Q3 2022 Ovintiv Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by.
Welcome to over into 2022 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 and Ken joined the queue at any time by pressing star one.
For members of the media attending in a listen only mode. Today, you may quote statements made by any of the <unk> Representatives.
However members of the media, who wish to quote others, who are speaking on this call today, 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 would now like to turn the conference call over to Jason Borges from Investor Relations. Please go ahead Mr behest.
Thanks, Michelle and welcome everyone to our third quarter 'twenty two 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 beginning of our slides and in our disclosure documents filed on SEDAR and Edgar.
Following prepared remarks, we will be available to take your questions. Please limit your time to one question and one follow up.
I'll now turn the call over to our CEO Brendan Mccracken.
Good morning, Thank you for joining us our third quarter results demonstrate that our strategy to deliver superior durable returns and substantial free cash flow is working.
This strong financial performance is directly translating to increased cash returns to our shareholders.
In the quarter, we doubled shareholder returns to 50% post dividend free cash flow.
As a result, we bought back two 5% of our shares outstanding in the quarter.
We delivered these additional buybacks ahead of our original plan due to our significant debt reduction and strong business performance.
We remain on track to deliver about $1 billion to our shareholders. This year through the combination of share buybacks and base dividend.
And this amount is set to grow significantly in 2023, as our new hedging policy comes into.
<unk> effect.
Put it in perspective under our new hedging program, our third quarter free cash flow would have totaled approximately $1 3 billion.
Or about $5 billion on an annualized basis. This has us very excited about unleashing the free cash flow generating potential that we have built into our business.
In addition to increasing cash returns, we continue to make progress reducing debt at the end of the quarter, our net debt to adjusted EBITDA ratio was below one turn.
Our team delivered another quarter of strong operational results with outperformance from our new wells in our Montney driving natural gas and NGL production to the high end of our guidance range, which in turn delivered total production levels also at the high end of our guidance range.
We are focused on maximizing free cash flow and returns in an inflationary environment.
As a result, we have elected to preserve capital by slowing down some of our planned fourth quarter completions activity in our U S basins.
We chose to finish our montney completions to have those wells online and exposed to higher gas prices through this winter season.
Greg will cover the specifics of our updated guidance.
We are increasing total full year production by 5000, Boe's per day, and holding capital at $1 8 billion.
Our reservoir management and planning expertise is also paying off we continue to see consistent well performance in the Permian, where we have been in cube development emerged since 2015.
Our approach has not changed as Greg will show, our well performance year to date as both generating strong return on invested capital over 200% IRR is on strip pricing, but also is generating very consistent year over year oil productivity per lateral foot.
I'll now turn the call over to Corey who will cover our financial performance.
Thanks Brendan.
<unk> delivered strong financial results in the third quarter with net earnings of $1 109 billion EBITDA of 958 million free cash flow of $437 million in cash flow per share of $3 70, beating consensus estimates third quarter production came in at 516000 Boe per day.
With each commodity within or above our guidance ranges.
We are very we were very pleased to deliver a significant increase in our direct returns to our shareholders. This quarter, we announced in early July that a return to free cash flow to shareholders would increase from 25% to 50% with this jumped to 50% we delivered $387 million in share buybacks and base dividends. We also.
<unk> maintained our commitment to reducing our absolute debt levels, we lowered net debt by almost $300 million and.
And we opportunistically repurchased about $500 million of our senior notes.
Over the long term.
Most valuable E&ps will be the companies that can demonstrate durability in their cash returns we possess a premium multi basin portfolio that is uniquely balanced slate, both crude and condensate and natural gas opportunities across our north American asset base.
We possess a substantial inventory runway and our inventory counts are the result of a rigorous annual depletion plan process, which plots actual sticks on our acreage. The outcome is a well balanced portfolio of premium drilling opportunities more than 10 years of premium oil and condensate locations and more than 20 years of premium natural gas locations.
We're having the resource underfoot is a great starting point efficiently converting the resource into cash flow is critical. This is why we're so focused on delivering top notch capital efficiency and operational execution. As this reflects our ability to extract value from our assets.
Finally, maintaining a thoughtful and disciplined capital allocation approach is key if youre successful in finding and converting resource into cash flow, but let but leak that cash by chasing the drill bit or dilutive M&A when the value captured never makes its way to ship to the shareholder.
We are resolute in our focus on our return framework and remain committed to delivering substantial returns for our shareholders.
When we combine our premium inventory and leading efficiency with this disciplined capital allocation. The result is significant free cash flow generation, our 2022 free cash flow yield of about 16% is about 20% higher than our peers and more than three times. The average of the S&P 500.
