Earnings Call: Q1 2019

Apr 30, 2019

Welcome to the First Quarter 2019 ConocoPhillips Earnings Conference Call. My name is Christine, and I will be your operator for today's call. Question and answer session. Please note that this conference is being recorded. I will now turn the call over to Ellen DeSanctis, Senior Vice President, Corporate Relations. You may begin. Thank you, Christine. Hello, everyone, and welcome to our Q1 earnings call. Joining me today from ConocoPhillips are Ryan Lance, our Chairman and CEO Matt Fox, our EVP and Chief Operating Officer and John Ouellette, EVP and Chief Financial Officer. Also, we're pleased today to have our 3 region presidents on the call. They are Bill Bullock. Bill is the President of our Asia Pacific Middle East region Michael Hatfield is the President of our Alaska, Canada and Europe region and Dominic Macklin is the President of our Lower forty eight region. A couple of quick administrative notes before I turn the call over to Ryan. Our cautionary statement is shown on Page 2 of our presentation. We'll make forward looking statements during today's call that refer to estimates or plans. Actual results could differ due to the factors described on this slide as well as in our periodic filings with the SEC. We'll also refer to some non GAAP financial measures today, and that's to help facilitate comparisons across periods and to facilitate comparisons with our peers. Reconciliations of non GAAP measures to the nearest corresponding GAAP measure can be found in this morning's press release or on our website. And with that, I'm going to turn the call over to Ryan. Thanks, Ellen, and welcome, everyone, to today's call. My opening comments will be brief. I'll summarize our 1Q results, then address some ConocoPhillips specific issues we're hearing from the market, which I'll take head on. First, our 1 quarter results shown on Slide 4. The punch line of this slide is essentially the same as the many quarterly slides before it. We're successfully executing our plan. There's a lot of supplemental information in today's disclosures, so I won't cover every dot point on this slide, but I'll pick off some of the highlights across the page. Earnings and cash flow were strong. We generated significant free cash flow and organically funded shareholder distributions of 37% of our CFO in excess of our target. We met or exceeded operational targets. Underlying production grew year on year by 5% on an absolute basis and 13% on a per debt adjusted share basis. The business is running safely and efficiently. We received the ICSID ruling ordering Venezuela to pay $8,700,000,000 for unlawful expropriation of our assets. We recently announced completion or agreements of non core asset sales, all part of building the best portfolio for winning our through cycle return strategy. We've summarized our Q1 results at the bottom of these columns: expand cash flows, maintain discipline, improve returns. That's the mantra. Our cash flow reference point has improved at $65 WTI and current differentials. Our cash flow reference point is now about 13,000,000,000 dollars That's more than $2,000,000,000 improvement over the past 2 years, driven by our Brent weighted pricing, our ongoing portfolio work and our focus on margin expansion. While prices have been stronger lately, our guidance items are unchanged. As we said last quarter, we expect capital to be front end loaded this year. Production is expected to be back end loaded as the Turner unconventionals ramp and we come out of our usual 2Q and 3Q turnarounds. As for improving return on capital employed, our ROCE ticked up on a rolling 4 quarter basis. Underneath all the current noise in energy, we believe the way our industry will bring investors back to our sectors to perform quarter in and quarter out. No excuses. Put up the numbers, improve returns, grow cash flows and distribute a significant portion to shareholders. That's our job 1 period. Now to Slide 5, our value proposition on a page. Our priorities shown on the left haven't changed since we rolled them out in 2016, and we have no intention of changing them now. On the right side of the slide, I'll address some topical issues, starting with our future capital trajectory. As you know, we're hosting an analyst and investor meeting in November. At a high level, here's what you can expect to see. First of all, we intend to show a decade long plan that extends the successful new order plan that we rolled out a few years ago. That plan worked, and we're going to show you how it will continue to work for many years. 