Q2 2022 Chord Energy Corp Earnings Call
[music].
Good day and welcome to the CT Energy Conference call all participants will be in a listen only mode. So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to add.
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Please note. This event is being recorded I would like now to turn the conference over to Mr. Michael Lou Chief Financial Officer.
Sir you May proceed.
Thank you Carolina.
Good morning, everyone. Today, we are reporting our second quarter 2022 financial and operational results. We're delighted to have you on our call.
I'm joined today by Danny Brown Chip Rimer and other members of the team.
Please be advised that our remarks, including the answers to your questions include statements that we believe to be forward looking statements within the meaning of the private Securities Litigation Reform Act. These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings release.
<unk> and conference calls.
Those risks include among others matters that we've described in our earnings releases as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q, we disclaim any obligation to update these forward looking statements. During this conference call, we will make reference.
As to non-GAAP measures and the reconciliations to applicable GAAP measures can be found in our earnings releases and on our website.
We may also reference our current Investor presentation, which you can also find on our website with that I'll turn the call over to our CEO Danny Brown.
Michael Good morning, everyone and thanks for joining our call today, we will discuss our integration progress our new return of capital program second quarter, 2022, operating and financial results and finally, our expectations for the balance of the year, but first I'd like to take a moment to address and acknowledge our employees.
Over the past several months have been challenging but your hard work and dedication have culminated in the successful close of our merger on July one great progress on integration and have put us in an excellent position to succeed as we move forward My sincerest. Thanks for all you do for our organization.
July one marked the end of two companies in the beginning of another we chose the name CT energy as we feel the two common definitions of the word cord has significance to the merger and our organization.
First the mathematical definition of court reversed the joining of two points on a curve, which we view as a metaphor for a merger of two premier Bakken focused companies.
And musical terminology a cord represents multiple musical notes played simultaneously to create harmony. We thought this was very aligned with the harmony, we strive to achieve with all of our activities as we work to simultaneously be good stewards of our team our communities the environment and importantly, the investment our shareholders have entrusted us with.
Given this is our first conference call as a combined company I'd like to talk about the progress we've made over the past two years and how that relates to our path forward.
Over 2021, and 2022, our predecessor companies streamline their cost structures and pivoted business strategy toward low reinvestment rates and high return capital. We did this while implementing progressive shareholder aligned long term incentive programs. Additionally, we divested multiple non core assets to focus on areas, where we have competitive strengths <unk>.
<unk> has simplified and the divested its midstream company, which made the core E&P business more focused less complex and brought significant value to shareholders. We both grew our asset portfolios in core areas and did so in a prudent manner with a focus on value and our ability to return cash to shareholders, while keeping leverage at appropriate levels. Additionally.
We prioritize ESG initiatives significantly increasing the transparency of the business and providing a baseline from which we can improve.
Finally, we returned a significant amount of capital to shareholders through multiple avenues, including base variable and special dividends as well as share repurchases. We've had a great deal of success and will continue to manage the business in a prudent sustainable manner with a best in class balance sheet, and emphasizing return on and of capital.
Now I'd like to provide a little bit more detail on integration progress and on that front, we remain as excited as ever about the future of our company. The industrial logic of the combination remains sound and we are well underway with integration having announced the organization's leadership through the first few layers of the company and are now working to select and implement the best practices processes.
Systems across all of our organization.
Were you using the integration as an opportunity to challenge the status quo and seek ways to improve the way we do business, we're having our leaders and teams keep an open mind and determine the best way to do things going forward without any bias towards the way things were traditionally done at either predecessor company and think this is critical if were to capture all the opportunity that this merger offers.
And we've seen great results, we have now identified over $100 million per year of merger synergies, which we expect to realize over time.
On capital and operating synergies, we see multiple opportunities to leverage each company's proven strengths in areas, such as shortening well downtime running a more efficient workover program, reducing drilling days, improving well completions optimizing facility design and construction and many other aspects of the business we.
