Chord Energy Corporation (CHRD) Q2 2022 Earnings Report, Transcript and Summary

Good day and welcome to the Chord Energy Conference Call. All participants will be in a listen-only mode. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Michael Lou, Chief Financial Officer. Please sir, you may proceed.

Thank you, Curl [ph]. Good morning, everyone. Today we are reporting our second quarter 2022 financial and operational results. We're delighted to have you on our call. I'm joined today by Danny Brown, Chip Rimer and other members of the team. Please be advised that our remarks including the answers to your questions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and conference calls. Those risks include, among others, matters that we have described in our earnings releases as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During this conference call, we will make reference to non-GAAP measures and the reconciliations to the applicable GAAP measures can be found in our earnings releases and on our website. We may also reference our current investor presentation, which you can also find on our website. With that, I'll turn the call over to our CEO, Danny Brown.

Thanks Michael. Good morning, everyone, and thanks for joining our call. Today we'll discuss our integration progress, our new return of capital program, second quarter 2022 operating and financial results, and finally, our expectations for the balance of the year. But first I'd like to take a moment to address and acknowledge our employees. I know the past several months have been challenging, but your hard work and dedication have culminated in the successful close of our merger on July 01, great progress on integration and have put us in an excellent position to succeed as we move forward. My sincere thanks for all you do for our organization. July 1st, marked the end of two companies and the beginning of another. We chose the name Chord Energy as we feel the two common definitions of the word chord has significance to the merger and our organization. First, the mathematical definition of chord refers to the joining of two points on a curve, which we view as a metaphor for our merger of two premier bach [ph] and focused companies. Second in musical terminology, a chord represents multiple musical notes, played simultaneously to create harmony. We thought this was very aligned with the harmony we strive to achieve with all of our activities as we work to simultaneously be good stewards of our team, our communities, the environment and importantly, the investment our shareholders have entrusted us with. Given this is our first conference call as a combined company, I'd like to talk about the progress we've made over the past two years and how that relates to our path forward. Over 2021 and 2022, our predecessor companies streamline their cost structures and pivoted business strategy toward low reinvestment rates and high return of capital. We did this while implementing progressive shareholder aligned long term incentive programs. Additionally, we divested multiple non-core assets to focus on areas where we have competitive strengths, Oasis simplified and then divested its midstream company, which made the core EMP business more focused, less complex, and brought significant value to shareholders. We both grew our asset portfolios in core areas and did so in a prudent manner with a focus on value and our ability to return cash to shareholders while keeping leverage at appropriate levels. Additionally, we prioritize ESG initiatives, significantly increasing the transparency of the business and providing a baseline from which we can improve. Finally, we returned a significant amount of capital to shareholders through multiple avenues, including base variable and special dividends, as well as share repurchases. We've had a great deal of success and we'll continue to manage the business in a prudent sustainable manner with a best in class balance sheet and emphasizing return on and of capital. Now I'd like to provide a little bit more detail on integration progress. And on that front, we remain as excited as ever about the future of our company. The industrial logic of the combination remains sound, and we are well underway with integration having announced the organization's leadership through the first few layers of the company and are now working to select and implement the best practices, process and systems across all of our organization. We're using the integration as an opportunity to challenge the status quo and seek ways to improve the way we do business. We're having our leaders and teams keep an open mind and determine the best way to do things going forward without any bias towards the way things were traditionally done at either predecessor company. And think this is critical if we're to capture all the opportunity that this merger offers and we've seen great results. We have now identified over $100 million per year of merger synergies, which we expect to realize over time. On capital and operating synergies, we see multiple opportunities to leverage each company's proven strength in areas such as shortening well downtime, running a more efficient workover program, reducing drilling days, improving well completions, optimizing facility design and construction, and many other aspects of the business. We will elaborate more in the coming quarters, but I'm pleased with the progress we're making and the new opportunities the team have identified. Now moving to return of capital, Chord Energy announced its return of