Q2 2020 Ovintiv Inc Earnings Call
Good day, ladies and gentlemen.
Standing by.
Compete well if interest 20 times 2022nd quarter results Conference call.
A reminder, today's call is being recorded.
Stein all participants are in listen only mode, but following the presentation, we will conduct a question and answer session.
Those of the investment community will have the opportunity to ask questions and come join the queue at any time by pressing star one for members of the media attending in listen only mode. Today, you may quote statements made by any of the vintages Representatives. However members of the media who wish to quote.
Others, who are speaking on this call today, we advise you to contact those individuals directly to obtain their consent.
Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent offensive.
I would like to Kinda conference call over to Steve Campbell from Investor Relations. Please go ahead Mr. Campbell.
Thank you operator, and welcome everyone to our second quarter Conference call.
This call today is being webcast and the slides are available on our website at <unk> Dot com.
Please take note of the advisory regarding forward looking statements at the end of our slides and in our disclosure documents, which we filed on SEDAR and Edgar.
During today's prepared remarks, we will be available we'll take your specific questions. Please limit your time to one question and one follow up as always this allows us to get to more of your questions today.
I'll now turn the call over to our CEO Doug Suttles.
Thanks, Steve and good morning, everyone. We appreciate you dialing in for midyear update what a quarter. The second quarter was clearly it was a typical or normal at least I hope thoughts.
What did we accomplish well first I have to say that the list would be impressive if it represented the whole year, but it was all completed in three months to begin and most importantly, we delivered outstanding safety performance.
Second we effectively manage cobot risks with the vast majority of our workforce back in the office since early June our protocols have been highly effective we've had zero instances of the virus being transmitted in either our offices or a feel locations since the beginning of the pandemic.
We delivered strong financial and operating results given the environment, probably highlighted by the fact that we generated free cash in the quarter.
We rapidly reduced capital spending with no penalties maybe unique in this sector. We created a dynamic real time shut in strategy that enhanced revenues and cash flow, we realigned our workforce to our view of future activity and to drive further organizational efficiency.
We continued to set efficiency records in our development programs with industry, leading cost and capital efficiency.
We highlighted the resiliency of our business through our six quarters stay flat scenario, which shows how we're positioned to thrive as a recovery happens.
And we've made it very clear that excess cash flow over the next six course will flow to the balance sheet and debt reduction.
Our business Center culture was purposely built with flexibility as we fully recognize the importance of being able to respond to the dynamic world We live in it.
I'm joined today by other members of our team who will help described how we're performing and where we're headed.
But I have to say to our organization that I could not be more proud of your resiliency and your accomplishments over the last few months as you like everyone else had to live with the incredible incredible uncertainty and stress that cobot 19 has created so thank you.
During one of the toughest times in our industry, we adjusted rapidly in generated free cash of more than $50 million into second quarter.
We had very strong operating performance and today, we're providing a stronger outlook for 2020.
Importantly, the momentum, we're generating to lower cash costs and drive efficiencies provides high confidence in that 2021 scenario, we shared with you last quarter.
Our 2020, well cost across our three core plays are now down 15% when compared to 2019 averages well costs were down 9%. After the first quarter and now 15% at mid year, we have near term line of sight to additional savings you'll hear more on this from Greg in a moment.
The majority of these savings are durable and are result of our teams constant innovation.
We have extremely high confidence their objectives, the lower well cost by 20% over the next six quarters will be achieved very soon.
Although not formal guidance, our 2020 and 21 scenarios showcased the flexibility we built into our business and our ongoing progress to reduce costs such that we can't maintain scale and generate free cash like we did in the second quarter.
Our strategy is intact, but clearly given the impacts from the pandemic. It is appropriate to hit the pause button focusing on generating free cash while maintaining scale and that is our plan.
Note that in the past two months, our passive ownership has nearly tripled from where we started as a product of our DHMSM moved to the U.S. earlier this year and our addition, it two important indices like the Russell.
This move was clearly good for all shareholders, regardless of which side of the border you reside.
And lastly, you'll notice today that we're committing that all excess cash flows over.
Over the next six quarters, we'll go to debt reduction.
Even if commodity prices are much higher than we currently see we will continue to direct that additional cash flow to debt reduction and not to additional drilling.
Our second quarter achievements have strengthened our 2020 original scenario, we lowered total capex and raised fourth quarter average production.
