Q2 2025 Ovintiv Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by. Welcome to aventus 2025 second quarter results conference call. As we remind, our today's call is being recorded.
At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session.
Members of the investment Community will have the opportunity to ask questions and can join the Queue at any time by pressing star 1.
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Please be advised that this conference call may not be recorded or rebroadcast without the express consent of inventive.
Speaker Change: I would now like to turn the conference call over to Jason vert Heist from investor relations. Please go ahead Mr. Heist.
Speaker Change: Thanks Joanna and welcome everyone. To our second quarter 25 conference call.
Speaker Change: This call is being webcast and the slides are available on our website at ov.com. Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in our disclosure documents filed on Edgar and Cedar. Plus
Speaker Change: following prepared remarks, we will be available to take your questions.
Speaker Change: I will now turn the call over to our president CEO. Brendan McCracken.
Thanks Jason. Good morning everybody and thank you for joining us.
Speaker Change: Our team delivered, another quarter of strong results across our portfolio meeting or beating all our guidance targets.
Speaker Change: Our well, performance continues to be very strong. This is a combination of both our completions Innovations and the consistency that comes with Cube development.
Our team has also continued to unlock new capital and operating costs wins.
Speaker Change: Our money acid. Integration went seamlessly, as we successfully met our well cost reduction Target in the second quarter.
Speaker Change: And we've made significant progress on debt reduction.
We are increasing our full-year production guidance while cutting capex and Opex.
Speaker Change: While keeping our planned activity unchanged.
Speaker Change: The result is a 10% increase in our expected full year. Free cash flow, which means more BuyBacks and faster deleveraging.
Speaker Change: In our industry, there are 3 requirements to deliver Superior durable returns.
Speaker Change: First, you need inventory depth in the best part of the best basins.
Speaker Change: Second, you need the culture and the expertise and increasingly the private data to convert that inventory to free, cash flow.
Speaker Change: And third you need Capital discipline to make sure you're not leaking away, returns by allocating Capital to underperforming uses.
Speaker Change: We have centered our business around continuously improving in each of these 3 areas and the outcomes of this Focus differentiate US versus our peers.
We believe we have assembled 1 of the most valuable premium inventory positions. In our industry, we have focused in high-rated our asset base with anchor positions in the Permian and the Monty. And these assets are complemented by our low decline, High free cash flow generating asset in the Anadarko basin.
Speaker Change: Our work to build inventory over the past. Several years means we have nearly 15 years of Premium inventory in the premium.
Speaker Change: Close to 20 years of Premium oil, inventory in the Monty and over a decade in the Anadarko.
Our total company post dividend Break, Even price is under $40 WTI.
Speaker Change: Meaning we can continue generating, Superior returns and free cash flow through the commodity cycle.
Speaker Change: Our team's culture and expertise has earned us a reputation of being a leading operator in each of the basins, we're active in.
Speaker Change: we've long been first movers in adopting Innovation and on our recent Monty tour, we unveiled how we're using AI technology to leverage, our extensive private data set to optimize our execution in real time,
Speaker Change: While we showcase this in our montney asset, we're using this new technology across our entire portfolio.
Speaker Change: This is led to faster cycle times more production and significant cost savings.
ing, oil type curves that have improved 10% over the last 3 years While most of our peers are facing productivity degradation
Speaker Change: We remain disciplined stewards of our shareholder. Capital our focus on Capital efficiency has rendered Savings of about million dollars this year.
Speaker Change: We continue to execute a maintenance or stay flat program with any additional savings occurring to free cash flow.
Speaker Change: And we have complete flexibility. To adjust activity. Should market conditions, warrant
Our part quality inventory and operational excellence are translating into highly competitive rates of return. And our Capital discipline is ensuring those returns flow through to the bottom line.
Speaker Change: From 2021 to 2024.
Speaker Change: We delivered cash flow, per share growth of about 25%.
Speaker Change: This growth was not driven by commodity prices. In fact, our 2024 realized price was 10% lower than in 2021.
Speaker Change: Rather it was driven by portfolio. High-grading, share BuyBacks, and our continued focus on profitability.
Speaker Change: Over the same period we extended, our oil inventory, Life by 3 years, the largest increase among our peers. In fact, most companies saw their inventory life decline.
Speaker Change: We believe our ability to continue generating Superior returns will be differentiating, and we are set to deliver significant free cash flow this year. And we're confident we can continue to do this durably for many years to come.
Corey: I'll now turn the call over to Corey.
Thanks Brandon, we delivered another strong quarter translating leading operational outperformance to our bottom line Financial results.
Corey: We once again, beat on our production capital and per unit targets and improve the capital efficiency of the business. We generated cash flow for share of 3.51
Corey: And free cash flow of 392 million both beating consensus estimates.
Corey: We also returned approximately 223 million to our owners through share BuyBacks and our base dividend.
Corey: Production during the quarter was above our guidance ranges across all products.
Corey: The beat was driven by the seamless integration of our newly acquired Monty assets. Our first quarter weighted turn-in line Cadence in the Permian and our election to shift to ethane recovery in the Anadarko.
We came in below the midpoint on Capital due to a combination of Shifting, some activity into the third quarter to better load, level our program and due to continued efficiency gains.