capital strategy last night, which is centered on a commitment to returning high amounts of capital to shareholders while maintaining financial strength. In accordance with this objective, we've made the plan dynamic as it allows for higher free cash flow return when projected leverage is at low normalized levels. We expect to pay out 75% or more of free cash flow when projected normalized leverage is below 0.5 times EBITDA, which with our current strong balance sheet is where we are in today. If or when leverage is above 5.5 times, but below 1, we expect to pay out 50% or more of free cash flow. In any event normalized leverage exceeds one, one times EBITDA, we would pay the base dividend and use remaining free cash flow to rapidly pay off debt as our long term leverage target is below one times at normalized pricing and maintaining a strong balance sheet is a key priority for the organization. As part of our return program, we are increasing the base dividend immediately to $1.25 per share per quarter or $5 per share per year. This represents an increase of well over 100%. And given our outstanding share count represents an aggregate dividend payment of approximately $52 million per quarter. Our base dividend yield is the highest amongst our mid-cap peers and importantly is designed to be resilient at low prices and to be sustainable through commodity cycles. In practice at the end of each quarter, Chord expects to announce a variable dividend based on the difference between our targeted free cash flow percentage and the amount of capital use to pay the base dividend and repurchase shares during the quarter. We expect both variable dividends and share buybacks to play a role in our capital return framework. In conjunction with our return of capital plan we also announced the approval of a new repurchase authorization for $300 million, which is on top of a $125 million and shares repurchase in July. Our return to capital program is highly competitive, represents our core strategic values, demonstrates our competence in the asset base and our ability to execute and maintains organizational flexibility. Now for a few words on the second quarter, we preannounce 2Q operating performance on July 01 and last night we provided actuals, which were generally in line with those initial ranges. As you recall, severe winter weather hit North Dakota in late April, which had a significant impact on the power grid and adversely impacted production and per unit cost. However, actual performance during the quarter was stronger than originally expected after the storms as power was restored sooner than we forecast in May. Volumes exceeded expectations, realizations were strong and per unit costs were better than we expected. Capital was also below our expectations, although this larger reflected timing as activity shifted to later in the year. And so as we look at the back half of 2022, we are providing third quarter guidance and also updated full year 2022 guidance pro-forma for the combined company. Without the weather impact, our updated guide would be above our initial guidance with the driver being good uptime and outperformance across the board on recent well completions. I encourage you to look at our latest investor presentation for some perspective on the new wells we've brought online over the past year, which are performing quite nicely. Including the weather impact, we are slightly below our original midpoint, but are very pleased with our operational performance. We updated our full year 2022 capital budget range to $730 million to $760 million, reflecting our estimates for the second half of 2022 service pricing and expected completion activity. The increase versus our original expectation reflects increases in pricing beyond what we originally forecasted February, as well as the shifting of some activity into the back half of the year where service costs are higher due to the inflation. The current services environment is just another example of why our merger makes great strategic sense. The increased scale of the company will allow us to level load our program, including keeping a pressure pumping crew working full time, which should lead to greater operational efficiency and therefore lower cost than we would experience otherwise. Also on the topic of completions, we recently brought on the Bakken's first dual fuel crack fleet, which will drive our second half program while lowering our emissions profile. We currently expect to run three rigs and about one and a half rack crews in our near-term focused areas, which includes Spanish, Indian Hills, City of Williston, FBIR and Cassandra. As a reminder at our current completions space, we have over 10 years of inventory economic at sub $60 per barrel WTI. Finally, I want to discuss our ESG strategy. Chord Energy remains committed to our core ESG principles of providing safe, reliable energy in an ethically and socially responsible manner for the long term benefit of our stakeholders. Transparency remains a key part of our strategy. We expect to provide more disclosure before year end, including pro-forma metrics for the combined organization. Throughout the remainder of this year and 2023, the board management will evaluate our current strategy and identify areas where we can improve. Shareholder feedback certainly influences this process and we look forward to engaging with the investment community on this and other topics at upcoming conferences and other investor discussions. With that, I'll turn it over to Michael for some financial updates.