We are on track for our 2020 stay flat scenario that generates free cash inclusive of our dividend at a modest $35 oil price.
Maintaining 200000 barrels a day of crude and condensate within investment of $1.4 billion to $1.6 billion screens is one of the best account capital efficiency scenarios in our peer group today.
This slide makes note of the key ingredients behind that scenario.
Capital efficiency gains are well in hand at our multi basin portfolio offers multiple ways to win.
But there are some additional improvements also worth mentioning today.
We expect that our base decline will improve by about 5% to the low 30% range in 2021, adding material production and cash flow.
Our cash cost savings this year estimated at more than $200 million increased by an additional $100 million next year as our legacy costs are down significantly.
And please take note of the commodity price sensitivity shown at the bottom of the slide.
We generate an incremental 370 mid $75 million of cash flow for every five dollar move in oil price.
Because of our legacy dry gas production, a 25 cent move in gas price moves or yields an additional $140 million in cash flow.
Stronger oil and natural gas prices could significantly accelerate our debt reduction plans over the next six quarters. In fact, the current strip would have us generating significant excess cash flow next year.
Our priorities for the next six quarters, our crystal clear and can be categorized under these four key buckets first and foremost his financial strength in debt reduction.
We have made important adjustments to our business to ensure we maintained a strong balance sheet with deep liquidity.
This is critical in volatile times like today as we focus on generating free cash flow, we're committed to preserving liquidity and further strengthening our balance sheet through debt reduction.
We are confident in our ability to generate fee free cash flow is we continue to push the frontier of capital efficiencies and cost structure.
Our focused efforts on margin enhancement and innovatively, creating way new ways and durable efficiencies will be critical over the next six quarters.
We also know that maintaining the scale of our business is important and will allow us to participate in the recovery as global demand for our products return and it will return.
We ran numerous scenarios to optimize our activity levels investments managed declines debt levels costs and a host of other factors.
The scenario, we shared with you for the next six quarters is the product of that work.
Obviously, our second quarter production was impacted by our voluntary shut ins dropping two thirds of our rigs and all of our Frac spreads, but we were able to maintain our significant scale and position us for a fourth quarter average production of 200000 barrels a day of crude and condensate.
We can't achieve any of this without our team ensuring their health and safety is a deeply held value. We reacted quickly to cope with 19 to protect the health and safety of our workforce in the field and we use those learnings to safely returned to the office I'll now turn the call over to Corey to discuss our fund.
Actual results.
Thanks, Doug our business performed very well during the second quarter, which led to the stronger outlook. We just issued for the second half of the year, we again demonstrated our ability as a world class operator and delivered solid execution during a very challenging time.
Our second quarter capital investments were just over 250 million the very low end if our guidance range. In addition to outstanding second quarter capital performance, we revised our 2020 capital scenario to 1.8 billion.
The low end of the 1.8 billion to 1.9 billion range highlighted last quarter I reported production was 537000 beuys per day, and 198000 barrels per day of oil and condensate.
Reported production was impacted by voluntary shut ins due to extreme commodity price volatility when normalizing for second quarter shut ins. Our production would have been 569000 be at least per day.
And 216000 barrels per day of oil and condensate.
We remain one of the largest independent oil and condensate producers in the sector today, our strong operational performance and continued capital efficiencies are once again proven by our second quarter performance and demonstrate our organizations flexibility and optionality.
The second quarter, we delivered free cash flow during a very challenging period, we made the right decisions early to reduce investments and sure. We preserve liquidity, we generated $385 billion, if cash flow or dollar 48 per share. If you exclude one time costs.
Our total cost per barrels oil equivalent were down 8% quarter over quarter and reflect the continued cost reduction efforts throughout the company.
At quarter end, we had 3 billion and liquidity under a credit facilities and as I've mentioned before these are locked in until July 2024 at favorable terms.
Well our debt debt increased during the second quarter. This was largely due to expected onetime items, we had a few nonrecurring items, such as the $81 million and restructuring costs following our workforce reduction.
And $62 million associated with the abandonment of or dig deep Panuke wells and offshore facility. As you know we've been decommissioning. This platform over the last few quarters and I'm happy to report it has now been removed and delivered safely to shore.
The remaining item is related to a decrease in accounts payable owing to our significant activity slowdown in the second quarter. We expect this impact to reverse as we returned to our normal activity levels over the third and fourth quarter.
