Good morning, and welcome to the Q3 2021 ConocoPhillips earnings conference call. My name is Sanara, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then one on your touchtone phone. I'll now turn the call over to Ms. Ellen DeSanctis. Ellen, you may begin.
Thank you, Sanara, and welcome everyone to the Q3 earnings call. In the room with me today are Ryan Lance, our Chairman and CEO. Bill Bullock, our Executive Vice President and Chief Financial Officer. Tim Leach, our Executive Vice President of the Lower 48. Dominic Macklon, our Executive Vice President of Strategy, Sustainability, and Technology. Nick Olds, our Executive Vice President of Global Operations. Mark Keener, our Vice President of Investor Relations, is also in the room today. The format of our call will consist of some very brief prepared remarks, and then, as Sanara mentioned, we'll go to Q&A. A few reminders. In conjunction with today's earnings release, we posted a deck of supplemental material addressing Q3 earnings and cash flow results, as well as some Q4 full year 2021 guidance updates. Today, we will make some forward-looking statements based on current expectations.
Actual results could differ due to the factors described in today's press release and in our periodic filings. We'll mention some non-GAAP financial measures this morning. You can find reconciliations to the nearest corresponding GAAP measure in this morning's press release and on our website. With that, I will now turn the call over to Ryan.
Thank you, Ellen. As Ellen mentioned, I'll make a few opening comments, and then Bill will address a few details about this quarter's results, and then we'll begin the Q&A session. In this morning's release, I referred to the quarter's results as notable. Obviously, financial and operating results were outstanding, but the context for describing them as notable meant something different. For the past year, we've been integrating Concho, improving underlying metrics across the business, and creating the most competitive E&P for the energy transition. The significance of this quarter's performance is that it represents the post-Concho go-forward baseline for the company. On a run rate basis, the integration is essentially complete. We've captured the announced $1 billion of synergies and savings from actions the company took in connection with the transaction, all ahead of schedule.
We're unhedged, but even more importantly, our torque to upside is helped by having high conversion of revenue to income and cash flow. The core executables of our global operating plan are delivering as expected. We'll close out 2021 as a stronger company compared to any time in the past decade. Every aspect of our Triple Mandate is moving in the right direction. Our underlying portfolio cost of supply is improving. Our overall GHG intensity is lower. Our emissions intensity reduction targets are more stringent. Underlying margins are expanding. Our trailing 12-month return on capital employed is headed toward an estimated 14% by year-end, reflecting the benefit of more than just stronger commodity prices. Between now and year-end, our top priority is closing the Shell transaction, which we expect to occur in the Q4.
Once we close, we will be working diligently to integrate these properties and capture efficiencies in a similar fashion to what we've achieved through the Concho integration. In addition to layering in these properties on top of our existing high-performing platform, we're continuing to high-grade our portfolio and optimize the business drivers everywhere. The setup for next year is, well, notable. We're now in the process of setting our 2022 capital plans, which we expect to announce in early December. Directionally, we don't anticipate a significant departure on CapEx from what we included in our June update, excluding Shell.
In June, we provided an outlook based on a roughly $40-$50 per barrel price that included a modest ramp in the Lower 48 to reactivate our optimized plateau plans, some incremental base Alaska investment, and some longer cycle, low cost of supply investments in Canada, the Montney, and in Norway. Since June, we see some inflation pressures, especially in the Lower 48. However, at this point, we'd expect to adjust scope modestly in order to maintain our base capital at a level that is roughly consistent with our June update. Of course, we'll add CapEx for the Shell properties once we've brought them into the portfolio. As we finalize our 2022 plans, we're watching the macro closely, keeping an eye on inflation and potential OPEC+ pressures, and undertaking our typical capital high-grading processes.
It goes without saying, the market certainly appears to be more constructive, but we must always remember that this is an incredibly volatile business, but there's more to come on that in December. It's certainly been a busy year for the company, but an incredibly successful one so far, and that's thanks to our dedicated and talented ConocoPhillips workforce. We believe we're entering a very constructive time for the sector, but even so, we know that there will be relative winners.
The relative winners will be companies with the lowest cost of supply investment options, peer-leading delivery of return on and return of capital, and visible progress on lowering emissions intensity. That's what we offer. Our Q3 represents a glimpse and a strong jumping-off point to what you can expect from ConocoPhillips going forward. Now let me turn it over to Bill, who will cover some of the key items from this quarter.
