Q1 2021 Marathon Oil Corp Earnings Call
[music].
Good morning, and welcome to the Marathon Oil's first quarter 2021 and earnings Conference call My day.
And spread and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session during which you may dial star. One if you have a question. Please note. This conference is being recorded I will now turn the call over to Guy Baber, Vice President of Investor Relations you may begin Sir.
Thanks, Brandon and thank you to everyone for joining us this morning on the call yesterday. After the close we issued a press release of slide presentation, and and Investor packet that address our first quarter 2021 results. Those documents can be found on our website at marathon oil dot com <unk>.
Joining me on today's call are Lee Tillman, our chairman President and CEO, Dane Whitehead executive VP and CFO, Pat Wagner executive VP of corporate development and strategy and Mike Henderson Executive VP of operations today's call will contain forward looking statements subject to risks and uncertainties.
Recognize that given the inherent volatility of our commodity business that we must offer outsized free cash flow generation, coupled with investor friendly actions to make a compelling investment case.
To that and first quarter of 21 results are a testament to the strength of our business model and how we are positioned our company for success.
During first quarter, we generated over $440 million of free cash flow.
Despite the challenges associated with winter storm Youri production volumes were in line with the mid point of our full year 2021 guidance and we are fully on track to meet the annual production Capex and cost guidance, we provided at the beginning of the year.
And we are on track to exceed our free cash flow of objectives.
Four $1 billion of capital spending, we now expect to generate $1.6 billion of free cash flow at $60 per barrel of diabetes.
Up from the prior guidance of around one and a half billion.
This corresponds to a free cash flow yield approaching 20% and a set of about 40% reinvestment right on.
Oh, and and assumed oil price that is below the current forward curve.
We remain committed to our 1 billion dollar capital program, there will be no change to our capital budget, even if oil prices continue to strengthen we will simply generate more free cash flow and further solidify our standing as an industry leader when it comes to capital discipline, a hard earned reputation we have established.
Wished over multiple years.
We have accelerated our balance sheet and return of capital objectives, the specifics of which day and we will cover and just a few minutes.
Importantly, everything that we are doing is sustainable R.
Are purely and capital of efficiency are outsized free cash flow generation are competitive cost structure, our investment great balance sheet and are rising return of capital profile the.
The proof point for the sustainability as our five year benchmark maintenance scenario that could deliver around $5 billion of free cash flow from 2021 to 2025, and a flat $50 per barrel wty price environment or closer to $7 billion of free cash flow at the current forward curve and.
Along with of corporate free cash flow of breakeven of less and $35 per barrel throughout the period.
Sort of generating free cash flow and directing that cash back to our investors are fully committed to this model and are well positioned to meaningfully beat of our objection objectives in 2021.
When considering our updated debt reduction target on recent base dividend and increase we're actually on track of return well over 40% of our cash flow back from investors this year.
First we accelerated our 2021 grocery day gross debt reduction objective of $500 million.
All of the retiring our next significant maturity.
And we're now targeting at least another $500 million of gross debt reduction, bringing our total 2021 debt reduction target to $1 billion.
Reducing reducing our gross debt is entirely consistent with our goal to further enhance our balance sheet, our investment grade credit rating.
More specifically our goal has been to reduce our net debt to EBITDA to below one five times, assuming more of a mid cycle 45 to $50 per barrel of <unk> environment.
We're making rapid progress toward achieving this milestone by the end of the year and in parallel our aim is to significantly reduce our gross debt moving toward a $4 billion gross debt level.
Beyond the obvious benefits of our financial flexibility the interest expense reductions associated with the structural gross debt reduction has the added potential to fund future dividend increases at no incremental cost of the company, thereby thereby preserving.
Serving our very competitive.
Post dividend corporate free cash flow breakeven.
Along with reducing our gross debt. We also raised our quarterly based dividend by 33%.
As it matures and focusing more on alternative shareholder return mechanisms, including share buybacks or variable dividends all funded through of sustainable free cash flow generation.
Before I turn the call over to Mike Henderson, who will provide and updated on our 2021 operational performance and capital program.
Like to address and issue that has been topical recently and that is.
Cash taxes.
