Q4 2024 ConocoPhillips Earnings Call
Welcome to the fourth quarter 2020 for Conocophillips earnings Conference call. My name is Liz and I will be your operator for today's call.
Speaker Change: At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
Speaker Change: During the question and answer session. If you have a question. Please press star one one on your Touchtone phone.
Speaker Change: I will now turn the call over to Phil Gresh, Vice President Investor Relations, Sir you may begin.
Phil Gresh: Thank you Liz and welcome everyone to our fourth quarter 2024 earnings conference call on.
Speaker Change: On the call today are several members of the Conoco Phillips leadership team, including Ryan Lance Chairman and CEO, Bill Bullock Executive Vice President and Chief Financial Officer, Andy O'brien, Senior Vice President of strategy commercial sustainability and technology, Nick <unk> Executive Vice President at lower 48.
Speaker Change: And Kirk Johnson Senior Vice President of global operations.
Speaker Change: Also wanted to formally welcome Guy Baber at the former Vice President of Investor Relations for Marathon oil, who has joined the Investor relations team here at Taco shops.
Speaker Change: Brian and Bill will kick off the call with opening remarks, after which the team will be available for questions.
Speaker Change: <unk> will be taking one question per caller.
Speaker Change: 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.
Speaker Change: 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 press release and in our periodic SEC filings.
Speaker Change: We will be making some non-GAAP financial metric references reconciliations to the nearest corresponding GAAP measure can be found in the release and then all right with that let me turn it over to Ryan.
Ryan: Thanks, Bill and let me extend my welcome to everybody for joining our fourth quarter of 2024 earnings Conference call.
Ryan: 'twenty 'twenty four is certainly another strong year for Conoco Phillips.
Ryan: We executed well operationally and on a standalone basis delivered 4% production growth year over year, which was above the high end of our full year guidance range.
We showed strong performance across the entire portfolio.
Ryan: Over a 5% growth in the lower 48.
Ryan: And 3% growth in Alaska and international on the same basis.
Ryan: And we delivered a 123% preliminary organic reserve replacement ratio in 2024.
Ryan: Our three year average is now 131%.
Ryan: We also enhanced the portfolio.
Ryan: We closed the acquisition of marathon in late November.
Ryan: You added high quality low cost of supply of inventory to our portfolio.
Ryan: And we remain confident that we will deliver more than $1 billion of run rate synergies by the end of 2025 over half of which was included in our capital guidance.
Ryan: In Alaska, we opportunistically exercised our preferential rights to acquire additional working interest at attractive valuations didn't Kabart River and <unk> units.
Ryan: We progressed, our global LNG strategy through additional Regasification and sales agreements into Europe and Asia.
Ryan: And as we announced this morning, we're making solid progress on our planned 2 billion of asset sales.
Ryan: We have agreements in place to sell non core lower 40 assets for approximately $600 million before customary adjustments in the first half of 2025.
Ryan: We continue to deliver on our returns focused value proposition.
Ryan: We generated a trailing 12 month return on capital employed of 14% or 15% on a cash adjusted basis.
Ryan: We returned $9 1 billion of capital to our shareholders, representing 45% of our CFO.
Ryan: Consistent with our long term track record and well above our 30% commitment.
Ryan: Now looking ahead to 2025.
Ryan: We remain confident in the plan that we outlined in our third quarter call to deliver low single digit production growth for $12 9 billion of Capex.
In the lower 48 on a pro forma basis, we plan to reduce capital spending by over 15% year over year, while still delivering low single digit production growth.
Ryan: This was primarily due to expected material synergy capture associated with the acquisition of marathon and significant drilling and completion efficiency gains.
Ryan: We also expect to grow production in Alaska and Canada.
Ryan: And we're doing all of this while continuing to invest in differentiated high return longer cycle projects.
Ryan: All these projects, we're making steady progress across the board.
Ryan: We expect 2025 to be the peak year of our long cycle spending at around $3 billion.
Ryan: Followed by a steady stream of project startups from 'twenty to 'twenty six 'twenty 'twenty nine.
Ryan: Once these projects are all online, we expect three and a half billion of incremental CFO from N Port Arthur MFS and Willow all combined at $70 W. T I $10 at T T F and $4 Henry hub.
Ryan: And that leads to roughly 6 billion of incremental annual sustaining free cash flow relative to 2025.
Ryan: Shifting to shareholder distributions.
Ryan: This morning, we announced a target to returned 10 billion back to shareholders. This year.
Ryan: Assuming current commodity prices.
Ryan: Consists of $4 billion of ordinary dividends and 6 billion in buybacks positioning us to execute on our objective to retire the equivalent of the shares issued for the marathon transaction within two to three years, even with lower WTO prices than at the time of the announcement.
Ryan: So in conclusion once again I'm proud of the accomplishments of the entire organization our portfolio is well positioned to generate competitive returns and cash flow for decades to come.
Ryan: Now, let me turn the call over to Bill to cover our fourth quarter performance and 2025 guidance in more detail.
Bill: Thanks Ryan.
Bill: In the fourth quarter, we generated $1 98 per share and adjusted earnings now.
Bill: Now we had a number of special items in the quarter. The two largest were related to the marathon acquisition.
Bill: First we recorded over 400 million of transaction and integration related expenses.
Bill: And this was mostly offset by over $400 million of tax benefits, resulting from utilization of certain foreign tax credits associated with the marathon acquisition.
Bill: Both of these items were largely noncash in the quarter.
Bill: And the one time cash benefit will show up as a working capital tailwind in the first quarter of this year.
Bill: And it is in addition to the Nols associated with the marathon acquisition that we expect to recognize over the next few years.
Bill: The transaction related costs will gradually flow through working capital during 2025, as we achieve our premise synergies.
Bill: Shifting to the fourth quarter operations, we produced 2.183 million barrels of oil equivalent per day.
