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spk17: Ladies and gentlemen, and welcome to the Continental Resources, Inc. first quarter 2021 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Rory Sabino, Vice President of Investor Relations. Please go ahead.
spk12: Good morning, and thank you for joining us. Welcome to today's earnings call. We will start today's call with remarks from Bill Berry, Continental's Chief Executive Officer. Bill will be joined by additional members of our senior executive team, including Mr. Harold Hamm, Executive Chairman, Jack Stark, President and Chief Operating Officer, John Hart, Chief Financial Officer and Chief Strategy Officer, and other members of our team for Q&A. 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 SEC 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. 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.clr.com. With that, I will turn the call over to Mr. Berry. Bill?
spk03: Thank you, Rory. And good morning, everyone. Thank you for taking the time to join us on the call. I hope you're all doing well. We've all seen a shift in investor expectations for E&P companies over the past several years to one appropriately focused on free cash flow and competitive returns to shareholders. The industry, as you know, has probably been a bit slow in recognizing and responding to this new investment paradigm. We at Continental have fully embraced this with our investor return efforts focused on free cash flow and moderate growth plans. In support of this, we're intentionally shortening the scripted portion of our earnings call to primarily focus on continental strong cash flow and shareholder capital returns and allow for more Q&A time. The first quarter results and our uses of free cash flow serve as an example of our continued commitment and capability to deliver competitive shareholder returns with strong free cash flow driven by asset quality, cost control, and capital discipline. During the first quarter, we generated $606 million of cash flow, of free cash flow. That's versus analysts' consensus estimate of approximately $450 million. We reduced debt by $560 million to end the quarter with a debt level of $4.97 billion, or below $4.9 billion, considering $95 million of cash on hand. This is three to six months earlier than our previous target. And additionally, we reestablished a dividend that was suspended during the pandemic at twice the level prior to the pandemic. This quarter will serve as the foundation to meet or exceed all of our guidance for the full year and highlights the unique value opportunity of investing in Continental. There are four key elements of Continental's outstanding value proposition to investors. Free cash flow commitment, capital discipline, strengthening the balance sheet, and cash returns to investors. I'd like to briefly discuss each of these. We have a consistent commitment to free cash flow. 2021 is projected to be our sixth consecutive year of positive free cash flow. We are one of only a very few unconventional EMP companies to have accomplished this. In support of delivering strong free cash flow, we're demonstrating our capital discipline stewardship with an expectation that, at current prices, our capital reinvestment rate will be less than 50% for the full year. With respect to our balance sheet We are accelerating our pace of debt reduction and now expect debt at year end to be below $4 billion, down by $1.5 billion year over year. And we are well on our way to achieving our goal of being a leader in shareholder capital returns as we reinstated our dividend with the first distribution scheduled for May 24th. All this financial performance and return of capital to shareholders is underpinned by our high quality and expanding assets, low operating costs, and the ingenuity and tenacity of our employees that have continued to stay focused on creating opportunities and efficiencies company-wide over the past 12 months. Production remains on target to meet or exceed annual guidance, with production as planned becoming more oil-weighted in the second half of the year. Additionally, we are projecting an approximately 12 percent return on capital employed in 2021 in line with our historic norms. So now let me go into a little bit more of the details. We are now projecting to generate $1.7 billion of free cash flow at $60 WTI and 275 Henry Hub in 2021. This equates to an approximately 18 percent free cash flow yield, which underscores our unique value proposition relative to the S&P 500 and all its sectors, as evident on slide four. Included in this update of free cash flow projection is our updated second quarter to fourth quarter 2021 crude oil differentials guidance per barrel of oil to a negative 375 to 475, and our updated second quarter to fourth quarter 2021 natural gas differentials of zero to a negative 50 cents per cf. We reinstated a quarterly dividend of 11 cents per share, which translates to an approximate Well, it was 1.7% when I wrote this yesterday. It's probably down around 1.5% dividend yield at current prices. As I mentioned earlier, this is double our previously issued dividend, which has been temporarily suspended at the onset of the global pandemic. We believe this is both competitive with our peers, the S&P 500 index yield of approximately 1.4%, and importantly, is expected to be sustainable given our strong cash flow generation and interest expense savings from our significant debt reduction. The dividend will be payable on May 24th to stockholders of record of May 10th. We're forecasting material debt reduction to continue with our $4.5 billion debt target by year end 2021 that we provided in February is now projected to be achieved by the end of July and positions the company to meet are updated year-end target of $4 billion or below by year-end 2021, a $500 million improvement versus our previous guidance. Our ultimate long-term debt target of under $3 billion would support our goal of maintaining a debt to EBITDAX ratio of one or below to enable us to successfully weather adverse commodity price cycles. We have accelerated our debt pay down goals by a full year due to our robust and protected cash flow generation, and a focus on returning to full investment grade. I'd like to talk a little bit about the ESG goals and highlight the ESG stewardship at Continental. As is shown on slide nine in 2020, we reduced our greenhouse gas intensity and methane intensity by 23% and 31% year over year respectively. From 2016 through 2020, we have cumulatively reduced those levels by 35% and 