Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record oil production reached 335,000 barrels per day, driven by strong performance in the Delaware Basin.
- Capital and operating costs came in well below guidance due to effective supply chain management and improved cycle times.
- Raised 2024 production guidance for the second consecutive quarter, now expecting over 680,000 BOE per day.
- Expanded share repurchase program by 67% to $5 billion, providing ample capacity for shareholder returns.
- Strong free cash flow generation, with $587 million of free cash flow for the quarter, supporting dividends and buybacks.
Negative Points
- Potential risks and uncertainties in forward-looking statements that may cause actual results to differ materially.
- Challenges in managing working interest variations in the Delaware Basin, which could impact capital and production.
- Operational improvements and cost efficiencies may not be sustainable or fully realized in future quarters.
- Market volatility and pullback in equity price may affect the balance between share repurchases and variable dividends.
- Integration and execution risks associated with the Grace mill acquisition in the Williston Basin.
Q & A Highlights
Q: How should we think about activity in the second half of the year, particularly in the Delaware Basin?
A: (Clay Gaspar, Executive Vice President and Chief Operating Officer) The first half of the year benefited from the fourth frac crew, which was moved in and out quicker than originally planned. This resulted in some second-quarter capital benefits. The activity is relatively flat over the course of the year, with the front half benefiting from the fourth frac crew and the second half seeing a bit of depressed capital, balancing things out nicely.
Q: What are your thoughts on the working interest in the Delaware Basin for the second half of the year?
A: (Clay Gaspar, Executive Vice President and Chief Operating Officer) The working interest has been moving around, affecting capital. We try to manage this through the year, and while it is challenging, we expect a lighter working interest in the second half compared to the first quarter.
Q: Can you provide a placeholder for the 2025 capital program, considering the incremental spending from Grayson Mill?
A: (Clay Gaspar, Executive Vice President and Chief Operating Officer) While it's too early to telegraph specifics for 2025, directionally, your estimate of around $4.2 billion is not too far off. We will refine our plans after our strategy session with the Board and the completion of the Grayson Mill acquisition.
Q: How do you balance capital allocation between buybacks and variable dividends given the current market conditions?
A: (Jeff Ritenour, Executive Vice President and Chief Financial Officer) We continue to lean towards share repurchases given the compelling valuation of our stock. We aim to be consistent with around $250 million in share repurchases per quarter, while the variable dividend will be a function of the free cash flow generated each period.
Q: What is your perspective on the M&A market and potential future opportunities?
A: (Rick Muncrief, President and Chief Executive Officer) We always keep our eyes open for opportunities but maintain a high bar for transactions. Our focus is currently on closing and integrating the Grayson Mill acquisition. We will continue to be disciplined and ensure any acquisition strengthens our company.
Q: Can you discuss the operational improvements and their sustainability in the second half of the year?
A: (Clay Gaspar, Executive Vice President and Chief Operating Officer) We constantly update our forecasts, and operational improvements are easier to incorporate. While productivity gains are harder to predict on a month-to-month basis, we see continued upside and aim to ensure our forecasts are achievable.
Q: How do you view the impact of new pipelines like Matterhorn and Blackcomb on the gas market?
A: (Jeff Ritenour, Executive Vice President and Chief Financial Officer) We are excited about these projects as they will move molecules away from the Waha Hub to the Gulf Coast, potentially capturing LNG pricing improvements. Our marketing team has done a great job ensuring we can move molecules to where we can get the highest realized price.
Q: How do you view the inventory and potential of the Powder River Basin?
A: (Clay Gaspar, Executive Vice President and Chief Operating Officer) The Powder River Basin is a complementary asset with significant future potential. We plan to run one to two rigs to de-risk the play and understand productivity. While costs will come down with scale, we will continue to evaluate and unlock its potential systematically.
Q: Can you compare the well costs and operating costs between Grayson Mill and your legacy Bakken assets?
A: (Rick Muncrief, President and Chief Executive Officer) Grayson Mill has slightly less oil cut percentage but better margins due to controlled infrastructure. While it's too early to tell exact costs, we expect efficiencies as we integrate and manage rigs holistically across the basin.
Q: What are your thoughts on the Eagleford redevelopment and its impact on production?
A: (Clay Gaspar, Executive Vice President and Chief Operating Officer) The Eagleford redevelopment involves downspacing opportunities and re-fracs, providing significant running room. This has resulted in phenomenal rates and continues to be a critical part of our portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
