Q2 2019 Earnings Call

Good afternoon, and welcome to the second quarter 2019 Continental Resources incorporated earnings Conference call. All participants will be in listen only mode. So you need assistance. Please signal conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity tax questions to actually a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note that this event is being recorded I would now like to turn the conference over to Rory Sabine Oh, Vice President of Investor Relations. Please go ahead.

Good morning, Thank you for joining us.

I would like to welcome you to today's earnings call.

We'll start today's call with remarks from Harold Hamm, Chairman and Chief Executive Officer.

Jack Stark President and John Hart, Chief Financial Officer.

We love other members of management available for keeping a as needed.

Today's call will contain forward looking statements that address projections assumptions and guidance.

Actual results may differ materially from those contained in forward looking statements.

Please refer to the company's FCC filings for additional information concerning these statements and risks.

In addition, continental does not undertake any obligation to update forward looking statements made on this call.

Also this morning.

We will refer to initial production levels for new wells, which unless otherwise stated our maximum 24 hour initial test rates.

We will also reference rates of return, which unless otherwise stated are based on $60 per barrel W.T.I. and $3 per Mcf natural gas.

Finally on the call we will refer to certain non-GAAP financial measures for a reconciliation of these measures to generally accepted accounting principles.

Please refer to the updated investor presentation that has been posted on the company's website at www Dot C.L.R. Dot com.

With that I will turn the call over to Mr. Han apparel.

Good morning, and thank you for joining us for our second quarter earnings call.

The company has completed a very solid quarter those places firmly on track.

To execute or 2000, I think plan to further enhance shareholder value.

Our share buyback and stock dividend plan at June 30, as Ben has grown validation of our continued focus on enhancing shareholder value.

Share repurchases from or free cash flow of amounted to 92 million, so far or approximately 10% of our initial target.

We do not think or current share price for her indicator the value to our company.

And we are determined to capture value for shareholders.

As a reminder are first dividend payment is scheduled for November .

Our multiyear free cash flow projection leave room to increase dividends in the future.

Our crude oil production growth is running ahead of schedule and we expect average production for the year to be in the upper half of our original guidance.

We've also chief efficiencies throughout the first half of 2019 that will allow the reduction of drilling rigs from 19 rigs in the scoop stack.

To 12 rigs early fourth quarter 2019.

This 37% reduction or southern rig fleet was made possible by the step change.

And performance from our Springer and Woodford rig fleets.

In project springboard.

I'm proud that our teams can exceed production estimates with lower rig activity.

That is operating and capital efficiency at its best.

Jack will elaborate more on the mechanics of these efficiencies and timing of the rate reductions.

We're very committed to meeting our capex and other corporate guidance for the year.

And have the flexibility to do so it was weird demonstrating.

This includes our free cash flow there is that expected to come in at the high end of our $500 million to $600 million range for 2019.

We also continue to add value for shareholders.

Through strategic initiatives, such as those we announced last week.

This includes the recent bolt on acquisition in Scoop.

And other strategic acreage trade and our core operating areas.

Well these initiatives require modest associated span.

They provided added to inventory and increased working interest in our core assets for 2020 and beyond.

Likewise, the success, we're having with her mineral acquisitions.

As building significant future value for shareholders.

Our mineral acquisition program is progressing so well and others.

And last week's release that a majority of our annual spend to estimate has been transacted in the first half of the year, capturing significant future value for shareholders.

For example, we own approximately 19% of the mineral royalties underlying continental's leasehold positions and spring Board.

Finally, as we announced last week from another embedded asset our teams have monetized a portion of a water recycling and gathering infrastructure in stack.

This sale represents less than 10% of our broader water.

Infrastructure portfolio and was executed were 85 million.

We estimate that are remaining water assets are valued at approximately $1 billion and generate habit acts of approximately 100 million annually.

Our water infrastructure assets represent more shareholder value that is not currently being recognized by the market.

Now for future operational color I'll turn the call over Jack Stark.

Thank you Harold and good morning, everyone. We appreciate you joining us on our call.

Once again, we have some great operational highlights to sure that all center around the simple message growing shareholder value.

In the Bakken second quarter production was up 23% year over year.

During the quarter, we completed another 35 wells that flowed at an average initial rate of 2300 via we per day.

One of the wells at Carson Peak 835 age in Dunn County flowed at an impressive initial rate of 4870 be are we per day.

The three strategic step outs, we announced last quarter continue to meet expectations as they are outperforming the legacy offset wells by 75% to 145% at a 120 days and delivering returns of up to 85%.

Well highlight for the Buck in this quarter is that we received regulatory approval to begin development of our 10 square mile long crude Bakken unit in Williams County, North Dakota.

This is another high impact oil project much like our springboard project that is expected to add up to 20000 net barrels of oil per day.