Thanks, Ryan. To begin, adjusted earnings were $1.77 per share for the quarter. Relative to consensus, this performance reflects production volumes that were slightly above the midpoint of guidance, better than expected price realizations, and lower than expected DD&A. As for the better realizations, we captured a higher percentage of Brent pricing in our overall realized prices. We've provided supplementary information in this morning's material to address the realization's variance. As Ryan mentioned, we're unhedged, so we're getting full exposure to the current higher prices. As for DD&A, we're trending lower compared to the previous guidance as a result of positive reserve revisions due to higher prices. You saw in today's release that we lowered full-year 2021 DD&A guidance from $7.4 billion to $7.1 billion.
Excluding Libya, production for the quarter was 1,507,000 barrels of oil equivalent per day, which represents about 2% underlying growth. Lower 48 production averaged 790,000 barrels a day, including about 445,000 from the Permian, 217,000 from the Eagle Ford, and 95,000 from the Bakken. At the end of the quarter, we had 15 operated drilling rigs and seven frack crews working in the Lower 48. Across the rest of our operations, the business ran extremely well. In particular, our planned seasonal turnaround activity across several regions went safely and smoothly. You have noticed that we provided production guidance for the Q4 and for the full year 2021 in this morning's release.
This reflects the impact of a decision we're making to convert Concho two-stream contracted volumes to a three-stream reporting basis as part of our ongoing efforts to create marketing optionality across the Lower 48. We expect to convert the majority of our contracts in the Q4. Reported production is expected to increase by approximately 40,000 barrels a day, and both revenue and operating costs will increase by roughly $70 million. In other words, this conversion is earnings neutral. Besides DD&A and production, there were no other changes to 2021 guidance items. Now, once we've closed the Shell acquisition and can see where the ongoing U.S. tax legislation conversation lands, we'll provide an updated earnings and cash flow sensitivities that consider such factors as projected 2022 price ranges and how those ranges might impact our cash tax paying position in various jurisdictions around the globe.
Coming back to Q3 results, cash from operations was $4.1 billion, which was reduced by about $200 million for non-recurring items, so a bit higher than the average of external estimates on an underlying basis. Free cash flow was almost $3 billion this quarter, and on a year-to-date basis, this is about $6.5 billion. Through the first nine months of the year, we've returned $4 billion to shareholders, and we're on track to meet our target of returning nearly $6 billion by the end of 2021. This is through a combination of our ordinary dividend and buybacks. To summarize, as Ryan said, it was a notable quarter. The company is running exceptionally well, and we've achieved a significant reset of the base business post-Concho. That creates a powerful platform for entering next year.
We're focused on closing the Shell Permian acquisition so that we can begin the work of getting those properties fully integrated into the business, setting our capital plans for 2022, maintaining a leading position in return on capital, and lowering our emissions intensity. That's the Triple Mandate. That's what ConocoPhillips is all about, and we look forward to providing additional information in December. I'll now turn the call over to the operator to begin the Q&A portion of today's call.
Thank you. We'll now begin the question-and-answer session. If you have a question, please press star then one on your touch tone phone. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Our first question comes from Roger Read from Wells Fargo. Please go ahead. Your line is open.
Yep, thank you. Good morning. Hopefully, you can hear me.
Morning, Roger. Yeah, no, we can. [inaudible]
Sorry, just it was like really quiet there. Anyway, I just wanted to come back to the inflation question. I know you'll talk more about CapEx in December, but you know, maybe an idea of what you have seen to date and where you think the bigger inflation headwinds may arise.
Yeah, sure, Roger. As we kinda in the middle of, like I said in our opening comments, putting all our plans together. Right now, the supply chain organization tells me that globally, we're thinking about mid-single-digit kind of inflation rates as we go into 2022, but it's bifurcated into two pieces. The U.S. being, depending where you're at geographically in the U.S., anywhere from kind of the low double digits to the higher single digits, the Permian being the area probably the most influenced or the most experiencing inflation right now and as we go into 2022. Then the rest of the world, though, still at about 2%-3% inflation rates, kinda globally.
The categories that you can imagine are inflating right now certainly are those that are in need here in the U.S. as we start to recover out of the low point, things like OTCG, labor, sand, pressure pumping and the likes. I think as we think about it going forward, it's an opportunity for us to try to offset as much of that through some modest scope reduction and efficiencies, which I think is where Tim is focused in the Lower 48. I can ask Tim if you wanna add anything to that, relative to the Lower 48 and the Permian.
