Q2 2025 ConocoPhillips Earnings Call
Welcome to the second quarter, 2025 conaco, Phillips 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 1 1 on your touchtone phone.
I will now turn the call over to Ghayeb, Vice President of Investor Relations. Sir, you may begin.
Thank you, Liz, and welcome everyone. To our second quarter, 20125 earnings conference call.
On the call today are several members of the ConocoPhillips leadership team, including Ryan, Lance, Chairman, and CEO.
Andy O'Brien, Chief Financial Officer and Executive Vice President of strategy and Commercial.
Nick s, Executive Vice President of lower 48. And Global HSC, and Kirk Johnson, Executive Vice President of global operations and Technical functions.
Ryan and Andy will kick off the call.
Opening remarks after which the team will be available for your questions, for Q&A, we will be taking 1 question per caller.
A few quick reminders today. First along with the release, we published supplemental Financial materials and a slide presentation which you can now find on the investor relations website.
Also, during this call, we will make forward-looking statements based on current expectations.
The 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 Gap. Measure can be found in today's release and on our website with that. I'll turn the call over to Ryan.
Thank you, everyone, for joining our second quarter 2025 earnings conference call.
Starting with results. And Outlook we delivered, another strong execution quarter once again exceeding the top end of our production guidance range,
We reiterated the midpoint of our full-year production guidance.
Even with the announced agreement to sell our Anadarko Basin asset for 1.3 billion.
At our Capital spending and operating cost guidance ranges, both of which we lowered. Last quarter remain unchanged.
On return of capital.
We may remain on track to distribute about 45% of our full year CFO to shareholders this year.
That's consistent with our prior guidance and our long-term track records, the bottom line.
We're operating well.
We're delivering on our plan.
For the year with clear free cash flow Tailwind including lower Capital spending.
Turning to the Marathon Oil acquisition.
I'm pleased to announce that the asset integration is now complete.
and that we've significantly outperformed our acquisition case,
we added more high-quality low-cost Supply resource.
We're achieving more synergies.
We're delivering a more efficient Lower 48 development program.
And we've already announced more assets sales than we guided at the time of the transaction announcement.
While these are all significant achievements, we're not stopping there.
given our integration success which builds upon other successful transactions as well as our recent implementation of a new companywide, enterprise resource system,
We continue to drive for improvement across every level of the organization.
As part of this effort, we've identified more than 1 billion of additional cost reduction and margin enhancement opportunities.
Now, to be clear, that's on top of the more than $1 billion of Marathon synergies we've already expected to realize.
Additionally, now that we've exceeded our $2 billion asset sales objective ahead of schedule.
We're raising our total disposition Target to 5 billion.
Collectively, these initiatives will strengthen our ability to generate strong returns on and of capital through the cycles.
And enhance our long-term value proposition.
And that's the value proposition; that's already differentiated.
Not only relative to our sector, but relative to the broader S&P 500 as well.
We believe we have the highest quality asset base in our peer space.
Our Global portfolio is deep durable and diverse.
And we're recognized as having the most advantaged, us inventory position in the sector.
We believe this advantage will become increasingly apparent as the U.S. shale industry continues to mature.
And investors are forced to more clearly sort through what we call the inventory, haves and have-nots.
We are clearly the leader in the U.S. inventory.
In addition, we're uniquely investing in our high-quality portfolio specifically in our longer cycle projects in LNG and Alaska to deliver strong returns and a compelling multi-year free cash flow growth profile.
Assuming a $70 per barrel WTI price, environment.
We expect a major projects. We're currently progressing in combination with the additional cost and margin enhancements. We just announced to drive a 7 billion free cash flow in flexion by 2029.
That would almost double the consensus free cash flow expectation for the entire company this year.
Now, with that, let me turn the call over to Andy to cover our second quarter performance, 2025 guidance, and strategic objectives in more detail.
Thanks Ryan.
Starting with our second quarter performance. As Ryan mentioned, we had another quarter of strong execution across the portfolio.
We produced 2,391,000 barrels of oil equivalent per day.
Once again, we are exceeding the high end of our production guidance.
In the lower 48 production average 1,588,000 barrels of oil, equivalent per day.
Alaska and international production averaged 883,000,000 BOE per day as we successfully completed turnarounds in Norway and Kata.
Regarding our second quarter financials, we generated $1.42 per share in adjusted earnings and $4.7 billion of CFO.
We had a $1.5 billion working capital headwind, effectively offsetting the equivalent sized tailwind we realized last quarter.
Expenditures were 3.3 billion slightly down quarter on quarter. We returned 2.2 billion to our shareholders, including 1.2 billion in BuyBacks, and 1 billion in ordinary dividends.