We are not of cash taxpayer and the U S. This year and that prevailing commodity prices, we don't expect to be paying you S cash federal income taxes until the latter part of this decade.
This holds true even if the tax rules for intangible drilling costs or idc's are changed or of the corporate tax rate has increased.
And we are significant tax attribute from the form net operating losses, approximately eight $4 billion on of gross basis. In addition to foreign tax credits of over $600 million. These attributes will be used to offset future taxes.
Either of these items as energy sector specific so we don't expect any new tax legislate and legislation to threaten them. The bottom line is we don't expect to be of use cash taxpayer into the leather and part of this decade and.
And I will turn it over to Mike Henderson, who of.
Of operations.
Thanks, and Mikey message to day is that we're on track to achieve all of our 2021 of regional gain groups and you said at the beginning of the year, including a 1 billion dollar Calico program and that we.
And on track exceed the free cash flow of changes.
Are strong performance of huge of tremendous execution from us of teens June 1st quarter. Despite the significant challenges associated with and under storm here.
Called on quarter total oil production of 172000 miles per day of quite an accomplishment and light of the operations challenges we experienced on the impact to production you've seen reported by pure companies.
Our teams did an exceptional job keeping our volumes on line and delivering much needed production at a time, when utilities and households, where and critical.
Our success began with extensive pre planning efforts and continued with of hands on approach to Monica operations throughout the storm.
We did not proactively shut and our volumes as of preventative measure rather we fully leveraged our digital infrastructure to prioritize protecting our highest volume highest rate wells intelligently rooting operators to our highest priority locations all the while we kept the safety of our people as our top priority.
Our hands on approach clearly paid off on our operational and financial results speak for themselves.
R capital spending during <unk>, Kim and slightly below expectations, reflecting solid well cost of execution, but also the shift and timing of some capital from first to second quarter, largely due to storm driven delays.
Looking ahead to <unk>, we expect we expect a slight sequential decline and our oil production. The result of fear wells to sales and the first quarter, particularly and the backing.
Is simply a function of the timing of a wealth of sales, reflecting on natural level of quarter to quarter variability.
We will continue to prioritize maximizing accountable efficiency on free cash flow generation sustainably over time and not the production of any individual quarter.
We do expect the significant increase and our second quarter wells to sales to translate to and improving production trend as we move and to third quarter.
With the increase and wells to sales and chest and capital from one of <unk>, We expect <unk> capex to rise to the 300 million dollar range likely representing the peak capex quarter for the year.
<unk> R capital program is fairly well balanced and rateable split almost 50 50 between the first half and second half of the year.
More importantly, a full year capital spending and production guidance remain unchanged.
As the most capital of efficient basins across the lower 48, the Bakken and Eagle Force will still receive approximately 90% of our capital of this year.
Or whatever both of our Oklahoma on Permian assets of high return and opportunities that can effectively compete for capital to day.
Both of assets provide capital of allocation option on commodity diversification and incremental high quality of inventory.
Consistent with what we previously disclosed and our five year maintenance case, and our plan and bring the year of our objective is to reintroduce of disciplined level of steady state of activity back into Oklahoma and the Permian by 2022.
Of 20% to 30% of the total capital budget.
When we do our expectation is that both assets will support accretive corporate tons and incremental free cash flow to the enterprise.
And will not pass it back to Lee who will provide a few more comments before we move to Q&A.
Thanks, Mike.
I would like to briefly put the 2021 capital program, Mike just discussed and of context by comparing our capital efficiency, our cost structure and our free cash flow generation to pier disclosures from the fourth quarter earnings season as.
And that's highlighted by slide 10, and our earnings deck are 2021 capital program is among the most capital efficient and free cash flow generative of any company and are peer space. The top too graphic summarize peer reinvestment rate normalized two $850 and $60 Wty price environment as you can.
Can see our reinvestment rate, which is a reasonable proxy for both operating and capital of efficiency and a maintenance or flat production scenario is among the lowest and our peer group for every dollar of capital. We're spending we are delivering more cash flow and virtually any of our peers. Similarly are 2021 capex per <unk>.
Barrel of production on either on oil or oil equivalent basis is among the lowest and our space and.
