ConocoPhillips 2026 Q2 Earnings Call

Sir, you may begin. Thank you, Liz, 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; 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 one 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, 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 first. 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, 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. I'm incredibly proud of what we've accomplished together. 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 one times 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 begin contributing in 2027, and Willow continues to hit all key milestones in advance of first oil 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.

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

Thank you, Ryan. 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's 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 roles overseeing our operations I'm pleased to welcome Konnie Haynes-Welsh to the team, our new Chief Financial Officer.

She'll 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. 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.

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 offsets the impact of non-core asset sales of 15,000 barrels of oil equivalent per day in July.

Now let me walk you through the three 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 non-core Lower 48 asset sales in July. 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. We'll continue to high-grade and optimize our portfolio. That work never stops. Second, we recently signed two LNG offtake agreements, each for one million tons per annum, one in Indonesia and one on the U.S. Gulf Coast. These additions bring our total offtake to 12 million tons per annum. Mark 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. 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 advantaged, globally diversified portfolio. Each is a high-quality, long-life conventional asset with demonstrated production and meaningful redevelopment potential. They have attractive entry costs and highly competitive cost 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.