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spk00: Welcome to SM Energy's second quarter 2021 results webcast. Before we get started on our prepared remarks, our discussion today will include forward-looking statements. I direct you to slide two of the accompanying slide deck, page five of the accompanying earnings release, and the risk factors section of our most recently filed 10-K and 10-Q, which describe risks associated with forward-looking statements that can cause actual results to differ. We will also be discussing non-GAAP measures. Please see slides 26 through 28 of the accompanying slide deck and pages 12 through 15 of the accompanying earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures. Today's prepared remarks will be given by our President and CEO Herb Vogel and CFO Wade Purcell. I will now turn the call over to Herb.
spk07: Thank you, Jennifer. Good afternoon, and thank you for your interest in SM Energy. We're very pleased to report exceptional second quarter financial and operational results. The quarter exceeded expectations on several measures and puts us ahead of schedule in meeting our key priorities. Turning to slide three, I will reiterate our long-term objectives and progress in meeting them. First, maximize cash flow over the next five years, sustaining a reinvestment rate of less than 75%. During the second quarter, we accelerated certain capital activity to effectively make up for lost time as a result of the Texas weather event in the first quarter. Production came in ahead of expectations and capital came in lower, delivering free cash flow neutrality. Our outlook from here for free cash flow and free cash flow yield is highly competitive for our sector and favorable compared to other market sectors. Our second long-term objective is to improve the balance sheet by applying free cash flow to absolute debt reduction, targeting less than two times leverage by year-end 2022 and generating sufficient cash flow to exceed bond maturities due through 2024. Our outlook on leverage is more favorable on two fronts. Given the strengthened price outlook for all three commodities since we constructed our plan in February, The target of less than two times leverage by the end of 2022 is now looking like less than one and a half times leverage at the end of 2022. Secondly, our second quarter bond tender and new issuance reduced near-term maturities by nearly $400 million. We now believe that free cash flow generation through 2024 will be sufficient to cover bond maturity through 2026. I'll let Wade expand upon that great outcome. Our third long-term objective is to maintain top-tier high-return inventory. Our success here may be the most exciting of all. Despite a particularly challenging 2020 and weather-related bumps during the first quarter, our team has continued to delineate and develop the Austin Chalk. This is real value creation, as I will elaborate on later. And the fourth long-term objective is to report differential ESG stewardship. Today, we've posted our responses to the 2020 CDP questionnaire, as well as posted the data in the format of the Task Force on Climate-Related Financial Disclosures, or TCFD. We will be posting additional ESG disclosures in the coming days, including the Sustainability Accounting Standards Board, or SASB, framework updated for 2020 data. Among reported ESG metrics, most notable are a reported 37 percent decline in greenhouse gas emissions intensity in 2020 versus 2019, and a 20 percent decline in methane intensity. Turning briefly to slide four, this chart depicts our highly competitive free cash flow yield as projected for 2022. I'll now turn the call over to Wade to speak to the second quarter results and outlook. Wade?
