Q3 2025 ConocoPhillips Earnings Call

Speaker #1: Welcome to the third quarter 2025 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call.

Speaker #1: At this time , all participants are in a listen only mode . Later , we will conduct a question and answer session . During the question and answer session , if you have a question , please press star one one on your touchtone phone .

Speaker #1: I will now turn the call over to Guy Baber , Vice President , Investor Relations . Sir , you may begin .

Speaker #2: Thank you , Liz , and welcome everyone to our third quarter 2020 earnings conference call . On the call today are several members of the CONOCOPHILLIPS leadership team , including Ryan Lance , chairman and CEO .

Speaker #2: Andy O'Brien , Chief Financial officer and executive vice president of strategy and commercial . Nick Olds , executive vice president of lower 48 and global HSC .

Speaker #2: And Kirk Johnson , executive vice president of global operations and technical functions . Ryan and Andy will kick off the call with opening today , after which the team will be available for your questions for Q&A .

Speaker #2: We will be taking one question per remarks caller . 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 #2: Second , during this call , we will make forward looking statements based on current expectations , actual results may differ due to factors noted in today's release and in our periodic SEC filings .

Speaker #2: We'll make reference to some non-GAAP financial measures today . Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website .

Speaker #2: With that, I'll turn the call over to Ryan.

Speaker #3: Thanks , Guy , and thank you to everyone for joining our third quarter 2020 earnings conference call . We have a lot to cover today , including our third quarter results , improved 2025 outlook , Strategic updates , and our preliminary 2026 guidance .

Speaker #3: Now , starting with our third quarter results , this was another very strong execution quarter . We again exceeded the top end of our production guidance , demonstrating the power of our diversified portfolio with both capital spending and operating costs declining quarter on quarter .

Speaker #3: On the back of this strong performance , we raised our full year production guidance and we have reduced our adjusted operating cost guidance for the second time this year .

Speaker #3: In fact , we have improved all our major guidance drivers since the beginning of 2025 . CapEx , operating costs and production . Further demonstrating the strength of our teams execution on return of capital , we raised our base dividend by 8% , consistent with our goal to deliver top quartile dividend growth relative to the S&P 500 .

Speaker #3: This type of dividend growth is sustainable given the strength of our outlook and the expectation for our free cash flow break-even to decline into the low $30s WTI by the end of the decade.

Speaker #3: Year to date , we've returned about 45% of our CFO to shareholders in line with our full year guidance and our longer term track record .

Speaker #3: Turning to our strategic updates at the Willow project in Alaska , after completing our largest winter construction season and conducting a comprehensive project review , we've increased our project capital estimate to eight and a half to 9 billion .

Speaker #3: This change is primarily attributable to higher than expected general inflation and localized North Slope cost escalation . Despite cost pressures , we have maintained the projects schedule and made excellent progress on scope execution , narrowing first oil to early 2029 .

Speaker #3: We also continue to advance our global LNG projects, another key driver of our expected free cash flow inflection. We have reduced total LNG project capital by $600 million.

Speaker #3: Our three equity projects and a and NFS in Qatar , and phase one at Port Arthur LNG are on track and have been substantially de-risked .

Speaker #3: Capital spending is now about 80% complete with our first startup expected next year at NFI . Looking ahead to 2026 , recognizing its early , the macro remains volatile and that our portfolio is highly flexible .

Speaker #3: Our preliminary guidance for both CapEx and OpEx is to be improved significantly , down about 1 billion on a combined basis from this year .

Speaker #3: And in fact , relative to our pro forma 2024 , they are down about 3 billion . Underlying production should be flat to up next year .

Speaker #3: A reasonable starting point given the current macro environment . Looking beyond just the near term , CONOCOPHILLIPS continues to offer a compelling value proposition to the market .

Speaker #3: But one that is differentiated relative to our sector and to the broader S&P 500 . We believe we have the highest quality asset base in our peer space , our global portfolio is deep , durable and diverse , with the most advantaged U.S.

Speaker #3: inventory position in the sector . We are uniquely investing in our portfolio and driving significant efficiencies throughout the organization to deliver improving returns on and of capital and a leading multiyear free cash flow growth profile consistent with our guidance last quarter .

Speaker #3: We continue to expect the four major projects we are progressing along with our recently announced cost reduction and margin enhancement efforts to drive a 7 billion free cash flow inflection by 2029 , potentially doubling the consensus expectation for free cash flow this year .

Speaker #3: That free cash flow inflection is now underway. We expect to realize about $1 billion annually through 2026 to 2028, before an additional $4 billion in 2029.

Speaker #3: Once Willow comes online . That's a growth trajectory . That's unmatched in our sector . So bottom line , we're performing well . We are delivering on our plan , and we're well positioned for 2026 and beyond .

Speaker #3: Now with that , let me turn the call over to Andy to cover our third quarter performance . Major project updates and 2026 guidance in more detail .

Speaker #3: Thanks , Ryan .

Speaker #4: Starting with our third quarter performance as Ryan mentioned , we had another quarter of strong execution across the portfolio . We produced 2,399,000 barrels of oil equivalent per day .

Speaker #4: Once again exceeding the high end of our production guidance . Regarding third quarter financials , we generated $1.61 per share in adjusted earnings and $5.4 billion of CFO capital expenditures were $2.9 billion , down quarter on quarter .

Speaker #4: As we passed the peak of our major project capital investment cycle , we returned over $2.2 billion to our shareholders , including 1.3 billion in buybacks and 1 billion in ordinary dividends through the third quarter .

Speaker #4: We've now returned $7 billion to our shareholders , for about 45% of our CFO , consistent with our full year guidance and our long term track record .

Speaker #4: We ended the quarter with cash and short term investments of $6.6 billion , plus $1.1 billion in long term liquid investments . Turning to our outlook for 2025 , we've raised our full year production guidance to 2,375,000 barrels of oil equivalent per day , up 15,000 from our prior guidance .

Speaker #4: Midpoint. This is even after considering Anadarko's sale of approximately 40,000 barrels a day of oil equivalent, which closed on October 1st.

Speaker #4: We're reducing our operating cost guidance to $10.6 billion , down from the prior guidance midpoint of 10.8 billion , and our initial guidance at the beginning of the year of $11 billion .

Speaker #4: We're also making great progress on our asset sales program with another half $1 billion on top of what we announced last quarter . That takes us up to over $3 billion of asset sales out of our $5 billion target .