58% respectively. Our goal is to strive for a similar year-over-year greenhouse gas intensity reduction range in 2021. Notably, based upon our current operation program, we anticipate achieving as much as a 45% reduction from 2016 to 2021, and we aim to continue with additional methane intensity reductions as well. We'll be out with our 2020 ESG report by mid-year 2021, and look forward to continuing our constructive dialogue on the positive role the U.S. oil and gas industry is playing in responsibly sustaining America's energy future. As I switch gears to our operational performance, we're on track to deliver on our second quarter production guidance of 160 to 165,000 barrels of oil per day and 920 to 940 million cubic feet per day and plan to meet or exceed our annual production guidance for the year. As we stated in our April 12th update, Continental only saw a modest adverse impact to full-month production due to the cold weather in February. As a result of our long experience in the northern Rockies winter regimes, significant pre-planning efforts by our operational teams, and active support and interaction with government regulators, utilities, and pipeline companies, we were able to keep a large portion of our production flowing during these extreme conditions. Their operating teams were literally working 24-7 during absolutely miserable conditions to keep as much gas flowing as possible. My thanks to each and every one of them. We're on track to deliver approximately 143 gross operated wells in the north this year, inclusive of Bakken and the Powder River, with Bakken production already ramping up in the second quarter. In Oklahoma, in the first quarter, we brought online 14 wells, the majority of which were gas. This will shift to all weighted wells in the second half of 2021. Company-wide, we're on track with projections to see growth in the second half of the year versus the first half. Operational advancements in 2020 have carried over structural savings in 2021. Improvement in design processes and execution are driving costs down. We are implementing new equipment, technologies, and methodologies, and everything from drilling to stimulation to work over. These advancements are showing great results and demonstrate the potential for additional structural savings. Our employees are never satisfied with where we are in our performance, and it shows in our drive for continuous improvement. We're seeing our completed well cost trend lower in our asset areas. thanks to a significant step change in cost performance by our teams during the recent downturn. By keeping our teams intact, they have been able to optimize our operations over the past year to be more efficient than ever before. Turning to slide seven, our block and well cost continues to trend lower, thanks to structural improvements and enhanced operational design. In 2021, we are targeting well cost 7% below 2020 at $641 per lateral foot. Combined with our projections for consistent year-over-year performance from our Bakken wells, our 2021 Bakken program is projected to deliver a composite of more than 70 percent rate of return at $60.275. In Oklahoma, our oil and gas assets continue to afford us commodity optionality, which is a significant attribute as it provides great flexibility in various commodity environments. Just as the gas commodity fundamentals last year suggested we should switch to gas weighted drilling, which we did, we see the fundamentals this year supporting more oil weighting for our Oklahoma assets. This is expected to be realized in the second half of the year. And as I mentioned, we'll expect to see oil growth in the second half of the year. We're seeing strong repeatable performance from our condensate assets across the basin. And 2021 results year to date are no exception. Our average condensate unit well continues to improve year over year. We're also seeing significant cost savings in these wells. In 2021, we are targeting condensate well costs 17% below 2020 at $891 per lateral foot. Savings are being driven by structural efficiency gains through execution and translates to over 50% average rate of return for our wells at 60 and 275. Combined with strategic gas hedges where approximately 264 million cubic feet per day of our company's second quarter to fourth quarter 2021 natural gas is hedged with the midpoint of swaps and collars at 293 and market optionality to various markets. We are very pleased with the results from our condensate assets. Last quarter, we announced our strategic entrance into the Powder River Basin. We closed on this transaction on March 4th and we'll begin drilling with two rigs in the powder in the second quarter with our first well expected to spud in the next few days and the second rig to spud in early June. We're looking forward to sharing more details with you later this year. In closing, our investment case is driven by repeatable asset performance and accelerated capital returns to shareholders through both our reinstated dividend and exceptional progress on debt reduction. Time and time again our teams at Continental have been able to transform challenging market environments into opportunities to deliver organic growth, operational efficiencies, and cost savings that are structural in nature. These accomplishments underscore the strength of our team, our assets, and our operations. Our first quarter results reflect our organization's capability. Our asset technical expertise and unrivaled management alignment come together to deliver an investment opportunity uncommon in the oil and gas sector. Our management team acts like owners because we are owners. This unique alignment with shareholders drives our innovative and sustainable approach to delivering our corporate goals on behalf of all stakeholders. With that, we're ready to begin Q&A section. I'll turn the call back over to the operators.
spk17: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble the roster. The first question comes from Neil Mehta of Goldman Sachs. Please go ahead.
spk15: Good morning, guys. Thanks for taking the question and congrats on a strong quarter. The first question I had was just thinking about your takeaway coming out of the Bakken. There's obviously a lot of uncertainty around Dakota Access, although it seems like things moved in the right direction in terms of getting the pipe to flow. I just love your perspective on how you're thinking about getting barrels to market out of the Bakken, the Dakota access risks, and any views in terms of how that pipe is likely to flow from here.
