Q3 2023 Ovintiv Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to open till 2023 third quarter results Conference call. As a reminder, today's call is being recorded.
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I would now like to turn the conference call over to Jason for Haste of Investor Relations. Please go ahead, Mr. Barr haste.
Thank you Joanna and welcome everyone to our third quarter 23 conference call.
This call is being webcast and the slides are available on our website at open to 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 our prepared remarks will be available to take your questions. Please limit your time to one question and one follow up.
I will now turn the call over to our President and CEO Brendan Mccracken.
Good morning, Thank you for joining us.
Our team delivered another quarter of impressive outperformance against our targets will get into the details in a minute.
First I'd like to start with the steps we've taken to prosecute our durable return strategy and ensure that open to this setup to create shareholder value.
We believe a deep premium inventory is one of the three key ingredients to generating durable returns over two years ago, we recognized that the industry was likely to consume quality inventory at a rate much higher than it was replenishing.
Fast forward to today and that has definitely turned out to be the case and the growing recognition of this deficit has been a motivator for the deal flow we've seen recently.
We haven't moved against that broader industry tide and have both deepened our premium inventory and demonstrated our ability to generate superior operational and financial results to create value for our shareholders.
We pioneered cube development to make the most out of the premium resource we have captured.
We have continued to innovate to drive down costs and boost productivity.
We have consistently converted upside locations to premium inventory by investing into organic appraisal and assessment on the acreage we already own.
We closed over 200 highly accretive bolt on transactions and we made a significant step change with our Permian transaction earlier this year.
Since 2021, we've added over 1500 premium drilling locations to our inventory we accomplished this by following a rigorous process to allocate our capital and as a result, we accretively grew cash flow per share free cash flow per share and maintained a strong balance sheet.
Another area of intense focus for us has been consistent execution.
Although much of the market's focus this year has been on our Permian outperformance each basin and our portfolio is contributing to our total outperformance.
Across the company, we continue to innovate and find efficiencies that reduced cycle times, lower costs and deliver leading well productivity.
From production to capital to per unit costs, we once again beat our targets and enhance the capital efficiency of our business.
Our production beat in the quarter was driven by portfolio wide, well performance and excellent operational execution to efficiently turn in line our wells.
I noted earlier that consistent execution is key to our story and I'm proud to say the culture of innovation here at <unk> remains alive and well Greg will touch more on this later, but our latest triangle Frac innovation is unmatched in the industry today and setting the leading edge efficiency frontier in the Midland Basin.
Our strong execution has accelerated their wells online and is pushing 2023 production higher and stabilizing us at our 2024 run rate and free cash flow sweet spot sooner.
We previously guided to a second half 2023 oil and condensate figure up 210000 barrels a day.
Using our Q3 actuals and the midpoint of our Q4 guide our second half production will now come in at about 219000 barrels a day or 9000 barrels a day above our original guide.
Finally, we've again raised our full year 2023 production guidance, our second raise since we closed the acquisition back in June.
We've also narrowed the range and reiterated the midpoint of our 2023 capital guidance, Despite bringing 15 to 20 more wells into 2023 from our program acceleration.
Yeah.
Our third quarter results speak for themselves.
Our team brought on 116 net wells 16 more than planned with 15 of those coming in the Permian.
Our base production also outperformed thanks to the work done by our teams to moderate decline rates.
Now I'll turn the call over to Corey to cover our financial results.
Thanks, Brendan our operational success translating into strong financial results in the quarter with earnings per share of $1 47, and cash flow per share of $4 <unk>, beating consensus estimates we.
We generated free cash flow of $278 million, and we returned approximately $127 million to our shareholders through share buybacks and our base dividend or share buyback. This quarter was through participation in the encap secondary offering which saw us purchase and retire 1 million shares.
This buyback was an acceleration of our fourth quarter share repurchases and as such the $45 million, we used to buy the shares will be subtracted from our planned buybacks in the fourth quarter, leaving us with $53 million of share repurchases to execute in the fourth quarter.
We also saw strong per unit cost performance with operating expense transportation and processing expense and production mineral and other taxes coming in below the bottom end of the guidance on a combined basis.
The third quarter was our peak capital and activity quarter as our production Kras and capital returns to a new run rate. We should start we should start reducing debt more rapidly with just over $6 1 billion of total debt at quarter end, our leverage ratio was one five times, we remain committed to our mid cycle leverage chart.
