Earnings Call: Q4 2018

Jan 31, 2019

Welcome to the 4th Quarter 2018 ConocoPhillips Earnings Conference Call. My name is Paulette, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Ellen DeSanctis, Vice President, Investor Relations and Communications. You may begin. Thanks, Paulette, and thanks to our listeners for joining us today. Our speakers will be Ryan Lance, our Chairman and CEO Don Wallett, our Executive Vice President and CFO and Matt Fox, our Executive Vice President and Chief Operating Officer. Ryan will deliver some brief remarks and then today we're going to go straight to Q and A to make time for your questions. Our cautionary statement is shown on Page 2 of today's presentation materials. We will make some forward looking statements during today's call that refer to future estimates and plans. Actual results could differ due to the factors described on this page and in our periodic SEC filings. And then finally, we'll refer to some non GAAP financial measures today and that's to facilitate comparisons across periods and with our peers. We've provided reconciliations of non GAAP measures to the nearest corresponding GAAP measure in our press release this morning and also on our website. And now I'll turn the call over to Ryan. Thanks, Ellen, and welcome everyone to today's call. In a moment, I will recap our 2018 highlights. But before I do, I'll first want to put those results and in fact our results of 2017 in context. We're on a path to manage this company for the business we're in, one that's mature, capital intensive and cyclical. We've embraced this view of the business with a value proposition that we believe should be the new order for E and P Companies. Now what do we mean by the new order? We mean a value proposition that competes on returns and doesn't chase cycles up or down. The market has clearly spoken that it expects behaviors in this business to change and we've led the E and P industry in approach that can and we believe will attract investors back to the sector. Our value proposition now more than 2 years old is fundamentally structured to offer this. Over this period, we've driven our sustaining price lower and made our balance sheet stronger. We simultaneously grow our resource base, while lowering its overall cost of supply. We've achieved competitive per share growth, not chasing absolute growth. And we've returned a distinctive payout of cash flows to shareholders, kept our costs in check, and generated among the most competitive financial returns in the business. We're encouraged that our value proposition is clearly resonating with the market. For us, the value proposition is a mindset and a commitment that began in late 'sixteen, worked in 2017 and worked again in 2018. So with that, let me summarize our 2018 results on Slide 4. Starting with the strategy column on the left, we held firm on our priorities. During this year, Brent prices touched $80 but also $50 a barrel, but our priorities didn't change. And this consistent approach allowed us to generate a return on capital employed of 12.6%, That's nearly a 20% improvement over our ROCE when Brent was 109 per barrel just a few years ago. We increased our dividend, we accelerated our debt reduction to achieve our $15,000,000,000 target, 18 months ahead of plan, and we repurchased $3,000,000,000 of shares. We've executed just over $6,000,000,000 of buybacks since our program began in late 2016, with about 9 days remaining on our existing authorization. Including our dividends and buybacks, we returned about 35% of our CFO to our owners. All this was funded organically from free cash flow. We had $5,300,000,000 of adjusted earnings, dollars 12,300,000,000 of cash from operations, and $5,500,000,000 of free cash flow. We ended the year with $6,400,000,000 of cash and short term investments on the balance sheet. We view cash as an effective means to ensure that we can connect to keep our consistent programs, both on buybacks and CapEx through the cycles. Our financial position is very strong and we have to keep exited 2018 A rated by all 3 major credit rating agencies. And we achieved a settlement agreement in our ICC proceedings with Senvaza to fully recover an arbitration award of about 2,000,000,000 dollars of which we recognized over $400,000,000 in 2018. Operationally, I'm proud of the way our organization performed. We safely executed our capital program and achieved underlying production growth of 18% on a redundant adjusted share basis. We got out from strong performance on our Lower forty eight business and from project startups across our regions. Finally, we made great progress on our continuing efforts to add to our low cost of supply resource base and optimize our asset portfolio. We completed high value asset acquisitions and achieved significant exploration success in Alaska. We progressed our Montney appraisal program in Canada and began exploring on our new Louisiana Austin Chalk play. Our portfolio high grading continued in 2018. We generated about $1,100,000,000 of disposition proceeds and we grew preliminary year end reserves to 5,300,000,000 barrels of oil equivalent. The total reserve replacement rate was 147% and our organic reserve replacement rate was 109%. Our year end resource base now contains roughly 16,000,000,000 barrels of oil equivalent with an average cost of supply of less than $30 a barrel. This is the fuel for our continued success in our approach to the business. So in summary, 2018 was another exceptional year for ConocoPhillips. But again, 2018 is behind us, what matters now is what's next, and that's a great segue into 2019. So in December, we laid out an operating plan that we believe can and will sustain our success. It's a brand that's resilient to lower prices while offering investors virtually uncapped upside to higher prices. This is an intentional and sometimes overlooked aspect of how we've positioned ConocoPhillips. We play both ends of the field, offense and defense. Our 2019 operating plan is summarized on the next slide. You'll see in the upper right that we're sticking