Q3 2023 ConocoPhillips Earnings Call

November 2, 2023

[music].

Okay.

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Sure.

Welcome to the third quarter 2023, Conocophillips earnings Conference call. My name is Liz 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.

Yes, Thank you and welcome to everyone to our third quarter 2023 earnings Conference call.

On the call today are several members of the Conocophillips leadership team.

Ryan Lance Chairman and CEO.

Tim Leach advisor to the CEO.

Bill Bullock Executive Vice President and Chief Financial Officer.

Dominic Matt Cohen Executive Vice President of strategy sustainability and technology.

Nick <unk>.

Executive Vice President of lower 48.

Andy O'brien senior Vice President of global operations.

Curt Johnson Senior Vice President, Laura freight assets operations, and wheelchair senior Vice President corporate planning and development.

Brian and Bill will kick it off 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 in our slide presentation, which you can find on the Investor Relations website.

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

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

We'll make reference to some non-GAAP financial measures reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website.

And before I turn it over just wanted to flag for today, we'll do one question per caller, so with that let me turn it over to Ryan.

Thank you Phil and thank you to everyone for joining our third quarter 2023 earnings conference call.

It was another solid quarter for Conocophillips as the team continued to deliver strong underlying performance across the portfolio.

And we have achieved several additional project milestones in our international portfolio in early October.

Now before I get into the details I wanted to address the topical news in the industry, which has been the M&A headlines in recent weeks.

This is not a surprise to us we have long said that we expect to see further industry consolidation.

Conocophillips remain steadfast in our returns focused value proposition on cost of supply principles, which creates a high bar for M&A.

And as a reminder, we have been actively high grading our own portfolio over the past several years.

And as a recent example, we're pleased to have closed on the acquisition of the remaining 50% of Fairmont in early October.

But opportunity came along to acquire this asset at a very attractive price that fit our financial framework.

Asset, we can make better through our full ownership.

And an acquisition that makes our 10 year plan even better.

<unk> has a long life low declining and low capital intensity assets that we know well.

We achieved first steam from pad $2 67 in the third quarter and production is expected to start up in the first quarter of 2024.

This was our first new pad additions since 2016.

And as we said at our recent analyst meeting, we can leverage existing infrastructure to add additional pads with very limited capital requirements in the years ahead.

Now moving to global LNG. We've also continued to progress our strategy securing one five M. Tpa re gas capacity at the gate LNG terminal in the Netherlands.

This will take our total European re gas capacity to $4 three and Tpa.

We have now effectively secured destinations for nearly half of our port Arthur LNG offtake commitments in the first six months since we sanctioned the project.

Now Thats, where in the international portfolio, we started up our second central processing facilities Cps II in the Montney.

And in Norway, We just announced that we have started up three project developments ahead of schedule in October.

This includes the company operated <unk> now for a subsea tieback project at Ekofisk.

Which is nearly six months earlier than originally planned as well as to the non operated projects.

In China, our partners started at Bohai phase score be ahead of schedule in October.

So as you can see our diversified international portfolio continues to be a strong differentiator for our company.

Shifting to results, we had record global in lower 48 production in the third quarter.

Every raised our full year production guidance to account for the closing of the surmount acquisition all of this while achieving continued capital efficiency improvements as our full year capital guidance remains unchanged.

We also continued to deliver on our returns to our shareholders, we increased our quarterly ordinary dividend by 14%.

<unk> with our long term objective to deliver top quartile increases relative to the S&P 500.

We have distributed $8 5 billion in dividends and buybacks year to date and we remain on track for our 11 billion full year target and we did this while funding the shorter and longer term organic capital growth opportunities that we see across the entire portfolio.

The team continues to execute well.

Our deep durable and diversified asset base continues to get better and better and.

And we are well positioned to generate competitive returns and cash flow for decades to come.

Now, let me turn the call over to Bill to cover our third quarter performance in more detail.

Okay.

Thanks Ryan.

In the third quarter, we generated $2 16 per share and adjusted earnings.

We produced 1.806 million barrels of oil equivalent per day, representing 3% underlying growth year over year.

Planned turnarounds were successfully completed in Norway and Alaska.

And lower 48 production averaged 1.083 million barrels a day.

Equivalent per day.

Including 722000 from the Permian 232000 from the Eagle Ford and 111000 from the Bakken.

Lower 48 underlying production grew 8% year on year with new wells online and strong well performance relative to our expectations.

Moving to cash flows third quarter CFO was $5 5 billion.

Including AP LNG distributions of $442 million.

Third quarter capital expenditures were $2 5 billion, which included $360 million for longer cycle projects.

And through the end of the third quarter, we have now funded $875 million for Port Arthur LNG out of our planned $1 1 billion for the year.

Regarding returns of capital, we delivered $2 $6 billion to shareholders in the third quarter. This was a $1 3 billion in share buybacks and $1 $3 billion in ordinary dividends and <unk> payments.

And today as Ryan said, we announced an increase to our ordinary dividend of 14% to <unk> 58 per share.

We ended the quarter with cash and short term investments of $9 7 billion.

Which included proceeds from the $2 7 billion in long term debt that we issued to fund the <unk> acquisition, which closed in early October.

Before shifting to guidance I do want to take a quick moment to update about our V rock beginning in 2024, we will be aligning both the announcement timing and subsequent payment of our <unk> with our ordinary dividend.

Therefore, you can expect us to provide details on our first quarter would be rock payment on the fourth quarter call in February.

Now turning to guidance, which now reflects additional 50% of <unk> starting in early October we forecast fourth quarter production to be in a range of 186 to $1 9 million barrels of oil equivalent per day.

Full year production guidance is now roughly 182 million barrels of oil equipment today.

And to put this production guidance in the context, we expect underlying growth for both the fourth quarter and the full year to be roughly 4% year over year, which includes lower 48 production growth of roughly 7%.

And this is very consistent with our full year guidance and our long term plan, we laid out at our analyst and Investor meeting.

For <unk>, we expect distributions of $300 million in the fourth quarter and $1 9 billion for the full year.

And while AP LNG distributions can vary quarter to quarter, a normalized run rate to think about moving forward is around $400 million per quarter at current price levels.

Shifting to adjusted operating cost we raised our full year guidance by 300 million to $8 6 billion.

This was driven by our increased working interest in <unk> increase lower 48, non operated activity and inflationary impacts in the lower 48.

We've also raised our DD&A guidance by 100 million to $8 3 billion.

Which is also primarily due to surmount.

And full year adjusted corporate net loss guidance remains unchanged at roughly $800 million.

In the second half run rate is a good starting point for 2024.

Finally, our full year capital spending guidance range is also unchanged.

So to wrap up we had another solid operational quarter, we continued to deliver on our strategic initiatives across our diverse portfolio and we remain highly competitive on our shareholder distributions.

That concludes our prepared remarks, I'll now turn it back over to the operator to start the Q&A.

Yes.

Thank you we.

We will now begin the question and answer session.

In terms of time, we ask that you limit yourself to one question.

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 one again.

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 star one on your Touchtone phone.

Yes.

Our first question comes from the line of Neil.

Mehta with Goldman Sachs.

Okay. Thank you very much.

A lot of variability in lower 48 results from some of your competitors and you guys have been very steady tracking at 7%.

Growth rate just love your perspective walking through the basins, particularly the Permian.

What is working what's not for you guys and how do you feel about the plan as you move into 2024.

Yes, Neal this is Nick you are right I mean overall, if you look at our performance across all of our basins has been strong and in line with prior year performance across again all of those lower 48 assets.

Also mentioned that Thats been in line with our type curve expectations.

I'll call out for example, Delaware well performance as shown on top quartile on volumes produced not only on a barrel of oil per basis, but also on a Boe basis per foot. So we're seeing very encouraging results there and I think the key point to is the strong performance reinforces our.

Our strong focus on our returns capital efficient environment that we've set there.

And I would add Neil at speed.

Speaks again to the quality and the depth of the inventory in the company we've got.

We're prosecuting some of the best acreage in the basin.

And doing it in such a way that is focused on capital efficiency and returns as Nick described.