No, I think that covered most of it, but I would say that, you know, where we are seeing inflation on those items, we have size and scale advantages of our combined organizations and the operations continue to improve in the Lower 48. I think there's many ways that we can mitigate those inflation factors.
Okay, great. Thanks. Just since it's been in the news quite a bit, what's been going on in Alaska? I was just curious, you know, if Willow can't go forward, what do we think about in terms of other opportunities in Alaska? Have you noticed any meaningful changes since Hilcorp became the other partner in Prudhoe Bay?
Yeah, Roger, this is Nick. Just maybe a quick update on Willow. As you've probably seen in the press, both the Department of Justice and ourselves decided not to appeal the United States District Court for the District of Alaska decision. We feel the best and most efficient approach there is to really work through the three substantive issues that were identified in the district court ruling. We'll do that through additional NEPA analysis. We're currently engaged with the BLM and the cooperating agencies up there, just working through those three particular issues. As you look forward, we've mentioned, we continue to work through our detailed engineering in service of continued refinement of our cost and schedule and any development modifications, all in service of doing an FID. If you look at 2022, our capital program, that'll reflect the continued engineering work.
From a shareholder standpoint, we still see, you know, significant support from the Alaska delegation, the state of Alaska, as well as the North Slope Borough. We remain committed on this front. As far as other projects, we spoke about in the June 30th market update, in Kuparuk, as example, we've got Nuna, we've got Coyote. These both leverage existing infrastructure, so existing pads, facilities and pipelines, very low cost of supply opportunities that we're progressing. On the Prudhoe front, we're seeing great efficiency improvements and safety performance. They continue to reduce costs across the board, so our teams are heavily engaged. All three legacy assets are performing well.
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 our questions.
Yeah, good morning, Jeanine.
Good morning. Our first question is on Scope 3. In conjunction with the Shell Permian acquisition, you announced an improvement in your Scope 1 and 2 emission intensity targets, which is great. At this year's meeting, I believe shareholders voted in favor of the company setting Scope 3 reduction targets as well. Could you maybe update us on the company's strategy for addressing that vote and perhaps any color on feedback that you've received from your shareholders regarding Scope 3 reduction targets for Conoco?
Yeah, sure, Jeanine. Let me make a few comments, and I'll turn it over to Dominic, who's been involved in all our shareholder engagement activity that's a normal part of our process this time of year. Yeah, you saw a consistent or coincident with the Shell acquisition announcement that we increased our targets related to Scope 1 and Scope 2. Not, maybe hopefully not missed in that, we went from a gross operated to a net equity, which we think the industry needs to move to as well. It's not only the, what you operate, it's what you are involved in from a net equity perspective.
Yeah, pretty focused on our commitment to reduce our Scope 1 and Scope 2. Then as you state, you know, we did get a resolution. It got 50-some% of the vote, not binding, but one that we have to engage with our shareholders on. We've been doing that on the Scope 3 side specifically, and I can get Dominic maybe to comment on what that looks like or what we've heard so far from shareholders.
Well, thanks, Jeannine, for the question. You know, we are continuing in dialogue with shareholders. This is an ongoing process on this very important matter. I think to share some key elements of that dialogue, you know, as an E&P company, we continue to believe our Paris-aligned climate risk framework that we launched about a year ago is both credible and ambitious and addresses the realities of our Triple Mandate that you often hear us talking about. That's responsibly meet transition pathway demand, deliver competitive returns, and achieve net zero emissions on the emissions we control. That's Scope 1 and Scope 2. We have established just earlier this year a dedicated low-carbon technology group, and they are supporting our business units in their ongoing progress to achieve our Scope 1 and 2 targets and our net zero ambition.
We are not ignoring Scope 3 end-use emissions. Our new low-carbon group are also working to develop new opportunities in low-carbon businesses with a focus on Carbon Capture and Storage and hydrogen, both of which have a strong adjacency to our core business and our competencies. Those opportunities must of course deliver competitive returns for shareholders. On the policy side, we continue to advocate for a well-designed economy-wide price on carbon, and we see that as the most viable solution for addressing demand and actually reducing Scope 3 end-use emissions. We don't believe a Scope 3 target for a Paris-aligned E&P company like ConocoPhillips makes sense as it wouldn't address consumer demand, and it would shift supply away from top-tier ESG producers to less accountable producers and jurisdictions.