Bill: This included one month of production from the acquired marathon assets, which added 126000 barrels per day to the quarter.
Bill: Excluding marathons production, we achieved 8% underlying growth year over year. This is above the high end of our guidance range.
Bill: Now inclusive of one month of marathon lower 48 produced 1.308 million barrels of oil equivalent per day.
Bill: And by Basin, we produced 833000 in the Permian 296000 in the Eagle Ford and 151000 in the Bakken.
Bill: Moving to cash flows fourth quarter CFO was over $5 $4 billion and this included over $250 million of AP LNG distributions.
Bill: Operating working capital was a $1 billion headwind in the quarter, primarily due to normal changes in accounts receivable and accounts payable.
Bill: Capital expenditures were $3 3 billion, which included approximately 400 million for spending related to acquisitions that was not premised in guidance.
Bill: We returned more than $2 $8 billion to shareholders, including just under 2 billion in buybacks and $900 million in order to dividends in the quarter.
Bill: We also completed a series of strategic debt transactions. Following the acquisition of marathon now these transactions simplified our capital structure extended the weighted average maturity of our portfolio lowered our weighted average coupon rate and reduce near term maturities.
Bill: We ended the year with cash and short term investments of $6 $4 billion and had $1 1 billion in long term liquid investments.
Bill: Turning to guidance, we forecast 2025 production to be in the range of 2.34 to three 8 million barrels of oil equivalent per day.
Bill: This takes into account 20000 barrels per day of planned turnarounds.
Bill: Turnarounds are expected to be highest in the second quarter with a triennial turnaround at ekofisk in Norway.
Bill: Turnaround at Qatar and maintenance in Australia.
Bill: Then in the third quarter, we will have turnarounds in Alaska.
Bill: For the first quarter, we expect production to also be in a range of 234 to three 8 million barrels of oil equivalent per day.
Bill: This guidance reflects a 20000 barrel per day impact on the full quarter from January weather events.
Bill: We expect a minimal first quarter impact from turnarounds and that's similar to the fourth quarter.
Bill: For capital spending our full year guidance is approximately $12 9 billion.
Bill: On slide eight of the presentation material, we provide a pro forma bridge from 2024 to 2025 with some of the key year over year variables.
Bill: In the lower 48, we expect to reduce spending by approximately $1 $4 billion.
Bill: And for a long cycle projects, we expect to see 400 million dollar increase in spending to roughly 3 billion in 2025 inclusive of capitalized interest of about $400 million.
Bill: Finally in Alaska in International we expect to see a $200 million an increase.
Bill: Increase in spending driven by our growth opportunities in Canada and Alaska.
Bill: Shifting to cost guidance, we expect full year adjusted operating costs to be in the range of 10.9 to $11 1 billion full.
Bill: Full year cash exploration expenses are expected to be $300 million in full year DD&A expense is expected to be in the range of 11, three to $11 $5 billion.
Bill: Full year adjusted corporate segment net loss guidance is approximately $1 1 billion.
Bill: And we expect our effective corporate tax rate to be in the 36 to 30.
Bill: <unk> 37 per cent range at strip pricing, excluding any one time items.
Bill: With an effective cash tax rate in the 35% to 36% range.
Bill: Finally on cash flows we expect full year AP LNG distributions to be about $1 billion with about $200 million in the first quarter.
Bill: So to wrap up Conoco Phillips had a strong year in 2024, we executed well operationally, we're continuing to deliver on our strategic initiatives across our deep durable and diverse portfolio and we remain highly competitive on our shareholder distributions.
Bill: That concludes our prepared remarks, I'll turn it back over the operator to start the Q&A.
Bill: Thank you we will now.
Speaker Change: Begin the question and answer session.
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Speaker Change: Our first question comes from the line of Arun J M.
Speaker Change: With J P. Morgan.
Speaker Change: Yeah.
Speaker Change: Yeah. Good morning, Good afternoon, Ryan you outlined the 10% increase in cash returned to 10 billion.
Speaker Change: You know I'm sure the company scrutinize its approach to cash return of 2025, just given commodity price volatility and obviously the recent close of marathon, but I wanted to see if we get some insights on what drove your ultimate decision in terms of 2025 to give a quantum of cash return and how should we think about pet.
Speaker Change: Central Flex and cash returned either higher or lower given potential commodity price changes.
Yeah. Thanks, Arun you know when.
Speaker Change: When we set the new strategy for the company way back in 2016 certainly.
Speaker Change: Delivering a lot of our a significant amount of our cash back to the shareholder and I think that that's something that's important to the company.
Speaker Change: And to demonstrate we can continue to do that and I think it's represented in what we kind of set as our target for 2025.
Speaker Change: I think as we as we looked at it. We obviously took a look at the forward curve and where things are developing in 2020 five we take our own view, we have a lots of commodity markers that drive our CFO as we go through the course of the year, but I think despite the recent downdraft in the W. T. I here over the last month, we felt pretty comfortable at 10.
Speaker Change: And look I remind people, we have a lot of torque to the upside on commodity prices and look at our past behavior over the number of years, we've been sharing that with our shareholders.
Speaker Change: As a reminder, if you look at the whole company a good good a rule of thumb was about 400 million for every dollar of T. I movement. So obviously, if we get five or $10 of uplift that's pretty significant cash flow to the company and we typically share that with our shareholders as well, but on the downside like we've got a strong balance sheet. We ended the year.
Speaker Change: With over.
Speaker Change: I think seven 5 billion of cash and long term investments. So we've got a lot of flexibility there and then as we announced in our prepared remarks, we're on track to dispose of about $2 billion of noncore assets, which you know gives us a lot of flexibility as we go into 2025, so putting all that together we felt.
Speaker Change: 10 billion was a good place to start.
