Continental Resources, Inc.

Good day, ladies and gentlemen, and welcome to the Continental Resources Incorporated fourth quarter 2021 earnings 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 is being recorded. I would now like to turn the conference over to Rory Sabino, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Matt. 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, John Hart, Chief Financial Officer and Executive Vice President of Strategic Planning, and Jack Stark, President. Additional members of our senior executive team including Mr. Harold Hamm, Chairman of the Board, will be available 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 Bill.

Thank you, Rory, and good morning, everyone. We had an outstanding year in 2021 thanks to the quality of our asset base and our talented and exceptionally dedicated team. Can't thank them enough. Before we begin our call, I'd like to wish Jack the best of luck on his retirement later this year. We really appreciate the many years of excellence and service and contribution that he has given to Continental. There are few people in any organization that have made as much contribution to the strength of a company, the capabilities of its employees, and the foundation of its culture than Jack Stark has for Continental Resources. We'll miss him and his daily participation, but are delighted that he has agreed to continue on in a future consulting role on a part-time basis. I'd also like to introduce our new Chief Operating Officer and Executive Vice President, Doug Lawler, with whom many of you are familiar. Doug brings a depth and breadth of knowledge regarding our industry, and we're very excited to have him join Continental. He's an outstanding leader and a firm fit for Continental's culture. Throughout the call, I'll be referencing our investor presentation, which you can find on our website. Now I'd like to highlight five key takeaways regarding Continental in this presentation. First, we are committed to expanding return of capital to shareholders and continuing to deliver industry and S&P 500 competitive ROCEs. In 2021, we delivered record free cash flow and a 14.6% ROCE, which is significantly above the S&P 500 average. In 2022, we are positioning ourselves to deliver another exceptional year with a projected 21% return on capital employed. Our highly accretive acquisitions are further expanding our high-quality inventory and continues to deliver what our investors want, geologic and geographic diversity and commodity optionality that makes our company both competitive and unique. We will maintain our capital discipline and we project generating flat to 5% annual production growth over the next five years, as we have previously noted. As you can see on slide three, our unique value proposition and priorities are clear. We are delivering leading corporate returns. Our projected return on capital employed of approximately 21% in 2022 at our budgeted price of $80 WTI and $83.50 at Henry Hub is more than double the average S&P return on capital employed. We are increasing return of capital to shareholders via dividends and share buybacks. We have increased our quarterly dividend by 15 percent to 23 cents per share and are targeting a 2 percent or greater yield long term. We have increased our significant buyback program from 1 billion to 1.5 billion, which includes 441 million repurchase to date. To put this in context, $1 billion is approximately 30 percent of our flow. We are further enhancing our already strong balance sheet with a target to be less than one times net debt to EBITDA by year end or earlier. And we have unmatched shareholder alignment. Our inside ownership is industry leading with insiders representing six of our top 25 owners. We are continuously and aggressively improving our exceptional ESG performance. One of our key focus areas is greenhouse gas and methane intensity reduction, and we have already accomplished an approximately 40% reduction in greenhouse gas and over 55% reduction in methane intensity from 2016 to 2020. We will continue to see reductions in greenhouse gas and methane intensity, and we are maintaining industry-leading gas capture across our legacy assets. We'll discuss ESG more in a few minutes. With results to 2021 record results, if you turn to slide four, our record 2021 results exemplify our value proposition and why our story is so compelling from a shareholder return perspective. First, thanks to our capital discipline and the strength of our operations and execution, we generated record quarter-over-quarter free cash flow for the last four quarters and a record full-year free cash flow of $2.64 billion. As an unhedged oil producer, we were able to capitalize on increasing crude commodity strength throughout the year. Given our unique commodity optionality, our teams in 2020 and 2021 in Oklahoma were able to strategically position us to participate in the fundamentally strong gas prices we have witnessed this year by shifting operations to our competitive gas development areas. Second, we delivered a 14.6 percent post-tax return on capital