ConocoPhillips

Welcome to the first quarter 2025 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 touch-tone phone. 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 Brian Lance, Chairman and CEO, Bill Bullock, Executive Vice President and Chief Financial Officer, Annie O'Brien, Senior Vice President of Strategy, Commercial, Sustainability, and Technology, Nick Holtz, 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 Plus 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 U.S. and internationally. And our advantaged U.S. inventory position in particular should become increasingly evident as the market sorts through the inventory halves, 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 a half a billion dollar 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 logger cycle investments in Alaska and LNG. This underlying improvement in our free cash flow will structurally lower our break-even 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 equipment 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 equipment per day, with 816,000 in the Permian, 379,000 in the Eagleford, and $212,000 in the Balkan. Internationally, production continued to ramp up at Sarmont 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 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 Katuska, 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 and $12.6 billion for the full year, or about a half 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 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 AP LNG 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.

Thank you. We'll 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 11 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 11 on your touch tone phone. Our first question comes from Neil meta with 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?

Yeah, let me... take that with 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. Yeah, I'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 year, 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 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 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.

Our next question comes from Devin McDermott with Morgan Stanley.

Hey, good morning. Thanks for taking my question and 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.

Hi, Devin. This is Andy. I can start with that one. As you pointed out, we have We have reduced the capital this year to a range of $12.3 to $12.6 billion. So that's about a half a billion dollar reduction. And it really is a combination of capital efficiency improvements across the portfolio and then plan optimization. The capital reduction, it does not include any material changes to the scope in the lower 48 versus our prior guidance. And as you saw, it didn't have any real impact on our production guidance for the full year. It's also probably also worth pointing out that already within our guidance on the last quarter and again now, we've been factoring in a drop-in activity in the lower 48 as we get Marathon onto a steady-state program, and that remains unchanged. The way we think about it is we've got a global portfolio, and the first thing we obviously do is we look everywhere to see where we can defer some discretionary capital that doesn't impact production, and That's effectively what we've done here. You know, I think as we're doing this, we also shouldn't lose sight of the trend we're on. You know, we're finding ways to deliver the same level of production for less capital and less operating costs. So, you know, we kind of think we're taking a pretty measured approach here. We want to take our time to better understand any potential debt for duration of any ongoing commodity price weaknesses. Before we have to determine if we really need to make any changes to our program, I would say we haven't really changed any scope of note. And for us, we're really going to just continue to focus on maximizing our returns on capital through the cycle. Leave it there. At this point for us, it's kind of just a measured approach to see where things are going.

Our next question comes from Steven Richardson with Evercore ISI.

Hi, good morning. Ryan, I was wondering if you could talk a little bit about your current views on cost structure and opportunity for further employment improvement. I think you've started the year well with the $200 million reduction. One of the themes this quarter in the industry has been kind of resource maturity and appreciate your comments about the depth of your inventory, particularly in the lower 48. But I'm wondering if you could talk about kind of as the industry matures, as Conoco's business kind of matures, how are you thinking about the overall cost structure and where to go from here considering all the macro considerations you talked about?

Yeah, thanks, Steve. You know, I think it's a part of our DNA. We're constantly looking at the costs and we benchmark both our operations and our G&A across the whole world pretty constantly. We're looking at across the fence line to our fence line neighbors, making sure that we're not disadvantaged in any way, shape, or form. So I think it's just something that's built into us. We've had the opportunity now with the marathon transaction to step back and take a look at the company, what we're doing in the center, what we're doing in the business units. And we're just trying to drive that efficiency across the whole organization just to maintain our competitive edge and maintain the competitive nature. So You know, just watch us every quarter. You know, we're focused on continuing to get better, and these kinds of environments just make that all the more important. But it needs to be a constant thing that you do as part of your just running a company like this in a volatile macro.

Our next question comes from Arun Jayaram with JP Morgan.

Yeah, good morning, Ryan and team. Ryan, we've seen a modest activity reduction from several of your E&P peers, yet Conoco looks to be staying put in terms of your 2025 plans. I guess my question is, you've built Conoco with a low cost of supply in your core basins, and how do you think about balancing this low cost of supply with the macro as well as perhaps preserving uh, you know, precious inventory, particularly in the lower 48.

