Q3 2021 Conocophillips Earnings Call
Yes.
Good morning, and welcome to the Q3 2021 Conocophillips earnings Conference call. My name is <unk> and I'll be the operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press.
Star then one on your Touchtone phone.
I'll now turn the call over to MS. Ellen Desanctis, Ellen you may begin.
Thank you Sarah and welcome everyone to the third quarter earnings call in the room with me today are Ryan Lance, our chairman and CEO Bill Bullock, our executive Vice President and Chief Financial Officer, Tim Leach, Our executive Vice President of the lower 48, Dominic Maclin, our executive Vice President.
Does strategy sustainability and technology Nichols, our executive Vice President of Global operations, Mark Keener, Our Vice President of Investor Relations is also in the room today.
The format of our call will consist of some very brief prepared remarks, and then as an Ara mentioned, we'll go to Q&A.
A few reminders in conjunction with today's earnings release, we posted a deck of supplemental material addressing third quarter earnings and cash flow results as well as some fourth quarter full year, 'twenty or 'twenty, one guidance update today.
Today, we will make some forward looking statements based on current expectations.
Actual results could differ due to the factors described in today's press release and in our periodic filings and we'll mention some non-GAAP financial measures. This morning, you can find reconciliations to the nearest corresponding GAAP measure in this morning's press release and on our website.
With that I will now turn the call over to Ryan.
As Ellen mentioned I'll make a few opening comments and then bill will address a few details about this quarter's results.
Then we'll begin the Q&A session.
In this morning's release I referred to the quarter's results as notable.
Obviously financial and operating results were outstanding.
The context for describing them as notable them something different.
For the past year, we've been integrating concho improving underlying metrics across the business.
And creating the most competitive E&P for the energy transition.
The significance of this quarter's performance is that it represents a proposed concho go forward baseline for the company.
On a run rate basis, the integration is essentially complete.
Capture the announced 1 billion of synergies and savings from actions. The company took in connection with the transaction all ahead of schedule.
Our unhedged.
But even more importantly, our torque to upside is helped by having high conversion of revenue to income and cash flow.
The core executable of our global operating plan are delivering as expected.
We will close out 2021, as a stronger company compared to any time in the past decade.
Every aspect of our Triple mandate is moving in the right direction.
Underlying portfolio cost to supply is improving.
Our overall ghd and density is lower.
Our emissions intensity reduction targets are more stringent.
Underlying margins are expanding.
And our trailing 12 months return on capital employed is headed toward an estimated 14% by year end.
Afflicting the benefit of more than just stronger commodity prices.
Between now and year end, our top priority is closing Michelle transaction, which we expect to occur in the fourth quarter.
Once we close we will be working diligently to integrate these properties and capture efficiencies in a similar fashion to what we've achieved through the gone through integration.
In addition to layering in these properties on top of our existing high performing platform, we're continuing to high grade our portfolio and optimize the business drivers everywhere.
The setup for next year is notable.
We're now in the process of setting our 2022 capital plans, which we expect to announce in early December Directionally, We don't anticipate a significant departure on Capex from what we included in our June update excluding shell.
In June we provided an outlook based on a roughly $40 $50 per barrel price.
<unk> included a modest ramp in the lower 48 to reactivate our optimized ponto plans some incremental base Alaska investment.
And some longer cycle low cost despite investments in Canada, the Montney and.
And in Norway.
Since June we see some inflation pressures, especially in the lower 48. However.
However at this point, we would expect to adjust scope modestly in order to in response to maintain our base capital at a level that is roughly consistent with our June update.
And then of course, we will add capex for the shell properties once we brought them into the portfolio.
As we finalize our 2022 plans, we're watching the macro closely keeping an eye on inflation and potential OBO pressures in undertaking our typical capital high grading processes. It goes without saying the market's certainly appears to be more constructive.
But we must always remember that this is an incredibly volatile business, but theres more to come on that in December.
It's certainly been a busy year for the company, but an incredibly successful one so far and thats, thanks to our dedicated and talented conocophillips workforce.
We believe we're entering a very constructive time for the sector.
But even so we know that there will be relative winners the relative auditors will be companies with the lowest cost of supply investment options.
Pure leading delivery of returns on and of capital and visible progress on lowering emissions intensity.
What we offer.
Our third quarter represents a glimpse and a strong jumping off point to what you can expect from Conocophillips going forward.
