Q2 2022 Conocophillips Earnings Call

Okay.

Sure.

[music].

Yeah.

Welcome to the Q2 2020 to Conocophillips earnings Conference call. My name is Richard and I'll be your operator for today's call at.

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 zero one on your Touchtone phone again that is zero one to ask a question I will now turn the call over to Mark <unk>, Vice President Investor Relations. Mr. <unk> you may begin.

Thank you Richard and welcome to everyone joining us for our second quarter earnings call first let me introduce the members of the Conocophillips leadership team taking part in today's call. We have Ryan Lance Chairman and CEO , Bill Bullock, EVP and Chief Financial Officer Domenic Backman.

<unk> strategy sustainability and technology.

Nicole's EVP of global operations, Jack Harper EVP of lower 48, and Tim Leach admire advisor to the CEO .

On the call Ryan and Bill will provide some opening comments after which the team is available to take your questions.

Before I turn it over to them just a few quick reminders in conjunction with this morning's press release, we posted supplemental materials that includes second quarter earnings results and highlights.

Earnings and cash flow summaries price realizations sensitivities for estimating earnings and cash flow and updated guidance for the third quarter and full year. During the call. We will make forward looking statements based on current expectations of course actual results may differ due to the factors noted in today's release and in our periodic SEC filings.

And finally, we will make reference to some non-GAAP financial measures today reconciliations to the nearest corresponding GAAP measure can be found in this mornings release and on our website with that I'll turn it over to Ryan.

Well, thank you Mark.

Mark has elected to retire so I want to start off by really thanking him for more than 30 years of dedicated service to our company and wish him well in retirement.

At the same time I would like to warmly welcome Phil Gresh, who will be joining our team next month as vice President of Investor Relations.

Before I get into the results for the quarter I'd also like to touch on a few things that continue to be top of mind for us.

The ongoing tragic invasion in Ukraine, and the residual implications from Covid have significantly impacted supply chains around the world with <unk>.

<unk> is driving both product shortages and elevated levels of volatility, including larger swings in commodity prices.

Combination of these factors was brought into sharp focus the critical importance of U S and global energy security and reliability.

By fulfilling our triple mandate of responsibly and reliably meeting energy transition pathway demand <unk>.

Delivering competitive returns on capital and progressing towards achieving our net zero operational emissions ambition.

Playing a key role in providing secure dependable energy solutions that are clearly needed around the globe.

The guiding principles of our Triple mandate were key to our recent actions and announcements regarding global LNG supply capacity.

The use of natural gas in place of coal and refined products represents an opportunity for significant reduction in greenhouse gas emissions around the world.

We believe this reality is going to drive increasingly strong global LNG demand and related opportunities well into the future.

As recently announced we entered into an HOA with Sempra for a possible investment in the Port Arthur LNG project Thats currently underway.

Financial investment is designed to leverage our company's considerable strength as one of the largest gas producers and marketers in North America, while expanding our global LNG business.

This potential investment is expected to be project financed and if executed would we.

It will afford us the opportunity to participate in additional strategically located in LNG projects as well as to jointly pursue related emissions reduction opportunities.

That announcement, followed our recently completed 10% ownership increase in AP LNG.

As well as our selection to participate and cutters North field. These project, adding to our long positive relationship with Qatar energy.

Our recent decision to join the <unk> two <unk> initiative is also in service to achieving our triple mandate as reducing greenhouse gas emissions, including methane is an imperative for our company and our sector apply.

Applying the rigorous <unk> two point over reporting standard, which incorporates a third party verification.

Be a vital step on our path to net zero operational emissions.

Now before I turn the call over to Bill to cover our second quarter performance, let's discuss for a moment I'm equally important returns element of our triple mandate looking at first state returns on capital we generated a trailing 12 month <unk> of 24% in the quarter.

Five points higher than the 19% we delivered last quarter.

Turning next to our returns of capital once again, we've increased our targeted 2022 distributions to shareholders, taking the total full year expected returns $2 15 billion.

This represents a 50% increase from the target announced last quarter with a $15 billion to be distributed across our three tiers of ordinary dividends share repurchases and zero.

At current strip prices. This represents a return to shareholders of slightly more than 50% of our projected CFO for the year.

Our commitment to achieving our triple mandate is unwavering.

And delivering competitive returns on and of capital to our shareholders through the cycles is a key component of that commitment.

Now, let me turn it over to Bill to cover our overall performance for the quarter.

Well thanks Ryan.

As you noted we generated a return on capital employed of 24% on a trailing 12 month basis.

On a cash adjusted basis that improved to 27%.

Turning to earnings per share, we generated $3 91 per share and adjusted earnings in the quarter.

This was driven by strong realized prices and production of almost one 7 million barrels of oil equivalent per day.

As we previously mentioned production volumes in the second quarter were reduced by scheduled turnarounds as well as some unplanned weather and other minor impacts.

Lower 48 production averaged 977000 barrels of oil equivalent per day for the quarter.

634000 from the Permian.

233000 from Eagle Ford and 91000 from the Bakken.

Operations across the rest of our global portfolio also ran well leading us to generate seven $8 billion in cash from operations in the quarter, excluding working capital.

This includes roughly $750 million in distributions from AP LNG.

And we continue to project full year distributions of $2 3 billion.

With roughly 300 million expected in the third quarter.

We also invested $2 billion back into the business in the second quarter, resulting in free cash flow of $5 9 billion.

That more than covered the totaled $3 3 billion, we returned to shareholders in the quarter as well as the $1 9 billion used to reduce total debt.

These actions taken in combination with a $600 million and disposition proceeds and the repurchase of approximately $300 million in long term investments.

<unk> and ending cash back up eight 5 billion as of June 30th.

Turning to the second half, we provided third quarter production guidance range of one seven to $1 76 million barrels of oil equivalent per day.

And reduced our full year production from $176 million to $1 74 million per day.

That's primarily related to risking our projected production from Libya in the second half of the year as well as some modest updates across the portfolio.

Now in conjunction with these changes we reduced DD&A guidance from $7 7 billion to $7 6 billion for the year.

We also increased full year 2022, adjusted operating cost guidance to $7 5 billion from the prior seven 3 billion and this is reflecting commodity related price impacts.

We reduced guidance for the corporate segment loss from $1 billion to $900 million.

Primarily due to lower interest expense, resulting from our recent debt reduction and higher interest earned on cash balances along with some restructuring efforts.

Operating capital guidance for the year remains unchanged at $7 8 billion.

So to sum it up we delivered another strong quarter across all aspects of our triple mandate.

Our diverse global asset portfolio continues to run well.

We returned $3 3 billion to our shareholders in the second quarter.

Ended the quarter with $8 5 billion of cash and short term investments and increased our full year return of capital target to $15 billion.

We continue to strengthen our fortress balance sheet, and we have reduced total debt by $3 billion year to date.

And we further enhanced our low cost energy transition oriented portfolio by expanding our current and future presence in the growing global LNG market and by joining the <unk> two <unk> initiative.

Now with that let's go to Q&A.

Thank you.

We will now begin the question and answer session. If you have a question. Please press zero one on your Touchtone phone if you wish to be removed from the queue. Please press zero two.

If youre 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 zero one on your Touchtone phone and we're standing by for questions.

Yes.

Okay.

Please standby, while we compile the roster.

Yes.

Okay. Our first question on line comes from Mr. Neil Mehta from Goldman Sachs.

Good morning team and Mark you will be definitely missed and congratulations to fail.

Youre listening on the line and looking forward to working with you and the new capacity.

The first question for you Ryan Big Big announcements in terms of incremental return of capital.

And the questions. We got from investors. This morning, given theres a variable element to it is should we think of this as being oil price dependent in any way or should we view this as a as a financial commitment from conoco that no matter what.

Assuming reasonable market volatility.

You can count on.

Yes, Neil I think you are.

If your question specific to 2022, I think you can count on this return coming back to the shareholders. In 2022, we we took a broad look at the market from the volatility perspective that you described and.

Comfortable that we could increase the distributions to <unk> 15 billion using the three channels that we've been using in the past. So you can count on that in 2022.

Thanks, Ann Ryan I'd Love your perspective on some of the long term growth projects that the company is leaning into here the announcement in Qatar potential investment in U S Gulf Coast and then.

Progress on Alaska, and how does that fit into the long term conoco strategy.

And.

Do you think that the company has taken a little bit more of a growth orientation here.

Relative to just the free cash flow orientation. Thank you.

Yes, I wouldnt describe it as a growth orientation I think we long term, we want to grow and develop our company and we're trying to do things first and foremost the fit.

Fit within our construct of cost of supply in our portfolio. So we recognize the volatility in the markets. We don't want to be investing anything that has a cost of supply over $40. We recognize we need to do that to generate the free cash flow and generate the returns on and of capital is everything that we're doing is in service to that now we do.

Is that.

Certainly post Ukrainian invasion, and we've had long held this view that gas is going to be more of a transition fuel as we transition to lower carbon alternatives going forward and we wanted to apply we've a lot of capacity in the gas space, both LNG and natural gas, we've got a very large position in North America both between allow.

Oscar Canada, and the U S lower 48, and we wanted to augment that with additional LNG liquefaction capacity. So we've been looking at this for quite some time and the opportunity presented itself with Sempra. So yes. There is some added scope and clearly we've signaled for quite some time that we wanted to participate in the expansion projects.

