Cimarex Energy Co.
Q1 2021 Earnings Call Transcript

Published: 6 May 2021

[Operator:]

Good morning and welcome to the Cimarex First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. . After today's presentation, there will be an opportunity to ask questions. . Please note this event is being recorded. I would now like to turn the conference over to Megan Hays, Vice President of Investor Relations. Please go ahead.

[Megan Hays:]

Thank you, Operator. Hello everyone and thank you for joining us today to discuss Cimarex's results for the first quarter of 2021.

[Tom Jorden:]

Thank you, Megan, and thank you to all of you who have joined us this morning. As you see from our release, Cimarex had a solid first quarter and we’re on track to meet our full-year targets. We generated GAAP net income of $128.1 million or $1.25 per share. Adjusting for $99.4 million in non-cash mark-to-market hedge losses, our adjusted net income was $203.7 million or $1.98 per share. Adjusted cash flow for the quarter came in at $395 million, which significantly exceeded capital expenditures and allowed us to generate $208 million in free cash flow after payment of our dividend. We ended the quarter with over $500 million cash on hand and net debt of $1.5 billion. Our oil volumes averaged 68.6 thousand barrels per day during the first quarter. We expect to see significant momentum in our oil production through the latter half of the year, as we bring on a number of development projects. We're seeing strong results thus far from our relaxed spacing, which will enhance our capital efficiency going forward. As previously guided, we expect our 2021 exit rate for oil production to be 30% above our 2020 exit rate. The 2020 exit rate was significantly impacted by reduced activity in 2020. Our full-year capital guidance is unchanged at $650 million to $750 million. Our Permian total cost per foot for our development programs is tracking nicely within our guidance range of $800 to $850 per foot. We operate within a wide geographic range in the Delaware Basin, and this can impose variability in our project costs. These differences include depth, pressure, water cut, lateral length, and production facility costs. Although we quote program average costs, the individual projects within this average vary between $725 per foot and $1,000 per foot. And as always, when we quote development costs, we include all costs drilling, completion, facility, well-connect and flowback. Blake will provide more detail on this.

[Mark Burford:]

Thank you, Tom. Good morning, everyone. I'll address the key items in our first quarter 2021 financial results and give some color on our outlook. Our results this quarter benefited from strong price realizations on all commodities, especially gas price realizations, which were higher as a result of February severe winter storm. Beginning costs were also elevated in the quarter due to the impact in the winter storm, which drove up fuel costs and electricity rates, in addition to lower production volumes relative to the remainder of the year. As our teams wells coming online picks up, we expect our per unit cost to normalize and therefore for full-year 2021, cash guidance remains unchanged except for incorporating Q1 winter weather impact for full-year 2021 transportation costs.

[Blake Sirgo:]

Thanks Mark. We had a strong start to 2021 with five rigs and two factories running in the Permian and one rig running in the Anadarko. Our operations were quickly challenged early in the quarter with winter storm Uri impacting our operations in the Permian and Anadarko. Despite multiple days of below freezing temperatures and rolling power outages, our operations teams did what they always do and rose to the challenge. We were able to keep a significant portion of our production online, while mitigating impacts to our drilling and frac operations. Because of these efforts, we were able to quickly regain our operational cadence and delivered strong volumes in the first quarter. We're focused on both sides of the capital efficiency equation, productivity and cost. Tom spoke earlier about some of the strong results we're seeing in productivity with our recent Big Sky and Dixieland development. We're also seeing strong performance on the cost side of the equation. Our drilling and completion costs for the first quarter of 2021 tracked just below the low-end of our guidance. With higher activity levels across the Permian, horsepower, labor, steel and fuel costs are on the rise. However, our teams are working hard to offset inflation with continued efficiency gains.

[Operator:]

We'll now begin the question-and-answer session. . So our first question will come from Arun Jayaram of JPMorgan. Please go ahead.

[Arun Jayaram:]

Hey, Tom. I wanted to see if you could maybe expand on some of your thoughts, the board's thoughts on variable dividends. We've seen two approaches out there from some of your peers, Devon and Pioneer who have kind of a formulaic type of approach. You talked about Cimarex has got balanced leverage to the three commodities. So I was just wondering if you could talk about some of the pros and cons that you and the board see with the variable dividend approach. And if you did migrate to such approach, how do you see this playing out in relative to what Devon and Pioneer have thus far communicated?