Our next question comes from the line John Royall with Jpmorgan.

Hi, good afternoon, Thanks for taking my question.

<unk> had a handful of international project startups that you touched on in the release.

If you could give us some more color on these projects that'll be helpful and maybe if you could tie.

Tie that into a growth outlook for the international business in 'twenty, four as well that'd be helpful.

Thanks, Jon This is Andy I can take that one.

Hello.

You should be getting in.

Our full year guidance for 2024, such as you mentioned we have had.

Some pretty good news across Alaska and international projects. So we've made some pretty significant progress across the portfolio and it really is nice to see so many of those project achieved major milestones on or ahead of schedule and budget.

Ryan touched on Norway.

The value achieved first production ahead of schedule III of our subsea tieback and we expect the fourth one to come online as planned.

In Q2, 24, so we expect those full projects in aggregate to add about 20000 barrels a day production next year, which should more than offset normal decline in 'twenty four.

We also had some good news in China with our partner operated Bohai Phase four B achieved first production ahead of schedule on the first platform.

That's going to be two platform tied back to a central processing facility and we'd expect the second platform to come on in the first quarter and then with that we will then have the opportunity to drill new wells in both high for the next four to five years.

And then we also had some pretty major milestones in Canada with Cps II in the Montney in pad, 267% and San Juan.

The Cps II was successfully started up in September and Thats going to add about 100 million cubic feet, a day of gas processing and about 30000 barrels of condensate award having capacity.

So in the Montney, we averaged about 20000 barrels of that production in Q3.

We're going to substantially grow that next year.

And then finally with somewhat pad 267, we achieved first steam in September.

First of all at an early 24 hour with $2 six seven online we'd expect to see <unk> grow something five and 10000 barrels a day next year and importantly, that's inclusive of a month long turnaround that we conduct every five years in San Juan.

I'm really proud of what we're doing and executing across these projects I think all of US sitting here is a really good example of how we leverage our existing infrastructure to deliver on our low cost of supply opportunities. So I hope that gives you a feel for sort of mentally we're building going into next Jeff.

Our next question comes from the line of Steve Richardson with Evercore ISI.

Okay.

Hi, Thanks for the time.

Bill I was wondering if maybe you could help us out a little bit of broad strokes on 2024.

Capex thoughts I think in the past you've talked about kind of flattish capex around $11 billion with.

Admitting there is a lot of moving parts in an $80 environment. Maybe you can just talk a little bit about that as you're thinking forward.

Yes.

As Dominic Stevens.

What we'd say is very consistent with the aim framework, we laid out on capex.

Just to recap the moving parts, we've got several moving pieces, assuming willow is sanctioned which we expect.

Spending on that project will be higher and then of course, you have the incremental $100 million or so for the other 50% of somewhat lower <unk>.

And those increases will be mostly offset by we're going to see lower spending on our LNG projects and roll off of the project capital at Norway, So, but I think the key message. There is really very much in line with the framework, we laid out at aim.

So you do have the addition of <unk>.

Extra 50% in there.

Our next question comes from the line of Doug Leggate with Bank of America.

Good morning, everyone. Thanks for having me on a low fill has gone to the dark side, but the one question rule.

So Ryan.

Doug.

If I may I'd like to make one comment and ask one question I won't comment as your stock's up almost 5% this morning.

I think acknowledging your dividend moves ordinary dividend moves is gaining recognition in the market.

Congratulations on taking that step we'd like to see more of it.

Okay well my question is simply this.

One of my peers asked a question earlier about performance in the Permian.

To ask a little differently one of your very large peers had some non operated.

Portfolio problems in the quarter.

Guys I've got a large part of your production that comes from non operated production is there any discernible difference between your operated performance in your non operated performance that's driven this reliable.

Production growth year over year.

Yes, so I can't resist but to comment on your comment Doug and then I'll, let Nick.

Sure.

Lower 48, but.

It's exactly what we thought should happen with top quartile targeted dividend growth.

As a company relative to the S&P 500, so that's.

That are on our plan and we're sticking to it and executing on that plan, but.

Yes, I can let Nick comment on your question about.

The non op and op in the Permian.

Yes, Doug.

Good question I think Youre looking at the Q2 to Q3 performance. This year, we were up 2% sequential growth and as Bill mentioned in his prepared remarks, we're seeing 7% year over year, obviously that has a combination of our operated and non operated.

Portfolio of both are performing well.

Specifically dug in Q2 to Q3.

<unk> component of that increase was our operated Permian program as well as although so we're seeing increases in the operated by others and a little bit of Bakken.

As well.

<unk> operated by other assets are very competitive we look at every ballot, we benchmark each one.

And it performs well within our cost supply framework as a reminder, if you look at.

Permian in general about 30% of our production is coming from operated by other within the Permian and if I take you back a little bit in time to the analyst Investor day.

When you think about the split between the two basins. We've got two thirds of our inventories in the Delaware one third.

In the Midland basin to generate the full lower 48, 5%, but bottomline, Doug is that they're both competing well.

We reviewed every ballot to make sure we're investing the right capital to drive that capital efficiency.

Our next question comes from the line of Lloyd Byrne with Jefferies.

Hey, good morning, guys.

Alright.

Ryan you mentioned it in your prepared remarks, but I'm, hoping you can comment further on international gas integration strategy.

I recognize it's early but.

But by our numbers it seems like a lot of option value. There. So maybe just thought process behind it and maybe any targets you might have to help us think about the future there.

We're looking elsewhere as we try to build out and move the port Arthur volumes and the volumes we have.

In other places around the globe.

Into that market, which we think is going to be a strong market for us for many decades to come which is why we're moving into the second bill can be a bit more specific to your question.

All the details there, yes, I am happy to put a bit more color on that so we're very focused on developing market and as we've talked about we like to do this in a stair step fashion with how we.

Originates supply you've seen us announce port Arthur LNG and swirl LNG, we're making really strong progress at $2 8 million tonnes per annum of re gas capacity German LNG two of that is dedicated to supporting our LNG SBA out of Qatar that leaves eight at Germany. We just added one 5 million ton.

<unk> of re gas capacity gate. So that's two three that's roughly half of port Arthur.

And I think importantly, we're continuing to see a lot of interest and strong demand for.

For LNG as we've talked we're looking to develop a diversified portfolio. That's both sales into Europe and also sales into Asia, perhaps some fob sales at the facility and having a mix.

Variety of term links in that and so I'm just I'm really pleased with the progress we're making within six months of kind of a.

Port Arthur we've got roughly half of a place and I think the way to think about that.

Going back to the vignette I showed at aim is.

When you look at the capacity that we Havent, Germany into TTS the way to think about that as you're modeling returns that you start with the Henry hub price you add liquefaction toll shipping and re gas you compare that to what you think European gas price will be that's going to give you your base CFO for volumes into Europe, before adding any diversion optionality onto that.

Net.

You can do a similar type of analysis going to Asia. So yes, we share your view here that these are very interesting.

Additions to our portfolio and we're really pleased with the progress we're making.

Our next question comes from the line of Devin Mcdermott with Morgan Stanley.

Hey, Thanks for taking my question, so I want to Echo the earlier comment on the dividend raise and ask a question on the shareholder returns. So it's good to see the 14% increase I was wondering if this large change the dividend its more tied to incremental cash flow on surmised or if theres been a broader change in how youre thinking about the <unk>.

Target payout the dividend breakeven as you look out at the business over the next few years.

Part of that maybe you can give us an update on your broader thinking on shareholder return strategy and the breakdown of dividends <unk> buybacks in the context of the base increase.

Yes, no I don't think anything has changed in our framework, which we outlined I think pretty extensively at our last analyst meeting. So based on our mid cycle price call. You can expect us to deliver at least 30% of our cash flow back to our shareholders and then we've said win.

When the prices are.

<unk> of our mid cycle price call, it which is where the prices are today and where they've been over the last few years, you should expect us to be delivering more of our cashback and Thats in fact, what we've done over the last five years to six years.

A levered mid.