with the core elements of our value proposition, discipline, a focus on free cash flow generation, investing to grow cash flows and distinctive returns to shareholders. We've already announced the 2019 capital budget of 6,100,000,000 planned production growth of 5% to 10% on a per debt adjusted share basis and planned buybacks of $3,000,000,000 for the 3rd year in a row. This is consistent with our dollar cost average approach to repurchases. Our 2019 capital plans include activity and some potentially impactful operating milestones, several of which are shown on this page. I'll make a quick tour of these items, starting with Alaska. In 2019, we'll advance construction at GMT 2 and conduct another season of exploration and appraisal drilling. In December, even before our ice growth campaign began, we drilled 2 exploration wells from existing pads. Our Montney 14 well pad program is in full swing in Canada. In the Lower 48 Big 3, we expect to grow production by about 19%. We're focusing our activities in the early part of the year on testing potential resource enhancing programs such as multi well pilots of our Vintage 5 completion techniques, EOR pilots and refracs. Given these activities, we expect volumes in the Big 3 to be relatively flat in the first half and ramped in the second half of the year. In the Louisiana and Austin Chalk, we've already started our 4 well exploration program and expect to have results later this year. And we expect to advance discussions and decisions on a few major projects in Asia, including Bohai Phase 4 in China and the Northfield expansion in Qatar and Barossa in Australia. The items on this page represent opportunities to add low cost strengthen our portfolio and create optionality for the future. Importantly, as we see results on these opportunities, we'll retain flexibility on how and when we invest in most of these projects. You should expect us to prioritize and phase these investments in a way that's aligned with our value proposition. As the year plays out, we'll update you on our results across each of these fronts, and we anticipate providing a comprehensive multi year update to the market in November. We're excited to give another year underway. We believe our 2019 operating plan reflects what you've come to expect from us. It's consistent with our priorities, focused on growing long term value and underpinned by our commitment to strong execution. This is our formula for delivering superior returns to shareholders through the cycles and for many years. It's a one that we believe works and we're sticking to it. So with that, let me turn the call over to your questions. Thank And our first question comes from Paul Cheng from Barclays. Please go ahead. Hey, guys. Good morning. Good morning, Paul. Ryan, just curious that it seems like that you still have running room in Eagle Ford and probably a little bit less than in Barkin, I presume. Based on what you see today on the business, I don't know whether you can actually say that, oh, this is what I plan, is the plateau one way going to be on those 2 basins. And once you get there and how fast you can get there and once you get there, what kind of rig program you need to sustain and how long that you can sustain at that peak production? And second question is a real short one, whether you receive any payment from AKLNG? Yes, let me I think Matt could probably add a little bit of color, Paul and Don can cover the APLNG question as well. But I would just say at a high level, we continue to find new technologies and new approaches. We talked a little bit about testing our Vintage 5 completions in the Eagle Ford. What we see is continuing lowering cost of supply and opportunities to continue to grow that opportunity. And in fact, Bakken had an outstanding year in 2018. We reached some plateau and it suggested that to the marketplace and we outperformed in 2018 and we see some of the similar opportunities there as we go forward. That can maybe provide a little bit extra color for you there. Yes. Paul, we're running 6 rigs in the Eagle Ford just now. We actually dropped a rig at the beginning of the year in Eagle Ford to optimize the ratio of our rigs to completion crews. We're running 3 in the Bakken and 2 in the Permian. Those sort of rig levels, we would be at continuing to grow in the Eagle Ford. If we run those rigs continuously, we'd ultimately reach a plateau and we'd be able to hold that plateau for well over a decade, maybe 2 decades. In the Bakken, we as Ryan said, we thought we were a plateau, but we've had some improved results from our drilling and completions there and we had more partner operated activity. And so we're now at a higher rate than we anticipated and that can probably be sustained close to that rate for a decade or more. And then of course in the Permian, we're very early in the life cycle there. So that's the several years of growth ahead of it before it reaches a plateau. Matt, do you have a number in mind that on in legal for that where's the plateau maybe for you guys? And also that if you guys don't mind give me the production number for the big 3 in the quarter? Yes. We don't have a number that we're ready to share on the plateau because as a function of the number of rigs that we run over the long term. So that will vary. What we're trying to do, of course, in all of these places, optimize the rig count so that we optimize the infrastructure costs. So it's all about maximizing NPV. As we learn more about our new completion designs, for example, in Eagle Ford, that may change how we view that. So it's premature to go there. In terms of the rates for the big three in the 4th quarter, Yes, I can give you those. We don't have them off the top of my head here just now, but we can get those to you. Okay. Thank you. I'll come back to you in a moment. Paul, you want to answer that? Yes. Paul, with respect to APLNG payments, I'm sure you're referring to distribution. So, in 2018, we had a total of $480,000,000 of distributions from APLNG and you'll recall, we had $200,000,000 in the first half. I believe that