Q3 2022 Conocophillips Earnings Call

November 3, 2022

Yes.

Yeah.

Welcome to the Q3 2022 Conocophillips earnings Conference call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

During the question and answer session. If you have a question. Please press zero one on your Touchtone phone.

Now I'll turn the call over to Phil Gresh, Vice President of Investor Relations, Sir you may begin.

Yes, Thank you Richard and welcome to everyone joining us for our third quarter earnings Conference call.

On the call today are several members of the Conoco Phillips leadership team, including Ryan Lance Chairman and CEO Bill.

Philip Bullock Executive Vice President and Chief Financial Officer, Domenic, Matt Cohen Executive Vice President strategy sustainability and technology, Nick <unk> Executive Vice President of Global operations, Jack Harper Executive Vice President of lower 48, and Tim Leach adviser to the sea.

No.

Ryan and Bill will kick off the call with opening remarks, after which the team will be available for your questions.

Just a few quick reminders.

First along with today's release.

Supplemental financial materials, and a presentation, which you can find on our Investor Relations website.

During this call we will be making forward looking statements based on current expectations.

Actual results may differ due to factors noted in today's release and in our periodic SEC filings.

Finally, we will make reference to certain non-GAAP financial measures.

Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website with that I will turn the call over to Ryan.

Thank you Phil before I get into our strong results for the quarter, including record production I'd like to touch on a few big picture thoughts that are top of mind for us.

Inflation in the supply chain constraints continue across the entire economy and our industry.

This is particularly true in the U S shale, we're rapidly escalating costs combined with extremely tight supply are limiting the pace of industry wide production growth.

Second we believe that the world is going to need investments in medium and long cycle production. In addition to U S. Shale plays the depth and quality of our U S. Unconventional inventory combined with our diverse global portfolio has us well positioned to meet these long term supply challenges.

Finally, the successful energy transition must meet societies fundamental need for secure reliable and affordable energy, while progressing to a lower carbon future.

This requires an all the above solution.

Political is that prevent the global market from functioning properly are not going to help the American consumer and would be disastrous for our allies.

Governments can help by enacting policies that encourage investments and developing lower emission oil and gas resources that will be needed to get the world through the transition.

This includes fiscal stability streamlining permitting and supporting critical infrastructure for an all of the above a solution now.

Now against this backdrop, we believe that Conocophillips is well positioned to win in any environment.

We remain committed to delivering on 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.

As further evidence of this commitment our third quarter results demonstrated record total company production.

Lower 48 production hit a milestone at over 1 million barrels of oil equivalent per day, and we anticipate further growth in the fourth quarter.

On returns regenerated, a trailing 12 month <unk> of 27%.

We increased our ordinary dividend by 11% $2 51 per share.

And we announced a <unk> 17 per share of <unk> for the first quarter of 2023, and we increased our share buyback authorization by $2 billion.

Additionally, we will return to $15 billion of capital for 2022, which represents over 50% of our projected CFO well in excess of our greater than 30% annual commitment.

Now, we believe that our CFO based returns framework differentiates us relative to peers.

And finally, our net zero operational emissions ambition, we recently announced a new medium term methane intensity commitment consistent with our recent objectives of joining <unk> GMP two point off.

From a strategic perspective, I want to provide an update on our global LNG initiatives.

First we were recently selected to participate in cutters Northfield South project. Following our selection earlier this year to participate in the North field East, which adds to our long positive relationship with Qatar energy.

Second we agreed to terminal services for a 15 year period that the perspective, Britain's bottle LNG import terminal in Germany.

And third we continue to progress our Port Arthur LNG project with Sempra, which we expect to reach by early next year.

Overall, we continue to believe the substitution of natural gas in place of coal represents an opportunity for significant reductions in global greenhouse gas emissions. This should drive global G.

LNG demand and related opportunities well into the future.

Putting this altogether, we remain constructive on the outlook for the industry and we have a deep portfolio of short medium and longer cycle low cost to supply assets that generate strong cash flow as we continue to deliver on our triple mandate.

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

Well thanks Ryan.

And a financial standpoint, we had a solid third quarter.

We generated $3 60 per share and adjusted earnings.

Production was over $1 million 750000 barrels of oil equivalent per day, which included our previously guided approximately 15000 barrels of oil equivalent per day impact from scheduled turnarounds as well as some impacts from the temporary force majeure in Libya in July .

For the fourth quarter, we do not expect any material turnaround impacts.

Lower 48 production averaged a record 1.013 million barrels of oil equivalent per day.

Including 668000 from the Permian.

224000 from the Eagle Ford and 96000 from the Bakken.

Cash provided from operating activities was $8 7 billion.

Now this included a $15 billion benefit from working capital primarily related to the timing of Norway tax payments and lower receivables.

Excluding working capital cash from operations was $7 2 billion.

AP LNG distributions were 257 million in the quarter, and we expect fourth quarter distributions to be about $600 million.

