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spk00: Welcome to the third 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. During the question and answer session, if you have a question, please press star 1 1 on your touchtone phone. I will now turn the call over to Phil Gresh, Vice President, Investor Relations. Sir, you may begin.
spk05: Thank you, and welcome to everyone to our third 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 Macklin, executive vice president of strategy, sustainability, and technology, Nick Olds, Executive Vice President of Lower48, Andy O'Brien, Senior Vice President of Global Operations, Kirk Johnson, Senior Vice President, Lower48 Assets and Operations, and Will Giroux, 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 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. We'll 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 before I turn it over, just want to flag for today, we'll do one question per caller. So with that, let me turn it over to Ryan.
spk19: Thank you, Phil. And thank you to everyone for joining our third quarter 2023 earnings conference call. It was another solid quarter for ConocoPhillips as the team continued to deliver strong underlying performance across the portfolios. And we have achieved several additional project milestones in our international portfolio in early October. Now, before I get into the details, I wanted to address the topical news in the industry, which has been the M&A headlines in recent weeks. This is not a surprise to us. We have long said that we expect to see further industry consolidation. ConocoPhillips remains steadfast in our returns-focused value proposition and cost-to-supply principles. which creates a high bar for M&A. And as a reminder, we've been actively high grading our own portfolio over the past several years. And as a recent example, we're pleased to have closed on the acquisition of the remaining 50% of Surmont in early October. An opportunity came along to acquire this asset at a very attractive price that fit our financial framework, an asset we can make better through our full ownership, and an acquisition that makes our 10-year plan even better. Surmont is a long life, low declining, and low capital intensity asset that we know well. We achieved first steam from pad 267 in the third quarter, and production is expected to start in the first quarter of 2024. This is our first new pad edition since 2016. And as we said at our recent analyst meeting, we can leverage existing infrastructure to add additional pads with very limited capital requirements in the years ahead. Now moving to global LNG, we've also continued to progress our strategy, securing 1.5 MTPA of regas capacity at the gate LNG terminal in the Netherlands. This will take our total European regas capacity to 4.3 MTPA. We have now effectively secured destinations for nearly half of our Port Arthur LNG offtake commitment in the first six months. since we sanctioned the project. Now elsewhere in the international portfolio, we started up our second central processing facility, CPF2, in the Montney. And in Norway, we just announced that we have started up three project developments ahead of schedule in October. This includes the company-operated Tommeliten Alpha-A subsea tieback project at Equifisc, which is nearly six months earlier than originally planned, as well as two non-operated projects. Finally, in China, our partner started at Bohai Phase 4B ahead of schedule in October. So as you can see, our diversified international portfolio continues to be a strong differentiator for our company. Shifting to results, we have record global and lower 48 production in the third quarter. And we raised our full year production guidance to account for the closing of the Surmont acquisition. All this while achieving continued capital efficiency improvements as our full-year capital guidance remains unchanged. We also continue to deliver on our returns to our shareholders. We increased our quarterly ordinary dividend by 14%, consistent with our long-term objective to deliver top quartile increases relative to the S&P 500. We have distributed $8.5 billion in dividends and buybacks year-to-date, and we remain on track for our $11 billion full-year target. And we did this while funding the shorter and longer term organic capital growth opportunities that we see across the entire portfolio. The team continues to execute well. Our deep, durable, and diversified asset base continues to get better and better. And we are 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 third quarter performance in more detail.
