WEBVTT - ConocoPhillips CEO Ryan Lance Talks Commodities Prices

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio news at Syria Week right

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<v Speaker 1>now with Ryan Lance, CEO of Conicco Phillips. Hey, Alex, all.

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<v Speaker 2>Right, thanks so much. Really appreciate it, guys. That's right

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<v Speaker 2>Ryan Lance, CEO and chairman of Conicgo Phillips, which is

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<v Speaker 2>the largest independent oil and gas producer right here into

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<v Speaker 2>the US. It has shale, has offshore drilling, and it

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<v Speaker 2>has lergy. It's got all the stuff. Ryan, It's always

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<v Speaker 2>good to see you.

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<v Speaker 1>Thank you, Alex. Great to be here.

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<v Speaker 2>It's a tough tape right now. If you're a commodity producer, right,

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<v Speaker 2>I mean oil was at a six month low yesterday. What's

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<v Speaker 2>your outlook for the price?

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<v Speaker 1>Well, we were always probably a little bit very in

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<v Speaker 1>the short term, but we thought that w'd probably be

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<v Speaker 1>the second half through the year as inventory build started

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<v Speaker 1>to come into the system. Obviously with the Opeck plus

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<v Speaker 1>announcement that's gotten probably accelerated into the first half of

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<v Speaker 1>the year. But I think long term we're we're very

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<v Speaker 1>still very constructive. We see demand growing at over a

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<v Speaker 1>million barrels a day first about as far as the

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<v Speaker 1>I can co see. We will work off the spare

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<v Speaker 1>capacity that people think is sitting in the OPEC. Plus

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<v Speaker 1>there's still room for more US growth in production as well,

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<v Speaker 1>So pretty constructive over the next five, ten, fifteen years.

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<v Speaker 1>But there we're going to go through some short term volatility.

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<v Speaker 2>Yeah, and the short term churn is obviously also around

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<v Speaker 2>recession fears and demand fears with those Harrap headlines. Or

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<v Speaker 2>you see any indication of slowing economic growth.

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<v Speaker 1>Yeah, we're starting to see some early signs of inflationary

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<v Speaker 1>forces sitting in the in the system today. Kind of

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<v Speaker 1>post COVID coming out, you accelerate to today. So I

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<v Speaker 1>think there's a bit of inflationary forces that are impacting

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<v Speaker 1>kind of the savings that people have, and they're they're

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<v Speaker 1>wondering about the spend that they're going to have as

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<v Speaker 1>a consumer today. But still the US economy is still

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<v Speaker 1>pretty stronger underlying that, so I would I would still

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<v Speaker 1>bet on what we're doing here in the US rather

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<v Speaker 1>than some of the other places that I go around

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<v Speaker 1>the globe. Got of other structural problems to fix, for sure.

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<v Speaker 2>We're not the only one with problems, that's definitely for sure.

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<v Speaker 2>But here in the US, you still think it's a

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<v Speaker 2>good place to do business. But will be a more

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<v Speaker 2>expensive place to do business if we have tariffs on

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<v Speaker 2>aluminum and steel a fifty percent, say from Canada, superable

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<v Speaker 2>tariffs come April.

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<v Speaker 1>Well, yeah, I think it's got some inflationary forces. But

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<v Speaker 1>we've got to let the system equilibrate a little bit,

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<v Speaker 1>and I think we have to give the administration a

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<v Speaker 1>bit of an opportunity to work through this. I think

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<v Speaker 1>they're you know, some of the border issues, certainly the

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<v Speaker 1>fentanyl issues and stuff like that. Take them for what

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<v Speaker 1>they're saying that, you know, these are important issues for

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<v Speaker 1>the United States. So I think there is probably some

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<v Speaker 1>short term influence on the prices at all, but I

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<v Speaker 1>think we need to let the system equilibrate a little

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<v Speaker 1>bit and see how it's going to work longer term.

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<v Speaker 2>So you're telling me, Alex, give it some time, and

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<v Speaker 2>I'm going to say, no, run. How much does this

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<v Speaker 2>increase your well costs on a short term basis?