2nd, our annual capital expenditures averaging under $7,000,000,000 The plan can achieve steady organic growth on an absolute and a per share basis with the captured opportunities in the portfolio today. Why can we maintain this capital discipline? Because we have numerous options at our discretion for exercising flexibility. For example, how we choose to phase projects where we have control on timing and whether or not we choose to reduce ownership in projects where we currently hold a high working interest. These are details we expect to lay out in November. But our plan isn't about capital discipline for capital discipline sake. It's about generating free cash flow, deploying that free cash flow in a prudent shareholder friendly manner and growing returns. In November, you'll see a plan that can generate free cash flow at less than $40 per barrel WTI throughout the planned period. And at a reference price of $50 per barrel, the plan continues to return at least 30% of our cash from operations to our shareholders. For almost 3 years, we've been on a mission to bring investors back to this sector, but not just for a quarter or 2. We want to bring investors back to energy for many years to come. Our strategy gives investors a clear path to compelling value creation. It's not anchored to a production target and it does not bet on higher prices. So that frames up what you'll see from us in November. We'll maintain capital discipline, we'll fund the best combination of projects to maximize shareholder value and honor our priorities well into the next decade. Now in the meantime, 2019 continues to be volatile, an environment in which ConocoPhillips thrives. That's what we're describing with the 2 lower boxes of this slide. We have significant leverage to higher prices. Our production base is 75% Brent weighted. Our operations are primarily in tax and royalty regimes and we're unhedged. We don't chase higher prices with procyclical investments, and we'll build cash for inevitable price downturns. And in that part of the cycle, we offer distinctive resilience. We generate free cash flow at less than $40 a barrel WTI. Our balance sheet gives us flexibility to maintain consistent programs, and we have a 16,000,000,000 barrel resource base that averages less than $30 a barrel cost of supply. Just a few months ago, I remind you WTI dipped into the low 40s per barrel, and we didn't miss a beat. If you just look at our performance over the past few quarters, you can see our resilience and our torque in action. So in case people have forgotten how well we work across prices, that's a reminder. We're actually built for price cycles. Finally, it's not on the slide, but I'm going to take another issue head on, and that's M and A. As you've heard from me many times, we think of M and A in 3 buckets: 1st, incremental fence line transactions that add value, such as additional working interest, royalty interest or coring up our acreage. We're going to do these things under the radar day in, day out. The second bucket consists of high return bolt on assets or acreage deals, and they could be larger in size. They also make good sense. We're always on the lookout for these kinds of opportunities, and we executed a few last year. But I share the bucket people seem focused on now is the third one, bigger corporate transactions that require premiums. Of course, we pay attention to what's out there. However, we've always said the bar is very high for these large transactions and that's still the case. We're focused on returns and we won't do transactions that are not in our shareholders' best interest. So let me summarize my comments. The business is running well. Execution is strong. No one needs to be worried about capital sticker shock in November. You can expect to see a decade long plan that honors the successful value proposition that we believe is ideally suited for our sector. Our strategy works across a range of prices and through cycles, with strong upside to higher prices and distinctive resilience to lower prices. We have the short term covered and we have the long term covered, and the bar is high for corporate transactions. That's all I wanted to say today, and we'll be quick. And now I'll turn it over to your questions. Thank A couple of follow-up questions here. One is just on the capital budget that you're talking about of $7,000,000,000 or less for the existing portfolio. You gave a little bit of color there, but if you could elaborate, does the existing portfolio include Willow and Barossa and other things that are likely on the docket in the next, call it, 3 to 5 years? And if you could help us think through where the efficiencies come from to be able to maintain a sub-seven billion dollars number? Thanks. Phil, this is Matt here. The budget and the long range plan reflects our plans for all of the assets, including the ones that you mentioned. We have the flexibility to fund those projects in multiple different ways, frankly, but we have we can certainly do all of that within the average of less than 7,000,000,000 and we can do that comfortably and we're going to roll out more detail in November. Okay. Great. And then second question, as we look ahead later this year and into next year, you take the proceeds from the North Sea, you factor in this Cenovus shares that you own. The net debt position is getting very close to 0, I think, if you just use the strip looking out. So, I think the target has been $15,000,000,000 gross debt and certainly not this much