We were unhedged this year, our free cash flow yield with more than double to almost 40%. This is an amazing set up for our shareholders going into 2023, and it reinforces our desire to repurchase shares with free cash flow.
Our substantial free cash flow profile is allowing us to return meaningful cash to our shareholders.
On our third quarter free cash flow, we expect to return $250 million to our shareholders in the fourth quarter. This translates to an annualized cash return yield of 7%, if we remove the $821 million impact of our hedges for the for the calculation our cash return yield would more than double to about 19.
Percent, even without the hedges removed, our 7% cash return yield is significantly higher than the broader market.
When looking at what our cash return yield would be on an unhedged basis. It is more than four times the broader market.
The roll off of our 2022 hedging program is imminent and when we look ahead to 2023, the uplift to our cash flow generation is substantial and will result in incredible upside for a cash return profile.
During the quarter, we continued to make significant progress in reducing debt and optimizing our capital structure, we lowered net debt by 294 million to $3 6 billion.
This represents almost $1 billion of net debt reduction so far this year.
In addition to lowering our net debt, we're taking a proactive approach to reducing our absolute debt and the interest costs that go with it over time these permanent savings make room for further dividend increases.
We purchased over $500 million of our senior notes in the open market during the quarter, bringing our year to date total to $565 million of long term debt retirement.
Associated annual interest savings is significant at more than $32 million.
We will continue to be opportunistic on this front going forward as higher interest rates lowered the price of these bonds.
Our strong performance has generated a trailing 12 month adjusted EBITDA north of $4 billion driving our current leverage ratio to 0.9 times at the end of the quarter.
The resiliency of our business and our ability to withstand market volatility over the long term remains a priority as such we're committed to further debt reduction fortifying the balance sheet now during a period of strong commodity prices will allow us to be both resilient and opportunistic.
We are constantly looking for ways to maximize the value we receive for our products. When it comes to natural gas we have been actively managing our pricing exposure securing flow assurance and contracting access to diverse markets for decades, we expect both the echo and wahoo gas markets to have periods of tightness through the end of next year.
Where production comes close to or even exceeds in basin demand and export capacity, we've been very proactive to ensure we can get our natural gas volumes to market and to minimize our exposure to local market pricing in Canada, we hold substantial capacity on four of the five major egress pipelines exiting heiko.
This covers about 65% of our volumes and additional 20% to 25% of our Montney price exposure is covered by basis hedges. These convert our natural a co exposure to Nymex. So while the gas will be physically sold at Agco, we effectively received the Nymex based price for those sales <unk>.
The result is more than 90% of our Montney production is priced at markets outside of a co from now through 2025, providing protection from potential price weakness there.
We've implemented a similar strategy for natural gas volumes in the Permian.
But 75% of our volumes slow to the Gulf Coast markets via the Whistler in Gulf Coast Express pipelines. Another 20% is protected by Wahhab basis hedges, leaving only 5% of our 2023 Permian gas volumes exposed to wellhead pricing.
I'll now turn the call over to Greg who will provide some operational highlights.
Thanks Corey.
Capital efficiency remains a primary focus for our asset teams across the organization and as Corie mentioned earlier efficiently converting our resource into cash flow as a crucial aspect of our durable return approach our.
Our cube development method optimizes, both the returns and the NPV of each acre we develop.
The result is that our capital efficiency ranks top tier among our peers and is creating exceptional value in today's volatile commodity and macro environment macroeconomic environment.
No matter, how you look at it <unk> is delivering more barrels and boe's for less capital than our peers.
This efficiency edge generates higher returns on invested capital and allows us to deliver higher cash returns to our shareholders.
If we were to use the peer average for capital efficiency and our 2022 program. We would have had to invest another $350 million to deliver our targets.
Put another way, we are generating an incremental $350 million of free cash flow. This year value that we are returning to our shareholders.
<unk> has long been an industry leader in resource stewardship, and concurrent multi zone development through our cube model.
A customized stacking and spacing approach and each multi well pad to optimize recovery and deliver the highest NPV for every acre of land we develop the.
The benefits of our approach are very evident in the Permian basin.
We have studied the play extensively over the last eight years delineating the asset by drilling across our entire acreage footprint and entering into extensive data trades with our peers in the Midland Basin.
We are targeting up to six benches across the play and we see further upside and additional prospective horizons.
The depth of our technical understanding and our ability to execute are demonstrated in our well results. Our 2022 program performance is right on top of our 2021 results.
It is important to note that these 2022 results reflect all of our wells online year to date and a representative of full development stacking.
At current strip prices, our Permian wells deliver a greater than 200% rate of return and pay out in less than 10 months.
Just a few weeks ago, we highlighted our montney asset to the investment community as we believe it is undervalued by the market.
