Conoco Phillips (COP) — Q2 2025 Earnings Call Transcript

Thank you, Liz, and welcome, everyone, to our second 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, 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 today. First, along with the release, we published supplemental financial materials and a slide presentation, which you can now find on the Investor Relations website. Also 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 second quarter 2025 earnings conference call. Starting with results and outlook. We delivered another strong execution quarter, once again exceeding the top end of our production guidance range. We reiterated the midpoint of our full year production guidance even with the announced agreement to sell our Anadarko Basin assets for $1.3 billion. And our capital spending and operating cost guidance ranges, both of which we lowered last quarter remain unchanged. On return of capital, we remain on track to distribute about 45% of our full year CFO to shareholders this year. That's consistent with our prior guidance and our long-term track record. The bottom line, we're operating well. We're delivering on our plan, and we're well positioned for a strong second half of the year with clear free cash flow tailwinds, including lower capital spending. Turning to the Marathon Oil acquisition. I'm pleased to announce that the asset integration is now complete and that we've significantly outperformed our acquisition case. We added more high-quality, low-cost supply resource. We're achieving more synergies. We're delivering a more efficient Lower 48 development program, and we've already announced more asset sales than we guided at the time of the transaction announcement. While these are all significant achievements, we're not stopping there. Given our integration success, which builds upon other successful transactions as well as our recent implementation of a new company-wide enterprise resource system, we continue to drive for improvement across every level of the organization. As part of this effort, we've identified more than $1 billion of additional cost reduction and margin enhancement opportunities. Now to be clear, that's on top of the more than $1 billion of Marathon synergies we've already expected to realize. Additionally, now that we've exceeded our $2 billion asset sales objective ahead of schedule, we're raising our total disposition target to $5 billion. Collectively, these initiatives will strengthen our ability to generate strong returns on and of capital through the cycles and enhance our long-term value proposition. And that's a value proposition that's already differentiated, not only relative to our sector, but relative to the broader S&P 500 as well. We believe we have the highest quality asset base in our peer space. Our global portfolio is deep, durable and diverse, and we're recognized as having the most advantaged U.S. inventory position in the sector. We believe this will advantage will become increasingly apparent as the U.S. shale industry continues to mature. And investors are forced to more clearly sort through what we call the inventory haves and have-nots. We are a clear leader in the U.S. inventory haves. In addition, we're uniquely investing in our high-quality portfolio, specifically in our longer cycle projects in LNG and Alaska to deliver strong returns and a compelling multiyear free cash flow growth profile. Assuming a $70 per barrel WTI price environment, we expect the major projects we're currently progressing in combination with the additional cost and margin enhancements we just announced to drive a $7 billion free cash flow inflection by 2029. That would almost double the consensus free cash flow expectation for the entire company this year. Now with that, let me turn the call over to Andy to cover our second quarter performance, 2025 guidance and strategic objectives in more detail.

