Callon Petroleum Company

Welcome to Challen Petroleum Company's third quarter 2020 financial and operating results conference call. All participants will be in listen-only mode. As a reminder, this call is being webcast, and a replay of the call will be archived on the company's website for approximately one year. Please note, this event is being recorded. I would now like to turn the call over to Mark Brewer, Director of Investor Relations, for opening remarks. Please go ahead, sir.

Thank you, Gary. Good morning, everyone, and thank you for taking the time to join our conference call. With me this morning are Joe Gatto, President and Chief Executive Officer, Dr. Jeff Ballmer, our Chief Operating Officer, and Jim Alm, our Chief Financial Officer. During our prepared remarks, we'll be referencing the earnings results presentation that we posted yesterday afternoon to our website, so I encourage everyone to download the presentation if you haven't already. You can find the slides on our events and presentations page located within the investor relations section of our website at www.calend.com. Before we begin, I'd like to remind everyone to review our cautionary statements, disclaimers, and important disclosures included on slide two and three of today's presentation. We will make some forward-looking statements during today's call that refer to estimates and plans. Actual results could differ materially due to the factors noted on these slides and in our periodic SEC filings. We'll also refer to some non-GAAP financial measures today, which we believe help to facilitate comparisons across periods and with our peers. For any non-GAAP measures we reference, we provide a reconciliation to the nearest corresponding GAAP measure. You may find these reconciliations in the appendix to the presentation slides and in our press release, both of which are available on the website. Following our prepared remarks, we will be opening the call for Q&A. With that, I'd like to turn the call over to Joe Gatto.

Thank you, Mark. And thanks everyone for taking time out today on this important election day. I'll start with page four in the deck for those of you following along. We've put another strong quarter in the books and continue to deliver on our stated goals and plans that were developed in the midst of a changing landscape with outcomes exceeding expectations. Despite persistent challenges facing the industry, our team has persevered and set the bar higher with improvements across the board. Development and operating costs continue to reap the benefit of our scale development model focused on larger projects. G&A remains at the front of the pack amongst our peer group, and we continue to build free cash flow with approximately $100 million generated over the past two quarters, well ahead of expectations. Our recent monetizations and financing efforts have increased liquidity substantially, and we remain focused on absolute debt reduction and efficient execution of our moderated capital development program as we enter 2021. We posted strong numbers across the board yesterday, exceeding street estimates in nearly every key category. Production came in at 102,000 BOE per day, 63% oil, and drove quarterly EBITDA to approximately $171 million. Strong operational efficiency resulted in operational capital of just $38.4 million in lease operating expense of $45.9 million. Our adjusted cash G&A was $0.87 per BOE with full cash G&A, which includes the cash portion of our capitalized G&A, at just $1.59 per BOE. The result of this strong performance was $80 million of free cash flow for the quarter. On the back of a consistent development philosophy to swell performance, Calum is poised to hit the upper half of our previous full year production guidance, even after the impact of the non-operated asset sale and overriding royalty interest transaction. Equally as important, we have also lowered the upper end of our full year 2020 capital guidance by $15 million, the second such reduction this year since announcing our adjusted capital program in May. Although 2020 has been quite different than what most of us expected at the outset, it has not deterred our team from achieving numerous milestones that are detailed on page five. We've managed to integrate two organizations while implementing a large-scale development program across all three of our asset areas and also exceeding our synergy targets for capital costs and G&A well ahead of schedule. In addition, we have delivered improvements in our field operating cost structure as a result of the combined knowledge base from our two organizations and the applications of best practices from each. At the center of many of these accomplishments, our IT organization has facilitated the level of coordination required to execute at a high level over the last six months and supported the first completely remote accounting system conversion our vendors have ever completed. On the financial front, our recent asset monetizations and second lien note issuance significantly improved our liquidity and broadened the avenues to additional debt reduction. To that end, we announced a private debt exchange transaction this morning that builds upon our momentum for absolute debt reduction and increases optionality for the future. Looking into 2021, a moderated development program characterized by lower reinvestment rates and repeatable diversified activity across the portfolio provides the necessary foundation for achieving our financial goals. Lower decline rates, coupled with our life of field development philosophy, will enhance our ability to generate free cash flow while preserving our high-quality inventory. At the core of our business, we will continue to advance our broader emissions reduction initiatives, support our employees and our communities, and further align ourselves with the needs of our shareholders. In terms of our vision for a sustainable oil and gas company, I want to highlight some of the achievements featured in our inaugural sustainability report that greatly enhanced transparency for our investors and other stakeholders. We've included a small sample of these achievements on page six. Many of these accomplishments have not only resulted in improved environmental emissions, but are also driving bottom line results. Our focus on minimizing flaring, which is down 30%, reduces our carbon footprint and increases revenues through additional hydrocarbon capture. In addition, a well-established recycling program has resulted in lower capital costs for our Delaware development program, and substantially reduce our water disposal volumes and associated costs. We are an employer of choice in the industry, and our stringent safety standards have led to our best safety year on record, with a total recordable incident rate well ahead of the industry benchmark. Our governance practices and board diversity have continued to evolve, and our board members set a strong example earlier this year by electing to reduce their own compensation alongside management as part of our cost reduction efforts. I encourage you to download a copy of our report to gain a better understanding of our achievements and evolving goals to ensure the sustainability of the calendar organization. Moving to page seven, our operations organization has been quick to implement best practices, incorporate subsurface learnings, and drive efficiencies in our capital program. The summation of these efforts has been a significant uplift in our capital efficiency with rapid deployment of our model across all of our operating areas. Specifically, well costs are down anywhere from 14% to nearly 40%, and our most recent wells continue to show improvement in leading-edge costs. Across the industry, we are witnessing a wave of consolidation, with many pointing to lower G&A costs as a clear benefit. This category was just one of the primary synergies we highlighted for the market last year as a part of our consolidation efforts, and I'm proud to say that we have significantly exceeded our targets. As you can see on page eight, we are on track to reduce our total cash G&A expense, which includes both our capitalized cash G&A and cash G&A expense to roughly $60 million from over $135 million. Our current cash G&A expense puts us amongst the lowest across a broad group of peers of various sizes and has been a significant contributing factor to free cash flow generation in this volatile environment. At this point, I'm going to turn the call over to Jeff to discuss operations.