Thanks Danny. Second quarter results in our press release and upcoming 10-Q filing generally reflects standalone performance from our predecessor company. However, we provide a tables in our press release and presentation, which highlight performance from each legacy company, along with combined pro-forma Chord Energy results. I will now highlight a handful of key operating items for the second quarter. The numbers mentioned reflect pro-forma Chord Energy and are calculated on a three stream basis for both companies unless otherwise noted. And as a reminder, we'll be moving to three stream reporting for the combined companies with third quarter results. In the second quarter, pro-forma Chord volumes of 158.6000 barrels of oil equivalent per day were at the high end of the range provided on July 1. You'll see that our CapEx is a little bit higher in the second half, and that is -- and as a result of that, our production guidance is also higher for the second half. Both crude and gas realizations were strong in the second quarter, as markets are fairly tight around the Williston and markets continue to remain strong for the second half as well. LOE average $10.06 cents per BOE for the second quarter, reflecting downtime and higher workovers related to the weather disruptions that Danny mentioned. And as you can see in our guide, we expect per unit LOE to decrease a bet in the second half of the year, reflecting less downtime. Cash EPT was $2.81 per BOE in line with the midpoint of the range provided on July 01. Production taxes were approximately 7.4% of oil and gas revenue at the high end of the July 01 preliminary range. Our production tax guidance for the third quarter of 7.7% to 8.1% reflects the recent increase in North Dakota oil taxes. This increase relates to pricing triggers as of the beginning of June. WTI averaged above $95 per barrel for three consecutive months. The rate would also reset back to lower levels if WTI were to average below the $95 per barrel for three consecutive months. Pro forma Chord cash G&A expense was $32.6 million, but $23.6 million excluding approximately $9 million of merger-related costs. CapEx was $172.7 million in the second quarter below initial expectations. The Delta largely relates to timing and we updated our full year CapEx forecast for latest pricing trends. So overall pro forma free cash flow was over $300 million in the second quarter. As of July 31, Chord had nothing drawn under its $2 billion borrowing base revolver and we've got $800 million of elected commitments under that revolver. Cash was approximately $96 million as of July 31 as well. We're providing that July 31 data so that in analysts have a reference point after merger cash consideration, special dividends, share buybacks and a significant amount of transaction costs that were paid in July. Chord Energy also has $400 million of senior unsecured notes due June of 2026. Chord's debt ratings were recently upgraded by both Moody's and S&P. As Danny mentioned, we have announced a pure-leading return of capital framework. This includes a declaration of a base dividend of a $1.25 per share payable August 30 to shareholders of record on August 16. Additionally, Chord repurchase, approximately $125 million under its repurchase program in July at a weighted average price of $106.25 per share. This equates to about 2.7% of the company's market cap. We've also announced a new 300 million share buyback authorization on top of that. Overall, we continue to demonstrate a commitment to significant shareholder return with over $1.1 billion return to shareholders in the past 18 months. In closing, thank you to the entire Chord team for the exceptional hard work during a quarter with extreme weather conditions and significant amount of merger integration work. As a result of that hard work, we are executing extremely well from an operational standpoint, identifying more synergies than originally anticipated, which all bolsters are sustainable free cash flow outlook, and our peer leading return of capital program. With that I'll hand the call back over to Caroline for questions.

[Operator instructions] The first question comes with Derrick Whitfield with Stifel. Please go ahead.

Good morning, all and congrats on your quarter and update.

Thanks Derek

With my first question I wanted to focus on the announced increase in PV10 synergies from the Oasis and Whiting merger. Relative to your base case, could you elaborate on the one to two primary drivers and if there are additional capital synergies, you're sensing now that the teams are fully integrated.

Thanks for the question Derrick, I'm going to maybe talk about our integration process and the synergies we're seeing broadly, and then ask Chip to maybe add some additional detail and maybe identify one or two areas that we think may be driving this, but I'll tell you honestly, Derrick it's a lot of little things. And so, one of the great things about the merger is that we really are using this as an opportunity to do a bit of self-reflection and look at how we do business. We are looking line by line across all aspects of our operations, our processes, our systems and unsurprisingly, Oasis focused on certain things, Whiting focused on certain things and got very good at those things. And so what this process has allowed us to do is really look under the hood on each other's side identify -- and identify the best way we think to go about doing things. And in some cases, we'll decide and we have decided that maybe the Oasis way and the Whiting way, neither one was the right way to do things. And we're sort of implementing a new thing moving forward but this opportunity through the merger is really giving us a chance to sort of reflect on how we do things. And so we're seeing improvements really across the board through lots of different categories. But I'll turn it over to Chip and he can give some more specifics on some of those -- some of those that may be larger than others, but I will say it really is across all aspects of our organization and business.

