ConocoPhillips (COP) Earnings Report: Q3 2015 Conference ... filethe underlying business continues...

CompanyName:ConocoPhillipsCompanyTicker:COPSector:BasicMaterialsIndustry:Energy

EventDescription:Q32015EarningsCallMarketCapasofEventDate:63.76BPriceasofEventDate:53.62

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

ConocoPhillips(COP)EarningsReport:Q32015ConferenceCallTranscriptThefollowingConocoPhillipsconferencecalltookplaceonOctober29,2015,12:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

EllenDeSanctis;ConocoPhillips;VP-IRandCommunicationsJeffSheets;ConocoPhillips;EVP,Finance&CFOMattFox;ConocoPhillips;EVP,ExplorationandProduction

OtherPart icipants

DougTerreson;ISIGroup;AnalystJohnHerrlin;SocieteGenerale;AnalystDougLeggate;BofAMerrillLynch;AnalystScottHanold;RBCCapitalMarkets;AnalystGuyBaber;Simmons;AnalystPhilGresh;JPMorgan;AnalystPaulSankey;WolfeResearch;AnalystPaulCheng;BarclaysCapital;AnalystRogerRead;WellsFargoSecurities,LLC;AnalystBobBrackett;SanfordBernstein;AnalystBlakeFernandez;HowardWeilIncorporated;AnalystNeilMehta;GoldmanSachs;AnalystEdwardWestlake;CreditSuisse;AnalystRyanTodd;DeutscheBank;AnalystEvanCalio;MorganStanley;AnalystJamesSullivan;AlembicGlobalAdvisors;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Welcometothethird-quarter2015ConocoPhillipsearningsconferencecall.

(OperatorInstructions)

Pleasenotethatthisconferenceisbeingrecorded.IwillnowturnthecallovertoEllenDeSanctis,VPInvestorRelationsandCommunications,ConocoPhillips.

EllenDeSanctis (VP-IRandCommunications):

Thanks,Christine,andgoodmorningeverybody.Thankyouforjoiningustoday.

OurspeakersthismorningareJeffSheets,ourEVPofFinanceandChiefFinancialOfficer,andMattFox,ourEVPofE&P.

Letmetakecareofacoupleofquickadministrativematters.Firstofall,Iwantedtomakesurethatallofyousawthenoteinthismorning'searningsreleasethatweplantoannounceour2016capitalbudget




onDecember10.WealsoplantohostaconferencecallinconjunctionwiththatreleaseandthereasonistoprovidesomeadditionaldetailsaboutouroperatingandfinancialplansthatwillincludesomespecificsonourCapEx,ouroperatingcosts,ourvolumesandalsoabriefregionandprogramoverview.

That'sabitofadepartureforusbutwethinkaverygoodandearlyopportunitytoshareourplansfornextyear,particularlygiventheongoingmarketuncertainty.Wewillprovidethedetailsforthatcallveryshortly.

Nowifyouturntopage2youwillseeourSafeHarborlanguage.Wewillmakesomeforward-lookingstatementsthismorningandtherisksanduncertaintiesinourfutureperformancearedescribedonthisslideandalsowithourperiodicfilingswiththeSEC.ThenfinallyonceagainduringQ&Awe'lllimitquestionstooneplusafollow-up,thatwaywecanhopetogeteverybodythroughthequeuewithinourplannedhour.

AndnowIwillturnthecallovertoJeff.

Jef f Sheets (EVP,Finance&CFO):

Thankyou,Ellen,andthankseveryoneforjoiningourcalltoday.BeforereviewingthequarterIwillmakeafewbriefcommentsabouthowwe'readdressingthecurrentlowcommoditypricesenvironmentwhichisclearlyimpactingfinancialperformanceacrossthesector.Thisdowncycleposessignificantchallengesandwe'retakingaggressiveactionsacrossourbusinesstopositionforlowandmorevolatileoilpricesinthefuture.

Theseactionsplusouruniqueportfoliocharacteristicsarethekeytodeliveringonourvaluepropositionthroughthecycles.

Overthepastfewyearswe'vehighgradedtheportfolio,organicallygrownaworld-classpositioninNorthAmericanunconventionalplaysandarenearingcompletiononseveralmajorprojects.Weareincreasingourcapitalflexibility,loweringtheunderlyingcausestructureofthebusinessandcontinuingtoreduceexposurestoassetsthatwon'tcompeteforcapitalinourportfolioincludingdeepwaterexplorationandNorthAmericannaturalgas.

Aswegothroughthecalltodayyoushouldbelisteningforafewkeymessages.Theunderlyingoperationalperformanceofthebusinessisverystrong,wecontinuetoexercisecapitalflexibilityandarefurtherreducingourplanned2015CapExpending.Weareacceleratingreductionsinouroperatingcostsandwe'reontracktoexceedourcostreductiontargetinhalfthetimeweexpected.

We'reinstrongshapefinanciallyandfinallywe'reclosingthegaponcashflowneutrality.Theseactionssetusupwellfor2016andbeyond.AsEllenmentionedwelookforwardtoprovidingmoredetailsaboutour2016operatingplansinDecember.

Someofthecurrentenvironmentcontinuestotestthesectorwearefocusedonthethingswecancontrolandmovingdecisivelytopositionourselvesforamarketwithgreaterpriceuncertainty.

Sowiththatsaidlet'sdiveintothequarterlyresultsstartingonslide4.Thekeythemeforthequarteristheunderlyingbusinesscontinuestoperformverywell.

Weproduced1.554millionBOEperdaywhichis4%growthyearoveryear.Mattwillcoveroperationsinmoredetailbutletmehitthehighpoints.WeachievedfirstoilfromourSurmont2megaprojectwhichshouldcontinuerampingupthrough2017.

WealsobroughtonourDrillSite2SandCD5projectsonlineinAlaskaduringOctober.Webroughtsixmajorprojectsonlinesofarthisyearandweexpecttodelivercargoesfromtheseventh,ourAPLNG,




projectbeforeyear-end.

Clearlyearningswerechallengedgivenweakcommodityprices.Ouradjustedlossof$0.38persharewasinlinewithconsensus.

Cashflowfromoperationsis$1.3billion.Thislookslowanditexcludesimpactsofworkingcapitalchanges.

Whenyouadjustforspecialitemsincludingtherigtermination,restructuringcostsandpensionsettlementexpenseinthequarterthat$1.3billionismorelike$1.6billion.Soaboutwhatyou'dexpectinthispriceenvironmentgiventheimpactofhighercostandlowerproductionrelatedtoturn-aroundactivitythisquarterinourAlaska,UKandMalaysiabusinessunits.

Thesethreebusinessunitshad40,000barrelsperdayoflowerproductioninthethirdquartercomparedtothesecondquarter.Theseturnaroundsarenowcompleteandthehigh-marginoilweightedproductionfromthesebusinessunitswillreturninthefourthquarter.

Operatingcostsweredown18%whenadjustedforspecialitemsandwe'lltalkaboutthatmoreinaminute.Andweendedthequarterwith$2.4billionofcash.

OnthestrategicfrontwemodestlyincreasedourquarterlydividendinJuly.Thiswasanimportantsignaltothemarketthatourdividendcontinuestobeatoppriority.

Wealsoannouncedourplantofurtherreducedeepwaterexplorationspendingandbeganimplementingaphasedexit.Aspreviouslyannouncedwebookedtherigterminationfeethisquarter.

Finally,weareprogressingseveralnon-coreassetdispositionsacrosstheportfoliothatprovideadditionalsourcesofcash.We'llprovideanupdateontheseactivitiesinDecember.

Sonowlet'slookatourfinancialperformanceonslide5.Thestoryforearningsisweakcommodityprices.Realizedpricesweredown16%sequentiallyand49%onayear-over-yearbasis.

Asaresultwereportedanadjustedlossof$466millionorthe$0.38share.Thelowercommoditypriceswerepartiallyoffsetbyhighervolumesandloweroperatingcostafteradjustingforspecialitems.

