Welcome to the Q3 2022 ConocoPhillips Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. I will now turn the call over to Phil Gresh, Vice President, Investor Relations. Sir, you may begin.

Yes. Thank you, Richard, and welcome to everyone joining us for our third quarter earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Bill Bullock, Executive Vice President and Chief Financial Officer; Dominic Macklon, Executive Vice President of Strategy, Sustainability and Technology; Nick Olds, Executive Vice President of Global Operations; Jack Harper, Executive Vice President of Lower 48; and Tim Leach, adviser to the CEO. Ryan and Bill will kick off the call with opening remarks, after which the team will be available for your questions. Just a few quick reminders. First, along with today's release, we published supplemental financial materials and a presentation which you can find on our Investor Relations website. Second, during this call, we will be making 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. Finally, we will make reference to some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website. With that, I will turn the call over to Ryan.

Thank you, Phil. Before I get into our strong results for the quarter, including record production, I'd like to touch on a few big picture thoughts that are top of mind for us. First, inflation and supply chain constraints continue across the entire economy and our industry. This is particularly true in the U.S. shale, where rapidly escalating costs combined with extremely tight supply are limiting the pace of industry-wide production growth. Second, we believe that the world is going to need investments in medium- and long-cycle production in addition to U.S. shale plays. The depth and quality of our U.S. unconventional inventory combined with our diverse global portfolio has us well positioned to meet these long-term supply challenges. And finally, a successful energy transition must meet society's fundamental need for secure, reliable and affordable energy while progressing to a lower carbon future. This requires an all-of-the-above solution. Obstacles that prevent the global market from functioning properly are not going to help the American consumer and would be disastrous for our allies. Governments can help by enacting policies that encourage investments in developing lower emission oil and gas resources that will be needed to get the world through the transition. This includes fiscal stability, streamlining permitting and supporting critical infrastructure for an all-of-the-above solution. Now against this backdrop, we believe that ConocoPhillips is well positioned to win in any environment. We remain committed to delivering on our triple mandate of responsibly and reliably meeting energy transition pathway demand, delivering competitive returns on and of capital and progressing towards achieving our net zero operational emissions ambition. As further evidence of this commitment, our third quarter results demonstrated record total company production. Lower 48 production hit a milestone at over 1 million barrels of oil equivalent per day, and we anticipate further growth in the fourth quarter. On returns, we generated a trailing 12-month ROCE of 27%. We increased our ordinary dividend by 11% to $0.51 per share, and we announced a $0.70 per share VROC for the first quarter of 2023, and we increased our share buyback authorization by $20 billion. Additionally, we'll return $15 billion of capital for 2022, which represents over 50% of our projected CFO, well in excess of our greater than 30% annual commitment. Now we believe that our CFO-based returns framework differentiates us relative to peers. And finally, our net zero operational emissions ambition, we recently announced a new medium-term methane intensity commitment consistent with our recent objectives of joining OGMP 2.0. From a strategic perspective, I want to provide an update on our global LNG initiatives. First, we were recently selected to participate in Qatar's North Field South project, following our selection earlier this year to participate in the North Field East, which adds to our long positive relationship with Qatar Energy. Second, we agreed to terminal services for a 15-year period at the prospective Brunsbuettel LNG import terminal in Germany. And third, we continue to progress our Port Arthur LNG project with Sempra, which we expect to reach FID by early next year. Now overall, we continue to believe the substitution of natural gas in place of coal represents an opportunity for significant reductions in global greenhouse gas emissions. This should drive global LNG demand and related opportunities well into the future. Putting this all together, we remain constructive on the outlook for the industry, and we have a deep portfolio of short-, medium- and longer-cycle low-cost supply assets that generate strong cash flow as we continue to deliver on our triple mandate. Now let me turn the call over to Bill to cover our overall performance for the quarter.