employed. As shown on slide six, Continental's return on capital employed from 2017 through the third quarter of 2021 has outperformed its E&P peers and the S&P 500. In the current environment where energy fundamentals are strong as supply and demand rebalances, we believe there is no better time to be an investor in Continental. a U.S. oil and gas producer that can deliver peer and market-leading corporate returns to shareholders. Our increased projected 2022 return of capital employed reflects our capital discipline approach and strong commodity prices. Third, we increased our cash returns. We recently increased our quarterly dividend by 15% to 23 cents per share, which equates to a 92 cents annualized dividend, and approximately 1.7% yield as of February 8th. This is a 360% increase versus 2019, and it's competitive with our peers and the broader market. Fourth, we also repurchased 3.2 million shares at an average price of $38.74 during 2021. Since we started the program in 2019, we have repurchased 17 million shares at an average price of $26. Finally, we continue to deliver on our commitment to shareholders by meeting and beating our guidance, as John will discuss later. For our 2022 outlook, with respect to free cash flow, as mentioned, 2021 was a record year, and we expect 2022 to be even stronger with a projected $2.9 billion of free cash flow. That is a 15% free cash flow yield. This is accomplished with our continued capital budget discipline and strong cost management. As part of our commitment to shareholder capital returns, we are targeting in 2022 returns well in excess of 40% of cash flow from operations through debt reduction, future dividends, and share repurchases. John will discuss our CapEx budget plans in a moment. With the continued performance improvements in the Bakken and Oklahoma, coupled with the addition of the Powder River and Permian Basin, we felt it would be beneficial for our investors to have a perspective beyond 2022. As found on slides eight and nine, we are providing key financials for 2022 to 2025 that highlights the strength of our portfolio. Note the average return on capital employed is 22 percent at $80 WTI. Referring to slide eight, we are projecting significant cash flows with over 55 percent of cash flow from operations available to shareholders in the form of debt reduction, dividends, and share repurchases. At $80 WTI, our multi-year projection delivers strong, cumulative free cash flows of $11.6 billion and a cumulative free cash flow yield of approximately 58 percent. Our cumulative free cash flow is approximately four times our current float at $80 WTI. Even at $60 WTI, our free cash flow is S&P 500 competitive at $6.7 billion, equating to an approximate 33% free cash flow yield. Our projections are based on a flat year-over-year capex relative to 2022, delivering a low single-digit compound annual production growth rate. We are targeting significant cash flow and dividend per share growth over this timeframe. With respect to our ESG update, for 55 years, we have taken great pride in operating our company with high standards, and we will continue to do so responsibly, affordably, abundantly, and innovatively. We expect our 2021 ESG report will be available in the second quarter of 2022, and we once again look forward to sharing with you our complete results. Referencing slide 10 in 2021, we delivered record safety performance alongside record performance in our already best-in-class gas capture. We strongly believe the S in ESG is underrepresented in the dialogue, and we spent a great deal of time and effort addressing that important societal need. In support of that, we have expanded our diversity, equity, and inclusion program, elevating our focus and providing training, education, and cultural awareness to foster a healthy narrative about mutual respect and understanding. All of this has accumulated in Continental being recognized as a recipient of the 2021 Energy ESG Top Performer Award by Hart Energy for our innovations in reducing our environmental impact, social efforts, community contributions, leadership practices, and culture. Our ESG program has strong oversight from our board through our NESG committee, and we continue to look for the best, most cost-effective ways to address ESG and greenhouse gas stewardship. Our long-term outlook, combined with industry-leading insider ownership, our strong focus on returns of capital and return on capital employed A premier asset portfolio, low-cost leadership, operational excellence, and a strong ESG performance continues to set Continental apart from peers. We have proven that we can deliver significant and lasting shareholder value because we have done it consistently over the last 55 years. As we look out into 2022 and beyond, we are confident that Continental will continue expanding corporate returns and delivering exceptional shareholder value through our growing dividend philosophy, coupled with what we believe is the most impactful share buyback program in the market, given our unique ownership structure. With that, I'll now turn the call over to John.