“ConocoPhillips is set to slash $1 billion from its capital and operating costs in 2026, building on synergies from its Marathon Oil acquisition while maintaining robust production levels and committing to return 45% of cash from operations to shareholders amid fluctuating oil prices.”
In a move to bolster efficiency and profitability in a volatile energy market, ConocoPhillips has outlined plans to reduce its combined capital expenditures and operating costs by $1 billion in 2026. This initiative comes as the company navigates lower realized prices for oil and gas, which have pressured margins across the sector. The cost reductions are expected to stem from a combination of operational optimizations, supply chain efficiencies, and targeted restructuring efforts, without compromising on production growth or safety standards.
The strategy emphasizes streamlining operations in key areas, including the Lower 48 states, where the company has achieved significant drilling and completion efficiency gains exceeding 15% year-over-year. These improvements have allowed for faster well turnarounds and lower per-unit costs, setting a foundation for sustained savings. Additionally, the plan incorporates advanced technology integrations, such as enhanced data analytics for reservoir management and automated processes in field operations, to drive down expenses further.
Part of the cost-cutting push involves workforce adjustments, with reductions estimated at 20% to 25% across certain segments to align staffing with optimized workflows. This restructuring is designed to eliminate redundancies while preserving core expertise in exploration and production. The company has also focused on renegotiating vendor contracts and consolidating procurement to capture bulk savings, particularly in materials and services critical to upstream activities.
Financial Performance Highlights from 2025
ConocoPhillips delivered solid results in 2025 despite headwinds from declining commodity prices. For the full year, the company reported earnings of $8.0 billion, or $6.35 per share, with adjusted earnings reaching $7.7 billion, or $6.16 per share. Production averaged 2,375 thousand barrels of oil equivalent per day (MBOED), marking a 2.5% underlying growth rate. The Lower 48 region contributed significantly, averaging 1,484 MBOED.
Cash provided by operating activities totaled $19.8 billion, while cash from operations hit $19.9 billion. Capital expenditures and investments amounted to $12.6 billion, reflecting disciplined spending amid market uncertainties. The average realized price for the year was $47.01 per barrel of oil equivalent (BOE), down 14% from the prior year, underscoring the impact of softer global oil demand and increased supply.
In the fourth quarter alone, earnings were $1.4 billion, or $1.17 per share, with adjusted earnings of $1.3 billion, or $1.02 per share. Production stood at 2,320 MBOED company-wide, up 137 MBOED from the same period in 2024, driven by strong performance in the Lower 48 at 1,439 MBOED. However, the quarter’s average realized price dropped to $42.46 per BOE, a 19% decline year-over-year, contributing to a profit shortfall relative to analyst expectations.
The following table summarizes key financial metrics for 2025:
| Metric | Q4 2025 | Full-Year 2025 |
|---|---|---|
| Earnings ($ billion) | 1.4 | 8.0 |
| Adjusted Earnings ($ billion) | 1.3 | 7.7 |
| Earnings per Share | $1.17 | $6.35 |
| Adjusted Earnings per Share | $1.02 | $6.16 |
| Cash from Operations ($ billion) | 4.3 | 19.9 |
| Capital Expenditures ($ billion) | 3.0 | 12.6 |
| Average Realized Price ($/BOE) | 42.46 | 47.01 |
These figures highlight the company’s resilience, with a 10% return on capital employed on a cash-adjusted basis, positioning it favorably among peers in the oil and gas industry.
Integration and Synergies from Marathon Oil Acquisition
The $1 billion cost reduction target for 2026 builds directly on the successful integration of Marathon Oil, acquired for $22.5 billion. In 2025, ConocoPhillips captured more than $1 billion in run-rate synergies—double the initial estimate—through combined operations, shared infrastructure, and overlapping asset optimizations. An additional $1 billion in one-time benefits was realized, accelerating payback on the deal.
The acquisition expanded ConocoPhillips’ footprint in high-margin basins, particularly in the Permian Basin’s Delaware and Midland sub-basins, Eagle Ford, and Bakken. Post-integration, the company has leveraged Marathon’s assets to enhance resource recovery rates and reduce lifting costs. For instance, in the Delaware Basin, production reached 673 MBOED in the fourth quarter, while the Eagle Ford contributed 370 MBOED. These regions benefit from economies of scale, with shared drilling rigs and centralized processing facilities cutting overhead.