In Qatar, we think thats some of the lowest priced gas in the world and it's going to fit well globally. It could be directed to both Asia into Europe going forward. So I think everything we're doing using service to R. R.

Our cost of supply monitor in terms of how we think about the <unk>.

The investments that we want to make and that we're interested in growing the development of the company over long term and we believe we're at the front end of a pretty constructive cycle in the commodity business going forward just given the our view of the macro supply demand dynamics in the business today. So when these fit with our construct around how we think about the projects we want to <unk>.

<unk> It makes sense for the company they are consistent with our capabilities and our.

Stuff that we're really good at in the company. So they make sense, sometimes you can't dictate the pace of these things and when they come in to make themselves available we're very interested in participating like the.

The deal with the opportunity with Sempra on the.

Gulf Coast liquefaction.

Thank you. Our next question on line comes from Mr. Stephen Richardson from Evercore ISI.

Great. Thank you.

I'd like to also thank mark for all the help and wish him the best.

That would be missed.

The first question I guess is just following up on those comments Ryan on Sempra I was wondering if you could just maybe talk a little bit about do you think about the returns here relative to the.

The backward integration into your existing U S gas production. If you think about it much more on a merchant basis and also just curious if you can talk about like why this project relative to the other opportunities and variable you looked at in terms of more Gulf coast gas.

Yeah. Thanks, Steven I think let me take the last one first a little bit this was permitted kind a shovel ready project, we like the location.

We know we know that area are pretty well and we like the expansion opportunities that come with it and the optionality that it creates.

The size scale and scope, which is why we chose simpler over some of the other opportunities that presented themselves on the Gulf Coast and also the option linked that it adds to the west coast LNG that they have with their.

Mexican opportunities that are going on there. So it was a really good fit we know central pretty well, we've worked with them in the past.

Good fit culturally to the company and consistent sort of culture in terms of how we think about the business the markets.

Natural gas is growing globally.

More to your first part, yes, we think about this in a very.

Integrated fashion so.

It's not only the liquefaction, but it's moving into the markets and that is a recognition that with the transactions we've done over the last year and the.

The core core core assets inside the portfolio in the lower 48, both Canada and the lower 48, we recognize we've got a large potential.

Potential natural gas position and we want to we want to create.

Great value for that position in a very integrated fashion. So it's that it's the integrated nature of the project not any one element, but they all tie together the ability to supply gas.

<unk> gas to the liquefaction facility, the taking of the 5 million tons of commitment moving into the markets that we know really well and getting into that fully integrated chain is what interested us the most.

That's really helpful. Thank you.

If I can just have a quick follow up on.

There is some <unk>.

<unk> it seems in Washington in lease discussions about cleaning up some of the permitting challenges that the industries.

Faced particularly around NIPA and I'm wondering if maybe you could talk a little bit about what would need to happen to kind of push willow a little bit higher up.

The one project, obviously, we think about when you hear about NIPA, but maybe maybe you can address that please.

Yes, NEPA needs reform Stephen It can take 10 years or more cycle time, and it's not just our industry. It's all industries, even the guys that I talked to that are wind developers in solar farm developers complaint and the same thing it takes a long time the coordination through all the various gov.

Government agencies that have responsibility within the NEPA process and it just takes a lot of time, so having some better coordination given some deadlines to response times.

Giving good public comment review periods, but don't let them extend indefinitely like this.

Administration tends to do a little bit in past administrations have tended to do for that matter. So you have the NEPA process is in desperate need of reform to try to make it run smoother quicker.

And have coordinating groups Shepherd this through the various agencies that have some responsibility through the course of the process and I understand that theyre looking at that maybe it's a companion bill to the Schumer mentioned bill So gives us a little bit of.

A question as to whether or not it will get done but it is in desperate need of some NEPA reform now Willow specifically, we've been in this process a long time. So we're in the final throes of that we've got these supplemental EIS statement through the department of interior is out for public comment today again, we'd like to the public has had plenty of time to.

Comment on this project I think we know where everybody stands.

To make a decision to move forward and we look forward to that record of decision coming here. Later later this year. So we can get move moving forward on the project. We think we satisfied all of the concerns the federal Judge has had and we're ready to move forward.

Thank you. Our next question on line comes from Jeanine Wai from Barclays.

Hi, good morning, everyone. Thanks for taking our questions.

Good morning, Marc Good morning, we'd also like to for congratulations to Mark on your retirement and thanks, So much for your time and you'll be very mixed.

Our first question, maybe dovetails on Neal's question on cash returns just maybe digging alone digging in a little bit more does the increase primarily reflects a stronger than expected commodity price environment or are there. Other factors that are kind of driving the increase I mean, I guess, we had anticipated some kind of increase given.

We saw a really strong free cash flow outlook, but we thought it would be kind of walked up over time. So.

$5 billion increase exceeded our expectations I think it exceeded the market expectations. So any color on how youre thinking about future potential there would be great.

Well Jeanine, we look at a lot of things we have.

Formed view, the supply demand dynamics, and the macro where it's going and there's a lot of volatility in the market. So we wanted something that we could make sure that we could we could guarantee that we could deliver in 2022, even with the backward dated nature of the forward curve, a little bit, but we have a.

Pretty constructive on the commodity price.

The thing that kind of enters into our conversation is where we had on the balance sheet. We know we have a very very strong balance sheet. We are interested in rebuilding a little bit of cash after the last transaction earlier. This year that we spent some cash on which has been a very good transaction for the company. We're really pleased with how that's going and Jack can chime in.

Some of that if there is a later question, but I think it is.

Our cash position is on the balance sheet, we still want to build some cash on the balance sheets for the volatility we see in the market in terms of what we see going forward, but we're pretty constructive over the next few years on the commodity price. So we felt like the progress that we've made was pretty good that allowed US then to maybe increase the distributions back to the shareholders.

Above and beyond maybe what the market might have been expecting over the over the last few months.

Great. Thank you.

Second question, maybe moving to Capex and inflation continues to be a pretty tough operating environment out there between inflation and a tight supply chain can you maybe discuss how youre costs are trending versus your expectation and we kind of thought conoco would true up the capex budget for the recently announced participation.

Northfield LNG project.

But you reiterated the Capex budget. This morning, so if youre able to clarify for us if theres anything thats going to budget for that participation.

That would be very helpful. Thank you.

Yes, maybe I'll say a few hybrids, obviously inflation is still with us that's staying with us it's different around the different pieces. The world maybe I can ask bill to.

Chime in on some of that and then Nick maybe you can address jenny's question, specifically on the timing of NFC.

Yes, sure Ryan So Jeanine, we continue to expect our overall company inflation to be in the 7% to 8% range and Thats whats reflected in our capital guidance of seven eight.

$8 billion, just like we talked about it in the first quarter call like everyone else with our higher activity levels in Permian, that's where we're experiencing the most inflation, what we're watching and we're continuing to keep an eye on that.

This is Nick yes, north field expansion. So obviously, we got the 25% equity in have a trained so to put that in perspective katara energy communicated that the total project Thats four trains of 8 million tonnes per annum. So a total of $32 million is 29 billion.

And for that are.

Our effective working interest is three 1% to 5%. So if you take that that gives us an estimated incremental capex of approximately $900 million.

For the MLP project now related to timing as Ryan mentioned this project has been going on for a couple of years.

With drilling and putting in platforms. So we will have an initial initial catch up payment for our share of the project cost either late this year early next.

Not determined at this point in time and with respect to startup of the first LNG.

<unk> energy has communicated that 2026 again this would be incremental to any guidance.

Yeah, So janine thats incremental.

If a catch up payment that did occur this year that would be incremental to the seven 8 billion that we guided to.

Thank you. Our next question on line comes from Mr. Roger read from Wells Fargo.

Yes. Thank you good morning.

Mark Congratulations he seems far too young Amanda retire but.

You got to do what you Gotta do right.

Anyway.

<unk>.

I'd like to get on kind of comes back to the overall LNG and tying it together your existing operations and obviously the.

The two new.

It seems I guess, one for sure and one likely investment Youre.

Big gas trader and the U S to some extent globally I was just curious does that create.

Our new integrated business, we should think about down the road.

What would be the the opportunities are probably gets a little bit back to Steven's question about.

The return structure of the transaction overall with Sempra.

Yes, let me I'll start then maybe I can have bill chime in a little bit on the commercial aspects of what we're doing in this space, but you're right. Roger I think we'd look at it again on a very integrated nature. So we're marketing 78 Bcf a day of gas every day and in North America.

So the.

The opportunity to supply gas into a multiple training project at Port Arthur Texas is intriguing to us than our commitment to take the 5 million tons. We've got a lot of experience moving it into the market.

Bill can describing our commercial team in London, and we've got a commercial team in Singapore, we're used to both the European and the Asian markets will figure out how best to move that 5 million tons and there may be a spot capital into that we don't know we'll work that out as we go through but that very integrated nature of all the way from the supply side through.

Taking the gas.

And sending it to customers is what was of interest to us and looking at it on an integrated fashion.

If there is any more color you might provide on the commercial side.

Yes sure Ryan.

Roger as Ryan highlighted instance, integrated nature, that's most exciting about it we are one of the largest marketers in North America.

Certainly a top five market or I think lately, we're pushing the number too so we're very comfortable with supply.

And we move orders of magnitude above are our physical production. So the optionality that being able to supply LNG regas facilities is pretty interesting to us. It's also interesting to us in terms of ensuring strong flow assurance for our own production and then we've got a history of well over 40 years.

