Q4 2020 Continental Resources Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Continental Resources, Inc. Fourth quarter, 2000, and 'twenty earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
As a reminder of this conference call is being recorded I would now like to turn the conference over to Rory Sabino, Vice President of Investor Relations. Please go ahead.
Thank you Andrea and good morning.
Welcome to today's earnings call.
We'll start today's call with remarks from Harold Hamm Executive Chairman Bill Berry, Chief Executive Officer, Jack Stark, President and Chief operating Officer, and John Hart, Chief Financial Officer. Other members of management will be available for Q&A.
Today's call will contain forward looking statements that address projections assumptions and guidance actual results may differ materially from those contained and forward looking statements. Please refer to the company. The SEC filings for additional information concerning these statements and risks. In addition, continental does not undertake any off.
Obligation to update forward looking statements made on this call and finally on the call we will refer to certain non-GAAP financial measures for a reconciliation of these measures to generally accepted accounting principles. Please refer to the updated investor presentation that has been posted on the company's website at.
E W. Dot CLR dot com with that I'll turn the call over to Mr. Hamm Harold Thank.
Thank you Lori and good morning, everyone.
Like the began by commending our employees for their incredible performance and 2020 the.
Despite all of the challenges we faced last year, our teams and generate approximately 275 million of free cash flow and delivered better than expected production cost metrics and a sustainable go forward cost savings.
Obviously, one of the unprecedented challenges of the past year with price with debt.
The T I fall into negative territory for the first time ever in April of 2020, despite the dramatic impact of Covid on crude oil demand last year global inventories now appear to be rebalancing on vaccine on the optimism and tighter supplies of both the U S and growth global producers.
Exempt of capital and market desk one.
The current administration's executive order.
Through there's kind of arbitrary regulatory and federal leasing and the permitting moratorium tend to hinder U S oil and gas supplies driving those prices higher and we have clearly seen this impact to domestic oil prices the past 60 days.
He said whether that have tested and landmass other renewable laden grid system, and dependable and reliable power based grid of the central for human safety and wellbeing and win.
And I both power based grid is not possible without significant natural gas powering that base.
The science based approach to producing high reliable grid is imperative for today and the future.
Instead of a heavily subsidized governmental mandated wind and solar dependent and system.
The U S alone and natural gas and that's pretty well continue to play a vital part and the American energy landscape as the world six ask for access for gas and light Sweet crude and part of this we were saying of American golf Coast select for Ags continues to gain momentum.
And I use one of Ags was completed last year by established and the best benchmark H.
<unk> recently completed its phase two work established the Houston based area of central delivery point for Gulf Coast barrels.
It's a fundamental step for Ags and shows that we're on track for Corey we want to be at this time, great progress had been gain with so much potential and migrating to the Gulf Coast and we're pleased where we are in process.
And the independent producer and we've been proud of the progress we have made the past 10 years to strengthen and preserve our nation's energy independence.
Supporting our economic progress through reliable and affordable energy and job creation on the.
Top of protecting U S energy security of U S. Producers have also addressed the investor concerns that he and pays prioritize reinvestment ratio and shareholder returns and we say the critical importance of remain capital disciplined and believe this will continue to be a key part of continental value proposition.
I will now turn the call over to Bill Berry.
Thank you Harold and good morning, everyone and thanks for taking the time to join US on all of the call and kind of credit update to share with you today.
Before I get into my prepared remarks, I thought might go through and talk a little bit about the Arctic blast and the topical things that are going on and I know you'd be interested in as you know, we're getting pretty well stressed here with the all electric grids power system.
We and the and I'll come and they are producing about 50 per cent of our gas.
All of that is what we're working with every day with the the government entities and the regulators actually working side by side of our teams are out of working 24 hour shifts to keep everything up and running and we're also working with the pipeline and companies are helping you and keep their compressors on line.
And with the power of companies so that they can make sure that we're getting power delivered to the well. So that we can produce all of the gas that we can to be able to end up generating power of the.
The state as well as Texas and the other states are indeed, and and with this cold last that's coming through.
A lot of as I've said, we've got about 50 per cent on the on understanding from talking to the utilities. The most of the the other operators of $5 to 25 per cent of what they've been able to keep on it's a real challenge, but is the largest gas producer and the state. We felt that this is something that we just need to put every bit of effort possible instead of making sure we load all of the gas that we could.
So with that let me go and get into my prepared remarks on the way.
And our free cash flow guidance for full year, 'twenty and 'twenty and in spite of industry and during some of the most unprecedented challenges of taste and my 44 years of experience Continental again show, what we're capable of.
Thanks to our capital discipline, and low cost and nimble operations strength and Optionality of our assets and most of all our outstanding employees, who like Harold I want to thank for their dedication and commitment, which we really saw here recently and in Oklahoma with all of the snow and the freezing and staff and to US, we really been able to set up by the even stronger and.
Resilient and future for continental and our shareholders.
'twenty and 'twenty demonstrate our continued unwavering commitment to delivering free cash flow and service of our focus on returns to shareholders and I.
Here with a worldwide pandemic negative for oil prices and 'twenty of 20 million barrels of supply.
And demand and balancing kind of continental delivered on the following on.
Our fifth consecutive year of free cash flow.
We said, we'd generate 200 million and we generated nearly 40% more $275 million also we targeted and achieve significant well cost improvement in the Bakken and Oklahoma all.