I'll turn the call back to Brendan to provide additional insights around our scenarios over the next six quarters.
Thanks Corey.
Standing results through the first half of 2020 have further strengthened our confidence in this scenario we've outlined for the next six quarters capital efficiency cash cost reductions and production are all moving in the right direction.
This has caused us to lower our capital and increase our production estimate for this year.
For the second half of 2020, we expect to invest about six and $760 million, resulting in a lower full year expenditure of 1.8 billion.
This is nearly a billion dollars less than or beginning of year budget.
Today, we raised our 200000 barrels a day oil and condensate exit rate to a fourth quarter average rate.
These data points again prove our top tier operational excellence and capital efficiency performance that continues to differentiate us from many of our peers.
Due to our second quarter Frac holiday third quarter production will mark the trough for the year.
As we prepare to resume completions in the third quarter, our oil and condensate production will averaged 200000 barrels a day in the fourth quarter.
As we look out 2021, our scenario gives real insight into just how efficient we have made our business.
It is not enhanced by carrying in a big batch of Ducs. It reflects a low bubbled program. This is important because it means beacon repeatedly hold scale.
And generate free cash flow from our business at very low commodity prices and obviously can generate a lot of free cash flow if prices stay where they are today or either move higher.
You'll hear more from Greg did but midway through this year, we've already a tree achieved about three quarters of big capital savings built into our 2021 scenario and nearly half of the cash cost savings I'll now turn it over to Greg.
Thank you Brendan.
We expect to deliver more than $200 million in cash cost savings. This year, that's more than double our original estimate.
At mid year, we're about halfway there.
These savings are being derived from the hard work of the team, leaving no stone unturned to enhance margin and optimize cash flow.
Reduced operating in midstream cost lower DNA and other initiatives are coming through in second quarter results.
More importantly, the majority of our savings are durable and not subject to change as oil prices strengthen.
For 2021, we expect to see an incremental $100 million of cash cost savings as we benefit from lower legacy cost reduce midstream commitments low in June and lower gionee among other items.
We posted some significant reductions to our completed well cost again in the second quarter.
The teams are getting it done today and their hard work in ingenuity is really making a positive difference in our outlook for the next six quarters.
We updated the slide from the first quarter earnings deck to reflect our latest accomplishments as you can see our updated go forward well cost table in the upper right. We continue to meaningfully drive down or drill complete and equip cost interactive areas, we posted $400000 less in the Permian and $200000 lessen the montney.
In the Anadarko our costs are now 40% lower the new fields average cost at the time of the acquisition.
Our second quarter costs were 15% lower than our 2019 average showing another gain from first quarter.
We have set new pay set of results in each of the plays and have high confidence today that are 2021 cost will be at least 20% less than our 2019 actuals.
Importantly.
We view, our well cost reductions is highly durable either through cycle savings or in large part due to our unique innovation and process changes not simply lower service cost.
In the Permian, our leading edge Simon Frac completions are saving 350 to $400000 per well.
And given our multi basin portfolio, we plan to apply some what fraction or other drilling areas in the near future.
In the Anadarko performance continues to get better and better we've rapidly achieved best in class Springer drilling results in the Scoop and are now averaging over 20 hours of completion pumped time per day significantly above historical basin performance.
The Anadarko as prime for additional capital cost initiatives, such as Simon Frac facilities and savings in water sourcing and disposal. This will continue to push costs down and enhance our rates of return.
In the Montney, we said a completion record in the second quarter with almost 35000 feet completed per day.
The team continues to push the efficiency frontier solidifying our position as the clear leader in the basin.
In total our well cost facilities are down over 15% since 2019.
These savings are driven by the collaborative efforts from an innovative multi disciplined team dedicated to optimizing the scope and design of our well facilities across the company.
Before I turn the call back to Doug, Let me take a moment to come in the great work our team has accomplished.
Recent volatility related to covert night team and lower oil prices created some unique challenges for all of us.
What our teams have adapted and persevered performed at their best well instituting new protocols to stay safe in the office and in the field.
This agility led to our strong results in the second quarter and will generate differentiated performance as we return to completion activity in the second half of the year.
I'll now turn call back to Doug to closes out.
Yeah. Thanks, Greg Let me, let me comment now on how of into this position with some big entered industry narratives that some that are more frequently discussed today.
We have scaling our business we are officially holding our position is one of the largest crude and condensate producers in the sector.
