ConocoPhillips (COP) Q3 2026 Earnings Report, Transcript and Summary

Welcome to the Third Quarter 26 Phillip 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. During the question-and-answer session, if you have a question, please press I will now turn the call over to Guy Allen Baber. Vice President, Investor Relations. Sir, you may begin.

Thank you, Liz, and welcome, everyone, to our third quarter 26 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Andy O'Brien, president and CEO Kontessa S. Haynes-Welsh, CFO and senior vice president of digital and transformation Nick Olds, executive vice president of Lower 48 and Global HSE and Kirk L. Johnson, executive vice president of global operations and technical functions. Andy and Kontessa will kick off the call today with opening remarks. After which the team will be available for your questions. For the Q&A, we will be taking 1 question per caller consistent with our normal practice. A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will make forward looking statements based on current Actual results may differ due to factors noted in today's release and in our periodic SEC filings. Finally, we will make reference to some non GAAP financial measures today, Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website. With that, I will turn the call over to Andy.

Thank you, Guy, and thank you to everyone for joining our third quarter 26 earnings conference call. For today's prepared remarks, I want to put our strong third quarter results in perspective and describe how we are uniquely positioned to create long term value. Kontessa will then recap a few third quarter highlights, cover fourth quarter and full year guidance items, and provide some early directional color on 2027. As you all know, we are in the midst of a compelling inflection. The way we demonstrate progress towards this inflection is by delivering results quarter after quarter which serve as proof points for the trajectory that we are on. And our third quarter results were just that. Another strong proof point both financially and operationally. Financially, we again exceeded expectations on both earnings and cash flows. We returned $3.4 billion to shareholders and today, we announced a 11% increase in our quarterly dividend. Operationally, the Lower 48 continues to deliver, and we continue to capture meaningful improvements across our best in class position including record Permian completion efficiency, At Willow, progressing critical path items and remain on track for an early 29 start up. In Canada, we bought another pad online at Surmont, Ahead of schedule, and under budget. Finally, in our commercial LNG portfolio, we expanded our offtake to 13 million tonnes per annum. In addition to this being a strong quarter, these results reflect our continued commitment to ConocoPhillips' value proposition and the priorities that are foundational to our company. Since becoming CEO, I have been clear that our value proposition and our priorities are not changing. I believe in them, and helped shape them over the last decade. They are clear, consistent, and durable. And they served us well. But I have been equally clear consistency must not be confused with complacency. Our focus is on raising the bar on our execution. We have the most talented employees and the highest quality portfolio in the industry. These are the foundations upon which we expect to deliver even stronger performance And we are already seeing the proof points with clear delivery against each of our 5 capital allocation priorities. Priority 1 and 2 are to pay and grow the dividend at a rate competitive with the top quartile of the S&P 500. Our 11% dividend increase this quarter continues to demonstrate our commitment. Priority 3 is to maintain an A rated balance sheet. We ended the quarter with over $10 billion of cash and short term investments, as well as over $1 billion of liquid long term investments. Priority 4, is to return a significant percentage of our CFO to shareholders, We returned $3.4 billion this quarter, including $2.4 billion of buybacks. And we remain on track to return 45% this year. You should expect buybacks to trend higher in the fourth quarter as we deliver on this annual objective. And priority 5 is to enhance underlying returns through rigorous portfolio management and investing in our advantaged portfolio. We recently completed our $5 billion divestment program, including $1.6 billion of proceeds this quarter and of course, we will remain guided by our low cost of supply framework, as we invest with discipline to improve returns. Our focus this year and beyond is to stay true to our priorities, and raise the bar on execution as we deliver on our compelling returns focused value proposition. That value proposition for ConocoPhillips features 3 distinct pillars. First, as I mentioned a moment ago, we are well underway towards a peer leading free cash flow inflection of $7 billion by 2029. That would approximately double 2025 free cash flow at a $70 a barrel WTI price. And between now and then, we retain significant upside to higher prices and wider LNG spreads. Given the unhedged oil and LNG torque in our portfolio. But 2029 is not the final destination. The depth, diversity, and quality of our portfolio supports continued CFO and free cash flow growth well beyond 2029. Doing so at a structurally lower reinvestment rate. that is the second pillar of our value proposition. Differentiated capital efficient free cash flow growth well into the next decade. And the third pillar is that our CFO and free cash flow growth translates directly to sustainable growth in our shareholder distributions. Via our percentage of CFO returns of capital framework, which has averaged 45% over the last decade. This pillar ensures investors participate in the upside through a combination of top quartile S&P 500 dividend growth and through the cycle share buybacks. Bottom line on what is ahead, a peer leading free cash flow inflection with differentiated long term growth thereafter. And sustainably higher distributions. That adds up to a truly distinct value proposition, 1 that is not easily replicated because it is underpinned by the deepest, most durable upstream portfolio in the sector, With over 20 years of low cost supply inventory in the 48, complemented by our deep diverse and high quality Alaska and international portfolio. With that, I would like to welcome Kontessa to the call to cover some third quarter highlights, cover fourth quarter and full year guidance items, and provide some early directional color on 2027.