Well, thanks, Ryan. From a financial standpoint, we had a solid third quarter. We generated $3.60 per share in adjusted earnings. Production was over 1,750,000 barrels of oil equivalent per day, which included our previously guided approximately 15,000 barrels of oil equivalent per day impact from scheduled turnarounds as well as some impacts from the temporary force majeure in Lithia in July. For the fourth quarter, we do not expect any material turnaround impacts. Lower 48 production averaged a record 1,013,000 barrels of oil equivalent per day, including 668,000 from the Permian, 224,000 from the Eagle Ford and 96,000 from the Bakken. Cash provided from operating activities was $8.7 billion. Now this included a $15 billion benefit from working capital, primarily related to the timing of Norway tax payments and lower receivables. Excluding working capital, cash from operations was $7.2 billion. APLNG distributions were $257 million in the quarter, and we expect fourth quarter distributions to be about $600 million. On capital, we invested $2.5 billion back into the business in the third quarter, including around $300 million for acquisitions. This resulted in free cash flow of $4.7 billion, which more than covered the $4.3 billion we returned to shareholders in the quarter. Factoring in $400 million of disposition proceeds, ending cash and short-term investments were $10.7 billion at September 30, up from $8.5 billion at June 30. Turning to guidance, we still expect full year production of 1.74 million barrels of oil equivalent per day, with a fourth quarter guidance range of 1.74 million to 1.8 million barrels of oil equivalent per day. On costs, we've increased full year adjusted operating cost guidance to $7.7 billion from $7.5 billion, and this is driven by inflationary impacts. We have also increased full year organic CapEx to $8.1 billion from $7.8 billion, also driven by inflationary impacts and partner-operated working interests. Partially offsetting these increases, we have reduced full year DD&A guidance from $7.6 billion to $7.5 billion. In terms of 2023 guidance, we anticipate providing full details with our fourth quarter earnings call in early February. We will also be hosting an Analyst and Investor Meeting next spring at the New York Stock Exchange, so please stay tuned for more details. And with that, I'll turn the call back to Ryan.

Thank you, Bill. Now before we go to Q&A, I wanted to spend a minute discussing a few important organizational announcements. First, Jack Harper, our EVP of Lower 48, informed me that he will be leaving the company due to a family medical situation. And I know I speak on behalf of the entire organization when I say that Jack will be greatly missed. Now in conjunction with this announcement, Nick Olds, currently our Executive Vice President of Global Operations, will become the Executive Vice President of Lower 48; and Andy O'Brien, currently our Vice President and Treasurer, will become Senior Vice President, Global Operations and join the executive leadership team. Now with that, I'd like to turn the call over to Jack and give him the opportunity to say a few thoughts.

Thanks, Ryan. As Ryan mentioned, I will be leaving ConocoPhillips due to a family medical situation. It has truly been a privilege to work for both Concho and ConocoPhillips over the past 16.5 years. When Concho agreed to the merger with ConocoPhillips, we did so because we believe that the transaction would create a uniquely strong and differentiated company, and I feel very positive about how this has played out. This may be one of the most dynamic times that we've ever seen in the industry. And my competitive side certainly makes me wish that I could stay on board for what is ahead. However, I'm confident that we have set up the team for success with our organizational structure and planned transition over the next few months. With that, let me turn the call back over to Ryan.

Thank you, Jack. And I know I speak for everybody at ConocoPhillips, we have you and your family in all our prayers. So with that, let me turn it back over to Phil and we'll get going with the Q&A.

Great. Thanks, Ryan. And with that, Richard, we'll turn it back to you.

And our first question on the line comes from Neil Mehta from Goldman Sachs.

Ryan, I want to kick off with you on the LNG strategy. And we've seen a lot of interesting individual announcements. But maybe you could pull it all together and talk about how you see these coming together for how Conoco thinks about LNG as part of its portfolio. And as it relates to that, maybe you could talk about risk around long-term LNG as we have a lot of new supply coming in from Qatar in the U.S. by the middle of the decade. And do you worry about spending on these projects into what could be a sloppier market towards the end of the decade?

Thank you, Neil, for your question. For some context, our company has a long history in LNG, starting back in the '60s with our Kenai project that supplied gas to Japan. Over the years, we've engaged in various transactions and have built our resource position in the U.S., making it logical to foster more demand from that region. As we assess the landscape, we recognize that LNG will be a crucial fuel in the energy transition, especially in replacing coal as gas has done in the U.S., effectively reducing emissions. This perspective led us to target LNG as a significant area for growth in our portfolio. We began with our involvement in APLNG and expanded our interests in the North Field projects. Additionally, to capitalize on our U.S. position, we partnered with Sempra, and we anticipate reaching a final investment decision early next year at Port Arthur. This also provides us with additional opportunities along the west coast of Mexico. Our focus is on building a sustainable business over the long term, complemented by our new German regasification initiative. We aim to cover the entire value chain, supported by a strong commercial team. While there may be fluctuations in supply and demand at times, we believe this long-term view will lead to a solid business model for ConocoPhillips. With our experience and internal capabilities, we are committed to progressively expanding this facet of our operations.

