Earnings Call: Q4 2020

Feb 2, 2021

Good morning, and welcome to the Q4 2020 ConocoPhillips Earnings Conference Call. My name is Anara, and I'll be the operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer Please note this conference is being recorded. I'll now turn the call over to Ms. Ellen DeSanctis. Ellen, you may begin. Thank you, Zanara. Hello, and welcome to our listeners today. First, I'll introduce the members of the ConocoPhillips executive team who are on today's call. We have Ryan Lance, our Chairman and CEO Bill Bullock, our Executive Vice President and Chief Financial Officer Matt Fox, our Executive Vice President and Chief Operating Officer Tim Leach, our Executive Vice President of the Lower forty eight Dominic Macklin, our Senior Vice President of Strategy and Technology and Nick Olds, our Senior Vice President of Global Operations. Ryan will open this call with some prepared remarks, and then the team will be available for your questions. Before I turn the call over to Ryan, A few reminders. The results we released this morning reflect 2020 results for ConocoPhillips only. We will not be discussing any Concho specific results today. But beginning in the Q1 of 2021, results will reflect the combined ConocoPhillips Concho Company. We will make some forward looking statements this morning based on current expectations. Actual results could differ due to the factors described in today's press release and in our periodic SEC filings. We'll also refer to some non GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in this morning's press release and on our website. Thanks, and now I'll turn the call over to Ryan. Thank you, Ellen, and thanks to all our listeners for joining today's call. Lately, I've been reflecting on this time a year ago. We had just rolled out a groundbreaking Multiyear plan for the company. The plan was anchored to a comprehensive philosophy and approach we've been espousing since 2016 that was aimed at reversing the failings of the E and P sector to create a sustained value for shareholders through cycles. What was that business model? It was reinvest about 70% of our cash flows into the lowest cost of supply resource To grow financial returns and free cash flow, return at least 30% of the cash flow to our owners, maintain a very strong balance sheet and lead in ESG stewardship. Our multiyear plan gave the market a credible example of how this business model would work. Well, almost as soon as the ink had dried on our multiyear plan, along came 2020. And for the entire year, nothing went as expected for any of us. But here's the thing. Despite the most challenging year in the history of our sector, our business model worked. The value proposition prevailed. We exercised available flexibility without forfeiting productive capacity. We high graded our portfolio. We executed our programs and returned over 50% of our cash to our owners. Our balance sheet stayed strong, And we've continued to up our game on ESG. In other words, our value proposition passed the test of 2020. And this strengthened our conviction that we have the right model for this volatile sector. This conviction is what led us to acquire Concho that will enhance our ability to deliver our proven value proposition. So we've turned the difficult experience of 2020 into an opportunity to emerge as an even stronger, more investable company for our sector. Earlier today, we announced Q4 and full year 2020 results for ConocoPhillips. Because the Concho transaction closed after year end, the results we reported today represent standalone ConocoPhillips performance for 2020. However, beginning January 1, our 2021 results will reflect the combined company performance. I don't plan to review the results we announced this morning. I just described some of the important highlights from last year. This morning's results should give you all confidence that the underlying standalone ConocoPhillips business is running very well. Thanks to the many efforts of our workforce. And I can assure you the Concho Permian business is running well too. And again, thanks to our workforce in Midland. Our mindset as we start 2021 is all about doing the work and delivering the results that make us the best E and P company in the business. And to align all of us, here are our key focus areas for 2021. Our top priority is create the strongest in the business from the combination of ConocoPhillips and Concho. The closing of the Concho transaction cleared the way for us to begin comprehensive integration and optimization efforts across every part of our business. We're just getting started post closing, but we're already taking actions that will drive greater efficiency and capture best practices to ensure we perform at the highest level organizationally, technically, operationally, financially and culturally. We have already identified the sources of capital and cost reductions to meet the $500,000,000 target we set when the deal was announced. And I can report that we will significantly outperform those initial expectations as we review our processes, share best practices and organize for the new realities of the business. But let me put our revised saving expectations into perspective for you. Compared to pro form a 2019 adjusted operating costs of approximately $7,000,000,000 we anticipate being at an annual run rate of approximately in 2022, assuming a similar production level of roughly 1,500,000 barrels a day equivalent. Now this $1,000,000,000 reduction, about $400,000,000 of that was driven by actions taken by both companies prior to the deal announcement, with the remaining savings to be realized through cost reductions implemented in conjunction with the transaction. It represents a major value upgrade for the company because it greatly enhances the competitiveness of our free cash flow generating capability, which is how we'll win. We'll be implementing our cost reduction actions throughout 2021 and we'll provide updates on our progress along the way. The next priority is to execute the announced Operating capital plan of $5,500,000,000 This budget is comprised of sustaining capital of about $5,100,000,000 and about $400,000,000 that will be directed toward major capital projects, primarily in Alaska and ongoing appraisal activity. Now for this level of capital, we expect to produce about 1,500,000 barrels of oil per day equivalent, which is roughly flat to 2020 pro form a production adjusted for curtailments and asset sale. In this morning's supplemental material, we provided operating capital plan by segment. We expect to spend about 55% of our capital in the Lower 48 with the remainder allocated across our diverse global programs. We set the capital budget at about $5,500,000,000 for two principal reasons. First, while the macro environment has firmed up recently, We are cautious about the trajectory and the timing of a recovery. Demand recovery is taking