Continental Resources, Inc.
Q1 2021 Earnings Call Transcript

Published: 29 Apr 2021

[Operator:]

Good day, 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. As a reminder, this conference call is being recorded.

[Rory Sabino:]

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?

[Bill Berry:]

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’s 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.

[Operator:]

We will now begin the question-and-answer session. And our first question will come from Neil Mehta of Goldman Sachs. Please go ahead.

[Neil Mehta:]

Good morning, guys. Thanks for taking the question and congrats on the strong quarter. The first question I had was just thinking about your takeaway coming out of the Bakken. And 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 in the Dakota Access risks. And in any views in terms of how that pipe is likely to flow from here.

[Bill Berry:]

Yes. Thanks, Neil. Appreciate the question. We, we think, continuation of positive comments coming out of everything from the core to the now owners of the pipeline, but this is strongly expected to continue to operate the core feels that it was appropriately handled. I know it's still back and forth with the courts. We mentioned before that we've put in place some plans and have ability to move all are all out 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 a lot. I'll open it up to Aaron Chang, Aaron over there. And you've got anything to add to that.

[Aaron Chang:]

No Bill, I think like you said, we continue to believe the pipe will remain operational and while we position ourselves to be able to execute on our 2021 plan under any dabble 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 a in a declarative manner.

[Neil Mehta:]

And the follow up is you guys have done a great job of driving your debt lower here and in 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 towards your goals?

[Bill Berry:]

Yes, 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 move a different direction on. So from that perspective, the cash flow is fine. Sorry Neil, your other you asked…

[Neil Mehta:]

Yes, just so 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 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?

[Bill Berry:]

While 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 we're looking at is a full, full suite of things that are in our quiver, so to speak. We already read. Obviously a problem that's in place for share buybacks is an opportunity. We've got debt to pay down that we continue to drive ourselves down toward that, that one, multiple, the dividend, and we reinstated and then of course, we reinstated it at a level that we felt there was a strong position to start, but also was a reflection of our comfort and confidence and the go-forward ability to increase that over time. And so all these things are vehicles we have for shareholder return. We're just saying that there's a real focus in the company. And hopefully you're seeing that manifests itself with where we are today, we have a $1.4 billion budget. That's where we started, we've talked about 65% to 75% as far as a reinvestment ratio, that one for at today's prices is somewhere maybe around 45% 30% in that range. But we're still very comfortable that that's the right spend right, and that continue to spin off cash and getting back to the shareholders is what our plans are.

[Neil Mehta:]

Thanks, guys.

[Operator:]

The next question comes from Arun Jayaram of JPMorgan Chase. Please go ahead.

[Arun Jayaram:]

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? Balancing, you mentioned maybe some semblance of growth, but balancing production growth, you talked about the $3 billion debt reduction target and dividend growth growth on a go-forward basis?

[Bill Berry:]

Yes, the and probably what you're touching a little bit around 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 that now that with the fundamentals that are out there now and the as we've said for over a year now that we know, we should not be trying to overdose into an oversupplied market, there's still inventory overhang, and 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% and all on annual basis. And as Jack highlighted the last call about, the inventory that we have as inventory that can support a lot more rather 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 anything else you want to add on, on the inventory to share with the room.

[Jack Stark:]

No, All I’ll add is that last time we talked, we mentioned that this inventory, we've got enough to grow the company, at a 5% compounded annual growth rate over the next 10 years. And if you look at the first five years of that, that inventory represents about a third of the inventory. And the rate of return on that last time we talked $50 is right at about 50% and $60. It's right around 65%. So it's a very robust inventory. And, also it's a very well defined inventory. 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 particularly how we've continually increased the capital efficiency of the results over what the last three, four years.

[Arun Jayaram:]

Great, thanks for that. And just my follow up, you guys have guided 2Q oil between $1.60 to $1.65. 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 partners that you mentioned. So I wondered if you could help us think about how your Till's could trend over the year and maybe a second half trajectory for oil.