<unk> 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.
And while debt reduction is a big area of focus for us in the near term our shareholder return framework remains consistent 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'll now turn the call over to Greg.
Thanks Corey.
The top priority since closing our Permian acquisition in June has been a rapid and efficient integration of the assets into our existing business and I couldnt be more pleased with how the team has performed.
Not only did we complete the integration ahead of schedule, but we also accelerated the timeline of wells in progress that were inherited with the transaction.
Along with strong well performance across the portfolio. This acceleration was a driving factor in our production beat and raise for the third and fourth quarters.
As Brendan mentioned this acceleration has brought forward the wave of peak production and will allow us to stabilize our run rate of 200000 barrels of oil and condensate per day in the second quarter of 2024.
We have completed all of the outstanding Ducks and are running five rigs and one frac spread in the Permian today, which is reflective of our run rate activity level going forward.
Our Permian well performance continues to be very strong.
Our legacy footprint has seen year over year oil productivity per foot increase of more than 20%.
This was primarily driven by a combination of completions design real time monitoring and stage architecture optimization.
It is also worth highlighting that our consistent cube development approach currently ranks first in year to date oil productivity per foot versus key peers in the Midland Basin.
The wells on our recently acquired acreage are performing in line with our expectations and have an average IP oil IP 30, exceeding the 2022 and 2023 Midland Basin average.
Of the wells, we brought online on the new acreage since close approximately 20 individual wells have shown IP 30 oil rates of more than 1100 barrels per day.
We are optimistic about the 250 high potential locations. We identified in the early days of the acquisition and are actively testing in those areas and horizons today.
Across the portfolio, we typically allocate about 10% of our D&C activity to testing upside locations and we are taking the same approach here.
As we've noted previously we see opportunities to increase well performance and capital efficiency on the acquired assets as we apply a vintage drilling and completion approach.
We expect to see our first end to end Obento designed wells online late in the fourth quarter of this year.
Our focus on efficiency and innovation has been key in delivering leading well performance in the Permian.
While our cube development approach has stayed consistent we are constantly looking for ways to make our wells more productive and less costly.
Our enhanced completions have resulted in well performance exceeding type curve expectations, and we've been able to achieve this without an increase to well costs.
The simplest path to mitigate higher cost as it is to increase efficiencies and reduce the amount of time spent on location and that is exactly what we're doing over.
Over the last few years, we've realized significant savings utilizing local wet sand along with our Sam will frac operations.
But our Permian team has taken this one step further.
We are stockpiling wet sand onsite from our local mines and completing three wells with a single frac spread at the same time a technique, we've dubbed try more frac.
Prime a frac is reducing cycle time, and saving costs about a quarter of our Permian wells in 2023 will be completed with this technology and we expect to use them more than half of our program next year.
The results are impressive for example on our recent driftwood pad, we saved an additional $125000 per well when compared to simultaneously.
We were also able to bring the pad online sooner with our increased efficiencies achieving almost 4200 feet of completed lateral per day.
With the pad online sooner it will have an incremental 55 production days in 2023 directly increasing our capital efficiency.
This step change in efficiency is easy to observe the difficult to replicate and is unmatched in the industry today.
Highly sophisticated logistics management is essential to execute these more complex operations and this is where our team excels.
Our Montney performance continues to demonstrate the expertise of our team in maximizing value from the play.
Once again open a dominate the list of most productive wells in the play with our results accounting for over two thirds of the top wells in the basin and a clean sweep of the top 20.
The Montney is one of the largest remaining oil plays in North America, and our 2023 program continues to target the oil and condensate rich parts of our acreage where we have over a decade of premium drilling inventory.
Western Canada is a net importer of condensate and this means we generally receive prices near or above <unk> for our product year to date, we've realized 97% of <unk>, making the montney competitive with the top oil basins in North America.
In the winter.
Our two rigs second half weighted program is delivering exceptional well results.
We recently brought online our nine well tomlin bad with an IP 30 rate of 1400 90 barrels of oil per day per well.
This recent pad along with the other wells brought online year to date are set to outperform that outperformed the Delaware another high pressure oily basin by almost 10% through the first 365 days.
Pretty strong results for a play that is still emerging.
Our large contiguous land base of approximately 130 130000 net acres is multiple benches across about 1000 feet of collective pay.