Got no plans to drill up to 56 additional wells in the unit with an average working interest of 87%.

Production is projected to begin in the third quarter of 2020 and should peak reach peak production in the second half of 2021.

These the unit was formed to capitalize on our dominant ownership position to maximize the value of these assets.

All products will be gathered and distributed on pipe through centralized facilities.

This is another significant catalyst for growing show shareholder value.

In Oklahoma, the Big news for the quarter is that oil production was up 35% year over year, averaging 36300 barrels of oil per day.

This reflects the impact of project Spring Board and our overall shift to a more oil focused drilling program in both scoop and stack since mid 2018.

Well growth in project Spring Board is on track and we fully expect to meet or exceed our updated target of 18000 barrels of oil per day in the third quarter.

For the fourth quarter, we are targeting 22000 barrels of oil per day and are well under way to achieving this July production averaged approximately 19000 barrels of oil per day.

To date, we have brought on 60 wells in spring board of which 46 or Springer in 14 or Woodford.

We expect to bring on approximately 30 additional springboard wells.

Later by the end of the year.

23 of the 46 Springer producers came on recently these are located in rose to three.

Early performance from these wells looks strong with oil production trending above the 1.3 million Bill we type curve, we introduced earlier this year.

Over half of these wells have been producing for just two weeks, but are already hitting the high range of expectations.

For example, the Nancy J, two and three wells are both flowing approximately 1400 barrels of oil and 2.8 million cubic feet of gas per day.

Within pursing flowing impressive flowing casing pressures of approximately 2800 PXI.

This is right in line with expectations given the increased reservoir thickness in rose two and three.

We'll provide more detailed updates once we get the remaining wells rose two and three on.

And will allow them to line out.

I also want to point out that the Woodford and springboard is beginning to make its presence now as we get more wells online.

We're very pleased with the early performance of the Woodford Wells as these unit wells are outperforming our legacy type curve from a parent well in the oil window as shown on slide 13.

The key takeaway here is that springboard to significantly outperforming our production targets announced almost a year ago of 16500 barrels of oil per day for the third quarter 2019.

As a result of both reduced cycle times and solid well performance.

As Harold noted, we also added approximately 19% of the royalties under springboard as a result of our strategic acquisition of mineral rights.

This is another great example of how we leverage our knowledge and expertise to maximize returns for shareholders.

In stack, we have completion work underway on two units in the oil window called the Reba, Joe and shelter units.

Both units contains seven meramac wells with four targeting the upper Meramec and three targeting to lower Meramec.

First production is expected in late third quarter.

Looking back we continue to be very pleased with the performance of units. We have developed over the last 10 months in both oil and condensate windows of stack.

The wells in these units continue to up for outperform our type curves as shown on slide 15.

In fact, the diluent Simba units are projected to payout and less than one year.

Key point here is that our teams have a good handle on well density and the results are repeatable.

Operationally, our teams continued to deliver capital efficiencies to their ingenuity and technology in springboard our drilling cycle times are now routinely averaging 32 days.

Down 30% from the initiation of the project.

In stack, we have drilled our second slim hole design, well, confirming a saving up to $500000 per well is achievable.

Year to date, our completion teams in Oakland have completed 22% more lateral feet than budgeted and have done so at 17% lower cost per lateral foot.

And in the Bakken moving to 45 stage completions using engineered perforations is saving up to $500000 per well, while delivering the same result, as our previous 60 stage completions.

These savings come from wide variety of items, but they all translate again to significant value for shareholders.

These efficiencies will enable us to achieve our 2019 objectives in Oklahoma with fewer rigs than budgeted. So over the next couple of months, we'll be releasing seven of the 19 rigs we had drilling at the end of the second quarter in Oklahoma in the Bakken will continue drilling ahead with six rigs.

With that I'll turn it over to John .

Thank you Jack good morning, everyone.

Let me start with a snapshot of our performance we are performing at a high level was significant net income driven by solid corporate returns and production.

We also continue to realize strong free cash flow and accordingly, we have commenced our share repurchase program and implemented a dividend to be paid in the fourth quarter to further enhance shareholder value.

I wanted to highlight our share repurchases for the quarter as Harold mentioned, we have executed 92 million in share repurchases as of August 2nd This equates to 2.4 million shares.

Continental is focused on shareholder value with our only prior equity offerings being our IPO in 2007, and one follow on offering in 2011, we did not dilute shareholders over the last few years as many did as we were financially strong. So our buyback program is a buyback in the truest sense.

Further buybacks are ongoing and we will update you quarterly on our progress we expect our initial buyback program to last through 2020.

Switching to our mineral royalty activity our pace of 2019 mineral acquisitions has been heavily weighted to the first half of the year.