cash. So, maybe you could help us think through uses of cash moving forward, what it would take to increase the buyback considering the comments that were just made on M and A? Yes, Phil, this is Don. I think it's probably useful to remind that currently we're sitting at about $6,500,000,000 of cash. And as you say, depending on how prices go, that could move up just organically as we go through the year. Certainly, we're expecting closing the UK transactions. So cash balances could start to approach pretty high levels. We kind of think of somewhere in the 10% of total assets and you need to be pretty clear about your strategic rationale. And I think that we have been. We view the balance sheet in general and cash balances in particular as strategic assets and a source of competitive advantage. In our strategy, we've been clear about is to be competitive with the best capital returners in our industry and importantly, to be able to continue funding buybacks and maintaining our development programs while prices are falling. So we're okay carrying more cash than the average E and P company. I don't think that we would be comfortable taking net debt down to 0. So if you want put a limit, it's going to be above that. But we also think that being positioned to be able to be opportunistic, particularly when prices are low and competition is weak is and competition is weak is something that we also play strategic value on. But I think as our if our cash continues to build as we approach the end of the year, of course, we've got our Analyst Day set for November, and you'll see more definition around our capital allocation thoughts at that time. Okay. Thanks, Don. Thank you. Our next question is from Doug Terreson of Evercore ISI. Please go ahead. Hi, everybody. Hello, Doug. Ryan, during the past year or so, every major E and P peer has changed direction and has emphasized value creation and balance between spending and distributions, which is really the model that ConocoPhillips has been espousing with success since 2016. So my question is, with the value based model becoming more the industry norm, number 1, does this affect your ability to differentiate yourself in the future? That is if you think some of these E and P peers can execute your model. And number 2, on strategic activity, what are the financial metrics that you all consider to be most important? And over what period of time would you need to see value creation before moving forward if you did find something that was attractive? Yes. Thanks, Doug. I think it's the value proposition is kind of easy to say, but it's difficult to do. And I think why we're able to do it and I think differentiate ourselves from our competitors, it starts with the portfolio and the low cost of supply sitting in the portfolio, the base decline that the portfolio has, the type of assets we have. When you consider our long dated no decline, low sustaining capital kind of assets like LNG and Oil Sands combined with what we believe is an unmatched unconventional portfolio across all the basins in the Lower 48. You put all that together and we're running it to generate free cash flow. And we're we've gotten the cost structure of the company down to where we can free cash flow below $40 a barrel. And I don't think other companies can do that. They either have to grow into that or they have to have much higher prices to go do that. So and we just don't believe these kinds of prices are going to persist. We think there's going to be volatility, which is why we carry cash on the balance sheet and remind people in December, it was $42 a barrel WTI at the low point. So we just think the way we've set up the company, the portfolio, the way we're managing the company, we're allocating focused on returns in the business, full cycle returns, not just forward looking returns, but full cycle returns through our kind of cost of supply mantra. That's why it's going to be difficult for people to be able to do what we're doing at the kind of price decks that we've demonstrated that we can do that at. Yes. To your second question, Doug, on strategic activities, we said, we tried to get that in on the larger corporate transactions. It's about cost of supply and it's about opportunities that can come in the portfolio at a kind of competitive cost to supply, and that's a pretty big hurdle with the kinds of premiums that are being paid for assets today. And we don't really have a timeframe that we look at. It's short, medium and long term. We got to convince ourselves that it's in the best interest of the shareholder long term, that it's accretive in the short term and it's competitive for capital on an all in full cycle basis relative to our 16,000,000,000 barrel portfolio that's captured in hand right today. So it remains a really, really high hurdle. Okay. Anybody can lever up their balance sheet and do a free cash flow yield positive kind of play today. That's easy to do. Full cycle returns are tough. Thanks, Ron. Those are good answers. Thank you. Our next question is from Roger