Q3 2020 Callon Petroleum Co Earnings Call
[music].
Welcome to Callon Petroleum Companys third quarter, 2020 financial and operating results conference call all participants will be in listen only mode.
As a reminder, this call is being webcast and a replay of the call will be archived on the company's website for approximately one year. Please.
Please note this event is being recorded.
I would now like to turn the call over to Mark Brewer director of Investor Relations for opening remarks. Please go ahead Sir.
Thank you Gary Good morning, everyone and thank you for taking the time to join our conference call with me. This morning are Joe Gatto, President and Chief Executive Officer, Dr., Jeff Palmer, Our Chief operating officer, and Jim on our Chief Financial Officer.
During our prepared remarks, we'll be referencing the earnings results presentation that we posted yesterday afternoon to our website. So I encourage everyone to download the presentation. If you haven't already you can find the slides on our events and presentations page located within the Investor Relations section of our website at Www Dot com and Dot com.
Before we begin I'd like to remind everyone to review our cautionary statements disclaimers and important disclosures included on slide two and three of todays presentation.
We will make some forward looking statements during todays call that refer to estimates and plans actual results could differ materially due to the factors noted on the slides and in our periodic SEC filings.
We will also refer to some non-GAAP financial measures today, which we believe help to facilitate comparisons across periods and with our peers for any non-GAAP measures. We reference we provide a reconciliation to the nearest corresponding GAAP measure you can find these reconciliations in the appendix to the presentation slides and in our earnings press release, both of which are available on the web.
Right.
Following our prepared remarks, we will be opening the call for Q and a.
With that I'd like to turn the call over to Joe got it. Thank.
Thank you Mark and thanks, everyone for taking time out today on this important election day.
I'll start with page four in the deck for those of you following along.
We've put another strong quarter in the books and continue to deliver on our stated goals and plans that were developed in the midst of a changing landscape with outcomes exceeding expectations.
Despite persistent challenges facing the industry our team has persevered and set the bar higher with improvements across the board.
Development and operating costs continue to reap the benefits of our scale development model focused on larger projects DNA remains at the front of the pack amongst our peer group.
We continue to build free cash flow, but approximately $100 million generated over the past few quarters well ahead of expectations.
Our recent monetizations and financing efforts have increased liquidity substantially.
Main focused on absolute debt reduction and efficient execution of our moderated capital development program as we enter 2021.
We posted strong numbers across the board yesterday exceeding street estimates in nearly every key category put.
Production came in at 102000 Boe per day, 63% oil and drove quarterly EBITDA to approximately $171 million.
Strong operational efficiency resulted in operational capital of just $38.4 million and lease operating expense of $45.9 million.
Our adjusted cash DNA was 87 cents per Boe.
With forecast you know.
Which includes the cash portion of our capitalized DNA and just $1.59 cents per be a week.
The result of the strong performance was $80 million of free cash flow for the quarter.
On the back of a consistent development philosophy since the well performance kalil is poised to hit the upper half of our previous full year production guidance, even after the impact of the non operated asset sale, an overriding royalty interest transaction.
Equally as important we have both also lowered the upper end of our full year 2020 capital guidance by $15 million. The second such reduction this year since announcing our adjusted capital program in May.
Although 2020 has been quite different than what most of US expected at the outset. It has not deterred our team from achieving numerous milestones that are detailed on page five.
We've managed to integrate two organizations, while implementing a large scale development program across all three of our asset areas and also exceeding our synergy targets for capital costs and Gionee well ahead of schedule.
In addition, we have delivered improvements in our field operating cost structure as a result of the combined knowledge base from our two organizations and the applications of best practices from each.
At the center of many of these accomplishments our IP organization has facilitated the level of coordination required to execute at a high level over the last six months and supported the first completely remote accounting system conversion, our vendors have ever completed.
On the financial front, our recent asset Monetizations and secondly, note issuance significantly improved our liquidity and broaden the avenues to additional debt reduction.