Mid 40% 45, 4% to 5% or so of our cash has gone back to our shareholders and it's done that in a form of both the cash and buying our shares back so our construct around that really hasnt changed we'd like to.

Provide a affordable reliable ordinary dividend that grows competitive with the top quartile of the S&P 500 over time.

We'd like to buy some of our shares back through the cycle in a mid cycle construct and then we introduced the third leg of the rock to add additional return back to our shareholders when prices are above our <unk>.

Our mid cycle price call. So that's the kind of strictly avenues.

Yes.

We're sticking to that we think it's served the company pretty well.

It provides like this year, we expect cash flow of close to 22 billion and we're giving you half of that back to our shareholders. So that's probably not a bad starting point for next year.

Our next question comes from the line of it didn't Kumar with Mizuho.

Hi, good morning, Thanks for taking my question.

I guess, just sticking with the theme of M&A and I appreciate it.

You touched on it in your comments.

But one of your peers out there has talked about improving recoveries in the Permian to the tune of 20% or higher than everybody else.

You operate across the entire Permian Basin. I'm curious are you deploying are seeing others deploy technologies that you think can improve recovery rates that significantly.

Yes, I'll, let mick respond to that specifically and I guess I'd make just one broad comment is I think as we talk about this topic I think.

And the companies and a lot of people are guilty of this inflation a bit between recovery and recovery rates or recovery factor. So I think you have to be really careful when we talk about this in light of these unconventional we're doing everything we can to improve the recovery that we get from the wells the acreage the blocks.

The layers that we have within our portfolio.

But be careful not to conflate that to recovery factor recovery rate and I can I can have Nick <unk>.

A bit more specifically about the things we're doing to make sure we get maximum recovery out of our assets.

Thanks, Brian.

Our asset teams as Ryan mentioned are very focused on optimizing the recovery of our wells that are developed projects across all of the lower 48 assets I think it's important to as we seek to maximize recovery.

But also driving improvement in count.

As part of our returns focused strategy and the costs by a framework that we judge every decision against.

We look at kind of an improving recovery across kind of three primary buckets I'll take you through that what we're looking at what we're deploying.

Within within our asset so first.

We look at development decisions.

It is our first bucket secondly is how do we optimize the reservoir and Thats, our second bucket and then the third one is really when we look at enhanced oil recovery, but that's more of a longer term now.

And then one of the things that we obviously have within the Permian and we mentioned this at the analyst Investor Day is that we have two decades of inventory within the Permian that current rig activity level. So we have a lot of focus on development decisions in the reservoir optimization to improve recovery.

A couple of things.

Well lateral length is critical we speak to about the inventory linked more you can go from a one lateral to a two to a three mile lateral you increase the recovery per well and as we've mentioned before you go from a one two or three we improve our cost of supply, which drives capital efficiency by 30% to 40%. So we are doing.

That as a reminder, we've got 80% of our Permian well inventory is one five miles or greater than 60% since two miles or greater and we're continuing to execute three mile laterals year to year growth on those as well.

On the well completion side again this still sits in that development decision bucket.

Doing some interesting work in the Bakken as an example, using multi variant analysis, where we optimized completion design to maximize both recovery and capital efficiency and seeing recent completion results at a very favorable in that space and then the last item I'll address on the development decisions is around spacing and <unk>.

<unk>.

One thing that we do out in the Midland Basin that you've heard here recently as co development co development.

Allows us to minimize the parent child impacts, while improving recovery as well as capital efficiency and we've demonstrated over the last four years, both in the Midland Basin as well as the Delaware basin around improved performance there.

On a second component that we're focusing in on reservoir optimization I'll draw your attention to Eagle Ford, we're using kind of techniques, where we re frac. These wells kind of late life in the wells and we're seeing improved well performance on expected ultimate recovery by 60%, which is very competitive in our cost supply framework.

And then I'll take you up to the Bakken, we're using infill wells and upcoming edge wells to further increase overall recovery and these are also competitive cost of supply again.

That's increasing the recovery per pad and then the final bucket that enhanced oil recovery component.

Many pilot studies, mainly in the Eagle Ford around the gas injection Hudson path.

And we've seen technical success, we've seen injective witty and a corresponding oil response, but I'll leave you with this on the on the enhanced oil recovery. These projects don't compete within our expansive drill one.

Inventory at this point in time, we will continue to study it and analyze it and Thats something we can address in the future. So from long lateral to improved completion designs infill wells were improving recovery in our assets.

Our next question comes from the line of Roger read with Wells Fargo.

Hi, good morning, everybody.

Roger.

A lot of this has been hit but I guess I'll just ask about Alaska.

There have been a little more noise out there on the I don't know if you call it regulatory and legislative side.

And then we're about to head into the winter season, So just curious.

Willow and other things what's going on there.

Yeah.

Hey, Roger this is Andy So yes, let me take that one I'll start with the legal then we will give you a bit of an update of where we are with the project. So on the legal side.

I've talked about this on previous calls.

In oilseeds challenging the federal government's approval of the project.

As I mentioned on the last call, we expect to see a ruling on this in November.

Preliminary rulings in April were favorable.

And then the upcoming ruling will address the full scope of the legal challenge.

Im repeating myself, a little here, but it is kind of on the last call.

We're very happy with the BLM and accompanying agencies conducted a process and that.

Satisfied all the requirements to grant that approval.

We're confident and we're looking forward to the court.

Court rulings in November as we get ready for the 20th fall season.

And then I think the other part of the legal question.

Two is the is separately in September.

The department of interior proposed additional regulations for the management and protection of the MTR right now.

And we don't expect these draft rules impact Willow will prevent a exploration program that doesn't have any impact on the 10 year plan. We've previously laid out.

But that said we are concerned if the rules are adopted as currently drafted.

Impact future developments beyond <unk> and the National Petroleum Reserve Alaska.

So why don't we providing feedback to the department of interior to try and make the proposed rules were consistent with the existing statute and again I'll. Just finished vehicles as a reminder, the statute recognizes the primary purpose of the NPL rate is to increase the Mexico supply.

So thats kind of where we are on the legal side and then just very quickly where we are in terms of the.

The project.

Taking a step back here as I described back in our Investor update, whereas the kind of project is right in our wheelhouse, they've got no first of a kind type risk here.

Three drill sites to one new processing facility and our track record and I'll ask with excellence delivering on schedule and on budget.

But specific to where we are right now work is progressing well and our 2023 capital is fully factored into the total company guidance, we gave today.

So we stopped it.

First phase of module fabrication on the Gulf Coast, and then on the North slope, we successfully opened the graph a mine and we're preparing for the 24 construction season.

We've already got over half of the project scope under firm contract.

These contracts include clauses.

The project that we can exit.

Now also contracts, we've issued today, 75% from a lump sum or unit rate.

These type of contracts, we have accretive price and now have limited exposure to future inflation.

So as we continue to contract negotiations are asked about a capital to first production remains unchanged at 7% to seven $5 billion.

Obviously provided.

So I think it gives you a good update on where we are in the legal im on the project side of things.

Our next question comes from the line of Ryan Todd with Piper Sandler.

Alright, I think thats right.

Maybe one for you Ryan you've been on you've been busy on the portfolio over the last few years the cost across a wide range of regions and types of assets across the portfolio.

And some of that is obviously opportunistic just when the timing of things like certain amount of an AP LNG came up.

But if you take a step back now and look is there still more to do on the portfolio in terms of portfolio management are there increased high grading opportunities on the divestiture side that we should expect as you continue to develop things.

Or any.

Any places that you would like to.

Change or increase your exposure, maybe as you look going forward down the line in terms of long term competitiveness.

Yes, Ryan I think.

As we tried to show you.

Analysts meeting earlier this year were pretty pretty pleased with all the efforts we've made in the company over the last four to five years to really what we think is put out an extremely compelling 10 year plan. So I wouldn't describe the we really really like where the portfolio has gotten too. It's got a global it's diverse it's got a great mix of <unk>.

Sure.

Medium and longer cycle opportunities organically to invest in all of those investments lead to.

20 billion barrels at less than $40 cost of supply. So we've got a lot of visibility into what we think is a great plan.