We are pleased with our teams execution as our opportunistic ability to acquire minerals ahead of the drill schedules will translate to strong future returns.

Our minerals relationship is unique because of unknown drill plan.

As shown on slide eight of our Investor deck, 90% of our minerals are under continental operated units in the first half of 2019 over 75% of Continental we'll spud in the sale at underlying mineral ownership. We believe this entity will become a strong IPO candidate as its scale increases over the next few years.

Let's take a moment to provide an update on our 2019 guidance and the strategic initiatives announced in last week's release.

As Harold previously noted and as we disclosed last week, we divested of a small portion of our water handling assets for $85 million, while acquiring strategic oil weighted inventory is skewed for 79.5 million.

This actors acquisition, along with the acreage trades, where we added to our existing assets an oil weighted areas have added an an estimated 55 million to our 2019, Capex, which was previously unbudgeted.

Additionally, in conjunction with Franco Nevada, we plan to spend 25 million gross dollars above budget on mineral acquisitions. This year.

Net to continental this only represents 5% of 5 million of cash expenditures.

Remember, while total spend this call consolidated within our financial statements, 80% will be reimbursed by Franco Nevada on a monthly basis.

Essentially we will fund 20% of the cost for 50% of the revenue based upon achieving performance targets.

Save the previously mentioned items and inclusive of the change we have made in rig and completion crew activity. We are tracking toward our 2.6 billion budget and accordingly are leaving unchanged.

2019, Capex has been weighted to the first half of the year looking forward to the back half of 2019, Capex is still expected to be lower than year to date.

As discussed in prior periods third quarter will be higher than the fourth quarter due to project timing.

After the inclusion of the Unbudgeted capex associated with the recent acquisitions and our mineral royalty asset acquisitions, we expected third quarter to be generally in line with the first quarter.

While the fourth quarter is expected to be significantly lower bringing annual numbers in line with what I. Previously discussed this includes unbudgeted items from our previous release.

Our operational expertise and well productivity are also rendering strong production growth for the year.

Accordingly, we are now expecting full year oil production to be higher than prior guidance annual production is now expected to grow 16% to 19% versus 2018.

We are also expecting full year gas production guidance to grow 5% to 8% versus 2018.

Across our broader guidance, we are realizing improving results in our lowi in GNS cost metrics.

For cash DNA, we revised lower guidance lower to $1.15 to $1.35 per Boe.

Versus our prior range of $1.25 to $1.45.

Equity compensation also improved to 40 cents to 50 cents versus a prior range of 45 to 55 cents.

Production expense improved with the current guidance at 350 to $4 per Boe versus our prior range of 375 to 425.

Finally capital efficiency is driving strong results in our DDNA rate, which we expect to come in around the midpoint of our current guidance of 15 to $17.

All differentials are in line with our expectations for the year, while gas differentials have been impacted by weekend NGL pricing as such we are revising our gas differential to negative 50 megabit dollar.

We're also revising our production taxes.

Since two approximately 8.5%, reflecting more production from North Dakota.

We expect to generate strong free cash flow for the remainder of 2019.

As debt levels are reasonable, we will likely apply more cash to share buybacks in the near term and balanced debt reduction and higher commodity prices.

If you turn to slide five you can see we expected to deliver a cumulative 5 billion in free cash flow over the next five years was $60 WT.

The company's five year vision is predicated on our desire to return capital to shareholders through buybacks dividends and continued debt reduction.

Combined with the unique ownership profile of our company. We believe that no. Other S&P is more aligned with shareholders and its ability to deliver returns and value.

With that we're ready to begin the Q and a section of our call and we'll turn the call back over to the operator. Thank you.

We will now begin the question and answer session.

To answer your question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Withdraw your question. Please press Star then too.

Please limit yourself to one question and one follow up at this time, we'll pause momentarily to assemble our roster.

Okay.

The first question comes from Doug Leggate with Bank of America. Please go ahead.

Oh, Thanks, good morning, everybody.

Hi, guys I, I guess, John maybe I could kick off with a a kind of a double edged question the.

The Capex guide for the year hasn't changed so just wonder if you could give us some comfort on the trajectory in the second half of the year.

Because that's obviously pretty key to underpinning the whole free cash flow pivot.

On my.

My kind of related question, if I may is.

And I don't mean to sound.

Petulant in any way, but what is the value of continental being a public company.

Okay I'll take that.

Okay.

First of all Capex you know we've.

By releasing seven rigs I mean.

You know we Lee.

Certainly expect that the capex in the second half of the year nobody much lower.

And John went through the quarter over quarter.

Rundown.

And.

So we'll be spot on where there are 2.6, I think we're gonna stay really close and we certainly have.

Capability here to adjust on the fly, but as we go forward.