And the current more disciplined environment operating and capital efficiency are Paramount and in fact represent our competitive Differentiators. Most importantly is shown by the bottom right graphic are free cash flow generation relative to our current valuation remains compelling and outside against our peers and the broader market with a.
Free cash flow yield approaching 20%.
We continue to believe that we must deliver outside's free cash flow generation relative to the SMP 500 to effectively compete for Investor capital and this is why we remained so focused on sustainably, reducing our corporate free cash flow breakeven now and integral part of our compensation scorecard and continuing to optimize our cost structure.
For the free cash flow of breakeven comfortably below $35 per barrel and we can generate free cash flow yield competitive with the SMP 500, assuming and annual oil price down to approximately $40 per barrel of that DTI.
We never rest when it comes to our cost structure and of commodity business. The low cost producer wins and slide 11 provides additional details around our ongoing efforts and reinforces our multiyear track record of cash cost reductions.
We have opted to use and all and cost basis that normalizes pier reported data and avoids the challenges of how each operator categorizes their respective cost as you can see from the data are all in 2020 unit cash cost are well below the pier average on a more apples to apples comparison basis are all and unit.
Our top quartile, among our direct multi base and peers.
Specific cost reduction actions already taken this year are broad based including of 25% reduction to CEO and board compensation of 10% to 20% reduction to other corporate officer compensation of workforce reduction to more appropriately a line or head count with a lower level of future activity of full exit from corporate owned and Lee.
Aircraft and various other cost reduction initiatives find.
Finally, I would like to again underscore the sustainability of all of that we are doing.
The sustainability of our sector, leading capital efficiency and free cash flow generation is underscored by the financial strength of our previously disclosed five year benchmark maintenance capital scenario.
And our maintenance scenario is underpinned by well over a decade of high quality inventory that competes very favorably and the peer group as validated by credible third party independent analysis shown on slide 13, the quality and depth of our inventory and combination with our reinvestment rate capital allocation approach provides us with viz.
The ability to continued strong and financial performance.
Further we of a demonstrated track record of ongoing organic enhancement and inventory replenishment, even and our maintenance scenario, we continue to direct capital toward resource play exploration and targeted organic enhancement initiatives, including our redevelopment program and the Eagle Ford.
And conclusion I truly believe our combined actions have position marathon oil for success not only relative to our E&P peer group, but relative to the broader S&P 500, as well and.
And our long term incentives now reflect that convinced conviction explicitly.
Our company was among the first and recognized the need to move to a business model that prioritizes returns sustainable free cash flow balance sheet improvement and return of capital. We also led the way and better aligning executive compensation to this new model and with Investor expectations.
We are positioned to deliver both financial outcomes and ESG excellent that are competitive not just with our direct E&P peers, but also the broader market.
With that we can now open up the line for Q&A.
Thank you we will now because of course you did answer session. If you have a question. Please press star. One you are still keep it if you'd like to be removed from the queue. Please first step outside of the <unk>. If you had a speaker phone. Please pick up your headset first before he died of like the numbers.
Once again and if you had a question. Please crestar one on your phone keep head.
And from Barclays. We have should eat Hawaii. Please go ahead.
And getting mining everyone and thanks for taking care of question good.
Good morning, and evening, good morning, and I.
First question, it's on and return of capital and gain you gave.
And increment of all good commentary there and you are prepared remarks, so the new and targeted at least $500 million off of the year. Ultimately you Wanna get to 4 billion growth versus the 5 billion that you're at now and so one of them actually determine how much of that alright, what determine how much of thought.
And you $500 million target and that Youre doing specifically for the here and does the at least part of the $500 million does that reflect that you need to do this opportunistically any of of market. Because you have to go out to between 25 or is it more of that you're just gonna see whenever you can get done with free cash out of here and I guess.
And we're really kind of back and who is figuring out where they are getting to that 4 billion growth is mutually exclusive Q, maybe pulling the trigger on the variable distributions equity holders because I guess based on on a free cash flow forecasts. We think you could get the 4 billion growth by the end of the year still have good operating cash island et cetera et cetera.
Yeah.
Current commodity prices Janine.
Are well positioned to meet all of the financial objectives are laid out and get to sort of the next leg of.