Thank you, Andy. I will begin with highlights from our third quarter performance. We produced 2.302 million barrels of oil equivalent per day. We reported $3.27 per share in adjusted earnings, $7.2 billion of cash from operations. After $3.1 billion of capital expenditures, that translated to approximately $4 billion of free cash flow generation. Share repurchases stepped up again this quarter to $2.4 billion, with $1 billion of ordinary dividends that brought our total third quarter shareholder distributions to $3.4 billion. We ended the quarter with $10.4 billion of cash, and an additional $1.1 billion of liquid long term investments. Our net debt to CFO ratio improved to 0.5x underscoring the strength of our a rated balance sheet. In short, we delivered on every front. Proof that we are raising the bar on execution. Turning to our outlook, Our key full year guidance items remain unchanged. For the fourth quarter, we expect production to average between 2 million 3 hundred 20 and 2 million 3 hundred 60 thousand barrels of oil equivalent per day. That would put our full year production right around 2.3 million barrels of oil equivalent per day. We expect another quarter of sequential growth in our Lower 48 production Impacts from turnarounds are expected to be flat versus the third quarter, and our guidance accounts for a range of potential outcomes in Qatar where production remains dependent on conditions in that region. For capital, we expect modestly higher sequential investment in the fourth quarter. This reflects the spending profile we previously outlined for the lower 48, and our typical ramp in Alaska, ahead of our winter construction season and exploration campaign. Across the company, structural cost reductions continue to drive improvements in our adjusted operating costs. And we see the benefit of those reductions as they are fully offsetting the impact from inflation in a higher commodity price environment. Finally, we remain on track to return 45% of our CFO to shareholders this year. With buybacks expected to trend higher in the fourth quarter. Let me turn now to our preliminary 2027 outlook. While it is still too early for detailed guidance, our high level framework is fully aligned with the priorities Andy just laid out. We anticipate capital spending to be modestly lower year on year. Consistent with the multiyear decline we outlined. Importantly, that lower capital delivers growth. We expect to see another year of low-single-digit underlying production growth driven by the Lower 48. Per unit operating costs will trend lower again as our sustainable cost reductions and ongoing efficiency improvements continue to offset inflation. And, again, our objective will be to return 45% of CFO to shareholders. Extending our long term track record. This 2027 outlook is another step forward as we continue to deliver on our value proposition. A peer-leading free cash flow inflection differentiated long term free cash flow growth beyond the inflection, and sustainably higher shareholder distributions. All of which is underpinned by our deep, durable, and diverse portfolio. Concludes our prepared remarks. I will now turn it back to the operator to begin the Q&A.

Thank you. We will now begin the question-and-answer session. In the interest of time, we ask that you limit yourself to 1 question. If you have a question, please press * on your touch tone phone. If you wish to be removed from the queue, please press * again. If you are 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 * on your touch tone phone. Our first question comes from Betty Jiang from Barclays. Your line is now open.

Hi. Good morning. Thank you for taking my question. Andy, your comment earlier about the free cash flow outlook through the end of decade really stood out. And in the last few years, we have heard a lot about the 7 billion inflection by 2029. But the visibility of the portfolio gives you a much longer duration beyond that. So can you just walk us through what that looks like? How you think about that durability and visibility of that growth? And what part of the portfolio is really driving it?

Good morning, Betty. And yeah, thanks for the question. Thought it was important today to sort of put a bit more meat on the bone of sort of what does come after 2029. I just said in our prepared remarks, I think it is well understood sort of the first pillar in terms of our inflection of $7 billion to 2029. What I wanted to really lay out with that second pillar is probably the question that I have been asked the most since becoming CEO. You know, what happens after the inflection? What I wanted to try and make sure was very clear to everybody is that, you know, our free cash flow growth does not stop with that inflection. The longer term opportunities in our portfolio really give us sort of a, you know, I think a really unique value proposition. And that was the second pillar I was trying to describe that differentiated CFO and free cash flow growth you know, through the next decade. But I cannot emphasize this enough. At structurally lower reinvestment rate, than where we are today, Then you ask sort of what is driving that. You know, it really is underpinned by, you know, the unique sort of strength of our portfolio. And, you know, it does all start with you know, our Lower 48 position. where we are-- we are clearly The US unconventional inventory leader We have got over 2 decades of high quality tier 1 inventory across our Lower 48 portfolio. that is headlined by over 20 years of low-cost-supply Permian inventory. We have core positions of scale across the 4 liquids risk unconventional basins, Again, we think that is a power that nobody else has. And then when we combine that together with our deep, diverse you know, high quality Alaskan international positions, it really complements that. And I use Alaska as 1 of my examples. If you just fast forward to 2030, we will have Willow online We will have built a new hub. And then we will be in a position where you know, we will we will be looking to tie satellites back into Willow. that is the whole point. When you have a hub, we can bring more back into it. And those tie ins back to Willow will be some of the most capital efficient and low cost supply opportunities in our portfolio. So that is 1 example. Another example would be Surmont and Montney in Canada. We have a tremendous resource base there. it is only gonna increase in value over time. You know? You know, it is it is already 1 of the sort of the more capital efficient assets we have with Cermont. And with some of the new fiscal up in Canada, some incremental investment there may start to look more attractive. Again, with Middle East and Libya, that is another good example of high quality, long duration opportunities that we have with, again, a low cost supply. So this is not meant to be an exhaustive list, Betty, but it sort of highlights the diversity of opportunities we already have captured in our portfolio thought it was really important to emphasize to everybody that those opportunities can support growth through the next decade and again, it is at a structurally lower reinvestment rate.

