Q1 2021 Continental Resources Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Continental Resources, Inc. First quarter 2021 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.
On a system for signal a conference specialist by pressing star followed by zero.
As a reminder, this conference call is P.
I would now like to turn the conference over to Rory Sabino, Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining us and welcome to today's earnings call. We'll start today's call with remarks from Bill Berry Continental's, Chief Executive Officer, Bill will be joined by additional members of our senior executive team, including Mr. Harold Hamm Executive Chairman.
Jack Stark President and Chief operating Officer, John Hart, Chief Financial Officer, and Chief Strategy Officer, and other members of our team 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 in forward looking statements.
Please refer to the company's SEC filings for additional information concerning these statements and risks.
In addition, continental does not undertake any obligation to update forward looking statements made on this call. 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 Www Dot CLR dot com with that I'll turn the call over to Mr. Barry Bill. Thank you Roy and good morning, everyone. Thank you for taking the time to join US on the call I hope, you're all doing well.
We've also seen a shift in investor expectations for E&P companies over the past several years through one appropriately focused on free cash flow and competitive returns to shareholders.
The industry as you know has probably been a bit slow in recognizing and responding to this new investment paradigm.
Weird Continental have fully embraced live with our Investor return efforts focused on free cash flow and moderate growth plans.
In support of this we're intentionally shortening the scripted portion of our earnings call to primarily focus on continental strong cash flow and shareholder capital returns and allow for more Q&A time.
The first quarter results.
And our uses of free cash flow service as an example of our continued commitment and capability to deliver competitive shareholder returns with strong free cash flow driven by asset quality cost control on capital discipline.
During the first quarter, we generated $606 million of cash flow before.
Free cash flow.
That's versus analyst consensus estimate of approximately $450 million.
We reduced debt by $560 million to end the quarter with a debt level of $4 97 billion on.
Or below 4.9 billion, considering $95 million of cash on hand. This is three to six months earlier than on previous target.
And Additionally, we reestablished the dividend that was suspended during the pandemic.
At twice the level prior to the pandemic.
This quarter will serve as a foundation to meet or exceed all of our guidance for the full year and highlights the unique value opportunities of investing and continental.
There are four key elements of continental's outstanding value proposition to investors.
Free cash flow commitment capital discipline.
Strengthening the balance sheet and cash returns to investors.
I'd like to briefly discuss each of these.
We have a consistent commitment to free cash flow 2021 is projected to be our sixth consecutive year of positive free cash flow.
We are one of only a very few unconventional E&P companies to have accomplished this.
In support of delivering strong free cash flow, we're demonstrating a capital disciplined stewardship with an expectation that at current prices our capital reinvestment rates will be less than 50 per cent for the full year.
With respect to our balance sheet, we are accelerating our pace of debt reduction and now expect that at year end to be below $4 billion down by one $5 billion year over year.
And.
We are well on our way to achieving our goal of being a leader in shareholder capital returns as we reinstated our dividend with the first distribution scheduled for may 24th.
All of this financial performance they were talking on capital to shareholders is underpinned by our high quality and expanding assets.
Operating cost and the ingenuity and tenacity of our employees that have continued to stay focused on creating opportunities and efficiencies companywide over the past 12 months.
Production remains on target to meet or exceed annual guidance with production as plan, becoming more oil weighted in the second half of the year.
Additionally, we are projecting on an approximately 12% return on capital employed in 2021 in line with our historic norms.
So now let me go into a little bit more of the details.
We're now projecting to generate $1 $7 billion of free cash flow at $60 WT on $2 75, Henry hub in 2021, this equates to an approximately 18% free cash flow yield.
Which underscores our unique value proposition relative to the S&P 500, and all its sectors as evident on slide four.
Included in this update on free cash flow projection is our updated second quarter to fourth quarter 2021 crude oil differentials guidance per barrel of oil to a negative $3 75 to $4 75, and our updated second quarter to fourth quarter 2021, natural gas differentials of zero.
To a negative 50 per se Mcf.
Were reinstated a quarterly dividend of <unk> 11 per share, which translates to an approximate well. It was one 7% while I wrote this yesterday, it's probably down around one five per cent dividend yield at current prices.
As I mentioned earlier this is double our previously issued dividend, which has been temporarily suspended.
At the onset of the global pandemic.
We believe this is both competitive with our peers. The S&P 500 index yield of approximately $1 four per cent.
And importantly is expected to be sustainable given our strong cash flow generation and interest expense savings from our significant debt reduction.
The dividend will be payable on may 24th to stockholders of record on May 20.
Yes.
We're forecasting material debt reduction to continue with our $4 5 billion debt target by year end 2021 that we provided in February.
Now projected to be achieved by the end of July and positions. The company to meet our stated year end target of $4 billion or below by year end 2021.
$500 million improvement versus our previous guidance.
Our ultimate long term debt target of under 3 billion would support.
Our goal of maintaining a debt to EBITDAX ratio of one or below to enable us to successfully weather adverse commodity price cycles.
We have accelerated our debt paydown on the roles by full year on due to our robust protected cash flow generation and a focus on returning to full investment right.
