Welcome to the First Quarter 2025 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 first quarter 2025 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; Andy O'Brien, Senior Vice President of Strategy, Commercial, Sustainability and Technology; Nick Olds, Executive Vice President, Lower 48; and Kirk Johnson, Senior Vice President of Global Operations. Ryan and Bill will kick off the call with opening remarks, after which the team will be available for your questions. For the Q&A, we will be taking one question per caller. A few quick reminders. First, along with today's release, we have published 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. And we will make reference to some non-GAAP financial measures. Reconciliations to our nearest corresponding GAAP measure can be found in today's release or on our website. With that, I will turn the call over to Ryan.

Thanks, Phil, and thank you to everyone for joining our first quarter 2025 earnings conference call. Before we cover the details of our first quarter results, I want to make some comments on the macro environment. Clearly, the current environment is marked by both uncertainty and volatility. Outlooks for global economic growth and oil demand have been revised lower. On the supply side, OPEC plus is unwinding voluntary cuts quicker than expected. And as a result, oil prices have softened relative to the first quarter. However, the ultimate depth and duration of this current price environment remains unclear. ConocoPhillips is built for this with clear competitive advantages. We have a deep, durable, and diverse portfolio. We have decades of inventory below our $40 per barrel WTI cost of supply threshold, both in the US and internationally. Our advantaged US inventory position should become increasingly evident as the market sorts through the inventory haves and have-nots in the current environment. We believe we are the clear leader of the haves. We have a disciplined capital allocation framework that is battle-tested through the cycles. Our integration of Marathon Oil is progressing ahead of schedule. We are finding additional opportunities to enhance capital efficiency and reduce costs across the entire organization, as reflected in our updated guidance, which includes about a $0.5 billion reduction to our capital spending and a $200 million reduction in operating costs, while keeping our production guidance unchanged. So we are delivering the same volume for less capital and reduced operating costs. We will keep working to further advance this plan as the year progresses. We have flexibility in our capital program we could exercise should conditions warrant. We've been here before and we know how to manage through a more challenging environment. With respect to return of capital, we distributed $2.5 billion to shareholders in the first quarter. Our shares represent a very attractive investment at these prices, and we will continue returning a significant portion of our cash flow to our shareholders, consistent with our long-term track record of distributing 45% of our annual CFO. While I recognize the current focus is on the near-term macro uncertainties, we are playing the long game. Our fundamental long-term value proposition is truly differentiated. We have a deep, durable, and diverse portfolio with decades of high-quality, low-cost supply inventory to develop. We are on the cusp of a compelling multi-year free cash flow growth trajectory, led by our high-quality, longer-cycle investments in Alaska and LNG. This underlying improvement in our free cash flow will structurally lower our breakeven and increase our capacity to return capital to shareholders. Finally, you'll also have seen our announcement this morning that Bill Bullock has decided to retire after 39 years of service to the company. Andy O’Brien will take over as CFO. Bill has been an outstanding colleague and an integral part of our executive leadership team. I know you will all join me in congratulating Bill on an exemplary career and wishing him well in retirement. Now, I'll hand it over to Bill for the last time to cover our first quarter performance and 2025 guidance in more detail.