It is 80% undeveloped which translates into significant inventory runway.
Our scalable rail capacity to the Gulf Coast, where we raised about 30% to 40% of our volumes Diversifies us market exposure and supports our future development plans.
Due to the high oil nature of this play year to date, the Uinta has been competitive with our Permian asset for the highest operating margin in our portfolio.
The Anadarko team has done a great job optimizing efficiencies in the play.
After pulling back the program earlier this year due to weakness in natural gas and NGL prices. The team had the opportunity to be patient and opportunistic and securing a competitively priced frac crews to complete our remaining ducks in the fourth quarter.
This will see us bring on a total of 26 turn in lines for the year.
The team has also managed our base production very effectively and as cut based declines in half to about 20% since 2021.
The Anadarko continues to be a strong free cash flow generating asset in 2023, and as a premier multi product option in our portfolio.
I'll now turn the call back to Brendan.
Thanks, Craig.
Yesterday, we provided our fourth quarter guidance and updated our 2023 full year guidance to reflect the improved well productivity across the portfolio and the accelerated turn in line timing in the Permian.
The fourth quarter will be the high point for production. This year. This reflects the impact of continued strong well results as well as the accelerated production momentum from the new Permian assets as we continue to bring up bring the whips online ahead of schedule.
If we compare back to our 2023 guidance at acquisition close we have raised our expected total production by 4%, while reducing our projected capital spend by about 2%.
Resulting in a capital efficiency improvement of about 6% since June.
Our strong execution in 2023, setting us up for continued success in 2024.
We are again reaffirming our 2024 plan our plan maximizes return on invested capital and free cash generation.
Our normalized and load level program achieves this production level with $465 million less capital in 2023, and about 100 fewer net turn in lines.
Our turn in line cadence in the fourth quarter will be front end weighted with more than 90% of the total company wells coming online in October and November.
As expected our production will decline during the first quarter of 2024 before reaching our go forward run rate of 200000 barrels a day in the second quarter.
In addition to the refinements to the 'twenty 'twenty four scenario, we've included a preliminary cash tax outlook.
We have mentioned previously that we expect to be subject to a M. T next year and.
And we recently completed an extensive project to identify and claim R&D credits. This was a multi year study that resulted in a $122 million of credits to reduce our 2020 for tax in the United States.
That savings is reflected in the estimates on slide 20 in our appendix.
In summary, our durable return strategy is working very well I'd like to recognize our team for the outstanding operational and financial results, we have delivered year to date.
And acknowledge their relentless drive for further innovation to make our business more valuable for our shareholders.
We have significantly added to our inventory depth successfully integrated the acquisition into our existing operations.
We have efficiently accelerated the inherited wells in progress inventory.
We see opportunities for further upside going forward and we are eager to bring our fully open to designed and executed wells online before the end of the year.
We once again increased our full year 2023 production guidance and we've tightened the range on our capital spending.
And over the long term, we believe the value creation in the E&P space will come from companies that can demonstrate durability and both the return on invested capital and the return of cash to shareholders. We are positioned to deliver on this value proposition through our relentless focus on innovation execution disciplined capital allocation.
Responsible operations and leading capital efficiency.
This concludes our prepared remarks, operator, we're now ready to open the line for questions.
Thank you.
Ladies and gentlemen, Anthony minor you can join the queue to ask a question by pressing star. One we will now begin the question and answer session and go to the first caller.
Next question comes from Neal Dingmann from <unk> Securities. Please go ahead.
Thanks for the time, guys and very nice quarter. My first question for the team is on the Permian specifically.
Sort of like the.
Just the expansion of the operation I'm, just wondering could you speak to the future potential project size changes there.
And are you able to continue to expand the lateral length in those areas. So just wondering on those two aspects of that play.
Yes, Neil New appreciate it and.
I'll get Greg to weigh in on some of the details here, but broadly speaking for us in the Permian and you should expect consistent lateral length year over year.
And then as far as occupation size.
Again very consistent in fact, if you go back over our last several years of Permian programs.
They've been very consistent from our occupation size and also our well spacing perspective and black.
2023, and 2022, where the exact same wells per section actually up a little bit on wells per section from 2021 'twenty.
<unk> 23, and 22 up about 15% on wells per section that but very consistent and so we're seeing that strong well performance without any up spacing in our go forward programs, but Greg maybe you want to comment on on Neal's thoughts on.