Read of Wells Fargo. Please go ahead. Yes. Thank you. Good morning. Hi, Roger. I guess, Ryan, maybe just to come at the CapEx question, kind of another way of thinking about it. So first off, should we think about that including all forms of spending, all forms of M and A, including the 3 you listed there? And as another component of that question, would asset sales be part of funding, CapEx? In other words, CapEx in a given year could well exceed $7,000,000,000 if it's being funded by an asset sale of kind of like the UK deal here where you've got $2,300,000,000 So I just kind of want to understand the maybe the bumpers on the $7,000,000,000 or below $7,000,000,000 average? Yes. Let me I'll let Matt kind of chime in there, Roger. But we the bucket 1 CapEx, nice fighting CapEx that we give the guys, we just do that year in, year out. That's just a part of our normal operating business. But I can let Matt probably elaborate on whether you sell proceeds. Yes, Roger, I would say that we haven't included any assumptions about buying any significant asset transactions in the long range plan. So if we were to do that, that would be additive to the $7,000,000,000 So really what we've done is we've designed the plan around the existing portfolio. So we're not assuming any additional transactions when we do that. In terms of the would we fund our capital through dispositions? We don't think of it quite that way. We see the $7,000,000,000 or below $7,000,000,000 average has been funded out of cash flow. There may be some additional dispositions we may over the coming years, but that's not how we think about funding, everyone to fund it from cash flow. Okay. Thanks on that. And then Ryan, maybe another question along the lines of the CapEx. You have been obviously pretty solid and pretty consistent on the asset disposition side. As we think about the $7,000,000,000 in spending, I presume part of this is transitioning into the new projects that I think Phil listed earlier, but also it's as you hive off other things, it's not that production has to grow at some exceptional rate and I assume that's one of the reasons you can keep CapEx more modest. It's what metric should we think about? Is it the debt adjusted cash flow? Is it just a per unit cash margin that you're able to grow? Maybe just a little bit of a framework of how to think about a company that CapEx is relatively stable, but ultimately you're trying to grow returns and grow cash flow here? Yes. I think you're right. Well, you're right, Roger. We're not as I said in my comments, we're not chasing a production target or something like that. We're chasing returns. And we look at the metrics, debt adjusted cash flow per share is we think the right way to be thinking about the business. We're not as Matt said, we will do dispositions when they make sense, when they are competitive in the portfolio for future investments. Or like in the UK example, we have a large abandonment liability and asset retirement obligation that we're dealing with that particular asset. We'll do those things if they make sense and smart. But like Matt said, we're that the plan that we're we'll show you in November in great detail will be organically grown the company with the portfolio that we have today. But you shouldn't think about we will make adjustments to the portfolio over time, both as things need to leave the portfolio and things need to come into the portfolio. Thank you. Thank you. Our next question is from Neil Mehta of Goldman Sachs. Please go ahead. Good afternoon team and congrats on a good quarter here. I want to pivot over to the asset level and I want to start on Qatar. We're still awaiting the RFP on Northfield, just the latest there in terms of timing and then temperature from you guys in terms of interest in that asset? Hi, Neil, it's Matt here. Yes, moving a little bit slower than we originally anticipated. And we now expect to receive their RFP around the middle of the year. And we think that's going to include a request for proposals to as to where we would place LNG volumes and we suspect some elements of the fiscal regime. We expect Qatar is going to decide on participants in the Q4 and the plan is to take FID before the end of the year. And we think we're well positioned to compete. But meanwhile, I mean, maybe it's a condi in Qatar Gas and Qatar Petroleum, The projects progressing through FEED. They're also progressing their offshore, onshore and shipping construction contracts. And they're on track for 1st gas in 2024. So if we're offered the opportunity to participate and we it's a good use of the shareholders' capital, we'll be very happy to do that. Great. And just a follow-up question is in the Lower 48. Can you talk a little bit about the cadence of growth in 2019? It looks a little bit more back half loaded, just want to better understand the drivers there. And just as you think about the incremental dollar, whether to allocate it to the Bakken and Eagle Ford versus the Permian, you guys have been smart to weigh on the Permian just given some of the differential issues. But as that narrows, does it make it a more compelling place to put the dollar? Thanks, Neil. It's Dominic here. Yes, so we said at our last call, just to talk to the big three growth trajectory, we said at our last call, really after outperforming in 2018 with 37% growth, the trajectory of the big three would be relatively flat for the first half of this year and then growth ramping in the second half. So we're still on that track. 