We will elaborate more in the coming quarters, but I'm pleased with the progress, we're making and the new opportunities the team have identified.
Now moving to return of capital CT Energy announced its return of capital strategy last night, which is centered on our commitment to returning high amounts of capital to shareholders, while maintaining financial strength and.
In accordance with this objective we made the plan dynamic as it allows for higher free cash flow return when projected leverages at low normalized levels.
We expect to pay out 75% or more of free cash flow when projected normalized leverage is below 0.5 times EBITDA, which with our current strong balance sheet is where we are in today.
Our win Leverages above five five times, but below 1%, we expect to pay out 50% or more of free cash flow in any event normalized leverage exceeds one one times EBITDA, we would pay the base dividend and use remaining free cash flow to rapidly pay off debt as our long term leverage target is below one times at normalized pricing and.
Gaining a strong balance sheet is a key priority for the organization.
As part of our return program, we are increasing the base dividend immediately to $1 25 per share per quarter or $5 per share per year.
This represents an increase of well over 100% and given our outstanding share count represents an aggregate dividend payment of approximately approximately $52 million per quarter. Our base dividend yield is the highest amongst our mid cap peers and importantly is designed to be resilient at low prices and to be sustainable through commodity cycles and.
In practice at the end of each quarter core expects to announce a variable dividend based on the difference between our targeted free cash flow percentage and the amount of capital used to pay the base dividend and repurchase shares during the quarter, we expect both variable dividends and share buybacks to play a role in our capital return framework in conjunction with a return of capital plan, We also announced.
Approval of a new repurchase authorization for $300 million.
Which is on top of a $125 million and shares repurchased in July .
Our return of capital program is highly competitive represents our core strategic values demonstrates our confidence in the asset base and our ability to execute and maintains organizational flexibility.
Now for a few words on the second quarter, we pre announced <unk> operating performance on July one and last night, we provided actuals, which were generally in line with those initial ranges as you recall severe winter weather hit North Dakota in late April which had a significant impact on the power grid and adversely impacted production and per unit costs. However, actual perform.
During the quarter was stronger than originally expected after the storms as power was restored sooner than we forecast in May <unk>.
Volumes exceeded expectations realizations were strong and per unit costs were better than we expected.
Capital was also below our expectations, although this larger reflected timing as activity shifted to later in the year.
And so as we look at the back half of 2022, we are providing third quarter guidance and also updated full year 2022 guidance pro forma for the combined company.
Without the weather impact our updated guide would be above our initial guidance with the driver being good uptime and outperformance across the board on recent well completions I encourage you to look at our latest investor presentation for some perspective on the new wells, we brought online over the past year, which are performing quite nicely.
Including the weather impact we are slightly below our original midpoint, but are very pleased with our operational performance.
We updated our full year 2022 capital budget range to $730 to $760 million, reflecting our estimates for the second half of 2020 two's service pricing and expected completion activity.
The increase versus our original expectation reflects increases in pricing beyond what we originally forecast in February as well as the shifting of some activity into the back half of the year, where service costs are higher due to the inflation.
The current services environment is just another example of why our merger makes great strategic sense. The increased scale of the company will allow us to level load our program, including keeping our pressure pumping crew working full time, which should lead to greater operational efficiency, and therefore lower cost than we would experience otherwise.
Also on the topic of completions, we recently brought on the Bakken first dual fuel Frac fleet, which will drive our second half program, while lowering our emissions profile.
We currently expect to run three rigs in about one five frac crews and our near term focus areas, which include Spanish Indian Hills City of Williston.
<unk> and Cassandra.
As a reminder, at our current completion space, we have over 10 years of inventory economic at $60 per barrel WTS.
Finally, I want to discuss our ESG strategy for.
<unk> energy remains committed to our core ESG principles of providing safe reliable energy and an ethically and socially responsible manner for the long term benefit of our stakeholders transparency remains a key part of our strategy, we expect to provide more disclosure before year end, including pro forma metrics for the combined organization.
