ConocoPhillips (COP) Earnings Call Transcript & Summary

Welcome to the Second Quarter 2026 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin.

Thank you, Liz, and welcome, everyone, to our second quarter 2026 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; and Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial; Nick Olds, Executive Vice President of Lower 48 and Global HSE; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions. Ryan and Andy will kick off the call this morning with opening remarks, after which the team will be available for your questions. As a reminder, for the Q&A portion, we will be taking 1 question per caller, consistent with our normal practice. A few other 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. With that, I'll turn the call over to Ryan.

Thank you, Guy, and thank you to everyone for joining our second quarter 2026 earnings conference call. Before I get into our quarterly results, I want to acknowledge the other announcement we made this morning that I will be retiring as CEO effective September 1. I've spent more than 40 years at ConocoPhillips and have had the honor of leading the company for the past 14 years. We have some of the most talented employees in the industry. And together, we have positioned the company for long-term success, with a track record of delivering superior returns on and of capital through the cycles, and I'm incredibly proud of what we've accomplished together. . And I'm also excited that Andy will assume the role of President and CEO. You all know Andy well already. He's been with the company almost 30 years. I don't need to list his credentials, but I do want to take the opportunity to call out the valuable contributions he's already made, helping to shape our company and strategy. His leadership experience and deep understanding of our business make him well positioned to lead the company forward, and I have full confidence in him and the leadership team he has chosen. I will assume a transitional role of Executive Chairman to support a smooth leadership transition. Andy will have full accountability for leading the company and managing day-to-day operations. I want to thank our employees and the Board for their confidence they have shown in me over the years and our shareholders for their continued confidence in ConocoPhillips. Let me now turn to the results for the quarter. ConocoPhillips delivered strong second quarter results. Production was above the high end of our guidance range with our peer-leading Permian position, achieving a new record of over 900,000 barrels of oil equivalent per day. We generated over $4 billion of free cash flow, and we increased shareholder distributions to $3 billion, doubling our share repurchases from the prior quarter. We also made meaningful progress on strategic initiatives that further strengthen our portfolio and support long-term value creation. We achieved our $5 billion disposition target ahead of schedule, expanded our commercial LNG offtake portfolio and added new growth opportunities in the Middle East at an attractive cost of supply. Simply put, ConocoPhillips is in a stronger position than ever before. We have the highest quality asset base in the sector with the deepest and most capitally efficient Lower 48 inventory and a diversified portfolio of low-cost of supply legacy assets. We are executing well and driving continuous improvement. Our balance sheet is rock solid, with leverage well below 1x and cash of more than $8 billion. We continue to lead the peer group in returning capital to shareholders as we've done in the last decade. Our cost reduction program is progressing ahead of plan. Our LNG projects will be contributing in 2027, and Willow continues to hit all key milestones in advance of [ first haul ] in early 2029. We remain firmly on track to deliver our $7 billion free cash flow inflection by 2029, effectively doubling last year's total free cash flow. All of this is made possible by the best people in the business, and I'm pleased to transition our leadership of the company with us being in such a strong position. So with that, let me turn the call to Andy to discuss our second quarter results and outlook in more detail.