Marketing LNG through Asia.

We started the trade into Japan with our Kenai facility, we've been in the LNG business for quite a long time.

I mentioned, we've got offices in London, Singapore and Japan.

We've been moving spot volumes in the market here off of APL LNG and so it's a part of the market, we know quite well and pretty excited about this integrated nature of being able to create value across that chain.

And the other part Roger I would say.

Jack could chime into here, but just the gas resource that we have as a result of the transactions over the last couple of years, we've got.

Very large high quality gas resource that we could we hope to be pivoting to over time to even supply a lot of this gas.

Yes for sure. The other question just coming back you talked earlier about potential positive just like NEPA re org and all that sort of thing I was just wondering in the.

IRA Bill with some of the issues on our autumn methane tax Conoco has certainly been ahead of the game on overall emissions reductions and everything but is there anything in that or any of the other.

Aspects of the bill, 15% minimum tax things like that we should think of as headwinds.

Well I think.

Generally speaking.

The humor mentioned bill is.

Im not sure if it's a good time ever to be increasing taxes, and increasing government spending just as a general economic policy.

And that's a large part of what this bill goes to no specific to our industry.

At least the agreement recognizes that natural gas and oil are an important part of the energy transition and theyre going to be here for decades. So that's that's a positive I think the methane.

To your point, it's got some books and it will have to see how it.

Develops over time and it comes out with the extra regulation coming out of the EPA and our general view is if you are going to regulate it why do you have to put a fee on top of that we'll have to see how that structured it generally won't as we understand it today, maybe impact companies like conocophillips that have been very proactive in the emission space in <unk>.

<unk> two <unk>.

The agreement to join that specifically targeting methane itself. So at least the agreement incentivize us some carbon capture by addressing the 45 skus. So.

It's uncertain right now the earlier comment I think from Steven NEPA reform to they're supposed to be a companion bill that comes with us that addresses a lot of that and that leaves a lot of uncertainty in the process. So kind of mixed views at this point in time Roger.

Thank you our.

Our next question on line comes from Mr. Doug Leggate from Bank of America.

Well. Thanks, Thanks, everybody Mark let me offer my congratulations to you as well I am not sure Mr. <unk> will be as much fun to travel with us.

Good luck in your retirement.

I guess bill maybe I could start with you last quarter, you talked about the U S business moving into full cash tax I Wonder if you can just give us an update as to whether we are there yet.

When you wrap it all together with the rest of the portfolio, including the recent Norwegian changes how should we think about the cash tax outlook preclinical going forward.

Yes, sure happy to Doug we moved into the U S tax paying position in the second quarter and of course, the amounts and timing through 2022 can vary depending on price and other market conditions, but the.

Majority of our U S taxes in the second quarter were paid in cash with very minimal offsets from Nols and looking at the limitations on the Nols, we would expect to be at.

Our tax payments through 2023 to be reduced only slightly but not eliminated so.

At a high level, we're in a cash tax paying position.

Our effective tax rate for the second quarter was about 32%.

Moving forward I expect our effective tax rate to stay in the mid thirties, assuming production lines with our guidance and forward curves.

So so basically if there is any empty there was no impact from you guys. It sounds like.

Yes, if youre talking about the 15% corporate minimum tax pursuit proposal and we don't expect that to have any material impact on the company, because we exceeded 15% minimum tax across our jurisdictions.

Great stuff, thank you for that Mike.

Follow up is I wonder if I could try and tackle the Capex question.

From a slightly different angle.

When you wrap all of the moving parts together.

<unk> changing.

Honestly, a little bit of inflation on the operating costs and then of course, the overall capital budget.

Nishu that going back to what Mark was the runs we used to get a lot was the idea of what the sustaining capital breakeven was for the portfolio. So I wonder if I could ask you to as you look to 2023.

Like and obviously gas prices have moved to runs as well, but if you could give us an update as to how you see that covering your sustaining capital as opposed to the total capital I'll leave it there. Thank you.

Yes, Thanks, Doug.

Yes, there are some moving parts and we will be refreshing that.

We pull out plans together, we're just going through our annual planning cycle right now.

Looking at this year.

Our actual breakeven this year still calculating.

<unk>.

Around $30, a barrel capital breakeven so sustaining capital around 6 billion. There's obviously some inflation pressure on that but the way we think about sustaining capital is probably going to be focused on that.

Lola macro world, if you like an inflation not quite so high so we still think that structurally this year. We're in about sustaining capital will be about $6 billion clearly that.

Some long cycle projects coming longer cycle low cost of supply projects coming that will add to that for a temporary period and we'll provide more information on that I expect by the end of the year.

Thank you. Our next question online comes from Mr. John Royall from Jpmorgan.

Hey, good morning, guys. Thanks for taking my question.

So just do the <unk>.

On your.

Your cadence of production in the Permian.

I know you talked about it being back half weighted in the prior quarter end.

Looks like a modest tick down in <unk>. So can you just speak to the cadence for the back half and expectations for <unk> versus <unk> and then maybe just.

Broad update on your drilling program there.

Yes. Good morning, this is Jack.

In general that production in both the lower 48 and in the Permian is back half weighted.

And we expect low single digit growth year over year on a pro forma basis.

But on an interim basis, we expect lower 48 to grow in the mid to high single digits with the Permian at the higher end of that range.

As for expectations for activity Good news is where we.

We plan to run steady in the back half of the year and we are currently running the number of rigs that we plan to run for the rest of the year.

And then if you could just give some color on crude realizations.

Really strong in the quarter when you look at your slide there.

Very strong across the board, but north sea was particularly strong so just anything going on there broadly are reasonably to point out.

Yes, sure if you look at our realizations overall and we've provided.

A summary of that in the supplemental information total realizations for the quarter were about 78% of Brent that's really driven by four factors as we look at it John first is that's a narrowing of the Brent <unk> spread Brent increased about 12% WTO I was about 15%.

Henry hub was up significantly more compared relative to branded was up 44%. So that's impacting the total realizations and then on the crude side in particular, we had better realizations coming out of Alaska for the quarter.

That's really Alaska, returning to more of its normal type realizations in the first quarter. You may recall, we had an impact for Holly frontier refinery downtime in the first quarter that was impacting our prices and then we saw better realizations out of Norway, that's really driven by.

Cargo timing across the quarters.

So that's really what's impacting our crude realizations across the company.

Thank you. Our next question online comes from Mr. Paul Cheng from Scotiabank.

Alright, Thank you good morning.

Let me add my congratulations to Marc Thank you Paul to help over the years.

Two quick questions if I could.

<unk>.

Lions.

A lot of your peers have been doing some bolt on.

Some pretty large bolt on acquisition.

What they get popcorn or legal final again per ml.

When you're looking at your portfolio.

You see a lot of opportunity for Youtube.

Firm up we'll at that strengthened our portfolio with those three fluid that bolt on acquisition or that thing.

Landing presentation, yes, we need that that tactic.

Second one yet.

In the first half.

Split between dividend and buyback is one and then two.

Buyback is that right.

The policy for us to assume on that going forward basis.

Nathan to your distribution. Thank you.

Yes, Thanks Paul.

We're the we're in the market quite a bit.

I think a lot of our focus right now in the lower 48, and Jack and commented on as well as doing a lot of the core up.

I noted that in some of our slides. So we've been a lot of a lot of focus right now on swapping and trading acreage with the with the large transaction that we did earlier this year to try and of course, the acreage that we can make sure we're not drilling one mile. But we're drilling you have the opportunity to drill the two in the three mile laterals.

We've seen a lot of the.

We looked at the bolt ons that you described in the Bakken here more recently, we follow the Eagle Ford.

Yes, the bar is still pretty high and on our company and we're pretty.

We originally follow our $40 $50 supply constant supply cutoff. So all in for the acquisition comes in has to have a lower than 50 in the future exploitation of the asset something that's lower than 40 to compete in our portfolio. So that the margin is pretty high and we watch all of them and we.

We're doing a few of them, but more of them are around the swaps.

In the Permian I don't know Jack you might if you have anything to add there at all.

Yes, I would just add that since the Concho deal closed at the beginning of last year.

<unk> done 15 of these swaps and trades in the Permian.

This quarter of about 25000 acres and we have about the same number of deals in various.

Stages currently in.

And the significance about that amount of acreage is that at least a year's worth of <unk>.

Permian drilling activity.

All of those extended lateral lengths.

Thanks, Jack and on your second part Paul.

The thing to remember this year is that a little bit of the buyback pace is influenced by the swap that we had with synovus.

Nothing out of the shares that we own there into the shares of Conoco Philips.

We're going to watch the market, obviously, we're going to watch where our share prices are trading and how much we put to the cash side.

<unk> of it versus the share buyback I'd say somewhere in that two third one third to $60, 40% is probably something that you should expect for for the year. This year. Then we will re look at that revisit that next year as we go through our planning process and that includes the typical fourth quarter increase to the the ordinary.

Dividend, we will take that under advisement with the board and be thinking about that cash returned portion as we as we think about the market and think about where the company's position, but I think roughly.

What you see this year is probably something closer to a 60 40 split between buybacks and cash.

Thank you. Our next question on line comes from Mr. Bob Brackett from Bernstein Research.