Yeah, I can let Andy, uh, jump into, uh, a little bit here, but yeah, I think it's right. We, you know, low cost supply wins in this business. So we're trying to drive that as much as we can in our entire inventory. And I think we've gotten ourselves to a pretty great, great place with the depth of the inventory and the duration. And now it's just, you know, how do you, how do you affect that program? and drive the best returns on the capital that you're investing in the business. And then I can let Andy sort of provide a little bit more about how we think about that as we execute our programs. Yeah, thanks, Ryan.

And Arun, as Ryan said, you know, we've got that decades of low-cost supply inventory, and it's actually times like this where, you know, it's been our relentless focus on low-cost supply. We've been talking about this for years now. sometimes in sort of a higher price environment, it doesn't get quite the same focus externally, but, you know, we've remained, you know, laser focused on it. And, you know, we invest in projects that generate 10% returns in a $40 world. You know, it's one of the central tenants to our resiliency. You know, I'd say, you know, we're not looking to try and time the market with our capital investments and, you know, where we're sitting right now with all prices, they're actually not that far from a mid-cycle price. You know, what history has taught us is that we really value our steady-state program. And when we look back on times like this, these are the times where you get a great opportunity to capture lower capital costs and operating costs. So that's the way we think about it. But we're also fully aware that the market's not calling us to grow anything like 4% to 5%, like we did last year. And remember, we've adjusted our plan. Our plan this year is for low single-digit production growth. significantly lower than last year. And the way I would sum it up is that we just remain very focused on delivering the returns on free cash flow, and production just remains an output of our plan.

And I would finish that, Arun, with, look, the people that can do this are the ones that have the kind of inventory that we do. We mentioned the have and the have-nots in our opening comments. And Companies like ours, with the kind of inventory we have, have this optionality in terms of how we execute our programs. And as long as we're driving returns on and of capital, that's our North Star. That's what's driving it. As Andy said, the production growth is really an output. The real driver is cash flow and pre-cash flow growth.

Our next question comes from Doug Leggett with Wolf Research.

Good morning, everyone. Thank you for having me on. And, Bill, it's been a lot of fun. And, Andy, it wouldn't be an inaugural call as the pending CFO if I didn't ask you about breakeven. So I'm going to try that, if I may. It's really a clarification question on the $450 million reduction. Is this coming out of growth capitals? in terms of doing things more efficiently, or is it coming out of, I guess, what you would call base capital for maintaining the business? In other words, has the sustaining capital also being reset by almost half a billion dollars? And if so, what does that do to your breakeven? And I will leave it there. Thank you.

Yeah, thanks, Doug. A couple of threads there to sort of weave together. So I think as I said earlier, the capital reduction of half a billion dollars is really coming out of a combination of things in terms of where we can, you know, we can simply defer things that are, you know, are not adding production, you know, this year, with basically a very negligible impact next year. You know, there's obviously sort of a, you know, when we go through sort of a, you know, the price is coming down, we're starting to see some capture of deflation. So we always say when we talk about break-evens, it does become a bit of a, you know, a hypothetical conversation because as price goes down you know we would expect some deflation so you know i'd say it's a you know it's a mix of things that where we're seeing you know where we can do things cheaper and uh you know we're basically making sure that we're in a way where we can push scope out where it doesn't doesn't have any impact on our production we're not really playing with rigs and fractures we're going to do that um so you know yes over time you know it reduces our break even but uh To put it quite clearly where we are with our break-even, this year our free cash flow break-even is in the mid-40s, and the dividend would add about $10 to that. Really importantly, that includes all of the pre-productive capex that we've got going on on our major projects, which is about $7. As you look through this year and going forward, we talk about our free cash flow inflection. This is exactly where you'll start to see it with our our break even coming down into the low 30s as we start to basically reduce the capital and we see the projects coming on.

Our next question comes from Nitin Kumar with Mizuho.