spk03: Yeah, thanks, Neil. Appreciate the question. We've seen a continuation of positive comments coming out of everything from the core to the owners of the pipeline that this is strongly expected to continue to operate the core fields that it was appropriately handled. I know it's still back and forth with the cords. We mentioned before that we've put in place some plans and have ability to move all our oil out of the Bakken with some of the things we've done already. But our anticipated base case is that the pipeline is going to continue to flow. And I'll open it up to Aaron Chang. I don't know, Aaron, you've got anything to add to that?
spk01: No, Bill. I think, like you said, we continue to believe the pipe will remain operational, but we've positioned ourselves to be able to execute on our 2021 plan under any DABL operating condition. As such, we're always looking at a risk-weighted approach to moving more firm transportation out of the basin to markets like Cushing, and we've done so in an accretive manner.
spk15: And the follow-up is you guys have done a great job of driving your debt lower here and on target to get this up $3 billion, it looks like. How do you think about the use of free cash flow once you've achieved that objective? And then any thoughts and divestitures, including around water assets, in order to help accelerate getting towards your goals?
spk03: Yeah, thanks. The water assets, as you know, we looked at doing something with that last year. We think we have a very, very significant asset in our water assets. And we were engaged in some discussions last year and opted to not pursue it further because we wanted to keep the operational flexibility that it provided us by keeping it all under 100% continental. That said, it's a very significant asset that we do have an opportunity at some point in time to to move a different direction on. So from that perspective, the cash flow is fine. Sorry, Neil, your other question you were asking?
spk15: Yeah, just you guys are driving towards your debt target, right? And so you're getting there through organic free cash flow generation. Once you get to your target, debt target, how do you think about allocating incremental cash flow to shareholders? The dividend was a first step but is there more to go?
spk03: Well, the dividend, and as you see, what we're doing with the cash flow that we're returning by paying down the debt, and what we're looking at is a full suite of things that are in our quiver, so to speak. We've got, obviously, a program that's in place for share buybacks as an opportunity. We've got debt to pay down that we want to continue to drive ourselves down toward that one multiple dividend, and we reinstated it. And, of course, we reinstated it at a level that we felt It was a strong position to start, but it also was a reflection of our comfort and confidence in the go-forward ability to increase that over time. And so all these things are vehicles we have for shareholder return. We're just seeing that there's a real focus in the company, and hopefully you're seeing that manifest itself with where we are today. We have a $1.4 billion budget. That's where we started. We talked about 65% to 75% as far as a reinvestment ratio. That 1.4 at today's prices is somewhere maybe around 45%, 50% in that range, but we're still very comfortable that that's the right spend rate and that continuing to spend off cash and get it back to the shareholders is what our plans are. Thanks, guys.
spk17: The next question comes from Arun Jayaram of JPMorgan Chase. Please go ahead.
spk08: Yeah, good morning. Good afternoon. I had some thoughts. Bill, you talked about the new investment paradigm and perhaps a little bit of a follow up to Neil's question. But how are you thinking about 2022, you know, balancing, you mentioned maybe some semblance of growth, but balancing production growth, you talked about the $3 billion debt reduction target and dividend growth on a go forward basis.
spk03: Yeah, and probably what you're touching on a little bit, Arun, is what's the comfort with the industry and where should the industry be going as far as growth rates. And we're still in that position with the fundamentals that are out there now. And as we've said for over a year now, we should not be trying to overproduce into an oversupplied market. There's still inventory overhanging that's out there this year. But even when you get into the 2022 timeframe, We don't think the industry should be trying to grow more than 3% to 5% on an annual basis. And as Jack highlighted the last call about, you know, the inventory that we have is an inventory that can support a lot more growth than that, but we think that's a reasonable range that people should be targeting. And so, Jack, I don't know whether you've got anything else you want to add on the inventory to share with the room?
spk04: No, all I'd add is that last time we talked, you know, we mentioned that mentioned that, you know, this inventory, we've got enough to grow the company, you know, at a 5% compounded annual growth rate over the next 10 years. And if you look at the first five years of that inventory, we represent about a third of the inventory. And the rates of return on that, last time we talked, at $50, is right at about 50%. And at $60, it's right around 65%. So it's a very robust inventory. And also, it's a very well-defined inventory. You know, we know density. We know the reservoirs very, very well, and our teams are doing a great job of just continuing to maximize recovery and drive down costs and really increase the capital efficiencies. And we've highlighted that on slide seven and eight here. I won't go into it, but you can see how we've continually increased the capital efficiency of the results over, what, the last three, four years.
spk08: Great. Thanks for that. And just my follow-up. You guys have guided 2Q Oil between 160 to 165. I know last quarter you'd mentioned how your operated rig count would rise from two to seven in the north, two rigs in the PRB and five in the Williston Basin. I think you're at four today. And some of that was just to offset some of the declining activity from your key non-op partners. that you mentioned. So I was wondering if you could help us think about, you know, how your, you know, tills could trend over the year and maybe a second half trajectory for oil.