Third-quarteradjustedearningsbysegmentareshownonthelowerrightsideofthisslide.Segmentadjustedearningsareroughlyinlinewithoursensitivities.Andthefinancialdetailsforeachsegmentcanbefoundinthesupplementaldataonourwebsite.

Soitwasatoughquarterfinancially.Buttheunderlyingbusinessperformanceremainsstrong.

Movingtoslide6I'llcoverourproductionresults.Ourthird-quarterproductionfromcontinuingoperationsexcludingLibyaaveraged1.554millionBOEperdaycomparedto1.473perdayinthesamequarterlastyear.

Adjustingout25,000BOEperdayduetolowerthird-quarterdowntimeanddispositionsweachievedgrowthof4%or56,000BOEperday.OurgrowthcontinuestocomeprimarilyfromNorthAmericanliquidsandAPLNGrampgaswhichwillsoonbecomeliquidspricedLNG.Onapricenormalizedbasisthisshouldhelpdrivemarginsandreturns.

NowifyouwillturntothenextslideIwillcoverouryear-to-datecashflowwaterfall.Thischartsummarizesouryear-to-datesourcesandusesofcash.

Startingattheleftwebegantheyearwith$5.1billionofcash.ThroughSeptemberwegenerated$5.8billionfromoperatingactivitiesexcludingworkingcapital.Workingcapitaloverthisperiodwasa$600




millionuseofcash.

Throughthreequarterswereceived$600millionindispositionproceeds.Aswementionedwepreviouslywecurrentlyhaveseveralassetsonthemarket.Weexpectseveralofthemtoclosethisyearandwe'llprovideanupdateinDecember.

Aswesaidbeforeyoushouldexpectustogenerate$1billionto$2billionperyearaspartofourroutinehighgradingprocess.Weincreaseddebtby$2.4billionduringthesecondquarterbutaddednodebtinthethirdquarter.Throughthethirdquarterwe'vespent$7.9billionincapital,paidourdividendandendedwith$2.4billionofcashonthebalancesheet.

Webelievewe'reinstrongshapefinancially.Betweencashonhand,debtcapacitywithinasingleAcreditratingandexpectedassetsalesproceedswehavethemeanstomanagethroughthecurrentperiodoflowprices.

Thatwasaprettyquickrecapofthefinancialresultsforthequarter.NowI'llturnthecallovertoMattwhowillgothroughtheoperationalperformanceandclosewitha2015guidanceupdate.

Whatyou'regoingtoheariswe'redrivingpositivemomentuminthebusiness.Allthingsequalthesestepswe'retakingshoulddriveimproved2016earningsandcashflow.SoIwillturnitovertoMatt.

MattFox(EVP,ExplorationandProduction):

Thanks,Jeff.AsJeffmentionedweperformedverywellthisquarteroperationally.

Wesuccessfullycompletedseveralmajorturnarounds,continuetobringmajorprojectsonlineandexceededourproductiontargets.

Iwillnowquicklyrunthroughthesegmentresultsandthenwewillmoveontoyourquestions.Solet'sstartwithslide9.

Inthelower48third-quarterproductionaveraged551,000BOEperday.That'sa1%increasefromthesameperiodlastyearanda1%decreasesequentially.Importantly,though,thisrepresentsa12%increaseinourcrudeoilyearoveryear.

We'recurrentlyrunning13rigsinthelower48-sixintheEagleFord,fourinthePermian--fourintheBakkenandthreeinthePermian,oneofwhichisintheunconventionals.Andwe'redeliveringmoreforlessacrossourprograms.Infact,wehaveseen20%to30%lowerdrillingandcompletioncostscomparedtoayearago.

Abouthalfofthatisdrivenbyprogramefficienciesandabouthalfisfromdeflationcapture.Productionfromthesethreeunconventionalplayswas249,000BOEperdaythisquarter.That'sanincreaseof28,000barrelsversusthethirdquarterlastyearbutadecreaseof6,000barrelsadaysequentially.

Asweforecasted,givenourcurrentlevelofrigactivityproductionfromtheseplaysplateauedinthethirdquarterandwe'dexpecttoseeamodestdeclineinthefourthquarter.Clearly2016productionwilldependonthelevelofcapitalflexibilitywechoosetoexercise.However,youshouldnotexpectustoincreasecapitalintheseplaysatcurrentprices.

Despiteourstatedplanstoreducedeepwaterexplorationspendingovertimewe'recontinuingtofundactivitybasedonexistingcommitmentswhilewealsoprogresspossiblemonetizationoptions.Thisisimportantforprotectingthevaluewe'vecreatedfromourexistingprogram.

IntheGulfofMexicowehadencouragingresultsfromtherecentShenandoahappraisalwell.We'recurrentlydrillingtheVernacciaandGibsonexplorationwellsandweexpecttospudtheMelmarprospect




thisquarter.

InCanadaweproduced315,000BOEperday,a14%increaseyearoveryear.Thisgrowthcamemostlyfromstrongwellperformance,rampupatFosterCreekPhaseFandlowerplanneddowntime.

WeachievedamajormilestoneduringthequarterwithfirstoilatourSurmont2oilsandsproject.Thisprojectwillcontinuerampingupthrough2017andatfullproductionweexpecttoincreaseSurmont'stotalgrosscapacityto150,000BOEperday.

WespuddedtheCheshireexplorationwelloffshoreNovaScotiathismonth.Andthat'sthefirstoftwoexplorationwellcommitments.

Nextlet'sreviewourAlaskaandEuropesegmentsonslide10.Alaska'saverageproductionwas160,000BOEperday,anincreaseof3%comparedtolastyear'sthirdquarterduetolowerplanneddowntime.WesuccessfullycompletedseveralmajorprojectturnaroundsduringthequarteratPrudhoeandKuparuk.

WerecentlyachievedtwokeepprojectmilestoneswithfirstoilfromCD5andDrillSite2SinOctober.Atpeakproductionweexpecttheseprojectstocontributeabout15,000barrelsadayofcrude.Sowe'reseeingthebenefitsofprojectactivitythatwillhelptokeepourAlaskaproductionrelativelyflatforthenextseveralyears.

WecompletedoursixcargoexportprogramfromKenaiin2015withthelastcargodeliveredinOctober.AndweappliedforalicensefromtheDOEtocontinueourexportprogramin2016.

MovingtoEurope,third-quarterproductionaveraged192,000BOEperday.WehadseveralmajorturnaroundsacrosstheUKthatwereallcompletedsuccessfully.Andwe'recontinuingdevelopmentdrillingatEkofiskSouthandEldfiskIIinNorway.

NowI'llcovertheAsia-PacificandMiddleEastandotherinternationalsegmentsonslide11.IntheAP&MEsegmentweproduced332,000BOEperdayinthethirdquarter.Thisisa10%increasefromthesameperiodlastyeardrivenbyGumusutandincreasedrampgasfromAPLNG.

InMalaysiaGumusutunderwentitsfirstmajorturnaroundwhichwascompletedaheadofschedule.InAustraliaweexpectAPLNGtrain1todeliveritsfirstcargointhefourthquarter.

Onthedownstreamprojectallthemechanicalrunsarecomplete.Andontheupstreamproject14ofthe15gasprocessingfacilitiesarenowfullycommissioned.

InotherinternationaltheAthenarigfromAngolahasarrivedinSenegalwhereweexpecttoconductasixwellexplorationandappraisalprogramstartingnowandextendingintonextyear.AndinLibyaproductionremainsshut-inasaresultoftheongoingregionalinstability.

Soletmecloseonthenextslidebygivingyousomeupdatedguidancefor2015andsummarizingthekeytakeawaysfromourcall.Thetitleofthisslidesaysitall.We'rereducingour2015CapEx,reducingour2015operatingcostanddeliveringstrongunderlyingbusinessperformance.