Okay. Thank you and please add my voice to the chorus, praising mark as well I'll come back to the the Willow question. It's my understanding that the 45 day comment period ends at the end of this month can you talk about what the path towards that following that looks like what are the various debt.

And can you talk about the various alternatives proposed in the supplemental.

And think about the cost benefit of those.

Yeah, Bob Good morning, this is Nick.

You're right. The 45 day comment period has commenced.

And again, just kind of backing that Thats, a key milestone for the BLM to publish the draft says on July eight.

To your question on project schedule, we wouldn't take up until we get the final SaaS and in a supportive record of decision.

The BLM and so that would allow us to move forward with Willow construction now related to <unk>.

We would probably see that at the earliest later this year and most likely early next now we are planning as far as the schedule to commence a 2022 2023 winter construction season, assuming we had a very favorable record of decision now that will allow.

US Bob to do civil construction start putting roads in place for the project.

I'll come to the alternatives here in a second we do continue to work on.

Detailed engineering to refine cost and schedule as well as the final development modifications and the reason I raise the develop modifications is in the current SaaS Theres a new alternative alternative E that is responsive to the Alaska District Court order and that is to minimize our <unk>.

Reduce the surface impact on the textbook lake, especially areas. So that alternative we think is a good path forward. It reduces the surface infrastructure and still maintains the estimated recoverable resources that we communicated in the market update of about 600 million barrels still looking Bob at a 100000 barrels a day gross.

Before royalty.

For the project again, we are committed to Willow and it remains competitive in the portfolio. We continue to see very strong.

Take holder support, including the Alaska congressional delegation of the trades and unions. So the key thing is really looking forward to that final says and then support a record of decision.

That's very clear thanks for all that color.

Thank you. Our next question on line comes from Mr. Neil Dingmann from <unk> Securities.

My first question just on value creation, specifically, you've got a great formulated plan out there talking about 30% plus of the cash from ops going to shareholders and I'm just wondering.

And then also what appears to be certainly higher than growth.

Both average production, which I'd like to see and so I'm wondering how do you anticipate sort of on a go forward best trading value for shareholders. When you look at the per share growth metrics or what is the best way you'd like to define it.

Well.

We look at all the different ways of thinking about.

Shareholder value and I think it starts to your point earlier that we.

I have a commitment to return at least 30% of our cash from operations that free cash flow cash from operations back to the shareholder if you look at our track record that's been well over 40% as the commodity prices strengthened in the quality of the investment program and what we're doing continuing to lower cost of supply has been.

Sort of an active mantra inside the company. So I'd say, what we're trying to do.

Reduce our capital intensity, we're trying to manage the capital as low as we began with a scope that we'd like to commit so if we go into our planning cycle thinking what is our view of the macro and that sets an amount we can afford to.

Capital, we can invest having taken 30% of our cash right off the top we think thats, a better value proposition to shareholders, rather than just focusing on either growth or return of capital. So it is a combination of the two we want to grow and develop the company over the long haul we want to make sure that the shareholders are getting an adequate part of that cash back right off the top so we have to live in.

The capital or the cash that's left over and then in the course of that we recognize.

The value of the balance sheet, which is like another asset a huge effort inside the company and we want to make sure that the balance sheet is as strong as possible, which means we will carry some cash and will carry some cash on the balance sheet because of the volatility we've seen in the commodity markets.

The scope that we want to execute and grow and develop the company.

And we're not shooting we don't have a growth target in mind, it's an output from our plan to make sure that we're maximizing our returns on enough capital. So we will we will adjust our plans to make sure that we're hitting those those two really key components returns on enough capital in and out of that comes a production number in a fee.

One thing or the projects to allow us to further growth and development of the company over the long haul.

Yes, love that financial flexibility, Ryan I mean, a lot of the bigger ones don't have it right now and then lastly, maybe just a question for Jack on domestic loss inflation.

Jack is it prudent to.

Walk in I know other than rigs.

Are you thinking about locking in maybe some other long term contracts I guess, where I'm going with this is heard some folks out there are locking in pipe, even though they can't technically lock in the price whatever it is six months nine months from now and so I'm just thinking.

As you see the tightness out there right now what are you guys doing to mitigate that.

Sure. So we value flexibility in general in the program, we do have some modest amount of our rigs and frac spreads contracted.

But what we're doing to mitigate that are several things I mentioned, those swaps and trades earlier.

By the end of this year, we will have been able to drill 83 mile wells in the Permian over the last two years, we're drilling those wells faster, we're employing several frac technology.

In various places and we're also keeping our program steady, which we really have always valued keeping a steady program.

And also keeping competition amongst our vendors and we have all of those things in place right now so.

We're doing all we can but there is.

Still inflation out there.

Thank you. Our next question online comes from Mr. Leo Mariani from M partners.

Hey, guys I was hoping to get a little bit more color around kind of your longer term LNG plants. Obviously, you guys have entered into a number of facilities, which will come online in a handful of years, but it's in the prepared comments you guys referred to kind of reassessing some of your domestic.

Maybe just north American overall gas potential potential feedstock for somebody so.

Any just color around that I mean, as you look to the startup date is it possible you could be drilling more for gas here in the U S and a couple of years in and ready got feedstock for delivering into someone's facilities in.

It sounds like that might be an economically advantageous thing for you to do.

Okay.

Yes, I think.

Leo we're trying to think ahead as well and it makes for some different sort of development plans and set our lower 48 Canadian portfolios, but just a recognition that we have quite a bit of gas resource and its associated gas primarily it comes with the oil production that we're doing but we're we're thinking about that in terms of what the pipe add in.

Capacity adds coming both to the Gulf coast and going West.

California down to Mexico, So yes. It is.

As Bill described earlier were top III gas marketer in.

In North America. So we know where these markets are going well, we have an informed view of where these markets are going and how we can.

Supply gas into those markets and to make sure to the extent there is an arbitrage between domestic Henry hub in Europe , and Asia and prices that we have the opportunity to step into that and take advantage of that arbitrage and we're not just stuck with one marker in North America that we're selling our gas too. So it is a very integrated look at it.

And a very informed looked at it to make sure that when we see that these arbitrage is open up between the various regions around the globe.

Take advantage of that and be in a position to take advantage of that when others can't do it.

Okay. That's helpful. And then just a quick question on the Eagle Ford for you folks certainly noticed there was a pretty healthy jump in production in the Eagle Ford This quarter had kind of been.

Declining a little bit in the last handful of quarters.

Is that kind of maybe now firmly back in growth mode. I know you guys have alluded to the path to kind of ramping that up in the <unk>.

Couple of years.

And maybe this quarter. It was just better than expected maybe you had a number of chunky pad come online.

One is that kind of drove it but just thoughts on Eagle Ford growth is that going to continue to be sharply growing asset until the end of the year into next year.

Yes.

Jack again good question.

Yes first off I'm very proud of the work that team is doing down in the Eagle Ford.

Okay.

All aspects of the business, but in the second quarter, specifically there were some disproportionately weighted completions in the Eagle Ford.

We're also having great success, continuing that re Frac program, there and in general the Eagle Ford is growing towards it's plateaued production, but it's not there yet so it will be a continued source of lower 48 production growth.

Thank you.

Our next question comes from Rafael <unk> from Societe Generale. Please go ahead.

Thank you very much for taking my questions.

The first one is related to Qatar and NFC.

It will be very helpful. If you could maybe give us a bit more color. So that we can model.

What you will hear them through this.

Through this deal for.

For instance, can you maybe clarify whether the gas to be sold will be oil linked.

Or will it be linked to a gas price hub.

Any premium maybe to expect from the fact, it will be low carbon footprint.

Or maybe can you compare the profitability of NFC with.

With your two other LNG participations.

That would be very helpful.

Well I mean, I can certainly start.

So let me start on ticket ticket to bill a little bit I think.

There are a lot of that is still work to be done I think Raphael.

Of.

The marketing of the gas will probably follow very similar approaches to what Qatar has done in the past, but <unk>.

And supply a little bit of deals I think the focus of the project right now is the construction and EPC.

Yes, I think thats right, Brian and I.

I would just reflect on Qatar gas and cut our energy has been very very successful one of the largest gas LNG marketers.

In the world they have been very successful, placing those volumes and the project will continue to have those plays through.

That format. So I think it watch the space, but just reflect that Qatar gas cut our energy has been very very effective at place in gas.

Over time and to valued markets.

Okay.

Okay, great. Thank you for that and maybe it is a question at full year results you give us your thoughts on.

The increase in U S supply, we should expect in the east.

Memory is right you mentioned $900000 today I was wondering if you could may be.

Refresh that thoughts eight months into the year and maybe give us your initial thoughts for the next couple of years.

Yes, I think we're still in that 900000 barrel a day and let me that said that's an exit to exit.

Our entry to exit kind of number for 2022 and we see.

Maybe a similar but maybe slightly lower number as we go into 2023, if these commodity prices stay at the kind of levels that we're seeing in <unk>.

We get the inflationary forces that were seeing in the lower 48.

The constraints there are on the supply chain and on labor and some of the other key.

Pieces of the spend that this industry does in the Permian, primarily so yes, we're pretty.

Those are the kind of entry to exit.

Rates that we see for for this year and next year.

Thank you we have no further questions at this time I will now turn the call back over to Martina for closing remarks.

Thanks, Richard and thanks to all who joined today's call. Finally, thank you all for the content of its they are appreciated and with that ill pass it back to you to wrap this up Richard Thank you.

