Q1 2023 ConocoPhillips Earnings Call
Welcome to the first quarter 2023 Conoco Phillips earnings Conference call.
My name is Michelle and I will 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 star one one on your Touchtone phone.
I will now turn the call over to Phil Gresh, Vice President Investor Relations, Sir you may begin.
Thank you Michelle and welcome to everyone to our first quarter of 2023 earnings conference call on the call. Today are several members of the Conoco Phillips leadership team, including Brian Lantz, Chairman and CEO , Bill Bullock Executive Vice President and Chief Financial Officer, Domenic Maclin executive.
President of strategy sustainability, and technology, Nick <unk> executive price President of lower 48.
Andy O'brien Senior Vice President of global operations, and Tim Leach advisor to the CEO .
Brian and Bill will kick off the call with opening remarks, after which the team will be available for your questions.
A few quick reminders first along with today's release, we published supplemental financial materials and a slide presentation.
Which you can find on the 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 some non-GAAP financial measures.
Conciliation 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.
Thanks, Phil and thank you to everyone for joining our first quarter 2023 earnings conference call.
Since we just hosted our analyst and Investor meeting in New York, a few weeks ago.
We're going to keep our prepared remarks fairly brief today.
Conoco Phillips delivered a strong first quarter results setting a new production record for the company as well as in the lower 48.
Underlying production growth was 4% year on year, including 8% year on year growth in the lower 48, we are.
And confident in our outlook for the rest of the year and we are increasing the midpoint of our full year production guidance.
We're keeping our full year capital and operating guidance unchanged.
Shifting to returns on enough capital.
We continue to demonstrate our returns focused value proposition in the first quarter.
Our return on capital employed once again exceeded our goal of being top quartile in the S&P 500.
As we highlighted at the recent analyst and Investor meeting, we remain confident in our ability to achieve this objective.
Mid cycle price environment over the course of our 10 year plan.
On return of capital we are on track to deliver on our plan to $11 billion for 2023.
It represents greater than 50% of our projected CFO and is highly competitive with peers.
And we are able to achieve all of this while investing in our attractive mid and long term opportunities.
Our first quarter was also quite busy from a strategic perspective.
Port Arthur LNG, we acquired a 30% equity interest in the joint venture upon final investment decision on phase one.
Yes, well, we are pleased to receive a positive record of decision and bigger.
In road construction.
Added APL, Angie, we announced plans to become upstream operator, following the closing of Aig's transaction with origin and to purchase up to an additional 249% in the project.
We also accelerated our 2030 greenhouse gas emissions intensity reduction target to 50% to 60% versus a 2016 baseline as we further advance our net zero operational emissions ambition.
I know everyone asked the question on <unk>, So let me address that right now.
We acknowledge that we received our FERC writer first refusal notice and we're certainly reviewing it carefully.
In conclusion, as we shared at our analyst and Investor meeting last month.
Our deep durable and diversified asset base is well positioned to generate solid returns and cash flow for decades to come.
And as I said, then we challenge any other E&P company to show your plan kind of duration.
Now, let me turn the call over to Bill to cover our first quarter performance in more detail.
Well thanks Ryan.
In the first quarter 2023, we generated $2 38 per share and adjusted earnings.
First quarter production was a record for the company at $1 792000 barrels of oil equivalent per day, driven by solid execution across the entire portfolio.
Eagle Ford stabilizer expansion and cut our guests III planned turnarounds, where both successfully completed.
Our lower 48 production was also a record averaging $1 36000 barrels of oil equivalent a day, including 694000 from the Permian.
227000 from Eagle Ford.
98000 from the Bakken.
And lower 48 underlying production grew 8% year on year with new wells online and strong well performance relative to our expectations across our asset base.
Now moving to cash flows first quarter CFO was $5 7 billion, excluding working capital at an average <unk> price of $76 per barrel.
This included AP LNG distributions of $764 million.
Now first quarter capital expenditures were $2 9 billion.
Including $400 million for Port Arthur Phase, one and $100 million in lower 48 acquisitions.
