Q2 2023 Ovintiv Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for attending by.
Welcome to wells into 2023 second quarter results conference call.
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Of open pits.
I would now like to turn the conference over to Jason Berg.
From Investor Relations. Please go ahead, Mr. Perhaps.
Thanks, Michelle and welcome everyone to our second quarter 23 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 we will be available to take your questions. Please limit your time to one question one follow up.
I'll now turn the call over to our President and CEO Brendan Mccracken.
Good morning, Thank you for joining us.
Our outstanding second quarter results continue the strong momentum we have created with our focus on execution.
Making better wells for lower cost.
We exceeded every one of our guidance targets on the quarter. We also closed two compelling transactions that have simplified our portfolio extended our premium inventory enhanced our go forward capital efficiency and expanded our margins.
I'll speak more to the progress, we're making with the newly acquired Permian assets in a moment, but first I want to touch on our second quarter results.
Our production outperformance in the quarter is coming from our legacy business.
The accelerated close was included with our previously issued <unk> guidance and the new assets have performed right in line with our expectations during the quarter.
Quarter was a beat across the board from production the capital per unit costs, we exceeded our targets delivered on both efficiencies and well productivity.
Greg will cover this in more detail in a moment, but our oil production outperformance is the result of our completion design innovations and our capital reductions are the result of our execution efficiency gains.
As a result, we've raised our full year production guidance and lowered our full year capital guidance.
Ross the portfolio the intense focus our teams have placed on operational execution continues to deliver results, especially in the Permian, where we posted another quarter of record operational efficiencies.
Our Permian team has seamlessly integrated the new assets into our existing operations we.
We were pleased to close the transaction early and we have already finished resetting activity on the new acreage. We're currently at our expected run rate activity for the rest of the year with five rigs and three completion crews in the Permian.
We're also already executing our proven drilling and completion designs on our new assets and we fully expect or we expect to have our first fully over into design wells online later in the fourth quarter.
Sure.
On second quarter production, we exceeded the top end of our guidance on oil gas and Ngls were coming in below the low end of guidance for capital.
These results were driven by strong well performance from each asset in our portfolio successful base decline management on our older vintage wells tailwind from lower natural gas royalty rates in the Montney and capital savings from continued record setting operational performance across the asset base.
We also returned approximately $172 million to our shareholders through share buybacks and our recently increased base dividend.
I'll now turn the call over to Cory to cover our financial results.
Thanks, Brendan and good morning.
Addition to the great operational results brand outlines we also delivered strong financial results in the quarter with earnings per share of $1 34, and cash flow per share of $2 79, beating consensus estimates we remain free cash flow positive. Despite the impact of transaction related costs and the incremental capital associated with the early.
Closed the Permian Basin acquisition.
We also saw a strong per unit cost performance with operating expense transportation and processing expense and production mineral and other taxes coming in below the midpoint of guidance on a combined basis.
Operating expense also benefited from a $23 million recovery of prior year's costs.
We issued debt during the quarter to finance a portion of the Permian acquisition and we are very pleased with our results in capital structure and the maintenance of our investment grade rating and stable outlook from all four credit rating agencies.
At quarter end, our leverage ratio is one seven times and this included all of the acquisition finance debt, but only 19 days of EBITDA from the acquired assets.
We remain committed to a mid cycle leverage target of one times or about 4 billion of total debt assuming mid cycle prices.
The maturity profile of our recently issued bonds will allow us to optimize our debt paydown schedule as we work towards that target.
Well that reduction is a big area of focus for us in the near term our shareholder return framework has not changed we will continue to distribute at least 50% of post dividend free cash flow to our shareholders with the remaining 50% going to the balance sheet I.
I would like to note that the amount of cash available for buybacks and our shareholder return framework is determined each quarter on a discrete basis.
Yesterday, we provided our third quarter guidance and updated our 2023 full year guide to reflect the efficiencies cost savings and improved well productivity, we've seen year to date across the portfolio.
In the third quarter, we expect to see total production averaged 540 to 560000 Boe per day with oil and condensate production of 200 to 208000 barrels per day, we expect oil and condensate production to continue to grow through the fourth quarter and averaged 210000 barrels per day in the second half of the year.