Through the first half of this year, we've returned $4.7 billion to our shareholders, or about 45% of our CFO, consistent with our full-year guidance and long-term track record.
We ended the quarter with cash and short-term Investments of 5.7 billion. Plus 1.1 billion in long-term liquid Investments.
Turning to our Outlook.
Beginning of the fourth quarter.
Our capital spend and cost guidance ranges, both of which we reduced last quarter, are unchanged.
We now expect our full-year effective corporate tax rate to be in the mid to high 30% range, excluding one-time items, lower than we previously guided due to geographical mix.
And we now expect a total full-year deferred tax benefit of about half a billion dollars, primarily reflecting the positive impacts from the big, beautiful bill.
In the second half of the year, we expect free cash flow Tailwind in the form of higher apng distributions, cash tax benefits and lower Capital spending.
Further guidance, details can be found on our earnings slide deck.
Turning now to our strategic updates. As Ryan noted, we have completed the math and asset integration and are realizing comprehensive outperformance against our acquisition case.
We're delivering everything we said and much more.
First.
We've upgraded our low-cost supply resource estimate by 25%.
While we were most attracted to math and significant eagle foot and barking positions, both of which are every bit as good as we expected.
And delivering. Excellent. Well, results for the majority of the increase has been driven by the puran, where our resource estimate has approximately doubled versus the initial estimate.
The second point, I would highlight we have significantly outperformed our initial Synergy guidance.
We guided.
With our steady state capital development program achieved and critical system cut overs. Now in the rear view mirror, we are on a Glide path to realize more than 1 billion dollars of run rate synergies by the end of the year.
In addition, we've identified over $1 billion in benefits, largely cash and tax-related.
While we don't count these, this is a Synergy, its real value, and a material benefit to our company.
The third point, I'd highlight, we've brought the power of our more efficient and steady state development program to the combined portfolio.
The time of the transaction announcement, we highlighted our ability to more efficiently. Develop, marathon's acreage given our size and scale Advantage, advantage and ability to level load our program versus math as practice of ramping activity up and down.
We've now achieved optimized level of steady state activity and we're delivering more combined production with 30% fewer Rigs and Frack crews in comparison to the pre-transaction performer, activity levels.
And finally, with the announced Anadarko sale, we've now, signed over 2.5 billion dollars of dispositions within 9 months of the transaction close.
Beating our $2 billion target, well ahead of schedule.
Given our growth in recent years and implementation of our new companywide Erp system. We are taking the opportunity for further cost of margin improvements across the entire company.
We've identified more than $1 billion of opportunities that we expect to realize on a run-rate basis by the end of 2026.
All of this is in addition to the $1 billion of math and synergies we previously discussed that we expect to realize on a run-rate basis by the end of this year.
These additional improvements will be wide-ranging, encompassing cost reductions across our SG&A, operating costs, and transportation costs, as well as margin enhancement through commercial opportunities. All in, including the math and synergies, we expect to drive over $2 billion of run-rate improvements by the end of next year.
In addition to furthering our cost reduction initiatives.
We are more than doubling our asset sales Target to 5 billion, which we also expect to achieve by the end of next year.
We see a clear opportunity to further high-grade. Our portfolio and accelerate value, realization of assets, that are not currently competing for Capital,
So, to wrap up, we continue to execute well operationally, financially, and across our strategic initiatives.
We are well positioned for the second half of the year with clear free cash flow tailwind and we continue to find ways to enhance our differentiated long-term investment thesis.
That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A.
Thank you. We will now begin the question-and-answer session.
In the interest of time, we ask that you limit yourself to 1 question.
if you have a question, please press star 1, 1 1 on your touchdown phone,
If you're 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 *11 on your touchtone phone.
Our first question comes from Neil Mehta with Goldman Sachs.
Good morning, good afternoon Ryan. Andy a team, uh, really appreciate the incremental disclosure and and love this slide 7. So Ryan, maybe we could start there which is you know if if you look at Street numbers at around 60 to 70 W, you're generating close to 8 billion dollars of free cash flow this year. So if you add 6 6 to 7, you're you're kind of closer to 14 which implies by 29 a, a 12%, free cash flow yield. So first 1 to just check the math on and make sure that we're not missing any pieces around it. And then to the extent that is the right framework, which is a great prize in a couple of years. The push back might be, you got to wait, wait for it. And so we're on maybe your perspective on hey as as as with every year you de-risk towards that free cash flow number as the capital intensity improves. So um you don't necessarily have to wait till 2029 uh would be in theory but it would be just your perspective on on all that.
Yeah, thanks. Neil, I'll go to the Head of the Class. Your math is pretty good. Uh,
Look, yeah. We're, uh, working pretty hard as you, you mentioned, the the numbers fit exactly where we're thinking about in that 60 to 70 range.
