ConocoPhillips

Good morning, and welcome to the Quarter 2 2021 ConocoPhillips Earnings Conference Call. My name is Zanara, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. During the question and answer session, if you have a question, please press star, then 1 on your touchtone phone. I'll now turn the call over to Ms. Ellen DeSantis. Ellen, you may begin.

Thanks, Sanera. Good morning and welcome to our listeners. We have the following executives on today's call. Ryan Lance, our chairman and CEO. Bill Bullock, our executive vice president and chief financial officer. Tim Leach, executive vice president of the lower 48. Dominic Macklin, our senior vice president of strategy and technology. And Nick Olds, our senior vice president of global operations. Given our recent June 30 market update, we plan to keep our prepared remarks very short this morning, and then, as an error mentioned, we'll begin our Q&A session. To call-related logistics, some of today's speakers are participating virtually. We've done our best to ensure everything runs smoothly on the technology front. Also, because we want to give as many people as possible a chance to ask questions during today's calls, Please don't get offended if you get cut off. You can jump back into the queue where you can reach out to Investor Relations anytime after the call. Finally, a few reminders. In conjunction with this morning's press release, we posted a short deck of supplemental material that includes second quarter earnings and cash flow summaries, some guidance items, and our cash flow sensitivities. And then finally, in today's call, we'll make some forward-looking statements based on current expectations of Actual results could differ due to the factors described in today's press release and in our periodic SEC filings. We'll also refer to some non-GAAP financial measures today. And as usual, reconciliations to the nearest corresponding GAAP measure can be found, again, in this morning's press release and on our website. Thanks, and now I'll turn the call over to Ryan.

Thank you, Ellen. Today's quarterly results come right on the heels of our June 30 market update, during which we again laid out a compelling multi-year outlook for the company. The update was widely followed and we received some pretty positive feedback. As you'd expect, given the recency of our update, there isn't much incremental news to share at this time, except to say we remain convinced it was timely and relevant given the ongoing volatility we're seeing in the sector. And today, we're pleased to follow it up with the very strong quarterly results we announced this morning. As you'll recall, we kicked off our update by declaring that we believe we're at a defining moment for the NP sector, and that persists today. Oil equities have been especially volatile recently, in part due to uncertainties in the macro, and because we know investors need to see evidence that sector discipline will hold and returns on and of capital will follow. It's clear to us that long-term sector sponsorship requires leadership on the part of companies, as well as conviction on the part of investors. Of course, for investors, the case for these equities requires a reasonably constructive macro view. The case for equities also requires conviction around a micro view. In other words, who is best positioned for the cyclical business realities and who has a track record of execution and performance, and who can truly lead in ESG. Most companies are espousing the virtues of discipline, and everyone now looks better coming out of the 2020 downturn. The questions investors need to consider is who can deliver consistent, returns-focused performance through thick and thin. That's where leadership matters. In June, we met this defining moment with a credible, and highly investable plan that generates massive free cash flow and returns of capital with financial returns that are competitive with the S&P. The leadership requires more than setting expectations and plans. It also requires successfully executing them. Execution is where the rubber meets the road. ConocoPhillips offers a unique combination of a credible and compelling investment plan with a commitment to strong ongoing execution. You saw the plan in June, and today you see the execution. In other words, you're seeing the June plan at work. This morning's release and supplementary information provided details on this quarter's performance, so I won't restate them. But here are a few key takeaways and themes that I want to underscore. During the second quarter, the business ran extremely well. Our planned turnaround activity went smoothly, as did our ongoing core programs across the company. These include activities in the North American Shale Place, as well as in the multiple programs in our Alaska and international regions. While we're talking about execution, I'll also mention that we continue to make good progress on more than 50 emission reduction projects that we have underway this year. Every part of our business has a role in delivering our results. and I'm proud of our team for their accomplishments during a very busy year. Overall, this quarter's financial results were really quite straightforward. The noise of 2020's market upheavals and most of the contra-transaction adjustments are behind us, and the known deal integration synergies and streamlining impacts we discussed in June are showing up in our performance. We're on track to meet the updated 2021 guidance we issued a month ago, but we're not done. not done with our efforts to continue driving the operational and underlying efficiencies the team has described in our June material. We can't ignore that higher benchmark prices were a factor in this quarter's sector performance broadly, and certainly ConocoPhillips specifically. However, what is somewhat unique to ConocoPhillips is that our results demonstrate the capacity of our company to capture the benefit of higher prices when they do occur. That's because we're unhedged. We're diversified, and we're almost entirely in tax and royalty regimes. Now, a year ago, we demonstrated just how resilient we are to low prices. Twelve months later and post-contra transaction, this quarter gives you a sense for the upside torque we can realize when prices exceed the reference prices we showed you just one month ago. The clear bottom line, ConocoPhillips works differentially through the cycles. Cash from operations of $4 billion more than covered our capital expenditures of $1.3 billion and distributions of $1.2 billion in the quarter. Importantly, we continue to meet and exceed our target of returning greater than 30% of our CFO to our shareholders. We announced another increase to our 2021 distributions in June, bringing our total planned returns of capital to about $6 billion for the year. representing almost 8% of our market cap today, while other companies are only announcing or just reactivating such programs. And, of course, as Bill described in our market update, if prices continue at current levels, we would expect to have additional cash that could go toward greater distributions. And for reference, we estimate full-year 2021 CFO at $50 per barrel WTI would be about $11 billion, after adjusting for the one-time contra-transaction-related impacts, and you can do the math on our sensitivities at roughly $300 million per $1 per barrel change in prices. At this time, we still believe our distribution allocation of nearly 3% yielding ordinary dividend and share repurchases is a very sound mix, but we continue to evaluate the issue, and we want to engage with the market on alternative allocations. We know there isn't a perfect answer, but we know what matters, and that's a credible commitment to return capital and a solid track record of a reliable performance, which we've certainly delivered now for multiple years. So to summarize, we have a great shareholder-friendly business model and plan. We're hitting our stride after a busy time and putting the execution runs on the board. We're maintaining our discipline. The company is running extremely well. and we're not done with our work to improve underlying financial returns on capital employees. That's the goal. That's how we enlist long-term market sponsorship, and that's what ConocoPhillips is all about. We're pleased to be where we're at here at mid-year, but we recognize the year is still young. Looking forward to the second half of 2021, our priorities are squarely focused on executing our remaining plans and programs for this year. Meanwhile, we're closely watching how the macro evolves and beginning our internal process of setting our 2022 budget and capital plans. We'll stay actively engaged with the market and look forward to ongoing discussions about how our plans are progressing. So let me turn the call over to the operator and we'll begin the Q&A portion of the call.