Speaker Change: And Oh, well, we'll do like everybody watch watch the volatility of the market and the commodity price, but feel pretty good about where we started the year.
Speaker Change: Our next question comes from the line of Pedro Lopez with Evercore ISI.
Steve: Hi, Good morning, Hi, Pedro, but it's Steve.
Speaker Change: Hey, Steven.
Speaker Change: Yeah, No worries tried and tried a new law. So I was wondering Brian if we could.
Speaker Change: You will get a little bit and on some of the long cycle of Capex, if we could and the outlook I'm. Just wondering if you could kind of hit on some of the moving parts around Alaska guitar thoughts on Port Arthur Phase two and are we right in kind of assuming that your equity outlays on major projects are peaking in 2025 or is that a misplaced view.
Speaker Change: Hey, Steve This is Andy maybe I can get that one started there's a few bits to the question maybe I'll start with the.
Speaker Change: Put off the phase two and I'll get to the to the long cycle capital. So I'll put up the phase two.
Speaker Change: This is a great project is underpinned by a premier developer at a penny of EPC company.
Speaker Change: It's also positive to see a company like Aramco shutting in interested in being part of that project.
Speaker Change: But as we've said before we took an equity stake in phase one for unique reasons.
Speaker Change: We can in getting the project off the ground and it came with no options or other phases and other projects.
Speaker Change: So we're very keen to see phase to get completed as there'll be cost sharing across the combing facilities of the two of the two projects. So suddenly you have interest to see you know face to go but I think it's fair to say our primary focus is on building out our offtake and a re gas capacity for 10 to 15 and Tpa, So well that maybe that's what gives you that.
Speaker Change: But what I was thinking all caught off a base to.
Speaker Change: Then moving to the.
Speaker Change: So the the major project capital and the pace or do you kind of a $3 billion.
Speaker Change: You know as we as we said in our prepared remarks.
Speaker Change: Capital guidance for the year was $12 $9 billion and that includes the $3 billion of long cycle project spend of which those fundamentals of capitalized interest as we said 2025 and it is expected to be the peak spend as we undertake the big winter because winter construction season in <unk>. So if you look past 2025.
Speaker Change: We are going to see the major project spend stepped down each year and at the same time, we'll start to see the projects coming online delivering on our expected cash flow and free cash flow improvements in the first one of those will be NSV in 2026.
Speaker Change: That'll be followed by Port Arthur then NFS and then we'll have Willow in 2029, so there'll be a steady drumbeat of these projects coming on but I think the keep the keep what I want you to take away is that are you absolutely. We see this year is the peak as the peak spend and these are in these projects.
Speaker Change: And I would add Steve I remember you.
Speaker Change: Tried to say.
Speaker Change: Say that in our opening remarks, you know look at this this is coming and there's going to be a steady beat of our project startups as Andy described and it kind of a 70 T. I 10 dollar T T O $4 Henry hub kind of price deck that results in a three and a half billion or more a CFO, but more importantly.
Speaker Change: <unk>, you know over $6 billion of free cash flow coming relative to our 2025, starting point so all of that starting to materialize and as you know is out there and and these are great projects low cost supply are competitive in the in the portfolio and lead to the long term growth and development of the company, which we're quite excited.
It was about.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Doug Leggate with Wolfe Research.
Brian: Hey, good morning, everybody I'm, Brian nothing short of spectacular performance in the lower 48 and on Mike My question is that when.
Speaker Change: When you laid out a 10 year plan.
Speaker Change: You talked about low single digit growth on I think you were up 10% year over year or 4% sequentially in the third and fourth quarter and I have to imagine as productivity gains and efficiencies is all the things that you talked about.
Speaker Change: My question is do you, except the production growth.
Speaker Change: On a go forward basis.
Speaker Change: Or do you trim activity levels and reduced use of capital and just trying to understand what the philosophy is.
Speaker Change: You respond to the extraordinary delivery you found in your in your portfolio.
Speaker Change: Yeah, Thanks, Doug a huge shout out to Nick and his team there are they keep delivering some amazing efficiencies with.
Speaker Change: The horizontals, the larger well pads and just the frac and drilling efficiencies that we experience are really good you know I know, it's a little trite I guess, you know production growth was a bit of an outcome from our plans, but I think the way we kind of look at it as we think about planning cycle year over year and we got the the Great addition of.
Speaker Change: The marathon assets, which gave us another two plus billion barrels of resource sub $40 cost of supply. So we get to integrate that into our plans and we built significant scale and scope, primarily Bakken and the Eagle Ford, but additional scope in the in the Permian as well so we step back a minute when we look at is trying to.
Speaker Change: To keep driving that efficiency that Nick's team is delivering.
Speaker Change: For the company. So if you think about it do you want to lay down some extra frac spreads will all that does is end up building more ducks than we needed to build and you go the opposite way and say well why don't we cut out a couple of rig lines and that just creates a creates a problem on the frac spread where we gotta take frac holidays, when we shut frac crews down for three.
Speaker Change: We are four months just to keep the old things balance. So we're trying to operate with an efficient operating window and and the and the marathon transaction just gave us the opportunity to reset optimize plateaus across both the Bakken and the Eagle Ford. So we kind of approach it that way, we try to set a reasonable scope going into the year, but it doesn't allow.
Speaker Change: Hours to whipsaw, the organization, both up or down and then we try to take a look at what kind of production growth comes out of that so it truly is an output for the plans trying to keep driving that efficiency and I remind people back in 2020 to aim.
Speaker Change: We'd be adding two three or four rig lines a year to get the kind of growth that we're seeing we haven't done we haven't added a single rig line over this timeframe. So it's all driven around around the efficiency and I think the point you're getting at is you know what is it.
Speaker Change: In a macro that's growing maybe one one and a half per cent is is the growth too much I think we do try to take a look at that at the end of the day, but it's really trying to drive for capital efficiency and returns on the capital that we're getting and we just don't want to upset that efficient machine, one way or the other.
