Q1 2024 Ovintiv Inc Earnings Call
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2024 first quarter results conference call.
Good day, ladies and gentlemen, and thank you for standing by well control events of 2024 first quarter results conference call.
Operator: As a reminder, today's call is being recorded. At this time, our 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 can join the queue at any time by pressing star 1.
Operator: Today's call is being recorded.
Operator: At this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Operator: Members of the investment community will have the opportunity to ask questions and can join the queue at any time by pressing star one.
Operator: For members of the media attending in a listen-only mode today, you may quote statements made by any of the Ovintiv representatives. However, for 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 Ovintiv. I would now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest.
Operator: For members of the media attending in a listen only mode. Today, you may quote statements made by any of the old vintage of 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.
Operator: Please be advised that this conference call may not be recorded or rebroadcast without the express consent of all vintages.
Jason Verhaest: I'd now like to turn the conference call over to Jason for Hoist from Investor Relations. Please go ahead Mr. <unk>.
Jason Verhaest: Thanks, Joanna, and welcome everyone to our first quarter conference call. This call is being webcast, and the slides are available on our website at Ovintiv.com. Please take note of the caution regarding forward-looking statements at the beginning of our slides and in our disclosure documents filed on CDAR, PLUS, and EDGAR. Following prepared remarks, we will be available to take your questions. I'll now turn the call over to our President and CEO, Brendan McCracken.
Jason Verhaest: Thanks, Joanna and welcome everyone to our first quarter conference call.
Jason Verhaest: This call is being webcast and the slides are available on our website at <unk> Dot com.
Jason Verhaest: Please take note of the advisory regarding forward looking statements at the beginning of our slides and in our disclosure documents filed on SEDAR plus an editor.
Brendan Michael McCracken: Following prepared remarks, we will be available to take your questions.
Brendan Michael McCracken: I'll now turn the call over to our President and CEO Brendan Mccracken.
Brendan Michael McCracken: Good morning. Thank you for joining us. Our team has carried our momentum from last year into 2024, with every item at or ahead of our first quarter guidance midterm. We deliver net earnings of $338 million, free cash flow of $444 million, and cash flow per share of $3.80, beating consensus estimates. We've raised our full-year production guidance, which will see us deliver oil in condensate volumes of about 206,000 barrels per day while leaving our capital guidance unchanged at $2.3 billion at the mid-price.
Brendan Michael McCracken: Good morning, Thank you for joining us.
Brendan Michael McCracken: Our team has carried our momentum from last year into 2024 with every item at or ahead of our first quarter guidance mid points.
Brendan Michael McCracken: We delivered net earnings of $338 million free cash flow of $444 million in cash flow per share of $3 80.
Brendan Michael McCracken: Beating consensus estimates.
Brendan Michael McCracken: We've raised our full year production guidance, which will see us deliver oil and condensate volumes of about 206000 barrels per day, while leaving our capital guide unchanged at $2 $3 billion at the midpoint.
Brendan Michael McCracken: Our 2024 Oil & Condensate Capital Efficiency now reflects a 19% gain compared to our original pre-acquisition 2023 guide. The combination of strong productivity across the portfolio, our leading capital efficiency, and a stronger oil price environment has raised our expectations for 2024 free cash flow from $1.6 billion to $1.9 billion, roughly $750 million more than last year with similar volumes and less capital spend. This will allow us to deliver enhanced returns to our shareholders and accelerate debt repayment.
Brendan Michael McCracken: Our 2020 for oil and condensate capital efficiency now reflects a 19% gain compared to our original pre acquisition 2023 guide.
Brendan Michael McCracken: The combination of strong productivity across the portfolio are leading capital efficiency and stronger oil price environment have raised our expectations for 2020 for free cash flow from $1 6 billion to $1 9 billion.
Brendan Michael McCracken: Roughly $750 million more than last year with similar volumes and less capital spend.
Brendan Michael McCracken: This will allow us to deliver enhanced returns to our shareholders and accelerate debt repayment.
Brendan Michael McCracken: As we highlighted in February, we also added 65 premium 10,000-foot equivalent locations in the Permian through three bolt-on transactions at an average cost of less than $3 million per location. These inventory additions are immediately competitive for capital and are contiguous with our existing acreage in the core of the Midland Basin. Our multi-year disciplined strategy of both organic and inorganic inventory extension has added about 1,650 premium net 10,000 foot locations to our portfolio, delivering a huge boost to our full cycle returns and the durability of our business.
Brendan Michael McCracken: As we highlighted in February we also added 65 premium 10000 foot equivalent locations in the Permian through three bolt on transactions at an average cost less than $3 million per location.
Brendan Michael McCracken: Inventory additions are immediately competitive for capital and are contiguous with our existing acreage in the core of the Midland Basin.
Brendan Michael McCracken: Our multiyear disciplined strategy of both organic and inorganic inventory extension has added about 650 premium net 10000 foot locations to our portfolio deliver.
Brendan Michael McCracken: Delivering a huge boost to our full cycle returns and the durability of our business. We believe our 2024 program is highly repeatable in 2025 and beyond reflecting our leading capital efficiency and the depth of our premium inventory.
Brendan Michael McCracken: We believe our 2024 program is highly repeatable in 2025 and beyond, reflecting our leading capital efficiency and the depth of our premium inventory. As I mentioned, our strong execution enabled us to meet or beat all our first quarter guidance items. Production during the quarter came in above the midpoint of guidance on all products. Oil and Condensate volumes averaged 211,000 barrels per day, with total volumes of 574,000 BOEs per day. We also came in below the midpoint on capital.
Brendan Michael McCracken: As I mentioned, our strong execution enabled us to meet or beat all of our first quarter guidance items production during the quarter came in above the midpoint of guidance on all products oil and condensate volumes averaged 211000 barrels per day with total volumes of 574000 Boe per day.
Brendan Michael McCracken: We also came in below the midpoint on capital.
Brendan Michael McCracken: We resolved the production disruptions we experienced during the quarter, largely due to refinery turnarounds in Salt Lake City, as well as some downtime-related maintenance that was largely in the money. We expect our oil and condensate volumes to stabilize through the second quarter, with a more consistent profile in the second half of the year. I'll now turn the call over to Corey.
Brendan Michael McCracken: We resolved the production disruptions, we experienced during the quarter largely due to refinery turnarounds and Salt Lake City.
Corey: As well as some downtime related maintenance there was largely in the montney.
Corey: We expect our oil and condensate volumes to stabilize through the second quarter with a more consistent profile in the second half of the year.
Brendan Michael McCracken: I'll now turn the call over to Corey.
Corey: Thanks, Brendan, and good morning. Our track record of shareholder returns continued through the quarter. We returned $328 million through share buybacks of $248 million and base dividends of $80 million. This represents a competitive cash return yield of approximately 8%.
Corey: Thanks, Brendan and good morning.
Corey: Our track record of shareholder returns continued through the quarter, we returned $328 million through share buybacks of $248 million in base dividends of $80 million. This represents a competitive cash return yield of approximately 8%.
Corey: Since the inception of our buyback program in the third quarter of 2021, we've repurchased a total of 33 million shares and distributed approximately $700 million in base dividend payments for total shareholder returns of about $2.2 billion. In the second quarter, as per our shareholder returns framework... We will buy back $182 million in shares, and we expect to allocate $182 million to the balance sheet. We remain committed to lowering the overall debt level in our capital structure and the interest costs that go with it.
