ConocoPhillips Stock

Welcome to the Second Quarter 2026 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin.

Thank you, Liz, and welcome, everyone, to our second quarter 2026 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; and Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial; Nick Olds, Executive Vice President of Lower 48 and Global HSE; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions.

Ryan and Andy will kick off the call this morning with opening remarks, after which the team will be available for your questions. As a reminder, for the Q&A portion, we will be taking 1 question per caller, consistent with our normal practice. A few other quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website.

Second, during this call, we will make forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings. We'll make reference to some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website.

With that, I'll turn the call over to Ryan.

Thank you, Guy, and thank you to everyone for joining our second quarter 2026 earnings conference call. Before I get into our quarterly results, I want to acknowledge the other announcement we made this morning that I will be retiring as CEO effective September 1. I've spent more than 40 years at ConocoPhillips and have had the honor of leading the company for the past 14 years. We have some of the most talented employees in the industry. And together, we have positioned the company for long-term success, with a track record of delivering superior returns on and of capital through the cycles, and I'm incredibly proud of what we've accomplished together. .

And I'm also excited that Andy will assume the role of President and CEO. You all know Andy well already. He's been with the company almost 30 years. I don't need to list his credentials, but I do want to take the opportunity to call out the valuable contributions he's already made, helping to shape our company and strategy. His leadership experience and deep understanding of our business make him well positioned to lead the company forward, and I have full confidence in him and the leadership team he has chosen.

I will assume a transitional role of Executive Chairman to support a smooth leadership transition. Andy will have full accountability for leading the company and managing day-to-day operations. I want to thank our employees and the Board for their confidence they have shown in me over the years and our shareholders for their continued confidence in ConocoPhillips.

Let me now turn to the results for the quarter. ConocoPhillips delivered strong second quarter results. Production was above the high end of our guidance range with our peer-leading Permian position, achieving a new record of over 900,000 barrels of oil equivalent per day. We generated over $4 billion of free cash flow, and we increased shareholder distributions to $3 billion, doubling our share repurchases from the prior quarter. We also made meaningful progress on strategic initiatives that further strengthen our portfolio and support long-term value creation.

We achieved our $5 billion disposition target ahead of schedule, expanded our commercial LNG offtake portfolio and added new growth opportunities in the Middle East at an attractive cost of supply. Simply put, ConocoPhillips is in a stronger position than ever before. We have the highest quality asset base in the sector with the deepest and most capitally efficient Lower 48 inventory and a diversified portfolio of low-cost of supply legacy assets. We are executing well and driving continuous improvement. Our balance sheet is rock solid, with leverage well below 1x and cash of more than $8 billion.

We continue to lead the peer group in returning capital to shareholders as we've done in the last decade. Our cost reduction program is progressing ahead of plan. Our LNG projects will be contributing in 2027, and Willow continues to hit all key milestones in advance of [ first haul ] in early 2029. We remain firmly on track to deliver our $7 billion free cash flow inflection by 2029, effectively doubling last year's total free cash flow. All of this is made possible by the best people in the business, and I'm pleased to transition our leadership of the company with us being in such a strong position.

So with that, let me turn the call to Andy to discuss our second quarter results and outlook in more detail.

Thank you, Ryan, and thanks to you and the Board for the confidence that you've shown in me. I'm excited to step into the role of President and CEO. The company has never been in a better position with a great portfolio and a strong foundation thanks to Ryan's leadership and our world-class workforce. Kirk and Nick will remain important members of the executive leadership team and trusted partners as we move forward, continuing in their role overseeing our operations. And I'm pleased to welcome Konnie Haynes-Welsh to the team, our new Chief Financial Officer. She will be a great addition as we build on the strong foundation already in place. .

I'm also looking forward to working with our broader organization as we continue executing with the same discipline and focus that has served us so well. Turning now to our second quarter performance. We produced 2,248,000 barrels of oil equivalent per day. That was above the high end of our guidance, driven by strong operational performance across our global portfolio, including record Permian production. We generated $3.24 per share in adjusted earnings. Cash flow from operations was $7.2 billion and after $3 billion of CapEx, that translated into $4.2 billion of free cash flow.

We increased our second quarter shareholder distributions to $3 billion. That included doubling share repurchases to $2 billion plus $1 billion of ordinary dividends, and we ended the quarter with $8.1 billion of cash and short-term investments, along with $1.2 billion of liquid long-term investments. In short, this was another quarter of exceptional operational and financial execution.

Turning to our outlook. Our full year guidance items are unchanged. We remain on track to deliver our plan. For distributions, we continue to target returning 45% of our CFO to shareholders this year. We averaged about 40% for the first half, meaning we expect to increase the distribution percentage over the second half of the year. For third quarter production, our guidance range is 2,290,000 to 2,320,000 barrels of oil equivalent per day. This improvement from the second quarter is driven by a production ramp in Qatar and continued Lower 48 growth. This more than offset the impact of noncore asset sales of 15,000 barrels of oil equivalent per day in July.

Now let me walk you through the 3 strategic updates. The completion of our disposition program, the additions to our commercial LNG portfolio and our new international opportunities. First, we achieved our $5 billion disposition target ahead of schedule, with $1.7 billion of noncore Lower 48 asset sales in July, and we were really pleased with the value we captured for these assets. While this completes our announced disposition program, disciplined portfolio management remains central to how we run ConocoPhillips. So we'll continue to high-grade and optimize our portfolio.

That work never stops. Second, we recently signed 2 LNG offtake agreements each for 1 million tonnes per annum, one in Indonesia and one on the U.S. Gulf Coast. These additions bring our total offtake for 12 million tonnes per annum and marked another important step in scaling this business. Our commercial LNG strategy builds on our global scale and decades of resource LNG experience, allowing us to move lower value natural gas into premium-priced international markets while maintaining full value chain control to maximize margins through the cycle. And third, we signed strategic agreements for low-cost supply growth opportunities in Iraq and Syria.

This builds on the improved fiscal terms we signed in Libya earlier this year. These opportunities are part of a targeted and deliberate strategy to build on our advantage globally diversified portfolio. Each is a high-quality, long life conventional asset. We've demonstrated production and meaningful redevelopment potential, they have attractive entry costs at highly competitive cost of supply. These fields are already producing today, and we expect the production to largely fund the redevelopment, delivering longer-term free cash flow upside with little to no impact on our capital spending.

To wrap up, our strategic priorities are unchanged. They are clear, consistent and durable and they have served us well for the last decade. We will continue to grow our dividend at a rate competitive with the top quartile of the S&P 500. We will protect and further strengthen our investment-grade balance sheet. We will return a significant portion of our CFO to shareholders right off the top. And only after meeting all these priorities, we will evaluate disciplined growth with a focus on improving our returns on capital employed, and we are meeting these priorities while reinvesting to deliver a peer-leading $7 billion free cash flow inflection by 2029. That inflection is well underway. As free cash flow grows, our breakeven price comes down, our reinvestment rate comes down and our financial strength and competitive positioning further improve. Every measure moves meaningfully in the right direction. That concludes our prepared remarks. I'll now turn it back to the operator to begin the Q&A.

[Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs.

What a great quarter to close on. And Andy, congratulations and well deserved on becoming the CEO. And Ryan, you've been one of the most consequential leaders in the history of the energy industry, and it's hard to imagine which is 10 years ago, you had that defining Analyst Day that really laid the foundation for what the sector should look like, specifically the E&P sector.

So my question, Ryan, is why now? in terms of hiring and how you thought about the approach to succession planning? And then maybe bigger picture, as you reflect on your career, any advice you want to leave us all with as an investment in an energy community about how the sector can continuously improve from here?

Well, thank you, Neil. A lot in that. And I appreciate the kind words and really thank everybody on the call for their support personally and the confidence that you've shown in our company and we're committed to continuing that. There's probably never a good time, but succession planning has really been a fundamental part of my career and what we've done with the Board.

We have a very robust evergreen process to ensure that we get the right leadership at every level in the company and it's always been front of mind. I've told a number of you in the past the very first board meeting I had with a new Board when I first became CEO, one of the topics was succession because I swore I wasn't going to go through a process that I went through somewhere down the road. I've been in this business for 42 years, seen a lot and that includes 14 years as the CEO of the company.

So at the moment, I love the business. And we knew this moment was always going to come at some point in time. I'm proud of what we've accomplished. And like I said, we've been planning for quite some time. I think in terms of the time line, I would say 3 things, Neil. First, we wouldn't do this if I didn't think the company was in a strong position. And as Andy outlined in his comments about the outlook in the quarter, I don't think our portfolio has ever been stronger.

We're executing well on all the projects and all the exploitation that we're doing. Everything is on track. Cost production programs are working well, and we're well on our way to delivering the $7 billion of free cash flow that we've committed that we're going to do in the company. So one, I don't think the company has ever been in a stronger position. And I wouldn't leave if I didn't think that was the case. Second, I think you want to know that you're turning it over to the right leader who will take the company to the next level, and I'm confident that Andy is that person.

He's been with me for 30 years. He's helped shape our execution, our strategy and bring strong leadership, and he's laid really a key role in our success that we've had to date. And then third, I would say, look, I've had a 14-year run, which is phenomenal. And I've just been so proud of the team, the company, what we've accomplished. It's been through lots of ups and downs in this business. But when you think about that, if I go much longer, 2, 3, 4 years, I don't give the team at least a decade to be able to put their fingerprints and take this company onward and upward.

And so it's an important time to that because with Andy's leadership and the team that he's built and put around him it's going to take our company to bigger in their place. So I think that's just now is the right time to think about that and doing this. My advice like this is such an important business in the world. We [ play in the ] middle of sustainability of energy security and national security. No matter where you go around the world, it's a really, really important business. And there'll be ups and there will be downs. It's still got some cycle time to the business.

So it demands sort of investors and people like yourself that take confidence in the company, take confidence in the management team, confidence in the portfolio and the execution that we're executing and hang with us. We're going to be here a long time. It's an important business. It's an important industry. We've all seen why energy security is becoming concerns for countries around the whole world. So I think what we're doing is really, really important to the world.

It's important with this AI revolution that's coming, and we're going to benefit from that as well. But we just got to increase the interest in us, we have to perform. We need to get back to a higher percentage of the S&P 500. And to do that, you got to compete against the S&P 500, and that's what we intend to do at ConocoPhillips. So thank you for the kind words, Neil. Really appreciate it, and thanks for your confidence and advice over the years.

Our next question comes from Steve Richardson from Evercore ISI.

Ryan, you've left an indelible mark on the industry and all of us who are involved. So thank you for that. Your voice on these calls will be missed. .

Thank you, Steve.

Andy, appreciate prepared remarks, but I would love for you to expand a little, particularly about your vision for ConocoPhillips and where do you aspire to take the organization in the next couple of years.

Yes. Thanks, Steve. I appreciate the question. Let me just start with sort of, I think, where Ryan ended. I've been very fortunate have the opportunity to be involved in all the major strategic decisions that we've made over the past decade. So that should give you confidence that the key pillars of our strategy will remain unchanged.

Our cost of supply focus, the capital allocation framework, our commitment to competitive and improving returns on and of capital and our focus on disciplined execution, that's not changing. But what I would say is don't confuse consistency of strategy with complacency. The goal of this leadership team is going to be to raise the bar on our performance and unlock even more value. But within our long-held capital allocation framework that works so well, we see tremendous potential for the company as we move into the next stage.

But top of mind is that our priorities are straightforward. We've got to keep executing the plan. We've got to deliver our major projects and cost reduction program that underpin our $7 billion free cash flow inflection that is on track. That is going to be sort of focus for the team and myself.

We will continue high grading the portfolio. That's something that we've spoken about a lot in the past, and you think how our portfolio has changed over the years. We don't look at the assets as being static. We make sure all of our assets over time compete on a cost of supply base in our portfolio. So portfolio high grading is something that you'll see continue at ConocoPhillips. So that's really important for us.

And we're going to look for additional ways to really improve our returns within our existing framework. So I think you'll see a fair bit of continuity. It's not about one big change. It's about the cumulative impact of disciplined execution, continuous improvement, our strong behaviors and the organization that we have that drives value. And we have that. We have a world-class employees and their ability to innovate and drive improvement is a key part of how we're going to continue to unlock value as we go forward.

Our next question comes from Phillip Jungwirth from BMO.

And also, congrats, Ryan, on your retirement and really positioning the company exceptionally well for the long term. Great to see Andy's appointment to CEO next month. For the question, just want to touch on Qatar and get an update with what you're seeing there across the producing assets and also the [ NFE and NFS ] projects. And you did reiterate full year production guidance despite the divestitures and Qatar not being fully back here in the third quarter. Just wondering what the risking or assumptions are around Qatar returning?

Phil, this is Kirk. Yes, certainly, as you're pointing out, there's been quite a bit of flux and forward-looking, certainly some uncertainty as it relates to conflict and the impacts that are playing out for us with Qatar. As you saw in the second quarter, Ras Laffan was largely shut in, although we did see some pretty limited volumes coming out of that business. And that was, as you would expect, it's a function of the ramp down that took place early in the quarter. Naturally, there's a need to support local demand and consumption there in country, and they were able to achieve some of that certainly through our train. The planned turnaround that we had a premise there in the second quarter, we were able to successfully execute a bit of upside here or glass half full, taking advantage of the downtime that did exist there at Ras Laffan, we were able to get that work done so that as that train is expected to ramp up certainly over the next forward-looking quarter here in 3Q, we can be in a strong position of high uptime and execution coming out of that downtime.

So Certainly, as you're inquiring looking into the third quarter, our guidance does assume a ramp across the quarter. And naturally, there's a fair bit of obvious uncertainty around the pace of the ramp as well as just overall throughput through the quarter. And so what we've done is just capture that within the uncertainty range that exists there in our total company and our guidance with respect to Qatar. Now if I move forward then into NFE and NFS, it can oftentimes get conflated with the downtime and some of the issues that we've had naturally around production with the Strait being closed, but those projects were progressing well prior to the conflict, and they continue to progress really quite nicely through the conflict, especially the onshore build-out of the liquefaction trains.

And so naturally, of course, we're careful to always defer to QatarEnergy on formal updates. But what we're seeing from the schedule, the productivity we're seeing coming out of that, we're expecting any delays that may come on first gas or first cargo to be in the nature of months, not a full year. And so we're not expecting any delays coming out of those projects to meaningfully impact our free cash flow that we're continuing to see progress through the next couple of years. So strong confidence in what we're expecting coming out of Qatar.

Our next question comes from Doug Leggate from Wolfe Research.

Ryan, a bit of an end of era here. But I guess my biggest takeaway is there's hope for Guy Baber yet, right, given that on the...

Well, I'm going to I'll miss the banter, Doug.

Good luck to you all. So my question, Andy, is, look, you're still guiding $12 billion, $12.5 billion. We know that peak spending of Willow is still ahead. The critical path, it seems to us to get to that huge free cash flow inflection is that spending comes down when Willow comes up. So my question is simply this. Is that the plan? Or is there another major reset in long-term CapEx that causes that spending not to come down because if the answer is no, then the free cash flow inflection is kind of baked in.

Yet the market doesn't yet seem to have confidence in it from at least from our discussion. So that's my question. And again, good luck to you all congratulations.

Yes. Thanks, Doug. Let me just start with a correction. Peak CapEx of Willow is behind us. So when we -- to the first part of your answer is we passed the peak of Willow. And then the second part of your answer, we absolutely expect our CapEx to move lower from here, particularly as Willow comes online early in 2029. So the short answer is yes, CapEx comes down. But I think that's only part of the story. And I think the bigger part of the story is what's happening to our reinvestment rate and our breakeven. Both of those come down structurally.

Our free cash flow breakevens moved from the mid-40s WTI today to the low 30s by 2029. And perhaps, we don't talk about this enough, but the other side of that coin is obviously a lower reinvestment rate. So we're meaningfully moving this in the right direction. We're improving the financial strength and the flexibility of the company. That's going to enable us over time to return more capital to our shareholders.

And I do want to say that we don't have expectations that we're going to go to 0 growth capital, maintenance levels once at it is set up. We'll continue to invest in our Lower 48 portfolio and our ANI portfolio, but for modest growth. But I want to emphasize, and I can't emphasize this strongly enough, that's sort of structurally lower reinvestment rate than where we are today. .

And I would add, Doug, that we get some of this feedback as well. And you guys -- everybody knows us well enough. We have a high [indiscernible] ratio. We don't say things we don't intend to go do. So when we put out the $7 billion free cash flow inflection, you can count that we're going to -- Andy will and Andy's team is going to deliver that. And there's 2 parts.

The CFO is going to go up, clearly, as these projects come online, but the capital is coming down, and we're going to have choices and options even post Willow start-up around what we do with the free cash flow that we're generating. And it's going to be significant. So and it starts by just making sure that we get these projects online. You heard Kirk talk about LNG and little question, but it's on track, and we're seeing the cost reductions that we expect to get, and we're going to see the capital reductions that we expect between now and when Willow get started up.

Our next question comes from Lloyd Byrne from Jefferies.

Hall of fame career, Ryan. You'll be missed. And Andy, congrats. We have a lot of confidence in you and your team. It's really strong. I want to focus on Alaska. And I just wanted to discuss the -- what you can say about the exploration results, the 4-well NPRA program. And then when will we get those estimates given the public data ruling? And then maybe what it means for the implications of the plateau at Willow, just the potential out there? .

Yes. Great question, Lloyd. So certainly, I'll start with the first part of your question, specifically on the exploration program and what we can share. Well, certainly, I'd probably point you back even to the last quarter, coming out of that exploration season it was sufficiently encouraging that we were all willing to declare, Ryan, myself, that we will positively be bringing more resources into Willow into the existing infrastructure that we have there on the North Slope in advance of even drilling more wells.

So really quite positive. Naturally, we're still working through what those results are. And again, I always try to remind folks that it takes more than one well, typically takes at least another appraisal well to confirm our development plans, but really quite positive in how we think about what those 4 wells came out to show us. And with that, then, of course, we steered ourselves and our eyes are already focused on next year's program in 2027. The winter season that confines our activity and exploration.

So we've already started field surveying, I think, well locations and ice roads. And then we, very importantly, submitted our federal permit applications, which are required well in advance of us putting ice out there to begin drilling. And so when I talk about federal permits, I should really make a bit of a side comment here and acknowledge the Trump administration's actions that have been continuously supporting the development of domestic resources.

Certainly, in Alaska, as I'm pointing you all towards, but even in the Lower 48, and that's showing up, it's demonstrated through ongoing permit reform efforts on the federal leases, specifically in Alaska. And of course, we're seeing a wealth of participation in the recent lease sales there in Alaska as well as even in the Lower 48. So we're pleased with the outcome of the NPRA lease sale. The acreage that we picked up is a natural bolt-on to our large existing position that we have there in NPRA.

And we also see it as a really positive move with strong interest from our peer companies. From our view, increased activity, naturally, it's good for the state of Alaska, but it's really good for all of us. It improves the utilization of the fixed infrastructure ours as well as others, the service industry infrastructure in such a remote area that creates new efficiencies for ourselves and everyone else. And so again, we see all of this is really positive news.