Corey: We also met or beat our guidance on all per unit cost items.
Corey: Now we started the year expecting to generate about 2.1 billion of free cash flow assuming commodity prices of 70 WTI for oil and 4.9x for natural gas.
Corey: At the time of our first quarter call, we revised our Outlook to assume $60 WTI and 3759 Max for the rest of the year.
Corey: Under this scenario and making no changes to our 2025 development program.
We expected the business would still generate, robust free cash flow of about 1.5 billion.
Corey: Now, halfway through the year and assuming the same 60 and 375 prices. For the second half, we expect to deliver 1.65 billion dollars of free cash flow or about a 10% Improvement. This demonstrates, the resiliency of our business and our drive to constantly pursue profitability. It also reinforces the value of our oil focused development program that comes with significant torque to higher commodity prices.
In the additional savings, we realize from further efficiency, gains in the second half of the year will flow through to reduce Capital, not higher activity and will enhance our free cash flow even more.
Corey: We are using that free cash flow to serve 2. Important goals, reducing our debt and returning Capital to our shareholders.
Corey: As a reminder, our framework allocates at least 50% of post base dividend free cash flow to our shareholders via buyback program. A 50 to the balance sheet.
Corey: Since the Inception of the program, in the third quarter of 2021 and inclusive of our plan purchases in the third quarter this year, we'll have repurchased a total of 2.2 billion dollars worth of shares and distributed approximately 1.2 billion in base. Dividend payments for total shareholder, returns of more than 3.3 billion.
Corey: This is roughly a third of our current market cap.
Corey: Well debt reduction is a big area of focus for us in the near term. The significant free cash flow. We are generating at today's prices ensures, we can continue to balance both priorities.
We can purchase repurchase, attractively priced shares with a 16% free, cash flow yield and improve our capital structure with continued debt reduction.
Corey: By the end of the year.
Corey: We've repaid, 555 million of debt, since we announced the Monty acquisition in the third quarter of last year.
Corey: When you consider the acquisition added about 900, Well, locations, we've significantly reduced our debt and we issued no equity. The value. Uplift of the transaction is hard to ignore. We continue to work towards our 4 billion. Net debt Target
maintaining our investment grade credit rating remains a key priority and we are currently investment grade rated with the stable or positive outlook at all 4, rating agencies
Megan Isers: I'll now turn the call over to Megan isers, our EVP of Midstream and marketing.
Megan Isers: We're excited to.
Megan Isers: Transportation contracts and Echo hedging efforts.
Megan Isers: As a result of these agreements, we are now less than 20% exposed to Market Echo prices for the remainder of 2025 and only about a third exposed in 2026.
Megan Isers: These agreements have added exposure to jkm pricing, increase our Chicago exposure, and have enhanced our Echo, net back. We have also entered into additional Echo Financial Hedges, that include both fixed price Hedges and fixed bases, hedges.
Megan Isers: We have the capacity to complete similar agreements to those. We executed in the second quarter. And as 1 of the largest participants in Rocky's LNG, the supplier, Consortium for the silos LNG project, we continue to explore opportunities, to diversify our montney, gas exposure, and to maximize profitability and returns.
Megan Isers: We are also optimistic about the potential for data centers to further, enhance the margins on our gas sales.
Megan Isers: And our exploring opportunities, both in western Canada. And in the US,
Megan Isers: We are well positioned to participate as a supplier. Thanks to our production scale and proximity to potential data centers, the depth of our natural gas inventory, and our investment grade credit rating.
We expect this will be part of our portfolio of gas sales over time.
Greg: I'll now turn the call over to Greg.
Thanks Megan.
As Brendan mentioned, we are adding volumes and cutting capital.
Greg: We are reducing our full year Capital, spend by $50 million and increasing our oil and condensing guide by 2,000 barrels per day to average 207,000 barrels per day for the year.
Greg: In addition, we've increased our annual NGO volume Expectations by about 5,000 barrels per day, reflecting our expectation to recover ethane in the anid Darko for the remainder of the year.
We are also reducing our guide for full year, operating expense by, about 3%.
In the third quarter, we expect our total volumes to average approximately 615,000 Boe per day, including about 205,000 barrels per day, of oil, and condensate.
Greg: We expect our second half natural gas volumes to be higher than the first half of the year as the pressure. We saw on gas systems. In western Canada, is expected to alleviate with LG Canada now online.
Greg: Our full year gas, guidance remains unchanged at about 1.85 BCF per day.
Greg: Our third quarter Capital spend will come in around, 550 million.
Greg: Inventive is an advantage position when it comes to inventory, quality and depth.
Greg: We didn't get here by accident.
Greg: We deliberately taken a different development approach than most of our industry peers.
Greg: The result is a 10% improvement in our permanent oil productivity per foot over the last few years. While the broader Basin is fighting a 2%, annual decline,
Extending inventory depth and quality and maximizing resource. Recovery have been areas of acute Focus for our teams over the past decade.
Greg: Our team has done an excellent job preserving the quality and longevity of our inventory across the portfolio.
Greg: We achieved this through Cube development.
Greg: We were early adopters of the belief that understanding how well will interact with each other as a 4D system is critical to creating durable returns.
Greg: Because of this, we take a systematic approach to Resource development where we co-develop multiple stack zones from a single well pad.