So now let me turn it over to Bill who will cover some of the key items from this quarter.
Thanks Ryan.
To begin adjusted earnings were $1 77 per share for the quarter.
Relative to consensus this performance reflects production volumes that were slightly above the midpoint of guidance.
Better than expected price realizations and lower than expected DD&A.
As for the better realizations, we captured a higher percentage of Brent pricing and our overall realized prices.
We provided supplementary information and this morning's material to address the realizations variance.
And as Ryan mentioned, we're unhedged, so we're getting full exposure to the current higher prices.
As for DD&A were trending lower compared to the previous guidance as a result of positive reserve revisions due to higher prices.
You saw in today's release that we lowered full year 2021, DD&A guidance from $7 4 billion.
To seven one.
Excluding Libya production for the quarter was 1.507 million barrels of oil equivalent per day, which represents about 2% underlying growth.
Lower 48 production averaged 790000 barrels a day, including about 445000 from the Permian two.
217000 from the Eagle Ford and 95000 from the Bakken.
At the end of the quarter, we had 15 operated drilling rigs and seven frac crews working in the lower 48.
Across the rest of our operations the business ran extremely well in particular, our planned seasonal turnaround activity across several regions when safely and smoothly.
You have noticed that we provided production guidance for the fourth quarter and for the full year 2021 in this morning's release.
This reflects the impact of a decision, we're making to convert concho to stream contracted volumes to a three stream reporting basis as part of our ongoing efforts to create marketing optionality across the lower 48.
We expect to convert the majority of our contracts in the fourth quarter reported production is expected to increase by approximately 40000 barrels a day in both revenue and operating costs will increase by roughly $70 million.
In other words this conversion is earnings neutral.
Besides DD&A and production there were no other changes to 2021 guidance items now.
Now once we've closed the shell acquisition and can see where the ongoing U S tax legislation conversation lands will provided updated earnings and cash flow sensitivities that consider such factors as projected 2022 price ranges and how those ranges might impact our cash tax paying position in various jurisdictions around.
Globe.
Coming back to third quarter results.
Cash from operations was $4 1 billion.
Which was reduced by about 200 million for nonrecurring items, so a bit higher than the average of external estimates on an underlying basis.
Free cash flow was almost $3 billion this quarter and on a year to date basis. This is about $6 5 billion.
Through the first nine months of the year, we've returned $4 billion to shareholders and we are on track to meet our target of returning nearly $6 billion by the end of 2021.
And this is through a combination of our ordinary dividend and buybacks.
So to summarize as Ryan said it was a notable quarter.
Company is running exceptionally well and we've achieved a significant reset of the base business post concho.
That creates a powerful platform for entering next year.
We're focused on closing the shell Permian acquisition. So that we can begin the work of getting those properties fully integrated into the business setting our capital plans for 2000 2022.
Maintaining a leading position of returns on and of capital and lowering our emissions intensity.
That's the Triple mandate, that's what Conocophillips is all about and we look forward to providing additional information in December.
I'll now turn the call over to the operator to begin the Q&A portion of today's call.
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.
Using a 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.
And our first question comes from Roger read from Wells Fargo. Please go ahead. Your line is open.
Yes, Thank you and good morning.
Okay.
Hopefully you hear me good morning, Roger.
No we can't.
Alright.
Like really quiet there anyway.
Want to come back to <unk>.
Inflation question I know, you'll talk more about Capex in December maybe an idea of what you have seen to date, where you think the bigger inflation headwinds may arise.
Yes, sure Roger as we kind of in the middle of like I said in our opening comments in the middle of putting all our plans together right now the supply chain organization tells me that.
Globally, we're thinking about mid single digit kind of inflation rates as we go into 2022, but it's bifurcated into two pieces.
US being depending where you are at geographically in the U S anywhere from kind of the low double digits to the higher single digits, the Permian being the B area, probably the most influence or the most experiencing inflation right now and as we go into 2022.
And then the rest of the world those still at about 2% to 3% inflation rates are.
Kind of globally. So the categories that you can imagine are inflating right. Now certainly are those that are in need here in the U S. As we start to recover out of the out of the low point things like OTC G labor sand pressure pumping and the law.
I think as we think about it going forward.
It's an opportunity for us too.
Try to offset as much of that through some modest scope production and efficiencies.
