Q2 2021 Continental Resources Inc Earnings Call

Okay.

Good day, ladies and gentlemen, and welcome to the Continental Resources, Inc. Second quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session and instructions will be will follow at that time.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to Rory Sabino, Vice President of Investor Relations. Please go ahead.

Great. 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 Chief Executive Officer, and Jack Stark, President and Chief operating Officer.

Bill and Jack will be joined by additional members of our team, including Mr. Harold Hamm Chairman of the Board, John Hart, Chief Financial Officer, and Chief Strategy Officer, and other members of our team.

Today's call will contain forward looking statements that address projections assumptions and guidance actual results may differ materially from those contained and forward looking statements. Please refer to the company's SEC filings for additional information concerning these statements and risk.

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 will turn the call over to Mr. Barry Bill.

Thank you Roy and good morning, everyone. Thank you for taking time to join us on our call and I hope everyone is well.

And I'd like to begin by highlighting our exceptional performance from the second quarter, where we generated robust and company record breaking free cash flow. Thanks to strong asset performance and in addition to continued capital and operating efficiency gains delivered by our teams.

This significant free cash flow was being dedicated to shareholder capital returns and the form of and increased quarterly dividend to <unk> 15 cents per share.

Contain and focus on debt reduction and resumption of our $1 billion share repurchase program. We appreciate our investors support and hope this continues to provide confidence and continental being the best investment opportunity and the industry and the most shareholder return focused company and any industry.

During the second quarter, we generated a company record breaking $634 million of free cash flow reduced net debt by $284 million ending the quarter with $4.$5.9 billion year to date, we've generated 1 point to $4 billion and free cash flow, while reducing our net debt by $892 million.

We distributed $40 million to shareholders with our previous 11 and set quarterly dividend.

Sales at our production guidance for the quarter, delivering 167000 BOE a day and just over a barrel of oil a day and just over 1 billion cubic feet of gas per day.

We delivered exceptional performance and efficiencies from our assets and the Bakken and Oklahoma, which Jack will provide more details.

With respect to hedging we remain unhedged oil and crude oil oil and gas we have about approximately 50 per cent of our volume hedged through year end with a combination of swaps and collars that provide a floor around 3 while we're trying and retaining price upsides of over $5 for 2020.2 we have no gas hedges beyond.

The first quarter and the oil hedges at all in 2020.2 while we remain bullish on commodity prices given the volatility of price cycles and potential impact of and government reaction to Covid variance. We continue to believe it is inappropriate for the industry to overproduce and through a potentially oversupplied market.

<unk> with respect to crude oil and.

As I highlighted last quarter, we remain focused on our strategic vision with 4 key elements I'd like to briefly discuss today free cash flow commitments capital discipline, and strengthening the balance sheet and corporate and cash returns to shareholders.

Let me start with our commitment to free cash flow and capital discipline.

Our cash flow generation is robust and competitively advantage versus our peers, given our unhedged crude oil profile as shown on slide 4.

And the first half of the year, we have year to date already generated the free cash flow, we were projecting for the entirety of 2020.1.

We are now seeing the potential to generate approximately $2.4 billion of free cash flow at current strip prices this year, which equates to an approximately 19% free cash flow yield.

Given our disciplined response to rising commodity prices on our Capex budget for 2021 has not changed and our reinvestment rate is trending toward 35 per cent.

With regard to strengthening the balance sheet and net debt reduction is tracking toward $1.8 billion in 2020, 1 which will bring on yearend net debt close to $3.7 billion.

We expect to meet or exceed our leverage target of 1 time net debt to EBITDA. This year, but are not finished there.

Our intention is to reduce absolute debt to 1 time at 50 to $55, WT Guy, which equates to approximately $3 billion and death.

Alongside our strong inventory and in commodity and Optionality. We're confident on that that outlook is 1 of the many powerful attributes for both the company and our shareholders and we believe our current credit metrics are reflective of investment right.

So let me now discuss corporate returns and cash returns to investors.