Regarding port Arthur as you will recall from our fourth quarter call. We said we plan to spend about $1 1 billion in 2023, So first quarter spending was fairly front end loaded relative to the full year.
In the first quarter, we also received $200 million and disposition proceeds.
And regarding capital allocation, we returned $3 $2 billion back to shareholders and this was $1 7 billion in share buybacks and $1 $5 billion in ordinary dividends and <unk> payments.
Turning to guidance, we forecast second quarter production to be in a range of $1 77 to $1 eight 1 million barrels of oil equivalent per day. This.
This includes 10 to 15000 planned seasonal turnarounds.
We have also increased the midpoint of our full year production guidance by 10000 barrels a day.
Our new range is $1 78 to $1 8 million barrels of oil equivalent.
Up from one 7% to $1 8 million previously.
For LNG, we expect distributions of $350 million to $400 million in the second quarter.
And for the full year, we expect <unk> distributions of $1 8 billion.
All other guidance items remain unchanged.
So to wrap up we had a strong first quarter, we remain confident in our outlook leading to our increase in full year production guidance and.
And we expect to return of $11 billion to our shareholders. This year.
And we are well positioned to deliver on our commitments throughout this year.
So that concludes our prepared remarks, and now I'll turn the call back over to Phil.
Great. Thanks, Bill so before we move to Q&A just a quick reminder, here that we are sticking to one question per caller. This quarter. Since we just hosted the analyst day, a few weeks ago and is obviously quite a busy earnings day FERC, everybody, so with that Michelle let's move to the Q&A.
Thank you we will now begin the question and answer session. If you have a question. Please press star one one on your Touchtone phone.
If you wish to be removed from the queue. Please press star one line.
You are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press star one one on <unk>.
Catching heng fan.
Please standby, while we compile the Q&A roster.
Yes.
The first question comes from Stephen Richardson with Evercore. Your line is open.
Great. Thank you.
Brian I was wondering if you could talk I mean on.
The return of capital.
Obviously outperforming 50% of cash flow from ops, and setting up really strongly versus the $11 billion target I'm. Just wondering if you could address the environment is not straightforward. There's a lot of volatility out there and just from a shareholder's perspective, how do you think about balancing the rock buyback and just the general flexibility is.
Both consider kind of the volatility in the commodity environment.
Yeah, Thanks, Steven I think.
Let's start with aerospace recognizing the volatility it is currently in the market, but even with that as we look at the first quarter average prices were.
Mid <unk> quarter to date in the second quarter in the high 70 so.
That's close enough to our planning framework that we set out early in the year that closer to update <unk> and delivering the 22 billion of cash for the for the year. So we're not going to overreact to kind of what we're seeing in the volatility right now so we're on track and hopefully you see that would be.
The <unk> that we set for the third quarter on track to deliver the $11 billion distributions that we set out at the beginning of the year.
We're comfortable with that we have the balance sheet.
To support it if prices turn out a little bit a little bit lower as well so it.
We'd take a structural change and we certainly don't do this.
Volatility, we're seeing right now is a structural change in the marketplace in terms of the mix in the balance.
We said, we'd do about 50% shares we leaned in a little bit in the first quarter on the shares but through the year, we expect to be about 50 50 between.
<unk> shares to deliver the $11 billion of returns back to the shareholder hopefully you see that with the third quarter setting of the V. Rocket 60, a share that should give you comfort that.
We're on track to deliver that.
Thank you so much thanks, Steve next question.
The next question comes from Neil Mehta with Goldman Sachs. Your line is open.
Yes. Thank you so much and congrats on a really good lower 48 quarter in particular.
Brian I think you sort of cut how does this question off but I'd love you to comment to the extent you can on on surmount recognizing it is enacted.
Situation in <unk>.
Think about that asset first of all.
It seems from the analyst day that it is a core position for you guys and just any thoughts on <unk>.
Whether it makes sense to be a bigger part of the portfolio.
Can you comment at all.
Yeah, Yeah, no I can let Andy maybe make a few comments about the asset which would be kind of reiterating what we said at the analyst meeting, but yes. We are in receipt of the notice on the transaction between the two.
Total and Suncor, we have we have a right.