Greg: This creates value by maximizing both returns and resource recovery.
Greg: The Temptation and developing a multi-zone acreage is to cherry-pick the highest productivity Wells first. Then come back and drill infill Wells on the rest of the acreage later.
Greg: The benefit is higher initial production rates from the first batch of Wells, but it comes at the expense of sterilizing large swaths of acreage. Because when you come back to drill the infill wells, the reservoir pressure is depleted. And the well performance of the child Wells is often 30 to 40% worse than the parents.
Greg: We developed the entire stack, it wants as a result, we are sampling Wells from across the irr, creaming curve, not just the highest return Wells.
Greg: Cube is roughly 18 to 24 months after drilling the first.
Greg: This minimizes well communication and depletion, and is a dominant driver of our development schedule.
Greg: The outcome is consistent and repeatable results year after year, because we have not burned through our highest return inventory and we have Max maximized the npv of every acre.
Greg: Nowhere, is this more evident than in the Parian?
Greg: Across our acreage footprint, are well, productivity continues to be strong and consistent.
Greg: Your performance is in line with our type curve, which is unchanged from last year.
Greg: This supports durable, return generation across our 12 to 15 years of Premium inventory in the play.
In the second quarter, we continue to see average production above our stated run rate of 120,000 barrels.
Per day of oil.
Greg: This was driven by the higher weighting of turn in lines in the first quarter of the year.
Greg: We continue to expect our oil and condensate volumes to stabilize at around 120,000 barrels, per day in the back half of the year.
Greg: While our Cube development approach has stayed consistent. We are constantly looking for ways to drive down costs.
Our team continues to push the boundaries on cycle time improvements.
Greg: Year to date our drilling speed averaged over 2100 ft per day or about 35% faster than our 2022. Average.
Greg: Our completion speed average more than 3,900 ft per day or about 50% faster than a 2022.
Greg: The combination of faster. Cycle times with consistently strong. Well, performance results in industry-leading capital, efficiency and highly competitive returns.
Greg: Now, moving on to the Monty.
Greg: The top priority since closing, our Monty acquisition in January has been the safe rapid and efficient integration of the assets into our existing business. And I couldn't be more pleased with how the team was performed.
Greg: Only 6 months after closing. We are already delivering 1.5 million of per. Well, cost savings on the new acreage,
1 million of the savings has. Come on the drilling side.
Greg: Primarily for using a more efficient casing design, eliminating intermediate casing optimizing the directional profile of the wells and using a single bit for our lateral runs.
Greg: We've taken about 10 days out of the drilling cycle time on the new assets, with a current average of less than 15 days, Spud to rig release.
We've also achieved 300,000 dollars of savings from using 30% less fluid in our completions designs and utilizing self- Source hands.
Greg: Our facilities design is saving a hundred thousand dollars per well, thanks to faster build times and using 85% less structural steel in the previous operator,
We've also fully integrated, the acquired Wells, into our operations control center.
This allows us to remotely operate, the wells and apply the same digital workflows used in our Legacy Monty operations to optimize cash flow at the individual. Well level
Greg: Well performance has been in line with our expectations and we are highly confident in our ability to meet our stated Monty production. Run rate of about 55,000, barrels per day of oil and condensate in the second half of the year.
We are optimistic about the 300 upside locations, we highlighted with the announcement of the acquisition and are actively testing those areas in Horizons today.
Greg: Across the portfolio. We typically allocate about 10% of our DNC activity to testing upside locations. And we are taking the same approach here.
Greg: I'm very proud of the team and all the efforts made to integrate the new assets into our portfolio.
I'll now turn the call back to Brendan.
Brendan Mccracken: Thanks Greg.
Brendan Mccracken: I'd like to take a moment to recognize our team for the outstanding safety operational and financial results we've delivered year to date and acknowledge their focus and drive to make our business more profitable for our shareholders.
Brendan Mccracken: Value creation and our industry will come from companies that can demonstrate durability in both their return on invested capital and the return of cash to shareholders.
We are positioned to deliver on this value proposition. Thanks to the depths of our premium inventory, our proven execution excellence, and our commitment to disciplined Capital allocation.
Brendan Mccracken: This concludes our prepared remarks, Joanna. We're now ready to open the line for questions.
Joanna: Thank you.
Speaker Change: Ladies and gentlemen.
Speaker Change: Question and answer session and go to the first caller.
Speaker Change: First question comes from Arun. JM at JP Morgan. Please go ahead.
Arun: Yeah, good morning Brandon and team. Um Brendan after participating in your recent Monty tour, you know, we left the tour thinking that ovv would could be a natural consolidator of the play, just given your lower uh DNC cost profile lower operating costs.
Arun: Consolidate or longer term cuz cuz I know you executed your last transaction and I think less than a million dollars per per premium location which obviously Compares pretty favorably to what you see in in in.
Arun: In the US kind of Market.