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This reflects the production momentum from the new Permian assets as we bring acquired whips online the production profile will normalize by mid year 2024, with the second half 2020 for oil and condensate production stabilizing at 200000 barrels per day.
We also raised our full year natural gas guidance due to strong well performance across the portfolio.
Third quarter capital spending will be the peak for the year at $840 million to $890 million.
This reflects the shift from a 10 rig program in the Permian at the time of the acquisition closed to our current five rig program and.
And the capital associated with the higher level of activity as we work to bring the acquired wells in progress online by year end.
We expect to bring online about 100 wells in the third quarter with roughly half of these from the acquired Permian assets.
We've updated our full year guidance with higher production and lower capital investment the New guide incorporates the operational and capital efficiencies, we've achieved our strong well productivity performance and the success, we had an offsetting base production declines.
In addition to increased capital efficiency. We also expect to see increased cash cost savings, we divested our relatively higher cost assets in the Bakken.
At at a relatively lower cost asset in the Permian we.
We anticipate company level savings of approximately 5% on a combined basis for Opex in TMP in the second half of the year.
We also provided an update to our hedging positions with the materials yesterday with about 50% of our WTO exposure and about 40% of our Nymex gas exposure hedged for the next 12 months.
Capital efficiency is a key focus across the organization are sufficiently converting our resource into cash flow as a crucial aspect of our durable returns approach.
<unk> capital efficiency ranks top tier among our peers as creating exceptional value in today's volatile commodity and macroeconomic environment. In 2024, we expect to produce more than 200000 barrels of oil and condensate per day.
We're about $2 3 billion of Capex at the midpoint.
That is a 15% year over year capital efficiency improvement with an associated increase of 30000 barrels per day of oil and condensate versus our original 2023 guide.
This increase in capital efficiency generates higher returns on invested capital and allows us to deliver higher cash returns to our shareholder.
When compared to our peers <unk> 2020 for our capital program will require about $250 million less capital to deliver the same production at the midpoint of our 2024 oil and condensate production and capital guidance.
I'll now turn the call over to Greg to cover our operational highlights.
Thanks Corey.
As Brendan noted our top priority over the last month and a half has been the efficient and seamless integration of the new Permian assets into our existing operations and the team has done a very impressive job.
With five rigs and three Frac spreads currently running across 180000 acres in the play we are already at a run rate activity for the rest of the year.
Our results in the Permian year to date have been stellar and we are very excited to unleash our proven development model on the acquired acreage.
The wells on the new acreage are performing in line with the average 2022, Midland basin productivity rates, and we see opportunities to increase well performance and capital efficiency as we apply our drilling and completion approach to these assets.
We have already begun deploying our proven optimization techniques on completion design artificial lift and accelerated cycle times on the wells that were already in progress when the acquisition closed.
We are also streamlining planning and logistics across our combined Permian position.
Improving efficiency versus the three separate operating companies that were previously planning and executing work on each of their individual footprints.
We have already reduced offset frac hits as we've optimized our program across the combined position.
As Brendan noted, we expect to see our first end to end <unk> designed wells online in the fourth quarter.
Our efforts on completion design and particularly on stage architecture continue to deliver leading well performance across our Permian acreage.
The chart on the right shows the 2022 Midland Basin industry average compared to our 2023 type curve and the wells we brought online in the first half of the year.
Our year to date oil performance is among the highest we've ever delivered in the Permian.
It is important to note that the well outperformance is the result of the advances we've made two enhanced completion design, including stage architecture fluid chemistry, and proppant loading our cube development approach has stayed consistent and our program well spacing is unchanged year over year.
These results were spread out across our acreage footprint and our enhanced completions are being executed without an increase in completed well costs as we were able to deploy our leading efficiencies and to making better wells.
While the recent well performance is outstanding we're being thoughtful with our go forward type curve assumptions in the third quarter alone, we will bring on more than 50% more wells than we did in the entire first half of the year in the Permian.
Once we see the results from these completions as well as the longer term production from the previous wells will have a much better handle on the repeatable uplift we can incorporate into our forecast.
I'd like to take a quick moment to recognize the outstanding performance from our team in the Permian This quarter.
Our operations continued to hit on all cylinders setting new performance records, while seamlessly integrating our newly acquired assets.
These results are allowing us to deliver stronger well performance through completions optimization and improved <unk> improved stage architecture in a cost effective manner.