Speaker Change: Our next question comes from low weight bearing with Jefferies.
Speaker Change: Hey, good afternoon, Ryan Bell team I really appreciate your comments on cash flow and Capex it looks to us as though consensus is embedding almost flat capital and no production growth into the future. So.
Speaker Change: That's important I know you answered some of it I just can we go back and go through what you would think is a theoretical maintenance capital number as you look out and I'm also thinking about how efficient you bet and replacing.
Speaker Change: Dollars per proved developed in the U S.
Speaker Change: Yeah.
Randy: Hi, This is Randy yeah, I can take that one and that I think you you started it off for me that you don't need it.
Randy: They're thinking of sustaining capital you know there is a bit but it's topical because it does require being a sustaining world. So maybe I'll try and sort of triangulate a couple of different ways for you. So if you were to take out 2025 capital of $12 9 billion has to be just clear that includes three 3 billion of pre productive capital.
Randy: Growing the underlying business low single digits.
Randy: So if you're able to normalize that out sort of in round numbers you get to about $9 billion in the current commodity price environment. If we were in as you know we're trying to just stay flat.
Randy: Now back at our Investor meeting in 2022.
Randy: We gave a different data point, which was to say we could basically I can tell you all sustaining capital would be $6 billion, but that wasn't a sustaining world.
Randy: $40 price now the company has changed a lot. Since then we've grown with the acquisitions and our organic growth. So if you were to add Madison organic growth the semi acquisition, we'd be closer to about seven and a half billion dollars you know.
Randy: On an apples to apples in a $40 world right now.
Randy: It is as I said I said this is kind of hypothetical but you've got to be in sort of a sustaining well before you're ready you called a day doing these kind of things, but if you kind of more of if you kind of model it to hope without giving you a couple of different ways.
Randy: Triangulate on the same answer.
Speaker Change: Our next question comes from the line of Betty Jiang with Barclays.
Betty Jiang: So that when you. Thank you for taking my question, maybe just one.
Randy: Uh huh.
Randy: More color on the lower 48, maybe on the Capex side in a slide that showed the one $4 billion reduction in our pro forma capex.
Randy: Marathon.
Randy: For $500 million of that reduction, but could you just give a bit more color on what are the other drivers how much of that especially thinking perhaps lori wants long cost how much of that development.
Randy: Development path.
Randy: Hum.
Randy: Hum.
Randy: Perhaps driving up our overall.
Randy: Now.
Randy: And they get it.
Randy: Step back for that.
Randy: At this capex level does that mean.
Randy: You'll never know.
Randy: Single digit per house.
Randy: Hum.
Randy: Hum.
Randy: Okay.
Randy: We're seeing right now.
Randy: Yeah.
Nick: Well good morning, Betty This is Nick let me walk you through the Q key components related to that $1 4 billion that you mentioned.
Nick: And there's it's really around the operational improvements that Ryan was mentioning is that a meaningful synergy capture of the $500 million that we talked about and there's modest deflation as well. So if I first start with the operational improvement you know this is a well established and demonstrated track record last two and a half years.
Nick: The team continues to do more with less and just hats off to the team that are calling in today.
Nick: We demonstrated this in 2024 with similar a rig and Frac activity counts, we delivered 15% more scope that means more feet drilled more stages per day, but most importantly, it's more wells online and you're seeing that through the bottom line production as we look into Q3 and Q4.
Nick: Now we're going to apply the same model those operating efficiencies in a level loaded steady state development program to the marathon assets. So we see those efficiency improvements coming forward and that is a key component of the material synergy capture of the $500 million now within the.
Nick: Synergies itself. In addition to those efficiencies you've got items like moving onto common contracts designs around facilities different well programs mud programs that are also in there.
Nick: Now in addition to shifting to our steady state development program and if you recall.
Nick: Heritage Marathon were typically very front end weighted with their activity and then ramp down in Q3 Q4, we're moving to that overtime, but we're also moving our legacy positions in Eagle Ford and Bakken to an optimum plateau and we will reassess this as we integrate those assets. So that's another big driver. So you can think of.
Nick: About you got the efficiencies you've got material synergy capture you got activity optimization, and then we expect modest deflation in 2025 as well around 200 million. So all of that gets you to the $1 4 billion.
Nick: Now related to production and continuing on with that we've looked at we've kind of demonstrated over the last two and a half years at flat activity.
Nick: We can grow the lower 48 business. We the teams are continuing to drive operating efficiencies and we do see that for years to come at flat activity.
Nick: Yeah.
Speaker Change: Our next question comes from the line of Devin Mcdermott with Morgan Stanley.
Devin Mcdermott: Hey, good morning, Thanks for taking my question.
Devin Mcdermott: I wanted to circle back to Alaska.
Devin Mcdermott: Willow is a big portion of the major capital project spending and we're in the peak construction season right. Now. So I was hoping you can give us a bit of an update on some of the near term milestones and remind us of the cadence for spending on that project over the next few years.
Devin Mcdermott: Maybe just stepping back you know Alaska has gotten a lot of attention from the Trump administration, so far and even had its own executive order. So more broadly could you remind us how you're thinking about the western north slope opportunity set and whether or not the policy environment creates more of an opportunity to move forward with some of this over the next few years.
Devin Mcdermott: <unk>.
Kirk: Yeah. Good morning, Devin this is Kirk.
Kirk: A few things certainly in there to unpack I'll I'll start with Willow as you did and certainly happy to report that the progress we made here last year.
Kirk: Certainly inclusive of fourth quarter and even just this last month here in 2020 five allows me to say, we're really on trend.
Kirk: With the progress that we've been making and you've been hearing from me report out simply that that project team. There in Alaska just continues to hit all the key milestones that we've laid out a certainly since taking F. I D.