I had probably guided that the second half would look similar to the first half and we ended up with a larger dividend distribution payment in the Q4 of $280,000,000 and that's really a reflection of a number of things, but probably mostly the high realizations. The LNG pricing is on a 3 month lag, so 4th quarter LNG pricing or realizations really reflect 3rd quarter oil prices. So, we saw really good revenues at APLNG and of course they've made good progress on reducing costs both on the operating side and on refinancing opportunities on the project financing While I'm here, I know that you'll be curious about expectations for 2019 looking forward and I would say it you got to pick a price point because it's going to be very much influenced by actual realizations during the year, of course, but at around say $65 a Brent, then I'd probably expect distributions to be in the $500,000,000 to $550,000,000 range. And Paul, I have the 4th quarter average rates for the big three. It was 200 in the Eagle Ford, 101 in the Bakken and 34 in the Permian. And the next question comes from Doug Terreson from Evercore ISI. Please go ahead. Hi, everybody. Congratulations on your results. Thanks, Doug. Thanks, Doug. I have a financial and a strategic question today. First, return on capital appears to be rising even after normalizing for changes in oil and gas prices, especially in the U. S. Business. And on this point, I wanted to see if you guys could provide some color on the drivers of this dynamic, meaning is it gains in capital efficiency, is it technology, is it cost or is it something else driving these improvements? So, just some color on this improvement in this area? Well, Doug, this is Don. I would say, yes, it's all of the above. If you look at the transformation that we've undergone in the last 2 to 3 years, certainly more capital efficient, more disciplined, a greater focus on returns. That's the priority now, of course. And so, you can go back to a lot of the portfolio changes that we've done to lower our cost of supply and our sustaining price. I think all of these things, reducing the debt and our operating costs, I think we're from like $10,000,000,000 to $6,000,000,000 taking capital down from $17,000,000,000 I believe in 20 14 down to the current level around $6,000,000,000 It's just efficiency on all fronts. Okay. And then also strategically, Ryan, you reiterated your pledge to your new order value proposition, which has obviously served shareholders in that COP has been the best stock in S and P Energy since you implemented the plan 2 years ago. Simultaneously, companies with high success in this industry often mission drift and that often results in strategic activity. So while most E and P acquisitions were done at about half of acquirer capital cost over the past couple of years and were therefore pretty negatively in the market, valuations have fallen further and I want to see how you guys are thinking about strategic activity these days and if there are areas of interest, why and what are they? Yes, Doug. We do get quite a lot of questions. I appreciate it gives us a chance to sort of articulate our views a little bit about the M and A side. Really for us, it's about strategic portfolio choices and we've been pretty deliberate in that space over the last couple of years. And since the spin of the company, it's mostly been on the disposition side with $30,000,000,000 And I would also remind everybody half of them to the shareholders and half of them to reduce the debt on the balance sheet. But we have been involved in some more strategic and smaller scale acquisitions like adding acreage opportunities in the Montney and the Austin Chalk and where we think we have a clear competitive advantage like the asset deals we did last year up in Alaska. So when we think about that, we consider asset quality, diversity, resource debt and operating costs. So we think about do we add and add in those 4 categories around the portfolio, but our total portfolio is in pretty good shape, 16,000,000 barrels of low cost by resource space that's Brent weighted. It's diverse, it's deep, it's material. So we're not feeling any pressure to do anything. It did have to be value adding and substituted in the portfolio. That's kind of where we stand as a company. Now, broadly within the sector, consolidation should result in more disciplined capital allocation, slower growth and ultimately strengthening oil prices and help investors back into our sectors. When you consider, I think that on a sector basis, you have to consider things like the value that you pointed out, synergies, the timing, the market reaction to it. And what we find is tough on a valuation perspective. If you're going to implement a disciplined capital allocation program like we have in place, you need to slow down the growth rate for any acquisition target that you look at. But that growth rate built into their valuation and then you usually have to pay us a premium on top of it. That makes it extremely difficult. Synergies, tough to realize with some of the pure plays and the private equity companies that are out there. They just unless you have adjacent acreage and infrastructure, there's just typically not many synergies. Timing is tough at the low point of the cycle. Boardrooms are reluctant to sell and obviously tough to issue shares to kind of go do something. And then you touched on as well what's the market reaction, it's not been good. So, people have been punished because they seem to be overpaying. So, we pay attention to it, in which we look at it, we watch it, we see all the opportunities that will be competitive in the portfolio. We understand what we like and what might fit, but it takes a real special deal to where we feel like it's a good use of shareholder capital. Our next question comes from Phil Gresh from JPMorgan. Please go ahead. Hi. Good morning. First question, I guess, would be for Don. You're at your $15,000,000,000 gross debt target, but you have over $6,000,000,000 of cash, so your net debt is now below $9,000,000,000 Wondering how