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Text: Mark Keener, our vice president of investor relations, is also in the room today.
As Ellen mentioned, I'll make a few opening comments, and then Bill will address a few details about this quarter's results.
And then we'll begin the Q&A session.
Obviously, financial and operating results were outstanding, but the context for describing them as notable meant something different.
For the past year, we've been integrating Concho, improving underlying metrics across the business and creating the most competitive E&P for the energy transition.
The significance of this quarter's performance is that it represents the post Concho go-forward baseline for the company.
On a run rate basis, the integration is essentially complete.
We've captured the announced $1 billion of synergies and savings from actions the company took in connection with the transaction, all ahead of schedule.
We're unhedged, but even more importantly, our torque to upside is helped by having high conversion of revenue to income and cash flow.
The core executables of our global operating plan are delivering as expected.
We'll close out 2021 as a stronger company compared to any time in the past decade.
Every aspect of our triple mandate is moving in the right direction.
Our underlying portfolio cost to supply is improving.
Our overall GHG intensity is lower.
Our emissions intensity reduction targets are more stringent.
Underlying margins are expanding, and our trailing 12-month return on capital employed is headed toward an estimated 14% by year-end, reflecting the benefit of more than just stronger commodity prices.
Between now and year-end, our top priority is closing the Shell transaction, which we expect to occur in the fourth quarter.
Once we close, we will be working diligently to integrate these properties and capture efficiencies in a similar fashion to what we've achieved through the Concho integration.
In addition to layering in these properties on top of our existing high-performing platform, we're continuing to high-grade our portfolio and optimize the business drivers everywhere.
The setup for next year is, well, notable.
We're now in the process of setting our 2022 capital plans, which we expect to announce in early December.
Directionally, we don't anticipate a significant departure on capex from what we included in our June update excluding Shell.
In June, we provided an outlook based on a roughly $50 per barrel price that included a modest ramp in the Lower 48 to reactivate our optimized plateau plans, some incremental base Alaska investment and some longer-cycle low cost of supply investments in Canada, the Montney and in Norway.
Since June, we see some inflation pressures, especially in the Lower 48.
However, at this point, we'd expect to adjust scope modestly in order -- in response to maintain our base capital at a level that is roughly consistent with our June update.
And then, of course, we'll add capex for the Shell properties once we've brought them into the portfolio.
As we finalize our 2022 plans, we're watching the macro closely, keeping an eye on inflation and potential OBO pressures and undertaking our typical capital high-grading processes.
It goes without saying the market certainly appears to be more constructive, but we must always remember that this is an incredibly volatile business.
But there's more to come on that in December.
We believe we're entering a very constructive time for the sector, but even so, we know that there will be relative winners.
The relative winners will be companies with the lowest cost of supply investment options, peer-leading delivery of returns on and of capital and visible progress on lowering emissions intensity.
That's what we offer.
Our third quarter represents a glimpse and a strong jumping-off point to what you can expect from ConocoPhillips going forward.
To begin, adjusted earnings were $1.77 per share for the quarter.
Relative to consensus, this performance reflects production volumes that were slightly above the midpoint of guidance, better-than-expected price realizations and lower-than-expected DD&A.
As for the better realizations, we captured a higher percentage of Brent pricing in our overall realized prices.
And as Ryan mentioned, we're unhedged so we're getting full exposure to the current higher prices.
As for DD&A, we're trending lower compared to the previous guidance as a result of positive reserve revisions due to higher prices.
You saw in today's release that we lowered full year 2021 DD&A guidance from $7.4 billion to $7.1 billion.
Excluding Libya, production for the quarter was 1,507,000 barrels of oil equivalent per day, which represents about 2% underlying growth.
Lower 48 production averaged 790,000 barrels a day, including about 445,000 from the Permian, 217,000 from the Eagle Ford, and 95,000 from the Bakken.
At the end of the quarter, we had 15 operated drilling rigs and seven frac crews working in the Lower 48.
Across the rest of our operations, the business ran extremely well.
In particular, our planned seasonal turnaround activity across several regions went safely and smoothly.
This reflects the impact of a decision we're making to convert Concho two stream contracted volumes to a three-stream reporting basis as part of our ongoing efforts to create marketing optionality across the Lower 48.
We expect to convert the majority of our contracts in the fourth quarter.
Reported production is expected to increase by approximately 40,000 barrels a day, and both revenue and operating costs will increase by roughly $70 million.
In other words, this conversion is earnings neutral.
Besides DD&A and production, there were no other changes to 2021 guidance items.
Now, once we've closed the Shell acquisition and can see where the ongoing US tax legislation conversation lands, we'll provide an updated earnings and cash flow sensitivities that consider such factors as projected 2022 price ranges and how those ranges might impact our cash taxpaying position in various jurisdictions around the globe.
Coming back to third quarter results.
Cash from operations was $4.1 billion, which was reduced by about $200 million for nonrecurring items, so a bit higher than the average of external estimates on an underlying basis.
Free cash flow was almost $3 billion this quarter, and on a year-to-date basis, this is about $6.5 billion.
Through the first nine months of the year, we've returned $4 billion to shareholders, and we're on track to meet our target of returning nearly $6 billion by the end of 2021.
This is through a combination of our ordinary dividend and buybacks.
So to summarize, as Ryan said, it was a notable quarter.
The company is running exceptionally well, and we've achieved a significant reset of the base business post Concho.
That creates a powerful platform for entering next year.
We're focused on closing the Shell Permian acquisition so that we can begin the work of getting those properties fully integrated into the business, setting our capital plans for 2022, maintaining a leading position of returns on and of capital and lowering our emissions intensity.
That's the triple mandate.
That's what ConocoPhillips is all about.
And we look forward to providing additional information in December.

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q3 adjusted earnings per share $1.77 excluding items.

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