Hi, graph room guys and Bill, congratulations on the retirement. Maybe I'll take it away from the macro for a minute and talk about your long cycle projects. You mentioned that you hit some critical milestones at Willow. I'd love to hear a little bit more about that. And then I think the spending in Alaska was just north of a billion dollars this year or this quarter. How can we look for it to trend over the next few quarters as you get into the later phases of that project?

Hi, Minton. This is Kirk. I can take that one. Certainly, as you're pointing to with your question, execution here in first quarter on our willow project was very important, and the project team delivered the key milestones that were required to ensure that this project remains on track, fully in support of a first oil in 2029. We saw really good progress up there. We ramped to to roughly 2,400 people on the North Slope, which again reaffirms that this was our peak winter construction season. And again, a little bit of kudos to the folks up there. Really strong safety performance. We saw some really strong efficiencies in a broad span of work across those activities. So on that winter construction, we're now roughly 50%, if not slightly better, on completion of all of our civil scopes. So when you hear that, think roads, pads, bridges, And we've got about 80 miles of pipeline installed. And very importantly, we executed a horizontal directional drill underneath one of the key waterways, and that allows us to connect east-west pipelines. Again, continued build out of that infrastructure. And as you've heard from me before, really critical this year as well was that operation center pad. So those modules that we see lifted up there here last year, those are now set on the pad. we opened our willow construction camp, and that becomes important because it allows us to begin construction work on the North Slope a bit more throughout the year as opposed to being completely confined to the winter season. And then outside of Alaska, engineering fabrication on our processing modules, that continues to go well. And then, of course, key for us here this year, Second major season on this project is procurement activities and sourcing activities and so we do expect to Source and receive a bulk of the engineered equipment that's required to procure again for those process modules and all as well as all this forward-looking work that we have on the slope and so Here by year end we'll have 90 to 95 percent of that work Sourced and that brings even more certainty to just understanding how this will continue to play out for us in a positive way. So, again, peak capital, we guided you a bit to about a third of total spend here. This year will be in the first three to four months of this year. We're seeing that actualized for us, and so we expect capital to continue to taper down through the remainder of the year.

Our next question comes from Lloyd Byrne with Jefferies.

Hey, good afternoon, everybody.

And Bill, congratulations and thank you for all your help over the years. Ryan, you talked a lot about what separates Conoco and the advantages you have going forward, including all the free cash you have coming. So would you use your balance sheet and your asset sales and lean in a little bit on the going above that 45% return to shareholders going forward? Thanks.

Well, I think, Lloyd, I was trying to guide to sort of the 45% feels about right for where we are in the cycle. Obviously, at these kind of commodity prices, if you think about it, it may require a little bit of use of cash on the balance sheet. But as Bill mentioned, described in his opening remarks, you know, we stand in a pretty good shape. We think buying our shares makes sense right now. We're not going to drop off that at all. And in a small factoid, in the last four to five months, we've bought nearly 20% of the marathon shares back in. So, you know, we think that's important, and we know that returns of capital are important, but I would probably anchor on the mid-45% of our CFO. And that may have some impact on net debt, but we're not intending to borrow gross debt to do this.

Our next question comes from Scott Hanold with RBC Capital Markets.

Yeah, thanks. Congrats, Bill and Andy. And Bill, wish you well in your future endeavors. My question, and look, I don't want to belabor this sort of macro kind of question and what does Conoco do, but I'm going to try a bit of a different angle at it. And Ryan, you talked about the haves and have-nots where Conoco is advantaged, but if we do have a weaker macro environment, what do you think should happen in the industry? Should it be companies with higher cost of supply should be the first to cut and companies like Conoco show a little bit more resilience or do larger companies like Conoco need to take a leadership role in making some of the first cuts?