Thanks, Ryan. Let’s review our performance for the second quarter. As Ryan highlighted, we executed strongly across our portfolio once again. We produced 2,391,000 barrels of oil equivalent per day, surpassing the upper limit of our production guidance. In the Lower 48 states, our production averaged 1,508,000 barrels of oil equivalent per day, while our Alaska and International production averaged 883,000 barrels of oil equivalent per day, benefiting from successful turnarounds in Norway and Qatar. In terms of financial results for the second quarter, we reported adjusted earnings of $1.42 per share and generated $4.7 billion of cash from operations. We faced a $1.5 billion working capital headwind, offsetting the similar tailwind from the previous quarter. Our capital expenditures totaled $3.3 billion, a slight decrease from the previous quarter. We returned $2.2 billion to shareholders, comprised of $1.2 billion in buybacks and $1 billion in ordinary dividends. For the first half of this year, we have returned $4.7 billion to shareholders, which is about 45% of our cash from operations, in line with our full-year guidance and our historical performance. We closed the quarter with $5.7 billion in cash and short-term investments, along with $1.1 billion in long-term liquid investments. Looking ahead, we have refined our full-year production guidance and affirmed the midpoint despite adjustments for the sale of Anadarko, which involves about 40,000 barrels of oil equivalent per day and is expected to close at the start of the fourth quarter. Our capital expenditure and cost guidance ranges, previously reduced last quarter, remain unchanged. We now anticipate an effective corporate tax rate in the mid- to high 30% range for the full year, excluding one-time items, which is lower than our earlier forecast due to geographical mix. Additionally, we expect a full-year deferred tax benefit of around $0.5 billion, primarily due to positive impacts from the One Big Beautiful Bill. In the second half of the year, we foresee free cash flow tailwinds from increased APLNG distributions, cash tax benefits, and reduced capital spending. More detailed guidance is available in our earnings slide presentation. Now, turning to our strategic updates. As Ryan mentioned, we have successfully integrated the Marathon assets and are achieving notable outperformance relative to our acquisition projections. We are delivering on all our commitments and more. First, we have increased our low-cost supply resource estimate by 25%. While we are particularly excited about Marathon's impressive Eagle Ford and Bakken positions, which have met our expectations and are yielding excellent well results, the majority of the increase is attributed to the Permian, where our resource estimate has roughly doubled compared to the initial assessment. Secondly, we have significantly exceeded our original synergy guidance. When we announced the transaction, we anticipated $500 million in annual synergies. With our steady-state capital development program now in place and critical system transitions behind us, we are set to achieve over $1 billion in run-rate synergies by year-end. We have also identified over $1 billion in one-time benefits, primarily related to cash tax savings. While we do not categorize this as a synergy, it represents tangible value and significant benefit for our company. The third point worth mentioning is the implementation of our efficient steady-state development program across the combined portfolio. We had previously noted our capacity to develop Marathon's acreage more efficiently due to our scale, allowing for a consistent program as opposed to Marathon's fluctuating approach. We have successfully optimized our steady-state activity level, resulting in increased combined production with 30% fewer rigs and fracking crews compared to pre-transaction activity levels. Finally, following the Anadarko sale announcement, we have now finalized over $2.5 billion in asset dispositions within nine months of closing the transaction, surpassing our initial $2 billion target well ahead of schedule. Given our recent growth and the rollout of our new company-wide ERP system, we are taking this chance to pursue additional cost and margin improvements throughout the organization. We have identified more than $1 billion in opportunities that we expect to tap into on a run-rate basis by the end of 2026. This is in addition to the $1 billion in Marathon synergies we anticipate achieving by year-end. These additional improvements will encompass broad cost reductions across SG&A, operating expenses, and transportation costs, as well as margin enhancements through commercial opportunities. Overall, including the Marathon synergies, we expect to generate over $2 billion in run-rate improvements by the end of next year. Alongside our ongoing cost reduction efforts, we are more than doubling our asset sales target to $5 billion, which we aim to achieve by next year’s end. We recognize a clear chance to enhance our portfolio by accelerating the realization of value from non-core assets. In conclusion, we continue to perform strongly operationally, financially, and strategically. We are well positioned for the second half of the year, backed by clear free cash flow advantages, and we keep discovering ways to enhance our long-term investment appeal. That wraps up our prepared comments. I will now hand it over to the operator to begin the Q&A session.

Really appreciate the incremental disclosure and love the Slide 7. So Ryan, maybe we could start there, which is if you look at street numbers, at around $60 to $70 WTI, you're generating close to $8 billion of free cash flow this year. So if you add $6 billion to $7 billion, you're kind of closer to $14 billion, which implies by '29, a 12% free cash flow yield. So I first wanted to just check the math on and make sure that we're not missing any pieces around it. And then to the extent that is the right framework, which is a great prize in a couple of years, the pushback might be, you got to wait for it. And so Ryan, maybe your perspective on, hey, with every year, you derisk towards that free cash flow number as capital intensity improves. So you don't necessarily have to wait until 2029 would be in theory, but just your perspective on all that.