Asset, which we know really well because we own 50% and operated so we're in the we're in the process of.
<unk> taken a pretty serious look at that I can maybe have Andy reiterate some of our thoughts about the asset that we described in the analyst meeting.
Good morning, Neil Yes, as we said in the analyst meeting.
We do we do like seven has a nice sort of long life low capital intensity asset for us.
As we because we covered in the analyst meeting that.
Low capital intensity is an important part of our portfolio and just to sort of reiterate that sort of the maintenance capital on assignment.
Referring now to about 50% of Shadow some of it has been in the $20 million to $30 million.
Yeah range for the last four or five years Youll recall I mentioned that we're now we're drilling our first new pads since 2016.
That pad for example, it will be in the $40 million to $50 million. So it's a it's a very low capital intensity assets for us.
With that sort of basically flat production profile and as you know sort of pretty much all of our other driver information we disclose in terms of our production.
Production data bitumen realizations are operating costs, that's all out there.
And form your own view on the asset but it is.
It's an asset that is a core asset in our portfolio, but probably just stop at great great color. Thanks, guys.
Thank you Neil next question.
Okay.
The next question comes from Roger read with Wells Fargo. Your line is open.
Yes, thanks, good morning.
I guess I'd like to follow up on Port Arthur LNG, obviously, the phase one was cover there is always a possibility of greater expansion in Allen just what would be the.
Things, we would watch.
Coming up in terms of the second phase.
Okay.
Yes sure. Roger This is bill as we talked about at the analyst Investor meeting. We're currently really satisfied with 30% for phase, one and a 5 million ton equity ought to take and we're prioritizing market development over any additional uptick in equity right now.
I think we've got sufficient capital allocation to port Arthur and we're looking for ways to optimize our current investment. So our plate is pretty full and we don't need see need to allocate significant additional capital in the near term. Thanks.
It needs to be some pretty unique reasons to make it attractive.
Alright clear enough I'll stick to the one thanks.
Thank you Roger.
The next question comes from Doug Leggate with Bank of America. Your line is open.
Hey, good morning, guys. That's E clay on for Doug. Thanks for taking the question. My question is a follow up on for Mark.
Our understanding is that suncor can receive certain tax benefits and part of it here as part of their deal and Im wondering if those tax benefit would be available to you. If you exercise your right of first of all kudos and I'm asking the question because I think George would look more like an asset deal are there just more of a corporate deal.
Well as we've said clay that.
We're currently reviewing the proposal that we got in the terms and conditions.
A bit early to comment on tax pools.
Okay.
Thanks.
Thanks.
The next question comes from Sam Margolin with Wolfe Research Your line is open.
Hello, Thanks for taking the question.
The capital efficiency it looks like it's <unk>.
Going into the right direction with the production guidance.
And the capital plan in line at the Analyst Day, you made some comments, where you thought it was at least possible that you could start to see inflation ease.
If not if not reverse in the question is just as you think about this production result is that an outcome of maybe an opportunity to.
Chris activity, a little bit as costs are easing or is this is.
Is it more of a well results driven outcome. Thank you.
Yes, Thanks, Simon it's Dominic here.
Just to talk to <unk>.
Inflation, a little bit first I think.
Overall.
Capital inflation for the company, we still expect to be in the mid single digits year over year. So we certainly see that leveling off.
As you mentioned before.
We certainly seen deflationary trends in steel tubular is.
All price related commodities, such as fuel and chemicals beyond that on.
On the rig frac in other services, they've suddenly leveled off we may be trending towards some reductions we have seen rig counts Pete can begin to decline that's led by the gas basins. So our teams are very focused on costs and they are working working with our many service providers on that but we still expect around the mid single digits at this stage.
On inflation, having said that we certainly see capital efficiency coming through I think thats really on execution front. So we've had a strong start particularly in the lower 48, our full year production guidance as we've said is up at the midpoint.
We do expect low to mid single digits growth for the year and Thats pretty consistent with the long term, 4% to 5% CAGR, we presented at our Investor meeting.
And yet we are holding a capital range of the same with $11 billion at the midpoint. So.