spk02: Thanks, Ryan. In the third quarter, we generated $2.16 per share in adjusted earnings. We produced 1,806,000 barrels of oil equivalent per day, representing 3% underlying growth year over year. Planned turnarounds were successfully completed in Norway and Alaska, and lower 48 production averaged 1,083,000 barrels a day equivalent per day. including 722,000 from the Permian, 232,000 from the Eagleford, and 111,000 from the Balkan. Lower 48 underlying production grew 8% year on year, with new wells online and strong well performance relative to our expectations. Moving to cash flows, third quarter CFO was $5.5 billion, including AP LNG distributions of $442 million. Third quarter capital expenditures were $2.5 billion, which included $360 million for longer cycle projects. And through the end of the third quarter, we have now funded $875 million for Port Arthur LNG out of our planned $1.1 billion for the year. Regarding returns of capital, we delivered $2.6 billion to shareholders in the third quarter. This was via $1.3 billion in share buybacks, and $1.3 billion in ordinary dividends and VROC payments. And today, as Ryan said, we announced an increase for our ordinary dividend of 14% to $0.58 per share. We ended the quarter with cash and short-term investments of $9.7 billion, which included proceeds from the $2.7 billion in long-term debt that we issued to fund the Sermon acquisition, which closed in early October. Before shifting to guidance, I do want to take a quick moment to update about our VROC. Beginning in 2024, we will be aligning both the announcement timing and subsequent payment of our VROC with our ordinary dividend. Therefore, you can expect us to provide details on our first quarter VROC payment on the fourth quarter call in February. Now turning to guidance. which now reflects additional 50% of Surmont starting in early October, we forecast fourth quarter production to be in a range of 1.86 to 1.9 million barrels of oil equipment per day. Full year production guidance is now roughly 1.82 million barrels of oil equipment per day. Now to put this production guidance in the context, we expect underlying growth for both the fourth quarter and the full year to be roughly 4% year-over-year, which includes lower 48 production growth of roughly 7%. And this is very consistent with our full-year guidance and our long-term plan we laid out at our analyst and investor meeting. For AP LNG, we expect distributions of $300 million in the fourth quarter and $1.9 billion for the full year. And while AP LNG distributions can vary quarter-to-quarter, A normalized run rate to think about moving forward is around $400 million per quarter at current price levels. Shifting to adjusted operating costs, we raised our full year guidance by $300 million to $8.6 billion. This was driven by our increased working interest in Sermont, increased lower 48 non-operated activity, and inflationary impacts in the lower 48. We've also raised our DD&A guidance by $100 million to $8.3 billion. which is also primarily due to Surma. And full year adjusted corporate net loss guidance remains unchanged at roughly 800 million. And the second half run rate is a good starting point for 2024. Finally, our full year capital spending guidance range is also unchanged. So to wrap up, we had another solid operational quarter. We continue to deliver on our strategic initiatives across our diverse portfolio and we remain highly competitive on our shareholder distributions. That concludes our prepared remarks. I'll now turn it back over to the operator to start the Q&A.
spk00: Thank you. We will now begin the question and answer session. In the interest of time, we ask that you limit yourself to one question. If you have a question, please press star 1 1 on your touchtone phone. If you wish to be removed from the queue, please press star 1 1 again. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star 1 1 on your touch-tone phone. Our first question comes from the line of Neil Mehta with Goldman Sachs.
spk17: Thank you very much. There's been a lot of variability in lower 48 results from some of your competitors, and you guys have been very steady tracking at this 7% growth rate. Just love your perspective walking through the basins, particularly the Permian. What is working? What's not for you guys? And how do you feel about the plan as you move into 2024?
spk06: Yeah, Neil, this is Nick. You're right. I mean, overall, if you look at our performance across all our basins, it's been strong and in line with prior year performance across, again, all those lower 48 assets. I'd also mention that it's been in line with our tight curve expectations. I'll call out, for example, Delaware well performance is showing top quartile on volumes produced not only on a barrel of oil per basis, but also on a BOE per basis per foot. So we're seeing very encouraging results there. I think the key point, too, is this strong performance reinforces our strong focus on a returns capital efficient environment that we've set there.
spk19: And I would add, Neil, it speaks again to the quality and the depth of the inventory in the company. We're prosecuting some of the best acreage in the basin and doing it in such a way that's focused on capital efficiency and returns as Nick described.
spk00: Our next question comes from the line of John Royal with JP Morgan.
spk18: Hi, good afternoon. Thanks for taking my question. You've had a handful of international project startups that you touched on in the release. If you could give us some more color on these projects, that would be helpful. And maybe if you could tie that into a growth outlook for the international business in 24 as well, that would be helpful.
