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Welcome to the Second Quarter 2026 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press 1-1 on your touch tone phone. I will now turn the call over to Guy Allen Baber, Vice President, Investor Relations. Sir, you may begin.
Thank you, Liz, and welcome everyone to our second quarter 2026 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Andrew 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 L. Johnson, Executive Vice President of Global Operations and Technical Functions. Ryan and Andy will kick off the call this morning with opening remarks, after which the team will be available for your questions. As a reminder, for the Q&A portion, we will be taking one question per caller consistent with our normal practice. A few other quick reminders. First, along with today's release, we published 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 will turn the call over to Ryan.
Thank you, Guy, and thank you to everyone for joining our second quarter 2026 earnings conference call. Before I get into our quarterly results, I want to acknowledge the other announcement we made this morning: that I will be retiring as CEO effective September 1. I have spent more than 40 years at Conoco and I have had the honor of leading the company for the past 14 years. We have some of the most talented employees in the industry, and together, we have positioned the company for long-term success, with a track record of delivering superior returns on and of capital through the cycles. I am incredibly proud of what we have accomplished together. I am also excited that Andy will assume the role of President and CEO. You all know Andy well already; he has been with the company almost 30 years. I do not need to list his credentials, but I do want to take the opportunity to call out the valuable contributions he has already made helping to shape our company and strategy. His leadership experience and deep understanding of our business make him well positioned to lead the company forward, and I have full confidence in him and the leadership team he has chosen. I will assume a transitional role as Executive Chairman to support a smooth leadership transition. Andy will have full accountability for running the company and managing day-to-day operations. I want to thank our employees and the board for the confidence they have shown in me over the years and our shareholders for their continued confidence in ConocoPhillips. Let me now turn to the results for the quarter. ConocoPhillips delivered strong second quarter results. Production was above the high end of our guidance range with our peer-leading Permian position achieving a new record of over 900 thousand barrels of oil equivalent per day. We generated over $4 billion of free cash flow, and we increased shareholder distributions to $3 billion, doubling our share repurchases from the prior quarter. We also made meaningful progress on strategic initiatives that further strengthen our portfolio and support long-term value creation. We achieved our $5 billion disposition target ahead of schedule, expanded our commercial LNG offtake portfolio, and added new growth opportunities in the Middle East at an attractive cost of supply. Simply put, ConocoPhillips is in a stronger position than ever before. We have the highest-quality asset base in the sector with the deepest and most capital-efficient Lower 48 inventory and a diversified portfolio of low cost of supply legacy assets. We are executing well and driving continuous improvement. Our balance sheet is rock solid, with leverage well below 1x and cash of more than $8 billion. We continue to lead the peer group in returning capital to shareholders, as we have done in the last decade. Our cost reduction program is progressing ahead of plan. Our LNG projects will begin contributing in 2027, and Willow continues to hit all key milestones in advance of first oil in early 2029. We remain firmly on track to deliver our $7 billion free cash flow inflection by 2029, effectively doubling last year's total free cash flow. All of this is made possible by the best people in the business, and I am pleased to transition our leadership of the company with us being in such a strong position. So with that, let me turn the call to Andy to discuss our second quarter results and outlook in more detail.