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<v Speaker 1>Well, I think we're driving efficiencies and then we can

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<v Speaker 1>get into the generator day I and some of the

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<v Speaker 1>offsets that we have that we've been able to do

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<v Speaker 1>over the last couple of years, and that's not stopping either.

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<v Speaker 1>So from the inflation. On the capital side, we've had

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<v Speaker 1>some efficiencies in the business that we've been driving ten

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<v Speaker 1>to fifteen percent improvements every year and that's not stopping

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<v Speaker 1>as well.

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<v Speaker 2>Okay, well that's something so you can upset it. I

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<v Speaker 2>think it is what I'm hearing. Okay, Drill, baby, drill

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<v Speaker 2>is a sexy catchphrase of the Trump administration. Right, what

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<v Speaker 2>would you need to see to be incentivized to drill

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<v Speaker 2>more on the policy side or the price side or whatever.

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<v Speaker 1>Yeah, you know, Alex, I don't get it's a great

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<v Speaker 1>bumper sticker, as you say, but I think it's a

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<v Speaker 1>manifestation of an overall energy a dominance theme sort of

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<v Speaker 1>for the US, recognizing that we're blessed with a lot

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<v Speaker 1>of resource, we have a lot of infrastructure here. We're

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<v Speaker 1>the poster child for kind of building in the US

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<v Speaker 1>and our industry over the last thirty forty years, building refineries,

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<v Speaker 1>taking crude import from Canada, from Mexico from other places,

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<v Speaker 1>upgrading that and then exporting the product. So our industry,

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<v Speaker 1>industrial complex, and the energy space has done exactly what

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<v Speaker 1>this president is talking about in some of these other

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<v Speaker 1>other verticals. So I think it's important to step back

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<v Speaker 1>from it and say the energy industry is actually done

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<v Speaker 1>what they're talking about wanting to do in some of

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<v Speaker 1>these other pieces of the pieces of the business that's

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<v Speaker 1>going on. The energy business has been the poster for this.

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<v Speaker 2>Fair enough, As I mentioned before, the oil price has

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<v Speaker 2>been struggling. What also set out to me is just

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<v Speaker 2>last week kind of go hit a fifty two week low.

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<v Speaker 2>Analysts do talk about the fact that your stock is

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<v Speaker 2>not valued the way it shouldn't be. I mean, that's

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<v Speaker 2>actually a conversation the analyst community. Why aren't shareholders giving

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<v Speaker 2>you love?

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<v Speaker 1>You know? It's yeah, it's been a tough tape certainly

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<v Speaker 1>for the last year or so, and we've been struggling

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<v Speaker 1>with that a little bit, and it's disappointing to watch.

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<v Speaker 1>But I think it's a confluence of events. Certainly, the

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<v Speaker 1>downdraft and the commodity price has hit all of us.

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<v Speaker 1>We've probably surprised a little bit a few people with

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<v Speaker 1>the Marathon transaction that we announced last year, but it's

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<v Speaker 1>probably a little bit of a show me story because

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<v Speaker 1>the synergies are there. We'll see that. We'll put the

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<v Speaker 1>runs on the board every quarter, we'll show how we're

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<v Speaker 1>making the company more efficient and how we build more

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<v Speaker 1>scale inside the company. That's really really important in this

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<v Speaker 1>chat next chapter that's coming in the unconventional space. So

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<v Speaker 1>I think it's a confluence of events. But maybe the

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<v Speaker 1>last couple of days we've had a little bit of

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<v Speaker 1>downdraft or updraft in our share price maybe portends things

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<v Speaker 1>to come.

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<v Speaker 2>Is it also sort of where you're like, how much

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<v Speaker 2>are you spending? What's your CAPBAC shareholders want dividends and

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<v Speaker 2>they want buybacks. You're giving them dividends and buybacks, but

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<v Speaker 2>you're also spending Where are you spending and what's your

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<v Speaker 2>commitment there?

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<v Speaker 1>Yeah, so both of our spends certainly sits here in

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<v Speaker 1>the US of A. So we're big into the unconventional,

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<v Speaker 1>spending five to six billion dollars a year right there.