But if I continue to bring this back to kind of your ending question, how does this play out for us against Willow. So this lease sale as well as our multiyear exploration program that we have been and we'll continue to execute, lay the groundwork for us to continue to leverage Willow and that infrastructure we're building there for decades into the future. And you've seen this from us before. This is our playbook. We've been doing this with Kuparuk and with Alpine. So these new satellite pads that will eventually come from the exploration program and from these lease sales, will fold into our program well into the future.

Naturally, there's going to be years of plateau in Willow post first oil. And then once [ holdage ] or capacity starts to show up well into the 2030s, we'll be in a really strong position to start bringing in more oil from the satellite pads. So I'm going to continue to reinforce something that you've heard from Ryan and from Andy, just earlier this morning, which is our capital is going to come down post first oil. Capital is moving back into a very ratable expectation that you've seen from historical averages from us in the past.

Our reinvestment rates in Alaska has consistently been in the 30s and you should expect that from us post first oil well into the future. All of this continues to underpin and preserve our confidence in this free cash flow inflection that ultimately culminates with Willow in 2029. So really, really expect from us to be laying the groundwork for us to use this infrastructure for decades into the future.

And I'd step back, Lloyd, we just did a 20,000 foot in support some of what Kirk was saying about the President's, this administration and their policies that really are strengthening our energy security and dominance here in the United States, the permitting efficiencies that Kirk is talking about the better regulatory certainty and this regular cadence of lease sales is not only benefiting our company, but it's benefiting the industry as well.

And there -- the whole administration support is kind of just advancing these developments that help meet the energy demand that we know is increasing. So it's the Willow project. It's -- Kirk talked about the exploration sale in NPRA and the interest that, that brought back to Alaska. We saw the lease sales in New Mexico and North Dakota here earlier this year that -- and a regular cadence of those even in the deepwater has been helpful.

And it's helped us get record production in the Permian, and we're leaning in on investments on LNG side on the Gulf Coast of Texas. So all those things are just helping to contribute to a positive investment climate that we see from this administration. So it's been helping Alaska and it's helping our company in lots of different areas, and I know helping us industry as well.

Our next question comes from Scott Hanold from RBC Capital Markets.

Yes. Thanks. And I want to give my congrats to you as well, Ryan, Andy and Konnie on everything going on. For my question, I was wondering if I could delve into shareholder returns a little bit. Obviously, Andy, as you indicated, there's going to be a big step up here in the second half of the year. How do you envision that happening with buybacks? Is it going to be ratable or are you going to be opportunistic with the incremental? And if you could further provide some context, as you start seeing that free cash flow inflection increase, I mean, we're doubling our free cash flow, like in a few years. Do you all still -- are you -- what is the plan with that payout ratio? If you stay at the 45% payout ratio, that's a pretty large quantity or do you guys think you'll eventually feather back to sort of the baseline that you have out there?

Yes. Thanks, Scott. A couple of things to cover down the short term and then the medium and longer term. So I think I said in my prepared remarks, we averaged about 40% of our payout for the first half of the year. And we're continuing to basically guide to 45% for the full year. So you can do the math on how you get -- if you start with 40%, you end with 45%, what's going to happen in the second half of the year. And we remain committed to the 45%. .

We don't choose to manage this quarter-to-quarter. All the volatility we've been seeing sort of in commodity price has been a pretty good reminder of why we don't do that. So I'm not going to try to guide sort of daily, weekly, monthly, what we're going to be doing. I'm just going to reaffirm that the 45% of our CFO is what we're shooting for this year. And then as we look beyond this year and your question is as we start getting this free cash flow inflection and a materially lower reinvestment rate, and as Ryan and I have described, we're not predicting a big ramp in CapEx here, then that kind of starts to sort of narrow down where does that cash go?

And it's -- I don't think we're contemplating feathering it back to any note, it's more -- we're going to be in a much more flexibility as these projects come online to basically look at our commitment and we think our peer-leading distribution and the way we set the company up to have the assets, the portfolio to drive that reinvestment rate allows us to stay peer leading with our distributions, and I really don't see that changing.

Our next question comes from Arun Jayaram from JPMorgan.

Yes. Ryan, congratulations you're one-of-a-kind and when the history books are written on U.S. Energy, U.S. shale, you will deservably have a couple of really important chapters. And Andy, I also want to express my congratulations to you, you're clearly the right person to lead Conoco in terms of the next stage of the company. .

My question is really regarding some of the recent news flow we've gotten from the Middle East. In particular, I was wondering if you could highlight some of the opportunity set in Iraq at the Kirkuk field. Love to hear a little bit more about this transaction? And how should we think about this in terms of this transaction and your 2029 free cash flow inflection.

Well, thank you for your comments, and we're happy to take that question. So I'm actually going to maybe just broaden it a little bit and sort of maybe talk about Iraq and Syria. There's a lot of similarities to what we've got here. So they share pretty similar characteristics. What we're targeting here is large resource bases with low entry costs, competitive cost supplies and then structures very importantly, they become self-funding relatively quickly. So let me just Kirkuk just look at that one a bit more specifically. Kind of a few sort of important points to note here.

First, the structure, the contract structure is attractive. Those of us have been around a while will remember some of the old legacy technical service contracts in Iraq. This is not that -- under this agreement, we receive a share of the incremental production, the reserves and we recover our costs. Second, as I've said before, is that the capital here is actually pretty modest in terms of us getting into this.

We currently expect sort of this to close the Iraq transaction with Kirkuk around year-end, and we expect the acquisition capital to be in the $300 million to $500 million at close. And very importantly, that includes our share of historical costs spent to date. It also includes our expectation of costs from now to the end of the year. So as we think about this longer term, we actually expect this joint venture to fund its own activity from its own cash flows.

So no to little capital expenditure for ConocoPhillips is our base case here. And that's all interesting in terms of the structure and the funding. But most importantly, this asset competes really well within our portfolio. The opportunities are comfortably within our cost of supply thresholds we're looking at the cost of supply here around $30 a barrel. And again, with long-term resource upside. So that's the Kirkuk opportunity. And then in Syria, you saw a couple of announcements there, too. Now the opportunities here are a bit on the smaller side, yet they share the basic characteristics of what I just described for Iraq.

They provide us a lot of long-term optionality. And then we've also got a long history of ConocoPhillips in Syria. So that goes back several decades. We know the country well and we know the upside that's there. So I kind of try to wrap it up, I'm going to say is that the common denominator here is that we're stepping into existing previously producing assets that are underdeveloped and they're where the redevelopment then can be funded largely from the assets on cash flow with a goal of really preserving our capital efficiency.

So we see this as having limited to no impact on our capital program. When we think about our $7 billion free cash flow inflection we laid out in 2029, that's not impacted by this at all. In fact, what we see this is as is upside to that in the future. So again, I think these are great adds to our portfolio. And I think they fit really nicely within what we described really of our strategy about how we always high grade the portfolio and are looking for assets to meet the characteristics that we like and add them to our portfolio. But within the framework, that's the key part within the framework of how we manage our capital programs.

Our next question comes from Sam Margolin with Wells Fargo.

I'm not going to be able to beat the prior congratulatory remarks. So I'll just say thanks for being a great ambassador to the space and helping to rise a tide.

Not necessary, Sam. Thanks .

All right. I mean maybe we can take another level down into this reinvestment rate and payout ratio theme because it is, as other analysts have said on the call, it is the most frequent question that comes back to us from the investment community. When Conoco has an opportunity to be a peer leader in regular dividend growth, not just because of the cash flow inflection, but also because of the composition and the production mix that's changing, right, you'll have less unconventional as a percentage of your total production.

And so what are your thoughts, Andy, if you can put your CEO and CFO on at the same time on just any friction or points of conflict in taking that position as a leader in regular dividend growth if you worry about dividend breakeven or the overall dividend burden or if you think that is very much in play.

Yes. Great question. And I think you framed it up in terms of the things that we obviously think about when we think about dividend growth. I'd start with, again, continuity statement we already have peer-leading top quartile S&P 500 dividend growth. That's not changing. That's the plan. I absolutely with the team look really closely at sort of what does it do to our -- when we basically increased the dividend, what's happening to our breakeven.

And as I described earlier, with the free cash flow inflection we have with the CapEx coming down, the CFO growing up, our free cash flow breakeven is structurally reducing. So that's very constructive for the dividend. We also look very closely at our buyback program. I know you guys look at the dividend per share in terms of how much we're raising that I look very closely at the absolute dividend burden. And having the buyback program is very helpful basically when we're increasing the dividends we have been sort of in that top quartile, sort of 8% plus type range.

When we're buying back the 8% of our stock on average each year, that's basically making it much more viable that we can keep doing that without having a big impact on the burden. So yes, we look at the dividend burden, we look at the breakeven impact. And all of those things look really positive, and we feel very confident about the way we're growing the dividend on the top quartile with the S&P 500 and fully expect us to carry on with our strategy.

And why you didn't say it necessarily specifically, Sam, I mean, Andy referred to the share buyback program and maybe some of the criticism we get a little bit is we're procyclically buying shares. We don't believe that. when we deliver $7 billion of free cash flow over the course of the next 2, 3 years, we believe our share price has got to improve with a doubling of that free cash flow. So we don't believe that we're procyclically buying our shares, which is an important part of our return to return of capital thesis, and that's only going to get more flexibility as the top line CFO continues to grow.

Our next question comes from Betty Jiang from Barclays.

I guess I'll just pile on the congratulations and wholeheartedly agree with everything that's been said so far. My question is on LNG, just given the headline today to add [ 2 million ] tonne per annum one in the Southeast Asia, in Indonesia, one in Gulf Coast. Just wondering about the strategic rationale to add the Indonesia piece and how that fits into the Gulf Coast portfolio. And then stepping out, clearly, market is pretty constructive on LNG fundamentals for the next few years. But there's still debate around balances further out as the new supply coming to the market. So just we'll have some thoughts on the through cycle earning power of this growing LNG marketing portfolio that you have built.

Let me just jump in there on the first part of your question. So yes, we added another 2 million tonnes of offtake, one in Indonesia was off the Bontang North Hub field. And then we had another one on the Gulf Coast. Now just stepping back in terms of our strategy a little bit. That's unchanged. The majority of our offtake is coming from the Gulf Coast.

And we positioned ourselves to have that low-cost supply with high-quality, low liquefaction fees. And again, a lot of that -- most of that's in the Gulf Coast. But what we're doing here is we're supplementing it with some Pacific Basin supply, again, that's low cost of supply, too. And this was always part of our strategy. And we don't expect to have a huge amount of our portfolio in the Pacific Basin. But the reason we really like to have some is [indiscernible] is very beneficial for us, and particularly our commercial organization and the flexibility it provides as we start thinking about how we optimize the portfolio think about when we're doing substitution and diversion, having some LNG on the Pacific side is very helpful for just the overall optimization.

So it's not a change in our strategy. It's really just a tool to make sure that we can optimize and get the best margins. And then to the second part of your question around, yes, you're looking -- look where prices are right now, they are very constructive. And then to answer this, I'm going to take a bit of a step back to sort of our views where we were prior to the war with the Iran. We were a bit of an outlier in that we were always constructive on LNG demand and LNG pricing. We've been saying for quite some time that we think it's the part of the energy complex that's going to grow the most.

It's going to double between here and 2050. So we've always had a view that the pricing in -- for LNG is going to be pretty constructive. And that's why we're building the portfolio we are -- and -- but just like our E&P portfolio, low-cost supply wins in E&P and in this world, think of low liquefaction fee as the version of low cost of supply, we're making sure that we're building a portfolio that is very, very competitive. We expect over the long run that we'll be making pretty significant cash flow from these assets.

We know there will be some volatility over time, but we think that the price sort of -- the price risk here is very much asymmetric to the upside. So when we do see prices move, they tend to move a lot more on the upside than the downside. So that is something that attracts us to this. And just to put it in context, for every $1 in MMBtu that we see in margin, that on 5 MTPA, that's about $200 million of cash flow for us. So as we as we build this portfolio up sort of to that 10 MTPA to 15 MTPA, and we start seeing those kind of margins increase. This is a very material cash flow engine for ConocoPhillips, and we think this is a really important part of the energy complex for us to have a big stake in.

Our next question comes from Josh Silverstein from UBS.

Congratulations to both Andy and to Ryan as well. And Andy, maybe for you looking forward, I'm curious how you're thinking about the portfolio mix the Lower 48 has gotten up to around 65% of the production base with Willow and LNG ramping up over the next few years, maybe that comes down a little bit. But I was curious how you see the balance of maybe unconventional versus conventional if you want to look at it that way. And maybe was the entry into Iraq, Libya and Syria kind of deliberate to kind of get you a little bit more balance towards conventionals as well going forward?

Yes. Thanks. So the way we think about it is somewhat agnostic basically on where the resource comes from. So we're going to look for the best cost to supply assets that we can find. Now that said, all things being equal, it's pretty nice to be able to balance some conventional with the large and growing unconventional position we have. So things like Willow, things like NFE, things like NFS, things like we're doing -- we've done in Iraq and even going back a bit further, some of the things we did were we increased our working interest in Surmont and we took more equity in APLNG.

These are all things that help balance that portfolio. But we look at the assets basically in terms of do they compete on a cost of supply basis. And then when they do compete on a cost of supply basis, we then like to have that mix. You say it really does help us with giving us an advantage on our decline rate versus others. It helps with our reinvestment rate versus a pure unconventional company. But we're not going to overreach and do something that isn't competitive just because it's not unconventional. We look for the best opportunities. And pretty pleased with how we've been able to balance the portfolio with the big transactions that we were able to do with -- in the unconventional to grow that position.

And then sometimes some of the ones we do on the conventional side sort of slip under the radar a little bit because they're smaller, but they've accumulated quite big numbers. And of course, when we're doing well on, that makes another material difference. So I certainly like having that diversity in the portfolio. I think it sort of helps us drive sort of the reinvestment rate down. And I think you'll see that continue. But not inexpensive. We're not going to go and do something that is -- doesn't compete on a cost of supply and that's exactly as how I described Iraq earlier is that it has all -- it ticks all the boxes from the structure, but first, second and third thing that's important is it competes on a cost of supply basis. And I think that's how the team and I are going to keep looking at this going forward.

Our next question comes from James West from Melius Research.

And Ryan, congrats on a great 14-year run as CEO, and I'm glad you're going to get some time to work under golf game now.

Congrats to Andy and Konnie as well. I guess my question follows along a bit with that portfolio strategy question. As we look at kind of the last couple of quarters, especially this quarter with some big moves into the Middle East. Should we expect a similar type of cadence of kind of new projects as we go quarter-to-quarter or year-to-year going forward? Or will there be some slowing as you have molded the story around dividend growth and free cash flow, significant ramp coming?

Well, this has certainly been a pretty busy quarter. So I don't want to set an expectation that we're going to do what we've done with Iraq and Syria and dispositions to the extent we have this quarter, every quarter, I'm going to steal next line when it comes to Lower 48 production, sometimes it's lumpy. Things things come -- sometimes they come in bunches. So I wouldn't read into this quarter's activity as sort of a sign that we're going to be doing this kind of activity every quarter. .

Our teams -- we're looking at things. The Middle East is certainly an interesting space right now with a lot of activity and we're one of the few companies that can really compete in that space. And we're one of the few companies that sort of know how to be nimble and make that work. So yes, it's an area we're looking at. But I go back to the strategy answer I gave. It's got to fit within that framework and our strategy and our capital structure, our reinvestment rate. So everything we're doing is really to enhance that. We're not going to break that structure. And so as these opportunities come along, that's what they're being evaluated against.

And it's the same on the disposition side. As we look at the portfolio, we formally achieved our $5 billion target, but that doesn't mean that discipline looking at the portfolio stops, that's something that we do every day in the team. So I think the short answer is, it was a busy quarter. Please don't expect the exact same level of activity every quarter, but our teams are always looking for the right opportunities for ConocoPhillips.

Our next question comes from Gabe Don from Truist.

Congrats to Ryan and Andy as well. I just wanted to maybe ask about Lower 48 and any particular technologies that you guys are testing around improving productivity or recovery factors, particularly in the Permian. But I would also, I guess, just generally an update around the Lower 48 and what you guys are working on.

Be, Gabe. Well, let's start with on the technology side. So we are testing a range of technologies with a clear objective to not only improve recovery, but more importantly, improved capital efficiency, as Andy just mentioned, meaning that fewer dollars spend per barrel of oil on an EUR basis. So we're seeing really encouraging results from real-time fracture diagnostics where we can optimize our completions stage by stage. We're using surfactants and far field diverter applications and may provide a little bit more detail on the real-time fracture optimization that allows us to optimize frac designs on the fly.

And we're seeing -- we're adjusting stage volumes up to plus or minus 30% improved reservoir contact and recovery. And that's given us the potential to cut completion costs and improve cost of supply. In fact, we've seen adjustments up to 60% of the frac stages for a well versus the original basis of design. Now on the far field diverters, we've seen that work extremely well in the Eagle Ford. That's where we can divert frac energy away from offset wells and keeping the frac in the near targeted wellbore reducing runaway fractures or what we call frac hits, and that's improving recovery as well.

And then finally, we've heard a lot about surfactants out there. We have been testing fit-for-purpose surfactants and see encouraging results in the Permian over the last 12 months, where we've seen cumulative oil volumes and lower water oil ratios. In fact, we are realizing a range of results but up to 20% uplift in oil productivity for a treated versus untreated well. Now we'll need to look at the longer-term performance and how that plays out, but very encouraging early results. Now as a reminder, when you look at these results, the biggest driver on productivity and recovery is still rock quality, and we have peer leading Tier 1 inventory depth across the 4 basins that we operate in.

And this is where we really see the differential, Gabe, as a broader shale industry matures, that rock quality advantage should translate into even wider capital efficiency advantages in our peer group. A couple of other items on capital efficiencies that we've been really leaning into this year is really lateral length is a key driver for that. We're increasing our average lateral length by 15% this year compared to 2025. And in fact, we've doubled the number of 3-mile laterals or greater this year as well.

And then if you specifically look at the Permian, all of our wells that we're bringing online this year are greater than 2 miles with several 3- and 4-mile laterals being drilled. And then as we talked about last year, that 15% improvement in D&C efficiencies, that's more feet per day, more stages per day. That continues into 2026. We're seeing that through continuous pumping, auto frac, simul frac and remote fracs. So just hats off to the team. They are really executing well. You've obviously seen it right and Andy talked about the Permian production record. We hit 920,000 in second quarter, and that was a key driver for our outperformance and just seeing really just strong base and development well performance. Teams are executing well.

And in fact, if you look at that outperformance over the first half of 2026, Permian production was 10% year-on-year on underlying basis. That's actually stronger than peer major E&P. So yes, this bottom line executing well and hats off to our teams.

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

Welcome to the First Quarter 2026 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin.

Thank you, Liz, and welcome, everyone, to our first quarter 2026 earnings conference call.

On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial, Nick Olds, Executive Vice President of Lower 48 and Global HSC; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions.

Ryan and Andy will kick off the call with opening remarks after which the team will be available for your questions. For the Q&A, we will be taking 1 question per caller. A few quick reminders.

