Welcome to the Fourth Quarter 2023 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Phil Gresh, Vice President, Investor Relations. Sir, you may begin.

Thank you, Liz. And welcome everyone to our fourth quarter 2023 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Tim Leach, Advisor to the 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 Lower 48; Andy O'Brien, Senior Vice President of Global Operations; Kirk Johnson, Senior Vice President, Lower 48, Assets and Operations; and Will Giraud, Senior Vice President, Corporate Planning and Development. Ryan and Bill will kick it off with opening remarks, after which the team will be available for your questions. A few quick reminders. First, along with today’s release, we publish supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will make forward-looking statements based on current expectations. Actual results may differ due to factors noted in today’s release and in our periodic SEC filings. 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. And third, when we move to Q&A, after the prepared remarks, we’ll be taking one question per caller. With that, I will turn it over to Ryan.

Thanks, Phil. And thank you to everyone for joining our fourth quarter 2023 earnings conference call. It was another strong quarter for ConocoPhillips as the team continued to execute on its commitment to deliver returns to our shareholders. Now, stepping back and looking at 2023, ConocoPhillips demonstrated solid execution across all aspects of our triple mandate. We reported record production and achieved several milestones across our global asset base. And we delivered a preliminary reserve replacement ratio of 123%, highlighting our ability to continue to replace reserves across our deep, durable, and diversified portfolio. We’re also progressing several key strategic initiatives. We advanced our global LNG strategy through expansion in Qatar, FID at Port Arthur, and several offtake and regasification agreements. We FIDed the Willow project in Alaska and have been ramping up construction this winter season. And we opportunistically acquired the remaining 50% of Surmont at an attractive price that fit our financial framework. We were able to accomplish all of this while delivering our returns-focused value proposition to our shareholders. We generated a trailing 12-month return on capital employed of 17% or 19% on a cash adjusted basis. We also delivered on our plan to return $11 billion of capital to our shareholders, which was well in excess of our greater than 30% annual through-the-cycle commitment. Last spring, we further strengthened our GHG emissions intensity targets to a 50% to 60% reduction from a 2016 baseline. And we were recently awarded the Gold Standard Pathway designation by the Oil and Gas initiative part of the Methane Partnership 2.0. Now looking ahead to 2024, this morning, we announced a plan to distribute $9 billion to shareholders this year. We also announced a VROC of $0.20 per share for the first quarter. The remainder of our cash flow will be reinvested into the business as we continue to execute on our plan to grow earnings and cash flows as we outlined at our Analyst and Investor Meeting last year. In conclusion, once again, I’m proud of the accomplishments of the entire organization. Our portfolio is well positioned to generate competitive returns and cash flow for decades to come. Now let me turn the call over to Bill to cover our fourth quarter performance and our 2024 guidance in more detail.