Speaker #4: Of this amount , 1.6 billion was closed and the cash was received through the third quarter . And we have another 1.5 billion that will have closed in the fourth quarter .

Speaker #4: That includes the remainder of the Anadarko disposition proceeds , as well as additional non-core lower 48 assets . Turning now to our strategic updates at Willow .

Speaker #4: We have updated our total project capital estimate to eight and a half to $9 billion . After successfully completing peak winter season , we undertook a detailed bottom up reforecast of the project and as a result of increased our cost estimate , the increase is primarily due to higher general labor and equipment inflation and increased inflation on North Slope construction .

Speaker #4: Scope . Execution has remained strong . We're nearing 50% . Project completion . This has allowed us to narrow our estimate of initial production to early 2029 .

Speaker #4: Importantly, we can now level-load the pace of our future work. More specifically, the 2025 Willow Project capital is forecast to be just north of $2 billion.

Speaker #4: We plan to reduce capital to around $1.7 billion a year from 2026 through 2028 , after achieving first oil ongoing development , capital will decline to about half $1 billion a year for several years .

Speaker #4: We continue to expect Willow to deliver $4 billion of free cash flow inflection in 2029 . Consistent with our prior commentary . Turning to our three LNG projects , NFI and Ndfs in Qatar and Port Arthur LNG phase one , we are reducing our total project capital estimate from $4 billion to 3.4 billion .

Speaker #4: This reduction is due to a $600 million credit from Port Arthur . Phase two . The credit is for shared infrastructure costs previously incurred by phase one equity holders , as a reminder , we only have equity in phase one , not phase two .

Speaker #4: With this credit , we're approximately 80% complete with our total project capital for these three LNG projects , approximately $800 million of project capital remains , averaging just north of $250 million of spend annually , with a declining trend from 2026 to 2028 .

Speaker #4: All projects remain on track . We continue to expect first LNG from NFI in 26 Port Arthur in 27 and NFS after that .

Speaker #4: We're also making considerable progress in advancing our commercial LNG strategy , which will further strengthen our long term free cash flow generation capacity .

Speaker #4: As a reminder , our strategy is to connect low cost supply North American natural gas to higher value international markets . We are leveraging our decades of LNG experience and our global scale to advance our strategy , which nicely complements our more than two BCF a day or 15 Mtpa equivalent of Henry Hub linked US natural gas production .

Speaker #4: We have placed the . We're fully placed the first five mtpa from Port Arthur phase one , with combined regas and sales agreements into Europe and Asia .

Speaker #4: In terms of offtake, we've recently agreed to take 4 million tonnes per annum (Mtpa) from Port Arthur, phase two, and 1 Mtpa from Rio Grande LNG, bringing our total offtake portfolio to about 10 Mtpa.

Speaker #4: The lower end of our stated 10 to 15 Mtpa ambition . Now turning to our outlook for 2026 . We are providing a high level framework , assuming about a $60 a barrel WTI price environment .

Speaker #4: First, we continue to expect a significant reduction in our capital spend next year, about $1 billion lower than the midpoint of our 2025 guidance.

Speaker #4: So in round numbers , that's about $12 billion for 2026 . The year on year decline is driven by a reduction in our major project spend , including Willow and the steady state activity we achieved on the lower 48 marathon Oil assets earlier this year .

Speaker #4: In addition to lowering our capital spend in 2026 , we also expect to lower our operating costs . This is largely due to the $1 billion of cost reduction and margin enhancement efforts we disclosed last quarter .

Speaker #4: We expect our cost in 2026 to be approximately $10.2 billion , down $400 million from our current year guidance and down $1 billion from our pro forma 2024 operating costs , including Marathon Oil .

Speaker #4: Turning to our production , we expect to deliver flat to 2% underlying growth in 2026 . A reasonable planning assumption considering the ongoing macro volatility .

Speaker #4: Additional guidance can be found in our earnings material , including our oil mix and our equity affiliate distributions . Now addressing our multiyear outlook , there are a few important points I'd like to make .

Speaker #4: First, the free cash flow inflection guidance we previously provided remains unchanged. We expect our four in-progress major projects and our $1 billion cost reduction and margin enhancement efforts to deliver $7 billion of free cash flow inflection by 2029.

Speaker #4: In terms of the timing of that $7 billion, we expect to realize about $1 billion of improvement each year from 2026 through 2028, amounting to $3 billion of free cash flow improvement by 2028.

Speaker #4: The remaining $4 billion will come in 2029 , once Willow starts up . Bottom line using 2025 consensus as a baseline , this translates to a double digit free cash flow growth through 2028 .

Speaker #4: Before another material step up in 2029 , which will approximately double our 2025 free cash flow . So , to wrap up , we continue to execute well operationally , financially and across our strategic initiatives .

Speaker #4: We are well positioned for a strong finish to the year and a good start to 2026. We continue to find ways to enhance our differentiated long-term investment thesis.

Speaker #4: That concludes our prepared remarks . I'll now turn it over to the operator to start the Q&A .

Speaker #1: Thank you . We will now begin the question and answer session . In the interest of time , we ask that you limit yourself to one question .

Speaker #1: If you have a question , please press star one one on your touchtone phone . If you wish to be removed from the queue , please press star one one again .

Speaker #1: 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 star one one on your touch tone phone .

Speaker #1: Our first question comes from Neil Mehta from Goldman Sachs . Your line is now open .

Speaker #5: Yeah . Good morning Ryan Andy , team , I appreciate the the time here and I want to unpack . Willow a bit because while there was a lot of good stuff in the in terms of execution in the quarter , the Willow update , obviously was was a little disappointing .

Speaker #5: So one of your perspective on , you know , the bridging from the 7 to 7 and a half to eight and a half to nine .

Speaker #5: Do you feel , Ryan , that we've got a good handle around the project at this point ? Because the history of major capital projects sometimes is , you know , there are multiple legs of announcements around overruns .

Speaker #5: And on the bright side , it seems like while there's cost overruns here , the timing is really intact . So just just unpacking slide four would be great .

Speaker #3: Yeah . Thank you Neil . Appreciate the question . And certainly appreciate some key project for the company . And and I know giving some clarity on where we've been where we're at today and what that future looks like is important to provide that insight and clarity .