First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website.

Second, during this call, we will be making forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings. We will make reference to some non-GAAP financial measures today, Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website.

With that, I'll turn the call over to Ryan.

Thanks, Guy, and thank you to everyone for joining our first quarter 2026 earnings conference call. As we begin, I want to start by acknowledging the ongoing conflict in the Middle East. Our thoughts are, first and foremost, with our employees, our partners and the broader communities directly affected by these events. The supply curtailment and ensuing macro volatility have not only impacted energy markets but are also being felt across the global economy. Periods of volatility in our industry are inevitable, but this conflict reinforces the importance of both U.S. and global energy security.

We certainly hope for a swift and diplomatic solution that resolves the conflict, protects U.S. interests, opens commerce and provide stability in the region.

Now turning to the first quarter results. We delivered another strong quarter of strong financial and operational performance. We generated $2.4 billion of free cash flow and returned $2 billion of capital to our shareholders. In the Lower 48, where we have the deepest and highest quality inventory of any operator, we continue to improve our peer-leading capital efficiency, meaningfully increasing the number of 3-mile plus laterals in our program.

In Alaska, we're winding down another successful winter construction season, with the Willow project now 50% complete. Our teams have completed the project's gravel scope, an important milestone and mobilization for summer work is underway. We also recently completed our 4-well exploration program in Alaska the first in a multiyear program to leverage existing infrastructure to unlock additional low-cost of supply resource consistent with our long-term track record. It's still early days but we are excited about the opportunity and the results and more low cost of supply resources coming to the greater Willow area.

As the broader industry increasingly recognizes Alaska's unique resource potential, we believe our long-standing position, legacy infrastructure investments and technical expertise provide us with a meaningful competitive advantage.

Turning to LNG. We recently executed a third-party tolling agreement in Equatorial Guinea, extending the life of the LNG facility well into the next decade. This is a strategically located asset in a gas-rich part of the world surrounded by a discovered resource which supports its long-term potential. Additionally, the Port Arthur LNG project continues to progress very well, with first LNG expected next year.

Turning to the outlook. While ongoing events have significantly tightened crude oil and LNG markets, the macro environment remains volatile and pretty impossible to predict. Amidst such uncertainty, it's critical our priorities remain steadfast. They are clear, consistent and they are durable. They have served us well for the last decade and will continue to guide us into the future. We will continue delivering base dividend growth competitive with the top quartile of the S&P 500. We will maintain and protect our investment-grade balance sheet.

Recall last year, we were one of the only companies that delivered on our shareholder return objectives and strengthen the balance sheet. We'll continue returning significant CFO to shareholders right off the top. We've averaged about 45% over the past decade through the cycles and after meeting all these priorities, we'll evaluate disciplined reinvestment for growth.

In terms of how these priorities are translating to our 2026 plan, our expected CFO generation is up materially given our unhedged oil and LNG torque. Shareholders will directly share in this upside with our 45% of CFO return of capital objectives. We have also added a modest amount of Permian activity over the second half of the year to maintain our operational efficiency into 2027.

Long term, ConocoPhillips continues to offer a compelling value proposition that is differentiated in the market. We believe we have the highest quality asset base in our peer space. As we have said before, we are resource rich in a world that is looking increasingly resource scarce. This is a distinguishing competitive advantage. We have the deepest and most capital-efficient Lower 48 inventory in the sector. And outside the Lower 48, we have an abundance of diversified, low cost of supply legacy assets, and we are uniquely investing in our portfolio to drive peer-leading free cash flow growth.

We're on track to deliver our previously announced $7 billion free cash flow inflection by 2029, driven by our cost reduction efforts, LNG projects and Willow.

So with that, let me turn the call over to Andy to cover our first quarter performance and updated outlook in more detail.

Thanks, Ryan. . Starting with our first quarter performance, we produced 2,309,000 barrels of oil equivalent per day. This includes the impacts of the Middle East conflict on Qatar volumes and higher royalty rates at Surmont from higher oil prices. These impacts were partially offset by strong performance across our Lower 48 and international portfolio. In the Lower 48, we produced 1,453,000 barrels of oil equivalent per day, representing 4% year-over-year growth on an underlying basis.

We generated $1.89 per share in adjusted earnings and $5.4 billion of CFO. Capital expenditures were $2.9 billion. We returned $2 billion to our shareholders during the first quarter, $1 billion in ordinary dividends, and $1 billion of share repurchases. We ended the quarter with cash and short-term investments of $6.7 billion as well as $1.2 billion in liquid long-term investments.

Turning to our outlook. We are updating our guidance to account for the impacts of recent macro events and the uncertainty surrounding the Middle East conflict. To be clear, this is not a call on when we think the conflict will resolve, we're simply trying to provide a clear and transparent framework you to model and assess the underlying performance of the company.

For production, the midpoint of our annual guidance is updated at 2,310,000 barrels of oil equivalent per day. This reflects a 20,000 barrels of oil equivalent per day annual impact due to Qatar being excluded from second quarter production guidance and a 15,000 barrel of oil equivalent per day annual royalty rate adjustment and Surmont due to higher prices. We've made no other adjustments to our annual production guidance. The midpoint of our second quarter production guidance is 2,200,000 barrels of oil equivalent per day, which reflects the full exclusion of Qatar production from guidance for the quarter, the Surmount royalty rate adjustment and planned second quarter maintenance.

Moving to operating costs. Full year guidance of $10.2 billion is unchanged, reflecting a $400 million reduction from 2025 due to the benefits of our cost reduction and margin enhancement program. We made strong progress in the first quarter, and we remain confident in realizing the full $1 billion run rate by year-end. For capital spending, we're updating our guidance to a range of $12 billion to $12.5 billion versus our prior guidance of about $12 billion, representing a 2% increase at the midpoint. This increase is due to slightly more Permian activity over the second half of the year. We're adding a rig to keep pace with the completion efficiencies, and we expect higher levels of nonoperated spend. These modest activity additions will maintain our operational continuity into 2027.

Additionally, we're incorporating a guidance range to capture the uncertainty around the macro environment as well as the Middle East conflict, specifically as it pertains to the timing for NFE and NFS spending.

To wrap up, we delivered strong first quarter results. We executed well financially and operationally. We continue to advance our strategy and amid a volatile macro environment, we remain committed to clear, consistent and durable priorities, that have served us well for the last decade. As Ryan mentioned, our expected CFO is up materially from the beginning of the year. We remain unhedged on oil and LNG to ensure we capture the price upside with 40% of our crude production linked to premium markets such as A&S and dated Brent. And shareholders are directly participating in this upside as we remain committed to returning 45% and of our CFO, consistent with our long-term track record.

Looking ahead, we remain focused on exiting our plan and enhancing our differentiated investment thesis, unmatched portfolio quality including leading Lower 48 inventory debt, attractive long-cycle investment, strong return on and of capital and driving sector-leading free cash flow growth through the end of the decade.

That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A.

[Operator Instructions] Our first question comes from Scott Hanold from RBC Capital Markets.

A lot happening, obviously, out on the macro front. And I know you all do a lot of work on the oil macro in addition to obviously having feelers out there. Can you give us a sense of your view of what's happened in the market if you've got any view of physical versus the financial kind of position of oil? And how you expect like operators to act and react? It sounds like you guys are going to maintain operational efficiency, but it would be good to see if you've got a view on what you're seeing and hearing from others.

Yes. Thanks, Scott. Maybe I'll let Andy talk a little bit about some of the numbers that we see out there and then maybe I come back and address some of your broader set questions after that.

Thanks, Ryan. Scott. Yes, I'll start with -- I think you said this for me. There's certainly a lot of moving pieces out there right now. And I'll summarize sort of our view of the world. I'm not sure it's too different to others, but it's -- I think it's good to summarize it. For about 2 months now, we've had about 10 million barrels a day of production offline that even factors in the redirected volumes in countries like Saudi Arabia. We have seen inventory and SPR releases that have partially backfilled some of that lost supply. And the ongoing SPR releases that have been announced, they'll certainly help through the May, July timeframe.

But I do think it's really important for people to understand that the brunt of the supply shortfall is currently being absorbed by refinery run cuts and demand curtailments. Now if you include the Persian Gulf refineries that have been damaged, the total global refinery run cuts right now probably amount to around 8 million barrels a day. Now as we look forward from here, we think the biggest challenge we're about to face is that the markets sort of had a bit of a grace period initially when the tankers that left the Persian Gulf in late February were still on the water.

Now all of those have reached their destination. The impacts of the lost supply is going to start to become more apparent. We could possibly see from here now inventory draws really start to accelerate. You've already seen that governments in over a dozen countries are implementing policies to ration or otherwise reduce demand in advance of physical shortages. And so given those factors I've just described, we are downgrading our view of global oil demand to be sort of flat year-over-year with probably a bit more risk to the downside if the conflict goes on.

And probably one final point I'd make before sort of passing it off to Ryan is, despite efforts that are ongoing to manage demand, we are going to start to see some import dependent countries potentially start to face critical shortages as we get into the June, July time frame. So I'll probably stop down. I'll let Ryan sort of add sort of a bit more to that.

Yes, maybe Scott, how are people acting. I think people are watching pretty closely to see what happens. Maybe a little bit of a short cycle investments and I'm sure that will come up in our call with the capital. We're just trying to maintain the efficiency gains that we've got in the Lower 48, and we won't be drilled out of some of our OBO activity. But we're trying to look longer term as well, as Andy said, assess the supply the demand fundamentals. I think at a minimum, we think the floor probably is going to have to raise up a little bit, at least relative to where we were before the conflict started. Recall, we had a mid-cycle TI price of about 65%, and that's -- we believe that's probably going to come up with the floor.

But we're trying to assess right now given the demand dynamics and the supply dynamics, but a long-term effect that's going to have on what we would call a mid-cycle equilibrium price and for how long that might persist. And recall, we were pretty constructive over the last few years before this got started with some uncertainty around how the physical and paper markets were acting a little bit, and this has just accelerated a lot of that. But certainly think the floor probably has to come up to account for the changes that have occurred over the last couple of months.

Our next question comes from Neil Mehta from Goldman Sachs.

Yes. Ryan, Andy, great comments there. And definitely, our thoughts are with your people in the region. I want to pay it over to Alaska, and we went through winter construction season here. And so I love the mark-to-market on how those plans progressed, where do you stand in terms of well construction? And what are the big milestones as we continue to derisk this project and get to that free cash flow inflection?

Yes, Neil, thanks for the question. We've had a really strong showing here just in the last 6 months in Willow. So I'll probably address maybe a couple of things. I'll touch on Willow, directly your question, and then very related to that, given it is the winter season, we've also had a really strong showing and exploration as well. So I'll take you through a little bit of how we're seeing these projects progress.

Starting with Willow, as mentioned in the opening remarks, we are, in fact, at 50% complete on the project. And that -- achieving that requires a collection of key milestones that our teams have been able to accomplish and get behind us here. And this winter season in Alaska, we accomplished the entirety of our planned work scope, which admittedly was a little bit of a challenge. We had quite a few weather days, not dissimilar from our very first winter season. And despite that, again, the teams were able to accomplish the full winter scope.

And by that, certainly probably most important to us as part of critical path was the civil work. And so we were able to get all of the bridges down and the entirety of the gravel scope. So think roads, pads and then even the airstrip and that sets us up then for our ability to execute the summer work and especially important with gravel, it allows you to dry and mature that gravel will create the compression necessary on that to continue the structural work that's upcoming, then obviously in the construction of future facilities and even pipelines.

And then as it relates to pipelines, important this year for us was the east-west scope. And that's important because it allows us to begin to make the connections back into the existing operations. And by that, I mean Western or slope or Alpine with those connections just within the coming week, we'll be bringing fuel gas. And then we'll be firing up our power for Willow. And so again, we've just been really successful in accomplishing the scope here, we've laid out as we continue to commission the op center.

And then, of course, with engineering largely wrapped up and complete here in the Lower 48 on the Gulf Coast, our process modules achieved a similar milestone, which is also being 50%, just slightly better than 50% complete there in fabrication. That's important because certainly not this summer, but next summer, we have plans to see lift those into Alaska, which becomes the next major milestone for us to get those processing modules up there. And so again, all of this in aggregate, puts us in just a very strong position for this early oil expectation that we have for 2029, and all of that is on track. And that's obviously important.

So it's underpinning this compelling value proposition that we have for the $7 billion free cash flow inflection. But then even thinking well beyond that is exploration. And again, also, as you heard from Ryan, we had a strong showing here too. We speak a lot to the 4 wells that we had planned this year, which were successful for us, but this is the largest winter season and exploration that we've had since 2020. And with that came to 4 wells, but we also shot seismic and then we also did quite a bit of gravel exploration and had really high success ratio there on finding gravel for future pads.

So when we look at that exploration program, again, as you heard from Ryan, I'm really pleased to report. And by that, I mean we found hydrocarbons out there where we were prospecting and drilling. And so naturally, then our subsurface teams are poring over the results, seeking to ensure that we can well characterize what we found. And of course, commerciality comes with typically more than 1 season. And that's why we call these exploration and appraisal wells and seasons. It will take several, but certainly with what we found really looking forward to the opportunity to keep Willow full.

Again, and I think that underpins our objective here, which is we're in this to identify new resource and pad development opportunities to do just that, which is keep this infrastructure full. And you've seen the track record from us in the past. And with the success that we've been realizing just in the last 6 months, again, just a really strong showing from our Alaska team.

Our next question comes from Betty Jiang from Barclays.

The -- a lot of buys right now on the short cycle response to higher oil prices and you guys being the first one out of the gate and sort of leaning into activity in the Permian, which clearly makes sense for you guys given the deep inventory. But can we just get a bit more color on the decision process from Conoco's perspective to link into Permian activity now? And alluding to your mid-cycle views earlier, what price would it take to flex activity further? And what will be the sensitivity on production outcome in 2027?

Betty, Andy here. Maybe I'll quickly start this and then Nick can talk a bit more specific about the details of what we're doing in the Permian. I did cover in the prepared remarks that what we've done here is effectively increased the midpoint of the CapEx by about $250 million. And I think it is important to sort of to describe why we're doing that. It is -- we keep having the operational efficiency that Nick will talked to. And it's important basically the way we think about steady state that we keep that going. So on the operator side, it really is just a continuation basically of our steady state, just given how efficient we're being.

And then on the nonoperating side, as I said in our prepared remarks, it's more in anticipation and starting to see the early signs of this of some of our nonoperated partners in to ballots for more wells. So I'd say it's more sort of the $250 million is more around sort of operationally setting ourselves up and sort of being thoughtful about what we keep our steady state and we react to partners versus a big sort of macro call on price.

Maybe with that, I'll let Nick just give a bit of the specifics on what we're doing. We can come back to more to cover.

Yes. Thanks, Andy. As Andy mentioned, that $250 million of additional activity is concentrated in the Delaware, and that's a combination of operated and non-operated. On the operated side, we continue to drive significant efficiencies both on the drilling and the completion operations. On our completion efficiencies, that's slightly outpacing the drilling side. So we're adding another Permian rig versus prior plan to help us keep pace with our frac crews and maintain our level-loaded steady-state operations approach that we've talked about for a number of years.

The key item and ultimately, what we don't want to take place is have any frac gaps due to the efficiency improvement that we're continuing to capture. If you recall, last year, as we exited 2025, we had a 15% improvement in D&C both operational efficiencies, and we continue to see those trends. But on the completion efficiencies, those are outpacing it.

Now if I pivot to the nonoperated OBO side, we have started to see more well ballots from our partners which will likely translate to a higher level of OBO spend over the second half of the year. And we're not going to elect out of low cost of supply, high-return OBO projects in this price environment. We've seen it in the past. They're competitive projects, they're short cycle with good returns. So that's the right choice from a returns perspective.

Again, this activity additions are a modest capital add to our second half program, and we'll maintain our operational efficiency going into 2027.

Yes. I would just add that these are no-brainers. These are does for us. We're not going to be drilled out of inventory by others, and we're going to keep our efficient machine running and so these are last half of the year doesn't have a large impact on 2026, but sets us up for the continued growth that we're seeing in the Lower 48 in our portfolio. Year-on-year, you saw it in the first quarter, you'll see it year-on-year, and that will continue into 2027. In the meantime, we'll be assessing what we think mid-cycle price is going to go do and what the new equilibrium might look like and then what that follow-on means to the cash flows that we generate as a company, the returns that we're going to send back to our shareholder in what we reinvest for growth and development in the company. And that will be coming later this year just as part of our normal processes.

Our next question comes from Doug Leggett from Wolfe Research.

So I guess, Ryan and Andy, I'm looking at Slide 5 and those of us who have been around long enough, Ian, remember what you went through in '26 with the dividend. And now we're sitting here looking at low 70s, you're probably doing $10 billion of free cash flow according to your chart, and that's 70% upside. My question is that you've stuck to the 45% cash flow payout. Your commitment is actually more than 30%. And clearly, there's a little bit of post-cyclical stuff going on with the share price. These windfalls can be capitalized in different ways, especially through your dividend policy.

So I just wonder if you can walk us through in these kind of situations, why not flex down in the payout? Why not think more about the longer-term dividend to breakeven the balance sheet. I'm just curious where your head is at on buying your shares at the top of the cycle? It might not be the top of the cycle, but it's certainly elevated for the time being.

Yes. No, thanks, Doug. I mean, we like to think about share repurchase sort of in a dollar cost average. We tweak around the edges, which is why it was probably a little bit lower in the first quarter, but it was a good time to be buying in March and in April. So you'll see probably is buying more in the second quarter as we go forward. But more fundamentally to your question, so our 30% floor is set in a mid-cycle price construct that we start with for the company. So we think about what mid-cycle price are, what an equilibrium, look, we know we're never in a perfect kind of world, but we have to understand that from a supply and demand percentage perspective, so we can understand sort of what cash flows do we generate, what can we get back to the shareholder.

And clearly, since we set that coming out of the downturn in 2014 and 2015, when we recast the value proposition for the company, it made sense, but we've had mid-cycle prior. So the actual price has been higher than our mid-cycle call for most of that time. So we've been able to afford and be able to provide more than 30% back to the shareholder. Our history has been, I think, now coming up on a decade through the cycles even through the low point of the COVID pandemic in 2020 and the high point of 2022 when we were sending quite a bit back to the shareholder. So we think about it through cycle, we try to set a mid-cycle price. And we just are constantly trying to drive down the reinvestment rate in the company.

We're trying to drive growth for the least amount of capital as we can in the business, which is why Nick talks about what we're doing in the Lower 48 to drive the efficiencies that his team is doing, but Kirk is doing around the rest of the world and the opportunity we have in our legacy assets. So we've been able to afford something higher than our base, and that represents the 45% commitment that we've made for this year. because we recognize that the strength and the power of the company is doing.

Now we don't want the dividend to get outsized as you referred to before, which may have been -- for those that remember pre-2015, 2016, there's not any of us around anymore, Doug, maybe you and I, and that's about it. But look, we want to make sure that we can sustain the dividend. We want to make sure we can grow the dividend at a competitive S&P 500 rate. We think that's important, being able to constantly continually, annually grow it. It's something we think is competitive with the S&P 500 top quartile.