spk14: Thanks, John. This is Andy. I can take that one. It's a little early to be getting into the full year guidance for 2024. As you mentioned, we have had some pretty good news across our Alaskan international projects. We've made some pretty significant progress across the portfolio, and it really is nice to see So many of those projects achieved major milestones on or ahead of schedule and budget. Ryan touched on Norway. So there we achieved first production ahead of schedule on three of our four subsea tiebacks. And we expect a fourth one to come online as planned in Q2 24. So we expect those four projects in aggregate to add about 20,000 miles of air production next year, which should more than offset normal decline in 24. We also had some good news in China where our partner-operated Bohai FACE 4B achieved first production ahead of schedule from the first platform. Now, that's going to be two platforms tied back to a central processing facility, and we'd expect the second platform to come on in the first quarter. And then with that, we'll then have the opportunity to drill new wells in Bohai for the next four to five years. And then, you know, we also had some pretty big major milestones in Canada with CPF2 in the motney. and Pad 267 in Sermon. So CPF2 was successfully started up in September, and that's going to add to about 100 million cubic feet a day of gas processing and about 30,000 vials of condensate and water handling capacity. So in the Morton, we averaged about 20,000 vials of air production in Q3, and we're going to substantially grow that next year. And then finally, with Sermont Pad 267, we achieved first steam in September, and we'll get first oil in early 24. Now, with 267 online, we'd expect to see Sermont grow somewhere between 5,000 and 10,000 miles a day next year. And importantly, that's inclusive of a month-long turnaround that we conduct every five years in Sermont. So, you know, I'm really proud of what we're doing and executing across these projects. And I think the whole list of them here is a really good sort of example of how we leverage our existing infrastructure to deliver on our low cost of supply opportunities. So hopefully that gives you a feel for sort of the momentum we're building going into next year.
spk00: Our next question comes from a line of Steve Richardson with Evercore ISI.
spk21: Hi, thanks for the time. Bill, I was wondering if maybe you could help us on a little bit of broad strokes on 2024. CapEx thoughts. I think in the past you've talked about kind of a flattish CapEx around $11 billion with admitting there's a lot of moving parts in an $80 environment. Maybe you could just talk a little bit about that as you're thinking forward.
spk11: Yeah, it's Dominic here, Stephen. You know, what we'd say is very consistent with the AIM framework we laid out on CapEx. You know, Just to recap the moving parts, we've got several moving pieces. Assuming Willow is sanctioned, which we expect, spending on that project will be higher. And then, of course, you have the incremental $100 million or so for the other 50% of Surmont that we're adding. And those increases will be mostly offset by we're going to see lower spending on our LNG projects and roll off of the project capital at Norway. But I think the key message there is really very much in line with the framework we laid out at AIM. Of course, you do have the addition of some extra 50% there.
spk00: Our next question comes from the line of Doug Leggett with Bank of America.
spk03: Good morning, everyone. Thanks for having me on, although Phil has gone to the dark side with the one question wrote by the time.
spk19: That's one man's opinion, Doug.
spk03: If I may, I'd like to make one comment and ask one question. My one comment is your stock's up almost 5% this morning. I think acknowledging your dividend move, ordinary dividend move, is gaining recognition in the market. Congratulations on taking that step. We'd like to see more of it. Okay, with that, my question is simply this. One of my peers asked a question earlier about performance in the Permian. I'd like to ask it a little differently. One of your very large peers had some non-operated portfolio problems in the quarter. You guys have got a large part of your production that comes from non-operated production. Is there any discernible difference between your operated performance and your non-operated performance that's driven this reliable production growth year over year?
spk19: Yeah, so I can't resist but to comment on your comment, Doug, and then I'll let Nick answer your question on the lower 48. But it's exactly what we thought should happen with top quartile targeted dividend growth as a company relative to the S&P 500. So that's been our plan, and we're sticking to it and executing on that plan. But yeah, I can let Nick comment on your question about not off and off in the Permian.
spk06: Yeah, Doug, good question. I mean, I think you're looking at the Q2 to Q3 performance this year. We were up 2%, so sequential growth. And as Bill mentioned in his prepared remarks, we're seeing 7% year over year. Obviously, that has a combination of our operated and non-operated portfolio. Both are performing well. Specifically, Doug, in Q2 to Q3, A large component of that increase was our operated Permian program as well as OBOE. So we're seeing increases in the operated by others and a little bit of Bakken as well. These operated by other assets are very competitive. We look at every ballot. We benchmark each one, and it performs well within our cost supply framework. As a reminder, if you look at Permian in general, about 30% of our production is coming from operated by other within the Permian. And if I take you back a little bit in time to the analyst investor day, when you think about the split between the two basins, we've got two-thirds of our inventories in the Delaware, one-third in the Midland Basin to generate the full lower 48-grade of 5%. Bottom line, Doug, is that they're both competing well. We review every ballot to make sure we're investing the right capital and drive that capital efficiency.