On capital, we invested $2 5 billion back into the business in the third quarter.

Including around 300 million for acquisitions.

This resulted in free cash flow of $4 7 billion, which more than covered the $4 3 billion, we returned to shareholders in the quarter.

Factoring in $400 million of disposition proceeds ending cash and short term investments were $10 7 billion at September 30.

Up from $8 5 billion at June 30th.

Turning to guidance, we still expect full year production of 174 million barrels of oil equivalent per day.

With our fourth quarter guidance range of 174 to one 8 million barrels of oil equivalent per day.

On costs, we have increased full year adjusted operating cost guidance to $7 7 billion from $7 5 billion and this is driven by inflationary impacts.

We have also increased full year organic capex $8 1 billion from seven 8 billion.

So driven by inflationary impacts and partner operated working interest.

Partially offsetting these increases we have reduced full year DD&A guidance from $7 6 billion to $7 5 billion.

In terms of 2023 guidance, we anticipate providing full details with our fourth quarter earnings call in early February .

We will also be hosting an analyst and Investor meeting next spring at the New York Stock Exchange. So please stay tuned for more details.

That I will turn the call back to Ryan.

Thank you Bill now before we go to Q&A I wanted to spend a minute discussing a few important organizational announcements first Jack Harper our EVP of the lower 48 inform you that he will be leaving the company due to a family medical situation, but I know I speak on behalf of the entire organization when I say that Jack will be greatly missed now in conjunction.

With this announcement Nicole's currently our executive Vice President of Global operations will become the executive Vice President of lower 48, and Andy O'brien currently our Vice President and Treasurer will become our senior Vice President Global operations and joined the executive leadership team.

I'd be I wanted to turn the call over to Jack and give him the opportunity to say a few thoughts.

Thanks Ryan.

Brian mentioned I will be leaving Conocophillips due to it.

Family medical situations.

It has truly been a privilege to work for both Concho and conocophillips over the past 16, and a half years.

When Concho agreed to the merger with Conoco Phillips, we did so because we believe that the transaction would create a uniquely strong and differentiated company.

I could not feel better about how this has played out this.

This may be one of the most dynamic times that we've ever seen in the industry.

My competitive side, certainly makes me wish that I could stay on board for what is ahead.

However, I'm confident that we have set up the team for success with our organizational structure and planned transition over the next few months.

Let me turn the call back over to Ryan. Thank you, Jack and I know I speak for everybody to Conoco Phillips, we have you and your family and all our prayers. So with that let me turn it back over to Phil and we'll get going with Q&A.

Thanks Ryan.

As a reminder.

I ask that you ask one question and one follow up with that.

Richard will turn it back to you.

Thank you.

I'll 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 <unk> one on your Touchtone phone and our first question online comes from Neil Mehta from Goldman Sachs.

Good morning team Ryan I wanted to kick off with you on the LNG strategy and we've seen a lot of interesting individual announcements, but maybe you could pull it all together and talk about how you see these coming together for how konica thinks about LNG as part of its portfolio and as it relates.

So that maybe you can talk about.

Risks around long term LNG as we have a lot of new supply coming in from Qatar in the U S by the middle of the decade, and do you worry about spending on these projects.

What could it be a sloppier market towards the end of the decade.

No. Thank you Neil appreciate.

Question, Yes, I think for some context around the company we've been involved in LNG for a long long time do you think about our liquefaction technology that we have that's being used by many many operators around the world today.

We effectively started this business back in the sixties with our project up in Kenai and delivering.

40 years of gas to Japan.

Marketing friends. So we've been we've been in this business for a long time and then when you look at the transactions that we've done over the last couple of years, we have a growing resource position in the U S. So creating more demand and.

It just makes a lot of sense coming out of out of the U S. So as we step back and we started thinking about it combined with our views of the energy transition and the review that LNG is going to be the necessary fuel that can that can replace coal. Similarly, the way the gas has done that in the United States and reduce the emissions profile in the U S. So we think this is something that <unk>.

<unk> is going to be meeting as we go through this energy transition. So you put all that together and we sat back over a year ago and said this was a piece that we wanted to grow in our portfolio. So it started with the opportunity to AP LNG, we picked up some more interest there and we got named in the North field.

Expansion project and then more recently here in the North field South.

Combined with wanting to do something in the U S to take advantage of our position that we have here and develop more demand for their product in the U S. We looked at who we thought was the best positioned with permits and opportunity.

When we decided to join up with Sempra and.

As you've seen we expect to reach FID early next year at Port Arthur and that gives us some optionality also on there.

The West coast of Mexico opportunity that they have as well so when we looked at all of the all those trying to build this business for the long term and complemented now by our German re guests.

Opportunity that.

We've entered into so we want to get into that full value chain. We've got a great commercial organization that can optimize around this and we just think this is going to be a business, that's going to be long term and going to be substantial well into the future now and it's going to be there's going to be periods of time when supply exceeds demand and when demand exceeds supply and that's more to your point there may be a period coming later.