Generating strong corporate returns are projected to deliver 18% return on capital employed and 'twenty 'twenty..1. Additionally, we were committed to disciplined and significant shareholder returns through net debt reduction and prioritizing cash returns using the multiple vehicles, we have to return cash to investors, including our dividend and share repurchase.

Yes.

And we're committed to growing our dividend and a competitive and sustainable manner.

That is why we increased our quarterly fixed dividend by 36% versus last quarter to 15 cents a share.

This is triple our original dividend rate and equals 2 on approximately 1.7 annualized dividend yield, which we believe is competitive with industry peers and shows ongoing growth and cash returns.

And we're resuming our share repurchase program of $1 billion, which began in 2019 with $317 million of purchases previously executed $683 million of capacity remains.

Given our significant shareholder alignment you can be confident that shareholder capital returns will remain a significant priority for our company.

The combined shareholder capital returns and the form of an annualized dividend and projected net debt reduction by year end 2020, 1 alone would equate to 53 per cent of the company's projected full year 2021 cash flow from operations and 16% of the cards companies car.

And at capital market.

Share repurchases would be additive to these figures depending on the timing of additional share repurchases, which we expect to be in the near future.

2021guidance updates, let me share with you a little bit on where we are on that as we look ahead to the remainder of 2021 and several of our key metrics are materially outperforming our original guidance such that we have updated for the falling.

Natural gas production is 2020 'twenty..1 is now expected to range between 900 million and 1 Bcf per day production.

Production expense is projected to be 3 to $3.50 per barrel way really better than the original guidance of 3 and a quarter to $3.75.

Additionally, as reflected on slide 16, we have improved our guidance on DD&A and crude and gas differentials.

I also want to highlight our continued focus on ESG.

We recently released our 2020 E. S. P updates, which can be found on our website www CIT not CLR dotcom.

Yesterday has always been a key part of our DNA and something we have highlighted as a means to steward our company.

Well, there's a lot of focus on the environmental or E from all of US We believe as societal is under represented and a global dialogue.

Lack of energy across access across the world equates to poverty.

Which all members of society should seek to improve.

Our ESG efforts remain focused on continuously improving and our approach is to look at all operational impacts, including land and water and air.

We believe it is essential all countries and all economic participants do their part to improve P. S. G and the same way in order to better our world.

Crude oil and natural gas will continue to play a vital role and the global energy mix and the entire world needs multiple forms of energy to move people from poverty to appropriate levels of societal and quality of life.

In closing I did want to provide and update on the launch of the new futures contract Midland W. T I American golf Coast, which will start trading on the Intercontinental exchange by year and.

This is a culmination of recommendations by the Ags and best practices Task Force led by Harold Hamm, along with average by Magellan and enterprise products and will be and exciting opportunity for U S producers seeking greater transparency more liquidity and access to global markets.

I'll now turn the call over to Jack to discuss our operational performance.

Yeah.

Thanks, Bill and good morning, everyone. Appreciate you joining our call.

Today I'm going to share some highlights from the outstanding results. Our teams delivered this quarter and there are 3 key takeaways and want to leave you with first our assets are performing with remarkable consistency and predictability delivering returns in excess of a 100% from our Bakken and 60 to 80 per cent per our Oklahoma drilling programs assuming $60.

T I and $3 Nymex gas.

Second we're on track to reduce our weighted average cost per well year over year by approximately 10% and 70 to 80 per cent of these savings are structural.

Third our capital efficiencies are reaching record levels and we expect to deliver a projected return on capital employed of approximately 18% for 2021.

Yeah.

Our assets also provide optionality to respond to changing market conditions. For example, the decision to focus up to 70% of our rigs on our Oklahoma natural gas assets and the second quarter of last year S. P.

Proven to be very strategic our second quarter, 2021, and natural gas production and Oklahoma was up approximately 10% over the first quarter of 2020, while Nymex natural gas prices more than doubled over the same period of time with.

With today's improve crude prices, we were exercising this optionality once again and migrating up to 75 per cent of our rigs to a more oil weighted portfolio and the back half of this year and it's.

And Bill highlighted our oil production remains unhedged and our shareholders are receiving the full benefit of the improved crude oil price.

