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Text: We will start today's call with remarks from Bill Berry, Continental's Chief Executive Officer and Jack Stark, President and Chief Operating Officer.
Bill and Jack will be joined by additional members of our team, including Mr. Harold Hamm, Chairman of the Board; John Hart, Chief Financial Officer and Chief Strategy Officer; and other members of our team.
Finally, on the call, we will refer to certain non-GAAP financial measures.
I hope everyone is well.
This significant free cash flow is being dedicated to shareholder capital returns in the form of an increased quarterly dividend to $0.15 per share, continued focus on debt reduction and resumption of our $1 billion share repurchase program.
We appreciate our investors support and hope this continues to provide confidence in Continental being the best investment opportunity in the industry and the most shareholder return-focused company in any industry.
During the second quarter, we generated a company record-breaking $634 million of free cash flow, reducing net debt by $284 million ending the quarter with $4.59 billion.
Year-to-date, we've generated $1.34 billion in free cash flow, while reducing our net debt by $892 million.
We distributed $40 million to shareholders with our previous $0.11 quarterly dividend.
We exceeded our production guidance for the quarter, delivering 167,000 BOE a day and just over -- barrels of oil a day and just over 1 billion cubic feet of gas per day.
We delivered exceptional performance and efficiencies from our assets in the Bakken and Oklahoma, which Jack will provide more details.
With respect to hedging, we remain unhedged on crude oil.
On gas, we have about approximately 50% of our volume hedged through year-end with a combination of swaps and collars that provide a flow around three powertrain retaining price upsize of over $5.
For 2022, we have no gas hedges beyond the first quarter and no hedges at all in 2022.
While we remain bullish on commodity prices given the volatility of price cycles and potential impact of government reaction to COVID variants, we continue to believe it is inappropriate for the industry to overproduce into a potentially oversupplied market, particularly with respect to crude oil.
As I highlighted last quarter, we remain focused on our strategic vision with four key elements I'd like to briefly discuss today.
Free cash flow commitment and capital discipline, strengthening the balance sheet, and corporate and cash returns to shareholders.
Let me start with our commitment to free cash flow and capital discipline.
Our cash flow generation is robust and competitively advantaged versus our peers given our unhedged crude oil profile as shown in Slide 4.
In the first half of the year, we have year-to-date already generated the free cash flow we were projecting for the entirety of 2021.
We're announcing the potential to generate approximately $2.4 billion of free cash flow at current strip prices this year, which equates to an approximately 19% free cash flow yield.
Given our discipline response to rising commodity prices, our capex budget for 2021 has not changed and our reinvestment rate is trending toward 35%.
With regard to strengthening the balance sheet, our net debt reduction is tracking toward $1.8 billion in 2021, which will bring our year-end net debt close to $3.7 billion.
We expect to meet or exceed our leverage target of one-time net debt to EBITDA this year, but are not finished there.
Our intention is to reduce absolute debt to one-time at $50 to $55 WTI, which equates to approximately $3 billion in debt.
Alongside our strong inventory and commodity optionality, we are confident our net debt outlook is one of the many powerful attributes for both the company and our shareholders.
And we believe our current credit metrics are reflective of investment grade.
So let me now discuss corporate returns and cash returns to investors.
We're generating strong corporate returns and projecting to deliver 18% return on capital employed in 2021.
Additionally, we're committed to disciplined and significant shareholder returns through net debt reduction and prioritizing cash returns using the multiple vehicles we have to return cash to investors, including our dividends and share repurchases.
We're committed to growing our dividend in a competitive and sustainable manner.
That is why we increased our quarterly fixed dividend by 36% versus last quarter to $0.15 a share.
This has tripled our original dividend rate and equals to an approximately 1.7% annualized dividend yield, which we believe is competitive with industry peers and shows ongoing growth in cash returns.
We are resuming our share repurchase program of $1 billion, which began in 2019 with $317 million of purchases previously executed $683 million of capacity remains.
Given our significant shareholder alignment you can be confident that shareholder capital returns will remain a significant priority for our company.
The combined shareholder capital returns in the form of the annualized dividend and projected net debt reduction by year-end 2021 alone would equate to 53% of the company's projected full year 2021 cash flow from operations, and 16% of the current -- company's current capital market.
Share repurchases would be additive to these figures depending on the timing of additional share repurchases, which we expect to be in the near future.
2021 guidance updates, let me share with you a little bit on where we are on that.
As we look ahead to the remainder of 2021, several of our key metrics are materially outperforming our original guidance such that we have updated for the following.
Natural gas production in 2021 is now expected to range between 900,000,001 BCF a day.
Production expense is projected to be $3 to $3.50 per BOE better than the original guidance of $3.25 to $3.75.
Additionally, as reflected on Slide 16, we have improved our guidance on DD&A and crude and gas differentials.
I also want to highlight our continued focus on ESG.
We recently released our 2020 ESG updates, which can be found on our website, www.
ESG has always been a key part of our DNA and something we have highlighted as a means to steward our company.
Our ESG efforts remain focused on continuously improving and our approach is to look at all operational impacts, including land, water, and air.
We believe it is essential all countries and all economic participants do their part to improve the ESG in the same way, in order to better our world.
In closing, I did want to provide an update on the launch of the new futures contract Midland WTI American Gulf Coast, which will start trading on the Intercontinental Exchange by year end.