longer, spare supply remains and inventories remain elevated. It makes no sense to grow into this market environment. So we're choosing to stay at a sustaining level for the year. 2nd, we're committed to growing free cash flow and we are setting up the company to be a significant free cash flow generator. That means maintaining capital discipline, but also driving program improvements that enhance uplift efficiency. In other words, we're driving for free cash flow growth, not production growth. At $5,500,000,000 of capital in 2021 and if current prices hold, we expect to generate significant additional free cash flow. In that situation, our dividend alone would not be sufficient to meet our target of returning greater than 30% of our CFO to our shareholders. You should not be surprised to see us reactivate buybacks as a channel, and we always like the idea of improving net debt. A third key 2021 priority is engagement with our various stakeholders. This includes investors, regulators, government officials, partners, communities in our workforce. We're undergoing a significant level of change, both on the inside as we integrate our companies, but also in the external environment. While we consider engagement part of ordinary business, there's no question this priority has taken on a new level of importance in today's environment, especially given the recent industry related announcements coming from the new Biden administration. Now let me take a moment to address our thoughts about recent pronouncements of a temporary moratorium on leasing and permitting on federal lands. I have to say, we were not entirely surprised by the announcement. In fact, President Biden said during the campaign that he would issue a temporary moratorium on new leasing. As for the permitting moratorium, The administration has publicly indicated this is a temporary pause and that they will continue to issue permits. Obviously, we hope these Temporary actions are resolved in a timely fashion, and we are certainly watching the situation closely. Now from our perspective, some of the recent executive actions targeting U. S. Oil and gas production will have a negative economic and environmental consequences to the American people. If the moratoriums become permanent, they will eliminate while paying jobs mainly in rural America, slower economic recovery, negatively impact energy and national security and increase our reliance on higher GHG foreign barrels. We certainly want to avoid these outcomes. So we stand ready to work with the Biden team as we did successfully with the Obama Biden administration to find balanced solutions to address the issues. As for the questions of what a permitting moratorium could mean for ConocoPhillips specifically, Let me take that head on. While we certainly are going to engage to protect our interests, ConocoPhillips has the flexibility, the diversity and the depth of low cost of supply and low GHG resource to manage through this issue without materially impacting our plans. And a final 2021 priority will be continuing to up our game on another issue that is very important to our stakeholders, namely ESG. This is an area where we have a long term demonstrated track record of commitment and performance. But clearly, there is heightened interest across all of industry on this topic. We continue to accept our responsibility for continuing ESG improvement and, in fact, embrace the opportunity to be an industry leader. Last year, we became the 1st U. S.-based upstream company to adopt a Paris aligned climate risk strategy. We set internal emission reduction targets that are consistent with the goals of that agreement and are taking significant measures to monitor and reduce methane emissions across our operations. In addition, we're actively advocating for a well designed price on carbon in the U. S. Because we believe that's the most economically efficient An effective step that can be taken by the U. S. To set the world on a sustainable path to long term GHG emission reductions. While we work diligently to reduce emissions on a parallel path, we have established a low carbon team within the company. That team is conducting in-depth studies of energy transition alternatives, monitoring trends and evaluating the economics and the viability of these alternatives For ConocoPhillips over time, our Board is engaged with the team and its work, and we're committed to continue our analysis on this important topic. But at least for now, we believe the highest value we can create for all our stakeholders is by being the best E and P company in the business. The world needs clean, low cost barrels that are safely delivered by disciplined, free cash flow and returns focused companies like ConocoPhillips. 2020 was indeed a challenging year, but the lessons and accomplishments we took from it put us in great stead, not only for 2021, but as a $75,000,000,000 enterprise value industry leader. We're in a unique position to help the perception and the performance of our sector with a clear vision of what we need to do, deliver value from the Concho transaction, execute our 2021 operating plan, engage with our stakeholders and keep pressing on ESG leadership. We look forward to keeping you informed of that progress as we go throughout the year. Now let me turn that back over to the operator and we'll take your questions. Thank you. We will now begin the question and answer Our first question comes from Doug Parrissen from Evercore. Please go ahead. Your line is open. Hi, everybody. Hello Doug. Ryan ConocoPhillips has emphasized cost effective energy ESG leadership, which you just referred to and competitive returns to shareholders, which has really been a prescient approach and Most of your peers have ended up emulating over the past couple of years. And while having a good head start is usually a good thing, paradigm shift seems to be underway in energy with investor expectations for management teams changing too. So my question is, what are some of the things that the management team is going to need to do to sustain its leadership position in this new environment to continue to be the best E and P company with these new realities, I think is the way you phrased it a few minutes ago. So that's my question. All right. Thanks, Doug. And first, big call out and congratulations on your retirement. We know we're going to probably see your name around. You've been an incredible partner and thought leader in the industry and You've gotten it right more times than you've gotten it wrong. So kudos to you as well. So thank you. Yes. Doug, it's really good. A lot of external pressures right now, certainly, on the industry and On what's happening with the new administration, I guess, I go back to kind of our three areas that we think are really for success of an E and P company, and I think it starts with returns on and returns up capital. You've got to generate a competitive