Across our core three assets less than 1% of our acreage is located on federal land.
We have a multi year track record of both superior execution and recurrent returning cash to shareholders, we generated over $50 million a free cash in the second quarter NR and arguably one of the toughest quarters. Our industry is seen over the last four quarters, we generated $290 million of free cash this is how.
Now we're committed to running our business our multi basin portfolio provides shareholders with multiple ways to win.
Although our strategic focus is on liquids in crude and condensate in particular, we do produced 1.5 Bcf per day of gas and we'll clearly benefit from strengthening natural gas prices.
Before opening it up to your question here just as the key takeaways from today first we know how important it is to maintain or business scale.
And you should have confidence that we've put a lot of thought into our stay flat scenario, which we highlighted today and hopefully you've seen the progress we've made an underpinning that case.
Our performance is a continuation of our track record of excellence in capital efficiency simply put we are finding new ways to safely stretch or dollars and deliver more for less our increased fourth quarter 2020 crude and condensate production will now be generated for $1.8 billion. The low end of the previous capital raise.
Page.
Third our massive flexibility and our culture is an asset that provides us with options mini don't have.
When coupled with our multi basin portfolio, we are using all options to make the right decisions today that will put us in the best place for Tomorrow, and finally, we know the importance of a strong capital structure and are laser focused on preserving liquidity, maintaining a strong balance sheet and reducing debt.
Just to be clear over the next six quarters, all excess cash flow will go to reducing debt.
Although the timing of all demand recovery is uncertain, we know that it will recover the world needs our products our products make modern life possible and we intend to be positioned to thrive on the road ahead.
That concludes our prepared remarks, and we'd now loved to take your questions.
Thank you, Sir ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star one.
We will now begin the question and answer session and go to the first call that who is Brian singer of Goldman Sachs. Please go ahead.
Thank you and good morning.
Doug you are very clear of where the free cash flows going over the next six quarters than I thought I'd just ask as more of a follow up on that more philosophically and maybe even beyond the six quarters, what net debt or leverage is sufficient for inventive, where you would drill again and what net debt or leverage is sufficient where you'd consider.
Incremental return of capital to shareholders.
Yeah, Brian Thanks, and hope you're doing well you know we've been talking about this for a long time in and you know if you. If you go back to some of our conversation just couple of years ago.
We said that that targeting something like a leverage ratio up around one and a half at mid cycle pricing was right I suspect off the back of what we've all been through this year that that target number is dropping over time, we'll see we obviously have some some room to go to get there.
One of the comments I made in the remarks was that we still believe our strategy intact and its right strategy. We had been a strong advocate for quite some time.
That modest growth with free cash generation that would be distributed back to shareholders was the right way to run and oil and gas company clearly what we've said is it's appropriate take a pause the demand for our products is taking a hit its obviously recovered quite well over the last few months, but still has a long way to go so far.
The next six quarters, any and all free cash we generate and of course, we've highlighted that $35. All we can actually hold the business flat and payer dividend and at prices above that we can generate significant cash flow, which would go to the balance sheet as we go to 22 and beyond we need to see where we are.
Our against that objective and at what point, we return to to modest growth with return of cash.
To the investor, but that strategy still our strategy is I think it's a little premature to speculate beyond the end of next year, but clearly I think we've articulated how we're going to run the business over the next six quarters.
Great Great. Thank you and then my follow up you talked in your comments about the underlying decline rate of their base declining.
I wondered is that just their result of a reduced drilling program playing out after a year at a lower percentage of production comes from wells in their first year or as you look across the portfolio.
The major fields are there measures, you're taking to lower the decline rate or wells that are declining at lower rates than expected.
Yeah, Brian Great question I, it's largely the effective obviously when you're at lower growth or no growth. Your your decline shallows out every year I would say, we're having an exceptionally strong base performance right now.
But that really isn't what's driving that number that if that sustained year over year that that could actually represent some upside. This is largely the effect of at slower growth rate you end up with a shallower total base decline.
Thank you next question will be from Greg Pendy.
RBC capital markets. Please go ahead.
Thanks. Good morning, maybe this is a good morning.
Maybe just want to gorilla and team sorry.
As a follow up to what prime is asking so how are you thinking about mid cycle oil prices now is that still 40 to $50 in your world or or is it shifted down.
Yeah, Greg.
