ConocoPhillips Q1 2024 Earnings Call Transcript

Hi, Devin. This is Kirk. Good morning. Yeah. So we had a really strong start to project execution here on Willow this year. We were actively closing out here this week actually our first major winter construction season on the North slope where we were able to successfully mobilize over 1,200 workers and were able to successfully build out 7 miles of gravel road, 30 miles of gravel pads -- 30 acres of gravel pads for future facilities and we've successfully constructed all of the pipelines that we planned for this winter season. And certainly, in addition, module fabrication has continued to progress really well here this winter and this spring and we're expecting to be ready to transport the first of those modules to the North Slope here on schedule here midyear, which is the Willow operations center.

We still expect to be in the range of $1.5 billion here for 2024 and the progress that we're making here this year gives us confidence to keep our estimate on total capital to first production as being remaining unchanged. So we're still in that $7 billion to $7.5 billion range and again that's underpinned not just by the progress that we're making here on construction here this year, both on the North slope and off-site module fabrication, but we continue to make some really strong progress on our contractual scope. We've landed three quarters of our total project scope year-to-date and we have an expectation that we could be upwards of 90% of our total scope contracted here by year-end. And so as we look forward here for the remainder of the year, obviously, we're going to continue off-site module fabrication for production facilities and then we'll continue to ramp-up both procurement and certainly prepare for the follow-on winter construction season. So again, great progress here on the Willow project this year and putting us in a really strong position. We do these projects a lot in Alaska and it's great to see the teams making the progress they are here yet again this year.

Yeah. Thanks, Neil. No, I think we wanted to message, look, we believe we're in good shape with the $9 billion that we described early in the year. I think you look it's a reasonable percentage of our cash flow through the first quarter of this year similar to what we've done in years past. We recognize that the price that we're experienced today is well-above our mid-cycle. So our investors should expect well-above 30% of our cash flow going back to them. We're monitoring kind of the volatility as you mentioned, Neil. And again, it's not just sort of in WTI or Brent markers, it's in all the markers, NGL, LNG and natural gas as well. So it's a function where just want to see some durability to some of the prices, see where they end the year and you can expect to get a fair percentage of our cash flow return back to our shareholders like we've done over the last number of years.

Yeah. Thanks, Lloyd. I can -- Bill has got some information there that he can share. I think you're right, we've been thinking about this for the last number of years trying to build-out an LNG strategy and to complement what we're doing on the commercial side, the gas that we move around the Lower 48 to expose ourselves to some of the ARBs that are open even today. So I can let Bill add a little bit more color to that.

Yeah, sure. Good morning, Lloyd. So as we've talked about in the past, we ship to multiple markets. We've got transport capacity to the Gulf. We've got transport capacity to West Coast. We're very supportive of offtake capacity from the Permian Basin. In fact, we do have some firm capacity on the upcoming Matterhorn pipeline. But a sizable portion of our volume also is exposed to prices and in-basin pricing. We don't disclose what percentage moves to each location for commercial reasons, but a really good way to think about the company's realizations is as a percentage of capture of first month Henry Hub pricing, that's what we show. First quarter, we were about 70% realizations. That was a little bit higher than fourth quarter. So in a good position. And obviously, the Permian Basin has got some transitory issues right now with gas pricing.

You're starting seeing pricing go negative and towards the end of the first quarter and as we go into the second quarter. So I think everyone is expecting to see a lot of volatility this year. We certainly expect realization in the second quarter to be particularly low, but these are transitory that -- and as we come out the back of the year with takeaway capacity, we'd expect that to return to more normal levels. And as you noted, we've got a very sophisticated gas marketing organization. We are moving several multiples of our equity production. So our flow assurance is very good for the company and we've got access to competitive market pricing. And that flow insurance really is important because we don't routinely flare and we want to be able to continue to produce mix of --we got strong return profiles in the Permian primarily driven by oil.

Yeah. Well, good morning. This is Nick, Scott. Yeah, maybe I'll take you through kind of the Permian update and Lower 48, what we see. As you noted there, we had the headwinds of weather downtime as Bill referenced in his prepared remarks. As you look at that, we would have you exclude weather. We had about 3% year-over-year of growth there. In addition, remember, we took the operational frac gap at Eagle Ford at the end of second half of 2023. So we had some impact in Q1 there because of wells coming online kind of the second half of the Q1 time period.