You know, we'll add about 7 billion dollars of free cash flow between now and 2029. I mean, you don't have to wait till 2029, some of that's coming through the, about a third or so is coming through the LNG Channel and there's going to be consistent startups starting, uh, next year, with Qatar, 1 of the trains and cutter 27 with Port, Arthur 28 with another training cutter and then 29 with Willow. So, all of that's coming, everything's on track and um, and you're right, it nearly doubles. Um, our current consensus, free cash flow that I said in my opening remarks and I think this is a, a trajectory and a
You know, the things that are coming that are unique in the business, there's no other INTP that I think can match.
You know what’s coming for us, including the integrated majors. So I think we’re unique in this space. We’ve been leaning in and making these investments that are very competitive in the portfolio—low-cost supply opportunities for the company that are going to...
you know, contribute to our growth and development for decades to come and I would, I would say too that it uh
It does not.
You know, the inventory.
We have, in the lower 48, a very deep.
And uh, you know, Tier 1 inventory that we have and where we're constructive in the macro going long term, and if the call for Shale production starts to come up because, you know, where is the supply coming to meet the growing demand that we believe is going to be there. This doesn't even include what we could do to lean into our lower 48, a little bit more. We haven't because the call hasn't been there to date. So we're we're growing it a bit more modest modest rate, but we're taking advantage of the integration, we're taking advantage of the synergies. Uh, you know, I remind people we haven't added a rig in 3, 400 to grow our lower 48. Just through the efficiency in the channel. So, none of that even includes what we could do pending, what the call is for, unconventional production going forward. So know your Math's. Good Neil. We're excited about the opportunities for the company.
Our next question comes from Arun. Jam with JP Morgan. Your line is now open.
Yeah, good morning. Good afternoon, team. Uh, I was wondering if you could unpack.
The billion dollar cost reduction in margin optimization plan uh which looks to be a new wrinkle. Uh, in the update, you mentioned, um, the the Erp system integration I was wondering if you could talk about what are some of the drivers of the billion dollars and are you doing anything?
At the organizational level, to re-engineer kind of your operating structure.
Yeah, no R. It's going to touch uh, you know, all all pieces of the of the company. There's some um, you know, some work force centralization. Some things that we've learned over the last 3, to 4 years, with all the transactions that we've done. Um, that we're going to be implementing kind of globally throughout the company. So there's a piece of GNA a built into this. There's
Things that we're doing contractually, uh, things that we've captured in the lower 48 and understand from an efficiency perspective, that we can drive throughout the whole company. Um, as we've grown our scale, we also see opportunities in transportation and processing and that's going to show up as expense reduction and margin expansion through realized price Improvement. Commercially, I'd say about 80% of it sits within the
GNA LOE tnp just expense reductions, 20% of it. Sits in that kind of margin expansion bucket. And I would, and I tell you, none of this includes Capital, sort of things, we don't count that in our Synergy estimates. We're we're just talking about stuff that'll flow through the bottom line. And, um, and changes that we need to make as a result of some of the Technologies. We're deploying and the size scale and scope of the company through the inorganic expansions that we've had over the 3 to 4 years. And it's uh with that behind us now, time for us to, um, get the get the whole company running taking advantage of stuff that we've invested in over the last few years.
Our next question comes from Steve Richardson with Evercore ISI.
I thank you. Um,
appreciate, you're probably not going to tell us what's for sale. Uh, Ryan in terms of, uh, this means the increased diversity Target, but, you know, perhaps you can give us some perspectives on, um, the acquisition Market from the sell side. Um, and maybe just talk about the, the types of assets that I'm I'm sure you're entirely focused on possible Supply in terms of the high rating, but maybe you could talk just sort of asset types and that that process and the confidence on that that higher Target.
Yeah, no. Thanks Steve. I think we've described to to you and others. You know, that that are on the call and
You know, we we go through pretty rigorous exercise every year, we've kind of come out of the, the back end of our planning exercise that ramps up during the summer months. And, uh, and through that process, you know, we we look at every asset in the portfolio and we look for the ones that are competing for Capital and those that aren't competing for Capital. And we we tell our teams for the assets that are on the outside looking in a little bit, maybe there's different Technologies. We can deploy different ways to think about it. Different learnings from across the company and we give them some time to, to see if they can compete for Capital long term, but it, but if they don't, then they, they migrate to a different list and, um, and look, we're, we're resource rich.
In a resource. Scarce world today.
