ConocoPhillips (COP) Q1 2024 Earnings Call Transcript Highlights: Strong Start with Robust ...

• Adjusted Earnings Per Share: $2.03

• Total Production: 1,902,000 barrels of oil equivalent per day, 2% growth year-over-year

• Lower 48 Production: 1,046,000 barrels of oil equivalent per day

• Alaska International Production: 856,000 barrels of oil equivalent per day, 4% growth year-over-year

• Cash Flow from Operations (CFO): $5.1 billion

• Capital Expenditures: $2.9 billion

• Debt Retirement Payments: $500 million

• Shareholder Returns: $2.2 billion, including $1.3 billion in buybacks and $900 million in dividends and VROC payments

• Cash and Short-term Investments: $6.3 billion

• Long-term Liquid Investments: $1.1 billion

• Full Year Production Outlook: 1.91 million to 1.95 million barrels of oil equivalent per day, 2% to 4% growth

• Full Year Capital Expenditure Guidance: $11 billion to $11.5 billion

• APLNG Expected Distributions: $300 million in Q2, $1.3 billion full year

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ConocoPhillips (NYSE:COP) reported a solid start to the year with focused execution across the portfolio, maintaining full-year guidance.

• Production growth was evident with international projects ramping up and record production levels achieved in Canada at Montney.

• The company is on track to distribute at least $9 billion to shareholders this year, maintaining a strong commitment to shareholder returns.

• ConocoPhillips (NYSE:COP) is seeing successful advancements in major projects like Willow and LNG developments in Qatar and Port Arthur.

• Operational efficiencies continue to improve, particularly in the Lower 48, with a focus on capital efficient growth and drilling improvements.

Negative Points

• Weather-related disruptions led to a 25,000 barrel per day production headwind, impacting Lower 48 production by about 2%.

• Despite overall growth, the Lower 48 experienced only about 1% year-over-year underlying growth due to these disruptions.

• First quarter capital expenditures were slightly below expectations due to timing issues, raising some concerns about pacing.

• The company faces ongoing challenges with gas pricing volatility, particularly in the Permian Basin, affecting near-term cash flows.

• There are concerns about the need for additional pipeline capacity to stabilize and improve gas market differentials and realizations.

Q & A Highlights

Q: Can you provide more details on the completion of the first winter construction season for the Willow project and the next key milestones? A: (Kirk L. Johnson - SVP of Global Operations) We had a strong start to the Willow project, successfully mobilizing over 1,200 workers and completing significant construction milestones including 7 miles of gravel road and 30 acres of gravel pads. Module fabrication is on track, with the first modules expected to be transported midyear. The project remains within the budget of $7 billion to $7.5 billion for total capital to first production. Looking ahead, we'll continue module fabrication and prepare for the next winter construction season.

Q: What is your framework for thinking about the right level of return of capital, especially given the current volatility in oil and gas prices? A: (Ryan M. Lance - Chairman & CEO) Our plan is to distribute at least $9 billion to shareholders this year, maintaining a return of about 30% of our cash flow. We are monitoring market volatility and will adjust our distributions based on sustained price levels. Our strong balance sheet gives us flexibility in capital distribution.

Q: Can you comment on the strategic approach to the Permian gas and its integration? A: (Ryan M. Lance - Chairman & CEO; William L. Bullock - EVP & CFO) We are focused on integrating LNG strategies and improving gas market access through various pipelines, including the upcoming Matterhorn pipeline. Our sophisticated gas marketing operations allow us to optimize realizations and manage exposure to in-basin pricing effectively.

Q: How do you see the Lower 48 activity progressing through the year given the weather-related production impacts in Q1? A: (Nicholas G. Olds - EVP of Lower 48) Despite the weather impacts, we anticipate a recovery and steady growth in production throughout the year. Our focus remains on capital efficiency and operational improvements, such as simul-frac and remote frac technologies, which continue to drive down costs and improve output.

Q: Could you provide more insight into the efficiency gains from e-fracs and longer laterals in the Permian? A: (Nicholas G. Olds - EVP of Lower 48) We are seeing significant improvements in capital efficiency through the use of longer laterals, which can improve cost of supply by 30-40% when extending from 1-mile to 3-mile laterals. Our drilling operations have also set internal records for speed, further enhancing our efficiency and lowering costs.

Q: What are your thoughts on the global LNG market and ConocoPhillips' strategy in this area over the next few years? A: (Ryan M. Lance - Chairman & CEO; Andrew M. OBrien - SVP of Strategy, Commercial, Sustainability & Technology) We aim to expand our LNG footprint, leveraging our existing projects and exploring new opportunities in North America and Qatar. Our strategy includes increasing our offtake capacity to 10-15 MTPA, enhancing our integrated business model across production, liquefaction, and regasification.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.