ConocoPhillips — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Welcome to the First Quarter 2024 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions].
Thank you, Liz, and welcome, everyone, to our First Quarter 2024 Earnings Conference Call. On the call today, we have several members in the ConocoPhillips' leadership team, including Ryan Lance, Chairman and CEO; Tim Leach, Adviser to the CEO; Bill Bullock, Executive Vice President and Chief Financial Officer; Andy O'Brien, Senior Vice President of Strategy, Commercial Sustainability and Technology; Nick Olds, Executive Vice President of Lower 48; and Kirk Johnson, Senior Vice President of Global Operations.
Thanks, Phil, and thank you to everyone for joining our first quarter 2024 earnings conference call. It was another solid quarter of focused execution across the portfolio on our strategic plan. Starting with our international projects. We continue to ramp up production at Surmont Pad 267 in Canada, Bohai Bay 4B in China and 3 subsea tiebacks in Norway. And we expect to start up the fourth subsea tieback in Norway in the next month. In Canada at Montney, production reached a new record level following the start-up of the second central processing facility, leading to over 20% growth versus the fourth quarter.
Thanks, Ryan. In the first quarter, we generated $2.03 per share in adjusted earnings. We produced 1,902,000 barrels of oil equivalent per day, representing 2% underlying growth year-over-year. Lower 48 production averaged 1,046,000 barrels of oil equivalent per day with 736,000 in the Permian, 197,000 in the Eagle Ford and 96,000 in the Bakken. Now this included a 25,000 barrel per day headwind from weather, which impacted Lower 48 production by about 2% and was slightly higher than the 20,000 barrel per day guidance provided on the fourth quarter call.
[Operator Instructions] Our first question comes from the line of Devin McDermott from Morgan Stanley.
I wanted to ask about Alaska. You noted that you just completed the first and are completing the first winter construction season for the Willow project. I was wondering if you could give us a little bit more detail on what was completed this past winter, how it went versus plan? And as we look ahead, what are some of the next key milestones we should be focused on for the project.
Devin, this is Kirk. Yes. 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. 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.
Our next question comes from the line of Neil Mehta with Goldman Sachs.
I wanted to spend some time talking about return of capital, and it is notable in the release you talked about at least $9 billion. So just your framework for thinking about what the right level of return of capital, it is early in the year. Oil prices have been volatile, gas prices have been weak, but certainly, you have a terrific balance sheet and have the capacity to raise that number. So I'd love your perspective on that.
Yes. Thanks, Neil. No, I think we want to divestiture. Look, we believe we're in good shape with the 9 day that we described early in the year. I think you look at 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 experiencing today is well above our mid-cycle. So our investors should expect well above 30% of our cash flow going back to them.
Our next question comes from the line of Lloyd Byrne with Jefferies.
Ryan, can you just comment strategically on the Permian gas and just kind of how you see that playing out? You guys have been really proactive in integrating some of that gas and looking forward, but any target levels you have? And maybe just how you're thinking about some of those differentials.
Yes. Thanks, Lloyd. I can -- Bill's 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 arms that are open even today. So I can let Bill add a little bit more color to that.
Yes, sure. Lloyd, so as we talked about in the past, we have -- we shipped to multiple markets. We've got transport capacity to the Gulf. We've got transport capacity on 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 of month Henry Hub pricing that's what we show.
Our next question comes from the line of Scott Hanold with RBC Capital Markets.
I'd like to take a look at the Lower 48 activity. Obviously, 1Q is down a little bit just because of the weather, but can you give us some color on how you see that progressing through the year? Should we see a nice bounce back in 2Q and then that steady kind of slow single-digit kind of rise through the course of the rest of this year?
Yes. This is Nick, Scott. Maybe I'll take you through kind of the Permian update in Lower 48, what we see -- as you noted there, we had the headwinds of weather downtime, as Bill referenced in his prepared remarks. As we look at that, we would have -- you exclude weather, we have about 3% year-over-year of growth there. In addition, remember, we took the operational frac gap at Eagle Ford in the 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.
Our next question comes from the line of Betty Jiang with Barclays.
Nick, you set that up for me really well because I want to follow up on the Permian and then the efficiency gains that you guys are seeing. We are hearing from other operators significant efficiencies from e-fracs and longer laterals. I would just love to get more color what you guys are seeing and how that's tracking versus the corporate plan and importantly, how that's getting translated into the capital efficiency that you're seeing in the basin relative to plan?
Yes. Well, good. Let's start on some of the longer laterals. I talked a little about 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 we got 60% 2 miles or greater. If you look specifically at 2024, again, 80% of the wells or 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.
Our next question comes from the line of Roger Read with Wells Fargo.
Maybe, Ryan, just get your updated thoughts on the global LNG market. You've obviously got a pretty good footprint, you're expanding it here, just how you're thinking about it over the next let's say, 2 to 3 years as some of these newer projects come online?
Yes. 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 step back to 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 facets of it, the 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 regas potential as well.
Yes. Thanks, Ryan, and thanks, Roger, for the question. I think this is a bit of our business that I don't think 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 APLNG. And then we've also participated in the 2 Qatari expansion projects.