Let's talk about the the value.

Being being public in todays market you know, we don't see a lot of value in it.

That.

Good luck, we sit here today.

But you know we can't control the market.

We can.

Control, what we're dealing with here on a daily basis, and that's what we're doing.

Yeah, we didnt start a buyback or.

Program to go public or private.

We think as long as.

Value is not reflected in the stock we ought to be a buying it back and that's that's that's what we're doing and that's why we will continue to do.

Oh, how are we can cover the free cash flow outlook versus what the market is paying for you. There was clearly something broken there. So I guess, if I could risk just a couple of quick follow ups. One well is there or is it a limit so where you see a practical free float.

And then my last kind of part of this question I guess is how do you think about prioritizing.

Given where your share price is because we look we have a valuation and as you know 60 dollar level right. So so we're clearly there with you, but how do you think about buying back your shares as an investment relative to drilling wells or reducing debt.

So what's the limited once that limit your free float and then buybacks versus debt and growth.

Yeah, I think on the free float Doug the key the key comment is that valuation is more important than blue. If you bought back to 2007. When we went public we had 15% in the flow we traded a perfectly fine you look to the volume and and amounts that we trade on on a daily basis were trading trading a perfectly fine ultimately investors care about that but more than that they care about the valuation in companies receiving appropriate valuation further asset. So we believe the buyback coupled with dividends and capital discipline, which we've exhibited it for a long time will ultimately return the value to where it should be fairly traded.

Okay, I I know, it's a tough one answer John Martin The last question real quick hopefully Jack going from 19 to 12 rigs.

In the spring area can you just talk about the completed well count but supports the same the unchanged growth trajectory and I'll leave it there. Thanks.

Yeah, that's a good question.

Doug and really.

We're not changing the well count and it's just the rig count and the key thing there is it just really emphasizes the efficiency gains that we've received from our rigs. So I mean, that's the simple answer and and it's a real tribute to our teams for the efficiency gains that they've they've really brought to the table.

Through our operations.

Understood. Thanks, guys I really appreciate the aggressive approach to this broken market. Thanks.

Thank you. Thank you.

The next question comes from drew Venker with Morgan Stanley . Please go ahead.

Hi, everyone.

Very very thorough operational update and we're going to start on Oneq is dropping rigs in Oklahoma.

Is that a function of just really efficiencies and still seeking to get just as much done.

And the balance of this year and then any thoughts you have on.

Our next year in terms of trajectory as we head into 2020.

For activity in Oklahoma.

Yeah. This is as I had mentioned to Doug there and his question is really along the same lines is really we're dropping rigs because of efficiencies, but the well count it doesn't change so were actually getting more done obviously with fewer rigs and.

As far as trajectory is concerned safer springboard in particular since these rigs are being put down in Oklahoma.

We see springboard production, obviously growing through the fourth quarter were usually is up at 22000 barrels a day is what our target is and we see that production continuing to climb going on into 2020.

Thanks Jack.

Uh huh.

[noise].

The next question comes from a room Jairam with J.P. Morgan. Please go ahead.

[noise], Yeah, I wanted to to to ask about.

You know you guys are pulling back in the south just given the efficiency gains that you're seeing I was wondering if we could read into any thoughts on future capital allocation.

Between the Bakken and in the South and could we read into.

That decision as highlighting maybe a little bit more capital allocation to the Bakken as we think about 2020 and on a go forward basis.

I think or capital allocation as we have it.

Laid out there believing page.

Page four.

You know, it's going to stay about the same next year versus this year.

You know we were drilling those wells off like work up there.

And so secretary can do what it does do down here.

So.

Or teams up there you know got it down to a very fine art.

And so we will see that capital allocation staying about the same.

Great and just a follow up you guys highlighted.

Another column larger road development opportunity that long Creek could you talk about you know this would be the one call. It falling spring board, what what you like about these larger projects and could this could we see more of this in terms of mix towards these larger projects overtime.

Hi, Ryan. This is a this is Tony Barrett and you know obviously, what we've demonstrated over the last year in spring board with a reduction in cycle times increased efficiencies certainly translates here to the Bakken as well.

What we like about these projects. This one in particular its contiguous 10 square miles of leasehold high average working interest integrated infrastructure as we've said all of our product here will be on Pike.

And it's basically every time, we do one of these projects, we learn more and we save more. So this particular project again, we said the peak on this was 20000 net Boe per day. So it's another large scale development project.

That we have teed up in the north and it's really just the point here is that a spring board was not a onetime thing we have opportunity to do this in multiple basins.

Great. Thanks, a lot.