Thanks, Ryan. In the fourth quarter, we generated $2.40 per share in adjusted earnings. We produced 1,902,000 barrels of oil equivalent per day, representing 4% underlying growth year-over-year. This was consistent with our full-year 2023 underlying growth rate of 4% also. Fourth quarter Lower 48 production averaged 1,086,000 barrels of oil equivalent per day, which represented 9% underlying growth year-over-year. We produced 750,000 from the Permian, 211,000 from Eagle Ford, and 110,000 from the Bakken. Full-year 2023 underlying growth for the Lower 48 was roughly 8%. Moving to cash flows, fourth-quarter CFO was $5.5 billion, and this included APLNG distributions of $281 million. Fourth quarter capital expenditures were $2.9 billion, which included $573 million for longer cycle projects. Full-year capital expenditures were $11.2 billion, which included $2 billion for longer cycle projects. Now regarding returns of capital, we delivered $11 billion to shareholders in 2023. For the fourth quarter, we returned $2.5 billion. This was via $1.1 billion in share buybacks and $1.4 billion in ordinary dividends and VROC payments. We ended the year with cash and short-term investments of $6.9 billion, as well as $1 billion in long-term investments. In the guidance, we forecast 2024 production to be in a range of 1.91 million barrels of oil equivalent per day to 1.95 million barrels of oil equivalent per day. This translates to 2% to 4% underlying growth pro forma for acquisitions and dispositions. We expect this growth to be well balanced between both Lower 48 and International. Our full-year forecast includes turnaround impacts of 25,000 barrels per day to 30,000 barrels per day, which is about 10,000 barrels per day higher than in 2023. Now turnarounds are expected to be concentrated in the third quarter when Surmont completes a one-month turnaround and that turnaround occurs once every five years. For the first quarter, production guidance is in a range of 1.88 million barrels of oil equivalent per day to 1.92 million barrels of oil equivalent per day, a roughly 1% to 3% underlying growth. While the first quarter will have minimal turnarounds, similar to the fourth quarter, it does include a 20,000 barrel per day headwind from January weather impacts. For APLNG, we expect distributions of $400 million in the first quarter and $1.3 billion for the full year. Now shifting to cost guidance, we see full year adjusted operating costs in a range of $8.9 billion to $9.1 billion, representing essentially flat unit costs on a year-over-year basis. Full-year cash expiration expenses are expected to be $300 million to $400 million, and DD&A expenses are expected to be in a range of $9.4 billion to $9.6 billion. Full year adjusted corporate segment net loss guidance is $1 billion to $1.1 billion. And for taxes, we expect our effective corporate tax rate to be in the 36% to 37% range of strip prices, excluding any one-time items and with an effective cash tax rate in the 33% to 34% range. For capital spending, our full-year guidance range is between $11 billion to $11.5 billion, which includes $200 million to $300 million of capitalized interest.

Thanks, Doug. I’ll let Dominic roll in. He can give you some specifics around the breakeven, but at our mid-cycle price kind of deck, I think it’s pretty consistent with what we laid out at AIM. And I can let Dominic give you a few more details to answer that question more specifically.

Yeah. Good morning, Doug. So maybe starting with our free cash flow breakeven, I take you back to our analyst meeting last April for our 10-year plan. At mid-cycle prices, we highlighted our free cash flow breakeven averages about $35 WTI. That is higher through the first half of the plan, as you mentioned, as we have the sort of pre-productive capital in the first half of the plan and then lower during the second half of that 10-year plan as those projects increasingly come on stream. So that’s our free cash flow breakeven. And for our dividend, you would add an additional sort of $8 to $9 on that right now.

Yeah. Sure. We’re really happy with where we’re at on the balance sheet right now, Doug. So, we exit the year with $6.9 billion of cash and $1 billion worth of long-term investments, like I mentioned. Our net debt-to-CFO ratio is in a really good spot. We’re at 0.5 turns and that’s post-Surmont. So we’re quite happy where the balance sheet is at right now. And having a strong balance sheet is a strategic asset for the company. We continue to view it as such and that’s fundamentally one of the reasons why we feel really good about $9 billion of distributions this year.

Yeah. In light of arguably a softer commodity price relative to where we started in 2023.

Yeah. Thank you. Good morning. I guess I’d like to…

Good morning.

Could you share your thoughts, Ryan, on the M&A side? Good morning. You completed the Surmont transaction last year, and there are still transactions in progress. How do you view your cost of supply approach for any potential acquisitions, whether in the Lower 48 or elsewhere?

Yeah. Roger, I appreciate you. There’s obviously a lot of M&A activity going on. There’s a lot of pricing in our business and we’ve said that all along that we think there’s going to be more even yet to come as we think about the consolidation that’s needed in the business. Our approach hasn’t changed. Our approach is, we think about cost of supply, we think about the framework that we’ve laid out to the market over the last four years or five years. That’s how we’ve executed some of our M&A activities. So, again, it’s got to fit that financial framework, how we think about mid-cycle price. It’s got to make our 10-year plan better. The plan that we outlined to the market last year, we think is pretty strong and it’s underpinned by a low cost of supply, diverse asset base. So, we’ve got to see a way to make that plan better through any inorganic M&A and then, finally, we’ve got to see a way to make the asset better and that’s really dictated how we’ve approached M&A over the last number of years, and I think, as we think about it going forward, that approach is consistent.