The remainder of this year and 2023, the board management will evaluate our current strategy and identify areas, where we can improve shareholder feedback Kurt certainly influences. This process and we look forward to engaging with the investment community on this and other topics at upcoming conferences and in other investor discussions with that I'll turn it over to Michael for some financial updates.
Thanks, Danny second quarter results in our press release and upcoming 10-Q filing generally reflects standalone performance from our predecessor company <unk>.
However, we provided tables in our press release and presentation, which highlight performance from each legacy company along with the combined pro forma CT energy results.
I'll now highlight a handful of key operating items for the second quarter. The numbers mentioned reflect pro forma core energy and are calculated on a three stream basis for both companies unless otherwise noted.
And as a reminder, we will be moving to three stream reporting for the combined companies with third quarter results.
In the second quarter pro forma cord volumes of 158 6000 barrels of oil equivalent per day were at the high end of the range provided on July one.
Youll see that our Capex is a little bit higher in the second half and that is.
And as a result of that our production guidance is also higher for the second half.
Both crude and gas realizations were strong in the second quarter as markets are fairly tight around the Williston and markets continue to remain strong for the second half as well.
LOE averaged $10 <unk> per Boe for the second quarter, reflecting downtime and higher Workover is related to the weather disruptions that Danny mentioned.
And as you can see in our guide we expect per unit LOE to decrease a bit in the second half of the year, reflecting less downtime.
Cash <unk> was $2 81 per BOE in line with the midpoint of the range provided on July one.
Production taxes were approximately seven 4% of oil and gas revenue at the high end of the July one preliminary range or production tax guidance for the third quarter of seven 7% to eight 1% reflects the recent increase in North Dakota oil taxes. This increase relates to pricing triggers as.
At the beginning of June .
<unk> averaged above $95 per barrel for three consecutive months. The Ray would also reset back to lower levels. If <unk> were to average below the $95 per barrel for for three consecutive months.
Pro forma core cash G&A expense was $32 6 million, but 23 6 million, excluding approximately $9 million of merger related costs.
Capex was $172 7 million in the second quarter below initial expectations. The delta largely relates to timing and we updated our full year capex forecast for latest pricing trends.
So overall pro forma free cash flow was over $300 million in the second quarter.
As of July 31 cord had nothing drawn under its $2 billion borrowing base revolver, and we've got $800 million of elected commitments under that revolver.
Cash was approximately $96 million as of July 31, as well, we're providing that July 31st data so that analysts have a reference point.
After a merger cash consideration special dividends share buybacks and a significant amount of transaction costs that were paid in July .
CT energy also has $400 million of senior unsecured notes due June of 2026, <unk> debt ratings were recently upgraded by both Moody's and S&P.
As Danny mentioned.
And we have announced a peer leading return of capital framework. This includes.
A declaration of a base dividend of a $1 25 per share payable August <unk>.
<unk>.
To shareholders of record on August 16th.
Additionally, cord repurchased approximately $125 million under its repurchase program.
In July at a weighted average price of $106 25 per share. This.
This equates to about two 7% of the company's market cap.
We've also announced a new $300 million share buyback authorization on top of that.
Overall, we continued to demonstrate a commitment to significant shareholder return with over $1 $1 billion returned to shareholders in the past 18 months.
In closing thank you to the entire <unk> team for an exceptional hard work during a quarter with extreme weather conditions and significant amount of merger integration work.
As a result of that hard work, we are executing extremely well from an operational standpoint.
Identifying more synergies than originally anticipated, which all bolsters, our sustainable free cash flow outlook, and our peer leading return of capital program.
With that I'll hand, the call back over to Caroline for questions.
Okay.
Thank you.
We will now begin the question and answer session to.
To ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause.
Was momentarily to assemble our roster.
Okay.