All of them well costs were reduced by 13% and and 6% respectively.
We captured $98 three per cent of our gas and delivered our best year of safety performance ever as part of our focus on the ESG stewardship.
Operationally our results were strong relative draw of guidance for the year, which again underscores the continental always endeavors to deliver on what we said.
For perspective, we said capex would be at or below one point too big and we spent approximately three per cent laughs at 1.16 billion and said we produced 155 206 5000 barrels per day and 2020 of them produced 165000.
Sales at our production guidance and delivered $837 5 million cubic feet of day versus the guidance of 800 and 820.
Our operations teams did a superb job of managing our production expense per BOE a day at $3 27.
Versus our guidance of $3 50 to $3 75.
The operational execution and capital discipline, and we saw in 'twenty and 'twenty is only the beginning.
And you look ahead to 'twenty 'twenty, one and we're excited to share of our strategy and value proposition, Jack and John will provide more operational and financial details respectively.
But at the summary, let me highlight that we are absolutely committed to our number one goal of delivering strong returns to shareholders.
And as part of that commitment we are targeting returns in excess of 40% cash flow from operations through debt reduction and future dividends.
Yeah, the reinstated of future dividends considered in 'twenty and 'twenty, one will require board approval. However, the board has indicated it is desirous of returning the dividend as soon as prudently possible.
We are projecting our sixth consecutive year of positive cash flow in 'twenty and 'twenty, one with approximately $1 billion debt at.
The $52 of that'd be Gi with what we believe will be a pure leading free cash flow yield.
And we're targeting approximately $1 billion of debt reduction and the 'twenty 'twenty, one to about 400 and of half a billion dollars total debt by year end.
As we indicated on the third called.
The third quarter call on 'twenty and 'twenty, our ultimate long term total debt target is $2 billion to $3 billion.
In order to accomplish and 40% return to shareholders and we expect to spend $1 $4 billion, which is 58% cash flow reinvestment right.
Slightly below our current reinvestment framework of 65 to 75 per cent.
We expect to deliver 3% to 4% total production growth in 'twenty and 'twenty. One importantly of all assets are exhibiting continued strong performance with the operated volume expected to rise, 6% to 8%, which was somewhat offset by non operated volumes, which are expected to be down 7% to 9%.
Our 'twenty 'twenty, one volumes are being impacted by two larger non operated partners and the Bakken or delaying oil related projects. This year.
As you recall, we shifted some rigs for gas and Oklahoma last year, we're maintaining that level and also increasing our oil rig activity from two two and average of seven rigs and the north.
Consequently this on.
The gas growing and fourth quarter, 'twenty and 'twenty and the first half of 'twenty 'twenty, one as we see all growing and the second half of of the year of 'twenty 'twenty one.
And we'll continue to focus on the low cost leadership, and our project and cost consistent with 'twenty and 'twenty.
We expect to deliver strong cash flow accretive asset performance across all of our basins and including our recently announced the assets and the oil weighted powder River basin.
Jack will provide more details, but we were excited to add a third layer draw of incredibly rich asset base and places in the Bakken and Oklahoma.
Our strategic marketing and.
Continues to deliver positive momentum in 'twenty and 'twenty, one day, approximately 360 million cubic feet of our 'twenty 'twenty one natural gas is hedged with the midpoint of the swaps and collars of about 297.
With respect to oil.
And additional 10000 barrels per day of firm takeaway capacity has been added from the Bakken to Cushing with no dilution of our differentials under any of the Apple scenario.
And even though we only have about 3500 barrels a day of firm transportation on the Apple and as a critical piece of American energy and infrastructure supported by numerous states that has aided in our nations energy independence and security.
And the line has been operating safely for the last for years and once fully adjudicated and we expect the Apple and should be a long term transportation of option out of the basin.
But we are prepared for multiple scenarios.
In fact, the best shut down and we'd expect our corporate wide differentials to be adversely impacted by one to $2 a barrel the bat.
The Apple does not shutdown and we'd expect our differentials to be on the more favorable side of our guidance.
Lastly, we are committed to our strong ESG stewardship, and when published 'twenty and 'twenty ESG report around mid year of 'twenty 'twenty one across every level of the company. Our teams remain keenly focused on sustainability and the odd.
And it will impact and the role in society and.
On the corporate governance.
With more than 80 per cent of counting of company shares held by insiders the team of Continental acts.
And operate like owners because we are.
The same can be said for our ESG program.
And we continue to be where.
Where we can continue to be a leader and average to responsibly fuel a better world as we serve and support the communities and which we operate.
And in 'twenty and 'twenty, one continental and set up to continue the execution excellence, while focusing on shareholder returns by maximizing free cash flow cash.
The disciplined free cash flow generation and delivering returns to shareholders are again core messages and as stated in the beginning of my prepared comments I'll now turn the call over to Jack.
Thanks, Bill and good morning, everyone. We appreciate you joining our call today I will provide some key operational highlights from 2020 and touch on our drilling plans for 2021.
Let's start and Oklahoma, where the majority of our activity focused on the Woodford reservoir as we moved into phase two development of springboard and one <unk>.
Our results were right on track with the average of performance from 46, Woodford Wells completed and springboard one during 2020 slightly beating type curve expectations as you can see on slide nine.