Good morning, guys, and thanks for taking my question. Ryan or Bill, I don’t know who wants to take this one, but you reduced the cash return target from $11 billion to $9 billion. Last year, it was very evenly distributed between your dividends, both the fixed and the variable, and the buyback. How should we think about the mix across those three channels in 2024?

Yeah. So, first, we think the most important thing continues to be the total quantum of distribution. That’s what we focus on. We think that that’s what matters most. And we’re really happy to start the year with an initial plan to return $9 billion to shareholders. Now, when it comes to mix, we look at a number of different factors and commodity prices, our own stock price, and other considerations. And so, for 2024, you’ve seen that we’ve shifted our mix to be a bit more weighted towards buybacks, about 60% of our total plan distributions, that would put our buybacks essentially flat with what we spent in 2023 at about $5.3, $5.4 billion, and we continue to like the value of our shares. So, against that, the total cash component represents about 40% of our expected distributions, and that’s with $0.20 per share on VROC and we think that represents a really solid mix of both cash and buybacks. As we’ve always said, VROC provides a really flexible tool to achieve our distribution targets as prices adjust through the cycles. It’s continued to serve us well in balancing our mix.

Good afternoon, everyone, and thanks for all the detail so far. Ryan, I was hoping just to get your thoughts on the administration’s LNG pause and then in particular Conoco’s positioning and maybe whether it has any impact on your plans or your capital going forward?

Thanks, Lloyd. I can respond and perhaps ask Bill to add some more details. It's unfortunate that this situation appears to be more politically motivated than based on fundamentals, but we feel fairly confident. It gives us more confidence in our LNG initiatives due to our existing permits. I believe it's a short-sighted approach in the near term, and hopefully, it will be resolved in the long term. Bill can provide additional specifics on our plans for Port Arthur Phase 1 and Phase 2 and how we are considering the implications of the recent announcements.

Yeah. Sure, Ryan. We’re really pleased that Port Arthur Phase 1. It’s fully permitted. It’s got not only its free trade agreement permit, but its non-free trade agreement permit. It’s got environmental permits in place. So we’re quite pleased to be investing in Port Arthur Phase 1. We think that actually what you’re seeing right now makes that more valuable. So it’s a good fit in our portfolio. We’re continuing to look at developing a diversified portfolio of offtake. We remain interested in a number of LNG opportunities because we think the market’s going to be strong for decades to come. We’re focusing on low cost supply, low greenhouse gas intensity resources that meet that transition pathway. And you saw us last year announce 2.2 million tons from NPL at Saguaro, and in the fourth quarter, we signed 0.2 million tons off of Sempra’s ECA project on the west coast of Mexico for five years. So we’re continuing to look for opportunities that really fit that framework. But regarding your question on permitting right now, Port Arthur’s in a great spot.

Hi. Thanks for taking my question. So my question’s on Willow. You have the sanction out of the way now, and even post-sanction, we’ve seen some news flow around lawsuits, which I assume you have some confidence in as an organization that won’t cause any delays, but maybe you can confirm that. And then beyond that, maybe you can just speak to the construction plan for the year and what you’re hoping to accomplish in terms of the progression of the build in 2024 specifically.

Hey, John. This is Andy. I can take that question. So, yes, it’s pretty nice to also be at a point now where we can start talking about the project and not just give you a legal update. But we will, given your question, I’ll start with a bit of a legal update, because as you mentioned, we had a fair bit of positive activity in the fourth quarter on that front. So just to sort of summarize where we are right now is that, we’re very pleased that both the Alaska District Court and the 9th Circuit allowed construction work to proceed on the North Slope. And then separately, the Alaska District Court upheld the legality of the ROD issued by the BLM. So, as you mentioned, this is currently being appealed to the 9th Circuit. But as we said before, we believe the BLM and the cooperating agencies conducted a really thorough process that satisfied all the legal requirements for them to grant their approvals. So these positive rulings gave us the certainty to make the FID decision. Now then, in terms of the second part of your question on execution itself, since taking the FID, we’re really pleased with how quickly we’ve ramped up the activity. We’re now into our second winter construction season on the North Slope. And we’re mobilizing 1,200 workers right now who are going to be building gravel roads, gravel paths for the facilities and beginning laying pipelines. We’re also making some pretty significant progress with our modular facility fabrications. So we do expect 2024 capital to be in the upper end of the previously communicated annual ranges of $1 billion per year to $1.5 billion per year. But our estimate for the capital to first production remains unchanged at $7 billion to $7.5 billion. Now just to give you a bit more color in terms of the progress, we’re now at a point where we have three quarters of the project scope under firm contract and expect to have 90% of that under contract by the end of 2024. And of those contracts that we’ve issued so far, 70% are either lump sum or unit rate contracts and then these kind of contracts, we’ve agreed a price now, so we have limited exposure to future inflation. So it’s still very early, but with all major projects, it’s really important we get off to a fast start. And we’re really pleased that that’s exactly what we’re doing with Willow. So just to wrap it up, it’s great to see at this point now our team’s in full execution mode, focused on actually building Willow.