We're ruthless high grade areas of the portfolio with some doesn't compete we're looking for opportunities to move it out I Wouldnt described we've got anything significant inside of the portfolio today that would fall into that category and we're always looking and trying to be opportunistic, which I think describes to your point the APL LNG.

Rover and the Fairmont Rover.

We hold so you never quite know when your when your partners make a change that you Didnt anticipate and you get a great opportunity to acquire an asset that you know really well and the one that we know we can make better if we have it under our control and ultimately as I've said it makes our 10 year plan better.

So we're always out looking to buy because you never quite know when these things materialize, but we tend to be very opportunistic and I would just remind people our framework is intact.

Has to meet our financial framework.

We got to see a way clear to make the asset better and doesn't make that 10 year plan that we think is quite compelling.

It doesn't make that 10 year plan, better which is a pretty high hurdle inside the company.

Our next question comes from the line of Paul Cheng with Scotiabank.

Hello can you hear me, yes, sure Ken Paul Good morning, Hi, Thank you good morning.

Well you can go back into the Permian.

What's your App and lateral length now and then how much you think you can improve or Linkedin.

Several years is that.

One of the men we contribute at that you think you could be improved that we sell.

Permian operation and also that whether you guys have pets, because at some point I wouldn't imagine which.

Economy of scale, when you get longer and longer.

Do you have any.

Experiment that you guys have done that what that means.

Paul.

It's longer than one mile or less than four months. Thank you.

Yes, Thanks, Paul I can let.

Nick kind of weigh in on some of that we're not.

I think lateral length is just one of the things that we're working on Nick described a bunch more to an earlier question around completion efficiency and how we're attacking the spacing and stacking. So I think it's all of those things that we're trying to attack and there are different depending on where you are out in the Bakken and Eagle Ford or the Permian.

But we have experienced have deep experience in all three of those patients and using all that knowledge to make sure. We're maximizing the recovery and minimizing the cost of supply and maximizing the efficiency that we're getting out of it specifically on lateral length.

Weigh in on that yes.

Paul Good morning.

Just to reiterate again, we've got a significant deep and broad long lateral inventory across the assets. Just mentioned previously the 80% of Permian inventory as one five miles were greater than 60% greater than two miles and we continue to see.

More and more three mile laterals and are very.

We're seeing good results coming out of the three mile laterals, both from our 2022 program as well as 2023 and so we continue to see increases in that space.

Our teams continue from a BD standpoint, and a land standpoint look at core up opportunities and this is not only in the Permian, but as Ryan just mentioned in the Bakken. We just finished up some trades there to allow us to drill some three mile laterals in the future. So we are increasing the portfolio of long laterals across all four assets.

The thing that you talked about related to how far can you go on the step back the three mile laterals that we're seeing over the last couple of years are performing well, we're very encouraged with the results you want to make sure you get contribution across that entire lateral length.

As we think about going further longer lateral lengths I think you've mentioned four miles there's a trade off.

Can potentially drive down that improved cost of supply and then also you have to look through the lens of operational risk that operational risk is also not only in development drilling actually drilling the well, but also future workovers and so we're looking at that in the future, but I'll leave you with is the fact that the three mile laterals reform extremes.

Well and we've got a very deep inventory of long laterals as I mentioned.

Yeah.

Our next question comes from the line of Josh Silverstein with UBS.

Thanks, guys, Brian I appreciate the comments before on the return of capital thoughts for next year.

I was curious with the added debt from the <unk> transaction, how you might think of additional shareholder returns versus this year or that want.

I want to build cash or.

Pay down the debt there thanks.

Yes, I think we're.

We're in our planning process as we kind of think about next year and all of those moving pieces.

I would say it looks to me like at this 10 seconds.

Commodity prices are kind of very similar to where we were coming out of the end of last year coming into the beginning of 2023. So I think that framework around total return as a starting point is pretty good for 2024, we'll just have to see what commodity prices are as we go forward.

We have a plan and bill can address that.

Payoffs and pay off debt as it comes due over the next few years that gets us down to our original target of 15 billion gross debt and we can continue to do that and I think if we had a very large ups cycle to the price commodity price, we might look at adding more cash to the balance sheet as well so.

I think all three of those are in are in play as we think about what we do over the course each quarter as we go into next year.

Our next question comes from the line of Sam Margolin with Wolfe Research.

Oh, hi, thanks for taking the question.

<unk>.

I guess.

I wanted to ask for an update maybe on.

The Venezuela process, it's come up.

Prior calls in the processes.

<unk> and <unk>.

Specifically I wanted to ask about a scenario where the assets that aren't strategic to you get returned.

Surrendered to creditors and.

What might be the path forward from there because.

It's a large claim and its material and it seems like it'll be a good outcome for you, but it might require some.

Actions in the aftermath. Thank you.

Yes mature understand Tim.

But yes, we're in a process with the vendors right now are they also a considerable amount of money through both R. R.

Our exit in our ICC claims.

Approaching over $8 billion they are awesome.

On a full judgment on the ICC, they still owe us $1 for $1 $5 billion. So we're pursuing that pretty aggressively.

We're watching the progress closely clearly.

Government has provided a.

Lifting.

Some if not all of the sanctions here waiting on.

So what's the Venezuelans due on the other end for free and fair elections, so that may create a bit of a bit of an opening but.

This is a long long process, but we're we're pretty committed to doing everything we can to make sure we get our money out of Venezuela, what they owe us.

And that's what we're focused on.

Our next question comes from the line of Neal Dingmann with <unk> Securities.

It's Neil do it for.

For me.

Yes go.

Okay. Thanks, guys.

My question on this a little bit just on M&A, specifically well I appreciate your earlier comments.

Any assets needed if the 10 year plan I'm. Just wondering is there a preference for when youre seeing things shorter or longer term cycle assets and just also curious on how you view valuations of some of the recent public deals. Thanks.

Okay.

So certainly the way we look at it.

<unk>.

We like a global we like a diverse portfolio, we like it to be balanced I think we're mostly focused on what's the cost of supply to make sure. It fits our framework around that and that any asset that any asset that you bring into the company make sure. It can compete for capital on an ongoing basis against.

A pretty rich deep durable long life.

Out of inventory sitting in the company day, so as I said.

Pretty high bar.

I don't know quite how to comment on the recent deals that have been done.

Or transactions those are really good companies that were bought clearly they have good assets.

We're pretty familiar with whom we've watched them for a long period of time.

There are good companies with good assets.

Transactions were and are part of the cycle.

A little frothy.

Probably at a higher mid cycle price then we would.

Subscriber to them.

Yes, maybe thats, all I should probably say.

Our next question comes from the line of Scott Hanold with RBC capital markets.

Yes. Thanks.

Just kind of curious does consolidation that creates larger peers in the Permian impact the competitiveness of of cops development and positioning specifically if you look at services and midstream capacity as you kind of move forward on your kind of 7% growth CAGR over the next decade plus.

I don't think we see a huge issue there at all Scott.

A lot of operators already in the Permian Basin.

Seems like the service side of the business has been accommodating all the activity that we have out there there's been periods of tightness.

On certain categories of spend or certain services, but by and large we don't we don't think its going to be.

A big big issue for us going forward.

Vantage of being one of those large.

Operators in the basin as you get the attention of the service companies because they know <unk> got a program. That's durable I know you've got a program that has some legs to it I know youre not going to be whipsawing them around and those are the kind of customers that they want to work for and those are and so they tend to work with us.

And so we don't see any exposure to the <unk>.

Current consolidation trend in the Permian and it's going to continue.

No questions, so more probably needs to happen.

Our next question comes from the line of Kevin Mccurdy with Pickering Energy partners.

Hey, good morning, I Wonder if you can provide your current thoughts on adding activity in the lower 48, I know you've said that you can grow production without adding but others are looking at the current service pricing and commodity prices and seeing this as a good time to add so just wanted to hear your most recent thoughts on that thank you.

Well I think that would be part of the process, we're going through right now Kevin I think we're trying to think about what 2024, it looks like that our starting point is.