Thank you, Ryan, and thanks to you and the Board for the confidence that you've shown in me. I'm excited to step into the role of President and CEO. The company has never been in a better position with a great portfolio and a strong foundation thanks to Ryan's leadership and our world-class workforce. Kirk and Nick will remain important members of the executive leadership team and trusted partners as we move forward, continuing in their role overseeing our operations. And I'm pleased to welcome Konnie Haynes-Welsh to the team, our new Chief Financial Officer. She will be a great addition as we build on the strong foundation already in place. . I'm also looking forward to working with our broader organization as we continue executing with the same discipline and focus that has served us so well. Turning now to our second quarter performance. We produced 2,248,000 barrels of oil equivalent per day. That was above the high end of our guidance, driven by strong operational performance across our global portfolio, including record Permian production. We generated $3.24 per share in adjusted earnings. Cash flow from operations was $7.2 billion and after $3 billion of CapEx, that translated into $4.2 billion of free cash flow. We increased our second quarter shareholder distributions to $3 billion. That included doubling share repurchases to $2 billion plus $1 billion of ordinary dividends, and we ended the quarter with $8.1 billion of cash and short-term investments, along with $1.2 billion of liquid long-term investments. In short, this was another quarter of exceptional operational and financial execution. Turning to our outlook. Our full year guidance items are unchanged. We remain on track to deliver our plan. For distributions, we continue to target returning 45% of our CFO to shareholders this year. We averaged about 40% for the first half, meaning we expect to increase the distribution percentage over the second half of the year. For third quarter production, our guidance range is 2,290,000 to 2,320,000 barrels of oil equivalent per day. This improvement from the second quarter is driven by a production ramp in Qatar and continued Lower 48 growth. This more than offset the impact of noncore asset sales of 15,000 barrels of oil equivalent per day in July. Now let me walk you through the 3 strategic updates. The completion of our disposition program, the additions to our commercial LNG portfolio and our new international opportunities. First, we achieved our $5 billion disposition target ahead of schedule, with $1.7 billion of noncore Lower 48 asset sales in July, and we were really pleased with the value we captured for these assets. While this completes our announced disposition program, disciplined portfolio management remains central to how we run ConocoPhillips. So we'll continue to high-grade and optimize our portfolio. That work never stops. Second, we recently signed 2 LNG offtake agreements each for 1 million tonnes per annum, one in Indonesia and one on the U.S. Gulf Coast. These additions bring our total offtake for 12 million tonnes per annum and marked another important step in scaling this business. Our commercial LNG strategy builds on our global scale and decades of resource LNG experience, allowing us to move lower value natural gas into premium-priced international markets while maintaining full value chain control to maximize margins through the cycle. And third, we signed strategic agreements for low-cost supply growth opportunities in Iraq and Syria. This builds on the improved fiscal terms we signed in Libya earlier this year. These opportunities are part of a targeted and deliberate strategy to build on our advantage globally diversified portfolio. Each is a high-quality, long life conventional asset. We've demonstrated production and meaningful redevelopment potential, they have attractive entry costs at highly competitive cost of supply. These fields are already producing today, and we expect the production to largely fund the redevelopment, delivering longer-term free cash flow upside with little to no impact on our capital spending. To wrap up, our strategic priorities are unchanged. They are clear, consistent and durable and they have served us well for the last decade. We will continue to grow our dividend at a rate competitive with the top quartile of the S&P 500. We will protect and further strengthen our investment-grade balance sheet. We will return a significant portion of our CFO to shareholders right off the top. And only after meeting all these priorities, we will evaluate disciplined growth with a focus on improving our returns on capital employed, and we are meeting these priorities while reinvesting to deliver a peer-leading $7 billion free cash flow inflection by 2029. That inflection is well underway. As free cash flow grows, our breakeven price comes down, our reinvestment rate comes down and our financial strength and competitive positioning further improve. Every measure moves meaningfully in the right direction. That concludes our prepared remarks. I'll now turn it back to the operator to begin the Q&A.

[Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs.

What a great quarter to close on. And Andy, congratulations and well deserved on becoming the CEO. And Ryan, you've been one of the most consequential leaders in the history of the energy industry, and it's hard to imagine which is 10 years ago, you had that defining Analyst Day that really laid the foundation for what the sector should look like, specifically the E&P sector. So my question, Ryan, is why now? in terms of hiring and how you thought about the approach to succession planning? And then maybe bigger picture, as you reflect on your career, any advice you want to leave us all with as an investment in an energy community about how the sector can continuously improve from here?