Overall for Permian, we're very focused on just driving efficient operations out there. We've got flat activity with rigs and frac crews. We may bump up quarter-to-quarter. I'd also mention that on the first half of our development plan out in the Permian is really focused on the Delaware and then we'll pivot to on the second half more oil weighted towards the Midland Basin where we've got some of our larger pad projects and some 3 mile laterals coming online. Again, Scott, the teams are just again laser focused on capital efficiency, both on drilling and completions. We see good results from the combination of, for example, simul frac and remote frac. So we continue to see those efficiency improvements on the operating side for fracs.

And then on the drilling side, I think we've mentioned several times, we've got a real-time drilling intelligence group out there monitoring the rigs 24/7. So that's really seeing promise as well. So on the efficiency front, we're seeing that roll-through. If you look back as far as taking into account the weather that Bill had mentioned on 25,000 barrels equivalent per day and also accounting for the impact of the Eagle Ford frac gap, you can look at 1Q kind of being the low point for the year around production, we'll see progressively higher production kind of Q2, Q3, Q4. And again, we've got some larger PAP projects coming on in the second half of the year in the Midland Basin. So increasingly favorable trajectory on production. All-in, as we talked about before, the plan that we laid out was low single-digits of growth in that 2% to 4% range.

Yeah. Well, let's start on some of the longer laterals. I talked a little bit previously on the operating efficiency on the frac spreads and drilling. Again, our teams are very focused on long lateral development as we go forward. As a reminder for the group on the phone, if you look at our Permian inventory, 80% of the laterals are 1.5 miles or greater and got 60% 2 miles or greater. If you look specifically at 2024, again, 80% of the wells are 1.5 miles or greater and about 20% are 3-mile laterals. And we've got -- as I mentioned before, we got some of those longer laterals coming online in the second half of this year.

We see up to that 30% to 40% improvement on cost of supply when you move from a 1 mile lateral to a 3 mile lateral. So we're seeing those efficiency improvements out there. Maybe just staying on the drilling side, specifically in the Midland Basin, we've had some recent success there where we've had internal record wells. We look from spud to rig release, so very favorable performance over the last three months. We continue to see that on the drilling side. And the bottom line is it does translate as we focus in on more feet per day, more stages per day, more pumping hours per day. And we've seen that 10% to 15% improvement of pumping hours from 2022 to 2023, that all translates to improved capital efficiency and therefore lowering our cost supply. So it's very encouraging across all fronts.

Yeah. Thanks, Roger. I'll take a shot and maybe let Andy chime in a little bit as well. But as I said earlier, I think we certainly stepped back a few years ago and wanted to continue to grow our LNG exposure in that position. We know the markets. We have our own technology. We know the business quite well and we do have a strategic intent to continue to try to grow that. And it's really participating in all assets -- all facets of it's the product -- production side here in North-America, in Qatar, in Australia being in the liquefaction side here in North America and elsewhere being -- having ships and being in the re-gas potential as well. So trying to grow that integrated business as well even at sort of the lower Henry Hub prices you see today. The ARB is still open to make money and make a decent rate of return as you move some of that LNG to Europe and to Asia. And it's a long-term business that we're interested in. So I can let Andy chime in on a few more specifics as well.

Yeah, thanks, Ryan, and thanks, Roger for the question. I think this is a bit of our business that. I don't think it is completely understood. So it might be helpful if I just put sort of some of the details around it. As Ryan said, if you go back all the way to 2022, we increased our ownership on the resource side with taking more equity in AP LNG and then we've also participated in the two Qatar expansion projects. Now I think where you were specifically going with your question was on really more from the commercial perspective. So on the Gulf Coast, we've secured 5 MTPA of offtake from Port Arthur and we also have a 30% equity interest there.

We've also secured offtake on the West Coast of Mexico with 2.2 MTPA from Saguaro LNG and that one is pending FID and 0.2 MTPA of offtake for five years starting in 2025 from ECCA Phase 1. So all-in, our offtake in North America is about 7.4 MTPA pending the FID at Saguaro. And switching to the re-gas side of things, we now have 4.5 MTPA secured in Europe. This includes 2.8 MTPA of capacity at the German LNG. Now up to two of that will support our LNG SPAs with Qatar. And we also have 1.7 MTA of re-gas capacity at the Gate terminal in the Netherlands. So over the near-term, our focus is on continuing to ladder in the re-gas opportunities.