We're definitely seeing some execution efficiency. We're pleased about that Nick you may want to talk a little bit more about the lower 48 on that so alright. Thanks, Tom Yes, and just take you back to the analyst call. When we talked about drilling and completions efficiency. If you recall, we had from 2019 to 2022, we had a 50% improvement.
Drilling at <unk>.
60% improvement in completion that stages per day, we continue to see that in Q1, very promising results and thats the use of.
Technology like some of Frac E frac or testing out some remote frac as well, where we keep a frac spread on pad one and then we had frac pad to pad III pad four so very promising results there.
As well as on the drilling front, we continue to use data analytics and rig automation, but all that's coming together, so really promising that did lead to some accelerated place on production of wells in Q1, driving some of the over performance.
Thank you so much.
Thanks next question.
Yeah.
The next question comes from John Royall with Jpmorgan. Your line is open.
Alright, Thanks for taking my question.
So my question is just on Willow are there any updates there to have the lawsuits are progressing and are you any closer to a resolution there and getting to RFID then.
When we last saw you a few weeks ago.
Yes.
Hey, John This is Andy Yeah, there's really not too much new to comment on over the last few weeks. So the only incremental news we've had has all been positive.
The ninth Circuit Court of Appeals denied motions attempting to stop our construction work so we've been.
We've been progressing with the winter season, and we've got we've had graduate extraction and road construction underway.
It is pretty much going as we expected it would.
So as you have in the last two or three weeks not much not much.
More to add than we talked about that the.
Analyst and Investor day.
Thank you.
Next question.
Yeah.
The next question comes from Ryan Todd with Piper Sandler Your line is open.
Okay. Thanks.
And maybe one for you following up on the on the analyst day, but.
What impact if any does.
Increased your view of the mid cycle oil price from 50 to 60.
What impact if any does that have on the.
On the way in which you think about the business. I mean, you are still focused on low cost of supply assets well below this price.
Does the view that oil prices would be structurally higher over time have any impact on the way you think about.
Managing the business over the long term your balance sheet and allocation of capital or or anything else.
Okay.
Thanks Ryan.
In terms of how we're running the company day to day and the allocation.
Capital that we put in each year.
Does it we're only investing in things that have a constant supply of less than $40.
Debbie Ti in the portfolio, so what what a mid cycle price changed our chief Economist office, our commercial team. We go through a process every year, where we take our current view of the macro and have a long range view of what we think is happening and as we've gone through a lot of turmoil in the business the personal invasion of Ukraine.
Just the lack of investment going into the business. These days, we step back and did our own bottoms up which we do every year, but important this year, we've got our own bottoms up work trying to understand where we think the mid cycle prices moving to and what it was at staying in kind of that $50 level, our assessment of the the price required to generate.
That incremental barrel to meet that incremental demand.
Our assessment put it at around $60 today.
So that so the implications of that are really just how much how much cash flow. We think we're going to be generating as we interrogate the portfolio as we invest in the growth and development of the company and we put capital into the company. The way. It manifests itself is just how much cash flow or we can deliver at that kind of a mid cycle price, which is obviously a little.
More than what we would deliver at the lower price. So it goes to sort of how we think about cash on the balance sheet. How do we think about the debt there were heard Gerry how do we think about distributions and how much capacity there is to.
Distribute.
A bunch of our cash, which our commitments above 30% and when we get above mid cycle price and arcades like we are today, obviously, we're generating a lot more cash than we're returning a lot more cash to the shareholder.
Now something.
So 50% today.
But that's driven by the lower <unk>.
Reinvestment rates that we have in the company and our commitment to only invest in the lowest cost supply things we have in the portfolio.
Great Thanks for that.
Thank you operator next question.
The next question comes from Devin Mcdermott with Morgan Stanley . Your line is open.
Hey, Thanks for taking my question.
So I wanted to go back to the lower 48. It was helpful detail before on some of the efficiencies that you're seeing there I think one of the other drivers of the strength in production that you called out in the prepared remarks was well performance, beating your expectations could you talk a little bit more explicitly.
About what youre seeing there and if theres any development changes that you've made driving that uplift.