This decade for <unk>.

There are two where the pricing maybe get a little soft because of a lot of projects are coming in but again, we're entering it into 20 and 30 year contracts. So we just have a long term view that this is going to be a really good business and one that conoco Phillips can excel at given our history and the capability inside the company and we expect to want to try to build more.

This business overtime.

Yes, that's really clear Ryan.

Oh up is just on capital spending for 2023, recognizing we're going to get more thoughts it sounds like here in <unk>.

In February on it but if we took the eight one as the starting point, where some of the moving pieces as you go into 'twenty three that we can break off.

Yes, Neil I would I guess I would start by just saying I'd probably take the last half of this year that kind of pace annualize that for our base business as we think about that going into 2023.

Looking at trying to add Scott.

Hope into our lower 48 operation given the kind of environment on inflation that we see so starting there we'll assess what we think inflation looks like for next year and importantly, we will assess what our partners are doing in terms of the scope that they are trying to execute that we have to fund our share of so those are some unknowns that go into it.

But I would say take the base business, which is kind of ratable off the second half of this year as you think about going into next year and then the new businesses that we're trying to grow and expand and develop the company around added fee in NFS to Qatari projects will be funded at next year again, we hope to reach it.

So maybe some funding associated with that next year and then finally willow.

We hope to be getting into some construction activities next year with Willow, obviously, we won't do that until we have a permit in place that allows us to go startup startup funding of that project. So that's the base business and those are the kind of add or as we look into 2023.

Alright, Thanks Neal.

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

Alright, thank you.

Ryan I was wondering if you could.

Maybe talk a little bit about how youre thinking about the cash return.

Envelope $4 23, just acknowledging there's a lot of variability in the environment, but obviously you've had a really strong year. This.

This year I think.

Talked last quarter about how were trending kind of closer to 50% of cash flow from ops.

Certainly a lot higher than than your baseline and so I think we get this question a little bit is just how do we think about 'twenty three with the moving parts acknowledging what you just talked about with capital.

And the environment is uncertain, but if we have the environment that we have today into next year I Wonder if you could maybe talk about how youre thinking about that.

Yes, Steven I think if if we have.

The macro environment today, if it's similar to next year that is similar to the average over the course of 2022 I think you should expect.

Similar level of distributions and I think we are.

Signaled that a little bit with setting the first quarter V rocket 70 cents a share.

At this 10 seconds, we look at the macro and if it is going to be similar similar next year you ought to expect a similar level of distributions, which is in excess of our 30% commitment, but we're going to watch the macro because we think it's going to be incredibly volatile, but we think we've got the right value proposition and combination of Iraq based.

Dividend and how we're thinking about buying our shares back that it's well set up for the kind of volatility we may see but that would be sort of my my comment as you think about going into 2023, it's a function of the macro which is reasonably strong right now.

That's great.

<unk>.

Just a follow up on on the lower 48, obviously, you've had some really really strong results.

Can't say the same of what we've seen in some of the productivity updates from elsewhere in lower 48 across the industry. This quarter I was wondering if maybe you could talk a little bit about.

Performance versus just the timing of wells and kind of how you're seeing the program evolves, particularly in the Permian, where the lower 48 numbers were.

Really impressive this morning.

Yes, Thanks, Stephen this is Jack.

Yes.

Production is back half loaded like we've been talking about and I hope you saw that in the quarter with the progression.

Also seen our OBO plans are.

Our partners targeting increasingly longer laterals than we first anticipated which of course yields a lower cost of supply and more economic return.

In the lower 48, we do expect to see continued.

Growth as Ryan mentioned.

In the fourth quarter and in the Permian.

Should should modestly exceed that kind of low single digits that we expect out of the lower 48.

In terms of well productivity.

Our plans are progressing as as we have planned we monitor this very closely.

Internally and with our peers externally and really like what we stack up.

Great. Thanks, Dana next question.

Thank you. Our next question on line comes from Doug Leggate from Bank of America. Please go ahead.

Hey, good morning, and John wish you well in the Hopper.

Just to close again at some point and good luck.

I've got two quick questions. If I may Bill I Wonder if I could first with the deferred tax in the quarter I think we've we've heard you talk in the past about when you would hit.

So cash tax in the lower 48.

Has that been delayed somehow or maybe you could just walk through what happened in the quarter was quite a big deferred tax number which we're happy to see obviously, but any updated guidance. We appreciate it.

Yes, sure happy to Doug So first.

The increase in third quarter tax rate on earnings reflects a shift in our geographic mix of earnings primarily due to increase in Norway as pre tax earnings and you'd expect that given the high gas price environment, we're seeing in continental Europe . So as you know, Norway is a fairly high tax environment. So you've seen our effective tax rate increased from 39 per se.

In the third quarter from 32% in the second quarter.