And over the longer-term, maybe think about 10 to 15 MTPA has a good range of offtake capacity to think about. This will allow us to achieve the full benefits of scale across our organization. I do want to be clear, this is an offtake ambition. We don't feel that we have to take on additional liquefaction capital. So for competitive reasons, we don't get into the specifics of where we're actually developing offtake and re-gas right now, but needless to say, that's something that's front of mind for us. So I know that was a lot of detail, but hopefully that helps everyone sort of just frame up sort of the moving parts we have going on the LNG business.

Yeah. Thanks, Nitin. I'd say first, kind of on the sit go, we're watching that process. Look, we're a creditor in that process. So we're owed quite a bit of money by the Venezuelans. So we're watching that process pretty closely. Look, I'm not trying -- we're not trying to become an integrated refining major with refining in our portfolio. This is a way to protect what's owned the company and the credit that we have against the Venezuelan government. So we're watching that and following that process pretty closely, but that's to get the money that they owe us for the judgments that have -- that we have against the Venezuelan government for the expropriation of our assets.

Look, we're always optimizing the portfolio. I think in the last call, Andy mentioned the acquisition of some AP LNG interest a couple of years ago. We secured the full interest at Surmont here in the last year or so. We're always looking at opportunities that make the company better. And those are two great opportunities that came along at the right time and we are in the right place to add to the portfolio. When you think about the disposition side, we sold assets over the last couple of years when they don't compete in the portfolio at our cost of supply thresholds, then the team knows that they either do improve or it moves out of the portfolio and we do that constantly.

We don't have any major large disposition programs that we're thinking about inside the company. We just do that as a normal course of business just to improve the company. With regard to Port Arthur, look, we've had some inbounds on the equity interest that we have and we're taking a look at that trying to understand is it that -- what's right for the company going forward. As Andy mentioned in the last question, look, we're not -- we don't necessarily need to be an equity owner in these things. We wanted to at Port Arthur to launch the project in Phase 1. So we did that, but we're not married to it if the right opportunity comes along. So we continue to look at those opportunities at all. We're in the market every day and we're trading in the market and we're looking at the market and doing things that we think make the company better.

Yeah. Thanks, Paul. Look, I think AI is going to be -- it's going to revolutionize a lot of things in our industry, other industries around the world as well. I think Nick in his response to a previous question talked about some of the things we're doing on the digital space with the dig, the automation and some of what we're trying to improve, improve our company, improve our operating efficiency. I can't comment on what somebody else said on their conference call. I think it's going to have an impact on the business. I think it goes to things like learning curve and its pace. Look, if we can help optimize and improve our learning curve and get digitized and understand the application of all this deep machine learning to our company that I think it is going to have an impact. And I think about it as acceleration of a learning curve.

So it's the pace. It's the pace at which we can optimize and get better and get more efficient as a company. And it cuts across the whole company. It's not just sort of the technical and the operating side of the company, but it's the back office and other places. The challenge is going to be getting this deep machine-learning in this supply to an enterprise like ConocoPhillips, enterprises all around the world. How do you get out of the retail space and into the large enterprise space where you have a lot of data and a lot of visual data, a lot of machine learning data that you have to combine together and to see some of that efficiency. So yeah, it's going to have an -- it's going to improve us. It's going to make us better. We got to get everybody in the company embracing kind of what we're doing in this AI space.

Yeah. Thanks, Ryan. I think Andy outlined sort of our ambition to hit 10 million to 15 million in tons and you add-up the volumes that Andy talked about and it doesn't reach that kind of a level. So do we have an ambition to grow some more in this space? Absolutely, we do. We want to make sure we're in the right spots with the right kinds of opportunity. And certainly, North America is a great spot both on the Gulf Coast and on the West Coast. If there's some good opportunities, it's about having the best liquefaction fees. It's about the better projects that we see out there. I think when it comes to Qatar, we've demonstrated where we've landed a couple of -- interest in a couple of trains there at NFE and NFS. And if they put more out there and the terms are acceptable and competitive, we're certainly interested in expanding that relationship with Qatar down the road.

We'll have to see when they make their decision on what they want to do with any future expansions out of the Northfield. But our relationships are strong and our participation is strong. I think you're -- in some of those areas, we're seeing the execution of Port Arthur is going pretty well. We don't have any concerns about inflation or what's happening there and certainly watch the market in terms of the liquefaction spend that we have or what future may come, but we're pretty comfortable with it. We're getting into these projects because they're competitive in the portfolio and they're filling a strategic long-term vision that we have for the company.