Thank you, Ryan. And thanks to you and the board for the confidence that you have shown in me. I am excited to step into the role of President and CEO. The company's never been in a better position, with a great portfolio and a strong foundation thanks to Ryan's leadership and our world-class workforce. Kirk and Nick will remain important members of the executive leadership team and trusted partners as we move forward, continuing in their roles overseeing our operations. I am pleased to welcome Connie Haines Welsh to the team, our new Chief Financial Officer. She will be a great addition as we build on the strong foundation already in place. I am also looking forward to working with our broader organization as we continue executing with the same discipline and focus that has served us so well. Turning now to our second quarter performance: We produced 2.248 million barrels of oil equivalent per day. That was above the high end of our guidance, driven by strong operational performance across our global portfolio, including record Permian production. We generated $3.02 of adjusted earnings per share. Cash flow from operations was $7.2 billion and after $3 billion of CapEx, that translated into $4.2 billion of free cash flow. We increased our second quarter shareholder distributions to $3 billion. That included doubling share repurchases to $2 billion plus $1 billion of ordinary dividends. We ended the quarter with $8.1 billion of cash and short-term investments along with $1.2 billion of liquid long-term investments. In short, this was another quarter of exceptional operational and financial execution. Turning to our outlook. Our full-year guidance items are unchanged. We remain on track to deliver our plan. For distributions, we continue to target returning 45% of our CFO to shareholders this year. We averaged about 40% for the first half, meaning we expect to increase the distribution percentage over the second half of the year. Third-quarter production guidance range is 2.290 to 2.320 million barrels of oil equivalent per day. This improvement from the second quarter is driven by a production ramp in Qatar and continued Lower 48 growth. This more than offsets the impact of noncore asset sales of 15 thousand barrels of oil equivalent per day in July. Now let me walk you through the three strategic updates: the completion of our disposition program, the additions to our commercial LNG portfolio, and our new international opportunities. First, we achieved our $5 billion disposition target ahead of schedule, with $1.7 billion of noncore Lower 48 asset sales in July. We were really pleased with the value we captured for these assets. While this completes our announced disposition program, disciplined portfolio management remains central to how we run ConocoPhillips. We will continue to high-grade and optimize our portfolio; that work never stops. Second, we recently signed two LNG offtake agreements, each for 1 million tonnes per annum: one in Indonesia and one on the U.S. Gulf Coast. These additions bring our total offtake to 12 million tonnes per annum and mark another important step in scaling this business. Our commercial LNG strategy builds on our global scale and decades of LNG experience, allowing us to move lower-value natural gas into premium-priced international markets while maintaining full value chain control to maximize margins through the cycle. And third, we signed strategic agreements for low cost supply growth opportunities in Iraq and Syria. This builds on the improved fiscal terms we signed in Libya earlier this year. These opportunities are part of a targeted and deliberate strategy to build on our advantaged, globally diversified portfolio. Each is a high-quality, long-life conventional asset with demonstrated production and meaningful redevelopment potential. They have attractive entry costs and highly competitive cost supply. These fields are already producing today and we expect the production to largely fund the redevelopment, delivering longer-term free cash flow upside with little to no impact on our capital spending. To wrap up, our strategic priorities are unchanged. They are clear, consistent, and durable and have served us well for the last decade. We will continue to grow our dividend at a rate competitive with the top quartile of the S&P 500. We will protect and further strengthen our investment-grade balance sheet. We will return a significant portion of our CFO to shareholders right off the top. And only after meeting all these priorities will we evaluate disciplined growth with a focus on improving our returns on capital employed. We are meeting these priorities while reinvesting to deliver a peer-leading $7 billion free cash flow inflection by 2029. That inflection is well underway. As free cash flow grows, our breakeven price comes down, our reinvestment rate comes down, and our financial strength and competitive positioning further improve. Every measure moves meaningfully in the right direction. That concludes our prepared remarks. I will now turn it back to the operator to begin the Q&A.
分析師問答
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 1-1 on your touch tone phone. If you wish to be removed from the queue, please press 1-1 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 1-1 on your touch tone phone. Our first question comes from Neil Singhvi Mehta from Goldman Sachs. Your line is now open.
Yes. Thank you, Ryan. What a great quarter to close on. And Andy, congratulations and well deserved on becoming the CEO. And Ryan, you have been one of the most consequential leaders in the history of the energy industry. It is hard to imagine that it was just 10 years ago you had that defining Analyst Day that really laid the foundation for what the sector should look like, specifically the E&P sector. So my question is: why now in terms of retiring, and how have you thought about the approach to succession planning? And then maybe bigger picture, as you reflect on your career, any advice you want to leave us all with as investors in the energy community about how the sector can continuously improve from here?