Speaker Change: Yeah, run. Yeah, thanks for the question. Look, clearly the strategy in our operating model are working. You can see that in the performance boost that we announced today, um, with respect to your question around the, the m&a piece. Look, this is this feels really hard to beat what we've got, which establishes, you know, as we've talked about a really high bar. So we've, we've built 1 of the most valuable premium inventory positions. In the industry, which means we can deliver Superior returns for our shareholders for a long time. Time to come and that focus on returns and profitability is, like I said, really showing up in the results. Um, you know, appreciate your acknowledgement that we built that portfolio in a very shareholder friendly way. Um, as as it pertains to the cost of Entry as as you noted as in the Monty under a million in the Permian right around 2 million dollars of location uh for that most recent transaction. So this means for us, you know, if we're going to look at something that has to be
Speaker Change: Better than what we've already got. Which means we're just working from a position of strength here. So, um, really excited about how the integration has performed and, and excited about the the value proposition that we showed our shareholders with that Monty tour.
Great. My follow-up is, is Corey, you reduced. Your cash tax guide in the US? I, I, I assume from Tailwind from the O BBB was wondering if you could provide some longer term thoughts on what could what this could mean to your cash tax rate in the US, call it over the next, you know, 3 to 5 years
Speaker Change: Yeah, run obviously. Um you picked up on the the change to the guidance there. So we took 20 million out for the year and the on the US side. Um that's all from the
Speaker Change: Obb, um, primarily this year impact from the change to the depreciation. Uh, but looking forward that'll carry carry through for probably the next 3 years. Kind of the rule of thumb that we're giving people is to think about about, 3% of the pre-tax uh book income for the US to be the Run rate as we go through.
Speaker Change: Great. Thanks a lot.
Speaker Change: About.
Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead.
Speaker Change: Another good quarter here, guys. It just, uh, would love your perspective on return of capital. You guys are Marching towards your net debt Target, um, and it looks like you gave a guy here for Q3 around BuyBacks, um, but just your thoughts around, uh, you know, taking advantage of the 16% free cash flow yield. Um, to the extent, uh, you're able to
Speaker Change: Yeah, absolutely Neil. Um, look, I think the value proposition is clear here. Um, part of the reason we've been pointing to the 25% cash flow per share growth over the last several years is is to reinforce the, the rationale for those BuyBacks. And so,
Speaker Change: While we maintain the production at that maintenance level, we're still giving a cash flow per share growth proposition to our shareholders which we think is is very valuable and important. And so
Speaker Change: look, you know, we look at this buyback um through a fundamental lens. So we're we're not trying to be pro-cyclical with it. We're looking at what the intrinsic value of our business is at
What we believe to be a conservative mid-cycle price of 55 dollars on oil. Um, and and when we do that, we see the shares are being priced, well, below that intrinsic value. And so we think it's the right, Capital allocation move to both reduce debt which we're doing at some Pace. Uh, and then also, uh, take advantage of the buyback proposition and and create that cash flow per share. Growth trajectory for for the shareholders. And what I'm particularly pleased about is is that we're showing we can do that through the cycle.
Speaker Change: Yeah.
Speaker Change: Hi, Brandon. And then, uh, the follow up on the montney, uh, which is just, uh, your thoughts around, uh, marketing. You have some new disclosures around that today, but how do you go out there and realize closer to Nyx Benchmark relative to Echo and then just in general? What's your marketing strategy to make sure you're getting the best net backs on, uh, this growing business.
Neil: Yeah, thanks Neil for highlighting that because that, that was an important feature to the announcement. Uh,
IMAX for our Canadian gas.
Megan Isers: Uh, that compares to um, AKO, which has through the same period through the first half of the year, uh, been around 40% of nimax, so clearly our differentiation or sorry. Our diversification strategy is working. Uh, and of course, you know, everybody, uh, is looking at the screen, you can see spot prices are even worse. Uh, in acho than that 40% today, materially worse. So, look, this is, this is working for us and we've been able to add uh, several new uh, Arrangements here. Um, the, the the important thing to notice about these is we, we can't give a lot of details out, um, uh, contractually. We're obligated to keep those details confidential. But uh, I'm going to hand it over to Megan here in a sec to to kind of comment as much as we can on the specifics. Um, I would just say you know, these deals take some time to negotiate and so they were they were negotiated before this latest Swoon in spot prices and they are
Um, you know, a varying terms, but but all sort of medium to longer term arrangements. So they really reflect the pricing more in the the out years than the spot, uh, market. So Megan over to you on some of the details. Yeah, thanks Neil, thanks so much for for recognizing this. These transactions are exciting Milestones, that do reinforce our strategy of gas price diversification. As Brendan noted, you know, we are limited on what we can disclose. But what I can share is that the J
Megan Isers: km deal is a physical deal with delivery at Echo, it'll have us receiving a percentage of jkm for 50 mcf a day and that begins in 2026 and goes through 2027,
Megan Isers: our new Chicago deal is also physical delivery at Echo. It'll have us receiving Chicago Less deducts on 100, mm, CF a day, which is a 10-year term. Beginning in 2027 and our 2 inch Echo, deals are physical sales, contracts with delivery. In BC, those Agreements are going to enhance our echo netback on 70. Mm mcf a day, um, and that's an effect now through 2027. And so, the other thing, I just like to point out is our jkm deal is particularly exciting as it gives of its first exposure to LNG pricing
Nice team.
Megan Isers: Thanks Neil.
Speaker Change: Thank you. The next question comes from. Cali akamine at Bank of America. Please go ahead.