And that's our commitment to go continue to do that. But at the same time, we want to make sure the dividend does get an outsized portion of our cash flows at a mid-cycle price, whatever mid-cycle price we call. So we're trying to manage both those things. And typically, the dividend today is certainly affordable, growable but doesn't represent the full 45%. So we're augmenting that with the share repurchases. And we think that makes sense over the long haul. It reduces the absolute burden of the dividend going forward. It might have some politic nature to it a little bit. But we aren't -- we don't cling to it steadfast. We'll ratchet up and down a little bit quarter-to-quarter to try to manage some of that, but we do want to make sure we hit the 45% made up between the base dividend and whatever shares we're repurchasing in the market and we try to take a pretty ratable effort to go do that.

Our next question comes from Lloyd Byrne from Jefferies.

Can we talk about OpEx a little bit. It continues to stand out. And if you could just maybe comment on its trajectory from here? And then is there anything other than maybe conservatism that keeps you from bringing the full year guide down?

Andy here. Yes, so I think I can take this one in terms of we did set our budget at $10.2 billion, and that was, as a reminder, $400 million lower than last year. And as you point out, our 1Q results were very strong. We're really pleased with them. And it's ratably being driven by that we are taking costs faster than we'd originally premised from our cost reductions, both on the labor side and on the non-labor side of our lease operating costs. So when we look at it and Q1 is reinforcing this, we're very confident that we're going to hit that $1 billion in run rate savings by the year-end.

But really to get, I think, to the heart of your question in terms of guidance, I think it is only the first quarter. We're very, very pleased with how things have gone. But we'd like a little bit more time before we revisit where we would want to reduce guidance or not.

Our next question comes from Devin McDermott from Morgan Stanley.

I wanted to ask on the LNG portfolio outside of the Middle East first, just a little bit of additional detail on this EG agreement you signed and more broadly, you have this big commercial portfolio of LNG offtake contracts, including 5 million tons off of Port Arthur. I was wondering if you could just give an update on where you stand in marketing and placing those commercial LNG volumes? I'd imagine have gotten more valuable with everything going on in the market. right now.

Sure. I can start with the second half of your question and then specifically to Equatorial Guinea, I'll let Kirk jump in and maybe share a bit more on that. So yes, our LNG strategy, we -- on the commercial side, we really couldn't be more pleased with the progress we're making. I think as you say that what's happening in the market right now, our view is that we have seen a structural tightening of global LNG, not just for this year but for quite some time to go. You'll recall that pre all the events in the Middle East, we actually had a bit of a contrarian sort of view versus consensus where we thought the market was more in balance versus sort of the thesis of a bit of a glut.

So that's obviously all gone away now. And depending -- I think everyone is now sort of seeing sort of the tightening market. And as we look at it specifically, where we where -- we're in a situation where we've got sort of first movement advantage here now where we've pretty pleased that we put our 10 million tonnes that we already have in place, just like we think about our E&P portfolio, low-cost supply in this world, low liquefaction costs. important, we've got that where we've already placed the first 5 million tonnes predominantly to Europe and a bit into Asia for Phase 1.

And as you can imagine, sort of the conversations we're having about placing sort of what else we have is intensifying right now with interest in sort of in those volumes that we have. So I think it's just reinforced. The global security element of it as well in terms of the importance of having positions on the Gulf Coast and the value of that. And that's really just played into our strategy really say the first mover event has been very important to us on the commercial side.

And probably one last comment to make beofre passing it off to Kirk. It's -- we'd be remiss not to also mention sort of our -- the rest of our resource LNG business outside of commercial with APLNG and others that where effectively, those projects are priced off of long-term contracts linked to Brent for the most part. So they're also sort of doing well in this environment as well. So I think the LNG strategy is all proving out very nicely for us sort of along the lines that we would hope. And then maybe specific to your actual Guinea question. I'll let Kirk jump in.

Devin, certainly, as you're pointing to, the EG LNG asset came to us through the Marathon acquisition, and it came with a strong reputation of performance. And so the question for us was really about longevity. And the more we've come to understand just the performance and the capability of that asset and that organization. We've just been really quite pleased. As described, certainly in the release, we were able to strike an agreement, a tolling agreement with a third party at EG LNG. And so again, maybe to just step back a bit, this EG LNG asset for us or the Equatorial Guinea asset comes with an upstream operation from the Elba unit.

Obviously, we have production facilities offshore, and then they're on the island next to Moab, the capital. And then, of course, we have an equity position in EG LNG as well. And so our ability then through EG LNG to strike this this agreement then comes with an opportunity to further extend the life of this EG LNG asset. It allows us to run that facility at a strong utilization rate and pushes the life of that asset again well into the 2030s. And that gives us a bit of time, which you've also seen some press from us around the HOAs that we've been striking there with the Ministry in Equatorial Guinea looking at discovered resource.

And I think that's an important clarification, which is there are opportunities, known resource, specifically gas in and around the island and Equatorial Guinea waters that we can begin pursuing to understand what those look like for us to bring those to a commercial opportunity. And again, utilize the age of the capacity that will exist for us long term in that asset. So again, it's an interesting asset. Sales out of EG LNG consists of both SBA and a long-term SPA as well as spot. And it's in a great position to take cargoes both north and Europe or around the horn into Asia. So again, pleased with how this asset is continuing to prove itself out there as well.

Our next question comes from Arun Jayaram from JPMorgan.

I had a quick follow-up on LNG. I was wondering if you could comment how some of the Middle East disruptions are impacting your view of the LNG macro picture. I was wondering if perhaps you can give us a little bit of an update on the NFE and NFS projects, just given some of the disruptions in that part of the world?

Yes, I can start with the macro and then Kirk can go into the specifics on NFE and NFS. From a macro perspective, I kind of touched on this on an earlier answer, but if you think about what's actually happened with the 2 months that we've basically had, Qatar production shut in, in terms of not going through the straight. That's 20% basically of the LNG sort of that's not flowing. And maybe a better way to put that into context so that people can visualize it. That equates to something like 200 cargoes that have not basically sailed. So 200 cargoes haven't been delivered.

So our view of the macro is that we likely have already seen a little bit of a structural change here where there's going to be LNG shortages for quite some time. And when we look at basically where we're at with this is it's going to be a situation where prices are likely going to be quite constructive for a period of time as really people are going to have to basically better price to sort of manage the demand supply piece of this equation. And I think when you look at what Qatar's publicly said around the damage to Ras Laffan that it's going to take some time to get that capacity back on the market as well.

So our in-house view is that we've essentially seen a bit of a structural change on LNG with all that's happened and it's going to take quite a long time to basically get anything back close to where we used to be. So I think with that, I can let Kirk talk specifically about sort of our position in NFE and NFS but -- so the broader macro is one where I think this is sort of crystallizing to be a little different to the oil in terms of where we know we kind of start to know where we are with this.

I would add too, Arun, before Kirk jumps in on naptha we're watching gas inventories in Europe that today are well below where they should be given the build that they should be experiencing. So really concerned, depending on the when winter comes across Northern Europe and how hard that winner comes is the gas going to be there. Certainly, the inventories that today at this moment in time would put a kind of a blinky light on some of that going forward. So maybe Kirk can talk specifically about Qatar.

Yes. Maybe just a few quick clarifying comments, Arun, on how this certainly is affecting us Naturally, I think you understand and folks know that one, our single producing asset there in Qatar is in. And as a run rate, that was roughly 80,000 barrels of oil equivalent here last year. So a good run rate, and that's roughly 3% of our total company production and very similar on total CFO. So worth clarifying that the remainder of our global portfolio has been largely unaffected, really unaffected by these recent events. So it's really been quite contained to just simply this entry asset.

And naturally, as you'd expect, QatarEnergy QE executed a very controlled ramp down and ultimately largely a shutdown across most of their trains there at Ras Laffan for both security and process integrity reasons, but also because clearly, as Andy mentioned, with the straight closed, there's just limited capacity, if any, to lift cargoes there.

As QE disclosed, 2 trains were struck. Those were not ours. And again, that took just under 12 MTPA off the market. And QatarEnergy has been quite explicit about the fact that they expect that to impact the global market for upwards of 3 to 5 years. And so again, unaffected for us. And while it's easy to complete the construction of NFE NFS with the operation of those, they're really quite separate. And what we are pleased to see is despite the conflict construction on NFE and NFS both has been progressing.

Now naturally, there has been some impacts and some interruptions, but much different than an operations. And so -- also, while QE has disclosed that they do expect delays, it's a bit premature to provide really strong guidance on just specifically how that's going to manifest. But I would say, largely, we're expecting to delay to be to the tune of months. And you'll also recall QE guided on second half of this year's start-up. And so it could be possible certainly that, that extends into the early part of next year.

So again, we chose to simply guide on production for the company on 2Q removing that from guidance. I certainly felt like that was best in terms of clarity for all and then we'll be watching this closely as both construction and our own production there in QE continue to evolve very conflict dependent. Hopefully, that's helpful.

Our next question comes from Bob Brackett from Bernstein Research.

Apologies for a bit of an educational question, but there's a couple of topics that I'm working on educating folks and you may help. One is just the idea of one on one price realizations, especially as they pertain to timing given the very sharp moves in crude price we've seen. And the second would be I've been at 101 around the engineering of shut-ins. You guys have certainly a 2020 track record of understanding that stuff, shut-ins and the potential long-term impacts to production. I appreciate that.

Okay. Bob, Andy here. I'll start with the -- maybe the first part of that question on pricing. I'm looking forward to reading your report on this because you can probably teach us a thing or two as well. But maybe I'll describe it from sort of our perspective from ConocoPhillips. And hopefully, that's helpful, and I'll let Ryan maybe mention -- talk about the other parts of the question.

So in terms of sort of -- I think it might be -- if I answer your question from the pricing, really from our portfolio perspective and then you can sort of -- you can infer from that. When you think about our portfolio, we're in a situation where about 40% of our crude volume is linked to either Alaska or international price markers. And conveniently, that's split pretty equally between the 2. And then specifically to how the -- what we're linked to and how the pricing works, the international crude oil volumes, they're mainly linked to date rented pricing which you've been seeing, we're all -- I think everyone is now talking about dated and ICE like we haven't done it in a long time.

But you're seeing basically how the data grant basically has been trading at a premium to ICE, more the physical to the outlets. Now on the A&S side of things for us, A&S is effectively priced off of ICE Brent. So we basically have a bit of a 50-50 split between the 2, but with a lot of Brent leverage. And then -- specifically to your question around then, you do see a bit of a lag basically in terms of when do you see the cash versus when do you see the earnings related to these things. So you'll see it flow through the earnings first, obviously, but with the lag basically in timing of when the cash actually comes in.

And that varies basically market to market for us. But you'll start to see sort of the cash more meaningfully come in sort of a month or so later. So that hopefully helps us explain our exposure to sort of hit and sort of maybe help you sort of understand sort of how the importance of whether we're on dated or whether on ICE. But I am going to take an opportunity while you asked the question, there's another point that sometimes gets lost in all of this, this quarter. But yes, we've got that global exposure, and that's really important.

But I also want to sort of just mention on our realizations that we have a large Lower 48 component as well, which is obviously priced off the WTI. And we were really pleased with the realizations we were getting on our WTI. I think we had about a 98% realization this quarter. And that might get a bit lost when you look at our total company realization when it all gets mixed together because when you mix it all together, you had 3 or 4 things happening with you saw the WTI to Brent diff really, really expand out to about $9 a barrel. And then obviously, you've got the timing of the sales that we have in places like Norway.

But it is a pretty complicated set of moving parts right now. And there's going to be some timing between cash and earnings that are going to take a month or 2 to sort of all start to line back up.

And on your second part, Bob, I assume what you're talking about is the subsurface impact to shut in. And I guess some of our experience would be -- don't have direct experience with a lot of the Middle Eastern assets, Saudi and UAE and others, but probably similar to what we have on the North Slope, very large, productive, high porosity, high permeability assets like that, we wouldn't expect a whole lot of problem with them coming back to -- it will be a ramp-up period to be coming back to pretty much full capacity, minus any surface constraints or issues that were created as a result of damage that they might have above ground.

But in some of these, you have to ask here, are they keeping the waterflood going while they're shutting in, if that's the case, they're probably building pressure and you probably get some flush production. So it's probably very, very high-level answer to your question, but I wouldn't expect a huge supply impact as they bring back on these fields damage to the subsurface.

Our next question comes from Josh Silverstein from UBS.

I wanted to get an M&A update from you guys, maybe more from a divestiture angle. I know you guys are very resource risk as you mentioned, and you do have an ongoing divestiture program. I was just curious if these noncore assets are you seeing strengthening valuations for these right now given the higher pricing, does it make you want to be more aggressive in selling assets into this market? And then maybe just an update as to how you're thinking about the part of their Phase 1 equity stake that you have on the investor front?

Yes. I can take that question. So probably worth us putting our divestiture program that we've announced sort of in context. We'd announced a $5 billion program and $3 billion of that is already behind us. So there's about $2 billion of the program that's to go. And I would really very much put this in sort of the business as usual for us. I think it's -- I'll say because I think it's out there in the public markets and being talked about a lot. We do have data room opened in the Permian right now, and we've got a couple of packages in that.

And -- but this -- it's really important when we think about this. It's not -- the payment is not 1 sort of big thing. It's a collection of assets within a basin. And these are assets that we would consider within the Permian that are noncore to us, probably something that we wouldn't get to in 10 to 15 years, given the depth of our inventory. And of course, yes, we are seeing sort of a lot of interest in that. But I think it's very, very important to sort of emphasize I think our track record will show this, that we are not going to be schedule driven by this. This will be -- and we won't sell anything that we're not getting full value for.

So we'll go through a process and if we get offers for full value for noncore assets that we're not going to develop for a while, we'll certainly take a look at it. But it's very much around the edges and just the usual portfolio type cleanup work that we always do.

And then to the last part of your question on pull out of Phase 1, we're kind of in a perfect situation here where we certainly don't need to sell anything. That asset is being derisked every day as it comes closer to first production and we'll have that asset online in 2027. So we can't wait to see that happen. And it's -- I think everything that's happened in the Middle East is just reemphasize sort of the importance of having these secure assets that we have in our portfolio.

So maybe a day will come in the future where we get an offer that basically, it fits into sort of an infrastructure type investment. But we're certainly under sort of no need to basically sell that asset. And I can't really see why we would contemplate that while it's still under construction. We'd rather get it on and maybe in the future, it isn't core, but nothing there that I would say that we're not happy with.

Our next question comes from Philip Jungwirth from BMO Capital Markets.

Your Montney position has a lot of resource and you've had better results than some of the offset operators up there. Just wondering what's the appetite or valuation creation opportunity to add to this liquids-rich position where others might not have the same technical understanding or operational capabilities? And separately, could Canada all fit into the LNG Awake strategy, if you were to target the high end of 10 to 15 MTPA.

Yes, Philip. I appreciate the question on Montney. We've been continuing to see some really strong performance, and certainly, as you highlight, coming out of our Montney asset. We've been progressing this in a very disciplined and deliberate manner. And while we're out of the appraisal phase, we are admittedly still in what we would describe as early development, actively optimizing our plans and incorporating all of the learnings that are really quite unique to the basin.

And as well as all of the optimizations that we're able to reap from our mature and very distinguished position here in the Lower 48. We've been running roughly 1 rig and expect to continue in a very similar pace and fashion because, again, certainly, as we've experienced in the Lower 48, when we naturally pair up really strong crews, whether it be drilling and completions with each other. We, too, are seeing some really strong performance across the two.

And we like the performance again because it is so strong liquids. We're roughly 50% liquids with a couple of streams there between NGLs and the condensate and crude, and we're able to take advantage within that liquids market of each 1 of those. And so it's a very competitive resource Naturally, we do, in fact, because we have such a strong position, and we've been seeing such good performance. We're watching the opportunities. We watch the landscape, but certainly as it relates to M&A or BD work, we'll be smart about this.

And if we see there's an opportunity that creates a lot of synergies for us, naturally, we'd entertain that. And then, of course, on the gas side, because we are so dominant in the liquids position, this is not a major driver for us. And in fact, we're naturally hedged to some degree because we use fuel gas. We use the gas directly associated with Surmont and our operations there in the oil sands. So I would say we're encouraged to hear that there are plans for the next phase of LNG offtake coming out of Canada. We'd like to see Canada bringing much more scope and scale at a better pace there.

And so I would just say our growth plans are certainly dependent on offtake to get very aggressive in the Montney with our own development plans are going to -- we're going to need to see a call on those barrels and on that gas and more offtake coming out of BC. So again, I would just say this is something for us to watch carefully, and we'd like to see some more progress by those who are maturing those projects.

Maybe I'll just quickly jump in there as well, very directly from a commercial LNG perspective, we'd be very happy to have a bit more offtake on the West Coast. But just like our E&P portfolio, we cost of supply, liquefaction fees basically drives everything. And as we look at it, if there's competitive liquid action fees, from expansions that happen and new projects in Canada, we'd be -- we'd certainly want to take a look at that just like we'd like to look at offtake from many other locations. So yes. I think having some West Coast offtake wouldn't be a bad thing in our portfolio.

Our next question comes from Alastair Syme from Citi.

I wonder if I can get you to talk to the attract business of incremental capital of the Delaware versus refrac opportunities in the Eagle Ford? How would you compare and contrast as ?

Yes. So if you look at the Delaware and Eagle Ford, obviously, they're quite different. But on the refracs in the Eagle Ford, we do typically do 50 or 60 in a year -- you can think about -- you can execute 1 for about 60% of a development well and get a 60% uplift on that original completion on your EOR. So in that case, you're looking at kind of mid-$30 cost of supply to upper $30 for refracs. If you then go to the Delaware, which is some of our lower cost of supply, you're executing currently kind of the low $30s to mid-30s. So from an overall Delaware, we'll have a stronger overall return than a refrac, but they're very, very close. We're talking probably $2 to $5 of cost supply difference. So very very, very competitive in the portfolio between those 2 opportunity sets.

Our last question comes from Kevin MacCurdy from Pickering Energy Partners.

Looking at the updated capital program this year, you addressed the Permian activity earlier. But on Slide 5 of your deck, you show some potential variance in regard to the macro Middle East uncertainty. Can you expand on that a little bit? Would this just be deferred Middle East spending? Or are there any other considerations represented in that chart?

I think predominantly, I think, as Kirk's covered and I've covered it earlier, it's really a range of uncertainty on what happens with NFE and NFS capital during the year. I think Nick also covered 1 of the other uncertainties and Ryan covered that we don't know exactly what's going to happen on the nonoperated side in the Lower 48, but we're not going to -- as we described, we're not going to put ourselves in a situation where if we get balanced that we won't participate in low-cost supply projects. So I would just take it as a general uncertainty bar right now in a very uncertain world basically.

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

Welcome to the Fourth Quarter 2025 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin.

Thank you, Liz, and welcome, everyone, to our fourth quarter 2025 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial; Nick Olds, Executive Vice President of Lower 48 and Global HSC; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions.