Well, thank you, Neil. A lot in that, and I appreciate the kind words and really thank everybody on the call for their support personally and the confidence that you have shown in our company, and we are committed to continuing that. You know, there is probably never a perfect time, but succession planning has really been a fundamental part of my career and what we have done with the board. We have a very robust, evergreen process to ensure that we get the right leadership at every level in the company, and it has always been front of mind. I have polled a number of you in the past. The very first board meeting I had with the new board when I first became CEO, one of the topics was succession because I swore I was not going to go through a process that I went through somewhere down the road. I have been in this business 42 years. I have seen a lot, and that includes 14 years as the CEO of the company. So the moment was coming, and I love the business. We knew this moment was always going to come at some point in time. I am proud of what we have accomplished, and we have been planning for quite some time. I would say three things, Neil. First, we would not do this if I did not think the company was in a strong position. As Andy outlined in his comments about the outlook and the quarter, I do not think our portfolio has ever been stronger. We are executing well on all the projects and all the exploitation that we are doing. Our cost reduction programs are working well, and we are well on our way to delivering the $7 billion of free cash flow that we have committed to. So I would not leave if I did not think that was the case. Second, you want to know that you are turning it over to the right leader who will take the company to the next level, and I am confident that Andy is that person. He has been with me for 30 years; he has helped shape our execution and our strategy, and brings strong leadership. He has played a key role in our success to date. Third, I have had a 14-year run which is phenomenal, and I am proud of the team and the company and what we have accomplished through many ups and downs in this business. If I stayed much longer—two, three, four years—I would not give the next team at least a decade to put their fingerprints on the company and take it onward and upward. It is an important time to do this because with Andy's leadership and the team that he has built and put around him, it is going to take our company to a bigger and better place. So now is the right time to be thinking about that and doing this. My advice: this is such an important business in the world. We play in the middle of sustainability, energy security, and national interests no matter where you go around the world. It is a really important business. There will be ups and downs; it has cycle time to it. It demands investors and stakeholders who take confidence in the company, the management team, the portfolio, and the execution. We are going to be here a long time. This is an important industry. We have all seen why energy security has become a concern for countries around the world. What we are doing is important to the world. With the AI revolution coming, we will benefit from that as well. We just have to increase interest in our sector by performing. We need to get back to a higher percentage presence in the S&P 500, and to do that you have to compete with the S&P 500 and that is what we intend to do at ConocoPhillips. Thank you for the kind words, Neil; I really appreciate it and your confidence over the years.
Our next question comes from Steve Richardson from Evercore ISI. Your line is now open.
Thank you. Ryan, you have left an indelible mark on the industry and all of us who are involved. Your voice on these calls will be missed. Andy, appreciate the prepared remarks, but I would love for you to expand a little, particularly about your vision for ConocoPhillips and where you aspire to take the organization in the next couple of years.
Thanks, Steve. Let me start with where Ryan ended. I have been fortunate to have the opportunity to be involved in all the major strategic decisions we have made over the past decade. That should give you confidence that the key pillars of our strategy will remain unchanged: our cost of supply focus, the capital allocation framework, our commitment to competitive and improving returns on and of capital, and our focus on disciplined execution. That is not changing. But do not confuse consistency of strategy with complacency. The goal of this leadership team is to raise the bar on our performance and unlock even more value within our long-held capital allocation framework that works so well. Top of mind is executing the plan: delivering our major projects and cost reduction program that underpin our $7 billion free cash flow inflection. That will be hyper-focused for the team and myself. We will continue high-grading the portfolio. That is something we have emphasized a lot: our portfolio changes over time and assets must compete on a cost-of-supply basis. Portfolio high-grading will continue. We will look for additional ways to improve returns within our existing framework. You will see a fair bit of continuity; it is not about one big change but the cumulative impact of disciplined execution and continuous improvement. Our strong behaviors and world-class employees' ability to innovate and drive improvement are key parts of how we will unlock value going forward.
Our next question comes from Philip Youngworth from BMO. Your line is now open.
Thanks. Also congrats Ryan on your retirement and positioning the company well for the long term. Great to see Andy's appointment to CEO next month. For the question, I want to touch on Qatar and get an update on what you are seeing across the producing assets and also the NFE and NFS projects. You reiterated full-year production guidance despite the divestitures and Qatar not being fully back here in the third quarter. What are the assumptions around Qatar returning?