Our next question comes from Devin McDermott from Morgan Stanley. Your line is now open.

Great. Hey, good morning. Thanks for taking my question. So I wanted to shift over to, Andy, some of your comments on shareholder returns. it is great to see the large dividend increase. And I wanted to think through how you are looking at the outlook given the free cash flow inflection and also comments just now on the durability of the portfolio. And I guess specifically, when you think about your point and commitment to sustainably higher distributions, does that include keeping returns well above the 30% CFO baseline? that is question 1. And question 2 is like, how do you think about the mix between dividends and buybacks evolving over time? It would seem like you have plenty of runway to continue to push that dividend payout higher, especially as your breakeven and reinvestment rate. Falls. So how are you thinking about the mix there over time?

Yeah. Good morning, Devin. And it is. That really is kind of a perfect segue from sort of where I was just chatting with Betty on the really the third pillar I was trying to outline you know, is-- is that differentiated return of capital framework. You know, it is really important to us that, you know, our framework is a percentage of CFO. So as we grow our CFO, our distributions grow. And, you know, specifically, you know, I describe how we can do the fact that we are going to be at a lower reinvestment rate So we will have a lower reinvestment rate. Our balance sheet is in great. Is in a great position. So we have already got, you know, a really strong balance sheet. We are gonna grow our CFO. And then that gives us all the flexibility to as you say, think about our dividend and the growth in our dividend. Same as the evidence of that again, this quarter with the 11% increase. You know, we are a firm believer in a track record of top quartile S&P 500 growth. That has credibility and that is the keyword. It has to have credibility behind if people see it as being affordable. And we think that our the cash flow generation of our company demonstrates just how affordable that is. And then as we go forward, it is, you know, I apologize for the cliche here, but it is about making the pie bigger. You know, as we make the CFO pie bigger, there is more there is more for distributions. And especially for a low reinvestment rate. And as I said in my prepared remarks, we have averaged now a 45% distribution over the last decade. And I see no reason why we would not be looking for the similar kind of thing going forward, particularly as our reinvestment rate comes down.

Our next question comes from Scott Michael Hanold from RBC Capital Markets. Your line is now open.

Thanks. You know, I appreciate the early context around 2027 in the capital. I was wondering, you know, with the with the understanding that you all will get more fulsome updates you know, next year. Can you give us a sense of you know, how are you able to offset? What do you think about inflation right now in the next year? And if you if you could give any kind of high level view on how to think about the changes in major capital spending next year and maybe into 2028?

So yes, Scott, I will touch on sort of most of your questions here, and good morning. And then I will ask Kirk maybe to jump in specifically on the inflation side of it. But you know, I think how we do this is really important. You know, as we laid out in our prepared remarks, you know, we are we are giving sort of, you know, some high level framework for you. This pretty consistent with the framework we have been outlining, you know, as part of our free cash flow inflection. But I do not want to get lost in sort of what we are saying here. We are saying, lower capital, low-single-digit underlying production growth, lower unit costs, and about a 45% CFO return to shareholders, And I think what is really important is how can we do that And again, lot of it comes back to our position in the Lower 48. Our track record shows year in, year out that as we drive steady state activity, you know, we are able to show production growth with less capital. And we expect the exact same thing in 2027. And the way we do that is because we are working with our Tier 1 inventory and we are combining that with continued D&C efficiencies we are seeing. I think that is a huge advantage that we have over some others. And then when you add with that, you look at things that I described in my prepared remarks like Sermont. You know, we just brought another pad on at Surmont. That should basically continue to drive growth for us next year in Canada. Again, very, very efficiently, that path is just coming on. We will start to see LNG coming from NFE next year We will also see, you know, LNG coming from Port Arthur. Now 1 will not count towards production, obviously, but it certainly counts towards the cash flows. So they are the kind of things when you combine our Lower 48 and then the things that we have in our Alaskan International portfolio that allows us to drive that production growth but off of lower capital. All consistent with the inflection we have been talking about And I do want to take a moment as well to also just highlight on our operating costs. We fully expect another year of lower unit operating costs next year. And that is even with the some of the inflation that we are seeing from higher commodity prices. The way we are doing that is we are remaining focused on capturing additional efficiencies and we are driving structural cost changes. Now to your specifics around sort of can I give a bit more color around sort of, you know, you know, breakdowns of where it is? I think that is probably a conversation for a later date when we give the actual guidance out. But today, wanted to just sort of shape for you sort of how we can deliver sort of that production growth off of a lower capital And then to the other part of your question on inflation, maybe Kurt can just touch on that 1 for us.

Yeah. Good morning, Scott. Certainly, as we have been all watching the ongoing Middle East conflict, continues to disrupt energy as well as the better part of the global trade flows. And that has continued to drive inflation across what we describe as many of the flow through consumables into our business. The obvious are fuel logistics, and chemicals. And so while inflation in these categories is pretty noteworthy, it is been double digits in some cases. it is been a small component of our total cost structure. And so as a result, in aggregate, we are seeing pretty modest read into that low-single-digit inflation. But, again, I think it is really important that, that I point out it is being more than offset by the amount of fish. Efficiencies that we are realizing the development, the drilling and completions, as well as operationally within that entire space. And clearly, Andy, was addressing that in how we are able to accomplish much of this. In the Lower 48, naturally, we are seeing increased activity. Much of that is concentrated in some of the smaller operators, and that is in fact tightening capacity. Especially across the oilfield services space, you know, super spec rigs as well as frac equipment. Utilizations have been really quite high. You know, 90-95%, respectively. Across those 2. But, again, hear from us here, bottom line, we are watching inflationary trends here pretty closely. But we have been really pleased with the fact that a across our portfolio, we have been able to offset that through improvements in the company.