Rudy I got to add just a little something there to a more color is just that you know this is a reflection of us being into these plays early and getting a dominant position, we often talk about being an exploration company and grass roots in getting in their low cost us an early entrant than the reason were able to put these years together with these high working interest I mean look at springboard. We're looking at 75% average working interest here, you've got 87% average working interest that doesn't happen that often you know and these are big projects and it's really as I said, just a result of being out really having a vision in pulling the acreage position together.

Great. Thanks, a lot.

The next question comes from Brian singer with Goldman Sachs. Please go ahead.

Thank you good morning.

Good morning, I'm wondering Harold do you talked early on about the minerals Centrus at springboard and your continued acquisition there and you've got a slide thinking about some of the longer term potential goals, but I wanted to just to see if you could add a bit more color on the medium term objectives in both additional acquisitions that you see and then how you see the value to continental which is creating would that be from.

Continuing to highlight on calls like these would that be.

A spin off IPO et cetera.

I think.

You hit the nail on the head there certainly these.

Ipos or.

They've created a lot of value.

So thats head of US yeah, we <unk> our teams have been very successful.

And.

Acquiring these are.

Mineral interest early on I handed a bit and being able to project, we're going to be within the next few years.

It just creates a whole lot of value so.

That's exactly where we're headed Brian .

Great. Thank you and then to follow up a bit more on the cadence of activity looking at the Anadarko basin down to 12 rigs by the end of the year, what would that get you from wells drilled and completed perspective, and what level of activity would you expect to bring back or to return to.

In in 2020 , if if there is any increase.

You know we.

I'll, just say that really when you look at the efficiencies a again.

We're actually able to stay on track with what we put out there is our five year vision and with with even with a reduced rig count as we're talking about because of the efficiency gains we've we've experienced them. So.

You know its we started out in springboard with a high number of rigs out there just I think it was around 14, a blue plus Pat and keep in mind, we did that because we had to get out in front of the road development.

You have to get the road drilled before things start completing it in so.

That was a key driver in getting as many rigs focused in springboard as we did have initially so you know again well counts are the same and just were able to do with less.

I guess just to follow up on that is fourth quarter Capex a good run rate that you would be expecting on an ongoing basis for 2020.

Fourth quarter is significantly lower I mean, you you can do the math with the we've got the incremental items that were on budget and everything else. Excluding those are dead on track for the 2.6 I would look more at the annual than I would look at the core of the fourth quarter is typically lower roaming by just the timing of projects, but also weather concerns and other we tend to avoid those periods a little more.

Then we might for the summer month for instance tend to be heavier levels of activity for us, let's let's fairly normal for us, but fourth quarter is not a real reflection of next year, sorry, Brian I might add that you know we've picked up backwards here that is going to have some work on and our teams are busy right now.

Looking at.

What is going to take to.

So far drilling.

Made there.

So.

We may very well pick up another rig we could be more aggressive but.

We will stay within our.

Capex.

Great. Thank you so much.

The next question comes from Paul Grigel with Macquarie.

Please go ahead.

Hi, good morning.

The spacing Headlong Creek could you touch on is that similar to other projects within that same area within the Bakken is it tighter and how should we be thinking about multiple benches of three forks or or wine rack, just trying to understand that a little bit more.

Sure so.

Paul This is Tony again.

This particular area is interesting because up until this point has been fairly underdeveloped with just parent wells within these sections.

Our plan is calls for 56 wells.

To be drilled across.

In addition to the five existing wells in the unit.

About half of those will be middle Bakken half of those will be three forks one.

So the spacing is consistent with what we've done in the area in the past and seen great success.

And we expect the same here.

Okay No that's helpful.

And then I guess, maybe on well costs and balancing with Capex with capex being a little bit more front half loaded seems like the the completion counts maybe trim out a little bit is that just a simple timing factor a little bit of when wells come on throughout the year and how should we be thinking about kind of leading edge well costs and efficiencies.

In a in the south and up in the Bakken.

Yeah. This is Pat bent and I would I would think about it in terms of the efficiencies you've seen in the drilling rigs as well so our completion crews have exhibited similar.

Efficiency gains from that stage per day perspective, and so as you look in the Bakken.

As well as in Oklahoma, you've seen anywhere from 20% to 30%, 40% increases in stage for day count.

So that helps our costs as well so that continues to drive our cost down and so you can see a commensurate reduction in our completed well costs as you go throughout the year.

Okay.

Thank you.

Thank you.

The next question comes from Derrick Whitfield with Stifel. Please go ahead.

Hi, good morning, all and congrats on a strong operational update.

Thank you. Thank you.

Perhaps beginning with the Bakken several of your industry peers have noted gas processing contracts constraints in the current quarter and throughout the balance of the year.

Are you guys experienced any growth impediments in the basin.

We have we have a very large footprint, though.

That allows us to work within certain areas will train within certain areas.