Good morning, Philip. There has been quite a bit of flux and uncertainty as it relates to the conflict and the impacts for us with Qatar. As you saw in the second quarter, Ras Laffan was largely shut in, although we did see some limited volumes coming out of that business as a result of the ramp down that took place early in the quarter. Naturally, there is a need to support local demand and consumption in country and they were able to achieve some of that through our train. The planned turnaround that we had in the second quarter was successfully executed; taking advantage of the downtime at Ras Laffan, we were able to get that work done so that as that train is expected to ramp up over the next quarter in 3Q, we can be in a strong position for high uptime and execution coming out of that downtime. Looking into the third quarter, our guidance assumes a ramp across the quarter. Naturally, there is uncertainty around the pace of the ramp and overall throughput. We captured that uncertainty within the range that exists in our total company guidance. With respect to NFE and NFS, it can be conflated with the downtime, but those projects were progressing well prior to the conflict and continued to progress through the conflict, especially the onshore build-out of the liquefaction trains. We always defer to QatarEnergy for formal updates, but based on schedule and productivity we are seeing, we expect any delays on first gas or first cargo to be on the order of months, not a full year. We are not expecting any delays from those projects to meaningfully impact our free cash flow trajectory. So we have strong confidence in what we are expecting coming out of Qatar.
Our next question comes from Doug Leggate from Wolfe Research. Your line is now open.
Thanks. Good morning, everyone. Ryan, bit of an end of an era here. My biggest takeaway is that there is hope for Guy Allen Baber yet, right? My question, Andy, is: you are still getting $1.2 trillion— we know that peak spending of Willow is still ahead. The critical path to get to that free cash flow inflection is that spending comes down when Willow comes up. Is that the plan, or is there another major reset in long-term CapEx that causes spending not to come down? If not, then the free cash flow inflection is kind of baked in yet the market does not seem to have confidence in it. So is the plan that CapEx comes down as Willow ramps?
Thanks, Doug. Let me start with a correction: the peak CapEx of Willow is behind us. We have passed the peak of Willow spending. We absolutely expect our CapEx to move lower from here, particularly as Willow comes online early in 2029. So yes, CapEx comes down. But that is only part of the story. The bigger point is what is happening to our reinvestment rate and our breakeven. Both come down structurally. Our free cash flow breakevens move from the mid-forties WTI today to the low-30s by 2029. Perhaps we do not talk about this enough, but the other side of that coin is a lower reinvestment rate. We are meaningfully moving this in the right direction. We are improving the financial strength and flexibility of the company, which will enable us over time to return more capital to our shareholders. We do not expect to go to zero growth capital maintenance levels once everything is set up. We will continue to invest in our Lower 48 and ANI portfolios for modest growth. But I want to emphasize that we expect a structurally lower reinvestment rate than where we are today.
Doug, we get similar feedback and you know us well. We have a high say-do ratio. When we put out the $7 billion free cash flow inflection, you can count on us to deliver it. Andy and his team are going to deliver that. There are two parts to that: CFO will go up as these projects come online, and capital is coming down. We will have choices even post-Willow startup around what we do with the significant free cash flow that we generate. It starts by making sure we get these projects online. Kirk talked about LNG and the LNG question; it is on track. We are seeing the cost reductions we expect and the capital reductions we expect between now and Willow startup.
Our next question comes from Lloyd Byrne from Jefferies. Your line is now open.
Great. Good afternoon, everyone. Hall of fame career, Ryan. You will be missed. Andy, congrats. We have a lot of confidence in you and your team. I want to focus on Alaska. What can you say about the exploration results from the four-well NPRA program, and when will we get estimates given the public data ruling? What does it mean for the implications of the plateau at Willow and the potential out there?