spk04: Well, we see our oil as a percent of our production increasing in the second half of the year. And it's really, I guess, based on the fact that, you know, if you look at our completions in the back half of the year, second half of the year, you know, about 70% of the wells will probably be in the back, maybe upwards of around 70, and compared to the first half, we're around 50%. So, I mean, that's one of the key drivers there, but at the same time, too, we're also going to be switching our rigs in Oklahoma, you know, I mean, as far as its oil-weighted nature as well. You know, last year, we were probably, you know, the second half of the year, we were probably 70% gas. This year, we're probably going to be about 60% oil with those rigs. And so, anyway, so we're making that strategic shift to, as we keep saying in Oklahoma, we love the optionality you have with the commodity there. And so, we're moving in that direction to take advantage of that. Got it. Thanks a lot.
spk20: Thank you.
spk17: The next question comes from Derek Whitefield of Stiefel. Please go ahead.
spk10: Thanks, and good morning, all. Good morning. With regard to the 2021 capital outlook and the operational efficiencies you noted, would it be fair to assume that there's downside to your capital plan if you achieve your targeted completed well cost on pages seven and eight?
spk03: Downside in which direction, Derek? Meaning that we could drive the cost lower? Yeah, we're still trying to drive it even lower, if that's the thought, Derek.
spk10: No, it was even more around the capital side because we were working through the numbers at your target, and it seemed like there would be some downside if you guys attained for the year that average target.
spk03: Downside to what, Derek?
spk10: I'm sorry, I'm not sure. The 2021 capital plan.
spk03: Oh, that the $1.4 billion that we actually could spend less than that? That we could actually spend less than that, and that's what your question is?
spk10: That is correct.
spk03: Yeah, we had factored into that budget the fundamental cost savings. Like I said, we spent most of last year kind of took advantage of the pause and slowdown. So we had a lot of our drilling engineers and production engineers. And when we weren't drilling as actively as we were in 2019, we had them working on how to drive the cost down. So we kind of came out of the chute with an expectation that was given to Pat Ben and his team to drive it lower. And that's all reflected in that number.
spk10: Perfect. And then with my second question, shifting over to your ESG slide, several of your peers and the majors are pursuing CCS and or other renewable projects to offset their scope one emissions. From a business opportunity and ESG perspective, could you comment on your desire to pursue something similar to this as a means to offset carbon emissions from your operations?
spk03: Yeah, I'll probably start at the high level with you, Derek, and say that, you know, our Our goal as a company is to look at all waste and that, be it whether it's going in the air, going into landfills, whether it's going into any type of byproduct. This is something that we think all industries should look at all the time. And so we're looking at all our waste and what happens to it and trying to take that to the absolute to minimum level. And so that's our primary pursuit is to reduce the actual emissions come whatever form they're in. We hope that there are some economic business opportunities out there, and clearly there are right now with some of the ones you see going on in some spaces. You know, the 45Q tax is something that everyone is trying to see if there's an opportunity to make that work. So I think it's incumbent on the industry to try to take a look first at reducing its emissions, and then second, look at any type of carbon capture We think that carbon capture is going to play a role in the future.
spk10: Very helpful. Thanks, guys.
spk17: The next question comes from Neil Dingman of Truist Securities. Please go ahead.
spk05: Morning, all. Bill, my question for you or Jack, I'm just wondering how far in advance you guys really pivoted at key times over the last, I mean, whoever made the decisions there, first in gas and now more towards oil and certainly implies that it does look like your Bakken is going to be a much bigger plan for the remainder of the year. You know, how far in advance or how, I'm just wondering, you know, looking, going forward in 2022 and, you know, for it's obviously difficult to tell the balance between gas and oil prices. I'm just wondering, how do you determine kind of what the, you know, where the focus is going to lie?
spk03: Well, we've got a pretty robust program internally, you know, where we sit down multiple times a week and talk about where the world's going, got the whole team involved in it, everywhere from finance to operations to marketing, and specifically look at those type of things, look at the fundamentals, and that kind of drives the decision. And the nice thing about this company is that we make pretty quick decisions. So once we see the stars lining up, we go ahead and make the directional changes as appropriate. Some of them will work out and some of them won't, but we're just hoping that we're we're batting above 500 at the end of the day on these things, and this is one that I think worked out well for us.
spk04: Neil, I just want to add, I mean, we really want to give some kudos to the teams because obviously, as Bill said, we study the market and the macro constantly, and the teams are also very tied in, and they came to us with a recommendation looking at Oklahoma and said they have the optionality to move into a more gas-weighted portfolio early last year, and it really made good sense, and so So anyways, it's a team effort here, and it's great to see that everybody's tied in.
spk03: Yeah, I just want to reinforce what Jack mentioned, that that was a team's recommendation to management. That was not a management recommendation to teams. We all had our perspective on that, but just to show that the whole company engaged in making these decisions.
spk05: No, very well understood. And then just secondly, it's interesting to hear now you're going to start to be a little more active in the PRB. I'm just wondering if What is the plan there? I guess, you know, I guess why I ask. You have, as Jack has pointed out, so many great tier one, you know, top tier locations already in the box in the Anadarko. You know, I'm just kind of wondering what, you know, maybe the overall plan or goal is in that area. Because, I mean, certainly you could stay put in the two basins you have and have, as Jack said, for years and years. So I'm just kind of wondering what you're maybe trying to achieve in the, I don't know, the next year or two or three in the PRB.