To that end, we announced a private debt exchange transaction. This morning that build upon our momentum for absolute debt reduction increases optionality for the future.
Looking into 2021, a moderated development program characterized by lower reinvestment rates and repeatable diversified activity across the portfolio provides the necessary foundation for achieving our financial goals.
Lower decline rates, coupled with our life of field development philosophy will enhance our ability to generate free cash flow, while preserving our high quality inventory.
At the core of our business, we will continue to advance our broader emissions reduction initiatives support our employees and our communities and further align ourselves with the needs of our shareholders.
And in terms of our vision for sustainable oil and gas company want to highlight some of the achievements featured in our inaugural sustainability report that greatly enhance transparency for our investors and other stakeholders.
We've included a small sample of these achievements on page six.
Many of these accomplishments have not only resulted in improved environmental emissions are also driving bottom line results.
Our focus on minimizing flaring, which is down 30% reduces our carbon footprint it increases revenues through additional hydrocarbon capture in.
In addition, our well established recycling program has resulted in lower capital costs for our Delaware development program and substantially reduced our water disposal volumes and associated costs.
We are an employer of choice in the industry and our stringent safety standards have led to our best safety year on record with a total recordable incident rate well ahead of the industry benchmark.
Our governance practices more diversity have continued to evolve and our board member said a strong example earlier this year by electing to reduce their own compensation alongside management as part of our cost reduction efforts.
I encourage you to download a copy of our report to gain a better understanding of our achievements and evolving goals to ensure the sustainability of the Callon organization.
Moving to page seven our operations organization has been quick to implement best practices incorporates subsurface learnings and drive efficiencies in our capital program. This.
The summation of these efforts has been a significant uplift in our capital efficiency with rapid deployment of our model across all of our operating areas spin.
Specifically well costs are down anywhere from 14% to nearly 40% and our most recent wells continue to show improvement in leading edge costs.
Across the industry, we are witnessing a wave of consolidation with many pointing to lower DNA costs as a clear benefit.
This category was just one of the primary synergies we highlighted for the market last year as a part of our consolidation efforts and I'm proud to say that we have significantly exceeded our target as.
As you can see on page eight we are on track to reduce our total cash DNA expense, which includes both our capitalized cash DNA and cash DNA expense to roughly $60 million from over a $135 million our.
Our current cash DNA expense puts us amongst the lowest across a broad group of peers of various sizes and has been a significant contributing factor to free cash flow generation in this volatile environment.
At this point I'm going to turn the call over to Jeff to discuss operations.
Great. Thank you very much Joe.
Let's move on to slide nine, which says to field optimization, improving ela, we as the title.
The team has continued to execute on our field optimization efforts.
The hard work that was underway in the second quarter really showed up with our third quarter numbers.
Despite having higher workover activity. During this period, we were able to bring total lease operating costs down to just $45.9 million.
And while our VP of operations, Jim Mcniel will tell you that there are 100 different levers to pull to create that type of outcome.
The most prominent efforts in here I'll described by asset have been items like.
The electrification and sand management efforts in the Eagle Ford.
SPE, which are electric submersible pumps, and bean pump management programs in Midland.
And improved water management gas treatment optimization and compressor program efforts in the Delaware Basin.
And then across the board our continued efforts to manage our chemical treatment programs in house has led to a much improved cost structure in all three assets.
We've also begun to look at alternatives for backup options to reduce flaring and capture additional gas and NGL volumes in areas that have seen third party disruptions in the past.
All of these efforts to have the dual effect of lowering costs and capturing additional revenue and in nearly every case enhancing our sustainability efforts.
Here on slide 10, we've updated the performance for nine well Duncan Horton right project. So this is in the Midland Basin of course.
The relative performance of these wolfcamp, a wells and our stellar Wolfcamp b compare.