LikeJeffmentionedthiswillhelpdrivesolidmomentuminto2016.Ontheproductionfrontwenowexpecttoexceedourfull-year2015productionguidance.That'sinlargepartduetodeliveringoursevenmajorprojectstartupsthisyear.

Weexpecttoachievefourth-quarterproductionof1.585millionto1.625millionBOEperday.Andthatputsourfull-year2015guidancerangeat1.585millionto1.595millionBOEperday.Andasthechartshowsthisrepresents3%to4%growthfromcontinuingoperationsexcludingLibya,upfromthe2%to3%weexpectedatthestartoftheyear.




Thetablecapturesseveralotherkeyguidanceitemsandshowstheprogresswe'vemadesince2014andthrough2015.Thefarrightcolumnisourcurrent2015guidanceandallofthesenumbersexcludespecialitems.

Wenowexpectour2015capitalspendingtocomeinat$10.2billion.That'sa40%decreasefrom2014,an11%decreasefromourinitialoutlookfor2015.AbouthalfofthereductionwasrelatedtomarketfactorslikeFXanddeflationandabouthalfisduetodiscretionarydeferralsandprogramefficiencies.

Onoperatingcostswe'renowguidingto$8.2billionfor2015.Andthat'sa15%reductioncomparedto2014.

YourememberinAprilwesetatargettoreduceoperatingcostsin2016by$1billioncomparedto2014.Andwhatourrevised2015operatingcostguidancerepresentsisanaccelerationofthiseffort.Infact,we'venowexceededour$1billiontargetinhalfthetime.

AbouthalfofthesesavingscamefrommarketfactorslikedeflationandFXimpactsbuttherestcamefromstepswe'vetakentolowerthecoststructureofthebusinessthroughG&Areductions,newoperatingphilosophiesandsupplychainefficiencies.Andwe'renotdoneyet.

We'realsochangingourfull-yearcorporatesegmentguidancetoanetexpenseof$800millionandthat'sa20%reductionfrominitial2015guidance.

I'llclosebyrepeatingthekeymessagesyoushouldtakefromthiscall.Theunderlyingoperationalperformanceofthebusinessisverystrong.Wecontinuetoexercisecapitalflexibilityandwe'refurtherreducingourplanned2015capitalspending.

We'reacceleratingreductionsinouroperatingcostsandareontracktoexceedourcostreductiontargetinhalfthetimeweexpected.Andfinallywe'reinverystrongshapefinancially.

Sowe'reallfocusedonsafelyandsuccessfullyexecutingouroperationswhilepositioningtheCompanytobemoreflexibleandresilienttodeliveronourlong-termcommitmentstoshareholders.Welookforwardtoprovidingmoredetailsofouroperatingplanfor2016inDecember.

SonowIwillturnthecallovertoyouforQ&A.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)DougTerreson,EvercoreISI.

DougT erreson (Analyst-ISIGroup):

Goodmorning,everybody.InUSunconventionalinthatarenaindustryproductivitygainswereprettysignificantinrecentyearsbutmorerecentdataindicatesthatwehavehadaslowdowneventhoughcompaniesseemtobedrillingtheirbestresourcesandusingoptimaltechnologyandpersonnel,too.

Sowhilethiscouldbeablipinthedataitcouldalsobethattechnologicallimitsarebeingreachedbysomeandthatsciencemightplayagreaterroleinrecoveryratecaptureinthefuture.SoIjustwantedtogetyourinsightsintothisparadigmormaybeintothistransitionthatisunderway,thatisifyouthinkthatthereisone.Andalsobasedonyourexperienceandwithyourcredentialswheredoyouthinkweareinunderstandingtheshaleresourceoverall?





SoDougIthinkfromourperspectivethesweetspotsreallymatter,soyou'regoingtogetthebestperformanceoutofthesweetspots.Andyou'reprobablyrightthatpeoplearefocusing,theyarejustnowwithalimitednumberofrigsrunning.

Iwouldn'tsaythatourperspectiveisthatwe'vereachedanysortoftechnologicallimit.We'recontinuingtoseeencouragingresultsfromourpilottestsondifferentwellspacings.We'recontinuingtorunourstimulatedrockvolumepilotintheEagleFordandlearningalotthat'sgoingtoallowustooptimizewellspacingandcompletionsinthefuture.

AndevenintheBakkenwe'removingfromopenholeslideandsleevecompletionstocementedlinerandplug-n-perf.We'reseeingimprovementstherefromourpilottests.Sofromourperspectivewe'renotseeingourselvesinanytechnologylimityet.


Okay,Matt.SoIdon'tdisagreewiththatbutitseemsliketheindustrymaybeslowingdownsomewhat.SoIrecognizeit'shardforyoutomaybeattributethattootherfactorsbecauseit'snotyourCompanybutdoyouhaveanyinsightastowhatmaybethosedrivers?


Weseethatinotherpeople'sindividualwellperformance.ButI'mnotquitesurewhattoattributethatto.


Okay,thanksalot.

Operator :

JohnHerrlin,SocieteGenerale.

JohnHerrlin (Analyst-SocieteGenerale):

Yes,hi.Iknowyou'regoingtoannounceyourCapExbudgetfornextyearonthe10thofDecemberbutfromaportfoliomanagementperspectiveisitsafetosaythatyou'refocusingmoreonshort-andintermediate-termtimeprojectsoranddeferringkindofalonger-termtypebusiness?


Reallywhat'sgoingtohappenforusJohnisaswemovefrom2015into2016we'reseeingabout$2billionofmajorprojectspendrolloffaswecompleteinparticularSurmontandAPLNG.Sowehaveachoiceastowhattodowiththatandtheadditionalcapitalflexibilitythat'sappearingandwecouldredirectittoshortercycleorwecouldjustholdonandholdontothoseopportunitiesforanothertime.Andthat'sexactlythesortofdetailwe'regoingtoprovideintheDecembercall.


Okay.Nextoneformeisaquickie.Ducksyou'rehearingalotofcompaniesnowsaytheconceptdujouristoaccumulateuncompletedwells.IsthatpartofyourMO?


No,it'snot.Ourviewisthatifyoudon'twanttocompletethewelldon'tdrillthem.Sowedon'thaveastrategytodrillwellsandthenintentionallynotcompletethem.

Wearereducingthenumberofuncompletedwellsaswe'vegonethroughthisyear.Westartedtheyear




withabout135wellsthatwereuncompletedandwe'llendtheyearwithabout95wellsbutthat'sjustthesortofnaturalcourseofexecutingourprogram.It'snotadeliberatechoicetodrillwellsandnotcompletethem.


Thanks,Matt.

Operator :

DougLeggate,BankofAmericaMerrillLynch.

DougLeggate (Analyst-BofAMerrillLynch):

Thankyou.Goodafternooneverybody.I'vegotacoupleofquestionsalsoifImay.

Firstofall,onIguesstherewasacuriousstatementinthereleaseaboutdisposals,Matt.Andjustkindofthinkingoutloudaboutheadcountreduction,largecapitalprojectscomingonline,you'vegotaverylargetailofnon-operatedrelativelysmallassets,particularlyinlightofapotentialexitintheGulfofMexico.

SoI'mjustwonderingorderofmagnitudeyou'vegot80,000barrelsadayofgasequivalentintheUSthatmyunderstandingisyou'remarketing.Whatdoyouthinkthescaleofthenon-coredisposalsifyouwanttocallitthatstandsatonceyougetthosebigprojectsonlineandwhat'sthelikelytimelinetoseesomemovementontheassetsales?


Doug,Imeanit'snosecretthatwe'vegotseveralnon-coreassetsonthemarketincludingtheNorthAmericangasassets.Butwe'renotreadytogivedetailsofthoseatthistime.

WearegoingtogivesomemoredetailinDecember.Butwhatyoushouldexpectissomethingoftheorderof$1billionto$2billionannually.ButwearegoingtogiveyoumoredetailinDecember,butit'snotappropriateforustogointodetailjustnow.