return for our shareholders in this business. You got to do that sustainably and through the cycles, and we think that's critically important. And we're Well bought into that, as you know, for a number of years. And to do that, we've got also deliver this low greenhouse gas affordable energy all around the world. And that's going to be a part as we go through this transition that's really important. I think it's maybe lost in some of the rhetoric today just how important Oil and gas is to this transition that we're going to be going through over the next number of years decades. And finally, you have to do that sustainably. We have to do that with the environment in mind. We can't put the planet through a great experiment. We've been an advocate of this and been a supporter for a long period of time. And as I described in my opening remarks, it's about taking care of our Scope 1 and Scope 2 emissions, And we're on a pathway to reduce that intensity by 2,030 that puts us on a pathway to 2,050 and The goal that's consistent with the Paris agreement. So we think everybody needs to be focused on your Scope 1 and Scope 2 emissions. And For Scope 3, we advocate for price on carbon. We think that's the best way, that's most economical way, it's most the best way that the market can deal with this issue and drive consumer behavior that takes that puts us on the pathway that's consistent with the Paris Agreement as well. So that's how we've come up with our climate strategy, and that's how we're dealing with this kind of mantra around how do you get energy and make it affordable, how do you make it sustainable and how do you make it resilient and something that shareholders can invest in. And thanks for that Ryan. And also to be fair, it's been really easy to have ConocoPhillips as my top Idea and E and P since you guys or since you became the CEO in 2012 and that you guys originated the model for success in This sector has obviously worked and you stuck to it. So kudos to you and the team. Thank you for your leadership in the space and the pleasure has been all mine. Thanks again. Yes. Thank you, Doug. We'll miss you. Thank you. Our next question comes from Neil Mehta from Goldman Sachs. Good morning, Ryan. So I guess the kickoff question is about capital returns. And Ryan, you alluded to this, but as you look at 2021 at the 5 $5,000,000,000 capital budget, where do you see the breakeven to cover your dividend? And I'm guessing the number is a lot lower than where right now, which is close to $58 Brent. And so how do you think about using a share buyback To take advantage of that excess cash flow, but also the dislocation, you've historically talked about the correlation between your stock and the price oil and that correlation has recently broken down. So how do you think about leveraging excess cash flow via buyback to take advantage of the dislocation to the extent you see 1? Yes. So maybe I can take the latter part of yours, Neil, maybe Matt can chime in on breakevens and the first part of your question. But yes, you're right. Certainly, I know you guys can do the math and are doing the math pretty quickly these days. And certainly, at current prices, if they hang, we're going to be you shouldn't be surprised at all for us be back in the market and buying our shares back at kind of the level we were at pre transaction. So we recognize that Our commitment is to deliver 30% back to the shareholder, and we're committed to doing that. We recognize that the ordinary dividend today in the kind of market we're experiencing today and you look at the forward curves that would be insufficient. So we recognize we'd have to take some of that free cash flow and return that to the shareholder And that's certainly our commitment. And as I said in my opening remarks, always with what we experienced in 2020, having a really, really strong balance sheet is really important. So reducing our net debt is sheet is really important. So reducing our net debt is something of interest to us as well. So let me maybe Matt can chime in a little bit on the breakeven numbers. Yes. Neil, yes, 2020 1 is going to be a little bit noisy in because of some of the one off costs. But when we get to 2022 in the steady state mode, The breakeven to cover the capital and for sustaining capital and the dividend is going to be somewhere around $40 a barrel, consistent with what we showed time that we announced the transaction. And of course, I mean, that's before we've considered then some additional cost savings that may come from Capital reductions and margin improvements from commercial and supply chain and so on. So we're feeling very comfortable that we'll be And consistent with that, roughly $40 or a bit less once we're in 2020 Okay, great. And I'd add Neil that sorry, Neil, I'd just add that we're taking the time to drive the efficiencies and the free cash flow generating power through the transaction with Concho, and we're just getting started With that, we've been 2 weeks now since we got it closed. And I think we've got about a month of prices above $50 WTI as well. But we're just getting started and our focus is on trying to drive that as low as we possibly can and the teams are up for Well, that's the follow-up for you, Ryan. It's just it's been a couple of weeks since you've gotten your hands On the conscious steering wheel, just thoughts on what you're seeing so far? What is surprising to the upside? Anything surprising to the downside? And any quantification around the value creation that you've seen so far with the Concho assets? No, thanks. I think I'd say we haven't seen a downside yet. We're just we're happy to have Tim and Will and Jack on the team and helping us get jump started in terms of what we're doing in the Permian Basin and building on the best practices as Matt talked about. So we're quite excited about the upside and the opportunity and just continuing to drive that Efficiencies, free cash flow generation, get our assets on the Concho learning curve and continue to drive the value. And that's what this year of kind of sustaining level of capital, we're coming into the same level that we came in out of 2020 And that gives us the chance to get the team really focused on driving those efficiencies and getting more out for every precious capital dollar that we're spending. Thank you. Our next question comes from Jeanine Wai from Barclays. Please go ahead. Your line is open. Hi, good morning everyone. Thanks for taking my call. Good morning, Jeanine. Good morning. So I guess my question is maybe on the medium, longer term. You'll be holding production flat this year pro form a to 2020. And over the medium term, has your view on the mid cycle price of $50 real TI, does that change relative to underpin the 10 year plan? And I know you indicated that Conoco passed the value proposition test of 2020. So is the plan to make your way back To that more than 3% production