Well, thanks, Ryan. Shifting to our first quarter performance. We started 2025 with another quarter of strong execution across the portfolio. We produced 2.389 million barrels of oil equivalent per day, exceeding the high end of our production guidance for the quarter. In the Lower 48, production averaged 1.462 million barrels of oil equivalent per day, with 816,000 in the Permian, 379,000 in the Eagle Ford and 212,000 in the Bakken. Internationally, production continued to ramp up at Surmont Pad 267 in Canada and Nuna in Alaska. We completed the largest winter construction season at Willow, achieving critical milestones. Regarding first quarter financials, we generated $2.09 per share in adjusted earnings. First quarter CFO was $5.5 billion inclusive of $200 million of APLNG distributions. Operating working capital was a $650 million tailwind in the quarter, benefiting from the previously guided one-time cash tax benefit associated with the Marathon acquisition, as well as changes in accounts receivable and accounts payable. Capital expenditures were $3.4 billion. On return of capital, we returned $2.5 billion to shareholders, including $1.5 billion in buybacks and $1 billion in ordinary dividends. That represents 45% of CFO returned in the quarter, consistent with our long-term track record. We ended the quarter with cash and short-term investments of $7.5 billion plus $1 billion in long-term liquid investments. Our full-year production guidance remains unchanged. We still expect to deliver low single-digit production growth with this lower level of capital spending. For the second quarter, we expect production to be in a range of 2.34 to 2.38 MBOE per day, including approximately 40,000 barrels per day of planned turnarounds. We expect the second quarter to be our peak turnaround activity for the year, with the triennial turnaround at Ekofisk Norway and a turnaround in Qatar. Third quarter turnarounds should be around 25,000 barrels per day, primarily in Alaska. For capital, we now expect to spend between $12.3 billion and $12.6 billion for the full year, about $0.5 billion lower than our prior guidance of approximately $12.9 billion. This is the result of continued capital efficiency improvements and plan optimization. Second-quarter capital should be similar to the first quarter and then decline materially over the back half of the year. On adjusted operating costs, we have lowered our guidance range by $200 million, to $10.7 billion to $10.9 billion primarily due to ongoing cost optimization efforts. We expect our full-year effective corporate tax rate to be a bit higher than prior guidance of 36% to 37% excluding one-time items, due to geographic mix. We expect an effective cash tax rate to be roughly in line with book tax, a function of discrete items in the first quarter. Full-year APLNG distributions are now expected to be $800 million primarily due to lower pricing. From a timing perspective, we expect the remaining $600 million of distributions for this year to be in the third quarter with no APLNG distributions in the second or fourth quarter. We expect a modest use of cash on a full-year basis, including an operating working capital outflow of $800 million in the second quarter related to normal timing of tax payments, as well as the unwinding of the $800 million investing working capital tailwind from the first quarter. To wrap up, ConocoPhillips had a strong start to 2025. The teams executed well operationally. We continue to improve our plan and deliver on our strategic initiatives across our deep, durable and diverse portfolio. Amid a more volatile macro environment, we remain focused on delivering competitive returns on and of capital to our shareholders, while maintaining our A-rated balance sheet. Our long-term value proposition remains compelling with a differentiated free cash flow growth trajectory and the strongest Lower 48 inventory position of any operator.

Thank you. We'll now begin the question and answer session. In the interest of time, we ask that you limit yourself to one question. Our first question comes from Neil Mehta with Goldman Sachs.

Bill, congratulations to you on 39 incredible years. And Andy, congratulations to you as well. In your honor, Bill, let's ask a return of capital question and cash flow question, which is you guys had $2.5 billion of capital return in the first quarter, very much tracking towards the $10 billion number. We're obviously in a softer commodity macro than we were in the first quarter. But do you still view the $10 billion as an attainable number? Given the fact that you acknowledge the stock is undervalued, would you be willing to take on debt in order to support the shrinking of the share count?

Yeah, let me take that one, Neil, and thanks for the shout-out for Bill. He's been an integral part of our team and with me for a long period. So I thank him a lot for all his support. Let's step back for a minute, Neil, just a little bit. CFO-based distribution framework has been unchanged for a number of years. As you pointed out in the first quarter and for the last number of multi-year history, we've been in the mid-40% or as I said in my commentary, the 45% return of capital back to our shareholders. We've been able to sustain that because of the quality, the depth, the duration of the portfolio, the low-cost supply nature, the depth of that inventory, and the duration we have as well allowed us to sustain that. And all the while, we've been investing for future growth of our CFO and our free cash flow with the projects that are coming on. We think that's unmatched by any other E&P in this business. The future looks very, very bright for the company too. As we assess our CFO, which then leads to distributions each quarter for the year, I think a great place to start is assuming that 45% or mid-40% distribution against that CFO. As you indicated, we have cash on the balance sheet. So we're willing to use some of that if we need to as we go through the course of the year. What does this mean for the second quarter? We still think we ought to be buying our shares and we're doing that. But as we go into the second quarter reflective of where the macro is at, it probably represents a couple hundred million reduction in the second quarter relative to the first quarter. We’re still looking to see where commodity prices are going and what it means for the third and fourth quarter, and we’ll deal with those as we see the course of the year play out.