Our montney webcast is still available on our website, but as a quick recap we are expecting over $2 billion of upstream operating free cash flow. This year, the highest among all of our assets.
This is driven by our leading capital efficiency and outstanding well results.
Strip, both our gas and oil and condensate wells generate returns north of 200%.
We also hold a premier acreage position with multiple phase windows and substantial product optionality.
We have a premium inventory runway of more than 10 years in the oil and condensate window and more than 30 years in the gas window.
Importantly, we have secured market access and strong price realizations for our products, our condensate production trades in line with Wty and more than 90% of our natural gas volumes were priced outside of ACO going forward.
Finally, and I will cover this further in a minute our proven culture of innovation has driven unmatched operations in the basin.
As you can see we are the clear industry leader across multiple key efficiency and operational metrics. These results are not by accident.
We take great pride in our teams ability to innovate and push push the efficiency frontier.
In the third quarter, we brought online a 15, well montney pad that stack multiple innovations together to deliver record results.
On the drilling side, a redesign drill bits and optimized Motors center now open to have Montney drilling record of over 2400 feet per day.
Not to be outdone, our completions team utilize real time, frac optimization, and so I will frac operations to southern Obento Montney completions record of 10375 feet per day, and our profit record of over 19 million pounds per day.
Finally, we used multiple coiled tubing units and integrated service rigs to seamlessly tie in 15 wells and southern opened two of Montney pad production record of 12000 barrels per day of condensate.
This case study clearly shows the power of our culture of innovation and I want to reinforce how proud I am of the team and their delivery of these results.
Our operational execution in the quarter was not limited to just the montney.
In the Permian our efforts across the entire development process drilling completions facilities production and tie and resulted in a 20% faster spud to first sales cycle time versus our 2021 average.
A similar effort in the Anadarko focused on our simultaneous operations in alleviating bottlenecks, delivering a 25% faster spud to first sales cycle time versus our 2021 average.
Finally in the Bakken, we achieved record completions performance of more than 6300 feet per day.
We are also seeing strong well performance from our recent 10, well Kramer development with an initial 30 day average oil production of 1900 barrels per day per well.
It is no secret that the operating environment remains challenged.
But we are responding with innovative solutions, we are confident in our ability to generate superior asset level returns and maximize capital efficiency.
That said our teams have had to be very agile this year and respond in real time to inflationary pressures and supply chain bottlenecks.
These challenges still persist.
We have made a number of changes to our fourth quarter program to optimize our operations and set us up for continued success in 2023.
We've updated our fourth quarter and full year 2022 guidance to reflect these changes.
First capital discipline remains a priority for us.
We are maintaining the high end of our full year capital range at about $1 8 billion.
But this will mean slowing down activity levels in some of our operating areas as we approach the end of the year.
Inflationary pressures continue to persist throughout the industry, but they are more acute in our U S assets.
In response, we are leveraging the optionality of our portfolio by slowing down fourth quarter completions activity, primarily in the Anadarko and Bakken, while maintaining our planned activity levels in the Montney.
We will build on incremental DUC inventory of about 15 to 20 wells. This is beyond what we consider normal operational docs and will see us exiting the year with about 35 to 40 total drilled but uncompleted wells.
We will take a methodical approach to bringing these wells on production throughout the first half of next year.
We also made the decision to change out our frac crews in the Permian and Anadarko.
Our new crews are set to begin working for us in the coming weeks and we are confident in their ability to deliver industry leading performance. We also expect this will help us deliver a more ratable program in 2023.
Additionally, we've seen the delayed return of oil volumes in the Anadarko following line pressure issues that persisted throughout the third quarter.
These issues have been largely resolved with the installation of additional infield compression and the team is working to unload these wells through the fourth quarter.
The combination of lower than expected fourth quarter production in the Anadarko and the slowdown of completions activity in the oily replays will result in lower fourth quarter oil and condensate volumes.
Despite these headwinds our full year total production guide has increased by about 5000 Boe per day as a result of strong outperformance from our Montney asset.
To be clear the increased natural gas volumes were expecting from the Montney. This quarter are not the result of lower royalties rather they are driven by the exceptionally strong well performance.
The Montney also benefits from loss cost inflation that are U S assets and has a strong outlook for natural gas prices through the winter months.
Finally, our total cost guidance for the year is unchanged.
I'll now turn the call back to Brendan.
Thanks, Craig before we move to Q&A I'd like to sum up the key takeaways from today's call first our team delivered another strong quarter of financial and operational results.
We are increasing full year production guidance and maintaining capital.
We're one of the most capital efficient operators in the industry. Our team is meeting the challenges of cost inflation and supply chain disruptions with agility and innovation.
And we are optimizing our development plans to create value for our shareholders.