<unk>.

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

Okay.

[music].

[music].

[music].

Welcome to the Q2 2020 to Conocophillips earnings Conference call. My name is Richard and ill be your operator for today's call.

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 zero one on your Touchtone phone again that is zero one to ask a question I will now turn the call over to Mark <unk>, Vice President Investor Relations. Mr. <unk> you may begin.

Thank you Richard and welcome to everyone joining us for our second quarter earnings call first let me introduce the members of the Conoco Phillips leadership team taking part in today's call. We have Ryan Lance Chairman and CEO , Bill Bullock, EVP, and Chief Financial Officer, Domenic, Maclin EVP of strategy sustain.

Ability and technology.

Nicole's EVP of global operations, Jack Harper EVP of lower 48, and Tim Leach admire advisor to the CEO .

On the call Ryan and Bill will provide some opening comments after which the team is available to take your questions.

Before I turn it over to them just a few quick reminders in conjunction with this morning's press release, we posted supplemental materials that includes second quarter earnings results and highlights.

<unk> and cash flow summaries price realizations sensitivities for estimating earnings and cash flow and updated guidance for the third quarter and full year.

During the call we will make forward looking statements based on current expectations of course actual results may differ due to the factors noted in today's release and in our periodic SEC filings.

And finally, we will make reference to some non-GAAP financial measures today reconciliations to the nearest corresponding GAAP measure can be found in this mornings release and on our website with that I'll turn it over to Ryan.

Well, thank you Mark.

Mark has elected to retire so I want to start off by really thanking him for more than 30 years of dedicated service to our company and wish him well in retirement.

At the same time I would like to warmly welcome Phil Gresh, who will be joining our team next month as vice President of Investor Relations.

Before I get into the results for the quarter I'd also like to touch on a few things that continue to be top of mind for us.

The ongoing tragic invasion in Ukraine, and the residual implications from Covid have significantly impacted supply chains around the world with Shockwave is driving both product shortages and elevated levels of volatility, including large swings in commodity prices.

Combination of these factors has brought into sharp focus the critical importance of U S and global energy security and reliability.

By fulfilling our triple mandate of responsibly and reliably meeting energy transition pathway demand delivering competitive returns on capital and progressing towards achieving our net zero operational emissions ambition.

A key role in providing secure dependable energy solutions better clearly needed around the globe.

The guiding principles of our Triple mandate were key to our recent actions and announcements regarding global LNG supply capacity as the use of natural gas in place of coal and refined products.

Presents an opportunity for significant reduction in greenhouse gas emissions around the world.

We believe this reality is going to drive increasingly strong global LNG demand and related opportunities well into the future.

As recently announced we entered into an HOA with Sempra for a possible investment in the Port Arthur LNG project Thats currently underway.

The potential investment is designed to leverage our company's considerable strength as one of the largest gas producers and marketers in North America, while expanding our global LNG business. This.

This potential investment is expected to be project financed and if executed wood will afford us the opportunity to participate in additional strategically located in LNG projects as well as to jointly pursue related emissions reduction opportunities.

That announcement, followed our recently completed 10% ownership increase in AP LNG as.

As well as our selection to participate and cutters Northfield East project.

Adding to our long positive relationship with pattern energy.

Our recent decision to join the <unk> two <unk> initiative is also in service to achieving our triple mandate as reducing greenhouse gas emissions, including methane is an imperative for our company and our sector applying the rigorous <unk> reporting standard which incorporates a third party.

Verification will be a vital step on our path to net zero operational emissions.

Now before I turn the call over to Bill to cover our second quarter performance, let's discuss for a moment on the equally important returns element of our triple mandate looking at first state returns on capital we generated a trailing 12 month <unk> of 24% in the quarter five points higher than the 19% we did.

Levered last quarter.

Turning next to our returns of capital once again, we've increased our targeted 2022 distributions to shareholders, taking the total full year expected returns $2 15 billion.

This represents a 50% increase from the target announced last quarter with a $15 billion to be distributed across our three tiers of ordinary dividends share repurchases and VR.

At current strip prices. This represents a return to shareholders of slightly more than 50% of our projected CFO for the year.

Our commitment to achieving our triple mandate is unwavering and delivering competitive returns on and of capital to our shareholders through the cycles is a key component of that commitment.

Now, let me turn it over to Bill to cover our overall performance for the quarter.

Well thanks Ryan.

As you noted we generated a return on capital employed of 24% on a trailing 12 month basis.

On a cash adjusted basis that improved to 27%.

Turning to earnings per share, we generated $3 91 per share and adjusted earnings in the quarter. This was driven by strong realized prices and production of almost one 7 million barrels of oil equivalent per day.

As we previously mentioned production volumes in the second quarter were reduced by scheduled turnarounds as well as some unplanned weather and other minor impacts.

Lower 48 production averaged 977000 barrels of oil equivalent per day for the quarter, including 634000 from the Permian.

233000 from Eagle Ford and 91000 from the Bakken.

Operations across the rest of our global portfolio also ran well leading us to generate seven $8 billion in cash from operations in the quarter, excluding working capital.

This includes roughly $750 million in distributions from AP LNG.

And we continue to project full year distributions of $2 3 billion.

With roughly 300 million expected in the third quarter.

We also invested $2 billion back into the business in the second quarter, resulting in free cash flow of $5 9 billion.

That more than cover that totaled $3 3 billion, we returned to shareholders in the quarter as well as the $1 9 billion used to reduce total debt.

These actions taken in combination with a $600 million and disposition proceeds and the repurchase of approximately $300 million in long term investments.

Resulted in ending cash back up eight 5 billion as of June 30th.

Turning to the second half, we provided third quarter production guidance range of one seven to $1 76 million barrels of oil equivalent per day.

And reduced our full year production from $176 million to $1 74 million per day.

That's primarily related to risking our projected production from Libya in the second half of the year as well as some modest updates across the portfolio.

Now in conjunction with these changes we reduced DD&A guidance from $7 7 billion to $7 6 billion for the year.

We also increased full year 2022, adjusted operating cost guidance to seven 5 billion from the prior seven 3 billion and this is reflecting commodity related price impacts.

We reduced guidance for the corporate segment loss from $1 billion to $900 million.

Primarily due to lower interest expense, resulting from our recent debt reduction and higher interest earned on cash balances along with some restructuring efforts.

Operating capital guidance for the year remains unchanged at $7 8 billion.

So to sum it up we've delivered another strong quarter across all aspects of our triple mandate.

Our diverse global asset portfolio continues to run well.

We returned $3 3 billion to our shareholders in the second quarter.

Ended the quarter with $8 5 billion of cash and short term investments and increased our full year return of capital target to $15 billion.

We continue to strengthen our fortress balance sheet, and we have reduced total debt by $3 billion year to date.

And we further enhanced our low cost energy transition oriented portfolio by expanding our current and future presence in the growing global LNG market and by joining the <unk> two <unk> initiative.

Now with that let's go to Q&A.

Thank you.

We will now begin the question and answer session. If you have a question. Please press zero one on your Touchtone phone if you wish to be removed from the queue. Please press zero two.

If youre 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 zero one on your Touchtone phone and we're standing by for questions.

Please standby, while we compile the roster.

Yes.

Okay. Our first question online comes from Mr. Neil Mehta from Goldman Sachs.

Good morning team and Mark you will be definitely missed and congratulations to fail.

Youre listening on the line and looking forward to working with you and the new capacity.

The first question is for you Ryan Big Big announcements in terms of incremental return of capital.

And the questions. We got from investors. This morning, given theres a variable element to it is should we think of this as being oil price dependent in any way or should we view this as a as a financial commitment from conoco that no matter what.

Assuming reasonable market volatility.

Number you can count on.

Yes, Neil I think if you're thinking your question specific to 2022, I think you can count on this return coming back to the shareholders. In 2022, we we took a broad look at the market from the volatility perspective that you described and felt comfortable that we could increase the distributions to <unk> 15 billion using.

The three channels that we've been using in the past. So you can count on that in 2022.

Thanks, Ann Ryan I'd Love your perspective on some of the the long term growth projects that the company is leaning into here the announcement in Qatar potential investment in U S. Gulf Coast, and then making progress on Alaska, and how does that fit into the long term.

Arm Conoco strategy.

And.

Do you think that the company has taken a little bit more of a growth orientation here.

Relative to just the free cash flow orientation. Thank you.

Yes, I wouldnt describe it as a growth orientation I think long term, we want to grow and develop our company and we're trying to do things first and foremost that fit within our construct of cost of supply in our portfolio. So we recognize the volatility in the markets. We don't want to be investing anything that as the cost of supply over $40. We.

Recognize we need to do that to generate the free cash flow and generate the returns on and of capital is everything that we're doing is in service to that now we do recognize that.

Certainly posed Ukrainian invasion, and we've had long held this view that gas is going to be more of a transition fuel as we transition to lower carbon alternatives going forward and we wanted to fly we have a lot of capacity in the gas space, both LNG and natural gas, we've got a very large position in North America both between Alaska.

Canada and the U S lower 48, and we wanted to augment that with additional LNG liquefaction capacity. So we've been looking at this for quite some time and the opportunity presented itself with Sempra. So yes. There is some added scope and clearly we've signaled for quite some time that we wanted to participate in the expansion projects.

Qatar, we think that some of the lowest priced gas in the world and it's going to fit well globally. It could be directed to both Asia into Europe going forward. So I think everything we're doing using service to R.