I'd like to talk a little bit about the ESG rolls in and highlight the S. G stewardship at continental.
As is shown on slide nine in 2020, we reduced our greenhouse gas intensity on methane intensity by 23% and 31% year over year, respectively.
From 2016 through 2020, we have cumulatively reduce those levels by 35% and 58% respectively on a go.
All of us to strive for a similar year over year, a greenhouse gas intensity reduction range in 2021, notably based upon on our current operation program, we anticipate achieving as much as a 45% reduction from 20 to 16 to 2021.
And we aim to continue with additional methane intensity reductions as well.
We'll be out with our 2020 ESG reported by mid year 2021, and look forward to continuing on a constructive dialogue on the positive role the U S oil and gas industry is playing and responsibly sustaining America's energy future.
As I switch gears to our operational performance, we're on track to deliver on our second quarter production guidance of 160 to 165000 barrels of oil per day, and 920 day 940 million cubic feet per day and plan to meet or exceed our annual production guidance for the year.
As we stated in our April 12 update.
Update continental only saw a modest adverse impact full month production due to the cold weather in February.
As a result of our long experience in the northern Rockies winter regimes significant preplanning efforts by our operational team and active support and interaction with government regulators utilities and pipeline companies.
We were able to keep a large portion of our production flow and during these extreme conditions.
The operating teams, where literally literally working 24, seven absolutely miserable conditions to keep as much gas flowing as possible my thanks to each and every one of them.
Yes.
We're on track to deliver approximately 143 gross operated wells in the North This year, Inc.
<unk>, the Bakken and the powder River.
With Bakken production already ramping up in the second quarter in Oklahoma in the first quarter. We brought on line 14 wells the majority of which were gas.
This will shift to oil weighted wells in the second half of 2021.
Companywide, we're on track with projections to see growth in the second half of the year versus the first half.
Operational advancements in 2020 have carried over structural savings in 2021.
Improvement in design processes and execution are driving cost down we were implementing new equipment technologies and methodologies and everything from drilling to stimulation to workover.
These advancements are showing great results and demonstrate the potential for additional structural savings.
Our employees are never satisfied with where we are and our performance and it shows in our drive for continuous improvement.
We're seeing on our completed well costs trend lower than our asset areas. Thanks to a significant step change in cost performance by our teams during the recent downturn.
Keeping our teams intact.
Been able to optimize the operations over the past year to be more efficient than ever before.
Turning to slide seven our Bakken well costs continue to trend lower thanks to structural improvements and enhanced operational design in 2021, we are targeting well costs, 7% below 2020 at $641 per lateral foot lateral foot combined with our projections for consistent year over year performance.
From our Bakken Wells are 2021 Bakken program is projected to deliver a composite of more than 70% rate of return at $60 and $2 75.
In Oklahoma.
Our oil <unk> gas assets continue to afford us commodity optionality, which is a significant attribute as it provides great flexibility in various commodity environments.
Just as the gas commodity fundamentals last year suggested we should switch to gas weighted drilling, which we did we.
We see the fundamentals this year supporting more oil weighting for Oklahoma asset.
This is expected to be realized in the second half of the year and as I mentioned, we will expect to see oil growth in the second half of the year.
We are seeing strong repeatable performance from our condensate assets across the basin and 2021 results year to date are no exception on.
Average condensate unit well continues to improve year over year.
We're also seeing significant cost savings and these wells in 2021, we are targeting condensate well cost, 17% below 2020 at $891 per lateral foot.
Savings are being driven by structural efficiency gains through execution and translates to over 50% average rate of return for our wells at 60 and $2 75.
Combined with strategic gas hedges were approximately 264 million cubic feet per day of our company's second quarter to fourth quarter 2021 on natural gas is hedged with the midpoint of swaps and collars at 293.
And market Optionality to various markets. We are very pleased with the results from our condensate assets.
Last quarter, we announced our strategic entrance into the powder River Basin. We closed on this transaction on March 4th and we will begin drilling with two rigs in the powder in the second quarter with our first well expected to spud in the next few days and second rig to spud in early June.
We're looking forward to sharing more details with you later this year.
In closing our investment cases, driven by repeatable asset performance and accelerated capital returns to shareholders through both our reinstated dividend and exceptional progress on debt reduction.
And time again on our teams at continental have been able to transform challenging market environments into opportunities to deliver organic growth operational efficiencies and cost savings that are structural in nature.
These accomplishments underscore the strength of our team our asset and our operations.
Our first quarter results reflect our organizational capability.
Our assets technical expertise and unrivaled management alignment come together to deliver an investment opportunity uncommon in the oil and gas sector on.
Our management team acts like owners, because we are owners this unique alignment with shareholders drives our innovated.
Innovative and sustainable approach to delivering on our core.
Corporate goals on behalf of all stakeholders.
With that we're ready to begin Q&A session I'll turn the call back over to the operator.
Sure.
Yes.
We will now begin the question and answer session.
You asked a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
With Joel Your question. Please press Star then two P.
Please limit yourself to one question and one follow up at.
At this time, we will pause momentarily to assemble the roster.
Okay.
Yeah.
Okay.