For example, our second quarter average completion speed at well over 3500 feet per day is about 40% faster than our average speed over the last three years and 11% faster than our first quarter average.
Using the same timeframe comparison, we now pumped 80% more proppant per day and 45% more fluid.
Our enhanced performance is delivering better wells at lower cost improving our capital efficiency.
We continue to deliver impressive results across our portfolio and our year to date performance and the Montney is no exception.
<unk> wells continue to dominate the list of most productive wells in the play on the total Boe basis.
Over the last 12 months, we have brought on the top 31 wells in the Montney and 36 of the top 50.
I want to be clear that these impressive production rates do not come with a higher price tag. The average cost of 36 wells highlighted in the chart was $4 5 million per well, making montney wells the lowest cost in our portfolio.
The great returns we generate in the play are further enhanced by our market diversification strategy, which we use to manage flow assurance and price risk.
With almost all our montney gas pricing outside of ACO, we realized 97% of Nymex on our pre hedged basis, and our condensate received 96% of WTO and during the quarter.
In the Uinta, we continue to deliver some of the strongest oil well results in North America.
We recently brought on our three well jorgensen pad and Duchesne County, with strong IP 30 rates of 850 barrels of oil per day per well.
Our large contiguous land base of approximately 130000 net acres is multiple benches with about 1000 feet of collective pay.
It is 80% undeveloped which translates into a significant inventory runway.
As we previously noted we recently secured additional rail capacity to the Gulf Coast and we currently rail about 30% to 40% of our volumes. There. This scalable options supports our future development plans for the play.
Due to the highly oily nature of this play in the first half of the year. The Uinta tied the Permian for the highest operating margin in our portfolio.
Given the current gas and NGL markets, we have reduced our activity in the Anadarko basin in the back half of the year.
That said the Anadarko is expected to be our top free cash flow generating asset in 2023 and remains a premier multi product option in our portfolio.
The team continues to work the asset hard cutting our base declines in half since 2021.
They also wrapped up this year's activity on a high note realizing a 25% increase in drilling feet per day in the quarter versus our 2022 average.
I will 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.
I'd like to commend our team for the outstanding results year to date, our focus on execution excellence is shown up across our portfolio.
We have successfully integrated the new Permian assets and our team is already applying our development model to the wells in progress.
The asset performance has been strong and we see opportunities for further gains going forward.
We are increasing full year 2023 production guidance and lowering capital spending.
We are one of the most capital efficient operators in the industry and our 2024 program is advantaged compared to our peers and its ability to deliver more barrels for fewer dollars.
We are committed to debt reduction, while returning significant cash to our shareholders. Our shareholder returns framework remains unchanged and the amount available to shareholders will be determined by the same reliable approach every quarter.
Over the long term, we believe the value creation in the E&P space will come from companies that can durably generate both superior return on invested capital and return of cash to shareholders.
And we are well positioned to deliver on this value proposition with a deep premium inventory, leading capital efficiency to convert that inventory to free cash flow.
And the disciplined capital allocation to make sure those returns flow through to the bottom line into our shareholders.
This concludes our prepared remarks, Michelle we're now ready to open the line for questions.
Thank you Sir.
Ladies and gentlemen, as a reminder, you can.
Joining the queue to ask a question by pressing star one.
We'll now begin the question and answer session and go to the first caller.
Your first question comes from Irene.
At J P. Morgan.
Please go ahead.
Yes. Good morning, Brendan I was wondering if you could shed more insight on the well productivity gains that youre seeing.
Particularly in the Permian.
Greg mentioned stage architecture.
Fluid and completion design I was wondering if you can give us more insights.
That the potential repeatability.
And I was also wondering if you've tested this and perhaps some areas outside of the core and if you have any maybe preliminary results to share.
Yes, good morning, I appreciate the question and the pickup on the well performance.
Obviously.
Really excited about what we're seeing there and as we reported here today, we've now got 44 wells of the program online.
With production history in the and the performance is well above our 2023 type curve, which we're we're obviously enthused about really the.
Driver. We're seeing here is the completion design piece that you mentioned this has been a multiyear effort by our team to zero in on the on the true causal factors that can drive well performance and increased recovery.
From shale and its not just in the Permian we are deploying this across the whole portfolio.