So that's what I think we were pleasantly surprised with the Anadarko Basin. We know there's a an example that wasn't going to compete for capital in the portfolio. We're getting plenty of North American natural gas production from our uh you know Assets in in North American. It it just wasn't going to compete for Capital as we integrated that asset into the company and we were pretty pleased with the price that we got. So as we scrub the portfolio and think about it, uh, going forward with the remainder of this year and through 2026, we just felt like um, we we see the assets that are out there and, uh, that that aren't competing for Capital and we think it's going to be a reasonable Market to be selling into, which is what gave us confidence to increase the target to 5 billion dollars. And we've already surpassed our 2 billion Target is Andy described in his remarks uh to date with about 2 and a half million sold um through through this point in time.
Our next question comes from Doug Leet with Wolfe Research.
Thank you. Good morning, everyone.
Um, Ryan, I missed all these incredibly positive updates. I, I, I hate to ask such an asthmatic question as cash tax, but I'm going to and make Andy earn our crust today. Um, and you got a $500 million incremental deferred for 25.
obviously, there's a lot of moving parts.
With the M&A that you know, Marathon, and obviously asset sales, and so on, what is the sustainable deferred tax visibility you have for the Lower 48 at this point? If you're able to offer any color beyond 2025.
Stripes with the, with the first, for the first question. Um, so there are quite a few moving parts to this text called. So maybe I'll just try to cover them sort of step by step and sort of try and get everything covered in tax in one question here. Um,
Impacting, what is an impacting? So just starting with the the quarter, you know, in terms of our 2q effective tax rate, you know, we will lower than we guided, um, last quarter, um, we and we've actually reduced the, you know, the full year effective tax rate, um, to the mid-30s, uh, for the rest of the year. So that that was um, purely due to sort of a mix where we had, um, domestic commodity prices relative to International markers were a bit higher than we forecast and that resulted in a higher mix of income um from our lower tax jurisdictions like the us. So that that's probably the first thing that jumps out to people is the effective tax rate.
Um, the second thing going on to the Deferred taxes, you know we saw a larger than expected defer tax benefit during the second quarter that had nothing to do with the with the new tax bill. That was largely due to 1 after discrete items that we that we we really don't forecast and then getting through to the meat of your question in terms of, uh,
First of all the you know the expected benefits, we covered this on the on the, on our prepared remarks. But this year we think the 1, big beautiful. Bill will have a about a half a billion dollar impact to us and that's primarily due just simply to the bonus depreciation rate going from 40% to 100%. Now of course that's going to carry on into into 2026 um and we'll continue to benefit from that bonus depreciation um but specifically to get into numbers at this point a little
A little bit too early, and I think you helped answer the question for me in terms of why, you know, we've got to land exactly where the capex is, what's happening with, you know, which assets are being disposed of. But, uh, you know, what we do know is that it's, you know, it's going to be a tailwind for us the next, the next year.
Our next question comes from Lloyd, Burn with Jeff.
Ryan: Andy, how are you guys? Um,
I think that 30% sewer Rigs and Frack Crews actually equate to Almost 100% of what marathon is running. At the time of the deal is very impressive. Um but let me just I guess I'll ask that question about the LNG and kind of the downstream strategy and just kind of what you're expecting from reass and sales deals going forward and then
How do we expect that to contribute over the next few years?
Yeah, I'll uh, maybe start let uh, Andy Andy, jump in, on the LG side. But yeah, you, you stuck in 2 for 1 there? Good. Good job. Doug, you're our Lloyd. You're a, you're a, you're good there. Um, look, yeah, I think we're pretty impressed with what, uh, Nick and his team have done with the integration in Marathon, but you're right. We've effectively eliminated their 10 Rigg program and not only delivered, the proformer production between the 2 companies but growing the the production as well. So I think Nick's team
It's really hitting on all the cylinders and we're, we're really pleased with the success. We've had in the, the aggressive way that they've tackled that program as well. I can let Andy talked a little bit about the the LNG side. Sure. I think, I think on the LG side, you'll probably specifically referring to some of the stuff that we've announced this quarter, where, you know, we've we've added another 1 and a half mtpa of re gas capacity at Dunkirk in France. And we also executed an Spa with an Asian buyer. And what I'm quickly pleased about is with those 2 announcements. We've now effectively placed the entire 5 mtpa. Um, from Port Arthur. Um, so going forward, you know, we're we're now at a point where we're, you know, we're continuing to have conversations both on the off Tech side of things and on the placement but uh everything is tracking really well. We, you know, we're placing we've placed everything that we have today so now what we're looking basically to the next steps. And uh what I can say in that space is that uh things certainly aren't slowing down.
Both in terms of opportunities for more offtake and uh, conversations with customers in Europe and Asia. So probably a bit of a watch this space. Uh hope we will have more to talk about, you know, in coming quarters and uh, really pleased. How the commercial LG part is, starting to come together to to any complement, what we've already got with, uh, our resource LG in Australia and Kata.
