Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Continental Resources Inc (NYSE:CLR)
Q2 2019 Earnings Call
Aug 6, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Second Quarter 2019 Continental Resources Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Rory Sabino, Vice President of Investor Relations. Please go ahead.

Rory Sabino -- Vice President, Investor Relations

Good morning. Thank you for joining us. I would like to welcome you to today's earnings call. We'll start today's call with remarks from Harold Hamm, Chairman and Chief Executive Officer; Jack Stark, President; and John Hart, Chief Financial Officer. We will have other members of management available for Q&A as needed. 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. Also this morning, we will refer to initial production levels for new wells, which unless otherwise stated, are maximum 24-hour initial test rates.

We will also reference rates of return, which unless otherwise stated, are based on $60 per barrel WTI and $3 per Mcf natural gas. 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. Hamm. Harold?

Good morning. Thank you for joining us. I would like to welcome you to today's earnings call. We'll start today's call with remarks from Harold Hamm, Chairman and Chief Executive Officer; Jack Stark, President; and John Hart, Chief Financial Officer. We will have other members of management available for Q&A as needed. 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. Also this morning, we will refer to initial production levels for new wells, which unless otherwise stated, are maximum 24-hour initial test rates.

We will also reference rates of return, which unless otherwise stated, are based on $60 per barrel WTI and $3 per Mcf natural gas. 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. Hamm. Harold?

Harold G. Hamm -- Chairman and Chief Executive Officer

Good morning and thank you for joining us for our second quarter earnings call. The company has completed a very solid quarter that's placed us firmly on track to execute our 2019 plan to further enhance shareholder value. Our share buyback and stock dividend plan at June 3 has been a strong validation of our continued focus on enhancing shareholder value. Share repurchases from our free cash flow has amounted to $92 million so far or approximately 10% of our initial target. We do not think our current share price is fair indicator of the value of our company and we are determined to capture value for our shareholders.

As a reminder, our first dividend payment is scheduled for November. Our multiyear free cash flow projection leave room to increase dividends in the future. Our crude oil production growth is running ahead of schedule and we expect average production for the year to be in the upper half of our original guidance. We have also achieved efficiencies throughout the first half of 2019 that will allow the reduction of drilling rigs from 19 rigs in SCOOP/STACK to 12 rigs around early fourth quarter 2019. This 37% reduction in our southern rig fleet was made possible by the step change in performance from our Springer and Woodford rig plays in Project SpringBoard.

I am proud that our teams can exceed production estimates with lower rig activity that is operating and of capital efficiency at its best. Jack will elaborate more on the mechanics of these efficiencies and timing of the rig reductions. We are very committed to meeting our capex and other corporate guidance for the year and have the flexibility to do so as we are demonstrating. This includes a free cash flow that is expected to come in at the high end of our $500 million to $600 million range for 2019. We also continue to add value for our shareholders through strategic initiatives such as those we announced last week.

This includes a recent bolt-on acquisition of SCOOP and other strategic equities trades in our core operating areas. While these initiatives require a modest associated spend, they provide an added inventory and increased working interest in our core assets for 2020 and beyond. Likewise, the success we are having with our mineral acquisitions is building significant future value for shareholders.

Our mineral acquisition program is progressing so well as noted in last week's release that a majority of our annual spend estimate has been transacted in the first half of the year capturing significant future value for our shareholders. For example, we own approximately 19% of mineral royalties underlying Continental's leasehold positions in SpringBoard. Finally, as we announced last week from another embedded asset, our teams have monetized a portion of our water recycling and gathering infrastructure in STACK.

This sale represents less than 10% of our broader water infrastructure portfolio and was executed for $85 million. We estimate that our remaining water assets are valued at approximately $1 billion and generate EBITDAX of approximately $100 million annually. Our water infrastructure assets represent more shareholder value that is not currently being recognized by the market. Now for future operational color, I'll turn the call over to Jack Stark.

Jack H. Stark -- President

Thank you, Harold, and good morning, everyone. We appreciate you joining us on our call. Once again, we have some great operational highlights this year that all center around the simple message of growing shareholder value. In the Bakken, second quarter production was up 23% year-over-year. During the quarter, we completed another 35 wells that flowed at an average initial rate of 2,300 BOE per day. One of the wells, the Carson Peak 8-35H in Dunn County, flowed at an impressive initial rate of 4,870 BOE per day.

These 3 strategic step outs we announced last quarter continued to meet expectations as they are outperforming legacy offset wells by 75% to 145% at 120 days and delivering returns of up to 85%. Our highlight for the Bakken this quarter is that we received regulatory approval to begin development of our 10 square-mile Long Creek Bakken unit in Williams County, North Dakota. This is another high-impact oil project much like our SpringBoard project that is expected to add up to 20,000 net barrels of oil per day. Continental plans to drill up to 56 additional wells in the unit with an average working interest of 87%.