1st quarter production was actually very much in line with our expectations. And as we've explained previously, the primary driver for that lumpiness in the growth profile is the timing of multi well pads coming online and how those sync up across the different assets. And actually Q1 is a good example of that. So over half of our new wells were brought online towards the end of the quarter during March. And in fact, we had record rates in the last week of March at Eagle Ford and Delaware. So we're coming into Q2 pretty strong. We did have some minor production impacts in Q1 from extended winter weather back in and some gas injection phases that are enhanced oil recovery pilots at Eagle Ford. But the important points are Q1 was very much in line with our expectations and we do remain confident by execution of our plan and delivering our big three production guidance of 3.50% and full year growth of 19%. On your second question, we're always looking at where the next best dollar would be. Our teams fight pretty hard over that. But the fact is we've got good opportunities at the back end Eagle Ford and Delaware and we'll talk more about our long term view on in November. All right. Thanks, everyone. Thank you. Our next question is from Doug Leggate of Bank of America. Please go ahead. Thank you. Good afternoon, everybody. I wonder if I could start with a housekeeping question in the U. K. And I don't know if Don will be prepared to give these numbers, but the sale is backdated to Oneoneeighteentwenty 18. So I'm just wondering if you could give us an idea what you expect the net proceeds to be. I realize the timing is still a little bit in flux. So maybe a better way to ask that is what the associated cash flow was in 2018 year to date? Yes, Doug, I think I can help you on that. Maybe first with a bit of an explanation for why the oneoneeighteen effective date, because it can appear a little bit unusual. But just to remind you, we began marketing those assets during 2018, and so the beginning of the year was selected as the valuation point. And then as the marketing extended into 2019, it was the various parties, counterparties that we were dealing with, it was their preference that we maintain the 1, 2018 effective date mainly for financing reasons because lenders typically require audited financial statements in the periods immediately preceding the effective date and those would not have been available and we moved the date to Onenineteen until mid year and we didn't want to hold up the transaction for that reason. So as you would guess, the UK has been net cash flow positive since that one-twenty 18 date. And so there will be a downward price adjustment at closing. Now I can give you an estimate and it's kind of based on end of year closing and kind of current prices. So if the timing changes or pricing cash flows from this point forward change, then obviously those estimates would change. But we think that adjustment will be a negative around $600,000,000 So taking that off the headline price, we would expect cash proceeds at closing at the end of the year under current conditions. I've got enough disclaimers in there, would be something around $2,100,000,000 to 2,200,000,000 That's really helpful. Thanks, Don. I wasn't sure if you'd give me an answer to that. So thank you. My second my follow-up question is really, Ryan, I hate to do this, but it's kind of more of a philosophical question. I'll see if I can ramble through this without tripping myself up. But you've obviously set a very, very high bar for the industry with a very transparent strategy and a very transparent the downside, I guess, of that is a very transparent valuation, which is the DCF of your free cash flow, if you want to put it that way in simple terms. Buying back your shares doesn't change that valuation, reinvest in capital, value projects or whatever, which we'd all we're all looking for capital discipline, I guess. But buying back stock is not really a route to enhancing your valuation, I guess, is what I'm saying. So when I think about the ConocoPhillips investment case today, I think about a management that's taken a great set of assets and high graded that and basically transformed the business model. Why is putting good assets in the hands of good managements with our balance sheet as strong as yours not a catalyst for you to be more aggressive in M and A in this part of the cycle? Well, yes, I think it's a good construct, Doug. I think we have transformed the company, and I think we've put out a value proposition that is we think is the right