Q3 2021 Ovintiv Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by.
Welcome to you will vignettes 2021 third quarter results conference call.
As a reminder, today's call is being recorded.
At this time all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
Members of the investment community will have the opportunity to ask questions. You can join the queue at any time by pressing star one.
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However members of the media, who wish to quote others, who are speaking on today's call. We advise you to contact those individuals directly to obtain their consent.
Please be advised that this conference call may not be recorded or rebroadcast without the express consent of <unk>.
I'd now like to turn the conference call over to Jason for Haste from Investor Relations. Please go ahead, Mr for haste.
Thank you operator, and welcome everyone to our third quarter 2021 conference call.
This call is being webcast and the slides are available on our website at <unk> Dot Com. Please take note of the advisory regarding forward looking statements at the end of our slides and in our disclosure documents filed on SEDAR and Edgar.
Following prepared remarks, we will be available to take your specific questions. Please limit your time to one question and one follow up this allows us to get through more of your questions today.
I'll now turn the call over to Brendan Mccracken.
Good morning, Thanks, everyone for joining us following our brief prepared remarks, our team will be available to answer your questions.
We're pleased to announce our third quarter results, our unique culture of innovation and discipline is driving value creation across our business. We're delivering on every aspect of our value proposition.
We are in action on cash returns to shareholders, we are rapidly reducing debt or efficiency gains are fully offsetting inflation.
We're generating superior returns on the capital, we're investing and that's resulting in significant free cash flow and we're using our expertise and innovation to drive efficiency gains and lower emissions.
We're committed to delivering this value creation directly to our shareholders as demonstrated by a rapid debt reduction share buybacks and our recently increased base dividend.
We reduced net debt by over $400 million in the quarter to roughly $4 8 billion and we remain on track to see that below $4 5 billion by year end.
Our leverage currently six at one five times, which is less than half of what it was at the start of the year.
Based on our significant free cash flow of $480 million during the quarter. We were already in action on our new shareholder returns framework. This will see us return almost $150 million to our shareholders in the fourth quarter through the combination of share buybacks and our base dividend.
We continue to maintain capital discipline and our full year 2021 capital program remains unchanged at $1 5 billion. Thanks to our team's ongoing efficiency gains we have seen no erosion to our capital efficiency from inflation.
In a few moments Greg will share how our team is continuing to relentlessly pursue operational efficiencies and technical innovations on costs and drive outperformance from the new wells, we're drilling as well as from our base production.
Performance remains strong across our assets and we continue to see the benefits of our multi basin portfolio and multi product commodity exposure.
In early September we announced our new capital allocation framework with a focus on value creation for our shareholders. Our business is capable capable of generating substantial free cash flow and over the next 10 years, we project about $15 billion of free cash flow at $55 <unk>.
And about 21 billion at $65 WTO.
With this robust outlook, we felt it was important to provide the market with a clear transparent and durable roadmap for how we plan to allocate that capital we've.
We've had the opportunity to meet with many of our shareholders since announcing the framework and the feedback we've received has been positive on our plan.
First of all we remain committed to running our business with lower debt not only does it drive costs out of the system. It also improves our resiliency during periods of market volatility.
With that in mind, we set a new debt target of $3 billion, which had mid cycle prices would equate to a leverage ratio of about one times net debt to EBITDA.
The $3 billion does not represent a stocking point and our capital allocation framework gives us the ability to continue to further reduce debt and take our leverage even lower.
While debt reduction remains a top priority, we've made tremendous progress and we're now in a position where it doesn't need to be our only priority <unk>.
So starting last month and until we reached $3 billion of net debt. We've committed to returned 25% of the previous quarters free cash flow after base dividends to our.
<unk> through either share buybacks or variable dividends.
When we consider the total dollars involved at the 25% level. This level of cash returns is very competitive with our peers. The remaining 75% will be allocated to the balance sheet with a modest amount allocated to small low cost property bolt ons.
Once we hit our net debt target, which at today's prices could be as soon as year end 2022, we plan to increase the shareholder return allocation to at least 50%.
Our plan is underpinned by a reinvestment ratio of no more than 75% of cash flow and in 2021, we'll reinvest less than 50.
We've outlined the principles will use to make a value based decision each quarter on which cash return option to use either buybacks or variable dividends based on the market conditions at the time.