Which I think is where tinder is focused in the in the lower 48, I can ask Tim if you want to add anything to that.
<unk> to the lower 48 in the Permian I think that covered most of it I would say that.
Where we are seeing inflation on those items, we have size and scale.
Advantages of our combined organizations.
The operations continue to improve.
In the lower 48, so I think there's many ways that we can mitigate.
Those inflation factors.
Okay, great. Thanks, and then.
Just since it's been in the news quite a bit what's been going on in Alaska I was just curious.
Well it can't go forward, what do we think about in terms of other opportunities in Alaska and have you noticed any meaningful changes since <unk> became the the other partner and prudent about it.
Yes, Roger this is Nick just maybe a quick update on on Willow as you've probably seen in the press.
Both the department of Justice and ourselves decided not to appeal. The Alaska District Court decision, we feel the best and most efficient approach there is to really work through the three substantive issues that were identified in the district Court ruling we will do that through additional.
NEPA analysis.
We're currently engaged with the BLM and the cooperating agencies up there.
Working through those those three particular issues.
As you look forward as I mentioned, we continue to work through our detailed engineering and service of continued refinement of our cost and schedule and any development model.
Modifications the all in service of doing it.
If you look at 2022, our capital program that will reflect the continuing engineering work and then from a shareholder standpoint, we still see.
Significant support from the Alaska delegation the state of Alaska as well as the north slope borough. So we remain committed on this front as far as other projects. We spoke about in the June 30th market update.
Apart as an example, we've got Nina we've got Coyote. These both leverage existing infrastructure, so existing pads facilities and pipelines very low cost of supply opportunities that we're progressing and then on the <unk> front, we're seeing great efficiency improvements and safety performance. They continue to reduce costs across the board.
So our teams are heavily engaged so all three legacy assets are performing well.
Thank you. Our next question comes from Jeanine Wai from Barclays. Please go ahead. Your line is open.
Hi, good morning, everyone. Thanks for taking our questions.
Yes, good morning, Janine good morning.
Question is on scope three.
In conjunction with the shell Permian.
Permian acquisition, you announced an improvement in your scope, one and two emission intensity targets, which is great. At this year's meeting I believe shareholders voted in favor of the company setting scope three reduction targets as well so could you maybe update us on.
The companys strategy for addressing that vote.
Any color on feedback that you've received from your shareholders regarding scope three production targets for conoco.
Yes, sure Jeanine I'll, let me make a few comments and I'll turn it over to Dominic who's been.
Involved at all our shareholder engagement activity, that's a normal part of our process. This time of year, but yet you saw a consistent or coincident with the shell acquisition announcement that we increased our targets related to scope, one and scope two and not maybe hopefully not missed in that from a gross operated two of net equity, which we think the.
The industry needs to move too as well so it's not only the what you operated its what you.
We're involved in from an Afirma net equity perspective, so, yes pretty focused on our commitment to reduce our scope one and scope two and then as you state we did get a resolution that got 57% of the vote not binding, but one that we would have to engage with our shareholders on so we've been doing that on the scope III side, specifically and I can get.
Dominic maybe to comment on what that looks like or what we've heard so far from shareholders.
Thanks, Thanks, Janine for the question.
We are continuing in dialogue with shareholders. This is an ongoing process on this very important milestone to.
To share some key elements of that dialogue.
As an E&P company, we continue to believe our Paris aligned climate risk framework that we launched about a year ago is both credible an ambitious and addresses the realities of our triple mandate that you often hear us talking about so that's responsibly meet transition pathway demand deliver competitive returns.
And achieved net zero emissions on the emissions, we control in that scope, one and scope two.
We have established just earlier this year, a dedicated low carbon technology group and they are supporting our business units and now ongoing progress to achieve our scope, one and two targets and on net zero ambition.
But we are not ignoring scope three and use emissions. So our new low carbon group are also working to develop new opportunities in low carbon businesses with a focus on carbon capture and storage in hydrogen both of which have a strong adjacency to our core business and competencies.
But those opportunities must of course deliver competitive returns for shareholders and on the policy side, we continue to advocate for a well designed economy wide price on carbon and we see that as the most viable solution for addressing demand and actually reducing scope III NDA submissions, but we don't believe our scope.
Three target for a Paris aligned E&P company like Conocophillips makes sense and it wouldn't address consumer demand.
