ConocoPhillips held an earnings conference call for the second quarter of 2023. Several members of the leadership team, including Ryan Lance, Chairman and CEO, and Bill Bullock, Executive Vice President and Chief Financial Officer, were present. The team discussed forward-looking statements based on current expectations and made reference to non-GAAP financial measures. Phil Gresh, Vice President of Investor Relations, opened the call and Ryan Lance concluded with opening remarks.

ConocoPhillips hosted an Analyst and Investor Meeting in April to lay out their 10-year strategic and financial plan. In the quarter, they executed an agreement to purchase the remaining 50% of Surmont and finalized the acquisition of their interest in the Qatar North field South joint venture. They also executed agreements for offtake at the Saguaro LNG project and secured regasification capacity in Germany. ConocoPhillips had record global and Lower 48 production and raised their full year production guidance for the second straight quarter, while maintaining the midpoint of their full year capital guidance.

Ryan concluded that the company's asset base is strong and able to generate competitive returns and cash flow for the future. In the second quarter, the company generated $1.84 per share in adjusted earnings and set a record for production, averaging 1,805,000 barrels of oil equivalent per day. Cash flows for the second quarter were $4.7 billion at an average WTI price of $74 per barrel, including $405 million in APLNG distributions and $200 million in proceeds from a prior year disposition.

In the second quarter, capital expenditures were $2.9 billion, including $624 million for long-cycle projects and $700 million for Port Arthur LNG. The company also returned $2.7 billion to shareholders via share buybacks and dividends. For the third quarter, production is estimated to be between $1.78 billion and 1.82 million barrels of oil equivalent per day, with a full year range of 1.8 million to 1.1 million barrels of oil equivalent per day. Adjusted operating costs and DD&A guidance have been raised by $100 million each, while corporate cost guidance has been lowered by $100 million due to higher interest income. All guidance excludes any impact from announced but not closed acquisitions.

William Bullock provides insight into the decrease in price realizations in the Lower 48 gas and Alaska crude during the second quarter, noting that it was particularly challenging for capture rates. He then goes on to explain that they are already seeing Lower 48 gas differentials and elastic crude pricing returning to more normal levels in the third quarter and remain comfortable with their framework reference of $22 billion in CFO at $80 WTI and $3 Henry Hub.

ConocoPhillips' second quarter capture rate of 68% was largely due to Permian differentials being wider than Henry Hub, as well as the absence of strength in SoCal and Bakken that was seen in the first quarter. Permian differentials have since narrowed back to more normal ranges and SoCal is looking better. The company remains encouraged by their capture rates and is confident in their full year estimates and activities, and is constructive on the second half of the year. They have also seen production performance across the board, with Lower 48 crude oil standing out, resulting in two quarters of increased production.

Dominic and Nicholas discuss the production guidance being up 25,000 BOEs equivalent since the beginning of the year, with 80% of that increase being oil. This is leading to underlying growth of 3-4% this year, and 7-8% in the Lower 48. The product mix is expected to be consistent over the year and remain around 54% oil in the second half of 2022. The main drivers for this growth are modest accelerations of activity late in Q1 and Q2, as well as strong well performance across the board. This is due to improved drilling and completion efficiency.

Ryan Lance explains that the company is looking to expand its LNG business and has set out to do so by taking opportunities such as the Qatar volumes and the Saguaro project on the West Coast. They are hoping to build up their LNG business by taking equity in Port Arthur and offtake agreements to service the growing demand from Europe and Asia.

William Bullock explains that the Saguaro project is a great addition to their portfolio as it provides diversity, avoids the Panama Canal, has strong backing from credible counterparties, supports a dedicated pipeline from the Permian, and utilizes ConocoPhilips' optimized cascade technology. Additionally, it is an offtake agreement, meaning there is no equity component.

William Bullock explains their strategy for funding the Surmont transaction, which includes using debt for the majority of the funding. He notes that the pricing they are seeing is strong and would result in an incremental CFO of around $1 billion next year at $80 per barrel.

Doug Leggate from Bank of America asked Nicholas Olds from ConocoPhillips about the differences between the well productivity of their 60% ownership position in the JV and their legacy position in the operated area around the Conoco assets. Olds responded that the second quarter performance from Lower 48 was split between operated and non-operated, and that OXY had a large component in the Delaware. He also mentioned that they constantly look at all benchmarking and evaluate the ballots from their non-operated positions to meet their cost framework.