Production is projected to begin in the third quarter of 2020 and should peak -- reach peak production in the second half of 2021. The unit was formed to capitalize on our dominant ownership position and maximize the value of these assets. All products will be gathered and distributed on pipe through centralized facilities. This is another significant catalyst for growing shareholder value. In Oklahoma, the big news for the quarter is that oil production is up 35% year-over-year, averaging 36,300 barrels of oil per day.

This reflects the impact of Project SpringBoard and our overall shift to a more oil-focused drilling program in both SCOOP and STACK since mid-2018. Oil growth in Project SpringBoard is on track and we fully expect to meet or exceed our updated target of 18,000 barrels of oil per day in the third quarter. For the fourth quarter, we are targeting 22,000 barrels of oil per day and are well on our way to achieving this since July production averaged approximately 19,000 barrels of oil per day. To date, we have brought on 60 wells in SpringBoard, of which 46 are Springer and 14 are Woodford.

We expect to bring on approximately 30 additional SpringBoard wells later by the end of the year. 23 of the 46 Springer producers came on recently and these are located in rows 2 and 3. Early performance from these wells looks strong with oil production trending above the 1.3 million BOE type curve we introduced earlier this year.

Over half of these wells have been producing for just 2 weeks, but are already hitting the high range of expectations. For example, the Nancy J 2 and 3 wells are both flowing approximately 1,400 barrels of oil and 2.8 million cubic feet of gas per day with impressive flowing facing pressures of approximately 2,800 psi. This is right in line with expectations given the increased reservoir thickness in rows 2 and 3. We'll provide more detailed updates once we get the remaining wells in rows 2 and 3 on and allow them to line out.

I also want to point out that the Woodford and SpringBoard is beginning to make its presence known as we get more wells online. We are very pleased with the early performance of the Woodford wells as these unit wells are outperforming our legacy type curve while the parent well in the oil window is shown on Slide 13. The key takeaway here is that SpringBoard is significantly outperforming our production target announced almost a year ago of 16,500 barrels of oil per day for the third quarter 2019 as a result of both reduced cycle times and solid well performance.

As Harold noted, we also own approximately 19% of the royalties under SpringBoard as a result of our strategic acquisition of mineral rights. This is another great example of how we leverage our knowledge and expertise to maximize returns for shareholders. In STACK, we have completion work under way on 2 units in the oil window called the [Reba, Joe and Sheltie] units, both units contain 7 Meramec wells with 4 targeting the upper Meramec and 3 targeting the lower Meramec. First production is expected in late third quarter.

Looking back, we continue to be very pleased with the performance of the units we have developed over the last 10 months in both the oil and condensate windows of STACK. The wells in these units continue to outperform our type curves as shown on Slide 15. In fact, the Jalou and Simba units are projected to pay out in less than 1 year. Key point here is that our teams have a good handle on well density and the results are repeatable. Operationally, our teams continue to deliver capital efficiencies through their ingenuity and technology.

In SpringBoard, our drilling cycle times are now routinely averaging 32 days, down 30% from the initiation of the project. In STACK, we have drilled our second slim-hole design well, confirming a saving up to $500,000 per well is achievable. Year-to-date, our completion teams in Oklahoma have completed 22% more lateral feet than budgeted and have done so at 17% lower cost per lateral foot. And in the Bakken, moving to 45 stage completions using engineered perforations is saving up to $500,000 per well while delivering the same results as our previous 60 stage completions.

These savings come from a wide variety of items but they all translate again to significant value for shareholders. These efficiencies will enable us to achieve our 2019 objectives in Oklahoma with fewer rigs than budgeted. So over the next couple of months, we'll be releasing 7 of the 19 rigs we had drilling at the end of the second quarter in Oklahoma. In the Bakken we'll continue drilling ahead with 6 rigs

With that, I'll turn it over to John.

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

Thank you, Jack. Good morning, everyone. Let me start with a snapshot of our performance. We are performing at a high level with significant net income driven by solid corporate returns and production. We also continue to realize strong free cash flow. And accordingly, we have commenced our share repurchase program and implemented a dividend to be paid in the fourth quarter to further enhance shareholder value. I wanted to highlight our share repurchases for the quarter.

As Harold mentioned, we have executed $92 million in share repurchases as of August 2. This equates to 2.4 million shares. Continental is focused on shareholder value with our only prior equity offerings being our IPO in 2007 and one follow-on offering in 2011. We did not dilute shareholders over the last few years as many did as we weren't financially strong. So our buyback program is a buyback in the truest sense. Further buybacks are ongoing and we will update you quarterly on our progress. We expect our initial buyback program to last through 2020. Switching to our mineral royalty activity.

Our pace of 2019 mineral acquisitions has been heavily weighted to the first half of the year. We are pleased with our team's execution as our opportunistic ability to acquire minerals ahead of the drill schedule will translate to strong future returns. Our minerals relationship is unique because of a known drill plan. As shown on Slide 8 of our investor deck, 90% of our minerals are under Continental-operated units. In the first half of 2019, over 75% of Continental wells spud in the South had underlying mineral ownership. We believe this entity will become a strong IPO candidate as its scale increases over the next few years.