Thanks, Neil. Your calculations are impressive. We're putting in a lot of effort, and as you said, the figures align with our expectations in the $60 to $70 range. We anticipate generating about $7 billion in free cash flow from now until 2029. However, you won’t need to wait until then to see results. Approximately one-third of this will come from the LNG sector, with consistent start-ups beginning next year in Qatar, followed by Port Arthur in '27 and another train in Qatar in '28, leading up to Willow in '29. Everything is progressing as planned. You're correct that this nearly doubles our current forecasted free cash flow. Our growth trajectory is quite unique, and I believe no other exploration and production company can match what we have in the pipeline, including the major integrated firms. We've been actively investing in very competitive and low-cost supply opportunities that will support our long-term growth. Additionally, this does not factor in the significant inventory we have in the Lower 48, which is a deep and high-quality resource. We remain optimistic about the long-term macroenvironment. If the demand for shale production increases, we can further leverage our Lower 48 assets, which we haven’t maximized yet due to current market conditions. Our growth rate is currently more moderate, but we are capitalizing on integration and synergies. It's noteworthy that we haven't added a rig in the last 3 to 4 years, yet we're still managing to grow our Lower 48 production efficiently. This doesn't even take into account the potential increase in unconventional production that could occur in the future. Your calculations are spot on, and we are looking forward to the great opportunities ahead for the company.

JPMorgan Chase & Co, Research Division Ryan, I was wondering if you could unpack the $1 billion cost reduction in margin optimization plan, which looks to be a new wrinkle in the update. You mentioned the ERP system integration. I was wondering if you could talk about what are some of the drivers of the $1 billion. And are you doing anything at the organizational level to reengineer kind of your operating structure?

Yes, Arun. This will affect all areas of the company. We have some workforce centralization and lessons learned over the past 3 to 4 years from our transactions that we will be implementing globally. There is an aspect of general and administrative costs included in this, as well as leveraging the company's scale to achieve improvements in lease operating expenses. We are making contractual adjustments and applying efficiencies from what we've learned in the Lower 48 to the entire organization. As we have expanded our scale, we have also identified opportunities in transportation and processing that will lead to expense reductions and margin improvements through better commercial pricing. Approximately 80% of these savings will come from reductions in general and administrative costs, lease operating expenses, and transportation and processing, while about 20% will contribute to margin expansion. I want to clarify that this does not include any capital expenditures; our synergy estimates focus solely on what will positively impact the bottom line. We are looking at changes driven by new technologies and the increased size and capabilities of the company due to our recent expansions. With those developments behind us, it’s time to optimize the whole organization and leverage the investments we have made in recent years.

I appreciate you're probably not going to tell us what's for sale, Ryan, in terms of this meaningfully increased divestiture target. But perhaps you can give us some perspectives on the acquisition market from the sell side. And maybe just talk about the types of assets, and I'm sure you're intensely focused on cost of supply in terms of high grading. But maybe you could talk just sort of asset types and that process and the confidence on that higher target.

Yes. Thank you, Steve. We've previously discussed our annual planning process, which intensifies during the summer months. In this process, we assess each asset in our portfolio, distinguishing between those competing for capital and those that are not. We advise our teams to explore various technologies and approaches for the assets that are not in the running, allowing them some time to prove their potential for long-term capital competition. If they cannot make the case, they are moved to a different list. We are fortunate to be resource-rich in today's resource-scarce environment. An example is the Anadarko Basin, which was initially not positioned to compete for capital. We have sufficient North American natural gas production from our other assets, making it uncompetitive in capital allocation. However, we were content with the price we received. As we review the portfolio for the rest of the year and into 2026, we see many assets that are not in capital contention, and we believe the market will be favorable for sales, which supports our decision to raise our divestiture target to $5 billion. So far, we have exceeded our initial $2 billion target, as Andy mentioned, with approximately $2.5 billion already sold to date.

Ryan, amidst all these incredibly positive updates, I hate to ask such an asinine question as cash tax, but I'm going to make Andy earn his stripes today. Andy, you got $500 million incremental deferred for '25. Obviously, there's a lot of moving parts with the M&A, the Marathon and obviously asset sales and so on. What is the sustainable deferred tax visibility that you have for the Lower 48 at this point, if you're able to offer any color beyond 2025?