one for a cyclical mature market like this that gives money back to the shareholders and prudently invest your money to improve your free cash flow or the discounted value of the free cash flow that you're generating. We think that's the right model to be taken. What does that mean for M and A and consolidation and putting more assets under our management and under this kind of value proposition? I think there's something to be said about that and we look at them. We look at everything that's going on. It's tough to compete inside the portfolio. When you put a premium on that we see that we've been doing or that the market has been putting on these assets, it adds $10 to $15 cost of supply to the all in returns. And if you're focused on all in returns and you're sitting with a portfolio that's got 30 years of life and there's 3 ConocoPhillipses sitting inside our resource base, it's just a very high bar to jump over. Maybe there'll be a deal come along. Maybe something will make sense down the road. We've got the balance sheet. We've got the capability. We've got the ability to go do something. But we're not going to do something that's not in the best interest of our shareholder and consistent with the value proposition that we think is the right one for this business. Well, Ryan, I know I've taken my time here, but can I just add a comment to this because what I'm really getting at is you're throwing off an enormous amount of free cash now? Is there a risk if you don't do something that someone will see your cash flow as attractive? Well, I mean In other words, you become an acquisition target. The best defense is a good offense, Doug. Executing our plan and we think it's the right plan to go forward. I can't comment on what others might be thinking of our plan. Appreciate you taking the questions. Thanks, Ryan. I know it's not an easy one. Thanks, Doug. Thank you. Thank you. Our next question is from Blake Fernandez of Simmons Energy. Please go ahead. Hey, folks. Good afternoon. I understand we're probably going to get a lot more detail at the Analyst Day in November, but just on the CapEx piece. Obviously, a decade is a long period of time and a lot can change. Historically, we've seen some inflationary trends move up and down. And I'm just wondering how you're thinking about the inflationary environment and how that could impact a commitment for such a long period of time? Hi, Blake. This is Matt. So we've built our plan around the base case pricing deck that's at $50 WTI. And we've included the level of escalation that we would expect to be associated with that. If we see much higher prices, then we would expect to see some more escalation and typically that shows up initially in the lower 48 and then elsewhere. But the $7,000,000,000 average below that is based on a $50 WTI outlook. Got it. Okay. The second piece, Don, this may be for you, but just on Venezuela. Obviously, we've got a couple of different components now. You just give us an update on your thoughts on receiving payments and how a potential regime change could impact that? Just any help on the way to think about the I guess the payments? Hi, Blake. Well, I guess, first of all, probably worth noting that PDVSA continues to fully comply with the settlement agreement that we entered into last year. We received the 1st quarter scheduled payment, and that was after the latest round of U. S. Sanctions had been announced. So they're fully complying. We also, during the quarter, completed the sale of the crude oil inventories that we had in the Dutch Caribbean. So I think that was between the inventory sales and the scheduled payment, I think we've booked around close to 150,000,000 dollars there. We're in constant communication with PDVSA. They continue to tell us that their intention is to continue with their obligations. And so that's our expectation. Regardless of the situation in Venezuela, our expectations are unchanged. Our agreement is with PDVSA. The ICSID award is against the Republic of Venezuela, and we expect to collect what is owed to us. Okay, very helpful. Thank you. Thank you. Our next question is from Alastair Syme of Citi. Please go ahead. Hello. Maybe this first question is for Matt. I wonder if you could talk a little bit about the LNG market as you look to place the cargo well, place the contracts with Barossa and potentially Qatar. I guess, specifically on Barossa, is there a timetable that you have in mind to get the marketing completed? And do you think that sort of oil linked is the right pricing construct? Hi, Alistair. This is Don. Maybe I'll take the LNG marketing side of the question. I mean as far as Barossa, our intention is to go to FID late this year, maybe early next year. So typically, when we look back over 50 year history of LNG projects, we would almost always go into these investment decisions with most, if not all of the LNG committed, fully committed, termed out multiyear contracts, long term contracts. The LNG market has changed a lot over recent years. And at Barossa, we're not constructing