Yeah. Devin this is Nick you're right strong well performance was definitely a contributing factor for Q1, if I take you back to the Q4 call I had mentioned that our well performance is meeting or exceeding type curve expectations.
And we continue to see that trend into Q1.
So thats very encouraging.
So overall development changes, we're just seeing very promising results across all assets, it's just not the Permian.
As well and as I mentioned earlier.
Completion and drilling efficiency has allowed us to accelerate some wells earlier into Q1, and so we're seeing.
That production come into play and then on the Eagle Ford stabilization plant that we've upgraded the team just did a remarkable job in sheltering the amount of downtime in Q Q1, So we had less DT, but overall very strong quarter.
Thank you.
Thanks Devin.
The next question comes from Josh Silverstein with UBS. Your line is open.
Hey, Thanks, guys, just some questions around potential LNG.
And opportunities in the future you mentioned at the analyst day that you have options.
Around Port Arthur Phase, two three and four and even at close to zero as well can you just give us some more details around the options does it need to be at the 30% like you did in phase, one or port Arthur or could it be 10% or some other agreement there could it be before or after.
As well and then just along the same lines because there will already be some infrastructure in the ground for phase one.
The capital outlay for phase, two or three be less because of that.
Yes, so yes, I think we laid this out pretty well at our analyst meetings for Port Arthur We've got options.
On both equity and offtake for future phases does can be executed either for for equity offtake or both as they present themselves through time. We also have some options on the west coast.
Mexico at energy coastal Zillow on phase two and so those are long dated options that we continue to look at that at talked a bit about phase two.
Earlier in the call and so there is that need to be some pretty unique opportunities on that.
Because we think about that right now now as we think about future phases.
We have structured our investment in phase one such that we benefit from the economies of scale for future phases on our phase one investment so future phases actually benefit.
<unk>.
Great. Thanks, guys.
Thanks, Josh.
The next question comes from Paul Cheng with Scotiabank. Your line is same thing.
Thank you.
Good morning, gentlemen.
Maybe this is Paul.
<unk>.
And that's the thing.
We ipod Hawaii.
Talking about 2020.
So oil.
On the line and then broke that day in the first quarter, we already deal with that means that for the rest of the year.
The lower 48 shale oriented montney together.
Correct.
Or that.
Number.
Somewhat conservative now.
Yes, Paul.
As Nick you're right I mean, we have had a very strong performance in Q1 as we just described.
As you look at the future quarters of this year, we've got some larger pad projects longer horizontal wells and kind of put that in context, we've got 80% of our 2023 Permian wells are two miles or greater than we've got a fairly large portion that are the three miles, but you guys see kind of small variations, but overall.
All that's going to be relatively flat.
But I will leave you with this.
Our plan will deliver at least mid single digits for lower 48.
Alright, Thanks Hello.
Yes.
The next question comes from Scott Hanold with RBC capital markets. Your line is open.
Hey, thanks.
I was just wondering if you could provide some updated commentary if you have any on Venezuela.
A month ago, there was some talks about kind.
Kind of easing St oil sanctions, there and you all have a potential big asset.
Or at least value that at one point in time.
Looking to extract is there any update on that or is there any kind of color you can talk about like the progress and remind us of the value there.
Yes, Scott.
Right in the middle of all of those conversations.
Imagine, including the most recent conversations around the sysco refining assets were in the queue.
Right right in the middle of anything that would happen. There. We we have as a reminder, an ICC judgment of $2 billion, we've collected about $700 million.
That judgment to date, so we have an outstanding.
What they owe us on that particular judgment, Brendan and the appeal process with <unk>, which is the other tribunal and Thats an $8 billion.
Potential award coming now there is some overlap between the two so you can necessarily add the two together, but I guess the point that there was a lot of money.
We're we're hard at.
Trying to get some resolution of that in the recent.
News out of.
The judge in the U S government around Cisco is certainly helpful.
That regard it looks like.
Despite the sanctions that are on the Venezuelans that on U S companies for doing work in Venezuela.
There is a little bit so sunlight developing at the end of that tunnel and we're right in the middle of it all.