We believe, in fact, that a Paris-aligned E&P company with a focus on low GHG intensity and low cost of supply production has a valuable and crucial role actually to play in the energy transition. Now, of course, we take our shareholders' views very seriously, and we're continuing our engagement to understand their perspectives. It's an ongoing process. We'll continue that through the next couple of months here, but that perhaps gives you a flavor of the nature of the dialogue.
Okay, great. That's really helpful. We look forward to the carbon capture and hydrogen development. I guess our second question may be a little housekeeping item here is on the affiliate distributions. The distributions, they were slightly below what we think was implied by prior commentary on the 2Q call, and it was a little bit below our forecast. We're just wondering if there was anything unexpected related to the timing of distributions. We understand their seasonality for the quarter or if there's any change in the full year outlook of $700 million in APLNG distributions for this year?
Sure, Jeanine. We received distributions of $85 million from APLNG in the Q3, and that brings our total year- to- date to $430 million for the year. We now expect full year distributions of around $750 million from APLNG this year. As you noted, as a reminder, we typically receive lower distributions in the first and Q3s and higher distributions in the second and Q4s. As you think about APLNG due to the pricing lag with APLNG's long-term LNG sales, there's really little sensitivity to price for the remainder of 2021 distributions as LNG pricing is essentially set. We feel very good about $750 million for the full year.
Thank you. Our next question is from Neil Mehta from Goldman Sachs. Please go ahead. Your line is open.
Good morning, team. Let me start by thanking Ellen for her service to the industry and to the investment community. Congratulations on your retirement, Ellen. You are gonna be sorely missed. Ryan, let me-
Thank you, Neil. She'd appreciate the call out, Neil. We're gonna miss her as well.
Yeah. Well, Ellen, you can't escape us, so you know where to reach us. Look, the-
I'm not gonna try.
She's not gonna escape, she's not gonna escape us completely either, Neil.
You're in great hands. It's been an honor, everybody. Truly an honor. ConocoPhillips won't miss a beat.
Wow, that's great. Well, you left it in great shape. Well, Ryan, I want to kick off on a big picture question for you, and then Tim, I had a follow-up for you on the Permian. The big picture question is, Ryan, do you think we're in the beginning of a structural upcycle here, which is we've been through seven years of very dark period of oversupply in the industry. Underinvestment might be kicking in here. Do you see multiple years ahead of a potential recovery?
And to the extent we actually are at the beginning of a structural upcycle, the last time we had one, the industry destroyed a lot of value over the long term by not seizing the opportunity appropriately. As a leader of the E&P industry, what is the message you're telling your folks about how you do it differently this time to create structural value to the extent you have a period of excess cash flow?
Yeah, no, thanks, Neil. Certainly pretty constructive for a number of reasons. We're seeing the demand recovery post-pandemic. For all the reasons you stated, you know, this turns into a supply problem. I think that's gonna be some pretty constructive tailwinds for the industry. Yeah, you ask a bit of a provocative question there. What would I say? Maybe a few things. For my peers, I would say, you know, we've got to restore sector sponsorship, and that's only gonna happen through consistent returns on capital employed, and they have to be competitive with the market. I think that's the opposite of what we saw in this boom-bust industry, you know. I think investors need to have us on a short lease and a short leash.
I think that would be good for this sector. That's kind of what I would tell my peers. What would I tell investors? It is different right now because I think shale industry is being rerun as a free cash flow business. So now we have short cycle inventory that can be managed for returns on and returns on capital. But I think you have to remember one thing in that, you know, shale business, that inventory quality really does matter. Because the ones with the best inventory, like ConocoPhillips, we're gonna be able to make market competitive returns, and we can do that without having, you know, blown through the roof on growth. With modest growth, you can deliver those kinds of market competitive returns for people that have the top quality shale inventory.
I think that's a pretty big paradigm shift. That discipline on growth and returns on enough capital really, really matters. Lastly, and this would be for investors and my peers, for everyone really, is, the energy transition is happening. We are going through a transition today, but I think that's a new lens that we have to look at this business through. It requires a bit of new thinking. I think Dominic just referred to that in the last question that, Jeanine had, which is, you know, our Triple Mandate. We must do those three things simultaneously, and we've got to do them really, really well. We have to meet the transition demand.
Whatever the slope that demand going on, we've got to be there to supply it with low cost-of-supply barrels, because we've got to deliver on our returns, and we've got to meet our net zero ambition ultimately by 2050 in this business. I guess that would be a few things that I would offer, Neil. Really shame on us if this industry can't do it. I can guarantee you, ConocoPhillips will.