I think you know our teams still believes that that a mid cycle pricing probably still is around 50, you know there's lots of discussion and a lot being written about the longer term impacts of the significant reduction of capital.
Clearly shale is shrunk a lot over the past few months and and I think plans like ours will be relatively common and some people may even have plans to shrink over the next six quarters.
And then activity outside of shale is very low globally around the world, but Ah. So we still think that that mid cycle pricing is probably somewhere in the low to mid fiftys and a natural gas prices, which clearly are looking like in setting up fundamentally to be potentially very strong next year, but longer.
Term, we still think that to $75 range is probably more the mid cycle. Obviously, we got ways to go and this is all going to be predicated on in the near term about economic recovery around the globe and dealing with Covidien and after that it's really about what happens to capital investment not just in shale, but earn.
Around the globe.
Okay. Thanks for that and then it really switching gears and Glenn just back to the Anadarko, where you guys have done a tremendous job in terms of driving down your DNC cost Greg you'd mentioned.
Further inroads in costs in terms of simultaneous Fracs and then just the water disposal. So I think the pacesetter wells or.
And a half million I mean is is 4 million in your sites or I'm, just trying to get a sense as to what might be possible. If you implement those changes.
[noise] Greg Thanks, Thanks for noticing the a the continued improvement we've had the Anadarko and and I.
I think that the first thing I'll tell you is that team is relentless and driving out cost and we'll continue to turn over stones to find ways to get cost down we've not implemented sama frac. There yet that is a that is something that we're going to be trying later this year, we've reduced costs on our water both delivery and disposal and we're still pumping our jobs.
Faster and faster rates, which make our cycle times go down all of which will be durable savings and so I think if we were to us to challenge the team you've taken out 3 million how much more can you take I I don't think wells with a four handler unrealistic at all.
You know Greg I'd, just add one comment to to Greg's. We were we were speaking not too long ago with one of our biggest shareholders.
He said you know we have publicly said we were going to take those well costs from 7.9 to 6.9 and he was kind of probing.
Oh on what was our real internal target and of course, we've now delivered 4.9.
I don't know if we get to four but and 4.9, it's kind of in the pace setter zone. So clearly making that the average well is the next target, but I did tell in this team is shattered every record and every objective we've had a the pace of innovation the building on the learnings and experienced we had around our portfolio.
And actually in a very advantaged place to do business is very talented labor pool in Oklahoma and very good contractors.
We operate in a very good market water costs are pretty low so applying these practices and I have to say I I never dreamed that have beforehand, along their wells.
I'm pretty confident that's going to be the average well pretty soon.
Thank you next question will be from Josh Silverstein with Wolfe Research. Please go ahead.
Thanks, Good morning, guys.
Question on the on the debt you're up to 7.4 billion right right. Now I know you mentioned wanting to get too I wonder how affects a leverage target, but I wanted to see what to think about this in absolute terms as you've seen this year. The EBITDA can obviously moved much lower while the debt stays the same or or go higher.
Just wanted to see what else is targeted at a certain debt level from from your free cash flow and or asset sales on the line.
Yes, Josh I think that that.
You know some degree these are somewhat hypothetical questions or at a minimum.
There are questions way out into the future given the current environment that we're in and of course. The problem you have if the only dimension in the business is debt reduction and if you're prepared to do anything just to get that number down I'm not sure you'd have a relevant company clearly the world is going to recovered.
Demand for products is going to return.
And what we have done a lot of work on in Britain references is trying to figure out how to balance and aggressively go after debt reduction, but not do it at the expense of having a robust business that can participate in recovery.
And what we've highlighted is even if you use the current strip, we're going to generate substantial free cash flow next year and every bit of that will go to the balance sheet. You may have noticed we've also begun to build our 21 hedge book, which has come to the which has got a price today considerably above 30.
$5.
And many people, including our team believe there's considerable upside on natural gas prices next year, So I think that.
We have to be careful in today's environment setting out that one dimensional target I, but I do hope you've heard that we're laser focused on this.
It's not a threat, but it is something we're very focused on getting down both the leverage and and the absolute debt level, but it's somewhat theoretical just to look at that number in isolation.
Yeah I understood. There and then just a question on the Ducks I know you're going to be drawing some down now over the back half of the year.
You said you planned exit 2020 with a normal DUC.
Backlog what is that that backlog do you expect the year with and as we're looking to 22 would you expect it to me the same level based on the one and a half billion dollar spend next year.