spk20: That's a very good question. Basically, we're hitting the ground, following up with what Samson had going up there and a continuation of that program. Two of the five best wells in the Power River Basin is a result of their program. So we're just following on to it. And these are very high-quality, premium locations. So we're proud of our position up there, and we think it's going to work out very well for the company.
spk05: No, I like what I see, Harold. Thanks so much for the ad. Yes.
spk17: The next question comes from Janine Way of Barclays. Please go ahead.
spk16: Hi, good morning, good afternoon, everyone. Thanks for taking our questions.
spk05: Thank you.
spk16: Hi, good morning. Our first question is on the Bakken. And we noticed in the updated presentation that your projected 2021 type curve, it's improved since last quarter's projection. Now it's better than 4-2-20. It's better than the 2019 wells. Can you provide maybe a little commentary on what's changed in your outlook there and whether the increase is on oil as well as on BOEs? And then maybe if you can comment on the corporate oil trajectory growth between the north and the south this year as well, because it seems like the north is doing better.
spk04: Sure, Janine. Yeah, it's really just a function of where we decide to put the rigs. We've got a really large footprint up here, and depending on where the rigs are any time, you'll get a variance in the performance. But it's all, as you can see, if you look at it over the last three going on four years now, you can just see how consistent it is no matter where we move in the play. And the amount of shift is really, in my mind, is not really that significant. I think the overriding factor here, as you look at that chart on page seven, is how consistent it's been. And that's what we love about Bakken in our position here because it's just so consistent, such a consistent performer and with low water cut. And so, I mean, it's great. So, I wouldn't read anything into it other than it just continues to validate the strong inventory that we have here in the Bakken.
spk16: Okay, great. And then maybe my follow-up question is back on debt reduction. You're estimating you'll hit the below $4 billion by year-end. Do you have any early thoughts on how you're thinking about the timing of getting to your ultimate target of less than $3 billion? and maybe how you're planning on balancing cash return to shareholders with potential inorganic expansion opportunities and maybe some modest growth?
spk03: Yeah, I think you start with our investment thesis of 65-75% reinvestment ratio. And then from that, as you spin off the cash and the rest of the cash, that's what you're really probably addressing, Janine. What do we do with that? And that's what we're looking at, returning to shareholders and all the forms that we were talking about. We've got lots of vehicles to do that, and we plan on staying on that path.
spk11: Regarding the timing on hitting the 3 billion target, obviously we're generating a significant amount of cash flow. That's not a new feature for us. We've been doing it for a while. We expect 22 to put off substantial cash flow as well, so we should be approaching that 3 billion target relatively quickly. We'll give you color on that when we give you the 22 guidance, but I feel good about over the next year and a half.
spk16: Great. Thank you very much.
spk17: The next question comes from Scott Hiddled of RBC Capital Markets. Please go ahead.
spk14: Thanks for taking my question. I'd be interested in your perspective on what you all think about hedging at this point in time. I know the curve is very backward and it doesn't look like you've done a lot of incremental stuff, if any at all, on oil, but it does seem like you did make mention that you put some gas hedges on into 2022.
spk03: Yeah, just maybe start with philosophically how we approach hedging. And philosophically, we approach hedging as something that we actually prefer not to do. We think our investors and our investor base prefer to be able to participate in the commodity. That said, What we do is, with our preference not to hedge, we actually go through and look pretty robustly at whether we should. And, of course, the factors going into that is commodity fundamentals. It's the balance sheets, the EBITDA, those type of variables. We do look at oil and gas. I think that's what you're highlighting a little bit differently. We think that the approach on hedging, we think gas is a little bit more range-bound than oil is. And so that's as a result of putting in all that sophisticated analysis that we do internally just about every week on whether we should be hedging or not. That's what has yielded us with a zero amount of our oil hedged after May. And as I mentioned in my comments, yeah, you're seeing a bit of the gas that we've been out there hedging. Again, because we think that the potential for gas, because of the structural nature of the dynamics of the fundamentals there, it can be more range bound. With that, I don't know whether, Aaron, do you got anything else you want to add from the marketing side?
spk01: No, I think Bill covered it. From a macro standpoint, we're still very constructive, both the commodities and the medium term, recognizing that there is some near-term noise as vaccine rollout continues across the world with the expectation that demand and return will follow. And I think that aligns very well with our oil and gas hedging program for 2021.
spk11: Scott, you made a reference that sounded like gas hedges in 22. Our gas hedges go out through the balance of 21. There's a really nice summary in the 10-Q that we filed last night that you can pull that gives a breakout of swaps and callers. You'll see they're at relatively high attractive gas floor prices as well, around $3.
spk14: Okay, so I'm just going to confirm nothing in 2022 because I think slide 8 on your presentation does indicate 2022. It does.
spk11: It may be a very limited amount in the beginning of the year. We don't have much there.