Our next question comes from Devin McDermott with Morgan Stanley.

Thanks for taking my question and echo the congratulations, Bill to you and Andy you as well. I wanted to ask on the capital side. It looks like the reduction in this year's budget is largely efficiency-driven. I would love to get more detail on the drivers. And then kind of stepping back, you've been very consistent about the strategy of investing through the cycle to maximize returns. Ryan, in your remarks, you mentioned flexibility in the program if needed. So I'd love you just elaborate on how you're thinking about that flexibility and at what price levels or macro conditions you might utilize it?

Devin, this is Andy. I can start with that one. We have reduced the capital this year to a range of $12.3 billion to $12.6 billion, which is about a $0.5 billion reduction. This is a combination of capital efficiency improvements across the portfolio and plan optimization. The capital reduction does not include any material changes to the scope in the Lower 48 versus our prior guidance. As you saw, it didn't have any real impact on our production guidance for the full year. We've been factoring in a drop in activity in the Lower 48 as we get Marathon onto a steady state program, and that remains unchanged. We have a global portfolio, and the first thing we do is we look everywhere to see where we can defer some discretionary capital that doesn't impact production. We've been able to do that here. We also shouldn’t lose sight of the trend we’re on. We’re finding ways to deliver the same level of production for less capital and less operating cost. We’re taking a measured approach to better understand any potential debt or duration of any ongoing commodity price weakness before we determine if we need to make any changes to our program.

Our next question comes from Stephen Richardson with Evercore ISI.

Good morning. Ryan, I was wondering if you could talk a little bit about your current views on cost structure and the opportunity for further improvement. You've started the year with a $200 million reduction. One of the themes this quarter in the industry has been resource maturity. I appreciate your comments about the depth of your inventory, particularly in the Lower 48. But I'm wondering if you could talk about how, as the industry matures, as Conoco's business matures, you think about the overall cost structure and where to go from here considering all the macro considerations you talked about?

Steve, it's part of our DNA. We're constantly looking at the costs, benchmarking both our operations and G&A across the globe. We're looking at our operations relative to our neighbors to ensure that we're not disadvantaged. With the Marathon transaction, we had the chance to step back and review the company and our operations. We’re focused on driving efficiency across the organization to maintain our competitive edge. Watch us each quarter as we strive to get better. This type of environment makes that all the more important, but it needs to be a continuous effort.

Our next question comes from Arun Jayaram with JPMorgan.

Ryan, we've seen a modest activity reduction from several of your E&P peers, yet Conoco looks to be staying put in terms of your 2025 plans. My question is, you've built Conoco with a low cost of supply in your core basins. How do you balance this low cost of supply with the macro and perhaps preserving precious inventory, particularly in the Lower 48?

Low cost supply wins in this business, and we're working to drive that across our entire inventory. We feel we've achieved a strong position with the depth and duration of inventory we have. It’s about executing our program and driving the best returns on the capital we invest in the business. I will let Andy provide more insights on how we think about that as we execute our programs.

Thanks, Ryan. As Ryan said, we have decades of low cost supply inventory. At times like this, our relentless focus on low cost supply has been key. We're not trying to time the market with our capital investments. Our current oil prices are not far from a mid-cycle price. These are times where we get a great opportunity to capture lower capital costs and operating costs. Our plan this year targets low single-digit production growth, significantly lower than last year. We remain focused on delivering returns on free cash flow, with production as an output of our plan.

The operators who can succeed are those with low cost supply. Companies like ours have that optionality on how we execute our projects, and we must drive returns on capital. Production growth is an output, with cash flow and free cash flow growth as our main drivers.

Our next question comes from Doug Leggate with Wolfe Research.