Visibility too variable returns.
It just kind of begging just backup second and kind of frame of where we are and went through it relatively quickly and my prepared comments to our goal 30% of cash flow from operations to investors and a combination of debt reduction and based dividend near term and then variable vehicles maybe longer term.
We're on track and 40% of billion dollar debt reduction this year based on our new goal.
Plus of $120 million of dividends and.
Paying down debt and and looking at the base statement and and make sure. It remains competitive are not mutually exclusive will continue to look at that.
Our goal has been reduced note that if God is 715 times and of 40, $45 and 50 dollar world clearly and of current market price world, where they're already but.
And what we're looking at a more conservative longer term price deck and from trying to manage to.
And parallel with that we laid out of 4 billion growth that target.
And so hence your question is at 500 million or is it more and how are you going to accomplish it.
And we definitely will need to tender.
The 2022 500 million.
Maturity that we took out.
Earlier this year was pretty near term maturity. So we could just do make whole redemption on that.
And we'll be going to the of tender process for the next tranche of that and it's more than science for sure you're really trying to balance the quantum of that the premium premium you're willing to pay and the the ultimate interest rate and.
Interest expense reduction, which is a real benefit of the process as well so market conditions matter of what when you go and we will certainly want to make sure. We've got the cash to fund whatever we do.
And so probably and the second half of the year will go and and and the.
Answer to your question as we speak to 500 of will be Upsized is really gonna depend on market conditions and at the time, we'll have to make of market judgment then.
But it's certainly not off the table.
The one other thing I'll leave you with just a reminder, that we have four and starting interest rate swaps with of Quant.
Notional value of of $850 million, they have of mark to market value today's pricing of roughly $85 million and it's very levered 210 year Treasury rates of Treasury rates go up that those swaps will continue to go up and that's a nice vehicles of help us pay pre.
Premiums and of tender transaction.
Oh, Okay. That's interesting and thank you for all of that detail, maybe and for a second question just switching to operations here, it's kind of of philosophical line went on.
I'm not sure if it.
Matter of instead of kindness.
Given good efficiencies and goodwill performance of here and you already at the midpoint and of foyer oil guide and 172 and you've been at that level of of for three quarters. Now is that preference for 20 and 21 is it she really hit the full year production guide and at least and on and Capex and I guess I'm just asking because.
Cause you know, we seen place and on their highs and we see activity picking up maybe more on the private side of things and companies seem to be and two cats and Sunday that day, if they can produce more oil on the same capex. This year, that's great and others are just adamant that there's gonna be no growth period of here. So we're just wondering what camp guerin.
Yes, and good morning, Janine This is Lee.
First of all we are in the camp of prioritizing capital efficiency and free cash flow.
Not the production output of any given quarter. So there's going to be some some natural variability as we move through the year, but our number one objectives really revolve around delivering financial outcomes not production outcome. So perhaps we're of third camp and based on your description.
So that's where our focus is going to be as we're going to be really focused on on meeting that objective that day and put out there which is of minimum of that 30%.
Return of cash back to our investors were already trending well above that above 40%, even with just the new that targets and the and the base dividend increases and I think we still will have again if prices remain constructive we still have additional headroom moving through the year, but that's really.
<unk> perspective is to maintain that capital and operating efficiency.
And deliver on that more from a financial lands as opposed to of production lens.
Okay. Thank you very much.
Thanks Jennings.
From J P. Morgan Chase, we have a route jayroe. Please go ahead.
Lee Good morning, I was wondering if you could give us your thought process the boards thought process.
On variable dividends versus buybacks and and who do you think is of clubhouse leader and.
At this point, obviously, Devon appears to be getting some credit for its policies. So I just wanted to get your thought process and where where your heads up today.
Yeah, I'll, maybe offer P comments and I can certainly, let let day and jump and first of all I would just say around and everything is on the table or near term priorities. I think is dang very clearly laid out are achieving our gross and net debt reduction targets. The net debt reduction targets really calibrated to more of of mid cycle and.
Pricing environment, essentially we're already there and the current environment, but we're not going to lean on just the EBITDA performance, we want to structurally improve our balance sheet, hence both the combination of both net debt and gross debt targets beyond that as they mentioned and his that opening remark.