We're seeing the efficiencies and we're seeing growth coming out of our assets. So we started to place. Let's just think about flat scope and then we will think about these other drivers like commodity price or service capabilities to your point.

And make a decision as we go into next year about what the what the scope and the resulting capital will look like.

Our last question will come from the line of Leo Mariani with Ross and Cam.

Yes, Hi, I was wondering if you could just comment on what Youre seeing in terms of kind of lower 48 service cost trends I think there was a lot of expectations a handful of months ago that cost may be falling, but now kind of commodities that have kind of recovered. So maybe just give us kind of your perspective of kind of what you're seeing there and leading edge costs.

Yes.

Dominic so as we've talked about in the last quarter, we'd certainly seeing some areas of deflation and lower 48 I think.

If you look at our capital spend this quarter Thats part of that trend is in there.

In terms of being low capital this quarter than the previous.

But we still expect our overall company capital inflation to average in the mid single digits. This year over last year.

And that's all reflected in our guidance.

I would say that as we approach the end of the year and this is something that is in our thought process right. Now is kind of Orion was alluding to we do think the market is kind of finally balance we do see some deflation coming through but we have seen oil and gas prices recently strengthened. So we're looking very hard is how do we think that that will trend into next year, but I think.

As I said earlier in terms of our overall capital expectations next year very much in line with what we laid out today.

Of course, plus plus our additional interest in Soma so.

That's just something that we're watching closely but that gives you a good sense of how we're thinking.

We have no further questions at this time.

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

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Okay.

Welcome to the third quarter 2023, Conocophillips earnings Conference call.

Ms Liz 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.

Yeah. Thank you and welcome to everyone to our third quarter 2023 earnings Conference call.

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

Tim Leach advisor to the CEO.

Bill Bullock Executive Vice President and Chief Financial Officer.

Dominic Maclin executive Vice President of strategy sustainability and technology.

Nick <unk>.

Executive Vice President of lower 48.

Andy O'brien senior Vice President of global operations.

Curt Johnson senior Vice President lower freight assets operations, and will <unk> senior Vice President corporate planning and development.

Brian and Bill will kick it off 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 in our slide presentation, which you can find on the Investor Relations website.

Second during this call we will make 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.

We will make reference to some non-GAAP financial measures reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website.

And before I turn it over I just wanted to flag for today, we will do one question per caller, so with that let me turn it over to Ryan.

Thank you Phil and thank you to everyone for joining our third quarter 2023 earnings conference call.

It was another solid quarter for Conocophillips as the team continued to deliver strong underlying performance across the portfolio.

And we have achieved several additional project milestones in our international portfolio in early October.

Now before I get into the details I wanted to address the topical news in the industry, which has been the M&A headlines in recent weeks.

This is not a surprise to us we have long said that we expect to see further industry consolidation.

Conocophillips remain steadfast in our returns focused value proposition on cost of supply principles, which creates a high bar for M&A.

And as a reminder, we have been actively high grading our own portfolio over the past several years.

And as a recent example, we are pleased to have closed on the acquisition of the remaining 50% of Sir bonds in early October.

But opportunity came along to acquire this asset at a very attractive price that fit our financial framework.

Asset, we can make better through our full ownership.

And an acquisition that makes our 10 year plan even better.

<unk> has a long life low declining and low capital intensity assets that we know well.

We achieved first steam from pad two to six 7% in the third quarter and production is expected to startup in the first quarter of 2024.

This was our first new bed additions since 2016.

And as we said at our recent analyst meeting, we can leverage existing infrastructure to add additional pads with very limited capital requirements in the years ahead.

Now moving to global LNG. We've also continued to progress our strategy securing one five M. Tpa re gas capacity at the gate LNG terminal in the Netherlands.

This will take our total European re gas capacity to $4 three M Tpa.

We have now effectively secured destinations for nearly half of our port Arthur LNG offtake commitments in the first six months since we sanctioned the project.

Elsewhere in the international portfolio, we started up our second central processing facilities Cps II in the Montney.

And in Norway, We just announced that we have started up three project developments ahead of schedule in October.

This concludes the company operated <unk> now for a subsea tieback project ecosystem.

Which is nearly six months earlier than originally planned as well as to the non operated projects.

Finally in China, our partner started at Bohai phase four be ahead of schedule in October.

So as you can see our diversified international portfolio continues to be a strong differentiator for our company.

Shifting to results, we had record global in lower 48 production in the third quarter every raised our full year production guidance to account for the closing of the <unk> acquisition. All of this while achieving continued capital efficiency improvements as our full year capital guidance remains unchanged.

We also continued to deliver on our returns to our shareholders. We increased our quarterly ordinary dividend by 14% consistent with our long term objective to deliver top quartile increases relative to the S&P 500.

We have distributed $8 5 billion in dividends and buybacks year to date and we remain on track for our $11 billion full year target and we did this while funding the shorter and longer term organic capital growth opportunities that we see across the entire portfolio.

The team continues to execute well.

Our deep durable and diversified asset base continues to get better and better and.

And we are well positioned to generate competitive returns and cash flow for decades to come.

Now, let me turn the call over to Bill to cover our third quarter performance in more detail.

Okay.

Thanks Ryan.

In the third quarter, we generated $2 16 per share and adjusted earnings.

We produced 1.806 million barrels of oil equivalent per day, representing 3% underlying growth year over year.

Planned turnarounds were successfully completed in Norway and Alaska.

And lower 48 production averaged 1.083 million barrels a day.

Equivalent per day <unk>.

Including 722000 from the Permian 232000 from the Eagle Ford and 111000 from the Bakken.

Lower 48 underlying production grew 8% year on year with new wells online and strong well performance relative to our expectations.

Moving to cash flows third quarter CFO was $5 5 billion.

Including AP LNG distributions of $442 million.

Third quarter capital expenditures were $2 5 billion, which included $360 million for longer cycle projects.

And through the end of the third quarter, we have now funded $875 million per port Arthur LNG out of our planned $1 1 billion for the year.

Regarding returns of capital, we delivered $2 $6 billion to shareholders in the third quarter. This was via $1 3 billion in share buybacks and $1 $3 billion in ordinary dividends and <unk> payments.

And today as Ryan said, we announced an increase to our ordinary dividend of 14% to <unk> 58 per share.

We ended the quarter with cash and short term investments of $9 7 billion.

Which included proceeds from the $2 7 billion in long term debt that we issued to fund the <unk> acquisition, which closed in early October.

Therefore, you can expect us to provide details on our first quarter be rock payment on the fourth quarter call in February.

Now turning to guidance, which now reflects additional 50% of surmount starting in early October we forecast fourth quarter production to be in a range of $1 86 to one 9 million barrels of oil equivalent per day.

Full year production guidance is now roughly 182 million barrels of oil equivalent today.

And this is very consistent with our full year guidance and our long term plan, we laid out at our analyst and Investor meeting.

For <unk>, we expect distributions of $300 million in the fourth quarter and $1 9 billion for the full year.

While AP LNG distributions can vary quarter to quarter, a normalized run rate to think about moving forward is around $400 million per quarter at current price levels.

Shifting to adjusted operating cost we raised our full year guidance by 300 million to $8 6 billion.

This was driven by our increased working interest in surmount increased lower 48, non operated activity and inflationary impacts in the lower 48.

We've also raised our DD&A guidance by 100 million to $8 3 billion.

Which is also primarily due to surmount.

And full year adjusted corporate net loss guidance remains unchanged at roughly $800 million.

In the second half run rate is a good starting point for 2024.

Finally, our full year capital spending guidance range is also unchanged.

That concludes our prepared remarks, I'll now turn it back over to the operator to start the Q&A.

Yes.

Thank you.

We will now begin the question and answer session.

The answer is over time, we ask that you limit yourself to one question.

Thank 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 one again.

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 on your Touchtone phone.

Yes.

Our first question comes from the line of Neil Mehta with Goldman Sachs.

Thank you very much.

Been a lot of variability in lower 48 results from some of your competitors and you guys have been very steady tracking at 7%.