We currently view share buybacks as the best way to generate excess returns for our shareholders and we're actively repurchasing shares in the open market will continue to evaluate the value proposition of each option on an ongoing basis.
Now I'll turn the call over to Corey.
Brendan the details of our capital allocation framework for the fourth quarter can be seen on this slide four we purposely built the framework to be clear transparent and durable well.
We will return almost $150 million to shareholders. This quarter alone $111 million of this will come through share buybacks and another $37 million through our base dividend, which we increased by 50% earlier this year.
At almost $150 million, our planned fourth quarter direct returns to shareholders will be approximately six times the level of cash returns we delivered in each of the first two quarters of the year by the base dividend payments.
We've been active in the market and last month, we repurchased 791000 shares at an average price of $37 91 for about $30 million, we expect to complete the remaining $81 million of share buybacks over the remainder of the quarter.
As we look ahead to next year and see the significant free cash flow potential of our business the magnitude of cash returns to our shareholders is compelling.
On slide five we've provided an outline of our potential 2022 shareholder returns across the commodity price landscape at the $80 <unk> and $4 Nymex prices, we see cash returns of about 13% of our equity value on top of that we would be reducing debt all the way down to the new $3 billion debt target and potentially beyond.
At this time, we're using buybacks to return additional capital to our shareholders beyond the base dividend or share prices increased recently, we still see our intrinsic equity value relative value and other key metrics like free cash flow yield strongly signaling value accretion through buybacks. We will continue to evaluate this return of cash method.
The best value based decision for our shareholders.
This corporate level capital allocation framework is underpinned by the great work, Greg and his team are doing on the operation side of the business strong production rates and cost control are keeping capital efficiency intact. This in turn is driving strong free cash flow generation and our ability to return more cash to shareholders I'll turn it over to Greg for operational highly.
Right.
Thanks, Corey Q.
Q3 marks another quarter of exceptional performance from our operational teams, we continued to demonstrate our ability to fully offset inflationary pressures and deliver lower drilling and completion costs across all assets.
Through the first three quarters 2021, well costs are 11% lower than 2020.
As you recall, we said well cost guidance for our core assets earlier in the year and have successfully met or beat those targets across the portfolio.
In addition, we now have clear line of sight to achieving these well costs through the full year reaffirming our $1 5 billion capital budget.
These remarkable achievements are a testament to our unique culture of innovation. This culture has produced a 2021 capital program efficiency that is top tier among our peers.
Carriage you to compare well cost against others in any of the basins we operate in.
We've been an industry leader in piloting and adopting new technology and processes to increase efficiencies and reduce costs across our assets. We are now in our third year of using sign will frac and have made it a standard part of our operations. We were a first mover in the use of local wet sand in the Anadarko and 2019 and recently spread this application to the Permian.
And we.
We've been quick to progress new ideas and make them standard practice across the business. Our teams are continuously testing new technologies to find the next lever of innovation.
Our ability to consistently generate industry, leading well cost is directly underpinned by our continued operational excellence. This has never been more apparent than in the third quarter.
Starting with the Permian, we achieved a new record performance on a 13 well development in Midland County.
These wells had an average lateral length of 13500 feet.
Drilled at over 2000 feet per day, and completed over 3300 feet per day, using some will frac technology and.
In fact, 95% of our third quarter Permian completions utilized simultaneously.
We've also taken significant strides to quickly ramp up utilization of our Howard County sand mine.
Nearly 50% of the proppant pumped in the Permian during the quarter was locally sourced wet sand.
This is a significant increase from 2020 and nearly twice the amount pump last quarter user.
Using wet sand generates an estimated $100000 in savings per well.
In the Anadarko through optimized equipment design, increasing number of wells per pad and efficiently re occupying older locations. We have made significant progress in lowering facilities cost.
Facilities in the Anadarko, we are now approximately $300000 per well, which is 27% lower than the 2020 average.
In the Montney the tangible strides we have made in operational efficiency are really paying off.
Vince if not only drill the company record lateral length of over 15300 feet, but.
But in the third quarter alone drilled three of the top five longest laterals in the basin to date.
Also 90% of our completions in the quarter implemented a new optimized casing design that is generating savings of roughly $120000 per well.