Great. Thank you very much, Joe. Let's move over to slide nine, which says field optimization improving LOE as the title. The team has continued to execute on our field optimization efforts, and the hard work that was underway in the second quarter really showed up with our third quarter numbers. Despite having higher work over activity during this period, we were able to bring total lease operating costs down to just $45.9 million. And while our VP of operations, Jamin McNeil, will tell you that there are 100 different levers to pull to create that type of outcome, the most prominent efforts, and here I'll describe them by asset, have been items like the electrification and sand management efforts in the Eagleford, ESP, which are electric submersible pumps, and bean pump management programs in Midland, and improved water management, gas treatment optimization, and compressor program efforts in the Delaware Basin. And then across the board, our continued efforts to manage our chemical treatment programs in-house has led to a much improved cost structure in all three assets. We've also begun to look at alternatives for backup options to reduce flaring and capture additional gas and NGL volumes in areas that have seen third-party disruptions in the past. All of these efforts, have the dual effect of lowering costs and capturing additional revenue, and in nearly every case, enhancing our sustainability efforts. Here on slide 10, we've updated the performance for our nine-well Duncan Horton Wright project. So, this is in the Midland Basin, of course. The relative performance of these WellCamp A wells and our stellar WellCamp B, compared to the offsetting Wright Pad from 2019, highlights how important the application of learnings has been to creating repeatable development results that maintain strong economics in this current price environment. So, for comparison, every one of the WolfCamp A wells and the WolfCamp B well in this new project exceeded 120,000 cumulative barrels of oil. So, this is not VOE, it's barrels of oil in the first 120 days. And the offset pad took nearly twice as long to reach that same level of productivity. And I want to stress this is not about coaching the best locations and just trying to put up big initial production figures like an IP24, which is just a 24-hour IP, or an IP30, a 30-day IP. These are 120-day production graphs. Our team has worked very hard to ensure that through proper spacing and stacking, improved frac geometry, and significant subsurface analysis, We're making better wells right next door to previous projects that did not benefit so much from our improved technical capabilities. More importantly, we're effectively recovering the resource in place by focusing on zones that require co-development and reducing the potential for overcapitalization of an area that results from cherry picking locations. So, again, think about four, four and a half million bucks for a thousand barrel a day well four months into its life. Moving to slide 11 in the Delaware, our most recent project, the six-well amphitheater development, is off to a great start. Again, this project has benefited from our site-specific spacing and stacking program. Early time production has been very strong, matching our two best developments, the rag run and walley roll pads, while still employing our managed pressure flow back technique. What I personally find the most impressive is the level of efficiency we achieved in drilling and completing these wells. At nearly 9,500 lateral feet on average, we completed roughly 1,800 feet per day after having our completion provider on the sidelines for three months. The estimated average well cost was just 825 bucks per lateral foot, a significant savings compared to these two offset projects that are seen on the chart on page 11. Notably, we achieved our highest level of recycled water usage to date with more than 95% of the water used, or 2.5 million barrels, for fracture stimulation coming from our own recycling program. That's all for operations this quarter, so I'm going to turn the conversation over to Jim.