Kirk: Late 'twenty three.
When I think about certainly the work that was underway in fourth quarter and and even just this last month in January.
Kirk: The initial mobilization of that AR of our winter construction season, and certainly that you point out is our largest AR for the project has really gone quite well. So we got a a quick and early start we got some cold weather ice road construction activities are Oh, I Dare I say modestly ahead of plan, which is really nice.
Kirk: For us it puts us in a position of taking full advantage of.
Kirk: Of the full winter season, knowing that we may certainly have a little bit of weather in front of us and again to the noted this is the largest winter construction season, we're in a great position of building on all the activity that we accomplished here last year again. This is a peak year of ice road construction, it's from those ice roads that were building gravel.
Kirk: Rhodes gravel pads that allows us to from those ice roads build our pipeline networks.
Kirk: And then we've got a few unique activities as well here planned. This this winter season think bridge construction ER as well as some some horizontal directional drills for pipeline crossing so again lots to do and then you can go into the operation modules that you heard me speak about last year, we floated those bars those up to Alaska.
Kirk: <unk> landed those in onshore those during the ice free season, and those are Oh I've got report outs. Just this last month that those are moving across into the Wheeler development area. So we're using crawlers to get those end up that are into that new pad.
Kirk: So again, some really good progress we landed our contracts our engineering is on track that puts us in a great position for full fabrication across the entirety of this year. So all of that culminates again, Devon into this the peak year of spend which is why we're guiding.
Kirk: Two to an expectation of project capital being roughly.
Kirk: 500 million more than we spent in 2024.
Kirk: And then last time I, just hope you all have a little bit as well you know, we're thinking about all of that spend and manifesting in probably probably close to a third of our total annual spend expectation here in 2025.
Kirk: Showing up in the first three or four months of this year.
Kirk: And then so naturally then we expect the capital this year to stair step down.
Kirk: Into second third and fourth quarter, and then you would expect the same trend from us when we think about the total project spend the balance of what we've you know we've guided on for the first couple of years post F. I D. That'll continue to stair step down with very little if any spend in 2029, which is when respecting expecting first oil so again great progress.
Kirk: Here are look forward to continued hitting our milestones.
Kirk: For our Willow project here in 2025, and then lastly, yes, theres certainly been quite a bit of press out there.
Speaker Change: N PRA and I would probably back up just a little bit to say.
Speaker Change: First and foremost I think it's important for me to emphasize that the the ruling that came out on N. PRA here are from the prior administration doesn't affect any of the activities that we're doing up there whether it's whether it's income part of western north slope or even willow, but we did take issue as did the state and.
Speaker Change: And certainly other stakeholders with that ruling and so we were pleased to see that president Trump and that administration.
Speaker Change: Issued an executive order to in essence.
Speaker Change: Reverse what what came about here late last year. So we recognize that's going to take a little bit of time here this year, but but yes, we're looking forward to partnering with the department of interior and especially with the state of Alaska.
Speaker Change: Fundamentally we believe that our continued exploration west Willow.
Speaker Change: It's it's it's the right thing to do for for energy. It's the right thing to do for the state of Alaska.
Speaker Change: And its stakeholders and clearly we're in a really good position, we're putting ourselves in a position to continue exploring what's the willow as as that's enabled for us. So again some good news out there for us in Alaska.
Speaker Change: Yeah.
Neil Mehta: Our next question comes from the line of Neil Mehta with Goldman Sachs.
Neil Mehta: Good morning, Ryan and team and good afternoon, I just love your perspective on slide four specifically around reserve replacement.
Neil Mehta: There's been some discussion about you know how investors should interpret this number and.
Neil Mehta: It's one where.
Neil Mehta: Here to do pretty well on over the last couple of years. So just your thoughts on where you'd been able to drive that reserve replacement any geographies in particular that you wanted to call out and how we should interpret this statistic.
Andy: Yeah. Good morning, Neil This is Andy.
Andy: We agree that we know we still think that our reserves and Reza license is a really important metric to.
Andy: A measure measure us into major oil and gas companies by.
Andy: Yeah, we're really pleased to know that we're delivering yet another strong organic reserve replacement ratio. This year like we said in the prepared remarks, that's 123%.
Andy: Oh, maybe bit of color I can add to that and we're doing that while growing our annual production and also in an environment, where prices fell which you know that that part resulted in downward revisions due to market factors. So we're particularly pleased that give them back is still having you know above 100% reserve replacement.
Andy: Now specifically to when it's coming from can predict at least here in terms of the violence we have.
Andy: Our lower 48 organic reserve replacement ratio, excluding market factors was over 100% again.
Andy: We were able to make the first initial booking on the NFS project.
Andy: And then now that we have no ownership of a complete ownership of some months, where we're progressing semi development plans with new pads. So we were able to do some bookings that are that kind of I'd say that the three big levers that I point to give you know you'll see more detail. When we are when we publish the K. So that's how he goes to 100.
Andy: Three organic and then now with the addition from the math of an acquisition.
Andy: And the additional working it's in Alaska. The total reserve replacement ratio was up.
Andy: 244%.
Andy: So when you when you put all that together you know where we're at we're showing.
Andy: 'twenty 'twenty four it was a $7 8 billion that's.
Andy: That's up 1 billion from last year and our Asa P.
Andy: We're going from 10 years to $10 seven years.
Andy: And then.
Andy: One other thing.
Andy: I would add is that you know given given the math and transaction closed so late in the Oh the bookings we've got for math and primarily represent the you.
Andy: The proved developed reserves with minimal pud bookings.
Andy: So the teams right now are working through.
Andy: Integrated pro form of five year plans are once that is finalized but actually expect to make an additional pud booking later this year. So again, another very healthy and <unk> got good sort of a good milestone for us in terms of achieving 100% again.