Speaker #3: So, I've asked Kirk to unpack this a little bit using your words, Neil. And spend a little bit of time to make sure you all understand sort of where we're at today and where we're going in the future.

Speaker #3: So let me let me ask Kirk to do that . And provide a lot more clarity to to that . .

Speaker #2: Good morning Neil . Certainly as you as you heard in our prepared remarks here .

Speaker #4: This morning .

Speaker #2: From Ryan and from Andy , we are increasing our guide on total project capital for for the Willow project to a range of eight and a half to 9 billion .

Speaker #2: And I'll start by recognizing the strong execution that we've been achieving through our project team . Certainly , as you've heard from me before , we're hitting the key milestones that we promised in our project plan that , of course , we laid out at FID back in 2023 .

Speaker #2: And so in this past quarter , we chose to perform a pretty rigorous bottoms up comprehensive project review . And we were looking at scope , schedule , and of course , total project costs .

Speaker #2: And we were doing that in recognition that we knew we were coming in at about 50% completion. Expect to see that as we move into this next winter season.

Speaker #2: And we it's common practice for us to take on a pretty rigorous again , bottoms up at this , at this place , in projects of this nature and of this size and coming out of that exercise , we were able to provide two new guides on the project , not just capital , but also on on schedule .

Speaker #2: So starting with the first , the new guide on capital is a confirmation really largely of one driver . And that's that we've realized higher inflation post FID in 2023 .

Speaker #2: So addressing that maybe a little bit more detail here , total inflation is roughly 80% of the increase on our new capital guide .

Speaker #2: And I'll start with general inflation , which has been modestly higher across a few key categories that we've seen on the projects general label , general labor materials and then and then engineering equipment as well .

Speaker #2: And all of that makes up over half . And in fact , about 60% of our total project spend . So seeing that higher inflation is really culminating largely in what you're seeing in this new capital guide , as you can imagine , just a few percent higher .

Speaker #2: We originally expected just a couple percent of routine standard inflation across the period of the project , but just a couple percent higher in inflation rates across the five year duration .

Speaker #2: On a project is driving this 15% increase against what was our original expectations at FID , expecting lower inflation . And then a bit more unique to this project .

Speaker #2: We've also incurred some localized escalation , particularly in our Alaska North Slope specific markets . And that's really been driven by the fact that we've we've incurred more overlap of the peak construction seasons between our project and other projects ongoing in Alaska .

Speaker #2: Then we than we had originally expected . And that's resulting in roughly A2X increase in the regional activity there in the state that stressed the local markets think labor .

Speaker #2: Logistics such as trucking , marine , and then even the availability of camps for our construction work there on the slope , we're often asked about tariffs .

Speaker #2: We have seen some impacts on tariffs , but I'll be it . It's it's really been low single digit percentages as a total of of the increase we're seeing on that project .

Speaker #2: And then the last component on the upward cost pressure is related to a few decisions that we've made to ensure that we're mitigating total project risk .

Speaker #2: And especially schedule risk . Just to ensure that we're hitting the milestones that we need , especially on the front end of of this project .

Speaker #2: And you've heard from me that we're hitting those . And so those have really paid well for us . We've pre-staged equipment on on winter seasons to ensure that we can knock out all the scope that we had originally promised .

Speaker #2: And again , that's giving us the ability and the confidence to be able to guide you a bit more , even on schedule .

Speaker #2: So , so to summarize , you know , we've moved from about 50% of our contracts being locked up at FID back a couple of years ago to now being well over 90% of our facility contracts being secured and a bulk of those are tied to market indices .

Speaker #2: That gives us transparency as the market moves and creates a lot of accountability with us and our business partners as we move through a project of this size.

Speaker #2: And and so this summer , this summer again was the time for us to reconcile the actual inflation that we've been seeing over the last couple of years against a forward looking expectation .

Speaker #2: And and you're hearing from me , we're , in essence , taking forward the type of inflation that we've been realizing forward into the next couple of years just to ensure that we're being conservative through this process .

Speaker #2: So looking ahead again , back to execution . We've wrapped up detailed engineering that compels us to keep moving forward on the on the process module fabrication .

Speaker #2: That's a longer duration activity . It moves from this year into early 2027 , and which we'll see lift those modules to the slope , spend 2028 getting those those into the Willow development area .

Speaker #2: And hooking up and commissioning those for first oil in 2029. So again, I'll wrap this up with an acknowledgement that we're just seeing really strong execution across the project.

Speaker #2: And that's foundational . It's paramount for us in a project of this kind . And we're on track with all of our major scopes of work .

Speaker #2: And again , all of this is culminating in and not just a guide on capital . But then our ability to to provide an accelerated guide on first oil to the early part of 29 .

Speaker #3: I would just wrap it up , Neal , by saying that , you know , we're certainly disappointed that the costs are higher .

Speaker #3: Sorry , wrap up , Neal , but just saying , I'm disappointed that the costs are higher , but certainly we've taken measures across our portfolio to mitigate the increase .

Speaker #3: And I think you see that in our first . That's why we thought it was important to give some guide to 2026 . But the teams are executing well and the projects really hitting all the milestones .

Speaker #3: As Kirk described . We think it's a continues to be a world class project . It'll be a huge driver of our free cash flow inflection that's coming , you know , over the next 3 to 4 years and towards and and really complete us towards the end of the decade .

Speaker #3: And then the last thing I would say is , you know , we're going out probably with a big , bigger exploration program we've had in Alaska in a number of years .

Speaker #3: And it's that opportunity again to take advantage of this infrastructure that we're building for the long term growth and development of the company .

Speaker #3: And if we're right about our macro call and where we think , you know , the macro is going , you know , we're going to need this conventional oil to satisfy some of that growing demand around the world that we see .

Speaker #3: So it fits fits all of our takes , all of our strategic buckets as well . So I know a long kind of explanation to the initial question about we thought it was important to provide some of that clarity and context around it to give you a comfort .

Speaker #3: When we know where we've been, we know where we're at, and we know where we're going.

Speaker #1: Our next question comes from Arun Jayaram with J.P. Morgan. Your line is now open.

Speaker #6: Yeah . Good morning Ryan , I was wondering if you could just maybe a quick follow up on Willow . The F and D on the project goes up by 2 to 250 per boe based on your updated outlook .

Speaker #6: I'm just wondering if you could comment on how this impacts your project returns and just overall Breakevens assuming call it a mid $60 .