Ryan and Andy will kick off the call today with opening remarks, after which the team will be available for your questions. For the Q&A, we will be taking 1 question per caller.

A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will make forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings.

We will make reference to some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website.

With that, I'll turn the call over to Ryan.

Thanks, Guy, and thank you to everyone for joining our fourth quarter 2025 earnings conference call. 2025 was another very strong year for ConocoPhillips, marked by consistent financial and operational execution and a number of important strategic accomplishments for our company.

First, we outperformed all our major guidance drivers from the beginning of the year. CapEx, operating costs and production, demonstrating the strength of our team's quarter-to-quarter execution. On a pro forma basis, we grew production by 2.5% in 2025, while driving significant reductions to both our capital and costs.

On return of capital, we met our objective to return 45% of our CFO to shareholders, consistent with our long-term track record, while again increasing our base dividend at a top quartile S&P 500 growth rate. And we did so while further strengthening our investment-grade balance sheet, certainly a differentiated accomplishment. Our cash balances are higher today than a year ago, and our net debt is lower, putting us in a very strong financial position to start the year.

We successfully integrated Marathon Oil outperforming our acquisition case on the most important metrics. We added more high-quality, low-cost of supply resource, doubled our synergy capture, realized a further $1 billion of onetime benefits and completely eliminated the Marathon Capital program while still delivering pro forma production growth. And as part of our drive for continuous improvement, we launched and have already made great progress on our incremental $1 billion cost reduction and margin enhancement initiative.

We progressed our commercial LNG strategy, growing our offtake portfolio to approximately 10 million tonnes per annum. And finally, we improved our Lower 48 drilling and completion efficiencies and advanced our differentiated major projects, which we expect to drive peer-leading free cash flow growth through the end of the decade. So 2025 was a great year for the company. While these are significant achievements, we're not stopping there. We will build on this success.

Turning to 2026. Our primary focus is on delivering $1 billion combined reduction across our capital spending and operating costs while growing our production on an underlying basis. On shareholder returns, we once again expect to return about 45% of our CFO to shareholders while continuing to grow our base dividend at a top quarterly S&P 500 rate. Top quartile dividend growth is sustainable as we expect our free cash flow breakeven to decline into the low $30 per barrel WTI range by the end of this decade.

Looking beyond 2026, I believe ConocoPhillips continues to offer a compelling value proposition that is differentiated both within our sector and relative to the broader S&P 500. As I've said before, I believe we have the highest quality asset base in our peer space, a distinguishing competitive advantage, especially in the context of a U.S. shale industry that continues to mature.

We are resource rich in a world that is looking increasingly resource scarce. We have the deepest, most capital-efficient Lower 48 inventory in the sector. And outside the Lower 48, we have an abundance of high-quality, low-cost of supply legacy assets, and we are uniquely investing in our diverse major projects to transform the free cash flow generation profile of our company.

As a reminder, the 4 major projects we have underway, combined with our cost reduction and margin enhancement initiatives are expected to drive a $7 billion free cash flow inflection by 2029 that will double our 2025 free cash flow generation. And that free cash flow inflection is now underway. We anticipate realizing approximately $1 billion of incremental free cash flow each year from '26 through 2028, with another $4 billion from Willow coming online in 2029. And that's a growth profile that's unmatched in our industry.

Now with that, let me turn over the call to Andy to cover the fourth quarter performance and 2026 guidance in more detail.

Thanks, Ryan. Starting with our fourth quarter performance, we reported another quarter of strong execution across the portfolio. We produced 2,320,000 barrels of oil equivalent per day, consistent with the midpoint of our production guidance. We generated $1.02 per share in adjusted earnings and $4.3 billion of CFO. Capital expenditures were $3 billion, which brought our full year capital spend to $12.6 billion. We returned $2.1 billion to our shareholders during the fourth quarter, including just over $1 billion in buybacks and $1 billion in ordinary dividends bringing the full year return of capital to $9 billion or 45% of our CFO, consistent with our guidance and our long-term track record.

We closed over $3 billion of asset sales during 2025, demonstrating strong progress against our recently upsized $5 billion divestiture target with $1.6 billion of proceeds received in the fourth quarter. For the full year, we paid down $900 million of debt and cash balances were up $1 billion resulting in net debt reductions of nearly $2 billion, highlighting our commitment to both returning cash to shareholders and our investment-grade balance sheet. Cash and short-term investments finished at $7.4 billion, along with $1.1 billion in long-term liquid investments. On reserves, 2025 was another solid year. Our organic reserve replacement ratio was just under 100% while our trailing 3 years was 106%.

Turning now to our guidance for 2026. As Ryan said, we continue to expect a significant reduction in both our capital spend and our operating costs combining to drive a year-on-year improvement of about $1 billion. 2026 capital spend guidance of about $12 billion is consistent with the preliminary outlook provided last quarter down about $600 million year-on-year due to significant capital efficiency gains in the Lower 48 and a decline in our major project spending. 2026 operating cost guidance of about $10.2 billion is also consistent with the preliminary outlook, down about $400 million compared to 2025.

The improvement in 2026 is driven by a combination of our cost reduction program and a full year of [indiscernible] and oil synergies. 2026 production guidance is 2,230,000 to 2,260,000 barrels of oil equivalent per day providing modest growth for the year. First quarter production is expected to be in the range of 2,300,000 to 2,340 000 barrels of oil equivalent per day, including the estimated impacts of weather-related downtime from Winter Storm fern.

In the Lower 48, once again, we expect to deliver more production for less capital as we continue to benefit from the highest quality asset base in the sector. We are a clear leader in inventory debt with over 2 decades of low-cost supply inventory across the Permian, Eagle Ford and Bakken. We're also the clear leader when it comes to bottom line results, capital efficiency, the amount of oil we recover for every dollar of capital we invest. We have the best rock in the best part of the best plays, and our team continues to execute really well. In 2025, we improved our drilling and completion efficiencies by more than 15%. We expect our capital efficiency improvements to continue in 2026, again driven by strong well productivity ongoing D&C excellence and further increases in our longer lateral developments.

Now turning to Alaska and International. A few important themes stand out for 2026. First, we continue to progress our advantage major projects, consistent with the comprehensive update we provided last quarter. Our LNG projects are more than 80% complete with NFV expected to start up in the second half of this year, while Willow is nearing 50% complete and on track for first oil in early 2029.

Second, we remain focused on infrastructure-led exploration and are shifting our focus this year to Alaska, where we have 4 wells fully permitted and are looking to unlock additional resources near to our infrastructure hubs building on our decade disciplined exploration and appraisal spend in Alaska. And third, we'll continue to leverage our diverse low-cost supply legacy assets for ongoing capital efficient development. including at Surmont, where we delivered our most recent pad ahead of schedule and on budget, with another pad expected online early next year.

To wrap up, 2025 was a very strong year for ConocoPhillips and we're looking to build on this success in 2026, starting with a $1 billion improvement in our CapEx and costs as the multiyear free cash flow growth profile we've discussed is now well underway. And we'll continue to find ways to enhance our differentiated investment thesis, unmatched portfolio quality, including leading lower footing inventory depth, attractive long-cycle investments, strong returns on and of capital and a sector-leading free cash flow growth profile through the end of the decade.

That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A.

[Operator Instructions] Our first question comes from Neil Mehta from Goldman Sachs.

Ryan, you talked about depth of inventory, strong reserve replacement and you've got some great projects coming on here in the next couple of years. Just your perspective, as the industry is now set to accelerate consolidation potentially of whether Conoco is really more of an organic story on the go-forward given those characteristics? Or do you see a role that Conoco is playing in consolidation?

Yes. Thanks. Yes, I appreciate the question. Look, we've done our heavy lifting on the M&A side over the last 4 to 5 years. And I think I've never seen the portfolio in a better shape and really no strategic gaps that we can identify. We're globally diverse. We like our combination of a leading resource position in the Lower 48 combined with what we've got going on around the world and the LNG projects that we're leaning into the Willow development and then what Andy talked about in some of our other projects going on around the world.

So our pivot has been to the organic side of the portfolio. I can see the rationale for some of the M&A activity and in terms of capturing the synergy, but we've been there, done that. We've got that behind us, and our focus is on the organic opportunity set that we have inside the portfolio, which we think is significant. As I said in my opening remarks, I think where we've gotten ourselves to is pretty resource rich and what we believe is becoming a more constrained world on the resource side. But we like where we're at. We like the portfolio, and we're pretty focused on the organic side of the business.

Our next question comes from Lloyd Byrne from Jefferies.

Can you -- you've been pretty clear in the past, Ryan, about what it would take to go back into Venezuela. And I was just wondering if there's any update there? And if I may, do the recent events impact the Citgo sale at all?

The Venezuelan question right off the top, Lloyd. Yes, look, I get it, seeing the news and look, our -- we're pretty focused on what we've talked about in the past, and that's the focus on the pathway to get some recovery on what's [indiscernible] in Venezuela. And that's our first priority right now is making sure they avail us a significant amount of money we've been after that. So we know where all the assets are and that's the basis of our focus as well.

We're trying to be helpful with the current administration and provide them with our sense of what's happening on the ground. A lot has to happen. Obviously, security needs to improve fiscals. We need a constructive relationship with local governments and the local people that actually want U.S. companies there. And then you need durability on the policy side. You need durability both in Venezuela and clearly here on the U.S. side. But we're helping the administration kind of think through the short, medium and long term, but our focus remains on trying to get the recovery that has [indiscernible] from the 2 judgments that we have in place.

With respect to Citgo, we see no change at this point, encouraged by the administration's comments regarding wanting to get the asset in American hands or U.S. hands, that's constructive. And obviously, if there's still an appeal process to work through in that judgment from the courts. And then [indiscernible] license is required ultimately to satisfy that, but we would stand to collect some of our judgment through that process, but we see no change -- no reason to believe that it isn't going forward as it's been described to us.

Our next question comes from Steve Richardson from Evercore ISI.

Maybe we can step back a little bit from the Venezuela question, Ryan. I was wondering if you extended the concession in Libya this quarter. And this seems to be part of a broader trend where there's a lot of opportunities arising internationally for your company and others. And so I was wondering if you could just talk more broadly about how you evaluate those options versus your current portfolio? And is it just a question of kind of risk-adjusted cost of supply? Or -- there's obviously other opportunity costs there, but I was wondering if you can just talk about that more broadly in how you're evaluating those opportunities.

Yes. Thanks, Steve. So I'd draw a little bit of a distinction. I mean, we've been we've been trying to improve fiscals in Libya for nearly a decade. So we finally got to that point with here a couple of weeks ago was signing the agreement with the Libyan government and our partner there. But it's something -- it's an asset inside the portfolio that we're trying to improve every day. And so this just is another organic opportunity inside the portfolio, specifically to Libya.

And the improvement in the fiscals are just going to make it more competitive as we think about it. But we've been investing money in Libya, and this just makes those investments even more profitable and more competitive in the portfolio as we go forward. as a result of what we've done.

I think more broadly, what you're getting at, yes, there are some opportunities. And as the world becomes a little bit more resource constrained, there's opportunities in around. We look at those as well. We had a new one coming to the portfolio through the Marathon acquisition of Equator Guinea. And so that's one we're focused on as well, trying to figure out how we can grow that LNG plant on the island and make it a long-term asset for the company, but that kind of fits into that organic side of the business, just trying to make that asset better over the long term for the company, doing similar things in Malaysia.

But there are new country entries that are happening, and we see that with new wildcat exploration maybe around the world from other competitors in new countries. We look at those and look for opportunities that might benefit the company and be additive to our plans and be consistent within our financial framework. And so it's exactly what you did. It's a risk-adjusted cost of supply of that opportunity and would it compete for capital inside the company? And could we slotted in with what we're doing inside the company over the long term, the next 10 and 20 years.

So the uniqueness about our company is we have that muscle inside the company. We're already pretty diverse company. We've got a BD organization that looks around the world, not just in the Lower 48 in the unconventional space, but also conventionally around the world, but it's got to compete inside the portfolio, just like everything does in the organic side of the business. So I think we're really well positioned to look at that and see what can be additive to the company.

Our next question comes from Betty Jiang from Barclays.

I want to ask about the Alaska exploration program. So we just started this year, the first of a multiyear program. Can you speak to the objective of that exploration program? What's the risk how big is the scale of the resource being targeted? And if successful, are we talking about extending the plateau for Willow? Or is it more upside to the ultimate production capacity of that project?

Great question, Betty. Yes, certainly pleased to report that we're out in front of this winter season here. We got an early start just based on weather under ice road activity. And of course, we have all of the permits required for both the wells as well as the seismic that we have planned up there here this year. And even to that end, we were able to spud the first of those 4 wells just within the last couple of days. So strong progress that we're seeing on those 4.

But again, to your question around intent and objectives here, we're out there exploring to the west of Willow and actually to the south a bit. And so as you've certainly heard from us before, our objective is to continue to find what we might describe even though it's onshore is tieback opportunities into both Willow and actually into our WNS Alpine asset as well. So to your point, this is an opportunity for us to identify continued volumes, continued resource plays to bring into this existing infrastructure and Willow being the next hub, if you will.

And when we look back on our performance history there in Alaska, we have and continue to project or expect we'll produce well over double the volumes through those existing facilities through that existing infrastructure over double what we originally promised when we took FID on those. And so naturally, then that's our same objective here for Willow specifically as we explore to the west, we'll be looking for those resource opportunities to just keep that infrastructure full.

Obviously, a bit early to start making a call on total resource size, et cetera. But naturally, we have some pretty high aspirations and some targets that we're pursuing, and we'll be going after this for several years here now. We've got 4 wells here in premise this year. but we've got a multiyear plan that we intend to carry out again, so that we can maximize as we do globally the infrastructure that we have and our ability to bring new volumes into that creates this advantaged cost of supply for us using the existing kit.

Our next question comes from Arun Jayaram from JPMorgan.

Gentlemen, trends in well productivity, increasing recovery rates have become a pretty hot button topics in U.S. shale. I wanted to talk a little bit about ConocoPhillips' Lower 48 business, looking at the data, the inverse data in '25, you guys had a really good year in terms of productivity in the Bakken, Eagle Ford and the Permian. And I know it starts with good rock, but I was wondering if you could talk about some of the levers you may be pulling from a technology standpoint that may be contributing to the attractive trends in well productivity that we're observing today.

All right, Arun. Yes, we certainly did have a strong productivity year in 2025 across that entire portfolio, as you mentioned. It was definitely consistent with our type curve expectations and consistent with the high quality of inventory, as you mentioned, One of the things we continue to do is we benchmark ourselves in each of our basins. And I'm pleased to say, on an oil productivity per foot, we're amongst the best in every basin we operate.

Now specifically, I want to call it a couple of areas that you mentioned in the Delaware Basin and Eagle Ford, we saw impressive year-on-year improvements. In the Delaware, our oil productivity per foot in 2025 is up about 8% year-on-year, and that's even with a notable increase in our average lateral length of 9% year-on-year.

Now a couple of components to dive in on the Delaware side. Again, we know the depth and quality of our acreage position out in the Delaware, but the teams are continuously optimizing our development strategies and adjusting spacing and stacking. And then, of course, depending on where you're drilling in North Delaware, Southern Delaware, you have a little bit of mix driving that, just due to the vast deep broad portfolio. Now pivoting to the Eagle Ford, our 2025 oil productivity per foot was up another 7% and that's off a very strong program in 2024.

And again, we're a clear leader in the Eagle Ford, and we have the lion's share of remaining Tier 1 inventory and have had strong well results of any operator. Now in the Eagle Ford, we brought in the Marathon assets. We've integrated that together. Teams continue to optimize completion designs using diverters to improve recovery, and we're seeing those in the results that you had mentioned.

If you look ahead to 2026, we expect consistent strong performance across all of our basins like we've demonstrated over the past several years. And this is a key driver in our ability to deliver low single-digit growth in the Lower 48 alongside a reduction of more than 5% in capital compared to 2025.

Our next question comes from Doug Leggatt from Wolfe Research.

Good morning. I think it's good afternoon, everybody, I should say apologize. I'm in Europe, so I don't know what the heck time is. Guys, I wanted to go back to Ryan's comment about the breakeven trajectory getting to the low 30s by 2030. I'm trying to understand a little bit about what the moving parts are. Where is it today? And what is the assumption in where CapEx is from the $12 billion this year in 2030 that gets you to that number, please?

Good morning Doug or afternoon, Doug or evening Doug, depending on where you are in Europe. Yes, I can step through that one. So where we are right now, sort of our pre-dividend free cash flow breakeven right now is in the mid-40s. And you'd add about $10 for that with the dividend. So that's kind of your starting point. And then as you say, as a reminder, we have our preproductive capital spend. it's down from where it was in 2025. We still have the preproductive CapEx between now and Willow coming online, and that works off that -- if you do the math on what we said on that, that's about $6 basically just on that simple preproductive capital.

And then as we've talked about sort of in our prepared remarks, you kind of got the free cash flow. It's already starting to improve today, and it's going to continue to improve and we're effectively going to almost double our preproductive CapEx -- cash flow, sorry, by the time that Willow comes online. And when you put all of that together, that's basically how we take our free cash flow all the way down into the low 30s by the time that Willow is coming online and then you add the dividend back on top of that.

So we're going to be down right in the low 30s when we have low and then adding another $8 to $10 for the dividend as we remember, we're buying back shares as well. So that sort of reduces the dividend burden over time as well. So that's kind of the trajectory we're on, and we're pretty excited about it. And I think we think it's part of the story we have here in terms of that free cash flow trajectory we're on, we think is second to none, and it's going to drive sort of a breakeven that comes down, I think, faster than anybody else can come close to matching.

Our next question comes from Devin McDermott from Morgan Stanley.

Ryan, I wanted to come back to 1 of the international growth assets that you listed in response to a prior question, and that's Equatorial Guinea. I know you've been evaluating potential backfill projects for the LNG facility there. And I believe just over the last few days, there was an agreement reached between Equatorial Guinea and Cameron for the unitization of the Yoyo-Yolanda fields. I know it wasn't Conoco-operated asset, but it's 1 of the potential tie back resources into that LNG plant. So kind of a broader question since you listed as a growth potential area. Just talk about how you're seeing the opportunity set there and where we stand on projects to backfill and keep that LNG plant full?

Yes, I can provide some over comments and maybe have Kirk come in by. I think we were encouraged by the Cameroon conversations and then here recently, Chevron's conversations saying. So we're working hard to try to make the asset that we acquired from Marathon something more than a 5-year asset, how do we make a 10-, 15-, 20-year asset. So we've been busy with some HOAs with the Equatorial Guinean country and doing exactly that.

We're encouraged by the opportunities that we see out there. We're encouraged with the cross-border cooperation because that just leads to more opportunity to bring more volumes across the island.

Maybe Kirk can describe some of the more specifics that we're looking at today.

Yes. Certainly, Ryan. And Devon, as Ryan has been describing, we've been in discussions, certainly haven't taken on this asset through the Marathon acquisition. And as we've taken it into the company, we've been actively in contact with a number of other operators in and around our LNG facility and upstream assets, thinking about how do we leverage that infrastructure, specifically the liquefaction facility that's using our technology there on the island.

