Title

Presentation

ConocoPhillips beats earnings expectations. Reported EPS is $2.09, expectations were $2.05.

Operator: 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. [Operator Instructions], I will now turn the call over to Phil Gresh, Vice President, Investor Relations. Sir, you may begin.

Phil Gresh: Thank you, Liz, and welcome, everyone, to our first quarter 2025 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO Bill Bullock, Executive Vice President and Chief Financial Officer Andy O’Brien, Senior Vice President of Strategy, Commercial, Sustainability and Technology Nick Olds, 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.

Ryan Lance: 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 of supply threshold, both in the US and internationally. And our advantaged US inventory position in particular should become increasingly evident as the market sorts through the inventory haves 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 $0.5 billion 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 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, longer cycle investments in Alaska and LNG. This underlying improvement in our free cash flow will structurally lower our breakeven 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 then 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.

Bill Bullock: 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 million barrels of oil equivalent per day, exceeding the high end of our production guidance for the quarter. And in Lower 48, production averaged one 1.462 million barrels of oil equivalent per day, with 816,000 in the Permian, 379,000 in the Eagle Ford and 212,000 in the Bakken. Internationally, production continued to ramp up at Surmont 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 MBOE 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 the triennial turnaround at Ekofisk 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 billion and $12.6 billion for the full year or about $0.5 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 billion 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% percent 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 APLNG 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.

Operator: 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. Our first question comes from Neil Mehta with Goldman Sachs.

Neil Mehta: Bill, congratulations to you, 39 incredible. And Andy, congratulations to you as well. In your honor, Bill, let’s ask a return of capital question and cash flow question, which is you guys had $2.5 billion of capital return in the first quarter, 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?

Ryan Lance: Yeah, let me take that one 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, step back for a minute, Neil, just a little bit. 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- 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 as 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 if we need to 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 second quarter reflective of where the macro is at, 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.

Operator: Our next question comes from Devin McDermott with Morgan Stanley.

DevinMcDermott: 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. Would love to get a little bit more detail on the drivers. And then 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 you just elaborate on how you’re thinking about that flexibility and at what price levels or macro conditions you might utilize it?

Andy O’Brien: Devin, this is Andy. I can start with that one. As pointed out, we have reduced the capital this year to a range of $12.3 billion to $12.6 billion. So that’s about zero five billion dollars 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. 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 sort of from 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.

So 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. That’s effectively what we’ve done here. I think as we’re doing this, we also shouldn’t lose sight of the trend we’re on. We’re finding ways to deliver the same level of production for less capital and less operating cost. So we kind of think we’re taking a pretty measured approach here. We want to take our time to better understand when any potential debt or duration of any ongoing commodity price weakness. Before we 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.

So we’ll leave it there. And sort of I say, so at this point for us, it’s kind of just a measured approach to see where things are going.

Operator: Our next question comes from Stephen Richardson with Evercore ISI.

Stephen Richardson: 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 you think about the overall cost structure and where to go from here considering all the macro considerations you talked about?

Ryan Lance: Yeah, Steve. I think it’s 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 this is 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 just watch us every quarter. 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.

Operator: Our next question comes from Arun Jayaram with JPMorgan.

Arun Jayaram: 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 kind of balancing this low cost of supply with the macro as well as perhaps preserving precious inventory, particularly in the Lower 48?

Ryan Lance: Yeah, I can let Andy jump into around a little bit here. But yeah, I think it’s right. 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 place with the depth of the inventory and the duration. And now it’s just how do you effect 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 of more about how we think about that as we execute our programs.

Andy O’Brien: Thanks, Ryan. And Arun, as Ryan said, we’ve got that decades of low cost supply inventory. And it’s actually times like this where 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 we’ve remained laser focused on it. We invest in projects that generate 10% returns in a $40 world. It’s one of the central tenants to our resiliency. I’d say we’re not looking to try and time the market with our capital investments. And where we’re sitting right now with oil prices, they’re actually not that far from a mid-cycle price. 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 is not calling us to grow anything like 4% to 5% like we did last year. And then remember, adjusted our plan. Our plan this year is for low single digit production growth, significantly lower than last year. The way I would sort of 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.

Ryan Lance: 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 is, as Andy said, the production growth is really an output. The real driver is cash flow and free cash flow growth.

Operator: Our next question comes from Doug Leggate with Wolfe Research.

Doug Leggate: And Andy, it wouldn’t be inaugural call as a 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 capital 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 $0.50 billion? And if so, what does that do to your breakeven?

Andy O’Brien: Thanks, Doug. A couple of threads there to sort of weave together. So I think as I said earlier, the capital reduction of $0.50 billion is really coming out of a combination of things in terms of where we can simply defer things that are not adding production this year with basically a very negligible impact next year. There’s obviously sort of when we go through sort of the prices coming down, we’re starting to see some capture deflation. So we always say when we talk about breakevens, does give a bit of a hypothetical conversation because if price goes down, we would expect some deflation. So I’d say it’s a mix of things that where we’re seeing where we can do things cheaper and we’re basically making sure that we’re where we can push scope out, where it doesn’t have any impact on our production.

We’re not really playing with rigs and frac crews, we’re going to do that. So yes, over time, it reduces our breakeven. But to put it quite clearly where we are with breakeven, this year our free cash flow breakeven is in the mid-40s and the dividend will add about $10 to that. And really importantly, that includes all of the pre productive CapEx that we’ve got going on, on our major projects, which is about $7. So as you look sort of 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 breakeven coming down into the low 30s as we start to basically reduce the capital and we see the projects coming on.

Operator: Our next question comes from Nitin Kumar with Mizuho.

Nitin Kumar: Good afternoon guys and Bill congratulations on the retirement. Maybe I’ll take it away from the macro for a minute and talk over 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 $1 billion 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?