And it would ship supply away from top tier ESG produces to less accountable produces and jurisdictions.
And we believe in fact that a Paris aligned E&P company with a focus on low ghd intensity and low cost of supply and production has a valuable and crucial role actually to play in the energy transition. So now of course, we take let's take hold as our shareholders' views very seriously and we're continuing our engagement to understand their perspectives.
Yeah.
And ongoing process, we will continue that through the next couple of months here, but.
That perhaps gives you a flavor of the nature of the dialogue.
Okay, Great. That's really helpful. We look forward to the carbon capture and hydrogen development.
So I guess, our second question, maybe a little housekeeping item here is on the affiliate distributions.
The distributions they were slightly below what we think was implied by your commentary on the call.
And it was a little bit below our forecast. So we're just wondering if there was anything unexpected related to the timing of distributions we understand their seasonality.
For the quarter or if theres any change in the full year outlook of $700 million in AP LNG distributions for this year.
Sure Jamie.
We received distributions of $85 million from ACL and <unk> in the third quarter and that brings our total year to date to $430 million for the year and we now expect full year distributions of around $750 million from AP LNG This year.
As you noted and as a reminder, we typically receive lower distributions in the first and third quarters and higher distributions in second and fourth quarters and as you think about <unk>.
Due to the pricing lag with AP LNG as long term LNG sales, there's really little sensitivity to price for the remainder of 2021 distributions as LNG pricing essentially set so we feel very good about $750 million for the full year.
Thank you. Our next question is from Neil Mehta from Goldman Sachs. Please go ahead. Your line is open.
Good morning team and let me start by thanking Ellen for her service to the industry and to the investment community. Congratulations on your retirement Allen you are going to be sorely missed.
Hum.
Thank you Neil.
I appreciate appreciate the call out.
We're going to miss her as well.
Yeah.
Alan you can't escape us so you know where to reach us so look I'm not going to try.
She is not going to escape us completely either.
In great hands, it's been an honor everybody is truly an honor and a N and conocophillips won't Miss a beat.
That's great well you've left in a great shape, Ryan I wanted to kick off on a big picture question for you and then Tim I had a follow up for you on the Permian, but the Big picture question is Randy do you think we're in a in the beginning of a structural up cycle here, which is we've been through seven years of a very dark period of oversupply in the industry.
Underinvestment might be kicking in here or do you do you see multiple years ahead of a potential recovery and to the extent, we actually are at the beginning of a structural upcycle.
The last time, we had won the industry.
Destroying a lot of value over the long term by not seizing the opportunity appropriately and so as the leader of the E&P industry, what is the message you're telling us.
Selling your your folks about how how you do it.
Differently. This time to create structural value to the extent you have a a.
A period of excess cash flow.
Yes, no. Thanks, Neal I, certainly pretty constructive for a number of reasons, we're seeing the demand demand recovery post pandemic and for all the reasons. You stated you know this becomes it turns into a supply problem and I think thats going to be some pretty constructive.
The tailwind for the industry. So yes, you ask a bit of a provocative question there.
So what would I say, maybe maybe a few things.
For my peers.
So I would say, we've got to restore sector sponsorship and.
And that's only going to happen through consistent returns on capital employed and they have to be competitive with the market. So I think that's the opposite of what we saw in this boom bust industry.
So I think investors need to have us on a short leash and short leash.
I think that would be good for the for this sector. So that's kind of what I would tell my peers, what would I tell investors.
It is different right now because I think shale shale industry is being run as a free cash flow business.
And so now we have short cycle inventory that can be managed for returns and returns on capital, but I think you have to remember one thing in that.
Shell business that inventory quality really does matter because the ones are the best inventory like Conocophillips.
We're going to be able to make market competitive returns and we can do that without having blown through the ROFO on growth. So with modest growth you can deliver those kinds of market competitive returns for people that have the top quality shell inventory and I think thats, a pretty big paradigm shift so.
That discipline on growth and returns on enough capital really really matters.
Lastly, and this would be for investors and my peers for everyone really is.
The energy transition is happening we are going through a transition today, but I think thats a new lens that we have to look at this business through.
And it requires a bit of new thinking and I think Dominic just referred to that in the last question that Janine had which is our triple mandate, we must do those three things simultaneously and we've got to do them really really well. So we have to meet the transition demand whatever slope that demand going on we've got to be there to supply it with.