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<v Speaker 1>We're leaning into Alaska. We have a very large project

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<v Speaker 1>up there called the Willow Project. We're leading into LNG

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<v Speaker 1>investments both in offshore in Qatar but also right here

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<v Speaker 1>in our home at Port Arthur and the Gulf Coast,

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<v Speaker 1>So we are leaning in. We'll be spending about twelve

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<v Speaker 1>point nine billion dollars in capital this year, so we

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<v Speaker 1>are investing for the future growth and development, and we're

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<v Speaker 1>leaning into some longer cycle projects and at the same time,

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<v Speaker 1>the shareholders getting their share back, so they're getting over

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<v Speaker 1>forty nearly forty four percent of our cash flow back

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<v Speaker 1>via the dividend channel and buying some of our shares

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<v Speaker 1>back today. So I think we're very competitive on free

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<v Speaker 1>cash flow, free cash flow yield, despite spending three billion

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<v Speaker 1>dollars this year on longer cycle project that are for

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<v Speaker 1>the future growth and development of the company, which I

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<v Speaker 1>think are important. Cheryls should like it because it's really

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<v Speaker 1>going to the sustainability of our business model, what we're

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<v Speaker 1>doing and maintains our leading position in this business.

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<v Speaker 2>And a big part of that will be LG exports.

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<v Speaker 2>And I'm curious is to your outlook on gas. If

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<v Speaker 2>we get a peace deal in Ukraine, do we see

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<v Speaker 2>Russian gas come online even more than it already is

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<v Speaker 2>into Europe and what does that mean for US LG exports.

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<v Speaker 1>I think it's probably not able to believe that Russian

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<v Speaker 1>gas is going to stay out of the market for

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<v Speaker 1>a very long time, and certainly if they're able to

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<v Speaker 1>come to some agreement with Ukraine, we would expect some

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<v Speaker 1>gas to start flowing back to the European markets. Will

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<v Speaker 1>they ever go to sixty seventy eighty percent rely ont

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<v Speaker 1>on that one source. I would hope not. That would

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<v Speaker 1>that will not pretend well to I think the future

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<v Speaker 1>of Europe as well. But we do think gas probably

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<v Speaker 1>flows back in over time into Europe. But we're pretty

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<v Speaker 1>constructive on the LNG market. Today it's a four hundred

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<v Speaker 1>million ton market. We think it's growing over the next

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<v Speaker 1>decade over six hundred million ton, Which is why we're

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<v Speaker 1>leaning into the LG space, both in Katar and both

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<v Speaker 1>here at home, taking some of the natural gas that

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<v Speaker 1>we're producing in the US, liquefying it and moving it

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<v Speaker 1>to markets both in Europe and a nation.

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<v Speaker 2>Even if there is an export import tax on US

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<v Speaker 2>lergy into China.

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<v Speaker 1>You know, I think there's other markets that we're still

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<v Speaker 1>pretty pretty thoughtful about, but also pretty excited about. We

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<v Speaker 1>think this business is going to grow in US is

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<v Speaker 1>going to set the set the floor for gas prices

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<v Speaker 1>globally because we have so much gas. You know that

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<v Speaker 1>three point fifty to four dollars means B two range.

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<v Speaker 1>We're just blessed with a lot of resource. It's going

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<v Speaker 1>to dig it's going to be that source of volume

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<v Speaker 1>into Europe and Asia.

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<v Speaker 2>Before I let you go, you mentioned a marathon by

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<v Speaker 2>marathon last year and all the synergies you look into

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<v Speaker 2>other stuff. We are you going to cool it for

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<v Speaker 2>a while.

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<v Speaker 1>Well, we got our played pretty full with the capital

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<v Speaker 1>investments that we're making. We're making a lot of progress

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<v Speaker 1>on the transaction that's closed. The synergies are there. Like

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<v Speaker 1>I said, we'll just show that continued improvement quarter in

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<v Speaker 1>quarter out, and a lot of said, did this is

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<v Speaker 1>what we said we're going to do. Gonna go do it?

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<v Speaker 2>Okay? Fair enough? Hey Ryan, it's really good to see you.

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<v Speaker 2>Thank you so much.

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<v Speaker 1>Really enjoyed talking to you. Ryan Lance