Conoco Phillips (COP) — Q1 2021 Earnings Call Transcript

Thank you, Hilda. Hello, and welcome this morning to our listeners. I'll first introduce the members of our ConocoPhillips executive team who are on today's call. We have Ryan Lance, our Chairman and CEO; Bill Bullock, our Executive Vice President and Chief Financial Officer; Tim Leach, our Executive Vice President of Lower 48; Dominic Macklon, our SVP of Strategy & Technology; and Nick Olds, our SVP of Global Operations. Today, several of our executives will make prepared remarks, and then the team will take your questions. Before I turn the call over to Ryan, a few quick reminders. In conjunction with this morning's press release, we posted a short deck of supplemental material that includes first quarter highlights, earnings and cash flow summaries, operational highlights and updated sensitivities. We also announced this morning that ConocoPhillips will host a virtual market update on June 30, so save that date, we will be providing details on that meeting shortly. In today's call, we will make some forward-looking statements based on current expectations. Actual results could differ due to the factors described in today's press release and in our periodic SEC filings. Finally, we'll also refer to some non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in this morning's press release and on our website. And with that, I'll turn the call over to Ryan.

Thank you, Ellen, and welcome to all our call participants. It's a very busy but exciting time at ConocoPhillips. With the Concho transaction now closed, our entire workforce is on a mission to emerge from last year's extreme sector volatility and the transaction integration activities as the strongest competitor in our business. Reviewing 2021 as a catalyst moment like we did in 2016 to improve every aspect of our business and again, step out from the pack by taking our disciplined, shareholder-friendly value proposition to the next level. We're taking actions across every aspect of the company to improve our underlying drivers, and our first-quarter results represent an early indication of our progress. Some of the actions we're taking are transformational, such as capturing synergies; others are chipping away at core drivers to improve efficiency and returns, such as the debt reduction plans we announced this morning. Here's what everyone in our organization is focused on. First, we believe a safe company is a successful one. With the Concho transaction, we've combined two industry-recognized safety leaders, which has aided our overall integration. I want to recognize our workforce for their exceptional handling of the many challenges presented by Winter Storm Uri last quarter. We're continually driving to lower the cost of supply of our diverse resource base. We have a deep inventory at the very best rocks, which is a clear source of sustained competitive advantage. We're focused on applying our rigorous capital allocation process to optimize investments based on the metrics investors demand: free cash flow and returns. We're driving improvements in free cash flow and returns by driving down our sustaining capital through well costs and supply chain efficiencies, as well as margin improvement; driving down our cost structure through synergies and balance sheet improvements; driving down our sustaining price through the combination of lower sustaining capital and lower cost structure; and finally, we don't cap the benefit from higher prices, which means upside in free cash flow above our sustaining price. We're only a short time into the Concho integration, but we're already seeing the previously announced synergies materialize, and we expect to yield additional benefits as our integration progresses. We remain committed to returning a significant portion of capital to our shareholders, with a five-year track record of exceeding our target of greater than 30% of CFO. In fact, our return to shareholders since implementing our returns-focused strategy in 2016 has been 43% of cumulative CFO. Today we announced actions to further increase our returns of capital in 2021. In addition to our ordinary dividend and our previously announced $1.5 billion of buybacks, we intend to begin reducing our Cenovus ownership stake, using proceeds to purchase incremental ConocoPhillips stock. We're taking action to further strengthen our balance sheet. This morning, we also announced that we're planning to reduce gross debt by $5 billion over the next five years. This will reduce our annual interest expense cost and help lower our sustaining price. And finally, we're focused on leading in ESG, especially in emissions reductions. All of this is underpinned by our talented, motivated workforce who are the driving force in our progress. You can tell from my comments that we're encouraged by the improvements we're seeing across the company. That's why we announced today our intention to accelerate our 2021 market update from November to a virtual event on June 30. Now here's what you can expect at that update. We'll reiterate our disciplined philosophy for the business and how we expect to enhance our through-cycle performance for a volatile price world, but also for a more stable price world should that transpire. We'll reaffirm the allocation priorities that have been foundational to our company for years. Compared to our plan two years ago, we believe every part of the business has improved. Our goal is to put ConocoPhillips in an even better position to deliver multiple years of free cash flow and returns to shareholders post-Concho. We'll provide an update on our outlook for 2021 and beyond, including our synergy capture progress and our business driver improvements. We'll also provide updates on our asset base and our ESG efforts and plans. As I said earlier, it's a busy time for the company, but we're going to take advantage of our momentum to reengage the market sooner rather than later on our compelling future. Now let me turn the call over to Bill, who will address high-level quarterly results, as well as our announced debt reduction and Cenovus COP share plans.

