.

That 808, eight Bcf a day 500 million cubic feet a day of it is ours. The rest of its third party volume and so were in and out of the market on both sides on a daily basis.

Thank you. Our next question comes from Doug Lucky from Bank of America. Please go ahead. Your line is open.

Thanks, Good morning, everybody.

I Wonder Bill maybe I could start off with you and ask you to maybe elaborate a little bit on Brian's comments around potential election outcomes and I'm thinking specifically about tax.

I'm sure you guys have looked at this but the thing that strikes me as a little bit disturbing is the potential for a minimum 15% personnel tax the central wells under.

Under a bit of a spotlight. So I'm just wondering if you guys have thought about not any scenarios that you run.

Outcomes that you might expect.

Well.

Yes sure.

We've certainly taken a look at the various tax proposals out there, including the Biden tax proposal.

There's two primary elements of that that that would impact us Doug. The first one is obviously the change in the corporate tax rate from 21% to 28% and the second one that would be fairly significant would be removal idcs prediction, our capital program and and.

Needing to.

Depreciate those over time those are the two main aspects as we look through it that really would have an impact on us.

Yes, I guess it should have been clear I was talking about a potential Biden administration and <unk>.

Maybe as a follow up then I know is something that is a little bit too obvious, but we don't maybe ask it enough Ryan when when you sell from Woodmont put together the tidal waves scenarios and all the other scenarios that.

That you laid out at the strategy day.

We're not seeing what we think is a lot of the signs of a bottom cycle coming to us on a bottom or if you like with consolidation your sales being partners on how.

Is this what you are seeing right now beyond the core of it.

Influence your thoughts on longer term supply demand as you think about scenario planning and I'll leave it there. Thanks.

Yes, thank Doug ill, maybe add a few comments and Matt can jump in as well, but yeah. We spent a lot of time trying to think about what the trajectory of the recovery looks like and probably a couple of competing factors, we certainly see demand recovery, we uncertain, whether it gets fully back.

Back to 100 million barrels a day.

But probably taking a bit of a bit of time to get there and then I think equally important then maybe over looked a little bit is what's happening on the supply side, maybe masked a little bit today by DUC inventory, but.

When the declines and the declines are hit again and it was masked by curtailments coming back on you know there's going to be a drop in U.S. supply as well. So I can Matt can probably chime in and described.

Describe a little bit about the net effect to the scenarios that we're thinking about as we debate our capital program and how much to put back to work.

Yes, Doug I mean, I think United discussed this in the past as the if you look at the.

Or expectations for the exit rate for this year for you as tight oil is.

Somewhere between six and a half and 7 million barrels a day and then we will get good movies to take better calibration on that you have been is it groups into the year.

Computers to over 8 million barrels a day in December last year 8.2.

And and to some extent that draw letters to disease, because people were still Britain, bringing wells on in the first quarter and into the second quarter.

So there's a significant underlying decline going on here for me modal listen I know they used to and the strip prices in the low Fortys and we think the industry is going to struggle to maintain flat production does and bus fleets to 21, and then to take it to 21 will get a bit of a lift from that.

And but the.

People are going to live within cash flow is going to be a real challenge stick to that could see tight oil has 7 million Boes a day and this is likely to be less than that in 2021 and translate to if you compare that to the trajectory. We were on at least 4 million barrels a day less than that FICO boot trend and that's just us.

Oil and we respond more quickly here because of the decline rates and the capital flexibility, but that but the similar issues happening elsewhere. So although those definitely on 17 and whats the demand will be.

And is likely to be less and the demand than the supply of baked sitting over the next few years. So what did they do the premise of your question initially.

We set up for the bottom of the cycle here.

But the sentiment feels that way to us and the exact within it turns will be dependent upon the end.

Yeah.

Demand in the cooler than what you've baked in the short term, but yeah, we're certainly setting up for a tighter and tighter supply demand balance in a year or so.

Before that.

Yeah. So so short medium term all about demand medium longer term you know supply starts to enter the picture as Matt described them.

We have a couple a couple two three scenarios around how we how we pick but that slope and.

Trajectory look like.

Yes.

Thank you. Our next question comes from Paul Cheng from Scotia Bank. Please go ahead. Your line is open.