Great question, Lloyd. On the exploration program, what we shared last quarter coming out of that exploration season was sufficiently encouraging that we were all willing to declare that we will be bringing more resources into Willow and into the existing infrastructure on the North Slope in advance of drilling more wells. So the results were encouraging. We are still working through the results, and typically it takes more than one well—at least another appraisal well—to confirm development plans. But the four wells were quite positive and that has already focused our attention on next year's program in the winter of 2027, which is the season that confines our activity and exploration. We have already started field surveying, looking at local locations, and ice roads. We have very importantly submitted federal permit applications which are required well in advance of putting ice out there to drill. I would also note the supportive permitting environment. We have seen ongoing permit reform efforts and a regular cadence of lease sales which is beneficial across Alaska and the Lower 48. We were pleased with the NPRA lease sale and the acreage we picked up, which is a natural bolt-on to our large existing NPRA position. Increased activity is good for the state of Alaska and it is good for all of us because it improves utilization of fixed infrastructure and service industry infrastructure in a remote area, creating new efficiencies. Regarding Willow, these lease sales and our multi-year exploration program lay the groundwork for leveraging Willow infrastructure for decades into the future. This is our playbook—we have done this with Kuparuk and Alpine. New satellite pads from exploration and lease sales will fold into our program well into the future. There will be years of plateau in Willow post-first oil, and as capacity and additional production starts to show up well into the 2030s, we will be in a strong position to bring in more oil from satellite pads. Post-first oil, capital will come down and move back into a ratable expectation consistent with historical averages for us. Our reinvestment rates in Alaska have consistently been in the thirties and you should expect that from us post-first oil. All of this underpins our confidence in the free cash flow inflection culminating with Willow in 2029.
I would step back to support what Kirk said by noting this administration's policies are strengthening U.S. energy security and dominance. The permitting efficiencies and regulatory certainty and the regular cadence of lease sales are benefiting our company and the industry. That support is helping developments in Alaska and other areas, contributing to record production in places like the Permian and enabling investments in LNG on the Gulf Coast. These policies are helping our company in many areas and the industry more broadly.
Our next question comes from Scott Michael Hanold from RBC Capital Markets. Your line is now open.
Thanks, and congrats. For my question, can you delve into shareholder returns a little? Andy, you indicated there will be a big step up in the second half of the year. How do you envision that happening with buybacks? Will it be ratable or opportunistic with the incremental buybacks? And as free cash flow inflection increases, if you double free cash flow in a few years but keep the 45% payout ratio, that's a large quantity. Do you expect to eventually feather back to a baseline, or how are you thinking about the payout ratio and returns?
Thanks, Scott. A couple of things for the short term and the medium to longer term. As I said in my prepared remarks, we averaged about 40% of CFO returned in the first half of the year and we continue to guide to 45% for the full year. You can do the math on how you get there from 40% in the first half to 45% for the full year. We remain committed to 45% and do not choose to manage quarter-to-quarter. Commodity volatility reminds us why we do not do that. I will reaffirm that 45% of our CFO is the target for this year. Beyond this year, as we get the free cash flow inflection and a materially lower reinvestment rate and as CFO grows, we will have flexibility to look at where that cash goes. I do not see us feathering back to a lower commitment; rather, we expect to remain peer-leading in distributions. We will have more flexibility as projects come online to evaluate how to allocate cash, but staying peer-leading with our distributions is not expected to change.
Our next question comes from Arun Jayaram from JPMorgan. Your line is now open.
Good morning. Ryan, congratulations. When the history books are written on U.S. energy and U.S. shale, you will have important chapters. Andy, congrats as well. My question is regarding recent news flow from the Middle East, in particular about opportunities in Iraq at the Kirkuk field. Can you highlight the transaction and how we should think about it relative to the 2029 free cash flow inflection?
Thanks, Arun. I will broaden to include Iraq and Syria as they share similar characteristics. We are targeting large resource bases with low entry costs, competitive cost supply, and structures that can become self-funding quickly. A few important points: first, the contract structure is attractive. This is not legacy-style technical service contracts. Under these agreements, we receive a share of incremental production and reserves and recover our costs. Second, the capital to get into these deals is modest. We expect to close the Iraq transaction with Kirkuk around year-end and expect acquisition capital in the $300 to $500 million range at close, which includes our share of historical costs spent to date and expected costs through year-end. We expect the joint venture to fund its own activity from its own cash flows, implying little to no incremental capital for ConocoPhillips in our base case. Most importantly, the asset competes well within our portfolio at cost-supply around $30 per barrel with long-term resource upside. For Syria, the opportunities are somewhat smaller but share the same characteristics of providing long-term optionality; ConocoPhillips has a long history in Syria and knows the upside there. The common denominator is stepping into existing producing assets that are underdeveloped where redevelopment can be largely funded from the assets' own cash flow, preserving capital efficiency. These transactions do not impact the $7 billion free cash flow inflection in 2029; if anything, they are upside to that in the future. They fit nicely with our strategy to high-grade the portfolio and to add assets that meet our cost-of-supply thresholds while operating within our capital framework.
