On Thursday, ConocoPhillips (NYSE:COP) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
ConocoPhillips reported strong first-quarter 2026 results with $2.4 billion in free cash flow and $2 billion returned to shareholders.
The Willow project in Alaska reached 50% completion, with significant progress in construction and exploration activities.
A third-party tolling agreement was executed in Equatorial Guinea, extending the LNG facility’s life into the next decade.
The company updated its guidance due to macroeconomic volatility, with an expected production midpoint of 2,310,000 barrels of oil equivalent per day for the year.
ConocoPhillips maintains its commitment to returning 45% of CFO to shareholders and is increasing Permian activity to sustain operational efficiency.
Management expressed confidence in achieving a $1 billion run rate in cost savings by year-end 2026.
The company’s LNG strategy is progressing well, with existing contracts and growing interest in unplaced volumes amid a tightening global market.
The sentiment was cautiously optimistic, acknowledging geopolitical risks but emphasizing strategic execution and financial resilience.
Full Transcript
OPERATOR
Welcome to the first quarter 2026 ConocoPhillips earnings conference call. My name is Liz and I will be your operator for today’s call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star 1-1 on your touchtone phone. I will now turn the call over to Guy Baber, Vice President, Investor Relations. Guy, you may begin.
Guy Baber (Vice President, Investor Relations)
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 HSE 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 one question per caller a few quick reminders. First, along with today’s release, we publish 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 Generally Accepted Accounting Principles (GAAP) financial measures today. Reconciliations to the nearest corresponding Generally Accepted Accounting Principles (GAAP) measure can be found in today’s release and on our website. With that, I’ll turn the call over to Ryan.
Ryan Lance (Chairman and CEO)
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 US and global energy security. We certainly hope for a swift and diplomatic solution that resolves the conflict, protects U.S. interests, opens commerce and provides 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 percent 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 four well exploration program in Alaska, the first in a multi year 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 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. Amid 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 strengthened 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 objective. 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 to 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.
Andy O’Brien (Chief Financial Officer and Executive Vice President of Strategy and Commercial)
Thanks Ryan. Starting with our first quarter performance, we produced 2.309 million 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 impact 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 for 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 barrel of oil equivalent per day annual impact due to CASA being excluded from second quarter production guidance and a 15,000 barrel of oil current per day annual royalty rate adjustment at 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 Cermont 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 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 non operated 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 timing for NFE and NFF 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 ANS and Dated Brent and shareholders are directly participating in this upside as we remain committed to returning 45% 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 and A.
OPERATOR
Thank you. We will now begin the question and answer session. In the interest of time we ask that you limit yourself to one question. If you have a question, please press 11 on your touchtone phone. If you wish to be removed from the queue, please press 11 again. If you’re using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star 1-1 on your touchtone phone. Our first question comes from Scott Hanold from RBC Capital Markets. Your line is now open.
Scott Hanold (Equity Analyst)
Yeah, good afternoon. Thank you. Hey, a lot happening obviously in 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 position of oil and how you expect operators to act and react? It sounds like you guys are going to maintain operational efficiency, but it’ll be good to see if you’ve got a view on what you’re seeing and hearing from others.
Andy O’Brien (Chief Financial Officer and Executive Vice President of Strategy and Commercial)
Yeah, thanks, Scott. Maybe I’ll let Andy talk a little bit about some of the numbers that we see out there, then maybe I come back and address some of your broader set questions after that. Thanks, Ryan. And morning, Scott. Yeah, 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 I think it’s good to summarize it. For about two months now, we’ve had about 10 million barrels per day a day of production offline. That even factors in the redirected volumes. In countries like Saudi Arabia, we have seen inventory and Strategic Petroleum Reserve (SPR) releases that have partially backfilled some of that lost supply. And the ongoing Strategic Petroleum Reserve (SPR) releases that have been announced, they’ll certainly help through the May, July time frame. 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. 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. So given those factors I’ve just described, we are downgrading our view of global oil demand to be 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 there and let Ryan sort of add a bit more to that.
Ryan Lance (Chairman and CEO)
Yeah, maybe. Scott, how are people acting? I think people are watching pretty closely to see what happens. Maybe a little bit of short cycle investments and I’m sure that’ll 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 OVO activity, but we’re trying to look longer term as well. As Andy said, assess the supply and 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 a floor. But we’re trying to assess right now given the demand dynamics and the supply dynamics but what 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.
OPERATOR
Our next question comes from Neil Mehta from Goldman Sachs. Your line is now open.
Neil Mehta (Equity Analyst)
Yeah, Ryan, Andy, great comments there and definitely our thoughts are with your people in the region. I want to pivot over to Alaska and we went through winter construction season here and so love a mark to market on how those plans progressed. Where do you stand in terms of Willow construction and what are the big milestones as we continue to de risk this project and get to that free cash flow inflection?
Ryan Lance (Chairman and CEO)
Good morning Neil. Thanks for the question. We’ve had a really strong showing here just in the last six months in Willow, so I’ll probably address maybe a couple 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 in 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 …
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