Compared to the offsetting right pad from 2019 highlights how important the application of learnings has been creating repeatable development results that maintained strong economics in this current current price environment.
So for comparison every one of the Wolfcamp a wells in the Wolfcamp B well in this new project.
Exceeded 120000 cumulative barrels of oil. So this is not bow idiots barrels of oil in the first 120 days.
And the offset pads at nearly twice as long to reach that same level of productivity and I want to stress. This is not about coaching the best locations and just trying to put a big initial production figures like in IP 24, which is just a 24 hour IP, Oregon in IP Thirtys 30 day IP. These are 120 day production graph.
Yes.
Our team has worked very hard to ensure that through proper spacing and stacking.
Improved frac geometry, and significant subsurface analysis, we're making better wells right next door to previous projects that did not benefit so much from our improved technical capabilities more.
More importantly, we're.
We're effectively recovering the resource in place.
By focusing on zones that require co developments and reducing the potential for over capitalization of an area that results from Cherry picking locations. So again think about four four and a half million Bucks for a 1000 barrels a day well.
Four months into which lies.
Moving to slide 11 in the Delaware, Our most recent project. The six will amphitheater development is off to a great start again. This product has benefited from our site specific spacing and stacking program.
Early time production has been very strong matching our two best developments the rag run in Wally role as well.
While still employing our managed pressure flow back technique.
What I personally find the most impressive is the level of efficiency, we achieved in drilling and completing these wells.
At nearly 9500 lateral feet on average we completed roughly 1800 feet per day after having our completion provider on the sidelines for three months.
Yes, mid average well cost was just 825 bucks per lateral foot a significant savings compared to these two offset projects that are seen on the chart on page 11.
Notably, we achieved our highest level of recycled water usage to date with more than 95% of the water used or two and a half million barrels for fracture stimulation coming from our own recycling program.
That's all for operations this quarter, so I'm going to turn the conversation over to Jim.
Thank you, Jeff as Joe mentioned earlier, our recent financing and monetization activity coupled with yesterday's private exchange offer has provided a strong uplift to our plan financial initiatives Slide 12 gives a brief overview of the important elements of those transactions.
First the non operated assets sale closed yesterday and provided roughly 30 million in proceeds associated production for September was roughly 1700 Boe per day with just under half of that amount coming from oil.
Our overriding royalty interest transaction raised a 140 million in gross proceeds recent production. There was approximately 1800 Boe per day and that was about 63% oil remind you that the burden of all post production costs remain with the purchaser our average net revenue.
New interest across the portfolio. After the transaction is still a robust 74%.
Finally, our secured second lien notes raised gross proceeds of $300 million, which has helped meaningfully reduce the balance on our revolver.
We have already begun tapping into the remainder of that available basket with yesterday's exchange.
Where we entered into an agreement with certain holders to exchange 286 million of principal four senior notes at a weighted average exchange ratio of $555 per 1000 of principal value.
This results in a reduction of $128 million in net debt and also lowers our cash interest by 5 million annually.
If fully executed up to $390 million this could increase up to $175 million of debt reduction and 7 million of cash interest expense reduction.
This would still leave second lien capacity available for additional opportunistic exchanges inclusive of the $100 million option granted to Cambridge. It is a meaningful step towards addressing our debt reduction efforts.
Altogether. This series of transactions has boosted liquidity to over $615 million, but equally important we've advanced our de leveraging initiatives by reducing our net debt outstanding by approximately $400 million and we have the ability to improve that significant.
Really.
Looking at Slide 13, we have provided an expanded version of our normal capitalization table to better illustrate the various positive impacts of these financing initiatives on October Onest, we announced the affirmed credit facility and the subsequent reduction as a result.
Both of our overriding royalty interest and non operated asset sales along with the second lien notes capacity in issuance with yesterday's exchange announcement and the closing of the non operated assets sale. Our credit facility balance has dropped below $1 billion, our senior notes.