Thank you, Jeff. As Joe mentioned earlier, our recent financing and monetization activity, coupled with yesterday's private exchange offer, has provided a strong uplift to our planned financial initiatives. Slide 12 gives a brief overview of the important elements of those transactions. First, the non-operated asset sale closed yesterday and provided roughly $30 million in proceeds. Associated production for September was roughly 1,700 BOE per day, with just under half of that amount coming from oil. Our overriding royalty interest transaction raised $140 million in gross proceeds, Recent production there was approximately 1,800 BOE per day, and that was about 63% oil. Remind you that the burden of all post-production costs remain with the purchaser. Our average net revenue interest across the portfolio after the transaction is still a robust 74%. Finally, our secured second lien notes raised gross proceeds of $300 million. which has helped meaningfully reduce the balance on our revolver. We have already begun tapping into the remainder of that available basket with yesterday's exchange, where we entered into an agreement with certain holders to exchange $286 million of principal for senior notes at a weighted average exchange ratio of $555 per 1,000 of principal value. This results in a reduction of 128 million in net debt and also lowers our cash interest by 5 million annually. If fully executed up to 390 million, this could increase up to 175 million of debt reduction and 7 million of cash interest expense reduction. This would still leave second lien capacity available for additional opportunistic exchanges inclusive of the $100 million option granted to Kimmerich. It is a meaningful step towards addressing our debt reduction efforts. Altogether, this series of transactions has boosted liquidity to over $615 million, but equally important, we've advanced our deleveraging initiatives by reducing our net debt outstanding by approximately $400 million, and we have the ability to to improve that significantly. Looking at slide 13, we have provided an expanded version of our normal capitalization table to better illustrate the various positive impacts of these financing initiatives. On October 1st, we announced the affirmed credit facility and the subsequent reduction as a result of our overriding royalty interest and non-operated asset sales along with the secondly, notes, capacity, and issuance. With yesterday's exchange announcement and the closing of the non-operated asset sale, our credit facility balance has dropped below $1 billion. Our senior notes outstanding can be reduced by over $550 million, and our liquidity and debt metrics both improve. Equally as important, our net debt and cash interest are lower and our 2023 and 2024 nearest maturity balances are seeing material reductions. We will continue to look at various opportunities to manage our maturities while still reducing our total debt position. On slide 14, we have continued to manage our hedge positions actively, and we're able to monetize some of our positions during the quarter helping to offset minimal losses. At the same time, we have been adding incremental price protection for 2021, utilizing collars to protect against downside risk while leaving plenty of opportunity to reap the benefit of improved commodity prices. We now have roughly 60% of our estimated 2021 oil volumes hedged. We were able to move some more of our positions into collars, that provide roughly the same NYMEX WTI downside protection, but incremental upside in a rising commodity environment. On the natural gas side of our hedge book, we've got a fairly even balance of collars and swaps covering roughly 60,000 MMBTU per day during 2021, with downside protection at around $2.60 an MMBTU, and upside protection potential with our callers. We will continue to watch the market closely and be systematic about managing our positions and protecting our cash flow. On slide 15, we have updated our full-year guidance to account for the various benefits of our improved operational efficiency and cost-cutting efforts that Joe and Jeff described earlier. We are raising the lower end of our annual production guidance range despite the impact of our override and non-operated asset sales, which had a combined recent production rate of 3,500 BOE per day. Additionally, we are lowering our range of operational capital by $15 million at the top end, which follows our significant reduction last period when we lowered the top end of the range by $75 million. Our full-year guidance range for LOE has improved by roughly $10 million, with a range now set at $200 to $215 million. Our GP&T guidance has increased as a result of our election to convert our previously temporary firm transportation agreement in the Eagleford to a longer-term arrangement. We also converted one of our term sale agreements from a wellhead sale to a pipeline point of delivery arrangement. In both instances, we are seeing an uplift in pricing as previous deducts for transportation have been eliminated since we are now bearing the cost of transportation. As such, the accounting standards require us to disclose the previous deducts from revenue as transportation-related costs. that the net effect on EBITDA and cash flow is expected to be negligible. Finally, I want to point out that our 2021 operational capital expectations have been ranged at $375 to $400 million, reflecting our growing confidence in achieving even greater levels of savings and efficiency. Our final slide on 16 provides an independent assessment of free cash flow yields according to sell-side consensus estimates. In a sector where there seems to be growing desire to create meaningful free cash flow yield, Callen sits at the front of the pack. We are well aware that some of our larger peers are planning to return cash to shareholders. But as we have repeatedly stated, our plan is to apply our free cash flow alongside our monetization proceeds towards meaningful debt reduction until we have significantly lowered our total debt balance. We have provided clear evidence that we are not only capable of generating free cash flow, but that we are actively pursuing all rational avenues to advance those deleveraging goals. At this point, I would like to turn the call back over to Joe.