The first question comes with Derrick Whitfield with Stifel. Please go ahead.
Good morning, all and congrats on your quarter and update.
Thanks Derek.
With my first question I wanted to focus on the announced increase in PV 10 synergies from the Oasis and <unk> merger relative to your base case could you elaborate on the 1% to two primary drivers and if there are additional capital synergies year. Since we know that the teams are fully integrated.
Thanks for the question Derek I'm going to maybe.
Talk about our integration process and the synergies we're seeing broadly and then ask chip to maybe add some additional detail and maybe identify one or two areas that we think.
May be driving this but I'll tell you honestly Derek it's it's a lot it's a lot of little things and so.
One of the great things about the merger is that is that we're really are using this as an opportunity to to do a bit of self reflection and look at how we do business. We have we are looking line by line across all aspects of our operations.
Our processes are our systems.
And unsurprisingly.
<unk> is focused on certain things Whiting focused on certain things and got very good at those things and so what this process has allowed us to do is really look under the hood on each other sites identify and identify the best way, we think to go about doing things and in some cases.
We'll decided and we have decided that maybe the oasis way in the Whiting way. Neither one was the right way to do things and we're in we're sort of implementing a new thing moving forward, but this opportunity through the merger is really giving us a chance to.
To sort of reflect on how we do things and so we're seeing improvements really across the board through lots of different categories, but I'll turn it over to chip and he can give some more specifics on some of those some of those that may be larger than others, but I will say it really is across across all aspects of our all of our organization and business.
Yes, Danny Thanks, and Derek Thanks for the question.
I want to say Ona due to what Michael and Danny said also I really appreciate the team's working through the last quarter through rough winter conditions, you think about the day job is to end the night job to put this together so as Danny indicated is across all phases, but I'll give you a couple Derek as an example, so on the completion side one of the ways, but where the legacy.
Companies was doing their completions, we believe will impact actually our downtime on our production side. So it will be less sand that enters the wellbore.
On the production side phase and so when you do that you've got we think we can improve our downtime drastically and you do that we have a couple of things there is cost associated with that with Workover workover rigs that reduction in cost there is a savings cost.
<unk>.
Other parts of that business when Youre doing the Workover side Theres a safety piece that gets improved and then what we haven't included the thing as well.
Finally flowing or pumping are working and so there is upside on the on the on the production side.
You think about that and the other one I'd like to point out is probably the facilities built.
There is a modular design that is pre fabricated in the shop, you bring them out to location.
Minimize the impact on location size of about 30% labors cutting about 50%. When you do that there is also a safety piece on that and when you think about I think there is also an ESG component not just a cost savings, but in ESG component. So on the drilling side on the completion side. We are on the drilling side were used.
<unk>.
Basically batteries to minimize when we need more powers, we're minimizing the diesel impact in <unk> is going down on the completion side as Dan indicated we brought the first dual fuel fleet into the into the basin and so we're using <unk>, we're minimizing diesel and <unk> is going down. So you have these these values on cost that we see.
And we also see the value on the ESG side, So I'm really proud of the team and what they've done in their impact.
Okay.
That's great and as my follow up I wanted to ask if you could speak to the A&D market and the Williston at present with the understanding that you are still digesting. This.
This recent merger I wanted to get a sense as to your appetite to participate in further industry consolidation.
Yes, Thanks Derik.
We continue to see a range of opportunities from for maybe small private.
Small private opportunities larger asset opportunities to other corporate opportunities and so I think it really is a range across the Williston.
And we are obviously very focused on integration, but also open to looking and examining further consolidation.
Recognizing that sometimes you don't control the timing of those opportunities and so.
So it will be on the lookout for anything I think we're very happy with what we're seeing with our with our transaction and bringing the two organizations together, we think we've got a significant inventory depth in great position, but if we see opportunities to make our company better and deliver and deliver more value to our shareholders Thats something we are absolutely going to look at so.