Now moving forward I would expect our effective tax rate to be in the mid to upper Thirty's range, assuming a similar production level and the pricing holds with the forward curve.

Yeah.

But again.

Go ahead Scott.

Thank you, yes, as you noted the deferred tax for the quarter was a source of cash of just over $700 million.

And I would expect deferred taxes to be a source throughout the year.

We did enter a tax cash paying position in the <unk>.

U S in the second quarter.

And we're now in a cash tax paying position in most of our jurisdictions around the world.

No.

Assuming that prices in our capital program stays around current levels. I think you can see deferred tax to remain a modest source of cash.

The cash taxes should be more close to our book taxes over time and I do think it's important to note that trying to forecast deferred taxes and the estimated cash tax ETR on a quarterly basis is pretty tough it can be impacted by a number of items in any given quarter. So I'd really encourage you to think about that as our effective cash.

Tax rate across an annual time period, and I expect that to be getting closer to what we're seeing our effective tax rate on an income basis.

I understand the point about mix and Thats actually really helpful. So thank you.

I guess my follow up my question is on the Permian takeaway, but obviously seeing a lot of volatility around wahhab, but you guys have obviously had a lot of changes in your portfolio could you just give a quick refresh.

So what you have takeaway it looks like I guess, the differential widened a little bit this quarter and utilization. So we're trying to get a handle on that and I'll leave it there. Thank you.

Yes sure so.

So as you know, we're a large globally diverse E&P. So the overall cash flow impact from the Wahhab pricing differentials that we've seen this last quarter was relatively immaterial for us, but that said in our presentation materials are realizations and lower 48 relative to Henry hub decreased by 6% from <unk>.

86% in Q2 to 90% in Q3, and Thats, primarily driven by lower Permian in basin month average prices in September relative to Henry hub.

When we look at it based on foreign markets, we would expect to be in the upper <unk> to low <unk> as a percentage of Henry hub for the fourth quarter.

There's a lot of volatility around that Doug with.

What we're seeing in the market right now and I would expect that volatility is going to continue until we see the additional Permian takeaway capacity come online later in 2023.

And I guess, the only thing Thats just as a reminder, we're the second largest gas market in North America, We've got a really strong market position, that's multiples of our portfolio and we think that's really beneficial in this situation. We've worked hard to build our gas marketing capability in the Permian falling rack acquisitions, and we leveraged that to ensure we've got fluid.

<unk> through these price and Vince.

We're really very confident with our in basin flow assurance and that we've got sufficient takeaway to manage through the short and medium term capacity constraints. So for Conocophillips. This is essentially a price issue not a flow issue.

Great. Thanks next question.

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

Hi, Good morning, everyone. Good afternoon, thanks for taking our questions.

Jackson, Great partnership and we wish you well.

So our first question, maybe just following up on Willow.

Provide maybe an update on what the latest is on that project.

Maybe a high level commentary on what the moving pieces are relative to the original project given that theres been a bunch of back and forth on it on the approval then I think the.

Last detailed update we got on it was in June of 'twenty, one and there was roughly a six year lead time from first.

First production and there was about $8 billion of capital estimate.

Yes, Jeanine this is Nick I'll definitely go through that maybe as a reminder, I'll just walk back in time, a little bit here.

There was a key milestone that was accomplished in early July and that was that draft.

The comment the comment period has been completed as well and as I mentioned in the <unk> call that draft. The CIA has put forward a new three pad alternative reducing the footprint in that tissue Puck Lake special area and that is supported by Conocophillips now that addresses and is responsive to the Alaska.

CT findings now.

Now with respect to schedule.

Still targeting the final CMS and then support a record of decision by the BLM end of this year.

Jeanine as I mentioned previously we would only take <unk> following a final mcis and supported record decision by the BLM and we're targeting.

Early next year.

Now pending that successful record of decision, we expect to have 2023 capital spend for this upcoming winter season, and Thats, mainly focused on civil construction, so that'd be opening up the mine site and laying some gravel roads.

Now again, we won't take up or make a significant investments until we have a clear path to development.

We also continue to do detailed engineering and update our final cost estimates I know that you referenced that we've recently went to market to updated project cost and have seen some inflationary pressures as expected we're seeing that globally.

As well as some of the impacts related to the updated scope due to the Blm's alternative E in their draft Mcis.

I don't want to leave you with this despite all the cost pressures.

It remains very competitive in our $40 cost supply framework and finally, we will provide more details on willow at the market update that bill referenced for next year.

Okay, great. Thank you for all that detail.

The follow up maybe just sticking with projects here.

It's been a lot of investor conversations around Conoco's capital commitments for major capital projects, such as the cutter projects umbrella et cetera, and how that really impacts free cash flow and cash returns. So we know that kind of goes cash returns of course is on our CFO metric not a free cash flow metric, but it's all kind of circular anyway. So.

I just wanted to check in again on just the level of strategic cash that you want a whole then is that the same as it was previously because I guess post the Concho and Michelle Permian deals you could argue that you don't need to hold as much.