you're thinking about that today in terms of willingness to take the gross debt down more or obviously it provides you a lot of flexibility in a downside price case, but in an upside price case, you could be building even more cash. So, how are you thinking about what you want to do with that? Yes. I think, Phil, we're still at the same place we were as far as capital structure of the company and as far as gross debt. So, we're really not contemplating anything to further reduce the balance sheet debt. I think this is more of a cash utilization type question and the reasons why we would maintain levels of cash, high levels of cash in a positive price environment. And that's going to speak to a number of things, but obviously being able to withstand volatile price cycles and being able to run steady programs and keep our strategy on pace on all fronts as far as buybacks, as far as the base capital program and so forth gives us the opportunity to take advantage of strategic opportunities, investments that come around that are kind of one time deals and maybe the potential cutter expansion is part of that. So, it can help kind of refund some of those potential opportunities going forward. Yes, I'd say, Phil too, it's not burning all in our pocket and remind everybody less than a month ago people were panicking with $40 crude prices. So, we're not doing that. We're staying with our program, as Don said, with it allows the consistency through the cycles on both the buybacks and the capital invested and follow our priorities. Yes, that makes a lot of sense. And I guess the follow-up is to your last comment there, Don. I feel like one of the most frequently asked questions I've been getting about ConocoPhillips is the level of capital spending there might be moving forward. You could include Qatar in there. You could include Barossa or Willow. So how do you guys think about the levels of capital spending that might be needed moving forward? I realize you're not going to have an Analyst Day for a little while, but any color you might be able to give I think would be helpful. Yes. Phil, let me take that one on. I know we've gotten a fair number of questions about them. But appreciate you asking about it. Yes, we're probably not going to provide the clarity that you may want. In terms of absolute numbers going forward, will update the market as some of this resolves. But I think we've been pretty transparent about the opportunities you mentioned the Newfield or the Northfield expansion in Qatar. So we tried to show those beyond our base programs. I just reviewed in my prepared remarks some of the higher impact activities we have underway in 2019. Now, we expect to resolve a lot of the uncertainties in most earnings, if not all those projects as we go through the course of the year. And then we'll take stock of what and when and how we might invest in those opportunities. But I'd tell you, I think from our past activity and reputation, we've been intentional about retaining flexibility in many of the projects, and we really have the discussion to face the capital investments over time. I think we've also had a pretty successful track record of disbusting assets that don't compete in the portfolio, they're high graded and that provides another means of flexibility as well. So our goal really is to create the highest returns to our shareholders while preserving our value proposition that we're committed to, including a focus on free cash flow. So that means we'll be setting and be thoughtful about setting our future plans according to those kinds of premises. So and then again, we'll lay that out in a lot more detail for you later in November, but we're not going to lose our way about ourselves. Okay. Thanks, Ryan. Our next question comes from Doug Leggate from Bank of America Merrill Lynch. Please go ahead. Thanks. Good morning, everybody. Ryan, you guys have set the bar pretty high for the industry in terms of capital discipline. So, I think questions around the longer term CapEx are obviously relevant, but I think in the confines of how you've allocated capital, I am curious, however, if you see a kind of upside limit on the level of reinvestment as a percentage of cash flow to kind of put it simplistically. I realize you might talk about this a bit more in November, but when you look at the list of opportunities, if you did get Qatar or Barossa or Bohai sanctioned this year, would your aim be to hold the CapEx within our range or do you see some upside risk to the longer term CapEx? Well, again, as I try to say, we'll see where the commodity price for the market is at. I think 1st and foremost, we're committed to getting a high percentage of our cash flow back to the shareholders. So we start by, as you've all noticed that 30% is kind of our forward, we're committed to giving 30% of the cash back to the shareholders. So we'll run the company and we'll allocate capital to the programs with the remaining amount of cash that we have in the business. But we are going to look at it annually and make sure that we still continue to deliver free cash from the business. And as we think about the opportunities that you mentioned, the Northfield expansion, Marosa and some of that, we'll manage that. We've got control over pace. We've got control over timing. We've got control over what our interest level is and we've got other ways to control the capital program and we'll do that. And we'll take that into account as we did. We've got a rich set of opportunities coming our way. We've got capacity and we've got cash on the balance sheet, but we also know any given year we're committed to our value proposition and we're going to stay the course. Perhaps just a quick follow-up to that, Ryan. There's been some speculation in the press that you were pursuing a North Sea sale and that sale may have not be going forward now. I wonder if you could offer any color on just that specific issue, but also the general portfolio management in terms of non core assets as they stand today, because I'm guessing that would also factor into the flywheel for