Speaker #6: You know , Brent type of price .

Speaker #3: Well , yeah . Thanks . Thanks , Arun . Certainly it the the estimate increase does impact the cost supply of this individual project .

Speaker #3: Going forward it still fits well within our portfolio . It's still very competitive within the portfolio . And again , we think longer term we think about the future opportunities that are going to come from this infrastructure which is our history on the North Slope .

Speaker #3: We've always you know , the satellite discoveries that we get benefit from the infrastructure that we built . And we fully expect that to be the case going forward with Willow .

Speaker #3: And then I'd remind you on the on the back end of this , the margins are still quite attractive because Alaska's , you know , 100% oil sells at a premium to Brent , typically on the West coast of the United States .

Speaker #3: So that's why the even even with maybe a little slightly higher FMD , as you point out , you know , we still feel very comfortable with the margin .

Speaker #3: And it's competitive in the portfolio . And it's going to deliver a project for the company that will add to its future growth and development .

Speaker #1: Our next question comes from Betty Jang from Barclays. Your line is now open.

Speaker #7: Hi . Good morning team . Thank you for taking my question . I want to maybe shift focus to the lower 48 . Just we talk a lot about the free cash flow from the major capital projects .

Speaker #7: But noticing that the lower 48 CapEx is also trending lower in the second half of 2025 versus the first half. And if you're staying here, CapEx will be lower year on year in 2026.

Speaker #7: While still perhaps growing in that asset . So can you speak to the CapEx trajectory there , and how do you see the free cash flow progressing from the lower 48 ?

Speaker #8: Yes , yeah . Good . Good morning . Betty . You're exactly right . Maybe I'll take you back a little bit on the capital projection and a little bit of the efficiencies that we're seeing within the lower 48 portfolio .

Speaker #8: If you recall , back in two . Q we achieved our level loaded steady state program within the development strategy with integrating the marathon assets .

Speaker #8: And so if you recall , we went from 34 rigs down to 24 rigs . So pretty significant reduction . And we're still delivering kind of low single digit growth in that .

Speaker #8: So obviously we're taking in stock that lower capital from going first half to second half . And you're going to see that in the capital projections going forward .

Speaker #8: Another key component of that , Betty , is a lot of around the efficiency improvements that we've seen getting into that level loaded steady state program , which I can talk more about , but we're seeing , you know , significant improvement on drilling performance as well as our in our completions that will continue into into 2026 .

Speaker #8: So if you kind of look at where we're currently at , we're probably going to be on a run rate basis for 2026 , something similar to three .

Speaker #8: Q for capital in 2020 . And we will continue to have that level loaded , steady state program roughly at 24 rigs in eight frac crews going forward as far as free cash flow , I'd probably let Annie talk about total company , but we continue to see expansion with , again , all the efficiency improvements that we're seeing with productivity that you saw in three .

Speaker #8: Q really good , strong quarter .

Speaker #4: Yeah , yeah . I'll just jump in and sort of add on to what Nick was saying there . So , you know , we feel it's important sort of on the free cash flow inflection to talk specifically to the the three LNG projects in Willow .

Speaker #4: But of course , you know , there's a lot more than that going on in our company . And Nick's just described what we've got with with lower 48 and and and flexibility we have within the lower 48 with that inventory .

Speaker #4: If we wanted to , you know , you know , ramp up that cash flow . The growth . But even beyond even beyond that , you know , there's other things that we don't we don't factor into that free cash flow inflection .

Speaker #4: You know , commercial , for example , you know , what we talked about the commercial sort of strategy . You know , we've got Port Arthur phase two , we've got Rio Grande that we just mentioned today that will come on .

Speaker #4: After Willow . That's going to be sort of the 2030 time frame . So , you know , there's a lot more there's a lot more going on , you know , in the company than just those four projects .

Speaker #4: We've got other things going on, sort of, you know, in Canada, you know, in Alaska and around some of our other international assets.

Speaker #4: But we just wanted to keep line of sight on this, this specific free cash flow inflection. And then we obviously have the ability to add to that.

Speaker #1: Our next question comes from Steven Richardson from Evercore ISI . Your line is now open .

Speaker #9: Hi . Thanks , Andy . It's a good segue from what you just mentioned about some of the other assets . I was wondering if you could it sounds like you've got some good visibility on some of the organic and capital efficient opportunities in the portfolio in Alaska .

Speaker #9: I was wondering if you could talk about some of the regulatory and permit changes , and how you're thinking about incremental opportunities , either in legacy ops or extending the resource at Willow , and then if I could , if you could maybe talk a little bit about you've talked about incremental steam potential , but , you know , I understand that there's some other things that you could be doing now that you've got your arms around that asset .

Speaker #9: And to improve it with minimal capital. Thanks.

Speaker #3: Yeah . Thanks , Steve . I'll take that one . I think it's yeah , Andy's answer to the last one . It's , you know , this this updates a lot about Willow and some of the major projects to give the market some clarity as to what we have going on there and some clarity into our free cash flow growth .

Speaker #3: And it doesn't really address and assume some of the things we have that we're studying inside the portfolio as well. And you mentioned a few of those because I think we do have a strategic question.

Speaker #3: Question longer term , if our call on the macro is right , you know , where's the conventional oil going to come from to satisfy the growing demand .

Speaker #3: And we see that demand growing clearly million barrels a day or so per year for the foreseeable future . And we look inside the portfolio .

Speaker #3: It's not only what we're doing in Willow and what we believe are going to be the added sort of pads that we can develop.

Speaker #3: There . And to your point , we're working with the administration to to identify some ways to streamline the permitting . I think you saw an early , early read of that with the new rules that are coming out for development in Npra .

Speaker #3: That's just sort of the start. There are more things coming that will give us what we think is going to be a lot more clarity to faster permitting approvals coming in Alaska going forward.

Speaker #3: So watch that space as we move on and hopefully not only make it more predictable and easier and faster , but also more durable with changing administrations .

Speaker #3: And then to your other point , yeah , when we look that's just Alaska . And I commend the team . Also managing the base .

Speaker #3: There's a lot of activity going on on the base side in Alaska as well . We have a we have flexibility at the asset to ramp up .

Speaker #3: Should the call on crude be required to go do that . You mentioned we're right now debottlenecking that plant as we speak . Now that we own 100% of that plant , we were able to make some investments in there that are previous partner were not approving .