Yeah, Josh Great question, because one of things were stressing because I know people are trying to understand is capital efficiency for for companies driven by just completing ducs and not sustainable. So we expect to exit this year with 20 to 30, Ducs, which is pretty typical and we would expect to exit next year at the same number that this is a.
Hey, a very sustainable level loaded program and the capital efficiencies not driven.
On DUC completions is actually driven as Greg said with you know its innovation, it's technology, just incredible transfer of ideas across our teams.
Which is leading dust being essentially the most efficient operator and every place we operate.
Thank you next question will be from Aaron.
Jpmorgan Chase. Please go ahead.
Yeah good morning.
Doug you clearly have put a lot of pen to paper on 21 sounds like we should expect a pretty level loaded program. Just wondering if he could maybe give us some thoughts on just capital allocation to your different plays obviously probably focused in the in the quarter three plus kind of offensive activity levels on the on the drilling and.
And and Frac spread side.
Yeah, you know, we're now that we've got the big frame landed we'll be working on the detail oddly enough is a you know it's it's not even August ship, but this is the time of year, we start we start refining or budget for for the following year.
So I would say that it probably will look similar to how we been where both the vast majority of capital be distributed to our core three as you know today, we're running seven rigs three of those in the Permian too in the Anadarko into two in the Montney. We are going we did drill some wells in the Bakken Eagle Ford.
And the Uinta earlier this year will be completing those here.
Starting later in the quarter and into Fourq, you, but I think the bulk will be across those three it it'll probably be similarly, situated to to what we've been running recently, but just want to caution you haven't done that full optimization, yet, but but that's I think where your expectation should be.
Great just a follow up of.
For Corey.
In a quarter could you just maybe elaborate.
On the impacts from the accounts payable on the debt balance in the quarter and maybe run through a you've added some hedges we kinda know what your capital is gonna be next year, but any thoughts on free cash flow generation over the next six quarters, if we use the strip and thinking about your hedge.
Balances today.
Yes, Erin I think on the second part of that question. We've laid out the scenario for 2021 that we've said covers the dividend at that 35 and to 75.
And pointed to the.
Commodity price sensitivities, there as well so I think the language we've used as substantial free cash flow and significant free cash flow at today's strip. So obviously, we see that shaping up pretty well and we started to layer in some protection to that end I think on your I'm on the first part of that question if you.
To remind me.
I forgot what you're asking about than that.
When you put this in the release just you know the debt balance did go up and there's just a function of you know the reduced activity levels and you're paying somebody or bells isn't just wondering if you could talk about the specific impact and thoughts on that on a go forward basis.
Yes, I mean, it real simple terms that we pay we tend to pay or invoices I've kind of 30 45 day cycle time, and so if you think about our activity levels. We dropped 23 down to seven rigs. So a lot less activity a lot less payables created so yes, we continue to pair bells and slow.
Down activity that balances just drawn down over the quarter. So in the explanation that I gave in their prepared remarks really that's just referencing out to getting back to normal levels of activity and creating a normal level of accounts payable is all that is.
Thank you next question will be from.
Bank of America. Please go ahead.
Thanks, good morning up to and related ones.
Doug just coming back to the earlier answer on essentially sustaining production, let's say in the 1.4 to 1.5 billion dollar.
Capex level.
Should in terms of rig count should we expect similar rig count 789 outward and in terms of allocation three three in the Permian is that conceptually how should we should think about a sustaining <unk>.
Yeah, I think if you look at it at the Ed you know, we've given that $1.4 billion to $1.6 billion cap range. So if you cycle. It around one five it looks like seven to 10 rigs.
And of course, it varies a little bit because of different net interest and other things and roughly.
It will be concentrated in the three with with proportion I think the split is a good place to start I mean, what will always do.
He's go refine that and look to optimize that as we go forward, we haven't gone through that stuff. That's the next step at this point, but it's not a bad place to begin but I think seven to 10, it's a little more active than we were.
During twoq, but not a lot.
Appreciate the color and then my follow up is.
You've completed yards.
Elements out of change a few months ago and.
It looks like passive ownership has gone up just wondering if you could update us and your thoughts in conversation with indices et cetera.
Yeah, you know this is.
This is largely played out like we expected because it varies by by which index, you're referring to 'cause because some have a fairly prescriptive processes on when and how they do it and others have a have a bit more flexibility built in so.