Corey: Since the inception of our buyback program in the third quarter of 2021, we have repurchased a total of 33 million shares and distributed approximately $700 million in base dividend payments for total shareholder returns of about $2 2 billion.
Corey: In the second quarter as per our shareholder returns framework.
Corey: We will buy back $182 million in shares and we expect to allocate $182 million to the balance sheet, we remain committed to lowering the overall debt level and our capital structure and the interest costs that go with it are strong capital efficiency combined with higher oil prices will allow us to reach our $4 billion net debt target sooner.
Corey: Our strong capital efficiency, combined with higher oil prices, will allow us to reach our $4 billion net debt target sooner. This bolsters the resiliency of our business and positions us to withstand market volatility over the long term.
Corey: This bolt bolsters, the resiliency of our business and positions us to withstand market volatility over the long term.
Corey: Our focus in 2024 is to generate superior returns on our invested capital and maximize our free cash flow. Assuming full-year average crude prices of $80 for WTI oil and a NYMEX natural gas price of $2.25, we expect to generate about $1.9 billion of free cash flow. This is about $750 million, or more than 60% higher than last year with similar production volumes. Second quarter production is set to average 560,000 to 575,000 BOEs per day, with oil and condensate volumes of about 207,000 barrels per day at the midpoint.
Corey: Our focus in 2020 for us to generate superior returns on invested capital and maximize our free cash flow.
Corey: Assuming full year average crude prices of $80 W. T I O L and a nymex natural gas price of $2 25.
Corey: We expect to generate about $1 9 billion of free cash flow. This is about 750 million or more than 60% higher than last year with similar production volumes.
Corey: Second quarter production is set to average 560 to 575000 Boe per day with oil and condensate volumes of about 207000.
Corey: Barrels per day at the midpoint as Brendan mentioned, we expect to deliver a more consistent oil and condensate production profile for the remainder of the year from.
Corey: As Brendan mentioned, we expect to deliver a more consistent oil and condensate production profile for the remainder of the year. From a capital investment perspective, the second quarter will be our highest point for the year. We added a sixth rig in the Permian at the start of April, and we recently commenced our Anadarko drilling program. We expect capital spending to trend down through the second half of the year, and we remain very comfortable with the midpoint of our full-year capital guide at $2.3 billion. Our full year's tills are expected to be roughly evenly split between the first and second half of the year.
Corey: From a capital investment perspective, the second quarter will be our high point for the year, we added a sixth rig in the Permian at the start of April and we recently commenced our Anadarko drilling program.
Corey: We expect capital spending to trend down through the second half of the year and we remain very comfortable with the midpoint of our full year capital guidance at $2 3 billion.
Corey: Our full year tells are expected to be roughly evenly split between the first and second half of the year capital efficiency remains a primary focus for our teams as we work to efficiently convert our inventory into cash flow and generate consistent durable returns for our shareholders.
Greg: Capital efficiency remains a primary focus for our teams as we work to efficiently convert our inventory into cash flow and generate consistent, durable returns for our shareholders. As a reminder, an additional feature supporting our strong free cash flow this year is the expiry of our REX pipeline commitment here in May, which represents about $100 million in savings versus 2023. Additionally, the recent resolution of a legacy legal matter will result in a one-time recovery of approximately $150 million that will go straight to the balance sheet to reduce debt. Between this and the RECS roll-off, we'll realize an additional $250 million in cleanup costs from the legacy business. I'll now turn the call over to Greg, who will speak about our operational highlights.
Greg: As a reminder, an additional feature supporting our strong free cash flow. This year is the expiry of our Rex pipeline commitment here in may which represents about $100 million in savings versus 2023.
Greg: Additionally, the recent resolution of a legacy legal matter will result in a onetime recovery of approximately $150 million.
Greg: That will go straight to the balance sheet to reduce debt between this and the Rex roll off we will realize an additional $250 million and the cleanup costs from the legacy business.
Greg: I'll now turn the call over to Greg who will speak to our operational highlights.
Greg: Thanks Corey.
Greg: Across our acreage footprint, our Permian well performance continues to deliver. As planned, Q1 was a relatively lighter quarter for new wells on stream in the Permian, with only 17% of our full year turn in line. On slide 8, the chart on the right shows our results across the last two quarters. The dashed line shows all 80 of the wells we brought online over that period. These wells demonstrate the performance of our new completions design across our asset footprint. The green line is our 2024 Permian Type Curve, unchanged from its introduction in February.
Greg: Across our acreage footprint, our Permian well performance continues to deliver.
Greg: That's planned Q1 was a relatively lighter quarter for new wells on stream in the Permian with only 17% of our full year turn in lines.
Greg: On slide eight the chart on the right shows our result across the last two quarters.
Greg: The dashed line shows all 80 of the wells, we brought online over that period.
Greg: These wells demonstrate the performance of our new completions design across our asset footprint.
Greg: Green line is our 2020 for Permian type curve unchanged from its introduction in February.
Greg: As you can see, our performance continues to match the type curve, which incorporates all of the improved well productivity we achieved last year and demonstrates how our team is continuing to innovate to drive return. We only turned in line 21 wells in the first quarter, but we have already turned in line 14 wells in Q2. The performance from these 35 wells, as well as our continued solid base performance, gave us the confidence to increase our oil and gas condensate, sorry, our oil and condensate guide for the year to 206,000 barrels per day at the midpoint.
Greg: As you can see our performance continues to match the type curve, which incorporates all of the improved well productivity, we achieved last year and demonstrates how our team is continuing to innovate to drive returns.
Greg: We only turned in line 21 wells in the first quarter, but have already turned in line 14 wells in Q2 the.
Greg: The performance from these 35 wells as well as our continued solid based performance gave us the confidence to increase our oil and gas kind of excuse me, our oil and condensate guide for the year to 206000 barrels per day at the midpoint.
Greg: Yeah.
Greg: Our execution across drilling and completions in the Permian continued to deliver improvements in cycle time, which will ultimately reduce the number of days on location and lower costs. On the drilling side, our average drilling speed in the first quarter was roughly 5% faster than our 2023 program. As Corey mentioned, we recently added a sixth rig in the Permian. With respect to completions, our year-to-date trimal frac dwells were completed 30% faster than our average speed in 2023, at an industry-leading 4,200 feet per day. We expect to utilize TRIMELFRACT on more than half of our program this year. This approach yields a 15% savings in completion costs per foot and essentially doubles the completed feet per day versus a traditional zipper.
Greg: Our execution across drilling and completions in the Permian continues to deliver improvements in cycle time, which will ultimately reduce the number of days on location and lower costs.
Greg: On the drilling side, our average drilling speed in the first quarter was roughly 5% faster than our 2023 program.
Greg: As Corey mentioned, we recently added a sixth rig in the Permian.
Greg: With respect to completions are year to date Trammell Fracked wells were completed 30% faster than our average speed in 2023, and an industry, leading 4200 feet per day.
Greg: We expect to utilize travel frac on more than half of our program. This year.
Greg: This approach yields of 15% savings in completion cost per foot and essentially doubles, the completed feet per day versus a traditional zipper frac.
Greg: We have deep experience with trimal frag, having completed nearly 70 wells in more than 3,400 stages since we began deploying the technique over two years ago. We are also seeing industry-leading drilling and completion metrics this month, where in the first quarter we delivered an average of 1,750 feet drilled per day and over 4,100 feet completed per day. These results are in line with our Permian pace setters and demonstrate the value of our culture of innovation and multi-basin portfolio to deliver learnings and transfer learnings in real time.