Yeah. No, you guys absolutely have delivered the playbook. That's a good dovetail into you, Tim, and just your perspective on the Permian position at this point. Specifically, talk about where we are in terms of integration of the Concho assets. You've probably gotten more time to take a look under the hood of the Shell assets. How do you feel about what you've acquired?
Yeah, it's pretty exciting, Neil, that first of all, I'm really proud of our team being able to integrate this Concho acquisition and deliver on all the production and cash flow and get the wells drilled and not miss a beat on execution and deliver all the synergies that were talked about. That's an important concept as well. The blocking and tackling of our business is going really well in the Permian. In addition to that, excuse me, ConocoPhillips has four really great shale basins in the U.S. Watching how information's being transferred, how much teamwork is going on between those groups, they're continuing to make everything better. The wells are getting better. We're delivering more efficiency all the time.
That's exciting for the future. When you look at the opportunity with the Shell acquisition, what we can do with those assets and how we can create value with them, and that's kind of what our teams live and die for, is the opportunity to go get something like that and make it better. I'm pretty excited, and I'm proud of the work that's being done right now.
Thank you. Our next question comes from Stephen Richardson from Evercore. Please go ahead. Your line is open.
Thank you. I was wondering if I could follow- up on that last question with Tim. You know, Tim, I appreciate that you haven't closed the Shell transaction yet and haven't got your hands on the assets, but it seems to us one of the big areas of upside could come from equalizing working interest and, you know, some swaps and trades and blocking up your total position, including Shell. Could you just talk a little bit about that opportunity as you see it? And, you know, have you had incomings from industry knowing that you will be the holder of those assets in short order?
Well, yeah. You know, managing assets like that is kind of what I think we do best. There are so many different ways that we can create value from the way the wells are drilled, the way the wells are completed, the marketing arrangements. It also gives us the opportunity with those additional assets coming in, we have way more flexibility on what we can dispose of and how we can high grade our portfolio.
It's it gives us the opportunity to do what I think we're really good at from an operations standpoint, but also from property management. You know, the swaps and trades, we have a dedicated group around that, and they can create a lot of value in the basin. All the operators are trying to get out of each other's way and not have so much outside operated, and you know, create longer lateral drilling opportunities, all kind of things like that.
Thank you. If I could just follow- up with Bill on Sunnova specifically. It looks from what we can glean from the public filings like that sell down is happening kind of in a pretty orderly way in terms of pace. I was wondering if you could talk about you know experience so far executing on that, and also noted a nice uptick in the contingent payment associated with that Western Canadian sale a number of years back at these oil prices. Maybe you could remind us all of the quantum of that and where that would stand and the duration of that as well, please.
Yeah, sure. Happy to. First, starting with the CV monetization program, we've sold about 67 million shares year- to- date. That's about 30% of our original balance. We reduced our equity stake in Cenovus from about 10% to about 7%. Those proceeds have been used to buy back about $600 million of ConocoPhillips shares through the Q3. You'll note on our slides for cash that was about $400 million for the Q3. We have accelerated our sales. We expect to exit our position sometime early part of next year, and we're executing those sales in a thoughtful and measured way and continue to monitor market conditions as we move forward. Assuming that they remain supportive, we'll be out early part of next year.
You also asked about the contingent payments from Cenovus. During the quarter, we recognized about $100 million in pre-tax earnings, bringing our year-to-date total of about $200 million so far as Cenovus contingent payments. At current pricing, we'd expect to recognize another $100 million in the Q4. Now, the contingent term expires at the end of the Q2 2022, but at current strip prices, we'd expect to continue to accrue contingent payments in the first and Q2 of next year.
It's probably also worth mentioning that we are still continuing to receive contingent payments also from our San Juan sale. Just would throw that in there a bit. We've accumulated so far $30 million in pre-tax this year with $21 million in the Q3. We'd expect to accrue another $21 million on that in the Q4. At current prices, that should continue through calendar year next year.
Thank you. Our next question is from Doug Leggate from Banc of America. Please go ahead. Your line is open.
Oh, thank you. Let me add my congratulations to Ellen. I'm pretty sure I'm not gonna be on the call with Ellen, but good luck, and thanks for all your help over the years. I really am. We're gonna miss you. A couple of things, if I may. Ryan, I know we get to the cash return question a lot when I come to question you on this, but I just wonder if I could pick your brain on whether your thinking is evolving any.