On the program.
The first thing you'll see that it'll be a little different going forward. We always tried to do things in multiples of four because that fit very well to our simulcast technique.
Technique going to travel Frac Youll see things in multiple of six that's the way.
Travel Frac works is you Frac three wells at a time, while you prep the other three wells. So some slight shifts there, but you should see very similar overall occupation size in similar lateral length as Brendan alluded to.
Great Great details. Thanks, Craig and then just trying to follow up on the shareholder return you guys are making tremendous progress on the debt repayment. In addition to having that solid shareholder returns. So I'm just wondering I know you've got that debt target of around $4 billion just wondering.
Thoughts about potentially accelerating.
The shareholder payout.
Given what some others have done maybe even before you get to that 4 billion or maybe just talk about how youre thinking about that overall plan.
No appreciate it Neil but I think we're going to stay consistent with the shareholder return framework that we've been following and we think that is a great balance of allowing us to create value for our equity shareholders. Both through the cash return, but also by reducing debt and converting that enterprise value.
<unk> to the equity holders from the debtholders, So I think for us it makes sense to stay in that.
50, 50 mode and be consistent there and really what were excited about is accelerating into that free cash flow sweet spot and just overall generating more free cash flow for both debt reduction and cash returns.
Yes, great to see thanks, so much.
Thanks, Tim.
Thank you. The next question comes from Gabe Daoud from TD Cowen. Please go ahead.
Hey, Thanks, a good morning, everyone. Thanks for taking the time and thanks for all the prepared remarks, Brendan was hoping we could maybe talk a bit about 24, just curious how much of your recent productivity and efficiency gains have you embedded and in the in the program.
The capital figure and the production figure just trying to get a sense. If there's maybe downside risk to capital given triangle Frac, and then upside risk to our production volumes.
Hey, Gabe you I appreciate the question.
So we've been very consistent with our projection on 2024 that will stabilize at that 200000 barrels a day and that that capital range. So.
We haven't changed any of that in the projection that you saw today I would say sitting here now we feel highly confident in that projection.
And to be clear, we expect to be at least 200000 barrels a day in every quarter next year.
So so far we haven't changed the basis that we use to prepare that projection.
We're of course very encouraged by the outperformance that we've been seeing all year on productivity and also the performance that we're seeing on capital execution and what that means for cost savings.
We just think it makes sense to get all of the long dated production data from as many wells as possible before we update or change that 2024 projections. So.
The results this quarter and all year speak for themselves and we're excited to continue that through the fourth quarter here and into next year, when we update that 'twenty four guide.
Understood. Thanks Brendan.
Then I guess, just as a follow up I'd love to get maybe some updated thoughts around.
Industry consolidation, obviously did the three for one with Encap and.
Integration is obviously growing incredibly well, but just curious to hear your updated thoughts on Permian consolidation and just general industry consolidation. Thanks, guys.
Yes, no. Appreciate it gave it's obviously been an area of focus for the industry I think for US we've been very focused on execution and the digestion and integration of the transaction that we undertook earlier this year and the and the bolt ons that we had undertook in the two years prior so.
We think our durable return strategy has been very effective here and we've done a lot in this space and I alluded to in the prepared remarks.
Over 500 premium locations added over the last couple of years and you can see that showing up in our results.
So.
I think for us really focused on executing and creating value off the platform that we've created.
Thank you. The next question comes from Doug Leggate from Bank of America. Please go ahead.
Thank you good morning, Brendan I Wonder if I could just ask you to maybe push you a little bit on two things you just mentioned that the first one is your Capex guide for next year is two 1% to two five is still pretty wide.
But the step up in triangle Fracs.
And I'm, saying that correctly to 50% from 25% cost savings. It seems to me that your you got to be pointed towards at least the lower end of that range, if not below what <unk>, what can you tell us about that.
And then my second question, which is related to us.
I just wanted a clarification really has has any of the 20% legacy improvement legacy well improvements or the application of the <unk> design to the legacy end cap assets.
Are any of those included and not 200 base because that 200 basis has been in place for quite a while.
Yes, Doug I mean, I'll take them in reverse order here.
No we haven't changed the basis upon which we prepared that 200000 barrels a day projection. If you remember right. It's actually been in place since late Q1, when we announced the.