Yes. That's really clear, Ryan. And the follow-up is just on capital spending for 2023, recognizing we're going to get more thoughts, it sounds like here in February on it. But if we took the $8.1 billion as the starting point, what are some of the moving pieces as you go into '23 that we can bridge off of?

Yes, Neil. I would start by saying that I would consider the pace from the second half of this year as a basis for our core business when looking ahead to 2023. We aren't planning to expand our Lower 48 operations given the current inflationary environment. We'll evaluate inflation expectations for next year and importantly, we'll also look at our partners' plans regarding the scope of projects that require our funding. These will present some uncertainties, but I suggest we use the core business performance from the latter half of this year as a reference for next year. Additionally, for our new business initiatives, we will fund projects related to NFE and NFS, including the two Qatari projects next year. We also anticipate reaching the final investment decision at Sempra, which will involve funding as well. Lastly, we hope to begin construction activities for Willow next year, contingent on obtaining the necessary permits to start funding that project. This outlines our core business and the additional aspects we will consider as we plan for 2023.

Our next question on line comes from Stephen Richardson from Evercore ISI.

Ryan, I was wondering if you could maybe talk a little bit about how you're thinking about the cash return envelope for '23, just acknowledging there's a lot of variability in the environment. But obviously, you've had a really strong year this year. And I think you talked last quarter about how we're trending kind of closer to 50% of cash flow from hubs, certainly a lot higher than your baseline. And so I think we get this question a little bit is just how do we think about '23 with the moving parts, acknowledging what you just talked about with capital and the environment is uncertain. But if we have the environment that we have today into next year, I wonder if you can maybe talk about how you're thinking about that.

Yes, Stephen, I think if we have the macro environment today that's similar to next year, that is similar to the average over the course of 2022, I think you should expect a similar level of distributions. And I think we signaled that a little bit with setting the first quarter VROC at $0.70 a share. If we look at the macro and it's going to be similar next year, you ought to expect a similar level of distributions, which is in excess of our 30% commitment. But we're going to watch the macro because we think it's going to be incredibly volatile. But we think we've just got the right value proposition in combination of VROC-based dividend and how we're thinking about buying our shares back, that it's well set up for the kind of volatility we may see. But that would be sort of my comment as you think about going into 2023, it's a function of the macro, which is reasonably strong right now.

That's great. Maybe just a follow-up on the Lower 48. Obviously, you've had some really, really strong results and can't say the same of what we've seen in some of the productivity updates from elsewhere in Lower 48 across the industry this quarter. I was wondering if maybe you could talk a little bit about performance versus just the timing of wells and kind of how you're seeing the program evolve, particularly in the Permian where the Lower 48 numbers were really impressive this morning.

Yes. Thanks, Stephen. This is Jack. Yes, the production is back half loaded, like we've been talking about. I hope you saw that in the quarter with the progression. We've also seen our OBO plans, our partners targeting increasingly longer laterals than we first anticipated, which, of course, yields a lower cost of supply and more economic return. In the Lower 48, we do expect to see continued growth, as Ryan mentioned, in the fourth quarter and in the Permian should modestly exceed that kind of low single digits that we expect out of the Lower 48. In terms of well productivity and our plans are progressing as we have planned. We monitor this very closely internally and with our peers externally and really like where we stack up.

Our next question on the line comes from Doug Leggate from Bank of America.

Jack, I wish you well and hope our paths cross again at some point. Good luck. I've got two quick questions, if I may. Bill, I wonder if I could deal first with the deferred tax in the quarter. I think we've heard you talk in the past about when you would hit full cash tax in the Lower 48. Has that been delayed somehow? Or maybe you could just walk through what happened in the quarter. It's quite a big deferred tax number, which we're happy to see obviously, but any updated guidance would be appreciated.