Good morning. Thanks for taking my question. My question is more kind of how you’re thinking about production growth. You certainly have laid out pretty what I call a stable, a flattish plan for the year, for first quarter for the year. I guess kind of two questions around that. One, if you continue to be more efficient as you have been, would you take those savings and plow back to the ground and boost production a bit more or would those savings go back to the shareholders in some fashion? And then secondly, a couple of your large peers continue to be growing even a bit more than you in the firm and I’m just wondering how you view sort of from a macro position your responsibility when it comes to production growth?

Sure, Neal, it’s Dominic here. First, I’ll address the activity question. We're keeping our Lower 48 activity consistent this year compared to last year. We appreciate that and are seeing some modest growth, focusing heavily on efficiency. If we become more efficient and have some capital flexibility, I suspect we would maintain flat production because our priority is efficiency, and we don't want to alter our programs significantly. Regarding overall growth, it's an outcome of our strategic plan; we’re not pursuing growth for its own sake but prioritizing returns. We're content with this modest level of growth, which aligns with what we stated at AIM. As for the overall outlook, as Bill outlined in his remarks, we anticipate underlying production growth of 2% to 4% this year compared to last year. Notably, this growth is not just from the Lower 48 but also from our International portfolio, showcasing its diversity. Additionally, we have the 50% interest in Surmont contributing to this organic growth. In terms of growth distribution throughout the year, we expect steady year-over-year growth each quarter, except for Q1, where weather impacts will reduce output by about 20,000 barrels a day. In Q3, we'll face turnaround impacts estimated at 25,000 to 30,000 barrels a day, primarily from a month-long turnaround at Surmont, which occurs every five years. Overall, we are very satisfied with the sources of our growth, the growth level itself, and our commitment to maintaining a steady, stable program focused on efficiency.

Yeah. And I just reiterate, we just don’t want to whipsaw the team’s either up or down. We just like the constant pace of the execution and find that gets the efficiencies at a maximum, gets our returns. It really maximizes our returns.

Thanks, everybody. So I just wanted to touch on the Montney. This is one of the key growth areas that you had highlighted back in April last year. You mentioned the processing facilities started up in the back half of the year as well. I know it’s 60% liquids, but how has the lower natural gas price environment changed the way you’re thinking about development there? And along those same lines, I know there’s only a small uptick in Canadian spend for the year. I figured that might be related to Surmont more than this. So any help there would be great? Thanks.

Hi, this is Andy. Regarding your question about natural gas, it doesn't affect our long-term development plans. We have a position in Surmont where we use natural gas, so that doesn't change our Montney development plans. In terms of our progress on Montney, we are ramping up this year and have just started the second rig. For context, our full year 2023 production was around 24,000 barrels a day, and we averaged 33,000 barrels a day in the fourth quarter. We expect that to grow throughout the year. The modest increase in CapEx you're seeing in Canada is due to additional equity in Surmont and the addition of the second rig for Montney.

Yeah. Good morning. I was looking at the triple-digit organic reserve replacement ratio and wondering some of the moving parts and kind of curious what impact did the sanctioning of Willow play on that?