This demonstrates the consistency of the reservoir and optimal density of designed by our teams.
Our drilling also expanded into springboard three and four during 2020 and early results from both the Sycamore and Woodford reservoirs have been impressive slide nine shows that for recently completed wells, including two Woodford and two sycamore producers are significantly outperforming our springboard unit type curve.
This performance is in line with our expectations for these parent wells and reflects the increased thickness of the Sycamore and Woodford and reservoirs and springboard three and four and as shown on slide nine.
Combined these two reservoirs are up to 750 foot thick in springboard three which is essentially twice of the thickness of the reservoir to the springboard one.
And with targets and both the upper and lower Woodford and upper and lower Sycamore reservoirs.
Our strategy and focus our Oklahoma rigs on gas weighted assets during the second half of the last year brought on some significant gas volumes in recent months since October of last year, we have put 17, new wells online and floated a combined maximum initial 24 hour range of 256 million cubic feet of gas and 70.
500 barrels of oil per day and.
And as anticipated. These volumes are benefiting from the constructive long range fundamentals for natural gas, while providing the critical supply needed as the country gets hit with the historic Arctic blast as Bill had mentioned approximately.
Approximately 50% of our Oklahoma rigs will continue to focus on natural gas and 21, and we expect to put another 22 wells on line, primarily and the first half of the year.
And the Bakken our completion activity slowed during the year, while prices were low but the results continued to be remarkably consistent year over year as shown on slide eight the average of performance of 23 wells completed and the fourth quarter fell right in line with the prior three years, we expect our 2021 Bakken drilling program will deliver similar.
And as illustrated by the dashed line on the chart.
During 2020, we also completed our first density development, along the southern extension of our Bakken acreage and we're very pleased with the results.
Slide eight shows that these five density wells are outperforming our legacy wells expected and wells in this area of of lower completed well cost of approximately $6 $4 million and are expected to deliver rates of return in excess of 30% at $50 of W. T.
With an eye on the future. We also grew our assets during 2020 through cost effective bolt on acquisitions leasing and trades and.
And Oklahoma, we added approximately 47000 net acres to our oil weighted springboard assets combined are for springboard projects now cover approximately 360 square miles that are dominantly operated by continental with an average working interest of approximately 70%.
We currently estimate up to 650 wells remain to be drilled targeting multiple stacked reservoirs and these projects.
The scale of operation our ownership and operational control is quite unique and the economy of scale of provides drives efficiencies up and operating costs down.
We also made the strategic move to expand our operations into the oil rich powder River basin.
And in late December we entered into a PSA to acquire Samson resources and assets located in the basin the.
The properties include 130000 net acres and approximately 9000 Boe per day of which 80% is oil and.
The majority of this acreage is strategically located in the oil and condensate windows, where 70 to 80 per cent of the production has proven to be oil for multiple stacked reservoirs and approximately 80% of this acreage is held by production.
These assets provide continental and shareholders and other great platform for growth, adding over 400 million Bowie of net unrestricted and source potential for the company's portfolio the.
Based on this and it's early stage of development with solid results the compete economic of with our portfolio portfolio, even before adding the benefits of our operating efficiencies and technology.
Our teams are on the ground and we intend to begin delineating and developing the various whereas the worst with two rigs and the second quarter of 2021.
And we currently hold 96 approved federal drilling permits.
Yeah.
Operationally our teams continue to uplift the value of our assets across the board through increased efficiencies and lower costs today, and we are more capital efficient than ever and continues to be the low cost leader among our oil weighted peers as shown on slide five our.
Our completed well cost for the Bakken and Oklahoma Wells now stand at $6, nine and $8 8 million respectively, Inc.
And for facilities and artificial lift, but our teams of additional cost reductions and site for 2021.
Now, let's take a quick look at our drilling plans for 2021 as announced in our release, we have allocated $1 $1 billion for drilling and completion activities in 2021.
Ultimately 60 per cent is targeted for the Bakken, 35% to Oklahoma and 5% to our powder River basin assets, we plan to operate and average of 11 rigs during the year with five to six in the Bakken for and Oklahoma and one to two and the powder, we expect to complete approximately 139 net operated.
And 12 net non operated wells and 2021 and exit the year with 135 wells in progress.
I will now turn the call over to John to provide more color on our plans.
Thanks, Jack and good day, everyone.
As Bill mentioned Continental has a strong value proposition predicated on our expectation to generate significant free cash flow, we expect to deliver significant return of capital to shareholders by prioritizing debt Paydown.
Ultimately, we see additional capital returns to shareholders and the form of dividends as our debt goals are reached and.
I'd like to begin by highlighting our strong financial performance and 2000 and 'twenty, we generated 332 million of free cash flow and the fourth quarter and.
And 275 million of free cash flow for the full year.
Our production expense per BOE of he came in at $3.27 nearly 7% lower than the low end of our guidance our G&A per BOE of he was in line with guidance of the dollar 79.
All of our DD&A increased over prior periods. This was due to downward revisions and proved reserves at year end, primarily resulting from significantly reduced market prices and 2020.
Which of which have since recovered the downward reserve revisions resulted in an increase in fourth quarter, 'twenty and 'twenty DD&A expense of approximately $75 million, we expect production expense per Boe of $3 and 25 to $3 and 75% and.