Yes, it's Andy. There are several components affecting our tax situation this quarter, so I'll address them step by step. To clarify, there tends to be confusion about what the One Big Beautiful Bill influences. Starting with our effective tax rate for the second quarter, it was lower than what we projected last quarter. We've also lowered our full year effective tax rate to the mid-30s for the rest of the year. This change is primarily due to a mix of higher domestic commodity prices compared to international markets, which led to more income from lower tax jurisdictions like the U.S. Another point is the deferred taxes; we experienced a larger-than-expected deferred tax benefit in the second quarter, which is unrelated to the new tax bill. This benefit came from isolated, unexpected items that we couldn't predict. Regarding the expected benefits, we mentioned in our prepared remarks that we anticipate the One Big Beautiful Bill will have about a $0.5 billion impact for us. This is mainly because the bonus depreciation rate increased from 40% to 100%. This benefit will extend into 2026, and while it's still early to discuss specific numbers, we recognize that we'll need to assess where our capital expenditures land and which assets are sold. However, we do know that this will be beneficial for us next year.

I find it quite impressive that having 30% fewer rigs and frac crews translates to nearly 100% of Marathon's current operation at the time of the deal. Now, regarding LNG and the downstream strategy, what are your expectations for regasification and sales deals in the future? Additionally, how do you anticipate these contributing over the next few years?

Yes, I'll start and let Andy discuss the LNG side. You've raised a good point about the integration progress made by Nick and his team at Marathon. We have effectively eliminated their 10 rig program while not only meeting the production targets of the two companies but also increasing production. Nick's team is performing exceptionally well, and we're very pleased with the success achieved and the proactive approach they took towards the program. I'll allow Andy to address the LNG aspect now.

Sure. On the LNG front, you are likely referring to our recent announcements this quarter where we added an additional 1.5 MTPA of regasification capacity at Dunkerque in France. We also signed a sales and purchase agreement with an Asian buyer. I’m particularly pleased that with these two announcements, we have effectively secured the entire 5 MTPA from Port Arthur. Moving forward, we are actively engaged in discussions regarding both offtake and placement, and everything is progressing smoothly. We have successfully placed all of our current capacity and are now focused on the next steps. I can say that things are not slowing down, as we continue to explore opportunities for additional offtake and engage with customers in Europe and Asia. So, stay tuned for updates in upcoming quarters. I’m really pleased that the commercial LNG segment is starting to align well with our existing resource LNG in Australia and Qatar.

Maybe, Andy, a follow-up to your comment earlier about trying to understand where the CapEx lands for next year. I was wondering if you guys can give an early read on how you're thinking about 2026 at the moment with the additional cost savings you're envisioning, commodity prices probably a bit more supportive. How do you see development evolving next year? Where do you expect the major capital spend to trend? And maybe just frame how much of that long-term free cash flow inflection could get captured next year?

Thanks, Betty. I can take that one. It's a bit early to discuss 2026, but I’ll share some high-level thoughts. Regarding capital spending, we expect our capital next year to be lower than this year as we anticipate an inflection in cash flow. On the production side, we view production as an output of our plan. Our guidance implies about 2% growth on an underlying basis this year, and this seems like a reasonable starting point for modeling next year. As Ryan mentioned earlier, we haven't added a rig in the Lower 48 on the ConocoPhillips side for three years, and I currently don’t see a strong reason to do so. Additionally, comparing the first half of this year to the second half of next year, we are beginning to see signs of cash flow inflection. Our CapEx guidance indicates a reduction of $1 billion from the first half to the second half, and we expect some tailwinds from higher APLNG distributions and the One Big Beautiful Bill. Considering all this, I believe the cash flow inflection is already beginning.

Ryan, one of your peers talked about industry consolidation going forward. You mentioned in the last 3 to 4 years, you've been at the forefront of that. So I just want to get a take on where do you see the M&A landscape right now, particularly in Lower 48?