ConocoPhillips is committed to giving a significant portion of their cash flow back to shareholders, and they are competitive in doing so. They are currently generating more free cash flow due to their APLNG and Surmont activity, and their framework for returning cash to shareholders has not changed.

The company is focused on setting a framework that works through the mid-cycle and rewards shareholders. They are looking at where their shares and commodity prices are at and will try to set the channels appropriately. They plan to deliver a significant amount of cash flow back to shareholders. They will also look at their capital plans for 2024, with a focus on Willow.

Dominic Macklon explains that the capital level for next year is expected to be at the higher end of the range that was presented at AIM in April. He also mentions that the company is considering adding a bit of activity to the Lower 48 and that the long-cycle capital is expected to remain around $2 billion for the next few years.

Dominic Macklon is discussing inflation and deflation trends in the industry and how it affects the company's multiyear guidance. He mentions that they are seeing some deflation in the Lower 48 in the second half of the year, but that they still expect their overall company capital inflation to average out in the mid-single digits this year compared to last year.

ConocoPhillips has seen some deflation in commodities, rig rates, frac spread rates, and labor rates. They have narrowed their annual capital guidance to $10.8 billion to $11.2 billion and are optimistic about further deflation. They are happy with the current equity in their Port Arthur LNG project and are considering further offtake of expansion at the facility.

The estimated annual effective tax rate for the year has decreased to 35%, driven by a shift in the mix of pretax income from higher to lower tax jurisdictions, largely due to the reduction in EU gas prices. This change has caused some quarterly noise in the tax rate, with the second quarter rate being 33.6% and the first quarter rate being 36%.

This paragraph discusses the financial results of the company for the second quarter of the year, including the noncash adjustment that can be seen in the supplementary disclosures, the 35% annualized effective tax rate, and the deferred tax tailwind of about $200 million. It also explains that the company's Bakken production has been performing extremely well, with the potential to plateau at 100,000 barrels a day for several years.

Ryan Lance of ConocoPhillips explains that the company is currently focusing on organic opportunities due to their resource base. However, they are still open to inorganic opportunities such as the acquisitions of Surmont and the deal in Mexico. They evaluate the opportunities based on returns and cost of supply, and they are prepared to take advantage of any rebounds that come their way due to their partners' strategic decisions.

William Bullock explains that Saguaro's 2.2 million tons offtake agreement is not an equity investment. He then directs the listener to the operator of Mexico Pacific for more details on the pipeline needed to bring the project to fruition. Bullock also mentions that the operator had previously released a 20-year agreement with CFE in July.

William Bullock discusses the importance of having an LNG offtake agreement in order to secure market placement. He states that they are confident in their West Coast volumes and that they are close to reaching a critical mass. He also mentions that they continue to look for capacity on the West Coast, but that these things are more longer dated out in time.

Andrew O'Brien explains that the two lawsuits challenging the federal government's approval for the Willow project have been resolved, and a ruling is expected in November. He also states that Willow is not a turnkey contract, and the individual contracts it enters into have terms linked to agreed indices that can fluctuate with inflation. He is unable to comment on deflation and inflation for the 6-year project as of yet.

Andrew O'Brien explains that Alaska has not seen the same inflation that the Lower 48 has over the last couple of years, and that the $7 billion to $7.5 billion capital range for the Willow project is still a good estimate. He also states that the low capital intensity of Surmont does not change the allocation of capital to other projects, and provides more cash flow.

William Bullock and Ryan Lance discuss three projects they have taken on in the last 12-18 months and how they compare on a cost of supply basis. They discuss Qatar, Port Arthur, and Saguaro and how they are all competitive in terms of cost. Alastair Syme then follows up with a question about 2024 CapEx and Lower 48 activity levels.

Dominic Macklon and William Bullock are discussing the potential growth in the Lower 48 and the differences between Mexico Pacific and Energias Costa Azul, two projects in Mexico. The main difference is that Mexico Pacific is ready to take FID and is in a competitive location with a good tariff, while Energias Costa Azul is not yet ready to consider taking FID and is located on the West Coast. They are considering both projects as they look to optimize their portfolio exposure to both the Atlantic and Pacific basins.

William Bullock is discussing the diversified portfolio of offtake that they are actively developing, with pro-acement into Europe and long-term opportunities into Asia, as well as sales FOB at the facilities. The portfolio is being developed with a mix of shorter- and longer-term dates to optimize the value chain. The commercial organization is being used to actively build out both European and Asian markets through a variety of formats.

This summary was generated with AI and may contain some inaccuracies.