Our cost of supply monitor in terms of how we think about the investments that we want to make and that we're interested in growing the development of the company over long term and we believe we're at the front end of a pretty constructive cycle in the commodity business going forward just given the our view of the macro supply and demand dynamics in the business today. So one of these.

Fit with our construct around how we think about the projects we want to invest in that makes sense for the company. They are consistent with our capabilities and our.

Stuff that we're really good at in the company. So they make sense, sometimes you can't dictate the pace of these things and when they come in to make themselves available. We're very interested in participating like the the deal with the opportunity with Sempra on the Gulf Coast liquefaction.

Thank you. Our next question on line comes from Mr. Stephen Richardson from Evercore ISI.

Great. Thank you.

I'd like to also thank mark for all the help and wish him the best.

Be missed.

The first question I guess is just following up on those comments Ryan on Sempra I was wondering if you could just maybe talk a little bit about do you think about the returns here relative to the.

The backward integration into your existing U S gas production. If you think about it much more on a merchant basis and also just curious when you talk about like why this project relative to the other opportunities and variable you looked at in terms of more Gulf coast gas.

Yeah. Thanks, Steven I think let me take the last one first a little bit this was.

Permitted Chicago shovel ready project, we like the location.

We know we know that area are pretty well and we like the expansion opportunities that come with it and the optionality that it creates.

On the say the size scale and scope, which is why we chose silver over some of the other opportunities that could have presented themselves on the Gulf Coast and also the option linked that it adds to the west coast LNG that they have with their.

Mexican opportunities that are going on there. So it was a really good fit we know central pretty well, we've worked with them in the past.

Good fit culturally to the company and consistent sort of culture in terms of how we think about the business the markets and where natural gas is growing globally.

More to your first part, yes, we think about this.

Integrated fashion so.

It's not only the liquefaction, but it's moving into the markets and that is a recognition that with the transactions we've done over the last year and the.

The core core core assets inside the portfolio in the lower 48, both Canada.

In the lower 48, we recognize we've got a large.

<unk> natural gas position and we want to we want to create.

Create value for that position in a very integrated fashion. So it's that it's the integrated nature of the project not any one element, but they all tie together the ability to supply gas.

<unk> gas to the liquefaction facility, the taking of the 5 million tons of commitment moving it into the markets that we know really well and getting into that fully integrated chain is what interested us the most.

That's really helpful. Thank you.

If I can just have a quick follow up on.

There is some <unk>.

<unk> it seems in Washington, or at least discussions about cleaning up some of the permitting challenges that the industries.

Phase, particularly around NIPA and I'm wondering if maybe you could talk a little bit about what would need to happen to kind of push willow a little bit higher up.

The one project, obviously, we think about when we hear about NIPA, but maybe maybe you can address that please.

Yes, NEPA needs reform Stephen It can take 10 years or more cycle time, and it's not just our industry. It's all industries, even the guys that I talked to that are wind developers in solar farm developers complaint at the same thing would take a long time and the coordination through all the various gov.

Government agencies that have responsibility within the need for process and it just takes a lot of time, so having some better coordination given some deadlines to response times.

Giving good public comment review periods, but don't let them extend indefinitely like this.

Administration tends to do a little bit in past administrations have tended to do for that matter. So you have the NEPA process is in desperate need of reform to try to make it run smoother quicker.

And have coordinating groups Shepherd this through the various agencies that have some responsibility through the course of the process and I understand that theyre looking at that maybe it's a companion bill to the Schumer mentioned bill So gives us a little bit of.

A question as to whether or not it will get done but it is in desperate need of some NEPA reform now Willow specifically, we've been in this process a long time. So we're in the final throes of that we've got these supplemental EIS statement through the department of interior is out for public comment today again, we'd like to the public has had plenty of time to.

Comment on this project I think we know where everybody stands.

Im going to make a decision to move forward and we look forward to that record of decision coming here. Later later this year. So we can get move moving forward on the project. We think we've satisfied all of the concerns the federal judges have and.

We're ready to move forward.

Thank you. Our next question on line comes from Jeanine Wai from Barclays.

Hi, good morning, everyone. Thanks for taking our questions.

Good morning, Marc Good morning, we would also like to for congratulations to Mark on your retirement, Dan. Thanks, So much for your time and you'll be missed.

Our first question, maybe dovetails on Neal's question on cash returns just maybe digging alone digging in a little bit more does the increase primarily reflects a stronger than expected commodity price environment or are there. Other factors that are kind of driving the increase.

Yes.

Had anticipated some kind of increase given we saw a really strong free cash flow outlook, but we thought it would be kind of walked up over time.

The $5 billion increase exceeded our expectations I think it exceeded the market's expectation so any color on how youre thinking about future potential there would be great.

Well Jeanine, we look at a lot of things we have.

An informed view of the supply demand dynamics, and the macro where it's going and there's a lot of volatility in the market. So we wanted something that we could make sure that we could we could guarantee that we could deliver in 2022, even with the backward dated nature of the forward curve a little bit because we have a <unk>.

Constructive on the commodity price.

That kind of enters into our conversation is where we had on the balance sheet.

We know we have a very very strong balance sheet. We are interested in rebuilding a little bit of cash after the last transaction earlier. This year that we spent some cash on which has been a very good transaction for the company. We're really pleased with how thats going and Jack can chime in on some of that if there is a later question, but I think it's.

Yes.

Our cash position is on the balance sheet, we still want to build some cash on the balance sheet for the volatility we see in the market and the terms that we see going forward, but we're pretty constructive over the next few years on the commodity price. So we felt like the progress that we've made was pretty good that allowed US then to maybe increase the distribution back to shareholders above and beyond.

Maybe what the market might have been expecting over the over the last few months.

Great. Thank you.

Our second question, maybe moving to Capex on inflation.

<unk> to be a pretty tough operating environment out there between inflation and a tight supply chain can you maybe discuss how youre costs are trending versus your expectation and we kind of thought conoco and true up the capex budget for the recently announced participation in the North Hills LNG project.

But you reiterated the Capex budget. This morning, so if youre able to clarify for us if theres anything in that 'twenty two budget for that participation.

Would be very helpful. Thank you.

Yes, maybe I'll say a few hybrids, obviously inflation is still with us stay with us it's different around the Dol different pieces. The world maybe I can ask you bill too.

Some of that and then Nick maybe you can address <unk> question, specifically on the timing of NFC.

Yes, sure Ryan So Jeanine, we continue to expect our overall company inflation to be in the 7% to 8% range and Thats whats reflected in our capital guidance is 7.8.

$8 billion, just like we talked about it in the first quarter call like everyone else with our higher activity levels in Permian, that's where we're experiencing the most inflation and what we're watching and we're continuing to keep an eye on that.

And Janine this is Nick yes, north field expansion. So obviously, we got the 25% equity in have a trained so to put that in perspective katara energy communicated that the total project Thats four trains of 8 million tonnes per annum. So totaled $32 million is 29 billion.

And for that are.

Effective working interest is three 1% to 5%. So if you take that that gives us an estimated incremental capex of approximately $900 million.

For the NSP project now related to timing as Ryan mentioned this project has been going on for a couple of years.

With drilling and putting in platforms. So we will have an initial initial catch up payment for our share of the project cost either late this year early next.

Not determined at this point in time and with respect to startup of the firm.

LNG as Qatar energy has communicated that as in 2026 again this would be incremental to any guidance.

Yes, so Jamie that's incremental if it did I catch up payment that did occur this year that would be incremental to the seven 8 billion that we guided to.

Thank you. Our next question on line comes from Mr. Roger read from Wells Fargo.

Yes. Thank you good morning.

Mark Congratulations you've seen them far too young Amanda retire but.

You got to do what you Gotta do right.

Anyway.

<unk>.

I'd like to get on.

When it comes back to the overall LNG and tying it together your existing operations and obviously.

The two new senior.

It seems I guess, one for sure and one likely investment Youre.

Big gas trader and the U S to some extent globally I was just curious does that create.

Our new integrated sort of business, we should think about down the road.

What would be the the opportunities there are probably gets a little bit back to Steven's question about.

The return structure of the transaction overall with Sempra.

Yes, let me I'll start then maybe I can have bill chime in a little bit on the commercial aspects of what we're doing in this space, but you're right. Roger I think we'd look at it again not a very integrated nature. So we're marketing 78 Bcf a day of gas every day and in North America.

So the opportunity to supply gas into a multiple training project at Port Arthur Texas is intriguing to us than our commitment to take the 5 million tons. We've got a lot of experience moving it into the market.

In describing our commercial team in London, and we've got a commercial team in Singapore, we're used to both the European and the Asian markets will figure out how best to move that 5 million tons and there may be a spot capital into that we don't know we'll work that out as we go through but that very integrated nature of all the way from the supply side through <unk>.

Taking the gas.

And sending it to customers as what it was of interest to us and looking at it on an integrated fashion.

If there is any more color you might provide on the commercial side.

Yes sure Ryan.

Roger as Ryan highlighted since the integrated nature, that's most exciting about it we are one of the largest marketers in North America.

Certainly a top five market or I think lately, we're pushing the number too. So we're very comfortable with supply and we move orders of magnitude above are our physical production. So the optionality that being able to supply LNG regas facilities is pretty interesting to us. It's also interesting to us in terms of <unk>.