Lastly, we are quickly hitting our stride in the Bakken and are delivering impressive operational results with optimized wellbore and completions designs. We completed an average of 2700 feet per day in the basin. This year.
<unk>, 50% faster than the 2020 average.
All of these examples really highlight the key drivers we are using today and continue to look to in the future to fully offset inflation and deliver lower cost.
In addition to lower cost our program capital efficiency. This year has been supported by well productivity outperformance across the portfolio.
And stack the team continues to optimize completion designs, which have led to significantly improved oil productivity.
In the Montney, we have delivered industry, leading well results across a range of products one does.
This includes the eight well Pipestone 16 of 27 pad that has produced an average of 993 Boe per day per well over the first 180 days of production with 63% of this production being high value condensate.
Our cube development approach in the Permian is delivering consistent year over year performance, while continuing to co develop multiple horizons test new zones, and optimize the value of our acreage.
Lastly in the Bakken, we are seeing continued strong deliverability from our kestrel pad.
Are encouraged by the early time performance of our recent reoccupied developments.
<unk> is truly delivering industry, leading results across every discipline and throughout our entire portfolio.
These results continue to improve and our culture of its culture of innovation will allow us to further optimize our program and deliver additional operational efficiencies as we head into 2022.
With that I'll turn the call back to Brendan.
Thanks, Greg as we look ahead to 2022, <unk>, leading capital efficiency remains a differentiator among our peers, we fully offset inflationary pressures this year and we expect to hold our capital efficiency flat into next year.
Our cost reductions are the result of innovation and execution. These changes in our designs and processes make the savings permanent color.
Culture is unique and feeds constant innovation and this is not easily replicated. We also entered the year with minimal DUC inventory and we will enter 2022, the same way. So our capital efficiency is truly sustainable and is driven by the tremendous efforts across the organization to deliver better wells for lower cost.
We are optimizing multiple program levers as we refine our 2022 plans. These levers to name a few include longer lateral development maximizing our use of Simon frac and locally sourced wet sand as well as delivering quicker cycle times through more efficient drilling and completion operations from base production optimization.
To supply chain management to drilling and completions efficiency, we're always looking at ways to deliver our production targets for the least amount of capital.
Although we're still working on our 2022 plants, we have a clear line of sight to remain maintaining a flat production profile for the same amount of capital investment and we're highly confident we can deliver crude and condensate production of 180000 to 190000 barrels per day with $1 $5 billion of capital.
We think capital efficiency will continue to be a differentiating factor in 2022, and we're positioned to be a leader among our peers.
Our capital efficiency is underpinned by our multi basin portfolio that provides stability and optionality to our business with a with equivalent returns on invested capital across the assets.
Our portfolio provides operational and commodity diversification cross basin learnings in a decade plus of inventory at our current development plays.
Each of these three core assets is that each of our core three assets is set to generate over $1 billion of.
Of upstream operating free cash flow in 2021 at current prices.
This strong performance across the board demonstrates the return on invested capital we're seeing in each play.
The ability to shift capital quickly in response to regional pricing dynamics, whether outages infrastructure access or other challenges as a competitive advantage for our business. We can do this without sacrificing returns to ensure we deliver on our promise to corporate outcomes. This truly balanced multi basin portfolio is unique in todays.
E&P landscape.
We've also made significant strides in emissions reductions over the last year and we're very proud to highlight our performance in this area. We recently declared full alignment with the World Bank zero routine flaring initiative, and we announced that we expect to achieve our target for 33% reduction in methane emissions four years ahead of schedule.
Tracking our emissions allows us to set targets and identify solutions to reduce emissions intensity.
We've monitored greenhouse gas emissions for more than 15 years and have significantly decreased our emissions intensity during that time.
Over the last year, we've enabled more proactive emissions management by establishing a digital emissions monitoring dashboard across our operations and we currently have line of sight to greater than 20% reduction in our scope, one and two GHT intensity by year end 'twenty, one measured against our 2019 baseline.
In 2022, we plan to further formalize our commitment to emissions reductions by setting a total GHT emissions intensity target, which will be tied to compensation for all employees.
Innovating in pursuit of efficiency is what we do best and that includes continuously improving our emissions performance.
Before we turn the call over to Q&A I'd like to leave you with the key reasons. We're confident we will deliver superior returns on the road ahead.