Andy: Yeah.
Ryan Todd: Our next question comes from Ryan Todd with Piper Sandler.
Ryan Todd: Great. Thanks, maybe one on divestitures, you've announced $600 million of asset sales are relative to a target of $2 billion can you maybe talk about.
Ryan Todd: That program ongoing and going for the market and appetite for.
Ryan Todd: The divestiture efforts and within that maybe the ongoing discussions around the port Arthur equity sell down.
Dan: Sure This is Dan.
I am happy to take that one so no as you say we've had activities are well underway on multiple fronts now as disposition candidates.
Dan: As we announced today, we signed PSA so about $600 million. That's that's non core Permian assets and we expect those to close in the first half of the year, we've actually reflected this in our guidance.
Dan: So that's you know that's part of what's in our guidance this year.
Dan: Also go activity progressing well on all other fronts. So we'd actually expect the majority of the $2 billion to be to be achieved.
Dan: In 2025, so what we're really pleased with the progress we're making there.
Dan: You specifically asked about you know put off the phase one we we've talked about this one a number of times in the past you.
Dan: No.
Dan: <unk> said before and we took equity in phase one the unique reasons, which including getting the project off the ground I think you know it came with options and other phases.
Dan: A project for us.
Our unique reason why we invested in that project, but the project is now wanting to execution, we don't necessarily need to be an equity owner you know forever and that project also when we can be patient and we don't need to rush anything here is that the.
Dan: Project is using project financing to fund construction now so another way to look at that as well.
Dan: And we're continuing to Derisk the project every day without additional capital contribution.
Dan: So it's a it's an assay we look at we've had we've had inbounds on that asset and it's one that we'll consider all the time, but we feel very confident about the the $2 billion target, we put out there and we feel good about achieving that this year.
Bob Brackett: Our next question comes from the line of Bob Brackett with Bernstein.
Some of your peers have talked about opportunities in our U S data center power demand either supplying feedstock gas or in fact are setting up our power demand in D. C. C. G Ts what and your strategy clearly has been a more global LNG approach.
Bob Brackett: Can you talk about comparing and contrasting those strategies and maybe highlight anything interesting you might be doing on the domestic power demand side.
Speaker Change: Yeah. Thanks, Bob we like a lot of people then are studying it and we're also getting inbounds on.
Bob Brackett: The power side like a lot of people primarily because we.
Bob Brackett: We have a lot of natural gas, we're producing a bit of a commercial power desk, so we buy and sell power.
Bob Brackett: All over the U S. We have a large land position.
Bob Brackett: Throughout the U S. So there's some natural advantages that we have in that space and we're looking at them and trying to assess some of those those inbounds as are the other way to potentially monetize a lot of gas, but maybe.
Bob Brackett: You'd get a lower wahaha kind of well it price.
Bob Brackett: You talked about our main sort of thrust in the LNG space.
Bob Brackett: The way I would describe that as we're we're bullish gas gas volumes in the in North America, but we're bearish price. So it's a great way to take advantage advantage of those those molecules and move them to higher valued markets through that LNG channel, which we described to everybody, but you know the the power requirements.
Bob Brackett: Are gonna be going up certainly these hyperscale data centers are going to need opportunities for fast and cheap power. So and we sit in an area and are in the Permian basin that kind of fits a lot of those kinds of attributes. So we're looking at it.
Bob Brackett: Can it scale to have a really big business in the company I don't I don't know, but we're looking at those opportunities, but it's first and foremost kind of fit our framework and we've talked about what our financial framework is and its powers no different it's got to be competitive for capital, but certainly it looks like some growth opportunities potentially coming in.
Bob Brackett: We're we're we're assessing some of those opportunities right now.
Scott Hanold: Our next question comes from the line of Scott Hanold with RBC capital markets.
Yeah. Thanks, I was wondering if you'd all provide your perspective on you know theres been a number of initiatives coming out of the White house and how how do you all see that impact the way you all do business and the industry as well and if you could give your point of view our perspective on you know.
Scott Hanold: The potential for tariffs and how that may impact your outlook.
Speaker Change: Yeah, Scott I can maybe start let Andy follow up with a few more specifics like we were gonna following it closely like like everybody else. It certainly upsets the market the market will find its own rebalanced point. If these go on for a for a longer period of time and it does look like there are Nick.
Speaker Change: Shaving opportunity for this administration to to do some things that they want with both our southern neighbor and our northern neighbor. So.
Speaker Change: It will have some impact in the market we've done some looking relative to our portfolio and it's got kind of pluses and minuses as you might expect so I can let Andy maybe give you Oh, a flair or feel for those specific impacts to the company.
Speaker Change: Thanks, Brian and good morning, Scott, Yes, Ryan said, it's something that we obviously, we've been looking at closely and <unk>.
Speaker Change: No surprised you know our primary exposure to the tariffs.
Speaker Change: But were announced last week would have been the sales of our somewhat liquids into the U S.
Speaker Change: But we sell around hospital somewhat liquids into the U S on a mix of pipeline and rail, but the remainder is actually transported to the Canadian west coast or sold in the low cloud, but that's a market.
Speaker Change: So you know it task you know, what's the implemented its pretty difficult to say exactly who is going to carry the burden what the refiners in the mid west and the Rockies haven't asked options to substitute versus say, the Gulf coast or the West Coast refiners.
Speaker Change: Just thinking about all the other asset in Canada. The Montney very quickly. So we don't actually sell any liquids or gas into the U S from the Montney and we're actually pretty naturally hedged on gas between Montney and seventh.
Speaker Change: And you come up above Canada, I would think about Conocophillips as household no. This is all a diversified portfolio of really comes into play device and mitigation.
Speaker Change: If we if we were to see tariffs, we'd we'd likely see strengthening differentials for Bakken for a N S and possibly even the Permian so lots of moving parts and I know I'm, probably just scratching the surface of the implications.