Andy, it wouldn't be an inaugural call as a CFO if I didn't ask you about breakeven. Could you clarify the $450 million reduction? Is this coming out of growth capital in terms of efficiency or sustaining capital for maintaining the business? What does that do to your breakeven?

Thanks, Doug. The capital reduction of $0.5 billion is a combination of where we can defer things not adding production this year with a negligible impact next year. If prices go down, we expect some deflation. On breakevens, our free cash flow breakeven is in the mid-40s, and the dividend will add about $10 to that. This includes all the pre-productive CapEx on our major projects, which is about $7. Our free cash flow inflection will start showing as breakeven comes down into the low 30s as we reduce capital and see projects come online.

Our next question comes from Nitin Kumar with Mizuho.

Good afternoon, and Bill, congratulations on your retirement. I'd like to shift away from the macro and talk about your long-cycle projects. You mentioned critical milestones at Willow. Could you elaborate more on that? Spending in Alaska was just north of $1 billion this quarter. How should we expect that to trend over the next few quarters as the project moves into later phases?

Nitin, I can take that one. Execution in the first quarter on our Willow project was significant, and the project team delivered key milestones to ensure that we remain on track for first oil in 2029. We ramped to roughly 2,400 people on the North Slope, reaffirming that this was our peak winter construction season. There was strong safety performance and efficiencies across the activities. We're now roughly 50% completion on all civil scopes, and we installed about 80 miles of pipeline. A key highlight was executing a horizontal directional drill beneath one of the waterways, enabling pipeline connections. The operation center pad modules are set on the pad, allowing construction work throughout the year instead of being confined to winter. Engineering and fabrication of our processing modules continue to progress. By year-end, we expect to source 90-95% of the required work, bringing further certainty to our project timeline. The peak capital this year will occur in the first three to four months, tapering down through the year's remainder.

Our next question comes from Lloyd Byrne with Jefferies.

Bill, congratulations and thank you for your years of service. Ryan, you emphasized the advantages Conoco has going forward, including the free cash you have coming. Would you leverage your balance sheet and asset sales to increase returns to shareholders?

Lloyd, I was trying to guide that 45% feels about right for where we are in the cycle. At current commodity prices, we may need to utilize cash on the balance sheet. Buying back shares makes sense right now. In the past several months, we've bought back nearly 20% of Marathon shares. Returns of capital are important, but I would anchor on the mid-45% of our CFO. While this may moderately affect net debt, we're not intending to take on gross debt to do this.

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

Thanks, congrats Bill and Andy. Bill, I wish you all the best in your future endeavors. I want to shift the topic a bit towards the macro. You mentioned the haves and have-nots. If we do enter a weaker macro environment, how do you see the industry responding? Should higher-cost operators be the first to cut, or do larger companies like Conoco need to take the lead in making some cuts?

Clearly, those without low-cost supplies will find themselves cash-strapped. Balance sheets across the industry are in better shape than previous downturns, but we may see significant activity cutbacks. Conversations around pricing in the low 50s imply that even larger companies like ours would consider additional scope changes. Our overarching view is while demand has softened, we still see significant demand growth moving forward. Pricing levels approaching the mid-60s are close to our mid-cycle planning, which means we shouldn't expect drastic changes from our side. We're built for volatility, and our strong balance sheet will enable us to execute low-cost supply strategies, delivering efficiencies.

Our next question comes from Ryan Todd with Piper Sandler.

I have a follow-up on the Marathon integration. Given your guidance on capital and operational cost reduction, could you talk about how the integration is progressing? Any updates on Eagle Ford performance?

This is Andy, I can start. The first full quarter of Marathon is behind us, and we’re pleased with the integration process, which is tracking ahead of schedule. We're making great progress on the $1 billion directed towards synergy captures and identifying more opportunities as a combined company. We’re already achieving capital synergies of over $500 million. Record drilling performance in the Eagle Ford showcases the efficiency improvements derived from best practices from both companies.