And really I'd like to kind of break it down into three buckets are in in terms of what the team's been been driving on and I, probably won't do service to the.
The detail and the multiple factors that are driving here, but the three buckets. We see really are this stage architecture, which.
As is our phrase for the combination of cluster design cluster spacing and then of course, the sand and water loading that we're feeding into those clusters and the whole point of that steep stage architecture engineering is to get a more conductive fracture network more.
<unk> placed along the entire lateral and of course that becomes even more important as we drill longer laterals in these plays and drive efficiencies that way. So that's the first bucket.
Second bucket is what kind of what we call chemistry.
And thats using the chemistry of the Frac fluid to try and enhance the permeability.
Of oil in the fracture network and so then as a consequence get more recovery.
From the the pore system in place and then the final bucket is really got a few things in it but but really it's this idea of real time Frac monitoring and the approach here is traditionally in our industry.
The approach was the engineers in the office would write up a frac program and send it out to the field and in the field with pump. It and then some time down the road there would be a look back on and potentially optimization occur in subsequent wells.
What we're trying to we're trying to crack with technology and telemetry is to be able to do that real time and be learning.
The signals, we're getting back subsurface well, we're pumping and then tune our Frac design as we go and as a consequent just be more efficient with that Frac design, but also get more recovery along that long lateral so really those are the three buckets I'd speak to her.
It sounds like a nice endorsement of how the smart fleet technology, Jeff Miller.
My follow up Brendan is have you tested this.
Kind of completion design outside of the core.
B and applications of call it tier two locations on the map.
You could boost the overall productivity, perhaps mimic tier one type of economics.
Yes.
I don't have the slide number off the top of my head here, but the slide that shows the Permian type curve performance also shows a map of where those 44 wells are across our land base and what you can see from that is they are spread across the land base. So.
With that is telling US is this these completion designs are working across the Permian for us.
And so as far as sort of the tier one tier two implications.
Really what we're seeing is it's making the tier one stuff better.
The good news story for our acreage position is we're pretty much in the core of the basin.
Across the board so.
We've really been just using it on the acres, we've got which are really all in that tier one bucket. So but I think your point is valid which is.
Moving locations from near premium into that premium bucket as a win and we look to do that all the time as well.
One of the things we've talked about on the new acres.
Is that 800 premium count underwrites, three bench development across the acreage and.
Greg pointed out we've got quite a number of wells in progress that will be bringing on stream and those cubes are all either three or four bench cubes are even higher.
In some instances so.
Excited to see how those.
Completion designs show up when we start to get them later this year.
Great. Thanks, I'll turn it back.
Thanks Ryan.
Your next question will come from Neal Dingmann.
Securities. Please go ahead.
Good morning, all thanks for the time Brandon My first question is on your forward plan, which seems quite good specifically you all talked about stable out your production I believe and I'm. Just wondering would you kind of consider this kind of a maintenance plan and if so could you maybe speak to that around the level of capex needed to sustain this.
Yes, Neal appreciate it yes, we are.
<unk> reiterated that 2020 forward view here today.
And obviously feel good about where that is sitting as we get further and further into the year here and now actually have control of the new assets continuing to feel really good about that guide.
The.
Big movers are going to be how much deflation actually shows up.
We think sitting here today with what we know.
About cost structure and activity levels.
That guide still makes total sense to us so the implied midpoint of capital for 24, and then settling in at that 200000 barrels a day in the second half make total sense.
The only thing I'd add to that in terms of maintenance.
As we continue to think that's the right way to prosecute this business and we've talked about really three gates.
Of decision, making to consider around capital allocation for either maintenance or modest growth and really in order to even think about modest growth to the three gains for us would be firstly it would have to be a better cash flow per share outcome than just buying our shares back and so thats the <unk>.
Test.
And then the second test would be does the world need more barrels and more btu's in and then the third test would be what's the execution risk.
On adding that activity and if.
Just quickly run through that model here today.
Today, the buyback still screen more favorably than adding rigs and spreads to the program and then our judgment today as the world isn't asking for more barrels in beta use.
From our company and then the third gate, there certainly that execution risk from a year over year perspective feels a lot better than it did last year when when inflation was running pretty pretty hard so.
But still those other two gates would have of staying in that maintenance mode.