And the 'twenty 'twenty, one and total G&A per BOE, a day of $1 65 to $1 95 and 2021.
As Bill mentioned with one 4 billion of Capex and 21 net of Franco Nevada as MIT share of mineral cost, we were right below our target reinvestment rate of 65% to 75% at 58 per cent.
Combined with our expectation to deliver 3% to 4% total production growth. This reiterates our continued focus on capital efficiency and discipline.
We plan to allocate $1 1 billion to D and C with the remaining allocated to the leasehold facilities Workovers and other non D&C capital expenditures. This includes continental's cash portion of the planned spending for mineral acquisitions made in conjunction with our relationship with Franco Nevada with the cash.
<unk> structure and place Continental will fund 20 per cent of the 'twenty, one plan mineral spending or $13 million and.
And Franco Nevada will fund, the remaining 80% or 52 million and.
As an update on our maintenance capital our long term maintenance capital is expected to average 1.35 billion varying within a range of one two to one five dependent on commodity mix and project timing.
And these ranges, we expect we can deliver flat to low growth.
We expect to deliver our sixth consecutive year of positive free cash flow in 'twenty and 'twenty. One we are projecting approximately 1 billion of free cash flow at 52 dollar W. T I and $2.75 Henry hub. Obviously these prices are higher now at current strip.
<unk>.
This equates to a strong cash flow yield of approximately 12%.
Every $5 increase and W. T is expected to increase cash flow by approximately 250 million annualized.
Thanks to our sustainable free cash flow outlook, we are projecting significant debt reduction this year.
Our total debt of January 31 was $5 3 billion, which is of significant improvement from the third quarter 2020 and.
And 200 million lower and what we had at year end.
As bill highlighted.
We have and ultimate long term debt target of $2 billion to $3 billion.
Which would equate to approximately one times debt to EBITDA or below at 'twenty 'twenty one budget process.
And that budget prices, we expect to be at approximately four and a half billion of total debt by year end 2021.
And below 4 billion by year end 2022.
As part of our commitment to debt reduction. We are also prioritizing continued calls on near term maturities in 'twenty and 'twenty. One we expect to use of free cash flow to call. The remaining 231 million outstanding on our 22 bonds pay off our revolver and work towards paying off our remaining.
For 2020 threes.
As highlighted in our report yesterday as an update on the previously disclosed water monetization process. The company has made the decision not.
Not to further pursue this transaction ultimately the company has elected to maintain full operational flexibility to maximize the long term value of these assets and enhanced broader corporate cash flows.
Our primary focus our primary form of shareholder capital returns will be debt pay down, but we're also focused on the eventual reinstating of our dividend and as Bill mentioned at this time, we would like to build more protection against price volatility by paying down debt, but our management and the board are.
Aligned and wanting to see the return of of sustainable and growing dividend sometime in the near future.
With that we're ready to begin the Q&A of our call and I will turn it back over to the operator. Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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.
Yeah.
Okay.
And our first question will come from Neal Dingmann of true of Securities. Please go ahead.
Good morning, and great details.
Brent.
Little bit of.
Hum.
And the meals.
And the I'm sorry.
Yeah, we're not picking up share that.
Better.
That's much better thank you okay.
Harold you comment and I agree with you I think price will continue to run a little bit based on that Youre, you All's thoughts about M&A and would you. Besides the the piece of the P. R. B you are actively looking at a more bolt ons other areas, maybe just your thoughts about how you capitalize on these prices.
Well you know the the bolt on tea.
Bolt ons that we've done and the path to then vary.
<unk> did the company is where all of where and those are certainly of the Bev Con, but we love the cross the board on everybody at the M&A possibilities and.
We don't have anything and we're targeting currently and.
At this time, but certainly for.
And a lot of those out there and the industry day.
Got it and then just just a follow up.
Jack for millennials could comment and maybe just on the the water or monetization and your thoughts on you know.
Why why decided to keep that as it just based on.
Sort of what you're going to continue to build out toward the the market wasn't there for that and maybe maybe potentially talk about why not monetize that and or if theres anything else you would consider instead to monetize.
Yeah, Hi, Neil and it's Bill good question. The Yeah, we look for the monetization and I had on them.
The good platform to go and put that out and worked real well with S. A P to try to see if we can put something together that work for both of US at the end of the day, we thought that the whereas the company with the operational Flexibilities and capabilities of the Optionality that it provided us by keeping it that was the better thing for the company to do so that's what we ended up making the decision on.
Very good thanks, so much.
Thank you.
The next question comes from Jeanine Wai of Barclays. Please go ahead.
Hi, good morning, everyone. Thanks for taking my questions. Thank you.
My first thought of and hope everybody is doing relative to the deep <unk>.
Managing for that.
[laughter] question.
And is on plan and Taiwan.
And the higher.
The budget this year is based off of.
And Mr. P is much higher than that today and that too.
And $50 million cash flow sensitive.
And that's really helpful.
And I move to help us calibrate.
And if the strip turns out to be correct with the.
Plan B to remain anchored at that 58 per cent reinvestment rate, which is pretty attractive and.
The salaries.
And then.
Maybe start working on the 20th.
Yeah.
Yeah, I think there is.
At the what's your dress and the name is the discretionary cash that really come of them now what's the the first the application of that and the and the first application and it's continuing to return it to the shareholders and the.