What I'm looking at is, you know, you're pretty much bigger than BP at this point. You know, you're knocking on the door of Total and Shell in terms of scale. On average, your yield is about, you know, running about, you know, 60% of those peers. You could easily step that dividend up and get greater recognition for the value proposition in my opinion. Why not?
Yeah, I think, you know, I tried to be pretty clear, Doug. I appreciate the question, and the push. I think what I've tried to be pretty clear about is our 30% of CFO is going back to the shareholder. That's a commitment you can take to the bank as an investor in ConocoPhillips. With this run-up in the prices that we've seen here lately, you know, you should expect to get 30% of our cash coming from our operations as a result. You ask, you know, what about the channel? I'd say maybe before the channel conversation too, with the Shell acquisition, we'll probably look to try to, you know, put some more money onto the balance sheet as we go through the course of this. More directly to your question about the channel.
You know, I've been comfortable based on our outlook and our view of the macro, where things are going right now to split the distribution between the ordinary dividend and share repurchase. How do I think about the ordinary dividend? You know, for me, it needs to be something that's incredibly reliable, it's transparent, it's growable, it's reliable. You can count on it, you can take it to the bank, and it works at the downside of this sector and the whenever we go through those downturns. That's how I think about the dividend. I think you know, you can get euphoric when these times are pretty good, but I think you gotta think about the dividend being, you know, commitment, reliable, always there, and it's growable. That's how I think about the dividend.
More importantly, you should expect to get, you know, 30% of our cash coming back from our operations. That's our commitment. That's what we've done for a number of years, and that's what we're gonna continue to go do. As that CFO goes up, you're gonna get those dollars. You know, and we've been pretty open to the channel. We've had this conversation with the market, with our investors. As we see circumstances changing, you know, we're not locked into a specific channel to go do that. I take your point, Doug. I think I probably think about the ordinary dividend just a little bit differently.
I appreciate the answer. I guess it's more about trying to figure out what the market is best prepared to recognize is kind of what's behind my question. I appreciate the answer. Thank you.
Yeah. That recognition, Doug, needs to be over the long term, not just over a month or a quarter.
Right. Exactly.
What builds value? What's the right model over the long haul in a very volatile business?
Sure. Very different capital structure today for you guys than a few years ago. My follow-up very quickly. You touched on high grading the portfolio. I don't think we've heard you say that in a little while, and obviously you've now got a very large slug of production coming in. I just wonder if I could push you a little bit to touch on some of the things you were thinking there to flesh that out, and I'll leave it there. Thank you.
Yeah. No, thanks, Doug. I think we sold through this quarter couple hundred million dollars worth of assets. Those are largely in the Lower 48. We've got another couple of large packages in the Lower 48 on the market today that are significantly larger than what we've talked about closing today and a couple other things. We're pretty committed. We announced after the Shell transaction that we would sell $4 billion-$5 billion. We had $2 billion-$3 billion out in the market from the June market update, and we're well on the road to delivering that $2 billion-$3 billion.
We upped that to $4 billion-$5 billion as a result of the Shell transaction, just because when we get the first look at the portfolio, primarily in the Permian, we think there's gonna be some cleanup that we can do with Tim's team and the trading and the swapping that he described earlier, and some outright sales. Feel pretty comfortable with that $4 billion-$5 billion target. Obviously take us into 2023, but making probably a lot of progress through the H1 of next year in delivering those targets.
Thank you. Our next question comes from Phil Gresh from JPMorgan. Please go ahead. Your line is open.
Yes. Hi, good afternoon. My first question is just on the prior guidance around the ending 4Q cash balances post the Shell acquisition of about $4 billion in cash. Any updated thoughts there now that we've gone through 3Q and any other moving pieces that you've talked about on the call here today?
Yeah, sure, Phil. We still feel very good about that $4 billion of ending cash. You know, the Shell transition headline price is $9.5 billion, but the effective date is July 1st, of this year. We would expect to end up with a little over $4 billion of cash by the end of this year.
Okay. Second question, Bill, for you would be, you gave a little teaser in your prepared remarks around cash taxes. Do you have any updated thoughts around when you would become a cash taxpayer, you know, kind of factoring in the impacts of the Shell acquisition, the higher oil prices, et cetera?