[Tom Jorden:]

Well, thank you for that question, Arun. I'll tee it up and then let Mark go into detail. Our commitment to dividend is evidenced by the fact that we pay the dividend since 2006. And our board is very much, celebrates the act of returning cash to our owners. I will say that, I don't want to comment on any specifics of what our competitors have done. But I'll say that as we look at it, we will model what our cash flow looks like as swings in commodity pricing will model hot high, medium low in both oil and gas come up with an estimate of what we think our sustainable cash flow is. And then decide what percent of that sustainable cash flow we think will be returned to our owners.

[Mark Burford:]

Sure, Tom. Yes, so the only thing I could probably add Arun is certainly this year, exiting the first quarter with $524 million in cash and we'll also discuss the fact that we could have a small property of $115 million. So you add that plus what we expect for free cash flow for the balance of the year, we're going to be in very good position by the end of the year to meet our objective, have sufficient cash for those 2024 notes, and have some cash from in excess of that, for liquidity purposes, that we want to have continuing cash on our balance sheet. And you look at the process which Tom described; we will be very diligent how we look at our regular dividend, we will stress test our scenarios. And as we've done like, we're increasing our regular dividend the first quarter this year, we'll also continue to monitor that and have a emphasis on monitoring, increasing that regular dividend. Now further on the variable dividend, which Tom described, we would also expect that we will have a good chance to be instituting that, able to get more mechanics out the latter half of this year, and 2022 looks like a year we would be in a position to start having better debt objectives to start working on a variable dividend. And where our preference is probably to look at it on a more regular cadence on a quarterly cadence is one element that you probably have a bias towards. But we will be able to communicate in a more granularity second half this year, on some of the mechanics we're anticipating how to calculate that.

[Arun Jayaram:]

Great, that sounds very intriguing. And my follow-up is I was wondering if you could give us a little bit more detail on some of the initial performance at the Big Sky project, which did feature some of your relaxed spacing as we also give us some thoughts on I know the market has been looking for count fleet, which I believe is coming near-term. So maybe just give us some thoughts on this migration to these wider spacing patterns. And maybe some thoughts on what this could mean in terms of productivity gains.

[Tom Jorden:]

Yes, Arun, John Lambuth is in the room and I'm going to let him answer the question, I'll just tell you upfront that we are really, really encouraged by what we're saying and feel greatly confident that our prior discussions of increased capital efficiency are going to be underpinned by solid results. John?

[John Lambuth:]

Yes, Arun, we actually have three developments, upsize developments now on production. We have between three to five months of production on those. One of them is in Lea County; the other two are in Reeves County. In fact, the one we have the most production on is in Reeves County. Both of those in Reeves were about eight wells per section and as we forecast them right now, as Tom said, we are very, very pleased with the performance we've seen so far. And as we project our ultimate recoverable for those wells, we believe that those eight wells are going to achieve about the same 1,280 acre oil EUR as what we are achieving, say two or even over the last year, which is 12 wells per section. So in essence, by drilling with four less wells, we're going to get the same oil EUR recovery, which of course then leads to phenomenal project returns and efficiency. So as Tom said, we're very pleased what we see. I must say it is still early, but we are at five months on one of them and gaining much more confidence on how those wells are performing and looking forward to more of them coming on.

[Arun Jayaram:]

What are the names of those three projects? And that's all I have, I just want to get some more details on those.

[John Lambuth:]

Yes, the projects are Dixieland and Big Sky and then one in Lea County is Red Hills.

[Arun Jayaram:]

Great. Thanks a lot guys.

[Tom Jorden:]

You know, just before we go on, this really ties into our variable dividend discussion because when we look at where we have this business, we feel really solid about our capital efficiency, our ability to maintain or slightly grow our production with a reduced portion of our cash flow and our free cash flow is really sustainable. It's not only about the quality of our assets. But the work that we've done and that John is talking about our capital efficiency really allows us to underpin any free cash flow with a highly efficient capital program. And we've probably never felt better about our business than we do now.

[Operator:]

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

[Jeanine Wai:]

Hi, good morning. First question may be for Tom or for Mark; you've accelerated the timing of achieving your goal in banking the cash for the 2024 for the recent divestiture looks like you're on track to us to have over a billion of free cash at the end of the year. And it appears to be a sellers' market right now on A&D, which is nice. And are there any other assets that could be earmarked for sale this year? And is there any update on what your minimum cash balances given, I think Tom, that you mentioned that you definitely want to ensure predictability and sustainability and return of capital?