[Bill Berry:]

Well, we see our oil as a percent of our production increasing in the second half of the year. And, and this, it's really, I guess, say, based on the fact that, if you look at our completions in the back half the year, second half of the year, about 70% of the wells would probably be in the Bakken, maybe upwards of around 70%. And compared to the first half were around 50%. So, 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. I mean as far as its oil weighted nature as well. Last year, we were probably 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, as we keep saying in Oklahoma, we love the optionality you have with a commodity there. And so we're moving in that direction to take advantage of that.

[Arun Jayaram:]

Got it. Thanks a lot.

[Operator:]

The next question comes from Derrick Whitfield of Stifel. Please go ahead.

[Derrick Whitfield:]

Thanks and good morning all.

[Bill Berry:]

Morning.

[Derrick Whitfield:]

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 targeting completed well, costs on pages seven and eight?

[Bill Berry:]

Downside in which direction they're in? Meaning that we can drive the cost lower. Yes, we're still trying to drive it even lower if that's the thought there.

[Derrick Whitfield:]

No, it was even more around the capital side because we were working through the numbers at your target. And it seemed like it would be some downside if you guys attained for the year, that average target.

[Bill Berry:]

Downside to what Derrick? I'm sorry, I'm not…

[Derrick Whitfield:]

The 2021 capital plan.

[Bill Berry:]

I'll do that the 1.4 billion that we fascicle one point more or less, that we could actually spend less than that. That's what your question is?

[Derrick Whitfield:]

That is correct.

[Bill Berry:]

Yes, we had factored into that budget, the fundamental cost savings, because we I said we spent most of last year, got to took advantage of the pause and slow down. So we had a lot of our, our drilling engineers and production engineers. And when we weren't drilling as actively as we're 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 Patman and his team to drive it lower. And that's all reflected in that number.

[Derrick Whitfield:]

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 is the means to offset carbon emissions from your operation?

[Bill Berry:]

Yes, probably started the high level with Derrick. A lot of our goal is 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 industry should look at all the time. And, and so we're looking at all our waste and what happens to and trying to take that to the absolute de minimis level. And so that's our primary pursuit, is to reduce the actual emissions come whatever form they are in. And 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. The LD 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 a type of carbon capture. We think that carbon capture is going to play a role in the future.

[Derrick Whitfield:]

Very helpful. Thanks, guys.

[Operator:]

Our next question comes from Neal Dingmann of Truist Securities. Please go ahead.

[Neal Dingmann:]

Morning all. Bill, my question for you or Jack, I'm just wondering how far in advance you guys really pivoted at it key times over the last, I mean, whoever made the decisions are first and gas and now more towards oil, and certainly implies that does look like here Bakken is going to be much bigger plan for the remainder of the year. How far in advance or how I'm just wondering and looking going forward in 2022. And, forward, obviously difficult to tell the balance between gas and oil prices. I'm just wondering, how do you determine kind of what that you know, where the focus is going to lie?

[Bill Berry:]

Well, we've got a pretty robust programming internally Neal, where we, we sit down multiple times a week, and talk about where the world is going, got the whole team involved in everywhere from, from finance, to operations to marketing, and, 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. And 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 when at the end of the day on these things, and this is one that I think worked out well for us.

[Jack Stark:]

Neal. I just want to add, I mean, we really want to give some kudos to the teams because obviously as Bill said, we started the market in the macro constantly. And the teams are also very tied in. And they came to us with recommendation to looking at looking at Oklahoma and said they have the optionality to move in gas with a portfolio early last year. And it really made good sense. And so I always we, it's a, it's a team effort here. And it's great to see that everybody's tied in.

[Bill Berry:]

I just want to reinforce what Jack mentioned that that was a team's recommendation to manage, but that was not a management recommendation to teams. We, we all had our perspective on that. But just to show that oil company is making these decisions.