Thanks, Ryan. Well, we're certainly off to a good start in 2021. In today's posted materials, there's a summary of highlights from the first quarter, and I'll cover just a few of those items. As we foreshadowed on our March 31 market update, the financial results reflected some one-time transaction-related items. Adjusted for these known items, underlying financial performance was very strong. Adjusted earnings were $0.69 per share versus $0.45 per share in the first quarter last year. Production came in at the high end of the range, and all producing segments generated positive earnings in the quarter. As shown in the cash waterfall in the supplemental materials posted on our website, first-quarter cash from operations was $2.1 billion and free cash flow was $0.9 billion. These figures include the cash flow impacts related to previously announced transaction-related items, which reduced both CFO and free cash flow by about $1 billion. But even with the roughly $1 billion in one-time transaction-related impacts, our CFO of $2.1 billion very nearly covered capital, dividends, and buybacks. We returned 46% of CFO to shareholders in the quarter in the form of our ordinary dividend and share repurchases. We ended the quarter with $7.3 billion of cash and short-term investments. As a reminder, we issued updated first-quarter and full-year 2021 guidance for key business drivers on March 31. Today, we provided updated cash and earnings sensitivities. I call your attention to these because our cash flow toward the upside has improved significantly as a result of the Concho transaction. In a more constructive price world, we will differentially capture the benefit of higher prices, because we're unhedged, we're liquids-weighted, and we have exposure to diverse markets globally. Turning to today's announcements, we view our balance sheet as a strategic asset, just like we do our portfolio of low-cost supply resources and our balance sheet is very strong with top-tier leverage due to our low net debt. Of course, our cash balances are a component of our net debt. Given that our borrowing costs exceed the returns on our cash, we plan to put some of that incremental cash to work along with future free cash flow to reduce gross debt by $5 billion over the next five years. This will reduce our ongoing interest expense, lower our ongoing free cash flow break-even price, improve returns, and create greater flexibility in our overall debt structure, all while maintaining our strong leverage position. As part of our program, we may refinance some of our high coupon debt to take advantage of historically low interest rates and facilitate the total quantum of our debt reduction over time. Next, I'll address the Cenovus share monetization plan we announced. As a reminder, we own approximately 10% of Cenovus, which is valued at about $1.6 billion today. The shares were received as part of the consideration for our sale of Canadian assets to Cenovus in 2017, and we've always stated that we did not intend to be a long-term strategic owner of Cenovus shares. Over the years, we've looked at several strategies for reducing our position. We believe the market has responded to the positive steps Cenovus has taken, including its recent commitments to balance sheet strength and operational efficiencies. We intend to begin selling our Cenovus shares in the open market in the second quarter, while simultaneously tendering the proceeds in the ConocoPhillips shares. We will be thoughtful and measured with our sales program, as you would expect, with an intention to fully dispose of our Cenovus position by the end of 2022. We believe this plan to swap Cenovus shares for ConocoPhillips shares aligns well with both our commitment to returning capital to shareholders and monetizing our Cenovus position. Taken together, our planned debt reduction and our planned swap of Cenovus shares for ConocoPhillips shares further strengthen both our balance sheet and our ongoing ability to consistently deliver differential returns of capital to our shareholders, all while lowering our sustaining price. Now I'll turn the call over to Tim for an update on the Lower 48 business.