Well, I think it's a great question, Scott. Obviously, the folks that don't have the kind of cost of supply sitting in their portfolio are going to find themselves cash strapped and and return straps. So they're, you know, obviously the balance sheets are pretty good shape across the industry, better than we were in the last downturn, but you'll see a lot of activity cut back. And presumably what you're talking about is a price outlook that is well below 60s, so into the 50s or the low 50s. And I think you'll see... Even some of the larger companies, I think if we found ourselves thinking that the remainder of the year was going to be in the low 50s, we would be looking probably at additional scope kinds of opportunities within our company too. But again, we have to assess whether we think that's going to be here for a quarter or a month or two months, or is that kind of the new normal and lower for longer kind of view of this. I go back to kind of our prevailing view of the macro, and that is while demand has come off a little bit from our current think of a million barrels a day, it's still our view in 25 is probably 8 million barrels, or yeah, 0.8 million barrels of additional demand growth in 2025, and that's not stopping. And yeah, OPEC is doing their thing to put some softness in the market, but remind people $60 is pretty close to our mid-cycle planning price. So you shouldn't expect a lot of things to change out of our company at these kinds of prices because we're built for it. We can handle the volatility, got a great balance sheet. We know we're executing low-cost supply. We're delivering the efficiencies that Andy and Nick are driving and what Kirk talked about in the operating side of the business. And so we're really focused on doing that. Would we have to look at potentially doing something different at 50? Sure, we would. But that's not our view today and doesn't represent where we think the market is going to be for the next few years. All things could change, but that's kind of why for us it's, you know, don't whipsaw this thing too hard right now and use some of the strengths that we have as a company because we can't because of the the opportunity set that's in front of us. So don't overreact, but don't put your head in the sand either.

Our next question comes from Ryan Todd with Piper Sandler.

Good, thanks. Maybe one on a follow-up on the marathon integration. I think it would appear that It's going well, given your guidance on capital and operational cost reduction. So maybe can you talk about how that integration is going, what you're seeing on the operational front? You've called out Eagle for performance, so maybe any update would be great.

Hey, Ryan. Andy here. I can start that one, and maybe Nick might have a couple of comments to add, too. So to say, you know, it really feels pretty good to have the first full quarter of marathon, you know, behind us. And things are going really well. The integration is tracking ahead of schedule. You know, we're making great progress on our $1 billion of synergy captures. And, you know, we continue to find more opportunities as a combined company. You know, it is actually one of the drivers to, you know, why we're able to lower our capital operating guidance and the improvements we've announced today, you know. What I'd say on the capital side is we're already delivering capital synergies of over $500 million. So that started day one. And what's particularly pleasing is we're continuing to see efficiency improvements come forward. An example I can give you, and maybe Nick can add to it, is that this quarter our teams achieved record-winning performance in Eagleford. And what was particularly pleasing about that is they were leveraging combined best practices from both companies. So they're the kinds of things that we're continuing to get. Then on the cost side of it, we're also ahead of schedule. We're seeing opportunities for additional synergies in areas that we really couldn't evaluate pre-close, particularly on the commercial side of the business. Again, examples there would be we've got opportunities in areas like crude lending and midstream contracts that we didn't have factored in that we can now see. And of course, we're actually realizing synergies in the first quarter from things like the debt transaction we did that lowered our interest costs and It was the day one employee exit, so that's right on track. As we previously guided, we'd expect to see the synergy pace accelerate during the second half of the year as we ramp up merging all the systems. We remain very confident that we're going to exit the year achieving the cost and S&J synergies for that run rate of $500 million. maybe one just final comment I'll make is, you know, we don't consider this a synergy because it's, we think of it as a one time, but, uh, you know, we, we, we, we got tax benefits from this transaction too. You know, we, between the foreign tax credit utilization and the NOLs, the services of marathon, that's about a billion dollars of incremental value, um, that we're, you know, we're getting from the transaction above and beyond the synergy. So, you know, I, I would just say that, you know, it's, we're, we're really pleased with how things are going. And, uh, We're getting it integrated into our company, I think, pretty seamlessly.

Our next question comes from Betty Jung with Barclays.

Good afternoon. Thank you for taking my question. Brian, I really appreciate all the color on the cash return framework. If I'm hearing it, if the cash return is closer to the mid-40s of cash flow from ops going forward, If I could ask on the flip side of that, is it fair to think you will be more willing to let reinvestment rate run a bit higher, given where you are in the investment cycle on the major capital projects? I guess what I'm trying to get to is, is there a level of outspend that you'll feel less comfortable for the next couple of years?