[Mark Burford:]

Sure, Jeanine, first part of your question on other assets, potential asset sales. Right now, we don't have anything on the drawing board for additional asset sales beside what we discussed in the $150 million range that we have signed TSAs for expect to close in the second quarter. As far as the cash position, you're right, a billion dollars is very reasonable with additional cash proceeds from the sales and the free cash flow outlook for balance of the year. And a minimum cash balance that we would think of would be probably in the $250 million to $350 million, which we contemplate as the kind of the working capital swings we could anticipate and cover some portion of a capital program for some period of time, those kind of factors would be entering into our mind on what we would think as a minimum cash position should be.

[Jeanine Wai:]

Great and we can dial that in. Thank you. So our second question, maybe just on operations, 2022. So it looks like the actual commentary of 30% up 4Q to 4Q still stands which is great sets us for nice operational momentum next year. And I just wanted to revisit how you're thinking about capital efficiency in 2022. Is the goal to hold that exit rate flat for efficiencies, because you've got operations going well, you have really high return assets that will put you at double-digit growth year-over-year, or is the preference to pull back to a lower steady state and maybe stay within a similar or lower CapEx range to 2021?

[Tom Jorden:]

Well, Jeanine, I'll let Mark go into detail. But 2022 is a long way away. We really are very pleased that we think we're set up to enter 2022 with tremendous flexibility and options. But as we've said in past calls, any capital allocation, either on an absolute level or relative level for 2022, we're going to want to make that decision once we see what the increased demand looks like, what the supply picture looks like, from a macro. And as we've said in the past, we're highly unwilling to just chase the strip and have our capital be a function of the strip, which has been a mirage, quite frankly, over the last few years. So Mark, what you have?

[Mark Burford:]

Yes, Jeanine, I think what we're really focused on as Tom discussed the capital efficiencies is the key to how we're thinking about any period, including 2022. And further the macro backdrop of commodity prices, always an element that, as you look at the capital efficiency, there's a couple of elements that obviously be it drilling and completion capital and teams how would we operate that, there's an element there to being efficient with the resources we have with drilling crews, and drilling rigs and frac crews, that we wanted to have a good cadence, a good consistent cadence that allows us to maximize the efficiency of those programs, and maximize return and capital efficiency on those programs. As Tom said, we have a lot of time between now and 2022 to really dial that in. But those will be our focus points, Jeanine on how we think about proceeding into 2022.

[Operator:]

The next question comes from Michael Scialla of Stifel. Please go ahead.

[Unidentified Analyst:]

Hey, good morning guys. This is Jared for Mike.

[Tom Jorden:]

Hey, Jared.

[Unidentified Analyst:]

Hey. So looking at price realizations for the quarter, I was going to drill strong on NGLs and gas. We were just wondering if you'd have an outlook for the rest of the year. Obviously gas was high with the winter storm but we're just curious how you see NGL pricing for the rest of the year?

[Mark Burford:]

Yes, hi Jared. The NGL prices was very nice, strong and gas prices during the first quarter, and we see going into the balance of the year probably in that $0.40 to $0.50 duct from NYMEX for natural gas prices when you bake in the four curves for the Permian, and the Waha, El Paso, Permian differentials and kind of differentials. And then as far as the NGL realization, we're still going we're 39% realization at WTI in the first quarter, we see that probably easing back into the low-30s for the balance of the year.

[Unidentified Analyst:]

Perfect. Thanks. That helps. And then a quick follow-up. Are you guys seeing any signs of inflation anywhere in services? And do you see any opportunities to improve efficiencies? Thanks.

[Blake Sirgo:]

Yes, this is Blake. We have been some mild inflation in Q1, really just with the pickup in activity across the Permian, which we expected to see, it wasn't a surprise. Really what we focus on is working with our service partners to maximize efficiency and reduce downtime. Those leads ultimately lower cost per foot, which is what we're after. So we're going to keep driving that as hard as we can. And I firmly believe that will offset any inflation we might see.

[Operator:]

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

[John Abbott:]

Good morning. This is John Abbott on for Doug Leggate.

[Tom Jorden:]

Hi, John.

[John Abbott:]

Just quickly, this is another question sort of looking at 2022. I recognize that it's still early, long, long way. But you mentioned that you were looking at the regulations for federal lands. When you think about it, any more thoughts about potentially -- depending on what you're seeing, how keep more activity towards New Mexico just sort of how you're thinking about that at this point in time? Just what you're seeing and does it make sense to potentially step-up activity?