Due to these contracts so we're able to work around them.

And we've we've led the industry up there.

Gas capture.

We still do.

And so we've been working ahead of that but here in the second half of the year.

Got a lot of the new.

Facilities coming on gas plants.

And pipelines you know that a gathering system. So our production up there is ahead of schedule.

And well done well done very well for a while we'll have that footprint allows us to the workaround is.

That's right pretty well.

Great and as my follow up regarding your water assets could you comment on what led you to your decision to monetize.

The stack assets sold and further how motive motivated are you based on your current valuation to monetize additional assets.

Yeah. This was a pretty sample situation, we were kind of winding up toward what we had to do is we still have a few projects there within this area but.

Other people had a lot of development work yet to do and so it just made sense that our team would would commercialize this area.

And offered for sale, so thats, what we did and is well received.

Out in the market.

And it.

Abroad to Jason.

Price.

And so.

Serving the general public is going to be.

Have a lot more value than just to continental.

Thanks for your time and comments.

You bet. Thank you.

The next question comes from Jeanine way with Barclays. Please go ahead.

Hi, good afternoon, everyone.

Hello.

Hi.

Let's see I guess my first question is circling back to Doug's question.

As it relates to the up $2 billion buyback program by the end of 20 and the debt reduction target. How do you manage that free cash flow allocation between the two of these as next year. For example, commodity prices are lower than expected and you have maybe just like 500 million in free cash flow I know you mentioned in your comments that valuation is more important than float but.

The debt reduction target is also I think a pretty important corporate initiatives.

Right right now our debt to EBITDA was about one and a half time, so it's pretty solid.

Solid investment grade rating with the strong outlooks in that if you look beyond just that metric to other debt metrics that are actively followed debt per flowing barrel for instance, well that's continuing to decline even if we keep a flattish type debt, we want to balance both of them. If you're in a 60 dollar environment, you're balancing both of them if you're in a 50 dollar environment you clearly have.

Less cash flow, that's just the math in that scenario I would suspect we would probably where we're at today, we would lean more towards the share buyback and keeping the debt constant with the.

With the strong metrics that we've gotten frankly, the improving volume metric metric. So we'll balance both of them in commodity price. Obviously is isn't is a variable in that and its moves.

Moves around constantly so we very actively manage those over the full five year horizon, we've got a lot of cash flow coming in so I think we can achieve a number of goals in a number of different scenarios.

Okay, Great and then my follow up question is on the medium term plan I believe the five year plan called for Capex somewhere in the low 3 billion and 2020, and 2021 and kind of just putting everything together given the improvement you're seeing in efficiencies in the SaaS, perhaps over time moving to larger project sizes in the backend that might also drive additional efficiencies and just overall better than expected well performance.

Do you anticipate that this low threes level is still the right ballpark over the next couple of years.

You gave a lot of variables there those are all reasonable things.

That were reflected above will be coming out with our 2020 guidance early.

Early early next year kind of consistent with our normal timeframe all of those variables plus others are things that will go into that the key is that we feel strong about our five year plan and where we're at on that we'll judge where the markets are we'll judge.

All of those variables that you made and we'll make adjustments as appropriate and we will.

Update you not only in the context of 2020, but of the five your prediction.

Okay, great. Thank you for taking my questions.

Certainly.

The next question comes from Mike Kelly with Seaport Global. Please go ahead.

Hi, guys good morning.

I wanted to circle back to Eric's question on the on the water infrastructure and I did want to get your thoughts on the potential to monetize additional assets here in the near term.

And it was just curious if really a primary motivation here could be to sell assets at relatively fair value and recycle the proceeds into an accelerated share repurchase which is an assay clearly tickets mispriced. Thanks.

Yes, certainly that could be a driver I think it all has to do with timing of our development.

These are very valuable to us during the development stage, but as we wind up our development and you know to serve the general public around us.

It may may very well.

They more valuable valuable to other.

Operators out there.

So we'll look at each one of them as it comes up that there's there's a lot of value.

Within a.

Yes, the the facilities that we have.

Okay.

And if I.

Looking at the long Creek development I'm, just curious here.

What you think is a reasonable expectation for what you can do to well cost.

Under this 56 well development.

Average well cost at our first kind of your base case Bakken development has been thinking.

This is Pat been again and that's great question that obviously, we've seen that over to continental's lifecycle as we get on these larger pads and are able to.

Have redundant activities that were able to lower our costs anywhere from 10% to 15%. The Bakkens a great example of that if you go back a few years and look at our well costs and in our cycle time much higher than they are today. So we still see that 10% to 15% opportunity out there in front of us.

Great I appreciate it thank you.

The next question comes from David Deckelbaum with Cowen. Please go ahead.

Good afternoon, guys. Thanks for the time.