Certainly, discussions have progressed very well, really pleased with that, specifically with Chevron. They've made some notable progress in a few of their projects. A couple of both new fields as well as continued development of some existing fields that create some upside for that. And then naturally, we are, as Ryan said, we're in some confidential discussions with the government and a few others around continued infill opportunities, especially gas in and around Malabo and our operation there.

So Again, this is a continuation here of the theme of what we've been able to do so well, whether it's internationally in Alaska, which is continue to find resources that exist to create this advantaged cost of supply to use existing infrastructure. So expect us to continue to make some progress in that way there in EG.

Our next question comes from Ryan Todd from Piper Sandler.

Maybe can you talk about how you think about Lower 48 activity levels and commodity price. As you highlighted in your presentation, you clearly have a tremendous amount of high-quality drilling inventory. You've moderated your pace of growth in the Lower 48 of late, given kind of current global crude supply balances and a weaker crude price.

But as you look over the next 1 to 2 years, what would you need to see to step up activity levels and grow a little faster in the Lower 48. And maybe with that, could you maybe elaborate on what you've said a couple of times is the pretty constructive maybe crude oil view in the medium to longer term?

Yes. Thanks, Ryan. Yes, we have our own sort of macro view on supply and demand and I'd say, consistent with a lot of what people were saying, we see some -- saw some softness coming into the year. So we set our plans and our budgets in '26 based on that. Obviously, we've seen a little bit of tailwinds with the current geopolitical things that are going on around the world.

But generally, I thought 2026 would be a little bit more tougher year on the commodity price. We set our plans accordingly. And Nick's team, as he's described, has been doing a great job capturing the efficiencies, and we've been able to grow that business without adding more capital to it. And that's kind of our starting place. So I would say our scope is kind of set for 2026 with what we're trying to execute. We don't like to whipsaw these programs up or down, and we'll use the balance sheet in the downside case if we need to. And we're comfortable with where we're at in '26. If prices were even to increase, would just give us more flexibility to -- in the company.

We are constructive going forward over the next number of years. as we think about later down the road in this decade, we think we're going to have LNG and Willow coming on at the right time when the world needs this oil. So we're pretty constructive as we go forward. And over time, we'll see what our view of the macro is. We'll see what we think about the cost. And if we want to start ramping up in the Lower 48, we can do that. If there's a call on more unconventional crude. But today, I think we're pretty comfortable with our plans. There's a lot of volatility in the market, but we're built for this. We're built to handle it with the balance sheet that we have and the programs that I know the teams are executing there. trying to get as much as they can for every purchase capital dollar for spending.

So we're trying to balance our returns of our capital back to our shareholders with the returns we're getting on the capital that we're putting back into the company. So this year, we should see some modest production growth and executing the plans to start delivering the free cash flow inflection that we see over the course of this decade, starting this year with $1 billion and next couple of years with $1 billion and then another $4 billion coming with Willow. And we think that's hugely differential in relative to our competitors in this space.

Our next question comes from Nitin Kumar from Mizuho.

Ryan, I'm sorry, I'm going to take you back a little bit to the direction of Venezuela, but it's not really about Venezuela. The expectation is the Venezuelan heavy crude might back up so the Canadian production. What's your view of WCS spreads given that you're seeing some of the other heavier crude from other parts of the world hitting the Gulf Coast?

This is Andy. I can jump in and take that one. I think the short answer is sort of in the short and medium term, we're not really expecting to see that much of an impact. As most people know, that if you start with sort of the PADD II refiners that structure you align on the Canadian heavy and have minimum alternative options to displace those barrels. And as you say, the Gulf Coast refiners can process the heavy valves and we're starting to see some of those refiners expressed interest in purchasing some of those Venezuelan barrels.

But our view is the incremental Venezuelan barrels will likely get absorbed. The market will rebalance the global flows and we kind of -- will you see a thing from month to month where there's maybe crude being backed out or being moved in different directions, possibly. But take a step back and look at the bigger picture. The way we are thinking about it is that the annual global demand is growing basically 1 million barrels a day. And we're going to need incremental sources of supply to help meet that demand growth. So our modeling isn't really sort of showing that the Venezuelan crude coming in is going to have a particularly material impact on Canadian heavy.

Our next question comes from Scott Hanold with RBC Capital Markets.

My question is on your balance sheet. Obviously, you've got a very strong cash position and investments I think there is some investor kind of concern over there, at least in the short term where your shareholder return strategy, at least in that 45% rate does dip into it. Could you just give us your context on how you think about your cash balance, how much is reserved for utilizing at this as you ramp to that free cash flow inflection point?

Yes, I can take that one, Scott. I think in the prepared remarks, I stepped through sort of just how strong our cash balances are starting this year and the fact that we actually reduced our net debt by $2 billion. So we're starting with our balance sheet that is in a really, really, really solid position. I think we look at it across a range of crisis. And I think we've been pretty clear that 45% of our CFO basically works across basically a range of prices in terms of our distributions and that's kind of what you could expect.

And there's a reason we have a strong balance sheet is if there were a period where sort of a quarter here and a quarter there you're needing to crop into the balance sheet to sort of help fund that. That's what we would do. That's what it's there for. So I think given where we're starting with cash, I don't really see sort of any real concerns basically around sort of headwinds to being able to fund distributions or maintaining a strong balance sheet.

Our next question comes from Sam Margolin from Wells Fargo.

This question is about the progression of the free cash flow contribution in '27 and '28 before Willow and in the context of NFE coming on in the visible horizon here. Could we ask you to decompose that progression a little bit and maybe at least frame where the range of LNG contribution, both on the cash flow side and on the spending roll off are coming in? And then I guess the market context is that European gas inventories are pretty low and you have some European regas exposure that looks like it will be full over the next season. So if we could get some color on that, it would be great.

Okay. Kind of touching a few different topics there. I'll try and sort of -- try and cover them. The first part of it is we've been very clear that sort of basically, we're seeing $1 billion per year, '26, '27, '28 million of free cash flow improvement. And I think you're starting to allude to this, that '26 basically is essentially being driven by the our OpEx and CapEx guidance that we've given driving that. But as we get into '27 and '28, a significant part of that is being driven by the LNG where we have NFE coming on, Port Arthur coming on and NFS coming on.

So we're seeing that basically drive the next $2 billion after the one we have now, then the next 2 comes from those LNG projects. And remember, it's a combination of the revenues coming on, but the CapEx is going away as well. So that's $2 billion. A big chunk of that is coming in '27 and '28 from the LNG projects. We've when we've given those sensitivity on the $7 billion of free cash flow inflection, we've put prices out there basically for that. And I think where we basically placed the first 5 million tonnes that we have out of Port Arthur Phase 1 into Europe and Asia. So we feel pretty good about that.

And our view, I think, is that we're feeling pretty confident basically around sort of LNG prices basically holding up over the rest of this decade. So it's kind of -- that's what's built into our sensitivities. And we're also in a situation where between now and 2030, where we're actually much longer Henry Hub natural gas than we are LNG. So if you think about it in Nick's area, in the Lower 48, we produce of gas, that's about 15 Mtpa.

And for every dollar we see move on the price on Henry Hub, that's over $400 million of sensitivity to us, whereas the first 5 million tonnes that we have coming out of Port Arthur between now and the 2030 time frame, every dollar movement on that is about a $200 million movement that we have. So we're actually much more exposed to higher gas prices than we are compressing LNG margins in the -- between now and the end of the decade. So I think I touched on most of what you're asking there.

Our next question comes from Philip Jungwirth from BMO Capital Markets.

You reached an agreement with Western Gas during the quarter to restructure Delaware gas contracts. The question is more around -- you have over 200,000 net acres in the core that you picked up from Shell couple of years ago. Maybe it's a little less optimal in terms of operatorship, working interest or acreage configuration. But with the midstream getting more ironed out, does this at all advance the ability to do a larger acreage swap here? And if so, how meaningful could that be for Conoco's capital efficiency and developing this asset going forward?

Yes. Exactly. If I go back to Shell, I mean one of the key things as you look out in that area, as we continue to core up in strategic trades all the time, to increase our lateral lengths in that area. That drives our capital efficiency as we extend the laterals in there, and we continue to do that on an ongoing basis. As you mentioned, for the Western Midstream we did directly contract that through West, and that's one of the key drivers that Andy had mentioned that achieves that $1 billion of cost savings run rate by year-end 2026.

But on the strategic trades, we continue to do that on an ongoing basis. And if you look at long lateral inventory in that area you mentioned, if I step back to 2023, about 60% of our Permian future well inventory was 2 miles or greater. But today, that's at 80% due to the strategic trades in core ups. And in fact, you look at the 2026 program, 90% of those wells are 2 miles or greater. So we continue to do that with our BD and land teams coring it up, and that drives the capital efficiency. When you look at that core up opportunities. If we go from a 1 mile to a 2-mile lateral. We improved the cost supply about 25%. But if we go to 3 or 4 miles, we add another 10% to 15% cost supply reduction.

Our next question comes from James West from Melius Research.

One thing that came up that I noticed in the slide deck this morning that stood out to me was your reserve replacement ratio. It's been very impressive over the last 3 years, well above your peer group and the big oils Curious what's been driving that. I'm curious how you see that going forward.

This is Andy. I'll take the question. Actually, thank you for the question. So asking about reserves. We think reserves remains an important and very relevant metric, especially the organic reserve replacement. As you know, that's basically essentially what we're replacing with the drill bit.

As you said, 1 year performance is important. We do also focus on our multiyear track record, especially when you think about some of the longer cycle projects. So just to quickly step through the numbers, our 3-year organic reserve replacement is 106% and our 5-year organic reserve replacement is 133%. And what's particularly pleasing about that is across that time frame, we've got strong contributions across our entire global portfolio, Lower 48, Alaska International is another example as Ryan was pointing to earlier the power of our diversified portfolio.

And '25 was no different. It was another solid year of organic reserve replacement. So we effectively maintained the reserves technically 99%. And that -- if you then take that basically we exclude the impacts of revisions date to the lower oil prices, the organic reserve ratio, when you're not taking price provisions into account, we've been 110%. So again, it was a really good year for us. And I think where you alluded to, we think our track record, we'll put it up against anybody in terms of the majors or the E&Ps over the short, the medium and the long time frame.

And just in terms of how we think about it, we really do think reserves continue to be an important barometer for our industry. And no matter how you slice it, it continues to be another proof point, just on the quality of our portfolio. And it was a really good year for us again, where we had additions yes from the Lower 48. We had additions coming from Coyote up in Alaska, great performance out of our Australian business unit where we increase some reserves there. And then just some of the commercial negotiations we do across Asia and that is to add some reserves there as well. So Important for us reserves to keep a really close eye on it. And I think it's a good litmus test of sort of how well basically we're doing and we couldn't be happy with it.

And I would add just one thing, James, as well. I mean people ask us, when we talk about our sub-$40 resource -- sub-$40 cost resource that we have inside the company. And is it real or how real is it? I think this is the proof point is we're converting those resources into reserves you ought to feel comfortable, and we've been doing this over the long haul, both in our history and we given Andy's comments, that's what we expect to happen going forward because of that the resource that we've got captured inside the company and our focus on the organic investments in the company to turn that resource into reserves.

Our next question comes from Paul Cheng from Scotiabank.

Ryan, just curious, you still have another $1 million the Lower 48. But I think no matter how we look at it, Shale oil is getting mature. And as that happened, how over the next 5 years, your capital allocation is going to shift or that is going to make any changes to position the company post 2030.

I mean we clearly that you have a very, I think, visible path for the next 5 years. But post 2030 that with that major asset is going to be maturing. How are you going to position given your very large companies, so to turn a big ship going to take time?

Yes. Thanks, Paul. Look, we -- our view inside the Lower 48, just in particular, is over 2 decades of low-cost supply inventory. So we're going to be in this business for 20-plus years. It's not going to roll over in 5 years in our portfolio. But I take your point, I think broadly in the industry, we're at these kinds of prices seeing sort of flattish production in the shale, North American or U.S. shale, but that is not the case inside our company. So we will see sort of major project capital spend, the preproductive capital that Andy talked about, that will start to roll off through the end of this decade.

We continue to -- we'll see growth in our unconventional investments as we continue to capture efficiencies and look at that business, but we've got multiple decades of growth opportunity there. And then Kirk talked about the rest of the business. We see opportunities in Alaska. We see them in Canada. We see them -- we talked about at [indiscernible], the signing of the new agreement in Libya. So I think we're just in a completely different place than a lot of our competitors, and we've got a lot of optionality for investment in the portfolio to continue sort of modest growth depending on what the commodity price environment ends up being.

And again, we're pretty constructive long term as we see demand growth continuing to grow. So that's going to give us the opportunity to continue to invest organically in the portfolio across a broad set of assets that have already captured to develop that resource potential that we have. And it doesn't stop by the next decade in the Lower 48, it continues for quite a period of time. And I think all the data -- third-party data supports that. We're just not talking our book here.

Our next question comes from Charles Meade from Johnson Rice.

If I could, I'd like to go back to Alaska. And can you give us an update on how this season's costs at Willow are tracking versus the updated assumptions you guys gave us last quarter and perhaps fitting in that or maybe tacking on to that, if -- how the loss of this rig 26, whether it's going to affect you either on your development or exploration side?

Charles, thanks for the question. We certainly had a number of inbounds especially on the latter part of your question around the rig incident. So I might start there, and then, of course, I'll address your question on Willow. Certainly, a very unfortunate event there with that rig D26. Of course, naturally top of mind for us, we're the folks that -- the individuals that were around the rig and the few that we're piloting that rig. Fortunately, no injuries. And of course, the owner, the operator of that rig are ultimately accountable and they are leaving both the investigation and the response. We're naturally in support of that company. And working with them as they coordinate and manage in and around that.

That rig was 1 of 2 rigs that we had planned for the exploration program. here this year. We roughly assigned 2 wells for each one of those rigs. And of course, we have multiple rigs up there running. And so we were able to just simply backfill that D26 rig with one of the active rigs that we have operating within our existing units. And so the exploration program continues, and we'll be able to pivot those rigs back after the exploration season into our ongoing development. So no change to either exploration.

And to your point around Willow, we have 2 rigs premised for the predrill on Willow leading up to start up in early 2029. And D26 was one of those rigs. Now again, because we have multiple rigs deploying, no impact. And again, pre-drill starts for Willow next year in 2027. So ultimately, what you're hearing from me is after that unfortunate event, no impact on our exploration and no impact on Willow.

On Willow, you heard certainly earlier in my comments that we were able to get out early due to an early start to the winter season and some cold weather with ice, the same goes for Willow. And so that winter construction season for us started early. It's on track and proceeding really quite well. When we think about the work scope that we have planned here for this year, it really revolves around some of the earlier points you've heard from me. We're trying to knock out the bulk of the grab work here this year, roads, pads, the airstrip so that we have full year-round access into Willow in a more efficient way than we have in the past. We'll be continuing pipeline work, bridges, et cetera.

And then, of course, all the work here out of the state on prefab of the process modules continues, and we're seeing some strong progress from our business partners on that front as well. And then back to your point, yes, we're seeing costs come in as we guided. We're seeing that cascade down largely because last year's winter construction season was our largest. And then we've been able to knock out some pretty important milestones up there on the North Slope. Our permanent camp there in Willow is open. And that's because it allows us to start moving away from a turning away a lot of these temporary camps that we've had to rely on. And so this is part of the story about our ability to wind capital down from previous levels in the last few years.

So we'll be coming in on pretty major milestone here within the next couple of months of being 50% complete on the project. And so naturally, both cost and schedule are looking good for us for an early 2029 first oil.

Our last question will come from Kevin MacCurdy from Pickary Energy Partners.

I wanted to ask about Canada. You highlighted that the 104 WA Surmont pad was ahead of schedule. I wonder if you can talk about the financial and operational impacts and the timing of that pad was CapEx and production brought forward? And do you think this could be like an ongoing trend for your operations there?

Yes. Appreciate the question on Canada. It's a place the Surmont asset specifically is one where we just continue to see really strong performance. And ultimately, we have positioned ourselves for first oil -- first team late last year and then first oil early this year. That came in about a month early. And that was on PAD 104 WA. And so ultimately, that activity is cascading through. It's, in essence, rolling through as we have started work on the next PAD 104 WB. And as you've heard from me in the past, we're expecting to bring on a new PAD roughly every 12 to 18 months, and we are expecting this next PAD to come on in about 12 months from now for a first team and first oil.

And so that activity is really quite level loaded. Certainly, as you can imagine, with that kind of pace. And so we're not seeing necessarily a material change in certainly how we think about capital or even or even our production profile, other than it derisks certainly the growth that we've started to see.

And when we think about -- I talk about growth in Surmont, it's really quite moderate and disciplined with this pace of capital deployment. So again, we took a bit of a cut last year with having reached payout on the full Surmont project last year. Net royalty has changed on us. And yet when I back up a little bit and I think about the health of the asset and how it's performing, gross volumes continue to be climbing and to be up. So we're -- the performance of these pads is offsetting decline. And again, just really pleased with how the overall asset is performing and how our capital and production is coming in on trend.

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

Welcome to the Third Quarter 2025 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin.

Thank you, Liz, and welcome, everyone, to our third quarter 2025 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial; Nick Olds, Executive Vice President of Lower 48 and Global HSE; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions.

Ryan and Andy will kick off the call with opening remarks today, after which the team will be available for your questions. For Q&A, we will be taking one question per caller.

A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website.

Second, during this call, we will make forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings.

We'll make reference to some non-GAAP financial measures today, Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website.

With that, I'll turn the call over to Ryan.

Thanks, Guy, and thank you to everyone for joining our third quarter 2025 earnings conference call. We have a lot to cover today, including our third quarter results, improved 2025 outlook, strategic updates and our preliminary 2026 guidance.

Now starting with our third quarter results. This was another very strong execution quarter. We again exceeded the top end of our production guidance, demonstrating the power of our diversified portfolio with both capital spending and operating costs declining quarter-on-quarter. On the back of this strong performance, we raised our full year production guidance, and we have reduced our adjusted operating cost guidance for the second time this year. In fact, we have improved all our major guidance drivers since the beginning of 2025. CapEx, operating cost and production, further demonstrating the strength of our team's execution.

On return of capital, we raised our base dividend by 8%, consistent with our goal to deliver top quartile dividend growth relative to the S&P 500. This type of dividend growth is sustainable given the strength of our outlook and expectation for our free cash flow breakeven to decline into the low 30s WTI by the end of the decade. Year-to-date, we've returned about 45% of our CFO to shareholders, in line with our full year guidance and our longer-term track record.

Turning to our strategic updates. At the Willow project in Alaska, after completing our largest winter construction season and conducting a comprehensive project review, we've increased our project capital estimate to $8.5 billion to $9 billion. This change is primarily attributable to higher-than-expected general inflation and localized North Slope cost escalation. Despite cost pressures, we have maintained the project schedule and made excellent progress on scope execution, nearing first oil to early 2029.