Our next question comes from Neil Singhvi Mehta from Goldman Sachs. Your line is now open.

Yeah. Good morning, Andy. Good morning, Kontessa, and congratulations to you both on your first calls in these new capacities. That I was wondering, Andy, if you can really dig in to Willow. This is such an important year for the project. Particularly with the vessels in Corpus. So how are we tracking on both scope and on cost And maybe you can give us a mark to market on how it is going.

Yeah. Morning, Neil, and, yeah, thank you, and say, I should have done welcoming Kontessa to her first call too. So I appreciate you doing that, Neil. Maybe I will ask Kirk to get us started on Willow, and I can maybe add a bit after what Kirk has just stepped through the details.

Yeah. Hi, Neil. Certainly, we continue to be pleased with the progress that we are seeing on the Willow project. We are, as you know, past the halfway point in the overall aggregate of the project, and we remain steadfast in our confidence here on first oil in early part of 29. Also, as you heard from me in the last quarterly call, we were able to successfully wrap up all the critical infrastructure civil scope specifically there on the North Slope here in this last winter season. And so of course, naturally, now we are turning our focus to the next set of milestones in front of us And when I. If I stay on the North Slope, what we are looking at is continued progress and ultimately completion on the infrastructure that is critical for us to begin drilling operations as early as next year. And then, of course, in this upcoming winter construction season will also be progressing the production necessary pipeline construction again, on a pretty rapidly approaching winter season here for us. Of high importance to us, though, is our process module fabrication. Of course, that is occurring on the Gulf Coast. And we have just exceeded the 75% completion mark, and that is an important 1 for us. As we are, you know, looking down a pathway here to wrap up that fabrication in the second quarter. And that is important because in the summer months, we will be sea lifting those modules from Gulf Coast to Alaska. And then, of course, we got to make sure we are ready to receive those in Alaska. In the summer and the fall. So, again, I will just, you know, I will close by acknowledging in fact, we do start drilling next year, and that is important to build a production ready inventory so that we can have a strong ramp up, in the early part of 2029 and across that full year. So, again, confident in what we have described in the past. Far as capital and our schedule looks. Really quite pleased with how that project continues to progress.

Yeah. Thanks, Kirk. And I would just emphasize, Neil, everything is on track for an early 29 first production.

Our next question comes from Phillip Youngworth with BMO Capital Markets. Your line is now open.

Good morning, and thanks for taking the question. You closed some incremental divestitures in the quarter and completed the $5 billion I know you are never done. So how are you thinking about portfolio management going forward beyond just the Norway reports? And then on the growth side, are most of the organic opportunities you are assessing kind of focused in the MENA region like what you have done with Iraq, Qatar, Libya, fiscal in Syria? And how do you assess overall risk profile when entering a new country given that ConocoPhillips' portfolio is more OECD weighted than peers who have a global footprint?

Yes. Thanks for the question, Philip. Let me sort of just try to take a step back here and sort of describe sort of first of all, I want to be clear. Everything we talked about in terms of the pillar 2 and the opportunities to grow our free cash flow that is already captured in our portfolio. it is not reliant on any additional things coming into our portfolio. So I think that is a very important point just to clarify. And then as we look at additional opportunities and we have been looking at a fair bit in The Middle East recently, and just put that in context. You know, there is a number of Middle East governments that are actively seeking capable partners. And we really are 1 of the very few US companies that have the technical capabilities, you know, and the operational experience to consider those opportunities. And, you know, I want to be clear that any new opportunity that we may pursue must fit within that framework I described. It must offer attractive fiscal. It must give us competitive risk adjusted cost of supply. Now, to your point around, we have got a portfolio that is a heavy weighting to the OECD. that is absolutely true. And we really like that. But what that does when we are managing a portfolio, it does give us the opportunity to basically look at putting a bit more Middle East into the portfolio. As we are so weighted OECD. But again, it is only we are only going to do that in a way where it is basically complementing what we have with our Lower 48 unconventional portfolio We already have in Alaska and international it is gotta. I will be really clear on this. it is gotta it is gotta be consistent with the framework that we have We have got to do this in a way where, you know, we are still delivering the consistent long term CFO growth And anything we are doing is basically still working within that framework of a lower reinvestment rate. So I look at these as things that if the opportunities are right, it is a way of adding some, you know, very, very good long life resources to the portfolio we can get the right fiscal. And we are a company that is in the position to look at doing that. And it is it is really it is not about making our company bigger. it is about making our company better. And these are the kind of things that I think will make our company better if we can structure them the right way within our framework. And it is just really just part of our active portfolio management.

Our next question comes from Chris Baker with Evercore ISI.