Hey, good morning guys. Thanks for taking my question. Um my first question is on Capital efficiency, so the updated guidance that you provided yesterday, looks mainly focused on the permanent from our perspective. But I'm really curious on the me since you guys have cleaned Victory on the well savings, but that's an asset that you only just took over. Do I have to imagine that the impact of those savings isn't fully baked into this year's program. So my question is, how many Wells are you doing at the acquisition this year? How many were inherited? How many have you guys designed? And if the wells that you're designing, are a million and how cheap
Speaker Change: Deeper end to end, does that imply? A more Capital efficient 2026?
Speaker Change: Yeah, Clay, I'm gonna turn it over to Greg here to run through the details, but we we planned for that 1 and a half million dollar reduction in, in our guidance, our original guidance. And so really what you're seeing is us uh, hit that Target here, which we're pleased about. So those are already baked into the both, the original guide and the revised guidance that we issued today. But Greg, if you want to cover the details sir. Yeah. Thank thanks Brandon. And thanks. Clay for the question, you know, we we couldn't be more pleased with how the team is executing on the integration here. Um, and as Brendan noted, uh, the 1.5 million dollars of Capital Savings was, uh, baked into our acquisition model and included in our guide. Um, but what this means is, you know, we're now Drilling and completing the Wells on this new acreage with the same designs and the same costs as our Legacy. Uh montney acreage for around 525, a foot. Uh, so we've done a great job. Uh getting you know that program to where we are already were on our program and so you know going forward uh
We'll keep working to reduce cost and improve efficiency, but the rate of change should be similar to what we see in our our, our his, you know, Legacy programs, which is in that, you know, low single digit Improvement year-over-year. Um, I should also point out that, you know, with the, you know, the speed at which the team has been able to integrate these new Capital Savings. We've also connected these Wells up to our operations control center. So we're getting the benefit of
Speaker Change: So everything's going really well. Uh but essentially as we've said the uh the improvements have been baked into our guidance, uh, we'll try to improve a little from here but uh, you know, the big step change is already occurred.
Speaker Change: Got it. I appreciate that. My, my next 1 is on the puran, so in that Basin, you guys are a leader incompletions and I understand that to be a water system Advantage. You got some peers that are looking at options to monetize those assets. Would you, would you guys ever consider consider selling it?
Speaker Change: Yeah, clearly, that's a great question. It's something we look at, you know, across all the different Suite of of ways, we can create more shareholder value. Um, I I would comment the completions cost advantage and speed advantage that we've built up is, is more than just the water system. So it is a holistic Logistics and Technology approach. Um, whether it's the the real time, Frac optimization that that we have walked through a couple times now or or, or whether it's our sand, local sand and and then the trial Frac uh, design. So it it is in all of the above, that's delivering, this result, which is, you know, I think, um, part of this stacked Innovation strategy that we've been pursuing. Um, but as far as your question around monetizing, the water infrastructure, it has a lot of value has value to us, probably has value in the market as well and it's something, you know, we evaluate on an ongoing basis.
Speaker Change: Got it. I appreciate it. Thanks for the answers, guys.
Yeah, thank you.
Speaker Change: Thank you. The next question comes.
Speaker Change: Thanks, good morning.
Speaker Change: We we seen a lot of consolidation in the, in the Monty. Um, yourselves included similar to the 2 2, big us, gas basins. Um, just wondering, if is if there's a, a Tipping Point on consolidation where you can then say there's there's much greater Supply discipline in in the Basin. And if so, how close that do you think we are?
Speaker Change: Yeah, it's a great question and it's something we ask ourselves when we're doing our fundamentals modeling. Um, you know, clearly the Canadian Market has been oversupplied on gas in the run-up to the startup of LNG Canada.
Speaker Change: As LNG Canada ramps up that supply and demand should improve from where we are today, which is uh, admittedly a low bar. Um and so you know we we do ask ourselves your question around does consolidation create discipline? I think the best analog we have for that is, is what's happened in the lower 48, where you can see that, that has occurred on both the oil and the gas side. So I think directionally you're you're you're pointed in the right right direction. And it's just sort of a matter of degree oh over time here.
Speaker Change: Okay, great. And then just, just sticking with the topic of Monty Gas marketing. Uh, some of your existing ft, uh, goes to Dawn under a long-term fixed price. Uh, we still have decent term on this agreement, but just wondering how you look to position yourselves in front of this. Um, do you think netx will still be attractive at this point? Just because there's also the potential for more LG startups right around this time. And I think you mentioned another number of other options that you're looking at on on the Ft side beyond what you've announced today.
Speaker Change: Yeah, you bet. So just quickly on those um the the kind of let's call it Legacy Downstream firm Transportation, which is both west coast um, Chicago and Dawn. All of those are are long-term Arrangements that we have renewal rights on so we can effectively renew them in perpetuity which we find quite attractive depending on how the market evolves. And then you know the I think the second part of your question is really about how is that market going to evolve and
Speaker Change: You know, look what we're seeing is strong. Demand pull. Um, in from Global markets for gas, which is, you know, causing more gas egress off the Gulf Coast and now off of the West Coast. Uh, and then of course, uh, even more recently, we're seeing the, the early, uh, arrangements for de demand, pull on the data center side. And so, you know, we do see a strong fundamental gas market evolving in North America, and we think having
Speaker Change: Diversified sales into multiple markets is going to let us uh maximize our realized price over time and and Dawn's going to be, you know, 1 of those favored markets as as those demand pulls continue to hit
Thanks.