Alright, good to hear thanks.
Thanks Scott.
The next question comes from Alistair Sam with Citi. Your line is now open.
Hello, everybody.
And in your remarks at the beginning on the lower 48.
You mentioned about in construction building.
I was really just interested to try and understand across the lower 48, but I guess, especially in the Permian.
Whats the sort of ratio of capital.
And then do infrastructure drilling.
I guess I guess thats changes over the life of the assets. So just kind of intrigued what's the point of asset laclede and things of that ratio.
Yes.
I'm not sure the exact ratio maybe might have some some numbers, but I think most of what we're doing is large pad development with.
No not single well facilities, but central facilities supporting those those large pads I don't know what the split between drilling and infrastructure spend is I can let.
Nick Abbott comment, but I don't think its much different than what we've been doing for the past few years, yes, Alastair it's very limited as far as on the infrastructure spend most severe expenditures is on drilling and completions.
In the Permian as example.
Okay. Thank you very much.
Thanks Alastair.
The next question comes from Raphael <unk> with Societe Generale. Your line is open.
Andrew Thank you for taking my question.
I just have one question about the working capital deterioration in one Q.
I was wondering if you could.
Tell us how much of it is due to some Norwegian cash tax catch up.
What is it to expect for the rest of the year.
Yes, sure happy to talk about working capital. So if you look at working capital for Q1, you can see that in the supplementary.
Documents, we put out on our website Q1 was about a $100 million use of working capital for Q2, we'd expect that to be just over $1 billion and as you rightly noted that's associated with Norwegian tax payments, which is normal for operators in Norway, we accrued those in 2020.
They are payable in the second quarter of 2023.
And then looking for the rest of the year, assuming we don't see FX rates move materially for the remainder of year. We would expect we wouldn't really expect any material working capital movements across Q3 or Q4, So hope that helps for kind of full year view.
Thank you.
Thank you.
The next question comes from Neal Dingmann with Truest Securities. Your line is open.
Good morning, All my question is on the shareholder return plan specifically.
Do you all view sort of in broad terms as an optimal quarterly payout given.
I guess now even more volatile the commodity market continues to be in looking at your most recent I guess <unk> been O'brien over 100%.
Yes, well I think.
Neil you have to kind of go back to how we set the V rock in the first quarter that was actually set in the third quarter of last year and $100 price environment.
So we probably had a rate of all a little bit higher distribution in the first quarter.
Gets more ratable as we go through second third and fourth quarter as we deliver the $11 billion that we've targeted for this year and thats evidenced by how we set the <unk> for the third quarter at 66 a share.
Thank you.
Thank you Neil.
Yes.
Our last question comes from Leo Mariani with Roth <unk>. Your line is open.
Obviously strong results out of <unk> today, you enumerated a couple of reasons for the the first quarter production be it sounds like some wells came on early and well results continue to be very strong, but just wanted to dive in a little bit on the maintenance side I know you guys kind of.
Talking about 35000 Boe per day of maintenance in the quarter that actually come to fruition, maybe that number was a little bit different and then can you talk about maintenance for the rest of the year. I know you had 10 to 15000 expected in <unk>, but any expectations for <unk>.
Yes. Thanks, it's Dominic here, so you're right. We did anticipate about 35000 barrels a day of turnaround and maintenance impact in the first quarter that actually came in at 25000 or 10000 law that was partly because of the efficiency that Nick talked about at the low 48.
The Eagle Ford Sugarloaf stabilized expansion went really well and the team did a great job sheltering. Some of that then there was a little bit of timing there around Qatar turnarounds as well. So we had 25 and 25000 barrels a day impact in the first quarter.
We still expect our full year average impact from <unk> of about 15000 barrels a day equivalent.
Bill said second quarter I think as you mentioned you expect to be 10 to 15.
And there'll also be some stand as sort of seasonal downtime in the second and third quarter, we typically see in Norway in Alaska, and AP LNG, but all of that's reflected in our new guidance $1 708 to $1 8 million barrels a day for the full year.
Okay. Thank you thanks Leah.
We thank everyone for being here today.
We appreciate it.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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