spk09: Thank you, Herb. I'll start on slide five. I think you'll find most of the information straightforward, so I'll just add some context to a few items. Starting with production, we beat the top end of guidance with production at 12.4 million BOE, or 136,500 BOE per day, And this was due mainly to performance from the Austin Chalk, where both base production and new wells were stronger than we had modeled. For the quarter, oil production percentage was a healthy 54%. CapEx of $214 million came in under our guidance range of $230 to $240 million. This related to timing as our capital expenditure estimate for the full year remains unchanged. Drilling and completion activity is on schedule. We drilled 22 and completed 45 net wells in the quarter. For the first half of 2021, capital expenditures totaled $399 million, and we drilled 40 net wells and completed 62 net wells. So we're roughly 60% through our capital program for the year. In general, line item costs are tracking guidance, but I would expect LOE for BOE to pick up to the high end of the range in the third quarter as we have more workovers scheduled during the quarter. Turning to the balance sheet on slide seven, here we see the substantial reduction in near-term maturities due through 2024, which at second quarter end stood at $223 million, including the revolver. I'll also note that since quarter end, we've redeemed the converts, so for modeling purposes, assume that went on the revolver. We turned out approximately $400 million in debt with the issuance of new 6.5% notes due 2028. The tender offer and issuance transactions went extremely well. It was actually oversubscribed by 10 times and served the purpose of strengthening the balance sheet by removing any perceived risk associated with near-term maturities. And it positions us to reduce the highest cost debt sooner. Updating our hedge positions on slide eight, we have 75 to 80% of oil production and about 85% of natural gas production hedged in the second half of 2021. Details by quarter in the appendix. As we've previously stated, our methodology for hedging is aligned with our outlook for leverage. So you can expect a directionally lower percentage of production to be hedged in 2022. To say it again, we now see debt to EBITDAX trending below one and a half times by the end of next year. And that is based on current strip and estimated cost. So now turning to guidance on slide nine. Guidance for the year remains unchanged. We did narrow the range around production to 47.5 to 49.5 million VOE. And that range really relates to ultimate timing of wells coming on. Third quarter production is expected to range between 13 to 13.2 million VOE or 141 to 143,000 VOE per day, 53 to 54% oil. This implies fourth quarter production to be relatively flat with the third quarter. In terms of cadence, the remaining capital activity will be heavier weighted to the third quarter with the third quarter capital guidance range forecasted to be between 170 to $190 million. I think we will lean toward the high end of full year capital guidance, accounting for some inflation that may kick in. We're now expecting full year activity to include about 85 net wells drilled and 100 to 110 net wells completed. This sets us up for low single-digit production growth in 2022 and, of course, substantial growth in free cash flow. I'll now turn it back to Herb to make comments on operations. Herb?
spk07: Thanks, Wade. I'd just like to highlight a few operational accomplishments, skipping to slide 11. In the Midland Basin, I have to boast about the longest lateral ever in the state of Texas. While we have previously confirmed drilling the 20,900-foot almost four-mile-long lateral, which we drilled in 20 days. We now have the well on production, and I can tell you, and anyone with field experience would know, drilling out the plugs and cleaning out a well with a lateral this long is no easy feat. The project went smoothly, and the well has been on production since June 25th. Keep an eye out for the performance of the Clarice Starling Sundown D4542WA well in Howard County. an aptly long name for a really long lateral. Also in Midland, we just finished our first two simulfrac operations on two pads located in Sweetie Peck and North Martin. These operations went smoothly, and we were able to complete an average of 16 stages per day, about twice the pace of a typical zipper frac, and were able to complete as many as 24 stages in a day. I think many of you already recognize that we are always in pursuit of commercially astute technical advancements. I will also draw your attention to slide 12, showing that SM is already recognized for drilling the longest laterals on average in the Midland Basin. Our ability to do this is a result of our contiguous land positions and really good work by our land department in blocking up positions. Longer laterals present a tangible benefit in terms of capital efficiency. Wrapping these concepts together, longer laterals and Samuel Fracht operations, in areas where the development design is amenable, we clearly have the potential to offer additional capital efficiencies. We are often asked if we expect to keep improving our already efficient operations, which we continue to run at around $520 per lateral foot. It is hard to imagine material improvements, but this is a great example. We will be working with the longer lateral and cymafrac concepts, as successfully tested, as we put together our 2022 operations plans. Turning to slide 14, in South Texas, we have updated the Austin Shock cumulative production plots, which continue very favorably. And on slide 15, I will reiterate the great Austin Shock 30-day peak rates we announced in June. Three new wells averaged 3,300 BOE per day, and the wells have an estimated break-even oil price of just $24 per barrel. We should have additional Austin Shock results in the third quarter, and we look forward to sharing more with you. Also, I will remind you that our transportation costs for natural gas in South Texas dropped by about 25 cents per MCF starting this month, another factor contributing to better economics in the South Texas program. In summary, second quarter results were outstanding, and we are on track to return to free cash flow generation starting in the third quarter and on track to deliver highly competitive free cash flow as measured by yield to market capitalization going forward. Operationally, we have been able to keep costs flat, and through our successful testing of longer laterals and simulfrac completions, we will seek to drive increased capital efficiencies through technology. Keep watching for updates on our Austin Chalk results as we continue to successfully build grassroots inventory and asset value. Again, we have posted CDP and TCFD responses, which you can access on our website, and expect more ESG-related disclosures in the coming days. Thanks again for your interest in SM Energy.