Yes, sure. Happy to, Doug. So first, the increase in third quarter tax rate on earnings reflects a shift in our geographic mix of earnings, primarily due to an increase in Norway's pretax earnings. And you'd expect that given the high gas price environment we're seeing in Continental Europe. So as you know, Norway is a fairly high tax environment so you've seen our effective tax rate increase from 39% in the third quarter from 32% in the second quarter. Now moving forward, I'd expect our effective tax rate to be in the mid- to upper 30s range, assuming a similar production level and the pricing holds with the forward curve. As you noted, the deferred tax for the quarter was a source of cash of just over $700 million. And I'd expect deferred taxes to be a source throughout the year. We did enter a tax cash-paying position in the U.S. in the second quarter. And we're now in a cash tax-paying position in most of our jurisdictions around the world. So assuming that prices and our capital program stays around current levels, I think you could see deferred tax to remain a modest source of cash, though cash taxes should be more closely aligned with our book taxes over time. And I do think it's important to note that trying to forecast deferred taxes and estimating cash tax effective tax rate on a quarterly basis is pretty tough. It can be impacted by a number of items in any given quarter. So I'd really encourage you to think about that as our effective cash tax rate across an annual time period. And I expect that to be getting closer to what we're seeing our effective tax rate on an income basis.

I understand the point about the mix and that's actually really helpful. I guess my follow-up, my question is on the Permian takeaway. We're obviously seeing a lot of volatility around Waha, but you guys have obviously had a lot of changes in your portfolio. Could you just give a quick refresh as to what your takeaway looks like? I guess, the differential widened a little bit this quarter in your realization. So just trying to get a handle on that, and I'll leave it there.

Yes, sure. So as you know, we're a large globally diverse E&P, so the overall cash flow impact from the Waha pricing differentials that we've seen this last quarter was relatively immaterial for us. But that said, in our presentation materials, our realizations in Lower 48 relative to Henry Hub decreased by 6% from 96% in Q2 to 90% in Q3. And that's primarily driven by lower Permian in-basin month average prices in September relative to Henry Hub. And when we look at it based on forward markets, we'd expect to be in the upper 70s to low 80s as a percentage of Henry Hub for the fourth quarter. So there's a lot of volatility around that, Doug, with what we're seeing in the market right now. And I'd expect that volatility is going to continue until we see the additional Permian takeaway capacity come online later in 2023. And I guess the only thing that, just as a reminder, we're the second largest gas market in North America. We've got a really strong marketing position that's multiples of our portfolio, and we think that's really beneficial in this situation. We've worked hard to build our gas marketing capability in the Permian following our acquisitions, and we leverage that to ensure we've got flow assurance through these pricing events. We're really confident with our in-basin flow assurance and that we've got sufficient takeaway to manage through the short- and medium-term capacity constraints. So for ConocoPhillips, this is essentially a price issue, not a flow issue.

Our next question comes from Jeanine Wai from Barclays.

Jack, thanks for the partnership and we wish you well. So our first question, maybe just following up on Willow. Can you provide maybe an update on what the latest is on that project? Any high-level commentary on what the moving pieces are relative to the original project, given that there's been a bunch of back and forth on it on the approvals? And I think the last detailed update we got on it was in June of '21, and there was roughly a 6-year lead time from FID to first production and there was about $8 billion capital estimate.

Yes. Jeanine, this is Nick. Definitely, I'll go through that. Maybe as a reminder, I'll just walk back in time a little bit here. There was a key milestone that was accomplished in early July, and that was that draft SEIS. The comment period has been completed as well. And as I mentioned in the 2Q call, the draft SEIS put forward a new 3-pad alternative, reducing the footprint in that Lake special area. And that is supported by ConocoPhillips. Now that addresses and is responsive to the Alaska District Court findings. Now with respect to schedule, we're still targeting the final SEIS in a supportive record of decision by the BLM end of this year. Jeanine, as I mentioned previously, we would only take FID following a final SEIS and support a record decision by the BLM and we are targeting FID early next year. Now pending that successful record of decision, we expect to have 2023 capital spend for this upcoming winter season, and that's mainly focused on civil construction, so that'd be opening up the mine site and laying some gravel roads. Now again, we won't take FID or make significant investments until we have a clear path to development. We also continue to do detailed engineering and update our final cost estimates. I know that you referenced that. We recently went to market to update our project costs and have seen some inflationary pressures as expected. We're seeing that globally as well as some of the impacts related to the updated scope due to the BLM's Alternative E in their draft SEIS. But I want to leave you with this. Despite all the cost pressures, the project remains very competitive in our cost supply framework. And finally, we'll provide more details on Willow at the market update that Bill referenced for next year.