Speaker #3: So we're taking the gross productive capacity of the plant up today . And then looking at future , can we add a few steam generation capacity to accelerate some of the development that we have with the huge resource that we have around Sirma ?

Speaker #3: That's very competitive in a all at sub $40 cost of supply . So when we look at the whole portfolio and you look at the deep inventory we have in the lower 48 , combined with the other conventional opportunities we have around the world , we're really set up for decades of growth in this business .

Speaker #3: I like where we're at, and I like the portfolio and what we're doing today and the optionality that creates for the company over the short, medium, and long term.

Speaker #1: Our next question comes from Lloyd Byrne with Jefferies . Your line is now open .

Speaker #6: Hi . Thanks .

Speaker #10: Good afternoon everyone . Ryan or Andy ? I was just hoping you could spend a little bit more time on the OpEx . I mean , 400 million improvement .

Speaker #10: And in light of it kind of being the second cut , this year , it just what's changing . Maybe remind us of of the big factors that have improved .

Speaker #10: And whether you can improve it further . Thanks .

Speaker #4: Yeah . Thanks , Lloyd . I can take that one . You know , I think at the highest level of the first thing I would say is that we're executing really well in , you know , with our costs and capturing the savings .

Speaker #4: And as you said , that's why we've been able to reduce the guidance for the second time this year . But , you know , going into a few specifics , you know , I would remind people that we've we've already achieved now 75% of the math and synergies that we were talking about over the prior quarters .

Speaker #4: That's , you know , that's in our cost . And we'll have that basically completely into our costs by the time we get sort of to the end of this year on a run rate basis .

Speaker #4: So , you know , we're exceptionally pleased with how smoothly that's gone . And , you know , delivering on those cost reductions that we've previously talked about .

Speaker #4: And then , you know , as we as we look , you know , to 2026 , you know , and that stepping the cost down again , as you said , you know that that's basically getting the full year benefit of some marathon synergies that we've just described .

Speaker #4: But then , you know , we expect to capture a meaningful amount of the cost improvements that we announced on the last quarter call .

Speaker #4: You know , and we're , you know , where that's basically going to drive some pretty meaningful reductions in our costs , you know , as we go through next year , you know , it's , you know , they're the kind of the key things .

Speaker #4: And when we think about sort of how we reduce costs , we have sort of a , you know , a mindset that this is continuous improvement .

Speaker #4: So we we absolutely sort of , you know , challenge ourselves to sort of look at how we can basically continue to reduce those costs over time .

Speaker #4: But , you know , I think we're we're very pleased with sort of how we're doing that and sort of how that's showing up in our bottom line .

Speaker #3: And I would add , Lloyd , you know , us well , these these reductions aren't conflated with capital kinds of things . They're not due to dispositions in the portfolio .

Speaker #3: We don't have 30 lines of reconciliation because the net doesn't ever show up . And they're not cumulative . These are , you know , costs that will show up on our bottom line .

Speaker #3: And as I've said before , just watch us every quarter and you'll see them materialize . They'll they'll be real and they'll head straight to the bottom line and to our free cash flow inflection that we've been talking about for the next number of years .

Speaker #1: Our next question comes from Scott Hanold from RBC Capital Markets. Your line is now open.

Speaker #11: Hey , good morning and thanks . I know it's always challenging to provide forward guidance with , you know , some uncertainty on commodity prices .

Speaker #11: So appreciate the details . On 26 . Looking at total production and capital . It does appear similar to consensus numbers . But you know there does appear to be a variance to oil your oil guide relative to consensus .

Speaker #11: And I was hoping you could help us walk through , you know , where we might have , you know , sort of missed that .

Speaker #11: And , you know , we do understand there's a lot of complexity given the diversity of assets and other things like command post payout .

Speaker #11: But I was wondering if you could walk us through some of that.

Speaker #4: Hey , Scott , this is Andy . I'll I'll get us started with a couple of points here , and then maybe Nick can find a bit more detail on the lower 48 for us .

Speaker #4: So just a couple of things I'd say is that , you know , if you look at our third quarter , you know , at a total company , we're at a mix of about 53% oil .

Speaker #4: And this is the first quarter now where we have the full impact of sermons that you just referenced . So we're now we now have the higher royalty into .

Speaker #4: So the third quarter is a pretty good mark , basically , as we think about 2026 . And you know , we've we've provided guidance and hopefully you found that helpful where we've now provided guidance basically for an oil split and where we're basically forecasting , you know , 26 to be about that 53% for the total company that does include sort of the bitumen impact of higher royalties at Surmont .

Speaker #4: And then , you know , specifically to lower 48 , we're guiding , you know , about 50% for the lower 48 . And then just one final point I would make before , Nick can maybe comment on the lower 48 , is , you know , when we provided our , you know , our 26 guidance of 0 to 2% range , you know , for both that's that's also a good range for how we're thinking about oil as well .

Speaker #4: Sort of . So , you know , I think we've tried to sort of , you know , guide a bit more on that this time , as you say , we recognize as you as you as you , you know , provided for us up front that , you know , there's a lot of moving parts here , but across the portfolio .

Speaker #4: But you know , that 53% for the total company we think is a good mark for next year , maybe . Nick had a few comments on lower 48 .

Speaker #8: Yeah . Thanks , Andy . And good morning Scott . Yeah . If you look at three Q lower 48 oil mix , we were around about 50% .

Speaker #8: If you compare that to Q2, it was about 50.5. That was in line with our expectations and our development plan going forward.

Speaker #8: As Andy mentioned , we're guiding to oil mix at 50% . When you look at 2026 forward . And again , that's simply an output of our plan and an output of our development plans where we're developing in the various basins .

Speaker #8: Now , as a reminder for the group within the Delaware , that is our most significant growth driver within the lower 48 . So it shouldn't be surprised to this group that oil mix will trend in that direction .

Speaker #8: It's a low cost to supply higher gas content, but very good strong oil content and good returns. Another key component to think through is we've got two decades plus of drilling inventory at current rig activity levels in the Delaware.

Speaker #8: It's pure leading opportunity set out there . Now , one other component that need to think through is that oil mix can fluctuate depending on the relative contributions from these basins .

Speaker #8: As we drill in different areas, you might have some higher oil mix and some lower oil mix, with variations from quarter to quarter.