I wanted to circle back on the capital efficiency discussion. A lot of great comments earlier. But specifically, last quarter, you all talked about a significant uplift from surfactant treated Permian wells. I guess now that you have more time with those wells, how's the uplift holding up? And I guess how are you approaching the decision around potential broader rollout? Could that be a further tailwind to 2027 capital efficiency?

Alright, Chris. Good morning. This is Nick. Chris, I am gonna step back a little bit on capital efficiency and then dive into Surfactants and some other technologies that we are deploying within Lower 48. But as a reminder, you know, we are a leader in capital efficiency in each of our Lower 48 basins and that is measured by total well CapEx per barrel of oil in the EUR basins. And you can see that in the public data It all starts with the quality of rocks. As Andy mentioned, we are advantaged with core acreages in each of those basins. And if you look at the well productivity trends, you know, we have been the stronger and more consistent than pretty much any operator in the basins we operate. Operate in. And that is, again, a testament of the quality of rock, and it is a testament of the team's relentless focus on, driving that capital efficiency minimizing our operational costs. A couple key drivers for 2026 as we continue to extend lateral lengths across the portfolio. You know, 15% improvement compared to 2026. And we are doubling the number of 3-mile laterals or greater across the lower 48. And then secondly, we expect to continuously drive improvement in D&C efficiencies following the 15% improvement we achieve in 2025. And that is coming roughly from, like, continuous pumping and simul frac. And that leads me to what when Andy mentioned in his prepared remarks is that we delivered record completion performance in the third quarter across our crews as pump hours are up 15% where we are in 2025. And 1 of our crews pumped 23 hours per day in August, and that was a record for us as well as the vendor. And that was achieved by completing more wells simultaneously across the Permian, using simul-frac. That was combined with longer laterals And with that increased pump hours, this also delivered a record-setting 20% improvement in simulated footage per day and we continue to see that in Q4. Now we continue to test the real time frac optimization using advanced subsurface diagnostics like using fiber optics, and that will allow us to make sure we are not over capitalizing our completions but also ensuring that the fracs are placed in most effective areas. Now switching gears to the technology, and I am coming up on the surfactant here. You know, we are testing a range of technologies, looking at how do we improve recovery. But also how do we improve capital efficiency out there. Now first, I wanna talk a little bit about application of far field diverters, which keeps the frac energy in the targeted wellbore in Eagle Ford. That technology has greatly mitigated frac hits with child wells which immediately improves the capital efficiency. Now we are scaling that technology into Eagle Ford, over the entire program and ramping that deployment in Bakken. And seeing really encouraging results. Chris, to your point, surfactants, we have shown, you know, a 20% uplift in oil productivity for treated wells. Now we have about 1.5 years of data on several groups of wells. And we are testing that both in new and existing wells and we are seeing a range of outcomes. We are also applying new surfactants on untested reservoir benches And I guess the bottom line, you know, that opportunity, has got a lot of space. And so to your question, we will be seeing additional applications or, of treatments across the portfolio. In 2027. Do not think that is a large capital increase, out there. it is going to be a very measured pace, application. And then I will end on is, you know, we have got a large nonoperated program So we roughly see 1 out of every 6 wells drilled in those basins. So we have real time visibility that is what is happening in the industry, which is a great opportunity to leverage that information. And then, I will just end on, you know, the biggest driver for productivity, talked a lot about it, but it is really been back to the rock. And that is where we are most differentiated. In our Lower 48 portfolio with the 2 decades of inventory.

Our next question comes from Doug Leggate with Wolfe Research. Your line is now open.

Thank you for taking my question. Andy, you have you have laid out a pretty compelling long term I guess, dividend growth story. My question is, about the growth beyond 2029 and the capital goes along with that. I do not know how much detail you can go into at this point, but you know, 2023 was a few years ago now, you have the. Had a 10-year plan laid out then. But I guess my question is the sustaining capital and the growth capital are 2 elements of that. How do you see the spending level as it relates to supporting that growth you have suggested today? Will free cash flow growth that will go beyond 2029? Thanks.

Yeah. Morning, Doug. Maybe I will start this 1 off, and then I think Kontessa can sort of help put in a bit of details on how it comes together with our breakevens. But probably, obviously, I am not going to get into sort of which asset dollars specifically go to in the 2030s. But I will put a bit of color on it for you to try to sort of make this sort of come together. You know? As you know, successfully moving now through the, you know, our preproductive CapEx, where at a point where our underlying CFO is growing, our costs are coming down, projects are coming online, and capital is starting to decline. And I have said the term, you know, a couple of times now, that, you know, that is going to result in us having a structurally lower reinvestment rate So what do I mean by structurally lower reinvestment rate? that is probably getting to the heart of your question. Now obviously in the commodity prices today, it is easy to say we have our reinvestment rate down in the low-$40s right now. But that is the wrong way, I think, to look at it. You need to be the way we look at it is if you look at what our reinvestment rate you know, would have been over the last couple of years, say the $70 price deck, You know, we would have been running a reinvestment rate with a preproductive CapEx, probably something close to 60%. And you just fast forward as we get into the next decade, all of the things I described when. Think it was the first question that Betty asked in terms of, you know, all of the things organically in our portfolio that allow us to keep growing. I cannot emphasize enough that when I say a structural reinvestment rate, I specifically mean is that we will be able to invest in all of the things the exact order of which 1 in which year, that is what we have to work out and plans in the 2030s. But depth of the inventory we have will be investing at a reinvestment rate in the future that is basically, you know, well below 50%. So, you know, we are we are in the we are in the, you know, the low sixties now, and we would be well below 50% reinvestment rate we get into the 2030s. And when combine that with the inventory running room we have, the balance sheet strength we have, a lower reinvestment rate, growing CFO, To me, that is sort of 1 of the most compelling things about our value proposition how we will be able to grow that CFO and then grow you know, grow the distributions out of that. And probably the last proof point that I will just let Kontessa cover for us is that yes, it is a reinvestment rate comes down, but our breakeven comes down too. And just maybe just touch on the breakeven for us, Kontessa.