CAGR and the substantial through the cycle share buybacks? Or has the Gro and the Concho acquisition kind of made you think a little bit differently? Well, maybe I'll start and then let Matt, chime in a little bit as well. I think long term, Janine, our view of the mid cycle, if you think about it that way over a long period of time, hasn't really changed. We see some potential for demand destruction coming out of this post COVID. That could be up to of 1,000,000 barrels, Dave. We also see some supply destruction as well. So on balance, we'd have A long term view that the mid cycle price hasn't really changed. I can maybe turn to Matt. He can maybe address Kind of that medium term question that you asked, which I guess is kind of directed maybe over the next 2, 3, 4 years. Yes, Janine, as Ryan said, I mean, in the short term, we would expect and Perhaps they're quite a volatile year this year if we work off inventories and we use about demand and supply. But our view is that in the medium term, it's quite possible that we'll spend some time above mid cycle prices And because although there's some demand reduction, we know there's been significant supply reduction, particularly in the U. S. When you think if we could put some numbers to that, I mean, U. S. Type oil production was 8,200,000 barrels a day in December of 2019, And last year, it was 7,000,000 barrels a day. So that's a significant drop. And our view is that at $50 a barrel or hereabouts, the current strip prices Low-15s, assuming that the 6 day moratorium on permit doesn't extend it for a long period, then U. S. Type oil will probably average around 7,000,000 barrels a day for 2021, at least that's our sense of it. And if you take that and Looking at 2022, that's at least 2000000 or 3000000 barrels a day below the COVID the pre COVID trend. So assuming demand is back in 2022 and assuming U. S. Producer discipline holds, I think it's reasonable to expect a few years above med cycle, but on balance, our underlying med cycle for the longer term hasn't adjusted yet. Okay, great. Thank you. And then to the latter part of your question, Janine, we're pretty committed to the 30% turn of our cash back to the shareholder that we believe that's the right model for this industry and we're committed to doing that. Okay. And then my follow-up is just maybe digging in a little on Neil's question. And I apologize for pushing you on this a little bit, but I think that Conoco's cash return model is extremely differentiated. Not a lot of companies on our list at all are able to return capital the way you can. But when you mentioned in terms of potential for the buyback to resume. You said it could be maybe around the level at pre transaction pre contract transaction level. So I know that you had announced like $1,000,000,000 buyback in 4Q 'twenty loan, which got canceled. So Are we supposed to be anchoring around that or is it more kind of the 2019 expectations? Well, I think you can do the math at these kinds of prices and calculate sort of the CFO that we generate and our commitments to return 30%. So it's more similar to like what we were doing before the transaction. Okay, great. Thank you very much. Thank you. Our next question comes from Phil Gresh from JPMorgan. Please go ahead. Your line is open. Hi, thanks for taking the question. So, first one here, I guess, would just be on the outer year look at Capital spending and I know you're going to give us an update here in March and you disclosed the transaction, but I guess it was more directional in nature. Do you have any color about How do you think about the moving pieces looking out? And I noticed that you do have some spending here in 2021 allocated for Willow as well. So Should we be anticipating that, that will be ramping up in 2022 beyond at this point? Yes, I can maybe give a yes, we have an expectation to come back and talk about update you throughout the course of the year. And We've kind of said we come back in March and certainly expect towards the latter part of the year, we need to come back to the market and describe our longer term plans. We have thoughts and ideas around optimize plateau levels of spend for the assets. We do that at company level and certainly do that at the asset level as well in the Lower forty eight and across our portfolio, including The Willow asset and I can have Nick describe a little bit about what we're doing today on the Willow asset. But we'll give that update to you, Phil, longer term, but expect that there will be some ramp up to an optimized kind of level, both at the company level and the asset level, and a lot of that's dictated by the recovery in this market. We level and a lot of that's dictated by the recovery in this market. We got to see just what happens and how quickly supply and demand get rebalanced in this in the global markets. So we're watching that really closely, but understand that there's going to be a ramp up to some optimized level and that's where we're busy trying to assess right now and understand after the Concho acquisition. Maybe I can have Nick add a few comments on the Willow piece specifically. Yes, Phil, this is Nick. Just take you back a little bit to Q4 2020. As you've seen, we crossed through 2 major milestones around permitting for Willow. We had the record of decision by the BLM in October. And then the Army Corps of Engineers 404 permit allows us to put gravel for roads and pads. For this year, we've got part of that Capital will be advancing engineering through our FEED. So we took FEED end of December. That's a major decision gate within the company. Advancing the front end engineering and design and then we plan to move to detailed engineering sometime this year. And then part of the scope for 2021 is also some small civil construction to put gravel and start the road system for Willow. And then we're targeting FID final investment decision later this year. So we'll advance the detailed engineering, which will impact to the overall decision. So we're watching it closely, Phil. And if things move to the right because of this current administration or Somehow we get curveballs thrown at us. We have not taken FID yet. We've got a lot of flexibility around how fast we actually ramp up at Willow and what our options are around that. Got it. Okay. Thank you. Follow-up question there to Neil's question on the breakeven. Understood on the 2022 kind of still normalizing at a 40 to 41 TI, which I presume includes the incremental synergies that you discussed today. But with respect to the transient factors for 2021, I was hoping just a little bit more color there. Is that just the severance that you're referring to as the one offs or were there other things? Because I think there were some things like LNG distributions on a lag effect and other things. So anything else you could share would be helpful. Thank you. Yes. I can have Dominic Keyes leading up the