Low cost suppliers barrels because we've got to deliver on our returns.
We've got to meet our net zero ambition ultimately by 2050 in this business so.
I guess that's it.
B the few things that I would offer Neal.
Really shame on us if this industry can do it and I can guarantee you conocophillips will.
Yes, you guys absolutely had delivered the playbook and that's a good dovetail into your Tam and just your perspective on the Permian position at this point and.
Specifically talk about where we are in terms of integration of the Concho assets and you've probably got more time to take a look under the hood of the shell assets, how do you feel about what you've acquired.
Yes, it's pretty exciting.
First of all I'm really proud of our team of being able to integrate because concho acquisition and deliver on all of the production and cash flow and get the wells drilled and not.
Not Miss a beat on execution, and so and deliver all the synergies that we've talked about that's a important concept as well.
So.
Things, the blocking and tackling of our business is growing really well in the Permian.
But in addition to that.
Excuse me Conoco Phillips as for really great shale basins.
In the U S and.
And.
Watching how information is being transferred how much team work is going on between those.
Groups.
They are continuing to make everything better the wells are getting better we're delivering more efficiency. All the time. So that's exciting for the future and then when you look at the opportunity with the shell acquisition.
What we can do with those assets and how we can create value with them.
And that's kind of what our teams live and die for us the opportunity to go get something like that and make it better so.
I am pretty excited and Im proud of the work that's being done right now.
Thank you. Our next question comes from Stephen Richardson from Evercore. Please go ahead. Your line is open.
Thank you.
I Wonder if I could follow up on that last question.
Tim.
I appreciate that you havent closed the shell transaction yet.
And have you got your hands on the assets, but it seems to US one of the big areas of upside could come from equalizing working interest and some.
Some swaps and trades and blocking up your total position, including shell could you just talk a little bit about Dod opportunities you see it and have you had in Cummings from industry, knowing that you will be the the holder of those assets in short order.
We are managing assets like that is kind of what I think we do best and.
There are so many different ways that we can create value from the way the wells are drilled the way the wells are completed.
The marketing arrangements.
And it also.
Gives us the opportunity with those additional assets coming in we have way more flexibility on what we can dispose of and how we can high grade our portfolio.
So it's a.
It gives us the opportunity to do what I think we're really good at.
<unk>.
From an operation standpoint, but also from prop.
Property management, and the swaps and trades.
We have a dedicated group around that and they can create a lot of value.
In the basin all the operators are trying to get out of each other's way and not have so much outside operated.
And create longer lateral drilling opportunities all kinds of things like that.
Thank you if I could just follow up with Phil on on Synovus, specifically it looks from from what we can glean from the public filings it looks like that sell down is happening.
<unk> been in a pretty orderly way in terms of pace, but I was wonder if you could talk about you know experienced so far executing on that and also noted a nice uptick in the contingent payment.
Associated with that Western Canadian sale, a number of years back at these oil prices and maybe you could remind us all of.
The quantum of that and where that would stand in the duration of that as well. Please.
Yes, sure happy to so first starting with the CV monetization program and we've sold about 67 million shares year to date, that's about 30% of our original balance and so we reduced our equity stake in synovus from about 10% about 7%.
Those proceeds have been used to buy back about $600 million of Conocophillips shares through the third quarter and you'll note on our slides for cash that that was about $400 million for the third quarter.
We have accelerated our sales we expect to exit our position sometime early part of next year and we're executing those sales in a thoughtful and measured way, we continue to monitor market conditions.
Conditions that we move forward.
Assuming that they remain supportive will be out early part of next year.
You also asked about the contingent payments from synovus during the quarter, we recognized about $100 million in pre tax earnings.
Bringing our year to date totaled about $200 million, so far as synovus contingent payments in.
And at current pricing, we'd expect to recognize another $100 million in the fourth quarter.
Now the contingent term expires at the end of the second quarter 2022, but at current strip prices, we would expect to continue to accrue contingent payments in the first and second quarter of next year.
It's probably also worth mentioning that we are still continuing to receive contingent payments also from our San Juan sale. This would throw that in there a bit we've accumulated so far $30 million in pre tax this year with $21 million in the third quarter and expect to accrue another $21 million on that in the fourth quarter.
And at current prices that should continue through calendar year next year.
Yeah.
Thank you. Our next question is from Doug Leggate from Bank of America. Please go ahead. Your line is open.