<unk> is we still believe that we have room to grow within our based dividend structure. We've made one change we bumped the dividend by a bit over 30% of this quarter or at the subsequent to this quarter and and we still believe using that kind of 10% of cash from operations as a.
Ah metric and of mid cycle environment that there is still room to manoeuvre of there. So we believe in the near term we have our priorities set correctly as we transition from that I think the other opportunities that you've highlighted become more and play.
And again, we were not presupposing and answer today, we're going to look to get the capital back to our investors and the most efficient manner possible, we're continuing to look at.
How variable dividends are received and the marketplace. We also of course have the lever of.
Still having an outstanding authorization on share repurchases as well so that's a that's a future decision, but clearly it's one that is getting discussed today with the board and internally and we're also watching market response as well, but we think the starting point of structural gross debt reduction.
Action, coupled with a competitive and sustainable based dividend is really the starting point to even have that discussion.
Okay and from Bank of America, we have dug like it. Please go ahead.
Hi, guys. Good morning, everybody morning day, and I wanted to Uhm, maybe dinner or.
And I wanted to all of the guys would like to take this but.
Lee the the focus on the balance sheet is is always pretty pretty pulverable in terms of your capacity to accelerate.
Into a much stronger position relative to your peer group. My question is what happens next and.
Because clearly there's a lot of assets for sale and the words of Ryan lines of clinical and there's a lot of companies doing the same thing and I.
Completely agree with the.
The business model of that you've put together a question is can you take that to someone else's asset. So it's basically on M&A question, you've talked about cash returns and you.
And talk to the M&A. So I wonder if you could just address that.
No happy happy to do so.
I guess first of all of.
All opportunities and and M&A, we're going to abuse through the lens of our very strong organic case, and and we've already talked about that industry, leading capital efficiency strong free cash flow yields and fact yields approaching 20% on on current equity value valuations.
And all of that supported by well over a decade of a very high quality inventory with extremely low breakeven. So I'd say all of that and couple of that with the five year benchmark scenario, because that really does and many ways set the bar that we have to clear for any M&A large or small.
And and and we have been very disciplined we have a very clear criteria around any inorganic opportunities, we're not going to.
Move away from that criteria, we operate and four of the key basins and the us and not surprisingly, we're engaged and the evaluation and assessment that really anything that comes available, but we're not going to do is we're not going to indulge in expensive M&A that is something that is just.
Not required and.
And our model or model is very strong organically.
And and great rock is necessary, but not sufficient for M&A. You must also capture value you must also generate returns and so the same discipline that we exert and our organic business is the discipline that you're going to see on the inorganic side as well.
There were engaged in the market, we see everything across those four core basins, but you should expect us to continue to say no to any expensive M&A that does not meet our criteria.
And I appreciate that color of my follow up is.
I hate to do this but it's also on enemy of question Uhm and it's because of.
I look at some of the things are for sale and it looks like the right and your backyard and a few of for example C E.
Hsp's Eagle Ford and.
And Texas, obviously, though so when I, that's why I asked the question, but the the the other side and on a question. However is that your balance sheet and free cash flow, which is so strong.
Some of the assets.
Have generated free cash I wonder where the line in terms of the other side of the equation which of potential assets sales.
I'm thinking specifically of by EG, you've got a big LNG plant there those other resources holders around you potentially a lot of value of their that you're not getting recognition for so how do you think about and I've got a balance sheet environment <unk> on set for the business.
Yeah, I think we're always looking at our own internal portfolio and ensuring that we have the right mix I think we've got we've demonstrated of history of challenging and concentrating and simplifying our portfolio over time.
G as of very unique, but very complimentary asset we actually provided a five year view of of EEG, which showed that even on a 50 dollar of $3 gas kind of view of of the world across those five years of generates about a billion dollars of free cash flow a couple of hundred million dollars of year, we continue to see.
See opportunities there and the form of of of.
Of gas like of the land project that just came on line earlier. This year. We think there are other opportunities like that but.