The first question comes from Neil Mehta of Goldman Sachs. Please go ahead.
Good morning, guys and.
Thanks for taking the question and congrats on the strong quarter.
The first question I had with just thinking about your takeaway coming out of the Bakken is obviously a lot of uncertainty around Dakota access although it seemed like things moved in the right direction in terms of getting the pipe to flow.
Just love your perspective on how you're thinking about getting barrels to market.
Out of the Bakken the Dakota access risk and any views in terms of how that pipe is likely to flow from here.
Yeah. Thanks, Neal appreciate the question.
We are we seeing.
Relation of.
A positive comments coming out of everything from the core to.
On the owners of the pipeline, but this is.
Strongly expect it to continue to operate the core feels that it was appropriately handled.
I know, it's still back and forth with the courts.
We've mentioned before that.
We've put in place.
Some plans and have ability to move all our oil out of the Bakken with some of the things we've done already.
But our anticipation.
Weighted our base case is that the pipeline is going to continue to to flow a lot I'll open it up to Eric Chang I don't know there and you've got anything to add to that.
No Bill I think like you said, we continue to believe the pipe will remain operational and we positioned ourselves to be able to execute on our 2021 client under any dabble operating condition.
As such we're always looking at our risk weighted approach to moving more firm transportation out of the basin.
Like Cushing and when you've done so in the <unk>.
Creative manner.
Okay.
And the follow up is you guys have done a great job of driving your debt lower here.
And on target to get to sub $3 billion. It looks like how do you think about the use of free cash flow once you've achieved that objective and then any thoughts on.
Divestitures, including around water assets in order to help accelerate getting towards towards your goals.
Yeah. Thanks, the water assets as you know we looked at doing something with that last year. We think we have a very very significant asset in our water assets.
And we're engaged on some discussions last year.
To not pursue it further because we wanted to keep the operational flexibility.
Flexibility that it provided us by keeping it all under 100% Continental that said, it's a very significant asset that we do have an opportunity at some point in time to to move a different direction on.
So from that perspective.
Cash flow is fine so I know your other your other question on RASM.
Yes.
You guys are driving towards your debt target right, and so and youre getting there through organic free cash flow.
Generation once you get to your to your target debt target, how do you think about allocating incremental cash flow to.
To shareholders that the dividend was the first step.
But is there more to go well.
While the dividend and as you see what we're doing with the non cash flow that we're returning by paying down the debt and what we're looking at as a full <unk> full suite of things that are on our quiver. So to speak yes, regret, but obviously a program that's in place for share buybacks as an opportunity we've got debt to pay down that we were on continue to drive our sales down towards that that one <unk>.
Total.
The dividend and we reinstated and then of course, we reinstated at a level that we felt there was a strong position to start but it also was a reflection of our comfort and confidence in the go forward ability to increase that over time and so all of these things are vehicles, we have for shareholder return, we just stay on that.
There's a real focus on the company and hopefully you are seeing that manifest itself with.
Where we are today, we have a $1 4 billion dollar budget, that's where we started we've talked about 65% to 75%.
As far as our reinvestment ratio.
On that one floor at todays prices is somewhere maybe around 45%, 50% on that range, but we're still very comfortable that that's the right spend right.
Turning to spin off cash in.
Get it back to the shareholders is what our plans are.
Thanks, guys.
Yes.
The next question comes from Ryan <unk> of J P. Morgan.
Please go ahead.
Yes, good morning, good afternoon.
I had some thoughts bill you talked about the new investment paradigm, and perhaps a little bit of a follow up to neil's question, but how are you.
Are you thinking.
About 2022 balancing you mentioned, maybe some semblance of growth.
Balancing.
Production growth you talked about the $3 billion debt.
Debt reduction target in <unk> and dividend growth on that on a go forward basis.
Yes.
And probably what you you touched on a little bit of runes, what's the comfort with the industry and where should the industry be go on and as far as growth rates and we're still on that position that delta with the fundamentals that are out there now.
As we've said for over a year now that we should not be trying to overproduce into an oversupplied market. There is still inventory overhang that's out there this year, but even when you get into the <unk>.
2022 timeframe, we don't think the industry should be trying to grow more than 3% to 5%.
On an annual basis.
As Jack highlighted.
Last call about now on the inventory that we have is inventory that can support a lot more.
Growth on that but we think thats a reasonable range that people should be targeting.
And so Jack I don't know, whether you have anything else you want to add on the on the <unk>.
Inventory to share with her own no all I'd add is that last time, we talked.
You mentioned that this inventory we've got enough to grow the company again on a 5% compounded annual growth rate.
Over the next 10 years and if you look at the first five years of that that inventory represent about a third of the inventory.
And the rates of return on that last time, we talked to $50 is right at about 50% and $60 right around 65%. So it's a very robust inventory on.
And also it's a very well defined inventory. We know density we know the reservoirs it very very well and our teams are doing a great job of just continuing to maximize the recovery and drive down costs and really increase the capital efficiencies and we've highlighted that on slide seven.
Eight here I won't go into chicken see how we've continually increase the capital efficiency of the results.
Over the last three or four years.
Great. Thanks for that and just my follow up.