integration efforts around the 2 companies and describe some of those transaction costs and in relation to the synergies. Yes, Phil. Obviously, there's obviously severance cost here in terms of where we have duplicate labor and other savings. There is obviously fees and associated with that. But Once we get through this year and get through those costs, I think we're focused really on what our cost structure will look like. So maybe just to give a bit of an update On that, I want to be clear about that. The integration is going well. That's on the system side, the organization side. And we are We do have line of sight to exceed our targeted $500,000,000 cost and capital savings we announced at the time of the transaction. So If you remember, that $500,000,000 was made up of $350,000,000 of operating cost savings and $150,000,000 of capital reductions. And those really came across 3 areas: the direct savings from the transaction restructuring our corporate staff groups to better align with our new portfolio on the ConocoPhillips site and then stopping our New Ventures exploration program. That reduced our targeted exploration spend from $300,000,000 to $150,000,000 a year. And in fact, our 2021 capital program of $5,500,000,000 reflects a reduced exploration capital spend along those lines. Now our expected operating cost savings have now increased from $350,000,000 to $600,000,000 So our teams have really done an excellent job turning over every stone, both in relation to the full reductions will now amount to $750,000,000 So we're up from $500,000,000 to $750,000,000 and we're still counting. I think as Matt mentioned, We still have the opportunity for cost and capital efficiencies across our D and C spend, supply chain economies of scale and also improved price realizations on the commercial marketing side. So we do expect that $750,000,000 to increase through the year, and we'll be providing another update on that in March. Now finally, just to tie back to Ryan's prepared remarks, with the operating cost savings having increased to $600,000,000 Together with the $400,000,000 of sustainable cost reductions each company made both companies made together in 2020, We anticipate our 2022 operating costs to be around $6,000,000,000 and that's $1,000,000,000 less than our pro form a costs in 2019, and that was really the last normal year pre pandemic, so represents the best baseline, and that's all assuming production flat at about 1,500,000 barrels a day. So at the end of the day, as we think about we get through these transition costs this year. We then get into our run rate of about $6,000,000,000 It's those bottom line costs that matter at the end of the day, and that's what we're very To make really the company the strongest competitor in the business from 2 already very strong companies. Thank you. Our next question comes from Alastair Syme from Citi. Please go ahead. Your line is open. Thank you and hello everybody. Look, earlier today, one of your U. S. Peers slashed their Permian growth forecast I thought almost 40%. And I thought what was intriguing about that is on their conference call, there was not a single question asking about that revision. It's almost like the market has swung at a pendulum and now it doesn't think the Permian works. So I wonder if you can really reflect on the trends you're seeing in efficiency, Costs and supply and I think ultimately the question that the market doesn't seem to believe about whether this business could be turned into one that generates free cash flow? Thank you. Yes, I'll start Alistair, maybe let Tim chime in. He's our President Permian that we're enjoying having on the team. But I think as we look at it and what drove our decision around the transaction early on is Looking for the lowest cost of supply resources we could find in the world today and the companies that owned it, and that's what drew us to Concho and the transaction that we announced back at the end of last year. So when we look at it and we look performance inside our own company and now that we've gotten a look under the hood deeper on the Concho side, we're Pretty pleased with what we're seeing and continue to see efficiencies in free cash flow growth above and beyond that. And maybe ask Tim, he can Supply a little bit of color to that as well. Yes. Just follow on by saying how pleased I am to be here and how well I think that Concho fits within this portfolio. But specifically to the Permian Basin, we were operating a really efficient program Coming into this deal, Conoco was also operating very efficiently. And as I was reminded recently, the program we're right now is generating the best economics that we had seen during most of my career. So it's pretty exciting to have the inventory that we have and have the opportunity then to go in and make that better and making it better makes it more capital efficient, which will greatly expand the free cash flow and drive down the cost of already low cost of supply area. So we really see opportunity to really enhance the economics of what we're doing together. So that's the exciting part of going forward. Tim, can I ask, do you think the industry in 2020 has managed to bring the cost of supply down further in the pending? Or is it difficult to I'm not sure we caught that, Alistair. Say it again. So the question is whether you think efficiency gains in 2020 have brought the cost of supply down in the Permian at all? Yes, certainly. I think we saw declining capital cost, but then also enhanced efficiencies from better designed wells, better designed spacing across the board. So yes, I do think the cost of supply came down dramatically in 2020. Thank you. Our next question comes from Roger Read from Wells Fargo. Please go ahead. Your line is open. Yes, good morning. Good morning, Roger. Good morning, Roger. Good morning, Roger. Just wanted to jump in. I know was asked a little bit earlier, just got your hands on the wheel with Concho. But maybe as a step back and looking at the overall company, Thinking of your cost to supply portfolio review, the step away from the exploration as part of the savings from the transaction, Are you thinking of an overall portfolio kind of shake up in coming years or is everything that's in there, It really does make sense. And then as an addendum to that, just how you're thinking about some of the international LNG opportunities at this point? Yes, Roger, we've made a lot of portfolio changes as I know when since we spun the company in 2012. And I think now as we look across the entire portfolio, we're pretty pleased with the resource base that we have, the cost of supply of all the major assets that we have in the portfolio. With that said, when if they don't compete for capital, We've demonstrated our ability to move them out of the portfolio and we'll do that if their cost of supply gets higher and they don't compete for capital. But that's how we're