an LNG plant. We're backfilling an existing one. So it's really an offshore development project, not the same nature of the typical LNG. So when you think about the nature of that project and the development, the rapid development of the spot market, which is quite liquid today compared to where it was even a few years ago. We don't feel compelled to have to place all of LNG under long term contracts. That's an option that we can choose to do and we are marketing the LNG today on that basis, we'd be happy to do it. But if we don't get the price that we expect, then we're willing to go into the project without all or a majority of the LNG committed in the long term. Right now, the spot market is very soft in Asia, but that's not to be unexpected given the type of year that it is. Maybe Bill would like to I'll turn it over to Bill to give you an update on where we are on the project on Barossa. Sure, Don. I'd be happy to. Alistair, we're making really good progress on Barossa. As Don mentioned, it's a subsea development tied back into FPSO with the gas going to the existing DLNG plant. Front engineering and design is progressing very, very well. We're a little over midway through that process. And a couple of key points on that, our offshore project proposal, that's the Australian regulatory overarching environmental approval by NOPSEMA, that's the National Offshore Petroleum Safety and Environmental Authority, was approved in 2018. So we have our overarching environmental approval and all the major packages are out for the project, for tender. So we're on schedule with FEED. We expect, as Don said, to be in a position to take FID by latter part of the year. And, Barossa from a cost of supply perspective, we believe continues to be very well placed with an attractive cost of supply for LNG into Asia and competitive with the market that Don has talked about. Thank you both for the color. It's my second question. I just wonder if you can elaborate a little bit more on the U. K. Asset sale around the issue of abandonment liabilities. I know it was sort of mentioned on the call. But just to be clear, have they gone to the buyer in their entirety? Or are there some residuals that you'll inherit? Alistair, yes, this is Don again. All of our asset retirement obligations are being transferred to the buyer in full. We're not there's no residual that remains with ConocoPhillips. And as far as the quantum there, we have on our books, we have $2,000,000,000 of ARO liability that will be coming off. And there let me I mean, while we're on the U. K. Again, because we might not circle back to it, I did want to speak to one aspect that wasn't addressed in our original release when we notified the market about our pending sale there, and that's the tax efficiency. This is an extremely tax efficient transaction. We don't expect any U. K. Taxes at all. And on the U. S. Side, even though we're going to generate a very large financial gain at closing on this sale. We're also generating a very large U. S. Capital loss, And we're going to be able to take that loss and apply it back to the San Juan transaction, for example, which was in 2017, and we're going to be able to offset the capital gain that we had on that transaction. We'll be able to carry forward those tax losses to any future applicable sale that we have for the next 5 years as well. So what you'll see in the second quarter is that we're going to generate earnings related to these tax benefits of about $200,000,000 Okay, thank you. Thank you very much for the color. Thank you. Our next question is from Michael Hall of Energy. Please go ahead. Thanks. Congrats on a good quarter. Yes, just I guess wanted to get a little bit more into the commentary on absolute growth in the 10 year plan. How should we think about that in terms of the components of that? Is that how much of that would be volume growth relative to kind of cost improvements that are driving cash flow growth? Just any additional granularity on that would be appreciated. Hi, Michael, this is Matt. Yes, so the plan delivers production and cash flow growth similar to what we've had over the last few years. So they but we left out the release really because we're not these investment decisions are not driven by production growth, they're driven by capital returns and returning capital to shareholders and that isn't changing. But what you should expect to see in November is consistent absolute growth and very healthy growth on a cash flow per debt adjusted share basis. Okay, understood. Makes sense. Yes, and then I was just curious on the turnaround in the Q2, if you could maybe break those down in terms of how much is off where and how we should think about those coming back over the course of the remaining quarters of the year? Yes, I'll take that one as well, Michael. Actually, 2019 is quite a big year for turnarounds. We had a big turnaround in Qatar in the Q1. It's unusual to do them so early in the year in Qatar and that was about 15,000 barrels a day on the quarter in Qatar alone. We'll