The first vehicle, we use for that we'd probably be through debt and then the second one that we mentioned is that the board has an option and the desire to consider bringing the dividend back and so those are probably the one set of stand in line before we start the looking at anything on doing the extra money going back on the ground through Capex.
Okay, Great and then my second question is on just your SKU on oil versus gas and then 'twenty.
And one oil forecast so you made the strategic shift and the back half of loss.
Towards more gas.
Oklahoma.
To take advantage of some commodity price.
And.
This year's outlook about two thirds of the D&C capex will be in the north.
So.
How does this translate into the flat oil volume forecast for the year and can you discuss whether maybe there some operational and time lag between spud and first production on that maybe isn't getting fully appreciated by the market.
And maybe can you address the oil performance on the Bakken specifically, we've had some questions on whether there's any changes and the base and the Bakken and whether the oil.
Oil percentage of new wells, if that's kind of and relatively consistent thank you.
Yeah, Thanks, and it has been I'll start off with and then Jack and John will probably bring a little extra texture into it.
If you go back to what we did in 2000 Twenty's you mentioned, we did intentionally put a couple of extra rigs and the gas play.
And if we've moved on.
All of the rigs up to the north instead of the south the we probably would end up seeing the around the 2% volume change from 2021 more oil than gas you know we did it for the reasons you stated and the commodity prices have strengthened on this but we're still seeing lots of good opportunities and the and the north and that's manifesting itself.
With the the drilling rig activity and movement that we're gonna be doing anything other than the north area and of course as you suggest the oil prices have come up and that makes it probably more prudent to be looking at loss at this point and time, Jack for John and you got any of them on well Janina and Youre exactly right. It is what youre, saying is just a reflection of where we put our dollars and.
You know in 'twenty, and we'll continue to do that and the south and early 'twenty one and.
And so you.
You'd expect that youre going to get the we've brought on some significant volume as I mentioned in my prepared statements here and we also have another 22 wells and we're gonna be bringing on that are going to be high volume gas wells and the first half of the year and so all of these really.
Our of really by design that Youll see a little bit more growth and gas this year than you do and oil.
The other one of the one other one on the oil side that we might talk to as long Creek, which is a big project, we've got up and Bakken and that's a more of long life. The type of project from the development side of things is the and.
And you'll see a lot of the production coming on and 22 from the 'twenty, one capex spends about 100 million and Capex and we're gonna be spending on 'twenty, one that doesn't happen with production and until 'twenty, two and yeah. I can give you a little more color on that Janine too just from the long Creek unit that says this is a huge project that we've got of 56 wells and.
You know continental.
The operates out of and we of maybe 85% working interest and this and so we're going to commit to rigs to that or are committing two rigs to that in 2021 and approximately 20% of of the wells will be brought on in 'twenty, one about 50% and 'twenty, two and and then you'll see 30 and 30% of those wells coming on.
On and 23, so it's a big Big project.
A lot of logistics being orchestrated there, but it's going to be extremely efficient operation.
Given the you know the concentrated position that we have and and the players we have the handle all of the water oil and gas oil on pipe. So this is just and so it takes a while for all of this this oil to get on and when you have these projects that are of this scale of debt.
And there's also some of the best rock and the basin. It is it is that's for sure.
And we're very excited about this project well.
We're glad to get back to drilling on this one.
Great. Thank you.
The next question comes from Iran, and J R of.
Of J P. Morgan Chase. Please go ahead.
Yeah. Good morning, a quick question on <unk>.
Maybe thoughts on maybe the trajectory of the oil volumes.
And in 'twenty, one Jack if I heard you correctly it sounds like you anticipate greater oil.
Oil growth and the second half of the year and I was wondering if maybe you could maybe comment on that and how.
What kind of impacts are you seeing you mentioned in your prepared comments, maybe build that are a couple of your non op partners and the Bakken may have been reducing our capital allocation of so maybe just give us a little bit more color on what some of your non op partners are doing and the Bakken.
Yeah, maybe I'll just highlight a couple of things on the non ops.
We've talked to both of them and the they have some strategies that are supportive of continuing to pursue the the project in fact, there's quite a few ducks out there, but as everyone's going through.
Different perspective on where they're going to spend the capital on and then capital is being reduced and this is one for a couple of of our non op. So they opted to slow down the capital spend and the Bakken, but the still planning on going forward with both of them are planning on going going forward with the the future just not the not until maybe the latter part of this year.
Got it got it and that is just and impacting.
Maybe the first half of low debt and is it fair build the second half of the year, we'll just have greater.
And a buck or overall oil volumes versus the first half to be a little bit more gas weighted.
And you're seeing the big gas weighting and the first half for a couple of things one and we spent all of drilling a good portion of the drilling last year the hit fourth quarter of last year and and the first half of this year with those gas volumes of Jack was talking about coming on and then the ramping up of the drilling program.
We're going from we had about two rigs running up there and the north of the last year and yeah, we're gonna be.
And that up to about eight I think this year and so.
So that's kind of whats your on and see a lot of that but that's coming on later as oil has come up but the second half of this year, you'll see at the oil and the higher than the first half of this year and then of course that will continue the ramp up from the 22.
Great I have one for John Hart, John you talked about the the board pursuing of dividend at some point and.
And in the near future.
For memory, John and I know before the the pin debit kit you guys started the dividend for memory and felt like it was on the <unk>.