[Neal Dingmann:]

Now, and very well understood. And then just secondly, it's interesting to hear now, you get to start to be a little more active in the PRB. I'm just wondering, what is the plan that I guess, I guess why, I asked, you have as Jack has pointed out, so many great tier one top tier locations already in the Bakken and Anadarko. I'm just kind of wondering what 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 had, as Jack said, for years and years. So I'm just kind of wonder what you're maybe trying to achieve and that I don't know, the next year or two or three and then the PRB.

[Bill Berry:]

That’s a very good question. , the word hitting the ground following up with what Samson had gone up there and a continuation that program to the five best world on Powder River Basin. They're resolved Third Pro, so we're just following on to that. And these are very high quality premium locations that we're going forward. So proud of our position up there, and we think it's going to work out very well for the company.

[Neal Dingmann:]

No, I like what I see Harold. Thanks. So thanks so much for that for the app.

[Bill Berry:]

Yes.

[Operator:]

The next question comes from Jeanine Wai of Barclays. Please go ahead.

[Jeanine Wai:]

Hi, good morning. Good afternoon, everyone. Thanks for taking our questions.

[Bill Berry:]

Thank you.

[Jeanine Wai:]

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 quarters projection. Now it's better than 4Q20. 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 fuel ease? And then maybe if you can comment on the corporate oil trajectory growth between the North and the South this year as well, as it seems like the North is doing better.

[Bill Berry:]

Sure, Jeanine. Yes, it's really just a function of where we decide to put the rigs, you know, we've got a really large footprint up here. And we're and depending on where the rigs are already in time, you'll get a varying 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 is you look at that chart on page seven, is how consistent it's been. And that's what we love about the Bakken and 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, just continues to validate the strong inventory that we have here in the Bakken.

[Jeanine Wai:]

Okay, great. And then maybe my follow up question is back on that production, 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 returns to shareholders, with potential inorganic expansion opportunities, and maybe some modest growth?

[Bill Berry:]

Yes, I'd like to start with our investment thesis of 65%, 75% reinvestment ratio. And then from that, as you spent all the cash than the rest of the cash and obvious what you're really valued addressing Jeanine, what do we do with that? That's what we're looking at returning to shareholders and in all the forms that we were talking about. So we've got lots of vehicles to do that. And we plan on staying on that path.

[Jack Stark:]

Regarding the timing on the -- 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 up 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 guards, but I feel good about over the next year and a half.

[Jeanine Wai:]

Right. Thank you very much.

[Operator:]

The next question comes from Scott Hanold of RBC Capital Markets. Please go ahead.

[Scott Hanold:]

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 curves very backward dated 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 in the 2022.

[Jack Stark:]

Yes, just maybe start with philosophically how we approach hedging. And philosophically, we approached hedging as something that we actually prefer not to do. We think our investors and then an 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 sheet that the EBITDA and none of 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 that 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 hedge after May. And as mentioned in my comments, yes, you're seeing a bit of the gas that we've been out there hedge. And 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. And with that I don’t know, whether Aaron do you have anything else you want to add from marketing side?

[Aaron Chang:]

No, I think Bill covered it. From a macro standpoint, we're still very constructive both the commodities in the medium term recognizing that there is some near term noise as vaccine rollout continues across the world with the expectation that demand return will follow. And I think that aligns very well with our oil and gas hedging program for 2021.

[Bill Berry:]

Scott, you made a reference it sounds like 20 gas hedges and 22 our gas hedges go out through the balance of 21. There's a really nice summary in the 10Q that we filed last night that you can pull it gives a breakout of swaps and collars. You'll see they're relatively high attractive, gas floor process as well, around $3.

[Scott Hanold:]

Okay, so I'm just going to confirm nothing in 2032. Because you think slide eight on your presentation does indicate 2022.

[Bill Berry:]

Maybe a very limited amount in the beginning of the year, we don't have much there.

[Scott Hanold:]

Okay. Okay. Fair enough. And then my next question is, is on the PRV? Obviously, very exciting to get started. And 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 debts and lastly, just holistically, you sense the position is big enough for Continental where it's at right now.