So let's get into the quarterly highlights during the quarter. We brought on 108 gross operated wells with 70, and the Bakken and 38 and Oklahoma.

Early performance from our 2021 Bakken Wells is right on track as shown on slide 8.

This chart compares the average performance of our 2021 wells with average performance of 488 Continental operated wells completed over the prior 4 years grouped by program year the.

And the overlap of these annual performance curves illustrates the consistent performance of the Bakken and this delivered year over year, which is arguably the best repeatability of any oil play and the country.

Over the last 4 years, we have also reduced our cycle time from putting Bakken wells on line by 50% and dropped our completed well costs by approximately 30% driving our capital efficiencies and the Bakken to record levels.

Today, we are producing approximately 45% more Boe per thousand dollar spent and the first 12 months than we did in 2018.

Our Bakken differentials are also improving driven by demand for Bakken crude and the expansion of dapple, which was put into operation in August 1st with this expansion. There was approximately $1.6 million barrels a pipeline and local refining takeaway capacity from the Bakken excluding rail.

This was approximately 500000 barrels per day more than the Bakken field produced on average and the month of May.

Bottom line, considering all of these improvements and the bullish market fundamentals, we are potentially entering 1 of the most profitable chapters in the history of the Bakken from continental and its shareholders.

Before leaving the Bakken and I should point out that 11 of our second quarter Bakken completions.

And we're located and a long Creek unit. These 11 wells are excellent producers as shown on slide 9 equally.

Equally and personally by the well costs that are coming in below original estimates at approximately $6.1 million per well.

Recent results are best bellwether for things to come as we continue developing the total of 56 wells and this unit.

And we expect to complete a proud and 30% of these wells by year end 2021, 50 per cent and 2020 and the remaining 20% and early 2023.

And Oklahoma, we continue to see excellent results from our drilling both our oil and gas condensate wells as illustrated on slide 10.

These charts show the average well performance by year and all 4 of our springboard project areas over the last 2 and a half years.

The springboard 1 in springboard 1 and 2 you can see that the average well performance has improved over time with great repeat peterbilt and <unk> and both the condensate and oil Windows. This includes 155 operated wells of which 70% were oil and 30% were condensate wells.

And the chart on the lower left of Slide 10 shows impressive performance at <unk>.

And our from our operated oil wells and springboard 3 and 4.

This is a small data set so we chose to break the average annual performance by producing formation to provide more color on the results. We've seen to date. The chart includes 7 Woodford and force Sycamore wells that we completed over the last 2 and a half years.

Key observations from this chart is that the 7 Woodford wells are performing in line with springboard, 1 and 2 oil wells, while the 4 Sycamore wells that were completed in 2019 are significantly outperforming.

Even more impressive is that we are on track and reduce our completed well cost by approximately 17% year over year.

Since 2018, our teams have reduced completed well cost and Oklahoma bio total of 40%, which as in the Bakken has driven our capital efficiencies to record levels in Oklahoma and as shown on slide 11, we are producing approximately 80% more Boe per thousand dollar spent and the first 12 months than we did in 2018.

Approximately 70% of these savings are sustainable driven again by technology and updated designs that increased performance and reduce cycle times.

And the powder River basin based on our drilling is proceeding right on schedule and our drilling teams are doing a great job and have met and exceeded our early expectations for drilling days and cost.

We have 6 wells waiting on completion and expect to have some results to share later this year.

We currently have 2 rigs drilling through year end.

Looking ahead, we are maintaining our oil production guidance for the year and I.

I should point out that our second quarter production was boosted by accelerating the completion of select third quarter wells and putting them on line and the second quarter.

And the fourth quarter, we are projecting a december exit rate of approximately 165000 barrels of oil per day week.

And we currently have 8 rigs drilling in the Bakken tune the powder and 5 in Oklahoma.

And are considering adding up to 1 rig in the Bakken and 2 and Oklahoma by year end.

In closing I'll mentioned that our exploration teams and continental continued to generate new opportunities within and outside of our core operating areas.