And then but on the other hand, you have got some major capital projects on the horizon that you need to reserve for and so you ended the quarter with $10 7 billion of cash. So you have a lot of options there. Thank you.

Yes sure Julien This is bill so first based on our fourth.

Prices, we'd expect to end the year with roughly $10 billion of cash also the same roughly the same amount that you noted for the end of third quarter and Thats I'd note is predicated on us achieving our $15 billion of distributions to shareholders. This year.

Now the framework of how we think about allocation of cash balance really hasnt changed is continuing to be guided by our priorities of having a competitive shareholder distribution strong balance sheet strength and efficient organic and inorganic capital allocations and.

And the framework that we've laid out.

Intending to carry a $1 billion for operating cash by $3 billion of reserve cash and anything above that is strategic cash.

Continues to be the way that we think about that so when you think about strategic cash we think about that for the opportunity to capture value enhancing opportunities like you saw us do with the shell Permian acquisition is to fund our programs through the cycles and defined mid and long cycle projects. So the basic way that we think about our cash back.

Ounces unchanged.

Yeah.

Great. Thanks, Jeanine, we're ready for the next question.

Thank you. Our next question comes from Scott Hanold from RBC capital markets.

Yes. Thank you.

I was wondering if you could go back to shareholder returns and.

Just give us a sense of you know.

How you think about the mix of the shareholder returns I mean, obviously there are some companies that are highly formulaic.

But as you look into it.

Setting that the rock for the first quarter like what goes into play when you think of like what level you want that setup.

Yes.

Well I think we tried to look at a couple of things Scott.

We're obviously, where the macros that project our cash flows forward into next year, and obviously, we're going to meet our 30% commitment and in these kinds of commodity price, we're well in excess of that I think are five year averages in the mid Forty's and this year were 50 or more percent of the cash.

You ought to be thinking about if a similar environment persists into next year with the same level of absolute distributions as I said earlier in regards to the channel again, we want to move out of growing a reliable base dividend, but you can count on you can count on through the cycles, it's gonna be growable, that's going to be competitive with the best in the S&P five.

500, and that's what we're trying to do.

On our base dividend and we want to buy some of our shares back we want to buy through the cycles. We think about how much shares we top up to hit our 30% commitment at a mid cycle price do we think about and then at these elevated prices. We know we're getting more cash and that's why we introduced the third channel through the Iraq.

The rock is usually is a combination of cash and shares.

Got some flexibility because we're we're monitoring the market we're monitoring the macro and we as we think about going forward into 2023, but we know it's going to be volatile, we could wake up it could be <unk> could be $120 a barrel.

So.

That's why the <unk> is there to be that variable channel and.

We'd like to top up some of our cash as well as buy some shares because we think about it as we set it for the first quarter, that's kind of the ratable amount that we had through the through the course of last year, which should signal that we're pretty bullish on how we think about 2023.

Yeah.

No that's great color I appreciate that and actually before I get to my second question is just started out with this project.

All the best to you and your family I mean, we've worked together over the past decade, plus so it was a pleasure working with you all these years and good luck.

But my follow up question then is looking at the opportunities that you all have in Norway.

You look like you're progressing on time will lead in and ill now.

Can you give us a sense is that more just a process of just maintaining production out there or is there an opportunity really to grow that and really part of sort of this global.

Gas opportunity because I do believe it's a little bit more gassy and in a lot of these new developments.

Yes. This is Nick I'll give you a quick update on those developments.

Got actually for developments that are in progress to operated and two non operated you referenced Tom elite and so we've got Tom elite and Alpha <unk> North both of those are subsea developments that are all tied back to existing infrastructure, even the two non operated or tied back to existing.

Structure that means or very low cost of supply we're talking in the low twenties very competitive in the global portfolio.

He had a key couple of key milestones here recently as well, we just set our subsea templates on both Tom Leighton off Enel <unk>, North and we'll start drilling later this year all four of those will come online.

Throughout 2024, but the way I view that as probably more offsetting base decline within the greater ekofisk area as well as our partner operated assets, but again all four of those are very competitive.

Yeah.

Great. Thank you next question.

Yes. Our next question comes from John Royall from Jpmorgan.

Hey, guys. Thanks for taking my question.

Just on the Capex increase if you could maybe give a little bit of color on the split.

Between the JV portion of it and the inflation piece I mean, I know, it's relatively small overall, but that might be helpful. And then on the non operated JV piece is there any way to think about your exposure there and in the lower 48, maybe.

The percentage of production or a percentage of capex or anything that could help us there.

Yeah.

Yes, John it's Dominic here I think just in this the.

The split of capital in terms of the increase of 200 million $200 million is really related to inflation.

And then about 100 $100 million related to a change in working interest we're seeing in our OBO well mix and I think probably we're seeing some of our partners, maybe doing a little bit of capital management and shifting their own working interest down and that's that's closing up to us to go up with it but there's still there's still good well in fact.