spk00: Our next question comes from the line of Lloyd Byrne with Jefferies.
spk09: Hey, good morning, guys. Good morning. Ryan, you mentioned it in your prepared remarks, but I'm hoping you can comment further on international gas integration strategy. I recognize it's early, but by our numbers, it seems like a lot of option value there. So maybe just thought process behind it and maybe any targets you might have to help us think about the future there.
spk19: Yeah, I can let Bill give you some details there, Lloyd. But yeah, we're excited about the opportunity to add the regas capacity in the Netherlands at the gate LNG. It complements well our German edition, and we're looking elsewhere as we try to build out and move the Port Arthur volumes and the volumes we have in other places around the globe into that market, which we think is going to be a strong market for many decades to come, which is why we're moving into this. Bill can be a bit more specific to your question on the details there.
spk02: Yeah, I'm happy to put a bit more color on that. So, you know, we're very focused on developing market. And as we've talked about, we like to do this in a stair-step fashion with how we originates supply. You've seen us announce Port Arthur LNG and Saguaro LNG. We're making really strong progress at 2.8 million tons per annum of regas capacity at German LNG. Two of that is dedicated to supporting our LNG SPAs out of Qatar. That leaves 0.8 at Germany. We've just added 1.5 million tons of regas capacity at Gate. So that's 2.3. That's roughly half of Port Arthur. And I think importantly, we're continuing to see a lot of interest and strong demand for LNG. As we've talked, we're looking to develop a diversified portfolio that's both sales into Europe and also sales into Asia, perhaps some FOB sales at the facility. and having a mix of variety of term links in that. And so I'm really pleased with the progress we're making. Within six months of kind of FID of Port Arthur, we've got roughly half of it placed. And I think the way to think about that, just going back to the vignette I showed at AIM, is you look at the capacity that we have into Germany and to TTF, the way to think about that as you're modeling returns is you start with the Henry Hub price, you add liquefaction tolls, shipping and regas, You compare that to what you think European gas price will be. That's going to give you your base CFO for volumes into Europe before adding any diversion optionality onto that. You can do a similar type analysis going to Asia. So, yeah, we share your view here that these are very interesting additions to our portfolio, and we're really pleased with the progress we're making.
spk00: Our next question comes from the line of Devin McDermott with Morgan Stanley.
spk22: Hey, thanks for taking my question. So I want to echo the earlier comment on the dividend raise and ask a question on the shareholder return. So it's good to see the 14% increase. I was wondering, If this large change in the dividend is more tied to incremental cash flow on Sermont, or if there's been a broader change in how you're thinking about the target payout or dividend break-even as you look out at the business over the next few years. And just as part of that, maybe you can give us an update on your broader thinking on shareholder return strategy and the breakdown of dividend, VROC, and buybacks in the context of today's increase.
spk19: Yeah, no, I don't think anything's changed in our framework, which we outlined, I think, pretty extensively in our last analyst meeting. So based on our mid-cycle price call, you can expect us to deliver at least 30% of our cash flow back to our shareholders. And then we've said when the prices are in excess of our mid-cycle price call, which is where the prices are today and where they've been over the last few years, you should expect us to be delivering more of our cash back. And that's, in fact, what we've done over the last five to six years, you know, delivered, you know, mid 40, 45, 45% or so of our cash has gone back to our shareholders. And it's done that in a form of both the cash and buying our shares back. So our construct around that really hasn't changed. We like to you know, provide an affordable, reliable, ordinary dividend that grows competitive with the top quartile, the S&P 500, over time. We'd like to buy some of our shares back through the cycle in a mid-cycle construct, and then we introduce the third leg, VROC, to add additional return back to our shareholders when prices are above our mid-cycle price call. So that's the construct we have, and as we And we're sticking to that. We think it's served the company pretty well. And it provides, like this year, we expect cash flow of close to $22 billion, and we're giving half of that back to our shareholders. So that's probably not a bad starting point for next year.
spk00: Our next question comes from the line of Nitin Kumar with Mizuho.
spk13: Hi, good morning. Thanks for taking my question. I guess just sticking with the theme of M&A, and I appreciate, Ryan, you touched on it in your comments, but one of your peers out there has talked about improving recoveries in the Permian to the tune of 20% or higher than everybody else. You operate across the entire Permian Basin. I'm curious. Are you deploying or seeing others deploy technologies that you think can improve recovery rates that significantly?