[Tony Barrett:]

First of all, Scott this is Tony Barrett. Thank you for the question. Regarding debts, no, we did not inherit any of those. On the question of targeting our early program as well, I think we've discussed before is really targeted towards the high rate of return sans has been proven by our predecessors, Samson. So early time drilling in, we’ll spread our first well this weekend out there will be focused it on the Frontier and Turner formations, which I'm sure you're familiar with. So did that answer your question?

[Scott Hanold:]

Yes, sir.

[Tony Barrett:]

All right. Thank you.

[Operator:]

The next question comes from Doug Leggate of Bank of America. Please go ahead.

[Doug Leggate:]

Thanks and good morning, everybody. Guys, I think I heard Mr. Hamm on the call. I wonder if I could just ask you guys that you touched on already, but just your current perspective on the commodity out there, because obviously, there's a lot of moving parts has been talked about already. But the fact that you are one of the most levered stocks without any hedging from the upside. I'm just curious how you see the near term, medium term, commodity outlook playing out as you see revolving through a number of cycles before. But I appreciate Mr Hamm's perspective.

[Harold Hamm:]

But as we said, there's still an overhang as inventory and the world and we recognize that and but I think that producers have been very disciplined in their approach and, and watch the market and what the demand is. We still see some curtail demand, the COVID-19. And feel everybody's anxiously waiting to return demand back to normal. But I think going forward with, activity for batum, and ordered oil rigs operating in the U.S., we say that supply and demand is coming back into balance, and which bodes well for commodity prices in the future. So, obviously, as long as OPEC functions as they do and have been recently, and therefore, remains in industry, we feel very positive about the commodity risk.

[Doug Leggate:]

I appreciate that perspective, Harold, thank you. And Harold the reason I asked the question is because I wanted to set up my second question like this. I mean, joins them a pretty good job leaving out the debt. But the debt targets and the flexibility, you have to go to 3 billion. But if you think about it, that a lot of companies in the sector, that don't really have investment case now, if you like, and what I mean is, growth is no longer on the table, at least in a meaningful size. 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 cough, will 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. How -- is there any update thinking on what consolidation could look like in Continental’s future? And why is everything going on in the Bakken in particular? I'll leave it there. Thanks.

[Harold Hamm:]

Yes, thanks Doug. No doubt, I think we're all see it the same way. Consolidation in the industry, which was a little bit happening last year and needs to continue. There's a, there's opportunities for doing that. And we're seeing that in the various nations as we speak, there are things going on. And, we, we participate in an actively understanding what the opportunities are, and whether they meet our economic thresholds, and whether it's in something that fits strategically for so. So as we've talked about, in the past, from an M&A perspective, 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 the other big splash. But if you look at the impact of the company, it was, it was pretty significant from the things that were added to it. So our hope and desire is that the consolidation in the industry does continue.

[Doug Leggate:]

So the assets sales on the -- Bakken right now no interest?

[Harold Hamm:]

No, it's that's not such a broad question. They're clearly good assets for sale and there are bad assets for sale. And we started in with the rocks and the rocks are bad. We have no interest that the rocks are good. We're interested at the right price.

[Doug Leggate:]

Okay, thanks for the answers, guys. Great quarter.

[Harold Hamm:]

Thank you, Doug.

[Operator:]

The next question comes from Nitin Kumar of Wells Fargo. Please go ahead.

[Nitin Kumar:]

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 their current regime and maybe you know what, what the Biden tax proposal is asking for?

[John Hart:]

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 the state level. So if you look at it in a current regime, putting up 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 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 five year amortization. They did something of that nature does 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 in my term a year or two off of that, if they went to five year, type AM. So we'll just have to monitor and watch that and we'll go from there.

[Nitin Kumar:]

Thanks, John. Thanks for the detail there. And as my follow up, you guys talk about how you're, you don't expect to have more than 2% 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 Bakken I mean with prices in $60 and costs of $30 to $40 world? There is an opportunity, just your thoughts on the Bakken in general?

[Bill Berry:]

I think Pat can probably give you some good insights in that with what's going on 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. Everyone talks about that.

