ConocoPhillips (NYSE: COP) Q4 2025 Earnings Call dated Feb. 05, 2026
Corporate Participants:
Guy Baber — Vice President, Investor Relations
Ryan Lance — Chairman & CEO
Andrew O’Brien — Executive VP of Strategy & Commercial and CFO
Kirk Johnson — Executive Vice President of Global Operations & Technical Functions
Nick Olds — Executive Vice President of Lower 48 and Global HSE
Analysts:
Neil Mehta — Analyst
Francis Lioyd Byrne — Analyst
Stephen Richardson — Analyst
Betty Jeung — Analyst
Arun Jayaram — Analyst
Douglas George Blyth Leggate — Analyst
Devin McDermott — Analyst
Ryan Todd — Analyst
Nitin Kumar — Analyst
Scott Hanold — Analyst
Sam Margolin — Analyst
Phillip Jungwirth — Analyst
James West — Analyst
Paul Cheng — Analyst
Charles Meade — Analyst
Kevin MacCurdy — Analyst
Presentation:
operator
It’s. Welcome to the fourth quarter 2025 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 star11 on your touchtone phone. I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin.
Guy Baber — Vice President, Investor Relations
Thank you Liz and welcome everyone to our fourth quarter 2025 earnings conference call. On the call today are several members of the ConocoPhillips leadership team including Ryan Lance, chairman and CEO Andy O’, Brien, chief financial Officer and Executive Vice President of Strategy and Commercial Nick Olds, Executive vice president of lower 48 and global HSE and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions. Ryan and Andy will kick off the call today with opening remarks after which the team will be available for your questions. For the Q and 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 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.
Ryan Lance — Chairman & CEO
Thanks Guy and thank you to everyone for joining our fourth quarter 2025 earnings conference call. 2025 was another very strong year for ConocoPhillips marked by consistent financial and operational execution and a number of important strategic accomplishments for our company. First, we outperformed all our major guidance drivers from the beginning of the year capex Operating costs and production demonstrating the strength of our team’s quarter to quarter execution. On a pro forma basis. We grew production by 2.5% in 2025 while driving significant reductions to both our capital and costs on return of capital. We met our objective to return 45% of our CFO to shareholders consistent with our long term track record while again increasing our base dividend at a top Quartile S&P 500 growth rate and we did so while further strengthening our investment grade balance sheet, certainly a differentiated accomplishment.
Our cash balances are higher today than a year ago and our net debt is lower, putting us in a very strong financial position. To start the year, we successfully integrated Marathon Oil outperforming our acquisition case on the most important metrics. We added more high quality low cost to supply resource, doubled our synergy Capture, realized a further 1 billion of one time benefits and completely eliminated the Marathon Capital program while still delivering pro forma production growth. And as part of our drive for continuous improvement, we launched and have already made great progress on our incremental 1 billion cost reduction and Margin Enhancement initiative.
We progressed our commercial LNG strategy, growing our offtake portfolio to approximately 10 million tons per annum and finally we improved our Lower 48 drilling and completion efficiencies and advanced our differentiated major projects which we expect to drive peer leading free cash flow growth through the end of the decade. So 2025 was a great year for the company. Yet while these are significant achievements, we’re not stopping there. We will build on this success. Turning to 2026, our primary focus is on delivering 1 billion combined reduction across our capital spending and operating costs while growing our production on an underlying basis.
On shareholder returns, we once again expect to return about 45% of our CFO to shareholders while continuing to grow our base dividend at a top quarterly S&P 500 rate. Top quartile dividend growth is sustainable as we expect our free cash flow breakeven to decline into the low $30 per barrel WTI range by the end of this decade. Looking beyond 2026, I believe ConocoPhillips continues to offer a compelling value proposition that is differentiated both within our sector and relative to the broader S&P 500. As I’ve said before, I believe we have the highest quality asset base in our peer space, a distinguishing competitive advantage especially in the context of a US Shale industry that continues to mature.
We are resource rich in a world that is looking increasingly research resource scarce. We have the deepest, Most capital efficient lower 48 inventory in the sector and outside the lower 48 we have an abundance of high quality low cost of supply legacy assets and we are uniquely investing in our diverse major projects to transform the free cash flow generation profile of our company. As a reminder, the four major projects we have underway combined with our cost reduction and margin enhancement initiative are expected to drive a 7 billion free cash flow inflection by 2029. That will double our 2025 free cash flow generation and that free cash flow inflection is now underway.
We anticipate realizing approximately 1 billion of incremental free cash flow each year from 26 through 2028 with another 4 billion from Willow coming online in 2029 and that’s a growth profile that’s unmatched in our industry now. With that, let me turn over the call to Andy to cover the fourth quarter performance and 2026 guidance in more detail.
Andrew O’Brien — Executive VP of Strategy & Commercial and CFO
Thanks, Ryan. Starting with our fourth quarter performance, we reported another quarter of strong execution. Across the portfolio, we produced 2,320,000 barrels of oil equivalent per day. Consistent with the midpoint of our production guidance, we generated $1.02 per share in adjusted earnings and $4.3 billion of CFO. Capital expenditures were $3 billion, which brought our full year capital spend to 12.6 billion. We returned $2.1 billion to our shareholders during the fourth quarter, including just over $1 billion in buybacks and $1 billion in ordinary dividends, bringing the full year return of capital to $9 billion or 45% of our CFO.