Annuallymeansanumberofyearsonit,Matt.Whatarewetalkingaboutoneyearorfiveyearsorwhat?


Iwouldsaythatonaverageoveranyperiodoftimeweshouldbecleaningtheportfolioandthatcouldbe$1billionto$2billionayear.Soannually.


Okay.Myfollow-upisonJeffmaybeoncashflow.ItlookslikecashflowwasoperatingcashflowwasalittleweakthisquarterandI'mtryingtodecipherwhatwasgoingonattheaffiliatelevel.

Thinkingaboutyour$60cashbreakevenby2017andobviouslythecostreductionsannouncedtoday,socanyoujusthelpreconcilewhatwasgoingonwiththecashflowthisquarterandwheredoyouthinkthatcashbreakevennowstandsafteryourlatestroundofcostreductions?AndIwillleaveitthere.Thanks.





Ontheaffiliatelevelwereallyhavethreemajorequityaffiliates.YouhavetheFosterCreek/ChristinaLakeoilsandsjointventure,theAPLNGprojectinAustraliaandtheQG3projectinQatar.

Ofthosethree,twoofthemarestillinafairlyheavyinvestmentphase.SofortheAPLNGwedon'tgetanycashdistributionsoutofthere.It'sallretainedtocovercapital.

InFCCLthisyearit'sthesamekindofstory,allthecashflowisbeingretainedtofundcapitalthereandwedogetsomedistributionsoutofQG3.Aswemoveforwardin2016and2017withastartupofAPLNGandasadditionalphasesandwewouldassumesomepricerecoveryhappensforFosterCreekandChristinaLakeweexpectthatwewouldseedistributionscomingoutofallthreeofthosejointventures.Andaswe'vetalkedpreviouslythat'saprettysignificantsourceofcashflowtobringusclosertocashflowneutrality.

Aswe'vealsotalkedbeforeaswethinkaboutcashflowneutralityin2017wehaveincreasinglevelsofcapitalflexibility,increasingproductionlevelstowherewefeellikewe'regoingtobeabletogetthereataprettybroadrangeofcommodityprices.Sothere'snotreallyjustkindofonecommoditypricenumbersthatwepointoutaswhatittakesforustogettocashflowneutralityin2017.


Sonothingspecificthisquarterthat'scausedthecashflowtolag?


Well,Imeanwehadauniqueeffectthisquarterifyoulookatthe$1.3billionincashfromoperationsbeforeworkingcapitaland$1.9billionafterworkingcapital.$1.9billionofafterworkingwehad$600millionofworkingcapitalimpact.

Wehadtherigterminationfeewhichwetookagainstearningsbutdidn'thitcashbutendeduphittingcashbeforeworkingcapitalbecauseitcausedashiftinworkingcapital.Asimilareffecthappenedonourrestructuringcosts,sowhenwemadethecommentinaswewentthroughtheslidesyoushouldthinkaboutthat$1.3billionbeingmorelike$1.6billion.It'stakingaccountoftheimpactofjustthosespecialitems.

Andaswealsopointedoutthisisthethirdquarteralwaysisaweakcashflowquarterforusbecauseittendstobethequarterwherewehavethemostturnaroundactivity.Inthisquarterwelostabout40,000barrelsadayroughlyinourMalaysia,ourUKandourAlaskabusinessunitsbecausetheyaretheoneswhowentthroughturnaround.

Andthatisprettyheavilyweightedtooilproduction.Andwhenyouthinkaboutwhathappensinaturnaroundyou'relosingtherevenuebutyouarestillkeepingallyournormalcostsandthenyou'rehavingthecostsassociatedwiththeturnarounditself.Sothenetmarginyou'relosingwhenyouhaveaturnaroundisprettyhighonthosebarrels.


That'shelpful,thanksJeff.

Operator :

ScottHanold,RBCCapitalMarkets.

Scott Hanold (Analyst-RBCCapitalMarkets):

Thanks,guys.Justacoupleofquestionsformeaswell.




LittlemorespecificonsomeoftheunconventionalUSresourceplays,youknowtheEagleFordandBakkenitsoundslikeatthecurrentactivitylevelstheexpectationsisproductionisstartingtoslidealittlebit.Isthattrueifweremainedinthissomewhat$45,$50environmentandmoredirectwhatpricewouldallocatemorecapitaltothoseareas?


IfwestayatourcurrentlevelofrigsintheEagleFordandBakkenwewouldexpecttoseesomemodestdecline.Soforexampleifwegofromthisyearintonextyearandwedon'tincreaserigswe'llsee3%to5%declineonourproductionintheunconventionals.

We'regoingthroughtheprocessofsettingouroperatingplanandbudgetfor2016andwe'llgiveyoualittlemoredetailonwhatweactuallydecidetodowiththatrigcountatthattime.Butjustasasortofreferenceifwestayatthecurrentrigrateitwillbe3%to5%declineinourunconventionalproduction.


Okay,Iappreciatethat.Goodcolor.

AndoneotherthingonIguessthesalesgoals,Jeffratherthantrytobetoospecificasfaraswhatyou'resellingandtimingonitbutjustspecificallycanyougiveusabroadsenseofwhatreallyarethegoalsoftheseassetsales?Isitcleaninguptheportfolio,isithelpbridgingacashflowdeficittokeepastrongdividend?AndIguessmypointisifcommoditypricesdoeventuallyimprovedoesthatbecomelessimportanttoConoco?


It'sacombinationofthosefactors.Thesearepredominantlygoingtobeassetsalesthatwewouldbedoingregardlessofacommoditypriceenvironment.

Ifyouthinkaboutitaportfolioofoursizewe'realwaysgoingtobeintheprocessoftryingtofindtheassetssomeoneelsewouldn'tvaluemorehighlythanwedo.Soaswe'vetalkedaboutit'sthingslikesomepartsofourNorthAmericannaturalgasportfoliomightfitinthatcategory.

Theotherthingthatwethinkaboutintermsofassetsalesarewhatassetsarejustnotgoingtomakethecutforustofundcapitalforthem.Someonewhomightbemorewillingtofundthatcapitalwouldtheyhaveadifferentvalueperspectiveonthose?

Soit'salwaysabitofacombination.Butpredominantlytheseareassetsthataregoingtobepartofanyofarationalizationprocessinmostcommoditypriceenvironments.


Understood.Appreciateit.Thanks.

Operator :

GuyBaber,Simmons.

GuyBaber (Analyst-Simmons):

Goodafternooneverybody.Iwantedtodiveintotheproductionthelittlebit,buthopingyoucouldjustaddressthemajorprojectperformance,howthoseprojectsarampinguprelativetoexpectations?

Andspecificallyifyoucouldjustremindusoftheincrementalproductionfromthoseprojectslatestviewin2016and2017?Justtryingtounderstandthatbaselevelofgrowththat'scomingonastheCapEx




beginstodecline.


Yes,sothemajorprojectsarerampingup.AndGumusutiscomingin.Theexpectationswe'vehadtheturnaroundtherethatImentionedwhichhasallowedustogetthegasinjectionestablished.

Andsoit'srampingupandgettingclosetofullcapacity.APLNGisrampingupgasinanticipationofhavingtheLNGplantfullforthefirsttrain.

SurmonthasreallyjustliterallyjuststartedproducingoilinSeptember.Andthat'sgoingtograduallyrampupoverthenext12to15months.

Soifyoujustlookedatthosethreeprojectsaloneinaggregateby2017we'reprobablylookingat150,000orsobarrelsadayofincrementalproductionfromthosethreeprojects.Maybe120,000becauseGumusutisalreadythere.


That'shelpful.Thanks,Matt.