With that same Sci Russell our Chris we've we've been included in all of those and that's driven us from 7% passive.
22 in as as all the filings come out you'll see that some of the Big index.
Institutions are now some of our biggest shareholders.
We're in the S&P Tia my but you may have seen the rebalancing the four and 600 came out yesterday I believe it was a and there was no movement in energy that wasn't a surprise given what's happened in energy. So that's a further upside for us.
Because at some point, we fully anticipate to be included in that S&P 1500, which piece will have to see but so we're pleased with the progress and actually because it's been substantial and they're still actually a fairly big piece yet to come.
Thank you next question will be from Gennine way Barclays. Please go ahead.
Hi, good morning, everyone.
Good morning. Thanks next question. Good morning, I. My first question I saw the follow up on.
Question.
Cash flow immensely anyone maintenance case, and the unhedged price sensitivity given the amount of natural gas that you're producing in Canada and the focus on free cash so for the company I think is great.
No pricing are you, assuming and breakeven forecasts and what's the sensitivity on that.
David WCS and the Nymex gas is Jody, they're all really helpful. Just trying to.
Together.
Yeah no good question.
And of course, you I know you follow it.
Echo echoes been performing on a relative basis quite well.
Number of things driving that include including record low rig levels I mean, even with some of the seasonal come back. We we still think to the activity, which we don't focus on gas obviously, we produce gas there, but we think the.
Activity level would probably have to quadruple just the hold production flat in Canada and I think in these forecast for using Aiko at about 80 cents.
So we'll have to see how that plays out, but but but you're you're actually watching Canada gas production is on declawed.
Yes, the only thing I'd add to that as were looking at eco at at minus 80 cents off his name.
Okay, great. Thank you very much.
My second question, it's Jeff Stein operational momentum on that production trajectory for the rest of the air guidance imply pretty significant 17% decline in liquids in threeq.
And then a nice 11% ramp back up in Fourq, you and assuming this is primarily related to timing.
But could you provide any commentary on that and that should be really helpful and how should we be thinking about operational momentum heading into play one given this kind of take down up and then you're kind of kind of flattened out there.
Yeah, I know the it's literally just the timing of one or restarting completions, we actually haven't restarted them, yet we'll be restarting and very soon.
So effectively will be picking up completions here in the back in the back portion of the third quarter. So you'll begin to see the production effect as we go into for Q.
And as as we've we've indicated we think we expect fourth quarter average crude and condensate production to be 200000 barrels a day and that's the same as we see throughout.
2021, so you'll see us getting to more normal cadence and in the third quarters, just quite simply because we really have no wells coming online until the very ended the quarter and Ah sets.
This is really just a the effect of that timing kind of fully expected from our point of view.
Thank you.
Next question will be from Gabe Daoud at Cowen. Please go ahead.
Hey, good morning, Doug and everyone.
I guess.
Rick are you guys are typically quantified the amount of free cash flow that you see over the next year. So just curious if you can maybe quantify that yeah, but what a substantial free cash for kind of things in your eyes for next year Aucs repricing.
Well if you if you use a gave if you use what's in the table in the deck, there, which is kind of every five bucks and foils $375 million and every quarter on gas.
Is 140, if you look at it right now the forward the forward curve. If I remember writes about 43 on oil for next year and just about to 70 on gas. So if you do that math thats about $500 million, but it clearly is going to vary and we've also disclosed in our materials today that we started to build a book.
Which is normal for us, but it does expose us or does it give us exposure to these these pricing, but give us a what we believe is important solid floor in that $35 range, so but and of course, if it goes through up from there can be considerably higher because right now.
The forward curve on gas isn't reflecting what what what many people believe is the fundamentals for 21.
Right right Gawker, Thanks, Doug and then a follow up Rick I get up to an earlier question.
The next quarter, you target that reduction from the AG market, maybe talk about it that we are perhaps represent a lever you got the poker forever and hence the bouncy. Thank you.
Yes, I gave.
You know, we really don't don't don't talk about that I mean, you know today that market is largely close but I think is.
His commodity stabilize you may see that start to come back a bit that's the first step and obviously potential buyers have to have access to capital as well but.
No anything we would might do on the divestment side, we clearly be additive to our debt reduction.
So that that's probably all I'd say at this point.
Thank you at this time, ladies and gentlemen, we have time for two more color.