get the 1st large scale turnaround at the Surmont II facility. And first one we've done since Surmont II came on production and that started last week. And that will actually be down for about 45 days. So that's a significant amount that will affect the second quarter. We also have a tri annual turnarounds going on at EcoFisk and Block J in Europe this year. And there's a large scale turnaround at Prudel Bay. So when we put all those together, the turnaround activity this year is actually about 10,000 barrels a day more than it was last year. So it's a big year. So hopefully that's enough color on the turnarounds. That's helpful. And would most all of those be back online for Q3 as we think about? Well, that will be during the second and third quarter. They'll all be back on again by the 4th quarter. And that's one of the reasons along with what Dominic described as the trajectory in the Lower forty eight production, that's one of the reasons that our production is back end loaded this year. Understood. Appreciate the color. Thanks. Thank you. Our next question is from Scott Hanold of RBC. Please go ahead. Thanks. Good afternoon. You all received a distribution this quarter from APLNG. Could you talk about that at the current prices, what to expect for the rest of the year and where those distributions coming from the upstream versus say the downstream part of the business? Scott, this is Don. We received in the Q1, I think 73,000,000 dollars distribution from APLNG. And that's really prior to this year, this quarter, we had been receiving distributions only in the second and fourth quarters. I think now APLNG is most likely in a position to be paying quarterly dividends, but I need to let you know that those you should not expect those to be ratable. And the reason for that is we have kind of lumpy income tax payments that happen in the 1st and third quarter and project financing payments that are also lumpy. So what you'll see are 1st and third quarter distributions that are relatively light and second and fourth quarter distributions that are relatively heavy. At current prices, we would expect APLNG distributions for 2019 to range somewhere between $550,000,000 $600,000,000 That's excellent. Great. Thanks. And my follow-up is on the Permian Basin. With Conoco going to be growing in there a little bit more in the back half of the year and presumably over the next few years, Could you give us some color on what your infrastructure situation there is like and what kind of contracts do you have with your oil and gas? In places, obviously, it's pretty tight, especially in gas right now. And just curious if you signed up for some long term takeaway agreements also out of the basin for oil? Yes. This is Don again. On the oil, currently, we're selling all of our oil conventional, unconventional right into the local markets there. So we don't really have any significant takeaway capacity. We have participated in some of the open seasons that have that took place last year, projects under construction this year. So as time goes on, probably beginning in the 3rd or Q4 this year, we'll begin exporting Permian crude oil to the Gulf and we have options to expand our capacity rights on these pipelines. So I think our situation will improve over time. That's what we would expect. On the gas side, it's a little bit different because I've talked about this a little bit before, but we currently produce about 100,000,000 cubic feet a day in the Permian and we have a lot more takeaway capacity than that out of the Permian by virtue of our gas marketing arrangements. We're one of the larger gas marketers in the Southwest area from Texas through California into Mexico. And so we have a lot of firm takeaway, long term firm takeaway capacity that allows us to move not only our equity gas, but 3rd party gas outside of the basin. So we're not seeing the same levels of pressure. We're generally I'd say in the Q1, most of our gas was sold into Arizona and California markets. So we didn't see Waha type pricing. On the other hand, or other side of that, on the gas marketing side, we did benefit a good bit from Waha pricing as we were in the market some days with producers paying us as much as $6 or $7 a Mcf. All right. Great color. Thanks. Thank you. Our next question is from Muhammed Ghulam of Raymond James. Please go ahead. Hey guys, thanks for taking the question. Just a quick one on my side. After the sale of the recent U. K. Assets, the company's you guys still have some Norwegian assets. Should we look at the U. K. Sale as a partial step to a full exit from North Sea? No. Okay. That's clear. Understood. Thank you. Thank you. I will now turn the call back over to Ellen DeSanctis, Senior Vice President, Corporate Relations for closing remarks. Thank you, Christine, and thank you to all of our participants today. We certainly appreciate your interest in ConocoPhillips. We're available for any additional questions and have a great rest of the week. Thank you. Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.