Yeah, sure, Phil. At current pricing, if current pricing continues into 2022, we would expect to move into a significant tax-paying position in the U.S. by early to mid-2022.
How about just for the overall company?
Well, the overall company, we would be similar. If you look across our international assets, many of them are already in a cash tax paying position. The main change is in the U.S.
Got it. Okay. Thank you.
Thank you. Our next question comes from Paul Cheng from Scotiabank. Please go ahead. Your line is open.
Hi. Thank you. Let me add first my congratulations to Ellen, and wish you a wonderful and healthy retirement. Thank you for your help.
Thank you.
Two questions. Maybe this is for Tim. Maybe we read too much. In the Q3, Eagle Ford production actually sequentially down. I think in your previous 10-year strategic long term, the target is Eagle Ford maybe reaching, say, close to about 300 in the longer term and stay there for a long period of time. Wondering that with the added Permian asset, is that still the game plan and what we see in the Q3 is just the timing of the well coming on stream, or that we should read more on that? That's the first question. Maybe I will ask the second question maybe later.
Good. Thank you. Yeah, you know, the way we think about managing the Eagle Ford and the Bakken and the Permian is one asset that we can allocate capital around. We said on this call before that the Eagle Ford and the Bakken are much closer to being at their optimal plateau than the Permian is. The Permian doesn't get there for a long time. We are increasing activity in the Eagle Ford. It will be at that optimal plateau rate that you referenced. The sequential quarter- over- quarter is more about timing and things like that of wells coming online. I'm very pleased with the performance of that asset. There have been things like refracs and other things that we've talked about that have continued to improve the performance of the Eagle Ford.
Tim, when do you think Eagle Ford will reach that plateau kind of production rate, in 2024, 2025, or maybe sooner? In other words-
There's-
How aggressive are you going to ramp that up?
Yeah, well, it's you know, we haven't given guidance on things like that, but generally, it reaches its plateau much sooner.
Okay. Thank you. The second question, maybe is for Bill or for Ryan. I think when you set up the $6 billion on the cash return, that's based on the $60 WTI for this year. Obviously, the price is much stronger. Should we assume that you're going to return more than that or because of the Shell transaction, you're going to stick to that and just have the additional cash to strengthen the balance sheet?
Yeah. No, at this point, we're, you know, our guidance is the $6 billion of return this year. You know, stay tuned for what that looks like for next year. Yeah, we're sticking to the plans we have in place for 2021. That gets us pretty close to $6 billion total return. That's through the ordinary dividend and through our the shares that we're buying and the shares that we're swapping with CV or Cenovus.
Thank you. Our next question comes from Neal Dingmann from Truist Securities. Please go ahead. Your line is open.
Ryan, just a quick follow-up on what you just said there. I just wanna make sure I was clear on the shareholder return on the $6 billion. It looked like, you know, the bulk, a good size of that, I think it's one-third of it is coming this quarter. Is that just the result of how it played out from the cash flow, the stated cash flow payout?
Yeah. I think you probably saw some ramp-up in the swap with the Cenovus shares. The dividend's obviously ratable across the four quarters other than the raise that we announced here, recently. You know, we restarted our share buybacks outside of the Concho swap after the Q1. Yeah, they're not quite ratable. You saw the ramp up there in the Q3 if you look at our results, and you should assume that that continues into the Q4.
Okay. Okay, great. Great clarification. My second probably for Tim. Tim, you just mentioned earlier on the activity. My question is more on permitting activity that you were talking about. I know one of your peers suggested kind of a notable increase in permitting activity for remainder of this year carrying into 2022. I'm just wondering, you know, post the Shell deal, would we continue to see a ramp in that? I just wanna see if that's what you were indicating on the last, you know, given you mentioned the plateau on the other two plays. Could we see some ramp there, or is it still in the works to hold things steady? Obviously knowing you don't have 2022, 2023 guided out yet.
Yeah. Well, we haven't completed all our planning for next year. That's what Ryan referred to that we're still going through. I would tell you that, as we're planning for Shell, until we get our hands on the steering wheel, it's kind of just continuing the level of activity that they currently have going on there. I will tell you that we really believe strongly in the steady as she goes, and as we add activity, it will be ratable and kind of. I wouldn't call it a ramp. I would call it slow, steady growth because I think that will build the most efficiency in our operations.
Thank you. Our next question comes from John Freeman from Raymond James. Please go ahead. Your line is open.