Consistent with our guidance and our long term track record, we closed over $3 billion of asset sales during 2025, demonstrating strong progress against our recently upsized $5 billion divestiture target with $1.6 billion of proceeds received in the fourth quarter. For the full year we paid down $900 million of debt and cash balances were up 1 billion, resulting in net debt reductions of nearly $2 billion, highlighting our commitment to both returning cash to shareholders and our investment grade balance sheet. Cash and short term investments finished at 7.4 billion along with $1.1 billion in long term liquid investments.
On reserves, 2025 was another solid year. Our organic reserve replacement ratio was just under 100% while our trailing three years was 106%. Turning now to our guidance for 2026, as Ryan said, we continue to expect a significant reduction in both our capital spend and our operating costs, combining to drive a year on year improvement of about $1 billion. 2026 capital spend guidance of about $12 billion is consistent with the preliminary outlook provided last quarter, down about $600 million year on year due to significant capital efficiency gains in the lower 48 and a decline in our major project spending.
2026 operating cost guidance of about 10.2 billion is also consistent with the preliminary outlook, down about $400 million compared to 2025. The improvement in 2026 is driven by a combination of our cost reduction program and a full year of math and oil synergies. 2026 production guidance is 2,330,000 to 2,360,000 barrels of oil equivalent per day, providing modest growth for the year. First quarter production is expected to be in the range of 2,300,000 to 2,340,000 barrels of oil equivalent per day including the estimated impacts of weather related downtime from winter storm Fern in the lower 48.
Once again we expect to deliver more production for less capital as we continue to benefit from the highest quality asset base in the sector. We are a clear leader in inventory depth with over two decades of low cost supply inventory across the Permian, Eagle, Ford and Buckland. We’re also the clear leader when it comes to bottom line results. Capital Efficiency the amount of oil we recover for every dollar of capital we invest. We have the best rock in the best part of the best plays and our team continues to execute really well. In 2025 we improved our drilling and completion efficiencies by more than 15%.
We expect our capital efficiency improvements to continue in 2026 again driven by strong well productivity, ongoing DNC excellence and further increases in our longer lateral developments. Now turning to Alaska and International, a few important themes stand out for 2026. First, we continue to progress our advantage major projects consistent with the comprehensive update we provided last quarter. Our LNG projects are more than 80% complete with NFV expected to start up in the second half of this year while Willow is nearing 50% complete and on track for first oil in early 2029. Second, we remain focused on infrastructure led exploration and are shifting our focus this year to Alaska where we have four wells fully permitted and are looking to unlock additional resources near to our infrastructure hubs building on our decades of disciplined exploration and appraisal spend in Alaska.
And third, we’ll continue to leverage our diverse low cost supply legacy assets for ongoing capital efficient development including at Surmont where we delivered our most recent pad ahead of schedule and on budget with another pad expected online early next year to wrap up. 2025 was a very strong year for ConocoPhillips and we’re looking to build on this success in 2026 starting with a $1 billion improvement in our capex and costs as the multi year free cash flow growth profile we’ve discussed is now well underway and we’ll continue to find ways to enhance our differentiated investment thesis.
Unmatched portfolio quality including leading lower 40 inventory debt, attractive long cycle investments, strong returns on and of capital and a sector leading free cash flow growth profile through the end of the decade. That concludes our prepared remarks. I’ll now turn it over to the operator to start the Q and A.
Questions and Answers:
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 star11 on your touchtone phone. If you wish to be removed from the queue, please press star 11 again. If you are 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 star11 on your touchtone phone. Our first question comes from Neil Mehta from Goldman Sachs. Your line is now open.
Neil Mehta
Yeah. Good morning, Ryan team. Thank you for taking the time. Ryan, you talked about depth of inventory, strong reserve replacement, and you’ve got some great projects coming on here in the next couple of years. Just your perspective as the industry is now set to accelerate consolidation potentially of whether Conoco is really more of an organic story on the go forward, given. Those characteristics, or do you see a. Role that Conoco is playing in consolidation?
Ryan Lance
Yeah, thanks. Good morning, Neil. Yeah, appreciate the question. Look, you know, we’ve done our heavy lifting on the M and A side over the last four to five years, and I think I’ve never seen the portfolio in a better shape. And really no strategic gaps that we can identify. We’re globally diverse. We like our combination of a leading resource position in the lower 48 combined with what we’ve got going on around the world and the LNG projects that we’re leaning into the Willow development and then what Andy talked about in some of our other projects going on around the world.
So our pivot has been to the organic side of the portfolio. I can see the rationale for some of the M and A activity in terms of capturing this energy. But we’ve been there, done that, we’ve got that behind us. And our focus is on the organic opportunity set that we have inside the portfolio, which we think is significant. As I said in my opening remarks, I think where we’ve gotten ourselves to is pretty resource rich in what we believe is becoming a more constrained world on the resource side. But we like where we’re at.