Greg: We have deep experience with travel frog, having completed nearly 70 wells and more than 3400 stages. Since we began deploying the technique over two years ago.
Greg: We are also seeing industry, leading drilling and completion metrics and the Montney where in the first quarter. We delivered an average of 17 250 feet drilled per day and over 4100 feet completed per day.
Greg: These results are in line with our Permian Pacesetters and demonstrate the value of our culture of innovation and multi basin portfolio to deliver learnings and transfer learnings in real time.
Greg: Despite the current weakness in gas prices, the economics on our Montany wells remain outstanding. Assuming $75 WTI and $2.50 NYMEX gas, we expect our Montany wells to generate a program-level IRR of more than 60%. These returns are driven by our superior well productivity, low well costs, and strong price realizations for both condensate, which generally trades in line with WTI, as well as natural gas. In fact, Armani Gas realized 103% of Nimex in Q1 on an unhedged basis.
Greg: Despite the current weakness in gas prices the economics on our Montney wells remain outstanding.
Greg: Assuming $75 W. T.
Greg: And $2.50 Nymex gas, we expect our montney to generate a program level IRR of more than 60%.
Greg: These returns are driven by our superior well productivity low well costs and strong price realizations for both condensate, which generate which generally trades in line with Debbie Ti as well as natural gas.
Greg: In fact, our Montney gas realized 103% of Nymex in Q1 on an unhedged basis.
Greg: This is the result of our physical transportation arrangements to markets in Eastern Canada, Chicago, California, and the Pacific Northwest. Our MOTNE program remains robust in both BC and Alberta as we have in hand all the permits needed to execute our 2024 plan and 100% of our water needs secured. Our performance in the play continues to demonstrate the expertise of our team in maximizing value from this incredible resource. In Uinta, our continued focus on well-cost reductions makes the play highly competitive in our portfolio, as it generates a margin similar to our Permian operations.
Greg: This is the result of our physical transportation arrangements to markets in Eastern Canada, Chicago, California, and the Pacific Northwest.
Greg: Our Montney program remains robust in both BC and Alberta as we have it in hand, all of the permits needed to execute our 2024 plan and 100% of our water needs secured.
Greg: Our performance in the play continues to demonstrate the expertise of our team and maximizing value from this incredible resource.
Greg: And then you went to our continued focus on well cost reductions makes the play highly competitive in our portfolio.
Greg: Does it generate some margins similar to our Permian operations.
Greg: Our large, contiguous land base of approximately 137,000 net acres has multiple benches across 1,000 feet of collective pay. It is greater than 80% undeveloped, which translates into a significant inventory runway. As Brendan mentioned earlier, the refinery turnarounds in Salt Lake City were completed at the end of the first quarter, allowing us to bring constrained production back online and return the local refining complex at our typical rate. Furthermore, our rail capacity to the Gulf Coast diversifies market exposure and supports future growth in the play.
Greg: Our large contiguous land base of approximately 137000 net acres has multiple benches across 1000 feet of collective pay.
Greg: It is greater than 80% undeveloped, which translates into a significant inventory runway.
Greg: As Brendan mentioned earlier, the refinery turnarounds in Salt Lake City were completed at the end of the first quarter, allowing us to bring constrained production back online and returned the local refining complex at our typical rates.
Greg: Furthermore, our rail capacity to the Gulf Coast Diversifies market exposure and supports future growth in the play.
Brendan Michael McCracken: With our first quarter drilling program complete, we will continue to get the majority of our 2024 wells online through the second quarter. Moving to Anadarko, our 2024 drilling program commenced at the beginning of April. We are targeting the oiliest parts of our acreage to leverage the strong oil performance we saw in 2023, where the wells displayed first-year oil cuts of more than 55%, with about 85% of first-year revenue coming from oil.
Greg: With our first quarter drilling program complete we will continue to on getting the majority of our 2024 wells online through the second quarter.
Brendan Michael McCracken: Moving to the Anadarko or 2024 drilling program commenced at the beginning of April we are targeting the oily parts of our acreage to leverage the strong oil performance. We saw in 2023, where the wells displayed first year oil cuts of more than 55% with about 85% of first year revenue coming from oil.
Brendan Michael McCracken: We plan to run one rig in the play for the remainder of the year and expect to see our first wells come online in the third quarter. The team has also managed our base production very effectively, and we expect our 2024 Anadarko base decline rate to average an impressive 17%. I'll now turn the call back to Brendan. Thanks, Greg.
Brendan Michael McCracken: We plan to run one rig in the play for the remainder of the year and expect to see our first wells come online in the third quarter.
Brendan Michael McCracken: The team has also managed our base production very effectively and we expect our 2020 for Anadarko base decline rate to average an impressive 17%.
Brendan Michael McCracken: I'll now turn the call back to Brendan Thanks, Greg.
Brendan Michael McCracken: Our team delivered another strong quarter, meeting or beating all our targets and delivering cash flow per share and free cash flow above consensus. Our focus remains on maximizing capital efficiency, generating significant free cash flow, reducing debt, and continuing to bolster our premium return drilling inventory. We are well-positioned to deliver consistent, durable returns to our shareholders through our focus on operational excellence, disciplined capital, and responsible operations. This concludes our prepared remarks. Operator, we're now ready to open the line for questions.
Brendan: Our team delivered another strong quarter meeting or beating all our targets and delivering cash flow per share and free cash flow above consensus our focus remains on maximizing capital efficiency generating significant free cash flow, reducing debt and continuing to bolster our premium return drilling inventory.
Brendan Michael McCracken: We are well positioned to deliver consistent durable returns to our shareholders through our focus on operational excellence disciplined capital and.
Brendan Michael McCracken: Responsible operations. This contribute concludes our prepared remarks, operator, we're now ready to open the line for questions.
Operator: Ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star 1. We will now begin the question and answer session and go to the first caller. The first question comes from Neil Mehta at Goldman Sachs. Please go ahead.
Speaker Change: Ladies and gentlemen, as a reminder, you can join the queue to ask a question by question.
Neil Singhvi Mehta: We will now begin the question and answer session and go into the first caller.
Operator: Next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Neil Singhvi Mehta: Good morning, Brendan and team. I have a couple of questions for you. First, I would love your perspective. We spent a lot of time talking about the Permian over the last couple of quarters, but on the Montanese specifically and the progress you're making in the oil window. So if you could just spend some time talking about your plans for that over the course of the year, and what do you think that investors should be focused on?
Neil Singhvi Mehta: Good morning, Brian and team.
Neil Singhvi Mehta: Couple of questions for you.
Neil Singhvi Mehta: First with.
Neil Singhvi Mehta: Would love your perspective, we spent a lot of time talking about.
Neil Singhvi Mehta: The.
Neil Singhvi Mehta: About the Permian over the last couple of quarters, but on the Montney, specifically and the progress you're making in the oil window. So if you could just spend some time talking about your plans for that over the course of the year end.
Neil Singhvi Mehta: And what do you think that investors should be focused on from a strategic perspective there.
Brendan Michael McCracken: Yeah, thanks, Neil. I really appreciate it.
Brendan: Yes, Thanks, Neil really appreciate it and you know where I'll start first is just with the resource itself and I think this is a place that's getting more attention from our investors, but one of the things we've been flagging for a little while now is the <unk>.
Brendan Michael McCracken: And, you know, where I'll start first is just with the resource itself. And I think this is a place that's getting more attention from our investors. But one of the things we've been flagging for a little while now is the fact that everybody knows that Permian is the largest remaining premium oil resource in North America. I think what a lot of people haven't realized until recently is that the second largest remaining oil resource in North America is in the money.