[Tom Jorden:]

Well, New Mexico is a great asset of ours. We've talked in the past that we did have a plan on the shelf for accelerating in New Mexico. And we still do have that. And that certainly would be an option for us. We're seeing a loosening of the permitting, we're getting new permits, we're getting right aways, we're getting sundries. We also scan competitor activity and we know our peers are likewise saying permits. So we're feeling pretty comfortable, confident perhaps is a better word, that New Mexico, we can just act prudently and not have to take any extraordinary action around the threat of permit restrictions. But that doesn't answer your question. Some of our best returns are in New Mexico. It's a very target rich environment. And as we look at 2022, I don't think you should be surprised if we have a greater proportion of activity in New Mexico than we do now. But again, that's not a reaction to a permit issue. That's just a program configuration. But we haven't made those decisions for 2022. And it'll be driven by best returns on capital. It'll be driven on midstream. I mean, a lot of factors drive that, but New Mexico is a tremendous part of our portfolio and we're delighted to have it.

[John Abbott:]

Thank you. And then a follow-up question is just what are your latest thoughts on long-term sustaining capital and over a multi-year basis can your potential oil breakeven?

[Mark Burford:]

Yes, John the -- thinking in terms of near-term savings as we establish our oil base, this year with a resumption of our activities, say the oil range of mid-80s type oil type forecast, seeing a steady capital around that level. We would estimate to be somewhere in the $600 million to $650 million range of capital to sustain that kind of 84,000 or mid-80s, excuse me barrels per day. And with the sustaining capital on equivalent basis little more varied, but we think in terms of oil volume kind of sustainability.

[Operator:]

The next question comes from Caroline Shavel of Goldman Sachs. Please go ahead.

[Caroline Shavel:]

Hi, good morning. This is Caroline on for Neil Mehta. Thank you for taking my question. I wanted to start with your 2Q production guide. It was a little light relative to, I think where expectations were coming in but as you mentioned in the prepared remarks, you still feel confident that you're on track with the 30% oil growth year-over-year for the fourth quarter? Can you just walk us through maybe as timing of wells coming online or other factors that might just get people more comfortable with the ramp and the fact that you're going to be able to execute on that fourth quarter exit rate?

[Mark Burford:]

Yes. Sure. So the second quarter guide is impacted by the cadence of wealth within the quarter being more quarter-end weighted, that's having some bearing on our second quarter forecast. And then for the full year, you will see that we have a strong cadence again in the third quarter, which will be really contributing that fourth quarter exit rate that we've described. So the cadence of our activities, we feel very confident in, and that we'll hit that cadence activity and achieve that year-end production forecasts that we've established.

[Caroline Shavel:]

Thank you. And then my next question is -- I mean the Permian is obviously the key area of focus for Cimarex and you'll be at zero rigs in the Mid-Con by the end of the month, understanding that you've already sold some non-core pieces of that assets this quarter, but I just wanted to get your thoughts more broadly around the strategic fit for the Mid-Con moving forward. I know you don't necessarily have -- you haven't mentioned you didn't have any further sales plan this year, but what you need to see in the Mid-Con to be able to attract capital to it. And then given what you saw recently in the market with the asset sales, what are the considerations there in terms of potential for further A&D.

[Tom Jorden:]

Well I'll finish with a conclusion and then back it up and fill in the reasoning. We really see the Mid-Continent as a sustaining ongoing part of our portfolio. We like the geographic diversity. We like commodity diversity. We like the market diversity. We've never chosen to be a one base and one commodity company. And particularly with the demands on Shale 3.0 that I talked about in my introductory remarks, we see the diversity of our portfolio as a key element of our sustainability of returning cash to our owners. But the reason that we're going to zero rigs in Mid-Continent is we've got a project that we're finishing up that is really a seminal test of some new ideas, some new completions that we are wholly excited about, and we'd like to watch the flowback before we decide what next. We have a strong portfolio of opportunities to Mid-Continent that compete heads up on a return basis with the Delaware basin. So, don't misinterpret rig count for enthusiasm. John, you want to say anything about that?

[John Lambuth:]

The only follow-up I would give is that we have been diligently working to consolidate our position to really what we consider the core in Anadarko in terms of best returns. One of those is Lone Rock, which we're currently drilling on. And when we have a number of areas like that, where we've been enhancing our working interests and quite frankly, looking forward to deploy more capital there, but Tom is absolutely right, we do want to see this initial development come on, monitors flowback, and then make the argument for more capital going in that direction.