We like the portfolio, and we’re pretty focused on the organic side of the business.
operator
Our next question comes from Lioyd Byrne from Jefferies. Your line is now open.
Francis Lioyd Byrne
Hey, Ryan and team, thank you for taking the calls. Can you. You’ve been pretty clear in the past, Ryan, about what it would take to go back into Venezuela. And I was just wondering if there’s any update there and if I may, do the recent events impact the Citco sale at all?
Ryan Lance
Oh, the Venezuelan question right off the top, Lloyd. Yeah, look, I get it in the news and look, we’re pretty focused on what we’ve talked about in the past, and that’s the, you know, focused on the pathway to get some recovery on what sold us in Venezuela. And that’s our first, our first priority right now is making sure they owe us a significant amount of money. We’ve been after that. So we know where all the assets are and that’s the basis of our focus as well. You know, we’re trying to be helpful with the current administration and provide them with our sense of what’s happening on the ground.
A lot has to happen. You know, obviously security needs to improve fiscals. You need a constructive relationship with local governments and the local people that actually want U.S. companies there. And then you need durability on the policy side. You need durability both in Venezuela and clearly here on the US Side. But we’re helping the administration kind of think through the short, medium and long term. But our focus remains on trying to get the recovery that that has owed us from the two judgments that we have in place with respect to citco. We see no change at this point, encouraged by the administration’s comments regarding wanting to keep the asset, wanting to get the asset in American hands or US Hands, that’s constructive.
And obviously if there’s still an appeal process to work through in that judgment from the courts, and then an OFEC license is required ultimately to, to satisfy that, that we would stand to collect some of our judgment through that process. But we see no change, no reason to believe it isn’t going forward as it’s been described to us.
operator
Our next question comes from Steve Richardson from Evercore isi. Your line is now open.
Stephen Richardson
Thanks. Maybe we can step back a little bit from the Venezuela question. Ryan, I was wondering if you extended the concession in Libya this quarter. And you know, this seems to be part of a broader trend where there’s a lot of opportunities arising internationally for your company and others. And so I was wondering if you could just talk more broadly about how you evaluate those options versus your current portfolio. And is it just a question of kind of risk adjusted cost of supply or, you know, there’s obviously other opportunity costs there, But I was wondering if you could just talk about that more broadly and how you’re evaluating those opportunities.
Ryan Lance
Yeah, thanks, Steve. So I draw a little bit of a distinction. I mean, we’ve been trying to improve fiscals in Libya for nearly a decade. So we finally got to that point with here a couple of weeks ago, was signing the agreement with the Libyan government and our partner there. But it’s something, it’s an asset inside the portfolio that we’re trying to improve every day. And so this just is another organic opportunity inside the portfolio, specifically to Libya. And the improvement in the fiscals are just going to make it more competitive as we think about it.
But we’ve been investing money in Libya and this just makes those investments even more profitable and more competitive in the portfolio as we go forward as a result of what we’ve done. I think more broadly what you’re getting at. Yeah, there are some opportunities and as the world becomes a little bit more resource constrained, there’s opportunities in around. We look at those as well. We had a new one come into the portfolio through the Marathon acquisition of Equatorial guinea. And so that’s one we’re focused on as well, trying to figure out how we can grow that LNG plant on the island and make it a long term asset for the company.
But that kind of fits into that organic side of the business. Just trying to make that asset better over the long term for the company. Doing some similar things in Malaysia, but there are new country entries that are happening and we see that with new Wildcat exploration, maybe around the world from other competitors and in new countries we look at those and look for opportunities that might benefit the company and be additive to our plans and be consistent within our financial framework. And so it’s exactly what you did. It’s a risk adjusted cost of supply of that opportunity and would it compete for capital inside the company and could we slot it in with what we’re doing inside the company over the long term, you know, the next 10 and 20 years? So we, the uniqueness about our company is we have that muscle inside the company.
We’re already a pretty diverse company. We’ve got a BD organization that looks around the world, not just in the, in the lower 48, in the unconventional space, but also conventionally around the world. But it’s got to compete inside the portfolio just like everything does in the organic side of the business. So I think we’re really well positioned to look at that and see what can be additive to the company.
operator
Our next question comes from Betty Jeung from Barclays. Your line is now open.
Betty Jeung
Hello, Good morning. I want to ask about the Alaska exploration program. So we just started this year, the first of a multi year program. Can you speak to the objective of that exploration program? What’s the risk? How big is the scale of the resource being targeted? And if successful, are we talking about extending the plateau for Willow or Is it more upside to the ultimate production capacity of that project?
Kirk Johnson
Great question, Betty. Good morning, thanks for that. Yeah, certainly pleased to report that we’re out in front of this winter season here. We got an early start just based on weather under ice road activity and of course we have all of the permits required for both the wells as well as the seismic that we have planned up there here this year. And even to that end we were able to spud the first of those four wells just within the last couple days. So strong progress that we’re seeing on those four. But again to your question around intent and objectives here, we’re out there exploring to the west of Willow and actually to the south of it.
