Continental Resources, Inc.

Good day, ladies and gentlemen, and welcome to the Continental Resources, Inc. First Quarter 2022 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 call is being recorded. I would now like to turn the conference call over to Rory Sabino, Vice President of Investor Relations. Please go ahead, sir.

RORY SABINO Great. Thank you very much. Good morning, everyone, 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 President and Chief Executive Officer, and Doug Lawler, Chief Operating Officer and Executive Vice President, additional members of our senior executive team, including John Hart, Chief Financial Officer and Executive Vice President of Strategic Planning, 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 Mr. Burke. Bill?

Thanks, Roy. Good morning and thank you for joining Continental's first quarter 2022 earnings call. We have many compelling updates to share with you regarding our corporate returns-driven and opportunity-based investment value proposition. At Continental, we believe that consumer access to affordable and reliable oil and natural gas is and will continue to be the foundational determinant for the quality of life for mankind for decades to come, and that our ability to produce hydrocarbons in an ESG responsible and capital efficient manner benefits our society, our planet, and our shareholders. I'll start today's presentation by providing some comments on our outstanding first quarter results and 2022 full year guidance updates. And then Doug will provide insights on our operations, including the performance and activity of our recent asset acquisitions and exceptional operating results. I want to take this opportunity to recognize and welcome Doug to our earnings call conversation. He has already made significant contributions to Continental and we are delighted to have him on the team. To begin, I'd like to turn your attention to slides three and four, which describe who we are. A financially disciplined company with premier assets driving a unique investment value opportunity. I'm proud of the financially disciplined investment value proposition we outline on slide three. While a number of the key components are covered throughout our comments, I want to focus on the macro tenets of return on capital, return of capital to shareholders, and balance sheet strength. As you may have seen earlier this week, S&P has upgraded our issue level rating to triple B minus from double B plus, reflecting our strong, sustainable credit metrics. and supported by our prudent financial planning. We are now investment grade rated with all three major credit rating agencies. With an approximately 31% return on capital employed projected for full year 2022, Continental provides a distinct investment thesis that is highly competitive on a returns on capital employed basis against industry peers and across S&P 500. As shown on slide five, This is the case not only in 2022, but across many years. Continental has a deep, rich inventory, enabling strong financial performance, driving exceptional cash flows and return on capital employed. As you can see on slide six, we delivered outstanding first quarter 2022 results. Our first quarter free cash flow of $1.15 billion is another key output that strongly exceeded consensus estimates by approximately $100 million, driven by strong realizations and operating results. This sets the stage for our increased full-year 2022 free cash flow guidance of 4.3 to 4.7 billion, reflecting both current commodity prices and strong operational performance. With our projected 2022 free cash flow yield of approximately 22% at the midpoint in today's market cap, we are enhancing our balance sheet with our net debt to EBITDAX expected to be less than one by mid-year 2022 and net debt approaching $4 billion by year-end 2022. This is supportive of our mid-cycle price-based goal of having less than $3 billion net debt and less than one times net debt to EBITDAX at $55 oil and 275 gas. Our underlying financial capacity and focus on shareholder returns have driven five quarters in a row of exceptional dividend growth. This includes the 22 percent increase we announced a few days ago, increasing our quarterly dividend from 23 cents to 28 cents per share. Our dividend is now paying out about $400 million a year to shareholders. In addition to the dividend increase, our cash return profile is further complemented by our share repurchases. we repurchased $100 million worth of shares in the first quarter. Continental's competitive advantage is predicated upon the high quality of our sizable inventory based in our four world-class basins, the Bakken, Anadarko, Powder River, and Permian. In the past 18 months alone, we have added over 600,000 net acres to our portfolio in core areas of these key resource basins, while driving significant value accretions. This is coupled with the strong geologic capabilities and subsurface and operational expertise of our teams, allowing us to consistently produce low-cost, capital-efficient, and high-margin results. Continental is distinct from our peers in that we offer both geographic diversity and commodity optionality. This has enabled us to consistently deliver free cash flow, with this being our seventh year in a row that we are projecting to do so. especially in the current pricing environment for both oil and natural gas, we believe there is no better producer to invest in than Continental. Our cash flow and margins are fully participating in both oil and NGL's upward price movement, and we have approximately 50% of our gas heads in 2022 at an effective price that is 80% above the 10-year average. You can see the impact of this uplift in our updated gas differential guidance as we have increased our guidance to a $0.25 to $1 premium. Let me now discuss our 2022 shareholder return of capital priorities, which you can see on slide 7. This is essentially a summary of my earlier comments where, as part of our unique investment value opportunity, we are deliberately and thoughtfully returning capital to shareholders in the form of increasing our fixed dividend yield and repurchasing shares. Our recently updated capital investment rate is less than 40%. We also remain keenly focused on continued financial discipline and targeting significant debt reduction. In the first quarter, we saw a $264 million reduction in total debt, which places the company at less than one times net debt to EBITDA on an annualized basis and puts us on track to achieve the same ratio on a trailing 12-month basis mid-year. The next quarter fixed dividend of 28 cents per share represents an approximately 2% yield, which exceeds the S&P 500 average yield and is in line with our target of 2% or greater. As I mentioned previously, we have continued our share repurchase program at an active pace with, since 2019, over $540 million, representing 18.8 million shares, repurchased to date at an average price of $28.76. This is about 20% of our flow, and we have approximately $960 million left in our authorized program. Given our approximately $35 WTI cost of supply, we are committed to returning cash at a wide variety of prices. Finally, as you've heard from other operators, the industry is clearly seeing inflationary pressures. Doug will provide further color, but I do want to mention that should inflationary pressures continue to manifest itself, beyond what we have planned for, we have maximum operating flexibility, and they choose not to participate. With that, I'll turn the call over to Doug.