Well, thank you, Neil. A lot in that. And I appreciate the kind words and really thank everybody on the call for their support personally and the confidence that you've shown in our company and we're committed to continuing that. There's probably never a good time, but succession planning has really been a fundamental part of my career and what we've done with the Board. We have a very robust evergreen process to ensure that we get the right leadership at every level in the company and it's always been front of mind. I've told a number of you in the past the very first board meeting I had with a new Board when I first became CEO, one of the topics was succession because I swore I wasn't going to go through a process that I went through somewhere down the road. I've been in this business for 42 years, seen a lot and that includes 14 years as the CEO of the company. So at the moment, I love the business. And we knew this moment was always going to come at some point in time. I'm proud of what we've accomplished. And like I said, we've been planning for quite some time. I think in terms of the time line, I would say 3 things, Neil. First, we wouldn't do this if I didn't think the company was in a strong position. And as Andy outlined in his comments about the outlook in the quarter, I don't think our portfolio has ever been stronger. We're executing well on all the projects and all the exploitation that we're doing. Everything is on track. Cost production programs are working well, and we're well on our way to delivering the $7 billion of free cash flow that we've committed that we're going to do in the company. So one, I don't think the company has ever been in a stronger position. And I wouldn't leave if I didn't think that was the case. Second, I think you want to know that you're turning it over to the right leader who will take the company to the next level, and I'm confident that Andy is that person. He's been with me for 30 years. He's helped shape our execution, our strategy and bring strong leadership, and he's laid really a key role in our success that we've had to date. And then third, I would say, look, I've had a 14-year run, which is phenomenal. And I've just been so proud of the team, the company, what we've accomplished. It's been through lots of ups and downs in this business. But when you think about that, if I go much longer, 2, 3, 4 years, I don't give the team at least a decade to be able to put their fingerprints and take this company onward and upward. And so it's an important time to that because with Andy's leadership and the team that he's built and put around him it's going to take our company to bigger in their place. So I think that's just now is the right time to think about that and doing this. My advice like this is such an important business in the world. We [ play in the ] middle of sustainability of energy security and national security. No matter where you go around the world, it's a really, really important business. And there'll be ups and there will be downs. It's still got some cycle time to the business. So it demands sort of investors and people like yourself that take confidence in the company, take confidence in the management team, confidence in the portfolio and the execution that we're executing and hang with us. We're going to be here a long time. It's an important business. It's an important industry. We've all seen why energy security is becoming concerns for countries around the whole world. So I think what we're doing is really, really important to the world. It's important with this AI revolution that's coming, and we're going to benefit from that as well. But we just got to increase the interest in us, we have to perform. We need to get back to a higher percentage of the S&P 500. And to do that, you got to compete against the S&P 500, and that's what we intend to do at ConocoPhillips. So thank you for the kind words, Neil. Really appreciate it, and thanks for your confidence and advice over the years.

Our next question comes from Steve Richardson from Evercore ISI.

Ryan, you've left an indelible mark on the industry and all of us who are involved. So thank you for that. Your voice on these calls will be missed. .

Thank you, Steve.

Andy, appreciate prepared remarks, but I would love for you to expand a little, particularly about your vision for ConocoPhillips and where do you aspire to take the organization in the next couple of years.

Yes. Thanks, Steve. I appreciate the question. Let me just start with sort of, I think, where Ryan ended. I've been very fortunate have the opportunity to be involved in all the major strategic decisions that we've made over the past decade. So that should give you confidence that the key pillars of our strategy will remain unchanged. Our cost of supply focus, the capital allocation framework, our commitment to competitive and improving returns on and of capital and our focus on disciplined execution, that's not changing. But what I would say is don't confuse consistency of strategy with complacency. The goal of this leadership team is going to be to raise the bar on our performance and unlock even more value. But within our long-held capital allocation framework that works so well, we see tremendous potential for the company as we move into the next stage. But top of mind is that our priorities are straightforward. We've got to keep executing the plan. We've got to deliver our major projects and cost reduction program that underpin our $7 billion free cash flow inflection that is on track. That is going to be sort of focus for the team and myself. We will continue high grading the portfolio. That's something that we've spoken about a lot in the past, and you think how our portfolio has changed over the years. We don't look at the assets as being static. We make sure all of our assets over time compete on a cost of supply base in our portfolio. So portfolio high grading is something that you'll see continue at ConocoPhillips. So that's really important for us. And we're going to look for additional ways to really improve our returns within our existing framework. So I think you'll see a fair bit of continuity. It's not about one big change. It's about the cumulative impact of disciplined execution, continuous improvement, our strong behaviors and the organization that we have that drives value. And we have that. We have a world-class employees and their ability to innovate and drive improvement is a key part of how we're going to continue to unlock value as we go forward.

Our next question comes from Phillip Jungwirth from BMO.

And also, congrats, Ryan, on your retirement and really positioning the company exceptionally well for the long term. Great to see Andy's appointment to CEO next month. For the question, just want to touch on Qatar and get an update with what you're seeing there across the producing assets and also the [ NFE and NFS ] projects. And you did reiterate full year production guidance despite the divestitures and Qatar not being fully back here in the third quarter. Just wondering what the risking or assumptions are around Qatar returning?