AndthenIwantedtodiveintothoughtsaroundcapitalallocationandthedeepwaterportfolioalittlebitmore,specificallyondevelopmentcapitaltowardsdeepwaterandoffshore.ButdoyouhaveflexibilitytoslowyouroffshoredevelopmentCapExnextyear,theyearafterandisthatsomethingthatyouwouldconsiderinthisenvironmentatthispointintime?


Wehaveannouncedthatwe'regoingtobeexitingdeepwaterexploration,althoughwedohavequiteasignificantprogramthatwe'reexecutingnextyear.Developmentofthediscoveriesthatwehaveindeepwaterisquitesomewayoffandwemaychoosetostaywiththosedevelopmentsbutwemaychoosetoexitbeforedevelopmenthappensthere.

Soreallywhatwe'reinjustnowisarampingdownofexplorationcommitmentsandcontinuingappraisalontheexistingdiscoveries.We'renotatadevelopmentstageyet.


Thanksforthat.

Operator :

PhilGresh,JPMorgan.

PhilGresh (Analyst-JPMorgan):

Yeshi.Goodafternoon.Firstquestionisontheequityaffiliatesagain.

IntheoilsandsyourpartneronFCCLnotedthattheyarecontemplatingrestartingsomeoftheprojectfacesin2016thatcouldadduptoanother$500millioninCapExonthebaselevelofspend.SoasthishappenstheequityaffiliatesourceofcashforyouguyswouldbelowerandIassumethat'snotwhatyou'recontemplatingatthisstage.Butmaybeyoucouldjusttalkaboutwhereoilsandsprojectsrankintermsofyourrelativeprioritiesofcashpost-Surmonttotheextentyourpartnerwantstomoveforwardonthis?





Yes,sowehaveeasilyengageinthebudgetingprocesswithourpartnerthereandthat'saprettycollaborativeprocess.Historicallywhatwe'vedonehereiswe'vefundedadditionalgrowthinFCCLfromwithinthejointventurefromcashthat'sgeneratedwithinthejointventureratherthantakingdistributionsout.AndthosearegoodprojectsatFosterandChristina,sowe'llhaveagooddiscussionatthemanagementcommitteeonwhattherightpaceistodevelopthose.

Butitwon'tinfluencedistributionspersebecausewereallyhaven'tbeentakingdistributionsoutofFCCL.We'vebeenintendingtoreinvestinthesortofgradualincreaseinproductionasweaddmorefacesthere.


Okayyes.Iwasreferringmoretojusttheexpectationmovingforwardthatyouwillbetakingdistributions.

Ididn'tknowifmoregrowthwouldhinderthat.Jeff,Idon'tknowifyouhaveacommentonthat.


Well,atthesametimethattheyaretalkingabouttheseinvestmentsyouhavetoalsokeepinmindthatproductionlevelsfrombothFosterCreekandChristinaLakecontinuetoincrease.Andwe'vebeenataperiodwherewe'vehadlowcommoditypricesandprettywidedifferentials.

Sothenetresulthasbeensomeprettyweakrealizations.Sothere'squiteabitofleveragetoincreasesinpricesthatcanhappenthereaswell.Soyou'vegotwhatisprobablypriceincreaseshappeningbothonthedifferentialandtheflatpricesideandincreasedproductionthat'sgoingtoprovidemorecapabilitytofundincreasedinvestmentaswell.


Okay,andmyfollow-upisjustontheproduction,theincreaseintheproductiontargetforthisyear.Wouldyousaythat'smoreofapullforwardonjustexecutingonmajorcapitalprojectsfasterorisitsomethingthatwouldindicateasustainablyhighergrowthratethatweshouldbethinkingaboutfor2016?


It'snotreallyassociatedwithmajorprojectacceleration.It'smoreanindicationoftheperformanceofourbaseandthemanagingourbasedeclineandtheperformancewe'regettingfromournewdevelopmentwellsacrosstheportfolioasawhole.


Sure,okay,thankyou.

Operator :

PaulSankey,WolfeResearch.

PaulSankey(Analyst-WolfeResearch):

Higuys.You'vedoneatremendousamountthisyearasshownontheslidesbutwhenwelookatitlet'ssay$50oilthisyearyou'vemadeaboutitlookslikearunrateofabout$8billioncashflow.Iguessthat'sobviouslynotafairnumber.

Canyouguideustowardswhattherealrunratewillbegivenwhatyou'veachieved?Andsecondlyperhapsupdateusgivenallthemovementsonthesensitivitiesofcashflowsorearningstodollar




changesintheoilprice.I'massumingthey'vegoneup.Thanks.


Thesensitivitiesthatwe'veprovidedarestillprettyclose.We'llgiveyousomeupdatedsensitivitiestothatinDecemberthatwillreflectthelatestview.Butthey'renotgoingtobelargelydifferentthanwhatyou'veseencurrently.

We'realsoinDecemberwe'llbegivingyouabetterpictureofwhat2016willbelookinglikeintermsofhowtothinkaboutcostrelativetothisyearandhowtothinkaboutcapitalcostsrelativetothisyear.Butjustoverallthepicturelikewesaidwhenwelookatthebalanceofcashflowandtheproceedsthatwe'relikelytogetfromassetsaleswhenwecomparethattowhatwethinkcapitalisgoingtobeandthedividendweseeapicturethatisverymanageableforusfromabalancesheetperspectiveinordertogettothepointwherewegettocashflowneutralitybalancestillwithinthe2017timeframewithinthecapacitythatwehaveonourbalancesheet.


Yes,IguesswhatI'mdrivingatisitfeelslikethatprice,thepriceofoilrequiredforthathascomedownoverthecourseofthelastyear.


Ithas.


Sinceyourlastupdate.Iwillgowithafollow-upwhichiskindofrelatedbutyousaidherethatyou'reinaphasedexitofdeepwaterexploration.Iassumethatmeansthatyou'llbesellingoutofpositionsandthatwillformpartofthedisposalprogramthatyou'vetalkedaboutwhichisverysignificant,Ithink$1billionto$2billionayear.

Iwouldassumethatthat'saphasedexitwhichwillsortofbeaone-waystreet.Onceyou'veleftyou'llbegoneandIwouldalsoanticipatethatwouldinvolvesellingleases.Iknowyou'vegotamajorpositionforexampleintheGulfofMexico.

AmIheadingintherightdirectionhereintermsofhowyou'relookingatthis?Thanks.


Yes,that'sright,Paul.


CanyoujustremindushowbigyourpositionisintheGulfofMexico?BecauseIknowit'stopthree.


IntheGulfwe'vegotabout2.2millionacresintheGulfandthreeexistingdiscoveriesandourintentionistonotbedoingdeepwaterexplorationby2017.Andthoseacreagepositionsthatweholdthatwedon'tintendtodrillwewillbemarketingthosepositions.


Yes,understood.AndthatbecomesthenasIsaidandyousortofagreed,IhopeIdidn'ttrapyou,thatthatbecomesaone-waystreet.Imeaneffectivelyovertimeyou'resimplyleavingthedeepwaterand




won'tcomeback.


That'sright.Thisisastrategicdecisiontoleave--toexitdeepwaterexploration.That'sexactlyright.


Great,that'sveryclear.Thanks,guys.

Operator :

PaulCheng,Barclays.

PaulCheng (Analyst-BarclaysCapital):

Heyguys,justIthinkmaybeseveralmonthsagothatyouandMatttalkingabouttosustainyouroperationisabout$8billionwhichwasdownfrom$9billionsaymaybefromlastyear.Soarewestilltalkingabout$8billiongiventhatyouhaveactuallyacceleratedyourcostreductionandeverythingorthatthisnumberisnow$7billionor$7.5billion?


It'shardtotalkaboutthatnumberwithoutsomecontextaroundwhatkindofenvironmentwethinkwe'rein.Ifwehadacontinuationofthetypeofenvironmentwe'veseentodaywedothinkwe'dbetalkingaboutanumberthatwaslowerthan$8billion.Butit'sinthatsamekindofrange.