Our next question comes from Sam Margolin with Wells Fargo. Your line is now open.
Hi. Thanks for taking the question. I will not repeat the congratulatory remarks. Maybe we can take another level down into the reinvestment rate and payout ratio theme because it is the most frequent question we get from the investment community. Conoco has an opportunity to be a peer leader in regular dividend growth, not just because of the cash flow inflection but also because the production mix is changing—less unconventional as a percentage of total production. What are your thoughts, Andy, wearing CEO and CFO hats, on friction or conflicts in taking that position? Do you worry about dividend breakeven or overall dividend burden, or do you think dividend growth is very much in play?
Great question. We have already been peer-leading in top-quartile S&P 500 dividend growth and that is not changing; that is the plan. We look closely at what increasing the dividend does to our breakeven. With the free cash flow inflection and the CapEx coming down, CFO growing up, our free cash flow breakeven is structurally reducing, which is very constructive for the dividend. We also look closely at our buyback program. I look at the absolute dividend burden as well; the buyback program is helpful because when we increase dividends while buying back 5% of our stock on average each year, that makes it more viable to keep growing dividends without a big impact on the burden. We look at dividend burden and breakeven impact; both look positive and we feel confident about continuing to grow the dividend at a rate competitive with the top quartile of the S&P 500.
Sam, to add: we sometimes get criticism about being procyclical with buybacks. We do not believe that. When we deliver $7 billion of free cash flow over the next few years, and given the expected improvement in results, we believe our share price should improve with that doubling of free cash flow. The buyback program is an important part of our return-of-capital thesis and will get more flexibility as CFO continues to grow.
Our next question comes from Betty Jiang from Barclays. Your line is now open.
Hi, good morning. Congrats. My question is on LNG given the headline today adding two million tonnes per annum—one in Indonesia and one on the Gulf Coast. What is the strategic rationale to add the Indonesia piece and how does that fit into the Gulf Coast portfolio? And stepping back, how do you think about through-cycle earning power of this growing LNG marketing portfolio as new supply comes to market further out?
Morning, Betty. We added another two million tonnes of offtake—one in Indonesia off the Bontang North hub field and another on the Gulf Coast. Our strategy is unchanged: the majority of our offtake is coming from the Gulf Coast where we have low-cost supply and low liquefaction fees. We position ourselves to have that low-cost supply with high-quality, low liquefaction fees. The Indonesia addition supplements that with some Pacific Basin supply, which is also low cost. We do not expect to have a huge percentage of our portfolio in the Pacific Basin, but having some Pacific supply is beneficial for our commercial organization by increasing flexibility for optimization, substitutions, and diversions. It is a tool to get the best margins. Regarding long-term fundamentals, we have been constructive on LNG demand and pricing for some time. We expect LNG demand to grow significantly—what we have said previously is that LNG is a part of the energy complex that will grow the most and could double over the long term to 2050. Our view has always been that pricing for LNG would be constructive, and current market signals reaffirm that view. Similar to our E&P approach, low-cost supply wins in LNG. Low liquefaction fees are the equivalent of low cost supply. We are building a competitive portfolio and expect long-run significant cash flow, recognizing volatility over time. The price risk here is asymmetric to the upside. For context, for every $1/MMBtu in margin on a 5 mtpa contract that is roughly $200 million of cash flow. As we build towards 10 to 15 mtpa, those margins and cash flows become very material. This is an important cash flow engine for ConocoPhillips and a key part of our strategy.
Our next question comes from Josh Silverstein from UBS. Your line is now open.