Yeah, absolutely. Good morning, Doug. Good to have you on the call. So just to give a couple of proof points on our breakeven. Right now, our pre dividend free cash flow breakeven is in the mid forties, WTI. And over this period of time as we approach 2029 and beyond, that will improve to the low-$30s. That is really a main component of what lets us continue to grow the dividend and add a top quartile rate for the long term. But as Andy has mentioned before, the dividend has to work, you know, in all areas of the cycle. So what I wanna do is also take this to kind of our return of capital framework and how we think about buybacks So buybacks are also how we, you know, flex with price to deliver on that annual commitment that is so important to us. And right now, buybacks also. You know, we retire about 4% to 5% of our shares each year. So that is another way that over the long term, our dividend growth is supported on a per share basis.

Our next question comes from Arun Jayaram with JPMorgan. Your line is now open.

Yes. Good morning, good afternoon. Andy and team. Andy, I wanted to delve a little bit deeper in priority 5 and portfolio management. I was wondering if you could maybe elaborate on your approach to portfolio management should we expect a more muscular approach to the portfolio under your regime? And perhaps I wanted to get maybe in detail how you think about more mature parts of the portfolio, places like Norway, versus your more, call it, advantaged assets, in parts of the lower 48 LNG, Surmont, etcetera. Yeah.

Yeah. Yeah. Thanks for the question. I am not sure muscular would be the word I would pick to just describe it, but you know, the way we think about portfolio management has been very consistent at ConocoPhillips for a long time. We always said that we basically have a rigorous process to evaluate our assets We should never think of anything as being static Assets do mature over time. So I will start with that. And then so we are we are always looking to, you know, what should-- what competes in our portfolio and you know, as assets become a little less competitive in the portfolio, you know, we have conversations with our teams about what the options are to make them more competitive. But ultimately, we think the term I have used in the past is we need to make sure that we do not sort of just get enamored with the asset and, you know, not sell it at the right point. But specifically to Norway, I want to address this 1 head on. So you know, as I previously communicated, we received an unsolicited offer for Norway, We typically would not be being public about an asset this early in sort of something like an unsolicited offer, but the way the rules work in Norway that we needed to go public with that and be very transparent and know, wanted to be very transparent with our employees that we were We received an offer and we are now looking at offers, you know, for the asset. But just to be clear, we have made no decisions on Norway. We have a very long history in Norway. It is a it is a great asset. it is a great cash engine for the company. And, you know, just to be clear, if we do not receive an offer that exceeds our expectations, we are happy to keep the asset. So I would say you know, a bit more public than I would ideally like. We are not normally talking about them this early in the cycle, but this is how the process works. This is we identify assets. We get approached about assets. We evaluate them. And we decide what the best long term bulk value option is. And exactly what is happening with Norway and sort of, you know, out of respect to our employees and all of our stakeholders, we will we will quietly work that when we have something to say and announce we will we will we will do that. So I would not describe Norway as being sort of, you know, more muscular in what we are doing. I think it is just the timing of when something's happened. I think we will continue to look at our portfolio this way. Know, I think it is healthy. You know, I had the question earlier about sort of assets coming into the portfolio and things we might be looking at in The Middle East. You have You have-- it is just part of the cycle. it is part of what we do to maintain our portfolio and make sure our portfolio is sort of my view, the most competitive out there. So I think, you know, a bit of a broken record here, but I think you can expect sort of more of the same from ConocoPhillips and how we evaluate assets and how we add things and subtract things from the portfolio.

Our next question comes from Neil Dingmann from William Blair. Your line is now open.

My question is likely for Nick. Nick on the Permian, could you speak to your how you are looking and thinking about the Permian development plan next year, specifically maybe on targeting various formations. You know, it seems like zones like the Woodford and Barnett have gotten a lot of attention recently, and I know. I mean, I am sure you have got a lot of prospectivity there. so we would just love how you are sort of thinking about the overall development plan.

Yeah. Sure, Neil. Well, let's, you know, stepping back you know, as a reminder, we have the deepest tier 1 inventory in the Permian. So if you look at our proven and our primary zones, that remains the vast majority of our ongoing development program this year and for many years to come. So as the secondary zones that you just mentioned, like the Woodford and the Barnett, you know, we look at that as really as upside on top of that inventory depth. Really not a replacement for it. So, I can give you a little insight related to the results so far with those benches. So for example, in the Delaware Woodford you know, we brought on a number of them Online this year. They are performing at or above expectations, and they are probably low, you know, $30 or a $40 cost of supply. Now we expect to further drive improvement with those opportunities as we move to longer 3 mile development and optimize completion designs. Now in the Midland Barnett, you know, we are. it is still early days. Neil, and the limiting delineating that play will take some time. So we are seeing some pretty early encouraging results with the Barnett. And those opportunities are in line with core Midland Basin wells. But just to reiterate, you know, as a reminder, the deep, you know, Tier 1 inventory is gonna be our main primary focus for years to come. And as we continue to delineate these further as we drive the learning curve down over time.