You guys have guided.
Q oil between 160 to 165, I know last quarter you.
You'd mentioned, how your operated rig count would rise from two to seven in the north of two rigs in the P. R B and 5% in the Williston Basin I think youre at four.
Today, and some of that was just to offset.
Some of the.
Declining activity from your key non op partners that you mentioned so I was wondering if you could help us think about.
How you are.
Tills could trend over the year and maybe second half trajectory for oil.
Okay.
Well, we see our oil.
As a percent of our production increasing in the second half of the year and.
It's really I guess.
On the fact that.
You look at our completions in the back half of the year second half of the year.
About 70 per cent of the wells will probably be in the Bakken maybe upwards of around 70 and compared to the first half were around 50%. So so I mean, that's one of the key drivers there, but at the same time too. We're also going to be switching our rigs.
<unk> is <unk>.
It's oil weighted nature as well last year, we were probably second half of the year, we were probably 70% gas. This year, we're probably going to be about 60% oil with those rigs and so I was so we're making a strategic shift to as we as we keep saying in Oklahoma.
We love the Optionality you have with the commodity there and so we're moving in that direction to take advantage of that.
Got it thanks a lot.
Thank you.
Our next question comes from Derek Whitefield of Stifel. Please go ahead.
Thanks, and good morning all.
Good morning.
With regard to the 2021 capital outlook and the operational efficiencies you noted.
Would it be fair to assume that there is downside to your capital plan. If you achieve your targeted completed well cost on pages seven and eight.
Downside and what which direction there.
We can drive the cost lower we're still trying to drive it even lower if that's the adult Derrick.
No. It was even more around the capital side, because we were working through the numbers at your target and it seem like it would be some downside that you guys attain for the year that average target.
Downside to what dirt on them so.
I am not sure.
The 2021 capital plan on that.
The $1 4 billion that we said she could one day.
Right.
That could actually spend less on that and Thats. What your question is.
That is correct yeah, we we had factored into that budget the fundamental cost savings at because we I say, we spent most of last year you all kind of took advantage of the pause and slowdown. So we had a lot of our drilling engineers production engineers and we weren't drilling as actively as were in 2019, we had them working on how to drive the cost down so we can.
Came out on the shoe with an expectation that was given to to Pat Ben and his team to drive it lower and that's all reflected in that number.
Yeah.
Perfect and then with my second question shifting over to your ESG slide.
Several of your peers and the majors are pursuing Ccs <unk> other renewable projects to offset their scope one emissions.
From a business opportunity and ESG perspective could you comment on.
On your desire to pursue something similar to this as a means to offset carbon emissions from your operations.
Yes, probably start at the high level with you Derek can say that our our goal as a company is to look at all waste and that they'll be it whether it is going on in the air going into landfills, whether it's going into anytime.
On any type of byproduct. This is something that we think all industry should look at all the time and so we're looking at all our waste and what happens to on trying to take that to the absolute de minimis level.
So that's our primary pursuit.
As to reduce the actual.
Emissions come on what I reform therein.
We hope that there are some economic business opportunities out there and clearly there are right now with some of the ones you see going on in some spaces.
The 45 Q attacks.
It's something that.
One is trying to see if theres an opportunity to make that work. So I think it's incumbent on the industry to try to take a look first at reducing its emissions and then second look at any type of carbon capture we think the carbon capture is going to play a role in the future.
Very helpful. Thanks, guys.
Yeah.
The next question comes from Neal Dingmann of Truth Securities. Please go ahead.
Good morning, all.
Bill My question for you or Jack I'm, just wondering how far in advance you guys really pivoted at key times over the last again whoever made the decisions, they're first syngas and now more towards oil. It certainly implies that does look like your Bakken is going to be much bigger plan for the remainder of the year.
How far in advance or hot I'm, just wondering if you're looking going forward in 2022 and four it's obviously difficult to tell the balance between gas and oil prices I'm. Just wondering how do you determine kind of what where the focus is get a life well.
We've got a pretty robust programming internally, where we we sit down multiple times, a week and talk about where the world is going to get the whole team involved in it everywhere from from finance to operations to marketing and specifically look at those type of things look at the fundamentals and.
Kind of drives the decision and the nice thing about this company is that we can.
We'd like pretty quick decision. So once we see now on the stars are lining up we go ahead and make the directional changes as appropriate.
Some of them will work out and some of them on warm, but we're just hoping that you know we're we're.
We're batting above 501 at the end of the day on these things.
This is one that I think works out well force.
Neil I just want to add I mean, we really don't give some kudos to the team because obviously, we've as Bill said, we started the market in a macro constantly.
And the teams are also very tied in and they came to us with a recommendation to looking at looking at Oklahoma and said they have the optionality to move it from more gas weighted portfolio early last year and it really made good sense and so.
So anyways.
It's a team effort here and it's great to see that everybody is tied in I just wanted to reinforce that Jack mentioned that that was a team's recommendation from management that was not a management record recommendation of the teams.
All had a perspective on that but just to show that.
The whole company engaged in making these decisions.
No.
Understood and then just secondly.