We believe we're one of the very best at producing oil and gas from shale and what we're particularly great at is getting better at that all the time.
We're intensely focused on making sure this capability translates into value for our shareholders and we're committed to Delevering. The company returning significant cash to our shareholders and we've just begun to execute on our new shareholder return framework, which we believe will deliver competitive cash return to our shareholders, while continuing to rapidly reduce debt.
<unk>.
We're committed to maintaining capital discipline and preserving our capital efficiency into 'twenty two.
Our program is highly repeatable next year. Despite inflationary pressures, we're confident we will keep our capital efficiency flat and deliver production profile consistent with the second half of this year for $1 $5 billion next year.
Our multi basin multi product optionality continues to be an asset.
The competitiveness of our assets and the agility of our operations offer multiple pathways to deliver the best corporate outcomes and drive superior returns and finally, we're committed to managing our business to deliver the products the world needs in a manner that is both profitable and sustainable.
This concludes our prepared remarks, operator, we're now prepared to take questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone Youll hear three ton prompt acknowledging your request and your questions we'll be fold in the order. They are received for using a speakerphone. Please lift the handset before pressing.
Your first question comes from Doug Leggate with Bank of America. Please go ahead.
Good morning, This is John Abbott.
Doug Leggate.
It looks like Doug brought up on another call development.
Yes several questions.
First question is on slide five in your presentation.
It looks like sustaining capital breakeven has dropped on that slide can you confirm what has possibly changed.
Yeah.
Hi.
Just having a little bit of trouble hearing you, but I think your question was around the sustaining capital is that right.
That is correct.
John as I am on itself.
Yeah. So Doug that's first that's first question is on slide five correct.
Yes, so yes. They think this is.
Really key takeaway from the comments we've made here I think we will be one of the.
A few companies that have provided some color on where we see 22 shaping up in one of the things. We're seeing is a real advantage for US is this ability to hold capital efficiency flat year over year.
Which is giving us that profile youre talking about so this is something we've been working at for quite a quite a while in terms of building. The skill set we've got a very sophisticated supply chain organization.
We've got an operating organization that is constantly driving efficiency gains that allow us to to offset inflationary pressures or improve the returns that we're generating on the capital and investing so.
Key operating initiatives like Simon Frac, wet sand, new casing designs and a record completion efficiencies we are generating are keeping that.
Guide intact, as we look out into 'twenty, two and generating sustainable through the cycle savings.
So maybe I'll just end by Greg to make a few comments on the details of how we're making that happen.
Yes, Thanks Brendan.
It's running to notice.
<unk> mentioned, we are continuing to see some upward pressure on commodities as we've talked about in previous calls you know steel and diesel continue to rise, but what we're also really proud of the team's efforts to mitigate inflation on other commodities such as sand our wet sand initiative has allowed us to actually hold those costs flat or reduce over time as well as how.
We're managing water, which has reduced those costs as well.
As we think about the service side, we're actively negotiating contracts for 2022.
And while we are being asked for increases in some categories. We're receiving bids in line with 2021 cost and some other categories.
Notably on a recent Frack RFP, we've had some folks come out with some really strong pricing that will allow us to hold our cost flat there.
But as we work with all of our vendors, we're looking ways for ways for both sides to become more efficient and keep our costs down and that's how we really believe we're going to be able to maintain that capital efficiency going forward.
As Brendan noted, we've got a really sophisticated supply chain and.
And that's allowing us to not only maintain the savings we've achieved in the past but to hold those into the future.
So really just in summary, we've been able to offset inflation in 2021 with this approach and we're confident we can manage inflation again in 2022.
Not only offsetting the inflation, but improving the efficiency of our programs overall.
We appreciate that color and then our second question.
Cat evolution of cash Capex.
Generate free cash flow over a multiyear period of time.
Do you see that evolving and how do you factor that into your breakeven price long term breakeven.
Yeah.
Hey, John It's Corey code here, so as we model out the business obviously the the.
The higher prices make a big difference in terms of the your cash tax horizon, but we're just starting off with $4 8 billion in Nols in the U S and another $1 billion three in Canada. So we're close to $6 billion of Nols to start with and we don't see ourselves paying material cash tax still four five.