spk03: Good morning. Thank you for standing by and welcome to the SM Energy second quarter 2021 financial and operating results Q&A call. To ask a question, please press star then one on your telephone keypad. Once again, that's star one to come to the question queue. To withdraw a question, press the pound key. Please be advised today's conference is being recorded. I'd now like to turn the conference over to Vice President of Investor Relations, Jennifer Samuels. Please go ahead.
spk00: Good morning, and thank you for joining us. We are very pleased to report second quarter across the board beats in conjunction with an improving outlook for free cash flow generation and absolute debt reduction in 2022. To answer your questions today, we have our President and CEO, Herb Vogel, and CFO, Wade Purcell. Before we get started, our discussion today may include forward-looking statements and discussion of NOMGAP measures. I direct you to slide two of the accompanying slide deck, page five of the accompanying earnings release, and the risk factor section of our most recently filed 10-K and 10-Q, which describe risks associated with forward-looking statements that could cause actual results to differ. And refer to slides 26 through 28 of the accompanying slide deck and pages 12 through 15 of the accompanying earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures. Of note, our second quarter 10Q was filed this morning. With that, I will turn it back to the operator to take our first question. Holly?
spk03: And once again, to ask a question, press star 1 on your telephone keypad. Our first question is going to come from the line of Leo Mariani with KeyBank.
spk02: Good morning, guys. I was hoping to talk about CapEx. You guys obviously are expecting to kind of be at the higher end of the range for the year. It looks like CapEx is staying pretty robust here in 3Q, and I guess to get to the high end kind of implies a pretty big drop in the fourth quarter. Are you seeing a fourth quarter activity cut, and can you just talk about the dynamics that are getting you to the high end of the range?
spk09: This is Wade. I'll make a few comments, and Herb can add some color if he'd like. But, yeah, you summed it up pretty well. I mean, we gave a range for the full year, and we're still seeing that, but guiding toward the high end with some moderate inflation assumption in there. But in terms of the cadence, you know, we did accelerate the program, and that's enabled us to achieve our objectives. The quarter-to-quarter, you know, kind of is what it is, and it will tail off in the fourth quarter from a CapEx standpoint for sure.
spk02: Okay. I just wanted to ask about production. I think you guys put a comment in the transcript. We were talking about kind of low single-digit growth in 2022. I'm not really sure if that's just kind of a high-level comment for now, and you guys will refine that going forward. But if I just kind of run the math, you guys are talking about second half, 21 production of around 142,000 BOE per day at the midpoint. And if I was to hold that 142 even flat for next year, I guess that would get me closer to 7% year-over-year growth. So I'm just trying to understand the comment around the low single-digit growth next year.
spk07: Yeah, Leo, this is Herb. Yeah, it's a real simple number when we say that. So it's really just we take the annual average for 21, and then we say, what's the annual average for 22? And you know, depending on the actual cadence of the capital spend and when the wells come on in 22 will determine, you know, that quarterly phasing. And we have not budgeted for 22 yet. You know, we just do an outlook at this stage, and then as we get into September through November, then we really lock it in more. So I wouldn't read a whole lot into that. It's just low single-digit growth when we look at the annual average for 21, annual average for 22.
spk09: Yeah, I'll just remind you that that's Absolutely an output. I mean, we've put this plan together to generate the most free cash flow that we can, and that's exactly what's going to happen. It generates a significant amount of free cash flow next year and beyond and delevers the balance sheet. And the production number that comes out is what it is, and we just, as Herb said, guide it generally to a, right now that looks like a low single-digit growth rate, but we will refine that as we get closer to the end of the year.
spk02: Okay, no, that's helpful, but there's no plan for any, like, big activity decline or anything like that, is there?