We’re also ahead of schedule regarding cost side synergies, with opportunities particularly identified in commercial areas unforeseen pre-close, including crude lending and midstream contracts. We’re realizing synergies from the debt transaction reducing interest costs and employee exits. We’re on track to meet our goals and continue with the integration process smoothly.

Our next question comes from Betty Jiang with Barclays.

Ryan, I appreciate the insight on the cash return framework. If the cash return is closer to the mid-40s of cash flow from operations, are you more open to letting the reinvestment rate run higher given your position in the investment cycle on major capital projects?

We’ve integrated expectations for our plans and are cautious not to make any drastic changes to long-cycle investments. We’re deliberately avoiding inefficiencies in projects like Willow and LNG. However, we recognize the reinvestment rate will naturally fluctuate as we progress. Shorter cycle investments are where we have flexibility, and we’re currently choosing not to exercise that due to our long-term perspective.

Our last question comes from Paul Cheng with Scotiabank.

Bill, thank you for your insights and contributions over the years. And Andy, congratulations on your new role. Ryan, considering that your inventory in the Lower 48 is among the best in the industry, with competitors suggesting we may be in the late innings of shale oil, do you think Conoco needs to diversify further away from the Lower 48? What areas or asset types would you be looking to expand or substantially increase your position in?

We aim for low cost of supply and can operate indifferent to oil or gas or geographical location. We value diversity in our portfolio and are focused on adding low-cost resources. Inorganically, we set a high bar for acquisitions due to the competitive nature of our portfolio. We will continue monitoring the market, assessing operations globally without straying from our focus on optimal efficiency and performance.

Our next question is from Josh Silverstein with UBS.

My question was going to revolve around the percentage of capital allocation to long-cycle projects going forward. Ryan, you mentioned free cash flow will start to increase as spending from major projects rolls off. I think it’s around 25% of the budget this year for those projects. Can you discuss whether that percentage might trend towards 15%, or will you backfill some of these projects as they come online?

As we unveil cash flow and free cash flow inflections, we don’t have another Willow or similar large batch of LNG on the docket. The expectation is that capital will start to descend in line with those projects nearing completion. The aim is for free cash flow to increase sharply as projects ramp up while not starving Alaska, Norway, or Canada of investment. Continued investments in smaller projects in the Lower 48 will occur but those will follow our base plan.

Our final question comes from Kevin McCurdy with Pickering Energy Partners.

Looks like you had a very strong operational quarter, but cash flows missed the mark a little. It appears to be driven by higher cash taxes. Can you share why cash taxes were elevated in the first quarter and what your outlook is for the year?

Certainly, Kevin. We had deferred tax movements this quarter. Starting the year, our effective tax rate guidance was 36% to 37%, and our cash tax rate was 35% to 36%. Based on our updated forecast, our full-year effective tax rate is moving into the high 30s, around 40%. This is due to a shift in the mix of income as we see a higher percentage of our income coming from higher tax jurisdictions like Norway and Libya. It's typical for the effective tax rate to rise under such circumstances. For the full year, our cash tax rate is expected to align with our effective rate, attributed partly to discrete tax items related to Lower 48 dispositions. These discrete items can be challenging to forecast and can create unexpected headwinds, instead of our usual tailwinds. We're continuing to realize underlying deferred tax benefits normally from IDCs and the MRO NOLs that are rolling through the system.

Our final question comes from Leo Mariani with ROTH.

Could you provide more color on the $500 million budget cut? While I understand these areas were things that don’t impact near-term production, can you discuss the countries they were located in? It sounds like there could be some medium-term production impact, but presumably, you could react and allocate more resources if prices recover?

The reductions came from across our global portfolio, without having an impact on this year’s production. It’s a mix of general capital efficiencies and optimization. We aren’t pointing to any single location or category; it’s part of our annual review process to find where we can tighten the belt without affecting production. There’s nothing that stands out as significant.

I would also add that it was spread across the entire company, so there isn't any critical area or a specific category to highlight.

That concludes today’s question and answer session. This will conclude today's conference call. Thank you for participating. You may now disconnect.