spk19: Yeah, I'll let Nick respond to that specifically. And I guess I'd make this one broad comment is I think as we talk about this topic, I think in the companies and a lot of people are guilty of this conflation a bit between recovery and recovery rate or recovery factor. So I think you have to be really careful when we talk about this in light of these unconventionals. We're doing everything we can to improve the recovery that we get from the wells, the acreage, the blocks, the layers that we have within our portfolio. But be careful not to conflate that to recovery factor or recovery rate. And I can have Nick speak a bit more specifically about the things we're doing to make sure we get maximum recovery out of our assets.
spk06: Thanks, Ryan. Yeah, and then our asset teams, as Ryan mentioned, are very focused on optimizing recovery of our wells and our development projects across all the lower 48 assets. I think it's important, too, is we seek to maximize recovery, but also driving improvement in and that's part of our returns-focused strategy and the cost supply framework that we judge every decision against. We look at kind of improving recovery across kind of three primary buckets, so I'll take you through that, what we're looking at, what we're deploying within our assets. So first, we look at development decisions. It is our first bucket. Secondly is how do we optimize the reservoir? That's our second bucket. And then the third one is really we look at enhanced oil recovery, but that's more longer term. Then one of the things that we obviously have within the Permian, and we mentioned this at the Announce Investor Day, is that we have two decades of inventory within the Permian at current big activities level. So we have a lot of focus on development decisions and the reservoir optimization to improve recovery. A couple things, well, lateral length is critical. You know, we speak to about the inventory length, more you can go from a one lateral to a two to a three mile lateral. you increase the recovery per well. And as we've mentioned before, you go from a one to a three, we improve our cost of supply, which drives capital efficiency by 30 to 40%. So we're doing that. As a reminder, we've got 80% of our Permian well inventory is 1.5 miles or greater and 60% is two miles or greater. And we're continuing to execute three mile laterals year to year growth on those as well. On the well completion side, again, this still sits in that development decision bucket. We're doing some interesting work in the Bakken as an example using multivariate analysis where we optimize completion design to maximize both recovery and capital efficiency and seeing recent completion results that are very favorable in that space. And then the kind of last item I'll address on the development decisions is around spacing and stacking. You know, one thing that we do out in the Midland Basin that you've heard here recently is co-development. Co-development allows us to minimize the parent-child impacts while improving recovery as well as capital efficiency. And we've demonstrated over the last four years, both in the Midland Basin as well as the Delaware Basin, around improved performance there. On the second component that we're focusing in on reservoir optimization, I'll draw your attention to Eagleford. We're using techniques where we refract these wells, kind of late life in the wells, and we're seeing improved well performance on expected ultimate recovery by 60%, which is very competitive in our cost supply framework. And then I'll take you up to the Bakken. We're using infill wells and upcoming edge wells to further increase overall recovery And these are also competitive in cost of supply. Again, that's increasing the recovery per pad. And then the final bucket, that enhanced oil recovery component, we've done many pilot studies, mainly in the Eagleford, around gas injection, huff and puff. And we've seen technical success. We've seen injectivity and the corresponding oil response. But I'll leave you with this on the enhanced oil recovery. These projects don't compete within our expansive drill one inventory at this point in time. We'll continue to study it and analyze it, and that's something we can address in the future. So from long laterals to improved completion design to infill wells, we're improving recovery in our assets.
spk00: Our next question comes from the line of Roger Reed with Wells Fargo. Hi. Good morning, everybody.
spk12: Good morning, Roger.
spk01: a lot of this has been hit, but I guess I'll just ask about Alaska. Um, you know, there've been a little more noise up there on the, I don't know if you call it regulatory legislative side. Um, and then we're about to head into the winter season. So I'm just curious, uh, you know, Willow and other things, what's going on there.