Outstanding can be reduced by over $550 million and our liquidity and debt metrics both improve.
Equally as important our net debt and cash interest are lower and our 2023 and 2024 nearest maturity balances are seeing material reductions. We will continue to look at various opportunities to manage our maturities, while still reducing our total debt.
Mission.
On slide 14, we have continued to manage our hedge positions actively and we're able to monetize some of our positions during the quarter, helping to offset minimal losses at the same time, we have been adding incremental price protection for 2021.
Utilizing collars to protect against downside risk, while leaving plenty of opportunity to reap the benefit of improved commodity prices.
We now have roughly 60% of our estimated 2021 oil volumes hedged.
We were able to move some more of our positions into collars that provide roughly the same nymex W. T downside protection, but incremental upside in a rising commodity environment.
On the natural gas side of our hedge book, we've got a fairly even balance of collars and swaps covering roughly 60000 MBT you per day during 2021 with downside protection at around $2.60 in MBT, EU and upside protection with our call potential.
With our callers we.
We will continue to watch the market closely and be systematic about managing our positions in protecting our cash flow.
On slide 15, we have updated our full year guidance to account for the various benefits of our improved operational efficiency and cost cutting efforts that Joe and Jeff described earlier, we are raising the lower end of our annual production guidance range. Despite the impact of our overall.
Ride and non operated assets sales, which had a combined recent production rate of 3500 Boe per day.
Additionally, we are lowering our range of operational capital by $15 million at the top end, which follows our significant reduction last period, when we lowered the top end of the range by $75 million.
Our full year guidance range for Ela, we has improved by roughly $10 million with a range now said at $200 million to $215 million.
Our GP and T. guidance has increased as a result of our election to convert our previously temporary firm transportation agreement in the Eagle Ford to a longer term arrangement.
We also converted one of our term sale agreements from a wellhead sale to a pipeline point of do livery arrangement.
In both instances, we are seeing an uplift in pricing as previous deducts for transportation have been the limited since we are now bearing the cost of transferred Taishan.
As such the accounting standards require us to disclose the previous deducts from revenue as transportation related costs.
The net effect on EBITDA, EBITDA and cash flows expected to be negligible.
Finally, I want to point out that our 2021 operational capital expectations have been range to 375 to 400 million, reflecting our growing confidence in achieving even greater levels levels of savings and efficiency.
Our final slide on 16 provides an independent assessment of free cash flow yields. According to sell side consensus estimates than the sector, where there seems to be growing desire to create meaningful free cash flow yield callon sits at the front of the pack, we are well aware that some of our larger peers are.
Planning to return cash to shareholders, but as we have repeatedly stated our plan is to apply our free cash flow alongside our monetization proceeds towards meaningful debt reduction until we have significantly lowered our total debt balance.
We have provided clear evidence that we are not only capable of generating free cash flow, but we are actively pursuing all rational Avenue.
Avenues to advance those de leveraging goals.
At this point I would like to turn the call back over to Joe.
Thank you Jim let me finish up by saying I'm extremely proud of our entire team and thank them for remaining focused and then during an extended period away from our normal working environment.
Many of Us and I'm sure. Many of you our research analysts investors and partners.
I've dealt with an extremely tough personal and work situation since March.
Just a few more months left in 2020, and I think we're all going to happen to close the door on this year.
But I hope everyone is able to reflect on the positives that came out of our perseverance and put us in a position to draw upon that that base of strength is cowen and co.
The industry heading into 2021.
With that I'm going to turn it back to the operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone.
Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Neal Dingmann with Truest. Please go ahead.
Morning.
Hi, guys can you.
Could you guys just talk about maybe your Joe It really for you heard Jeff just talked about cadence specifically.
The focus going forward will that continue to be diversified with the three players that has it seems like a number of your peers are targeting almost primarily Midland basin. These days I just wonder how you all you definitely having nice success, Delaware as well so just wonder how you all look at it.