Speaker #8: But overall , as Andy mentioned , 50% of the lower 48 old Mexico and forward .

Speaker #1: Our next question comes from Doug Leggate from Wolfe Research . Your line is now open .

Speaker #12: Oh , thank you guys . I'm going to try very hard to make this one question , but I'm hoping you can maybe help help us navigate the moving parts a little bit .

Speaker #12: My question is on is principally on Willow and the CapEx . What happens after Willow . But it's really about the evolution of your dividend breakeven , because I think the Willow news has overshadowed the other big news , which , of course , was your dividend increase .

Speaker #12: So I guess the way I would try to phrase the question is: How damaging is the increase in Willow spending to the cash cadence of the cash flow coming back?

Speaker #12: And I guess my point specifically is you get qualified CapEx deductible on taxes in Alaska. It's pretty advantaged. So can you walk us through how big a deal this really is and what happens to the dividend breakeven as Willow comes online?

Speaker #4: Hey , hey , Doug , this is Andy . I can I can try and step through that . I think you sort of half answered the question for me in terms of sort of how how this works on a on a tax basis and , and Ryan touched on this also in the prepared remarks and , you know , the way I would look at it , sort of at a total company level is , you know , our our break even is coming down and it's coming down pretty substantially .

Speaker #4: Just just right , you know , think about where we are right now . Our break even this year . So just on CapEx is in the mid 40s .

Speaker #4: You'd add another ten to that for the for the dividend . Just from what we've described today , from what we're doing from 25 to 26 , you know , that brings our break even down in and of itself .

Speaker #4: You know , 2 to 3 bucks . So , you know , we're on this trajectory of , you know , yes , cash flow inflection is going in one direction , which is great .

Speaker #4: And then our break even is also coming down , which is great . And , you know , as Ryan said in his prepared remarks , you know , that's going to continue to happen where we're going to go all the way down to being in the low 30s on a capital break , even by the time the time Willow comes online .

Speaker #4: So , you know , I don't think what we've described today with , you , CapEx in Willow going up . And let's not forget also the LNG CapEx coming down , there's having any really sort of notable impact on our , our , our breakevens and our ability to sort of generate cash flow over this time frame .

Speaker #4: And our cash flow inflection remains unchanged . And , you know , that's why I think you started the question with , with the dividend and hopefully that isn't getting lost in all of the the news that we're describing today .

Speaker #4: But , you know , we have now increased that dividend by , you know , by 8% . And this is now the fifth year of us having top quartile growth of the dividend .

Speaker #4: And , you know , versus the S&P 500 . And , you know , we feel very confident with that break even that that continues .

Speaker #3: Yeah . And I would add as well Doug you know look it's and it's sustainable given the break even coming down as Andy described .

Speaker #3: You know that the dividend is representing a lower portion of our total cash flow in terms of our distribution back to the shareholders.

Speaker #3: So it ought to give the shareholders and stakeholders in the company a lot of comfort and conviction that we can continue to deliver top quartile S&P 500 dividend growth in the company well into the future , given the the projects that we're executing , the cost supply of those projects and the free cash flow growth , we're going to see coming out of the company .

Speaker #3: So it's quite sustainable and leaves us room to buy back some of our shares , which we're leaning into quite a bit right now .

Speaker #1: Our next question comes from Bob Brackett from Bernstein Research . Your line is now open .

Speaker #13: Yeah . Good morning . As much as I'd love to ask a few questions on Willow , I'll change the topic a bit .

Speaker #13: And that is to talk about the 2026 guide at 0% to 2%. We've seen other large MLPs and Integrateds with similar sorts of guides in a backdrop where WTI is sitting below $60.

Speaker #13: So can you talk about what macro world you envision or which you plan for that ? We're going to to see next year .

Speaker #13: And how does that inform that capital guide and production guide .

Speaker #3: Yeah . Thanks , Bob . I think , you know , we'd like to say we have a lot of flexibility in the company .

Speaker #3: Production is kind of an output of our plans . We kind of set sort of a constant level loaded scope within the lower 48 .

Speaker #3: Nick talked a lot about what that means for kind of the the production growth we see out coming out of that . Our view , of the view of the macro supportive .

Speaker #3: Again , we kind of set this at a $60 WTI . To your point , T is trading a little bit below 60 at this moment in time .

Speaker #3: Our call would be probably seeing some inventory builds . We saw some this last week . We'll see how it continues onshore in the OECD countries .

Speaker #3: But we see some some downside pressure coming through the latter part of the ending part of this year and into maybe the the first part of next year .

Speaker #3: So, but that's why we have a balance sheet. That's why we have cash on the balance sheet. We want to continue to fund our programs.

Speaker #3: We came out with a 0 to 2% . We think that's sort of makes a lot of sense with the macro that we're seeing today .

Speaker #3: But it also is informed by the medium and longer term , which we're quite constructive on today . Again , we see about a million barrels a day of demand growth , not abating itself throughout this decade .

Speaker #3: And well into the next decade . And we think there's going to be a call on crude and even a call on conventional crude , depending on what you believe , the unconventional supply coming out of the US is going to look like at these kinds of prices , or even elevated prices .

Speaker #3: So we see some modest growth in the in the unconventionals continuing , maybe flat to slightly , some slight growth in the next year , depending on the price .

Speaker #3: But I think it sets up well to be a bit more reflective as we go into 2026, which is what we've tried to show with our 0% to 2%.

Speaker #3: But remind everybody we've got a lot of flexibility in the portfolio , both ways . We can . We have opportunities to reduce more CapEx .

Speaker #3: Should we think that's the need we can use the balance sheet . Should we decide to do that ? And then obviously we've got opportunities to ramp up on the other end as well .

Speaker #3: So we just think we have a lot of flexibility in the company . But I think this is a good place to . Start based on sort of how we view the the near term macro and where it's been developing .

Speaker #1: Our next question comes from Jeffery Lambertson from Tudor Pickering . Holt . Your line is now open .

Speaker #14: Good morning, and thanks for taking my question. I'll bring it back to Willow, if I could. I want to say I appreciate the detail.

Speaker #14: Earlier in the call, there was a discussion about the breakdown regarding the refreshed expectations. Can you also talk about the confidence level in the updated range and, essentially, what might be locked in from here?

Speaker #14: It'd be great to just get a sense for what flexibility there might be up or down , if things change enough over the course of the build out , or if the wider range that you have now captured .