Thank you and let me add my congratulations to Ellen I'm pretty sure I'm not going to be on the call itself.
Good luck and thanks for all your help over the years.
Really we're going to Miss you.
A couple of things.
If I may.
Brian I know, we get to the cash return question a lot when I come to question you on the spot.
Just wanted to if I, if I could pick your brain on whether your thinking is evolving any.
And what I'm looking at your Youre pretty much bigger than BP at this point.
Youre knocking on the door of AV Potala shell in terms of scale.
Your yield is about running about 60% of those peers you could easily stepped on dividend.
And get greater recognition for the value proposition in my opinion why not.
Yes, I think.
I tried to be pretty clear Doug I appreciate the question.
<unk>.
I think what what I've tried to be pretty clear about is our 30% of CFO is going back to the shareholders. So that's a commitment you can take to the bank as an investor and Conocophillips and with this run up and the prices that we've seen here lately you should expect to get 30% of our cash coming from our operations as a result, you ask what.
The channel I'd say, maybe before the channel conversation to would be the shell acquisition will probably look to try to put some more money onto the balance sheet as we go through the course of this but more directly to your question about the channel.
I've been comfortable based on our outlook and our view of the macro where things are going right now to split the distribution maybe between the ordinary dividend and share repurchase so how do I think about the ordinary dividend.
For me it needs to be something that's incredibly reliable it's transparent it's growable. Its reliable you can you can count on even take it to the bank and it works at the downside of this sector in the well.
We go through those downturn. So that's how I think about the dividend and I think you can.
You can get you for when these times are pretty good but I think you got to think about the dividend being <unk>.
Commitment reliable always bear in its growth and so that's how I think about the dividend, but more importantly, you should you should expect to get.
<unk>.
30% of our cash coming back from our operations. That's our commitment that's what we've done for a number of years and that's what we're going to continue to go to do so is that CFO goes up you're going to get those dollars and.
And we've been pretty open to the channel. We've had this conversation with the market with our investors and as we see circumstances changing.
We're not locked into a specific channel to go do that.
So I take your point, Doug I think.
I, probably think about the ordinary dividend just a little bit differently.
I appreciate the answer I guess is more of a ton of figure out what the market is best prepared to recognize kind of what's behind my question, but I appreciate the answer thank you.
You mentioned better recognition Doug needs to be over the long term not just over a month or a quarter, but what builds what builds value. What's the right model over the long haul in a very volatile business.
Very different capital structure today for you guys.
Years ago, My follow up very quickly.
You touched on high grading the portfolio I don't think we've heard you say, it's gotten a little while and obviously you've got very large slug of production coming on and I'm. Just wondering if I could push you a little bit to touch on some of the things you were thinking there to flesh that out and I'll leave it there. Thank you.
Yes, no. Thanks, Doug I think we sold through the.
Through this quarter a couple of hundred million dollars worth of assets. Those are largely in the lower 48, we've got another couple of large packages in the lower 48 on the market today that are significantly larger than what we've talked about closing today and so a couple of other things but.
We're pretty committed we announced at the after the shell transaction that we would sell $4 billion to $5 billion. We have two to three out in the market from the June market update and we're well on the line while on the road to delivering that two to three $3 billion.
That four to five as a result of the shell transaction, just because when we get the first look at the portfolio primarily in the Permian, We think theres going to be.
Some cleanup that we can do with Tim and his team in the trading and the swapping that you described earlier and some outright sales.
Feel pretty comfortable with that $4 to $5 billion target.
Obviously take us into 2023, but making a probably a lot of progress through the first half of next year and in delivering those targets.
Thank you. Our next question comes from Phil Gresh from Jpmorgan. Please go ahead. Your line is open.
Yes, hi, good afternoon.
My first question is just on the prior guidance surrounding ending <unk> cash balances post the shell acquisition of about $4 billion in cash.
Any updated thoughts there now that we've gone through <unk> and any other moving pieces that you've talked about in the call here today.
Yes, sure Phil we still feel very good about that $4 billion of ending cash.
The shell transaction headline price is $9 $5 billion, but the effective date is July one of this year and so as we go through the.
For the year, we would expect to end up with a little over 4 billion of cash by the end of this year.
Okay.
And then second question Bill for you would be.
You gave a little teaser in your prepared remarks on cash taxes do you have any updated thoughts around when you would become a cash taxpayer.