Okay.AndmaybethisisforMatt.Youarecurrentlyrunningabout13rigsandyou'resayingthatthethird-quarterproduction--thefourth-quarterproductionwillbemodestlydown.

Somyguessisthatwhatisthenumberofrigsthatyouthinkyouneedinordertoholdtheproductionflat?AndwhatkindofCapExrequiresthatyouhavethatkindofprogram?


SotokeepEagleFordproductionflatprobablyrequiresbetweensevenandeightrigs.Currentlywe'rerunningsix.

TheBakkenrequiresaboutclosertofiverigs.We'recurrentlyrunningfour.

Soyou'dbelookingatmaybethreeadditionalrigstomaintainproductionflat.Andifyoulookatall-incost,drillcompletehookupandsoonyoucanuseanorderofmagnitudeof$150million.


Perrig.


Anadditional$150million?


No,perriglineperyear.Somaybe$400million.





Okayperfect.Thankyou.

Operator :

RogerRead,WellsFargo.

RogerRead (Analyst-WellsFargoSecurities,LLC):

Hi,goodmorning.IguesscomebackaroundontheGulfofMexicoorjustdeepwateringeneralyoumentionedearlieronthecallyouhadafurtherappraisalinShenandoah.Shouldwethinkoftheexitofexplorationalsoincludingtheexitofnotyetdevelopedbutpartiallyexplored?


Possiblybutonlyifwegetfullvalueforit.We'rewillingtostayinourdiscoveriesifthat'swhatmaximizesthevalue.Butwehaven'tmadeacommitmenttoexitdeepwaterpersebutit'sthedeepwaterexplorationbutifwesawfullvalueforthoseassetsthenwe'dcertainlyconsiderthat.


Okay.Andcanyougiveusanideaofwhatthecapitalflexibilityisonceyou'reawayfromdeepwaterexplorationoranyothertypeofexplorationyou'renotplanningtodoby2017?AndthenifIunderstoodcorrectlyitdoesn'tsoundliketheoilsandsnecessarilygetsincrementalCapExandwecanpresumethatthereisnotanotherLNGproject.SoaswelookatthetotalCapExnumbersortofasIguessastartingpointforwhenyoutalkaboutitinDecemberwherewecanseethatCapExflexibilitythatcouldcomebackintotheshaleplaysinfutureyears?


WellIguesstogiveyouabitofapreviewofthe2016budgetweexpecttospendabout$800millionin2016inthedeepwaterexplorationandappraisalspace.Andsothat'stheorderofmagnitudeonthecapitalsidethatwewouldn'tbespendingifweweren'tdoingdeepwaterexplorationandappraisalforoneyear.Andthenthere'sG&GandG&Aassociatedwiththataswell.


AndthatnumberMattnotedisafairlyconsistentnumberwithwhatwe'respendingtherein2015aswell.


Okay,thankyou.

Operator :

BobBrackett,SanfordBernstein.

BobBrackett (Analyst-SanfordBernstein):

Hi,I'vegotkindofahighlevel,morephilosophicquestiononthe2016capitalplanaheadofgettingthedetails.Oneissimple,whatsortofpricestickwouldyoubelookingatintermsofthinkingaboutyourcashflowfromoperationsnextyear?





Wedon'thaveonepricestickthatweuse.WearepreparingtheCompanytodealwithlowandvolatileprices,sowe'regoingtobereadytohandlewhetherwegetacontinuationofcurrentprices,whetherwegetsomerecoverythat'snotreallygoingtobeadeterminingfactorinexactlywherewesetourcapitalprogram.


Okay.Andthenhowdoyouprioritizethesourcesofcashforthatprogramandthesinksortheusesofcash?What'sthepeckingorder?


Sowe'regoingtousecashflowfromoperationstofundthecapitalandthedividend.We'regoingtohavesomeamountofassetsalesproceedsthatcomeinfromthingsthatwe'recurrentlymarketingandotherthingsthatwemightmarket.

We'regoingto--wewillfirstusethecashthat'sonourbalancesheetandthentotheextentthatcashfromoperationsandassetsalesdon'tfullyfundcapitalinthedividendwe'llbelookingtoincreasedebt.Imeanthatit'sjustamechanicofwhat'sgoingtoenduphappeningforus.

Andaswesaidaswelookattheamountofdebtthatwemightneedtoraiseeveninsomecontinuationsofsomeprettytoughpriceenvironmentswefeelcomfortablethatthatcapacityexistsonourbalancesheet.AnditreallyexistswithinasingleAcreditratingaswell.


Great,thanks.

Operator :

BlakeFernandez,HowardWeil.

BlakeFernandez (Analyst-HowardWeilIncorporated):

Folks,goodmorning.IhadtwoquestionsbutifIcouldfirstiskindofconfirmEllen,theDecember10capitalupdate,isthatinlieuofthetypicalAnalystDaywewouldhaveinApril?


We'restillthinkingaboutallthatbutourbigconcernhereisnotaskingthemarkettowaituntilApriltoseethedetailsofwhatourcurrent-yearplanis.SoatthispointyoucancountonDecemberbeingaprettybigupdateontheCompany'splansandprogramsfortheyear.


Okay,thanks.InthepastIbelieveyou'veprovidedsomerateofreturnorbreakevenlevelsforthemajorprojectsincludingSurmontandAPLNGandseeinghowthosearetwomajorcontributorsnear-termI'mwonderingcouldyouprovideuswithanupdateasfaraswhatyouthinkabreakevenpriceisforoil,whetherthoseareactuallyaccretivetonetincomeorearningspershare?


Idon'thavethat.





Idon'thavethatoffthetopofmyhead.


That'sfine.That'sfine.MaybeIcanfollowupwith--


We'llcomebacktoyou,Blake.


Yes,wecancomebacktoyouonthat


Notaproblem.IwillgetbackwithSidonthat.ThelastoneisjustkindofmoreofabroaderpicturequestionIguess.

I'mjustcuriousiftheBoardeverhasadiscussionabouttheshareholderpayout.Iknowyou'reverycommittedtothedividendandyou'retryingtomaintainthatshareholderbase.

Butwhenyoulookatthestocktradingfromthecallitmid-80sdownintothe50sisthereanyconsiderationwhatsoevertomaybeshiftthatratiotowardsmaybeabuybackprogramoreventowardcapturingM&Aopportunitiesinsteadofpuredividendpayout?


Youknow,we'vebeenprettyconsistent.SincewestartedConocoPhillipsasanindependentE&Pwethoughtthewaytocreatevalueinthebusinesswasacombinationofmoderategrowthandstrongpayoutsbacktoourshareholdersintheformofadividend.

Wethinkofadividendassomethingthatreallyshouldonlygoonedirectionandtherecanbesomevariabilityintherateatwhichdividendincreases.Butthekeytoadividendistohaveitbeconsistentandtogrowitovertime.Sowehaven'treallyhadsignificantdiscussiontotalkabouttryingtoadjustthedividend.

It'sanimportantpartofourvalueproposition.Itputsalotofdisciplineintothesystemtohavethatdividend.

Soyou'veheardustalkaboutitprettyconsistently.You'regoingtocontinuetohearustalkaboutthatasakeycomponentofourvalueproposition.


Thanksalot,Jeff.

Operator :

NeilMehta,GoldmanSachs.

NeilMehta(Analyst-GoldmanSachs):

Goodafternoon.SoIwanttostartupontheLNGmarket.Beenalotofdebateanddiscussionaroundthat.

We'vegotAPLNGcominginhereinthenextcoupleofweeks,soanythoughtsontheLNGmarkets




broadly?AndthentherehasbeensomeinvestorconcernaroundSinopecandtheAPLNGcontracts.Justanyupdatedthoughtsthereandanythingyoucansaythatcanhelpinvestorsgetcomfortaroundthatrisk?