Our next question comes from the line of Nitin Kumar with Mizuho.
Ryan, there's been some news report saying that linking you to a potential bid on the Citgo refining assets, there was also some articles and notes saying that you're considering the sale of part of your equity interest in LNG. I'm not going to ask you to comment on specific transactions. But as you look at the portfolio today and the evolving macroeconomic outlook, are there opportunities for portfolio optimization? And maybe you can comment on a few of them.
Yes. Thanks, Nitin. I say, first, now on the Citgo, we're watching that process. Look, we're a creditor in that process. So we own 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 or major with -- refining in our portfolio. This is the way to protect what's 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 we have against the Venezuelan government for the expropriation of our assets. Look, we're obviously optimizing the portfolio. I think in the last call, Andy mentioned the acquisition of some APLNG interest a couple of years ago.
Our next question comes from the line of Paul Cheng with Scotiabank.
AI is a best word in many other sectors, but we haven't heard the producer talking much about that. But one of the largest oil services companies in their conference call, just talk about how they believe their revenue will be up because there's a lot of interest on their product using the AI that will improve the EUR and well productivities. You guys is always on the cutting edge and trying to improve those aspects in the shale. Can you tell us that is it being openly optimistic or then within the next 2 or 3 years or 3 or 4 years, you actually think the AI is going to help you dramatically improve your EUR or well productivities or that this is really much longer term, maybe at some point, it will happen.
Yes. Thanks, Paul. Look, I think AI is going to be -- is 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 date, the automation and some of what we're trying to 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.
Our next question comes from the line of Ryan Todd with Piper Sandler.
Maybe just to follow up on some of your LNG conversations from earlier, you clearly talked about there's still work ongoing on the commercial and marketing side and building out some of those kind of things. Is there still appetite to add on the supply side, Qatar announced another LNG expansion in North Field West. Is that the type of thing you'd be interested in more of that in the portfolio or more supply-side LNG within the portfolio? And then are you seeing signs, we've seen -- or some compliance for others about signs of cost inflation on global LNG projects. What are you seeing as you look at the development of your LNG liquefaction trends across the portfolio right now in terms of cost inflation?
Yes. 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 of 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.
Our next question comes from the line of Neal Dingmann with Truist Securities.
My question is on -- around your Lower 48 marketing associated realized prices. Specifically, you all suggest on Slide 6 that your Permian differentials remain maybe a little bit pressured. I'm just wondering, are there any changes you can make on the marketing side to continue to stabilize and improve this? I know you've materially done this, of course, since you bought the Concho assets versus what they sort of just accepted at wellhead. So I'm just wondering, are there further improvements or things that you potentially could do on the marketing side to even -- see even more improvement on the realizations.
Yes, 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, we'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.
Our next question comes from Bob Brackett with Bernstein.
In the prepared remarks, you mentioned the new pad at Surmont 267. And I recall under the old operating structure, the partner wasn't that eager about new capital, the new technology, clearly now you control the pace. Can you talk about that pad? How different is it technologically than some of the older pads? And what are you seeing in early results?
Bob, this is Kirk. Yes, first, I'll probably just start out by saying our operational performance that this past year has been really strong, and that's important having come through the acquisition of our -- 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 in on 267 and 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.
Our next question comes from the line of Alastair Syme with Citi.
Can I come back just again to the question of the lower gas prices because I'm not really sure I understand whether you're making any near-term changes to your capital program? I'm thinking both the Permian and the Eagle Ford here given that low prices must surely be impacting on near-term cash flow.
Yes. Yes, also, we're not making any capital allocation decisions. It's all driven by the liquid side of the business. I think, as Bill articulated, we need more takeaway capacity out of the Permian to get the Waha prices back up and we're advantaged a bit because we have El Paso volumes that we can take to the West Coast. They've been in a bit of a turnaround as well and some maintenance activities going on that pipeline. So there's a dynamic happening in the basin that is impacting Waha prices.
Our next question comes from the line of Kevin MacCurdy with Pickering Energy Partners.
I wanted to ask on the first quarter capital trajectory. If I remember correctly, you had soft guided to over $3 billion of capital for the first quarter, but you came in lower at $2.9 billion. Can you bridge that gap for us? And is this lower CapEx, the result of just timing? Or is there anything structural that could carry forward?
This is Andy. Yes, 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 exclude in 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 PA LNG and the Willow timing. And then as you look forward to the second half of the year, capital is expected to be lower than in 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.
Our next question comes from the line of Leo Mariani with ROTH MKM.
I was hoping you could speak a little bit more to the expected trajectory of your Eagle Ford volumes. I know you had kind of the frac holiday a bit, which kind of impacted volumes in the last couple of quarters. I know they've been kind of trickling down here. I guess is that over? Do you have more of a normal activity cadence? And should we start seeing growth in those volumes as we roll into the second quarter and the second half of the year?
Yes, 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 has also 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 efficiency 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 2 quarters as we bring those wells online and had reinstate of that frac gap. 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.
We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.