Speaker #14: The most likely scenarios in your view , and it's more a function of where you end up within that range . Thanks .

Speaker #2: Yeah . Good morning again . I would say rewinding back here a little bit , we recognize there was quite a bit of inflation coming out post Covid over the couple years leading up to our taking FID in late 2023 .

Speaker #2: And we actually seeing that abate a bit in late 2023 , which is why we took a view of just a couple percent and we felt like obviously the monetary actions globally were going to knock that back a little bit .

Speaker #2: And so again , we took that view at the time . And this is just a really good time for us being roughly halfway through the project to reconcile what we've been seeing over the last couple of years .

Speaker #2: And as you know , it's across across labor markets and engineered equipment . We've definitely seen some movement , which is much , much more on the average of four and a half to 5% .

Speaker #2: And that's that's been actual and realized . You can certainly see the data yourself across the last couple years . Now , you know , sitting here today , we're seeing inflation rates abate a bit .

Speaker #2: We're we're starting to see inflation again in the three , 3.5% . But you know , candidly we're taking a view that this this compounding inflation could based on the contracts that we have tied to market indices could continue in that 4 to 5% range .

Speaker #2: And so we've we've largely budgeted for that for the next for the next three plus years of the project , just to ensure that , you know , we're not kind of falling back into prior assumptions and FID .

Speaker #2: So I would say we've got a lot of confidence in the obviously in the way we're putting this capital guide forward here at this time .

Speaker #2: And , and again , able to stand here in this position with , with that confidence because the team is executing just so well on the project .

Speaker #2: And we're not seeing schedule slip . We're not seeing other challenges . Certainly the upward cost pressure , you're not seeing me talk about scope discovery .

Speaker #2: This is really about inflation across the broader market . And we've taken a conservative view for the next couple of years . So yeah , confidence in how we're how we're pushing this out here today .

Speaker #2: And again, I'm just pleased with how the project's moving forward. And here for the next couple of years.

Speaker #1: Our next question comes from Paul Chang from Scotiabank. Your line is now open.

Speaker #15: Hey , guys . Good morning . Ryan . I think as you mentioned earlier , that you think that that's a maybe increasing call on oil , even on the conventional .

Speaker #15: And when we're looking at over in over the past ten years , I think you guys have drastically reduced your dependence on exploration because you have such a great profile in the lower 48 .

Speaker #15: And as the shale oil is maturing , how should we look at it ? Will you think that you still have such a huge portfolio that you really don't need to increase your exploration effort , and you can just rely on that on the shale oil to continue with pace .

Speaker #15: Your resource , your production , or that you think the the challenge on the longer term . Is really not that we need to start .

Speaker #15: Maybe increasing the effort, given it's a long-cycle business.

Speaker #3: No thanks . Paul . I think you bring up I guess there's probably an industry wide macro question around that . Are we investing enough industry wide on the exploration side ?

Speaker #3: And if we lost some of that muscle inside the industry for that and large project execution for that matter , there , and there's probably a bit to that from the industry side .

Speaker #3: Speaking specifically to our company , you're right , after kind of the early 2000 time frame when we first got into the Eagle Ford and saw the grown our unconventional position inside the company , and then really changed the portfolio pretty dramatically over the last number of years to really focus on those low cost of supply opportunities and resources that we now have captured inside the company .

Speaker #3: It has put less reliance on exploration, but I remind everybody we continue to spend $200 million to $300 million a year on exploration to continue to feed some of the legacy assets we have around the company.

Speaker #3: And years past that's been in Malaysia , been in Norway . We've moved that around throughout the years , depending on some of the activity level and the opportunity set that we find .

Speaker #3: And we're doing that again next year because we're focusing most of that exploration probably up in Alaska to support the Willow development.

Speaker #3: And get our get the company in a position to be able to feed that infrastructure that we're building out there for decades to come.

Speaker #3: So, it's been a redirection of exploration, but we've been able to do that within the $200 to $300 million allocation inside the company.

Speaker #3: We just spud a well in the Otway Basin of Australia to try to find more gas that we can bring into Australia. So this is not just one area where we're appraising the discovery that we had in Norway.

Speaker #3: You know, a year or so ago, we were spending some of that money to date. It hasn't captured a higher capital allocation inside the company because we've been able to get everything we wanted to get done for that $200 million to $300 million.

Speaker #3: But I think you're right macro wise , within the industry , you're seeing a lot more of that . We've just been blessed with a we're a resource rich company in a resource starved world .

Speaker #3: It looks like going forward . So I think we're uniquely positioned relative to many of our peers in the industry with having to consider significant ramp ups in that that capital allocation .

Speaker #1: Our next question comes from Charles Mead from Johnson Rice. Your line is now open.

Speaker #16: Yeah . Good day to you , Ryan and Andy . And to the rest of the team there . I'd like to ask a big picture question about your global LNG strategy .

Speaker #16: And you guys make this distinction between resource LNG and commercial LNG . And I'm wondering if you can talk about how those two how you think differently about those two pieces of the business , how they complement each other and perhaps how they compete with each other and , and maybe wrap into that one can make the argument that with the amount of resource you guys have and the lower 48 that you know , that make a distinction between resource LNG and commercial LNG is kind of a distinction without a difference .

Speaker #16: And maybe comment on whether that's a valid argument in your view.

Speaker #4: Hey , Charles , this is Andy . Yeah , it's a great question . And a big question , as you say in terms of sort of comparing comparing the two and how we think about them .

Speaker #4: So, I’d probably go maybe back all the way to the beginning that, you know, we’ve been in the LNG business really since the 1960s.

Speaker #4: You know , we were we were involved in basically sort of inventing this business . So we kind of know a thing or two about it .

Speaker #4: And we've , you know , we've traditionally sort of , you know , until recent years had the what I would call the sort of the , the resource LNG sort of LNG business where , you know , it's been very much about finding a stranded gas asset and , you know , you find a gas asset .

Speaker #4: You find people that will buy the LNG . Then you build an LNG facility and off you go . That's kind of where this industry , you know , was for years .

Speaker #4: And , you know , we are you know , we've been a big player in that with our Australia asset and our Qatar assets over the years .

Speaker #4: And you know that that has served us really well . But as you fast forward sort of to what's happening in in the lower 48 , you know , it's a little bit of a different model in that .