Great that makes sense certainly to me as well and my second question, maybe for Greg on the Permian specifically can you address.
Can you address future potential maybe frac hits are needed well set and it seems to me kind of the plan you guys have talked about even now post deal that you all have much more of a minimum level of Saudi and unlike a number of your various tiers that are better experiences.
Yes, Neal thanks for the question and you're exactly right that that was one of the value propositions. We saw with the acquisition. We just closed was you had three companies that were doing a good job, but operating independently and because of that they weren't able to coordinate schedules and they were knocking off wells.
After they were brought on in what we've already seen as I've mentioned in my prepared remarks is that by using a coordinated approach across the entire 180000 acre footprint. We now have we've already seen a reduction in frac hits, which allows us to get the full benefit of all the fracs that were out there pumping today why not knocking these newer wells.
Often we will continue to optimize this as we go forward, but we do feel like that is a big part of the value, we're going to be able to bring to this acreage by not having that be a problem in some of these new completion designs also seem to be helping on that front as well.
No great to hear thanks, Greg Thanks Brendan.
Thanks Neil.
Your next question will come from Gabe Daoud Cowen.
Cowen. Please go ahead.
Hey, Thanks, Good morning, everyone, maybe just back to the Permian outperforming Brian .
Maybe just comment on what exactly you need to see how much time and data do you need to collect to start factoring in this outperformance.
Or in your go forward guidance I guess it would.
Hang on what some of the <unk> look like on the new acreage, but curious to hear your thoughts on that and then just this is Tom.
Comment on where pro forma Permian production is today I think at the time of the deal you pointed to 125000 barrels a day of oil and tiny combined so just curious if that's more or less where youre at today.
Yes.
As far as the forecasting goes as I mentioned.
A lot of activity going on in the play today, we're very pleased with what we saw in the first half and those wells continue to hold up but we're going to be bringing on a lot more wells in the back half of the year, we're going to want to see how that productivity holds up and keeping in mind, a number of the wells over half the wells, we're bringing online.
In the third quarter, we're going to be wells that while we're influencing the tail end of the completion and we were not involved in those wells from the.
Inception to bringing them online. So we do believe there is a little uncertainty there we want to see how those wells do.
Quickly incorporating all of our completion techniques into our operations, so youre going to see as we go through the third into the fourth quarter, just a whole other data coming in.
And we're trying to be thoughtful about how we approach. This so by later this year, we should have a much better sense.
How wellness uplift not only is <unk>.
Packaging that are existing legacy portfolio, but the new wells and then how long its not just the number of wells that we need to see.
The duration how long this production uplift holds up so we're looking forward to seeing that and then as we continue to see that more consistently we will start baking that into our forecast.
Yes, Gabe I think you had a question on the pro forma there too so yeah, it's Greg.
Picked up earlier got about 60 to 70 Permian wells to bring on in the quarter. So it's a fairly dynamic number at any given day here, but but you're right. We're running just a little over that 120000 barrel a day at the moment.
Got it got it okay cool. Thanks, guys. That's helpful. And then just a quick follow up on the cost side you highlighted some of the efficiencies driving savings and you have that $2. One $2 5 billion range out there for 24, but curious I guess, what's embedded in that two one is it I guess efficiencies continue to hold could that number trend towards Q1.
Or is there a little bit of expectations around.
Some cost of placing continuing just curious if you could maybe talk a little bit more about what we need to see for that to one number thanks guys.
Yes, Gabe I appreciate it I think the service cost environment is probably the bigger driver of the range there as we see it sitting here today and.
Again, what we've.
We're telling the market here is that midpoint of the range feels like the right steering point with what we know.
And we will just have to see where we're service prices trend, we've seen rig counts come off on both the gas and the oil side by about 15% from the peaks in.
If that continues then that will keep driving further deflation and that could push us lower in the range and we'll just have to see obviously oil has ticked up a little bit and gas has maybe been a bit stronger through the summer months. So we'll see what that translates through to activities by the rest of industry, we've been clear about.
We're not adding activity, but but we'll see what happens across the rest of industry and tune our 24 guide as we get closer to it.
Thanks, guys.
Yes. Thank you.
Your next question will come from Josh Silverstein.
Yes.
Please go ahead.
Yes.
Morning, guys.
I'm, just thinking about the shareholder return profile versus the debt reduction.