spk14: Okay, fair enough. And then my next question is on the PRB. Obviously, very exciting to get started. I know you guys have not quite got a rig out there yet, but can you give some sense of what formations you initially look at targeting, and did you inherit ducks? And lastly, just holistically, Do you sense the position is big enough for continental where it's at right now?
spk02: Well, first of all, Scott, this is Tony Barrett. Thank you for the question. Regarding ducks, no, we did not inherit any of those. On the question of targeting, our early program, as I think we've discussed before, is really targeted towards the high rate of return sands. It's been proven by our predecessor, Samson. So early time drilling, and we'll spud our first well this weekend out there, will be focused on the Frontier and Turner formations, which I'm sure you're familiar with. So, did that answer your question? Yes, sir.
spk07: All right. Thank you.
spk17: The next question comes from Doug Legate of Bank of America. Please go ahead.
spk07: Thanks. Good morning, everybody. Guys, I think I heard Mr. Han on the call. I wonder if I could just ask you guys to, I think you touched on it already, but just your current perspective on the commodity outlook, because obviously there's a lot of moving parts that's been talked about already, but the fact that you are one of the most levered stocks without any hedging for the upside, I'm just curious how you see the near-term and medium-term commodity outlook playing out as you see it revolving through a number of cycles before, but I'd appreciate Mr. Hahn's perspective.
spk20: As we said, there's still no hang of oil inventory in the world, and we recognize that. But I think that U.S. producers in general have been very disciplined in their approach and watch the market and what the demand is. We still see some curtail demand due to COVID-19. And everybody's anxiously waiting to return demand back to normal. But I think going forward with the activity towards that, I mean, you look at 420 rigs operating in the US, we see that supply and demand is coming back into balance. which bodes well for commodity prices in the future. So, obviously, as long as OPEC functions as they do and have been recently and different remains in the industry, you know, we feel very positive about the commodity risk.
spk07: I appreciate that perspective, Harold. Thank you. Bill, the reason I asked the question is because I wanted to set up my second question like this. I mean, John's done a pretty good job laying out the debt targets and the flexibility you have to go to $3 billion. But if you think about it, a lot of companies in the sector that don't really have an investment case now, if you like, and what I mean is growth is no longer on the table, at least in a meaningful way. Some of them don't pay a meaningful dividend. One of the easiest ways to create value in this sector is to take out someone else's cost by an efficient operator. So I'm just curious. You clearly have a strong cash flow trajectory in front of you. You still have a relatively small flow. Is there any updated thinking on what consolidation could look like in Continental's future in light of everything going on in the back end in particular? I'll leave it there. Thanks.
spk03: Yeah, thanks, Doug. No doubt I think we all see it the same way. Consolidation in the industry, which was a little bit happening last year and needs to continue, there's opportunities for doing that. And we're seeing that in the various basins as we speak. There are things going on. And we participate in actively understanding what the opportunities are and whether they meet our economic thresholds and whether it's something that fits strategically for us. So as we've talked about in the past, From an M&A perspective, you know, we're always on watch. There's opportunities. We bolted on a couple of really nice assets last year, kind of under the radar because it wasn't, you know, the big splash. But if you look at the impact to the company, you know, it was pretty significant from the things that were added to it. So, yeah, our hope and desire is that the consolidation in the industry does continue.
spk07: So the asset sales on the way in the back end right now have no interest?
spk03: You know, that's... Doug, that's such a broad question. There are clearly good assets for sale, and there are bad assets for sale, and we start and end with the rocks, and if the rocks are bad, we have no interest. If the rocks are good, we're interested at the right price.
spk07: Okay. Thanks for the answers, guys. Great call.
spk20: Thank you, Doug.
spk17: The next question comes from Nitkin Kumar of Wells Fargo. Please go ahead.
spk18: Good afternoon, gentlemen, and thanks for taking my question. I guess I'll start off with John. You highlighted the strong free cash flow and the dividends is a great statement of that. Taxes are the other side of that coin. I'm just kind of curious, as you look ahead in your free cash flow outlook, when do you expect to start paying cash taxes, both in the current regime and maybe what the Biden tax proposal is asking for?
spk11: First of all, it's good to hear your voice again. Look forward to seeing you again in the future as we move forward. We talked a bit about this in the past. It hasn't changed a lot. We have substantial net operating loss carry forwards at a federal and a state level. So if you look at it in a current regime, putting off a free cash flow of the level that we are, certainly you convert to cash taxes at some point. We see it being five to seven years in the future in a a current regime. In regards to potential changes in tax codes, there are a lot of moving variables there. Rate is certainly part of it. I think you're referring to IDC, but even within IDC, if there is a change or if there's not, we've already addressed that. If there is, it gets back to the period that you're allowed to amortize over that. In the past, they've talked about maybe converting to a five-year amortization if they did something of that nature. Those NOLs are a very effective bridge between where we are today to then preserving a substantial amount of free cash flow that the company can generate. So it might trim a year or two off of that if they went to a five-year type AM. So we'll just have to monitor and watch that, and we'll go from there.