Our next question comes from Betty Jiang with Barclays.
Prices probably a bit more supportive. How do you see development evolving next year? Where do you expect the major capital to spend to trend and maybe just frame? How much of that? Long-term, free cash flow inflection could get captured next year.
Thanks, Betty. Um, I, I can try and take that 1 and, uh, yeah, it is a little early to be talking about 2026, but, uh, I'm happy to share a few high level, high level thoughts. Um, so starting on the capital spending side of things, you know, we've been saying this for a number of quarters. Now, you know, we expect our Capital next year to be lower than this than this year. Um, as we at the beginning of the, the cash flow, flea inflection, um, and then may maybe also just a touch on production. Um, you know, I think we've always been saying that, you know, for us production, really, it's just simply an output, um, of our plan. And if you look at what we're doing this year, um, you know, from our guidance, basically, you know, that it implies about 2% growth on an underlying basis this year.
And in the macro environment, you know, we see right now, um, I think this would be, you know, a pretty good place to start for modeling purposes for next year. I think right now, Ryan mentioned this on the rig side in a previous question, you know, we haven't added essentially a rig in the lower 48 on the, you know, on the conical footage side, you know, over 3 years, and uh, right now I probably don't really see, you know, a good reason, you know, to do that.
But you know, the other thing I would I would add is that, you know, in terms of maybe just going to sort of 1 half this year that second half next year, we're already starting to see, you know, the the cash flow inflection coming. Um, if you look at our capex guidance, you know, we're guiding from 1 half this year to second half to the second half, uh, that our capex is going to be down, um, a billion dollars. Um, you know, you can see from our, you know, from our CFO from the the first half to the second half that uh, you know, we're also going to have some, you know, Tailwind from higher apng, distributions and and the 1 big beautiful bill. So when you look at that and that continues on into 2026, I'd actually say that the cash flow in collections is effectively already starting.
Our next question comes from Nit and Kumar with Meizuo.
Hi, good afternoon. Uh, good morning everyone. Um, Ryan 1 of your peers, talked about industry consolidation, um, you know, going forward. Um, you mentioned in the last 3, to 4 years, you've been at the Forefront of that. So just want to get a take on, you know where do you see the m&a landscape? Uh, right now, particularly in lower 48?
Yeah, Mitten, I think, uh, look, I think there's still going to be consolidation in this business. I think, uh,
A lot of the NPS in the unconventional space look out into their plans 2 to 3 years out and wonder what's going to happen.
Um, and I think, uh, and and that hasn't changed as capital intensity. You know, people that don't have the inventory. Like we do face higher Capital intensity. And, uh, just what do they do about that? Now specific to us, you know, this is the strongest. I think our portfolio has ever been.
And uh, so it's a pretty high bar and we're we're focused pretty heavily right now on the organic side of the business, where the Investments, their way we're making to grow and develop the company, both a short medium and long term. So I think, uh, you know, that's where that's where all of our focus is going. But you know, look, we watched the market every day. We we see what other people are doing and I'm familiar with the the comments that were made by 1 of our peers. Uh, but you know, we're we're just in a different position because of the effort and the what we've done over the last 4 years that you're that you pointed out and that then the focus we're trying to drive internal to the company to, you know, chase another billion dollars of additional cash flow growth in the company. We see the inflection that Andy just talked about in our free cash flow. Coming is
These projects start start starting up over the course of the next 3 to 4 years. So we've got a pretty high bar and a pretty full plate today just executing executing on our organic plans,
Our next question comes from Ryan Todd with Piper Sandler.
Great, thanks. Um, maybe a question on the marathon transaction. Uh, you increased your expectation for the incremental resource ads.
Uh from 2 billion to 2 and a half billion barrels with a with a double and a resource. Uh
Estimated resource in the Puran, can you talk about what's driving that? You know, what's been better than expected? Particularly in the Perman.
Reminder uh for the folks on the call the marathon transaction, we announced the the 2 billion barrels of low-cost Supply resource. You know, now we've got 8 months under the marathon Hood to further assess the inventory and the development strategy across all the assets as Andy mentioned after completing the integration. Uh we've got a 25% increase. So that's the 2.5 billion.
Now, we were clear at the time of the acquisition that the quality positions in the Eagle Ford and Bakken were the primary strategic rationale for the transaction. We are seeing that, on the aggregate, the performance in those two basins has been in line with, or even better than, we expected. It has been very strong in terms of productivity versus the acquisition case.
Now the upside identified, as Andy mentioned, is primarily in the Delaware Basin, where we've appropriately doubled our low-cost supply resource estimate, with some additional resource in the Bakken as well. Now in the Permian, this is largely driven by a greater contribution of both primary and secondary intervals across the play. For example, we have inventory across the Wolfcamp A and C, Bone Springs, and Woodford formations, which are very competitive costs of supply.