Years out.
Your next question comes from Charles <unk> with Goldman Sachs. Please go ahead.
Hi, Good morning, and thank you for taking my question.
Yes, good morning.
My first question was on the outlook can you give us any high level thoughts head on.
Across your asset portfolio, especially given your given the recent commodity strength do you see potentially more.
More capex enernoc.
Anadarko basin.
Yes, no I appreciate the question.
The great environment that we find ourselves in here today is we're seeing very strong prices across all three commodities.
We have a big presence in so.
That's driving returns in each of the assets and so today, what we would tell you is that something we will look at as well.
Baking in the details of the 2022 plan, but it doesn't look like it's going to create a material shift in how we've been allocating capital. So I would not expect a big shift in product mix.
For us in 2022.
Great. Thank you and then maybe more high level thoughts on the macro and any factors that you're evaluating Michigan a lot of the company that we looked at some good. Thank you good morning.
Not only tornado client rates again beyond that.
Debt levels down to sub $10 billion.
What are the incremental use of cash flow that you see.
And.
I would get growth is also part of the consideration.
Yes, I think on the macro.
Obviously, there is a constructive set up there, but that's not really how we are forming our business plan and how we're running the company.
Look at everything through a mid cycle lens.
And look at our ability to generate returns on invested capital through that mid cycle lens, we think on the on the go forward.
The business that we're building is a free cash generating machine.
And prices are going to go up and prices are going to go down, but we've got the ability to generate that free cash flow through the cycle and earn superior returns on the capital that we're deploying I think on your debt comment.
The way we've described the $3 billion is it's not a stopping point and really one way to think about it is it's a tipping point on our cash return so.
The capital allocation framework that we've outlined.
The spot where were those cash returns will increase to shareholders to at least 50% from 25% that we're at today. So.
That's really how we're thinking about that I think on your piece around growth.
I think thats, an option down the road for value creation, but once again I would bring it back to a focus on generating superior returns through the cycle and so.
We're very clear that while we're achieving our strategic priorities on debt reduction and increasing cash returns to shareholders. We're going to hold the business at scale and I would add further to that we don't really see a call for growth from our company today in the market. We've still got a lot of OPEC plus spare capacity in the system.
And we've got a world.
<unk>, that's still getting back to pre pandemic demand levels.
Your next question comes from Neil.
Ingman with Trust Securities. Please go ahead.
Good morning, all.
And maybe just a little bit on the last question just.
You guys have a great inventory base that Greg has gone over as well my thought on just you've had a great Eagle Ford sale that helped.
Speed up reaching your debt goals I'm, just thoughts of various other potential noncore sales to go along with your terrific organic free cash flow to get there.
Yes, Neil good to hear you.
The state the question.
This is something we're going to always be looking at it from a value proposition for the shareholders and today. The portfolio. We have is very much right sized for the scale of the business. So.
With the Eagle Ford divestiture, we werent investing capital into that asset and so it was declining and so the the cash flows were declining costs were challenging to hold and margins.
Challenging to hold so for us that made sense to bring that value forward and be able to accelerate debt reduction with that I think today.
We think the portfolio, we have as well.
Well suited to our strategy each asset is delivering competitive returns on the capital that we're investing there and is playing a key role in maintaining scale and maximizing the free cash flow generation that youre seeing.
Great Great details and then maybe just one follow up for Greg Greg.
You talked about the benefit of locally sourcing some of the wet sand I'm. Just wondering could you talk about any potential for more fully integrating the process or how you view. It today you guys have done a great job.
And sort of taking cost out where others have seen inflation. It seems like to me and I'm. Just wondering could you talk about is there are ways to even more fully integrate that process to have even more cost savings or maybe can you just talked about along those lines.
Sure Neal Thanks, Thanks for the question.
So as we think about all of these innovative technologies and processes that we've been using over the last several years.
They always get better over time as I think about simulcast <unk> when we started it in 2019.
Are you using that on a small portion of our program. We quickly realized that it could have application across multiple basins and within months, we were spreading that across the entire portfolio and continue to get better with that technology. Every time, we go out on location and now Simon will Frac is really part of of everything we do about 85% of our <unk>.
This year, we'll be completed with Simon.
When we talk about wet sand the exciting thing about that is it's got multiple benefits.