Thanks, Bill. We're just a few months into the ConocoPhillips-Concho integration process. Like Ryan and our other leaders, I'm more excited now than ever to tell you about our vision for the company and the great progress we've already made. I'll do a quick recap of the Lower 48 from the first quarter, which was nothing short of historic, not only because of a fast-paced integration activity but also because of Winter Storm Uri. Overall, the storm impacted Lower 48 production by about 50,000 barrels a day for the quarter. However, facility damage from the storm was negligible, and we quickly resumed production in March. It was a heck of a test for our expanded Lower 48 region, and they passed with flying colors. Total Lower 48 production for the quarter was 715,000 BOEs per day, which includes 405,000 in the Permian, 187,000 in the Eagle Ford, and 86,000 in the Bakken. We exited the first quarter with 15 drilling rigs, 11 in the Permian and four in the Eagle Ford. We had seven frac spreads, five in the Permian and two in the Eagle Ford. It doesn't get a lot of attention, but during the quarter, we executed several innovative pilots across the Lower 48, including more than 40 twin frac wells, electrification of our frac spreads, and additional V5 completions. The point is, while we're executing the base business, we're also combining the experience of both companies by conducting numerous tests that should yield future efficiency gains. My entire Lower 48 organization is excited about the role we can play in making ConocoPhillips a company that can supply the cheapest, cleanest barrels to the market, successfully navigate the price cycles, achieve the highest level of execution efficiency, and continue to lead the industry on the innovation front. From a size and scale perspective, our Lower 48 is clearly differentiated in the industry. With the acquisition of Concho, the Lower 48 grew to be about half of ConocoPhillips production and among the largest domestic producers. We have a high-quality set of assets with a low-cost supply resource base made up of core positions in the three premier tight oil basins in the world. Our Lower 48 team is focused on capturing the strategic advantages of both Concho and ConocoPhillips to make our operations more efficient and drive down sustaining capital with the primary goal of maximizing our cash-generating capacity. We're creating a massive free cash flow machine from our combined business that will contribute toward the company's ability to deliver on its priorities through cycles. We're dedicated to extracting the full value of this deal, and I'm looking forward to providing more detail at our midyear market update. Now, I'll turn the call over to Nick to provide the status of our operations in the rest of the world.