Hey, Bob. Dominic. Yes. We are very pleased to report strong organic and total reserve replacement again this year, with significant contributions from across the portfolio. On the organic side, the Lower 48 is performing well, with our resource development plans pushing its organic replacement ratio well above 100%. We’re also seeing contributions from Montney. The Willow project is particularly strategic for us. Typically, with major projects, we have an initial booking and then book additional amounts as the project progresses. Our initial booking for Willow was approximately 160 million barrels, which is what we book upon sanctioning. As we continue to develop the wells and the project, we expect to move toward our base case resource estimate of 600 million barrels for Willow. Overall, we are seeing very positive results. Additionally, in terms of total reserve replacement, when we factor in acquisitions and divestitures, we benefit from about 200 million barrels of reserves associated with the Surmont 50% acquisition. This marks another year of strong total reserve replacement for us, which is encouraging.

Hi. Thank you for the detailed information today. I have a follow-up regarding Lower 48 capital. You've mentioned some deflation, primarily driven by consumables and commodities. Ryan, you indicated that activity levels have significantly decreased during the second half of 2023. I'm curious about your thoughts on where we might be in the lifecycle of this deflationary trend in Lower 48, and whether this situation presents opportunities to extend capacity and gain more clarity on the spending plan, considering, as you noted, that you won't be shifting activity in different scenarios. Thank you.

Yeah. Sam, I can let Nick follow up on some of the details. But, certainly, we look at any opportunity to term out things when we see that opportunity. And I think the service side of the business, I think, likes ConocoPhillips because our plans don’t change and we have consistent execution and consistent rate counts and frac spreads and all the other support activity that goes with the business. And the deflation, it’s kind of a tale of a couple different areas and certain commodities to spend. But I can let Nick chime in specific to the Lower 48 there.

Yeah. Sam, like Ryan was mentioning, again, you look at our activity level, it’s flat to 2023, so stable rigs, stable frac crews, and the teams are really just focusing on driving operating efficiency, capital efficiency. And then capturing that deflation, as you mentioned, as we showed in the prepared slides that we posted, and it’s going to range across a number of spend categories. So we’ve got OCTG, we’ve got some propent, as well as rig horsepower. We’ll look at all of the contracts across our vendors and see if we want to turn them up. Typically, we’re looking at well-to-well, pad-to-pad as far as rigs, little longer-term contracts on our frac spreads, especially the e-fracs. But the key thing for us is really just focusing on operating efficiency and capital efficiency with the level loaded steady-state program that we have in 2024.

Thanks. Maybe if I could ask on a couple of the Lower 48 assets, the yield for production has been declining over the last few quarters in 2023. What’s the right way for us to think about direction of production there? Is the goal to hold it flat or modestly decline or grow going forward? And maybe the same question for the Bakken?

Yeah. Ryan, just talk first on Eagle Ford. When you look at Q3 to Q4, we had that 9% production drop. That met our type curve expectations. There’s no productivity issues or operational concerns there. It was a conscious decision. As we looked at the second half of 2023 and as we’ve talked about, the completion efficiencies are actually outpacing our drilling efficiency. So it’s a good problem to have. So we’ve worked down through kind of our working level of ducks and decided on the second half of 2023 to take what I call an operational frack gap. So we built some ducks in that period of time and then reinstated late 2023 the frack group. So it’s really intentional, really good performance from the Eagle Ford going forward. Bakken, very similar. We’ve hit some production records. You think about a legacy asset like the Bakken, we were hitting 110,000 barrels equivalent per day. We’ve got a long level of inventory. We’ll have a steady program up there as well.

Hi. I just wanted to return to the questions. I think people have circled around a little bit on the Permian. You’ve mentioned supply chain costs and sort of wrap it up with efficiency, because I guess last April you presented these cost of supply numbers that include some forward assumptions about cost and efficiency. I just wanted to get a sense of where you think you stand relative to those assumptions, i.e., the Permian moving up, down or sideways on your cost of supply?