And so as you’ve certainly heard from us before, our objective is to continue to find what we might describe even though it’s onshore as tieback opportunities into both Willow and actually into our WNS Alpine asset as well. So to your point, this is an opportunity for us to identify continued volumes, continued resource plays to bring into this existing infrastructure and Willow being the next hub, if you will. And when we look back on our performance history there in Alaska, we have and continue to project or expect we’ll produce well over double the volumes through those existing facilities, through that existing infrastructure, over double what we originally premised when we took FID on those.
And so naturally then that’s our same objective here for Willow specifically is as we explore to the west, we’ll be looking for those resource opportunities to just keep that infrastructure full. Obviously a bit early to, you know, to start making a call on, you know, total resource size, etc. But naturally we have some pretty high aspirations and some targets that we’re pursuing and we’ll be going after this for several years here now we’ve we’ve got four wells here premise this year, but we’ve got a multi year plan that we intend to carry out again so that we can maximize as we do globally the infrastructure that we have and our ability to bring new volumes into that that creates this advantaged cost of supply for us using existing kit.
operator
Our next question comes from Arun Jayaram from JP Morgan. Your line is now open. Yeah.
Arun Jayaram
Hi Ryan and team Gentlemen. Trends in well productivity, increasing recovery rates have become pretty hot button topics in USscale. I wanted to talk a little bit. About ConocoPhillips lower 48 business. Looking at the data, the inverse data in 25, you guys had a really good year in terms of productivity in the Bakken, Eagle, Ford and Permian and I know it Starts with good rock. But I was wondering if you could talk about some of the levers you may be pulling from a technology standpoint that may be contributing to the attractive. Trends in well productivity that we’re observing today.
Nick Olds
All right, Rune, good morning. Yes, we surely did have a strong productivity year in 2025 across that entire portfolio. As you mentioned, it was, it was definitely consistent with our type curve expectations and consistent with the high quality of inventory. As you mentioned, one of the things we continue to do is we benchmark ourselves in each of our basins. And I’m pleased to say on an oil productivity per foot, we’re amongst the best in every basin we operate. Now, specifically, I want to call it a couple areas that you mentioned. In the Delaware Basin and Eagle Ford, we saw impressive year on year improvements in the Delaware.
Our oil productivity per foot in 2025 is up about 8% year on year. And that’s even with a notable increase in our average lateral length of 9% year on year. Now a couple components to dive in on the Delaware side. Again, we know the depth and quality of our acreage position out in the Delaware, but the teams are continuously optimizing our development strategies and adjusting spacing and stacking. And then of course, depending on where you’re drilling in North Delaware or Southern Delaware, you have a little bit of mix driving that. Just due to the vast, deep, broad portfolio.
Now pivoting to the Eagle Ford, our 2025 oil productivity per foot was up another 7%. And that’s off a very strong program in 2024. And again, we’re a clear leader in the Eagle Ford and we have the lion’s share of remaining Tier 1 inventory and have had strong well results of any operator. Now in the Eagle Ford, you know, we brought in the marathon assets. We’ve integrated that together. Teams continue to optimize completion designs using diverters to improve recovery. And we’re seeing those in the results that you had mentioned. If you look ahead to 2026, we expect consistent, strong performance across all of our basins like we’ve demonstrated over the past several years.
And this is a key driver in our ability to deliver low single digit growth in the lower 48 alongside a reduction of more than 5% in capital compared to 2025.
operator
Our next question comes from Doug Leggett from Wolff Research. Your line is now open.
Douglas George Blyth Leggate
Thanks. Good morning. I think it’s good afternoon, everybody. I should say. I apologize. I’m in Europe, so I don’t know what the heck time it is. Guys, I wanted to Go back to Ryan’s comment about the break even trajectory getting to the low 30s by 2030 and trying to understand a little bit about what the moving parts are. Where is it today and what is the assumption in where capex is from the 12 billion this year in 2030 that gets you to that number, please. Thank you.
Andrew O’Brien
Morning Doug or afternoon Doug or evening Doug, depending on where you are in.
Douglas George Blyth Leggate
Europe there might be a rugby game involved. Andy, thanks.
Andrew O’Brien
Okay, yeah, I can step through that one. So where we are right now, sort of our pre dividend free cash flow breakeven right now is in the mid-40s and you’d add about $10 to that with the dividend. So that’s kind of your starting point. And then as you say as a reminder, we have our pre productive capital spend. It’s down from where it was in 2025. We still have the pre productive CapEx between now and Willow coming online. And that works off, if you do the math on what we said on that, that’s about $6 basically just on that simple pre productive capital.
And then as we talked about sort of in our prepared remarks, you’ve kind of got the free cash flow. It’s already starting to improve today and it’s going to continue to improve and we’re effectively going to almost double our pre productive capex cash flow. Sorry. By the time that Willow comes online. And when you put all of that together, that’s basically how we take our free cash flow all the way down into the low 30s by the time that Willow is coming online and then you add the dividend back on top of that. So we’re going to be down right in the low 30s when we have widow and then adding another 8 to $10 for the dividend.
As we remember, we’re buying back shares as well. So that sort of reduces the dividend burden over time as well. So that’s kind of the trajectory we’re on and we’re pretty excited about it and I think we think it’s part of the story we have here in terms of that free cash flow trajectory we’re on. We think is is second to none and it’s going to drive sort of a break even that comes down, I think faster than anybody else can come close to matching.
operator
Our next question comes from Devin McDermott from Morgan Stanley. Your line is now open.