[Operator:]

The next question comes from Jordan Levy of Truist. Please go ahead.

[Jordan Levy:]

Good morning all. This is Jordan Levy on for Neal Dingmann. My first question is just looking at Slide 5 in your presentation. It looks like 2Q; a lot of the projects coming online will be weighted toward Culberson based on kind of the current allocation you all have laid out. Just wondering if we should think about activity trending back toward Reeves later in the year barring nothing gets moved around and kind of the Permian asset allocation framework.

[Tom Jorden:]

Yes. Jordan, that's yes, there was a little weighting towards, so that we are frac crews are running currently. That is a little weighted towards the Permian and the overall mix and the same as second quarter. But, it'll be balanced back out. We do expect to have a balanced program between Reeves and Culberson for the full year, a little more even tilted towards Reeves when you get to the end of the day with our total well count. So it -- it just says now most of that, where the counts are coming in for that second quarter.

[Jordan Levy:]

Perfect. And just a quick second question, I'm just curious; there's been a lot of discussion on both sides of the conversation on going to kind of the laterals in the 12,000 to 15,000 foot range. And if I remember correctly, you all have done some testing of that sort in the past. I'm just curious how you're thinking about whether you see the benefits of continuing to increase that average lateral length or you think you reach a point of diminishing returns.

[John Lambuth:]

Well, this is John and I know Blake will add to this. We're very confident in our first off in our two mile 10,000 foot performance and our expectation. But that said, we have great excitement for even going longer where the land allows us to do that. And in fact, there are parts in Reeves, which we call river tracks, where we actually do go longer than two miles that the land affords us to accomplish that. I am aware in Culberson we're intending to go on a three-mile development here soon. And likewise, even in Anadarko, we're looking at several areas where we want to go three miles and we do believe that the incremental uplift we would receive from doing that is much more beneficial than the cost associated with it. But I'll let Blake add to that.

[Blake Sirgo:]

Sure, yes, we've drilled as much as two-and-a-half miles. And we do have some three mile wells on the schedule for later this year. We see a lot of value in the three mile units, of course, from a cost per foot standpoint, they look fantastic. We're blessed with really big acreage positions and our land teams hard at work, trying to see how many three mile units we can put together. So look forward to adding more of those into the portfolio.

[Operator:]

The next question comes from David Heikkinen of Heikkinen Energy Advisors. Please go ahead.

[David Heikkinen:]

Dave Heikkinen will be pronounceable, but thanks for taking my question. As you talked about the moves in Washington DC, can you just refresh us on your thinking about cash taxes and then really thinking about DC moves and how that would fit in or factor into your long-term return of cash to shareholders thinking, because in fact, the variable that we're going to have to address.

[Tom Jorden:]

Yes, David. Yes, certainly there's a lot of different items could be changing the tax landscape, certainly effective tax rate, corporate rate going from 21% for post 28% will have a bearing on our cash taxes. Right now, with the current tax situation we do see our NOLs, which are approximately $2 billion preventing us from having current tax -- cash taxes until the latter part of 2023 and into 2024. If there's increased tax rate, that'll certainly it'd be a 28% versus 21% versus when we do become current tax payable to business. So it doesn't accelerate that timing of it. The other elements that they are being discussed is obviously it's been a lot of years of intangible drilling cost deductions being an item that could be eliminated for the comp or for the industry. That would cause us to accelerate that the timing of our NOL utilization faster by a year or two. And then it depends on the rules that they put around the capitalization and deduction of those IDCs and how much bearing it has on the companies than an industry. But over time, they'll start to balance out as you get years of deductions from those prior years being capitalized and they'll start to neutralize each other. So certainly there's a lot of reasons to expect that the Washington, when you were putting more of a tax burden on all industry and specifically oil and gas, but it all could be factored into what we are available for return to shareholders.

[Operator:]

The question comes from Steven Dechert of KeyBanc. Please go ahead.

[Steven Dechert:]

Hey guys just want to see if we could get some color on the quarterly CapEx cadence for 2021. Thanks.

[Tom Jorden:]

Yes, sure. As we described in the previous calls that our capital cadence kind of somewhat mirrors our welcome -- wealth online cadence and it's a bit weighted towards the second and third quarters. And so we would expect a little bit more capital in the second and third quarters and a little bit of a tailing off into the fourth quarter, but again, it mirrors fairly closely our -- online cadences as well.