Okay, great. Following up on projects, there have been many discussions with investors about Conoco's capital commitments for major projects like the Qatar project, Sempra, and Willow, and the impact these have on free cash flow and cash returns. We understand that Conoco's cash returns are based on a CFO metric rather than free cash flow, but these concepts are interrelated. We want to revisit the level of strategic cash you wish to maintain. Is it still the same as before? After the Concho and Shell Permian transactions, it might be argued that a lower cash reserve is sufficient. However, there are significant capital projects coming up that require allocation. You ended the quarter with $10.7 billion in cash, which offers considerable flexibility.

Yes, Jeanine. This is Bill. Based on our forward prices, we expect to finish the year with about $10 billion in cash, which is approximately the same amount you noted at the end of the third quarter. This is contingent upon us achieving our $15 billion in shareholder distributions this year. Our approach to cash allocation and balance remains consistent, guided by our priorities of competitive shareholder distribution, a strong balance sheet, and efficient capital allocations, both organic and inorganic. We plan to maintain $1 billion for operating cash, $3 billion for reserve cash, and any excess as strategic cash. This strategic cash is intended for value-enhancing opportunities, funding our program during the upcycle, and supporting mid- to long-term projects. Overall, our view on cash balances remains unchanged.

Our next question comes from Scott Hanold from RBC Capital Markets.

I was wondering if we could go back to shareholder returns and just give us a sense of how you think about the mix of the shareholder returns. I mean, obviously, there's some companies that are highly formulaic with it. But as you look into sending that VROC for the first quarter, like what goes into play when you think of like what level you want that set at?

We are considering several factors, including the current macroeconomic conditions and projecting our cash flows into the next year. We are committed to meeting our 30% target, and based on the guidance for commodity prices, we are well above that. Our 5-year average cash flow is in the mid-40s, and this year it has exceeded 50%. If the current environment continues into next year, we expect to maintain the same level of distributions as previously mentioned. We aim to grow a reliable base dividend that remains competitive with leading companies in the S&P 500. Additionally, we are looking to repurchase shares consistently throughout the cycles and evaluate how many shares we need to buy back to fulfill our 30% commitment at mid-cycle prices. With current elevated prices, we are generating more cash, which is why we have introduced the VROC, offering a blend of cash and shares with flexibility as we monitor both the market and macro conditions. We anticipate volatility; prices could shift significantly. The VROC is designed to accommodate this variability, and we plan to increase our cash and share buybacks accordingly. For the first quarter, the amount we plan to distribute reflects our bullish outlook for 2023.

That's great color. I appreciate that. And actually, before I get to my second question, I should have started out with this. But Jack, all the best to you and your family. I mean, we've worked together over the past decade-plus so it was a pleasure to work with you all these years and good luck. But my follow-up question then is looking at the opportunities that you all have in Norway, you look like you're progressing on Tommeliten and Eldfisk. Now can you give us a sense, is that more just a process of just maintaining production out there? Or is there an opportunity really to grow that and really part of sort of this global gas opportunity? Because I do believe it's a little bit more gassy in a lot of these new developments.

Yes. No, this is Nick. I'll give you a quick update on those developments. We've got actually 4 developments that are in progress, 2 operated and 2 nonoperated. You referenced Tommeliten, so we've got Tommeliten Alpha and Eldfisk North. Both of those are subsea developments that are all tied back to existing infrastructure. Even the two nonoperated are tied back to existing infrastructure. That means they're very low cost of supply. We're talking in the low teens, very competitive in the global portfolio. A couple of key milestones here recently as well. We just set our subsea templates on both Tommeliten Alpha and Eldfisk North and we'll start drilling later this year. All 4 of those will come online throughout 2024. But the way I view that is probably more offsetting base decline within the greater Eldfisk area as well as our partner-operated assets. But again, all four of those are very competitive.

Our next question comes from John Royall from JPMorgan.

So just on the CapEx increase, if you could maybe give a little bit of color on the split between the NOJV portion of it and the inflation piece. I mean, I know it's relatively small overall but that might be helpful. And then on the nonoperated JV piece, is there any way to think about your exposure there in the Lower 48? Maybe a percentage of production or a percentage of CapEx or anything that could help us there?