The transaction and felt like we needed to give some color to 2024. So we had no no change to that so we'll obviously be.
Incorporating the results that we've seen and putting them into our go forward update.
In February when we traditionally would guide for 'twenty four.
And then on the Capex side look I think the.
At any given moment over the last few months.
The.
The sentiment on inflation deflation has moved around a fair bit I think it's fair to say I think we're still seeing the potential for some overall deflation and then as you alluded to with things like triangle Frac, we're seeing the potential for some capital efficiencies too to assist on that go forward.
So we will again take that into account as we prepared detailed guidance for 'twenty four.
But we're excited about the momentum that the teams creating an.
And I think <unk> seen.
But the potential for a little bit of deflation, which I think no surprise has been led by OTT G prices as the category Thats created the most deflation potential that we've seen over the last few months.
I appreciate that can I go for clarification, just on one point.
That the fact that you have not changed the base when you and I traveled early this year you suggested that you don't feel you ready yet to declare if you've improved recovery or just accelerated.
Production.
Are you at a point now where you think you've got the answer.
I think that's a that's a.
An answer that will come with time, I don't think Theres, a magical light switch moment, where all of a sudden you you've got precisely 90 days or 180 days of data I think this is going to be.
A place we evolve into in and de risk.
As we get more wells that are performing at that level and as those wells have more data.
It commences this on that so.
So yes, no no light bulb moment to announce today, but I think like.
Like I said the results that we're seeing year to date are piling up and giving us confidence as we go forward.
Right. Thank you so much.
Yes, Thanks, Doug.
Thank you. The next question comes from Scott Gruber from Citigroup. Please go ahead.
Yes, good morning.
Hey, Scott.
Continue on that line of inquiry.
I realize the 200 K plateau next year May move higher as you incorporate learnings.
From your second half program hopefully it does but.
If you're in place kind of still indicate that the 200 K is reasonable.
Which is.
A decent decline from your exit rate here in 'twenty three would you look at raising the well count to raise that plateau is that something you consider I just think about it.
Backward dated oil curve in decent inventory in the play I would I would think the NPV math suggests that something higher is better so.
Some additional thoughts there.
Yes, no I appreciate it.
I think for us that decision will be driven by returns and free cash maximization.
And you alluded to.
Today, we don't see the world, calling for additional barrels of growth.
Theres enough cross currents out there that that I think it makes sense to be patient and wait for those signals but.
I think we continue to unlock efficiencies and that creates optionality for us.
If you look at one small example, I think it's a little.
A little bit.
In the rounding, but we did elect to complete those four drilled and uncompleted wells in the Anadarko This quarter combination of.
They're earlier well performance that we're seeing from neighboring locations with.
And improved NGL and gas environment.
Relative to what we were expecting this summer and then the ability to get really competitively priced <unk> frac crews on it this quarter so.
Think we'll manage those decisions as they come in and make the right call from a return on invested capital and free cash maximization lens.
Well I appreciate the color that was it for me. Thank you.
Yes, Thanks Scott.
Yeah.
Thank you. The next question comes from Meng Chowdhry from Goldman Sachs. Please go ahead.
Hi, Thank you. Thank you for taking my questions.
The strong operational results.
Obviously, notably.
Can you walk us through the evolution of summit Fracked with trauma and Frac.
So help us understand what is critical for our success and how of Endeavour is unique in its ability to deploy this technology.
Yeah I appreciate it.
And what I would I'll get Greg to chime in here, but what I sort of set them up for us.
There is no trade secrets or intellectual property in our industry.
Of any real meaningful node and so a lot of how we create value through innovation is with culture and expertise and what we've seen over a long period of years here is that theres, a real path dependency to that learning and the ability to execute on things like trauma frac, but.
I'll turn that over to Greg to chime in.
Yes, Thanks, Brendon and thanks for your question.
Our teams have had a really great track record of always finding these new innovations and implementing them in a way to help improve returns in the Permian and across the portfolio, but in the Permian specifically if you go back in time, we've been doing cube development here for a long time.
Really it was through some ops, we had multiple rigs and multiple frac spreads on each location.
And we really focused on logistics to make sure we kept everything running smoothly and we were able to execute on those larger developments and we saw the opportunity with Simon for act that we could if we could start fracking two wells at the same time that would really speed up the process and help us reduce costs and improve returns.