Kirk Johnson: Nitin, 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 our first oil in 2029. We saw really good progress up there. We ramped 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 being our 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 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% of that work sourced and that brings even more certainty just to 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 actualize for us and so we expect capital to continue to taper down through the remainder of the year.

Operator: Our next question comes from Lloyd Byrne with Jefferies.

Lloyd Byrne: 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 going above that 45% return to shareholders going forward?

Ryan Lance: Well, I think, Lloyd, I was trying to guide to sort of the 45% feels about right for where we are in cycle. Obviously, 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 described in his opening remarks, 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 a small factoid in the last four to five months, we bought nearly 20% of the Marathon shares back in. So 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.

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

Scott Hanold: Yeah, thanks. Congrats, Bill and Andy. And Bill, wish you on 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 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?

Ryan Lance: 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 return strapped. So they’re 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 60. 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 there. So I go back to kind of our prevailing view of the macro and that is while demand is 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 of additional demand growth in 2025 and that’s not stopping. And Yao Pek [ph] is doing their thing to put some softness in 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 price, 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 portfolio that we’re investing in and the opportunity set that’s in front of us. So don’t overreact, but don’t put your head in the sand either.

Operator: Our next question comes from Ryan Todd with Piper Sandler.

Ryan Todd: 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 Ford performance. So maybe any update would be great.

Andy O’Brien: Ryan. Andy here. I can start that one and maybe Nick might have a couple of comments to add too. So I’d it really feels pretty good to have the first full quarter of Marathon behind us and things are going really well. The integration is tracking ahead of schedule. We’re making great progress on a $1 billion of synergy captures. And we continue to find more opportunities as a combined company. It is actually one of the drivers to why we’re able to lower our capital operating guidance and the improvements we’ve announced today. 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 drilling performance in Eagle Ford. 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 still 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 that 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 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.

Nick Olds: Maybe one just final comment I’ll make is we don’t consider this a synergy because it’s we think of it as a onetime. But we got tax benefits from this transaction, too. Between the foreign tax credit utilization and the NOLs associated with Marathon, that’s about $1 billion of incremental value that we’re getting from the transaction above and beyond the synergies. So I would just say that we’re really pleased with how things are going. And so we’re getting it integrated into our company, I think, pretty seamlessly.

Operator: Our next question comes from Betty Jiang with Barclays.

Betty Jiang: Ryan, 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 feel less comfortable for the next couple of years?

Ryan Lance: Well, I think we’ve kind of factored that into the plans that we’ve talked about, Betty. 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. So depending on where the price goes and what our CFO is, obviously our reinvestment rate will be a little bit higher as you kind of factor that in. But I’ll remind you back when we showed a 10-year plan, what we’ve done with the company, over time as our cash flow goes and free cash flow as these projects come on, the reinvestment rate falls, the breakeven falls, the reinvestment rate falls 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.

Operator: Our next question comes from Paul Cheng with Scotiabank.

Paul Cheng: Bill, just want to say thank you that with all the insight and help over the number of years. And Andy, welcome to that- congratulation on the new role. Ryan, I don’t know whether this is a fair question. If we look at your inventory in the Lower 48 is 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 late innings in the shale oil anyway and inventory will become far more difficult. So with that in mind, do you think that Conoco 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?

Ryan Lance: Yeah, long detailed question, Paul. I think, look, cost of supplies are North Star. We’re a bit indifferent is to gas, oil, US Lower 48, international. We like the diversity in the portfolio. All things being equal, there are areas we’d like you would like to grow to kind of offset profile maybe the unconventional. But look, it’s all about the cost of supply first and foremost. And we like adding more resource that is low cost of supply into our portfolio and into our company. Inorganically doing that at this point, it’s a pretty high bar in the company because we obviously have a differentiated portfolio both in terms of the cost of supply and its depth and duration as well. So we don’t need to do anything, but we watch the market, we monitor it, we know what we like and 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 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.

Operator: Our next question comes from Josh Silverstein with UBS.

Josh Silverstein: 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 are 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?

Ryan Lance: When we just tried to signal what the cash flow and free cash flow inflection is coming as these projects come online, we don’t have another Willow and another big batch of LNG things sitting on the cupboard waiting to fall into the execution plan. So no, at this point, you ought to see the capital start ramping down commensurate 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 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.

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

Kevin McCurdy: Hey, good morning and thanks for taking my question. Just on the quarter, I mean, looks like you guys had 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?

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

Bill Bullock: Yes, 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 with the company. I’ve enjoyed working with our investors and 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. And so let me just put this in total context. 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 NOLs that we’ve talked about, those are rolling through the system.

But what you’re really seeing here is a onetime discrete issue associated with dispositions in Lower 48.

Operator: Our next question comes from Leo Mariani with ROTH.

Leo Mariani: Wanted to 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 about more kind of what these things were, what countries they were located in? It sounds like there could be a little bit of kind of medium term production impact, but presumably you can go and spend more money if prices recover on some of that eventually.

Ryan Lance: Sure. I can take that one. It’s I think I kind of really gave the answer earlier. It’s for lack of a better term, it’s basically sort of all over our global portfolio. There’s a little bit of deflation and optimization. There’s nothing here specifically that’s having any production impact this year. I’d also add that it has a negligible impact on production next year. Not really any one specific thing that I would call out. It’s an inventory list of the first things we do when 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.

Bill Bullock: 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.

Operator: Our next question comes from David Deckelbaum with TD Cowen.

David Deckelbaum: 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?

Ryan Lance: 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 $0.5 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 we’ll look to move it out of portfolio if it makes sense.

But I would say the big things yes, have been done. It’s just more of the little cleanup things that we do just really every year.

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