Growth rate just love your perspective walking through the basins, particularly the Permian what is what is working what's not for you guys and how do you feel about the plan as you move into 2024.

Also mentioned that Thats been in line with our type curve expectations.

Our strong focus on our returns capital efficient environment that we've set there.

And I would add Neil.

It speaks again to the quality and the depth of the inventory in the company we've got.

We're prosecuting some of the best acreage in the basin.

And doing it in such a way that is focused on capital efficiency and returns as Nick described yes.

Our next question comes from the line of John Royall with Jpmorgan.

Hi, good afternoon, Thanks for taking my question.

You have had a handful of international project startups that you touched on in the release.

Could give us some more color on these projects that will be helpful and maybe if you could.

Tie that into a growth outlook for the international business and 24 as well that'd be helpful.

Thanks, Jon This is Andy I can take that one.

Okay.

Early to be getting into.

Full year guidance for 2024.

As you mentioned we have had.

So I'm pretty good news across Alaska, and international projects, but we've made some pretty significant progress across the portfolio and it really is nice to see so many of those project achieved major milestones on or ahead of schedule and budget.

Ryan touched on Norway.

We achieved first production ahead of schedule III of our subsea tieback and we expect a fourth one to come online as planned in Q2 24. So we expect those projects in aggregate to add about 20000 filed to their production next year, which should more than offset normal decline in 2004.

We also had some good news in China with our partner operated <unk> Phase four B achieved first production ahead of schedule on the first platform.

And then we also had some pretty big major milestones in Canada with Cps II in the Montney and Pat to six 7% and San Juan.

So <unk> was successfully started up in September and Thats going to add about 100 million cubic feet, a day of gas processing and <unk>.

30000 barrels of condensate award handling capacity.

So in the Montney, we averaged about 20000 barrels of that production in Q3, and we're going to substantially grow that next year.

And then finally with somewhat pad 267, we achieved first steam in September.

First of all in early 'twenty full now with $2 six seven online we would expect to see <unk> grow so between five and 10000 barrels a day next year and importantly that thing in case of a month long turnaround and we conduct every five years in San Juan.

I'm really proud of what we're doing and executing across these projects and I think our listen here is a really good sort of example of how we leverage our existing infrastructure to deliver on our low cost of supply opportunities. So hoping that gives you a feel for sort of.

And we're building going into next year.

Our next question comes from the line of Steve Richardson with Evercore ISI.

Hi, Thanks for the time.

Bill I was wondering if maybe you could help us out a little bit of broad strokes on 2024.

Capex thoughts I think in the past you've talked about kind of flattish capex around $11 billion with admitting there is a lot of moving parts that are in an $80 environment. Maybe you can just talk a little bit about that as you're thinking forward.

Yes.

Dominic can you Steven.

What we'd say is very consistent with the aim framework, we laid out on capex.

Just to recap the moving parts, we've got several moving pieces, assuming willow is sanctioned which we expect.

Spending on that project will be higher and then of course, you have the incremental $100 million or so for the other 50% of somewhat lower <unk>.

So you do have the addition of the <unk>.

Extra 50% in there.

Our next question comes from the line of Doug Leggate with Bank of America.

Good morning, everyone. Thanks for having me on a low fill has gone to the dark side with the one question rule.

Yes.

So in my opinion.

If I may I'd like to make one comment and ask one question, Mike one comment as your stock's up almost 5% this morning.

I think acknowledging your dividend moves ordinary dividend moves is gaining recognition in the market.

Congratulations on taking that step we'd like to see more of it.

Okay well my question is simply this.

One of my peers asked a question earlier about performance in the Permian.

To ask a little differently one of your very large peers had some non operated.

Portfolio problems in the quarter.

Guys I've got a large part of your production that comes from non operated production is there any discernible difference between your operated performance in your non op weaker performance that's driven this reliable.

Production growth year over year.

Yes, so I can't resist but to comment on your comment Doug and then I'll, let Nick.

Sure.

Lower 48, but <unk>.

Exactly what we thought should happen with top quartile targeted dividend growth.

As a company relative to the S&P 500, so that's.

Our plan and we're sticking to it and executing on that plan.

Yes, I can let Nick comment on your question about.

Not often up in the Permian.

Yes, Doug.

Good question I think Youre looking at the Q2 to Q3 performance. This year, we were up 2% sequential growth and as Bill mentioned in his prepared remarks, we're seeing 7% year over year I would say that has a combination of our operated and non operated.

Portfolio, both are performing well.

Specifically dug in Q2 to Q3.

<unk> component of that increase was our operated Permian program as well as although so we're seeing increases in the operated by others and a little bit of Bakken.

As well.

<unk> operated by other assets are very competitive we look at every ballot, we benchmark each one.

And it performed well within our cost supply framework as a reminder, if you look at.

Permian in general about 30% of our production is coming from operated by other within the Permian and if I take you back a little bit in time to the analyst Investor day.

When you think about the split between the two basins. We've got two thirds of our inventories in the Delaware one third.

In the Midland Basin to generate the full lower 48 was up 5%, but bottomline, Doug is that they're both competing well.

We review every ballot to make sure we're investing the right capital and drive that capital efficiency.

Our next question comes from the line of Lloyd Byrne with Jefferies.

Hey, good morning, guys.

Alright.

Ryan you mentioned it in your prepared remarks, but I'm, hoping you can comment further on international gas integration strategy.

I recognize it's early but.

But by our numbers it seems like a lot of option value. There. So maybe just thought process behind it and maybe any targets you might have to help us think about the future there.

Yes, I can let bill give you some details there Lloyd but yes, we're excited about the opportunity to add the re gas capacity in the Netherlands at the gate LNG complements well, our our German edition and we're looking elsewhere as we try to build out and move the port Arthur volumes and the volumes we.

In other places around the globe.

To that market, which we think is going to be a strong market for us for many decades to come which is why we're moving into the second bill can be a bit more specific to your question.

All the details there, yes, I am happy to put a bit more color on that so we're very focused on developing market and as we've talked about we like to do this in a stair step fashion with how we.

Originates supply you have seen us announce port Arthur LNG <unk> LNG, we're making really strong progress at $2 8 million tonnes per annum of re gas capacity at German LNG two of that is dedicated to supporting our LNG SBA is out of Qatar that leaves eight at Germany. We just added one 5 million ton.

<unk> of re gas capacity gate, so that two three that's roughly half of port Arthur.

And I think importantly, we're continuing to see a lot of interest and strong demand for <unk> or LNG as we've talked we're looking to develop a diversified portfolio. That's both sales into Europe and also sales into Asia, perhaps some fob sales at the facility and having a mix up.

We have term lengths in that and so I'm just I'm really pleased with the progress we're making within six months of kind of a <unk>.

Arthur we've got roughly half of our place.

The way to think about that just going back to the vignette I showed at aim is you look at the capacity that we have into Germany into TTS. The way to think about that as Youre modeling returns that you start with the Henry hub price you add liquefaction toll shipping and re gas you compare that to what you think European gas price will be that's going to give you your.

Our base CFO for volumes into Europe, before adding any diversion optionality on to that.

Can do a similar type of analysis is going to Asia. So yes, we share your view here that these are very interesting.

Additions to our portfolio and we're really pleased with the progress we're making.

Our next question comes from the line of Devin Mcdermott with Morgan Stanley.

Hey, Thanks for taking my question, so I want to Echo the earlier comment on the dividend raise and ask a question on the shareholder returns. So it's good to see the 14% increase and I was wondering.

If this large change in the dividend is more tied to incremental cash flow on surmised or if theres been a broader change in how youre thinking about the target payout or dividend breakeven as you look out at the business over the next few years just as part of that maybe you can give us an update on your broader thinking on shareholder return strategy and the breakout of dividend be rocking buybacks in that context.

Based on Grace.

When the prices are.

Levered mid.

Mid $40 45, 45% or so of our cash has gone back to our shareholders and it's done that in a form of both the cash and buying our shares back so our construct around that really hasnt changed we like to.

Provide a affordable reliable ordinary dividend that grows competitive with the top quartile of the S&P 500 over time.