You're welcome.

Just curious on it.

Implied in the guidance there was a higher royalty or production tax.

Is that.

More exemplary or the fact that as Bakken outperforming relative to the original plan that you had there.

And I guess, what does it imply for sort of the rest of the asset base as you think about your production guidance for the year.

I think all of the assets are performing well, we're obviously ahead of us.

Projections, we raised the guidance accordingly, with that democracy and part of it the way the North Dakota has a higher oil severance tax and then they have a fixed tax Berg.

For gas there so the rate ends up being higher when you mix that in its given us a little bit higher rate. The key is though it also it's also got very strong margins.

It's all part of the balance and.

More than offset with the GE in a in a low we and other cost reductions we've had.

I appreciate that I guess this is moving to the south.

As we think about the next several years.

A springboard to.

Fall into the program and.

How soon do you think will learn about that.

Well.

We we as we said before Weve kind of I guess, we've been quite about exactly where and when we might be moving there mainly for strategic reasons.

You know when we came out with springboard number one.

There's a lot of competition in there that we didnt necessarily need and so.

But it is obviously its in scoop and it's in an area that that we feel very strongly about and and so.

You know, we'd love to put on the map and show you know exactly where we're headed ultimately, but it's not not really that strategic thing to do for us.

I think maybe the timing you know I think you asked when perhaps we could do that and so answering that I would expect is going to be first quarter.

The 2020.

Yes, and from a timing standpoint, yes, I'm, sorry, I missed that part of it yes.

That that that seems like a reasonable time sometime first maybe first half 2020.

Yes.

Thanks, Thanks, guys.

Mm.

The next question comes from Betty Chen with Credit Suisse.

Please go ahead.

Good morning.

I have a question on 2020, just higher level speaking with the oil price volatility is a governor on the program to generate a meaningful level of free cash flow for buyback and debt reduction or.

Or would you like to keep some level of say double digit production growth and then left free cash flow beat outcome.

Yes.

Okay.

The.

Obviously commodity prices impact cash flow, we're committed to is free cash flow regardless of what the price environment is in your lower price environment, we would moderate the level of activity and we would back off the level of growth, but we will be generating free cash flow in a variety of scenarios. When you get up into that 55 to $60 range. We can do all of the things above the that we mentioned, but if you're thinking of a lower price environment, we would moderate our level of activity.

To reflect that.

So.

Got it.

And ER and then a follow up on a long Creek project would that be incremental to the baseline <unk> a six rig program in the Bakken.

Just trying to understand the implications of these larger projects both in the Scoop and Bakken like would that lead to just lumpier production growth corporate production growth.

No.

Hey, it's not actually this is you know that your normal program up there.

And so.

It is.

Yes.

It's a good project that don't believe will.

You don't have a lot of lumpiness in production, we're going to have to read on it.

And.

As production comes on it will then move on route to market.

Got it thanks.

Thank you. Thank you.

The next question comes from Neal Dingmann with Suntrust. Please go ahead.

Hi, guys. Thanks for taking the question Harold in the past you've altered completion activity if you viewed weak.

Sort of gas or oil prices to be temporary week. It's my question is if you could comment today about how you view sort of the current oil and gas market given the fundamentals and if this is impacting any of your near term activity decisions.

There's not a we're not.

Drilling wells that we're not completing.

We're not going to do that.

You know that well.

Certainly watching price and very cognizant of what's going on with price.

You know, we're practicing capital discipline.

Every regard we thank all operators should be doing that.

And that sort of driver.

And going forward.

So I think the.

You know we're in a pricing cycle here that.

Yes.

Well, we're seeing the rigs.

Go down and the U.S.

Four five a week.

Uh huh.

We're the level is that we need to be at the.

Is anybody's guess that.

I think we're probably a 100 rigs.

Morning, U.S. and his name today.

Very good and then one just follow up on you all have had the only notable success and number of your Bakken step out such as the big Federal and others I'm just trying to get a sense when I look at either latter part of this year or maybe even 2020, how much of these.

Step outs will continue will contribute to the overall incremental Bakken activity versus you know what I'd consider your sort of older core areas.

Yeah Neal Yeah, we'll continue to do some step out the teams are already talking about looking at doing some some unit developments out in these areas. You know we don't have any any specific timelines there yet, but they clearly have these areas on the table.

Very good thank you.

Thank you.

The next question comes from Brad Heffern with RBC capital. Please go ahead.

Hi, good morning, everyone.

A question on the minerals. So you called out that 19% number of the minerals that you own under the springboard project I just wanted to make sure I was interpreting that correctly does that mean that.

If you had an 80% and our eye before its now 84% or any more color you can give around sort of whats bank on push with the minerals JB.

You bet this Steve Owen.