Yeah, thank you.
Speaker Change: Thank you. The next question comes from. Doug luggage at Wolf research. Please go ahead.
Speaker Change: Um, oil and condensate. Now you're at 215 and still at 205 all in condensate, but the efficiency is much better.
Speaker Change: In uh the Monty. And you still haven't gotten all the way for example with
Local sand sourcing, and all of that. All that kind of stuff. So, so I'm just curious. What, what, what's the end game here in terms of the 20 5000 barrels a day, if that stays the same, where is the capital number go? Once you deliver all the efficiencies that you you will clearly benefit from with the changing mix.
Yeah, no Doug. I love where your head's going here. Um, you know, look, this is this is obviously going to evolve over time and and not set in 26 guidance here. But, um, look, you know, and I think if you wind the tape back, even in the not too distant past, it was it was more of a 2.2 for 200. So, yeah, the capital efficiency gains have been real and and like Corey pointed out, the the gains are flowing all the way through to the bottom line for our shareholders, in, in terms of free cash. So look, I I, I think the Greg kind of characterized it. We we've come through another Dynamic integration where we've, we've accelerated, the cost savings, that's boosted our our profitability and our Capital efficiency. And now what we're pointing to is, you know, things are kind of on track across the whole portfolio for those kind of low single digit gains. So we'll, we'll continue to track it through the rest of the year and and, uh, look forward to 26 guidance. When when
Speaker Change: When we get there.
I appreciate uh okay. I I'm going to get you a heads up ahead of time. Cory's going to hit this question. So I'm going to give it a go anyway and it comes back to your Capital allocation. I want to just run this past. You very quickly, you your debt, your net debt.
Speaker Change: $44 a share.
Speaker Change: 2 months ago, we were all worried the oil was going to 50.
Speaker Change: And Equity volatility was a was a disaster.
Speaker Change: Um, but yeah, we still have this fashionable approach to referencing credit metrics.
As a reason to hold a certain amount of debt.
Speaker Change: And no, uh, no consideration for the equity volatility that comes with having no net debt.
Speaker Change: So why would you not just hit the debt when you get wouldn't follow oil prices? For example, $70, you know close to where we were just a couple of days ago. Uh why is the 50/50 the right answer? Why wouldn't you take 24 dollars off the balance sheet and give it to your Equity holders in terms of transferring value from debt to equity.
Speaker Change: Yeah, I think Doug, when we look at the walk-in shoe gum model, here we we just see attractiveness for both uses of capital. So you know, we we're, we're in complete agreement with you. That, um, we can improve the market, uh, price. If we uh, lower that. You're just transferring, EV over to the equity holder, we get the math there, but we also see the cash flow per share growth process.
Speaker Change: Opposition is being valuable for our shareholders too and at at this free cash flow yield, it's it's it's too good to price to turn down. So but you know invite Corey to to add anything to that.
Speaker Change: Yeah, that guy I like your intro on to that 1 that we're not going to like the question. Um you know, I think you heard maybe maybe Neil asked the opposite approach to it and you know, I think the important part there is we acknowledge that they'll benefit from both
Debt reduction and BuyBacks and you know, as we go through and show in the quarters, we are doing both. So you know, it might be a different scenario where if you're not making progress on 1 or the other, uh, but we're progressing um, to the Target um, even with buyback. So I think the walk and chew gum. Brendan highlighted is important here.
Speaker Change: I appreciate you. Taking the answers, guys. Obviously, the free cash flow yield is very different at a very different oil price. So, whereas the debt reduction is permanent, that's all it was getting up. I appreciate you taking the questions, I'll take it offline. Thanks so much.
Speaker Change: Thanks Doug.
Thank you. The next question comes from Philips, Johnston at Capitol 1, please go ahead.
Philips Johnston: Hey, thanks for the time. Uh, just 1 question for me and it's about your capex guidance.
Philips Johnston: Uh the implied guide for the fourth quarter, suggests that the spin rate is going to fall to around 460 million or so, which is down about 75 million from the average and the second and third quarters, just wanted to get a sense for what's driving that decrease. And also get a sense of how confident you are that you can achieve that reduction. Thanks.
Yeah, Phillips. Yeah, I appreciate the question and yeah, that's a good 1 to highlight as well.
Monty: Open to Monty. Um, rig count was 6. Uh, and so we've dropped, uh, sorry. I think it was 5. So we were 6 in the Permian 5 in the Monte. We've now dropped both of those back to, to 4 and 3 respectively, and, and then we've gotten as Greg's been highlighting a lot faster with Drilling and completions through the year, too. So, really, what's happening is we're getting a bit of a front-end loaded feature because we're going so much faster with the with the activity performance. So it's it's all being driven by performance. So what that means is our activity profile. Um you know is is kind of staying consistent, but we're seeing Capital uh come down in the fourth quarter is the lowest capital quarter in our in our uh, guidance here.
Makes sense. Thanks Brandon.
Yep, thanks Phillips.