Range of opportunities there will be we will be looking at them, but I also think our status quo position is a pretty pretty good one.
That's great Danny Great update guys.
Thanks, Eric.
The next question comes with Phillips Johnston with capital one. Please go ahead.
Hey, guys. Thank you nice to see the higher payout ratio and as you noted I don't think anybody else in the smid cap.
<unk> group is really close to that level.
Good question as many will <unk> sustainability over time so.
Just wanted to get your updated thoughts on overall inventory depth.
<unk> European with.
Status quo, but just kind of wanted to drill down a little bit and get your thoughts on <unk>.
Inventory replenishment over time I think.
The last figure I have can you guys around them.
To 1100 gross locations for the combined company based on four to five wells per <unk>.
Thanks. Thanks, Philip this is Daniela <unk> chipped away and if you've got if he's got some incremental comments here.
I think thats still sort of how we see the we see the world I will say that as we're looking through in evaluating as we can move from potentially two mile laterals to three mile laterals, which we like because obviously delivers significantly more lateral footage from the zone, but at a lower capital cost those counts may change a little bit but the overall lateral footage will stay about the same and so one of the things we've talked about.
It internally is we focus a lot on well counts and sometimes rig counts and what really matters is the lateral footage that we actually deliver in zone and so from that perspective, and maybe <unk>.
Normalizing to the to the scenarios, we've talked about before we still see that 1000, 1100 wells, but as we convert to three mile laterals that number may go down, but the lateral footage stays the same and the capacity to deliver production for our organization stays the same as well. So generally speaking I think we feel like we got about 10 years' worth of.
10 Years' worth of inventory.
From a development perspective, and and obviously, if we see opportunities to bolt on in and increase that and it makes sense for us to do so we're going to be very inquisitive about those those types of things, but the inventory depth is.
Is pretty significant as we stand today.
Okay.
Okay go ahead sorry.
I'm sorry, this is chip rimer.
To add onto that.
Yes, I agree 100% with what Dan is saying and we're really looking at how we manage and how we can basically take two or three models because you imagine that last mile is probably 40% to 50% of the cost of what it is typically what you do on a two mile or so that capital efficiencies and the more you can do that so I agree 100% you really can't think of a world of rigs.
Our wells anymore, its actual lateral feet.
Okay, and then just to follow up on.
The M&A question.
And then 75% plus ratio would of course still lead you guys in a position to build cash at a pretty rapid clip.
Appetite with the board have to.
To do a deal that we temporarily pushed the leverage ratio above kind of the.
Five times threshold or.
Or potentially even above the one times threshold.
Well I think if we see the obviously thats I don't want to speak for the board because thats a discussion we would have in the board with when that situation presented itself, but I think org.
Organizationally, if if we saw a deal that we thought would make us a better organization and <unk>.
And over the long term deliver more value to shareholders than that.
That situation would take us to a leveraged <unk>.
Above five or even potentially above one that's something we would absolutely look at if we thought it was the right thing for us to do I think maintaining a low leverage ratio with something that's very important for the for the organization. Our financial strength is a key tenant that's why we've made this return on capital framework dynamic.
And so if we found ourselves in that scenario, we would use incremental cash flow to delever pretty quickly to get back down under under one which we think is where we should be as an organization.
But if we saw the right opportunity I think thats something we would be.
That we'd be open to again it would have to be the right opportunity. We would have to think it delivered incremental additional value to our shareholders over over time, but.
But I wouldn't say that we would be inhibited from doing that but we would want to get back down into a low leverage spot.
As soon as we could post post any deal like that and having said all that I don't think we feel compelled to do anything again, we feel we feel like we've got a great position as we as we stand, but if we if we see opportunities to improve that of course, we're going to look at it.
Yeah.
Sounds good guys. Thank you.
Thanks, Phil.
Hey, Ken is to have a question. Please press star then the line.
The next question comes with David <unk> with Cowen Cowen. Please go ahead.