Hey, guys good morning.

Morning, Paul why why is that that maybe isn't he built the curve ball here.

If we look at the casing and optimization all commercial operation historically that the U.S. looking at that actually call Center.

For facilitation.

The European on dancing on more aggressive approach and looking again at the pump ascent.

And they seems to be doing quite well and good logic to it.

Hey, a long yield co los and so from that standpoint.

We will call Nicole should look at that.

That operation and see what that that it will allow you.

To have a higher performing and higher return on that thing.

Facilitation at that time, you don't want to take on that swing in the lending.

And the higher grades so thats the first question.

The second question.

The.

Let's for argument sake, if the site.

Your longer term 10 year plan change due to deepen market condition and that such that your future growth rate, that's going to be lower.

With the addition of the cultural offset what what the offset you in your portfolio.

Take more off the back seat and still less than 10 billion investment.

So I would say the.

Number one number two on that yes.

Possible. Thank you.

Yes, So let me take the first one and maybe.

Maybe Matt can chime in on the second one on the capital investment. So the first part yeah. We're looking at the commercial space and with the addition, I can show you know it is a yes, you described Paula kind of a cost center inside the company, but.

We're looking at expanding that.

As we think about the future and what the contrast of spring I think as Dominic described earlier they sell mostly at the wellhead. So we've got some opportunity to add value there to both the gas and the oil side.

We're building more export capacity as a company and.

In fact, we have done some sales to a point in sales to customers, where we take the middle man out of the equation and we have found that quite March.

Margin enhancing as we go forward as well so with the growing use production.

But we would have with the combination with concho it absolutely represents say.

A big part of those how we can expand the commercial organization and think about it differently too.

I mean, bill described the market share that we have already and that's all they got to get bigger as we go forward. So we're looking for more contribution from the commercial side across the whole portfolio.

Maybe Matt if you want to take the capital allocation as a result of integrating the Contra assets you know again I go back to our it's a it's a cost of supply primary criteria that can provide a bit more details about what what might fall out.

Yes, Paul is that that as you know what we do is we try to optimize each of their individual it into an individual parts of the portfolio.

I get the optimum pace.

And using the set of decision criteria, but the most important of which is that we know going in based above an incremental cost of supply for $2 bottle. When we describe the to some land back in November of last year, and so we look at the optimization of each and then we put it together and we and we need to make a few.

Westminster were trying new owner of the optimum each of the assets and there is flexibility across the portfolio in the piece you can we can adjust the pace of any given Joe Jake by Universal we can adjust the degree to which we increased the ramp in the number of rigs. So I wouldn't call any specific guidance. If we decide that we want to grew at.

2%, instead of 4% or something like that the a and the flexibility across the portfolio to do that and that and so on are the criteria that we must attract TV. The obvious places a little slow to Alaska as with the flexibility mostly exists and maybe in Canada, as well, but I wouldnt and.

I Wouldnt really call. It a specific asset we're trying to do and we're trying to optimize across the portfolio.

As if you know optimize metro so diagnosed portfolio.

In Europe.

Maximizing the value that the diversification brings you. So we and thus we are trying to do is to make sure that we're running each of these assets have their optimum.

Thank you. Our next question comes from Jeoffrey Lambujon from Tudor Pickering. Please go ahead. Your line is open.

Good morning, Thanks for taking my questions. My first one is on ESG that the parents aligned I never strategy and I think your commentary earlier answered a lot of what I'm looking for.

Oil sands specific examples and just your comments on investment decisions.

Is there anything incrementally you can share at this point on other operational changes that you're undertaking.

Focusing on for the broader portfolio, just trying to get a sense for the scope of some of these projects you mentioned again in terms of what's been focused whether thats, new technology around monitoring retrofitting equipment or emissions control or what have you.

Yes, thanks, its dominant case I'll just take that you know.

Recently I was very much involved in the lower 48, and there's some really.

Some important progress, we're making there I think Ken.

I think we we.

Just a couple of things here along with our new.

Paris aligned strategy and one was.

You know commitment to zero routine flaring.

And that's the World Bank initiative, there, so weve committed to that and the other one was new introduction of continuous methane monitoring. So this is a real breakthrough for US we're able to do this now turn very reasonable cost and were able to know basically on our key sites will have this implemented I think we'll have about 65%.