Thanks, Tim. While there's clearly a lot going on in our Lower 48 business, we believe ConocoPhillips has a significant advantage over our independent peers because we also have diverse global businesses that generate significant free cash flow. Today, our Alaska and International businesses comprise about 50% of our company's operated 1.5 million barrels per day production. I'll take this opportunity to recap some of the achievements from the first quarter and bring you up to speed on activities we have underway around the globe. Starting in Alaska, I'm pleased to report that the Greater Mooses Tooth 2 project has made significant progress over the past several months, and facility and construction costs are about 10% below budget, as we finish our third and final construction season. The project is expected to be online by the end of this year at approximately 10,000 barrels a day, with peak production of 35,000 barrels a day that will leverage our existing Alpine infrastructure. We're back to development drilling on the Slope after suspending virtually all activity in 2020, restarting four rigs across our operated assets in Alaska. In the Western North Slope, we restarted drilling at CD5 and commissioning activities on the new extended reach drilling rig. The ERD rig will play a significant role in augmenting Alaska's base business, allowing us to drill wells in excess of 35,000 feet, accessing low-cost supply resources while minimizing surface disturbance. Our base Alaska business is performing well, and we've built strong momentum coming out of 2020. It's been an eventful quarter for Willow. We've made progress in the front-end engineering and design work while addressing the legal challenges recently raised. The 600 million barrel oil discovery remains competitive in our portfolio, but we won't take a final investment decision or make significant long-lead investments until the litigation risks are resolved. In Canada, at Montney, we're optimizing our development plans to incorporate the liquids-rich acreage acquired from Kelt last year, leveraging our Lower 48 unconventional resource expertise and reducing drilling costs by 25% over the first four pads. This part of our business may not get much external attention, but it's worth noting that it currently produces approximately 30,000 barrels a day, of which 50% is liquids. We're excited about the future in this premier 300,000-acre unconventional position. At Surmont, we're continuously working to reduce costs, improve netbacks, and lower emissions, seeing encouraging improvements. In summary, Canada remains an important part of our business, with significant upside and learning curve opportunities. Now moving to our Europe, Middle East, and North Africa segment. In Norway, we've made good progress on several projects benefiting from fiscal incentives implemented by the Norwegian government last year. We're nearing completion of Port 2 and are on track to finalize investment decisions on both Tommeliten Alpha and Kobra East Gecko later this year, and work continues to assess our recent discoveries at Barca and Slagugle. In Qatar, our QG3 asset continues to deliver strong performance and generate free cash flow, and we advance our evaluation of the North Field expansion opportunity, remaining interested if it fits our financial framework. Moving into our Asia-Pacific region, APLNG is running extremely well. Production is strong, combined with ongoing efforts to reduce capital, operating and financing costs, has brought the cash breakeven down to $25 per barrel Brent. APLNG distributed almost $100 million to the company in the first quarter of 2021 and is expected to distribute about $200 million in the second quarter. In Malaysia, we have several low-cost supply, high-margin bolt-on projects at various development stages. The Malikai Phase 2 project achieved first oil this year and SMP Phase 2 and Gumusut Phase 3 are on track for first oil in late 2021 and '22, respectively. That's a brief update of our global operations. In summary, we have a lot of exciting work underway that will continue to enhance free cash flow generation. Now I'll turn it back to Ryan for some closing comments.

Thanks, team. To wrap up, let me go back to how I started today's call. We're viewing 2021 as a catalyst, as an opportunity to further own every part of the business and continue leading this sector. We're looking forward to sharing more on that and what that means for our shareholders when we get together with you again on June 30. So now with that, let's open it up to Q&A.

Good morning, team. I think Matt's last day, if I'm not mistaken, was May 1, so if he's listening from the mountain somewhere, I wish him well in his retirement and congratulations to everyone on their promotions.

Thanks, Neil. Rest assured, he's probably listening and greeting us.

The first question is around Cenovus. You could have approached this, Ryan, in a couple of different ways, certainly a block sale. And you elected to do it through the end of 2022. Talk about why you thought this was the optimal way to release the shares into the market? And just a housekeeping question here, so you got this annualized $1.5 billion buyback program. But as you're selling Cenovus shares, this will be incremental to the baseline $1.5 billion, right? So this would be supplemental to the $1.5 billion that you've already announced? So two questions there.

Thanks, Neil. Let me handle the last one first, maybe turn it over to Bill for a little bit of color on why, you're exactly correct. We have the dividend that we're paying. We announced earlier that we were buying $1.5 billion of our shares back. And this Cenovus swap for ConocoPhillips shares is incremental or on top of the $1.5 billion that we're currently doing in terms of buying our shares back. We've looked at this in lots of different ways over the course of the last several years as we've been an owner of Cenovus shares. Let me ask Bill to kind of give you a little bit of color on why now and why under this sort of plan.

Sure. Good morning, Neil. As I mentioned, we've always said that we didn't intend to be a long-term holder of the Cenovus shares. And as Ryan mentioned, we've looked at several methods. We considered block sales, but we think the exchange of Cenovus shares for ConocoPhillips shares over time and in the open market makes the most sense to us. The voice of discounts associated with block-type transactions, and we think that the market has responded positively due to recent Cenovus announcements, so that the exchange ratio for Cenovus and ConocoPhillips has returned to a more historic level. We see this as an opportunity to, one, trade into the ConocoPhillips shares, which we like the upside on; two, monetize an asset on the balance sheet, which we don't think gets a lot of value; and three, give that value back to shareholders.