Yes. John, it's Dominic here. Just on this, the split of capital in terms of the increase of $300 million, $200 million is really related to inflation, and then about $100 million related to a change in working interest we're seeing in our OBO well mix. And I think probably we're seeing some of our partners may be doing a little bit of capital management and shifting their own working interest down, and that's causing us to go up with it. But they're still good wells. In fact, I'll maybe just ask Jack to comment a little bit on what we're seeing in our OBO program there.

Yes. We're very pleased with the results we're seeing. As I mentioned before, we have some longer lateral development going on in that OBO program. Some of those wells will cross over into next year and hopefully provide a little bit of momentum.

That's helpful. And then maybe just switching over to LNG. Just a little bit of color will be helpful on the Western Mexico opportunity with Sempra and how that could take shape and how we should think about potential timing there if you're getting involved relative to the 1Q target that I think Sempra has put out there for the Port Arthur FID.

Yes. I believe the West Coast has a longer timeline, and we have the opportunity to be involved in the expansion of the currently operating facility. They are converting the regasification part into a small liquefaction plant and exploring some expansion possibilities. Our heads of agreement with Sempra allows us to participate in that project in the future when they decide to build another train at the facility.

Our next question on line comes from Ryan Todd from Piper Sandler.

Maybe a follow-up on one of your earlier comments. In the Permian, it seems like you are indicating that the plan for 2023 will primarily maintain activity levels similar to the second half of 2022. If that's correct, do you have any early thoughts on what the volume trajectory in the Permian will look like during 2023? Are you encountering any issues, such as pricing pressures or tightness in the basin, that are making it difficult to execute your plans?

Yes, Ryan, we're very happy with our execution out there and feel that it's prudent right now to keep a steady amount of activity going into next year. And I would say our internal plans this year and going into next are very consistent with our long-term outlook on production out of the Permian and the Lower 48.

Great. As a follow-up on the cash returns, you've consistently indicated that your perspective on the dividend is tied to your longer-term sustainability outlook. Given the significant increase in the dividend, could you elaborate on how this reflects your view on the sustainability of commodities in the long term? Has your outlook improved, and is that evident in the dividend increase?

Yes, Ryan, I think we'll get a chance to talk more about that in our analyst meeting that we have that we talked about early in the spring of next year. But yes, basically, it's a longer-term view, given the dynamics that are going on in the market today. We've had a certain mid-cycle price that we've talked about over the last 4 to 5 or 6 years. And I think it is reflective that we think that mid-cycle prices have moved up a bit. And so as a result, we can afford more base dividend and reflective of the raise that we announced here in the fourth quarter.

Our next question comes from Paul Cheng from Scotiabank.

I have two questions, please. First, could you clarify the division between dividends and buybacks? In the third quarter, it was about 65% buyback and 35% dividend. Is this a reasonable expectation for the future, or should we not rely on that being your plan? My second question is regarding the Qatar LNG project. Congratulations on securing a stake in the North Field South. Can you share any capital figures? I understand your commitment for the North Field extension is around $900 million. Should we assume a similar amount for this project since it involves the same volume? Additionally, are the terms for North Field South comparable to those for the North Field expansion? Is there anything else you can divulge? Also, when will spending on North Field South commence, given that it seems it won't start production until 2028?

Yes, Paul, let me address those questions. Regarding the first part about our financial strategy, we typically consider a split of around 35% for dividends and 65% for share buybacks. However, we believe a 50-50 split between cash and share buybacks is reasonable as a starting point, although this could change depending on macroeconomic conditions. In terms of the Qatar LNG project, the North Field South trains will mirror the North Field expansion trains in scope and size, potentially with some adjustments for inflation due to their later start. So they will be very similar to the North Field expansion project. As for the timing, you're correct that we don't anticipate significant capital expenditures in the next couple of years for the North Field South project. Nick, is there anything you'd like to add?

Yes. To add to what Paul mentioned, regarding the North Field expansion, it represents a total net of $900 million for us. We will receive catch-up payments. Once the prerequisites are fulfilled, we will adjust for the energy related to COP share and the costs of the NFE project. This could occur early next year or even late this year, still totaling $900 million for the project. The startup for NFE is projected for 2026, while NFS will likely follow a year later.

Our next question comes from Raphael DuBois from Societe Generale.