Nicola a quarter or <unk> 20 per and I'm kind of range and I don't know if you could maybe help us think about how the board.
Maybe thinking about it of.
Reinstituting, the dividend relative to the previous rate or any other.
High level thoughts on on what type of dividend.
We could see from CLR and and the near future.
Yeah, Great Great question and it was five cents a quarter of previously you may recall that we launched the the dividend we indicated at the time, we were going to start and of.
You know of a conservative type range. However, I would point out that was and in line with the number of our larger peers from a dividend yield perspective and stuff. So as we go forward you know ultimately I cannot speak for the board, we have very close shareholder alignment and obviously, so we have a lot of viewpoints towards.
Where we want to go as a company. The key thing is with the level of cash flow that we're putting up and with the depth of inventory that we have remaining.
We've got a significant runway in front of us. So we have a lot of flexibility getting debt down as aggressively as we have over the last few years and it as aggressively as we are going to in.
In the future leads to even greater flexibility and that so I think there's certainly a lot of optionality, there, but I would.
I would hate to speak for the boards in terms of a a level of or.
Set number, but we certainly have a great deal of flexibility and debt alignment with shareholders.
And John any philosophical thoughts from your Harold maybe just on this variable dividend structure. The a couple of your peers are adopting.
Well the.
It could be that this industry due to the volatility of pricing on that but what we've seen in the past.
As of year or two and you know there are several companies that have considered it we considered when we came out with our own and.
And at that time.
It's something that we have.
Thought we thought we could always go to.
And adding debt to the.
Dividend and in the future.
Yeah.
Is that true.
Based on that.
Great. Thanks, a lot.
Thank you Arun and good to talk to you.
The next question comes from Brian singer of Goldman Sachs. Please go ahead.
Thank you good morning, Hey, Brian.
My first question is with regards to maintenance capital I believe in the in your prepared comments he talked about long term maintenance capital of about $1.35 billion and there was a range around that that I think was one two to 1.5 billion and realized that it for long term, but I. Just wondered are more specifically is that to get a flat.
To slight growth in volumes based on 'twenty, and 'twenty, one average levels or pro forma levels and what does that assume any change and mix I E would that have a similar rate of flat to the low growth from both oil and gas or would it imply a mixed shift one way or the other.
Part of the reason you have of range is because of that mixture of can change and there obviously, we've got a of depth of inventory and Oklahoma and we're.
We have Oh alere assets, we've got a lot of condensate and we've got some dry gas windows of the Bakken is certainly a high oil concentration and powder River is certainly a very high oil concentration and also so if you shift from a gas you are mixed and earlier mix you know that can push you towards the higher maintenance capital for <unk>.
Six of shift from the OLED or mixture of gas to your mix and that can push you down and we have a tremendous amount of optionality and that enables us to prioritize the product depending on our views of the the commodity price as you've seen us do with natural gas here. So that's.
A driver of the of.
Of the range.
That you get going forward.
And Brian.
One other thing and so I've done and I mean are up and one of the things that will impact that is the longer cycle time projects yet.
And here in and your outage each year and depending on what happened and what's your mix is of those that'll impact the range.
And Brian did you you had a couple of other aspects to your question did we cover those and I was.
Yeah, I think you did it was really whether you were talking about keeping 2021 average volume and.
Flat if that's on the ramp could do that on a going forward basis of flat to rising I think for the glue. It may have been the language that you used but it wasn't and it based on 'twenty and 'twenty, one average pro forma EPS.
Yeah, Yeah, and you know Brian that that number and those ranges are consistent with what we've had we but we've obviously grown the production base, but we have the green greater efficiencies. So we've we've kind of been in that range for a bit now and and that gives us flexibility in terms of the mix and et cetera.
Great. Thanks, and then my other my follow up is with regards to the addition of the P. R. B acreage if the if we look at the areas that have been generating a lot of your production here of late the Bakken and scoop those are areas that the continental was a leader and opening those plays from.
From the very beginning and I did say that the.
The powder River basin, and there's one where there has been some activity there over the years from others and from others and industry realized that not all acreage positions are created equal, but I wondered if you could speak to and what you think either industry or of prior operators have been missing and ultimately how active you could debt you could become and how you would define success in that sort of math on the ACA.
Sure.
And they are.
Can you talk about leadership and that very important continental has always done that from the geologic perspective, and we certainly will and powder River basin as well.
We're not of a novice to Wyoming the operate up there a great deal on the past and so this is homebase to all of US Pat bent of he's the one grew up there so.
The operations.
And puts us very well and and.
<unk>.
Drilling and development and.
And from.
And from the.
The tech technical standpoint.
Yeah.
With the two the same type of the leadership, we've shown and other basins and the powder River.
Yeah.
And I guess is there is there anything specific to.
The acreage and it and.
The question that makes it unique relative to others other acreage around it or.
The techniques that you would bring that others aren't god that others aren't using that you could speak to.
Hi, Brian This is Tony Barrett and.
And the position we acquired is right and the core of the base and it's in the heart of the over pressured sales. So we like it from that aspect of.
The other key thing that we liked about this position is that.
It was somewhat tested by our predecessor of Samson with excellent results. So.
We think this play and our acreage position there is perfectly set up for the expertise of continental operationally to go in and.
Reduce costs and <unk>.