We also continue to advance our global LNG projects, another key driver of our expected free cash flow inflection. We have reduced total LNG project capital by $600 million. Our three equity projects, NFE and NFS in Qatar and Phase 1 at Port Arthur LNG are on track and have been substantially derisked. Capital spending is now about 80% complete with our first startup expected next year at NFE.

Looking ahead to 2026, recognizing it's early, the macro remains volatile, and that our portfolio is highly flexible. Our preliminary guidance for both CapEx and OpEx is to be improved significantly, down about $1 billion on a combined basis from this year. And in fact, relative to our pro forma 2024, they are down about $3 billion. Underlying production should be flat to up next year, a reasonable starting point given the current macro environment.

Looking beyond just the near term, ConocoPhillips continues to offer a compelling value proposition to the market, one that is differentiated relative to our sector and to the broader S&P 500. We believe we have the highest quality asset base in our peer space. Our global portfolio is deep, durable and diverse with the most advantaged U.S. inventory position in the sector. We are uniquely investing in our portfolio and driving significant efficiencies throughout the organization to deliver improving returns on and off capital and a leading multiyear free cash flow growth profile.

Consistent with our guidance last quarter, we continue to expect the four major projects we are progressing along with our recently announced cost reduction and margin enhancement efforts to drive a $7 billion free cash flow inflection by 2029, potentially doubling the consensus expectation for free cash flow this year. That free cash flow inflection is now underway. We expect to realize about $1 billion annually through 2026 through 2028 before an additional $4 billion in 2029 once Willow comes online. That's a growth trajectory that's unmatched in our sector.

So bottom line, we're performing well. We are delivering on our plan, and we're well positioned for 2026 and beyond.

Now with that, let me turn the call over to Andy to cover our third quarter performance, major project updates and 2026 guidance in more detail.

Thanks, Ryan. Starting with our third quarter performance. As Ryan mentioned, we had another quarter of strong execution across the portfolio. We produced 2,399,000 barrels of oil equivalent per day, once again exceeding the high end of our production guidance. Regarding third quarter financials, we generated $1.61 per share in adjusted earnings and $5.4 billion of CFO. Capital expenditures were $2.9 billion, down quarter-on-quarter as we passed the peak of our major project capital investment cycle.

We returned over $2.2 billion to our shareholders including $1.3 billion in buybacks and $1 billion in ordinary dividends. Through the third quarter, we've now returned $7 billion to our shareholders or about 45% of our CFO, consistent with our full year guidance and our long-term track record. We ended the quarter with cash and short-term investments of $6.6 billion plus $1.1 billion in long-term liquid investments.

Turning to our outlook for 2025. We've raised our full year production guidance to 2,375,000 barrels of oil equivalent per day, up 15,000 from our prior guidance midpoint. This is even after considering Anadarko's sale of approximately 40,000 barrels a day of oil equivalent, which closed on October 1.

We're reducing our operating cost guidance to $10.6 billion down from the prior guidance midpoint of $10.8 billion and our initial guidance at the beginning of the year of $11 million.

We're also making great progress on our asset sales program. with another $0.5 billion on top of what we announced last quarter. That takes us up to over $3 billion of asset sales out of our $5 billion target. Of this amount, $1.6 billion was closed and the cash was received through the third quarter, and we have another $1.5 billion that will have closed in the fourth quarter. That includes the remainder of the Anadarko disposition proceeds as well as additional noncore Lower 48 assets.

Turning now to our strategic updates. At Willow, we have updated our total project capital estimate to $8.5 billion to $9 billion. After successfully completing peak winter season, we undertook a detailed bottom-up reforecast of the project. And as a result of increased our cost estimate. The increase is primarily due to higher general labor and equipment inflation and increased inflation on North Slope construction.

Scope execution has remained strong. We're nearing 50% project completion. This has allowed us to narrow our estimate of initial production to early 2029. Importantly, we can now level load the pace of our future work. More specifically, 2025 Willow project capital is forecast to be just north of $2 billion. We plan to reduce capital to around $1.7 billion a year from 2026 through 2028. After achieving first oil, ongoing development capital will decline to about $0.5 billion a year for several years. We continue to expect Willow to deliver $4 billion of free cash flow inflection in 2029 consistent with our prior commentary.

Turning to our three LNG projects, NFE and NFS in Qatar and Port Arthur LNG Phase 1. We are reducing our total project capital estimate from $4 billion to $3.4 billion. This reduction is due to a $600 million credit from Port Arthur Phase 2. The credit is for shared infrastructure costs previously incurred by Phase 1 equity holders. As a reminder, we only have equity in Phase 1, not Phase 2. With this credit, we're approximately 80% complete with our total project capital for these three LNG projects, approximately $800 million of project capital remains averaging just north of $250 million of spend annually with a declining trend from 2026 to 2028. All projects remain on track, we continue to expect first LNG from NFE in '26, Port Arthur after in '27 and NFS after that.

We're also making considerable progress in advancing our commercial LNG strategy which will further strengthen our long-term free cash flow generation capacity. As a reminder, our strategy is to connect low-cost supply North American natural gas to higher value international markets. We are leveraging our decades of LNG experience and our global scale to advance our strategy, which nicely complements our more than 2 Bcf a day or 15 MTPA equivalent of Henry Hub-linked U.S. natural gas production. We have fully placed the first 5 MTPA from Port Arthur Phase 1 with combined [indiscernible] and sales agreements into Europe and Asia.

In terms of offtake, we've recently agreed to take 4 MTPA from Port Arthur 2 and 1 MTPA from Rio Grande LNG, bringing our total offtake portfolio to about 10 MTPA, the lower end of our stated 10 to 15 MTPA ambition.

Now turning to our outlook for 2026. We are providing a high-level framework, assuming about a $60 a barrel WTI price environment. First, we continue to expect a significant reduction to our capital spend next year, about $0.5 billion lower than the midpoint of our 2025 guidance. So in round numbers, that's about $12 billion for 2026. The year-on-year decline is driven by a reduction in our major project spend, including Willow and the steady-state activity we achieved on the Lower 48 methane oil assets earlier this year.

In addition to lowering our capital spend in 2026, we also expect to lower our operating costs. This is largely due to the $1 billion of cost reduction and margin enhancement efforts we disclosed last quarter. We expect our cost in 2026 to be approximately $10.2 billion, down $400 million from our current year guidance and down $1 billion from our pro forma 2024 operating costs, including Marathon Oil.

Turning to our production. We expect to deliver flat to 2% underlying growth in 2026, a reasonable planning assumption considering the ongoing macro volatility. Additional guidance can be found in our earnings material including our oil mix and our equity of full year distributions.

Now addressing our multiyear outlook, there are a few important points I'd like to make. First, the free cash flow inflection guidance we previously provided remains unchanged. We expect our four in-progress major projects and our $1 billion cost reduction and margin enhancement efforts to deliver $7 billion of free cash flow inflection by 2029. In terms of the timing of that $7 billion, we expect to realize about $1 billion of improvement each year from 2026 through 2028, amounting to $3 billion of free cash flow improvement by 2028. The remaining $4 billion will come in 2029 once Willow starts up.

Bottom line, using 2025 as a baseline, this translates to a double-digit free cash flow growth CAGR through 2028 before another material step-up in 2029, which will approximately double our 2025 free cash flow.

So to wrap up, we continue to execute well, operationally, financially and across our strategic initiatives. We are well positioned for a strong finish to the year and a good start to 2026. We and we continue to find ways to enhance our differentiated long-term investment thesis. That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A.

[Operator Instructions] Our first question comes from Neil Mehta from Goldman Sachs.

I appreciate the time here, and I want to unpack Willow a bit because while there was a lot of good stuff in the -- in terms of execution in the quarter, the Willow update, obviously, was a little disappointing. So on your perspective on -- the bridging from the [ 7 to 7.5 to 8.5 to 9 ], do you feel, Ryan, that we've got a good handle around the project at this point because the history of major capital projects sometimes is there are multiple legs of announcements around overruns. And on the bright side, it seems like while there's cost overrun here, the timing is really intact. So just unpacking Slide 4 would be great.

Yes. Thank you, Neil. Appreciate the question. And certainly, I appreciate key project for the company. And I know giving some clarity on where we've been, where we're at today and what that future looks like is important to provide that insight and to clarity. So I've asked Kirk to unpack this a little bit using your words, Neil, and spend a little bit of time to make sure you all understand sort of where we're at today and where we're going in the future. So let me ask Kirk to do that and provide a lot more clarity to that.

Certainly, as you heard in our prepared remarks or this morning from Ryan and from Andy, we are increasing our guide on total project capital for the Willow project to a range of $8.5 billion to $9 billion. And I'll start by recognizing the strong execution that we've been achieving through our project team. Certainly, as you've heard from me before, we're hitting the key milestones that we premised in our project plan that, of course, we laid out at FID back in 2023.

And so in this past quarter, we chose to perform a pretty rigorous bottoms-up comprehensive project review, and we were looking at scope, schedule and, of course, total project costs. And we were doing that in recognition that we knew we were coming in on about 50% completion, expect to see that as we move into this next winter season. And it's common practice for us to take on a pretty rigorous again, bottoms up at this place and projects of this nature and of this size. And coming out of that exercise, we were able to provide two new guides on the project, not just capital but also on schedule.

So starting with the first, the new guide on capital. is a confirmation really largely of one driver. And that's what we've realized higher inflation post FID in 2023. So addressing that maybe a little bit more detail here. Total inflation is roughly 80% of the increase on our new capital guide. And I'll start with general inflation, which has been modestly higher across a few key categories that we've seen on the projects, general labor materials and then engineering equipment as well. And all of that makes up over half and in fact, about 60% of our total project spend. So seeing that higher inflation is really culminating largely in what you're seeing in this new capital guide. As you can imagine, just a few percent higher. We originally expected just a couple of percent of routine standard inflation across the period of the project, but just a couple of percent higher in inflation rates across the 5-year duration on our project is driving this 15% increase against what was our original expectations at FID expecting lower inflation.

And then a bit more unique to this project. We've also incurred some localized escalation, particularly in our Alaska North Slope specific markets. And that's really been driven by the fact that we've incurred more overlap of the peak construction seasons between our project and other projects ongoing in Alaska than we had originally expected. And that's resulting in roughly a 2x increase in the regional activity there in the state. That stressed the local markets, [ zinc ] labor, logistics, such as trucking marine and then even the availability of camps for our construction work there on the slope.

We're often asked about tariffs. We have seen some impacts on tariffs, but albeit it's really been low single-digit percentages as a total of the increase we're seeing on that project.

And then the last component on the upward cost pressure is related to a few decisions that we've made to ensure that we're mitigating total project risk and especially schedule risk, just to ensure that we're hitting the milestones that we need especially on the front end of this project. And you've heard from me that we're hitting those. And so those have really paid well for us. We pre-staged equipment on winter season to ensure that we can knock out all the scope that we had originally premised. And again, that's giving us the ability and the confidence to be able to guide you a bit more even on schedule.

So to summarize, we've moved from about 50% of our contracts being locked up at FID back a couple of years ago to now being well over 90% of our facility contracts being secured. And a bulk of those are tied to market indices that gives us transparency as the market moves and creates a lot of accountability with us and our business partners as we move through a project of this size. And so this summer, again, was the time for us to reconcile the actual inflation that we've been seeing over the last couple of years against the forward-looking expectation. And you're hearing from me, we're, in essence, taking forward the type of inflation that we've been realizing forward into the next couple of years just to ensure that we're being conservative through this process.

So looking ahead, again, back to execution. We've wrapped up detailed engineering that compels us to keep moving forward on the process module fabrication that's a longer duration activity. It moves from this year into early 2027 in which we'll see lift those modules to the slope, spend 2028, getting those into the Willow development area and hooking up and commissioning those first oil in 2029.

Again, I'll wrap this up with an acknowledgment that we're just seeing really strong execution across the project, and that's foundational. It's paramount for us in a project of this kind and we're on track with all of our major scopes of work. And again, all of this is culminating and not just to guide on capital, but then our ability to provide an accelerated guide on first oil to the early part of '29.

I would just wrap it up, Neil, by saying that we're certainly disappointed that the costs are higher, but certainly, we've taken measures across our portfolio to mitigate the increase. And I think you see that in our first -- that's why we thought it was important to give some guide to 2026. But the teams are executing well and the projects really hitting all the milestones as Kirk described. We think it's a -- continues to be a world-class project. It will be a huge driver of our free cash flow inflection that's coming over the next 3 to 4 years and towards -- and really complete towards the end of the decade.

And then -- the last thing I'd say is we're going out probably with a bigger exploration program we've had in Alaska in a number of years. And it's that opportunity again to take advantage of this infrastructure that we're building for the long-term growth and development of the company. And if we're right about our macro call and where we think the macro is going, we're going to need this conventional oil to satisfy some of that growing demand around the world that we see. So it fits all of our strategic buckets as well. So I know a long kind of explanation to the initial question out of the bat, we thought it was important to provide some of that clarity and context around it to give you comfort. We know where we've been, we know where we're at, and we know where we're going.

Our next question comes from Arun Jayaram with JPMorgan.

Ryan, I was wondering if you could just -- maybe a quick follow-up on Willow, the F&D on the project goes up by $200 to $250 per BOE based on your updated outlook. I was just wondering if you could comment on how this impacts your project returns and just overall breakevens assuming, call it, mid-$60 Brent type of price.

Well, yes, thanks, Arun. Certainly, the estimate increase does impact the cost supply of this individual project going forward. It still fits well within our portfolio. It's still very competitive within the portfolio. And again, we think longer term, we think about the future opportunities that are going to come from this infrastructure, which is our history sitting on the North Slope. We've always -- the satellite discoveries that we get benefit from the infrastructure that we built and we fully expect that to be the case going forward with Willow.

And then I'd remind you on the back end of this, the margins are still quite attractive because Alaska is 100% oil, sells at a premium to Brent typically on the West Coast of the United States. So that's why even with maybe a little slightly higher F&D as you pointed out, we still feel very comfortable with the margin and it's competitive in the portfolio, and it's going to deliver a project for the company that will add to its future growth and development.

Our next question comes from Betty Jiang from Barclays.

I want to maybe shift focus to the Lower 48. Just -- we talk a lot about the free cash flow from the major capital projects, but noticing that the Lower 48 CapEx is also trending lower in the second half of '25 versus first half? And if you're staying here, CapEx will be lower year-on-year in '26, while still perhaps growing in that asset. So can you speak to the CapEx trajectory there? And how do you see the free cash flow progressing from the Lower 48?

Yes. Because -- Betty, you're exactly right. Maybe I'll take you back a little bit on the capital projection and a little bit of the efficiencies that we're seeing within the Lower 48 portfolio.

If you recall back in 2Q, we achieved our level-loaded steady state program within the development strategy with integrating the Marathon assets. And so if you recall, we went from 34 rigs down to 24 rigs, so a pretty significant reduction. And we're still delivering kind of low single-digit growth in that. So obviously, we're taking in stock that lower capital from going first half to second half, and you're going to see that in the capital projections going forward.

Another key component of that, Betty, is a lot around the efficiency improvements that we've seen getting into that level [ though at city ] state program, which I can talk more about, but we're seeing a significant improvement on drilling performance as well as our completions, that will continue into 2026. So if you kind of look at where we're currently at, we're probably going to be on a run rate basis for 2026, something similar to 3Q for capital in 2026, and we will continue to have that level-loaded steady-state program, roughly at 24 rigs in [ a frac crews ] going forward.

As far as free cash flow, I'll probably let Andy talk about the total company, but we continue to see expansion with, again, all the efficiency improvements that we're seeing with the productivity that you saw in 3Q, a really good strong quarter.

Yes, Betty, it's Andy. I'll just jump in and sort of add on to what Nick was saying there. So we feel it's important sort of on the free cash flow inflection to talk specifically to the three LNG projects of Willow. But of course, there's a lot more than that going on in our company, and Nick just described what we've got with Lower 48. And the flexibility we have within the Lower 48, without inventory if we wanted to ramp up that cash flow growth. But even beyond that, there's other things that we don't factor into that free cash flow inflection.

Commercial, for example, we talked about the commercial sort of strategy, we've got put off of Phase 2. We've got Rio Grande that we just mentioned today that will come on after Willow. That's going to be sort of the 2030 time frame. So there's a lot more going on in a company than just those four projects. We've got other things going on sort of in Canada, in Alaska, around some other international assets, but we just wanted to keep line of sight on this specific free cash flow inflection and then we obviously have ability to add to that.

Our next question comes from Stephen Richardson from Evercore ISI.

Andy, it's a good segue from what you just mentioned about some of the other assets. I was wondering if you could -- it sounds like you've got some good visibility on some of the organic and capital-efficient opportunities in the portfolio. In Alaska, I was wondering if you could talk about some of the regulatory and permit changes and how you're thinking about incremental opportunities either in legacy ops or extending the resource at Willow. And then if I could, if you could maybe talk a little bit about Surmont. You've talked about incremental steam potential, but I understand that there's some other things that you could be doing now that you've got your arms around that asset and to improve it with minimal capital.

Yes. Thanks, Steve. I'll take that. I think that it's -- yes, Andy's answer to the last one. It's -- this update is a lot about Willow and some of the major projects to give the market some clarity as to what we have going on there and some clarity into our free cash flow growth. And it doesn't really address and assume some of the things we have that we're studying inside the portfolio as well, and you mentioned a few of those because I think we do have a strategic question longer term, if I recall on the macro, he's right. where is the conventional oil going to come from to satisfy the growing demand. And we see that demand growing clearly 1 million barrels a day or so per year for the foreseeable future.

And when we look inside the portfolio, it's not only what we're doing in Willow and what we believe are going to be the added sort of pads that we can develop there. And to your point, we're working with the administration to identify some ways to streamline the permitting. I think you saw an early read of that with the new rules that are coming out for development in NPRA, that's just sort of the start. There's more things coming that will give us -- what we think is going to be a lot more clarity to faster permitting approvals coming in Alaska going forward. So watch that space as we move on and hopefully not only make it more profitable and easier and faster but also more durable with changing administrations.

And then to your other point, yes, when we look -- that's just Alaska, and I commend the team also managing the base. There's a lot of activity going on the base side in Alaska as well. We have flexibility at the Montney asset to ramp up, should the call on crude be required to go do that. You mentioned Surmont. We're right now debottlenecking that plant as we speak. Now that we own 100% of that plant, we were able to make some investments in there that our previous partner were not approving. So we're taking the gross productive capacity of the plant up today. And then looking at future. Can we add a few scheme generation capacity to accelerate some of the development that we have with the huge resource that we have around Surmont. That's very competitive in a -- all at sub-$40 cost of supply.

So when we look at the whole portfolio and you look at the deep inventory, we have in the Lower 48, combined with the other conventional opportunities we have around the world, we're really set up for decades of growth in this business. I like where we're at, and I like the portfolio and what we're doing today and the optionality that it creates for the company over the short, medium and long term.

Our next question comes from Lloyd Byrne with Jefferies.

Ryan or Andy, I was just hoping you could spend a little bit more time on the OpEx. I mean, $400 million improvement and in light of it kind of being the second cut this year, it's just what's changing? Maybe remind us of the big factors that have improved and whether you can improve it further?