Kind of factoring in the impacts of the shell acquisition higher oil prices et cetera.
Yes sure Phil.
Current pricing current pricing continues into 2022, we would expect to move into a significant tax paying position in the U S by early to mid 2022.
And how about just for the overall company.
So that the overall company, we would be similar so if you look across our international assets. Many of them are already on a cash tax paying position. So the main changes in the U S.
Got it got it okay. Thank you.
Thank you. Our next question comes from Paul Cheng from Scotiabank. Please go ahead. Your line is open.
Thank you.
At first and my congratulations to Adam.
Wish you a wonderful and healthy.
With time, so thank you for that.
Thank you two questions.
Maybe that business team, maybe that we wait two months in.
The third quarter Eagle Ford production actually sequential D. Tom I think in Europe.
<unk> 10, yet stay do you think long term.
Talking Eagle Ford, maybe reaching close to about 300 million by longer time and stay there for a long period of time.
So wondering that with the asset.
Yes, that's the game plan and what we see that third quarter is just the timing of the well coming on stream or that we should be more on that so that's the first question.
And maybe I could ask a second question on the new data.
Good thank you.
Yes.
The way, we think about managing.
The Eagle Ford and the Bakken and the Permian is one asset that we can allocate capital around that we've said on this call before that the Eagle Ford and the Bakken are much closer to being at their optimal plateau than the Permian is the Permian doesn't get there for a long time, but we are increasing activity in the Eagle Ford.
We'll be at that optimal plateau rate that you referenced and.
In the sequential quarter over quarter is more about timing and things like that of wells coming online, but I am very pleased with the performance of that asset.
There have been things like <unk> and other things that we've talked about that have continued to improve the performance of the Eagle Ford.
Kim when you think mutual funds in which that poll tayo production baked in 2000, and 2004 2025 or maybe sooner so.
In other words that at all.
I think that you're going to win them all.
Yes.
We haven't given guidance on things like that but.
Generally it reaches its plateau much sooner.
Yeah.
Okay.
Thank you the second question.
Buffy award for Hawaiian.
Yeah, when you set up the six bidding on the cash return that's based on the $60 <unk>.
Obviously, the client gets much stronger.
So should we assume that you're going to return more than that or because of their shell 10 session.
You're going to stick to that and just have to additional cash to strengthen the balance sheet.
Yes, no at this point.
Our guidance is the $6 billion of return this year.
Stay tuned for what that looks like for next year, but yeah. We're sticking to the plans we have in place for 2021 that gets us pretty close to 6 billion total return that's through the ordinary dividend and through our the shares that were buying in the shares but we're swapping with the C V or sort of.
Yes.
Okay.
Thank you. Our next question comes from Neal Dingmann from <unk> Securities. Please go ahead. Your line is open.
Right.
On what you just said I just want to make sure I was clear on the shareholder return on the $6 billion.
Like a good sign and I think it's one third of it is coming in this quarter is that just the result.
Playing out from the cash flow statement cash.
Yeah.
Yes, I think.
Probably saw some ramp up in the swap with the snow the shares the dividends, obviously ratable across the four quarters of them the raise that we announced here.
Recently.
We are beginning we restarted our share buybacks outside of the synovus swap after the first quarter. So yes. They are not quite ratable and you saw the ramp up there in the third quarter. If you look at our results and you should assume that that continues into the fourth quarter.
Okay, Okay great.
I have a second probably for Jim could you just mentioned earlier on the activity.
It's more on Permian activity, you were talking about I know one of your peers, suggesting kind of novel novel increased activity.
This year it came in 'twenty two I'm just wondering.
Michelle deal would we continue to see.
That's one.
That's what you are indicating on the last you know given you mentioned the plateau and the other two claims could we see some ramp there or is it still in the works.
Thanks.
Honestly no one you don't have to be.
Not yet.
We haven't completed all our planning for next year.
That's what Ryan referred to that we're still going through but.
I'd tell you that as we're planning for shell until we get our hands on the steering wheel, that's kind of just continuing the level of active activity that they currently have going on there.
I would tell you that.
That we.
<unk>.
Yeah.
Really believe strongly in the steady as she goes and as we add activity it will be ratable and kind of.
Yes.
I wouldn't call it a ramp I would call it a slow steady growth because I think that will build the most efficiency in our operations.
Okay.