That's very clear. Thanks for the color, Bill. The second is, if you can provide some big picture thoughts on the macro recovery. It seems like the supply side is responding well and prices are firmer, but demand is still uncertain. So Ryan, how are you thinking about the Brent price outlook from here and the sustainability of the recovery? Any thoughts on the natural gas side as that has firmed up nicely as well?

Thanks, Neil. We continue to execute the plan that we laid out at the beginning of the year, and it's largely due to our view of the macro, as you described. Demand is still off from pre-pandemic levels at a peak number of 96 million to 97 million barrels a day of demand. Spare capacity still exists on the supply side, largely with the OPEC Group, or OPEC Plus. We still view kind of 5 million to 6 million barrels a day of spare supply out in the world. We still have balancing that we need to do before we kind of see where the price falls out at that point in time, and what the call is on, say, U.S. tight oil going forward. We think it's prudent to stay the course right now and not change. We also don't want to whipsaw our programs. We want stable execution of the programs that we've set out at the beginning of the year. We're positioning ConocoPhillips for any kind of market that we think enters the phase of volatility or a more stable price. It's uncertain with the pandemic and the demand and how quickly that's going to recover. We believe it's going to recover. We think we probably hit 1 million or so barrels a day of demand later this year. On an annual average, we expect 2022 to be at that demand level. At that point, we would hope the market is balanced from a supply and demand perspective, but it will take the remainder of this year to see that. Our value proposition is pretty firm and delivering money back to the shareholder like we described. Hopefully, you see from today's announcements that we're enhancing that. The 30% return is our floor and, over the last five years, we’ve delivered 43% of our cash back to our shareholders. Discipline and returns matter, and that's what we're all about.

Hi, good morning, good afternoon, everyone. Thanks for taking our questions. My first question is on CapEx. And Q1 CapEx was $1.2 billion versus the full-year guide of about $5.5 billion. So that implies a little over $1.4 billion a quarter on average for the rest of the year. We know that it's hard to do ratable CapEx outside of Excel, and we can appreciate that, plus there's noise in the Q1 number based on Concho and weather and a bunch of other stuff. But how do you see activity progressing or ramping throughout the rest of the year, if at all? We understand that production is an outcome for Conoco. We're just trying to get a better sense of the new steady state now that Concho is in the mix?

Well, yeah. Jeanine, the first quarter was a little bit artificially low, given exactly what you described as the weather impacts in the Lower 48 that kind of shut things down. People forget too that we had a winter drilling season in Alaska that reduced the cap a little bit. So it's not ratable; you can't just take the first quarter times four. We are driving the teams to greater efficiency to get as much done with the precious capital we can. We'll provide more of an update in the June update we've talked about. Thirdly, we designed this to run stable. We designed our programs at the beginning of the year and asked our teams to execute that scope and not to try to drive that on a quarterly basis, but to efficiently and effectively execute the programs they set out at the beginning of the year. We'll provide more of an update as we see the year progressing in June.

Great. Thank you. We'll wait for that update. My second question is just on the debt reduction target. We've got balance sheet enhancement, dividend, buyback, and CapEx; all moving pieces on capital allocation. Could you talk a little bit more about how you picked the $5 billion target over five years? I noticed that exceeds the amount that's coming in that time. So maybe something on cadence as well? We're just really trying to back into how much cash return is available now that we have a designed gross debt target outside that we need to allocate perhaps?

Thanks. I can let Bill talk specifically about the debt. I would just say, back to my opening remarks a bit, Jeanine, we're looking at every piece of the business—portfolio, balance sheet, cash on the balance sheet—and we haven’t forgotten about the shareholder. If you saw that today with our announcement on the trade with Cenovus shares for ConocoPhillips, that is incremental to the $1.5 billion we're doing already. Let me ask Bill for a little more color on why $5 billion, why five years.