We'd like to buy some of our shares back through the cycle in a mid cycle construct and then we introduced the third leg of Iraq to add additional return back to our shareholders when prices are above our <unk>.

Our mid cycle price call. So that's the kind of strictly avenues.

Yes.

We're sticking to that we think it's served the company pretty well.

It provides like this year, we expect cash flow of close to 22 billion and we're giving half of that back to our shareholders. So that's probably not a bad starting point for next year.

Our next question comes from the line of <unk> Kumar with Mizuho.

Hi, good morning, Thanks for taking my question.

I guess, just sticking with the theme of M&A and I appreciate it.

You touched on it in your comments.

But one of your peers out there has talked about improving recoveries in the Permian to the tune of 20% or higher than everybody else.

You operate across the entire Permian Basin. I'm curious are you deploying are seeing ehlers deploy technologies that you think can improve recovery rates that significantly.

Yes, I'll, let Nick respond to that specifically and I guess I'd make just one broad comment is I think as we talk about this topic I think.

And the companies and a lot of people are guilty of this inflation a bit between recovery and recovery rate or recovery factor. So I think you have to be really careful when we talk about this in light of these unconventional we're doing everything we can to improve the recovery that we get from the wells the acreage the blocks.

The layers that we have within our portfolio.

But be careful not to conflate that to recovery factor recovery rate than I can.

Speak a bit more specifically about the things we're doing to make sure we get maximum recovery out of our assets.

Thanks, Brian.

Our asset teams as Ryan mentioned are very focused on optimizing the recovery of our wells in our developed projects across all of the lower 48 assets I think it's important to as we seek to maximize recovery.

But also driving improvement in cap.

As part of our returns focused strategy and the costs by a framework that we judge every decision against.

We look at kind of an improving recovery across kind of three primary buckets I'll take you through that what we're looking at we're deploying within within our asset so first.

We look at development decisions.

Our first bucket secondly is how do we optimize the reservoir and Thats, our second bucket and then the third one is really when we look at enhanced oil recovery, but that's more of a longer term now.

A couple of things.

Well lateral length is critical we speak to you about the inventory linked more you can go from a one lateral to a two to a three mile lateral you increase the recovery per well and as we've mentioned before you go from a one two or three we improve our cost of supply, which drives kaplan efficiency by 30% to 40%. So we're doing.

On the well completion side again, there's still sits in that development decision bucket.

<unk>.

One thing that we do out of the Midland Basin that you've heard here recently is co development co development.

On a second component that we're focusing in on reservoir optimization I'll draw your attention to Eagle Ford you were using kind of techniques, where we re frac. These wells kind of late life in the wells and we're seeing improved well performance on expected ultimate recovery by 60%, which is very competitive in our cost supply framework.

And then I'll take you up to the Bakken, we're using infill wells and upcoming edge wells to further increase overall recovery and these are also competitive cost of supply again that's.

That's increasing the recovery per pad and then the final bucket that enhanced oil recovery component.

Many pilot studies, mainly in the Eagle Ford around gas injection Huff and puff.

And we've seen technical success, we've seen injective witty and and the corresponding oil response, but I'll leave you with this on the on the enhanced oil recovery. These projects don't compete within our expansive drill one.

Inventory at this point in time, we will continue to study it and analyze it and Thats something we can address in the future.

From long laterals too.

<unk> completion designs infill wells were improving recovery in our assets.

Our next question comes from the line of Roger read with Wells Fargo.

Okay.

Hi, good morning, everybody.

Hey, Roger.

A lot of this has been hit but I guess I'll just ask about Alaska.

There have been a little more noise out there on the I don't know if you call it regulatory.

Our legislative side.

And then we're about to head into the winter season, So just curious.

Willow and other things what's going on there.

Sure.

Hey, Roger this is Andy So let me take that one I'll start with the legal name will give you a bit of an update of where we are with the project.

On the legal side.

I talked about this on previous calls.

Our lawsuit challenging the federal government's approval of the project.

On the last call, we expect to see a ruling on this in November the preliminary rulings in April were favorable.

And then the upcoming route and will address the full scope of the legal challenge.

Im repeating myself here, but as I said on the last call.

We're very happy with how the BLM and accompanying agencies conducted a process and that satisfied all the requirements to grant that approval.

We're confident and we're looking forward to those court rulings in November as we get ready for the 24 season.

And then I think the other part of the legal question.

<unk> is separately September.

The department of interior proposed additional regulations for the management and protection of the NPL right now.

Now we don't expect these draft rules impact without will prevent our exploration program and doesn't have any impact on the 10 year plan, we previously laid out.

But that said we are concerned that the rules are adopted as currently drafted.

Could impact future developments beyond <unk> and the National Petroleum Reserve Alaska.

So why are we providing feedback to the department of interior to try and make the proposed rules were consistent with the existing statute and again I'll just finish the vehicle bandwidth as a reminder, the statute recognizes the primary purpose of the NPL rate is to increase the Mexico supply.

So thats kind of where we are on the legal side and then just very quickly where we are in terms of.

The project.

I've taken a step back here as I described back in our Investor update, whereas the kind of project is right in our wheelhouse, they've got no first of the kind type risk here.

Three drill sites to one new processing facility and our track record and I'll ask with excellence and delivering on schedule and on budget.

So specific to where we are right now work is progressing well.

Our 2023 capital is fully factored into the total company guidance, we gave today.

We started the first phase of module fabrication on the Gulf Coast and then on the North slope. We successfully opened the graph a mine and we're preparing for the 24 construction season.

Already got over half of the project scope under firm contract.

And these contracts include clauses, if we don't have a project that we can exit.

So all of the contracts, we've issued today, 75% from a lump sum or unit rates.

These type of contracts, we have a greater price and now have limited exposure to future inflation.

So as we continue to contract negotiations are asked about our capital to first production remains unchanged at seven to seven $5 billion that we previously provided.

So I think that probably gives you a good update on where we are in the league level on the project side of things.

Our next question comes from the line of Ryan Todd with Piper Sandler.

Alright, I think Thats, Ed Ryan Todd.

Maybe one for you Ryan you've been on you've been busy on the portfolio over the last few years across the across a wide range of regions and types of assets across the portfolio.

And some of that is obviously opportunistic just when the timing of things like sour amount in AP LNG came up.

To develop things.

Or any.

Any any places that you would like to.

Change or increase your exposure, maybe as you look going forward down the line in terms of long term competitiveness.

Yes, Ryan I think.

We tried to show you at the analyst meeting earlier this year were pretty pretty pleased with all the efforts. We've made in the company over the last four to five years to really what we think is put out an extremely compelling 10 year plan. So I wouldn't describe the we really really like where the portfolio has gotten too it's got a global it's <unk>.

Diverse it's got a great mix of short medium and longer cycle opportunities organically to invest in all of those investments lead to.

20 billion barrels at less than $40 cost of supply. So we've got a lot of visibility into what we think is a great plan.

Ruthless high graders with a portfolio of some doesn't compete we're looking for opportunities to move it out I Wouldnt described we've got anything significant inside the portfolio today that would fall into that category and we're always looking and trying to be opportunistic, which I think describes to your point the APL LNG.

Rover and the Fairmont Rover that we hold so you never quite know when your when your partners make a change that you Didnt anticipate and you get a great opportunity to acquire an asset that you know really well and the one that we know we can make better if we have it under our control.

And ultimately as I said it makes our 10 year plan better so we're always out looking.

You never quite know when these things materialize, but we tend to be very opportunistic and I just remind people our framework is intact.

It has to meet our financial framework.

We got a Coa clear debate the asset better and doesn't make that 10 year plan that we think is quite compelling.

It doesn't make that 10 year plan, better which is a pretty high hurdle inside the company.

Our next question comes from the line of Paul Cheng with Scotiabank.

Hello can you hear me, yes, we sure Ken Paul Good morning, Hi, Thank you good morning.

You can go back into Permian.

What's your App based in lateral length now and then how much do you think you Kenyan coupe all linked and over the next several years is that.

One of the primarily contribute at that you think you could improve that we sell.