It's interesting to hear now you're going to start to get a little more active in the PRP I'm. Just wondering what is the plan. There I guess I guess why as you have as Jack has pointed out so many great tier one top tier locations already in the Bakken the Anadarko I'm just kind of wondering what maybe the overall plan our goal is.
In that area, because <unk> certainly you could stay put and the two basins you have in hand, as Jack said for years and years. So I'm just kind of on what you may be trying to achieve on that I don't know on the next year or two or three in the P. R. B.
Okay.
Very good question.
We're hitting on ground on.
What Samsung had to go on out there on a continuation of that program to the buyer.
Five wells on.
Awesome.
Is there.
Resolved.
Eric.
So we're just following on to that.
These are very high quality premium locations.
Paul.
So.
Part of our project up there.
We think it's going to work out very well for the company.
No I like what I see Harold Thanks, Thanks, So much Rep force.
Yes.
Yeah.
The next question comes from Jeanine Wai of Barclays. Please go ahead.
Hi, Good morning, good afternoon, everyone. Thanks for taking our questions.
Thank you hi.
Hi, good morning.
First question is on the Bakken and we noticed in the updated presentation that your projected 2021 type curve.
Has improved since last quarter's projection now it's better than <unk> 'twenty is better than the 2019 wells can you provide maybe a little commentary on what's changed in your outlook, there and whether the increases on oil as well as on.
And then.
Maybe if you can comment on the corporate oil trajectory growth between the north on the south this year as well.
It seems like the north is doing better.
Sure Janine.
Yes.
It's really just a function of where we decided to put the rigs we've got a really large footprint up here and.
And depending on where the rigs are any time, you'll get a varying variance and the performance, but it's all as you can see if you look at it over the last three.
Going on for years now you can just see how consistent it is no matter, where we move in the play and the amount of shift is really in my mind is not really that significant I think the overriding factor here as you look at that chart on page seven is how consistent it's been and that's what we love about the Bakken and our position here because it's just so consistent such a consistent performer.
And with low water cut and so I mean, it's great. So.
I wouldn't read anything into it other than we are.
It just continues to validate the strong inventory that we have here in the Bakken.
Okay, Great and then maybe my follow up question is back on that production.
You asked me on you'll hit below 4 billion by yearend.
Any early thoughts on how youre thinking about the timing of getting to your ultimate target of less than $3 billion and maybe how youre planning on balance and cash returns to shareholders with potential inorganic expansion opportunities and maybe some modest gross.
Yes, I think you start with our investment thesis of $65, 75% reinvestment ratio and then from that you know as you spend all to cash from the rest of the cash on obvious what you really are probably on addressing jeanine, what do we do with that.
What we're looking at returning to shareholders and all the forms that we're talking about so we've got lots of vehicles to do that and we plan on staying on that path.
Joining the timing on the 20th hitting the 3 billion target, obviously, we're generating a significant amount of cash flow that's not a new feature for us we've been doing it for a while we expect 22 to put on substantial cash flow is as well so we should be approaching that $3 billion target.
A relatively quickly.
We'll give you color on that when we gave you the 22 guidance.
I feel good about over the next year and a half.
Great. Thank you very much.
Okay.
Our next question comes from Scott Hanold of RBC capital markets. Please go ahead.
Okay.
Thanks for taking my question I'd be interested in your perspective on on what you all think about hedging at this point in time I know the curves very backward dated doesn't look like you've.
Done a lot of incremental stuff if any at all on oil, but it does seem like you you did make mention that you put some gas hedges on into 2022.
Yes, just maybe start with a philosophical.
Perfectly how we approach hedging and philosophically we approach hedging is something that we.
We actually prefer not to do that and we thank our investors and in our investor base prefer to have been able to participate on the commodity.
That said, what we do as I am with our preference not to hedge.
We actually go through and look pretty robustly at whether we should then of course, the factors going into that as commodity fundamentals, it's the balance sheet debt to EBITDA at those type of variables.
We do look at oil and gas and I think thats, what youre, highlighting a little bit differently, and we think that the.
The approach on hedging that we think gas is a little bit more range bound than.
And then oil is and so that's as a result of putting it on all of that sophisticated.
The analysis that we do internally just about every week on whether we should be hedging or not that's what has yielded us with a zero amount of our oil hedged after may and as I mentioned in my comments youre seeing a bit of the gas that we've been out there has been again, because we think that the potential for gas because of the structural nature of the dialogue.
Average width of the fundamentals there.
It can be more range bound.
With that on a weather Aaron's you got anything else you want to add from the marketing side No I think bill covered it from a macro standpoint, we're still very constructive both the commodities and the medium term recognizing that there is some near term noise as vaccine rollout continues across the world with the expectation that demand return will follow on I think that aligns very well with our oil and gas.
Hedging program for 2021, Scott you made a reference to sell like 20 gas hedges on 22, our gas hedges go out through the balance of 'twenty. One there's a really nice summary in the 10-Q that we filed last night.
You can pull that gives a breakout of swaps and collars youll see it relatively.
Hi, attractive gas floor prices as well around $3.
Oh, okay. So so I'm just going to confirm nothing in 2022, because I think slide eight on your presentation does indicate 2022.