Yes, Nitin, I believe there will still be consolidation in this business. Many E&P companies in the unconventional sector are looking ahead 2 to 3 years and are uncertain about the future. This situation has not changed, as those without inventory face higher capital intensities and must decide how to manage that. Specifically for us, our portfolio is currently at its strongest. We're heavily focused on our organic growth, investing to develop the company in the short, medium, and long term. That's where our attention lies. However, we are monitoring the market closely and are aware of actions by our peers. Our position is different due to our efforts over the past 4 years and our internal goal to pursue an additional $1 billion in cash flow growth. We anticipate the inflection in our free cash flow that Andy mentioned as our projects come online in the next 3 to 4 years. We have a high bar to meet and a full agenda as we execute on our organic plans.

Maybe a question about the Marathon transaction. You raised your expectation for the additional resource additions from 2 billion to 2.5 billion barrels, reflecting a doubling of the estimated resources in the Permian. Can you explain what is driving that? What has performed better than expected, especially in the Permian?

Yes, Ryan. Yes, as a reminder for the folks on the call, the Marathon transaction, we announced the 2 billion barrels of low-cost supply resource. Now we've got 8 months under the Marathon hood to further assess the inventory and the development strategy across all the assets. As Andy mentioned, after completing the integration, we've got a 25% increase. So that's the 2.5 billion. Now we were clear at the time of the acquisition that the quality positions in the Eagle Ford and Bakken were the primary strategic rationale for the transaction. And we're seeing on aggregate, the performance in those 2 basins have been in line to even better than we expected with very strong well productivity versus the acquisition case. Now the upside identified, as Andy mentioned, is primarily in the Delaware Basin, where we've approximately doubled our low-cost supply resource estimate with some additional resource in the Bakken as well. Now in the Permian, this is largely driven by a greater contribution of both primary and secondary intervals across the play. For example, we got inventory across Wolfcamp A and C, Bone Springs and Woodford formations, which are very competitive cost of supply. And Ryan, that's through really reassessing the inventory and applying our development strategy, including spacing and stacking. In fact, we're drilling some Wolfcamp A and C wells as well as some Woodford wells right now and seeing really promising results in line or even better than the type curves. In addition to the inventory I just described, we're also seeing opportunities to trade acreage to core up positions, adding more longer laterals, which improves the cost of supply. If you go from a 1- to a 3-mile lateral, we see that 30% to 40% improvement. So I just got the hats off to the team as we get under the hood, they're excited. There's more opportunities in there. So getting ready and enthused to execute upon it.

Ryan, it would be good to hear your view of what you're seeing on the oil macro front. Obviously, if we wind the clock back last quarter, there's a lot of uncertainty. Oil price obviously has firmed up. I know you all do a lot of work, but I'd be interested in your thoughts on what you're seeing right now, and how that could shape your plans into '26?

Yes, thanks, Scott. I described the current situation as uneven this morning on CNBC, which reflects our short-term outlook on the macro environment. The OPEC+ group has removed all of the 2.2 million barrels a day of cuts and additionally allocated 300,000 more barrels to the UAE, resulting in a total of 2.5 million. We estimate that about 800,000 of that is already on the market, so when you take that off, there is approximately 1.7 million barrels a day of true new production. However, this has not yet translated into exports, primarily due to increased power and summer demand in the Middle East. Demand increased in the first half of the year by slightly over 1 million barrels a day, and we maintain that the overall demand increase for the full year will be around 800,000 barrels a day. Consequently, there is a temporary imbalance with more supply than demand. Yet, we must note that inventories are at five-year lows. In the U.S., we are observing early signs that floating inventories might be increasing. Meanwhile, China is currently filling their strategic petroleum reserve to support their teapot refineries. There are many factors at play. Our view sees continued fluctuation, but prices have stabilized around our mid-cycle price in the 60s. We anticipate this stability to continue, albeit with some downward pressure. This context informs our execution strategy and how we plan our production through 2026. While we expect some fluctuations and slight challenges ahead, we remain optimistic about the long term. We project a sustained demand growth of about 1 million barrels a day, reaching all-time highs, and we question where the necessary supply will come from to meet this rising demand in the coming years, which has guided our investment in longer-cycle projects. On the gas side, we are quite positive. We anticipate the LNG market expanding from a 400 million ton market to over 700 million tons in the next 5 to 10 years, which is why we are focusing on the LNG segment of our business, supported by significant resources in the U.S. This summarizes our macro perspective on both oil and gas.