your ability to return cash? And I'll leave it there. Thanks. Yes, you bet, Doug. I think Matt has been kind of managing the U. K. Process for us. I'll let him kind of provide a little bit of color on that for you. Yes, Doug, we have a process to market the U. K. Assets continues, but we're no longer under an exclusive arrangement to do that. So we've broadened the process to include several parties and there really is very strong interest in the properties. I don't want to comment any further on that unless there's a material change to report down the line, but we are actively marketing those assets. Now in terms of other assets that we may market, we've expressed consistently and consistently executed on the fact that we will look at the lower end of the portfolio and dispose of assets as the when the timing is right. We did $1,100,000,000 this year. So you should expect to see us continue to work on the assets. Now, I would say that the major portfolio restructuring is essentially behind us. But that's not to say that there aren't other changes that we would make to the portfolio. And just to be clear, I think you maybe said the North Sea assets, the assets that we have marketing are the U. K. Assets. So I think that's the best way to describe what the state of play is on the disposition front. And our next question comes from John Herrlin from Societe Generale. Please go ahead. Yes. Hi. I've got a question on reserve replacement in the U. S. You had asset sales this year. You've changed the way you allocate capital. Reserves declined. What should we think about in terms of your reserve replacement in the U. S. On kind of a going forward basis, just low nominal growth? Yes. So if we start maybe by explaining what happened to our overall reserve base, there's a slide in the appendix that we had that we posted, I think it's Slide 9, that describes the overall sources of reserve replacement. So we started the year with $5,380,000,000 and ended with $5,263,000,000 That's a lot of decimal places. We produced 483,000,000 barrels. We added 474,000,000 through extensions and discoveries and another 52,000,000 through revisions and improved recovery. So that's where we get to the 109% organic reserve replacement ratio that Ryan mentioned. And then if you look at the acquisitions and dispositions, the net effect of that was 180 2,000,000 barrels. We added close to 300 in Alaska through the acquisitions and that was offset by $38,000,000 reduction in the clear disposition and $68,000,000 from Lower forty eight. So we put all of that together, the net effect as we get $147,000,000 147 percent total reserve replacement. No, I got something referring to the lower $48,000,000 Matt. Yes. The Lower 48, I think the best way to think about that is to think about in the context of the resource base because the Lower 48, obviously the booking schedule there is based on SEC rules is limited to what you're anticipating in your 5 year drilling schedule. So when we look at the Eagle Ford, for example, we booked about 500,000,000 barrels of the 2,500,000,000 barrels that's in our resource base. And if you look at the other place, we're about 50% booked in the Bakken, 20% in the Eagle Ford, less than 15% booked in the Permian and less than 1% booked in the Montney. So there's a long period ahead of us of continuing to add SEC reserves as we work through this resource base. So the what we tend to focus on frankly rather than the reserves is that resource base. And if you look at that from there for this year, we went from 15,000,000,000 barrels last year with a cost of supply of less than 50 to 16,000,000,000 barrels this year with a cost of supply of less than 40. So because we produced about 500,000,000 barrels, that's a resource replacement ratio of 300%. And that's what we really focus on. And I think both from a reserves and a resource perspective, we're in really good shape. And specifically to your question, we're in really good shape in the Lower 48 because of the way those reserves will be booked over time. Great. Thanks, Matt. My next one is regarding some of the larger projects that could be approved for LID and I guess this is more towards Ryan. Are you at all worried about E and C capacity in terms of delivery? I mean obviously the industry doesn't have the frenzied activity that it did in past cycles, But are you at all concerned about the industry being able to deliver as you commit to these kinds of projects? Not necessarily, John. I think when you look at the location, you look at Barossa, we're out for competitive bid on FPSOs and the market is pretty light right now in Asia Pacific. So the opportunities are out there, not too worried about that. The subsea equipment You know, Qatar going through a large expansion in Qatar, Russ Lafond, that will probably have its challenges, But I think they've managed it well in the past and we expect them to manage it well going forward. So, while it's always a risk, I think we've got the team in place, we've got the capability as a large company like we are and the functional excellence around managing big projects. We haven't lost that as a company. So we will bring all that excellence to bear on all these major projects going forward. And our next question comes from Roger Read from Wells Fargo. Please go ahead. Yes. Thank you. Good morning. Good morning, Roger. I guess maybe come back around one of the and Don, you talked about it a little bit, the decline in OpEx that the company is able to achieve kind of broader productivity and efficiencies. Wrapping what you can do going forward on that front and maybe if you would or if you can disclose the underlying decline rate. Just kind of want to understand maybe some of the more I guess I'd describe as increasing challenges on being able to deliver continued improvement just from internal things as opposed to maybe some of these future projects everybody has been more focused on the call? Maybe I'll take that one Roger. This is Matt. If you look at our OpEx, we're still completely committed to the discipline in their OpEx. If you look at