We're taking a process that traditionally was you took sand from a mine at distance you drive it you put it on a railcar you shifted into the base and then you trucked at the last mile. The location only to get it wet again and put it back down hole and so for US. It just made a lot of sense to take out all those steps it not only takes out cost, but it actually hasn't really.
ICSC impact, we're reducing the emissions from drawing the sand, reducing the emissions from all the transportation that comes along the way and reducing the cost over time, we've gotten better at that process, our minds in Oklahoma that we've used or slightly further distance away from location or isn't Howard County, I was actually out there just a few.
Weeks ago with the team and you can almost see the location we were fracking from the sand mine. So we're talking about just a few miles away, you're taking the sand and moving it over.
So we're really getting better at that process I think the improvements youre going to see over time is just around logistics getting more and more efficient.
When youre talking about either sign will frac or wet sand, both with the amount of volume, we're able to pump in a day.
That really requires a lot of synchronization between multiple teams within the company and externally and our team just does an amazing job of maintaining that.
Those logistics and keeping ahead of the Frac jobs, and so I think youll see us continue to get better and more and more efficient fracking more and more feet per day and there is also other technologies that we're trialing other ideas the teams coming up with new ideas every day that I think we're going to start integrating into our programs and then moving that around the <unk>.
Just like we've been doing with Simon and wet sand.
The team is really good at collaborating and sharing ideas between multiple basins. So whatever ideas, we come up with a quickly get spread across the organization. So.
We're not finished yet we're just really getting started on showing how efficient we can be Neil maybe I'd add one thing to greg's comments, there, which is an important outcome you see us still setting pacesetter costs in each of the assets that are <unk>.
15% to 20% lower than our average cost across the board and so that's telling US we still got a lot of running room on efficiency gains with things. We know we can do already today and so that's quite encouraging for us.
And I think bodes well for the road ahead.
Ladies and gentlemen, as a reminder, if you do have any questions. Please press star one.
Next question comes from Noel Parks with Twofer Brothers. Please go ahead.
Good morning.
Good morning, good morning.
Thanks.
Okay.
Go ahead no.
Are you there Noel.
Okay.
Yes, Hi can you hear me.
Yes, we can hear you now.
Okay, sorry about that.
You earlier, we're talking about your supply chain organization and.
Also.
Now under discussion.
I'm just curious what you.
They're seeing about where we might be in.
Overall supply chain challenges.
I'm sorry, Doug.
Recovery cycle.
Wondering if they thought maybe the worst and the challenges are behind them or are still in that line.
Great.
Yeah, I'll, maybe get Greg to provide a bit of color there on trajectory, but this is the environment where that team is really valuable so their ability to understand how the markets are working and be out in anticipation and work through some of those supply chain bottlenecks that clearly are impacting the global economy as a whole.
Paul it's been a real advantage for us over not only this year, but I think going forward. So.
Meg if you want to give some comments for sure Brendan.
I think the first thing I would say is that.
Our supply chain team has been at this for a while this is something we've been doing for a decade now we were one of the first operators to unbundled services.
We have a better understanding of what it takes to not only perform operations on location, but all of the logistics that are required to get all of that equipment and material to location. So we've been doing this for a number of years and the team just continues to get better and better and I think that's why you've seen us not only apply some of these.
New technologies, such as Tom will Frac it.
At a faster pace than our peers, but it is really fully infiltrated our our programs just because of our ability to handle the logistics and the supply chain.
About what the pressures are going forward I mean, we of course as we've said, we're seeing issues around steel and diesel but those can be mitigated by simply using less labor is a challenge.
Truck drivers are in demand in our basins, but again, if you get out ahead of that work. If you have a level loaded program like we do you allow that allows you to provide consistent work for these people and develop longer term relationships that are a win win. So we are seeing the pressures there are challenges out there, but our team has been doing this for.
For a long time.
And we're up for those challenges. So we feel really good about delivering on the $1 5 billion. This year and again next year with her level loaded program that will deliver that 185000 barrels a day.
And finishing this year and going into next so we feel really good about where we stand.
Great. Thanks.
And a question about infrastructure.
We're kind of in this environment.
Lucky enough to perhaps look ahead and think about what long term 65 or $70 oil actually looked like or high.
Hi, Def prices as well.