spk18: Thanks, John. Thanks for the detail there. And as my follow-up, you guys talked about how you don't expect more than 3% to 5% growth is required. Some of the private activity in some other basins is picking up. I'm just curious, what are you seeing in the Balkan? I mean, with prices in $60 and costs of a $30 to $40 world, there is an opportunity. Just your thoughts on the Balkan in general.
spk03: Pat can probably give you some good insights in that with what's going on in the drilling rig, because that's really going to be the leader. And in the Bakken, we're seeing a little bit of movement, but not a lot with the rigs back in place. Pat, do you want to talk about that?
spk19: No, Bill. And this is Pat Bent. There hasn't been a lot of movement in the Bakken from a rig activity perspective, 13 or 14 rigs currently. As you know and as we've talked about, Continental will add a few rigs as we exit the year, but don't see a lot of increased activity anywhere on par with some of the other basins.
spk18: Great. Thanks, gentlemen.
spk01: Thank you.
spk17: Our next question comes from Leo Mariani of KeyBank. Please go ahead.
spk00: Hey, guys. Just a question around CapEx here in 21. It looks like you had about $293 million of spend in the first quarter. If I'm doing the math right, that leaves about $370 million per quarter for the rest of the year to hit the budget of $1.4 billion. Is that pretty rateable, and is 1Q kind of the low point on spend for the year?
spk11: I don't recall if it's a low point, but it's fairly rateable throughout the year, so I You know, it should be steps up a little bit to get to that average. We are very fixated on 1.4. We're committed to that. And, you know, frankly, we're on track for it. Okay.
spk00: All right, great. And I guess just with respect to the BAC and I guess I think you guys were talking about how you're starting to bring wells on in the second quarter. I just wanted to get a little sense of kind of the cadence there. Did you not really have any wells come online in the Bakken in one queue, and then it sounds like you're picking up in two queue, but is it generally just more second half weighted with a lot more Bakken tills? I just want to make sure I understand how that's working.
spk04: Yeah, Leo, this is Jack. Yeah, you're right on point there. In the second quarter, we're probably going to see upwards of about 65 wells completed in the Bakken, so Really, we're moving. It's basically a timing issue up here. And while we're talking about this, I think I ought to mention just Long Creek, because it plays a part in that. We brought on 11 wells here recently up in that project. But we're building that infrastructure out to allow us to handle all the products online. And we'll begin drilling in there with two rigs in August. And these 11 wells, just as a heads up, The IPs on these 11 wells, they're right around 1,900 BOE per day, 80% of wells, very strong wells. And in Long Creek, we plan on 56 wells total drilled. This is the first 11 of those. And so anyways, it's just a good indicator of the horsepower we've got there and the quality of the production we expect to see coming out of Long Creek.
spk00: Okay, great. Thank you. Mm-hmm.
spk17: The next question comes from Charles Mead of Johnson Rice. Please go ahead.
spk13: Yes, good day to everyone there, and thanks for taking all these questions. I just wanted to push a little bit further on the oil trajectory in the back half of the year, if you guys could give a bit more insight. It looks to me like there will actually see sequential growth beginning in 3Q, and then carrying on into 4Q, and that new growth path you established in the back half of 21 should be what we see looking out at 22, assuming nothing strange happens with the oil strip. Is that kind of the right read, or can you offer any comments around that?
spk11: You know, we've given some guidance on the second quarter. There's obviously a consensus out there, average, that you can pull or you know for the fourth quarter. I would say we're in line with what we're seeing the consensus is projecting for the year. So between those, I think that's probably giving you a pretty good cadence, and the market seems to have it modeled fairly well and in line with our expectations. Got it.
spk13: That's helpful. Thank you. And then if I could go back to the – I'm sorry, did I interrupt?
spk11: No, I just said you bet.
spk13: Okay. If I could go back to the question of optionality and maybe get you guys to give a little bit of a picture of what that looks like when you do have those meetings internally. Based on the way you guys shifted to gas last year and at the same time you put in a – putting some price protection right around $3, it looks like that $3 is the level, if you can edge it, that gas starts to capture more CapEx dollars. But that's, of course, that will be versus an assumed oil price. And so can you give us a sense of how that conversation goes and if that's the right framing for how we should think about the optionality you have?
spk20: Well, that's a good question. You know, at the same time, I mean, we've seen oil prices run up over 50% this year. So, you know, it becomes a balance. And the good thing about it is that optionality, we have great assets for natural gas here. And we also, of course, have great assets both in Oklahoma and in the Bakken and North Dakota for oil. So, you know, we can go either way. But, you know, it's hard to hinge it on $3 as such in gas. You know, you have to see where oil price is. But, you know, you've got to go with the best product first.