Speaker Change: Tariffs were implemented we'd also see movements in foreign exchange rates that we'd have to factor in so they know that there's been an awful lot for us to work through.
Speaker Change: But ultimately I draw you back to you know what we're focused on is what we can control.
Speaker Change: So Jason the lowest cost supply volumes, then optimizing value without commercial organization.
Speaker Change: And as Brian said right at the very beginning you know we hope to see that you know that we don't we don't get into a situation of having terrorists.
Speaker Change: We'll also be doing the work to make sure that we're prepared if they would come into play.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Neal Dingmann with Securities.
Neal Dingmann: Hi, good morning, Thanks for the time, Ryan just a pretty broad question on around M&A, specifically, while realizing it's barely dry on marathon I'm. Just wondering when you look at the landscape out there today would you characterize the M&A opportunities that fit your requirement is is it better or worse than you saw this time last year.
Speaker Change: So no matter, how many opportunities you see out there.
Speaker Change: Well Oh, we have said in the past meal that.
Speaker Change: Holiday show is going to continue in this business.
Speaker Change: You know I don't quite know when companies make strategic decisions to change the direction that theyre going and create some opportunity out there. The landscape is certainly changing there's probably less of the high quality you know names out there just on balance as we look over the the transactions that have preceded you know.
Speaker Change: The us and what we've done over the last you know three to four years as well, but you know that doesn't say consolidation needs to go but you know I go back to sort of our kind of three big tenants in those spaces looking first and foremost has to fit our financial framework, our view of mid cycle prices going forward.
Speaker Change: You know we have to find a way to make the outfits better if they were in our portfolio and it needs to make our company better our 10 year plan better. So those are pretty high hurdles and we had a unique opportunity when marathon decided to do something different strategically for their company, we weren't out looking but obviously we pay attention.
Speaker Change: Close attention to everything that's going on in the business and we we take a view of these companies are certainly that landscape is starting to shrink a little bit of rote real quality sort of opportunities out there that are out there.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Leo Mariani with Brown.
Speaker Change: Sure.
I wanted to just dive a little bit more into the divestiture that you disclosed here that the $600 million. It sounds like that's going to close in the first half of the year and it sounds like it's basically all kind of noncore Permian.
Speaker Change: Can you provide a volume number associated with that in terms of roughly how much production you know that's being sold in and just any thoughts on commodity mix does that you know kind of a standard Permian next with you know a little bit more than half of that being oil.
Speaker Change: Yeah, I can take that question yeah. It's a it's a the production from the assets would've been about 15000 barrels a day last year, where the assets are essentially southern north noncore Southern Delaware. So that's.
Speaker Change: That pretty much gives you sort of a typical mix of what they are.
Speaker Change: Our next question comes from the line of Paul Cheng with Scotiabank.
Paul Cheng: Hey, guys good morning.
Speaker Change: Hum Ryan.
Speaker Change: Now you have I think it'd be more than two months under the belt with the marathon answer can you give us some idea what's the one thing with those outside in terms of the tier one.
Speaker Change: Human tweet back at all.
Speaker Change: Anything that you can see it.
Speaker Change: And that and break it down by basin, but they cannot be Eagle Ford and Bakken.
Speaker Change: We need it's quite immature.
Speaker Change: And also what did that once it's in your game plan for Equatorial Guinea.
Speaker Change: The difference is comparing to what the math on that has been communicating to the street that before they being acquired thank you.
Speaker Change: Yeah. Thanks, Bob maybe I can take the Equatorial Guinea and they can provide some color on the marathon assets that were acquired but.
Speaker Change: If the D. G. We're you know, it's certainly pretty pretty pleased with.
Speaker Change: F O.
Speaker Change: The contracts that were established by marathon that we've walked into it in EG, we really haven't changed our plans at all to the marathon was walking into we look forward to a couple more infill wells that are going on I think the rig has been sourced and it's they're about ready to spud, so we'll be bringing it giving a giving our feed.
Speaker Change: Under the ground with E. G I'd say short and medium term no no real changes to to what marathon was doing E. G. The bigger the bigger question is the same thing I think marathon was was grappling with or you know, what's what's the long term potential in the area that can flow through the LNG plant and be marketed but Oh, you know what.
Speaker Change: Trying to grow our LNG and this fits well within the portfolio and what we're trying to do longer term for the company maybe I can let Nick address your inventory question for marathon, Yeah, Paul you're right. We've got a couple of months under the belt and look forward to the future months as well as far as the inventory quality it's unchanged.
Speaker Change: <unk> Yeah, you know, we don't see any things that are from the acquisition case. We've got you know 2000 competitive well locations as Ryan mentioned around that $40 per barrel cost of supply.
Speaker Change: Roughly about half of that is in Eagle Ford and then you can kind of think the remaining is split between Bakken and Delaware, So highly competitive out there with looking at the current well performance as well Eagle Ford looks very strong if you look at both our heritage and Heritage Marathon.
Speaker Change: On a barrel of oil per foot or even on a barrel of oil equivalent per foot and compare that to prior years from 'twenty to 'twenty two to 2023 really strong performance in last years.
Speaker Change: Our assets and we're seeing as we drilled these wells, they're meeting type curve expectations in Eagle Ford and Bakken as well.
Speaker Change: Couple of other things just along the synergy lines.
Speaker Change: These assets if you look up in the Bakken as we trade experience on our combined acreage for long laterals, we're seeing more opportunities for increased long laterals in the Bakken as an example, so the teams are just working to optimize and improve that combined inventories.
Charles Meade: Our next question comes from the line of Charles Meade with Johnson Rice.
Charles Meade: Good morning, Ryan to you in the kind of go team there.
Charles Meade: I wanted to go back to to Alaska, and you guys highlighted the they'll start with Nuno project, which I believe was.