Ongoing efforts include standardizing best practices across the enlarged portfolio, such as adopting Marathon’s advanced hydraulic fracturing techniques to improve well productivity. This has not only lowered costs but also boosted reserves, with proved reserves ending 2025 at 7.6 billion barrels of oil equivalent (BBOE). The reserves replacement ratio stood at 80%, with an organic ratio of 99%, and over a three-year period, the organic replacement ratio averaged 106%.
Asset Portfolio Optimization and Divestments
To further streamline its operations and focus on core, high-return assets, ConocoPhillips completed $3.2 billion in asset dispositions during 2025. These sales involved non-strategic holdings in mature fields and underperforming international properties, allowing capital reallocation to premier U.S. shale plays. The company remains on track to achieve a total of $5 billion in divestments by the end of 2026, which will provide additional liquidity for debt reduction and shareholder distributions.
This portfolio high-grading strategy has enhanced the company’s asset quality, emphasizing low-cost, low-emission production. Key legacy assets in Alaska, Norway, and Canada continue to deliver stable output, complementing the growth-oriented Lower 48 operations. In 2025, the company achieved first oil at the Surmont Pad 104W-A project ahead of schedule, demonstrating execution prowess in thermal oil recovery.
2026 Operational and Financial Guidance
Looking ahead, ConocoPhillips has issued guidance that aligns with its cost discipline. Production is projected at 2.33 to 2.36 million barrels of oil equivalent per day for the full year, with first-quarter output expected at 2.30 to 2.34 MMBOED, accounting for seasonal weather impacts. This represents modest growth from 2025 levels, supported by ongoing development in the Permian and Eagle Ford.
Capital expenditures are guided at approximately $12 billion, a level that maintains investment in major projects while incorporating the $1 billion cost savings. Adjusted operating costs are set at $10.2 billion, broken down into production and operating expenses of about $9.6 billion and selling, general, and administrative expenses of $0.6 billion. Depreciation, depletion, and amortization are forecasted at $11.7 to $11.9 billion, with an adjusted corporate and other segment net loss of around $0.9 billion.
The cost reductions will target areas like overhead, transportation, and exploration expenses, with a goal of achieving more than $1 billion in incremental savings on a run-rate basis by year-end. This includes margin enhancements through better pricing negotiations and efficiency gains in midstream logistics.
Enhancing Shareholder Value
ConocoPhillips remains committed to returning capital to shareholders, targeting 45% of cash from operations in 2026. In 2025, the company distributed $9.0 billion—equivalent to 45% of cash from operations—comprising $5.0 billion in share repurchases and $4.0 billion in ordinary dividends. The first-quarter 2026 ordinary dividend has been declared at $0.84 per share.
This returns-focused approach is underpinned by a strong balance sheet, ending 2025 with $7.4 billion in cash and short-term investments, plus $1.1 billion in long-term investments. The company retired $0.7 billion in debt during the year, maintaining financial flexibility. Analysts have responded positively, with some raising price targets on the stock to reflect confidence in the cost-saving execution and production trajectory.
The strategy positions ConocoPhillips to generate an estimated $7 billion in incremental free cash flow by 2029, including $1 billion annually from 2026 through 2028. This cash flow outlook supports continued buybacks, dividend growth, and potential opportunistic investments in high-return opportunities.
Regional Production Breakdown and Efficiency Gains
Breaking down production by key regions provides insight into the company’s diversified portfolio. In the Lower 48:
Delaware Basin: 673 MBOED (Q4 2025)
Midland Basin: 194 MBOED
Eagle Ford: 370 MBOED
Bakken: 198 MBOED
These areas have seen drilling efficiencies improve by over 15%, with average lateral lengths increasing and completion times shortening. Internationally, assets in Alaska contributed steady volumes, while projects in Canada, like the Surmont thermal operation, ramped up ahead of plan.
The company’s global footprint includes low-decline legacy assets that provide cash flow stability, balancing the shorter-cycle shale developments. This mix allows for flexible capital allocation, responding to market conditions while pursuing the $1 billion cost target.
Overall, these initiatives reflect a proactive stance in an industry facing geopolitical risks, supply chain disruptions, and shifting energy demand patterns.
Disclaimer: This news report is for informational purposes only and does not constitute investment advice or recommendations. All tips and insights are general in nature and based on publicly available sources.