And Ryan, that's true. We're really reassessing the inventory and applying our development strategy, including spacing and stacking.
In fact, uh, we're drilling some Wolfcamp A and C wells, as well as some Woodford wells right now, and seeing really promising results in line or even better than the type curves.
In addition to the inventory I just described,
Trade acreage core up positions, adding more longer laterals, which improves the cost of supply. If you go from a 1 to a 3-mile lateral with that 30% to 40% improvement.
So, like, I just got the hats off to the team as we get under the hood. They're excited; there's more opportunities in there. So, getting ready, uhhh, and enthused to execute upon it.
Our next question comes from Scott Hannold with RBC Capital Markets.
Yeah, thanks. Um, you know, Ryan, it'd be good to hear your view of of what you're seeing on the old macro front. Obviously, if we, you know, wind the clock back last quarter. Um, there's a lot of uncertainty, um, you know, oil price obviously is firmed up. Um, I know you all do a lot of work, but I'd be interested in your thoughts on on what you're seeing right now and and how that could shape, um, your plans into 26,
Yeah, thanks Scott. Um, I think I described it as choppy uh, this morning on CNBC I think and that that's kind of our, I'd say short uh,
Uh, near-term view of the macro. Look, the OPEC+ groups added about... they've unwound all the 2.2 million barrels a day of cuts, and then they added 300,000 more allocation to the UAE, bringing that to 2.5. Our internal view is about 800.
800,000 of that is already in the market so of that 2.5 you take 800,000 off the top. So there's about 1.7 main Barrel, a true incremental production but that hasn't shown up in exports either because of the power burn and all the summer burn in the uh in the Middle East. Uh that's going on right now and the demand grew in the first half a little bit more than what we would have predicted a little bit. Over a million barrels a day. I think for the full year we're still at about 800,000 barrels a day of demand, uh, increases come coming forward so you can see it's a bit imbalanced more Supply than the demand in the short term, but we got to remember that inventories that are 5 year low. Certainly here in the US we're seeing some early indication that floating inventories might be coming up a little bit. Certainly China is filling their spr right now, um, to to feed their teapot refineries. So there is a lot of moving.
Pieces, as you say. So, how do we think about that? We step back. Um, we see the choppiness, although prices are hanging in about at our mid-cycle price, and they've been relatively stable in the 60s. So we see probably that continuing with probably a bit more pressure to the downside, which is why Andy talked about how we're executing our program and kind of how you should think about modeling our production as we go into 2026. And that's just.
Eyes on the demand side, and we don't think that's stopping.
So we do wonder where the, um, the supply is going to come to fill that growing demand. You know, over the next 2, 3, 4, 5 years and beyond, which is our view over the last few years. This is why we're leaning into some of the longer cycle projects on the oil side, and then obviously on the gas side.
We're pretty bullish there. We see the LNG market growing from a
400 million ton market to over 700 million ton market within the next, you know, 5 to 10 years, which is why we wanted to lean into the LG side of the business. And we see,
A lot of resources in the U.S. to support that and to underpin that strategy. So, maybe that's a.
Reader's Digest abridged version of our view of the macro, both on the oil and the gas side.
Our next question comes from Charles Needham with Johnson Rice.
Good morning, Ryan. Do you and your team there? I caught your CNBC appearance. I thought that was a fine job.
um,
I wanted to ask a question on, uh, on Willow. If you could perhaps give us a bit of a preview for, uh, for when you do get back to work there, you know, on the ground in the winter season. What does this next winter season hold as far as you know, key milestones and work streams and, um,
just an overview.
Yeah, I can let Kirk uh take that Charles. Um I would I would say we haven't quit working, we're pretty busy right now. We got a I was just up there last week. We got a full team on the slope and a working through the summer. And a lot of work going on in the in the Corpus Christi kiwit, Fabi 2 building, building building modules, but Kirk and jump in and give you a bit more specifics.
Yeah, morning Charles, yeah. Certainly as as Ryan is mentioning our execution here this year, just continues to be really quite strong. We did wrap that winter season up. It was the largest that we had, uh, certainly in the last couple of years and really, the largest we have here planned, uh, for the project we wrapped that up late April, early May and uh, and so we've transitioned as again, as Ryan witnessed, we're transitioning. Uh, uh, to year round construction up there on the slope. We actually have about 900 uh Tradesmen and Craftsmen up on the slope right now.
And that's down from again what we were seeing during this peak winter season, which was closer to 2,400 if not 2,500 people up there on the slope. So, it's been a pretty big transition for us here this spring.