Check really as we look further afield to cross border opportunities in fact, EG and Nigeria, just signed and HOA for cross border cooperation. We have this extremely unique integrated gas infrastructure as you mentioned with and LNG plant methanol plant gas plant storage and off loading and we're sitting.
And one of the most gas prone areas of West Africa. So we believe the value proposition for EG remains of exceptionally strong and certainly when we look at it and the balance of our five year benchmark case. It remains of a very strong contributor.
I appreciate the answers funniest Lee.
Thank you Doug.
From Wells Fargo, we have the Tin Kumar. Please go ahead.
Hi, Good morning, Lee and team Thanks for taking my questions.
Good morning.
My first one leaves for you and it might be a bit of and unfair question, but you've talked.
Quite a bit about.
S&P and this E&P and you've talked about how ya metrics can keeps of Bs&p 500, but obviously there is of.
View of their that just in the <unk> business of oil and gas businesses and.
Is not great you.
You've talked about your ESG credentials, but beyond that are there opportunities for you to improve your sort of green metrics if on me.
Yeah, absolutely well first of all I think.
When when we talk about of the investment case for E&P or for a marathon specifically you have financial performance and you have non financial performance. You. Obviously must have the financial performance you have to be able to and a commodity business with high volatility to generate free cash.
Low yields and that are going to be outsized relative to the S&P 500, and I believe certainly marathon is delivering on that commitment on the non-financial performance side, which really to me is wrapped around your license to operate I think you have to address all dimensions of performance.
There from safety to emissions to good governance, and I believe there we of placed ourselves and of very leadership position, whether you want to talk about executive comp.
<unk> composition, and refreshment and diversity all of those things, we have driven specifically to the E and ESG, which generally means.
Emissions, we of set very aggressive, but and our view practical targets to achieve reductions and our emissions intensity footprint. We've set of single year target that is integrated in with our compensation structure, which is of 30% improvement relative to the <unk>.
2019 base line and then we have also said more of of mid term goal and of goal that is not so aspirational and out and time that the current management doesn't deal of the accountability for it and for that one it's a 50% reduction and when you look at achieving that ultimate goal that places us I believe and a very competitive.
<unk> physician.
Relative to other sources of oil and gas both here and the U S and and internationally. So I believe those green credentials are in fact, improving and time, there's still much to do I believe that there is still a lot of opportunity. We we believe that we are still in the face of of.
Elimination and reduction first as opposed to offset something offsets and and.
And things like Ccs will certainly play a role in the future, but the industry has a great opportunity just around flaring and gas pneumatic Sam moving to line power. All of these things that will help us move our emissions intensity footprint and the right direction. So I believe that day.
The answer is that we have to deliver the financial performance. We also have to protect our license to operate through on non-financial performance and the way you do that is by setting aggressive but pragmatic goals that are really within the purview of the current leadership team.
Great I really appreciate that.
I guess my next follow up is around capital of location.
As you we've talked a little bit about what you would do with excess free cash and your five year plan today of focused on the bulk of and and the Eagle Ford.
You're seeing strength in and gas and NGL pricing. So as you go forward, how does the Peruvian and Oklahoma and output direction, there as well how did those start competing for capital.
Yeah, just maybe is a bit of of reminder, and and I think Mike Prole references and his opening remarks is that as we move to 2022 and beyond and and the five year.
And a benchmark case, 20% to 30% of our capital allocation will be going to the Permian and Oklahoma in fact, even and this year as you know will be completing some ducks and Oklahoma that will be taking advantage of the secondary product pricing gas and Ngls that she just that you just discussed so we still.
Have extremely high quality inventory and and the combination play like Oklahoma, We certainly have the optionality to take advantage of what the gas market and NGL market delivers but we fully expect to be blending in more and consistent capital allocation to both.
Oklahoma and Permian as we step into 2022.
And what of of Rex.
Yes, just maybe on Rex maybe I'll, just maybe let Pat talk a little bit about where we are on Rex both near term and as we look a little bit out toward the future.
And this is Pat.
We have continued to progress or west, Texas oil play.
And I think I Might've mentioned this last quarter, but we are in the midst right now of drilling of three well pad with both Woodford and Merrimack targets testing.
Testing kind of of spacing test on that project I may remind you that.