Bring strong flow assurance for our own production and then we've got a history of well over 40 years.

Marketing LNG through Asia.

We started the trade into Japan with our Kenai facility, we've been in the LNG business for quite a long time.

I mentioned, we've got offices in London, Singapore and Japan.

We've been moving spot volumes in the market here off of APL LNG and so it's a part of the market, we know quite well and pretty excited about this integrated nature of being able to create value across that chain.

And the other part Roger I would say.

Jack could chime into here, but just the gas resource that we have as a result of the transactions over the last couple of years, we've got a.

Very large high quality gas.

Gas resource that we could we hope to be pivoting to over time to even supply a lot of these guests.

Yes for sure.

Another question just coming back you talked earlier about potential positive just like NEPA re org and all that sort of thing I was just wondering in the.

IRA Bill with some of the issues on our methane tax Conoco has certainly been ahead of the game on.

Overall emissions reductions and everything but is there anything.

In that or any of the other.

Aspects of the bill, 15% minimum tax things like that we should think of as headwinds.

Well I think.

Generally speaking.

The humor mentioned bill is.

I'm not sure if it's a good time ever to be increasing taxes, and increasing government spending just as a general economic policy and that's a large part of what this bill goes to now specific to our industry.

At least the agreement recognizes that natural gas and oil are an important part of the energy transition and theyre going to be here for decades. So that's that's a positive I think the methane.

To your point, it's got some books and it will have to see how it.

Develops over time and it comes out with the extra regulation coming out of the EPA.

General views, if you've got a regulated and why do you have to put a fee on top of that we'll have to see how that structured it generally won't.

We understand it today, maybe impact companies like Conocophillips that have been very proactive in the emission space and you saw our <unk>.

Agreement to join that specifically targeting methane itself. So at least the agreement incentivize some carbon capture by addressing the 45 Q. So.

It's uncertain right now the earlier comment I think from Stephen on NEPA reform too there is supposed to be a companion bill that comes with this that addresses a lot of that and that leaves a lot of uncertainty in the process. So kind of mixed views at this point in time Roger.

Thank you. Our next question on line comes from Mr. Doug Leggate from Bank of America.

Thanks, Thanks, everybody Mark let me offer my congratulations to you as well I am not sure Mr. <unk> will be as much fun to travel with but good.

Good luck in your retirement.

<unk>.

I guess bill maybe I can start with you last quarter, you talked about the U S business moving into full cash tax I Wonder if you can just give us an update as to whether we are there yet.

What when you wrap it all together with the rest of the portfolio, including the recent Norwegian changes how should we think about the cash tax outlook preclinical going forward.

Yes, sure happy to Doug we moved into the U S tax paying position in the second quarter and of course, the amounts and timing through 2022, you can vary depending on price and other market conditions.

But the majority of our U S taxes in the second quarter were paid in cash with very minimal offsets from Nols.

And looking at the limitations on El Nino is we'd expect to be at our tax payments through 2023 to be reduced only slightly but not eliminated so.

At a high level, we're in a cash tax paying position.

Our effective tax rate for the second quarter was about 32%.

Moving forward I expect our effective tax rate to stay in the mid Thirty's, assuming production lines with our guidance and forward curves.

Well, so so basically if there is any empty theres no impact and you guys. It sounds like.

Yes, if youre talking about the 15% corporate minimum tax pursuit proposal and we don't expect that to have any material impact on the company, because we exceeded 15% minimum tax across our jurisdictions.

Great stuff. Thank you for that.

My follow up is I wonder if I could try and tackle the Capex question.

From a slightly different angle.

When you wrap all of the moving parts together.

Cash tax is changing.

Obviously, a little bit of inflation on the operating costs and then of course, the overall capital budget.

Nishu that going back to what Mark was around as we used to get a lot was the idea of what the sustaining capital breakeven was for the portfolio. So I wonder if I could ask you to as you look to 2023.

Does that look like and obviously gas prices have moved around as well, but if you could give us an update as to how you see that.

Covering your sustaining capital as opposed to the total capital I'll leave it there. Thank you.

Yes, Thanks, Doug.

Yes, there are some moving parts and we will be refreshing that as we.

We pull out plans together, we're just going through our annual planning cycle right now.

Looking at this year.

Our actual breakeven this year still calculating.

<unk>.

Around $30, a barrel capsule breakeven sustaining capital around 6 billion. There is obviously some inflation pressure on that but the way we think about sustaining capital is.

What are we going to be focused on that in a low macro world. If you like an inflation not quite so high so we still think that structurally this year, we're in the boat.

Sustaining capital will be about $6 billion, clearly that with some long cycle projects coming longer cycle low cost of supply projects coming that will add to that for a temporary period and we'll provide more information on that I expect by the end of the year.

Thank you. Our next question online comes from Mr. John <unk> from Jpmorgan.

Hey, good morning, guys. Thanks for taking my question.

So just a question on your.

Your cadence of production in the Permian.

I know you talked about it being back half weighted in the prior quarter and it looks like a modest tick down in <unk>. So can you just speak to the cadence for the back half and expectations for <unk> versus <unk> and then maybe just.

Broad update on your drilling program there.

Yes. Good morning, this is Jack.

In general that production in both the lower 48 and in the Permian is back half weighted.

And we expect low single digit growth year over year on a pro forma basis.

But on an entry to exit basis, we expect lower 48 to grow in the mid to high single digits with the Permian at the higher end of that range.

As for expectations for activity. Good news is where we plan to run steady in the back half of the year and we are currently running the number of rigs that we plan to run for the rest of the year.

And then if you could just give some color on crude realizations.

Really strong in the quarter when you look at your slide there.

Very strong across the board, but north sea was particularly strong so just anything going on there broadly are reasonably to point out.

Yes, sure if you look at our realizations overall and we provided.

A summary of that in the supplemental information total realizations for the quarter were about 78% of Brent that's really driven by four factors as we look at it John first is that's a narrowing of the Brent <unk> spread Brent increased about 12% WTO I was about 15%.

Henry hub was up significantly more compared relative to branded was up 44%. So thats impacting the total realizations and then on the <unk> side in particular, we had better realizations coming out of Alaska for the quarter.

That's really Alaska, returning to more of its normal type realizations in the first quarter. You may recall, we had an impact for Holly frontier refinery downtime in the first quarter that was impacting our prices and then we saw better realizations out of Norway, that's really driven by.

Cargo timing across the quarters.

So that's really what's impacting our crude realizations across the company.

Thank you. Our next question online comes from Mr. Paul Cheng from Scotiabank.

Alright, Thank you good morning.

Let me add my congratulations to Marc Thank you Paul.

Yes.

Two quick questions if I could.

Yeah.

Ryan.

A lot of your peers have been doing some bolt on some.

Some pretty large bolt on acquisition.

What they get popcorn or legal volatile again.

When youre looking at your portfolio.

You see a lot of opportunity for you to a third.

Muscle strength.

Strengthening your portfolio those three fully that both on the acquisition or that new thing.

Landing pad position, it's not we need that that tactic.

The second one is quick.

The first half.

Split between dividend and the buyback is roughly one third and then two the buyback instead of a cliff.

Good policy for us to assume on that going forward basis, we need that to your distribution. Thank you.

Yes, Thanks Paul.

We're the we're in the market quite a bit.

I think a lot of our focus right now in the lower 48, and Jakob commented on as well as doing a lot of the core up.

We noted that in some of our slides. So it's we've been a lot of a lot of focus right now on swapping and trading acreage with the large transaction that we did earlier this year to try to core fee acreage. So we can make sure we're not drilling one mile. But we're drilling you have the opportunity to drill the two in the three mile laterals.

We've seen a lot of the.

We looked at the bolt ons that you described in the Bakken here more recently, we follow the Eagle Ford.

The bar is still pretty high in our company and we're pretty.

We rigidly follow our $40 $50 supply customer supply cutoff. So all in many acquisition comes in has to have a lower than 50 in the future exploitation of the acid assay is something thats lower than 40 to compete in our portfolio. So the barge its pretty high and we watch all of them in.

We're doing a few of them, but more of them are around the swaps.

In the Permian I don't know Jack you might if he has anything to add there at all.

Yes, I would just add that since the Concho deal closed at the beginning of last year.

Team has done 15 of these swaps and trades in the Permian.

This quarter of about 25000 acres and we have about the same number of deals in various.

Stages currently and the significance about that amount of acreage is that at least a year's worth of.

Permian drilling activity all of those extended lateral lengths.

Thanks, Jack and on your second part Paul.

I think the thing to remember this year is that a little bit of the buyback pace is influenced by the swap that we had with synovus.

Shopping out of the shares that we own there into the shares of Conoco Phillips.

We're going to watch the market, obviously, we're going to watch where our share prices are trading and how much we put to the cash.

<unk> of it versus the share buyback I'd say somewhere in that two third one third to $60, 40% is probably something that you should expect for for the year. This year. Then we will re look at that revisit that next year as we go through our planning process and that includes the typical fourth quarter increase to the ordinary.

Dividend, we will take that under advisement with the board and be thinking about that cash returned portion as we as we think about the market and think about where the company's position, but I think roughly.

What you see this year is probably something closer to a 60 40 split between buybacks and cash.

Thank you. Our next question on line comes from Mr. Bob Brackett from Bernstein Research.

Okay. Thank you and please add my voice to the chorus, praising mark as well.