Thanks for taking my questions today.
Thanks, David.
I just wanted to talk a little bit about just the capital program you highlighted some of the delays from <unk> moving into <unk> Capex.
And the 200 it seems like the implications, we sort of get back down to this 150 level.
When we think about 2023 and some of the efficiency gains that you're experiencing dropping.
Dropping down the three rigs instead of maybe running three and a half for next year.
Some of the increased synergies that youre identifying.
How do we think about the cost levels that youre experiencing in.
In the fourth quarter kind of being sustainable in the 'twenty three I guess, just thinking about the trajectory of if youre if youre maintaining these levels heading into 'twenty three.
Should we really see significant incremental spend on top of the absolute level that youre at 22.
Yes, I think as we all this is Danny I'll make a few comments and then ask others to weigh in.
We're not we're not specifically talking about 2023, right now and we're still putting our development plan together and we will talk about that and coming and coming quarters, but generally speaking, we're looking at sort of the I would say.
Maintenance to a maintenance plus program, but the plus on that will be pretty small so perhaps very very low levels of growth, but not significant growth year over year. There is some cyclicality and how we deliver production and so as we bring we will have one completion crew sort of running continuously through the year, but then we'll have another one that runs in the middle part of the year.
That will deliver production sort of our peak production is probably going to come in sort of the fourth and first quarters and then it will dip a little bit until we start completing a gain and when we get back in the next year and so if you take a fourth quarter number and then apply that into the next year, that's probably going to.
Lead you astray, a little bit and what the overall delivery is going to be for 2023, I think from a 23 standpoint, where it should be sort of a similar plan from a delivery standpoint, and as we mentioned a moment ago, we will be dropping rigs from 4% to 3%, but the lateral footage we deliver over the year is going to be pretty similar year on year.
So I think you should think of the 'twenty three plan is pretty similar to the to.
To the 22 plan.
I appreciate the color on that.
Just maybe as a follow up you highlighted certainly in the presentation.
Well performance of the combined companies.
As has at least spin matching or slightly exceeding some of the targets.
With some of the integration I guess thoughts going into 'twenty three it looks like Youre evaluating completion designs and things like that are there are there any material changes that you are looking at at undertaking that would change perhaps some of that performance going into 'twenty three.
So go ahead.
David I would say that we are.
As we've talked about earlier I think we are really looking at sort of all aspects I think a lot of these are or may be incremental changes relative to the way either organization did things previously.
If we see I would say.
<unk> revolutionary changes that we think could offer a significant improved performance clearly we're going to be investigating those but I think most of these things is really just sort of incremental improvement, but when you stack a whole lot of those things up together they deliver some pretty impressive results and so unless chip maybe comment more.
I would agree with that Dan you also I think.
Give credits to both legacy companies in there.
Our subsurface teams the social service teams really understood I believe well spacing on the issue.
Or infill drilling and the like.
Our sanish area and to be able to really bring an impact to the company and so as Danny said Theres small little things here, but they are going through they have a program and they go back in May.
They review wells, what the lessons, we're how we're going to get better. So it's a small incremental piece as we go along.
I appreciate the color guys.
Thanks, David.
The next question comes with Fernando Zavala with Vickery and partner.
Please go ahead.
Hi, guys. Good morning, I was hoping to dig a little more into the thought process behind the updated return framework, specifically, how you thought about balancing the building.
For potential M&A or share repurchases in downturns versus paying out the vast majority of free cash flow currently.
Yeah. Thanks, Thanks, Fernando I think maybe I'll take those.
Yeah.
Well I'll talk about the cash balance piece, so I think thats a good question I think one of the great things about having a.
A really strong balance sheet is that we believe it affords us a lot of flexibility, including the flexibility to be.
Opportunistic if we see if we see the right opportunity out there and so as a result, I don't think we feel compelled.
To build a big cash balance.