Yes.
The capital allocation that weve employed in 2020.
We'll see that roll forward 21, we are fortunate to have three very strong areas that.
Have similar return profiles, but importantly have different cash conversion cycles and capital intensity is to help us with.
Our free cash flow goal, so you'll see a similar type of allocation across the areas going forward, we still have to pin that down for 21 and going into 22, but.
You will certainly see that.
Okay, and then just a follow up just on the financial plans.
Got you and just look at sort of where you're at now after doing the royalty and the other transaction I mean or do you think you're fine now for a while or if you'd always looking at sort of other deals like that as you see fit.
Finished the year and go into next year.
Yes, yes.
We've.
Put some initiatives in place and I think in a lot of ways Neil.
Cushion over that first Domino and I think Dave.
Have continued to expand our optionality. So we've made some some good progress.
And we're going to continue to push ahead and deliver on our financial goals and put us in the right position for the long term.
Very good thanks Shelly.
Yes.
Next question is from Brad Heffern with RBC capital markets. Please go ahead.
Hey, good morning, everyone.
I appreciate the additional disclosure on on 21 I'm curious.
With the Wi Fi stripped below 40 box.
Is there a situation you can envision in which.
You would potentially let production decline rather than maintenance program.
Or I guess put another way if a maintenance program doesnt generate free cash flow.
Do you choose to maintain the production base or do you choose to to modify a tool to generate free cash flow.
Hey, Brad I think I think the quick answer without getting into a lot of details as we've we've put a firm stake in the ground in terms of generating free cash flow generation. We did that in 2020, obviously and pivoted in an environment that it showed some some weaker pricing at the end of the day I think 2020 is going to shake out.
To be 38 $39 on average for the year.
So we have shown even in that environment, we have generated substantial free cash flow over the last two quarters now that did come with pro.
Production below where we obviously set out the year and some production declines.
So again, we got to stay focused on our goals of free cash flow generation.
And not just focused on headline production.
Okay. Thanks for that and then I guess on the asset sale front, obviously, you've gotten a lot over the finish line. The one thing that stands out as not being done yet is the water sales. So can you give an update on on that process and maybe if there is anything else that you want to call out on asset sale. Thanks.
Sure.
Yes, the water business has certainly been one that we've been working on for some time.
Volatile environments make asset sales challenging at times.
And we don't want to force anything in the market I'd say with it the water business. We've said this before after putting in some of these initiatives over the last few months and solidify our financial position that only helps us in terms of our discussions with potential partners around that business. As you know we've been looking at more joint venture type projects. So.
They have more clarity in terms of seeing our liquidity and financial position being approved that those water volumes are going to show up so.
These latest initiatives only help the dialogue there and we hope to continue to push that and other initiatives that we've talked about forward, but I think the bottom line as with.
Every passing day and.
Our optionality just increases, especially getting some of these other pieces to fall into place over the last month.
Okay I appreciate the comments thanks.
The next question is from Brian Downey with Citigroup. Please go ahead.
Good morning, Thanks for taking the questions that Jeff clearly great strides on the LNG front as you showed on slide nine on my math is correct. Your full year cost guidance range implies a slight sequential uptick in absolute LSV for the fourth quarter closer to where you are in the first half, but I'm curious how you see the potential go forward low cost versus that.
$46 million absolute level in Threeq is that quarterly run rate something sustainable into 2012.
Yes, it overall it looks pretty good the.
The season of 2020 was a little bit.
I wouldn't say a roller coaster, but certainly sign you sold to some extent and that we had chopped back some of the spend in in the second quarter got things up and running again in the third quarter and some items like that.
But the overall.
On a kind of a per BOE lifting cost for the year that is always going to be our our focus area in our challenge.
Is that that bar will continue to come down so from a.
Sustainability standpoint, yes, I do believe that that we've got our cost structure and.