We're actively delivering on our durable return strategy, we're investing to earn superior return on invested capital that fuels, our free cash flow.
Our cash return yield from our base dividend and buybacks as market, leading it exceeds that of the S&P 500, and it is poised to more than double in 2023.
Finally, we are resolute in our determination to close the valuation gap between us and peers were doing that today by buying back our shares and ensuring we can deliver those durable returns over the long run.
Operator, we're now prepared to take questions.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session for members of the investment community.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
If your question has been answered and you would like to withdraw please press star followed by the number too.
We will allow one question and one follow up.
One moment. Please for your first question.
Your first question will come from Doug Leggate Bank of America. Please go ahead.
Good morning. This is John Abbott on for Doug Leggate. Thank you for taking our questions.
Our first question is just given the fourth quarter guide.
For oil and condensate how do you see sustainable production.
For oil and condensate just sort of going forward and I'll look are you in that sort of 175000 barrel per day range to get back to 180000 barrels per day, how do you sort of think about that.
Hey, John Yeah. Good morning, Yeah. So one of the objectives that we have coming into 'twenty three is to create a more ratable production profile for our business and so that that's sort of connected through to our choices that we made with capital in the fourth quarter here and so.
We've been leaning into and this is consistent with what we've been saying really really all year is.
In this macro environment.
With the opportunity we have on buybacks. It continues to make sense to us to to be in maintenance mode and so what you should expect from us is to be holding activity flat year over year, which will translate through to production that's going to be flat after correcting for divestitures on a year over year basis.
This an.
Obviously, we're still working on the details of that 23 programme now and we'll give more of an update in time, but.
Really that's the big game plan that we're operating under here.
The year over year flat after divestitures is the way to think about it.
Appreciate it and then for a second question related to the Anadarko line pressure issues it sounds like.
Youre moving past those issues those wells those issues are being resolved but.
What steps have you taken or how what steps you're taking in the future said that this does not arise potentially again.
Yes, no great question, John and that and that it has been an area of focus for us really since the early months of the summer when we when we realized that this was going to be a challenge for our midstream provider. There. So I'm going to maybe just turn it over to Greg to comment on the steps. The team has been taking to make sure that this isn't a recurrent problem for us when we get into the warmer weather.
Next summer.
Thanks, Brian and then yes, just to build on that a little as we went through the summer. We had two issues that were impacting the Anadarko, we were bringing on our new wells that we're adding volume to the system and that was combining with high temperatures that just caused the system to fill up.
What we've done since then and working with our midstream provider as it's their system. We've added additional they've added additional compression to us to draw down the line pressure they've added some coolers to cool the gas and handle the hotter temperatures and overall just worked to Debottleneck the system and we feel like those efforts will be resilient and help us not only during the current time.
But also when weather gets out gets warm again next summer.
The impacts to our production were throughout the third quarter, but we've got the AR issues behind us and now we're working to unload the wells.
The wells in the Anadarko will predominantly on gas assisted plunger's as an artificial lift form and so it's taking a little time to line those back out and adjust to the new current operating conditions, but we feel like throughout the quarter, we will be getting back to regular production levels from the asset.
Your next question comes from Jeanine Wai of Barclays. Please go ahead.
Hi, Good morning. This is janine thanks for taking our questions.
Our first question is related to.
In the Montney.
Our plan was to have Montney activity, we believe increasing next year.
It's a bit lower due to some permitting.
Later on this year, but is there a case to be made that potentially next year, you could skew a little even more to the montney given that it seems like there is significantly less inflation, there and you have really really strong well performance or is there some kind of natural governor on activity based on how much price exposure you want to add.
<unk>.
Yes, Jeanine great I appreciate the question.
Absolutely, we're going to see the capital program in the Montney go up year over year, because we've now got the permitting challenge behind us.
And the returns there are very strong.
I think what you should expect though is is we're not making some strategic shift too.
The commodity mix in the company, where we're not making a strategic shift to gas here, we did elect to complete out those montney gas wells in the fourth quarter here and have them Onstream for where we expect to be a higher winter price than summer, but but that was really more of a tactical called in our strategic call.
And so what you should expect as our Montney program is still going to be pretty dominated by investments into the condensate window.
And driving the production and returns from Mccartney window, we will definitely do some gas.
<unk> as well, but but not a big shift from from what you've seen from us in the past. So it was really 'twenty two is sort of the anomaly year, where investment in the Montney was down because of the permitting delay and so this is kind of getting back on track.
In the play for us.
Because we definitely.
Are going to pay attention to the broader gas macro at Nymex since that's going to be where the bulk of our price exposure is going to be over 90%.