what's happening from last year to this year, for example, last year operating cost was $5,800,000,000 But if you put that on a pro form a basis, reflecting the acquisitions and dispositions, most notably the Copartic and Clear transactions, OpEx would have been at $6,000,000,000 on a pro form a basis. This year we're moving to $6,100,000,000 but when you look at the underlying production growth, OpEx per barrel has gone from $12,600,000,000 it is $12,600,000 and that's $0.28 less than last year. So the absolute number is a bit higher than 2018, but the unit cost is lower. And that's pretty impressive when you consider that the acquisition in Alaska are relatively high cost barrels. Of course, they're very high value barrels because it's all oil and the sales are Brent. And so the fact that we added those higher cost barrels and still see a reduction in operating cost per barrel, I mean it's a sign that we have we're certainly not haven't lost the discipline on the cost front. And we can see that that focus is going to remain on the company over the next several years. And we're going to continue to make sure that we're driving our unit cost down over time. Thanks for that. That's actually very helpful. And anything on the underlying decline rate? I can't remember if you'll talk about that or not, just wanted to ask. The underlying decline rate on aggregate is about 10%. That's not yet unmitigated, but that takes all the wells that were online at the end of last year what would they be producing at the end of the next year. So of course because we have the production in LNG and oil sands, which is essentially zero decline and a very large conventional base that has a modest decline. When we put together that with our unconventionals, which of course decline more quickly, the aggregate effect is about 10% decline. Okay, great. Thank you. Our next question comes from Neil Mehta from Goldman Sachs. Please go ahead. Good morning and thanks again for the question letting us ask question here. The first one for you is just on Venezuela, obviously, very fluid situation out there and just your thoughts on the ability to collect the capital that's owed to the company and just some thoughts on the ground of how that plays out from here? Yes, Neal, this is Don. I'll address that question. With respect to the recent events in Venezuela, a couple of things, I guess, 1 on the Venezuela seismic and one on the with respect to the U. S. Sanctions, the new U. S. Sanctions. I mean, as far as pay to base, today, they have fully complied with the settlement agreement that we entered into late last summer as far as making cash payments and providing the inventories that where we obtain title to. We're in very regular contact with the officials at PDVSA and they continue to assure us that their intention is to continue to comply with the obligations under the settlement agreement. And I think that their actions over the past 7 or 8 months have indicated that ConocoPhillips is clearly high on their priority list of creditors. So, we expect that they will continue to comply. Of course, we don't know nobody knows how things are going to change in Venezuela and what that may entail. Their next they are now on a quarterly payment schedule for the recovery of the ICC settlement and the next quarterly installment is due next month. And we expect to receive it and it appears that they're making plans to satisfy that obligation. The other part of it is on the U. S. Side related to U. S. Government's recent actions. And we're operating under a license from OFAC, the Office of Foreign Assets Control that we obtained before we entered into the settlement agreement. We have been in contact with OFAC officials as recently as earlier this week and they have assured us that our license is valid, that we have we are strictly complying with that license and they've given us very good guidance on how to go forward. They don't anticipate any issues related to our settlement agreement. And so, we don't see any complications on that front. Thanks Don. And then the follow-up question is just on Qatar LNG. The timing of that sounds like it's going to be mid-twenty 19. We expect to get a decision about the project partners. How do you see ConocoPhillips position for a potential project win there? Any thoughts on the latest in terms of returns? And I guess one of the market concerns around Qatar LNG has been around financing the capital spend. It strikes us that you guys have a substantial amount of free cash flow coming up over the next couple of years that should lay market concerns even after the dividend and the buyback, but any comments about how you think about financing that capital outlay if the project materializes would be great? Yes. I'll take that one. The timeline is just as you laid out, we expect decisions to be made by the middle of this year. And that the underlying process to achieve that is sort of underway. We think we're very well positioned competitively to participate in the project. And in terms of financing it, yes, I do think we have cash available to finance it. We have a very high free cash flows. I mean, we're recognizing that even this year, we generate free cash flow at any price above $40 a barrel WTI. And so we're not concerned of our ability to finance it. So we're fully engaged in the process with Qatar Petroleum and we'll see how it plays out as we go through the year. And our next question comes from Blake Fernandez from Simmons Energy. Please go ahead. Thanks. Good morning, folks. Matt, on that last point, could you just remind me when if you did go forward with Qatar, when we could expect first production roughly? I think the timeline would be first production between 2024 and 2025 is when the expectations are. Engineering design is already underway. It's not being slowed down for the waiting for the final participants to be agreed. So that would be the sometime late 'twenty four or early 'twenty five is when we'd expect that to come to market. That's great. Thank you. The second question, I suspect you guys aren't as exposed