Maybe just ask Jack to comment a little bit on on what we're seeing in automobile program. This year.

We're very pleased with the results, we're seeing and as I mentioned before we have some.

Longer lateral development going on in that OBL program. Some of those wells will crossover into next year, and hopefully provide a little bit of momentum.

Yeah.

Okay. That's helpful. Thank you and then.

Maybe just switching over to <unk>.

LNG a little bit of color will be helpful on the western Mexico opportunity.

With Sempra and how that could take shape and how we should think about potential timing there.

Youre getting involved relative to the <unk> targets that I think <unk> put out there for the port Arthur RFID.

Yes, I think.

The West Coast John is.

Longer dated than that that's an option we have to participate in an expansion of that facility that is currently operating today and it would be I think they are.

<unk>.

The re gas portion of that into a small liquefaction plant and then looking at some expansion opportunities. So are our heads of agreement our HOA that we have with Sempra gives us the opportunity to participate in.

In that down the road, when if and when they decide to build a another train at that facility.

Okay.

Thanks, John next question.

Thank you. Our next question online comes from Ryan Todd from Piper Sandler.

Great. Thanks.

Maybe a follow up on one of your earlier comments in the Permian It sounds like Youre, saying that at least for now the plan for 2023 would be largely keep activity levels flat with the second half of 2022.

That's the case any early thoughts on.

What the trajectory would be for Permian volumes during 2023.

And maybe are you seeing any is it just a pricing issue or are you seeing tightness in the basin.

Challenging.

To execute anything that you'd like to.

Yes, Brian we're very happy with our execution out there.

Feel that it's prudent right now to keep a steady amount of activity going into next year.

I would say our internal plans this year and going into next are very consistent with our long term outlook on production out of the Permian in the lower 48.

Yeah.

Great. Thanks.

And then.

Maybe.

Just a follow up on the on the cash returns I mean your position on the dividend as always.

It's always seemed a little more reflective of your view on sustainability of the longer term outlook.

Given the sizable dividend increase can you talk a little bit about it.

And maybe the read through for your outlook on commodity sustainability longer term is this.

Has your longer term view improved and is that reflected in <unk>.

And a nice uptick in the dividend.

Yeah.

Yeah, Ryan I think we will get a chance to talk more about that in our.

Analysts meeting that we have that we talked about early in the spring of next year, but yeah basically it's a yes.

Our longer term view given the dynamics that are going on the market today, we've had a certain mid cycle price that we've talked about over the last four to five or six years and I think it is reflective of that but we think that mid cycle prices moved up a bit.

So as a result, we can afford.

Our base dividend and reflective of the raise that we announced here in the in the fourth quarter.

Okay.

Alright, Thanks, right next question.

Thank you. Our next question on line comes from Paul Cheng from Scotia Bank.

Hey, guys good morning.

Good morning, Paul Good luck, maybe good afternoon.

Yes.

The first one maybe go back into the split between.

Davidson.

Bank.

Third quarter.

Speaking, it's about 65% in buyback 35% dividend.

If we're looking into the future.

Please on the BOE policy.

What should we look at it or that we can.

<unk>.

And saying that okay, maybe one for you guys going to do so thats. The first question.

Second question, yes on the top.

LNG.

Congratulations you guys into the market so.

Is there any.

Capital number that you can see I think in the law.

Mark you expense your Midland.

Midland is about 900.

And given that you have seen what it say 1 million tons here. So should we assume your statement and also with us at the time.

Between the northeast solvent.

Multi wingspan.

Secondly, this thing.

Is there anything that maybe you can share and also with that when that.

Spending on north and south.

Yes.

I don't think <unk> come on stream until 2028.

Yes, Paul let me try to take those I may.

Let me call a friend with MC through part of that so yeah I think the.

The first part split I think you had on the.

The way we think about.

That was <unk>, so between share buybacks and dividends I think.

The split that we've historically have you you mentioned $35 65, I think those are those are reasonable up to like a 50 50 split between cash and.

Share buybacks as how we nominally you think about the.

Rock, but that that's subject to change based on how we see the macro and kind of how we see it but nominally thats, probably not a bad place to start.

With respect to Qatar LNG I think the north field South trains are going to be replicated from the north field expansion trains so relative to the same amount of capital maybe adjusted for your view of inflation, because there will be a little bit later, starting but yes, they're going to be the same scope same.

<unk> size and exact same kind of trained so that's how we think about it very similar to the north field expansion.

Project.

And then.

What was the last one on the Qatar <unk>.

Yes, you are right on the timing items I don't think theres much capital in the next couple of years associated with MFS.

Okay.

Anything you'd add anything you'd add that yes, just to add Paul just on.

As we talked about in the Q2 call remember north field expansion that total net 900 million for US we will have catch up payments and so once the condition precedents are set will reverse.

Energy for sure those NSP project costs that could happen early next year or even late this year again $900 million net total for the project.