Devin McDermott
Hey, thanks for taking my question, Ryan. I wanted to come back to one of the international growth assets that you listed in response to a prior question and that’s Equatorial Guinea. I know you’ve been evaluating potential backfill projects for the LNG facility there. I believe just over the last few days there was an agreement reached between Equatorial guinea and Cameroon for the unitization of the Yoyo Yolanda fields. I know it wasn’t a Conoco operated asset but it’s one of the potential tieback resources into that LNG plant. So kind of a broader question since you listed it as a growth potential area.
Just talk about how you’re seeing the opportunity set there and where we stand on projects to backfill and keep that LNG plant full.
Ryan Lance
Yeah, I can provide some over comments and maybe have Kirk come in behind. I think we were encouraged by the Cameroon conversations and then here recently Chevron’s conversations at Assang. So you know we’re working hard to try to make the asset that we acquired from Marathon something more than a five year asset. How do we make it a 10, 15, 20 year asset? So we’ve been busy with some HOAs with the equatorial guinea country and doing exactly that. We’re encouraged by the opportunities that we see out there. We’re encouraged with the cross border cooperation because that just leads to more opportunity to bring more volumes across the island.
Maybe Kirk can describe some of the more specifics that we’re looking at today.
Kirk Johnson
Yeah, certainly Ryan and Devin, as Ryan’s been describing, we’ve been in discussions, certainly haven’t taken on this asset through the Marathon acquisition as we’ve taken it into the company. We’ve been actively in contact with a number of other operators in and around our our LNG facility and upstream assets. Thinking about how do we leverage that infrastructure, specifically the liquefaction facility that’s using our technology there on the island. Certainly discussions have progressed very well. Really pleased with that, specifically with Chevron. They’ve made some notable progress in a few of their projects. A couple of both new fields as well as continued development of some existing fields that create some upside for that.
And then naturally we are as Ryan said, we’re in some HOA confidential discussions with the government and a few others around continued infill opportunities, especially gas in and around Malabo and our operation there. So again this is a continuation here of the theme of what we’ve been able to do so well, whether it’s internationally in Alaska which is continue to find resources that exist to create this advantaged cost of supply to use existing infrastructure. So expect us to continue to make some progress in that way there in eg.
operator
Our next question comes from Ryan Todd from Piper Sandler your line is now open.
Ryan Todd
Thanks. Maybe can you talk about how you think about lower 48 activity levels and commodity prices? As you highlight in your presentation, you clearly have a tremendous amount of high quality drilling inventory. You’ve moderated your pace of growth in. The lower 48 of late given kind of current global crude supply balances and a weaker crude price. But as you look over the next one to two years, what would you need to see to step up activity levels and grow a little faster in the lower 48? And maybe with that, could you maybe elaborate on what you’ve said a couple times is a pretty constructive maybe crude oil view in the medium to longer term?
Ryan Lance
Yeah. Thanks, Ryan. Yeah, we have our own sort of macro view on supply and demand and I’d say consistent with a lot of what people were saying, we saw some softness coming into the year. So we set our plans and our budgets in 26 based on that. Obviously we’ve seen little bit of tailwinds with the current geopolitical things that are going on around the world, but generally thought 2026 would be a little bit more tougher year on the commodity price. We set our plans accordingly and Nick’s team, as he’s described, has been doing a great job capturing the efficiencies and we’ve been able to grow that business without adding more capital to it.
And that’s kind of our starting place. And I would say our scope is kind of set for 2026 with what we’re trying to execute. We don’t like to whipsaw these programs up or down and we’ll use the balance sheet in the downside case if we need to and we’re comfortable with where we’re at in 26. If prices were even increased would just give us more flexibility to in the company we are constructive going forward over the next number of years. As we think about later down the road in this decade, we think we’re going to have LNG and Willow coming on at the right time when the world needs this oil.
So we’re pretty constructive as we go forward. And over time we’ll see what our view of the macro is. We’ll see what we think about the costs and if we want to start ramping up in the lower 48, we can do that if there’s a call on more unconventional crude. But today I think we’re pretty comfortable with our plans. There’s a lot of volatility in the market, but we’re built for this. We’re built to handle it. With the balance sheet that we have and the programs that I know the teams are executing, they’re trying to get as much as they can for every precious capital dollar that we’re spending.
So we’re trying to balance our returns of our capital back to our shareholder with the returns we’re getting on the capital that we’re putting back into the company. So this year we should see some modest production growth and in executing the plans to start delivering the free cash flow inflection that we see over the course of this decade, starting this year with a billion dollars and next couple years with a billion and then another 4 billion coming with Willow. And we think that’s hugely differential relative to our competitors in this space.
operator
Our next question comes from Nitin Kumar from Mizuho. Your line is now open.
Nitin Kumar
Great. Hey guys, Good afternoon and thanks for taking my question. Ryan, I’m sorry, I’m going to take you back a little bit to the direction of Venezuela, but it’s not really about Venezuela. The expectation is the Venezuelan heavy crude might back up some of the Canadian production. What’s your view of WCS spreads given that you’re seeing some of this other heavier crude from other parts of the world hitting the Gulf Coast?