You mentioned kind of up to 50%.
For the for the balance sheet portion of it.
Basically.
Have enough Kathryn had to pay down the 25 to 26 maturities as they come up or do you actually want to build a little bit more cash than that.
Be opportunistic for other bolt ons or anything else.
Yeah, I think Josh there what we'll do is we'll follow the program here, which calls for the B at least 50% to two incremental.
Shareholder return over and above the base dividend and then the rest will be.
Payable for that debt reduction, which is we're trying to take the debt down to four.
So I think we'll be very opportunistic to do that as we go along and I think we were thoughtful about the capital structure to enable that without without extra cost and so like you said, we've got some well timed maturities in.
In the next couple of years to be able to do that.
And for that and then.
You have a second.
Now it seems like you are pretty good.
Performance there.
Yes.
The rail infrastructure that you guys had mentioned.
Appointing potential bolt on growth for you guys and increase capital allocation or is it really just that phenomenon.
Yes, no I appreciate it yes, we're excited about what we're seeing in the Uinta.
Remember the last two years, we've worked hard to do is demonstrate well performance at cube development spacing, and then unlock that market access to the Gulf Coast and and so made great progress on both those fronts, where we're now railing to the Gulf some 30% to 40% of our total <unk>.
Into volumes in and with the two rigs running there we're going to see a big production ramp in the Uinta through the back half of the year. So that rail infrastructure is low cost and scalable.
And so that will afford us to be able to.
Have higher you enter production volumes through the back part of this year and into 2024, depending on on how we set capital in 'twenty four.
Got it thank you.
Yeah, great. Thanks, Josh.
Your next question will come from Doug Leggate at Bank of America. Please go ahead.
Good morning. This is John on for Todd Clegg Ed.
Our questions really are on the Anadarko basin.
First of all.
The production of activity what would you have to see in terms of causes prices to bring activity back there. Thanks.
Hey, John Good morning.
Yeah on the Anadarko really our team has done just an incredible job here.
Focus on innovation has resulted in a substantial showering of our base decline.
90% and that creates a ton of value for us means that set to be our highest free cash flow generator in the portfolio.
And the recent wells that team and brought on stream in the first half of the year have been really strong performers I mentioned earlier, we've been using.
Using the same completion design optimizations in in the other assets as the Permian and that's that's the same here in the Anadarko. So we're encouraged by the underlying asset performance in but really with the.
Gas and NGL fundamentals that we saw coming into the second half of the year is really why we chose to rotate capital out of there for the time being.
And so with a stronger gas and NGL fundamental into 'twenty four particularly.
Later in 'twenty four once we see the startup of some incremental LNG pull off the Gulf coast that could be the signal that that.
It brings capital back into the Anadarko bring brings the rigs back there. So I think we'll just watch for it I'm not sure. There is a specific price toggle one way or the other because it's.
It's always going to depend a little bit on cost structure as well and the team has been really working hard on initiatives to reduce D&C costs and increased cycle times in the Anadarko as well so it's a little bit of a combination of those things but.
But the big thing is we want to see a more healthy supply and demand balance on the gas side and the NGL side.
That's very helpful and just as a quick follow up on the Anadarko just given the improvement in the underlying declines in productivity that you're seeing.
How long do you think you can actually do that for in terms of holding it how many years of inventory and how long do you think you can actually hold that flat potentially if you wanted to.
Yes, so the Anadarko the fantastic piece there is we've got a deep high quality inventory and that play as well.
Really we see over a decade of drilling inventory to hold that asset flat.
Should we choose to allocate the capital there to do that.
Alright, Thank you very much thanks.
Thanks, Sean.
Your next question will come from Goldman Sachs. Please go ahead.
All my questions.
I appreciate all the color on the strong performance in the Permian and the Montney.
Stan.
Clarity in terms of how the PQ at performance with shape up in the Permian in the acquired assets.
Can you remind us on the cadence of actor within the back half of this year, especially in the Permian I am trying to bad.
Improved performance that you've seen recently.
In your legacy assets.
Vacation to your production guidance next year.
Yes.
Appreciate it yes cadence wise.
Going on in the Permian here in the back half of the year. So we're going to see between 60 and 70 tills in the third quarter.
And just a little bit less than that in the fourth quarter, but right up there as well so.