But we will also be sensitive to on the margins additional gas production for us in Canada will be eco exposed. So that's definitely something we're thinking about as we're allocating capital within the portfolio.
Okay, great. Thank you for that detail.
Our second question I just wanted to go back to something we just heard in the prepared remarks.
Sounds like you said you just switched out your frac crews in the Permian.
Darko.
Just wondering really how much of your 2023 service activities do you already have secured I think the prior commentary was that many of our service contracts are rolling off maybe this quarter early next year.
And so that was kind of driving some of the inflation thoughts for next year and so how does this kind of changeover and the frac crews and everything how does that factor into your decision to build the 15 to 20.
Yes for sure Jeanine it.
The change out of the Frac providers really is not connected to the duct decision at all.
The choice to to not complete those wells was really driven by our strategy on free cash generation and using that free cash to drive buybacks at the valuation that we sit at today. So that was really that calculus and then.
But you are correct.
<unk>.
Service contracts for us are rolling at year end and so what we've done is run.
An RFP process to determine who the best provider for us will be for 23, we've made those choices and we're now in the midst of making that cut over to those new new providers and maybe Greg if you want to comment on any specifics there.
Yes.
Thanks, Martin and yes, we just as Brendan said as those contracts rolled off we went through our large pool of.
Suraj providers that we've worked with for many years and selected do we think will be the best provider for next year and we've got a got that work secured and look forward to getting a running start into 2023 were all set up and have our services, we need to deliver on our program for next year.
Your next question comes from Neal Dingmann of Truest. Please go ahead.
Good morning, all thanks for the time My first question really is on probably what I'd still say, it's a top producer and that's capital allocation, but I'm. Just wondering specifically would you all consider lean you, obviously, you're doing a great job on the buybacks, but I'm just wondering would you even consider lean harder into these in the coming quarters, especially if you're free cash I mean, we see it well, we're still 20% wanted to.
Better out there.
Would that still be kind of your primary.
Primary shareholder return.
Yes, Neil on the on the buybacks absolutely I think at these valuations. It continues to be the clear winner in terms of how to return cash to the shareholders.
We obviously also have at the foundation of our capital allocation model, a sustainable and growing base dividend and that will be something that we'll be looking at through the year as well, but today the the buybacks are quite attractive.
Really if the macro stays where it's been recently, we will see significant cash returns and debt reductions next year.
Which could be a point at which we contemplate going above the 50%, but as you pointed out even at the 50% our free cash flow yield. This is well above peer average and three times the broader market. So.
It set up to be in a pretty good place.
Yes, I would agree Okay and then second question just on operational activity specifically on the <unk>.
Thanks, you all did a good job highlighting just to ease up call. It still certainly upside from the Permian Montney and Anadarko and I'm curious is could you just maybe discuss a little bit I know you've got some interesting acreage. If you could discuss current activity and potential upside potentially in your Bakken and Uinta plays have haven't heard as much on them recently.
Yeah, I'll Tee this up for Greg because it's both the Bakken and the Uinta had been particularly highlights this year on just some monster well performance, so kind of turn it over to Gregg to comment there.
Thanks, Brendan yes, as I mentioned in the prepared remarks, though we've seen some really strong performance from the Bakken. This year, we had high expectations for the asset and what those wells could deliver and they havent disappointed, though that Tingwall Cramer pad IP 30 of over 1900 barrels per day per well are we were really glad to see that and really that's the result.
Our multi basin strategy of taking learnings from one basin and applying them across the portfolio. So we were able to really apply our industry, leading technology to these completions leaned in a little bit on completion intensity, which is something that hasn't really been done much historically in the Bakken and really saw great results.
So very happy with what we're seeing in the Bakken again, it's always been very competitive with our other assets. It's just the inventory life. There is not quite the same as our as are others.
Shifting to the Uinta, we've got some really positive results. There recently as well if you look back and you can see this in the public data.
Our last 10 wells, we've drilled there have averaged just over 1900 barrels per day in their first month.
And the three most recent wells are actually over 2000 barrels a day, so seeing really strong well results from our cube development, there and in the winter and it also seeing really really strong margins. The team has done a great job moving our barrels where we're now assuming a number of barrels of rail down to the Gulf coast and so our margins are in the third quarter were right.
In line with the Permian So some of the strongest in the company so and just as a reminder, in the Uinta. We did have the asset sales that closed in the quarter, but that was the legacy waterflood that we we divested we still have our approximately 130000 net acres are there in the core of the shale play and and as I've just mentioned the results there.
Looking quite promising.
Your next question will come from Greg Pardy of RBC capital markets. Please go ahead.
Yeah. Thanks, good morning, good rent and most of my questions have been answered, but Brandon you talked about.