Seen from this side of the pond, it looks like there is a bit of a trade-off between the industry increasing production of phase, windfall tax and/or extra tax on distribution. Can you maybe explain what projects you call sanctioned if you were better incentivized to increase production? Are there any resources that you could monetize faster if you received some sort of guarantee from the U.S. government in terms of permitting, as you mentioned in your remarks, or in terms of tax stability? That would be my initial question.

Thank you. I believe we are already growing our company, but we are currently dealing with issues like labor shortages, supply chain challenges, and inflation, which are affecting the industry's pace. Your question seems to focus on a medium- to long-term perspective. In the future, we will require more infrastructure to support the ongoing growth and development of U.S. shale, as well as to boost growth in Canada and possibly for exporting products to Mexico and Central America. The policy choices made by this administration are impacting these needs. To assist, it would be beneficial to provide more certainty around long-term permitting and fiscal stability to avoid significant changes in the tax structure, as these projects have extensive cycle times. The more uncertainty we introduce early on, the less likely we are to execute successfully. This is why I emphasized the importance of fiscal stability. Discussions about windfall profits taxes are not constructive at this moment, and we need more certainty regarding permitting. Additionally, for an energy transition to be successful, permitting is essential in the U.S., whether it involves onshore and offshore wind, solar installations, or high-voltage transmission lines. Therefore, we need relief in permitting to have any hope of successfully navigating an energy transition and implementing comprehensive energy strategies. These topics are crucial as we consider the next several years and the future of our business.

Great. My second question is Total Energy has recently announced that they will spin off their operations in Surmont and other assets. And I was wondering if you could tell us what it might change for the way Surmont is run and whether it's something you could also consider to lower your GHG emissions intensity.

Yes, Raphaël. Maybe I'll start with the way we look at Surmont is that we obviously value Surmont greatly. It's a low cost of supply, low capital intensity asset that's in our diverse portfolio. Again, it offers up stable level-loaded production with a significant resource position out there. We've continued to transform that asset through technology applications, piloting emission reduction opportunities, including joining the Pathways Alliance, which is 6 like-minded companies coming together to lower emissions from the overall oil sands industry, net zero by 2050. The asset continues to perform extremely well. Actually, back in September, we hit a record production day of 158,000 barrels a day gross. So we see this as staying in the portfolio. With respect to Total's SpinCo or NewCo plans, we're continuing to understand what that looks like and I can't comment further beyond that.

I would say, Raphaël, it does nothing for global emissions what Total is trying to do.

Our next question comes from Jeoffrey Lambujon from Tudor, Pickering and Holt.

My first one is just on portfolio management on the acquisition strategy. I know you've talked about bolt-ons as more of the focus, and we're obviously seeing that quarter-to-quarter. But wanted to get any updated views you might have on the environment as you see it for larger deals, particularly for upstream assets in the Permian. I don't know that the cost of supply framework continues to be kind of the focal point in assessing those in terms of what opportunities would need to hurdle. But anything you'd say just around what you see today and where results in your appetite might be, particularly in the Permian would be great, just given the position you've assembled there over the years.

Yes. Maybe I can start and then I'll ask Jack to comment on it as well because I know his team has been very active in this space over the last 1, 1.5 years. We continue to look for opportunities to bolt-on acquisitions. We mentioned one. It was a small opportunity in the Eagle Ford to core up what we were doing there, so we went ahead and did that. But a lot of focus is going on what we're doing in the Permian and let me let Jack kind of describe a little bit about what we're doing there.

Sure. Thanks, Ryan. Yes, we're always opportunistically looking to add to our core areas. And as we've talked about in previous calls, we find the highest value right now in swaps and trades. The team has completed about 20 of these, and that approaches 30,000 acres or so, and that allows for longer lateral development and lower cost of supply development. So in addition to those 20-ish deals, we have about that many or more in the pipeline.

Perfect. Appreciate that. And then lastly just on the disposition side. I think the last time you all tallied up, it's been done since setting the target for the end of next year was, with last quarter's earnings, about $2.4 billion. Would the noncore sales in today's press release be incremental to that or is that included? And then, I guess, bigger picture, it seems like Lower 48 noncore positions represent kind of the main opportunities there, it looks like or at least half over the recent past. Is that the right way to think about some of those priorities going forward?