And then that kind of evolved into us pumping larger and larger amounts of sand and so as we pump more sand, we realized what we need to have a cheaper way to get that proppant and that led us to get.
Local sand mines do use wet sand and bring it to a location and then as we continue to execute and pump faster, we said well gosh, we don't need to have supply chain be a limitation on our ability to continue to frac wells faster and that led us to the sand pile.
That allows us to keep inventory on location to so to make sure that sand doesn't keep us from from executing as you see all these innovations they kind of build on each other you can't just immediately jump to the last step in the process you've got to build as you go and really the latest step in that process is trammell frac for us and.
A little bit about health Rommel Frac works, it's really simple it's the same processes simultaneous it's the same equipment, we're using one frac spread to be clear. It's just one spread with one lender the only thing thats different from a simulcast <unk> spread as we add a few more pumps. So we can get some more rate and.
And then we adjust the plumbing so that we've got.
Pipe running to three wells. So we can pump out all three wells at the same time stimulate three wells at the same time and by doing that we're able to actually try them three to four days off of the time for each well, which saves us about $125000 a well.
And it's been working really well for us to be clear. This is not just an idea. This is something that we've been executing on for some time now we've done five pads already this year executed really well and that's what gives us the confidence to start incorporating that nor future plans. So as I've said before this is not.
Just a new one time thing for US. This is an evolution over time of all of these innovations building on each other and that's what I think gives us a unique advantage in the basin.
Where we've been is allowing us to go where we're going today.
And I'd just add like the whole point of all of this innovation is to create a more capital efficient business and have higher return on invested capital and that's the standard that we hold ourselves to and we.
We spend a lot of time looking at how we compete in that space and pretty consistently rank at the top of capital efficiency amongst a pretty high quality peer group.
I think as Greg outlined.
This isn't a secret, but it's really hard to imitate and that's the where the value is for our business.
That's very helpful. Thank you so much.
And maybe I'd ask kind of at the moment.
A longer term question I guess, you had a spotlight around on the Montney assets last year, and you indicated the potential to unlock value through the build out of midstream infrastructure can you give us an update on this.
As we head into this upcycle and quantified when he six potentially on natural gas how should we think about the capital location from a long term perspective between Permian and Montana with deliberate from more of a long term question, but would help your response here.
Yes, Bill Love it.
We're obviously very.
Excited about our Montney asset and it's really two assets and one we've been trying to to make sure the.
The market understands that that we have our montney oil asset with a deep premium oil inventory and then we have the montney gas asset with a with an extremely deep premium inventory on the gas side.
In 2024, I think we'll see about 20% of our capital deployed in the Montney and that's all going to be deployed into the oil window. So we make a lot of gas in the money because of the legacy base production, but where our capital has been focused.
Go forward in 'twenty, four is going to be in the oil window.
But definitely down the road, we see the opportunity.
For the Montney gas to create a lot of value for our shareholders.
That's something of course, we have been exploring to get market access.
To better price environment for the Montney, we were set up to.
Access all ex co environments for the next three years.
Then.
We've got a deep transportation portfolio that persists, even out past that 25 timeline that lets us.
Stay outside of the <unk> environment and of course, we're exploring the potential for LNG exposure down the road.
That's very helpful. Thank you.
Thank you. The next question comes from Greg Pardy from RBC capital markets. Please go ahead.
Yes. Thanks, good morning, Thanks for the rundown.
I was going to ask about LNG, but I think that that's ships.
Sits where it does.
With all of the calls last couple of years, the Uinta has sort of gone from.
Testing with potential now I'm trying to get a better sense as to.
How do you frame the size of that asset and do you.
It competes already so what would be the limiting factors or maybe what are the parameters.
Parameters youre looking at to really grow that business.
Yeah appreciate it Greg.
The Uinta really has been unlocked in two ways. One we unlocked at with demonstrated cube development and then we also unlocked with market access so we've shifted.
That basin from being solely only able to access the salt Lake City refinery market to now we are moving about 40% of our oil production to the Gulf Coast and so what Thats done is really enhanced the margin in the play and in particular enhance the margin stability.
And the play so it's taken the volatility out of.
Realized prices there and so today, our Uinta basin margin is consistent with our Permian basin margin at the top of the portfolio. So.
Both the well performance and the market access on Mark have been have been important to get to your question around like where where are some of the natural limits there I think.