Brendan Michael McCracken: He knows the Permian is the largest remaining premium oil resource in North America, and I think what a lot of people haven't.
Brendan Michael McCracken: Realized until recently as the second largest.
Brendan Michael McCracken: It's largely been thought of as more of a gas play, but where we've been focusing our capital and focusing our attention in the play has been on our acreage that's in the condensate window, which for us sells as a premium product and really prices just like our oil price in the U.S. And so that's been the strategic focus for us. And look, we're really pleased with the results. I think it's very consistent with our durable return strategy, where we've built a culture and expertise that lets us lead on innovation.
Brendan Michael McCracken: Meaning oil resource.
Brendan Michael McCracken: In North America is in the Montney and it's sort of largely been been thought of as more of a gas play, but where we've been focusing our capital in and focusing our attention in the play has been on our acreage that's in the condensate window, which which for ourselves as a as a premium product and really prices just like our oil price in the U S.
Brendan Michael McCracken: That's been a strategic focus for us and look we're really pleased with the results I think it's very consistent with our durable return strategy, where we've built a culture and expertise that lets us lead on innovation and that's showing up in both our cost and our productivity performance in the play and Oh as we run.
Brendan Michael McCracken: And that's showing up in both our cost and our productivity performance in the play. And you know, as we run the business at a maintenance level as a company, that's the role that Montany is playing within the portfolio. So investors should expect it to run relatively flat through the year and deliver free cash flow off the back of that.
Brendan Michael McCracken: The business at a maintenance level as a company that's the role that the Montney is playing within the portfolio. So investors should expect it to to run relatively flat through the year and deliver our free cash flow off the back of that.
Brendan Michael McCracken: Okay, that's helpful. And then, just to follow up, we've gotten some questions this morning on just 2Q capital. It is a little bit higher than what would be implied for the full year. I'm guessing that's just lumpiness with the 6th rig coming up and the Anadarko kicking off, but just any perspective on just the timing of CAPEX. Yeah, you got it for sure, Neil.
Speaker Change: Okay. That's helpful. And then just follow up and we've gotten some questions. This morning on just TQ capital. It is a little bit higher than what would be implied for the full year I am guessing thats, just lumpiness with the fixed rate coming up.
Brendan Michael McCracken: Anadarko kicking off but just any perspective on just timing of Capex in Q2.
Brendan Michael McCracken: Yeah, you've got it for sure, Neil. The sixth rig is part of it. And then, you know, we highlighted the till cadence, the turn-in-line cadence across the portfolio being a little lighter in 1Q and a little stronger in 2Q. And so where that'll set us up is, if you look at it on a first-half, second-half basis, as a company, we'll be almost balanced on that capital and turn-in-line cadence, but a little bit shaded towards Q2 relative to Q1.
Brendan Michael McCracken: Yeah, you got it for sure Neal the sixth rig as part of that and then you know we highlighted the til cadence the turn in line cadence across the portfolio being a little lighter in <unk> and in a little stronger than <unk> and so we're that will set us up is if you look at it on a first half second half basis.
Brendan Michael McCracken: <unk> as a company it would be would be almost balanced on that capital and turn in line cadence, but a little bit shaded towards Q2 relative to Q1.
Speaker Change: Thanks Brendan.
Speaker Change: Thank you Neil.
Arun Jayaram: Thank you. The next question comes from Arun Jayaram at J.P. Morgan. Please go ahead.
Brendan Michael McCracken: Thank you. The next question comes from Jairam at J P. Morgan. Please go ahead.
Corey: Yeah, good morning. Corey, I wondered if you could just maybe elaborate on the $150 million expected cash inflow. It looks like you resolved a previous asset sale dispute, but maybe some details on that and perhaps timing and any tax implications from that inflow.
Arun Jayaram: Yeah good morning.
Arun Jayaram: Cory I'm wondering if you could just maybe elaborate on the $150 million expected cash inflow. It looks like you've resolved our previous asset sale dispute, but maybe some details on that and perhaps timing.
Corey: And any tax implications from that inflow.
Corey: Yeah, good morning, Arun. Just based on the agreement, we're not allowed to say a whole bunch more about it other than I can confirm it's a very old transaction. We should have minimal cash tax with it, and then maybe the only other clarifying point would be that it's not going to show up in cash flow. The full amount of it is going to go to reduce debt in the second half of the year.
Corey: Yeah, Good morning Arun.
Corey: Just based on the agreement, we're not allowed to say a whole bunch more about it other than I can confirm it's a it's a very old transaction.
Corey: We should have minimal cash tax with it and then maybe the only other clarifying point would be it's not going to show up in cash flow. So.
Corey: The full amount of its gonna go to reduce debt in the second half of the year.
Brendan Michael McCracken: And Arun, the only thing I'd add to it, you know, we're very pleased to get this one resolved. As Corey said, it's an older item, not a recent one.
Speaker Change: And the only thing I'd add to it.
Brendan Michael McCracken: We're very pleased to get this one resolved as Corey said, it's a it's an older item not a recent one and I think generally what that should reflect is the relentlessness that our team has to to get value for our shareholders.
Arun Jayaram: And I think, generally, what that should reflect is the relentlessness that our team has to get value for our shareholders. And, you know, when you think about the $150 million from this settlement combined with the work to roll off the REX payment this year, which actually is this month, is our final REX payment owing, you know, that's almost $300 million, or maybe call it closer to $250 million of incremental value to the shareholders. And, you know, our team is just relentless about trying to unearth those opportunities and bring them all the way to the bottom line.
Arun Jayaram: When you think about the 150 million from this settlement combined with the work to roll off the Rex.
Arun Jayaram: Payment this year, which actually is this month as our final final Rex payment. Owing you know, that's almost 300 million or maybe call it closer to $250 million of incremental value to the shareholders and our teams just relentless about trying to unearth those opportunities and bring them all the way to the bottom.
Arun Jayaram: <unk>.
Corey: Yeah, just to clarify, do you have a sense of timing? Is that a 2Q item, or is that the second half of the year?
Speaker Change: Yeah, just to clarify do you have a sense of timing is that of a <unk> item or is that second half of the year.
Corey: It'll be the second half. It's right around the third, third, fourth quarter. Okay.
Speaker Change: It'll be second half, it's right around the third and fourth quarter.
Greg: Okay, fair enough. My follow-up is just on the Trimolfac completion. Greg, I think you mentioned you've participated now in 70 completions, but one of the questions we've got from investors is if you could give us a sense of the well productivity of the Trimolfac completions versus the wells you're doing, either Simolfac or Zipper, and is there any trade-off that you're experiencing from some of the efficiency gains versus just overall performance or well productivity?
Speaker Change: Okay fair enough.
Greg: My follow up is just on the treadmill fact completion.
Greg: Scheme, Greg I think you mentioned it.
Greg: You're participating now in 70.
Greg: Completions, but what are the questions we got from investors.
Greg: Is if you could get a sense of the well productivity on the triangle fat completions versus the.
Greg: The wells Youre doing either sign will frac or zipper and is there any trade off before some of the that you're experiencing from some of the efficiency gains versus just overall performance or well productivity.
Greg: Thanks for the question. And we've been very pleased that all along, over the past two years, as we've instituted these trimel fracks, we're seeing no degradation in well performance really at all. What we're seeing is lower treating pressures and the ability to pump these jobs faster, which generates cost savings, which will flow straight to the bottom line. It also allows us to execute these jobs faster, which allows us to be more capital efficient.