to this, but the feedback we're getting from our E and P team that's covering some of the smaller companies in the space and maybe some of the privates. We're looking at CapEx budgets being ratcheted back and rig count potentially coming down and all of a sudden now we're hearing commentary regarding potential cost deflation in the lower forty eight. I know it's early days into 2019, but I just didn't know if you're beginning to witness anything or if you think there's potentially some downward pressure on spending based on kind of peers cutting activity levels? Yes. I think last year we saw about $100,000,000 of escalation in the Lower forty eight. But we are seeing some deflationary pressures. For example, the frac fleet activity in the Lower 40 is down about 10% just in the last couple of months. So our view is that the frac fleet is about 65% utilization just now. And if you put that together with the big reductions in sand prices because of new mine sites opening, we're actually seeing quite a healthy reduction on our completion costs from 2018 to 2019 and we've built that into our budget. Those were contracts that we renewed towards the end of the year. So, yes, we are seeing some cost reductions on completions. On the high spec rig, on the rig side of it, we're a higher utilization, about 92% on rigs and we have options on our rigs through the end of 2019. So I think that there could be some deflation going to show up in 2019 and we already saw some of that showing up towards the end of 'eighteen. That's great. I appreciate the color, Matt. Thank you. Our next question comes from Scott Hanold from RBC Capital Markets. Please go ahead. Thanks. I had a couple of quick ones. First, you all have somewhere around $7,000,000,000 of cash right now and obviously positioned well to generate more free cash flow. But considering the opportunities that you have in front of you that was discussed quite a bit today and obviously your buyback program that's in force right now as well. Is there an optimal amount of cash you guys would like to have as a cushion? And so where I'm going with this is, if a number of these large projects do come to fruition, is there a chance you guys could look at saying adding debt to the portfolio to help fund those projects? Or is that where you come back and say that's where you look at monetization opportunities and other things? Scott, I think we've been pretty clear that we're not looking to either raise or lower debt from its current level. And I don't know if there's an optimal there's not an optimal point of cash balance that we're aiming for on the balance sheet. There's a pretty wide range given the volatile business that we're in and the host of opportunities that we hope to have that are investable in the future. So, no, there is really not there is not an optimal level of cash. Yes. I think I would add to that, Scott, that again follow our priorities. We feel comfortable with the capital that we're investing right now. We'll grow the company, grow margins, grow cash flows for the company we at the kind of level that we are funding today given where the portfolio stands. We are going to fully fund our $3,000,000,000 share repurchases. And above that, to the extent we have additional cash there, we're okay putting it on the balance sheet for now because we see opportunities that might present themselves in a down market. And also, we ask ourselves we ask ourselves what the future holds for us, what our commodity price is going to do and that gives us a level of comfort when we have that cash on the balance to know that we can fund the opportunity sets that we have and we can stand the downturns if we see them. Okay. Appreciate it. Understood. And as a follow-up, touching based on sort of the big three unconventionals in the Lower 48, is there an appetite to look at some point to put those more on, hey, we've hit the plateau and there could be more on maintenance mode? Are we near that point for those, say, the Eagle Ford and Bakken? Or are you still kind of building up to that? And then as you look at the Permian Basin with your position in the Delaware, what do you see as sort of the optimal kind of pace that you guys can develop that at? So I would say Scott in the Bakken, we were essentially at plateau. I mean, it's clearly where things will bounce around, but it's not our ambition to grow Bakken further. We can sustain a level around where we are just now for a long time, but we don't use it running 2 or 3 rigs and we're comfortable with that in the Bakken. And the Eagle Ford Group, we're still growing. This year we're running 6 rigs and we'll continue to see growth from that. And we are, as Brian said, testing some new technology in the completion designs there, what we call Vintage 5. Once we understand how those new completion design works, we might revisit what the right plateau. And then the Permian is a long way from plateau. We're running 2 rigs just now. You remember last year, but we took a rig out of the Permian as the differentials blew out. I suspect sometime over the next year or 2, we'll put the 3rd rig back to work again there. But the and that will continue to grow for several years before it reaches plateau. But you're asking a good fundamental question here for the industry as a whole is how do we how does the industry think about where the optimum plateau is. And the optimum plateau is setting up just a year or 2. You know you're overbuilding infrastructure if go there and the optimum battle isn't 30 years because you're time value of money certainly, but we think about this very carefully as we consider the rig, the pace of rig activity and the pace of infrastructure build and the pace of technology change. So I think we have a good handle on how we should be managing these assets to optimize the value from a plateau perspective and webcam perspective. And our next question comes from Jeffrey Lambujon from Tudor, Pickering, Holt. Please go ahead. Good morning. Thanks for taking my questions. My first one is on the upside for the Lower forty eight. I was just