That's the set up through the back half of the year on cadence, which is going to see us at a total company level averaged 210000 barrels a day of crude and condensate in the back half of the year and then some of that will spill into early 'twenty four and then we'd expect to level back out at that 200.
1000 barrels a day by by mid year and hold that flat through the through the back half so.
That's the cadence set up there.
Got it Thats really helpful.
And then my next question was on risk management as you mentioned earlier you added some leverage with the transaction.
Any updated thoughts around the level of hedges hedging you wanted to do to protect yourself from commodity price risk next year.
Yes, I appreciate the question there so on hedging.
What we've done here is.
Continue to use our next 12 month approach so building the book out one quarter at a time.
Over the next 12 months.
And we've also continued to use three way structures to provide a soft floor that we're comfortable with.
But also give some upside to higher price exposure, which of course would enable us to participate in a structurally stronger market.
So in the second quarter here, we did add some second quarter 'twenty for hedges on the gas side and so over that next 12 month period, where about half hedged on oil and about 40% hedged on gas again, primarily in those three way structures.
I'm sure you saw it but slide 20, Scott the details of that but that's generally the approach we've been taking I think as we continue to drive that down.
We will drive that hedging level down from that sort of 50% and 40%.
Down back towards that more quarter to a third.
Production level.
Alright, thank you so much.
Thank you.
Your next question will come from Phillips Johnston of capital one. Please go ahead.
Hey, guys. Thanks.
In addition to the uplift in productivity that you are saying in this year's vintage of wells in the legacy properties.
In the slide deck, you also mentioned the older wells are outperforming our forecast.
Just wondering what kind of magnitude we might be talking about there.
And which areas you're seeing the biggest upside.
Yes, Phil so some pickup appreciate the catch on that.
Obviously, that's one of the most efficient ways to add production is by optimizing base.
So kind of the contributing factors here, Greg might have some fill ins, but it has been what we've been doing on artificial lift.
And then also some some really inexpensive workover treatments that have been been creating.
Some boost in our older vintage wells that we're excited about so I don't know, Greg if you want to add anything there.
Yes, it's really just a lot of great work by the teams blocking and tackling.
Reducing failure frequency, but.
But we do see a little improvement with some of the new Frac designs, we're pumping seem to have less of an impact on the parent wells, but really just a lot of things that the teams are looking at that are adding up to.
A nice little beat there on the base side and this is something we're focused on and all of the areas not just the Permian.
Okay.
That's also not factored into your.
Second half of the year production guidance or is it 24 guidance correct.
Well I think what we've factored in here now is the performance uptick we've seen on the existing PDP and so where the upside is still just what further.
Decline abatement can we do but we have included the.
The PDP impacts that we're realizing today and in the forward guide.
Okay that makes sense and then just.
Maybe an update on LNG, Canada.
Hi.
Guys you guys are in a direct question, but it's.
It's obviously going to help pricing.
I think as of the Montney day in September I think.
The project was over 60% complete with timing in first quarter 'twenty five.
I'm wondering how the progress has been since then.
Yeah, I'll get <unk> to chime in because there have been some recent.
Progress updates from the operators there both on the pipe side.
And the LNG liquefaction side and he might remember the percentages, they're actually pretty high in terms of percent complete here now but.
What I'd say about LNG generally.
As we continue to evaluate and are engaged in all of the west coast LNG projects that are either under construction like phase one or pre RFID like several others.
We do think it makes sense to have some exposure to LNG for our portfolio over time.
We think that's complementary to our existing price diversification strategy in the Montney.
A couple a couple kind of ground rules. If you will I think one we're not interested in in an equity stake. So I think we can take that off the board.
But we've shown we can demonstrate great success by by developing egress.
Out of out of the Montney and into the rest of North America, and I think the logical extension of that is is also to have a piece of global exposure here and so our teams hard at work across each of those projects to find the right commercial solution for us but I.
I don't know Corey if you've got any of those.
<unk> update numbers off top of your head there, yes sure Brandon So Cheryl talked about this a little bit yesterday, but I think there the reference point.
Certainly sounds more optimistic than it had in the past even they are talking about 75% complete on the midstream and more than 90% complete on the pipeline. So obviously that's coming soon.
Good good updates from that standpoint.