spk14: Hey Roger, this is Andy. So yeah, I, let me take that one. I'll, I'll start with the legal and then we'll give you a bit of an update of where we are with the project. So on the legal side, um, I've talked about this on previous calls. There are lawsuits challenging the federal government's approval of the project. As I mentioned on the last call, we expect to see a ruling on this in November. The preliminary rulings in April were favorable, and then the upcoming ruling will address the full scope of the legal challenge. Again, I'm repeating myself a little here, but as I said on the last call, we're very happy with how the BLM and the cooperating agencies conducted the process and satisfied all the requirements to grant their approval. So we're confident and we're looking forward to those court rulings in November as we get ready for the 24th season. And then I think the other part of the legal question you were alluding to is separately in September, the Department of Interior proposed additional regulations for the management and protection of the MPRA. And we don't expect these draft rules to impact Willow or prevent our exploration program. It doesn't have any impact on the 10-year plan we've previously laid out at AIM. But that said, we are concerned if the rules are adopted as currently drafted, they could impact future developments beyond Willow in the National Petroleum Reserve Alaska. So we're going to be providing feedback to the Department of Interior to try and make the proposed rules more consistent with the existing statute. And again, I'll just finish the legal bit with, as a reminder, the statute recognizes the primary purpose of the NPRA is to increase domestic oil supply. So that's kind of where we are on the legal side. And then just very quickly where we are in terms of the project. Taking a step back here, as I described back in our investor update, Willow is the kind of project that's right in our wheelhouse. We've got no first-of-a-kind type risk here. It's three drill sites to one new processing facility. And our track record in Alaska is excellent at delivering on schedule and on budget. So specifically to where we are right now, work is progressing well. And our 2023 capital is fully factored into the total company guidance we gave today. We've started the first phase of module fabrication on the Gulf Coast. And then on the North Slope, we've successfully opened the gravel mine. and we're preparing for the 24th construction season. We've already got over half of the project scope under firm contract, and these contracts include clauses if we don't FID the project that we can exit. Now, all the contracts we've issued today, 75% of them are lump sum or unit rate. For these type of contracts, we have agreed a price and now have limited exposure to future inflation. So as we continue the contract negotiations, our estimate of capital to first production remains unchanged of $7 to $7.5 billion that we previously provided. So I think that probably gives you a good update on where we are on the legal and on the project side of things.
spk00: Our next question comes from the line of Ryan Todd with Piper Sandler.
spk08: Sorry, I think that's it, Ryan Todd.
spk10: Maybe one for you, Ryan. You've been busy on the portfolio over the last few years across a wide range of regions and types of assets across the portfolio. And some of that is obviously opportunistic just when the timing of things like Suramon and APL&G came up. But if you take a step back now and look, Is there still more to do on the portfolio in terms of portfolio management? Are there increased high grading opportunities on the divestiture side that we should expect as you continue to develop things? Or any places that you would like to change or increase your exposure maybe as you look going forward down the line in terms of long-term competitiveness?
spk19: Yeah, Ryan, I think as we tried to show you at the analyst meeting earlier this year, we're pretty pleased with all the efforts we've made in the company over the last four to five years to really what we think has put out an extremely compelling 10-year plan. So I wouldn't describe the – we really, really like where the portfolio has gotten to. It's global. It's diverse. It's got a great mix of short, medium, and longer cycle opportunities organically to invest in. All those investments lead to 20 billion barrels at less than $40 cost of supply. So we've got a lot of visibility into what we think is a great plan. We're ruthless high graders of the portfolio. If some doesn't compete, we're looking for opportunities to move it out. I wouldn't describe we've got anything significant inside the portfolio today that would fall into that category. And we're always looking and trying to be opportunistic, which I think describes, to your point, the APL&G roper and the in the surmont roper that we hold so you never quite know when your when your partners make a change that you didn't anticipate and you get a great opportunity to acquire an asset that you know really well and the one that we know we can make better if we have it under our control and and ultimately as I said it makes our 10-year plan better so we're always out looking to find you never quite know when these things might materialize but We tend to be very opportunistic, and I just remind people our framework is intact. It has to meet our financial framework. We've got to see a way clear to make the asset better, and does it make that 10-year plan that we think is quite compelling, does it make that 10-year plan better, which is a pretty high hurdle inside the company.
spk00: Our next question comes from the line of Paul Chang with Scotiabank.
spk15: Hello. Can you hear me? Yes, we sure can, Paul. Good morning. Hi, thank you. Good morning. Ron, if I can go back into Permian. What's your average netto length now and then how much do you think you can improve or lengthen it over the next several years? Is that one of the primary contributors that you think you could improve the result in your auto Permian operation? And also that whether you guys have tested, because at some point I would imagine it will reach this economy of scale when you get longer and longer. Do you have any experiment that you guys have done that what that limit may be? Is it four miles? Is it longer than four miles or less than four miles? Thank you.
