ConocoPhillips (NYSE:COP) Q4 2023 Earnings Call Transcript
ConocoPhillips (NYSE:COP) Q4 2023 Earnings Call Transcript February 8, 2024
ConocoPhillips isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Fourth Quarter 2023 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. [Operator Instructions] I will now turn the call over to Phil Gresh, Vice President, Investor Relations. Sir, you may begin.
Phil Gresh: Thank you, Liz. And welcome everyone to our fourth quarter 2023 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Tim Leach, Advisor to the CEO; Bill Bullock, Executive Vice President and Chief Financial Officer; Dominic Macklon, Executive Vice President of Strategy, Sustainability and Technology; Nick Olds, Executive Vice President of Lower 48; Andy O'Brien, Senior Vice President of Global Operations; Kirk Johnson, Senior Vice President, Lower 48, Assets and Operations; and Will Giraud, Senior Vice President, Corporate Planning and Development. Ryan and Bill will kick it off with opening remarks, after which the team will be available for your questions.
A few quick reminders. First, along with today’s release, we publish supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will make four looking statements based on current expectations. Actual results may differ due to factors noted in today’s release and in our periodic SEC filings. We will make reference to some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today’s release and on our website. And third, when we move to Q&A, after the prepared remarks, we’ll be taking one question per caller. With that, I will turn it over to Ryan.
Ryan Lance: Thanks, Phil. And thank you to everyone for joining our fourth quarter 2023 earnings conference call. It was another strong quarter for ConocoPhillips as the team continued to execute on its commitment to deliver returns to our shareholders. Now, stepping back and looking at 2023, ConocoPhillips demonstrated solid execution across all aspects of our triple mandate. We reported record production and achieved several milestones across our global asset base. And we delivered a preliminary reserve replacement ratio of 123%, highlighting our ability to continue to replace reserves across our deep, durable and diversified portfolio. We’re also progressing several key strategic initiatives. We advanced our global LNG strategy through expansion in Qatar, FID at Port Arthur and several offtake and regasification agreements.
We FIDed the Willow project in Alaska and have been ramping up construction this winter season. And we opportunistically acquired the remaining 50% of Surmont at an attractive price that fit our financial framework. We were able to accomplish all of this while delivering our returns-focused value proposition to our shareholders. We generated a trailing 12-month return on capital employed of 17% or 19% on a cash adjusted basis. We also delivered on our plan to return $11 billion of capital to our shareholders, which was well in excess of our greater than 30% annual through-the-cycle commitment. Last spring, we further strengthened our GHG emissions intensity targets to a 50% to 60% reduction from a 2016 baseline. And we were recently awarded the Gold Standard Pathway designation by the Oil and Gas initiative part -- Methane Partnership 2.0. Now looking ahead to 2024, this morning, we announced a plan to distribute $9 billion to shareholders this year.
We also announced a VROC of $0.20 per share for the first quarter. The remainder of our cash flow will be reinvested into the business as we continue to execute on our plan to grow earnings and cash flows as we outlined at our Analyst and Investor Meeting last year. In conclusion, once again, I’m proud of the accomplishments of the entire organization. Our portfolio is well positioned to generate competitive returns and cash flow for decades to come. Now let me turn the call over to Bill to cover our fourth quarter performance and our 2024 guidance in more detail.
Bill Bullock: Thanks, Ryan. In the fourth quarter, we generated $2.40 per share in adjusted earnings. We produced 1,902,000 barrels of oil equivalent per day, representing 4% underlying growth year-over-year. This was consistent with our full year 2023 underlying growth rate of 4% also. Fourth quarter Lower 48 production averaged 1,086,000 barrels of oil equivalent per day, which represented 9% underlying growth year-over-year. We produced 750,000 from the Permian, 211,000 from Eagle Ford and 110,000 from the Bakken. Full year 2023 underlying growth for the Lower 48 was roughly 8%. Moving to cash flows, fourth quarter CFO was $5.5 billion and this included APLNG distributions of $281 million. Fourth quarter capital expenditures were $2.9 billion, which included $573 million for longer cycle projects.
Full year capital expenditures were $11.2 billion, which included $2 billion for longer cycle projects. Now regarding returns of capital, we delivered $11 billion to shareholders in 2023. For the fourth quarter, we returned $2.5 billion. This was via $1.1 billion in share buybacks and $1.4 billion in ordinary dividends and VROC payments. We ended the year with cash and short-term investments of $6.9 billion, as well as $1 billion in long-term investments. In the guidance [ph], we forecast 2024 production to be in a range of 1.91 million barrels of oil equivalent per day to 1.95 million barrels of oil equivalent per day. This translates to 2% to 4% underlying growth pro forma for acquisitions and dispositions. We expect this growth to be well balanced between both Lower 48 and International.
Our full year forecast includes turnaround impacts of 25,000 barrels per day to 30,000 barrels per day, which is about 10,000 barrels per day higher than in 2023. Now turnarounds are expected to be concentrated in the third quarter, when Surmont completes a one-month turnaround and that turnaround occurs once every five years. For the first quarter, production guidance is in a range of 1.88 million barrels of oil equivalent per day to 1.92 million barrels of oil equivalent per day, a roughly 1% to 3% underlying growth. While the first quarter will have minimal turnarounds, similar to the fourth quarter, it does include a 20,000 barrel per day headwind from January weather impacts. For APLNG, we expect distributions of $400 million in the first quarter and $1.3 billion for the full year.
Now shifting to cost guidance, we see full year adjusted operating costs in a range of $8.9 billion to $9.1 billion, representing essentially flat unit costs on a year-over-year basis. Full year cash expiration expenses are expected to be $300 million to $400 million, and DD&A expenses are expected to be in a range of $9.4 billion to $9.6 billion. Full year adjusted corporate segment net loss guidance is $1 billion to $1.1 billion. And for taxes, we expect our effective corporate tax rate to be in the 36% to 37% range of strip prices, and that’s excluding any one-time items and that’s with an effective cash tax rate in the 33% to 34% range. For capital spending, our full year guidance range is between $11 billion to $11.5 billion, which includes $200 million to $300 million of capitalized interest.
Now on slide eight of the presentation, we provided bridge from 2023 to 2024 with some of the key year-over-year variables, most of which we’ve discussed on prior earnings calls. These include our expectation of $200 million to $300 million in deflation benefits, primarily in the Lower 48; $200 million to $300 million of lower spending in Norway following the startup of our four subsea tieback projects; and $500 million to $600 million in lower LNG spending, mostly at Port Arthur. These decreases are offset by a $900 million to $1 billion increase at Willow, and $100 million to $200 million increase in Canada to account for the acquisition of the remaining 50% of Surmont and the addition of a second rig in the Montney. For Willow, we expect spending to be more heavily weighted to the first quarter and this is consistent with the normal timing of winter construction season.
And for Port Arthur, we expect that our $400 million of equity contributions in 2024 will also be weighted towards the first half of the year. Now as a result, first quarter CapEx could be a bit above $3 billion. So to wrap up, we ended the year with another solid operational quarter. We continue to deliver on our strategic initiatives across our deep, durable and diverse portfolio, and we remain highly competitive on our shareholder distributions. Now that concludes our prepared remarks. I’ll turn it back over to the Operator to start the Q&A.
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