spk07: No, I mean, we don't have it all worked at this stage, so no, I mean, there are no big changes.
spk09: It's as what we call the optimal activity level projected out into the future, and that's still the case.
spk03: Okay, thank you.
spk09: You bet.
spk03: Once again, to come into the queue, press star 1. Our next question will come from the line of Michael Scala with Stiefel.
spk05: Good morning, everybody. Just to follow up on Leo's first question, the implied drop in activity for fourth quarter, is that anticipated to be in both your operating areas or is it – concentrated in South Texas, or can you say any more color on what the activity might look like for fourth quarter?
spk07: Mike, we're just basically just executing on the program through the year and meeting kind of the expectations overall on the number of completions and the number of drill wells and the cap expense. So, yeah, we'll drop from 3Q to 4Q, but there's nothing really remarkable or in intentional about anything other than those free cash flow objectives we have in our plan longer term.
spk05: Okay. And I guess as you look forward, and I realize you just said you haven't finalized the 22 budget, but you're obviously getting some very positive results out of the chalk. I'm just wondering as you think about allocating capital between South Texas and the Permian next year. Thoughts on the chalk getting or South Texas getting a bigger percentage of the capital for 22 versus what you saw this year?
spk07: Well, Mike, I've been asked that several times. And, you know, we obviously have not set our 22 allocation between the two assets yet. And what we really find is that it doesn't make that much difference from a free cash flow situation. delivery perspective, longer term, whether it's 60-40, 70-30, 80-20, however we allocate it. But, you know, commodity prices will make a little bit of difference, and so we'll just look at the time and decide on the allocation of the time. But I will say, you know, we're real pleased with the way the Austin Chalk's been performing. I'll quote one of our asset managers that said, you know, some of these wells, there's a little engine that could, that the yields are hanging in there longer in some cases than we expected. And that leads to the outperformance on oil. So we're happy with the program. We're continuing to delineate and test development. And we'll continue to do that at the right pace. And that right pace will be determined as we learn more. We'll continue to design the program in the out years.
spk05: Okay. Then just wanted to follow up on one of Wade's comments in the prepared remarks. what you'd said you probably hedge less as uh the debt uh leverage comes down uh can you give any color there on what you're thinking the appropriate level of hedging might be for for next year it looks like you did add some some hedges for next year but uh wanted to give you a little more detail on that yeah it's it's good it's a very relevant question um
spk09: Yeah, and it's still consistent with what we've been saying regarding our strategy, which is always tied to leverage. And as we look out and see leverage falling, you know, pretty dramatically, I think I said, you know, right now the forecast based on strip and current cost estimate shows us getting below one and a half times by the end of next year. So looking at those metrics, we're much more inclined to target a hedge percentage, you know, no more than 50%. So that's kind of the number we're looking at as we approach next year, because we're forecasting a leverage number still well out a year and a half from now. So we'll be wanting to lock in some of the cash flow to protect that, but not near the levels that we would have when the leverage was a higher number, which is what you see this year and last year. So I hope that helps.
spk05: It does. Thanks, guys. Yeah.
spk03: Our next question will come from the line of Nicholas Pope.
spk08: Good morning.
spk09: Good morning.
spk08: Um, just a couple of questions. Um, I guess, you know, as you, you know, you've done a lot with the, uh, with the balance sheet here, um, 2021, um, looking at free cashflow from here on out with kind of where commodity prices are set up for the next two years. I guess how are you thinking about where priorities are? You know, there's not a lot of near-term debt that can be paid down anymore. So as you look at kind of the opportunities set with, you know, additional balance sheet work or, you know, I guess maybe how do you think about the dividend that's in place and how that's related to the free cash flow profile going forward?