really focused and Feel like the portfolio today is in a really good shape. What we're investing in is a less than $40 cost to supply and it averages below 30. So we feel very comfortable we can deliver the returns of capital, returns on capital even through the cycles in this business with the portfolio that we have. And part of that includes those LNG projects that you described. Now we did divest of 1 at the end of last year in Australia, and we did that because we were concerned about the cost of supply and the GHG footprint amongst a few other things. But we are we do like the LNG projects. We think we're We like the market in Asia. We like the growing need for gas around the whole world. We are interested in competing in Qatar for another train. We think it's that should be coming soon. It's been certainly delayed with COVID like everything else. But if it fits our investment and our investment thoughts around cost of supply, we'd like to participate in that because it ultimately lowers capital intensity and really helps we think the overall portfolio. So we're still quite interested in that particular project. And then Obviously, we still have the one of the trains in Qatar and we have our APLNG project that's performing very well right now on top of it as well. Great. Thank you. Thank you. Our next question comes from Scott Hanold from RBC Capital Markets. Please go ahead. Your line is open. Thanks. Good morning, guys. Ryan, appreciate the color that you provided on what you view in terms of the changes in administration and regulations there. But Do you all anticipate that you're going to have some visibility to make your longer term directions at some point? So when do you expect to have a firm direction by the administration? Or is there a risk that there isn't anything that's as clear as you need? Well, yes, Scott, I mean, we're watching the next 60 days really closely. And we've got to get back to permitting rights of ways and easements across public lands. And if that gets hung up or takes a lot of time, we'll have That's what we're watching very closely. We're already starting to see, frankly, a bit of loosening up of that, some permits getting approved that We that they said even during this moratorium wouldn't get approved. So that's what we're following pretty closely and certainly we'll adjust our plans If it turns out to be something other than temporary, which is what we're hearing from the Biden administration is that it is to get their feet on the ground, understand the lay of the land, understand what was transferred to them from the prior administration and understand how they're going to deal with those issues going forward, but we expect them to come back. We worked very successfully with the Obama Biden administration on all these issues and would expect to do it and take them at their word that this is temporary and that we'll get back to business as usual or at least something close to it after these 60 days. Appreciate that color. And as my follow-up, When you look out at the synergies that you're looking to capture, can you discuss how much of that is included With what your commercial teams can do with the Concho asset then? And remind me if that's included in that. And if you could give a sense of like what should we from that because I know certainly obviously Concho was a 2 stream reporter, you guys are 3 stream. But what's going to be that transition period. And is there some synergy upside in addition to what you've already spoken to? Yes. So Scott, I as Dominic described, the $750,000,000 of synergy that we are talking about today does not include any commercial uplift or realized price benefits supply chain enhancements or best practices that drive more capital efficiency, those are yet to come and we fully expect we're going to get significant uplift from those particular items as well. It's going to take us probably the better part of this year commercially to understand all the different contracts. You brought up 2 stream and 3 stream reporting. Ultimately, we'll go to 3 stream reporting for the combined assets, but it's going to take us some time to understand the restrictions and how quickly we can get there For the Concho assets, in fact, I think Tim was trying to get there as a company anyways. So there's they plowed a lot of ground in that regard. So It'll just be a matter of getting to understand those contracts. But importantly, that's why it's helpful to take a sustaining approach and just a stable approach to our execution this year gives us the opportunity to really focus the teams on trying to drive those efficiencies in trying to drive those additional cost reductions, finding those opportunities on the supply chain and the commercial side of the business that are not included in the current estimate that we provided to you, but we'll fully update you again in March and provide you another look at where we stand and provide additional details as we go through the course of the year. Thank you. Our next question comes from Bob Brackett from Bernstein Research. Please go ahead. Your line is open. Thank you. My interest was piqued by your mention of the studies of energy transition alternatives. And my would be that there's a financial lens in thinking about that. Does this compete for capital against other options in the portfolio? And I guess there's a strategic lens, which is, is this in our core capabilities? Is this something we could do better than most or better than the rest? Without giving away how far along you are, how do you frame those in terms of financial and strategic objectives? Yes, Bob, it's Dominic here. If I can just talk a little bit about BitLocarbon team that Ryan mentioned, that sits in our Technology organization and their work is really in support of our Paris aligned climate risk strategy as well as monitoring more generally with the energy transition for the company. But you mentioned the Competencies, and that's something we have to stay very focused on as to the contribution that ConocoPhillips can make overall to the energy transition. And so Their primary focus, that low carbon team we have now, is focusing on those opportunities most relevant to our core business and to our core competencies. So Those are things like carbon capture use and storage, carbon offsets, alternative power sources to further reduce the emissions intensity of our operations. And so and now they're also working with the BUs, our business units very closely to implement the lowest cost opportunities we have to reduce operational emissions more broadly. So that is where our primary focus is. We are looking more broadly as well in monitoring. But As you say, at the end of the day, we've got to achieve the 3 things that Ryan laid out. We have to provide affordable energy to the world. We have to generate returns on and off capital for shareholders. So we have to be very continue to be very