Drilled six wells to date on that project and the Woodford and Merrimack and they continue to perform very well good oil kudlow decline low water cause.
Stable <unk>. So we are really encouraged and now we're in more of a maturing part of the project to try to get our well costs down and test spacing and progressed that project. So we've allocated capital to it this year and we will continue to allocate capital to it to bring it to development.
Great. Thanks Bad Thanks, Lee. Thank you appreciate it.
[noise] from Goldman Sachs. We have deals later please go ahead.
Good morning, guys and the first question is just a reboot.
Rebuilding on your comments on costs and.
And are you seeing on the ground any signs of inflation, whether it's on the steel side chemicals, we're certainly seeing higher commodity prices are of the service side and.
And how do you offset that and is that through this deficiencies and.
And and the supply chain mechanisms that you couldn't place.
Okay and you it's Mike here I'll I'll take a force cut of that and certainly of any of the guys went to China and the calm.
What I would say is overall of course, we're experienced are aligned with what we had and the budget both from the capital on the expense space.
We are seen a bit of pressure and the oil CTG area until loss of extent and chemicals and fuels.
Oh CTG the driver there.
Simply down to raw material availability, and then some capacity constraints and the mountains, obviously feasel things like diesel fuel chemicals, just tied into.
The rise of that we've seen and double UTI.
In terms of what we're doing to mitigate that we are we are seeing some success through some competitive tendering exercises monish competition and other areas of the business of I'll provide a little bit of color and the two largest theories of our spend so if I look at the rig space for example.
At the moment, we've got a mix of term contracts and parts of Ponte commitments that provides us with a bit of flexibility, but also some insight into the prevailing market conditions and.
Certainly allows us to be opportunistic, particularly me because we think about getting ready for next year.
And the and the pressure pumping space.
Recently tendered are back and scope, we had no commercial surprises there a cruise now on contracts through the end of the year and.
And operating well and and the Eagle forwards.
The main crew that we've got there they are on contract through and to the beginning of the force four quarters of all of those costs are are tied down.
Interestingly, we've also going out with some tenders for for some spoilt cruise. We're we're seeing very competitive rates. There again all in line with a forecast that we had for the year. So I'd probably wrap it up by saying that we are on track to deliver certainly are completed well cost per footage targets that we laid out and the Eagle Ford and backing.
And as I mentioned earlier are full year capital budget of one volume.
I guess and I just had one thing.
Glen thing I would maybe add to to Mike's comments and of you mentioned will how how do you offset even a little bit of movement say on things like of CTG and.
I want a reminder, one there are some some very durable savings that the teams continue to work each and every day it is.
Starts kind of with the way, we optimize our well designs the execution efficiency that we generate and the field, whether you stages per day rate of penetration all of those things their supply chain optimization and vertical integration and how we how we actually secure our services and then finally, there's that commercial leverage side, which obviously you.
Still one that we try to pull just given our size and scale, but but three of those four are very durable and they're not cyclical and those are the levers that we pull on to ensure that we can continue to keep our well cost trends are will cost trends heading downward.
Thanks, Thanks, guys and the follow up period in the slide you talk about the code of access.
Risks and.
And contain the impact of plus minus $50 million here.
Thinking about takeaway out of the back and it does look like by all indications the pipe will flow, but what are you hearing on the ground and then just kind of walk through the math behind behind that.
Debit please thank you.
<unk>.
Hi, Neil this is Pat I'll take that.
Could you just clarify you are you focused on takeaway or the impact of us from of cash flow of perspective.
And both what are your thoughts on the Dakota access pipeline and then how would any and.
Decision, there either way impact of cash flow.
Okay Alright.
Well, obviously, it's of complex case that we're following very closely there's.
A lot of emotions pending now, but there's one pending with the district court and enjoying the continued operation of the Apple and Apple's preparing of filed appeal.
Of the D. C Circuit court decision with the Supreme Court. So we'll just continue to lot of leather that we won't speculate on the outcome.
We do believe that if the Apple has ordered a shutdown and there's a variety of stake holders and the communities, where we do business.
Which include the state of North Dakota itself and the three of affiliated tribes, the imagination, which will be significantly impacted effect <unk> nation as of recently disclosed that estimates losses of more than $160 million over of one year period and.