spk09: Great question. Yeah, great question. As I just said on the last answer, we do project getting below one and a half times by the end of next year based on what we see right now, current market conditions. And we put forth this long-term plan that focuses on free cash flow, focuses on debt reduction, and that is absolutely still the case. So as we move along next year, getting to that point that I mentioned earlier, there certainly are still prepayable options, no question about it. They're not near-term anymore, which is great because we moved out the near-term maturities. But if you look at the debt structure, there's call features within them. And, for example, the 25s, you know, as we move into next year, are callable at a pretty favorable area of 100 to 101-ish. But then you have the more expensive debt. second lien notes, which I think I've mentioned before, by us doing the refi transaction, I'll call it, late in the second quarter, that really enables us to use free cash flow to really target some of the more expensive debt in the structure, which obviously the second lien notes qualify for that. And they start becoming callable in the middle of next year. So You know, we'll be targeting those things and continuing to delever. Your question about at what point do we consider, like, dividends or raising dividends, things like that, that'll definitely be on the table once we start getting to those low leverage levels. And so, you know, as I've said in prior calls, when the question is asked, you know, let's get to that point and then let's look around and see what the market conditions are. that are creating that. In other words, if you're at a really, really high oil price, I think that would be a factor in whether it's kind of a mid-cycle type level and a comfortable level. But if it feels more like sustainable, as I think you said, then something along the lines of a dividend program would definitely be on the table at that point. Cool.
spk08: That's very helpful. And how do you think, I mean, I know there's been a lot of questions trying to get you guys to, you know, zone in on where CapEx might be next year. But, I mean, what do you think the triggers might be as you look at that cash flow profile for when, you know, maybe adding a sixth rig? Like what, I guess, what would you need to see from a, you know, from a high level for that to be incorporated into what a 2022 program might look like?
spk07: Yeah, Nick, this is Herb. So we're really just sticking to the plan and wanting to generate that free cash flow and getting our absolute debt down. So we're not really laying out there to add activity. We're really steady activity. We can be very capital efficient, and that really helps on the free cash flow generation side of things.
spk08: Got it. Thank you. And the – Just a little bit of clarity on, in South Texas, of the 11 wells, I guess, that have been drilled in 2021, what are any of the, what's the split with the Austin Chalk versus kind of the more traditional Eagleford focus?
spk07: Well, let me talk about completions, because actually we probably drilled more than that. On the completion side, we completed three Eagleford wells down in that JV and three Austin Chalk wells down in that JV. And So then we talked about the three additional eastern Eagleford, eastern Austin shock wells, and then we've got a couple more online. You saw that where that total is 17, I think, total number of wells. Nine were last year. And then we've got several more that are just started producing or will start producing later in the year.
spk08: Got it. That's helpful. Thanks. That's all I had. I appreciate the time, guys. Thank you.
spk03: Thanks. Our next question will come from the line of Carl Blunden with Goldman Sachs.
spk04: Good morning. Thanks for taking the time. A couple different items touched on in terms of capital allocation, but I didn't hear much discussion of M&A, whether it's acquisitions or divestments. Is there any update on that front that you could share with us?
spk07: Yeah, Carl, this is Herb. Yeah, really, no real big update on M&A. We've been pretty consistent in our messaging there, really no change in our views at all. We do think scale does matter, and it's more than just lower G&A. Anyway, we talked about our criteria, and it's really got to have comparable quality assets, and we've got really high-quality assets, as everyone's aware. It's got to be accretive to free cash flow. and then it ought to be neutral to the benefits of the leverage at the levels we're talking about now. You know, and when we look at scale, it would really help to have some industrial logic behind it and improve capital efficiency, and then that could lead to lower cost of capital. And then, you know, there's some benefits on the ESG side from scale also. But, yeah, no action at this time.
spk04: Got you. And then, you know, you've done some nice work in reducing revolver borrowings, and it's down to a relatively low level. When you think about the next time you have discussions with the banks in terms of extending and setting up a new or updated facility, can you remind us when that happens and what your goals might be in those discussions?
spk09: Sure. That's a good question. Our revolver, it doesn't mature until second half of 23. So it's still a little early. I would anticipate, you know, I think there's several peers that are doing new revolvers this fall. We'll be watching those closely just to kind of see what the market looks like and maybe start thinking strategically maybe as early as the spring of next year as far as looking at possibilities for extending that. But we still have a little time to watch and In the meantime, generate free cash and basically get out of Revolver, frankly, and not be using it, which is typically our strategy.