Because we see we've got that inherent flexibility just because of the strength financial strength of the organization. So I think really thats why we got that 75% plus.
Out there because in very low leveraged scenarios, we would anticipate returning.
A very significant portion of our free cash flow to shareholders.
Got it thanks, and then quick follow up just wanted to get updated thoughts on the Crestwood ownership and plan for those heading forward.
Yes, I think.
From a crestwood perspective, we continue to to really like the real.
We like the company clearly they are a very important strategic partner for our organization.
We have the equity performance has been has been very good or the unit performance has been good.
We.
We like the company, we like the we like our ownership stake in that.
I think it's.
Over over the long term, we recognize that that's not a core strategic holding for us, but we are we're pleased with that with that investment and think it.
It is.
Is a great organization.
For us to have a holding in.
Okay. Thanks, that's it for me appreciate it.
Next and last question conflict with China, Donnie with truly Securities. Please go ahead.
Good morning, I'm not sure if you explicitly outlined it but I assume part of the rationale for the combination of the two companies with kind of a midstream.
Position.
We reduced some of the constraints you've seen before.
Have you had enough time to kind of look into this year, maybe going to reshuffled operational plan.
Typically for this or do you think you would just focus on the highest return areas and kind of let it shakeout.
Well I think we when we're looking at development plans and I'll ask chip I'll ask chipped away and clearly we take in our ability to sort of taking all aspects into account as we build out a development plan both those areas, where we get the highest returns, but if you can't get those returns are lively market.
And those may not be the best area for you to go in at that time, and so we try to work.
As long in advance or as far in advance with our midstream providers as we can so that we do get the right infrastructure in place. So that we can work in the areas we want to drill.
But that's that's an iterative process and so as we build out this plan, we sort of take all that into account.
Frankly going into those areas that are that we think offers the best return, but also being cognizant of the infrastructure constraints that may be there.
And work with our midstream providers to get those sorted out over time, so maybe I'll ask Jeff to add an incremental comments to that evergreen. This is chip rimer.
Thanks, and thanks again for the question.
Danny is exactly right, it's holistic look at that.
The program. So what are your best returns, where you have takeaway, where you don't have critical way thinking way ahead to make sure that we've talked to our midstream providers. So we can have that access they're connected to our wells. There is another ESG component on this thing so.
You want to make sure that every molecule is captured in Florida put down that line. So is that being a prudent operator, that's what you've got to do and make sure. We're connected with a third party providers. So we work really close with them.
Our teams work really close and we each and every time, we're going through our budgeting process and I'm trying to understand what wells were going to go to its all around returns, but can we can remove that product on the line.
I appreciate the color and then just shifting gears back to the.
The new the new.
Payout plan is there mechanically a way that you look at it I know you have the $65 and $3 Henry hub.
But if the market were to kind of rebalance wood you readjust those prices or is that more of your long term view, regardless of what the strip looks like.
Well I think if we as we look at the strip at the strip fell appreciably then clearly we would look at those we would look at those prices again.
We think that that 65 and three quarters represents a reasonable.
Long term sort of normalized mid cycle view.
But clearly our thoughts on that may evolve over time, and we want to make sure that we are sort of deep financial strength for the organization. So if we found ourselves in a very different environment, we would absolutely go back and look at that and reevaluate.
Thanks, guys great quarter.
Thank you.
Thank you.
This concludes our question and answer session.
I would like now to turn the conference back over to Danny Brown for any closing remarks. Please go ahead.
Alright, Thanks, Carolyn will to close out I'd like to thank everybody for their time today I'm very pleased with the exceptional progress we've made in transforming our organization. We remain committed to our core strategy, which revolves around return on and of capital balance sheet strength and being a sustainable operator.
Excited about the opportunities going forward for our shareholders employees communities and other stakeholders and with that thanks for joining our call.
This conference has now concluded you may now disconnect. Thank you for attending today's presentation have a great plan.
Okay.
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