Clearlytheshort-termLNGmarketisprettyweak.Whetheryou'retiedtooilpricesoryou'reinthespotmarketit'saprettyweakpricethatwe'regettingforLNGgoingforward.Andthere'snotalotthatwecandoaboutthat.

WithrespecttotheSinopeccontractatAPLNGsothat'satake-or-paycontract.SinopechavetherighttodivertcargoeswithinChina.

We'vealsogiventhemtherighttodivertcargoesoutsideChinabutasatake-or-paycontractandwithapriceformulathat'stiedtooil.Thenwehavegotnoreasontobelievethatthereisanyissuewiththatcontract.Sinopecinfactisa25%shareholderinAPLNGontheupstreamproject.

Sowedon'thaveanyconcernsifthat'swhatyou'reindicatingaboutthesanctityofthatcontract.


Terrific.AndthenJeff,ontheoperatingandCapExreductionsthatwereannouncedrelativetotheJulyguidancecanyoujusthelpbridgethegapfromwhatarethedriversthatgetyoufrom$8.9billionto$8.2billionandthenontheCapExsidefrom$11billionto$10.2billionwhereareallthecatsanddogsthere?


Wejustputitinkindofbroadcategories.Likewetalkedaboutbeforeit'sreallythesamethingsthathavebroughtitdownthefirstincrement.

It'samixofwhatwe'dcallmacrofactors,justcontinueddeflationoutthereintheindustryandalsocontinuedstrengthoftheUSdollarloweringbothourcapitalandoperatingcostsinCanada,NorwayandAustralia.Butit'salsoit'sabouthalfthatandit'sabouthalfthingsthatwe'redoing,efficienciesthatwe'reforcingthroughthesystem,changesthatwe'remakingintohowweruntheCompany,loweremployeeheadcountnumbers.It'sreallymoreofthesamecomparedtothereductionsthattookthefirstincrementofourguidancedown.


That'sgreat.Ihaveonelastquestionfromme.

Youguyshavetheadvantageofseeingtheworldwhenitcomestooilproduction.Curiousonyourviewsandwhenwe'regoingtoseenon-OPECex-USproductionreallystarttofalloffandthedeclineratesstarttomaterializewhichisgoingtobecentraltorebalancingthesemarkets.


YouknowI'mnotsurewhenwe'regoingtoseeitbutit'sgoingtocome.Thepeopleareadjustingtheircapitalprogramswheretheyhavetheflexibilitytodothat.

Sothatwillbethingslikeinfilldrillingwheretheyhaverigcontractflexibility.Peopleareexercisingoperatingcostflexibility,too,whichmeanslessworkovers,lessspinningspheresandsoon.Soovertimethat'sgoingtomaterializeinthenon-OPECnon-USproductionbutexactlywhenandwhatmagnitudeishardtotell,butit'scoming.





Allright,thankyouverymuch,guys.

Operator :

EdwardWestlake,CreditSuisse.

EdwardWestlake (Analyst-CreditSuisse):

Hey,acoupleofquickones.Disposals$1billionto$2billion,probablytherewassomedisposalsinyourpriorplantogetto1.7millionbarrelsaday.Butcanyoujustgiveusasortofmaybeanendpointimpactthatitmightmakeasyoureshapetheoutlook?


The1.7millionbarrelsadayin2017thatwetalkedaboutinApriltherewasnoassumptionofdispositionsinthat.Wewouldmakeanadjustmenttherewhenweknowexactlywhatassetsaremovingoutoftheportfolio.Andwe'renotreadytogiveyouanumberyetbecausewedon'tknowexactlywhichofthemixofassetsthatwehaveonthemarketareactuallygoingtoachieveanacceptableprice.

Wewillgiveyousomemoreindicationofwherethat'sheadinghopefullyinDecemberbutit'stooearlyforustodothatnow.Andthat'soneofthereasonswereallydon'ttalkaboutthedispositionsuntiltheyclose.Becauseyoucan'tknowexactlywhichoftheassetsthatarebeingconsideredforsaleareactuallyachievingthepricethattheyneedtomakeitacceptableforustosellthem.

EdwardWestlake (Analyst-CreditSuisse):

OkayandthensoIcanseehowtheproductionandcashflowmovingpartsmovearoundwiththesesortoflong-livedassetscominginwhichlowerdeclinerates,plusobviouslysomeshortcycleproductionwhichyoucanattackbothinconventionalandalsoinshale.Butobviouslyreservereplacementisalsosomethingthatpeoplefocus.Idon'tknowifyou'vedoneanylong-rangeworkastoifyou'respending$8billionatthelow-endastheCapExdropsoutwhatreservereplacementlookslikesay2017onwardsorwhatarethebigsourcesthatyoucanactuallyreplacereservesatthatpoint?


Wehavethis44billionbarrelresourcebasethatwe'vedescribedinsomelengthinApril.18billionofthathaslessthana$60costofsupply,sothere'slotsofsourcestocontinuetoconvertthatresourcebaseandthereservesaswegothroughthenextfewyears.

Isthatthequestionyouweregettingat,Ed?Sothepointisthatconvertingthatresourcebaseovertimeasweexecuteourcapitalprogramsiswhat'sgoingtoresultingrowthinthereservebase.

Operator :

RyanTodd,DeutscheBank.

RyanT odd (Analyst-DeutscheBank):

Okaythanks.Goodafternooneverybody.MaybeifIcouldtalkalittlebitaboutCapEx,therunrateinthethirdquarterof$2.2billion,soannualizedatan$8.8billionrunrate.

Howshouldwethinkabout,maybethisistoomuchpreview,buthowshouldwethinkaboutmovingpiecesinto2016?IsthatImeanit'smeaningfullydownfromthefirsthalfoftheyear.Isthatareasonablerunrategoingforward?




Istherestillmeaningfullongcyclerolloffoutofthatnumberthatwillbecycledintoshortcycleorismuchofthatrollingoffbythispoint?Anythingontheputsandtakesaswelookforwardtothe3Qrunrate?


Westillhavecapitalgoingintomajorprojectsthatwillreducesignificantlyaswegointonextyear.Sotheeasiestwaytothinkaboutit,Ryan,isthe$2billionnumberthatwe'vebeentalkingaboutintermsoftheaveragecapitalgoingintomajorprojectsthisyearthat'srollingoffnextyear.SoIwouldn'tgettoohungupontherunrateinthethirdquarterbutmorethinkaboutitasthatsortofamountofmajorprojectcapitalrollingofffrom2015to2016.


Okay,thanks.ThenIguessafollow-uponacoupleofquestionsagointermsoftheoperatingcostreductions.You'vebeenwellaheadofschedulewiththe$1billionovertwoyearsturninginto$1.5billioneffectivelyinoneyear.

HowmuchofthatImeanifyouthinkofthat$1.5billion,howmuchofthatisstructuralversuscyclical?Andasyoulookforwardinto2016Iguessonthecyclicalportiondoyouhaveanythoughtsonwhichwayitcyclesandistheremoredownsidetothatnumbergoingforward?


Well,thecyclicalpartofitisdrivenprimarilybyforeignexchangeandjustdeflationthatwe'veseenintheindustry.Sotoansweryourquestionyou'vegottoanswerthatinthecontextofourpricelevel.Soifwecontinuetohaveweakpricesthat'snotgoingtocycleupinaperiodofweakprices.

Weprobablyhaveaperiodofweakprices,itmayalsomeanthatwecontinuetohaveafairlystrongUSdollar.SoIdon'tknowwhereyou'ddrawthelinebetweencyclicalandstructuralbutifyou'rethinkingaboutnear-termifyouthinkintermsofacontinuedweakpriceenvironmentwedon'treallyexpectthosetocycleback.

Butjustintheoverallgeneralcontextlikewe'vetalkedbeforeweseeabouthalfofwhat'shappenediskindofmacrofactorslikedeflationandFXandgenerallyhalfhasthingsthatwe'redoingwithinthewayweoperatethebusinesswhicharekindofmorestructuralinnature.