Thank you, Jim. Let me finish up by saying I'm extremely proud of our entire team. and thank them for remaining focused and enduring an extended period away from our normal working environment. Many of us, and I'm sure many of you, our research analysts, investors, and partners, have dealt with an extremely tough personal and work situation since March. There's just a few more months left in 2020, and I think we're all going to happily close the door on this year. But I hope everyone is able to reflect on the positives that came out of our perseverance and put us in a position to draw upon that base of strength as Callen and industry heading into 2021. With that, I'm going to turn it back to the operator.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

At this time, we will pause momentarily to assemble our roster. Our first question comes from Neil Dingman with Truist. Please go ahead. Morning, Neil. Hi, guys.

Could you guys just talk about maybe your – Joe, really for you or Jeff, just talk about cadence specifically – you know, the focus going forward, will that continue to be diversified with the three plays, you know, as it seems like a number of your peers are targeting almost just primarily Midland Basin these days? I'm just wondering how you all, you know, you definitely have nice success in Delaware as well, so I'm just wondering how you all look at it.

Yeah, no, we, you know, the capital allocation that we've employed in 2020, you know, we'll see that roll forward in 21. We were fortunate to have three very strong areas that you know, have similar return profiles, but importantly have different cash conversion cycles and capital intensities to help us with our free cash flow goals. So you'll see a similar type of allocation across the areas going forward. We still have to pin that down for 21 and going into 22, but, you know, you'll certainly see that.

Okay. And then just a follow-up, just on the financial plans. you know, when you and Jim look at sort of where you're at now after doing, you know, the royalty and the other transaction, I mean, are you – I think you're fine now for a while, or are you always, you know, looking at sort of other deals like that as you finish the year and go into next year?

Yeah, no, you know, we've put some initiatives in place, and I think in a lot of ways, Neil is, you know, pushing over that first domino, and I think they – have continued to expand our optionality. So, you know, we've made some good progress. And, you know, we're going to continue to push ahead and deliver on our financial goals and put us in the right position for the long term.

Very good. Thanks, Joe.

Yep. The next question is from Brad Heffern with RBC Capital Markets. Please go ahead.

Hey, good morning, everyone. I appreciate the additional disclosure on 21. I'm curious, you know, with the WTI strip below 40 bucks, is there a situation you can envision in which you would potentially let production decline rather than a maintenance program? Or I guess put another way, if a maintenance program doesn't generate free cash flow, do you choose to maintain the production base or do you choose to modify it to generate free cash flow?

Brad, I think the quick answer without getting into a lot of the details is we've put a firm stake in the ground in terms of generating free cash flow generation. We did that in 2020, obviously, and pivoted in an environment that showed some weaker pricing. At the end of the day, I think 2020 is going to shake out to be $38, $39 on average for the year. So we've shown even in that environment, we've generated substantial free cash flow over the last two quarters. Now, that did come with production below where we obviously set out the year and some production declines. So again, we've got to stay focused on our goals of free cash flow generation and not just focus on headline production.

Okay. Thanks for that. And then I guess on the asset sale front, obviously you've gotten a lot over the finish line. The one thing that stands out as not being done yet is the water sale. So can you give an update on on that process and maybe if there's anything else that you want to call out on asset sales. Thanks.