Later this year, we plan to do some exploratory drilling to test a couple of these new opportunities.

And the details must remain confidential, but I can tell you that with success each of these opportunities could add significantly to our deep inventory.

So with that we are now ready to begin the Q&A section session section of our call and I'll turn the call over to the operator.

We will now begin the question and answer session.

To ask a question you May Press Star then 1 on your Touchtone phone.

Youre using a speakerphone please pick up your handset before pressing the keys.

Your question. Please press Star then 2.

Please limit yourself to 1 question and 1 follow up.

At this time, we will pause momentarily to assemble our roster.

Okay.

And our first question will come from Iran, and J O arm of J P. Morgan. Please go ahead.

Yes. Good morning, good afternoon, and I wanted to get management's view on just how you're thinking about you know Inc.

Mental cash return, obviously you increased.

The dividend, but I wanted to get your perspective on on why you went with buybacks versus variable dividends and love to hear what kind of feedback you're getting from investors regarding cash return, including Harold view and you know given his ownership position and the company.

Well thanks Arun.

The question of the moment and everyones keenly focused on there and we've done a lot on lot of work internally with our discussions not only with the board, but also with an.

Analysts such as yourself as well as our investors and just say what what is the preferred vehicle and we've seen a lot of comments that theres, a very high level of comfort that the share buyback is they actually preferred vehicle and I know a lot of companies are actually engaging and some special dividends from variable dividends and.

And thank all of us are watching to see how that actually gets played out and the market.

Today, we know and we're seeing on a preference for for buyback and I don't know Harold is here with us and they can probably share with you. His his perspective on that as well.

Yeah, Aaron and Ted.

Good question.

You know all cross the sector I think we've realized.

Under valued.

Market that we and a day in and we.

We feel like the day buybacks are you all.

And that's a good thing to do at this particular time.

Fair enough.

And there and just to follow up on that Oh.

And 1 of the things that you'll look to on slide 5 and look at our what our cash flow yield is oh that suggests that we're significantly.

Totally undervalued and so I think the buyback is the appropriate vehicle to use and that type of scenario.

Great Great and then just as my follow up is it it sounds like late in the year, you may add a rig and the Bakken a couple on Oklahoma, If I heard you correctly so.

How are you guys thinking about.

'twenty 'twenty 2 I know you have a.

Targeted reinvestment rate range that you've put out there, but how are you thinking about.

And preparing for 2020.2 if if we get some of those OPEC plus barrels.

Back on line.

Let me start and then and and Jack May add some color to it on the on the rigs, but where we're very comfortable with what we've articulated before that 65 to 75 per cent reinvestment ratio is about the right level, where oil obviously well below that today, we're 35 per cent, but the the things that we've talked about for the last several.

Quarters is there there is still a pretty significant production and overhang. That's out there. If you look at OPEC plus its volume probably 5 million barrels a day.

On the Covid variant Delta and we're all seeing what's happening to that here and in our country, but also around the world series, particularly what's happening in Asia on this so the demand side. So both of those things are out there that suggests that you know as we look forward and to the future. They are reinvestment ratio still seems to be and.

The right thing for us to be focusing on as far as.

Additional rigs I think on the way Jack articulated was a possibility of doing that and we're still looking at it and Jack I don't know whether you've got any other texture on there on the rigs we're picking up towards the end of the year clearly we have the inventory to move into it if we choose to where as you said were keeping her on the macro and and logistic warningly.

Great. Thanks, a lot gents.

Thank you Sir.

The next question comes from Doug Leggate of Bank of America. Please go ahead.

Thank you good morning, everyone and I hope everyone's doing well out there and I appreciate you getting on the call. This morning.

So gentlemen.

First of all the 5 could use deliberately 1 on unhedged business is clearly paying dividends.

Does your capital allocation strategy, but I want to put it.

And to you and ask your opinion on this.

The market is pricing and the sector and our opinion on the price which is <unk>.

And all those by coordinated.

Over a 4.5 year periods.

And it seems to us that the free cash flow you're generating.

As a proportion of your free float.