spk04: Yeah, and by no means, we don't need $3, you know, or upwards of $3 to make these things economic out here. I mean, our condensate wells that we brought on, we brought on literally in the last, let me pull up my notes here. In the last two quarters, we brought on 32 wells in the springboard condensate window, all right? And the average 24-hour IP on those is $16 million a day and 400 barrels of oil a day. And those wells are extremely economic at $2.50. They're economic down to $2 and below. So you just need to know that these are very strong wells and What we saw is just more of a macro environment that was indicating that we were very constructive on natural gas and still remain that way here through the rest of the year and then the next year or so. And so the fact is it made sense for us to take advantage of that and go ahead and focus our rigs more on natural gas. And so now we're seeing stronger oil prices in our projections here. And so it makes sense to start maybe focusing a little more on oil. Bottom line is we just love having that optionality, and it's one of the strengths of the company.
spk13: Thank you for that added detail. Thank you.
spk17: The next question comes from Paul Chang of Scotiabank. Please go ahead.
spk06: Thank you. Good morning. Bill and John, once that you reached the three billion of your longer-term debt target, Will you consider that to coming out with a formalized cash return policy similar to some of your peers that whether you're using cash variable dividend or that buyback? And on that basis, do you have a preference between the two as a supplemental way to distribute the cash back to the shareholder when that is get ready? And secondly, Bill, how of the... 143 well in the north, do you have a breakdown between the Bakken and the PRB? And also the 67 well in the south, do you have a breakdown between the stack and the screw? And also that, I think you mentioned that it's going to be maybe that more lean towards into the second half. Do you have, say, what is the second quarter the well going to come on stream for those four regions. Thank you.
spk03: Thanks, Paul. Let me address the variable dividend question, and then Jack will go into the wells and the pace of those that we're seeing in the different areas between the bulk and the powder and the scoop and the stack. On the variable dividend, we have a cash return to our shareholders and a cash return to our investors that we're focused on, and we just see a variable dividend as something that out there as a possible tool. We've got a dividend that we re-implemented and re-instituted, and that's also got an opportunity to grow. We have also cash buybacks or stock buybacks that we can go in. So there's a lot of different vehicles, and then that's on top of the debt paydown. So we really look at all those, and as to what's the appropriate one, it depends on the circumstances at the time. But that's why we wanted to bring the dividend back. We wanted to bring it back early. our assets support it, the cash flow supports it, and the desire of the board and this company is to have a significant return to shareholders. And so the 65% to 75% is, I think, the number that you can kind of hang your hat on that we're going to be going forward with as a number that we're going to be restricting our reinvestment ratio to. And as far as the wells go, Jack, you were... That one, talk through that.
spk04: Well, yeah, as far as the 143 wells in the north, 11 of those, I would say probably 10. Upwards of around 10 will be in the Powder. The rest are in the Bakken. And as far as in the south is concerned, I don't have the number off the top of my head, but I would say out of the 67 you mentioned there, gosh, I'm going to say 85% or so are really all going to be in Scoop. in our springboard project areas. So I think that's a fair estimate there.
spk06: Jack, do you have what the second quarter number of wells going to come on stream?
spk04: Second quarter wells coming on stream? Well, you know, we have about. It's going to be getting close to around 100 wells between north and south in the second quarter. And I'd say about 65 of those, as I mentioned previously, are going to be in the Bach and the others, obviously, in the south. Thanks, Paul.
spk17: The next question comes from Noel Parks of Dewey Brothers. Please go ahead.
spk20: Good morning.
spk09: Good morning. Good morning, Noel. I'm just curious, as you're starting to really dig into the project at the Powder River Basin, Is there any particular sort of science that you're going to be doing that's important in these early wells? I'm not sure how much you might have inherited from the former operator. So just curious about what you might be looking for as you're starting on those.
spk02: I know. This is Tony Barrett. Well, obviously, we inherited some data from our predecessor, you know, as we've said before, as far as, you know, production information, you know, some core and rock data, all of that type of stuff. As most other operators do, we've been prudent in acquiring 3D seismic, which was available over that area, so that obviously helps us with our drilling and hazard avoidance and all that good stuff. In addition, you know, we'll do a normal thing that we do in the mid-continent in the BOC and that we'll collect well-logged data when it's appropriate as we go through the program and move through the different areas and look at the different formations. nothing unusual in the powder that we don't already do in our other operating areas. Great, thanks.
spk09: And another question kind of at the opposite end of the portfolio. I was just curious, last year when there was big activity with the weak prices, I was wondering what were your trends for maintenance spending, for instance, in the Bakken with older wells there? I was wondering, is there catch up from last year that you still have to do or want to do on those sort of older vintage wells? Or do they really warrant the money or manpower, given how you're trying to allocate your budget?
spk11: No, we're right on track. I mean, if you look at the number of ducks coming out of last year and coming out of this year, it's relatively consistent within a handful few of each other. Our maintenance capital multi-year, longer term for several years is 1.35. It ranges depending on project timing between 1.2 and 1.5. But I would, you know, as I said, I would focus on that midpoint. We've maintained our wells. They're operating at high levels. Productivity is strong, so we're well-positioned. There's no catch-up, per se.
spk17: This concludes our question-and-answer session. I'd like to turn the conference over to Rory Savino for any closing remarks.
spk12: Okay, Dan. We are past top of the hour here. Thank you very much for joining us today. Please reach out to the IR team with further information questions and have a great day. Thank you. Thanks, everyone. Thank you.
spk17: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
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