Sure. Thanks, Ryan. Good morning, Jeanine. Both heritage Conoco and heritage Concho had really strong balance sheets, so does this combined company. Our net debt to CFO consensus is under one time—materially less than our peer group. But with the Concho transaction, our gross debt increased from $15 billion to $20 billion. We have some legacy high coupon debt on our balance sheet. This is a unique opportunity to reduce our ongoing interest and lower our ongoing free cash flow breakeven, which improves returns and creates greater flexibility in our debt structure. We can maintain greater than 30% returns for our shareholders. Why $5 billion? That certainly exceeds the amount that our natural maturities amount to over the next five years. We've got about $3 billion of bonds to retire in that timeframe. Expect to see early retirements done through public tenders, open market repurchases, or a combination with refinancing—approach that favors flexibility and optionality. We think $5 billion gives us the ability to moderate the reduction and take advantage of supportive market conditions, but you may see us accelerate that bit if market conditions allow. That’s the context on why we're looking at that structure.

Yes. Hi, good afternoon. I suppose…

Hi, Phil.

As a follow-up to Jeanine's question, there’s a lot of excess cash that would be available if you're paying down the $5 billion of gross debt between free cash flow and the cash in the balance sheet and Cenovus shares. Perhaps some of this you want to save for the Analyst Day, but any additional high-level commentary you could share on capital allocation?

Yeah. We'll see what the market gives us in the future. We described back in November 2019 how we thought about the cash on the balance sheet. There's operating cash, reserve cash to deal with market volatility, and we would like to hold some strategic cash too. We think the market will remain volatile for quite some time. Some of that cash will ensure the shareholder is fully satisfied based on our past experience and what we've done as a company. We're considering future opportunities whether at Willow or exploration discoveries in Norway. Some of that cash may fund those projects as part of our strategy to enhance the annual free cash flow and reallocate it to shareholders.

Got it. My follow-up would just be, Ryan. You made a comment about certain minimum cash levels. How do you think about what that should be today? If I could glue in, one question around Alaska. Do you still target trying to sell down that portion of Alaska? Would that be another source of potential cash still?

I think more broadly, the direct answer is yes, we're still looking at potentially marketing some of the Alaska position. More broadly, the Concho acquisition has led us to review the portfolio, ensuring we’re continually high grading, taking advantage of the commodity price environment. Expect to have more to say in June. For various cash positions, we think about $1 billion of operating cash and a couple of billion—$2 billion to $3 billion of reserve cash for market responsiveness. We want enough cash to keep our programs consistently running without SAR programs.

Hello. Good morning.

Good morning, Roger.

I guess, it's getting beaten pretty hard here, but I'm going to try one other thing on the debt structure here. Looking back to where you were in '16, the changes you made pre the Concho acquisition, it seems you're aiming for a lower level of debt. You mentioned lowering breakeven as a component of that. Would it seem you could get there by refinancing the debt, and bringing down the overall interest expense? I was curious how you think about this in capital allocation, return to shareholders, as clearly reducing debt can be seen that way. How does the $5 billion goal fit in?

Certainly, Roger. As part of our $5 billion debt reduction over five years, we have about $3 billion maturing. We absolutely look at refinancing a portion of our debt, purchasing it back. We like our path to $5 billion, but it’s essential to consider the cost of debt being retired and reissued. Our debt reduction targets will include refinancing as a component of overall debt restructuring, and public tenders or open market repurchases.

Great. Thanks. Maybe at a higher level, what are you seeing on capital efficiency and onshore portfolio as we emerge from the pandemic? With the addition of Concho, do you have an estimate for maintenance CapEx and long-term capital spend? You used to discuss a $6 billion to $7 billion range; has there been any adjustments to that for normalized long-term capital spend?