Yes, Jeff. This is Dominic. Since we closed the Concho and Shell transactions, we aimed to clean up our portfolio. We have sold $2.4 billion in assets, which includes $0.3 billion from this quarter. We're pleased with this outcome as it involves our priority assets for sale, which are typically very mature, low-margin, or high-cost supplies. This includes assets in Indonesia, the high H2S Builder Madden, and some legacy assets in the Central Basin platform, among others. We are satisfied with the monetization of these assets in a strong market. Moving forward, we are back to normal high-grade opportunities as usual. We are not focusing on any specific targets at the moment and are content with our current position. We will continue to look for opportunities, but we are happy to have essentially completed the key cleanup we intended to do following those two significant transactions.

Our next question comes from Neal Dingmann from Truist Securities.

And again, Jack, I'm thinking of you and your family. I hope everything goes well. Ryan, my first question is about the current focus on shareholder returns and capital allocation. Specifically, is there any change in your approach to shareholder returns, particularly in terms of buybacks, as you look to potentially accelerate your growth opportunities? I mention this considering the stock has reached an all-time high and recognizing the amazing high return opportunities you have.

Thank you, Neal. We have tried to clarify this in our release. While we recognize the potential to increase our activity in the Lower 48, it doesn't seem prudent to pursue that at this time given the current environment. Our focus right now is on operating stable and efficient programs. We do see potential for investment in medium- and long-term projects, such as Willow, Sempra, and the Qatari initiatives. We understand that, as an industry, we will need to ensure long-term supply, and we believe these projects are crucial. Our company's diverse global portfolio offers opportunities that have low supply costs and align with our goals for reducing greenhouse gas emissions. These assets will be vital for us to invest in to secure long-term supply.

Great to hear. My second question is for Jack regarding the Permian, specifically the former Shell assets that were acquired about a year ago. I'm curious about how the well returns you have been experiencing compare to the initial expectations from over a year ago. Additionally, are you utilizing the approximately 600 miles of pipeline that is available?

Yes. Thanks, Neal. Well, in general, we're very happy with that deal. It's fully integrated. I think we mentioned last quarter, we started to bring on some of the initial projects with our style of drilling and completion, and that continues. The results are at least as strong as we had anticipated. And then on the other piece of that, the OBO, as I mentioned before, so far, an upside to the deal has been that we have seen lateral lengths extended by our partners and that's better for everyone. So we'll continue to do that. But right now, it's completely folded in and business as usual.

Operator, I think we have time for one more question.

Our next question comes from Leo Mariani from MKM Partners.

Wanted to quickly follow up around some of your prepared comments. You certainly discussed the LNG deals that you've entered into. And you kind of alluded to the fact that there's some nice benefit with your kind of U.S. production base, I guess, particularly for the Port Arthur project. Just as you're thinking about that, I mean, do you think there's obviously an ability to kind of hold some of those volumes into that in the next couple of years? And would you anticipate maybe trying to kind of increase some of your gas production as you look out into the middle of this decade to kind of take advantage of that as feedstock?

We believe that the gas resource in the U.S. is abundant. However, I wouldn't consider it as a physical integration of our assets. The U.S. market is large and liquid, and our goal is to stimulate demand to make use of this resource, which we see as substantial. We aim to be involved in the liquefaction, shipping, and regasification processes as we transport it to higher-value markets globally.

Okay, that makes sense. And I guess, you also talked in your prepared comments about having to kind of start some of this medium-term major project capital in 2023 that we should kind of layer on top of this kind of second half '22 annualized spend, if you will. Is it possible to offer any order of magnitude on this? In this major project spend, are we talking kind of in the hundreds of millions or potentially could this be north of $1 billion?

Well, I think it's certainly, as Nick described in terms of some of the nuances on Willow, will we get started? Will we won't? Do we have to do an upfront payment? How big is that for Qatar? So it's a little bit early for us to be kind of telegraphing what an absolute. We're just saying these are projects that make sense for us. We're going to fund them. We're going to lean in on some of these medium- and longer-cycle projects. We think the world needs them. Again, the returns back to shareholders aren't going to suffer because our value proposition is based on CFO. So it's not based on free cash flow.

As we have no further questions, I will now turn it over to Phil for closing comments.

Thanks, operator. So this will wrap up the call today. If you have any questions, Investor Relations is around and we appreciate your time today.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.