Charles Meade: It was kind of mid December and I wondered if you could put it put the startup of that project in the context of your overall called 180000 barrels of oil a day I know you guys said it was 29 wells, but can you can you tell us is that going to be of a magnitude that that we're gonna be able to observe the effect of that in Europe.
Charles Meade: <unk> and <unk> volumes in 'twenty five.
Charles Meade: Yeah. Good morning, Charles This is Kirk I can take that one yeah I. Appreciate the question on the Alaska based business because certainly.
Charles Meade: That business continues to chart, a course of really sustaining production.
Charles Meade: Production here with some really modest growth in the next couple of years and I think it really highlights the amount of investment opportunities that still exist for us in that business with new and of being a Prime example of that so again.
Charles Meade: Maybe just a little bit about noon and you pointed some of this out.
Charles Meade: You know this is a this is a project in which we have built out a new pad.
Charles Meade: The first one and roughly a decade and it shows the great work that the teams are doing in exploring and appraising, our new targets and taking advantage of the infrastructure that we have that we have up there first oil was in December that came on after drilling and completing and bringing on a couple of wells.
Charles Meade: Do you have plans of eight more wells here here. This year in 2025, and all of that as you point out it's actually come on on on the heels. If you will of having drilled over 10 wells from existing gravel. So so again it shows the pragmatism that are that the team has really deployed of onshore.
Charles Meade: Ensuring that we understand what these targets are we derisked those before we actually put new gravel out there. We are in fact expecting that production to enable us to more than offset decline as we look at our Alaska production profile for the next the next year.
Charles Meade: And then we have a number of other targets that exist out there for us and you've heard me speak.
Speak to some of these before.
Charles Meade: And can park. In addition to newness, we have Coyote Coyote is a really interesting parallel to willow.
Charles Meade: And then in WNS and our alpine asset, we've got narwhal and minke and so these these broking and top sets put us in a really nice position of using these wells are two advanced technology to advance our certainly our capital efficiency. Knowing that these are some of these are a great analog or a parallel to win.
Charles Meade: All of which gives us again that much more of an opportunity as we as we stand up a couple of rigs for Willow in 2027, and so really pleased with how that's taking shape for us all on our base business in Alaska.
Josh Silverstein: Our next question comes from the line of Josh Silverstein with UBS.
Josh Silverstein: Yeah. Thanks, guys just wanted to get an update on the LNG contracting environment curious if theres been any shift in thinking around the need for new LNG and in Europe, potentially do the Russia, Ukraine cease fire or anything that the current administration is doing to kind of push more LNG projects here in the Gulf coast to descend potentially over there.
Josh Silverstein: Thanks.
Andy: Yeah. Good morning, this is Andy.
Josh Silverstein: In terms of you know.
Speaker Change: What what's going on in the LNG space I'd, just say it's more.
Josh Silverstein: Continuation, there's nothing I'd say, that's particularly new.
Josh Silverstein: What we look at sort of the situation with Europe are heavily dependent on LNG you know you've seen the so the Russian the Russia, Ukraine deal for the pipeline gas that I came to an end, that's one and a half bcf of capacity that is no.
Josh Silverstein: No longer available you've just seen what's going on with the.
Josh Silverstein: Tcf pricing right now in terms of the cold winter that you know that we're seeing in Europe in that.
Josh Silverstein: Just sort of how the inventories are being drawn down and so I would say that's a you.
Josh Silverstein: So in terms of the need for LNG are nothing.
Josh Silverstein: Nothing nothing has really changed in terms of you know the way the way that we're looking at it sort of our strategy remains unchanged.
Josh Silverstein: Really looking at how we can build outs are.
Josh Silverstein: Offtake, you know sort of a.
Josh Silverstein: 10 to 15, a M T P E and as you've seen in the past aware.
Josh Silverstein: We're building out re gas capacity in Europe, and we're also looking for sales into Asia. So I kind of just say, there's really sort of about where we're right on track with our strategy and that I.
Josh Silverstein: I think it's sort of a things are playing out as we expected them to.
Josh Silverstein: Yeah.
Speaker Change: Our last question will come from the line of Alastair Syme with Citi.
Speaker Change: Fax run our billing team.
Speaker Change: Another Whitehouse question for you.
Speaker Change: President Tonight.
Speaker Change: Some noises about wanting higher levels of U S domestic production.
Speaker Change: Your points.
Speaker Change: About running the lower 48 business optimal efficiency.
Speaker Change: Thing.
Speaker Change: That would incentivize you to go faster in that business.
Speaker Change: You know.
Speaker Change: Not really I think we're just trying to drive the efficiencies Alastair I think the message that.
Speaker Change: But I've had for the transition team and for.
Speaker Change: For the people that are looking at it is the way I'd.
Speaker Change: I'd say, we are drill drilling drove ABB drilling I think we have to build we have to build a lot of infrastructure. So I think our focus a lot of our focus on attention right now is on permitting reform.
Speaker Change: I'm trying to make sure we can build out the infrastructure both for the power kinds of opportunities we're gonna be out there and then obviously the gas lines that come with it and then just.
Speaker Change: Faster movement within the regulatory and permitting environment for wherever you sit on federal lands, whether it's new Mexico, North Dakota Gulf of Mexico, Alaska.
Speaker Change: Just getting more timely drilling approvals rights of ways easements and all those permits they had.
Speaker Change: Are they just is slow down under the prior administration and there's a real opportunity to get back to kind of normal business. If you will to what we've what we've had in years past and that just adds to the overall efficiency of the system and should lead to a more sustained plateau or you know good growth in our production.
Speaker Change: Shouldn't coming out of the lower 48 in terms of liquids in and certainly the growing amount of gas volumes that are coming as well. So just creates a better environment for for investment and and more efficient operations.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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