We’ll discuss that in June and provide an update relative to what you saw in 2019. It’d be premature for me to discuss that now. We're constantly trying to drive our sustaining capital lower, and we’re seeing progress in that area during synergy captures.

Hey. Thanks, guys. Just on Alaska. I know last year was a COVID-shortened drilling program. Can you discuss exploration activity taking place this year? What’s needed to progress Willow, and how are litigation timelines impacting overall expectations?

Josh, this is Nick. Let me start with Willow. The big focus this year is front-end engineering and design, as well as detailed engineering. That's entirely about understanding our capital, schedule, and development considerations before FID later this year. The judicial challenges raised consist of two lawsuits challenging BLM’s and the Army Corps' decisions on the Willow project. We’ve got all 2021 permits received. Construction is deferred to 2022 due to an injunction. It won't impact overall timelines, but we’ll await developments in the third quarter. Stakeholders strongly support our initiatives.

Hi. Thank you. Ryan, I was wondering if you could expand a bit on the idea of 2021 as a catalyst moment. I understand oil price is a big externality, but how do you view the predictability of your portfolio and how that informs long term targeting?

Yeah, Stephen, you're right. The Lower 48 is half the company today. The short cycle nature is relatively predictable. We also see that running the base business across the globe remains stable. We don’t have a specific blend we’re trying to drive to; we're focused on the best rocks delivering the best returns, which is our competitive advantage.

Can you - I’d like to frame this a bit regarding value as your unlevered free cash flow. The decision comes down to balancing the balance sheet and equity. When do you think you’ll be at a stage to reassess that balance? How low could you take the debt before buybacks are increased?

If I understand your question right, we’re managing all aspects of the portfolio simultaneously. Our focus is on lowering breakeven through lowering sustaining capital while reducing our interest expense with high coupon debt. We remain committed to returning exceeding 30% back to shareholders. We will explore all avenues, including buybacks, to ensure shareholder value maximization.

Thanks. The last remaining question would be about the June 30 Virtual Meeting. Should we expect something similar to the 2019 meeting, or a more modest update?

Modest update, Bob.

Ryan or team, just curious about the stage when you believe you will fully integrate the Concho asset and be ready to tackle new M&A opportunities. Is the conversation on consolidation in the industry still relevant?

We're focused on the integration of Concho assets right now. The performance and efficiency metrics are promising, and I believe consolidation is still vital in the industry. Although more difficult at current prices, I think you'll see it continue.

Just a follow-up on portfolio balancing between short cycle and long cycle production. Given the strong performance coming from short cycle production, how do you see balance evolving towards your long-term outlook?

We’re focused on cost, without an ideal blend in mind. Our strategy is agnostic to gas/oil short/long cycle; we focus on rocks that deliver the best returns.

Just noticed that in Q1 '21, Permian production was strong, which looks up about 317,000 barrels a day versus Q4 '20. What drove that performance, was it due to a larger group of wells coming online?

We entered Q1 at a high rate coming out of last year. The storm slowed capital down but didn't greatly affect production coming from existing activity. Overall, it was an excellent quarter.

Can you elaborate on North Field expansion interests? Given the competitive landscape, what will Conoco bring to Qatar that differentiates you? Also, regarding your ESG goal and net-zero emissions; do you have specific plans post-2030 interim target?

Our strong relationship with Qatar has allowed us to contribute to various projects. Pricing and our historic partnership are essential. Regarding our ESG commitment, our focus is on local emissions reduction projects and developing innovative solutions like carbon capture and storage.

There are two main thrusts toward lowering emissions. First, we're working on several projects aimed at reducing our Scope 1 and 2 emissions by $80 million. In addition, our newly launched low-carbon technologies team will explore opportunities related to renewable energy, carbon capture, and offsets.

Hilda, this is Ellen. We'll take one final question, if you don't mind, give our listeners any closing instructions. I appreciate everybody's time and attention. I will see you in June.