ConocoPhillips : Transcript (cop usq transcript 2025 05 08)

Published: 2025-05-09 23:04:04 ET COP

Published on 05/09/2025 at 23:04

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EDITED TRANSCRIPT

COP.N - Q1 2025 ConocoPhillips Earnings Call

EVENT DATE/TIME: MAY 08, 2025 / 4:00PM GMT

OVERVIEW:

Company Summary

‌Welcome to the first-quarter 2025 ConocoPhillips earnings conference call. My name is Liz, and I will be your operator for today's call. (Operator Instructions)

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, some comments on the macro. Clearly, the current environment is marked by both uncertainty and volatility. Outlooks for global economic growth and oil demand have been revised lower. And on the supply side, OPEC+ 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. And as I've said in the past, 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-to-supply threshold, both in the US and internationally. And our advantaged US inventory position in particular 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," and we have a disciplined capital allocation framework that is battle-tested through the cycles. In addition, our company is executing well. Our integration of Marathon Oil is progressing ahead of schedule, and 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 $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. Less capital and reduced operating costs. And we will keep working to further advance this plan as the year progresses. We'll also continue monitoring the macro environment. 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. We believe 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.

To close out my commentary, while I recognize the current focus is on the near-term macro uncertainties, we are playing the long game. I'll remind everyone that our fundamental long-term value proposition is truly differentiated. We have a deep, durable, and diverse portfolio with decades of high-quality, low cost of supply inventory to develop.

And 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, and that 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, as Ryan mentioned, we started 2025 with another quarter of strong execution across the portfolio. We produced 2,389,000 barrels of oil equivalent per day, exceeding the high end of our production guidance for the quarter.

And in Lower 48, production averaged 1,462,000 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. And 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.

And 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. And we ended the quarter with cash and short-term investments of $7.5 billion plus $1 billion in long-term liquid investments.

Now turning to our outlook for the year, full-year production guidance remains unchanged. We still expect to deliver low single-digit production growth at this lower level of capital spending. For the second quarter, we expect production to be in a range of 2.34 million to 2.38 million barrels of oil equivalent 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 a triennial turnaround at Ekofisk in Norway, and a turnaround at Qatar. Then 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, or 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. Now 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% range, excluding one-time items, and this is due to geographic mix. We expect an effective cash tax rate to be roughly in line with book tax, which is a function of discrete items in the first quarter.

Now moving to cash flows, 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.

In terms of working capital, we expect a modest use of cash on a full-year basis. This includes 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 over the remainder of the year.

So 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. And 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. And 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.

That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A.

(Operator Instructions) Neil Mehta, Goldman Sachs.

Hey, good morning, Ryan and team. And Bill, thanks for everything. Congratulations to you. 39 years is incredible. And Andy, congratulations to you as well. In your honor, Bill, let's ask a return-of-capital question and a cash flow question, which is you guys had $2.5 billion of capital return in the first quarter. You're 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? And 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?

Yes, 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. Yes, we'll step back for a minute, Neil, just a little bit. Our CFO-based distribution framework has been unchanged for a number of years. And you correctly pointed out in the first quarter and for the last number of years, 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.

And we've been able to sustain that because of really the quality, the depth, the duration of the portfolio, the low cost of supply nature of that, the depth of that inventory, and the duration that we have as well has allowed us to sustain that. And all the while, we've been investing for future growth of our CFO and our free cash flow, as we've talked about with the projects that are coming on. And I think, or we think, that's unmatched by any other E&P in this business. So the future looks very, very bright for the company, too.

Now 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. And that's what we've been counting on. And as you've 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.

Now 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 kind of go into the second quarter, reflective of where the macro is at, too, it probably represents a couple hundred million reduction in the second quarter relative to the first quarter. And 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.

Devin McDermott, Morgan Stanley.

Hey, good morning. Thanks for taking my question and I echo the congrats, Bill, to you; and Andy, to you as well. I wanted to ask on the capital side. So it looks like the reduction in this year's budget is largely efficiency driven. We'd love to get a little bit more detail on the drivers.

Kind of stepping back, I think over the years, 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 to hear you just elaborate on how you're thinking about that flexibility and at what price levels or macro conditions you might utilize it.

Disclaimer

ConocoPhillips published this content on May 10, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 10, 2025 at 03:03 UTC.