Speaker Change: Thank you. The next question comes from, Greg party at RBC Capital markets. Please go ahead.
Greg: Yeah. Hey thanks. Good morning. Um, really too, very different questions but coming back to the the montney session. I mean, did analytics, um, a lot of proprietary data just curious.
How much has that been deployed either? You know within the assets themselves? And then are there other parts of the business where you can, you can start to deploy that learning or is it now pretty much fully baked
Uh, yeah, Greg love the question, look, uh, when it comes to this AI technology, it's it's obviously super nent. So I, I would definitely say not fully baked yet. There's a lot of running room left to go. We're just getting started. Um, but we are deploying it across the whole portfolio. So, with the monitor obviously was, uh, unveiling what we're doing. Um, both in the drilling, uh, side when we took folks through our our AI, uh, drill Center, uh, but then also on the completion side, we took people through the, the AI completion Center. And then we took them through our production operations, uh, control room, all of those same things are are happening for our Parian and our antartico assets as well. Um, so, uh, cross the whole portfolio early days, we think the, the technical Foundation that we've laid in here, both on acquiring a unique,
Greg: Uh, an extensive private data set, but also the culture that we've built around Innovation and, and Technology adoption in the company are, uh, reasons why our performance is going to be differentiated here.
Speaker Change: Okay. Okay, that's helpful. And then I and and I apologize to Corey in advance because I'm going to come back to the to the questions that have sort of been asked on shareholder returns but just remind us what your net debt Target is. And then essentially what happens when you hit that level is a conceivable. You'd go to like a 100% BuyBacks or just curious as to what you're thinking is there.
Speaker Change: Yeah, so just on the target, we've talked about getting to a debt Target of 4 billion, which you know, at a mid cycle, price deck is about 1 times, leverage for us.
Speaker Change: And so, we've tried to remind people this year at current prices. We think we'll get below 5, so, you know, that's not, uh, coming this year. But it's not that far away. As we get there to the towards the 4 billion, you know, obviously there'd be more room for us to make different allocations but we haven't, uh, committed that 4 billion is necessarily a stopping point. So not, uh, not to get dug back on the call to argue for lower debt. But again, there's, there's still benefit to going below that so we haven't committed to what we'll do past that.
Okay, understood. Thanks very much.
Yeah, thanks Greg.
Speaker Change: Thank you. The next question comes from David decel. Bomb at TD Cowen. Please go ahead.
Speaker Change: Uh, thanks everyone for for welcoming on, on the call. Um,
Brendan I wanted to follow up just on the montney um on a couple things 1 was just uh you talked about sort of the the studies data activity. You guys left your till Target this year, the same sort of in that that 80 net level. Uh, and and you did about half this quarter, um, should we be looking at that as more of a lumpiness around?
Just the integration of the acquisition or are there some efficiency savings here that are kind of being, uh, you know, perhaps restrains, that would present the Tailwind for 26.
Speaker Change: That higher run rate in 2q. Um, and so I think the the guidance profile will will settle in through the rest of the year here. And we'll finish out with that, um, uh, around 80, uh, tills in the play.
Speaker Change: Appreciate that. Yeah. And and perhaps just following up a bit just uh, you know, we talked about obviously getting to that 1 and a half million of savings being baked in.
And I know expectations are, uh, you know, perhaps that continues to improve as you guys, you know, kind of do the uh the full Suite of completion on your side. Um, but I guess as we're thinking about the broader portfolio, you you trim the capex and the perming and the anad Darko on mostly efficiencies. You know, where we stand today, do service costs present, you know, sort of a Tailwind going into the 26 program, at this point. Uh it seems like a lot of the games we've seen so far. Are more timing oriented?
Speaker Change: Yeah, David uh yeah, appreciate the question to surface that on on the pricing side. So yeah, what we're seeing in 25 here is uh service cost deflation kind of matching our expectations when we came into the year. We thought we'd see a something in the low to mid single digit service costs, deflation, and that's what's materialized, you know, by category it there is some variance there, of course. Um, but but net, net. That's what we're seeing. So that's kind of matching our expectations. So, really inflation deflation is not a feature to our guidance.
Update today, that's a true efficiency gain. Uh as we look towards 26. As you're asking that, that's really kind of still a jump ball. We're seeing obviously activity levels dropped uh, across North America, which is putting some pressure on the, on the Service pricing. So that's a place where we're sitting here today, probably optimistic on some deflation in 26, but, you know, let's let that play out and, and we'll integrate that into our 26 guidance, but uh, you know, directionally that's where it's headed.
Speaker Change: Thank you, we'll stay tuned.
David: Yeah, thanks. David.
David: Please go ahead.
Speaker Change: Hey guys, I was just thinking this wondering if you could kind of help me understand over the very long term you know the combination of cube development and your reoccupation strategy, how much do you think that lowers your reinvestment rate Visa V? Sort of I guess a more traditional approach or you know a more common approach to the development.