Chart up again for NFC is 2026, and then NFS, we'll probably follow a year later.

Great. Thanks, Bob next question.

Thank you.

Our next question comes from Rafael Dubois from Societe Generale.

Thank you very much for taking my questions.

From this side of the pond.

Looks like there is a trade off between.

The industry, increasing production of face winkfield, tox and or extra tax on.

Distribution can you can you maybe explain what projects.

<unk> churn if you will better incentivized to increase protection are there any <unk>.

<unk> since you couldn't monetize faster.

<unk> received some sort of guarantee from the U S government.

In terms of <unk> as you mentioned a few of our remarks or in terms of tax stability that would be my my initial question.

Yes. Thanks, I think we're already growing our company I think we are faced with some other issues in the short term around labor shortages supply chain and inflation, there probably dictating the pace of the industry.

Generally your question more more relates to a medium and longer term outlook. Eventually more infrastructure is going to need to continue the growth and the development of the U S shale and then more and more infrastructure needed for growth up in Canada, and maybe even for exporting some of the product down into Mexico.

Central America. So I think that's the issue we have with the.

Policy choices that this administration is making things they can do to help us get more certainty on the long term permitting and just the fiscal stability to make sure that you know.

We don't have large changes in the tax structure coming because these project takes these projects have cycle times in years associated with them and the more risky put it in the front end of less certainty you're going to have on executing some of that so that's why in my remarks were around uncertainty around the fiscal stability.

Whole conversation around windfall profits taxes is not a helpful conversation right now and then more certainty around permitting and I would add on the permitting if you want an energy transition you need this permitting as well certainly in the U S. You need the permitting for onshore offshore wind for solar installations for high high voltage transmission.

Lines. So permitting relief is required if you want any chance of going through an energy transition in having the support of trying to execute in all of the above energy strategy. So I think these are really important topics as we think about the next 345 years in the next decade or two for our business.

Okay.

Great. Thank you very much.

My second question is.

So Todd and LG.

<unk> recently announced that they will.

Spin off they are all beings in Vermont, and <unk> yields and I was wondering if you could.

So tennis what might change for the way <unk> is run and weather.

It's something you could also consider to lower <unk> emissions intensity.

Yes Raphael.

Start with.

The way we look at <unk>. It is obviously, we value surmount greatly it's a low cost of supply low capital intensity asset that's in our diverse portfolio.

Again, it offers up stable level loaded production.

With a significant resource position out there we've continued to transform that asset.

Through technology applications piloting emission reduction opportunities, including I don't know if you fall. This joining the pathways alliance, which is six like minded companies coming together to lower emissions from the overall oil sands industry net zero by 2050.

The asset continues to perform extremely well actually back in September we hit a record production day or 158000 barrels a day gross so.

We see this is staying in the portfolio.

With respect to hotels spin co or <unk> co plans, we're continuing to understand what that looks like and I can't comment further beyond that.

I would say Raphael it does nothing for global emissions.

What what total is trying to do.

Okay.

Thanks Rafael next question.

Thank you. Our next question on line comes from Jeffrey Inland Vishal from Tudor Pickering and Holt.

Good morning, everyone and thank you for taking my questions. My first one is just on portfolio management on the acquisition strategy I know you've talked about bolt ons as more of a focus and we're obviously seeing that quarter to quarter, but wanted to get any updated views you might have on the environment as you see it for larger deals, particularly for upstream assets in the Permian I don't know that.

The cost of supply framework continues to be kind of the focal point in assessing those in terms of like opportunities would need to hurdle, but anything you can say just around what you see today and we are developing the appetite might be particularly in the Permian would be great just given the position you've assembled there over the years.

Yes, maybe I can start and then I'll ask Jack to comment on it as well because his team has been very active in this space.

Over the last year year, and a half we continue to look for opportunities to bolt on acquisitions.

We mentioned one it was.

Small opportunity in the Eagle Ford to core up what we're doing there so.

We went ahead and did that but a lot of focus was going on what we're doing in the Permian and let me, let Jack kind of describe a little bit about what we're doing there sure. Thanks, Brian Yeah, we were always opportunistically looking to add to our core areas and as we've talked about in previous calls we find the highest value right now in swaps and trades.

Teams completed about 20 of these and that as that approaches the 30000 acres or so.

Caught up.

Land that it allows for longer lateral development and lower cost of supply.

Development so.

And in addition to those Twentyish deals, we have about that many or more in the pipeline.

Perfect I appreciate that and then lastly, just on the disposition side I think the last time, you'll tallied up what's been done since setting the targets for the end of next year with last quarter's earnings about $2 4 billion.

With the noncore sales in today's press release be incremental to that or is that included and then I guess bigger picture. It seems like lower 48 noncore positions.

Represent kind of the main opportunities that looks like or at least half of that.

The recent past is that the right way to think about some of those priorities going forward.