And make this a significant add to the portfolio and the other last thing I'll mention is that this is and also in the heart of the oil window as well. So we expect about 70% to 80% of oil cut on all of the all the reservoirs, we're chasing and that particular block.
Great. Thank you.
Thank you.
The next question comes from Doug Leggate of Bank of America. Please go ahead.
Oh, Thanks, guys. Thanks for getting me on and for the hub and spoke and happy New year guys. Appreciate you taking my questions All day.
The stock Fellows I wonder if I could.
Just a follow up of about Samsung, obviously, it's been pretty hard today, but the size of the position you've talked about you know on a six year.
On the.
The rig year program.
I'm just wondering is this a starting point of view of position and is this a foothold.
They expect to expand because obviously been aware of number of other companies and other declaring the PRP and less core than it might be on a year of cynical Chesapeake for example.
Yeah, Doug Thanks for the other question, Yeah, we obviously and Oklahoma and Bakken and establish him very significant core positions and that's one that you're always trying to strive for as you go into areas, where we look at lots of different basins and this is more of that we looked at and and as.
Tony mentioned.
And really like the geology, there was running room, there you know and there's opportunities for.
And for consolidation and that base and just like they are and the other license of.
And we would always be interested and seeing if there's something else that would fit with this.
So it kind of fair to describe the starting point of sales you.
On the other words dry dog and all of it always depends on the on the value proposition here and then we look we look at things and if it's the right value proposition.
And the if you look to go back and look at the things that we did and this past year ago with the the Samsung up and the powder River look of what we do with the pieces that we ended up bolting on here and in Oklahoma.
We continually stress test those against what everybody else is doing.
As far as you know either from a bolt on M&A or from a corporate M&A and CIT and we look at one of the metrics look like and.
If you look at the metrics on the things that we've added on and there is strong or stronger than any other assets that have been added either through bolt on or through a corporate acquisition. So so where it's all about value proposition of for us and so if there's an opportunity to grow and good value proposition for our.
We are absolutely grow anywhere, both and and the existing basements of Bakken and Oklahoma is one of those powder River and the but that's always the key what's the value.
Thank you my follow up if I may is for John and Joe and I apologize in advance and you're going to hate this but I'll give you the go anyway.
You guys have done a great job I think along with the number of your peers and simplifying the business done too.
Free cash flow yield story, showing us what your business is capable of doing and I know you've got a lot of Optionality, which is now expanded for the powder River and especially within commodities and Oklahoma and particular my question is about sustainability.
Because of the one thing that the pushback quite honestly that we continue to get and our post the view of Continental is and it's all very well, having free cash flow of how long can you sustain and out for it and that's I guess, its and inventory depth question and I just wondered if you could address that in terms of how you're thinking about long term planning what would you tell the market.
And as the sustainability of that.
The maintenance plus free cash flow yield strategy.
Well, Doug this is Jack and I may start out I know you directed towards Jon, but let me just talk about the inventory here.
And as I as I mentioned last quarter and this is before the powder River Basin acquisition is that we've got enough inventory to sustain a 5% compounded annual growth and the company for the next 10 years.
And you know if you look at the first five years of debt.
And you know we're looking at about a third of our inventory and the first five years and and the rates of return on that inventory that we'd be drilling is like 50% at $50 W. T I and so it's a very strong portfolio and.
And again this is before adding in the powder River basin, so as far as the inventory and sustainability standpoint, I don't see that is the problem I see that as an opportunity for us out here to just decided just at what pace do we want to growth.
Yeah, Doug you misled me a little bit I don't hate the question.
The other part of Jack's comment there is not only the depth of inventory, but the quality of inventory, we see strong consistent sustainable stable return on capital throughout that we do not see of degradation and capital employed it remains.
At the very strong levels.
Speaking to sustainability also it seems like you know what.
Dynamic markets, where we can have people kind of can focus on the the nature of your type things and this will be the sixth consecutive year of free cash flow for this company as we look out over the 10 year horizon with the stable capital efficiency with the improving capital efficiency as the commodity prices go up and with the.
Depth of inventory of the jacket has spoken.
I've spoken to.
We see strong free cash flow throughout that the ability the ability to pay off all of our debt. If we choose to the ability to put in growing strong dividends the ability to do variable dividends. The optionality to do a lot of things. So you know I love the question and we are very well.
Positioned and we feel very confident and our position.
And I appreciate the answer kind of thank you.
Thank you.
The next question comes from Charles Meade of Johnson Rice. Please go ahead.
Good morning, Harold to you and your whole team there.
Yep.
I'd like to go back to two.
Kidney Bill's prepared remarks, or maybe semi prepared at the are at the very beginning of the call.
Can you give us a sense of.
And in General I'm sure, there's a multitude of reasons, but in general what's the what's the difference between the 50% of the gas production that you have on now and the 50% debt that's offline and.
And what is the difference what is the continental doing differently from the rest of the industry, which appears to be kind of lower.
Capacity.
Yeah.
Let me Harold has got some good comments on this and then I'll follow up with his comments.
Yeah first of all I'd say, we've got a team out here and.
And I started up.
And that's off to our team because we get are done.
And it worked 27 and that's what it takes.
You know a lot of people forget that gas wells and you know 10.
And to freeze up with liquids.
With the feeling of a sub zero and.
And that's what we've had we've had 10.