Sent about lower 48 production covered.

By early next year and this technology. It day low cost allows us to sample the emissions around sites looking from ethane every 15 seconds and from that we can respond very quickly to any aberrations that we can address very quickly so the those.

A couple of really important initiatives for us that contribute to that overall commitment.

Commitment we have to reduce.

Ghd intensity by 35% to 45%.

By 2030.

I am I really have first mover on this as you all know Jeff you know.

We were the first to us based on the L. and gas company to set a GHG intensity target and we're the first us based oil and gas company to commit to being passed aligned.

Thank you. Our next question comes from Pavel Molchanov from Raymond James. Please go ahead. Your line is open.

For the question two quick ones, both regarding Europe, I get about 10% of your gas volume.

No one has that caused them to seen north sea gas prices below $3 and ntrs, but we've had that the last few quarters.

Is that is that open related.

Hi demand situation or is there something more structural in that market.

Yes, I think that this is bill I think that as you think about that that's that's more of what we've seen with covered related to demand related issues right now as we think about long term the macro supply around the world.

[music].

We would see markets.

Tend to have more arbitrage offer the us Gulf coast with LNG markets are starting to move volumes, both into Europe and into Asia incremental barrel. So I think that what you're saying is a short term response to supply demand and not a long term structural change.

Hi, Ann.

Follow up on that is.

In about six weeks the European climate law will be approved by the EIA leader, which will make the north sea. The one part of your portfolio that is covered by a net zero mandate.

Does that change anything in terms of how you're thinking about that asset given the de carbonization target.

For the like the whole.

No not really I think we're continuing to make adjustments what we're left within your portfolio is our Norwegian assets and.

Some of the lowest carbon intensity assets, we have better off shore and looking at other options to continue to reduce.

Reduce our emissions through electrification and additions there, but as we look at it. It's minimal addition to the cost of supply and it's quite manageable in Norway is still as a very competitive in the portfolio.

Hi, This is Alan will go head and tanker last question. If you don't mind. Thank you.

Absolutely. Thank you. Our next question comes from.

Johnston from capital one. Please go ahead. Your line is now open.

Hey, guys. Thanks, just one question for me as it relates to your future return of capital to shareholders.

In the last five years, you guys have repurchased a little over $2 billion with the stock at an average price of around 62 a share.

At today's share price the paper loss programs pretty substantial.

I realize you guys plan to repurchase more stock in the fourth quarter.

Wanted to ask if there is any appetite at the board level too.

To scrap the idea on share repurchases and instead.

Pursue a fixed cost variable dividend strategy.

That would target paying out a certain percentage of your free cash flow directly to shareholders each quarter.

Yes, I think the the most important thing is your last piece of that where we are targeting over 30% of our cash back to the shareholder that's what we've committed to and delivered on in excess over the last three to four years. Since we kind of came out to re establish a new value proposition for this business and.

And I think the dividend today is certainly covering a large share that I also think that buying our shares back at this kind of level is it is an important thing to do to because the shares are certainly well undervalued is certainly relative to where we think mid cycle price should be so I don't think we'll give up on share repurchases completely you made a real point I mean, we.

We wanted to buy buy our shares through through the cycle and.

This was a pretty significant downturn with curtailed production in the light going on in the second quarter. So we did suspended for a while we won't have to restart up because the benefit to really buy your shares is not just buy them when you're at at at mid cycle price, but continue to buy him through the low low low end of the cycle because that's what brings down.

The average cost here your shares obviously, so we still think it is going to be a piece of our return to shareholder pie and the question begins to you know what happens on on future excess returns when if theres another big cycle, and we started to exceed our mid cycle price call and we've had conversations.

Around that with the market and we continue to look at all the different ways to do that and continue to be open and all the different ways to do that but at this 10 seconds the dividend more than satisfies our return to shareholders.

Okay.

Thank you we have next generation that we're all time I'd like to turn the call back over to Ellen Thank you great.

Great. Thanks, and our thanks to our listeners by all means to reach back to US. If you have any follow up questions and we really appreciate your interest and support and Conoco Phillips. Thank you.

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