Sure. Yes, the water business has certainly been one that we've been working on for some time. You know, volatile environments make asset sales challenging at times. And, you know, we don't want to force anything into the market. I'd say with the water business, we've said this before, after putting in some of these initiatives over the last few months and solidifying our financial position, that only helps us in terms of our discussions with potential partners around that business. As you know, we've been looking at more joint venture type projects. So they have more clarity in terms of seeing our liquidity and financial position being improved that those water volumes are going to show up. So these latest initiatives only help the dialogue there and We hope to continue to push that and other initiatives that we've talked about forward. But I think the bottom line is with every passing day and our optionality just increases, especially getting some of these other pieces to fall into place over the last month.

Okay. Appreciate the comments. Thanks.

The next question is from Brian Downey with Citigroup. Please go ahead.

Good morning. Thanks for taking the questions. Jeff, clearly great strides on the LOE front, as you showed on slide nine. If my math is correct, your full year cost guidance range implies a slight sequential uptick in absolute LOE for the fourth quarter, closer to where you were in the first half. But I'm curious how you see the potential go-forward LOE costs versus that $46 million absolute level in 3Q. Is that quarterly run rate something sustainable in 2021? Yeah. Overall, it looks pretty good.

The the season of 2020 was a little bit, I wouldn't say a roller coaster, but certainly to some extent in that we had chopped back some of the spend in the second quarter, got things up and running again in the third quarter and some items like that. But the overall kind of a per BOE lifting cost for the year, that is always going to be our focus area and our challenge is that that bar will continue to come down. So, from a sustainability standpoint, yes, I do believe that we've got our cost structure and efforts in place, both from a decreasing the costs and optimizing production.

I appreciate it. And then, Jim or Joe, non-GAAP free cash flow is approximately 80 million in the quarter. but the cash capex did come above your accrued capex figure for 3Q. How do you anticipate? Is that something that may reverse in 4Q, or how should we think about any material working capital changes on either the investing or operating cash flow side for the fourth quarter?

Yeah, this is Jim. I will tell you, just as we head into 4Q, we are continuing to experience kind of a normalization of working capital. We saw pretty significant pivot late second quarter, third quarter, and I would expect that to normalize through year-end 20 into 2021. Great. I appreciate the call.

Again, if you have a question, please press star then 1. The next question is from Derek Whitfield with Stiefel. Please go ahead.

Thanks, and good morning, all. Derek Whitfield. Perhaps for you, Joe, to start, your team has navigated the environment about as well as any. As you think about the current macro environment, is there an absolute net debt level or ratio that you're targeting? And what are your greatest non-price levers to achieve it?

Sure. You know, Jeff, it is Turn back the page and think about where we were and what we've talked about post the Carrizo transaction not too long ago. It hasn't even been a year since we closed the transaction, so we made a lot of progress. You know, we talked about getting our leverage down in that two times range in the, you know, near term. That is still very much our goal, which, you know, depending on what price assumptions you're using, you know, will translate into a level of absolute debt reduction to go ahead with that. or start to go along with that. So those are both very much on the table and pushing towards – we have an extraordinary amount of leverage to oil prices, as we've talked about. As we move into 21, Jim talked about us opening up a little bit more upside optionality to take advantage of that, and we'll continue to do that. But, you know, that's a significant lever. On the non-price side, you know, again – Our thought has always been let's have a lot of ways to be right in an uncertain environment. So we talked about the water business has been, you know, one of the primary ones to look at. We do have a couple non-core properties in both the Delaware and Eagle Ford that we're pursuing, you know, more classic working interest type of sales that get a little bit challenged in a market like this. But, you know, we've been patient in the past. and wading through this and just staying in touch with the key buyers out there. And when the time comes around transactions that not only bring in proceeds but are going to deleverage our credit metrics, you know, we have a pretty good stable of those opportunities out there as well.

And as my follow-up, if we were to think out to 2022, would page 15 effectively be the playbook for 2022 as well? And would your maintenance capital largely be the same as 2021?

Yeah, I think directionally, Derek, that's a pretty good assumption in terms of how we're modeling out. You know, we're in the midst of looking at 2022 and balancing our objectives around free cash flow with staying true to our philosophy around developing the resource base in the right way from a life and field standpoint and making sure we're not making near-term drilling decisions by high grading or compromising the resource for the long term. but largely given the strength of what we're seeing around this life of field development and our overall cost structure, I think directionally that's a pretty good estimate.

And Joe, just one more if I could just to make sure I'm clear on the oil cut guidance for 2021. With the activity cadence for 4Q and as you're projecting out to 2021, you are expecting a 63% oil cut for 2021? That's right. Yep. Perfect. Thanks. That's very helpful, guys. Thanks for your time.