It is extraordinary frankly, given you've only got a 15% people. So my question is how far can you take the buy box because it seems the scale of free cash flow and the next 2 or 3 years could be very significant and compared to what the market is price and you want based on the strength.

Yeah, Doug it's a great question and we see it exactly the same way that on the pricing at the strip is $20 backward dated that does and I think that's what you're describing with your question here. It does suggest that a buyback is an appropriate vehicle.

Going forward into 'twenty, and 'twenty, 2 and I'll, probably revisit those same comments made earlier that.

There is a risk overhang with that production capacity and with the and.

On the demand side of things with with Covid. That's out there. So it's probably pretty early to be articulate and where we ended up going and in the future and the 'twenty 2 'twenty 3 time frame, which I think is the root of your question absolutely. The right question and we talk about it every day, but as far as guidance, that's probably not not now that we are we feel it's the right time to be making that and.

The guidance and the future, but with regard to the macro I might see if Harold has got any thoughts he wants to share with you as well, thanks, Doug and I think you're right on all or CNS overhang diminish Uh huh.

What from a week and month on month and until that's gone and I don't think anybody can say.

Exactly what the future holds.

You see my appointment and sellers I mean, youre buying back essentially about 40% of your fleet float.

You know that like you cannot and I was going to be tough to sustain at that range without the inevitable happening, which is the free flow. It doesn't you know it doesn't stick around for too much longer I, just wonder if I'm thinking about at the right way.

Well, obviously, we hope we don't have can't continue doing that.

Oh.

And all that.

And Oh next 2 quarters we.

We will see things change yeah, Doug we hope that people see it the same way you do and start buying the stock and then that that drives it to the position that we.

And we don't think we're needing to buy it.

Okay, well my follow up is hopefully a bit quicker than that and it's really just about capital allocation you took advantage of loss.

You know that the weakness in oil.

And typically gas Optionality and what are you doing today, because obviously both sides of the coin are pretty good how are you allocating capital today and I'll leave it there. Thanks.

Yeah, No. That's a great great question, Doug and we we have lots of discussions internally about that very subject to its great to have the optionality and I think that's what you're seeing with simple Jack's comments and I'll I'll have him talk to you a little bit about what we're doing on that and where we're headed in the latter part of the year on the oil versus gas, but but both of the column and commodities are seeing some good strength and.

And we're seeing and capability to go either way.

Yeah, I mean, that's the beauty of it is and you're exactly right. We've talked about this a lot, but we continue on with gas prices, where they're at and be a little more aggressive on the gas or do we.

Push to have more oil and oil weighted portfolio and and right now I mean, we're we're looking at and as we said, adding another rig and the Bakken and and we do just from where we're at right now as a percentage of rigs and we're seeing that we will become more oil weighted and the back half of the year here just by allocation.

And of rigs would probably have as I said could be upwards of 75% and the rigs more focus on oil and and when you look at the completions and the back half of the year you got close to 70 per cent I'm really going to be in the Bakken and so you will see that.

Obviously that tick up but but believe me the guys and Oklahoma with just some outstanding wells I mean, we are.

And we had some wells we've put on here recently.

And I think it's going to be somewhere in the range of.

Doug and I wish I wish I knew the number but it's going to be somewhere and a range of like 8 wells. We brought on here and that are in the gas window and.

And there are 13, and 15 million a day with like 300.350 barrels of condensate with them and so just outstanding well. So we have the option to go either way you're exactly right. We're looking at $4 gas pretty darn attractive time to bring on gas as well. So we're just kind of where we feel like we're a little bit and the catbird seat and we.

And we can take advantage and adjust rigs as we we think where we think we can get the best benefit.

Hey, Jonathan on how to republish, our stock primary window when he was over here but.

And it varies from Gaza and great quarter guys. Thank you.

Thanks, Doug.

And.

The next question comes from Derrick Whitfield of Stifel. Please go ahead.

And good morning, all congrats on your strong quarter and return of capital program.

And on capital update.

Thanks Derek.

And with the understanding that you're firmly cycling a strong commitment to capital discipline.