And efforts in place both from a decreasing the costs and optimizing production.
Okay. Appreciate it and then Joe.
Timber Joe a non-GAAP free cash flow was approximately $80 million in the quarter.
But the cash Capex did come above your accrued capex figure for Threeq or how do you anticipate is that something that may reverse in fourq, you or how should we think about any material working capital changes on either the investing or operating cash flow sites or for the fourth quarter.
Yeah. This is Jim I will tell you just as we head into Fourq. You. We we are continuing to experience kind of a normalization of working capital we saw pretty.
Pretty significant pivot late second quarter third quarter, and I would expect that to normalize through year end 20 into 2021.
Great I appreciate the color.
Again, if you have a question. Please press Star then one then.
The next question is from Derrick Whitfield with Stifel. Please go ahead.
Hi, Thanks, and good morning all.
There.
Perhaps for you Joe to start your team has navigated the environment about as well as any.
As you think about the current macro environment is there an absolute net debt level or ratio that you're targeting and what are your greatest non price levers to achieve it.
Sure.
Got it.
Turning back to the Asian, and think about where we were and what we've talked about post the decrease our transaction not.
Too long ago, it hasn't even been a year since we closed the transaction. So made a lot of progress I know, we talked about getting our leverage down in that two times range in the near term that is still very much our goal.
Which depending on what price assumptions are using will translate into a level of absolute debt reduction to go ahead with that or start to go along with that.
So those are both very much on the table and pushing towards we have an extraordinary amount of leverage to oil prices as weve talked about to move into 21, Jim talked about us opening up a little bit more upside optionality to take advantage of that and we'll continue to do that but yes.
Thats a significant lever on the non.
Price side.
Again.
Our thought is always been let's have a lot of ways to be right in an uncertain environment. So we talked about the water business has been.
One of the primary ones.
To look at we do have a couple non core properties in both the Delaware and Eagle Ford that we are pursuing.
Core classic working interest type of sales that get a little bit challenge in a market like this but we've been patient in the past.
In waiting through this and just staying in touch with the key buyers out there and when the time comes around.
Around transactions that not only bring in proceeds but are going to deleverage our credit metrics, we have a pretty good stable those opportunities out there as well.
And as my follow up if we were to think out to 2022.
Which page 15 effectively be the playbook for 2022, as well and would your maintenance capital largely be the same as 2021.
Yeah, I think directionally dark thats, a pretty good assumption in terms of how our model and now we're in the midst of looking at 2022 and balancing our objectives around free cash flow with.
With.
Paying.
True to our philosophy around developing the resource base in the right way from a life of field standpoints and.
Making sure we're not making near term drilling decisions by high grading or the board.
Compromising a resource for long term.
But largely given the strength of what we're seeing around those life of field development.
And our cost overall cost structure I think directionally, that's that's a pretty good estimate.
And just one more if I could just to make sure I'm clear on the well cost guidance for 2021 with the activity cadence for Fourq, you and as you're projecting out to 2021, you are expecting a 63% oil cut.
For 2021.
That's right yes.
Perfect. Thanks, that's very helpful guys. Thanks, Thanks for your time.
Thanks, Eric to occur.
The next question is from the old parts of Coker Palmer. Please go ahead.
Good morning.
Morning morning.
I have a couple of questions.
About the.
List of improvements that that Jeff started ran down by by area and I.
I also heard that you didnt have higher workover activity this quarter. So.
Curious if that was related to any of the any.
Many of the initiatives in particular and also just a sense of.
It.
A long list of changes you've made and just presented which could you give me a sense of which components.
We'll have the most runway for further cost and efficiency improvements.
You know, whether it's water and infrastructure or.
The field I am like compression and ER versus which are probably improved about as much as we're going to see at this point.
To that you talked about the chemical management program going in house with something I haven't really heard much about that before.
Sure and I'll give you my best to answer and then let me know if there's some other components that you'd like me to expand on.