Okay.
Thanks.
Thanks Bill.
Your next question comes from Jeffrey Ladies and gentlemen.
TBA Genco. Please go ahead.
Good morning, everyone and thanks for taking my questions. My first one and another one on how Youre looking at forecasting for next year, if we get to a situation where the current forecast for the Permian in particular proves conservative for 2024 with maybe the same capex range, even talking about actually able to generate more.
Production once model today, how should we think about the overall outlook potentially changing as you just wanted to get a sense frankly should thinking about reductions so that spending range.
Maybe with less capital again needed to still achieve greater than 200 level on crude and condensate you spoken too often might be more like a steady range on capex, but with the potential for volumes down closer to what we might see in Q4 here for a bit longer.
Yes, Jeff appreciate the question and Love Your Love your.
Our take on it.
I think what we'll do is we set 24 is we'll run those three gates.
Where does it make sense from a cash flow per share impact what's the what's the world asking for in terms of barrels in <unk>, and then where do we see as the execution risk.
<unk>.
Sitting here today, I think that maintenance level continues to feel like the right answer to those but obviously, we will get a chance to look at that through the back half of the year, but.
But that will be our starting point on that decision and then the other piece that will factor into it is just the level loading we've worked really hard to create a level loaded program. This year.
We think thats benefiting our teams greatly and so we want to be preserving that as we kind of go forward into 2024 and setting up for a consistent level loaded program across the assets full year 'twenty for us So those would be the things that we way.
As we work our way through this and then we'll be looking to optimize the returns both return on invested capital and the return of cash to shareholder.
Okay, Great and then my second one just follow up on the Uinta just given.
To see some additional contribution from that asset here in the second half as you alluded to I wanted to just ask simply what you need to see to allocate more capital. There I know you've been talking about productivity comparisons you spoke to the infrastructure earlier kind of making room for that.
It's only when you decide to go.
You spoke about some depth on the cost side of the equation in the past, but just wanted to kind of refresh there on how youre thinking about competitiveness competitiveness of that asset just going into next year versus the balance of the portfolio.
Yes, you bet and so right now the program we've got through the rest of 'twenty. Three here is is absolutely return competitive with the rest of our portfolio.
Sits right there on the on the same level of returns that we're seeing in the other assets. So.
That's important first of all because otherwise we wouldn't put capital there and then as far as trajectory from here I think two rigs is going to really see a big ramp in volumes. There so that feels like the right level to be thinking about as we head into 2024.
We will just kind of watch and see the performance as we go through the year.
Perfect. Thank you.
Yes, Thank you Jeff.
At this time, we have completed the question and answer session and I will turn the call back to Mr. Warehouses.
Actually I do apologize we have one.
One question left in the queue from Scott Gruber Citigroup. Please go ahead Mr. Gruber.
Well, thanks for squeezing me in.
Just a couple follow up questions.
What level.
Overall cost inflation was in line with the midpoint of the 24 guide just kind of ballpark.
Yes, Hey, Scott Yeah, glad we gladly.
Got you there I apologize for any confusion.
So really that midpoint of that guidance range would be sort of the deflation.
Trajectory that we're seeing currently so.
We've kind of reviewed service pricing.
Most recently.
We've seen a little bit of reductions on some of the cost categories like diesel in steel.
We've seen the green shoots of reductions are on other categories like rigs and spreads and so its basically including what we see today.
And like I said, we'll have to watch and see how things unfold if more deflation materializes as we go through the back half of the year.
Anyway to quantify that as a kind of a mid single digit type number.
Double digit.
I think yes.
No.
So the numbers, we're seeing are low single digit.
And the only thing I'd say about that of course is it depends on your starting point.
For what.
I've seen other E&P comment on different numbers.
It always has to be routed and what you're starting from and we had a number of fairly favorable service pricing arrangements.
In 'twenty four 'twenty three here so.
What we're seeing is kind of low single digits relative to that.
Okay.
I appreciate the color.
Yes.
Thanks Scott.
My apologies again.
This time, we have concluded the question and answer session and I'll now turn the call back.
Thanks, Michelle and thank you everyone for joining us today are.
Our call is now complete.
Ladies and gentlemen, this does conclude your conference call for this morning, we would like to thank everyone for participating and ask you to please.
Connect your lines.