Thank you. Our next question comes from John Freeman from Raymond James. Please go ahead. Your line is open.
Good afternoon. Thanks.
Just I wanted to revisit that.
10 year plan, which obviously got enhanced after the year after the shell transaction and just what im thinking about the different sort of I guess I'll call them toggles that you have.
Obviously, given the nature of the portfolio I have talked about if you do have a $10 a higher oil price than you all oil assumption there, it's an incremental 35 billion and I'm just trying to make sure that.
I'm on the same page with how you all are thinking about that the last time that the free cash flow got enhanced shell transaction.
With the incremental let's call it $10 billion.
Over that 10 year plan that full 10 billion basically went to that incremental shareholder distributions. So I'm just trying to I guess, Ryan just how you think about.
It would theoretically take for you all to look at something other than that kind of 30% production CAGR.
And it just it doesn't really matter what the oil prices the incremental goes to that to the shareholder distributions or just how you think about it Brian would be helpful.
Yes no.
Thanks, John I think yes, I think you should think about it on top.
Again, the market update plan was at a $50 a barrel price deck. So our commitment to our investors is that 30% of the cash will go back to the show or is this price increase on our cash flows increase you should expect the distribution to the shareholders to increase we're still going to maintain a very strong balance sheet and having some cash on the balance sheet is important to the company.
And then we'll deliver modest growth, but that's always been kind of an output out of our plans we want to make sure that we.
Have a good idea of where the macro is going to go for the next year, we're going to set our capital budget plans to deliver the strongest returns on that capital that we can manage we don't want to blow into the face of really high Super inflation, we've seen what that's done before to return. So we'll be very conscious of that as we go into what we think of it.
Constructive view of the macro going for the next two to three years. So you ought to expect US to act like we've done in the past will be will be really judicious, how we spend our capital to make sure. We're getting the most out of every capital dollar. We can shareholders are going to get 30% of their cashback they'll get that through the dividend and through some share buyback maybe another channel will.
If that's the right thing to do for the company with where we're at and we're going to maintain a very strong balance sheet. As we go through this process, but adding the shell just made the company better data more resilient and made more cash flow and more so that means there'll be more returns.
Of capital back to the shareholder didn't remember we're running the shell assets just like we're running our own lower 40 assets for lower 48 assets at about a 50% to 60% reinvestment rate or not again, that's what I tried to say at the beginning where we're executing michelle differently than what this industry did a number of years ago.
This is Alan I'll take John the second cut we'll take John second question, and then wrap it up.
Okay. Thanks, and then just my follow up question.
Brian you talked about the inflationary pressure, you're seeing in the lower 48, and that kind of high single digit to low double digit inflation versus.
The international part of your portfolio, which is rather modest.
3% inflation.
Obviously, Tim and his team have done a great job on the efficiency gains.
48, right it doesn't sound like at.
At least for the 2022 plan that we should anticipate any material shift in sort of that I guess international versus lower 48 sort of mix, but just.
This is oversimplifying it but.
Like how wide would that that spread have to be from a service concentration perspective, lower 48 versus international where we might see al.
A little bit more on the international portfolio.
Yes, I don't think we will probably allocate capital based on how we see those different inflation rates going so I think we just wanted to be clear about how we kind of see it developing and the significant categories of spend that we have in the company and try to give you an idea of what we're seeing today, we'll continue to watch it I think it's probably more.
More goes to our lower 48 business, if we see hyperinflation start see running away from us we might adjust our scope modestly. So we're not going to try to go into that so again, it's really focus on making sure. The returns are adequate for the capital that we're investing and I think Tim said in Montney is <unk>.
So as you know we're a large company we've got a very sophisticated supply chain organization very sophisticated commercial organization.
And the efficiencies that we're bringing out of the business are still there. So we think we have a way to mitigate.
Quite quite a lot of it and we'll adjust our plans if it gets out of control.
An example, so that's where we stand out as an E&P company. We're global we are big and that's a huge advantage to us when we think about.
The impacts of these kinds of things on our business.
Okay.
Thank you and I have no go ahead, Ed Brian at this time I'd like to turn the call back over to Alan. Thank you terrific. Thank you to our listeners. Thank you is in our really appreciate it Tom feel free to ring Investor Relations. If you have any additional comments.
Wonderful day in week be safe. Thank you.
Thank you and thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
[music].
Yeah.