[Pat Bent:]

Okay. 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 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.

[Nitin Kumar:]

Right. Thanks for the color, gentlemen.

[Pat Bent:]

Thank you.

[Operator:]

Our next question comes from Leo Mariani of KeyBanc. Please go ahead.

[Leo Mariani:]

Yes, it's just a question around CapEx here in 2021. Looks like you had about 293 million of spend in the first quarter. 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, pretty readable? And it is 1Q kind of a low point on spend for the year?

[John Hart:]

It's I don't know, I don't recall if it's a low point, but it's fairly radical throughout the year. So, it should be stepped up a little bit to get to that average, we are very fixated on 1.4. We're committed to that. And, frankly, we're on track board.

[Leo Mariani:]

Okay. All right. Great. And I guess just with respect to the Bakken, 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? Did you not really have any wells come online in the Bakken in 1Q? And then it sounds like you're picking up in 2Q but is it generally just more second half waiting with a lot more Bakken and -- just want to make sure I understand how that's working.

[Jack Stark:]

Yes, Leo this is Jack. 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. And so really, we're moving that and we were just basically timing issue up here. And talking about this, you know, I think I ought to mention just Long Creek because it plays a part in that. We bought on 11 wells here recently up in that play, but during that project that, we're building that infrastructure out so models 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 just as a heads up these the IPS on these 11 wells, they're right around 1900 BOE per day 80% wells, very strong wells. And in Long Creek, we plan on 56 wells total drill, 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 form production we expect to see coming along the Creek.

[Leo Mariani:]

Okay, great. Thank you.

[Operator:]

The next question comes from Charles Meade of Johnson Rice. Please go ahead.

[Charles Meade:]

Yes, a good day to everyone there and thanks for 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 be there will actually see sequential growth beginning in 3Q. And then and they carried on into 4Q and that that that new growth path you established in the back half of 2021 should be what we see. Looking at 22 assuming something nothing strange happens with the oil strip. Is that does that kind of the right read or can you offer any comments around that?

[Jack Stark:]

We've given some guidance on the second quarter there's obviously 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 in between those, I think that's probably giving you a pretty good case cadence in the market seems to have modeled them fairly well and in line with our expectations.

[Charles Meade:]

Got it. That's, that's helpful. Thank you. And then I could go back to the I'm sorry, did I interrupt?

[Jack Stark:]

No, I just said you bet.

[Charles Meade:]

Okay. If I could go back to the to the question of optionality and maybe get you guys to give a little bit of a picture of what that what that looks like. When you when you do have those meetings, internally, based on the way you guys can shift it to gas last year, and then at the same time, you put in a put in some price protection, right around three bucks, it looks like that. It's $3 is the level, if you can hedge it, that gas starts to starts to capture more CapEx dollars. But that's, of course, that will be versus a, an assumed oil price. And so, can you give us a sense of how that how that conversation goes? And if that's the right, the right framing for how we should think about the optionality you have?

[Bill Berry:]

Well, that's good question. You know, the same time, I mean, we've seen oil prices run up over 50% this year. So, it becomes a balance. And the good thing that is that optionality we have great assets for – last year. And we also have great assets both at Oklahoma and Bakken in North Dakota. So we view it the way that, it's hard to hinge it on $3. As such in gas, where oil prices that go with the best product for. Yes, and that by no means that we don't need $3, or upwards of $3 to make these things economic out here. I mean, our condensate wells we brought on, we brought on literally, in the last, let me pull up my nose here. And the last two quarters, we brought on 32 wells, in the SpringBoard condensate window, all right. And the average 24 hour IP on those 16 million a day, and born a barrel of oil a day. And those wells are extremely economic, 250 economic data, two bucks and below. So the just 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 they were very constructive on natural gas, and still remain that way here through the rest of the year. And then the next year, some 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 the, in our, in our, our projections here, and so makes sense to start maybe focus a little more heavily on oil. So bottom line is, we just love having that optionality. And it's one of the strengths of the company.