On a more ratable program next year, and still sort of flat I guess year over year ex the <unk>.
The dispositions how should we think about Capex maybe from two fronts. One is maybe just on a like would you expect it to be relatively stable on a quarterly sequential basis, and then what about inflation, especially now that you've got some maybe your other search dysfunction.
Yes, Greg that's what we're working towards is a more ratable production profile, but that will also come with a more ratable capital profile.
The big the Big objective of course is to be highly efficient with the capital and maximize free cash flow.
And this is consistent with the remarks, I think we made even last quarter.
Sitting here today, the inflation pressures, we've been saying feel like a 10% to 20% range year over year, and it's and it's really kind of pointing to more towards the high end of that range.
And so that's where you should expect us to be on on capital next year and then the 15 to 20 ducks that we're carrying into will be completed through the front half of the year. So we're not going to.
Bring on spot crews are.
Go ahead and undertake that work, we will do it with the existing ratable activity level, so they'll they'll get completed through the front half of the year.
Okay, Perfect and then maybe just the second one is to match up.
The change in production mix the alteration production guidance, how much capital did those decisions save you in the fourth quarter.
Yes.
Do the completion cost on those 15 to 25, well, it's Greg it's on the order of $70 million to $85 million.
Okay terrific, thanks very much.
Your next question comes from Menno <unk> of <unk>.
TD Securities. Please go ahead.
Thanks, and good morning, everyone.
I'll start with a follow up on shareholder capital returns and Brandon you talked about contemplating I think was the word an increase beyond the current 50% on achievement of 3 billion of net debt, which on our math is is just around the corner, but more generally what are the factors that will ultimately drive the disc.
Asian to either stick with 50% or take that higher.
Yes, I think it's really going to be.
Our quarter to quarter choice that we're going to look at so I don't think there is a particular set of circumstances and it really if you remember the 3 billion trigger was really all about shifting to the 50%. So I don't really see that as a governor.
On our choices going forward so.
And a lot of ways, where we're going to look is to see how the macro is shaping up for the year. Obviously there is there is uncertainties in that picture as we sit here today that we're learning more on every day.
And that will just really drive how we think about the balancing act between continued debt reduction and more cash returns and as we look at it today, we are poised at the 50% level to have an outsized cash return yield and so we know the buybacks or the tool.
That we have in the quiver to drive that valuation increase in and so we'll kind of manage it quarter by quarter as we go.
Perfect and then just moving on to the second.
In the Montney and with the understanding that you have already locked in the majority of permits BC permits for 2023 is there any update on the status.
Bilateral talks between blueberry first nation in the government and is it possible that we see resolution before the end of the year.
That's certainly the objective that we're being told by by the.
BC government to have a resolution imminently.
So.
But that's why we've gone ahead and made sure. We're in good shape to be able to execute on the 23 program and so really anything from this point forward is kind of upside for us.
And I think you know this man Oh, but for.
For the benefit of everyone. The acreage position we have in the Montney is all on the lower risk permitting part of the play here and so that's what's been able to unlock.
Our ability to have that confidence in the program and have those permits in hand as we're just in a part of the play where we don't have that exposure.
Exposure to the to the more challenging permitting acreage so.
Feeling good about it and we'll just sort of see and I think it's helpful generally to have a.
A specific resolution, but pleased with where we sit.
Thanks, Brendan I'll turn it back.
Thanks Pam.
Your next question comes from <unk> Chowdhry of Goldman Sachs. Please go ahead.
Hi, good morning, and thank you for taking my questions.
Most of my questions have been answer hopefully two quick ones for you.
You talked about.
<unk> oil and condensate production due to lower base in the quarter.
Can you remind us when these wells are coming online and any thoughts on exit 2022 production and implications for production cadence next year early next year.
Yes.
<unk> the question so.
The the ducks that were not turning in line this year theyre going to be spread throughout the front half of next year.
And then the.
The question on where does that leave us for exit we are seeing our fourth quarter tills come down as a result so.
We were almost 70 turn in lines in the third quarter, that's going to be more in the low forties in the fourth quarter and so.
Think we'll be in the in the guidance range on exit as well as for the quarter and that will set up the the 2023 and we will give some more color on the shape of 2023 and in due time here, but but that lower turn in line. Obviously is going to have a flow through effect to the to the first quarter.
In 'twenty three.
Okay and then.
My next question and hopefully a quick one.
On <unk> productivity slide 12 highlights that we have kept <unk> flat.
Yep.
Would love your updated thoughts on how long can you keep the productivity of those beds flat going forward.
Given that you have been only and shifting to development.
And then.
As you think about the bolt on opportunities, especially in the Permian.
How is the market quickly.