Uh but of course, our our teams are really focused. Now as you're alluding to, which is our the activities, we have here this summer, uh, and and this fall, so um with with that transition, those 900, uh, Craftsman on the slope, or our continuing to build out that Operation Center. That we see lifted up, uh, here last year, uh, with those modules on on location. And so there's a lot of work ongoing so that we can truly begin uh year-round construction uh there in Alaska at the willow location.
And then, and then again, as, uh, as Ryan mentioned outside of Alaska, we're focused on completing, uh, engineering, uh, in support of these process modules that we're building here on the Gulf Coast, and, uh, and then naturally that's going to continue through 2027.
but certainly I I would say as it relates to the activities here this year, there's just a lot of work by the team, focusing appropriately on uh on on Contracting procurement uh General Supply Chain activities, you know, admittedly tariffs of introduced some level of uncertainty and and that's manifesting with internationally sourced equipment alongside
A trend of inflation. That's, that's pretty similar to what we've seen in the international markets, and that's that stabilizing as activity stabilized here. So it's a good time for us to put a wrapper on some of these, uh, on some of these contracts here this year, we'll have close to 90 or 95% of these contracts pretty well secured by year end. And so a lot of work in that space
So, again, Charles I would say, strong execution, we're hitting the really key Milestones. Uh, we have some more work of course, in this next winter season. As it relates to gravel, uh, on on the North Slope continuing to build that out towards the next set of pads. Uh, and then kind of wrapping up the last pieces around pipelines and a bit of civil work. So more certainly more to come. But uh, the the Milestones were achieving, uh, we're we're we're hitting those as as we expect and so just continues to give us a lot of confidence in execution and uh, strong, strong expectations, again around 2029 and first oil
Our next question comes from Paul Chang with Scotia Bank.
Thank you. Good morning guys. Uh, Ryan, I want to ask about ego, thought that before that. Can I just sneak in and just clarify all that confirm? Uh, Willow. The cabinet is still at 7 billion. And in terms of ego fraud, uh, with the uh, Marathon deal, they do have some really decent asset there. Can you give us an Outlook that way that you see ego for on the longer term basis? Uh, I mean, I think in the past that you have a view where that, uh, ego thought will get to maybe, uh, for you guys. They call you 300,000 birthday day. Now with this, uh, better performance in the second quarter and also that much larger resource base. Wow, how should we look at legal for, uh, for your portfolio? Thank you.
Yeah, thanks, Paul. I can, uh...
Like Nick, uh, Nick, chime in on the for Friday. I think we're...
We're seeing everything and then some, uh, based on the acquisition case we had for for marathon and, uh, some of the, well results that I've seen over the last few months, coming out of eagleford, on the marathon acreage in particular, let alone our acreage is just giving us a lot of a lot of comfort in the case. And, uh, and we're seeing upside out of that as well. And I can let Nick talk a little bit about the, uh, longer term perspective. We might see in the eagle for yeah, thanks Paul. Um, maybe just talk about short-term, uh, here on the eagle for obviously, as you pointed out, uh,
We had a really strong quarter uh related to Eagle for production had really strong base production as well as new wells coming online. Um we actually had a little bit of lumpiness about 10% more Wells online uh, in queue and Eagle. First, we saw that uh, you know, slight bump in production, I will say, um, uh, we we're really starting to get get our understanding around the Heritage Marathon, uh, component in, in, in eagleford. And what we're seeing there Paul is the Wells are performing at or above type curve so that's really good. Um, I also say an eagleford. It's um, we're we're sharing best practices across Heritage Marathon, Heritage cop. Uh, and you may have heard that we had our best year ever, in drilling within that asset? We had a 13% Improvement in fee per day um by combining best practices and drilling. So just hats off to the the team there.
Um, couple other things on on near-term, 1 of the things related to the acquisition. We're also sharing our facilities, uh, being able to combine those 2 where we can reroute production, we can shelter maintenance and that's leading to that increased production as well. So, in summary really strong Q2. Now, if I look longer term as as Ryan mentioned, when you take a look at uh the inventory of combined for eagleford, we we have a an industry-leading position. We're sitting on 15 years of of inventory. That's at current rig activities, levels, and now
Hold a significant share of the remaining Tier 1 inventory. In the play, no one else comes close to that.
Um, you know, longer term, you know, we're we're continuing to assess the optimum plateau of that asset and we'll give you an update 1 of the things, we'll we're looking at is, is the ongoing efficiencies that we continue to see, outperform quarter to quarter and so dialing into an exact Plateau remains ongoing discussion. Um, but that said, you know, we'll land somewhere, you know, modestly below. 2q production as we go forward here in the, in the, in the near term. So really strong performance across Eagle for a really strong, uh, overseeing with the world results.
Our next question comes from Leo Mariani with Rock.