Speaker #4: And you kind of started to touch on this where you've got so much gas in the lower 48 that you don't need to treat it like a , you know , facility by facility approach where you've got the stranded gas that you're trying to tie to one facility .

Speaker #4: So , you know , it's the whole model is different . Effectively , in that , you know , you're trying to take this gas in the lower 48 .

Speaker #4: And you know , our strategy is pretty , pretty simple . You know , where we're trying to basically take , you know , what we think is low cost supply .

Speaker #4: North American gas and get ourselves access to international pricing in TTF and Jkm . And that's exactly what we're positioning ourselves to do , you know , and we've we've made great progress in doing that with , as I talked about in the prepared remarks , the , you know , the five Mtpa at Port Arthur , phase one that we've now fully placed and then , you know , we're now moving on to Port Arthur , phase two , where we took four mtpa and another , you know , one mtpa at Rio Grande .

Speaker #4: So , you know , we're trying to basically get ourselves in a situation where we , you know , we can basically convert lower 48 gas into international pricing .

Speaker #4: And what I would what I would remind everybody is that we're also in a position where this is where this commercial strategy complements our business so well .

Speaker #4: We produce over two BCF a day in the lower 48 and two BCF a day in round numbers is about 15 Mtpa . So it's , you know , it also works as a natural hedge to our to our lower 48 gas exposure .

Speaker #4: So I don't really back to you . First off , I don't really see them as the resource LNG competing with the with what we're doing in the lower 48 .

Speaker #4: They're kind of different models , but we've we've certainly been able to learn from the the resource LNG and that that's why we've been able to sort of implement the strategy .

Speaker #4: We are doing basically where we're we're trying to control the entire value chain . And you only can do that with our global size and scale .

Speaker #4: You know, and that's how we basically think we capture the economic rent. So, hopefully that helps sort of frame up how we think about the difference between the two.

Speaker #4: But I don't think it's not like an either-or choice for us. We think that they both serve a really important role, and we're happy to be playing in both.

Speaker #4: As you can see with NPH and NFS on the resource side and what we're doing on the commercial side, you know, with Port Arthur and the other announcements we've made today.

Speaker #1: Our next question comes from James West from Melius Research. Your line is now open.

Speaker #17: Hey , good morning guys . Or I guess close to good afternoon . I wanted to follow up on the LNG question . Obviously , the strategy is pretty clearly defined here .

Speaker #17: You had a lot of commercial movement during the quarter. You're at 10 million tonnes per annum (mtpa) now. I think you've said in the past that 10 to 15 is kind of a range.

Speaker #17: Are we at a point where maybe you pause and digest, or do you lean in and go up to that $15?

Speaker #4: Yeah , I'd say , you know , very briefly , Australia remains unchanged . We're executing exactly what we said . We , you know , the ten , the 10 to 15 Mtpa is a size that we feel very comfortable about .

Speaker #4: It gives us the size that we want to be able to optimize our portfolio , be able to divert cargoes . As I mentioned in the in the prior question , be able to control really the value chain .

Speaker #4: And I don't think anything's really changed there that the 10 to 15 is is a is kind of what we're looking to fill out right now .

Speaker #3: And I think, James, it's also a function of not getting too many commitments on the front end. Make sure you can place it on the back end.

Speaker #3: So we're being deliberate about that. And, you know, if we get more opportunities for low liquefaction costs, those opportunities will add more to the 10 million MTA.

Speaker #3: But we got to back it up with gas on the other end and have a plan for it. So we're being deliberate now that we've reached that 10 million tonne mark.

Speaker #1: Our last question comes from Kevin McKirdy from Pickering Energy Partners. Your line is now open.

Speaker #13: Hey, thank you, guys.

Speaker #11: For fitting me .

Speaker #18: I want to come back to slide seven for a moment on the incremental free cash flow. And I've known you.

Speaker #18: I know that you've shown this before with the $4 billion of free cash flow from Willow, but I think that's quite an eye-catching number.

Speaker #18: And I was wondering if you could provide anything kind of high-level on how you get there in terms of margins, production, maintenance, and CapEx in that first year.

Speaker #18: And if that's and also to ask if that's a , you know , a fairly good number to , to use heading forward for Willow Post 2029 .

Speaker #2: Yeah . Hi , Kevin . Good morning . This is this is Kirk . So certainly as you saw in the waterfall and the details in the supplementals on Willow , you can really take it directly from that .

Speaker #2: So as we compare against what was a historical and expected spend here , this year of just over $2 billion , as mentioned by Andy .

Speaker #2: And their prepared remarks , we're expecting that here on the Willow Capital spend here this year . And then that moves down plateaus for the next couple of years .

Speaker #2: And then on sustaining capital post-first oil, we're expecting to spend roughly half a billion dollars on continued development drilling for the Willow project.

Speaker #2: Obviously , we're starting Pre-drill . We've got some pre-drill planned in 2027 , and then that will extend and that that pre-drill is all baked within our total Willow project spend .

Speaker #2: But then post first oil that half $1 billion . So in essence , what you're seeing is this inflection downward of capital from roughly 2 billion to to an average of half a billion .

Speaker #2: First oil . And then at first oil , you're getting the CFO associated with again , why we like Alaska . It's 100% oil sales .

Speaker #2: It's Brent Premium and and again , that is the balance then of the $4 billion free cash flow improvement against a reduction of roughly $1.5 billion on CapEx .

Speaker #3: And I just remind Kevin that you see how the prices that that's assumed at $70 , $70 prices and , you know , we've given a sensitivity to that as well in the in the materials .

Speaker #3: So , well , let me thank everybody for participating today . Just a few summary comments . You know , we continue to execute well .

Speaker #3: We're improving our plan and we're well positioned for a strong 2026 as evidenced by the new guidance we've provided today . And I'd say , you know , the team continued to to find a lot of ways to enhance value in what we think is a differentiated investment thesis .

Speaker #3: We have an unmatched portfolio of quality . We've got a leading lower 48 inventory depth , combined with attractive , longer cycle investments in the LNG and Alaska that we've described today in quite a bit of detail .

Speaker #3: And we continue to have a strong track record of returns on and of our capital . And that's all leading to a sector leading free cash flow growth profile that takes us all the way to the end of this decade .

Speaker #3: So thank you all for your interest in CONOCOPHILLIPS , and we appreciate the questions .