Yes. So the first question there on the productivity piece I mean this is just really important so we've been in the cube development mode. All the way back to really when we entered the play and so this is this is no changed our development strategy, we have been developing the full stack add density since.
That time in and.
So I think the answer to your question is the premium inventory runway that we talked about is over a decade in the Permian and so it's our job to ensure that productivity stays at that level through that whole runway and that's the approach, we're taking and feel pretty confident because we're seeing that show up in our results.
And then maybe just remind me the second part of your question there.
Just on the bolt on opportunities in the Permian has the market right now.
How's the market yet.
This has been a space, where we've been really pleased at the progress we've been making.
We've added.
Considerable number of locations in the last year through this bolt on program at really accretive values.
We're now on track to replace all of this year's drilling consumption, both in the Permian, but across the whole portfolio. So some 230 locations between our both our organic as well as our bolt on.
Program, So pleased with how that's making progress.
The market I think has.
Probably if anything improved a bit as we've gone through the year I think seller expectations have gotten a little more reasonable as commodity prices have stabilized and the backwardation in the market has continued in and you've seen that with some of the larger transactions that are have appeared recently, we've seen that as well and in the <unk>.
Bolt ons space.
Great. Thank you.
Your next question comes from Phillips Johnston of capital one. Please go ahead.
Hey, guys. Thank you first just a clarification on the earlier question around 'twenty three capex.
As you said Brendan <unk> been messaging sort of.
10% to 20% higher than the possible bias towards the upper end of that range. So call. It around $2 1 billion or so I just wanted to clarify that still a good number even with the <unk>.
$75 million to $80 million capex associated with the ducks getting pushed out into the first half of next year.
Yes, so I appreciate the clarification so yeah.
Obviously, a bit early to get Super specific on the detailed guidance here, but we would see that Doug capital on top of the prior steering.
Okay. Thanks.
Thanks for that and then just wanted to ask you about the base dividend I think you guys have said in the past that the board typically targets a base dividend.
Represents about 10% of cash flow at mid cycle pricing, which would probably purchase somewhere in sort of the 300 or $350 million range and well above sort of the current annualized.
Number.
So you guys have raised the dividend three.
<unk> three times in the past several quarters.
And I guess in your prepared remarks, you sort of implied that another increase is likely in the cards.
Question here is mainly just timing or are you, mostly waiting for the hedges to roll off in January do you want to see a bit more debt reduction or is it something else.
Yes, you've got it nailed in terms of how we're thinking about the base dividend and I think on timing, obviously hard for me to front run the board on that here, but.
That's something we will look at every quarter.
And sort of way is this the right time to make that increase in.
That'll be the approach, we take with it but you've got the sort of aiming point nailed down there 300 to 350 is kind of the place we have in mind.
Okay sounds good thank you.
Thank you.
Your next question comes from Nicholas Pope of Seaport Research. Please go ahead.
Good morning, everyone.
Can you hear me.
Yes. Good morning go ahead.
Thanks for taking the question.
I was hoping you guys could talk a little bit about that.
The kind of broader.
Our balance sheet that plan right now, obviously, a big quarter of debt repurchases in the third quarter across a lot of different.
Issuances.
So kind of curious what.
Or what.
And what maybe the.
What kind of rate is right now on the credit facility, because obviously you built a little bit on the credit facility to repurchase some of that some of that debt in the quarter.
So just hoping you could expand a little bit on the on the broader plan for.
Are those notes and maybe what's available in the next year.
Yes, Nicolas I appreciate the question I'm going to turn it over to Corey here.
Well, we've talked about is we do want to continue to drag.
Net debt down.
We've kind of said less than $3 billion that sort of directionally, where we're headed.
And I'll, let Corey kind of talk about the specifics of some of the open market repurchases, we've done and how we thought about those.
Yes. Thanks for your question. So if we look at it you rewind the tape a bit the the $3 billion target ideally, we'd hope to get that as actual 3 billion debt and not have a 3 billion net debt.
If you think about where rates have gone, it's really opened up the opportunity for us to buy back much of bad debt either at or near par that would've been priced in the $1 30 range not that long ago. So.
Higher interest rate environment has made some of that available when we did our montney release, we had updated.
The open market repurchases and some of that makes it known to people publicly that that's an option. We're looking at so it does tend to unlock some of those opportunities that maybe would have been tucked away in held for the long term. So we do look at it more opportunistically and try and try and take down the debt. If you think about where.
Rates are today.
And of the rate curve is pretty high so it will be focused at least in the short term on generating cash and paying some of that down but still looking to.
Be opportunistic if there is.
Purchases to be made in the future.
Got it that's helpful and as you look at kind of.
Okay.
The increase in the borrowings under the credit facility.