Well, I think we've kind of factored that into the plans that we've talked about, Betty. We're not, you know, the absolute worst thing to do right now is to try to whipsaw these long cycle investments. So we're not trying to slow Willow down, or we're not trying to create inefficiencies in that, and we're not equally important not trying to do that on the LNG side. depending on where the price goes and what our CFO is, yeah, obviously our reinvestment rate will be a little bit higher as you kind of factor that in. But I remind you back, you know, when we, uh, when we showed a 10 year plan, what we've done with a company, you know, over time as our cashflow goes and free cash flows, these projects come on, you know, the reinvestment rate falls, the breakeven falls, the reinvestment rate falls. And, And that's really the reason why we're doing these projects to begin with. We can't always anticipate what the commodity price cycle is going to look like through that, but we know these projects are sub-$40 cost of supply. They can compete, and they deliver a good rate of return based on our view of the mid-cycle price call because they're low cost of supply. So there's things shareholders should be wanting us to invest in for the future growth and development of the company. But yeah, there'll be some natural ups and downs in our reinvestment rate as we go through that. And the shorter cycle stuff is where we have the flexibility. And today we're choosing not to exercise that because we have a longer term view, but we always have that flexibility as we go forward.

Our next question comes from Paul Chang with Scotiabank.

Hi, good morning. Good morning. Bill, I just want to say thank you with all the insight and help over the number of years. And Andy, welcome to that. Congratulations on the new role. Brian, I don't know whether this is a fair question. If we look at your inventory in the lower 48, you're probably one of the best in the industry. But we have heard from a lot of your competitors talking about how we are in the in the shell oil anyway. And inventory will become far more difficult. So with that in mind, do you think that Chronicle need to start more maybe aggressively diversify away from the lower 48 into your other area of operation? If you think that is a reasonable approach with the potential downturn, typically opportunity arise and which you have captured the opportunity in the past. So with that, is there any areas or asset type you would like to expand into or that substantially increase your existing position? Thank you.

Yeah, a lot. long detailed question, Paul. I think, look, cost of supplies are North Star. We're a bit indifferent as to gas, oil, U.S., lower 48, international. We like the diversity in the portfolio. All things being equal, there are areas you would like to grow to kind of offset the profile, maybe the unconventional, but look, it's all about the cost of supply first and foremost. And, you know, we like adding more resource that is low cost of supply into our portfolio and into our company. But inorganically doing that at this point, it's a pretty high bar in the company because we obviously have a differentiated, we believe a differentiated Portfolio both in terms of the cost of supply and its depth and duration as well So we're not we don't need to do anything, but we we watch the market we monitor it. We know what we like and You know what we what we don't like so we pay close attention to it, but we're first and foremost focused on delivering our plans and delivering what we've got in the portfolio and in executing, whether it's in Norway, Alaska, Canada, lower 48, the Middle East, or the Far East. So having that diversity is important. We like it. But we're not trying to go after it if that ends up being a higher cost of supply. That just doesn't fit our model.

Our next question comes from Josh Silverstein with UBS.

Hey, guys. My question was going to be on the percent of capital allocation to the long cycle projects going forward. Ryan, you mentioned the free cash flow is starting to increase going forward because the spending from these four big projects is starting to roll off. I think it's around 25% of the budget this year on those projects. Can you just talk about the capital allocation going forward? Does that 25% trend over the next few years towards 15%? Or do you start backfilling some of these projects as they come online?

Yeah, Josh. You know, when we tried to signal what the cash flow and pre-cash flow inflection is coming as these projects come online, I mean, we don't have another willow and another big batch of LNG things sitting on the cupboard waiting to fall into the execution plan. No, at this point, you ought to see the capital start ramping down with the completion of those projects and the CFO going up as those projects come online and the free cash flow going up at an even faster pace because not only is the CFO coming up, we see a drop-off in the capital that's being invested. That doesn't mean that we're starving Alaska and Norway and Canada and you know, with investment. We're still investing in those base businesses, just like we're doing today, and that continues. And then we're obviously investing in the lower 48, and over time would expect to see some ramping activity there as well over time. But that's all part of our base plan.

Our next question comes from Kevin McCurdy with Pickering Energy Partners.