Days of below zero and below freezing and the other below zero.
Here in Western Oklahoma.
And a lot of people forget the you know what.
And what it takes to keep them on but.
And we've been able to do that.
Sure.
We mentioned Bill mentioned the peers out there.
Production down to five and 15%.
We feel pretty good and have and are except for the fifth.
And 50% and in times like this and and also I want to say something about the team's decision last year.
And the brain those gas units on the jump in and and complete.
Complete and drill and complete.
The cost.
Cost per Boe, and and get those prepared for the.
The winter debt, we were anticipating at least that would have now so Oklahoma has had.
And part of any blackout, one hour I think that we've experienced so far and the here.
Here in Oklahoma and lot of Oklahoma run on Continental gas today, yes.
Yeah, and I'll, just follow up with that Charles at the.
The the people that are out there.
I just cannot overstate.
Overstate, how much they've contributed not only to the company, but to the communities that we're in.
Early on.
And the teams got together and said we're going to put double duty. So we started putting the night shifts on and we usually wouldn't runs night shifts.
And historically, we also of cross trained our people. So we have some some folks that can immediately go from doing a different job to go to do on the operator jobs to keep things up and running or.
Are there early on and we can went and tried to get all of the steam as we could to.
Go keep things warm because as Harold said, the stuff freezes up and once it freezes up not much you can do with it and one of the bigger things that we did early on and early on has reached out to the pipelines reached out to the to the government leaders and said we need to work on this together and so.
The spend multitude calls and all different levels of trying to help each other to keep this up and running.
Got it and that's that's helpful color I appreciate all of that detail and then.
The follow up question.
Hopefully the little little simpler one I'm curious if you could give a little insight into your thought process on on top of them coming up with $52. A W. P is as you're planning case, when I look at it it makes sense to me because that's where the curve settles out as you go out and time, but I'm wondering if.
If you could.
Tell me, how you came up with that or how you settled on that when we ran it a few weeks ago and you're right. We were looking at where the curve was and kind of the a.
The range of that the prompt was a bit lower at that time, but it certainly.
Sure.
<unk> been lifting up and generally.
Generally and that range.
Yep.
Obviously it was conservative.
Right. Thanks for the detail guys.
Thank you nice job.
The next question comes from Derrick Whitfield of Stifel. Please go ahead.
Thanks, and good morning, Congrats on the CRB transaction that was seemingly bought near of PDP value.
Thanks. Thank you. Thank you.
Regarding the the CRB transactions could you speak to the relative returns you expect and the P. R. B and verify that you have the associated infrastructure in place are permitted to substantially developed the permits you have on hand.
Oh sure.
As far as of the returns of the Guy was the first part of your question here of how do they compete and they really they compete quite well with our existing inventory and as I said, we haven't had a chance to get in there and start applying our efficiencies and our operational technology.
Two.
We expect the improved performance and also the just the economics of the play so.
So any of his work.
And we're looking forward to that now as far as infrastructure is concerned yes, there's infrastructure out there sexually underutilized and.
And you know and so we have you know.
And plenty of running them and their from an infrastructure standpoint, and and so we're not no issues, there and and.
And there was the third parts of your question and permits and all the permits permits yeah. We've got 96 permits in hand, and federal permits because as you know there's a lot of the acreage there is gonna be federal acreage and but with the 96 permits there were.
No.
We're looking at essentially six rig years of inventory and so we've got plenty of work ahead of us as we start doing or what we do and that's get in and start.
Really delineating and and determining what is the proper density and what's the proper technology and all of that to apply to the basically maximize of or the are.
And the returns from the these assets. So we're very very excited about them and and our teams as I said of already on the ground and and we're getting ready to put some rigs up and and see what the what we can do.
Great Great update and then with regard to your expected gas weighted activity for the first half in terms of completions would it be fair to assume that that's principally located in the more prolific springboard three and four areas.
No yeah, youre going to find that it's a mixed bag, where these will be located but actually these are you're going to see these being and springboard one and two.
More so than say springboard, three and for actually three and shrink or three or four actually the more oil weighted.
And most of those areas and so that's the so we just have a great optionality, but these assets and.
Product mix and these assets and.
And we we do like the fact is you mentioned that we're seeing are substantially thicker overall hydrocarbon column, there with the reservoirs, there and the Sycamore and Woodford and not to mention the Springer and we've got some other things in mind that we're going to be looking at and testing.
And ultimately and the.
These plays and so really really a.
Really like the assets and you know and my prepared remarks.
And mentioned that just it's I don't think people really fully appreciate just the sheer scale of the operation that we now have down there. When you look on the 360 square miles of acreage and that we control with about 70% of average working interest I mean that is the huge footprint and these are the large contiguous blocks.
And the acreage that allow us to get in there and really drive costs down through efficiencies.
Fishing operations and so for.
And from my standpoint. These are those of the type of projects of Continental does and we get an early and we have a dominant position and when we get that position and we continue to build on it and we and we really are.
And I've done that here so anyways.
Thanks for the question.
Thanks, guys very helpful.
Thanks Derek.
This concludes our question and answer session I would like to turn the conference back over to Rory Sabino for any closing remarks.
Yeah.
Thank you very much for joining us today. Please follow up of the IR team here with any further questions and we really appreciate your time and stay safe out there. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Uh huh.
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