Ryan, I saw your appearance on CNBC and thought you did well. I wanted to ask about Willow. Could you give us a preview of what the upcoming winter season will look like in terms of key milestones, work streams, and an overall overview when you return to the site?

Yes, I can let Kirk provide that information, Charles. I would say we haven't quite started working yet. We're quite busy at the moment. I was just there last week. We have a full team on the slope and are working through the summer with a lot of activity happening in Corpus Christi, building modules, but Kirk can provide more specifics.

Yes, certainly. As Ryan mentioned, our execution this year has been very strong. We ramped up the winter season, making it the largest we've had in the last couple of years and the largest planned for the project. We concluded that phase in late April or early May and have now transitioned to year-round construction on the slope. Currently, we have about 900 tradesmen and craftsmen actively working, a decrease from the 2,400 to 2,500 during the peak winter season. This spring has marked a significant transition for us, but our teams are now focused on the activities planned for this summer and fall. Those 900 craftsmen are continuing to develop the operation center that we established last year with the modules on site. A lot of work is in progress to ensure we can fully commence year-round construction at the Willow location in Alaska. Additionally, as Ryan mentioned, outside of Alaska, we're working on completing engineering for the process modules we are constructing on the Gulf Coast, and this effort will continue through 2027. In terms of this year's activities, the team is dedicated to contracting, procurement, and general supply chain tasks. Although tariffs have created some uncertainty regarding internationally sourced equipment, a similar trend of inflation is stabilizing as our activity levels stabilize here. This is an opportune time to finalize some of these contracts this year. We expect to secure around 90% to 95% of these contracts by year-end, so there's significant effort in that area. Overall, I would say we are executing strongly and achieving key milestones. We have more work ahead in the upcoming winter season, particularly concerning gravel on the North Slope as we continue to build towards the next set of pads, as well as wrapping up the final details on pipelines and some civil work. There is certainly more to come, but we are meeting our milestones as planned, which reinforces our confidence in execution and our strong expectations for 2029 and first oil.

Ryan, I would like to ask about Eagle Ford. But first, can you confirm that the CapEx for Willow is still at $7 billion? Regarding Eagle Ford and the Marathon deal, they have some strong assets there. Can you provide us with a long-term outlook for Eagle Ford? I recall that you mentioned a target of around 300,000 barrels per day for Eagle Ford. With the improved performance in the second quarter and a significantly larger resource base, how should we assess Eagle Ford’s role in your portfolio?

Yes. Thanks, Paul. I can let Nick chime in on the Eagle Ford. I think we're seeing everything and then some based on the acquisition case we had for Marathon and some of the well results that I've seen over the last few months coming out of Eagle Ford on the Marathon acreage in particular, let alone acreage has given us a lot of comfort in the case. And we're seeing upside out of that as well. And I can let Nick talk a little bit about the longer-term perspective we might see in the Eagle Ford.

Thank you, Paul. I'll discuss the short-term outlook for Eagle Ford. As you noted, we experienced a strong quarter in Eagle Ford production, boosted by solid base production and new wells being brought online. We actually had a bit of variability, with about 10% more wells in operation in the second quarter. This contributed to a slight increase in production. We're gaining a better understanding of the heritage Marathon area in Eagle Ford, and the wells there are performing at or above expectations. Additionally, we are sharing best practices between heritage Marathon and heritage COP, which has resulted in our best drilling year yet, with a 13% improvement in drilling efficiency. I want to commend the team for their efforts. Regarding near-term developments, we are also optimizing our facilities to combine operations, allowing us to reroute production and streamline maintenance, which is contributing to increased output. In summary, we had a very strong second quarter. Looking at the long-term, as Ryan mentioned, we have a leading position in Eagle Ford, with 15 years of inventory based on current rig activity levels and a significant portion of the remaining top-tier inventory. No other company is close to that position. We are continuously evaluating the ideal production plateau for this asset, and we will provide updates. We are seeing ongoing efficiencies that outperform from quarter to quarter, and discussions are ongoing about determining the exact plateau. However, we anticipate production will be slightly below the second quarter levels in the near term. Overall, Eagle Ford is performing very well, and the well results are encouraging.