Yeah. I’ll first talk about just the overall efficiency assumptions that we have and what we’re seeing out in the field. To remind you on both Drilling and Completion, we continue to see step changes in both the drilling side, as well as the completion side. Probably differential on the completion efficiencies, as I just mentioned, related to Eagle Ford. And we’re leveraging all of the different kind of suite of opportunities to improve those frac efficiencies and drilling efficiency. I’ll just mention a few. And the key thing here is that we’re continuing to see improvement kind of quarter-to-quarter, year-to-year. And that manifests itself into essentially a 10% to 15% improvement in our pumping hours per day, year-to-year. A couple items that we have out there, we continue to deploy simulfrac across the Board, but also super zipper down in Eagle Ford. We’ve had really good success of this particular application or we can hook up, for example, on a four-well pad, we’ll hook up all of the wells and if we have any operational downtime, we can quickly move from well-to-well and have high pumping hours, and therefore, more stages per day. So that’s been really successful. On the drilling side, we’ve deployed that real-time drilling intelligence group out in the Permian. We’ve got the entire rig fleet that we’re monitoring 24x7 where we can optimize the plan, we can troubleshoot, and we can steer the wells and we’re seeing really promising results, 10% improvement in rate of penetration there. So combined through all of that, we are seeing improvement in those efficiencies. And again, 10% to 15% improvement in pump hours per day, as I mentioned on the collision side.

Thank you. Good morning, guys.

Good morning, Paul.

I think this maybe is for Phil or maybe it’s for Ryan. Ryan, you have said that the industry will need more consolidation and you have proven in the past that you are not shy in doing your share. For the right deal, when you’re looking at your balance sheet today, how much are you willing to put on the debt or how much are you willing to stretch your balance sheet from that standpoint if it is the right deal? Is there a number or a ratio or anything that you can share so that at least we get some better understanding? And from a balance sheet standpoint, the $9 billion of the distribution for this year, is there a fixed amount or that it will fluctuate based on the commodity prices, either better or worse than your current assumption? Thank you.

You raised a couple of points, Paul. First, regarding the $9 billion, as we mentioned in our release, it's just a starting point. We understand that commodity prices can be quite volatile, both increasing and decreasing. We've seen WTI prices close to 60 and then 80, so consider the $9 billion as a baseline. There's a strong assurance that we’re above our mid-cycle price and our commitment to return 30% of capital to shareholders. Our history supports this, so there’s confidence that we will adapt as necessary. As for the second part, we view our balance sheet as a significant asset for the company. We'll maintain an A credit rating, and our balance sheet is robust, with a net debt to cash ratio of 2.5. Being in this strong position allows us the flexibility to manage through volatile commodity prices while still investing in company growth and distributing the starting amount of $9 billion. On the mergers and acquisitions front, it depends on the opportunities that align with our financial criteria. If opportunities arise that can enhance our 10-year plan, we are open to pursuing them, but each will be evaluated individually. For example, funding Surmont with some debt was a strategic choice for that asset. We have also utilized cash and other methods for acquisitions. Therefore, it's difficult to predict our approach without knowing what opportunities may come up.

Hi, guys. You talked about having some pretty decent International growth this year, well above the Lower 48, which is obviously a nice contributor as well. It sounded like some of that’s coming from the Montney in Canada. Can you maybe just detail some of the other International growth that you’re seeing? I imagine there could be some chunkier projects that might be coming online during the year. Is there any call around that would be helpful?

Yeah. Sure. This is Andy. I can take that question. We actually discussed this one in a bit of detail on our last quarterly call and you’re right, we do have some good momentum on the Alaskan international projects. But just to give you a feel about where they’re coming from across the portfolio, sort of in Norway we achieved first production ahead of schedule in three of the four subsea tiebacks and the fourth one is expected to come online as planned in the second quarter. In China, our partner brought the first Bohai Phase 4B platform online in October and then the second one came on in December. Also in December, we achieved first off on Pad 267 in Surmont and we expect to gradually ramp that up over the coming months. And as I previously discussed, in Montney, the start of the CPF2 really has allowed us to start ramping production there. In the third quarter, we expect to see growth in 2024 in the Montney from the CPF2 and also the second rig. So we’re really happy with sort of the spread we have across Alaskan International with where the growth is coming from, and I think, as we said in one of the earlier questions, that ANI is going to be providing a significant part of the total company growth this year.

Thank you. We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.