Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ConocoPhillips (COP, Financial) announced a 34% increase in its ordinary dividend starting in the fourth quarter.
- The company delivered record production in the second quarter with strong contributions from the entire portfolio.
- ConocoPhillips (COP) signed two additional long-term regasification and sales agreements to deliver LNG volumes into Europe and Asia.
- The planned acquisition of Marathon Oil is expected to close in the fourth quarter, with integration planning activities already underway.
- The company remains committed to distributing at least $9 billion to shareholders this year on a standalone basis.
Negative Points
- Higher forecasted adjusted operating costs due to increased transportation and processing costs and inflationary pressures on the Lower 48.
- Significant turnaround impacts expected in the third quarter, affecting production by about 90,000 barrels per day.
- Lower 48 gas realizations were particularly low in the second quarter, with realizations just under 20% of Henry Hub.
- The company is facing regulatory restrictions on share buybacks until the Marathon Oil shareholder vote on August 29.
- Higher capital expenditures expected for the year, primarily due to strong progress on the Willow project and additional capital allocated to Lower 48 partner-operated activity.
Q & A Highlights
Q: Can you discuss the share repurchase strategy and your commitment to buybacks for the rest of the year?
A: William Bullock, CFO: We are confident in distributing at least $9 billion to shareholders this year. Despite restrictions due to the Marathon transaction, we plan to lean into buybacks post the August 29 Marathon shareholder vote. We aim to retire about 5% of our shares annually and will increase our buyback rate by $2 billion upon closing the Marathon deal.
Q: How do you plan to utilize Marathon Oil's legacy net operating losses (NOLs)?
A: William Bullock, CFO: Marathon has $2.8 billion in NOLs, valued at about $600 million. We expect to use any remaining NOLs within the first three years post-transaction. These NOLs were not included in our synergy calculations but are considered valuable.
Q: Can you provide an update on your LNG strategy and recent agreements?
A: Andy O'Brien, SVP of Strategy, Commercial, Sustainability & Technology: We secured 0.75 MTPA of re-gas capacity at Zeebrugge Terminal in Belgium and a long-term sales contract with an Asian buyer for 9.5 MTPA. This brings our total to 6 MTPA. We aim for 10 to 15 MTPA long-term to achieve scale benefits.
Q: How is the Willow project progressing, and is it responsible for the increase in CapEx?
A: Kirk Johnson, SVP of Global Operations: Willow is progressing well, with strong execution in the first part of the year. We expect to spend $1.5 billion to $1.7 billion on Willow this year. The project is on track for a 2029 first oil, and we have secured 80% of our total facility spend in contracts.
Q: What are the inflationary pressures affecting your operating costs?
A: Andy O'Brien, SVP of Strategy, Commercial, Sustainability & Technology: We raised our guidance to $9.2 billion to $9.3 billion due to higher transportation and processing costs, utilities, and additional workover activity. The third quarter will be the high point for controllable costs due to significant turnaround activities.
Q: Can you provide more details on the production outlook for the rest of the year?
A: Andy O'Brien, SVP of Strategy, Commercial, Sustainability & Technology: We expect organic production to grow 2% to 4% in 2024, with a steady increase each quarter, excluding turnarounds. The third quarter will see a 90,000 barrels per day impact due to turnarounds, but we are on track with our guidance.
Q: How are you managing Permian gas takeaway and Lower 48 realizations?
A: William Bullock, CFO: Lower 48 gas realizations were low in Q2 due to negative Permian Basin pricing. We expect this trend to continue into Q3 but anticipate improvement with the Marathon pipeline coming online later in Q3. We are not considering curtailing oil production as we do not routinely flare.
Q: What is the status of your LNG projects, specifically Port Arthur and MPL?
A: Andy O'Brien, SVP of Strategy, Commercial, Sustainability & Technology: Port Arthur Phase 1 is fully permitted and construction is on track. MPL projects are impacted by the LNG pause, affecting FID timing. We have agreed to 2.2 MTPA of offtake with MPL and are monitoring progress closely.
Q: How is the Eagle Ford and Canadian Montney production performing?
A: Nicholas Olds, EVP, Lower 48: Eagle Ford production increased significantly due to reinstating a frac crew and strong well performance. We expect a slight dip in Q3 due to turnarounds but will ramp up in Q4. Kirk Johnson, SVP of Global Operations: Montney production doubled year-over-year, driven by additional wells and new CPF2 capacity. We expect modest growth throughout 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