During the quarter I think it seems like it was just a timing issue, but what.
What kind of rates are you seeing right now on the credit facility with $440 million at quarter end.
Yes, I mean short rates are close to almost 4% so.
If you look at what we're buying back is in the 6% range. So like I said.
Relatively flat across the curve so the old days of getting sub 1% and taking out high coupon notes, there's not as much interest savings there, but long term, having inflation increase your commodity price and taking out notes that you thought were locked in for a long time, there's a good opportunity so for us.
Got it.
That is all I had I appreciate the time thanks.
Thanks Nicholas.
Ladies and gentlemen, once again, if you would like to ask a question. Please press star one at this time.
Your next question will come from Fernando Valle of Pickering Energy Partners. Please go ahead.
Hey, guys. Good morning, just a quick one from me it looks like Permian oil declined quarter over quarter. Despite an uptick in turn on lines. I was just wondering if there were any one off events that impacted production for the quarter or if it was just timing of the walls.
No Fernando yes, good question, but it's just timing of when the wells came on in the quarter. So that's why we showed the well performance chart of the year to date and.
Very pleased with how the wells are coming in for the year there.
Okay.
Great. Thanks, that's all I had.
Thank you.
Your next question will come from Noel Parks of Tuohy Brothers. Please go ahead.
Hi, good morning.
Good morning.
Just had a couple of things.
So sure about the.
Increased frac intensity, you've been doing in the box how all that has played out as I've been listening to other operators across various basins discussing their optimization.
It seems like in some areas there is a bit of a pendulum swing back to somewhat lower frac intensity.
And.
Some of that has.
Development pattern.
Locations and.
Parent child considerations, and so forth, but just wondering across the other basins, maybe directionally how does the completion.
In country pattern tracking.
Yeah, I'll turn it over to Greg, but the completion intensity outside of the Bakken. So in places like the Permian and the Montney and the Anadarko has been pretty stable, but Greg I don't know if you want to comment on any detail. There yeah. I think the first thing just to remind everyone. I. Appreciate the question is that.
We used to.
<unk> approach for every cube that we develop so we'll look at the.
The spacing and stacking taken into account parent child impacts the timing of when wells are being completed versus the previous wells in the area. We look at all of those things on every well and look to use all of the knowledge we've gained across all of our basins.
To try to use the most current up to date innovative technologies and approaches and so what we saw in the Bakken was really just a result of we've seen some success in some other basins that hadn't been deployed in the Bakken and we tried that there and it worked very well.
But just generally as Brendan mentioned theres, not a bulk shift too.
More intensity or less intensity across the board is just tweaking things around the edges and trying to use what works. We found that most of these plays are more like them. They are different and that's where our multi basin strategy really pays off so we're using those learnings to make everything a little better.
Great, Thanks, and sort of more of a macro question.
It does seem which of course is tragic.
A lot of weight.
Ukraine situation doesn't seem to be near term head towards a sort of resolution.
In the event that things should change your turnaround there or are you in the camp more of seeing.
The price increases higher European gas demand and so on.
As being more durable changes too.
The market is going forward or do you see them more as in the event things got better in the region.
Sort of like we're enjoying more of a temporary bump in commodity prices that.
Sanction lifted market Scott sure back more to normal business.
What kind of reverse itself and we might be looking at prices more.
The prior couple of years.
Yeah. Thanks, So I think really this is a.
A durable fundamental call on North American gas that preceded the Russian invasion of Ukraine.
I think it's pretty easily forgotten because of the importance of that invasion, but it's if you look back into the what was happening in Europe for gas prices pre invasion there was already.
A dramatic shortage.
Underway and so.
Really what we see unfolding is a call on north American gas supply that global LNG demand, whether it's in Europe or Asia.
Or other parts of the developing world and so that that's a durable pricing that we see unfolding over decades, but of course North America also has a lot of gas resource and so I think that's where fundamentally we're going to watch.
Closely how that supply and demand balance plays itself out as.
North America expands its LNG export capacity, but supply grows strongly into those expansions and you can see that underway even today, where.
North American gas supply has ticked up just in the last two quarters.
And we're still waiting on a full return to LNG exports. This winter. So that's something that we're certainly taking a close fundamental look out and will play into how we choose to allocate capital in our 23 program.
Great. Thanks, a lot.
Got you.
At this time, we have completed the question and answer session and I will turn the call back to Mr. <unk>.
Thanks, Michelle and thanks, everybody for joining us today and for your continued interest in <unk> today's call is now complete.
Ladies and gentlemen, this does conclude your conference call for this morning, we would like to thank you all for participating and you may now disconnect your lines.
And then.
Yeah.
Yes.
Yes.
Yes.
Okay.
Yes.