Phil, this is Kirk. Yes, certainly, as you're pointing out, there's been quite a bit of flux and forward-looking, certainly some uncertainty as it relates to conflict and the impacts that are playing out for us with Qatar. As you saw in the second quarter, Ras Laffan was largely shut in, although we did see some pretty limited volumes coming out of that business. And that was, as you would expect, it's a function of the ramp down that took place early in the quarter. Naturally, there's a need to support local demand and consumption there in country, and they were able to achieve some of that certainly through our train. The planned turnaround that we had a premise there in the second quarter, we were able to successfully execute a bit of upside here or glass half full, taking advantage of the downtime that did exist there at Ras Laffan, we were able to get that work done so that as that train is expected to ramp up certainly over the next forward-looking quarter here in 3Q, we can be in a strong position of high uptime and execution coming out of that downtime. So Certainly, as you're inquiring looking into the third quarter, our guidance does assume a ramp across the quarter. And naturally, there's a fair bit of obvious uncertainty around the pace of the ramp as well as just overall throughput through the quarter. And so what we've done is just capture that within the uncertainty range that exists there in our total company and our guidance with respect to Qatar. Now if I move forward then into NFE and NFS, it can oftentimes get conflated with the downtime and some of the issues that we've had naturally around production with the Strait being closed, but those projects were progressing well prior to the conflict, and they continue to progress really quite nicely through the conflict, especially the onshore build-out of the liquefaction trains. And so naturally, of course, we're careful to always defer to QatarEnergy on formal updates. But what we're seeing from the schedule, the productivity we're seeing coming out of that, we're expecting any delays that may come on first gas or first cargo to be in the nature of months, not a full year. And so we're not expecting any delays coming out of those projects to meaningfully impact our free cash flow that we're continuing to see progress through the next couple of years. So strong confidence in what we're expecting coming out of Qatar.

Our next question comes from Doug Leggate from Wolfe Research.

Ryan, a bit of an end of era here. But I guess my biggest takeaway is there's hope for Guy Baber yet, right, given that on the...

Well, I'm going to I'll miss the banter, Doug.

Good luck to you all. So my question, Andy, is, look, you're still guiding $12 billion, $12.5 billion. We know that peak spending of Willow is still ahead. The critical path, it seems to us to get to that huge free cash flow inflection is that spending comes down when Willow comes up. So my question is simply this. Is that the plan? Or is there another major reset in long-term CapEx that causes that spending not to come down because if the answer is no, then the free cash flow inflection is kind of baked in. Yet the market doesn't yet seem to have confidence in it from at least from our discussion. So that's my question. And again, good luck to you all congratulations.

Yes. Thanks, Doug. Let me just start with a correction. Peak CapEx of Willow is behind us. So when we -- to the first part of your answer is we passed the peak of Willow. And then the second part of your answer, we absolutely expect our CapEx to move lower from here, particularly as Willow comes online early in 2029. So the short answer is yes, CapEx comes down. But I think that's only part of the story. And I think the bigger part of the story is what's happening to our reinvestment rate and our breakeven. Both of those come down structurally. Our free cash flow breakevens moved from the mid-40s WTI today to the low 30s by 2029. And perhaps, we don't talk about this enough, but the other side of that coin is obviously a lower reinvestment rate. So we're meaningfully moving this in the right direction. We're improving the financial strength and the flexibility of the company. That's going to enable us over time to return more capital to our shareholders. And I do want to say that we don't have expectations that we're going to go to 0 growth capital, maintenance levels once at it is set up. We'll continue to invest in our Lower 48 portfolio and our ANI portfolio, but for modest growth. But I want to emphasize, and I can't emphasize this strongly enough, that's sort of structurally lower reinvestment rate than where we are today. .

And I would add, Doug, that we get some of this feedback as well. And you guys -- everybody knows us well enough. We have a high [indiscernible] ratio. We don't say things we don't intend to go do. So when we put out the $7 billion free cash flow inflection, you can count that we're going to -- Andy will and Andy's team is going to deliver that. And there's 2 parts. The CFO is going to go up, clearly, as these projects come online, but the capital is coming down, and we're going to have choices and options even post Willow start-up around what we do with the free cash flow that we're generating. And it's going to be significant. So and it starts by just making sure that we get these projects online. You heard Kirk talk about LNG and little question, but it's on track, and we're seeing the cost reductions that we expect to get, and we're going to see the capital reductions that we expect between now and when Willow get started up.