Could you outline and the macro conditions that would signal the need for a return to growth and how measured continental response would be and a more naturally balanced supply demand environment.

Yeah, I think the thing that we always look at there and is the the fundamentals and then that's what we've talked about for for quite some time, yeah on the supply demand balance and we continue to look at that line as we talked about the.

The supply side of things you know, it's got a little bit of production overhang and the demand side still got that risk.

And whether those come back together to a reasonable period of time, and then to the earlier conversation and I think what.

Well, we were talking about on the reinvestment rate and the 65% to 75% that's kind of where we think is an appropriate level.

And for us to be on a long term basis and again, what we are focused on the mid cycle.

Numbers, and so youll see that and the conversations even when we look at what's our debt to EBITDA and where we are today, we're really looking at longer term, what's the right debt to EBITDA dropped down to $3 billion or less on a on a debt basis, and that's kind of the driver for our overall cash distributions.

The 1 other thing that we will highlight to you is that we've we've got a 6 year trackers and a track record of free cash flow.

And the return and that's what we always focus on it.

Very line management and ownership team to continue to deliver free cash flow strong free cash flow to our investors.

Great that makes sense and with my follow up I wanted to focus on your strong results and the springboard 3 and 4 areas as shown on slide 4.

How would you compare the economics of springboard 3 and 4 to that other areas across the Anadarko and how should we think about the allocation of activity to the Anadarko as you increase your focus on oil and the second half and potentially up to 2022.

Well.

So good question here and the purpose of this law is to show that the returns and the performance that we're seeing here are.

Very similar and these areas.

You know and.

And I agree with you you know, they're looking at this and you're going.

These with this kind of performance and what.

What where does springboard and say 3 and 4 fit into the equation and we're just and our very early stages of developing springboard 3 and 4 I mean, we're not even.

And of the inventory there and.

And but what we wanted to show on this slide is that the early performance from the wells in the Woodford and Sycamore here are really they're.

On the right in line with the much higher statistical average, we have you know from our oil wells and springboard 1 and 2.

And you know to see this kind of results early and are in a play is extremely encouraging but you know it's P.

Partly because it's in our area and we know what we're doing here and so what does this portray for other areas I think what you have to understand is we've got 360 square miles of of reservoir with stacked pays upwards of that 300 to 750 foot thick and here and we really control.

These areas are average work interest 75% so.

As to the whole Anadarko basin, and I can't speak to that but as far as to continental we have basically control of the on what I'd call. This the best portion of the reservoirs out here and that's because we're an early entrant into the play we were leasing out here in 2008, when nobody really cared who is it.

Tough time, and and market and so you know these.

These are our positions are so dominant just because of that and we stayed focus on it through you know and we've done some strategic bolt ons and continue to build our positions and so right now we have upwards of 600 and gross operated locations remaining and.

And so a lot to do out here and what's really encouraging on this is that you know a lot of the drilling has been Woodford and Springer with some sycamore out here well now you look at the Sycamore performs down here and springboard, 3 and 4 and and that's pretty darn impressive performance there and.

And the Sycamore represents about a third of the inventory that I'm talking about here. So.

And he and I think you take away from these slides. This 1 slide here this and the deck is that springboard, 1 or 2 or are not 1 offs, they're actually we're continuing with 3 and 4 and we actually have some other areas out here that you know if that will be springboard and 5.

And 6 ultimately we believe and so the point of it is that a good good good consistent results and that's what we love to see but it's because we know the rocks and and how to develop them.

That's great.

Long winded answer I'm, sorry, but I.

And just like I guess I'll get off my soapbox.

You can see on we're excited about the area, yes greatly appreciated about the detail I mean, the results looks fantastic. So I wish you guys and best of luck out here and the future wells.

Thank you.

The next question comes from Neal Dingmann of true Securities. Please go ahead.

Morning, Jack just maybe a little more on your soapbox on the Midcon and can you talk whats the latest and does this upside includes some of the potential round the Franco Nevada, JV and maybe any comments you could have around that and the opportunities that's provided.

Oh well.

Regarding the Franco Nevada, JV I mean.