spk04: That's helpful. Thanks for the time. Appreciate it.
spk03: Our next question will come from the line of Gail Nicholson with Stevens.
spk01: Good morning. Good morning. You guys just finished your first two simultaneous frack operations in the Midland. Can you guys talk about the cost savings you saw there and how applicable that is across the remainder of your Midland inventory? And do you have any plans to test it in South Texas?
spk07: Hey, thanks, Gail. Yeah, it was a great accomplishment on the simulfracks. It went really smoothly. We've run it on two different paths. We used actually two different service providers on those and so what bottom line is you can see the way the efficiency gains would be is because you have about 60% more horsepower on site than you would with just regular zipper fracking, but you're pumping at twice the rate, you know, the number of stages you can do in a day. So you can see the intrinsic efficiency that we anticipate and so When you schedule it out, though, there are certain paths where they're very amenable to simulfracking. So if you've got a larger number of wells on the pad, it's easy to do. If you just have a single well, it's obviously not going to work, and then you just stick to single frack operations. If you have two wells, just zipper frack them. So when we look at 2022, we'll be lining out on those places that you can use simulfrack and those where you just zipper frack versus single well operations. We'd line that out. And the benefit is if we have a spread or a provider that can do both simulfrac and zipper fracking operations, clear efficiencies in the scheduling side of things. So, yeah, we do anticipate on like-for-like basis we could achieve some savings. Hard to put a percentage on it because we have a combination. Not every pad is amenable to simulfracking. But we sure like how it worked for us in these two cases.
spk01: Great. And then you also did a four-mile lateral this quarter in the middling. Can you just talk about how that was? Does that change the technical difficulty of the drilling and how applicable those super long laterals are in the 2022 plan potentially?
spk07: Yeah, thanks for pointing that out, Gail. Yeah, it feels really good for our team to have done the record long lateral in the state of Texas, which, you know, there's a lot of wells in Texas, right? So it felt really good. And where it is applicable is it obviously gives us a lot of capital efficiency. It works in some areas to access acreage that's quite far out and that you may not get to for a while. So it's beneficial for us. It worked like a charm. We drilled that in 20 days. I think it's 105 frac stages in that well, which is a lot. And then we drilled it out without any difficulties, and we brought it online June 25th. And now it's producing away. So keep a lookout for the performance of that well. You know, it's still the same size pipe, the five and a half inch pipe down the well. So, you know, you can't get that many more barrels out faster. It just leads to a a plateau level and a little bit lower decline rate than if you had a shorter well. But in terms of the economics, the efficiencies are great. So we'll see how often we apply it. But we also, you've seen on the slide deck, that we tend to be the longest lateral well driller in the Midland Basin.
spk01: On average.
spk07: On average.
spk01: Great. Thanks, Gary. It's an excellent quarter.
spk07: Thanks, Gail.
spk03: And seeing no further questions in queue, I'll turn the call back over to CEO Herb Vogel. Oh, we do actually have a question that just came into the queue. That would come from Scott Hanold with RBC Capital Markets.
spk06: Hey, thanks. Sorry, I forgot to hit the old star one there. But, you know, you've had a lot of success in the Austin Chalk and obviously more recently continue to see, you know, very good results. And, you know, can you talk a little bit about those 400 locations you've identified? Does the success you've seen so far, you know, give you more confidence in those 400 wells? And do you think there could be potential to expand that, you know, given what you've seen so far?