Andrew O’Brien
Hi there. This is Andy. I can jump in and take that one. I think the short answer is in the short and medium term we’re not really expecting to see that much of an impact. As most people know. If you start with the Pad 2 refiners, their structure reliant on the Canadian heavy and have minimum alternative options to displace those barrels. And as you say, the Gulf coast refiners can process the heavy barrels and where starting to see some of those refiners express interest in purchasing some of those Venezuela barrels. But our view is the incremental Venezuelan barrels will likely get absorbed.
The market will rebalance the global flows. And will you see a thing from month to month where there’s maybe crude being backed out or being moved in different directions? Possibly. But take a step back and look at the bigger picture. The way we’re thinking about it is that annual global demand is growing at basically a million barrels a day. And we’re going to need incremental sources of supply to help meet that demand growth. So our modeling isn’t really sort of showing that Venezuelan crude coming in is going to have a particularly material impact on Canadian heavy.
operator
Our next question comes from Scott Hanold with RBC Capital Markets. Your line is now open.
Scott Hanold
Yeah, thanks. All my question is on your balance sheet. Obviously you’ve got a very strong cash position and investments. I think there is some investor kind of concern over there, at least in the short term, where your shareholder return strategy, at least at that 45% rate, does dip into it. Could you just give us your context on how you think about your cash balance? How much is reserved for utilizing it this as you ramp to that free cash flow inflection point?
Andrew O’Brien
Yes, I can take that one, Scott. I think in the prepared remarks I stepped through sort of just how strong our cash balances are starting this year and the fact that we actually reduced our net debt by. So we’re starting with a balance sheet that is in a really solid position. I think we look at it across a range of prices, and I think we’ve been pretty clear that 45% of our CFO basically works across basically a range of prices in terms of our distributions. And that’s kind of what you could expect. There’s a reason we have a strong balance sheet is that if there were a period where a quarter here and a quarter there, you’re needing to drop into the balance sheet to help fund that.
That’s what we would do. That’s what it’s there for. So I think given where we’re starting with cash, I don’t really see any real concerns basically around headwinds to being able to fund distributions or maintaining a strong balance sheet.
operator
Our next question comes from Sam Margolin from Wells Fargo. Your line is now open.
Sam Margolin
Hi. Thanks for taking the question. This question is about the progression of the free cash flow contribution in 27 and 28 before Willow and in the context of NFE coming on in the visible horizon here, could we ask you to decompose that progression a little bit and maybe at least frame where the range of LNG contribution both on the cash flow side and on the spending roll off are coming in. And then I guess the market context is that European gas inventories are pretty low and you have some European REGAS exposure that looks like it’ll be full over the next season.
So if we could get some color on that, it would be great. Thanks.
Andrew O’Brien
Okay, kind of touching a few different topics there. I’ll try and sort of try and cover them. The first part of it is we’ve been very clear that sort of basically we’re seeing a billion dollars per year, 26, 27, 28 of free cash flow improvement. And I think you’re starting to allude to this. That 26 basically is essentially being driven by the OPEX and our capex guidance that we’ve given driving that. But as we get into 27 and 28, a significant part of that is being driven by the lng, where we have NFE coming on, Port Arthur coming on and NFS coming on.
So we’re seeing that basically drive the next $2 billion after the one we have now. Then the next two comes from those LNG projects. And remember, it’s a combination of the revenues coming on, but the CapEx going away as well. So that’s $2 billion. A big chunk of that is coming in 27 and 28 from the LNG projects. When we’ve given those sensitivity on the $7 billion of free cash flow inflection, we’ve put prices out there basically for that. I think we basically placed the first five million tonnes that we have out of Port Arthur Phase one into Europe and Asia.
So we feel pretty good about that. And our view, I think, is that we’re feeling pretty confident basically around LNG prices basically holding up over the rest of this decade. So that’s what’s built into our sensitivities. And, you know, we’re also in a situation where between now and 2030, where we’re actually much longer Henry Hub natural gas than we are lng. So if you think about it, in Nick’s area In the lower 48, we produce 2 bcf a day of gas. That’s about 15 MPa. And for every dollar we see move on the price on Henry hub, that’s over $400 million of sensitivity to us.
Whereas the first 5 million tons that we have coming out of Port Arthur between Now and the 2030 time frame, every dollar movement on that is about a $200 million movement that we have. So we’re actually much more exposed to higher gas prices than we are compressing LNG margins between now and the end of the decade. I think I touched on most of what you were asking there.
operator
Our next question comes from Phillip Jungwirth from BMO Capital Markets.
Phillip Jungwirth
Yeah, thanks for taking the question. You reached an agreement with Western Gas during the quarter to restructure Delaware gas contracts. The question’s more around. You have over 200,000 net acres in the core that you picked up from Shell couple years ago. Maybe it’s a little less optimal in terms of operatorship working interest or acreage configuration, but with the midstream getting more ironed out, does this at all advance the ability to do a larger acreage swap here? And if so, how meaningful could that be for Conoco’s capital Efficiency in developing this asset going forward.