Hey, good morning, and thanks for taking my question. Just on the quarter, I mean, it looks like you got a really good operational quarter, but cash flows kind of missed the mark a little bit, and to tell us that looks to be driven by cash taxes. Can you talk a little bit about why the cash taxes were higher in the first quarter and what your outlook is for the remainder of the year? Thank you.

Well, thanks, Kevin. We wanted to get Bill in on this call, so that seems like an appropriate thing for Bill to talk about.

Yeah, I think I've got that one, Kevin. So first, let me just say thank you to everybody. It's been an absolute privilege for 39 years with the company. I've enjoyed working with our investors in the analyst community over the last five years, and you're in great hands. You know Andy really, really well. So one last time talking about taxes. So, sure, we had some deferred tax movement in the quarter. So let me just put this in total context, you know. When we started the year, we gave guidance to an effective tax rate of 36% to 37%, and an effective cash tax rate of 35% to 36%. Based on our updated forecast, our full-year effective tax rate is in the high 30s. It's probably closer to right at 40%. That's due to a shift in the mix of income. We're seeing an increased percentage of our income in higher tax jurisdictions, such as Norway and Libya. And so it's pretty normal when that happens for your effective tax rate to go up a bit. And then for the full year, as you spot, our cash tax rate is expected to be a bit higher. We're expecting it to be the same as our effective tax rate. That's due largely to some discrete deferred tax items related to the lower 48 dispositions, which showed up in this quarter. As you know, discrete items are really difficult to forecast. You can see them in our deferred tax headwind in our cash flow statements for this quarter. So we had a headwind rather than our normal tailwind for deferred taxes. Now, on an underlying basis, if you exclude those discrete items for the lower 48 dispositions, we're continuing to realize underlying deferred tax benefits from IDCs as normal, and the MRO NLOs that we've talked about, those are rolling through the system. But what you're really seeing here is a one-time discreet issue associated with dispositions in lower 48.

Our next question comes from Leo Mariani with Roth.

Hi. Let me just see if you guys could provide a little bit more color on the $500 million that was cut from the budget. Certainly understand that these areas were things that don't necessarily impact near-term production here in 2025, but perhaps you could talk a little bit more about what these things were, what countries they were located in. It sounds like there could be a little bit of medium-term production impact, but presumably you can go and spend more money if prices recover on some of that eventually.

I can take that one. I think I really gave the answer earlier. It's for lack of a better term, it's nits and nats, basically, sort of all over our global portfolio. You know, there's a little bit of deflation and optimization. You know, there's nothing here specifically that's having any production impact this year. And I'd also add that it has a natural impact on production next year. So not really any one specific thing that I would call out. You know, it's an inventory list of the first things we do when we – We look to sort of where can we tighten the belt and reduce some capital, but nothing really of note I'd want to call out, really spread across the entire company.

Yeah, that's what I would say, Leo. It's a bit in Kirk's area and in Nick's area, so it's not any one particular area or any one particular category.

Our next question comes from David Deckelbaum with TD Cowan.

Thank you all for taking my question today. I just wanted to follow up in the context of talking about lower cost of supply over time. You guys more or less completed your asset sale target post the marathon deal with the most recent divestiture. How do you guys think about the cadence, if any, of non-core asset sales over the next few years? Or do you feel like you've sort of optimized the portfolio at this point?

Yeah, David, I think we're always optimizing the portfolio. And I think as we kind of scrub the assets and scrub the portfolio, there's hundreds of millions to half a billion of asset sales that we do each year. Coming out of the marathon transaction, we identified a couple billion dollars of targeted asset sales. So that probably is a little bit at the high end, but we're constantly testing all of our assets. We don't get in love with anything, and if the cost of supply of future investments start rising in those assets, we tell our teams, you've got time to figure it out. Is there technology, more efficiencies that we can bring in to make sure that those investments are competitive in the portfolio? If not, then sometimes the asset will move into a different category in the company, and and we'll look to move it out of the portfolio if it makes sense. But I would say the big things, yes, have been done. It's just more the little cleanup things that we do just really every year.

That concludes today's question and answer session. This will conclude today's conference call. Thank you for participating. You may now disconnect.