Does.
Okay.
Maybe a very limited amount in the beginning of the year, where we don't have much there.
Okay. Okay fair enough and then my next question is on the <unk>, obviously very exciting to get you know get started narrow you guys have not quite got a rig out there yet but can you give some sense of what formations you initially look at targeting and.
Did you inherit ducks and lastly, just holistically.
Since the position is big enough for Continental where it's at right now.
Well first of all Scott This is Tony Barrett. Thanks for the question.
Regarding docs no we did not inherit any of those.
On the question of targeting our early program as we I think we've discussed before is really targeted towards the high rate of return sands has been proven by our predecessor Samson. So early time drilling and we'll spud our first well this weekend out there we will be focused at on the frontier on Turner formations.
Which I'm sure you are familiar with so.
Did that answer your question.
Yes, Sir.
Alright.
Thank you.
The next question comes from Doug Leggate of Bank of America. Please go ahead.
Thanks, Doug good morning, everybody.
Guys I think on Eric Mr. Hans on the call I Wonder if I could just ask you guys.
I mean, you've touched on already.
Your current perspective on the commodity outlook is obviously there is.
A lot of moving parts its been talked about already but the fact that you are one of them.
Lever stocks without any hedging to the upside I'm just curious how you see the near term on medium term commodity outlook playing out do you see we're hoping through a number of cycles before but I'd appreciate Mr. Holmes perspective.
What have you.
We said there is still an overhang as well.
Oil.
Inventory in the world and we recognize that.
And.
I think that our producers.
Producers in all of our hub.
I have been very disciplined on their approach and and Watson market and what the demand is.
We still see some curtailed demand.
COVID-19.
Everybody is anxiously waiting the return on.
Demand back to normal, but I think going forward with.
You know the activity.
I mean, you know you can look at 420 rigs operating in the U S.
We see that.
Supply on.
Demand is coming back into balance on <unk>.
Which bodes well for commodity products is in the future. So obviously.
Volume was OPEC functions.
And have been.
Recently.
And discipline remains in the industry.
We feel very positive about that.
The commodity risk.
I appreciate that perspective, Harold Thank you on Bell. The reason I asked the question because I wanted to set up on second question like this.
I mean, John from a pretty good job laying out the debt, but the.
The debt targets on the flexibility you have to go to $3 billion.
But if you think about it that a lot of companies in the sector.
But don't really house.
On investment case, if you like and what I mean is good oil if there is no longer on the table at least a meaningful size.
Some of them don't pay a meaningful dividend one of the easiest ways to create volume in this sector has to take on someone else's call.
From by an efficient operator, so I'm just curious you clearly have a strong cash flow trajectory from could you spell a on a relatively small flow.
Is there any updated thinking on what consolidation could look like in continental future in light of everything going on in the Bakken in particular I'll leave it there. Thanks.
Yeah. Thanks, Doug.
No doubt and I think we all see it the same way you know consolidation in the industry, which was a little bit happening last year needs to continue theres, a theres opportunities for doing that and we're seeing that in the various basins as we speak there are things going on and we will.
We participate in and actively understanding what the opportunities are and whether they meet our economic thresholds and whether it's in something that fits strategically for us. So so as we've talked about in the past from from an M&A perspective.
We're always on watch theres opportunities with bolting on a couple of really nice assets last year kind of under the radar because it wasn't the big splash, but if you look at the impact on the company or is it was pretty significant from the things that were added to it. So I hope and desire is that the consolidation in the industry does continue.
So the asset sales on when the Bakken right now no interest.
Yes.
It is.
Doug that's such a broad question there clearly.
Good assets for sale and there are bad assets for sale and we started on in with the rocks and the rocks are bad we have no interest at the rocks are good we're interested at the right price.
Okay. Thanks for the answers guys great quarter.
Thank you Dave.
Our next question comes from MS. Kim <unk> of Wells Fargo. Please go ahead.
Good afternoon, gentlemen, and thanks for taking my question.
Yes, I'll start off with John you highlighted the strong free cash flow on the dividend is a great statement of that.
On taxes or are the other side of that coin I'm just kind of curious as you look ahead in your free cash flow outlook. When do you expect to start paying cash taxes.
Bolt on their current regime and maybe.
What that Biden tax proposal is asking for.
First of all it's good to hear your voice again look forward to seeing you again in the future.
We move forward.
We talked a bit about this in the past it hasnt changed a lot we have substantial net operating loss carry forwards at a federal and state level. So if you look at it in a current regime, putting up a free cash flow of the level that we are certainly you convert to cash taxes at some point, we see it being 5%.
Seven years in the future in a current regime in regards to potential changes in tax codes. There are lot of moving variables. There range is certainly part of it.
I think you're referring to ITC, but even within IDC. If there is a change or if there's not we've already addressed that if there is it gets back to the period that you're allowed to amortize over that in the past I've talked about may be converting to a five year amortization, if they did something of that nature.
Those Nols are a very effective bridge between where we are today.
Two then preserving a substantial amount of free cash flow that the company can generate sales.
On my term a year or two after that if they went to five year.