Back to the the Willow question, it's my understanding that the 45 day comment period ends at the end of this month.

Can you talk about what the path towards that Fid's following that looks like what are the various steps and can you talk about the various alternatives proposed in the supplemental.

And think about the cost benefit of both.

Yes, Bob Good morning, this is Nick.

The 45 day comment period has commenced.

And then just kind of back that Thats, a key milestone for the BLM to publish the draft says July eight.

To your question on project schedule, we wouldn't take until we get the final SaaS and in a supportive record of decision.

The BLM and so that would allow us to move forward with.

Willow construction now related to F D. We.

We would probably see that at the earliest later this year and most likely early next now we are planning as far as <unk>.

Schedule to commence a 2022 2023 winter construction season, assuming we had a very favorable record of decision now that will allow us Bob to do civil construction start putting roads in place for the project.

I'll come to the alternatives here in a second we do continue to work on <unk>.

Detailed engineering to refine cost and schedule as well as the final development modifications and the reason I raise the develop modifications is in the current <unk> says there is a new alternative alternative E that is responsive to the Alaska District Court order and that is to minimize that.

Reduce the surface impact on the textbook Lake special areas. So that alternative we think is a good path forward. It reduces the surface infrastructure and still maintains the estimated recoverable resources that we communicated in the market update of about 600 million barrels still looking Bob at a 100000 barrels a day gross.

Before royalty.

For the project.

Again, we are committed to willow and it remains competitive in the portfolio. We continue to see very strong stakeholder support including the Alaska congressional delegation the trades unions. So the key thing is really looking forward to that final mcis and I'm supportive record of decision.

That's very clear thanks for all that color.

Thank you. Our next question on line comes from Mr. Neil Dingmann from <unk> Securities.

My first question just on value creation, specifically, you've got a great formulated plan out there talking about 30% plus of the cash from ops going to shareholders and I'm just wondering.

And then also what appears to be certainly higher than growth.

Growth average production, which I like to see and so I'm wondering how do you anticipate sort of on a go forward best trading value for shareholders and you look at the per share growth metrics or what is the best way you'd like to define it.

Well.

We look at all the different ways of thinking about.

Shareholder value and I think it starts to your point earlier that we have a commitment to return at least 30% of the cash from operations that free cash flow cash from operations back to the shareholder if you look at our track record that's been well over 40% as the commodity prices strengthened in the quality of the investment program and what we're doing continuing to lower costs.

Supply has been.

Sort of an active mantra inside the company. So I'd say, what we're trying to do is.

Reduce our capital intensity, we're trying to manage the capital as low as we can for the scope of that we'd like to commit so if we go into our planning cycle thinking what is our view of the macro and that sets an amount we can afford to.

Capital, we can invest having taken 30% of our cash right off the top we think thats, a better value proposition to shareholders, rather than just focusing on either growth or return of capital. So it is a combination of the two we want to grow and develop the company over the long haul we want to make sure that the shareholders are getting inadequate part of that cash back right off the top so we have to live.

With the capital or the cash was left over and then in the course of that we recognize.

The value of the balance sheet, which is like another asset view, Jeff fit inside the company.

Want to make sure that the balance sheet is as strong as a possibility which means we will carry some cash we will carry some cash on the balance sheet because of the volatility we've seen in the commodity markets.

The scope that we want to execute to grow and develop the company.

We're not shooting we don't have a growth target in mind, it's an output from our plan to make sure that we're maximizing our returns on enough capital. So we will we will adjust our plans to make sure that we're hitting those those two really key components returns on enough capital in and out of that comes a production number in <unk>.

One thing or the projects to allow us to further growth and development of the company over the long haul.

Yes, love that financial flexibility, Ryan I mean, a lot of the bigger ones don't have it right now and then lastly, maybe just a question for Jack on domestic loss inflation.

<unk> is a prudent to lock in I know other than rigs.

Are you thinking about locking in maybe some other long term contracts I guess, where I'm going with this is for some folks out there are locking in pipe, even though they can't technically lock in the price whatever it is six months nine months from now and so I'm just thinking.

As you see the tightness out there right now what are you guys doing to mitigate that.

Sure we value flexibility in general in the program, we do have some modest amount of our rigs and frac spreads contracted.

But what we're doing to mitigate that are several things I mentioned, those swaps and trades earlier.

By the end of this year, we will have been able to drill 83 mile wells in the Permian over the last two years, we're drilling those wells faster, we're employing several frac technology.

In various places and we're also keeping our program steady, which we really have always valued keeping a steady program.

And also keeping competition amongst our vendors and we have all of those things in place right now so.

We're doing all we can but there is.

Still inflation out there.

Thank you. Our next question on line comes from Mr. Leo Mariani from <unk> partners.

Okay.

Hey, guys I was hoping to get a little bit more color around kind of your longer term LNG plants. Obviously, you guys have entered into a number of facilities, which will come online in a handful of years, but some of the prepared comments you guys referred to kind of reassessing some of your domestic.

Maybe just north American overall gas potential console feedstock for somebody so.

Any just color around that I mean, as you look to startup date is it possible you could be drilling more for gas here in the U S and a couple of years and ready got feedstock for delivery into someone's facilities and you know.

It sounds like that might be an economically advantageous include again.

Okay.

Yes, I think.

We're trying to think ahead as well and it makes for some different sort of development plans and set our lower 48 Canadian portfolios, but just a recognition that we have quite a bit of gas resource and its associated gas primarily that comes with the oil production that we're doing but we're thinking about that in terms of what the pipe, adding the capacity.

The ads coming both to the Gulf coast and going West.

California down to Mexico, So yes.

As Bill described earlier were top III gas marketer in North America. So we know where these markets are growing well we have an informed view of where these markets are going and how we can.

Supply gas into those markets and to make sure to the extent there is an arbitrage between domestic Henry hub in Europe , and Asia and prices that we have the opportunity to step into that and take advantage of that arbitrage and we're not just stuck with one marker in North America that we're selling our guest is so it is a very integrated look at it.

And a very informed looked at it to make sure that when we see that these arbitrage is open up between the various regions around the globe.

Take advantage of that and be in a position to take advantage of that when others can't do it.

Okay. That's helpful. And then just a quick question on the Eagle Ford for you folks certainly noticed there was a pretty healthy jump in production in the Eagle Ford This quarter had kind of been.

Declining a little bit in the last handful of quarters.

Is that kind of maybe now firmly back in growth mode. I know you guys have alluded to the path to kind of ramping that up in the next couple of years.

And maybe this quarter. It was just better than expected maybe you had number of chunky pad come online.

One is that kind of drove it but just thoughts on Eagle Ford growth is that going to continue to be sharply growing asset until the end of the year into next year.

Yes. This is Jack again good question.

First off I'm very proud of the work that team is doing down in the Eagle Ford.

And in all aspects of the business, but in the second quarter, specifically there were some disproportionately weighted completions in the Eagle Ford.

We're also having great success, continuing that refract program, there and in general.

Eagle Ford is growing towards it's plateaued production, but it's not there yet so it will be a continued source of lower 48 production growth.

Yeah.

Thank you.

Our next question comes from Rafael <unk> from Societe Generale. Please go ahead.

Thank you very much for taking my questions.

The first one is related to Qatar and NFC.

It will be very helpful. If you could maybe give us a bit more color. So that we can model.

What you will hear them through this.

Through this deal for.

For instance, can you maybe clarify whether the gas to be sold will be oil linked.

Or will it be linked to a gas price.

Any premium maybe to expect from the fact, it will be low carbon footprint.

Or maybe can you compare the profitability of NFC.

With your two other LNG participations.

That would be very helpful.

Well I can certainly start.

So let me start on ticket ticket to bill a little bit I think.

There are a lot of that is still work to be done I think Raphael.

<unk>.

The marketing of the gas will probably follow very similar approaches to what Qatar has done in the past that.

We can supply them a little bit.

Of the deals I think the focus of the project right now is the construction and the EPC.

Yes, I think Thats right Bryan.

I would just reflect on Qatar gas and cut our energy has been very very successful one of the largest gas LNG marketers in the world. They have been very successful while placing those volumes and the project will continue to have those plays through.

That format. So I think watch this space, but just reflect that Qatar gas cut our energy has been very very effective at placing gas.

Over time and to valued markets.

Okay, great. Thank you for that and maybe it is.

Question.

Full year results you give us your thoughts on.

The increase in U S supply, we should expect and if memory is right you mentioned $900000. Today I was wondering if you could maybe.

Refresh that thoughts.

Eight months into the year and maybe give us your initial thoughts for the next couple of years.

Yeah.

Yes, I think we're still in that 900000 barrel a day and let me.

It's an exit to exit sort of entry to exit kind of number for 2022 and we see.

Maybe a similar but maybe slightly lower number as we go into 2023, if these commodity prices stay at the kind of levels that we're seeing.

We get the inflationary forces that we're seeing in the lower 48.

The constraints there are on the supply chain and on labor and some of the other key.

Pieces of the spend that this industry does in the <unk>.

Permian, primarily so yes, we're pretty.

Those are the kind of entry to exit kind of rates that we see for for this year and next year.

Thank you we have no further questions at this time I will now turn the call back over to Mark <unk> for closing remarks.

Thanks, Richard and thanks to all who joined today's call. Finally, thank you all for the content of its they are appreciated and with that I'll pass it back to you to wrap this up Richard Thank you.

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