Conoco Phillips (COP) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Record Production

  Achieved record production in Q2 2024 with strong contributions across the portfolio.

• Dividend Increase

  Announced a 34% increase in the ordinary dividend starting in Q4 2024.

• Marathon Oil Acquisition

  Progressed on the planned acquisition of Marathon Oil, aiming for a seamless transition upon close.

• LNG Strategy Progress

  Signed two additional long-term regasification and sales agreements for LNG delivery into Europe and Asia starting in 2027.

• Shareholder Distributions

  Committed to distributing at least $9 billion to shareholders in 2024 on a stand-alone basis.

Pessimistic Highlights

• Permian Gas Takeaway Constraints

  Lower 48 gas realizations were particularly low due to Permian Basin takeaway constraints, impacting pricing negatively.

• Increased Capital Expenditure

  Capital expenditures increased to the upper end of the guidance range due to Willow project and non-operator activity.

• Operating Costs Increase

  Raised full-year operating cost guidance due to higher transportation, processing costs, and inflationary pressures in the Lower 48.

Company Outlook

• Production Growth

  Expects 3% underlying growth year-over-year with a production range of 1.93 million to 1.94 million barrels of oil equivalent per day for the full year.

• Capital Expenditure Guidance

  Full-year CapEx expected to be approximately $11.5 billion, reflecting progress on Willow and additional capital allocated to Lower 48 partner-operated activity.

• LNG Portfolio Expansion

  Aiming to expand commercial LNG portfolio up to 10 million to 15 million tons per annum in the coming years.

Q & A Highlights

• Q: Can you discuss the share repurchase strategy and plans for the back half of the year? (Neil Mehta, Goldman Sachs)

  A: Confident in distributing at least $9 billion for the year. Expect to lean into buybacks post-Marathon shareholder vote on August 29. Plan to retire equivalent amount of newly issued equity in 2 to 3 years. (William Bullock)

• Q: How do the tax benefits from the Marathon acquisition, specifically the NOLs, factor into your synergy view? (Doug Leggate, Wolfe Research)

  A: Marathon has $2.8 billion of NOLs, not considered as synergies but do add value. Expect to use remaining NOLs within the first 3 years post-acquisition. (William Bullock)

• Q: Can you provide an update on LNG strategy, especially regarding recent agreements and market dynamics? (Scott Hanold, RBC Capital Markets)

  A: Progressed on LNG with two new agreements, aiming for 10 to 15 MTPA capacity. Remain constructive on LNG demand and pleased with progress. (Andrew O’Brien)

• Q: What led to the upward movement in CapEx, particularly related to Willow and non-operator activity? (Betty Jiang, Barclays)

  A: Increased CapEx due to strong execution on Willow and higher non-operated activity in the Lower 48. Aim to fund both without cutting back on operating programs. (Andrew O’Brien, Kirk Johnson)

• Q: What are you seeing on the leading edge of service costs in the Lower 48? (Stephen Richardson, Evercore ISI)

  A: Witnessing deflation in key spend categories like pumping services and proppant, expecting continued but possibly moderated deflation into 2025. (William Bullock, Nicholas Olds)

• Q: Can you discuss the production trajectory for the rest of the year, considering turnarounds? (John Royall, JPMorgan)

  A: Expecting organic production to grow 2% to 4% in 2024, with a steady increase adjusted for turnarounds across Lower 48 and Alaska International. (Andrew O’Brien)

• Q: How are you managing the increased operating costs? (Roger Read, Wells Fargo)

  A: Raised full-year operating cost guidance due to higher transportation and processing costs, with the third quarter expected to be the peak for controllable costs. (Andrew O’Brien)

• Q: Can you provide more insight into the LNG market dynamics and your strategy? (Ryan Todd, Piper Sandler)

  A: Secured two deals this quarter, remaining constructive on LNG demand. Continuing to work opportunities globally for LNG sales contracts. (Andrew O’Brien)

• Q: What's your stance on Permian gas takeaway and Lower 48 realization expectations? (Neal Dingmann, Truist)

  A: Expecting Permian gas prices to remain depressed until more third-party pipeline capacity is added. Not considering curtailing production as it's primarily an oil opportunity. (William Bullock)

• Q: Can you update on the Willow project and its impact on CapEx? (Leo Mariani, ROTH)

  A: Willow progressing well, with strong execution allowing for a confident outlook on project capital. (Kirk Johnson, Ryan Lance)

• Q: How does the current macro affect your gas portfolio positioning? (Kalei Akamine, Bank of America)

  A: Seeing demand tailwinds for gas, with the portfolio positioned to pivot quickly to gas opportunities if they become competitive. (Andrew O’Brien)

• Q: Can you provide updates on the Willow project's facility side of spend? (Bob Brackett, Bernstein Research)

  A: Willow's facility spend is progressing as planned, with significant portions built off-site to mitigate risks associated with Alaska's challenging conditions. (Kirk Johnson, Ryan Lance)

• Q: What are the expectations for CapEx and activity in 2025 and 2026? (Paul Cheng, Scotiabank)

  A: It's too early to discuss 2025 CapEx details, especially before closing the Marathon transaction. (Andrew O’Brien)

• Q: Can you update on LNG project development, especially regarding Port Arthur and Saguaro LNG? (Joshua Silverstein, UBS)

  A: Port Arthur construction on track, with Saguaro LNG's progress impacted by regulatory pauses. (Andrew O’Brien)