Permian operation and also that whether you guys have tested because at some point I would imagine, which a economy of scale when you get longer and longer.

Do you have any.

Experiment that you guys had done that what that limit.

Paul.

Longer than one mile or less than four months. Thank you.

Yes, Thanks, Paul I can let.

Nick kind of weigh in on some of that we're not.

Yes, I think lateral length is just one of the things that we're working on Nick described a bunch more of an earlier question around completion efficiency and how we're attacking the spacing and stacking. So I think it's all of those things that we're trying to attack and there are different depending on where you are out in the Bakken and Eagle Ford or the Permian.

But we have experienced we have deep experience in all three of those basins and using all of that knowledge to make sure. We're maximizing the recovery and minimizing the cost of supply and maximizing the efficiency that we're getting out of it specifically on lateral length.

Weigh in on that yes.

Yes, Paul good morning, Yeah.

Just to reiterate again, we've got a significant deep and broad long lateral inventory across the assets. Just mentioned previously the 80% of Permian inventories, one five miles or greater than 60% greater than two miles and we continue to.

See more and more three mile laterals and are very.

We're seeing good results coming out of a three mile laterals, both from our 2022 program as well as 2023 and so we continue to see increases in that space.

Our teams continue from a BD standpoint, and a land standpoint, I look at core up opportunities and this is not only in the Permian, but as Ryan just mentioned in the Bakken <unk>.

Finished up some trades there to allow us to drill some three mile laterals in the future. So we're increasing the portfolio of long laterals across all four assets. The thing that you had talked about related to how far can you go on the step back the three mile laterals that we're seeing over the last couple of years are performing well, we're very encouraged with the <unk>.

<unk> you want to make sure you get contribution across that entire lateral length.

As we think about going further longer lateral lengths and I think you mentioned four miles there's a trade off.

Can potentially drive down and improve cost of supply and then also you have to look through the lens of operational risk that operational risk is also not only in development drilling actually drilling the wells, but also future workovers and so we're looking at that in the future, but I'll leave you with is the fact that the three mile laterals performed extremely.

Well and we've got a very deep inventory of long laterals as I mentioned earlier.

Yes.

Our next question comes from the line of Josh Silverstein with UBS.

Thanks, guys, Brian I appreciate the comments before on the return of capital thoughts for next year.

I was curious with the added debt from the <unk> transaction, how you might think of additional shareholder returns versus this year or the want.

I want to build cash or.

Pay down the debt there thanks.

Yes, I think we're good.

And that planning process as we kind of think about next year and all of those moving pieces.

I tried to say it looks to me like at this 10 seconds.

We have a plan and <unk> address that.

Pay off the debt as it comes due over the next few years that gets us down to our original target of 15 billion gross debt and we can continue to do that and I think if we had a very large ups cycle to the price commodity price, we might look at adding more cash to the balance sheet as well so.

I think all three of those are in are in play as we think about what we do over the course each quarter as we go into next year.

Our next question comes from the line of Sam Margolin with Wolfe Research.

Oh, hi, thanks for taking the question.

<unk>.

I guess.

I wanted to ask for an update maybe on.

The Venezuela process, it's come up in.

In prior calls and the processes advancing and.

I guess, specifically I wanted to ask about a scenario where the assets that aren't strategic to you get returned.

Surrendered to creditors and.

What might be the path forward from there because.

It's a large claim and its material and it seems like it'll be a good outcome for you, but it might require some.

Actions in the in the aftermath.

Yes.

I understand Pam.

Yes, we were in a process with the Venezuela right now they also a considerable amount of money through both our our exit in our ICC claims.

Approaching over $8 billion. They are some of the full judgment on the ICC, they still owe us $1 for $1 5 billion. So we're pursuing that pretty aggressively.

We're watching the progress closely clearly the U S government has provided a.

A listing of some if not all of the sanctions here waiting on.

Results of what the Venezuelans due on the other end for free and fair elections, so that may create a bit of a bit of an opening but.

This is a long long process, but we're we're pretty committed to doing everything we can to make sure we get our money out of Venezuela, what they owe us.

And that's what we're focused on.

Our next question comes from the line of Neal Dingmann with <unk> Securities.

Yeah.

It's Neil.

Yes.

Got it okay. Thanks, guys.

You hit on this a little bit just on M&A, specifically, while I. Appreciate your earlier comments about any assets needed. If the 10 year plan I'm. Just wondering is there a preference for when youre seeing things shorter or longer term cycle assets and just also curious on how you view valuations of some of the recent public deals. Thanks.

Okay.

So certainly the way we look at it.

We like a global we like a diverse portfolio, we like it to be balanced I think we're mostly focused on what's the cost to supply and make sure. It is.

Fits our framework around that and that any asset that any asset that you bring into the company make sure. It can compete for capital on an ongoing basis against a pretty rich deep durable long life.

There are a lot of inventory sitting in the company day, So as I said, it's a pretty high bar.

<unk>.

I don't know quite how to comment on the recent deals that have been done.

Those are yes.

Transactions those are really good companies that were bought clearly they have good assets.

We're pretty familiar with them, we've watched them for a long period of time.

There are good companies with good assets.

Transactions were and are part of the cycle.

Low frothy.

Probably.

The higher mid cycle price than we would have.

Scribed to them.

Maybe that's that's all I should probably say.

Okay.

Our next question comes from the line of Scott Hanold with RBC capital markets.

Yes. Thanks.

Just kind of curious does consolidation that creates larger peers in the Permian impact the competitiveness of of cops development and positioning specifically, if you look at services and midstream capacity.

You kind of move forward on your kind of 7% growth CAGR over the next decade plus.

No I don't think we see a huge.

Just you there at all Scott.

Theres a lot of operators already in the Permian Basin.

Seems like the service side of the business has been accommodating all the activity that we have out there there's been periods of tightness.

On certain categories of spend or a certain services, but by and large we don't we don't think it's going to be.

A big big issue for us going forward.

Vantage of being one of those large.

Operators in the basin as you get the attention of the service companies because they know <unk> got a program. That's durable I know you've got a program that has some are linked I know youre not going to be whipsawing them around and those are the kind of customers that they want to work for.

And those that are.

They tend to work with us.

So we don't see any exposure to the <unk>.

Current consolidation trend in the Permian and it's going to continue.

No questions, so more probably needs to happen.

Our next question comes from the line of Kevin Mccarthy with Pickering Energy partners.

Hey, good morning, I Wonder if you can provide your current thoughts on adding activity in the lower 48, I know you've said that you could grow production without adding but others are looking at the current service prices and commodity prices and seeing this as a good time to add so just want to hear your most recent thoughts on that thank you.

Well I think that will be part of the process, we're going through right now Kevin I think we're trying to think about what 2024, it looks like that our starting point is.

And make a decision as we go into next year about what the what the scope and the resulting capital will look like.

Our last question will come from the line of Leo Mariani with Ross and Cam.

Okay.

Yes, Hi, I was wondering if you could just comment on what Youre seeing in terms of kind of lower 48 service cost trends I think there was a lot of expectation as a handful of months ago that cost may be falling, but now kind of commodities that have kind of recovered. So maybe just give us kind of your perspective of kind of what you're seeing there and leading edge cost.

Yes.

Dominic so as we've talked about in the last quarter, we certainly seeing some areas of deflation and lower 48 I think.

If you look at our capital spend this quarter Thats part of that trend is in there.

In terms of being lower capital this quarter than the previous.

But we still expect our overall company capital inflation to average out in the mid single digits. This year over last year.

And that's all reflected in our guidance.

I would say that as we approach the end of the year and this is something that is in our thought process right. Now is kind of Orion was alluding to we do think the market is kind of finally balanced we do see some deflation coming through but we have seen oil and gas prices recently strengthened so while we're looking very hard is how do we think that that will trend into next year, but I think.

As I said earlier in terms of our overall capital expectations next year very much in line with what we laid out today.

Of course, plus plus our additional interest in Soma so.

That's just something that we're watching closely but that gives you a good sense of how were thinking so.

We have no further questions at this time.

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

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