As you look across the base.
Wondering if you have any thoughts.
Or maybe you could sort of rank them.
Where if we do.
Industry activity.
Begin to ramp up.
Sort of at a steeper pace and it has so far.
Where do you feel like you have the most room and.
Versus which areas do you think might be a bit more challenged more quickly.
Yes, yes.
No. This is something that we've always had as part of our sort of base and evaluation criteria to be in places that are very well plumbed and so we don't see an infrastructure.
Challenge in any of the basins that we're operating in.
Today or for the near to medium term and so that's something that we were pretty deliberate about when we chose to to get into each of these spots.
Your next question comes from Lloyd Brennan with UBS. Please go ahead.
Hey, guys Brendan how are your quarry.
Yes.
First I'd like to just touch on the bolt ons I may have missed your commentary because I jumped on late but can.
Can you just talk a little bit about the types of deals.
And yet there and then the returns you're targeting in today's market.
Yes for sure yes, thanks for the question.
Types of opportunities that we're looking at here are our low cost small scale accretive opportunities.
<unk>.
Basis that we're already in so these are things like leasing acreage nearby our existing.
Positions, adding cash components to a number of the acreage swaps that we've done over the years.
Picking up acres to lengthen our laterals, increasing the working interest in wells that were already drilling.
So those are the types of opportunities that we're looking at we're seeing them across the portfolio.
And you mentioned, how we'll look at evaluating them, we're looking for a full cycle returns.
At mid cycle prices. So so not at today's prices. We are looking for a strong full cycle returns at mid cycle, where we can create value with our operating capability and our infrastructure footprint.
I don't I can't I don't expect that these things are going to be ratable over time, but that's the approach that we're taking and it's built into our framework and we'll be very disciplined to that approach as we go and maybe the other thing I'd say here is this complements the organic.
Renewal element, that's already built into our capital program.
Remember we have over 500 locations this year that we're assessing and appraising for.
Becoming premium locations, if we get more results and confidence in them and Thats built right into the $1 $5 billion of capital.
That we're spending this year. So we think on the whole. This is just good business to both organically as well as through bolt ons be evaluating through the cycle and when we see accretive opportunities will act, but it is not a target.
We'll do it when we see the opportunity we're not driven to it.
Ratably.
Your next question comes from Iran, Xyrem with J P. Morgan. Please go ahead.
Hey, Brendan how are you.
First question I wanted to ask you.
I was just.
On the potential inclusion in the S&P 400 index I know that.
The management one of the strategies of the management team to read them domestically.
Domesticating of the U S was just to get more <unk>.
Index flows so I wanted to see if you can give an update on that process because I think the S&P was the last and to see that youre, hoping to join at some point.
Yeah, Arun I am great yeah. Thanks for the question.
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Corey or maybe just comment on where we stand there it's really an earnings piece.
Yes, so for those that aren't familiar there's sort of two earnings tests have to meet obviously, we need to have.
Positive earnings.
The current quarter as well as be positive for the trailing 12 months.
And so if you look at where we're at today.
<unk> sorry year to date were positive I think it's 32 and then obviously we had a small loss this quarter with the with the hedge book So looking to Q4, even with any positive earnings will meet both of those tests and then obviously the actual inclusion is at S&P discretion, which is obviously.
A bit harder to predict so we think as soon as the end of the fourth quarter. We can meet all the tests that are required.
Great great. Thanks for that Corey.
And just to follow up Brennan, we've been getting just a couple of questions on on the.
Your thoughts around the Montney, obviously since the BC Supreme Court ruling kind of midyear.
On the first nation. So I was wondering if you could just give investors a sense of how youre thinking about the Montney. Obviously, you have a diversified portfolio and just how does that potentially alter how youre thinking about allocating capital to the montney.
Yes, no maybe maybe first off just say the mine is performing incredibly well you saw us highlight the.
Free cash flow parity across the three asset so it's very much delivering strong returns on the capital, we're investing there and performing well I think.
The.
Robinson, the blueberry first nation, we're watching that closely but we're encouraged by the progress that's underway.
And so don't see that as a material effect today.
There are no further questions. Please proceed.
Okay.
Thank you everyone for joining us today and for your continued interest in our company. The call is now complete.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.
Okay.
Yeah.