Yeah. I would just add, as Nick said, you know, tier 1 primary zones is where, you know, most of our focus is. Of course, we are you know, we are staying abreast and aware of sort of some of the secondary zones, and we have all of that acreage too. While we have got such a deep tier 1, as Nick said, that is where you will see the vast, vast majority of our dollars being spent. We also benefit, as Nick said in the previous answer, that we see a lot of the wells as a non-op that are drilled across the basin. We will continue to learn about the primary zones and, you know, which ones are more attractive and as for the secondary zones, which ones become more attractive. But it will not distract us from our Tier 1 inventory that we have years and years of primary zones to get after.

Our next question comes from Sam Margolin from Wells Fargo. Your line is now open.

Hi. Thank you for taking the question. Maybe we could pay a visit to Qatar. For an update. You mentioned NFE contributing next year in a base case, but you also, you know, obviously, there is a lot of variables and you know, different scenarios. And so I guess the question is we know that the security considerations to ship LNG out of the Strait Of Hormuz are different. Than oil, and we can see that inflows today. And so you know, in a base case, in a ceasefire scenario, what do you think has to happen for NFE to, you know, ramp towards full rates and for their remainder of the Qatar footprint to be at a 100% sort of unencumbered.

Yep. Morning, Sam. This is Kirk. Yeah. Certainly appreciate the question in context of certainly what we are all seeing and feeling there in The Middle East right now, especially with our own teams and operations there in Doha. As you saw, maybe I will just start with operationally because I think that is a bit of a good lead in here to your question, specifically on NFE. You saw from our earnings materials that Qatar production has actually increased here in third quarter over second quarter. But again, it does, in fact, as you are pointing to, it remains below preconflict levels. And so, of course, we can imagine as I am sure many do, quite a range of outcomes that could be possible here in fourth quarter. Anything from a continuation of what we are seeing in third quarter to potentially a ramp up to a full utilization of the trains that we have there on Train 3 that have been operating at a constrained level. Our fourth quarter guidance does, in fact, include and takes into account that uncertainty that could exist in Qatar. And so if you project that forward then, certainly what we have been realizing there as a contributor to the projects of NFE And, ultimately, NFS as well is the fact that they have despite utilization constraints in total production with some chick challenges just with overall flow through the straight. We have continued to see some pretty strong-- not quite strong-- construction progress thereby the Qatar team. And so as published and, you know, stated by QE, we are expecting NFE to come online. In the first half of 27 and that is. Our own expectations, obviously, are consistent with what we are seeing from what is being published by Qatar Energy. And then, of course, NFS follows that. And so while we have seen reduced utilizations projects-- project progress continues, and so we expect NFE and ultimately, NFE to continue to contribute to this cash flow inflection we have promised for the next couple of years.

Our next question comes from Josh Silverstein from UBS. Your line is now open.

Yes. Thanks, guys. Just wanted to follow-up on Canada with the more supportive policy environment up there. It seems like Canada investment opportunity has certainly moved up your pecking order here. So was just curious about the opportunity you see there for increasing investment if it is both you know, Surmont and Montney, 1 versus the other, and then maybe just some you know, views as to where the underlying cash flow improves under the new tax legislation.

Hi, Josh. This is Kirk. Yes, certainly, as you saw from our released materials, we did bring on pad 1 zero 4 WB ahead of schedule and under budget. I think that is really quite indicative of the strong performance that we have been seeing from that business over the last couple years, strong base production and then strong development production as we have been bringing on a new pad roughly every 12 to 18 months. We have been seeing strong performance coming out of those wells and those pads. As well. Pad 104A, its production has been exceeding our own expectations. And so, naturally, I am expecting really good things, strong production from 104B. But as you are pointing to here, Josh, there is a number of things going on here, in Canada right now, whether it is pointed at Montney or especially pointed at Surmont. On the on the trilateral MOU. And I think this continues to point to the underpinnings of certainly in our published materials and Andy's opening comments the fact that we have a strong organic existing position here in the company in our international portfolio to continue to expand CFO and free cash flow. And it is coming from assets and businesses like CIRMA. You know? Again, this is a differentiated asset. it is unique. The fact that it is low decline, and it is very long life with a low cost of supply set of investments in front of us, and it demands a pretty low capital intensity when we compare that. To other assets in our portfolio. And it does contain a future growth option. So certainly, as you have been seeing in the press, as a member of the Oil Sands Alliance, we have been in with the 2 governments, the federal and the provincial government there in Canada, along with the other Oil Sands Alliance members, And while we have yet to formalize the agreement coming out of the trilateral MOU, we are really quite positive. On the fiscal incentives that have been premised in the MOU, and we continue to negotiate as well as the policy and the regulatory proposals that are coming about to incentivize growth. And those incentives range from accelerated depreciation to support on both capital and cost. And so again, when I back up, I think about assets like Cermont as being a great demonstration of the value and the inventory that we have in the company to not just continue to modestly grow production at a place like Surmont into existing capacity, but we also have the capability to expand total production through some really modest capital investments. And so even inclusive of an expansion project or a pathways project, This asset, Surmont specifically, is in a place of having a very advantaged low reinvestment rate and it is part of this contribution to our ability to continue to expand CFO and free cash flow well into the next decade.