Thanks, sir. Take care. The next question is from Noel Parks with Coker Palmer. Please go ahead.

Morning. Morning. Morning.

I have a couple questions about the list of improvements that Jeff sort of ran down by area. And I also heard that you did have higher work over activity this quarter, so I was curious if that was related to any of the initiatives in particular. And also, just a sense of it's a long list of changes you've made. It's just a sense of which components still have the most runway for further cost and efficiency improvements. You know, whether it's water and infrastructure or the field items like compression and versus which are have probably improved about as much as we're going to see at this point. I was interested that you talked about the chemical management program going in-house. It's something I hadn't really heard much about before.

Sure, and I'll give you my best answer and then let me know if there's some other components that you'd like me to expand on. It's really a combination of a lot of small items and then also some more prominent ones. The ones that I mentioned, things like sand management, so we're using some different completion techniques. We're lowering our our water usage and still getting extremely good production. We're using slightly different sand mixtures and so when we fold those wells back, the likelihood of having to go back into that same well and do a costly work over because of either sand that lays down in the lateral or getting it out on surface and destroying portions of the surface equipment, All that stuff gets decreased pretty substantially. When we look at items like the submersible pumps that are downhole, primarily in the Midland Basin, and we're expanding that into the Delaware, if you can continue to have terrific run times, which is just a matter of you put the pump in the hole and then it goes and happily runs without having to go in and pull it and change that out. We have submersible pumps now. Our standard is over an entire year before we have to go and do a change out. So those are all, again, improvements that we've made that are going to continue. We still see some continued improvements across the board. That chemical program that you mentioned is really a wonderful derivative of the combination of the two groups. both the Legacy, Carrizo, and Callen, and that by having an in-house chemist, we're able to leverage that expertise in a large different number of assets instead of just in the historic ones. And so what you're looking at, trying to look at reducing the amount of scale that happens in wells or the surface equipment or the generation of hydrogen sulfide or anything like that, We've seen millions of dollars of reduction that we have seen some and will see in the future with that continued chemical management program. And so that, you know, we're about, I'd say, halfway through, three-quarters of the way through of sharing best practices with lifting mechanisms, how we do drill outs, the people development. So while we've managed to, you know, perform extremely well, in my opinion, there is still some runway. Some of it's a little aspirational in that we're still moving people around and leveraging their expertise in different areas, but also a portion of it is really just the commitment to continue to get better all the time. And I'm not sure if that answered in enough specificity your question, but I'll turn it back to see if there's anything else that you'd like to double check on.

No, that was great, especially when you say that you're only at this point only about halfway through sharing best practices, you know, a year in. That's really encouraging. And I guess the other thing, just wondering on the financial side, just your thoughts about hedging from here on. You do have, you know, good solid protection into – into next year. And just wondering if you were thinking more about going further out the curve. You know, we are in a very mild contangle for oil. Or if you were thinking about still more downside protection into 2021. And also, if I could tack on, I'm wondering if you had any thoughts about the NGL market right now, especially, you know, where we are seasonally.

I guess directionally, we talked today that we're a little bit more than 60% on oil and roughly 60% on nat gas for 2021. We're trying to come up with a strong balance in the program between two-way collars and swaps, but really kind of give us greater price upside. The goal in the hedging, clearly, for 2021 is to support you know, the free cash flow generation that Joe talked about. So we're, you know, on track with where we thought we were going to be in 21. We're starting to extend and look for opportunities that make sense into the first half of 22. And again, the goal there is to really, you know, make sure that we can support and have the free cash flow that we can use to pay down the RBL and other deleveraging initiatives. We're roughly a third of our NGLs hedged as well. There's a pretty liquid market for ethane in 2021, so we are hedged there. That's another area we're really going to look at. And I think just in general, the last thing I would say, Neal, is we've diversified our pricing points, so we're looking very carefully at each one of those pricing points, looking for the right you know, price and structure to just maximize cash flow. So that's kind of, as I look at it and think about it, our latest thinking heading into 21 and 22.

This concludes our question and answer session. I would like to turn the conference back over to Joe Gatto for any closing remarks.

Thanks, Gary. Just to wrap up, I want to thank everyone for joining us today. It's been a turbulent year, but, you know, I think we're really proud in terms of results we continue to put up, and hopefully everyone sees that. I guess we're going into the holiday season, so wish everyone a safe and a happy season going into year end. To the extent we don't talk to you, we'll look forward to updating early next year. Thanks again.

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