disciplined and thoughtful about our capital allocation, but we have to do all this all sustainably through ESG Excellence. So and I think the key thing here is that we are very committed to our Paris aligned climate risk strategy and the work they're doing is in support of that over the longer term. Thank you. Our next question comes from Doug Leggate from Bank of America. Please go ahead. Your line is open. Thanks. Good morning, everyone. Happy New Year, everybody. Good morning, Greg. Two quick ones. Ryan, my first one is, I don't know to the extent you can answer this, but I'm just wondering if the consolidation opportunity in year 2019 is over. Obviously, there was a bit more going on in the S-four, so I think it's the first time you really had a chance to talk about it. The elusive company A that was mentioned. I'm just wondering where do you stand in terms of are you still looking for additional opportunities as we move through, Thanks, Doug. I think our focus is just integrating these 2 great companies and that's really the whole focus of the company right now. So I'd say we're not trying to be distracted on anything else other than driving the efficiencies, the cost reductions, Free cash flow growth and then applying all these best practice and learnings that we have across 2 great companies to the current company that we have. With that said, no, I don't think M and A is done in this business. I think with you got to Continue to drive down cost of supply. You want the best resource in the business, and you got to be the most sustainable company from an ESG perspective. And I think Continuing drive out costs in the business is going to be a good thing. So no, I don't think M and A is over. And I think we've laid out our framework for how we think about that, But that's not on the radar screen right now relative to our company. We're focused on just driving the best results we can out of the transaction that we did with Concho. Okay. Thank you for that. My follow-up, I'm afraid, is another capital allocation question. And it's great to see Tim in the room. So I don't know which one of you guys wants to answer this. But obviously, the federal land exposure of the combined portfolio might change, let's say, the where you decide to allocate capital. So as you think about the go forward portfolio, How do you think about prioritizing capital allocation? And maybe to store a Part B to that, what is the right longer term growth for the combined portfolio, maybe that's a March question. Yes. I mean, what's the right I'll take your last one first and maybe let Tim talk a little bit about the federal land exposure that she talked about. What's the right level for the company? I think That's something that we work on every day trying to understand. We know there's a ramp up to an optimized plateau for the whole company and for each one of the individual assets, and that's informed by the market environment that we find ourselves in the long term mid cycle price. And what production comes out of that output, we're not trying to drive A certain amount of growth, I think, to an earlier question that we had, we're trying to grow free cash flow. We're trying to make sure that we get as efficient as we can, drive as much free cash flow growth as we can. And we'll take what the macro gives us and that will set a capital allocation and then we'll make sure that we're developing the lowest cost of supply resources for that capital and doing that across our global portfolio. I think we've demonstrated that capability and have been really committed to it since we started down the journey as a big E and P company. So maybe let me have Tim, talk a little bit about your first part, Doug, on the federal land exposure. Yes. Thanks, Doug. To reinforce something that Ryan said, It's really great to have such strong assets in the Lower forty eight with Eagle Ford and Bakken and Permian And even the Montney in Canada. So we've got some of the best assets unconventional assets in the business, And they're all in different places on this optimized plateau model and from very early time to ones that are more fully mature. So As we go through time, that's part of the evaluation is allocating more capital to bring those assets up the plateau model, and that's really what we're working on now. On the just as a reminder to something you already know on the lease side. We said short term that the what's going on with the federal leases really doesn't affect greatly any of our in the short term, we can still deliver on everything that we said we're going to do. And as a reminder, we've got several decades of non federal high quality drilling locations throughout the portfolio. So it's really a great opportunity to be disciplined capital allocators. Thank you. Our next question comes from Paul Cheng from Scotiabank. Please go ahead. Your line is open. Thank you. Ryan, just curious that, I mean, we understand that it's probably too early to jump to any conclusion about what Finance and administration may or may not do, but I think it sort of highlights The sort of operating risk of having a concentrate portfolio just in the U. S. So from that standpoint, does it Shape your view in terms of the investment that you're going to make over the next 5 plus year in U. S. And overseas to try and get some diversification or you don't think that it really changed your view on that? And that if you do need to within your portfolio, is that going to make any changes? Like, For example, you previously said Argentina will be on the selling floor that will be a candidate to be divested. And so is that make those decision being somewhat different? Yes, Paul, I'd say, There's a bit of recency effect with the Biden administration coming into path and putting all these executive orders. So I'd caution everybody not to swing the pendulum Too far one side to the other. We know we've got a large position in North America when you consider the Lower 48 Canada And Alaska, we recognize that. But uncertainty around administrations in fiscal terms and permitting and all that, that really exists all around the whole world. We're kind of going through a little bit of that during the recency of this new administration. So I wouldn't get hung up. And it really We take it into consideration, but we're focused on just making sure we got the lowest supply resources. We're developing those. We do value diversification, as you've described, but we want to make sure it's diverse across our cost of supply mantra. So we're All about diversification, but it's got to be low cost to supply. So we think about that globally. We think about it when it comes time to allocate capital. And certainly, the company does have a we have a large North American footprint, but we like it and we've worked with prior administrations to get all our work done. We've permitted the activity and we do it responsibly and sustainably. So