Our next question comes from James West Melius Research. Your line is now open.

Hey. Good morning. Good morning, guys. Had a question around Alaska and Willow. I know we have talked a little bit about it already and where that. The project is heading, but the 've you have had some exploration success. You will likely have, more in curious how you think about how much duration that would add to Willow once you ramp it and it gets to a plateau?

Yeah. Good morning. This is Kirk. Yes. Certainly, as you are pointing to, and Andy spoke to this earlier, a number of times, but I will reinforce a couple of components here just to start with, which is this last winter season, we drilled roughly 4 exploration wells, and saw enough to be rather explicit about the fact that we are positive about our ability to continue to bring in more resource into Willow. And so naturally then, of course, you know, as described, we are preparing for this next winter season. And we have plans to drill roughly the same number of wells, another 4 wells, do a bit more seismic. And all of this is in an effort to mature our understanding of the opportunities that exist for us beyond WILLOW. And so as we are ready for this, inclusive of the fact that we just received federal permits to begin drilling and begin executing that program there up on the slope this winter. All of this is in an effort to lay the groundwork to use Willow's infrastructure in the same way that we have been using the infrastructure that has existed for decades. Which is the Western North Slope or what I sometimes call the Alpine infrastructure. As well as our Kuparuk infrastructure. And this creates the potential for satellite pads that can be developed in a really capital advantage way. We can put pads out there at a really low ratable capital spend and bring more resource into Willow in the years following First Oil in which we have come off of plateau there at Willow. And so we continue to use this infrastructure to our advantage, low cost of supply. And even with all of that included, you can continue to expect capital to come down in Willow, inclusive of all the efforts that we are doing to explore, appraise, and develop these new satellites all of this again, certainly as Andy pointed out earlier, is another great example of our ability to continue to bring capital down and expand CFO and free cash flow well into the next decade.

Our next question comes from Kevin McCurdy from Pickering Energy Partners. Your line is now open.

Hey, great. Thanks for taking my question. My question is on the LNG portfolio and the cash flow contributions. You have steadily added offtake up to 13 MTPA now. Can you remind us how much of that you will see in 2027 and how that ramps, and any broad thoughts on where margins are currently and into next year? Yeah.

Good morning. This is Andy in terms of the. You know, as you are right, we have been increasing our offtake and we are now at 13 million tonnes. The new capacity we are adding does not come on until, you know, later in this decade and into earlier in the next decade. So specifically, the volumes that we have that will be coming online first will be you know, our Port Arthur phase 1 volumes and a small amount of volume at ECHA. So that is kind of the key drivers of the volumes sort of coming on. I will remind you on Port Arthur phase 1, we are also an equity owner in that. So as a 30% owner, we will also be capturing our share of the commissioning cargoes that come off of that project. And then in terms of the margins, I am not going to get into the specifics, but is, you know, we have we have given you our free cash flow inflection, we have been very clear that we base that off of a $10 TTF and a $4 Henry Hub, and I think last time I looked, TTF was closer to $30. So we will see where those margins are next year as they are coming on. But we are trading significantly above the $10 assumption that we had And you know, Henry Hub is trading below the $4 that we had, and the costs in between effectively are locked in for us. So, you know, as I look at our commercial team, you know, I did sort of we cannot we cannot get these volumes on fast enough. So it is Port Arthur phase 1 is the element of the volumes coming on for us next year.

Our next question comes from Gabe Daoud with Truist Securities. Line is now open.

Thanks, operator. Hey, Andy and team. Good afternoon or good morning. Actually, good afternoon for everyone now. But maybe, Andy, just hoping we can maybe. Any kind of update on path to monetizing the Venezuela claims and then maybe, additionally, just any kind of update on resource there and legal and fiscal terms and whether or not there would be any kind of appetite to reenter the country. Yeah.

So, you know, from a-- for Venezuela, the way I would describe it for us is that we continue to engage to better understand opportunities there. But for us, to invest capital we need to see a real pathway to meaningful recovery on the $12 billion we are owed. And it is also critical, let's not lose sight of the investments also got to compete with the rest of the portfolio. You know, we have. I think we have gone to that in great length today and just how deep our portfolio already is. So even if we can sort of work through a pathway of meaningful recovery You know, you see improved security and you see improved fiscals. it is still going to compete within our portfolio. So always remain open minded. We will always-- we will always, you know, want to look. We want to talk, want to understand. But it is got to compete within the portfolio. And that is that is probably sort of, you know, nothing really sort of much new to say on that at this point. So I think the other question in terms of sort of claims that we have, again, there is not really much new to say there either. I think the 1 that most people point to is the Citgo sales. You know that the Delaware courts approved a bid for Citgo. But that remains subject to appeals and OFAC approvals and we are just not going to speculate on specific outcomes or timing there. So a space we keep watching. You know, we know what we are owed, and we would like to see if there is a win-win solution. But it starts with basically understanding sort of a pathway to recovering what we are owed.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.