Yeah, Danny, thanks. And Derrick, thanks for the question. I want to say, I want to ditto what Michael and Danny said also, I really appreciate the teams working through the last quarter through rough winter conditions. You think about the day job they have to do, and the night job to put this together. So as Danny indicated, it is across all phases, but I'll give you a couple Derrick as an example. So on the completion side, one of the ways that one of the legacy companies was doing their completions, we believe will impact actually our downtime on our production side. So it'll be less sand that enters the well bore on the production side phase and so when you do that, you've got, we think we can improve our downtime drastically. And when you do that, we have a couple things there's cost associated with work-over rigs reduction and cost. There's a savings cost on other parts of that business, when you're doing the work-over side. There's a safety piece that gets improved. And then what we haven't included in the thing is, we'll stay continually flowing or pumping or working. And so there's a upside on the production side case. You think about that and the other one I'd like to point out is probably the facilities built. There's a modular design that is prefabricated in a shop. You bring them out to location. You minimize the impact on location size to about 30%. Labor's cut in about 50% when you do that. There's also a safety piece on that. And when you think about, I think there's also an ESG component, not just a cost savings, but an ESG component. So on the drilling side, on the completion shot side, we are -- on the drilling side, we're using basically batteries to minimize when we need more power. So we're minimizing the diesel impact and CO2 is going down on the completion side. As Danny indicated, we brought the first dual fuel fleet into the basin and so we're using CNG. So we're minimizing diesel and CO2 is going down. So you have these values on cost that we see and we also see the value on the ESG side. So I'm really proud of the team of what they've done and their impact.

That's great. And as my follow up, I wanted to ask if you could speak to the A&D market in the Williston at present with the understanding that you're still digesting this recent merger. I wanted to get a sense as to your appetite to participate in further industry consolidation.

Yeah, thanks Derek. I think, we continue to see a range of opportunities from maybe small private opportunities to larger asset opportunities to other corporate opportunities. And so I think it really is a range across the Williston, and we are obviously very focused on integration, but also open to looking and examining further consolidation, recognizing that sometimes you don't control the timing of those opportunities and so we'll be on the lookout for anything. I think we're very happy with what we're seeing with our transaction and bringing the two organizations together. We think we've got a significant inventory depth and great position, but if we see opportunities to make our company better and deliver and deliver more value to our shareholders, that's something we're absolutely going to look at. So, I see a range of opportunities there we'll be looking at them, but also think our status quo position is a pretty dang good one.

That's great, Daniel. Great update guys.

Thank Derek.

The next question comes with Phillips Johnston with Capital One. Please go ahead.

Hey guys, thank you. Next let's see the higher payout ratio and as you’ve noted I don't think anybody else in this mid-co oil group is really close to that level. The question that many will of course have is sustainability over time. So just wanted to get your updated thoughts on overall inventory depth. You mentioned that you're okay with status quo, but just kind of wanted to drill down a little bit and get your thoughts on inventory replenishment over time. I think that the last figure I have from you guys is around, a 1,000 to 1,100 gross locations for the combined company based on four to five walls per DSU.

Thanks Phillip. This is Daniel, I'll ask Chip to weigh in if he's got some incremental comments here. I think that's still sort of how we see the -- we see the world. I will say that as we're looking through and evaluating, as we can move from potentially two mile laterals to three mile laterals, which we like, because, obviously it delivers significantly more lateral footage from the zone, but at a lower capital cost. Those counts may change a little bit, but the overall lateral footage will stay about the same. And so one of the things we've talked about internally is we focus a lot on well counts and sometimes rig counts. And what really matters is the lateral footage that we actually deliver in zone. And so from that perspective, on maybe a normalizing to the scenarios we talked about before, we still see that a 1,000, 1100 wells, but as we convert to three model laterals, that number may go down, but the lateral footage stays the same and the capacity to deliver production for our organization stays the same as well. So generally speaking, I think we feel like we've got about 10 years’ worth of -- 10 years’ worth of inventory from a development pace perspective, and obviously if we see opportunities to bolt on and increase that and it makes sense for us to do so, we're going to be very inquisitive about those types of things, but the inventory depth is pretty significant as we stand the day.

I'm sorry, this is Chip Rimer. I would just kind of add onto that. Yeah, I agree a 100% with what Danny's saying, and we're really looking at how we manage and how we can basically take two miles to three miles because you imagine that last mile is probably 40% to 50% of the cost of what it is typically what you do on a two mile. So that capital efficiencies and the more you can do that. So I agree a 100%. You really can't think on a world of rigs or wells anymore. It's actual lateral fee.

Okay. And then just to follow up on the MA question, 75% plus ratio would of course still leave you guys in a position to build cash at a pretty rapid clip, but what kind of appetite would the board have to do a deal that would temporarily push the leverage ratio above kind of the 0.5 times threshold or potentially even above the one times threshold?