Our next question comes from Lloyd Byrne from Jefferies.

Hall of fame career, Ryan. You'll be missed. And Andy, congrats. We have a lot of confidence in you and your team. It's really strong. I want to focus on Alaska. And I just wanted to discuss the -- what you can say about the exploration results, the 4-well NPRA program. And then when will we get those estimates given the public data ruling? And then maybe what it means for the implications of the plateau at Willow, just the potential out there? .

Yes. Great question, Lloyd. So certainly, I'll start with the first part of your question, specifically on the exploration program and what we can share. Well, certainly, I'd probably point you back even to the last quarter, coming out of that exploration season it was sufficiently encouraging that we were all willing to declare, Ryan, myself, that we will positively be bringing more resources into Willow into the existing infrastructure that we have there on the North Slope in advance of even drilling more wells. So really quite positive. Naturally, we're still working through what those results are. And again, I always try to remind folks that it takes more than one well, typically takes at least another appraisal well to confirm our development plans, but really quite positive in how we think about what those 4 wells came out to show us. And with that, then, of course, we steered ourselves and our eyes are already focused on next year's program in 2027. The winter season that confines our activity and exploration. So we've already started field surveying, I think, well locations and ice roads. And then we, very importantly, submitted our federal permit applications, which are required well in advance of us putting ice out there to begin drilling. And so when I talk about federal permits, I should really make a bit of a side comment here and acknowledge the Trump administration's actions that have been continuously supporting the development of domestic resources. Certainly, in Alaska, as I'm pointing you all towards, but even in the Lower 48, and that's showing up, it's demonstrated through ongoing permit reform efforts on the federal leases, specifically in Alaska. And of course, we're seeing a wealth of participation in the recent lease sales there in Alaska as well as even in the Lower 48. So we're pleased with the outcome of the NPRA lease sale. The acreage that we picked up is a natural bolt-on to our large existing position that we have there in NPRA. And we also see it as a really positive move with strong interest from our peer companies. From our view, increased activity, naturally, it's good for the state of Alaska, but it's really good for all of us. It improves the utilization of the fixed infrastructure ours as well as others, the service industry infrastructure in such a remote area that creates new efficiencies for ourselves and everyone else. And so again, we see all of this is really positive news. But if I continue to bring this back to kind of your ending question, how does this play out for us against Willow. So this lease sale as well as our multiyear exploration program that we have been and we'll continue to execute, lay the groundwork for us to continue to leverage Willow and that infrastructure we're building there for decades into the future. And you've seen this from us before. This is our playbook. We've been doing this with Kuparuk and with Alpine. So these new satellite pads that will eventually come from the exploration program and from these lease sales, will fold into our program well into the future. Naturally, there's going to be years of plateau in Willow post first oil. And then once [ holdage ] or capacity starts to show up well into the 2030s, we'll be in a really strong position to start bringing in more oil from the satellite pads. So I'm going to continue to reinforce something that you've heard from Ryan and from Andy, just earlier this morning, which is our capital is going to come down post first oil. Capital is moving back into a very ratable expectation that you've seen from historical averages from us in the past. Our reinvestment rates in Alaska has consistently been in the 30s and you should expect that from us post first oil well into the future. All of this continues to underpin and preserve our confidence in this free cash flow inflection that ultimately culminates with Willow in 2029. So really, really expect from us to be laying the groundwork for us to use this infrastructure for decades into the future.

And I'd step back, Lloyd, we just did a 20,000 foot in support some of what Kirk was saying about the President's, this administration and their policies that really are strengthening our energy security and dominance here in the United States, the permitting efficiencies that Kirk is talking about the better regulatory certainty and this regular cadence of lease sales is not only benefiting our company, but it's benefiting the industry as well. And there -- the whole administration support is kind of just advancing these developments that help meet the energy demand that we know is increasing. So it's the Willow project. It's -- Kirk talked about the exploration sale in NPRA and the interest that, that brought back to Alaska. We saw the lease sales in New Mexico and North Dakota here earlier this year that -- and a regular cadence of those even in the deepwater has been helpful. And it's helped us get record production in the Permian, and we're leaning in on investments on LNG side on the Gulf Coast of Texas. So all those things are just helping to contribute to a positive investment climate that we see from this administration. So it's been helping Alaska and it's helping our company in lots of different areas, and I know helping us industry as well.