Greg: Thanks for the question and we've been very pleased that all along over the past two years as we've instituted these triangle fracs, we're seeing no degradation to well performance really at all what we're seeing is as lower treating pressures and the ability to pump these jobs faster, which generates cost savings.
Greg: Will flow straight to the bottom line and it also allows us to execute these jobs faster, which allows us to be more capital efficient, but the performance from these wells are very much in line with Ah.
Greg: But the performance from these wells is very much in line with the other wells in the field. If you recall, we were doing this for a bit of time prior to even divulging that we were doing a trimel frack, and the results weren't showing up any differently during that time. And that continues to be the case today.
Greg: The other wells in the field. If you recall, we were doing this for a bit of time prior to even <unk> that we were doing trauma frac in the results werent showing up any differently during that time and that continues to be the case today. So we're very pleased with travel frac.
Greg: We pump a third of our jobs last year using that technique. This year it'll be a little over half and see no reason why we couldn't continue to push that up even higher in the future as we continue to use the technology.
Brendan Michael McCracken: Yeah, I'd just add Arun. I'd just add Arun, you know, the rock doesn't know it's being trimal fracked, so the way we design these completions, the rate of slurry, sand, and water that's going through each cluster is exactly the same in either a zipper, a simul, or a trimal frack. And so really, this is all about an above-ground efficiency gain, and the reservoir feels the exact same frack it would otherwise. So that's why the result that Greg's describing on the well performance makes total sense, that the wells would produce exactly the same because the completion downhole is exactly the same.
Greg: So we're very pleased with trimel frack. We, you know, pumped a third of our jobs last year using that technique. This year will be a little over half, and I see no reason why we couldn't continue to push that up even higher in the future as we continue to use the technology. Yeah, I'd just add Arun. I'd just add Arun.
Speaker Change: Yeah, I'd, just add Arun I, just out or in the you know the.
Greg:
Greg: The rock doesn't know, it's being trauma fracs. So the way we design these completions the rate of slurry sand and water that's going through each cluster is exactly the same in either a zipper assignment or a triangle frac and so really this is all about and above ground efficiency gain.
Greg: And in the reservoir feels the exact same frac it would otherwise so.
Arun Jayaram: That's why the resolve that greg's describing on the well performance makes total sense that the wells would produce exactly the same because the the completion downhole is is exactly the same.
Arun Jayaram: Great. Thanks Brendan.
Arun Jayaram: Yes, Thanks Erin.
Neal David Dingmann: Thank you. The next question comes from Neal Dingmann at Truist Securities. Please go ahead.
Arun Jayaram: Thank you. The next question comes from Neal Dingmann with Securities. Please go ahead.
Brendan Michael McCracken: Morning, guys. Thanks for the time. My first question is on the D&C plan, specifically looking at your 20, I guess, the second quarter guide you all talked about adding that six permanent rig is, you know, I know you had already suggested and starting up the Anadarko program. I'm just wondering, assuming you're, you know, maybe, I don't know, Brendan, a question for you or Greg, if the operational efficiencies continue at this current pace, you know, would you all continue with the same rigs, the six same rigs or, you know, which I think is about 60% of the overall program, or would you, you know, let maybe a Permian rig or another rig go earlier than expected in the program this year?
Neal David Dingmann: Hey, good morning, guys. Thanks for the time My first question is on the D&C plan, specifically looking at your 'twenty I guess, the second quarter Guide you all talked about adding that at six Permian rig as I know you had already said suggested and started up the Anadarko program I'm just wondering assuming you're maybe I don't know Brian a question for you or Greg if the offer.
Brendan Michael McCracken: Additional efficiencies continue at this current pace, which all continue with the same rigs six same rigs or which I think is about 60%.
Brendan Michael McCracken: The overall program or would you, let maybe a Permian rig or another rate go earlier than expected in the program. This year.
Brendan Michael McCracken: Yeah, yeah. Hey, Neil, I think the way to think about that is... Based on what we're seeing today in terms of supply and demand fundamentals and the service price environment that we're working in, we're biased toward keeping that low-level program going with that sixth rig through the end of the year. And so that's what's reflected in the guidance that we issued today, and the additional asset-level guidance in the material also shows that 60 percent of the tills and the Permian coming in the second half.
Brendan: Yeah, Yeah. He Neal I think the way to think about that is <unk>.
Brendan Michael McCracken: Based on what we're seeing today in terms of supply and demand fundamentals in the service price environment that we're working in whereby towards keeping that low level program going with that sixth rig through the end of the year and so that's what's reflected in the guidance that we issued today and in the additional.
Brendan Michael McCracken: Asset level guidance in the material also shows that with that 60% of the tills in the Permian coming in the second half.
Neal David Dingmann: Got it. Got it.
Neil: Got it got it Okay and then just a quick.
Speaker Change: Do you have a second Greg.
Speaker Change: No go ahead.
Speaker Change: Okay, and then just a quick second one just on capital allocation is it fair to say I don't know better for you or Corey just when you look at the free cash flow and we have that continue to ramp up pretty nicely. This year will that likely continue to consist of just <unk>.
Neal David Dingmann: Continue to lien leaning in depth buybacks.
Neal David Dingmann: Stocks or I'm, just wondering I guess that versus variables or something else or if I could ask maybe one other second part are there I mean do you all think of you.
Neal David Dingmann: Think of the stock value is based on a bid cycle level or.
Neal David Dingmann: What would cause you to continue leaning into this as you have.
Brendan Michael McCracken: Okay. And then just a quick question... Do you have a second, Gregory? No, go ahead, Neil.
Speaker Change: Yeah, Great Great question Neal.
Brendan Michael McCracken: [noise] approach, we've taken and I think we will continue to be consistent with and in our view there has been to stay in this 50 50 allocation of free cash flow, where we're putting half of it to the debt reduction and then half of it to the the incremental shareholder returns and then on your on your question around how to do that incremental shareholder returns.
Brendan Michael McCracken: Okay, then just a quick second one just on capital allocation. Is it fair to say, I don't know, you know, Brendan, for you and Corey, just when you look at the free cash flow, and you know, we have that continuing to ramp up pretty nicely this year, will that likely continue to consist of just continuing to lean into buybacks of the stocks? Or, you know, I'm just wondering about that versus variables or something else?
Brendan Michael McCracken: We continue to see buybacks as the right value choice and.
Brendan Michael McCracken: The way we get to it is is exactly how you implied so we look at what we think the intrinsic value of the businesses.
Brendan Michael McCracken: And we look at that through a mid cycle lens and for US that's been 55 on Ti and $2 75 on Nymex and so we look at the business through that price lens, which sitting here today it feels.
Brendan Michael McCracken: Or if I could ask, maybe one other second part of there? I mean, do you all think of the stock value as based on a mid-cycle level or, you know, what would cause you to continue leaning into this as you have?
Brendan Michael McCracken: Reasonably conservative on the oil side, and probably balanced on the gas side and so we like that as a discipline tactic to really manage that decision between staying in buybacks or shifting into something like a variable dividend and so when we do that math and analysis today.
Brendan Michael McCracken: Yeah, great, great question, Neil. The approach we've taken I think will continue to be consistent with, and our view there has been to stay in this 50-50 allocation of free cash flow where we're putting half of it toward debt reduction and then half of it toward the incremental shareholder returns. And then on your question around how to do that incremental shareholder return, we continue to see buybacks as the right value choice, and the way we get to them is exactly as you implied.