Well, I think if we see, obviously that's I don't want to speak for the board because that's a discussion we would have at the board when that situation presented itself. But, I think organizationally, if we saw a deal that we thought would make us a better organization and over the long term deliver more value to shareholders in that situation would take us to a leverage sort of above 0.5 or even potentially above one. That's something we'd absolutely look at if we thought it was the right thing for us to do. I think maintaining a low leverage ratio is something that's very important for the organization. Our financial strength is a key tenant. That's why we've made this return of capital framework dynamic. And so if we found ourselves in that scenario, we would use incremental cash flow to de-lever pretty quickly to get back down under one, which we think is where we should be as an organization. But if we saw the right opportunity, I think that's something we would be -- that we be open to. Again, it would have to be the right opportunity. We'd have to think it delivered incremental and additional value our shareholders over over-time. But I wouldn't say that we would be inhibited from doing that, but we would want to get back down into a low leverage spot as, as soon as we could post any feel like that. And having said all that, I don't think we feel compelled to do anything. Again, we feel like we've got a great position as we stand. But if we saw, if we see opportunities to improve that, of course we're going to look at it.

Sounds good, guys. Thank you.

[Operator Instructions] And the next question comes with David Deckelbaum with Cowen. Please go ahead.

Well, thank thanks for taking my questions today.

Thanks, David.

Just wanted to talk a little bit about just the capital program. You highlighted some of the delays from two Q moving into three Q CapEx up into two hundreds, it seems like the implications, we sort of get back down to this 150 level. When we think about 2023 and some of the efficiency gain that you're experiencing dropping down the three rigs instead of maybe running three and a half - four next year, some of the, the increased synergies that you're identifying; how do we think about the cost levels that you're experiencing in the fourth quarter? Kind of being sustainable in the '23, I guess just thinking about the trajectory of -- if you're maintaining these levels having in the '23; should we really see significant incremental spends on top of the absolute level that you're at in '22?

Yeah, I think as we I'll -- this is Danny, I'll make a few comments and then ask others to weigh in. Obviously we're not we're not specifically talking about 2023 right now, and we're still putting our development plan together and we'll talk about that in coming and coming quarters. But generally speaking, we're looking at sort of a -- I would say a maintenance to a maintenance plus program. But the plus on that would be pretty small. So, perhaps very, very low levels of growth but, but not significant growth year-over-year, there is some cyclicality and how we deliver production. And so as we bring, we, we will have one completion crew sort of running continuously through the year, but then we'll have another one that runs in the middle part of the year that will deliver production, sort of our peak production is probably going to come in sort of the fourth and first quarters. And then it'll dip a little bit until we start completing again and when we get back in the next year. And so if you take a fourth quarter number and then apply that into the next year, that's probably going to lead you astray a little bit in what the overall delivery is going to be for 2023. I think from a '23 standpoint where, it should be sort of a similar plan from a delivery standpoint. And as we mentioned a moment ago, we will be dropping rigs from four to three, but the lateral footage we deliver over the year is going to be pretty similar year-on-year. And so I think you should think of the '23 plan is pretty similar to the '22 plan.

I appreciate the color on that. And just maybe as a follow-up, highlighted certainly in the presentation that well performance of the combined companies has at least been matching or slightly exceeding some of the targets with some of the integration, I guess, and thoughts going into '23, it looks you're evaluating completion designs and things like that. Are there any material changes that you're looking at undertaking that would, would change perhaps some of that performance going into '23?

So go ahead. So David, I would say that we're, as we talked about earlier, I think we were really looking at sort of all aspects. I think a lot of these are maybe incremental changes relative to the way either organization did things previously. If we see, I would say, revolutionary changes that we think could offer significant improved performance. Clearly we're going to be investigating those. But I think most of these things are really about sort of incremental improvement, but when you stack a whole lot of those things up together, they deliver some pretty impressive results. And so unless Chip may comment more.

No, I would agree with that, Danny also, I think I, I give credits to both legacy companies and their subsurface teams. The subsurface teams have really understood, I believe, well, spacing on DSU or infield drilling in like our sand area and be able to really bring impact to the Company. And so, as Danny said, there's small little things here, but they have gone through, they have a program and they go back and they, they review Wells what the lessons were, how we're going to get better. So it's a small incremental piece we go along.

The next question comes with Fernando Zavala Pickering Energy Partners. Please go ahead.