AnddoyouthinkthereismoreIguessonthenon-cyclicalsideistheredoyouviewthereasbeingmoretogostillin2016?Orhaveyoupulledforwardthelion'sshareofwhatyouthoughtyou'dbeabletoachieve?


We'vepulledforwardalotofitbutthere'sstillmoretocome.Andwe'regoingtogiveyouthedetailsinDecemberonthat.


Great.Thanksalot,gentlemen.

Operator :

EvanCalio,MorganStanley.




EvanCalio (Analyst-MorganStanley):

Goodafternoonguys.Thanksforsqueezingmeinhereatthetopofthehour.

It'saphilosophicalquestionmoreontotalreturns.IknowyouguyshavemadesignificantCapExcutsoutpacingdeflation.Yetcombinedwithassetsalesdoyouviewariskorhowdoyoubalancearisktoanegativemedium-orlonger-termproductiongrowth,sothatImeanIguesstheriskisthatdividendyieldmergeswithtotalshareholderreturntypeofmetricinthefuture?


I'mnotsureifIfollowedyourquestionEvan.Ifyouthinkaboutinthenear-termwearegoingtobenefitfromcapitalthatwe'vebeeninvestingoverthelastseveralyearssothatwearegoingtocontinuetohaveproductiongrowthfromthesemajorprojectsthatwillprovidecashflowgrowthaswell.Ifyoudothinkaboutalonger-termlowerpriceenvironmentthenyou'reintherealmoftryingtoanticipatewhatmighthappenwithoveralloperatingcostsintheindustry.


Andthenfromtheassetsalesperspectivewe'renotintendingtosellassetsthathavegrowingproductionandcashflow.


IguessthequestionandIwillleaveitthere,itrelatestoyou'remakingsignificantcutsandthecutsaredrivenpartiallywiththecommitmenttothedividendandatwhatpointareyoucuttingmuscle?IknowyourunalotofdifferentscenariosandIbelievethesecurityofthedividendatmostpricesbutwhat'sthecostasitrelatestothosesalesinregardtothelonger-termoutlookofeithergrowthorassetvalue?I'llleaveitatthat.


Ithinkitgetsbacktoacommentthatwehadearlieraboutwhatmotivatesalotoftheassetsales.Alotoftheassetsalesaredrivenbynormalportfoliorationalization.

Ofcoursewegenerateassetsalesproceedsfromthatbutifyoulookback,ifyoulookatwhatwe'resellingnow,ifyoulookbackatwhatwe'vehistoricallysoldIthinkyoucanunderstandwhywewouldthinkofthosenonstrategicassetswhichwegotbettervalueforbysellingthemthanwewouldhavehadbykeepingtheminsidetheportfolioandthat'sthemaindriverforassetsales.

Asyouthinkaboutthingslikethedeepwaterdecision,that'sdrivenasmuchbytheopportunitythatweseeintherestofourportfolioasitisbythinkingaboutjustdeepwateronitsown.Theresourcebasethatwefeellikewehaveandwhatarewegoingtowanttoprioritizeintermsoffundingcapitaliswhat'sbeenabigdriverforthatdecision.


Great.I'llleaveitthere.Thanks,guys.


Wedon'tfeellikewe'redoingthingsinthisenvironmentwhicharegoingtonotbebeneficialtothelong-termabilitytogrowproductionandgrowcashflowsandgrowthedividend.





Gotit.Thankyou.

Operator :

JamesSullivan,AlembicGlobalAdvisors.

JamesSullivan (Analyst-AlembicGlobalAdvisors):

Hey,goodafternoonguys.Thanksagainforsneakingmein.Justaquickonehere.

ObviouslygoingbacktoAPLNGIseethattherampgasiscomingupnicely.IalsonoticethattheequitygasrealizationsinAsia-Pacificaredropping.I'massumingthat'sbecausetherampgasisgettingsoldatdomesticgasprices.

CanyouquantifyatallifpossibleandyoucouldjustmaybeuseaQ3constantpricingforthis,butwhattheupliftwouldbeifthatrampgasisbeingsoldasLNGunderyourcontracts?


Idon'thavethatoffthetopofmyhead,James.You'reright,therampgasaswe'rebuildinguptofilltrain1isgettingsoldatdomesticpricesessentially.AndthenthenetbackoncewegettoLNGwillclearlybeafunctionofwhattheoilpriceisreallyatthattimebecausethesearelinkedtoJCC.ButIdon'thavethatnumberatthetopofmyhead.


Butgenerallyyoucanthinkthatthepricewe'rereceivingforAustraliangasinthedomesticgasmarketisnotanystrongerthanwhatwegetforwhatwesellintotheNorthAmericangasmarket.Sothere'saprettysignificantuplifteveninthecurrentmarket,inthecurrentoilpricemarkettomovethattoLNG.


Right,right.Iguessitwasjusttryingtoseewhetheritwasalotloweroriftherewasacontractuallylowerrateoranythinglikethat.Butitsoundslikeit'smaybejustaboutwhatyou'dexpectfordomestic.

Onejustquicklastonethere.ObviouslyIsawthatyouguysgotthego-aheadupinAlaskaforsomeoftheNPRdrilling.Canyouguysgivealittleupdatethere?

IknowGreaterMoosesTooth,someofthesearelongerdatedprojects,butwhatthetimeframeandpotentialimpactforsomeofthoseprojectsare?AndIwilltakeitoff-lineafterthat.


YessoweannouncedthatthefirstproductionfromtheNPR-AfromtheCD5projectstartedjustaweekorsoago,lessthanaweekago.WedidgetapprovalfromthegovernmentforthepermitsthatweneedtodeveloptheGMT1prospect,sothefirstprospectinsidetheGreaterMoosesToothunit.Andwe'reworkingthroughtheprocessofdecidingthesanctionofthatprojectbutthatsanctiondecisionhasn'tbeenmadeyet.


Great,thanks,guys.

Operator :

IwillnowturnthecallbackovertotheCompanyforclosingcomments.





Okay,I'djustliketomakeacoupleofclosingcomments.BecauseweallknowthisisadifficulttimefortheindustrybutweatConocoPhillipswe'refocusedonwhatwecancontrolandthat'sourproduction,ourcapitalandouroperatingcost.

Asweoutlinedtodaywe'removingallthosequicklyintherightdirection.Butwe'rereallynotjustfocusedontheshortterm.Whenwelookatwhatit'sgoingtotaketowininamorecyclicalandvolatilefuturewethinkit'sadiverselowdeclineproductionbasethatgivesusstablesourceoffundingtosustainthedividendandwehavethat.

Wethinkyouwantalargelow-costsupplyresourcebasethatprovidesabalanceofflexibleshortcycleinvestmentoptionssoyoucanscaleyourgrowthtohigherorlowerpricesbutalsohasalowerrisklong-termprojectsthatcanaddtothelowdeclinebaseandwehavethatinourportfolio.Wealsothinkyouneedasustainablelow-coststructuretomakesureyourmarginsareresilienttolowerpricesandyousawtodaywe'retakingalotofactiontogetthere.

Wethinkyouneedastrongbalancesheetsothatyoucanwithstandthelowphasesofthecycleandwehavethat.Andthenwethinkthatyouneedtoprioritizereturnofcapitaltotheshareholderstogetthemarealreturnandtoinstillcapitaldiscipline.Andthat'swhatwearedoing.

SoIthinkthatwehavetheportfolio,thestrategyandthecommitmenttodeliverallofthethingsthatarerequiredforaCompanyinourindustrytowininthismorecyclicalandvolatilefuture.Sothanksforyourinterestandyourquestions.


Thankyou,everybody.Andfeelfreetocallbackifyouhaveanyfollow-up.Thankyou.Thankyou,Christine.

Operator :

Thankyou.Andthankyouladiesandgentlemen.Thisconcludestoday'sconference.

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