More than $250 million over a two year period, which is why they've come out and support of Devils continued operation.
In terms of our impact we've talked about that we really only have direct exposure to doubtful of about 10000 barrels of day net.
We have no flow assurance concerns.
And made that disclosure to try to give some clarity of of what the overall impact to be could be for us on cash flow.
$50 million to $60 million that we disclosed last quarter would assume of June 1st shutdown. Obviously is this plays out that's probably a conservative estimate of it probably.
Would flow of little longer than that on a full year.
We didn't we would expect that initial sort of blow out and the in base and diff, but then we think things would settle down to the marginal cost to transport barrels.
And there's plenty of capacity from a rail standpoint to clear the base and so from a full year perspective, we think of this be slightly above the 50 to 60, if it if it lingered for a long period of time.
And I would I would maybe just also add Neil that the the Army Corps of of Engineers has been very consistent.
And their position of supporting continued operations through the process.
Process, which is now I think scheduled to complete and March of 2022, so although we can't predict how the courts will act certainly from a corps of engineers perspective, they have been supported the lines and operating safely and and reliably for for some time, so and as Pat mentioned.
And we have very strong support within North Dakota, both of the state government there as well as the three affiliated and tribes. So anyway. So we want to be prepared and I believe we are but certainly our view of today is that dapple will continue to to operate safely just as it is today.
Thanks, guys I appreciate it.
And the on.
And once again and if you do have a question. Please still star one on your phone keypad and from tourists Securities we of Neil Diekman. Please go ahead.
Okay, and what I guess about that.
My first question is really just on efficiencies of it.
Can't help but notice, especially pertaining to the back and can't help but notice very limited number of wells needed to keep production of flat. So I guess two questions around that one are there I guess when it comes to efficiencies are you still see and improvement so good and I, just I guess I can't get over what was it like three wells are so that kept production essentially flat there number one on if you.
Still see and that kind of improvement and number two if you are.
Given that you are getting that kind of of efficiencies there why not essentially even ramp that a little bit and potentially.
Take some of that that capex from somewhere else.
Yeah, just on the back and performance first of all we did benefit and first quarter from obviously the back and completions that we're done and Q4. So we carry a bit of that momentum. So even though we only had three formal wells to sales and the quarter.
It was really also that Kerry and effect from fourth quarter, I think that certainly gave us the ability to keep back and flowing strongly the other thing and this is kudos to the asset team they have done and exceptional job of high uptime performance and ensuring that we if we have of well go offline force.
Say.
Like ESP performance that we're able to get to work over rig on location and get that taken care of so we will see some impact though of that reduced wells to sales and the Bakken as we move into second quarter.
But that's just it's amazing impact more than anything.
And.
Is it let me just ask I guess one of their follow up just in that same area is it again because of your kind of proprietary infrastructure because it does seem like still when I kind of of hone in on the sufficiency that you all have I'm. Just wondering it seems like you are having a bit better returns and if that's the case kind of back.
To Doug's question, there has been some M&A and that and and the back and if you have that kind of competitive advantage.
And is this kind of out of focus area when looking for protection deals.
And we'll certainly when we benchmark from Ah and operating and capital execution standpoint, we feel very good about our position and the and the back and that team is very strong performing top quartile, if not top of bass and kind of team so you're right and turns of our ability to.
Derived value.
And our core basins, there's very few teams that can do that better than us, but each of these opportunities are unique and again, we're going to be very disciplined even applying are operating advantage, we have to be able to demonstrate that it meets our criteria of.
Around financial Incretion, certainly no harm to balance sheet.
Synergies.
And industrial logic so.
Again goodwill.
Good rock is necessary, but not sufficient we have to see both value and return from anything and organic that we might look at.
Perfect. Thanks for the details Lee.
Thank you and and I appreciate it.
Thank you and will not turn it back to Lee children for closing remarks.
Thank you for your interest and marathon oil and I'd like to close by again thanking all of our dedicated employees and contractors for their commitment and perseverance, particularly during winter storm here that concludes our call.
Thank you ladies and gentlemen, this does concluded our call today. Thank you for joining you may now disconnect.
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