Good afternoon. Thanks. I just wanted to revisit the 10-year plan, which obviously got enhanced after the Shell transaction. Just when I'm thinking about the different sort of, I guess, we'll call them toggles that you have, obviously, given the unhedged nature of the portfolio, you know, you have talked about if you do have a $10 or higher oil price, then y'all's oil assumption there, it's, you know, an incremental $35 billion. I'm just trying to make sure that I'm on the same page with how y'all are thinking about that.
The last time that the free cash flow got enhanced from the Shell transaction, with the incremental, let's call it $10 billion, over that 10-year plan, that full $10 billion basically went to the, you know, incremental shareholder distributions. I'm just trying to, you know, I guess, Ryan, just how you think about, you know, what it would theoretically take for you all to look at something other than that kind of 3% kind of production CAGR? Is it just it doesn't really matter what the oil price is, the incremental goes to the, to the shareholder distributions? Or just how you think about it, Ryan, would be helpful.
Thanks, John. I think you should think about it on top of the, you know, again, the market update plan was at a $50 a barrel price tag. Our commitment to our investors is that 30% of the cash will go back to the shareholders. As prices increase and our cash flows increase, you should expect the distribution to the shareholders to increase. We're still gonna maintain a very strong balance sheet, and having some cash on the balance sheet is important to the company. We'll deliver modest growth. That's always been kind of an output out of our plans. We wanna make sure that we, you know, have a good idea of where the macro is gonna go for the next year.
We're gonna set our capital budget plans to deliver the strongest returns on that capital that we can manage. We don't wanna blow into the face of really high super inflation. We've seen what that's done before to returns. We'll be very conscious of that as we go into what we think is a pretty constructive view of the macro going for the next two to three years. You ought to expect us to act like we've done in the past. We'll be really judicious how we spend our capital to make sure we're getting the most out of every capital dollar we can. Shareholders are gonna get 30% of their cash back. They'll get that through the dividend and through some share buyback, maybe another channel.
We'll see if that's the right thing to do for the company with where we're at, and we're gonna maintain a very strong balance sheet as we go through this process. Adding the Shell just made the company better, made it more resilient, and made more cash flow and more so that means there'll be more returns of capital back to the shareholder. Then remember, we're running the Shell assets just like we're running our own Lower 48 assets at about a 50%-60% reinvestment rate. We're not. Again, that's what I tried to say at the beginning. We're executing the Shell differently than what this industry did a number of years ago.
Sanara, this is Ellen-
That's great.
We'll take John's second question and then wrap it up.
Okay. Thanks. Then just my follow-up question. You know, Ryan, you talked about, you know, the inflationary pressures you're seeing in the Lower 48 with that kind of high single-digit to low double-digit inflation versus the international part of your portfolio, which is still rather modest at kinda 2%-3% inflation. You know, obviously Tim and his team have done a great job on the efficiency gains side on the Lower 48.
But it doesn't sound like at least for the 2022 plan that we should anticipate any material shift in sort of that, I guess, international versus Lower 48 sorta mix. Just, I realize this is oversimplifying it, but, like, how wide would that spread have to be from a service cost inflation perspective, Lower 48 versus international, where we might see y'all, you know, lean a little bit more on the international portfolio?
Yeah, I don't think we'll probably allocate capital based on how we see those different inflation rates going. I think we just wanted to be clear about how we kinda see it developing in the significant categories of spend that we have in the company and try to give you an idea of what we're seeing today. We'll continue to watch it. I think it's probably more goes to our Lower 48 business. If we see hyperinflation and start to see it running away from us, we might adjust our scope modestly. We're not gonna try to go into that. Again, it's with a real focus on making sure the returns are adequate for the capital that we're investing. I think Tim said it in one of his responses. You know, we're a large company.
We've got a very sophisticated supply chain organization, very sophisticated commercial organization, and the efficiencies that we're wringing out of the business are still there. We think we have a way to mitigate, you know, quite a lot of it. We'll just adjust our plans if it gets out of control, as an example. That's where we stand out as an E&P company. We're global, we're big, and that's a huge advantage to us when we think about the impacts of these kinds of things on our business.
Thank you-
Sanara, let's go ahead and wrap.
We have no further questions at this time. I'd like to turn the call back over to you, Ellen. Thank you.
Terrific. Thank you to our listeners. Thank you, Sanara. Really appreciate it. Feel free to ring investor relations if you have any additional comments. Have a wonderful day and week. Be safe. Thank you.
Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.