Nick Olds
Yeah, exactly. If I go back to Shell, I mean one of the key things as you look at in that area is we continue to core up in strategic straits all the time to increase our lateral length in that area. That drives our capital efficiency as we extend the laterals in there. And we continue to do that on an ongoing basis. As you mentioned, for the western midstream, we did directly contract that through west and that’s one of the key drivers that Andy had mentioned that achieves that billion dollars of cost savings run rate by year end 2020 26.
But on the strategic trades we continue to do that on an ongoing basis. And if you look at long lateral inventory in that area you mentioned, if I step back to 2023, about 60% of our Permian future well inventory was 2 miles or greater. But today that’s at 80% due to the strategic trays and core ups. And in fact you look at the 2026 program, 90% of those wells are 2 miles or greater. So we continue to do that with our BD and land teams coring it up. And that drives the capital efficiency when you look at that core up opportunities.
If we go from a one mile to a two mile lateral, we improve the cost supply about 25%. But if we go to three or four miles, we add another 10 to 15% cost supply reduction.
operator
Our next question comes from James west from Melius Research. Your line is now open.
James West
Hey, good afternoon guys. One thing that came up that I noticed in the slide deck this morning that stood out to me was your reserve replacement ratio. It’s been very impressive over the last three years. Well above your peer group and the big oils. Curious what’s been driving that and curious how you see that going forward.
Andrew O’Brien
Hi, this is Andy. I’ll take the question. I actually thank you for the question to asking about reserves. We think reserves remains an important and very relevant metric, especially the organic reserve replacement. As you know, that’s basically essentially what we’re replacing with the drill bit. As you said, one year performance is important. We do also focus on our multiyear track record, especially when you think about some of the longer cycle projects. So just a quickly step through the numbers. Our three year organic reserve replacements 106% and our five year organic reserve replacements 133%. And what’s particularly pleasing about that is across that timeframe we’ve got strong contributions across our entire Global portfolio.
Lower 48 Alaskan International is another example. As Ryan was pointing to earlier the power of our diversified portfolio and 25 was no different. It was another solid year of organic reserve replacement. So we effectively maintained the reserves, technically 99%. And that if you then take that and basically exclude the impacts of revisions there to lower oil prices, the organic reserve ratio, when you’re not taking price revisions into account, we’ve been 110%. So again, it was a really good year for us. And I think where you alluded to, we think our track record would put it up against anybody in terms of the majors or the EMPs over the short, the medium and the long time frame.
And just in terms of how we think about it, we really do think reserves continue to be an important barometer for our industry. And no matter how you slice it, it continues to be another proof point just on the quality of our portfolio. And it was a really good year for us. Again where we had additions, yes from the lower 48, but we had additions coming from Coyote up in Alaska. Great performance out of our Australian business unit where we could increase some reserves there. And then just some of the commercial negotiations we do across Asia allowed us to add some reserves there as well.
You know, important, important for US Reserves to keep a really close eye on it. And I think it’s, it’s a good litmus test of sort of how well, how well basically we’re doing and we couldn’t be happier with it.
Ryan Lance
And I would add just one thing, James as well. I mean people ask us when we talk about our sub$40 resource, sub$40 cost supply resource that we have inside the company and is it real or you know, how real is it? I think this is the proof point as we’re converting those resources into reserves. You ought to feel comfortable. And we’ve been doing this over the long haul both in our history and we given Andy’s comments, you know, that’s what we expect to happen going forward. Because of that, the resource that we’ve got captured inside the company and our focus on the organic investments in the company to turn that resource into reserves.
operator
Our next question comes from Paul Cheng from Scotiabank. Your line is now open.
Paul Cheng
Hey guys. Good afternoon or good morning. Ryan, just curious. You still have a lot of Runway in the lower 48, but I think no matter how we look at it, Shell Oil is getting mature. And as that happen, how over the next five years your capital allocation is going to shift or that is going to make any changes to position the company post 2030. I mean we clearly that you, you have a very, I think visible path for the next five years but post 2030 that with that major asset is going to be maturing how you going to position given you are very large company.
So to turn a big ship going to take time. Thank you.
Ryan Lance
Yeah, thanks Paul. Look, you know we, you know our view inside the lower 48 just in particular is over two decades of low cost of supply inventory. So we’re going to be in this business for 20 plus years. It’s not going to roll over in five years in our portfolio. But I take your point. I think broadly in the industry we’re at these kinds of prices seeing sort of plateauish production in the, in the shale, North American or US shale but that is not the case inside our company. So we will see sort of major project capital spend the pre productive capital that Andy talked about that will start to roll off through the end of this decade.
We continue to, we’ll see growth in our unconventional investments as we continue to capture efficiencies and look at that business. But we’ve got you know, multiple decades of growth opportunity there. And then Kirk talked about the rest of the business. We see opportunities in Alaska, we see them in Canada, we see them and we talked about it Couture guinea, the signing of the new agreement in Libya. So I think we’re just in a completely different place than a lot of our competitors and we’ve got a lot of optionality for investment in the portfolio to continue sort of modest growth depending on what the the commodity price environment ends up being.