Yeah, Neal, this is Bill. As we talked about, we have offtake capacity both to West Coast and the Gulf Coast and we're interested in additional takeaway capacity on Matterhorn like I talked about. So we are constantly looking for ways of optimizing that portfolio. Our commercial organization is in the market daily. We're doing orders of magnitude on that production. So we really have a good sense of where volumes are moving and what rates are going. And so I think that the improvement on margins and as you're looking at that, that's really going to come down to getting additional takeaway capacity coming out of Permian. And as we've gone into the second quarter, you've had some maintenance going on there with El Paso and a couple of other pipelines and a couple of outages that's putting pressure on Waha pricing.

I think everybody has been seeing that. That will likely clear through the system here as we go through this quarter. But the real relief doesn't come until you get additional takeaway capacity here towards third quarter with Matterhorn coming along. At that point in time, I would expect that you're going to see more normal differentials and you're going to see a return for our portfolio at some more than that 80% of capture of Henry Hub across the portfolio. So I think it's a transitory type thing that you're seeing until you get additional pipeline capacity built. And so I think the important thing here again is that flow assurance matters at a point in time where you're constrained in a basin and we've got excellent flow assurance given our commercial capabilities.

Yeah. Hi, Bob. This is Kirk. Yeah, first, I'll probably just start out by saying our operational performance this past year has been really strong and that's important having come through the acquisition of the remaining 50% interest in that asset. And of course, we brought on that new pad. Certainly, as you've heard from us before, first steam on 267, it started earlier this year. And then we achieved first oil in December. And we've been seeing a really steady strong ramp on PAD 267 having started that in December here through first quarter. Production for first quarter is up 3 MBOE and we really have just seen 267 start to grow and we expect that to continue to offset decline, especially when we normalize that for the third quarter turnaround that we have coming up.

Bob, you've also heard from us in the past, we've spoken to the fact that we intend to add about a new pad about every 12 to 18 months about every year. And we just continue to find new efficiencies and new opportunities as we bring that pad online. It's really performing against our expectations. The team spent a lot of time as we've done a lot of infield work on mitigating base field decline. We've experimented with a number of technologies around our liners and we have prospects of drilling longer laterals here in the future as well. So I expect to hear more from us on this front, but certainly PAD 267 is coming in strong and really just pleased with how this is shaping up and our ability to continue to grow the asset here in the future having control of it.

Yeah. We're not making any capital allocation decisions. It's all driven by the liquid side of the business. I think as Bill articulated, that we need more takeaway capacity out of the Permian to get the Waha prices back up and where we're advantaged a bit because we have El Paso volumes we can take to the West Coast. There have been in a bit of a turnaround as well and some maintenance activity is going on that pipeline. So there's a dynamic happening in the basin that is impacting Waha prices. And so again, as Bill said, evacuating your gas is pretty important. So you don't go flare because we're not going to routinely flare gas. We've made that commitment. So having the takeaway is really, really important in these periods of time and then having the flexibility with your commercial team. We know where we can get a premium price and we're after that every single day.

Yeah, hi, this is Andy. Yeah, I can take that question. It's a pretty simple answer. As you said, we came in at $2.9 billion for the quarter, which was slightly less than our guidance. That slight underspend was a result of some Willow capital shifting from the first-quarter into April. So if you -- excluding that timing, our capital spend came in accordance with our expectations. Now as you look ahead to the second quarter, capital is expected to be slightly higher than the first quarter driven by AP LNG and the Willow timing. And then as you look forward into the second half of the year, capital is expected to be lower than the second half than the first half, primarily due to the $400 million of Port Arthur LNG equity capital spend that rolls off as we go into project financing.

Yeah, Leo. Just for the group, again, we did take that frac gap as you just mentioned in the second half of 2023 that impacted 4Q is also it impacted the first-quarter of this year because the wells coming online after we reinstated that frac crew came online kind of the second half of this last quarter. So we're not only going to see that until you hit 2Q. Again, we took that frac gap because of just the strong operating efficiencies that we're seeing in the fracs versus the drilling side as we apply the different technologies out there. So that's a good thing. Looking ahead just to 2Q and beyond, we expect to see higher production from the previous two quarters as we bring those wells online and had reinstated that frac cap. So this is all in line with our full year guidance and is consistent with the production growth that we laid out. Again, that's low single digits in that 2% to 4% range.