Next question will be from Jefferies member from Tudor Pickering Holt. Please go ahead.
Good morning, Thanks for taking my question I, just got one is a follow up some of the growth versus no gross longer term discussion from earlier nice since I've been early to kind of speak the plans beyond next year or something to get your thoughts on how OPEC much as planned to that the consideration.
Significant OPEC volumes are offline to the first half of 2022 for example could grow still makes sense for you all or would you feel better about waiting until OPEC potentially filler here versus before considering our growth more seriously again.
Yes, Jeff I think it's kind of hard.
To build your strategy in your plans on very specific OPEC actions, because obviously those can change at a moment's notice most of US we'll never forget Thanksgiving of 2014.
Actually Thanksgiving day of 2014, but if they do influence supply demand fundamentals, but I think is you're already seeing.
There's been a significant rebalance already in fact, you are now starting to see global draws because you had a very strong supply response and it wasn't just from OPEC plus obviously a lot of production has fallen off here in North America, and it's mainly dominated not.
By shut ins, but the fact that the capital Taf was turned off.
And I think it's it doesn't feel to me very likely that there will be many growth stories in that period and the macro many are projecting will actually declined to next year.
And of course globally other than just a couple of spots in the world. There is no capital being invested in the sector. So we have to watch all of that and we'll have to put all of that together clearly what OPEC does matters, but but the other thing we have to think about we've significantly reduced the cost of our business.
We can now deliver the sort of financial results in the 35 to 40 range that we used to talk for 50 or 55, but I do believe fundamentally the sector needs to think about a low to middle single digit growth rates generate free cash and needs to be distributing a sizeable chunk of that back to shareholders.
Recognizing the volatility and certainly that's in the sector and that's our strategy at what point, we turned back to growth, it's a little harder to predict but what we have hopefully been clear on us how we'll manage the next six quarters.
Thanks appreciate the thoughts.
And then follow up Jeffrey.
Now just the one.
Thank you.
Then last question will be from Neal Dingmann at Suntrust. Please go ahead.
Thanks to squeeze man Doug My question is just it sounds like pretty positive on what your PDP decline you're expecting for baseline decline could you just talked about is that you talk maybe about the difference between Permian burst Anadarko, how you see that decline.
Turning now it is sort of a number one and then just too is that just because you're going to be is that driven more just on a more stable plan or what what really is driving that that's certainly a lower than pure result would be good to see.
Yes that piece is roughly similar I think when we look at optimizing capital, we're really looking at the cash flow and financial benefits from it in and you know the Permian Oilier, but the wells are more expensive the royalties are higher than.
Than that and also a you know we get a different mix of production products. Some you know if I flip up to the Montney you know you've just seen another company kinda reinforce our view.
Of how competitive condensate rich Montney is I mean, these wells are very low cost we have low royalties.
And they have a very attractive condensate production profile very high rates early they do decline, but you capture lot of that benefit quite quickly.
And as we've seen condensate private pricing has remained firm its relationship. The T.I. has held in there oh throughout this period. So that's where we optimize we try to look at the the financial and when we think about capital efficiencies sort of the financial benefits for the <unk> the capital, we invest but staying.
Committed to our multi basin portfolio, which we think is a big risk reducer.
So that's how we'll optimize that but but the decline piece isn't really a big driver and that story.
Okay very very detailed and then just lastly, just wanted me from certain you guys definitely pointed to and I think it's obvious about the free cash to bring down debt in the coming forward I just want make sure with Corey credit was that was that just sort of what you talked about in prepared remarks, and you mentioned I think in one of the questions. Today was that just sort of one time on the payable as I mean, what.
Caused the debt to go up for the quarter and that was should we should think about that as more just a onetime avail naval and you'll be more free cash flow going forward.
Yeah, exactly theirs as I alluded to there's kind of the three one time items, which which we plan to turn the call which was the HP.
The new costs and some of the restructuring costs.
Thank you.
At this time, we have completed the question and answer session and we'll turn the call back to Mr. Campbell.
Thanks, operator, and thanks, everyone for joining us today. Please stay safe. We appreciate your investment look forward to seeing on the road in person very soon thank you.
Thank you Sir.
Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
[music].
Right.
Right.
Right.
[noise].
Right.
[noise] [noise].
[noise] [noise] [noise] [noise].
[noise] [noise].
[noise] [noise].