[Charles Meade:]

Thank you for that added detail.

[Bill Berry:]

Thank you.

[Operator:]

The next question comes from Paul Cheng of Scotiabank. Please go ahead.

[Paul Cheng:]

Thank you. Good morning. Bill and John once that you reach the 3 billion of your longer term debt pocket, will you consider that you're coming out with a formalized a cash return policy similar to some of your peers that whether you're using cash medical dividends or their buyback? And on that basis that do you have a preference between the two as a supplemental way that to distribute the cash back to the shareholder when that is get ready? And secondly, Bill, do you have the ? Do you have a breakdown between the baton and the PRP 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 then more than moved into the second half. Do you have, say what is the second quarter the well going to come on stream now for those four reasons? Thank you.

[Bill Berry:]

Hey thanks Paul. And 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 zone between the Bakken and the Powder and the scoop on the stack. On a variable dividend, we have a cash return to the shareholders in cash return to investors that we're focused on. And we just see a variable dividend is something that is out there as a possible tool. We've got dividend, we're reimplemented and reinstituted and, and that's also got an opportunity to grow. We have also cash buyback, stock buybacks, that we can go in. So there's, there's a lot of different vehicles, and then that's on top of the debt pay down. So we really look at all those and as to what's the appropriate one, it depends on the circumstances at the time, so but that's why we wanted to bring the dividend back, we want to bring back early. So our assets supported the cash flow supports it in the desire of reporting 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 head on that we're going to be going forward with as a as a number that we're going to be restricting our reinvestment ratio to. And as far as the wells go, Jack, would talk to that?

[Jack Stark:]

Well, yes, as far as the 143 wells in the North, 11 of those, I'd 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 of top my head, but I would say the 67. You mentioned there, gosh, I'm going to say 85% or so we're really all going to be in Scoop in our SpringBoard project areas. So I think it's a fair estimate there.

[Paul Cheng:]

Jack, do you have what the second quarter number were going to come on stream?

[Jack Stark:]

Second quarter wells coming on stream? Well, we have about, it's going to be getting close to around 100 wells between North and South, second quarter. And I'd say about 65% 65 of those, as I mentioned previously going to be in a Bakken and the others obviously in the south. Thanks, Paul.

[Operator:]

The next question comes from Noel Park of Brothers. Please go ahead.

[Unidentified Analyst:]

Good morning. I'm just curious if you're starting to really dig into the project of 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 predecessor. So just curious about what you might be looking for as you're starting on those?

[Tony Barrett:]

Hi, Noel, this is Tony Barrett. Well, obviously, we inherited some data from our predecessor. As we've said before, on as far as, production information, some core or graph data, all of that type of stuff. As, as most other operators do, we've been prudent in acquiring 3D seismic that which was available over that area. So that obviously helps us with our drilling and hazard avoidance and all that good stuff. In addition, we'll do a normal thing that we do in the midcontinent in the Bakken, and that will collect a log data when it's appropriate as we go through the program and move through the different areas and look at the different formations. So nothing unusual in the Powder that we don't already do in our other operating area.

[Unidentified Analyst:]

Great, thanks. And another question, kind of the opposite end of the portfolio. I just was curious last year when, there's big slowdown in activity with weak prices. I was wondering what were your trends for maintenance spending, for instance, in the Bakken, with older wells there? I just 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 want the money or manpower you've given, given how you're trying to allocate your budget?

[Bill Berry:]

No, we're right on track. I mean, if you look at the number of debts coming out of last year, and coming out of this year, it's relatively consistent within a hand feel view of each other. Our maintenance capitals, multiyear, longer term year for several years of 1.35. It ranges depending on project timing between one two and one five, but I would I would, as I said, I would focus on that midpoint. We've maintained our wells, they're operating at high levels, productivity strong so we're, we're well positioned there's no catch up per se.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference over to Rory Sabino for any closing remarks.

[Rory Sabino:]

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 questions and have a great day. Thank you.

[Bill Berry:]

Thanks, everyone.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.