I mean, we there is it's basically has representation through all of these areas bottom line.

And as far as that is concerned it has definitely has exposure to this these are performance results that you're seeing here and will continue for quite some time, so and what was the other part of your question.

Well I was just wondering what would that thing is is it going to be a potential to I don't know down the road would you potentially spin that off would you do something with that or is it just.

And with what is helping with returns and there is no no near term plans would that would that JV.

And it's another area of Optionality, we've got it's a tremendous.

Asset for the future are we're growing that asset today today is not the day to delve into that and but we do see a lot of optionality and the future, we're obviously and it to grow value and to.

And do something that's valuable to our shareholders.

Yeah. It makes sense, you're on and then 1 follow up if I could just just you guys have been great.

On seeing some marketing opportunities and I'm just wondering.

Either for you or even Harold how do you see for export opportunities and.

You know what what are the market opportunities you all see here and that the coming quarters.

I think over the coming few quarters.

We're seeing a.

On the export market has stayed strong.

Yes.

Obviously, a lot of Columbia, South East Asia and.

And we'll expect that to remain strong and and future, we're saying also ramped and.

And the MTR prices continue.

We continue to close.

So that's positive.

And maybe that some of it and.

And anticipation of it.

New market, that's being created and Nicole.

Great point, Thanks Harold.

Yes.

The next question comes from Leo Mariani of Keybanc. Please go ahead.

I guess I wanted to follow up on 1 of your prepared comments from earlier I just wanted to make sure that I heard this right and you guys talked about kind of a year and a 21 exit rate and around 165000 Boe per day on oil. This year. I know you said you guys were at about 167000, and the second quarter I guess I had thought that you guys were.

And of ramping up oil weighted activity and the SEC.

Have I guess I would've maybe expected your oil volumes, Ted and me to kind of March higher and the second half. So maybe can you just help me kind of reconcile all of that on my mind, when they try and kind of understanding the plaza.

Yes sure.

I understand that your thought there.

And really yeah, we're talking about a December exit rate of 1.165 around that.

When you look at it because we moved wells from the second quarter from the third quarter into the second quarter.

We're seeing about 60 per cent of the wells for the year actually have been completed in the first half of the year and so we have about 40 per cent of the wells to be completed here in the second half of the year. So that's a big part of the equation here and that's on a net well basis and so so.

So just because of the acceleration instead of being like 50, 50, and first half second half weighted and a bit more on the first half and so.

That's really so you.

So your question is right do you see it ramp up and what you'll see is that production will kind of be a be a little bit flatter.

Obviously it has to be you know through the third quarter, and then start ramping up a bit and the fourth cash.

Cash flow will be strong through out there and you know were carrying into 'twenty 2 and good shape.

Okay. No. That's helpful and maybe you could just kind of talk to the Capex and piece of it you talked about kind of 60%.

<unk> and the first half and it looks like you guys are on a run rate on on first half capex, which looks like its well below kind of your total.

'twenty 1 spend so can you kind of maybe just help us a little bit here and in the second half maybe there was some.

Timing issues on some of the payments, but and.

Capex can go up and the second half to hit the guide and you guys think you're kind of under budget and what's happening with the capital day.

We're we're firm on a 1.4 that would imply a little bit higher capex and the second quarter. It's just the timing we've got there.

Bill or Jack referenced some incremental rigs earlier today. So some of those wells will be coming on early in 'twenty 2.

You really I know you don't have guidance on 'twenty, 2 yet, but we'll give you that as we go forward and.

It's just the timing of completions and when they come on and the application of those dollars but.

And that's part of the reason I referenced earlier that we're set up well for 'twenty 2.

1 way to maybe frame. This as you know we set a dimension of a constraint on ourselves to the $1.4 billion, and then look to optimize economics and with that said, let's sell and do what we can to get the most production on with the least amount of capital and the first half and then through the rest of the half Youll go in with where the rest of the spend on that so that's why you see about 600 million.

Spin.

And the first half and about 800 and in the second half, but also why we bought all that production for that Jack mentioned.

So its just okay. Thanks guys.