And so we'll just have to monitor and watch that and we'll go from there.
Thanks, John Thanks for the detail there.
My follow up you know you guys talked about.
How your.
You don't expect to use more than 2% to 5% growth has required some of the private activity in some other basins is picking up I'm. Just curious what are you seeing in the Bakken I mean, the prices and $60 and cost of $2 $40 oil.
There is an opportunity just just you have talked on the Boston in general.
Yeah.
I think on them.
Pat can probably give you some good insights on that with what's going on in the drilling rig because that's really going to be the leader and then in the Bakken, we're seeing a little bit on movement, but not a lot with the rigs back in place that you want to talk about that.
As Pat bent there hasnt been a lot of movement in the Bakken from a rig activity perspective, 13, or 14 rigs currently as you know and as we've talked about continental will add a few rigs as we exit the year, but.
Don't see a lot of increased activity anywhere.
On par with some of the other basins.
Great. Thanks, gentlemen.
Thank you.
Our next question comes from Leo Mariani of Keybanc. Please go ahead.
Hey, guys just a question around Capex here in 'twenty, one it looks like you had about $293 million of spend in the first quarter I am doing the math right that leaves about $370 million per quarter for the rest of the year to hit the budget of $1 4 billion is that.
Pretty ratable and it is one can you kind of a low point on spend for the year.
It's I don't know if I don't recall, if its a low point, but it's fairly ratable throughout the year. So it should be steps up a little bit to get to that average we are very fixated on 1.4, we're committed to that and frankly, we are on track for it.
Okay.
Alright, great and I guess, just with respect to on the Bakken I guess I think you guys were talking about how you're starting to bring wells on in the second quarter I just wanted to get a little sense.
On the cadence there did you did you not really have any wells come online in the Bakken in <unk> and then it sounds like Youre picking up in Q2, but is it generally just more second half weighted but a lot more Bakken till just want to make sure I understand how that's working.
Yes. This is Jack.
Right on point there.
In the second quarter, we're probably going to see upwards of about 65 wells completed in the Bakken So really.
We're moving.
Its basically timing issue here.
Talking about this you know I think auto mentioned just long Creek because it plays a part in that we brought on 11 wells here recently up in that play, but from a net project, but we're building that infrastructure out so miles to handle all the products online.
Again drilling in there with two rigs in August.
These 11 wells just as a just as a heads up.
These the Ips on these 11 wells they were right around 1900 Boe per day, 80% oil very strong wells and in long Creek. We plan on 56 wells total drilled. This is the first 11 of those and so anyway. That's just a good indicator of.
The horsepower, we've got there on the quality of the.
Production, we expect to see coming out of luxury.
Okay, great. Thank you.
Uh huh.
The next question comes from Charles Meade of Johnson Rice. Please go ahead.
Yeah, It's a good day to everyone there and thanks for thanks for taking all these questions.
I just wanted to push a little bit further on the.
Oil trajectory in the back half of the year. If you guys could give a bit more insight it looks to me like there will be that we'll actually see sequential growth beginning at <unk>.
And then and there.
Carrying on into <unk> and that that that new growth path you established in the back half of 'twenty, one should be what we see.
Looking at 'twenty, two assuming assuming nothing strange happens with the.
With the oil strip is that does that kind of on the right read or can you offer any comments around that.
We've given some guidance on the second quarter. There is obviously a consensus out there average that you can pull or you know for the fourth quarter I would say we are in line with what we're seeing the consensus.
Is projecting for the year. So between those I think that's probably giving you a pretty good cadence on the market seems to have it modeled.
Fairly well and in line with our expectations.
Got it that's that's.
Helpful. Thank you and then.
You could go back to the I'm, sorry did I interrupt.
I just said you bet.
Okay.
If I could go back to the question of Optionality and.
And maybe get you guys to.
Give a little bit of a picture of what that what that looks like you know when you. When you do have those meetings internally based on the way you guys shifted to gas last year and at the same time you put in a given.
Moving to some price protection right around $3. It looks like that's it's at $3 is the level. If you can hedge at that that gas starts to.
Starts to capture more capex dollars, but that's of course that will be you know versus.
Versus a on assumed oil price and so can you give us just a sense of how that how that conversation goes and if that's the right the right framing for how we should.
Think about the Optionality you have.
Well that's a good question.
The same time I mean, we've seen on oil prices run up on Pittsburgh.
This year.
So.
Come to balance.
The good thing that has that Optionality, we have moving to asset for congrats from me.
Awesome.
Welcome to Oklahoma.
On the Bakken on North.
Who also.
Yes, the way.
Yes.
Hard to hinges on $3.
As such in gas.
See where oil price is.
Yes.
Bed products.
Yes.
By no means are.
We don't need $3.
Our upwards of $3 to make these things economic out here I mean, our condensate wells that we brought on we brought on literally.
In the land.
Let me pull up my note here.
On the.
The last two quarters.
We brought on 32 wells in springboard condensate window, alright, and the average 24 hour IP on those 16 million a day and 400 barrel of oil.
Good day.
And those wells are extremely economic.
$2 50, Yeah Eric.
Eric Anomic, two bucks on below so there.