spk19: Yeah, thanks, Paul. I can let Nick kind of weigh in on some of that. You know, we're not Yeah, I think lateral length is just one of the things that we're working on. Nick described a bunch more in an earlier question around completion efficiency and how we're attacking the spacing and the stacking. So I think it's all of those things that we're trying to attack and they're different depending on where you're at in the Bakken, the Eagleford, or the Permian. but we have deep experience in all three of those basins and using all that knowledge to make sure we're maximizing the recovery and minimizing the cost of supply and maximizing the efficiency that we're getting out of it. Specifically on lateral lengths, I can let Nick weigh in on that.
spk06: Yeah, Paul, good morning. Just to reiterate again, we've got a significant deep and broad long lateral inventory across the assets I just mentioned previously the 80% of Permian inventory is 1.5 miles or greater, and the 60% greater than two miles. And we continue to see more and more three-mile laterals. And we're seeing good results coming out of the three-mile laterals, both from our 2022 program as well as 2020-23. And so we continue to see increases in that space. Our teams continue, from a BD standpoint and a land standpoint, look at core-up opportunities. And this is not only in the Permian, but as Ryan just mentioned, in the Bakken. We just finished up some trades there to allow us to drill some three-mile laterals in the future. So we're increasing the portfolio of long laterals across all four assets. The thing that you had talked about related to how far can you go, I'll just step back. The three-mile laterals that we're seeing over the last couple years are performing well. We're very encouraged with the results. You want to make sure you get contribution across that entire lateral length. As we would think about going further, longer lateral lengths, I think you mentioned four miles, there's a trade-off. You can potentially drive down and improve cost of supply, and then also you have to look through the lens of operational risk, because that operational risk is also not only in development drilling, actually drilling the well, but also future workovers. We're looking at that in the future, but I'll leave you with the fact that the three-mile laterals were formed extremely well, and we've got a very deep inventory of long laterals, as I mentioned earlier.
spk00: Our next question comes from the line of Josh Silverstein with UBS.
spk08: Thanks, guys. Ryan, I appreciate the comments before on the return to capital thoughts for next year. I was curious with the added debt from the third month transaction, how you might think of additional shareholder returns versus this year or the want to build cash or pay down the debt there. Thanks.
spk19: Yeah, I think we're in that planning process as we kind of think about next year and all those moving pieces. So I try to say, you know, it looks to me like at this 10 seconds, the Commodity prices are kind of very similar to where we were coming out at the end of last year, coming into the beginning of 2023. So I think that framework around total return as a starting point is pretty good for 2024. We'll just have to see what commodity prices are as we go forward. And, you know, we have a plan and Bill can address that to kind of pay off the debt as it comes due over the next few years. That gets us down to our original target of $15 billion gross debt. And we can continue to do that. And I think if we had a very large up cycle to the price, commodity price, we might look at adding more cash to the balance sheet as well. So I think all three of those are in play as we think about what we do over the course of each quarter as we go into next year.
spk00: Our next question comes from the line of Sam Margolin with Wolf Research.
spk23: Oh, hi. Thanks for taking the question. I guess I wanted to ask for an update maybe on the Venezuela process. It's come up in prior calls and the process is advancing. And I guess specifically I want to ask about a scenario where the assets that aren't strategic to you get returned or surrendered to creditors and you know, what might be the path forward from there, because, you know, it's a large claim, and it's material, and it seems like it'll be a good outcome for you, but might require some actions in the aftermath. Thank you.
spk19: Yeah, I'm sure I understand, Sam, but, yeah, we're in a process with the Venezuelans right now. They owe us a considerable amount of money through both our our ICSID and our ICC claims, you know, approaching over $8 billion. They owe us on the full judgment on the ICC, they still owe us $1.4, $1.5 billion. So we're pursuing that pretty aggressively. I think, you know, we're watching the progress closely. Clearly, the U.S. government has provided a lifting of some, if not all, of the sanctions here, waiting on you know, results of what the Venezuelans do on the other end for free and fair elections. So that may create a bit of an opening, but, you know, this is a long process, but we're pretty committed to doing everything we can to make sure we get our money out of Venezuela that they owe us. And that's what we're focused on.