Brendan Michael McCracken: We're still very comfortable that the buybacks or the right.
Brendan Michael McCracken: Turn mechanism to choose for that incremental return to our shareholders.
Brendan Michael McCracken: So we look at what we think the intrinsic value of the business is, and we look at that through a mid-cycle lens. And for us, that's been 55 on TI and 275 on NYMEX. And so we look at the business through that price lens, which, sitting here today, feels reasonably conservative on the oil side and probably balanced on the gas side. And so we like that as a discipline tactic to really manage that decision between staying in buybacks or shifting into something like a variable dividend. And so when we do that math and analysis today, we're still very comfortable that buybacks are the right return mechanism to choose for that incremental return to our shareholders. Absolutely great. Thanks, Brendan.
Speaker Change: Absolutely great. Thanks Brendan.
Speaker Change: Thanks Neil.
Brendan Michael McCracken: Yeah.
Gabriel J. Daoud: Thank you. The next question comes from Jade Daoud at TD Cowen. Please go ahead.
Brendan Michael McCracken: The next question comes from J D.
Gabriel J. Daoud: Cowen. Please go ahead.
Brendan Michael McCracken: Hey, thank you. It's Gabe here from Cal, and hey, guys, thanks for your time. Hey, Gabe. Hey, Brendan.
Gabriel J. Daoud: Hey, Thank you gave here from Cowen Hey, guys.
Brendan Michael McCracken: Okay.
Brendan Michael McCracken: I was hoping maybe you could just pry a little bit more on the trajectory from here. You know, you assume you get 8 kbd back in the winter and the Permian tills kind of accelerating from here with 60 percent in the back half. You're starting a rig in Anadarko. You know, is botany, I guess, declining still on a condensed basis? How do we think about that, I guess, and just some of the puts and takes at the asset level versus, you know, the corporate level guy that kind of assumes or implies maybe flattish to down in the second half on oil and condensate? Yeah.
Speaker Change: Hey, Brian I was hoping maybe you could just try a little bit more on the.
Brendan Michael McCracken: Trajectory from here you assume you get eight kvd back in the Uinta and.
Brendan Michael McCracken: Permian tills kind of accelerating from here with 60% in the back half starting already in the Anadarko.
Brendan Michael McCracken: As the Montney I guess declining still on.
Brendan Michael McCracken: On the condensate basis, how do we think about that I guess and just some of the puts and takes at the asset level versus the corporate level guide that kind of assumes or implies maybe flattish to down in the second half on oil and condensate.
Brendan Michael McCracken: Yeah, I mean, I can talk a little bit about the shape within the assets there, Gabe. So, remember the kind of the biggest factor for production shape for us this year has been, you know, really finishing off the integration of that acquisition in the Permian last year. And just as a reminder, I think everybody knows this, but just as a reminder, there were quite a number of wells in progress that we inherited there as we shifted from that asset being run for growth under the prior management to being run for free cash flow under our strategy.
Speaker Change: Yes, I can talk a little bit about the shape within the assets there Gabe so.
Brendan Michael McCracken: Remember the kind of the biggest factor for production shape for US. This year has been you know.
Brendan Michael McCracken: It really finishing off the integration of that acquisition in the Permian last year and just just as a reminder, I think everybody knows this but just just as a reminder, there was a quite a number of wells in progress that we inherited there as we shifted from that asset being run for growth under the prior management to being run for free cash flow under our.
Brendan Michael McCracken: Our strategy and so.
Brendan Michael McCracken: And so really, the shape that you're seeing through 24 is just finishing off that stabilization and integration. And so what you should expect is the Permian will stabilize in the back half of the year at a little under where it was in 1Q. So 1E will be fairly flat through the year, Uinta grows a little bit more, and Anadarko is fairly flat to slightly down through the year until we start to bring on those wells in the second half.
Brendan Michael McCracken: Really the shape that you are seeing through 'twenty four is just finishing off that stabilization and integration and so what you should expect as the Permian will will stabilize in the back half of the year at a little under where it was in <unk>.
Brendan Michael McCracken: Montney it'd be fairly flat through the year you into grows a little bit more and and Anadarko fairly flat to slightly down through through the year until we start to bring on those wells in the in the second half.
Brendan Michael McCracken: Okay. Okay, great. Thanks, Brendan. That's helpful. And then, I guess, as a follow-up, you did $190 million or so in bolt-ons in 1Q. Just curious what the appetite is like for continued bolt-ons and if we should expect maybe that similar level of spending for the rest of the year, or if do you think, you know, the $190 is kind of it for this year? Thanks,
Speaker Change: Okay. Okay, great. Thanks, that's helpful.
Brendan Michael McCracken: And then.
Brendan Michael McCracken: Just as a follow up you did a $190 million or so I guess in bolt ons in <unk> just curious what the appetite for continued bolt ons and if we should expect maybe that similar level of spend.
Brendan Michael McCracken: The rest of the year or do you think.
Brendan Michael McCracken: <unk> is kind of it for this year thanks guys.
Brendan Michael McCracken: Yeah, I think the thing to think about there is, you know, we've done a lot in this space over the last several years and we've updated that outcome with the $1,650 net premium inventory additions that we've made over that time, and it was a combination of the smaller bolt-ons like the ones that you referenced that we did earlier in 1Q and then, you know, the larger transaction in the Permian last year And so, look, I think that puts us in a spot today where we're being very opportunistic. You know, we're not driven to have to transact in order to extend our inventory.
Brendan: Yes, I think the thing to think about there is we've done a lot in this space over the last several years and we've updated that.
Brendan Michael McCracken: [noise] outcome with the 650.
Brendan Michael McCracken: Net premium inventory additions that we've made over that time and it was a combination of of the smaller bolt ons like the one that you referenced that we did earlier in <unk> and then the larger transaction.
Brendan Michael McCracken: In the Permian last year, and our organic efforts right converting.
Brendan Michael McCracken: Non premium locations to premium on our existing acreage in and so look I think that puts us in a spot today, where we where it can be very opportunistic you know, we're not driven to have to transact in order to extend our inventory we've got that in place and so lets us be very <unk>.
Brendan Michael McCracken: We've got that in place. And so it lets us be, you know, I think we'll stay opportunistic. And when we see opportunities like we saw in 1Q to go grab some really high-quality inventory that bolts right on to our existing acreage, we'll continue to do that. But we'll balance that with our ambitions for debt reduction, and we'll be disciplined about value creation.
Brendan Michael McCracken: <unk> oriented and disciplined in the market that we're seeing today and.
Brendan Michael McCracken: I think we'll stay opportunistic, though and when we see opportunities like we saw in <unk> to go grab some really high quality inventory that bolts right onto our existing acreage will continue to do that but we'll balance that with our ambitions on debt reduction and and we'll be disciplined about value creation.
Brendan Michael McCracken: Great, great. Thanks, Brendan. Thanks for your time. Yeah, thanks.
Speaker Change: Great great. Thanks, Brendan Thanks for the time.
Speaker Change: Thanks Gabe.
Scott Andrew Gruber: Thank you. The next question comes from Scott Gruber at Citigroup. Please go ahead.
Brendan Michael McCracken: Thank you. The next question comes from Scott Gruber with Citigroup. Please go ahead.
Brendan Michael McCracken: Yes, good morning. I'm just following up on the Permian recount question. Given the efficiency gains, I'm curious about the permian rate count of six.