Speaker Change: Yeah, I think what it's going to do here is mean our reinvestment rate um, can continue uh where it's at and get better as we incorporate efficiencies. Whereas the traditional approach. You know, if you're if you're not sort of taking the cube development approach, what that tends to lead to is is Step changes as your inventory degrades in quality. Um and so what we're insulating our investors with is is this Cube development approach
Approach where we're effectively um sampling the remaining premium inventory that we have with every annual program um that's going to lead to a very uh durable uh return on invested capital and and free cash Generation Um at constant prices over a long period of time. And so we think that's the right way to to be disciplined with our Capital, allocation, but also, um, going to be a real differentiated Advantage for our investors in a in a maturing Play Type like shell is today.
Speaker Change: Excellent. And then maybe just a follow up on Greg parties question a little bit. I definitely got the sense on the monitor that maybe some of the tech Innovations remote monitoring Etc or maybe not as fully I guess deployed in the lower 48. Is that not true? I, I just wonder if there's more to come, you know, sort of as is, there's more, there's more stuff to do at the lower 48 than there is in the Monday at the moment.
Yeah I think I mean all the stuff is like less than a year into deployment so it's still very much in the ramp up phase.
Speaker Change: Um, you know, Greg probably has some specific comments to add on on the, you know, uniformity across the portfolio. Yeah. I I think what I'd add, I mean, on the drilling and completion side. Um, the the idea that it's still very much emerging. I, I, I would agree with, um, probably what you're noticing. Um, from the tour is the operations control center. Uh, that we've been employing up in Canada. We've been doing that for about
Speaker Change: free assets and on the, uh,
Speaker Change: on the production optimization side. We might be a little bit ahead there in Canada, but working to get them all caught up.
Speaker Change: Excellent. That's helpful. Thank you guys.
Jeff: Thanks Jeff.
Thank you. The next question comes from Josh Silverstein at UPS, please go ahead.
Speaker Change: You think so good morning guys, just wanted to walk through the the Parian kind of like Cadence for the year. You guys have clearly gotten off to a pretty good start there. Um and still looking at kind of 1 135 World for, for the quarter, just going to walk through that because the production numbers for the first half where we're definitely stronger than expected.
Speaker Change: Yeah, I'll just flip it to Greg then. Thanks Josh. Yeah. So just just as a reminder, you know, the uh, the original plan was to have more activity there. In the first half of the year. In the Permian, we had some ducks that uh, we had built up due to the running 6. Rigs, and then 5 rigs last year. Uh, we're now down to 4 rigs. So we, we we had planned on, uh, having a little more activity in the first part of the year. Um, the team actually, uh, even did a little better than we expected, uh, completed our wells, a little faster, uh, which brought even a few more Wells into the first half. Uh, so what that allowed us to do that execution, along with, you know, really solid production performance. We shifted some completion spin from uh from Q2 out into Q3 uh just to spread out the activity and have a little more low-level program in the back half of the year. Uh we're not changing the turn-in line uh account for full year.
Speaker Change: Here and keep in mind, sometimes these shifts are within quarters. So you bring on Wells in the first part of the quarter versus the back, part of the quarter that may not show up on a turn in line count, but it'll show up in production. Um, but uh, but overall, the plan is just to have a low-level program in the back half of the year uh, in the Parian and the montney. Um, and so we're uh, that that's our plan.
Got it and then um, you know, just coming off the monitor as well. Obviously, a lot of focus on the DNC cost reduction, that, that you guys are doing up there at the 1 and a half million dollar level. Uh, can you just talk about what you guys can do, just on the Opex side as, as well and then maybe some of the impacts of being a little bit more condensate.
Speaker Change: Uh, Focus for us. Gas focused up there, but it seems like there's still ways for you guys to kind of chip away at that. Maybe some some goals there. Thanks.
Speaker Change: Yeah, Josh know, that's great. I'm glad you highlighted that. I think, you know, when you stand back and you look at the collective batch of enhancements we made to our uh 25 plan here. The sum total is 150 million dollars worth of free cash flow and and aloe reduction is 1 of the 1 of the pieces that drove that. And and so you know couple things uh in specific to the montney 1 of the other features that's helping us is our our operating capability on the new assets uh has led to higher run times and then, of course, the work we've been doing with our Midstream providers is, is leading to higher run times at their facilities which flows through to ours as well. And so all of that
Speaker Change: Is a is a boost to per unit Opex because you, you know, you're just being more effective with the dollars that you're spending. But uh, you know Greg, I don't know if you wanted to comment on on anything more specifically. Uh, yeah, I think the other opportunity we have is, is using our operations Control Center and some of our machine learning and AI tools that allow us to optimize gas lift. Um, you know, just further increases our ability to keep those Wells online and optimized, uh, up in up, in Canada, and then across the portfolio. Uh, 1 other thing, that's really helping with the downtime is while disruptions are, are are less frequent. We're seeing better run times. But when we do have disruptions, now that we have automation fully deployed across the new assets, uh we can return production uh much faster. Oh, and enough set does our. So all of those things lead to better production for the same or lower cost, which we think will have some, you know, downward pressure on eloe going forward.
Speaker Change: Thanks guys.
Speaker Change: Thanks Josh.
Speaker Change: Thank you. At this time. We have
question and answer session and we'll turn the call back over to Mr. Vice
thanks, Joanna. And thank you everyone for joining us today. Our call is now complete
Speaker Change: Ladies and gentlemen.
Speaker Change: that concludes your conference call for today, we thank you for participating and we ask that you please disconnect your lines