We can continue to see you enter production grow pretty robustly from from where it is today for us because we have those market access options and so I think we will continue to be pretty disciplined on capital allocation there.
And just continue to step into the play, but we're excited about the trajectory that it's on.
Okay. Thanks for that and then maybe just shifting back to the Anadarko.
What caught my ear.
How many years I guess in English and the commentary was cutting base decline rates in <unk> I'm, just wondering maybe Greg can touch on that a little bit as well is just where D&C costs are sitting these days versus say pre pandemic.
Yeah terrific over to Greg.
Yes. Thanks for the question, Greg first of all the base decline, yes. It is.
Just a series of just aggressive blocking and tackling by the team we focused really hard on our artificial lift installing plunger's keeping wells online won't longer worked on compressor downtime.
Worked with the midstream operator, there in the area of making sure that we're able to handle all the gas from the <unk>.
As we go forward. So just a lot of really consistent blocking and tackling effort. Obviously as you slow down production you eliminate off or excuse me slow down drilling activity you eliminate <unk> as well so a lot of pieces there, but just really great effort from the team to flatten that base decline.
And we feel like the other not done yet.
In a really good place.
As we think about cost there that's a basin that has got great access to services. So while the rig counts down in the basin. It is very easy to reactivate and get rigs and Frac crews back to the basin as we just demonstrated with this frac crew, we picked up for a short term assignment. So the costs there will be be similar to where.
We were prior to the pandemic minus transit tubular the tubular are still while they are coming down there were a little higher than they were pre pandemic, but I think on a cost per foot is going to be in line or below where the Permian is.
Okay. Thanks very much.
Thanks, Greg.
Thank you. The next question comes from Roger read from Wells Fargo. Please go ahead.
Yeah.
Yes. Good morning, Thanks for having me on.
I'd like to follow up a little bit on what the bringing the wells forward and I guess, there's a little bit on tie into it.
The simulcast triferic.
Changes, but what else that means for you right, so you're bringing wells on quicker youre, bringing production on a little quicker you can get a little more capital efficient, but youre also pull in some inventory for it. So I just want to understand how you think about that within this overall logistics discussion.
And on here.
Above ground versus below ground, but tying back to the below ground as youre accelerating how that looks within the overall inventory picture.
Yeah, Roger I appreciate it and really if you wind back to how we wanted to prosecute the business, we wanted to get to a low level of activity across each of the assets and really create the capital efficiencies that that load leveling can offer.
We want to run the business to maximize free cash flow and we knew that as inheriting that wells in progress.
Inventory in the Permian that we got from the acquisition, we were going to have to slow down activity.
Feather that back to the low leveled program that we want to run in and we were able to accomplish that early because of.
Great work by the team on the integration, but also as you pointed out just drilling and completing wells faster and so really we're going to we're going to sit at that five rig level. We're already at that level here today have been have been for a little while and so that that will.
If we continue to drill and complete faster that will bring more and more wells into each year's program, but.
That's where we get to Scott's question earlier, which is hey to your pocket pocket those capital savings or do you.
Let that increased activity grow production modestly and thats really going to that decision is going to come back to the free cash flow and return optimization that we talked about so it's all very linked as you're pointing out in.
As far as accelerating the subsurface and consuming more inventory.
I think we'd just refer you back to my comments about why that's been so important to swim against that industry tide and deepen the inventory and create a trajectory for <unk>, where we've got a very long dated premium inventory to work with them and that's going to generate the durable returns that we think are going to be.
<unk>.
No agreed.
Vacating for acceleration just trying to understand.
Yes.
And then the only other question I would have everybody's focused on M&A, you've obviously been involved in some of yourself, but what about on the disposition side is there anything we should be watching on that front.
Think about it from a high grading perspective, something you know that.
Isn't anywhere near a front burner anything like that we should be watching for.
Also as a way to accelerate debt reduction thank you.
Yes, Rajeev I appreciate the question and certainly.
Something we think about but we're pretty happy with the portfolio that we've created it's highly focused each asset is contributing.
Free cash flow.
And each asset is competing for capital so.
Pretty happy with the portfolio, we have been always it always seeking to understand how we could create value and bring it forward for our shareholders.
Thank you at this time, we have completed the question and answer session and we'll turn the call back over to Mr. <unk>.
Thank you Joanna and thank you all for joining us today and for your continued interest in our call is now complete.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.