Scott Andrew Gruber: Yes, good morning.
Scott Andrew Gruber: Just following up on the Permian.
Scott Andrew Gruber: Rig count question.
Scott Andrew Gruber: I'm curious.
Scott Andrew Gruber: The rig count.
Brendan Michael McCracken: Six.
Scott Andrew Gruber: Cleveland with a modest level of growth out of the asset relative to where it's stable.
Scott Andrew Gruber: Stabilized in the second half.
Brendan Michael McCracken: Well, I think that'll be a 25 question, really, Scott, because today what we're doing is, like I said, integrating that higher whip activity that we inherited. And where that's leaving us is with the guidance that you've got there for both the company and the asset. And really, the question around, you know, is five or six, the maintenance level. That'll be a 25 question that we'll come to as we get through the year.
Scott Andrew Gruber: Well I think that'll be a 25 question really Scott because today, what we're doing is as you know like I said.
Brendan Michael McCracken: Integrating that.
Brendan Michael McCracken: Higher with activity that we inherited and and whether that's leaving US is with the guidance that you've got there for both the company and the asset and really the question around US is five or six of the maintenance level that it'll be a 25 question that will come to as we get through the year and really what we're honoring there is.
Brendan Michael McCracken: And really, what we're honoring there is the rate of change that the team's continuing to drive, like as we just drill faster and complete faster. So we'll get a read on that as we get through the rest of the year and, and update that view for 25 when we get there.
Brendan Michael McCracken: As the rate of change that the teams continuing to drive like as we just drilled faster and.
Brendan Michael McCracken: Complete faster so we'll get a read on that as we get through the rest of the year and an update that view for 25, when we get there.
Corey: Okay, um, and then just circling back on the $150 million gain on the resolution, just checking. You guys will receive $150 million in cash in the second half, is that correct? And how do we think about that in terms of cash distributions or that cash going on the balance sheet?
Brendan Michael McCracken: Okay.
Brendan Michael McCracken: And then just circling back on the $150 million gain on the resolution.
Corey: You guys will receive $150 million in cash in the second half is that correct.
Corey: Do we think about that.
Corey: In terms of.
Corey: Cash distributions are that that cash on the balance sheet.
Corey: Yeah, yeah, Scott, really appreciate the clarification. That is correct. So that's $150 million in cash coming to us. It will not be a cash flow item. And so our intention is to put that directly toward debt reduction.
Speaker Change: Yeah, Scott really appreciate the clarification that is correct. So that's $150 million in cash coming to us it will not be a cash flow item and so are our intention is to put that directly to debt reduction.
Scott Andrew Gruber: Okay. I appreciate it. Thank you.
Corey: Okay I appreciate it thank you.
Speaker Change: Yeah, great. Thank you.
Greg M. Pardy: Thank you. The next question comes from Greg Pardy at RBC Capital Markets. Please go ahead.
Scott Andrew Gruber: Thank you. The next question comes from Greg Pardy with RBC capital markets. Please go ahead, yes.
Greg M. Pardy: Yeah, thanks. Good morning.
Greg M. Pardy: Yes. Thanks, Good morning, I wanted to maybe just build a little on the balance sheet question.
Brendan Michael McCracken: I want to maybe just build a little on the balance sheet question. So the 150 pay down is helpful. You know, Corey had what I think was a working capital headwind of $376 million or so in the first quarter, but do you expect some of that to unwind through the year? The bigger question is, where is most of the progress made in the deleveraging getting to $4 billion? Is that really, is that predominantly going to be, you know?
Greg M. Pardy: The 150 Paydown is helpful.
Brendan Michael McCracken: Korea had what I think of working capital headwind of $376 million or so in the first quarter of beds do you expect some of that to unwind through the year. The bigger question is where is most of the progress made in the deleveraging getting to the $4 billion that really is that predominantly going to be 2025 as you look at it.
Corey: Yeah, I'll let Corey chime in here, Greg. But, really, the progress is the free cash generation from the business driving that down. But I'll turn it to Corey.
Speaker Change: Yeah, I'll, let Corey chime in here, Greg but.
Corey: You know really the progress is the free cash generation from the business driving that down, but then I'll turn it to Corey.
Corey: Yeah, Greg, we'll start to see progress even as we get through the first quarter because, you know, we put that debt bridge in the appendix just to help people see some of these one-time items in the first quarter, so those included the bolt-ons here that were previously mentioned plus the actual cash payment of the 2023 tax bill for us. So our business will generate more free cash flow really starting in April after the first quarter, and the debt starts to come down and obviously accelerates as oil prices reach 80 plus. So hopefully, we'll start to see progress this year. We don't have to wait until 2025 to see that.
Corey: Yeah, Greg we'll start to see progress.
Corey: Even as we get through the first quarter, because we put that net debt bridge in the appendix is to help people see some of these one time items in the first quarter. So those included the bolt ons here that were previously mentioned plus the actual cash payment of the 2023 tax bill for us.
Corey: So our business will generate more free cash flow I'm really starting in April after the first quarter and that starts to come down.
Corey: Obviously accelerates as oils.
Corey: 80% 80, plus so we will start to see progress.
Corey: This year, we don't we don't have to wait until 2025 to see that.
Brendan Michael McCracken: Okay. And then, maybe just related, how are you thinking about your hedging program, particularly as the balance sheet continues to deleverage? Is hedging something that you could see really moving away from, or is that something you'd want to stay involved with no matter what? Yeah, I think...
Speaker Change: Okay and then thanks for that and then maybe just related.
Brendan Michael McCracken: How are you thinking about your hedging program, particularly as the balance sheet continues to de Leverages is hedging something that you could see really moving away from or is that something you'd want to stay involved with no matter what.
Brendan Michael McCracken: Yeah, I think, so maybe I'll talk about the current state and then talk about the future. So really, what we've been doing with our hedging program is protecting the business against a long period of very low prices. And so what that has resulted in us hedging on a quarterly basis, about a year out in time, and hedging around a quarter of production on both the gas and oil fronts. And what that will let us do is withstand a period of pricing as low as $40 on oil and $2 on gas and still be free cash flow neutral or better after the base dividend.
Speaker Change: Yes, I think so.
Speaker Change: Maybe I'll just talk about the current state and then talk about the future. So really what we've been doing with our hedging program is protecting the business against a long period of very low prices and so with that has resulted in is us hedging on.
Brendan Michael McCracken: On a quarterly basis about a year out in time.
Brendan Michael McCracken: And hedging of Brown, a quarter of production on both the gas and oil fronts and with that I will let us do it as withstand a period of pricing as low as 40 on the oil and two on the gas in and still be free cash flow neutral or better after the base dividend that's been kind of the principle of what we've been doing and so.
Brendan Michael McCracken: That's been kind of the principle of what we've been doing. And so as the debt comes down, I think there are kind of two things that will happen. One, the interest expense comes down, and so that balancing point on free cash flow neutrality is enhanced. And then the other is kind of your question, which is, do you even feel the need to hedge at all? And I think that's something that we'll just continue to address as we work towards that debt reduction. But the direction of travel is as you suggested, which is that as the business delevers, the need to hedge goes down. Okay, thanks very much, Brendan.
Roger David Read: Thank you. The next question comes from Roger Read at Wells Fargo. Please go ahead.
Brendan Michael McCracken: So as the as the debt comes down I think there's there's kind of two things that happened one the interest expense comes down and so that balancing point on free cash flow neutrality is enhanced and then the other is as kind of your question, which is you know.