spk07: Scott, yeah, thanks for noting that. So, you know, we have quite a bit of confidence in the Austin Chalk, and I've talked about this before where, We had 600 penetrations of the Eagleford that went through the Austin Chalk, so we could map it extremely well. We got core. Then with the delineation program, we spread it over a large area. Now we're expanding that area, and we're also testing development in a number of locations. And there's been a tremendous amount of geoscience work on just what the mechanism of the high permeability is and where to land it, and that we've improved upon quite a bit. So the recent well results kind of just come in line with what we were expecting. And then, you know, we've got, I think the first one we put online was in July of 2018. So we've got some performance history that makes us feel good. So the 400 well inventory estimate is a round number, you know, and it assumes 11,000 foot lateral length. If we choose to go shorter lateral, then the number might go up. If we go longer, then the number would go down. And then we've talked about being very oily up northwest and then gas here to the south. So we'll do our normal thing in terms of the conversion into approved reserves over time, you know, under SEC guidelines, being within the five-year plan, and going that route. So bottom line, it just depends on the economics at the time, and we'll just watch that number as time goes on on how we see things working. The confidence level continues to improve as we get more well results.
spk06: I got it. So what I'm hearing here is, you know, you guys, you know, have seen, you know, expected some good results. Those 400 locations is certainly underpinned by what you've seen. But I guess from our perspective, it should continue to give us more confidence to risk that inventory over time, some upsides. Okay, if if I could just one more and you know I apologize for hitting on 2022 but you know, certainly, you know, there is, you know, some questions around the comment here on the on the path of potential production into next year. But I guess at a basic question. When you look at going forward, and it's not as much 2022, but it's even beyond that, is your base view, and I know it's about maximizing free cash flow, but as part of that, I would assume it's going to also include some level of at least maintaining production. It looks like the 2022 soft guide talks about, and it feels like it's maintaining production, you know, throughout the years. Is that the right way to kind of think about it? I know you're maximizing free cash flow, but part of that has to be strategically, you know, having some sort of a maintenance level in production.
spk07: Yes, Scott. I mean, we truly do line out our plan based on the free cash flow generation targets and getting certain leverage targets. That's where we start from. And then the production truly is an output. And it just so happens that that winds up being on-app year over year, single- single-digit production growth. And that can vary quarter to quarter on where that sits, just like it did in 21. And that's really how we do plan it out. I don't anticipate a production decrease at all if we're meeting our pre-cash flow objectives. And it's just a matter of how much it grows and And that's year over year.
spk09: Yeah, the key is it's a long-term plan. It's putting together a long-term plan that generates a lot of free cash flow, not just one year. Obviously, if there's one year, you could blow down, and that would not achieve long-term objectives at all. This is long-term. So it is flattish to single-digit. Production growth is what becomes the output because it's sustainable long-term.
spk06: Yeah, and I guess that's spot on to the point. And I guess the only nuance is, you know, with the year-over-year comparison, obviously, you know, the shut-ins, you know, or I'm sorry, not the shut-ins, but obviously the weather issues early this year had an impact on production. So, you know, the year-over-year, arguably, you know, if you're keeping flat from exit rate, you know, should be up. Is that a fair way to think about it?
spk07: We don't really look at exit rate. That's just too short a time period to worry about. And I think that weather event is a classic example, right? We had to shut in because our power got cut off, right? Not because we didn't pay our bills, but we got cut off because of the lack of power. And so we had lower production, but then we made up for it in second quarter and third quarter and the rest of the year. So 2021 will look quite lumpy, but we reached our overall objectives, or we intend to reach our objectives, over the entire year, and that's just the way you have to look at it. You can't pin down an exit rate for the last month of the year because it depends on the timing of completions, and they can wind up on this side at the end of the year, and they can wind up on the other side at the end of the year, just a matter of execution and when you get the wells actually hooked up and producing and how quickly the flowback happens. So you really got to look at a longer time period.
spk00: I think one point worth reminding everybody is that the long-term plan we put forth is a less than 75% reinvestment rate, which delivers continued low-digit growth and production. And if people are getting hung up by quarter, maybe it's not a straight line over five years, but it delivers annual year-to-year growth and production at that investment rate, which, quite frankly, with higher commodity prices, may be less.
spk06: All right, appreciate it. Thank you much. Thank you. Thanks.
spk03: I'd now like to turn the call over to CEO Herb Vogel for closing comments.
spk07: Okay, well, thanks all for joining us and your insights and questions. We'll plan to see you at Intercom in mid-August.
spk03: Thank you for participating on today's conference call. You may now disconnect.
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