And we also don't have any what you would call ducks and the second half of the year as well. So you had some costs that were obviously extended and the prior year that ultimately ultimately turned into completed wells and the first half of the year. So we won't see any of that and the second half that's really where our.

We're keeping right up with wells as they become available from a completion standpoint, which wasn't the case and in la.

<unk> 2020.

Okay that makes sense guys. Thank you. Thank you.

The next question comes from Oliver Huang of Tudor, Pickering, Holt and Carl Please go ahead.

Good morning, everyone.

Hello, Good morning.

And the Scoop could you remind us what sort of spacing you all are running by targeted formation and the 21 program and if there have been any changes relative to the last 2 years or any thoughts on further widening out spacing there.

As far as spacing is concerned.

It varies by formation and thickness and reservoir and all that so we don't really have say a quote set number of wells, we drill per unit area dependent and reservoir thickness dependent but you know.

You can.

So I guess without saying will be anywhere I would say, maybe 320, apart maybe 880 feet apart something like that.

And wells, but again, it's area dependent.

The the Inc.

Interesting thing is that the.

Woodford wells that.

We're showing here on on slide 10 are actually pairs of wells, which is really interesting.

The 4 of them are and well I guess really 5 of them are and that were drilled and 21 and there. They are basically 1300.20 feet apart.

From a from themselves.

Well and the reason we did that was we wanted to get early indications of what unit development might look like and interestingly enough. If you look at the way the curves are and it sure looks a lot like the 202021 springboard, 1 and 2 unit development curve, so again consistency of performance.

Sycamore wells on their charter actually single 1 off parent wells. So we would expect to see them performing and at higher rate and.

And so all that said is that we are very cognizant of oil of getting understanding spacing even in these other project.

Other areas.

As soon as possible. So we know how do we can move into full unit development every time, we drill every time, we drill unit.

Okay. That's helpful color and for my second question you all made significant advances on the D&C per lateral foot front and both the Bakken and Oklahoma. Since 2018 do you all see more running room on this front from improving completion techniques such as some of Frac technology and it's true.

Could you expand on that opportunity set or is this potentially on potential trough with how raw materials are trending higher and also if theres any color on how much inflation y'all or banking and in the back half of this year.

And this is Pat and.

That's a lot of questions. So when I think about that.

Is there any additional background on that.

And that is yes, we continue from an engineering perspective to dominate and control improvements.

To help us lower our cost from that from a technical design on the drilling side too.

Stimulation design on the completion side.

We see additional running room.

Obviously it is.

We felt good about being on track to reach our targets you're in 'twenty, 1 and so that incorporates any modest pricing pressure inflation that we might see.

For the year, which we do and which we are offsetting and so.

There is.

Pressure from a steel perspective.

But that doesn't amount to a significant.

Component of our completed well costs.

Got good pricing and place to September and we will have through the end of the year.

It keeps any impact from the steel side of the business to that just around about 5% on our completed well costs. So feel real strongly about our ability to continue to manage cost to engineering design and leveraged procurement and and so I see that continuing through the rest of this year.

Yeah, Oliver 1 other thing I might build on that.

1 thing that we did all through 2020 as so we didn't have layoff programs and so although we slowed down on our activity. We had all of that engineering talent and and Pat's group continuing to focus on how do we optimize this so we were able to come out of the gate running with lots of opportunities, but theres a lot of things that they studied during that.

Last year, we actually have not implemented yet so to <unk> point, we're still looking at a lot of things from when it comes to time, how they did it all these activities faster time. This cost. So that's 1 part of it and the other 1 that Pat mentioned is looking at technologically how do we do it differently how do we improve on on the way, we've been doing and the past and 30% load.

And curve is pretty significant from 2018, that's quite typically a learning curve over a life and we will fill it down and that's still got a lot of running room in front of US. This is Pat was describing.

This concludes our question and answer session I would like to turn the conference back over to Rory Sabino for any closing remarks.

Great. Thank you very much for joining us today, please reach out to the IR team with any further questions. We appreciate your time. Thank you.

Thanks, everyone. Thank you.

Conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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