This is a combination of recommendations by the AGS Best Practices Task Force led by Harold Hamm, along with efforts by Magellan and Enterprise Products, and will be an exciting opportunity for U.S. producers seeking greater transparency, more liquidity, and access to global markets.
Appreciate you joining our call.
Today, I'm going to share some highlights from the outstanding results our teams delivered this quarter, and there are three key takeaways I want to leave you with.
First, our assets are performing with remarkable consistency and predictability, delivering their terms in excess of 100% from our Bakken and 60% to 80% from our Oklahoma drilling programs, assuming $60 WTI and $3 NYMEX gas.
Second, we are on track to reduce our weighted average cost per well year-over-year by approximately 10%, and 70% to 80% of these savings are structural.
Third, our capital efficiencies are reaching record levels and we expect to deliver a projected return on capital employed of approximately 18% for 2021.
Our assets also provide optionality to respond to changing market conditions.
For example, the decision to focus up to 70% of our rigs on our Oklahoma natural gas assets in the second quarter of last year has proven to be very strategic.
Our second quarter 2021 natural gas production in Oklahoma was up approximately 10% over the first quarter of 2020, while NYMEX natural gas prices, more than doubled over this same period of time.
With today's improved crude prices, we are exercising this optionality once again in migrating up to 75% of our rigs to a more oil weighted portfolio in the back half of this year.
As Bill highlighted, our well production remains unhedged and our shareholders are receiving the full benefit of the improved crude oil price.
So let's get into the quarterly highlights.
During the quarter, we brought on 108 gross operated wells with 70 in the Bakken and 38 in Oklahoma.
Early performance from our 2021 Bakken wells is right on track as shown on Slide 8.
This chart compares the average performance of our 2021 wells with average performance of 488 Continental operated wells completed over the prior four years, grouped by program year.
Over the last four years, we have also reduced our cycle time for putting Bakken wells online by 50% and dropped our completed well costs by approximately 30% driving our capital efficiencies in the Bakken to record levels.
Today, we are producing approximately 45% more BOE per $1,000 spent in the first 12 months than we did in 2018.
Our Bakken differentials are also improving, driven by demand for Bakken crude and the expansion of DAPL, which was put into operation on August 1.
With this expansion, there is approximately 1.6 million barrels of pipeline and local refining takeaway capacity from the Bakken excluding rail.
Bottom line, considering all of these improvements and the bullish market fundamentals, we are potentially entering one of the most profitable chapters in the history of the Bakken for Continental and its shareholders.
Before leaving the Bakken, I should point out that 11 of our second quarter Bakken completions were located in our Long Creek unit.
These 11 wells are excellent producers as shown on Slide 9, equally impressive by the well costs that are coming in below original estimates at approximately 6.1 million per well.
Recent results are bellwether for things to come, as we continue developing a total of 56 wells in this unit, and we expect to complete about 30% of these wells by year-end 2021, 50% in 2020 and the remaining 20% in early 2023.
In Oklahoma, we continue to see excellent results from our really both our oil and gas condensate wells as illustrated on Slide 10.
These charts show the average well performance by year in all four of our SpringBoard project areas over the last 2.5 years.
The SpringBoard I -- in SpringBoard I and II, you can see that the average well performance has improved over time with great repeatability in both the condensate and oil windows.
This includes 155 operating wells of which 70% were oil well and 30% were condensate wells.
Now the chart on the lower left of Slide 10 shows impressive performance from our operated oil wells in SpringBoard III and IV.
This is a small dataset, so we chose to break the average annual performance by producing formation to provide more color on the results we have seen to-date.
The chart includes seven Woodford and four Sycamore wells that we completed over the last 2.5 years.
The key observations from this chart is that the seven Woodford wells are performing in line with SpringBoard I and II oil wells, while there is four Sycamore wells that were completed in 2019 are significantly outperforming.
Even more impressive is that we're on track to reduce our completed well cost by approximately 17% year-over-year.
Since 2018, our teams have reduced completed well costs in Oklahoma by a total of 40%, which as in the Bakken has driven our capital efficiencies to record levels in Oklahoma.
As shown on Slide 11, we are producing approximately 80% more BOE per $1,000 spent in the first 12 months than we did in 2018.
In the Powder River Basin, our drilling is proceeding right on schedule.
Our drilling teams are doing a great job and have met and exceeded our early expectation for drilling days and costs.
We have six wells waiting on completion and expect to have some results to share later this year.
We currently have two rigs drilling through year end.
Looking ahead, we are maintaining our oil production guidance for the year, and I should point out that our second quarter production was boosted by accelerating the completion of select third quarter wells and putting them online in the second quarter.
In the fourth quarter, we are projecting a December exit rate of approximately 165,000 barrels of oil per day.
We currently have eight rigs drilling in the Bakken, two in the Powder and five in Oklahoma, and are considering adding up to one rig in the Bakken and two in Oklahoma by year end.
In closing, I'll mention that our exploration teams at Continental continue to generate new opportunities within and outside of our core operating areas.
Later this year, we plan to do some exploratory drilling to test a couple of these new opportunities.
Details must remain confidential, but I can tell you that with success, each of these opportunities could add significantly to our deep inventory.
So with that, we are now ready to begin the Q&A session -- section of our call.

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increased its 2021 annual natural gas production guidance to 900 to 1,000 mmcfpd.
continental resources - now projects generating $3.8 billion of cash flow from operations, $2.4 billion of free cash flow for 2021 at current strip prices.

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