And again we’re pretty constructive long term as we see demand growth continuing to grow. So that’s going to give us the opportunity to continue to invest organically in the portfolio across a broad set of assets that have already captured to develop that resource potential that we have. And it doesn’t stop by the next decade in the lower 48. It continues for quite a period of time. I think all the data, third party data supports that. We’re just not talking our book here.
operator
Our next question comes from Charles Mead from Johnson Rice. Your line is now open.
Charles Meade
Yes, hello to the whole Conoco team there. If I could, I’d like to go back to Alaska and can you give us an update on how this season’s costs at Willow are tracking versus the updated assumptions you guys gave us last quarter and perhaps fitting in that or maybe tacking onto that how the loss of this Rig 26 whether it’s going to affect you either on your development or exploration side.
Kirk Johnson
Yeah. Hi Charles, thanks for the question. We’ve certainly Had a number of inbound, especially on that latter part of your question around the rig incident. So I might start there and then of course I’ll address your question on Willow. Certainly. Very unfortunate event there with that rig, D26. Of course, naturally top of mind for us were the folks that the individuals that were around the rig and the few that were piloting that rig, fortunately, no injuries. And of course the owner, the operator of that rig are ultimately accountable and they are leading both the investigation and the response.
We’re naturally in support of that company and working with them as they coordinate and manage in and around that. That rig was one of two rigs that we had planned for the exploration program here this year. We roughly assigned two wells for, for each one of those rigs. And of course we have multiple rigs up there running. And so we were able to just Simply backfill that D26 rig with one of the active rigs that we have operating within our existing units. And so the exploration program continues and we’ll be able to pivot those rigs back after the exploration season into our ongoing development.
So no change to either exploration. And to your point around Willow, we have two rigs premised for the pre drill on Willow leading up to startup in early 2029. And D26 was one of those rigs. Now, again because we have multiple rigs deploying, no impact. And again pre drill starts for Willow next year in 2027. So ultimately what you’re hearing from me is after that unfortunate event, no impact on our exploration and no impact on Willow. On Willow, you heard certainly earlier in my comments that we were able to get out early due to an early start to the winter season and some cold weather with ice.
The same goes for Willow. And so that winter construction season for us started early. It’s on track and proceeding really quite well. When we think about the work scope that we have planned here for this year, it really revolves around some of the earlier points you’ve heard from me. We’re trying to knock out the bulk of the gravel work here this year, roads, pads, the airstrip, so that we have full year round access into Willow in a more efficient way than we have in the past. We’ll be continuing pipeline work, bridges, et cetera. And then of course, all the work here out of the state on prefab of the process modules continues.
And we’re seeing some strong progress from our business partners on that front as well. And then, you know, back to your point, yes, we’re seeing costs come in as we guided, we’re seeing that cascade down largely because last year’s winter construction season was our largest. And then we, you know, we’ve been able to knock out some pretty important milestones up there on the North Slope. Our permanent camp there in Willow is open. And that’s pivotal because it allows us to start moving away from and turning away a lot of these temporary camps that we’ve had to rely on.
And so this is part of the story about our ability to wind capital down from previous levels in the last few years. So we’ll be coming in on pretty. Major milestone here within the next couple months of being 50% complete on the project. And so naturally, both cost and schedule are looking good for us for an early 2029 first oil.
operator
Our last question will come from Kevin McCurdy from Pickering Energy Partners. Your line is now open.
Kevin MacCurdy
Hey, good afternoon. Thanks for putting me in. I wanted to ask about Canada. You highlighted that the 104 WA Surmont pad was ahead of schedule. I wonder if you can talk about the financial and operational impacts of the timing of that pad. Was capex and production brought forward and do you think this could be like an ongoing trend for your operations there? Thanks.
Kirk Johnson
Yeah, appreciate the question. On Canada, it’s a place, the surmount asset specifically is one where we just continue to see really strong performance. And ultimately we have positioned ourselves for first oil, first steam late last year and then first oil early this year. That came in about a month early and that was on PADD104WA. And so ultimately that activity is cascading through, it’s in essence rolling through as we have started work on the next pad 104 WB and as you’ve heard from me in the past, we’re expecting to bring on a new pad roughly every 12 to 18 months.
And we are expecting this next pad to come on in about 12 months from now for a first steam and first oil. So that activity is really quite level loaded, certainly as you can imagine, with that kind of pace. And so we’re not seeing necessarily a material change in certainly how we think about capital or even our production profile other than it de risks, certainly the growth that we’ve started to see. And when we think about, you know, I talk about growth in Surmont, it’s really quite moderate and disciplined with this pace of capital deployment.
So again, you know, we took a bit of a cut last year with having reached payout on the full surmount project last year, net royalties changed on us. And yet when I back up a little bit. And I think about the health of the asset and how it’s performing. Gross volumes continue to be climbing and to be up. So we’re, you know, the performance of these pads is offsetting decline. And again, just really pleased with how the overall asset is performing and how our capital and production is coming in on trend.
operator
Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.
The post ConocoPhillips (COP) Q4 2025 Earnings Call Transcript first appeared on AlphaStreet.