And as Jeff had said don't Dominic here yet.

We've sold.

Well since we closed the contract and then the shell transactions, we obviously wanted to do a little bit of portfolio cleanup.

So we've sold $2 4 billion as he set of assets and that's inclusive of the <unk> three 1 billion this quarter.

And we're pretty pleased about that because they represent really the priority assets, we had for sale typically very mature.

Low marginal high cost supply so that's assets like Indonesia, the high <unk> build a modern some legacy assets in the Central basin platform. So on so so we've been pleased with that we monetize those and a strong market.

Going forward I would say we are really just back into normal set of high grade opportunity as usual, we're not focused on any target at this point, we're happy with where we are.

We'll always look for opportunities but.

So we're pretty happy that we've basically completed the main cleanup that we wanted to do after the after those two big transactions.

Thanks, Jeff next question.

Thank you. Our next question comes from Neal Dingmann from true.

Securities.

Thanks for the time again, Jack Burgers with you and your family Football goes well, Brian My first question I guess I would call. It for the top news or on shareholder return and capital allocation, specifically any change to how you all are thinking about the shareholder returns versus or.

Specifically to buybacks versus just particular to maybe accelerate your growth opportunities I would say that obviously given the stocks hit an all time high and.

Knowing just the incredible hywel opportunities I will return opportunities you all have.

Yeah. Thanks, No I think we've tried to describe that in the release, we feel like obviously, we could we could ramp more in the lower 48, but in this environment. It just doesn't make sense just to be to be doing that right. Now we just want to run efficient stable programs right. There, we do have opportunities to invest in more.

Medium and longer cycle projects, we described those around Willow and Sempra and then the Qatari projects as well so we are leaning into.

We're going to need to supply long term as an industry and we think these are important and we believe our company with our global diverse portfolio as the kind of opportunities that are low cost supply fit our <unk> emissions intensity profile and our reductions that we're trying to make in that particular area and these are going to be needed assets.

We want to invest in to ensure that the supply is there long term.

No great to hear and then my second question, probably for Jack on the Permian and specifically the former shell assets now purchased I guess it was about a year ago I'm just curious to know when you look at those.

Well returns using this and seeing there how those are stacking up versus those initial expectations, maybe a year or more ago.

How you guys are or if you are utilized and I think there was about what is it 600 or more miles of pipe. There I was wondering if that's been fully utilized.

Yes, thanks Neil.

Well in general we're very happy with that deal is fully integrated.

We mentioned last quarter, we started to bring on some of the initial projects with our style of drilling and completion and that continues.

And the results are at least as strong as we had anticipated and then on the other piece of that the OBO as I mentioned before.

So far of an upside to the deal has been that we have seen lateral lengths extended by our partners and Thats better for everyone. So we'll continue to do that but right now it's completely folded in and business as usual.

Thanks, Neel operator, I think we have time for one more question.

Thank you. Our next question comes from Leo Mariani from MK and partners.

Hey wanted to quickly follow up around some of your prepared comments.

You certainly discussed the LNG deals that you've entered into and.

And you kind of alluded to the fact that there is some nice benefit would you kind of U S production base I guess, particularly for the Port Arthur project, just as you're thinking about that in India. Do you think there is obviously an ability to kind of pulled some of those volumes into that on the next couple of years and would you anticipate maybe trying to kind of increase some of your gas production as you.

Look out into the middle of this decade to kind of take advantage of that as feedstock.

Well, yes, we've said.

So in our opening comments that we're we think the gas resources pretty plentiful in the U S.

I don't think there is I wouldn't think about it is physical integration between between our assets the market in the U S is a big liquid liquid market, we wanted to create.

Creating some of this more demand to exploit the resource in the US is a good thing is and that's what we're trying to play we see the resource in the U S being quite substantial we want to be involved in the liquefaction of that resource in the shipping and then the regasification as we move it to higher valued markets around the world.

Okay that makes sense and I guess you also talked in your prepared comments about.

Having to kind of start some of this medium term major project capital in 2023 that we should kind of layer on top of this kind of a second half 'twenty two annualized spend if you will.

As possible operating order of magnitude on this major project spending we're talking kind of in the hundreds of millions or potentially could this be north of $1 billion.

Well I think it's too early certainly there's as Nick described in terms of some of the.

Nuances on.

Below what we'd get started what we won't do we have to do a upfront payment how big is that for Qatar. So it's a little bit early for us to be kind of telegraphing. What absolutely. We're just saying these are projects that make sense for us we're going to fund them, we're going to lean in on some of these medium and longer cycle projects, we think the world needs them and again the returns back to the shareholder aren't going to sell.

Because our value proposition is based on the CFO .

So it's not based on free cash flow.

Okay. Thanks.

Okay.

Okay last question I'll now turn it over to Phil for closing comments. Please go ahead.

Thanks, operator.

So this will wrap up the call today, if you have any questions Investor relations is around and we appreciate your time today.

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

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