spk00: Our next question comes from the line of Neil Dingman with Truist Securities.
spk16: This is Neil. Is this for me? Yes. Go ahead. Okay. Thanks, guys. Ryan, my question, you hit on this a little bit. It's just on M&A specifically. Well, I appreciate your earlier comments about any assets needing to fit the 10-year plan. I'm just wondering, is there a preference for, you know, when you're seeing things, shorter or longer-term cycle assets, and just also curious on how you view valuations of some of the recent public deals? Thanks.
spk19: Well, certainly the way we look at it, Neil, is we like a global, we like a diverse portfolio. We like it to be balanced. I think we're mostly focused on what's the cost of supply, make sure it fits our framework around that, and that any asset that you bring into the company, make sure it can compete for capital on an ongoing basis against a pretty rich, deep, durable, long life portfolio. a lot of inventory sitting in the company today so as i said it's a pretty high bar um i you know i don't know quite how to comment on the recent deals that have been done um though those are you know transactions those are really good companies that were bought clearly they have good assets uh we're pretty familiar with them we we've watched them for a long period of time and uh they're they're good companies with good assets um transactions were in a part of the cycle that's you know, a little frothy and probably at a higher mid-cycle price than we would ascribe to them, I guess. Maybe that's all I should probably say.
spk00: Our next question comes from the line of Scott Hanold with RBC Capital Markets.
spk07: Yeah, thanks. I was just kind of curious, does consolidation that creates larger peers in the Permian impact the competitiveness of COPS development and positioning, you know, specifically if you look at services and in midstream capacity, you know, as you kind of, you know, move forward on your kind of, you know, 7% growth gig over the next decade plus?
spk19: I don't think we see a huge issue there at all, Scott. The Now, there's a lot of operators already in the Permian Basin, and it seems like the service side of the business has been accommodating all the activity that we have out there. There's been periods of tightness on certain categories of spend or certain services, but by and large, we don't think it's going to be a big issue for us going forward. The advantage of being one of those large operators in the basin is you get the attention of the service companies because They know you've got a program that's durable. They know you've got a program that has some length to it. They know you're not going to be whipsawing them around. And those are the kind of customers that they want to work for. So they tend to work with us. And so we don't see any exposure to the current consolidation trend in the Permian. And it's going to continue, no question. So more probably needs to happen.
spk00: Our next question comes from the line of Kevin McCurdy with Pickering Energy Partners.
spk04: Hey, good morning. I wonder if you can provide your current thoughts on adding activity in the lower 48. I know you've said that you can grow production without adding, but others are looking at the current service prices and commodity prices and seeing this as a good time to add. So just want to hear your most recent thoughts on that. Thank you.
spk19: I think that'll be part of the process we're going through right now, Kevin. I think we're Trying to think about what 2024 looks like, but our starting point is, you know, we're seeing the efficiencies and we're seeing growth coming out of our assets. So we started a place that says, let's just think about flat scope and then we'll think about these other drivers like commodity price or service capability, to your point, and make a decision as we go into next year about what the scope and the resulting capital will look like.
spk00: Our last question will come from the line of Leo Mariani with Roth MKM.
spk20: Yeah, hi. Well, I wondered if you could just comment on what you're seeing in terms of kind of lower 48 service cost trends. I think there was a lot of expectations a handful of months ago that cost may be falling, but now kind of commodities have kind of recovered. So maybe just give us kind of your perspective of kind of what you're seeing there on leading edge costs.
spk11: Yeah, it's Dominic. So, you know, as we talked about the last quarter, we're certainly seeing some areas of deflation, low 48. I think, you know, if you look at our capital spend this quarter, that's, you know, part of that trend is in there in terms of being lower capital this quarter than the previous. But we still expect our overall company capital inflation to average out in the mid single digits this year over last year. And that's all reflected in our guidance. I would say that as we approach the end of the year, and this is something that is in our thought process right now, as Ryan was alluding to, we do think the market's kind of finally balanced. We do see some deflation coming through, but we have seen oil and gas prices recently strengthened. So what we're looking very hard is at how we think that will trend into next year. But I think, as I said earlier, in terms of our overall capital expectations next year, very much in line with what we laid out at AIME. of course, plus our additional interest in SOMON. So, you know, that's just something that we're watching closely, but that gives you a good sense of how we're thinking.
spk00: We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.
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