Hi guys. Good morning. I was hoping to dig a little more into the thought process behind the updated return specifically, how you thought about balancing the building cash for potential M&A or, share purchases and downturns versus paying out the vast majority of your cash-flow apparently?

Yeah, thanks. Thanks, Fernando. I, I think when maybe I'll take those well, I'll talk about the cash balance piece. So I think that's a good question. I think one of the great things about having a really strong balance sheet is that we believe it affords us a lot of flexibility including the flexibility to be opportunistic if we see if we see the right opportunity out there. And so as a result, I don't think we feel compelled to build a big cash balance because we see we've got that inherent flexibility just because the financial strength of the organization. So I think really that's why we've got that 75% plus out there because in, in very low leverage scenarios, we would anticipate returning it's a very significant portion of our pre-cash-flow shareholders.

Got it; Thanks and then quick follow-up just wanted to get updated thoughts on the Crestwood ownership and the plan for those heading?

Yeah, I think from a Crestwood perspective, we continue to, to really like the -- to really like the company, clearly, they're a very important strategic partner for our organization. The equity performance has been very good or the unit performance has been good. We like the company. We like the, we like our ownership stake in that. I think it's over, over the long term, we recognize that that's not a, a core strategic holding for us, but we're pleased with that with that investment and think it and think it is a, is a great organization for us to have a holding in.

Thanks that, that's it for me. Appreciate it.

Last question comes with Prashant Jani with Truist Securities, please go ahead

Good morning. I'm not sure if you guys explicitly outlined it, but I assume part of the rationale for the combination of the two companies was kind of a mid-stream position that could maybe reduce some of the constraints you've seen before. Have you had enough time to kind of look into this? Are you maybe going to reshuffle the operational plan specifically for this, or do you think you'd just, focus on the highest return areas and kind of let it shake out?

Well, I think when, when we're looking at development plans and I'll ask chip to weigh in. Clearly, we take in our ability to we sort of take in all aspects into account as we build out a development plan, both those areas where we get the highest returns, but if you can't get those returns reliably in market then those may not be the best area for you to go in at that time. And so we try to work as long in advance or as far in advance with our midstream providers as we can, so that we do get the right infrastructure in place so that we can work in the areas that we want to drill but that's an iterative process. And so as we build out this plan, we sort of take all that into account preferentially going into those areas that are that we think offer us the best return, but also being cognizant of the infrastructure constraints that may be there and work with our midstream providers to get those sorted out over time. So maybe I'll ask Chip kind of incremental comments to that.

This is chip Reimer. Thank, thanks again for the question. Danny is exactly right. It's holistic look at the program. So what are your best returns where you have takeaway where you don't have takeaway thinking way ahead to make sure that we've talked to our midstream providers so we can have that access they're connected to our Wells. There's another ESG component on this thing. So, we're, you want to make sure that every molecule is captured and, and flowed down and put down that line. So that being approved and operator that's what you've got to do and make sure we're connected with, with the third party provider. So we really close with them. Our teams work really close and we each, every time we're going through a budgeting process and then trying to understand what Wells we're going to go to, it's all around returns, but can we, can we move that product down the line?

I appreciate the color. And then just shifting gears back to the new payout plan; is there mechanically a way that you look at it? I, I know you have the $65 and $3 Henry hub. But if the market were to kind of rebalance, would you readjust those prices or is that more of your long-term view regardless of what the strip looks like?

Well, I think if we, as we looked at the strip, if the strip fell appreciably then, then clearly we would look at those. We would look at those prices again. We think that that 65 and three, sort of represents a reasonable long-term sort of normalized mid-cycle view, but clearly our thoughts on that may evolve over time and we want to make sure that we are sort of deep financial strength for the organization. And so if we found ourselves in a very different environment, we would absolutely go back and look at that and reevaluate.

Thank you. This concludes our question-and-answer session. I will like now to turn the conference back over to Daniel Brown for any closing remarks, please go ahead.

All right. Thank you, Carolyn. Well, to close out, I'd like to thank everybody for their time today. I'm very pleased with the exceptional progress we've made in transforming our organizations. We remain committed to our core strategy, which revolves around return on and of capital balance sheet strength and being a sustainable operator. We're excited about the opportunities going forward for our shareholders, employees, communities, and other stakeholders. And with that, thanks for joining our call.

This conference is now concluded. You may now disconnect. Thank you for attending today's presentation. Have a good one.