we think we've got a good track record as a company. So I think that's where our focus and attention is at. Now on some of the exploration stuff, as Dominic said, We've reduced our allocation to kind of those new venture exploration opportunities from $300,000,000 to $150,000,000 And that's where places that South America and other places around the world may not compete in the portfolio. So we'll be looking at trying to monetize those and potentially get out of them. Thank you. Our next question comes from Ryan Todd from Simmons Energy. Please go ahead. Your line is open. Chris, thanks. Maybe a couple of quick questions on capital allocation. First off, guys. Can you give us any color on relative capital allocation within the $3,100,000,000 you plan for the Lower 48 In terms of Permian versus Eagle Ford versus Bakken or other? And then maybe as a follow-up, You had some pretty material exploration syntax in Norway during 2020. How does that resource compete for capital in your portfolio? How might it be develop? And how do you think about further exploration potential there in the region? Yes, let me take your first one. No, we haven't split anything out, Ryan, in the Lower 48, so the $3,100,000,000 is being allocated to the whole Lower 48. There'll be We'll provide more updates down the road as we go through the course of the year. Maybe ask Dominic to, he's in charge of exploration, talk a little bit about What's exciting about Norway? So yes, we did have some 2 pretty interesting and exciting discoveries there over the course of the last few months. Yes, Ryan, we actually had 4 successful exploration wells in Norway there over the last year and a half, but Most notably, the recent two significant discoveries, Vacker and Slagugel, and I'm sure you know Slagugel is a Norwegian word for a type of owl. But anyway, the VARKA discovery, both of these are neoadren. And so we would we're really pleased and excited about these. I think both of us well, the VARCA is a gas condensate discovery, Northwest of Hedren's, our prelim estimates are 50,000,000 to 190,000,000 barrels equivalent, where the operator there And then the Slagougal discovery is even near ahedron, it's oil, and it's between $75,000,000 and $200,000,000 barrels or so. We're really excited about that as well and where they operate there. So we would expect those being in the vicinity of existing infrastructure, We would expect those to be very low cost supply subsea tiebacks is probably what we have in mind, We have more appraisal work to do. This is a study year. Now I might add as well, we have just picked up a couple of new prospects just near Warker and Slugogel in that area. So we're really pleased with our Norwegian exploration team. And but at the end of the day, they'll have to compete in our portfolio and but we expect those will be quite competitive. Great. Thanks for the help there. Thank you. Our next question comes from Dan Boyd from Mizuho. Please go ahead. Your line is open. Hi, thanks for squeezing me in. Ryan, if I look back to your last Analyst Day and you talked about growth In the sort of I think you're exceeding 3%. I know you've had a lot of questions on the call today about growth. You don't want to necessarily put a target out there. But if you look at where commodity prices are today, you look at your cash flow generation profile, you would have the ability to grow, I would say, mid to high single digits as we get out 2022, 2023. I don't think the market is actually looking for that type of growth really from any oil and gas company. So can we think about while you have returning at least 30% cash flow as one number, is there an upper end to growth that we should think about as well? Well, I don't think As you said, the macro is growing at best 1%. So I don't think you'd see our company trying to Targeted growth rate that's high single digit, as you talked about, again, that's going to be an output from our plans and it only occurs as We deliver at least 30% of our cash back to the shareholder. I remind people that we've well exceeded that over the last number of years, And we want to make sure we've got as strong a balance sheet as we can have as well. So I don't put really growth numbers on it. It's an put to our plans and that's a function of the macro environment we find ourselves in and how much cash flow we think we're going to have and making sure that we're getting an appropriate amount returned to the shareholder and that the balance sheet stands in a strong position. So it's triangulating around all those issues. And so I think it's foolhardy to put out growth kind of estimates because I don't think they stand the test of time, nor a volatile market environment that we find ourselves. So in other words, if we are above your mid cycle price, we would expect you to return more cash to shareholders. So if you are And as you said, you have returned more than 30%. So we wouldn't be surprised if that number was in the 45% or even 50% range. Is that fair if I think you just yes, look at our history, and we value strengthening the balance sheet in the process as well. So I think about those two things. Sonora, this is Ellen. We're close to the top of the hour. So we'll take our last Our last question comes from John Freeman from Raymond James. Please go ahead. Your line is open. Good afternoon. Thanks for sneaking me in. Just one question for me. When I think about the synergies And cost savings, I've already provided that's now at about $750,000,000 and you all mentioned how it doesn't include anything yet for The upside on savings from the marketing and leveraging kind of Kacho's expertise as well as the supply chain benefit. So I guess when we think about the additional details on kind of capital allocation, etcetera, going forward that we could get in March, Is the thought that by at that point, you all would have some be able to sort of quantify the benefits of all that or is it going to be a little bit too early for that? No, I think we'll have more information in March when we provide some more guidance items to the market. We know you need them. We know you need them to calibrate your models. So you should expect us to be updating the synergies. But Those synergies are going to persist throughout the course of the year as we go into 2022. So we're going to be constantly kind of driving them, Capturing as much of that as we possibly can. And we'll continue to update the market in March in our quarterly calls And then certainly have a more thorough market update probably towards the end of the year. Thank you. And we have no further questions at this time. I would like to turn the call back over to Ellen. Thanks, Zennaro, and thank you to everyone for your time today and of course, for your interest in ConocoPhillips. Please stay safe, and Zennaro, I'll pass it back to you for the wrap up comment. Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.