Thanks, everybody, and congratulations to both Andy and Ryan. Andy, how are you thinking about portfolio mix? The Lower 48 has gotten to around 65% of the production base. With Willow and LNG ramping, maybe that comes down. How do you see the balance between unconventionals and conventionals going forward, and how do recent entries into Libya, Syria, and Iraq factor into balancing toward conventionals?
Thanks, Josh. We are somewhat agnostic to where the resource comes from; we look for the best cost-of-supply assets. All things equal, it is nice to balance conventional assets with a large and growing unconventional position. Assets like Willow, NFE, NFS, and transactions we've done in Iraq and Libya help balance the portfolio. We evaluate assets based on cost of supply; when they compete they earn a spot in our portfolio. That mix helps with decline rates and reinvestment rate versus a pure unconventional company. We will not overreach for something that does not compete on cost of supply. The Kirkuk transaction, for example, fits our criteria of structure, cost supply, and limited capital requirement. We will keep seeking assets that compete and fit within our capital framework.
Our next question comes from James West from Melius Research. Your line is now open.
Good morning, everyone. Ryan, congrats on a great 14-year run, and glad you will get some time for golf. Congrats to Andy and Connie as well. My question follows the portfolio strategy theme: given the activity this quarter with moves into the Middle East and dispositions, should we expect a similar cadence of new projects quarter-to-quarter, or will there be some slowing as you frame the story around dividend growth and a significant free cash flow ramp?
This was certainly a busy quarter, and I do not want to set the expectation that we will do in every quarter what we did this quarter. Activity can be lumpy—sometimes things come in bunches. The Middle East is an interesting space with a lot of activity and we are one of the few companies that compete effectively there. It is an area we will continue to look at, but everything has to fit within our framework, capital structure, and reinvestment rate. We are evaluating opportunities against that framework. On dispositions, we formally achieved our $5 billion target but discipline never stops; portfolio review is a daily exercise. So please do not expect this exact level of activity every quarter, but know that our teams are always looking for the right opportunities for ConocoPhillips.
Our next question comes from Gabe Daoud from Truist. Your line is now open.
Congrats to Ryan and Andy. I wanted to ask about the Lower 48 and any particular technologies you're testing around improving productivity or recovery factors, particularly in the Permian. Also, any general update on the Lower 48 and what you guys are working on?
You bet, Gabe. Good morning. On the technology side we are testing a range of technologies aimed at improving recovery and, importantly, improving capital efficiency—fewer dollars spent per barrel on an EUR basis. We are seeing encouraging results from real-time fracture diagnostics where we can optimize completions stage by stage. We are using surfactants and far-field diverter applications as well. On real-time fracture optimization, we can adjust stage volumes up to ±30% to improve reservoir contact and recovery, which has the potential to cut completion costs and improve cost of supply. We've seen adjustments up to 60% of frac stages for a well versus the original design in some cases. On far-field diverters, we have seen them work extremely well in the Eagle Ford by diverting frac energy away from offset wells and keeping the frac in the targeted wellbore, reducing runaway fractures or 'frac hits' and improving recovery. On surfactants, we've been testing fit-for-purpose surfactants in the Permian over the last 12 months and have seen encouraging results: cumulative oil volumes and lower water-oil ratios, with uplifts in oil productivity for treated versus untreated wells up to 20% in some cases. Longer-term performance will be evaluated but early results are promising. The biggest driver of productivity and recovery remains rock quality, and we have a peer-leading tier-1 inventory across the four basins we operate in. As the shale industry matures, that rock quality advantage should translate into wider capital efficiency advantages for us. On capital efficiency drivers, lateral length is key: we are increasing our average lateral length by 15% this year versus 2025 and have doubled the number of three-mile laterals or greater. In the Permian, all wells we bring online this year are greater than two miles, with several three- and four-mile laterals being drilled. We continue to improve D&C efficiencies—more feet per day, more stages per day—through continuous pumping, auto frac, semi-frac, and remote frac. Hats off to the team: Permian production in the first half of 2026 was 10% year-over-year on an underlying basis, stronger than every major E&P. Teams are executing well and that drove the outperformance in the quarter.
Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.