I just wanted to follow up a little bit on the asset sales here. Can you maybe give us what the rough production split is on the 40,000 barrel a day you're selling there in the Anadarko in terms of oil and gas? And then can you just talk a little bit about the timing on asset sales? Was there a particular reason you decided to kind of increase it right now? Certainly, a lot of the conversation on the call is talking about kind of macro uncertainty out there. So maybe just kind of talk about the environment to sell stuff now.

Yes, thank you, Leo. We follow a standard process to identify assets that may have greater value to others than to us, which was evident in the Anadarko Basin asset sale. I can have Guy provide details on the liquid mix for that 30,000 barrels a day production. We only sell assets when we believe we are receiving good value. We understand our hold value and their worth within our portfolio, and we are not in a position where we are forced to sell anything. There are assets we've marketed that remain unsold, primarily due to the current macro environment. We are aware of our hold value and the market conditions and will proceed when the timing is right. We're confident in meeting the $5 billion target by the end of next year, and we are actively working to achieve that.

I wanted to ask about return on capital. Conoco has historically been a leader here among the independents and integrated. We have seen corporate returns come down across the sector, much of which is oil price, but also M&A. So when you look at the organic $6 billion free cash inflection that you have for major project start-ups, I was hoping you can talk to how this improves ROCE by the end of the decade? Or there'll be more improvement really from accelerating the Lower 48 growth at the right commodity price?

Yes, all the projects we're working on meet our cost of supply requirements. It doesn't really matter how you allocate resources, growth in return on capital employed will still occur. Our goal is to be competitive not only with our industry peers but also to outperform the S&P 500, providing investors with a reliable choice in the exploration and production sector that can deliver consistent returns throughout market cycles. While price fluctuations can be challenging, as we saw during the COVID year, 2022 was favorable as prices rebounded. We're focused on improving returns through market cycles and are committed to competing with the S&P 500. Our performance is assessed based on these objectives. As we project free cash flow to rise to $6 billion to $7 billion over the next few years, our cash flow from operations will also grow. We uniquely return cash flow to our investors, maintaining a commitment to return at least 30% at mid-cycle prices, and when prices are high, we've returned even more—about 45%. We plan to continue this approach. As our free cash flow and cash flow from operations increase, so too will our distributions. This will support our organic investments and bolster our balance sheet. We are confident in our investments, and we anticipate that our return on capital employed will improve on a mid-cycle basis as well.

Look, I appreciate the strong performance in Lower 48. Last time you guys had an outlook on a multiyear basis was in 2023. And you suggested that there will be a capital ramp through the early 2030s. But when you look at the business today and the efficiencies achieved, it appears that you're still in the same production track. So kind of wondering if you can hit those production targets without adding significant activity or without any change in CapEx.

Yes. I mean that's the name of this game. You've got to be capital light, capital efficient, and that's how you grow your ROCE and that's how you grow your distributions and your free cash flow. So you're right to observe the last time we updated the market since then we've done the Marathon transaction, as I think Andy alluded to in some of his questions and comments, we haven't added a rig in any one of the last 3 to 4 years. We're still delivering the production growth out of Lower 48. We're just being a lot more efficient, a lot less capital spend, and that's the name of the game. So we start every year thinking about, let's just keep the scope of what we're doing constant. And as Andy said in his response to one of the questions, the production or the growth that comes out of that is purely an output. We always start in trying to keep our stable programs in place. We don't want to whipsaw them up. We don't like to whipsaw them down. And obviously, we can react to both sides of that environment, but we like the consistent stable execution in programs. And we haven't added a rig or significantly increased the frac spreads, and we're operating within a pretty efficient frontier range where one frac spread can handle 3 to 4 rig lines. And that's improving with technology, and we want to be improving with that as well. So I think we have a lot of flexibility. We have a lot of inventory and deep diverse inventory. So we've got a lot of choices and options. And as I said in one of my comments earlier that it's really the best place and the strongest portfolio we've ever had as a company.