You just need to know that these are very strong wells than what we saw is just more of a macro environment that was indicating that there were very constructive on natural gas and still remain that way here through the rest of the year and into next year. Some and so the fact is it made sense for us to take advantage of that and go ahead and focus our rigs more on on natural gas.
And so now we're seeing stronger oil prices.
And our.
Our projections here and so it makes sense to start maybe focus a little more of an oil so.
So bottom line is we just love having that Optionality and it's one of the strengths of the company.
Thank you for that added detail.
Thank you.
The next question comes from comes from Paul Cheng of Scotia Bank. Please go ahead.
Thank you for the morning hub.
You and John.
One is that you weighted the threep in it.
On a longer term that Paul cat.
What do you consider that theyre coming out with that form a nice cash return policy.
Similar to some of your P is that what you're saying.
Cash map on dividend or debt buyback and on that basis that do you have up happens between the two zone.
Supplemental weight that to distribute that cash back to the shareholder that day.
When that is GAAP.
Randy and secondly, bill.
Hello up there.
30, <unk> hundred 40, <unk> well again the law do you have a breakdown between the Bakken than P.
P. L. P and also there are 67 well.
The sales do you have a breakdown between the stack and scoop.
And also that I think you mentioned that it's going to be maybe it on more than two weeks into the second hub.
Do you have to say what is the second quarter.
I'm going to come on stream.
On the small regions. Thank you.
Hey, Thanks, Paul and so let me address the the variable dividend question and then Jack will go into the wells and the pace of those that we're seeing in the different areas zone between the Bakken the powder in the scoop and stack on it.
Variable dividend yeah, we we have a cash returned to our shareholders and the cash returned to our investors that we're focused on and we just see a variable dividend is something that is out there as a possible tool divvy.
Dividend, we re implemented in reinstituted.
And that's also got an opportunity to grow we have also cash buyback stock.
Stock buyback so that we can go on until there's a there's a lot of different vehicles and that's on top of the debt pay down. So we really look at all of those in.
As to what's the appropriate one it depends on the circumstances at the time so.
But that's why we wanted to bring the dividend back we wanted to bring them back early.
Our assets supported the cash flow supports it in the <unk>.
As our board and this company is to have a significant return to shareholders and so the 65% to 75% is I think the number that you can kind of hang your head on that we're going to be going forward with us as the number that were on the.
On a reinvestment ratio too as far as the the wells go on exactly on that one talk to that well as far as the 143 wells on the north.
11 of those.
Say, probably 10 upwards of around 10 will be in the powder. The rest are in the Bakken and.
And as far as in the South is concerned I don't have the number off top my head, but I would say on the 67 you mentioned there.
Gosh, I'm going to say, 85% or so are really all going to be in scoop.
And our springboard project areas. So I think that's a fair estimate there.
Jack do you have what the second quarter on number of where I'm going to come on stream.
Our second quarter wells coming on stream, we have about it's going to be getting close to around 100 wells between north and south in the second quarter.
And I'd say about 65 65 of those as I mentioned previously are going to be on the Bakken the others, obviously on the south.
Okay.
Thanks, Paul.
Our next question comes from Noel Parks of Tuohy Brothers. Please go ahead.
Good morning.
Good morning Noah.
I'm just.
Just curious if you're starting to really dig into the project at the P.
Powder River basin.
Is there any particular sort of science that is going to be doing that's important in these early wells.
I'm not sure how much you might've inherited from the former operator, so just curious about what you might be looking for as your starting on those.
I know this is Tony Barrett well, obviously, we inherited some data from our predecessor, as we've said before on as far as P.
Production information some core rock data all of that type of stuff.
As as most other operators do we've been prudent in acquiring three D seismic that which was available over that area. So that obviously helps us with our drilling and hazard avoidance and all that good stuff.
In addition, we will do a normal thing that we do in the mid continent, and the Bakken that we'll collect well log data when it's appropriate as we go through the program and moved through the different areas in and look at the different formations. So nothing unusual in the powder that we don't already do in our other operating areas.
Yes.
Great Thanks and hub.
Another question kind of at the opposite end of the.
Portfolio.
I just was curious last year. When you know there was a big slowdown in that activity with the weak prices.
I was wondering what what are your trends for maintenance spending for instance in the Bakken with older Wells. There I was just wondering is there a catch up from last year and that you still are.
Have to do or want to do on on those sort of older vintage wells or do they really want the money or manpower, you'll get it given how you kind of allocate your budget.
No we're right on track I mean, if you looked at the number of ducks coming out of last year and coming out of this year its relatively consistent within a handful few of each other our maintenance capital multi year longer term for several years with 1.35 it ranges depending on project timing between.
On one two and one five but I would I would you know.
As I said I would focus on that mid point.
Maintained our wells, they're operating at high levels productivity strong. So we're we're well positioned there is no catch up per se.
Okay.
This concludes our question and answer session.
Turn the conference back over to Rory Sabino for any closing remarks.
Dan we are past top of the hour here. Thank you very much for joining US today. Please reach out to the IR team with further questions and have a great day. Thank you.
Thanks, everyone.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.