[Operator:]

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

[Nitin Kumar:]

Hi, good morning and thanks for taking my questions. Tom, I want to start on a bit of a philosophical one, this year, I think just a little bit under 50% of your oil production is hedged. Next year it starts dropping off a little bit historically you've participated in the hedge market. I'm curious with the balance sheet, approaching less than one times leverage meeting that the goal of paying off the debt, what's the role of hedging for Cimarex and Shale 3.0?

[Tom Jorden:]

Well, that's a great question. And, that's one that we need to debate at the board level. A number of years ago, we instituted our hedge policy. As you know, we layer in every quarter; we layer in about 10% of our anticipated future production every quarter. With the goal that we would feather them in, not be subjected to any single bet on commodity pricing, but also not have long-term hedges. We typically don't go out more than five or six quarters with the goal of having roughly 50% of our production hedged. Yes, we've never viewed it as an attempt to outguess the market, we've never viewed it as anything other than a shock absorber on our cash flow, such that if we had sudden swings in commodity pricing, we'd be able to execute on our capital plans without inordinate interruption. Having a lower debt structure certainly does invite rethought of that, I think that we would probably still have some degree of hedging, but we might back off that 50%. But I'll let Mark comment on that.

[Mark Burford:]

Yes, I would just echo what Tom was saying they're knitting is. We have -- had a practice of getting to nearly 50% hedged for 12 months forward and that's kind of reflects what we're looking at what we have hedge to 2022 is just starting to reach out into that time period. And but it's absolutely right, Tom is absolutely right in the fact that we have that practice of maintaining those hedge positions for shock absorber on our capital. But if we have pay-off to 2024 notes, we maintain the liquidity of $250 million to $350 million cash on our balance sheet that would have to be also factored; we take into account when we look at our risk tolerance and our mark-to-market on a commodity exposure. So it's something we'll have to continue to discuss. And as we get further down on, we're getting our balance sheet down to what we think is a very conservative levels or leverage.

[Tom Jorden:]

Nitin and I really appreciate the philosophical question, but I will just share with you we're long-term players, and we've been through a number of these cycles in our career. And when I think about the question, if April of 2020 guy has heard me answer that question in May of 2021, where we say. Great, no problem now, we can lower our guard on hedges. In April of 2020, Tom would be hitting me over the head with a rubber mallet. So we do like to have a long-term view and not get intoxicated by short-term joy even though it's really hard for us to have discipline. We are going to be disciplined in how we think about this.

[Nitin Kumar:]

And that's exactly what I was hoping to hear from Tom. Because, Shale 3.0 is not just for a quarter or two, it's something that you're doing as a long-term, steward of capital. My follow-up question, which I know, it's a bit of a tough word. We've talked about federal acreage and taxes on this call. But there are other regulations coming out of Washington right now, you've alluded to a few that made sense and some perhaps not as much. Beyond the industry dialogue, what are you doing? What is the business doing to? You know, if you could walk us through a few things that are there operationally, to make sure that you're ahead of the curve and not following regulatory rulemaking?

[Tom Jorden:]

Well, we're certainly engaged in a number of initiatives across our platform. We've already spoken at length about emissions and that's a huge focus of ours, operationally, engineering and from a corporate strategy standpoint. We're looking at wastewater handling. We do a tremendous amount of recycling. We're very proud of that, and probably should be talking about it more than we do. We've got some really innovative engineering in our assets, where we redirect, produce water on the fly, and there's times when we're recycling tremendous amounts of water. We're also looking at alternatives to disposal of water. There is some technology we're exploring that use of evaporative technology, mission reps rather innovative technologies out there. Across -- we have a huge focus on spills. We're certainly focused heavily in our environmental footprint. Blake, you want to comment on any initiatives I've left out.

[Blake Sirgo:]

No, obviously, the emissions ones are -- what we're working on is way above and beyond what any says. We're trying to limit every possible emission we can throughout our whole value chain. And that's something our operations team shares a core metric. We design and fight for it just like we do for productivity and cost, and we like being on the leading edge of that and we're going to keep pushing it.

[Operator:]

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

[Tom Jorden:]

Well, I want to thank everybody for joining us this morning. We're on track to deliver the year we promised. We feel very confident and look forward to updating you our progress as the year goes on. So thank you.

[Operator:]

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