Just to put in perspective, not 10% and then net mineral acres under our total leasehold position out there would give us an average of 2% increase in net revenue. So you're 80% would actually give us more like an 80% to 82.5% in that revenue.

Okay got it thanks for that.

And then just thinking.

Sorry, thinking about the minerals longer term you know it seems like you guys have had and maybe more success than you would have expected and it's been going faster. So I'm wondering if that's pulling forward future or future mineral spend from later on in the JV timeline or if it's increasing the overall amount of spending.

The the 25 million that we talked about that was on budget thats pulling from the last year in the program. So that's a good question, yes that is pulling that forward from later in the program ultimately we along with our.

Franco Nevada will look at the total size and scale in it.

Covers continuing activity beyond that we know that something we can certainly talk about expanding that.

At some point in the future if that's necessary, but for now we're pulling forward from like the latter year tranches to now.

Okay. Thank you.

Oh.

The next question comes from Leo Mariani with Kate Keybanc. Please go ahead.

Hey, guys I noticed that you specifically highlighted some numbers around the water infrastructure with the 100 million EBITDA on the remaining assets here clearly you monetized.

A piece of it or recently certainly seems to imply guys think there's no significant hidden value there.

Ah you know can we expect to see other water deals. They by the end of this year or were these deals kind of really pick up and in 2020, how do you see kind of that remaining water infrastructure assets be monetize over time.

Yeah, we don't have yet have any near term deals plan for that and other big clear the hundred millions. What's left it did not include what we sold that was separate and distinct from that so our remaining assets have a about a little over 100 million now of EBITDA, we see that growing with our development in our activity going forward. So it's a very valuable asset.

If we ever did anything it will in near term it would probably be a small stake but theres nothing.

There's nothing grooming or contemplate at right now.

Okay very valuable.

All right that's helpful for sure and I guess, maybe you guys could just talk about your oil cat kinda sitting around 58% or so in the first half of a 2019, how should we expect the oil cat to kind of move as we get later into 2019 into early next year.

You look forward again, we see.

All growing a little bit in third quarter gas, probably a little off but a little bit zero overall be are we more flattish with the second quarter.

Fourth quarter because of that capital spend in the third quarter, we have a significant uptick in production a lot of that is oil weighted I don't have the.

Yeah. The the percentages yeah, we don't look so much as the as the percentages, we do the absolute volumes I'd say, it's probably somewhere flattish in that range. The key is the absolute volumes are growing significantly and we're focusing on the on the oil side.

Okay. Thanks.

Oh.

The next question comes from John Freeman with Raymond James. Please go ahead.

Good afternoon guys.

Hi, John .

On the minerals business now that it's been about a year since shall form that and obviously, it's been very successful just any updated thoughts or plans to expand that to the Bakken is there anything that you know we're not thinking about in terms of that would make it disappear or any disadvantages or anything in the Bakken to prevent it from happening up there.

That's always been a possibility the the Balkan has and you know work our team certainly is.

Joe approaching a lot of different areas with open eyes.

And.

As opportunity would.

At present itself.

We would certainly be looking at it.

Okay and then just my one follow up on a on some of the questions that Neal asked on the on the step out wells, which obviously have performed great.

After the 120 days.

I believe in the past you've talked about.

Potentially look into.

Push a little further north of where the Mcclintock is for maybe some additional step out testing is.

Just any any updated thoughts on that.

Oh sure Yeah, it's it's a it's in the works and as we said, we're just going to continue to to.

Step out in applied this.

Our latest stimulation technology into these older areas and.

And basically as we've seen we've typically seen as a very very significant uplift in performance.

As you'd expect and so it just takes time to get it done but we're it's in the Q.

I just might add that we do lock the rock.

Because the north or two.

Sure.

Thanks, guys I appreciate it.

Thank you John .

The next question comes from Marshall Carver from Heikkinen Energy Advisors. Please go ahead.

Yes. Thank you that the 12 rigs in the southern region in Fourq, what would the split between the Scoop and stack.

Of those 12, two in the stack tendons scoop.

This is Pat.

Okay. Thank you and a follow up you talked about a leading the industry in terms of gas capture in the Bakken what was your gas capture rate in Twoq and how would you see that trending.

For the year I think our gas capture isn't that right about 88, 89% range so were fully in compliance.

With what the NDRC is is basically mandated that they went up there and that's exclusive of any kind of incentives that they're willing to put in place they have put in place as well.

So we are definitely a leader in gas capture up in the Bakken.

Alright, thank you.

Thank you thanks Marshall.

Yes.

This concludes our question and answer session I would like to turn the conference back over to Rory Sabina for any closing remarks. Please go ahead.

Great. Thank you very much for joining us today. Please address any further questions to the IR team have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.