Roger David Read: Do you even feel the need to hedge at all and I think that's something that that will just continue to address as we work towards that debt reduction, but the direction of travel is as you suggested which is you know as as the business delever as the need to hedge goes down.
Roger David Read: Yeah, thanks. Good morning.
Roger David Read: Okay. Thanks very much.
Roger David Read: Yes, Thanks, Greg.
Roger David Read: Thank you. The next question comes from Roger read at Wells Fargo. Please go ahead.
Roger David Read: Yeah.
Brendan Michael McCracken: Um, just really wanted to follow up on, I guess, kind of thinking about it on the portfolio side. You know, you've got a nice collection of assets here. You've obviously done, you know, some modest acquisitions. Is there anything at this point that it makes more sense to, you know, kind of put on the back burner, potentially monetize as a way to accelerate debt repayment?
Roger David Read: Yeah. Thanks, good morning.
Brendan Michael McCracken: Just really wanted to follow up on I guess kind of thinking about it in the portfolio side.
Brendan Michael McCracken: Get a nice collection of assets sooner you Bob has done some modest acquisitions is there anything at this point and it makes more sense to.
Brendan Michael McCracken: Kind of put on the back burner potentially monetize as a way to accelerate debt repayment.
Brendan Michael McCracken: Yeah, Roger, no, I appreciate the question. You know, look, what we've done is built a portfolio that can be competitive for capital on every asset that we have. And so you can see from the capital allocation across the portfolio, the two biggest places where we're allocating capital are our two biggest assets, which is kind of a surprise, the Permian and the Montany. But our returns that we're generating on the other two assets, the Uinta and the Anadarko, are very competitive for capital.
Speaker Change: Yeah, Roger I appreciate the question look what we've done is built.
Brendan Michael McCracken: Built a portfolio that can be competitive for capital and every asset that we have and so you can see from the capital allocation across the portfolio.
Brendan Michael McCracken: Two biggest places where we're allocating capital are our two biggest assets. So just kind of no surprise, the Permian and the montney, but our returns that we're generating in the other two assets the Uinta and Anadarko are very competitive for capital and so we could move a rig around the portfolio and not have a change in corporate return.
Brendan Michael McCracken: And so we could move a rig around the portfolio and not have a change in corporate return. And that's been how we've designed and sort of trimmed the portfolio over the years to have exactly that multi-basin portfolio where everything is competitive for capital. So I think that's what you should continue to expect. I think, you know, we're excited about each of the assets in the portfolio and what our teams are doing to generate free cash flow and capital efficiency gains in each of them.
Brendan Michael McCracken: And that's been how we've designed and sort of trimmed.
Brendan Michael McCracken: Trimmed the portfolio over the years is to have exactly that multi basin portfolio, where everything is competitive for capital. So I think that's what you should continue to expect I think you know we're excited about each of the assets in the portfolio and with our teams are doing to generate free cash flow and capital efficiency gains in each of them.
Roger David Read: Okay, well that's that's my only question. I appreciate it. Thank you. Yeah, thanks Roger.
Speaker Change: Okay well that's that's my only question appreciate it thank you.
Speaker Change: Thanks Roger.
Jeff Jay: Thank you. And the next question comes from Jeff Jay at Daniel Energy Partners. Please go ahead.
Roger David Read: Thank you and the next question comes from Jeff J.
Jeff Jay: <unk> Energy partners. Please go ahead.
Operator: Go ahead, Jeff, if you're there. I think we might have lost him, Operator.
Jeff Jay: So go ahead, Jeff if you're there.
Jeff Jay: I think we might have lost him operator.
Jeff Jay: Hi, can you hear me? Sorry about that. Here we go. Yeah, sorry about that.
Jeff Jay: Hi can you hear me sorry about that theory.
Speaker Change: Yes, sorry about that.
Jeff Jay: My question is really about the multi-year outlook for Montany. I guess given the trans-mountain expansion, obviously Condi is tight right now, and I wonder how you sort of think about the incremental pull for Condensate going forward and what the opportunity set is for you to either grow that asset or at least get maybe even better prices.
Jeff Jay: My question is really about the multi year outlook with the Montney I guess given that the trans mountain.
Jeff Jay: Expansion.
Jeff Jay: Obviously <unk> is tight right now and I wonder kind of how you sort of think about the incremental pull for you know for condensate going forward and what the opportunity set is for you to either grow that asset or at least get maybe even better pricing up there.
Brendan Michael McCracken: Yeah, Jeff, I appreciate the question. And this has been a dynamic that our teams have followed very closely for quite a number of years. And our view has always been that Montany Condensate will stay a premium product, and that view is really just informed by how the marginal pricing is being set. So today, the Canadian market is about 50% domestically short of condensate. So around half of the demand is actually being imported into the basin.
Speaker Change: Yes, Jeff I appreciate the question and this has been a dynamic that our teams followed very closely for quite a number of years in our view has always been that the montney condensate will stay a premium product and that was really just informed by how the marginal pricing is being set so today.
Brendan Michael McCracken: The Canadian market is about 50% domestic short on condensate so around half of the.
Brendan Michael McCracken: Demand is actually being imported into the basin and that's the price setting mechanism that creates the premium pricing that you're referring to and so as the oil sands producers expand brownfield projects and get more market access that that just exacerbates that net shortage of domestic condensate supply and so we.
Brendan Michael McCracken: And that's the price setting mechanism that creates the premium pricing that you're referring to. And so as the oil sands producers expand brownfield projects and get more market access, that just exacerbates that net shortage of domestic condensate supply.
Brendan Michael McCracken: And so we see the fundamentals, you know, continuing to be strong there for years and years to come. And that's been the strategy of how we've deployed capital into the play, to chase that premium-priced barrel. So and then to your question on growth, really, our Montany plan, as it stands, is maintenance level, because as a company, we're maintenance level. And so that's the role that that asset's been fulfilling in the portfolio. But as we've highlighted in recent years, we have the ability to modestly grow that if the market calls for that growth.
Brendan Michael McCracken: We see the fundamentals.
Brendan Michael McCracken: Continuing to be strong there for years and years to come.
Brendan Michael McCracken: And that's been the strategy of how we've deployed capital into the play is to is to chase that premium.
Brendan Michael McCracken: Priced barrels so and then to your question on growth really our Montney plan as it stands as maintenance level, because it is a company where maintenance level and.
Brendan Michael McCracken: And so that's the role that that asset has been fulfilling in the portfolio, but you know as we've highlighted.
Brendan Michael McCracken: Over the recent years, we have the ability to modestly grow that.
Brendan Michael McCracken: If the if there is a market call for that growth.
Jeff Jay: That's super helpful. That's all for me. Thanks, guys.
Speaker Change: That's super helpful. That's all for me thanks, guys.
Speaker Change: Yes, Thanks, Jeff.
Jason Verhaest: Thank you. At this time, we have completed the question and answer session, and we'll turn the call back over to Mr. Verhaest. Thanks, Joanne.
Jeff Jay: Thank you at this time, we have completed the question and answer session I will turn the call back over to Mr. Barry.
Jason Verhaest: Thanks, Joanna, and thanks to everyone for joining us on our call today. This call is now complete.
Verhaest: Thanks, Joanna and thanks, everyone for joining us on our call today. This call is now complete.
Jason Verhaest: Okay.
Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.
Jason Verhaest: Ladies and gentlemen. This concludes your conference for today, we thank you for participating and we ask that you. Please disconnect your lines.
Operator: Yeah.