Yes. Thanks, Lloyd. I can take that one. I think at the highest level, the first thing I would say is that we're executing really well in -- with our cost and capturing the savings. And as you said, that's why we've been able to reduce the guidance for the second time this year. But going into a few specifics, I would remind people that we've already achieved now 75% of the mouth and synergies that we were talking about over the prior quarters, that's in our cost, and we'll have that basically completely into our cost by the time we get sort of to the end of this year on a run rate basis. So we're exceptionally pleased with how smoothly that's gone in delivering on those cost reductions that we've previously talked about.

And then as we look to 2026, stepping the cost down again, as you said, that's basically getting the full year benefit of some marathon synergies that we've just described. But then we expect to capture a meaningful amount of the cost improvements that we announced on our last quarter call. And we're -- that's basically going to drive some pretty meaningful reductions in our costs as we go through next year. It's -- they are the kind of the key things. And when we think about sort of how we reduce costs, we have sort of a mindset that this is continuous improvement. So we absolutely sort of challenge ourselves to sort of look at how we can basically continue to reduce those costs over time. But I think we're very pleased with sort of how we're doing that and sort of how that's showing up in our bottom line.

And I would add, Lloyd, you know us well, these reductions aren't conflated with capital kinds of things. They're not due to dispositions in the portfolio. We don't have lines of reconciliation because the net doesn't ever show up, and they're not cumulative. These are costs that will show up on our bottom line. And as I've said before, just watch us every quarter, and you'll see them materialize. They'll be real and they'll head straight to the bottom line and to our free cash flow inflection that we've been talking about for the next number of years.

Our next question comes from Scott Hanold from RBC Capital Markets.

I know it's always challenging to provide forward guidance with some uncertainty on commodity prices. So I appreciate the details on '26. Looking at total production and capital, it does appear similar to consensus numbers, but there does appear to be a variance to oil, our oil guide relative to consensus. And was hoping you could help us walk through where we might have sort of missed that? And we do understand there's a lot of complexity given the diversity of assets and other things like [ Surmont Post ] payout. But I was wondering if you could walk us through some of that.

Scott, this is Andy. I'll get us started with a couple of points here, and then maybe Nick can add a bit more detail on the Lower 48 for us. So just a couple of things I'd say is that if you look at our third quarter, at the total company, we're at a mix of about 53% oil. And this is the first quarter now where we have the full impact of Surmont that you just referenced. So we now have a higher royalty into Surmont. So the third quarter is a pretty good mark basically as we think about 2026. And we've provided guidance. I hope you found that helpful, where we've now provided guidance basically for an oil split. And we're basically forecasting '26 to be about that 53% for the total company, and that does include sort of the bitumen impact of higher royalties of Surmont. And then specifically to Lower 48, we're guiding about 50% for the Lower 48.

And then just one final point I would make before Nick can maybe comment on the Lower 48 is when we provided our '26 guidance of 0% to 2% range, for BOEs, that's also a good range for how we're thinking about oil as well sort of -- so I think we've tried to sort of guide a bit more on this time, we would say, we recognize as you provided for us upfront, there's a lot of moving parts here, but across the portfolio. But now that's 53% for the total company, we think, is a good mark for next year. And maybe Nick can just had a few comments on Lower 48.

Thanks, Andy. Yes, if you look at 3Q Lower 48 oil mix, we are around above 50% and you can compare that to 2Q, it was about 50.5%. And that was in line with our expectations and our development plan. going forward. As Andy mentioned, we're guiding to oil mix at 50% when you look at 2026 forward. And again, that's simply an output of our plan and an output of our development plans where we're developing in the various basins.

Now as a reminder for the group within the Delaware, that is our most significant growth driver within the Lower 48. So it shouldn't be a surprise to this group that oil mix will trend in that direction. It's low cost of supply, higher gas content, but very good strong oil content and good returns. Another key component to think through is we've got two decades plus of drilling inventory at current rig activity levels in the door. It's a peer-leading opportunity set out there.

Now one other component I need to think through is that oil mix can fluctuate depending on the relative contributions from these basins as we drill in different areas. So you might have some higher oil mix and some more oil mix and variations from quarter-to-quarter. But overall, as Andy mentioned, 50% on Lower 48 [indiscernible] Mexico forward.

Our next question comes from Doug Leggate, from Wolfe Research.

Guys, I'm going to try very hard to make this one question, but I'm hoping you can maybe help us navigate the moving parts a little bit. My question is on -- it's principally on Willow and the CapEx, what happens after Willow, but it's really about the evolution of your dividend breakeven because I think the Willow news has overshadowed the other big news, which, of course, is your dividend increase. So I guess my -- the way I would try to phrase the question is how damaging is the increase in Willow's spending to the cash cadence of the cash flow coming back. And I guess my point specifically is you get qualified CapEx deductible and taxes in Alaska is pretty advantaged. So can you walk us through how big a deal this really is and what happens to the dividend breakeven as Willow comes online.

Doug, this is Andy. I can try and step through that. I think you sort of half answered the question for me in terms of sort of how this works on a tax basis. And Ryan touched on this also in the prepared remarks. And the way I would look at it sort of at a total company level, is our breakeven is coming down, and it's coming down pretty substantially. Just right -- we think about where we are right now our breakeven this year, so just on CapEx is in the mid-40s, you'd add another [ 10 ] to that for the dividend. Just from what we've described today from what we're doing from '25 to '26, that brings our breakeven down in of itself $2 to $3. So we're on this trajectory of, yes, cash flow inflection is going in one direction, which is great. And then our breakeven is also coming down, which is great.

And as Ryan said in his prepared remarks, that's going to continue to happen where we're going to go all the way down to being in the low 30s on a capital breakeven, but the time will comes online. So I don't think what we've described today with CapEx in Willow going up. And let's not forget also the LNG CapEx coming down, there's having any really sort of notable impact on our breakevens and our ability to sort of generate cash flow over this time frame and our cash flow inflection remains unchanged. And that's why -- and I think you started the question with the dividend. And hopefully, that isn't getting lost in all of the news that we're describing today. But we have now increased that dividend by 8%, and this is now the fifth year of us having top quartile growth of the dividend. And versus the S&P 500. And we feel very confident with that breakeven that, that continues.

Yes. And I would add as well, Doug. Look, it's -- and it's sustainable given the breakeven coming down, as Andy described, the dividend is representing a lower portion of our total cash flow in terms of our distribution back to the shareholders. So how to give the shareholders and stakeholders in the company, a lot of comfort and conviction that we can continue to deliver top quartile S&P 500 dividend growth in the company well into the future given the projects that we're executing, the cost supply of those projects and the free cash flow growth we're going to see coming out of the company. So it's quite sustainable and leaves us room to buy back some of our shares, which we're leaning into quite a bit right now.

Our next question comes from Bob Brackett from Bernstein Research.

As much as I'd love to ask a few questions on Willow, I'll change the topic a bit, and that is to talk about the 2026 guide at 0% to 2%. And we've seen other large E&Ps and integrators with similar sorts of guides in a backdrop where WTI is sitting below [ 60 ]. So can you talk about what macro world you envision or which you plan for that we're going to see next year? And how does that inform that capital guide and production guide?

Yes. Thanks, Bob. I think -- I would like to say we have a lot of flexibility in the company. Production is kind of an output of our plans. We kind of set sort of a constant level loaded scope within the Lower 48. Nick talked a lot about what that means for kind of the production growth we see coming out of that.

Our view of the macro supportive, again, we kind of set this at a $60 WTI to your point, WTI is trading a little bit below $60 at this moment in time. Our call would be probably seeing some inventory builds. We saw some of this last week. We'll see how it continues onshore in the OECD countries, but we price some downside pressure coming through the latter part of the ending part of this year and into maybe the first part of next year.

So -- but that's why we have a balance sheet. That's why we have cash on the balance sheet. We want to continue to fund our programs. We came out with a 0% to 2%. We think that sort of makes a lot of sense with the macro that we're seeing today, but it also is informed by the medium and longer term, which we're quite constructive on today. Again, we see about 1 million barrels a day of demand growth not abating itself throughout this decade and well into the next decade. And we think there's going to be a call on crude and even a call on conventional crude depending on what you believe the unconventional supply coming out of the U.S. is going to look like at these kinds of prices or even elevated prices. So we see some modest growth in the unconventionals, continuing maybe flat to slightly -- some slight growth into next year depending on the price. But I think it sets up well to be a bit more reflective as we go into 2026, which is what we've tried to show with our 0% to 2%. But remind everybody, we've got a lot of flexibility in the portfolio, both ways. We can -- we have opportunities to reduce more CapEx. Should we think that's the need. We can use the balance sheet? Should we decide to do that? Then obviously, we've got opportunities to ramp up on the other end as well. So we just think we have a lot of flexibility in the company, but I think this is a good place to start based on sort of how we view the near-term macro and where it's been developing.

Our next question comes from Jeoffrey Lambujon from Tudor, Pickering and Holt.

I'll bring it back to Willow, if I could. And honestly, I appreciate the detail earlier in the call that spoke to the breakdown there on the refreshed expectations. Can you also talk about the confidence level in the updated range? And essentially, what might be locked in from here? It would be great to just get a sense for what flexibility there might be up or down if things change enough over the course of the build-out or if the wider range that you have now captured the most likely scenarios in your view, and it's more a function of where you end up within that range.

Again, I would say we're winding back here a little bit, we recognize there was quite a bit of inflation coming out post COVID over the couple of years leading up to our taking FID in late 2023, and we're actually seeing that a bit in late 2023, which is why we took a view of just a couple of percent and we felt like, obviously, the monetary actions globally, we're going to knock that back a little bit. And so again, we took that view at the time. And this is just a really good time for us being roughly halfway through the project to reconcile what we've been seeing over the last couple of years. And as you know, it's across labor markets and engineered equipment, we've definitely seen some movement which is much more on the average of 4.5% to 5%. And that's been actual and realized you can certainly see the data yourself across the last couple of years.

Now sitting here today, we're seeing inflation rates abate a bit. We're starting to see inflation again in the 3%, 3.5%. But candidly, we're taking a view that this compounding inflation could based on the contracts that we have tied to market indices could continue in that 4% to 5% range. And so we've largely budgeted for that for the next 3-plus years of the project, just to ensure that we're not kind of falling back into prior assumptions in FID. So I would say we've got a lot of confidence in the -- Obviously, in the way we're putting this capital guide forward here at this time. And again, able to stand here in this position with that confidence because the team is executing just so well on the project. And we're not seeing schedule slip. We're not seeing other challenges. Certainly, the upward cost pressure. You're not seeing you talk about scope discovery. This is really about inflation across the broader market, and we've taken a conservative view for the next couple of years. So confidence in how we're pushing this out here today. And again, just pleased with how the project is moving forward here for the next couple of years.

Our next question comes from Paul Cheng from Scotiabank.

Ryan, I think, as you mentioned earlier that you think that the maybe increasing coal and oil, even on the conventional, and when we're looking over the past 10 years, I think you guys [indiscernible] reduced your dependence on exploration because you have such a great profile in the Lower 48. And as the shale oil is maturing, how should we look at it? Would you think that you still have such a huge portfolio that you really don't need to increase your exploration effort, and you can just rely on that on the share [indiscernible] to continue with your resource, your production? Or that you think the challenge on the longer term is really not that we need to start maybe increasing the effort given it's a long-cycle business.

No. Thanks, Paul. I think you bring up -- I guess there's probably an industry-wide macro question around that. Are we investing enough industry-wide on the exploration side and we lost some of that muscle inside the industry for that and large project execution for that matter there. And there's probably a bit to that from the industry side. Speaking specifically to our company, you're right after kind of the early 2000 time frame when we first got into the Eagle Ford and saw the -- grown our unconventional position inside the company and then really changed the portfolio pretty dramatically over the last number of years to really focus on those low cost of supply opportunities and resources that we now have captured inside the company, it has put a less reliance on exploration. But I remind everybody, we continue to spend $200 million to $300 million a year on exploration to continue to feed some of the legacy assets we have around the company in years past, that's been in Malaysia and in Norway, we've moved that around throughout the years, depending on some of the activity level and the opportunity set that we find. And we're doing that again next year because we're focusing most of that exploration probably up in Alaska to support the Willow development and get our -- get the company in a position to be able to feed that infrastructure that we're building out there for decades to come. So it's about a redirection of exploration. But we've been able to do that within that $200 million to $300 million allocation inside the company. We just spud a well in the [indiscernible] Basin of Australia to try to find more gas that we can bring into Australia. So this is not just a one, area we're appraising the discoveries for Google that we had in Norway a year or so ago. So we are spending some of that money. To date, it hasn't captured a higher capital allocation inside the company because we've been able to get everything we wanted to get done for that $200 million to $300 million. But I think you're right, macro-wise, within the industry, you're seeing a lot more of that. We've just been blessed with a -- we're a resource-rich company in a resource starved world. It looks like going forward. So I think we're uniquely positioned relative to many of our peers in the industry with having to consider significant ramp-up in that capital allocation.

Our next question comes from Charles Meade from Johnson Rice.

I'd like to ask a big picture question about your global LNG strategy. And you guys make this distinction between resource LNG and commercial LNG. And I'm wondering if you can talk about how those two -- how you think differently about those two pieces of the business, how they complement each other and perhaps how they compete with each other? And maybe wrap into that, one can make the argument that with the amount of resource you guys have in the Lower 48 that make a distinction between resource LNG and commercial LNG is kind of a distinction without a difference. And maybe comment on whether that's a valid argument in your view.

Charles, this is Andy. Yes, it's a great question. And a big question, as you say, in terms of sort of comparing the two and how we think about them. So I'd probably go maybe back all the way to the beginning, we've been in the LNG business really since the 1960s. I think we're involved in basically sort of inventing this business. So we kind of know a thing or two about it. And we traditionally sort of until recent years, had the, what I would call the sort of the resource LNG sort of the [indiscernible] LNG business, where it's been very much about finding a stranded gas asset and you find a gas asset, you find people who will buy the LNG, then you build an LNG facility and off you go. That's kind of where this industry was for yours. And we are we've been a big player in that with our Australia asset and our Qatar assets over the years. And that has served us really well. But as you fast forward sort of to what's happening in the Lower 48. It's a little bit of a different model in and you kind of started to touch on this where you've got so much gas in the Lower 48. But you don't need to treat it like a facility-by-facility approach, where you've got the stranded gas that you're trying to tie to one facility. So it's -- the whole model is different effectively in that you're trying to take this gas in the Lower 48. And our strategy is pretty simple. We're trying to basically take what we think is low-cost supply in North American gas and get ourselves access to international pricing in TTF and JKM and that's exactly what we're positioning ourselves to do. We've made great progress in doing that with -- as I talked about in the prepared remarks, the 5 MTPA of Port Arthur Phase 1 that we've now fully placed. And then we're now moving on to Port Arthur Phase 2 where we took 4 MTPA and another 1 MTPA at Rio Grande. So we're trying to basically get ourselves in a situation where we can basically convert Lower 48 gas into international pricing.

And what I would remind everybody is that we're also in a position where this commercial strategy complements our business so well. We produce over 2 Bcf a day in the Lower 48 and 2 Bcf a day in round numbers is about 15 MTPA. So it also works as a natural hedge to our Lower 48 gas exposure. So I don't -- back to your -- first off, because I don't really see them as the resource LNG competing with what we're doing in the Lower 48. They're kind of different modules, but we've certainly been able to learn from the resource LNG. And that's why we've been able to sort of implement the strategy we are doing basically where we're trying to control the entire value chain and the only can do that with our global size and scale, and that's how we basically think we capture the economic rent. So hopefully, that helps sort of frame up how we think about the difference between the two. But I don't -- it's not like an either/or choice for us. We think that they both serve a really important role and we're happy to be playing in both as you can see with NFE and NFS on the resource side and what we're doing on the commercial side. With Port Arthur and the other announcements we've made today.

Our next question comes from James West from Melius Research.

I wanted to follow up on the LNG question. Obviously, the strategy is pretty clearly defined here. You had a lot of commercial movement. During the quarter, you're at 10 MTPA now, I think you've said in the past, 10 to 15 is kind of a range. Are we at a point where maybe you pause and digest or do you lean in and go up to that 15?

Yes. I'd say very briefly, our strategy remains unchanged. We're executing exactly what we said. We -- the 10 to 15 MTPA is a size that we feel very comfortable about. It gives us the size that we want to be able to optimize our portfolio, be able to divert cargoes as I mentioned in the prior question, be able to control really the value chain. And I don't think anything's really changed there, that the 10 to 15 is kind of what we're looking to fill out right now.

And I think, James, it's also a function of not getting too much commitments on the front and make sure you can place it on the back end. So we're being deliberate about that. And if we get more opportunity for low liquefaction costs opportunities will add more to the $10 million MTA, but we got to back it up with regas on the other end and have a plan for it. So we're being deliberate now that we've reached that 10 million-ton mark.

Our last question comes from Kevin MacCurdy from Pickering Energy Partners.

Thank you guys for fitting me in. I want to come back to Slide 7 for a moment on the incremental free cash flow. And I know that you've shown this before with the $4 billion of free cash flow from Willow but I think that's quite an eye-catching number. And I was wondering if you could provide anything high level on how you get there in terms of margins, production, maintenance, CapEx in that first year? And if that -- and also to ask if that's a fairly good number to use heading forward for Willow post-2029?

This is Kirk. Certainly, as you saw in the waterfall in the details in the supplementals on Willow, you can really take it directly from that. So as we compare against what was a historical and expected spend here this year of just over $2 billion, as mentioned by Andy, in the prepared remarks, we're expecting that here on the Willow Capital spend here for this year, and then that moves down, plateaus for the next couple of years. And then on sustaining capital, post first oil, we're expecting to spend roughly $0.5 billion and just continue development drilling for the Willow Project. Obviously, we're starting free drills, we've got predrill planned in 2027. And then that will extend in that predrilling is all baked within our total Willow project spend. But then post first oil, that $0.5 million. So in essence, what you're seeing is this inflection downward of capital from roughly $2 billion to an average of $0.5 billion first oil and then first oil, you're getting the CFO associated with, again, why we like Alaska. It's 100% oil sales, it's Brent premium. And again, that is the balance then of the $4 billion free cash flow improvement against a reduction of roughly $1.5 billion on CapEx.

And I'd just remind, Kevin, that you see how the prices that, that's assumed at $70 prices. And we've given a sensitivity to that as well in the materials.

Well, let me thank everybody for participating today. Just a few summary comments. We continue to execute well. We're improving our plan, and we're well positioned for a strong 2026 as evidenced by the new guidance we provided today.

And I'd say the team continued to find a lot of ways to enhance value in what we think is a differentiated investment thesis. We have an unmatched portfolio quality. We've got a leading Lower 48 inventory depth, combined with attractive longer-cycle investments in the LNG in Alaska that we've described today in quite a bit of detail. And we continue to have a strong track record of returns on and of our capital, and that's all leading to a sector-leading free cash flow growth profile that takes us all the way to the end of this decade. So thank you all for your interest in ConocoPhillips, and we appreciate the questions.

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