hoping you could talk a bit more about the Vintage 5 testing that you've mentioned a few times now that's going on in the Eagle Ford in terms of both variables that you may be tweaking and then also just timeline for when we may see some data around it all? And then in the Permian specifically, I was hoping you could talk a bit about capital allocation within an asset for you all just towards getting a sense of operational objectives there in the near term? Yes. I mean the Vintage 5, basically they're designed to intensify the stimulated drop volume to improve recovery factor. That's the essence behind the Vintage 5 design. We haven't really disclosed that design, but that's the underlying parameter that we're trying to improve as the recovery factor by improving the intensity and regularity of the stimulated drop volume. So we completed a single well pilot last year and we got really encouraging results there. So what we're doing now is we're going to do 3 multi well pilots at different locations and at different spacings within Eagle Ford 2019 and then 2 more we have planned for 2020. So we'll get initial results from that late this year and then more results into 2020. We're also advancing a multi well pilot Vintage 5 test in the Delaware too. That will be later this year. So results there won't come until 2020. So it's a very interesting technology angle to be pursuing here and we're looking forward to seeing those results. In terms of the Permian capital allocation specifically, really is driven of course rig count and 2 this year and then sometime over the next year or 2 growing to 3 rigs. Great. And then my second one is on acquisitions and maybe this is a bit nuanced and maybe impossibly around the year, but saw in the disclosure with earnings today $600,000,000 for acquisitions for the year last year, which compares to $500,000,000 for Q3 earnings. I know that the bolt ons in Alaska and Montney have been listed pretty consistently throughout the year. So just wondering if there's any color you can give there on the nature of that incremental 100,000,000 or so that might be implied just for Q4's activity? Yes. So the acquisition and the Western North Slope is 400, the Montney acquisition was 120. The balance of that is really some additional smaller acquisitions to core up in places like the Louisiana Austin Chalk. So it's I can't point to one big one that makes up the difference there. It's several smaller scale acquisitions around the portfolio that takes us to the 600. All right. Appreciate it. Thanks. Paulette, we're getting close to the top of the hour. So we'll take our last question please. Thank you. And our last question comes from Michael Hall from Heikkinen Energy Advisors. Please go ahead. Thanks. Appreciate the time. I guess you kind of alluded to 1 in the last question, but I was curious in the context of kind of the Vintage 5 completions in the Eagle Ford. I mean, if you look at your prior disclosures, you've had pretty big step changes all along the way as you've moved up the vintage cycle, I guess. Do you still see that sort of potential rate of change, I guess, as you move from Vintage 4 to Vintage 5? Or is this something that's more on the margin? And then where would you say you're at in terms of vintaging in the other place like the Williston and Permian? Yes. So Vintage 5 really isn't focused on trying to improve IP. It's really focused on trying to improve recovery factor. So the big increases in initial production that we've disclosed from Vintage 1 through Vintage 4 is doing what we're targeting here. This is our more fundamental improvement in the EUR across any given drain drop volume. So that's what Vintage 5 is about. That's why it's going to take several months after these wells are brought online to really understand how the type curve is evolving and how interference with other wells is behaving. And so it will have a different characteristic of improvement than Vintage 1 through Vintage 4. So far across the rest of our place, the Bakken, Permian and Montney, we're really implementing completion techniques similar to Vintage 4 just now. We're testing Vintage 5 in the Eagle Ford and I said we'll test it in the Permian also and we'll then we're pretty good at transferring these learnings across the organization quickly. So we don't have to pilot test everything everywhere before we can put it to work in other place. Great. That's super helpful. And I guess last on my end would just be just curious if you'd be willing to possibly provide exit rate thoughts for the big three in aggregate or individually for 2019? Well, I mean, I gave the exit rates earlier for the big three individually for the Q4 average rates which is really in my view the best way to think about the exit rate because of the movement here. What we said we're going to do in 2019 is we're going to produce 350,000 dollars on average through 2019. So that's about 20% growth from 2018. And that's going to come through over the Q1 or so and I think Ryan mentioned this in his prepared remarks. The first half is going to be relatively flat. We had really quite exceptional outperformance in 2018 as we went through the year. In particular, towards the end of the year, we had how these programs work. You have drilling multi well pads, so you get lumpiness within each of the individual plays. Towards the end of 2018, we had multi well pads coming on essentially simultaneously across the big three. So we saw a big jump there. And so now we'll be moving towards more of a momentum and we'll be experimenting with these Vintage Hyatt completions which take a little bit longer to pump. So that's why we expect them to be flat through the first half of the year Then we'll jump up in the second half of the year as we increase the number of completions. Thanks. I think that's going to wrap it up for the day everybody. We really appreciate your interest. By all means call us back if you have any other follow ups and thanks again for joining us. Paulette, that will wrap it up for us. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.