Great it's really.
A combination of of a lot of small items and then also some more prominent ones the ones that I mentioned.
Things like sand management. So we're we're using some different completion techniques.
We're lowering our our water usage and still getting extremely good production.
We're using slightly different sand mixtures and so when we fold those wells back.
The likelihood of having to go back into that same well and do a costly workover because of either sand that that lays down in the lateral or getting it out on surface and.
Destroying portions of the the surface equipment, all that stuff gets decreased pretty substantially.
When we look at items like.
The submersible pumps that are downhole, primarily in the Midland basin, and we're expanding that into the Delaware.
If you can continue to have.
Terrific run times, which is just a matter of you put the pump in the hole and then it goes and happily runs without.
Happy to go in and pull it didnt change that out we have submersible pumps now our standard is over an entire year before we have to go and do a change out. So those are all again.
Improvements that we've made that are going to continue we still see some continued improvements across the board.
The chemical program that you mentioned is it is really a wonderful.
Derivative of the combination of the two groups.
Both the legacy curries doing callon and that by having an in house chemistry, we're able to leverage that expertise and a large different number of assets instead of just in the historic ones and so what you are looking at trying to look at reducing the amount of scale that happens in wells.
Or the surface equipment or the generation of hydrogen sulfide or anything like that.
We've seen millions of dollars of reduction that we have seen some and we'll see in the future with that continued chemical management program.
And so that we're about I'd say halfway through three quarters of the way through of sharing best practices would.
Lifting mechanisms.
How we do drill outs that the people development, so while we've managed to control.
Perform extremely well in my opinion, there is still some runway.
Some of its a little aspirationally in that.
We're still moving people around and leveraging their expertise in different areas.
But also.
A portion of it is is really just the commitment to continue to get better all the time.
And I.
Im not sure if that answered in enough specificity. Your question, but then I'll turn it back to see if there's anything else you'd like to double check on.
No that was great, especially.
When you say that you're you're only at this point only about halfway through sharing best practices.
Our year end that's that's.
So thats really encouraging and I.
I guess the other.
Thanks, just wondering on the financial side.
Or just your thoughts about hedging from from here you do have.
Good solid production into into next year and.
Just wondering if you were.
Thinking more about going further out the curve.
Very mild contango for oil or or if you were thinking about still more downside protection into India.
Into 2021.
And also if I could tack on if I'm wondering if you had any thoughts about the NGL market right now, especially.
Where we are seasonally.
I guess Directionally, we talk today that that were a little bit more than 60% on oil and roughly 60% on Nat gas for 2021.
We're trying to come up with.
A strong balance in the program between two way collars and swaps, but really kind of give us greater price upside the goal in the hedging clearly for 21 is to support.
The free cash flow generation that Joe talked about.
So were you know.
On track with where we thought we were going to be in 21, we're starting to extend and look for opportunities that make sense into the first half of 22 and again the the goal there is to really.
Make sure that we can support and have the free cash flow that we can use to pay down the RBL and other de leveraging initiatives.
We're roughly a third of our Ngls hedged as well there is a pretty liquid market.
For ethane in 2021, so we are hedged there.
That's another area, we're really going to to look at.
And I think just in general the last thing I would say neil's we.
We've diversified our pricing points. So we're looking very carefully at each one of those pricing points looking for the right.
You know price and structure to to just maximize cash flow. So that's that's kind of as I look at it and think about it our latest thinking heading into 21 and 22.
This concludes our question and answer session I would like to turn the conference back over to Joe Gatto for any closing remarks.
Thanks, Gary.
Just wrap up I want to thank everyone for joining us today.
It's been a turbulent year, but I think we're really proud in terms of results, we continue to put up and hopefully.
Everyone sees that.
I guess, we're going into holiday season, so wish everyone, a safe and happy season going into year end is extent, we don't talk to you. We'll look forward to updating early next year. Thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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