Hi, I just wanted to um follow up a little bit on the asset sales here. Um could you maybe give us what the the rough Productions split is on the 40 thousand Barrel a day. You're selling there in the anador go in terms of oil and gas. Uh, and then you, you just talk a little bit about, um, you know, the, the timing on on asset sales. Was there a particular reason you decided to kind of increase it right now? Certainly, a lot of the conversation, the call is is uh, you know, talking about kind of macro uncertainty out there. Uh, so maybe just kind of talk about the environment, uh, to sell stuff now.
Back and uh, provide that to you and look, you know, we don't you know, we we we thought assets, when we think we're getting uh, good value for them. Look, we know what our whole value is, we know what they're worth to us inside the portfolio. We're not fire selling anything in the company, and, uh, there's assets that we've marketed that we haven't sold and, uh, and we haven't sold because either the, the macro, Uh, current macro environment, wasn't supportive of it. And again, we we, we know what our hold value is. And we know what the market is, and we'll, we'll move them out. We, uh, as we look across that portfolio of opportunities, for the company, we felt comfortable with a 5 billion Target by the, uh, by the end of next year. Uh, so feel feel comfortable. We got those assets to kind of sell and we're, we're hard. Hard hard at work, trying to deliver that.
Our next question comes from Philip Jungwirth, with BMO.
Thanks for taking the question.
I I I want to ask about return on Capital. Uh, kicos historically been a leader here Among The Independents and integrated. Uh, we we have seen corporate Returns come down across the sector, uh, much of which is oil price, but also m&a. So, uh, when you look at the organic free 6 billion free cash inflection that you have for major projects startups. Uh, I was hoping you could talk to how this improves roce.
By the end of the decade, there will be more improvement, really from accelerating the lower 48 growth at the right commodity price.
Yeah, Phil, look, you know all these, uh, projects that we're executing meet our cost supply hurdles. So, you almost kind of doesn’t matter where you allocate; you're going to see the growth in the ROCE. And that's what we're trying to drive inside the company. We're trying to be competitive with the S&P 500, not just competitive with our peers in this industry.
But outperformed, even the S&P 500, giving investors a, a resource, or an entp choice that they can invest in that can deliver year in year out through the cycles. You know, competitive Roc, and obviously when the price whistles down as much as it may, it did in the co year and stuff. And in 2022, it was pretty damn good, uh, as the prices was back. But we're we're trying to deliver through the cycle. Roc, improvements and invest to compete against the S&P 500. That's what we're about. That's what that's how our performance gets judged. And uh and and that's what we're trying to go do. And as you as you infect, your free cash flow, 67 billion dollars over the course of the. Next 3 to 4 years, obviously, the CFO is growing and we have we do have a unique value proposition in this business which is you get your CFO off the top from us.
Do we have a commitment of a minimum of 30% at a mid-cycle price? And when prices have exceeded that, like they have for the last number of years, we've given a lot more of that CFO back—about 45%.
So, uh, that's what we're signaling again this year, and we don't see that changing. As that free cash flow and flex, and our CFO grows, you know, distributions are going to grow with that. The opportunity to invest in our organic programs comes with that. Strengthening the balance sheet comes with that as well. But, uh, absolutely, as our cash flow grows and free cash flow grows, distributions grow as well. And we're investing in the right things. We believe in what we're investing in; our ROCE will grow on about a mid-cycle case basis as well.
Our last question will come from Klay Okamine with Bank of America.
Hey, good morning, guys. Thank you very much for squeezing me in. Look, I appreciate the strong performance in Q2 2025. Last time, you guys had an outlook on a multi-year basis within 2023, and in it, you suggested that there will be a capital ramp through the early 2030s. However, when you look at the business today and the efficiencies achieved, it appears that you're still on the same production track. So, I'm kind of wondering if you can hit those production targets without adding significant activity or without any changes in CapEx.
Responds to 1 of the questions. You know, the the out the the production or the growth that comes out of that, it's purely an output. But we always start in trying to keep our stable programs in place. We don't want to whip saw them up, we don't like to whip saw them down and obviously we can react to both both sides that environment. But we like the consistent stable, execution, and programs. And, uh, and we haven't had add a rig line or significantly increase the Frog spreads. And we're operating within a pretty efficient, uh, Frontier range where, you know, 1 F spread can handle, 3 to 4 wig lines and, uh, that's improving with the technology. And, and we want to be, uh, improving with that as well. So I think we have a lot of flexibility, we have a lot of inventory and, um, deep diverse, uh, inventory. So we've got a lot of choices and options. And as I said, in 1 of my comments earlier that, uh, it's
Really, the best place in the strongest portfolio that we've ever had as a company.
We have no further questions at this time.
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for participating. You may now disconnect.