Let's take a moment to provide an update on our 2019 guidance and the strategic initiatives announced in last week's release. As Harold previously noted and as we disclosed last week, we divested of a small portion of our water handling assets for $85 million while acquiring strategic oil weighted inventory in SCOOP for $79.5 million. This acquisition along with acreage trades were readded to our existing assets in oil weighted areas have added an estimated $55 million to our 2019 capex which was previously unbudgeted. Additionally, in conjunction with Franco-Nevada, we plan to spend $25 million gross above budget on mineral acquisitions this year. Net to Continental, this only represents 5% of $5 million of cash expenditures. Remember, while total spend is consolidated within our financial statements, 80% will be reimbursed by Franco-Nevada on a monthly basis.

Essentially, we will fund 20% of the cost for 50% of the revenue based upon achieving performance targets. Saved and previously mentioned items and inclusive of the change we have made in rig and completion crude activity, we are tracking toward our $2.6 billion budget and accordingly, are leaving it unchanged. 2019 capex has been weighted to the first half of the year. Looking forward to the back half of 2019, capex is expected to be lower than year-to-date.

As discussed in prior periods, third quarter will be higher than the fourth quarter due to project timing. After inclusion of the unbudgeted capex associated with the recent acquisitions and our mineral royalty acquisitions, we expect the third quarter to be generally in line with the first quarter while the fourth quarter is expected to be significantly lower bringing annual numbers in line with what I previously discussed. This includes unbudgeted items from our previous release.

Our operational expertise and well productivity are also rendering strong production growth for the year. Accordingly, we are now expecting full year oil production to be higher than prior guidance. Annual oil production is now expected to grow 16% to 19% versus 2018. We are also expecting full year gas production guidance to grow 5% to 8% versus 2018. Across our broader guidance, we are realizing improving results in our LOE and G&A cost metrics. For cash G&A, we revised lower -- guidance lower to $1.15 to $1.35 per BOE versus our prior range of $1.25 to $1.45. Equity compensation also improved at $0.40 to $0.50 versus a prior range of $0.45 to $0.55. Production expense improved with current guidance of $3.50 to $4 per BOE versus our prior range of $3.75 to $4.25.

Finally, capital efficiency is driving strong results in our DD&A rate which we expect to come in around the midpoint of our current guidance of $15 to $17. Oil differentials are in line with our expectations for the year while gas differentials have been impacted by weakened NGL pricing. As such, we are revising our gas differential to negative $50 to negative $1. We are also revising our production tax guidance to approximately 8.5%, reflecting more production from North Dakota.

We expect to generate strong free cash flow for the remainder of 2019. As debt levels are reasonable, we will likely apply more cash to share buybacks in the near term and balance debt reduction in higher commodity prices. If you turn to Slide 5, you can see we expect to deliver a cumulative $5 billion in free cash flow over the next 5 years with $60 WTI. The company's 5-year vision is predicated on our desire to return capital to shareholders through buybacks, dividends and continued debt reduction. Combined with the unique ownership profile of our company, we believe that no other E&P is more aligned with shareholders in its ability to deliver returns and value.

With that, we're ready to begin the Q&A section of our call. And we'll turn the call back over to the operator. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Doug Leggate with Bank of America. Please go ahead.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Guys, I guess, John, maybe I could kick off with a, kind of double-edged question. The capex guide for the year hasn't changed. So I'm just wondering if you can give us some comfort on the trajectory in the second half of the year. Because that's obviously pretty key to underpinning the whole free cash flow pivot. And my kind of related question, if I may, is -- and I don't mean to sound petulant in any way, but what is the value of Continental being a public company?

Harold G. Hamm -- Chairman and Chief Executive Officer

Okay, I'll take that, Doug. First, on capex. We -- by releasing 7 rigs, I mean, we certainly expect that the capex in the second half of the year is going to be much lower. And as John went through the quarter by quarter rundown, and -- so will we be spot on with the 2.6? I think we're going to be really close and we certainly have capability here to adjust on the fly as we go forward. Let's talk about the value of being public. In today's market, we don't see a lot of value in it. Just let me tell you -- like we see it here today.

But we can't control the market, we can control what we're dealing with here on a daily basis. And that's what we are doing. We didn't start a buyback program to go public or private. We think as long as the value is not reflected in the stock, we ought to be buying it back. And that's what we're doing. And that's what we'll continue to do.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Well Harold, we concur that the free cash flow outlook versus what the market's paying for you, there's clearly something broken there. So I guess, if I could risk just a couple of quick follow-ups, is there a limit to where you see a practical free float? And then my last kind of part of this question I guess is, how do you think about prioritizing, given where your share price is? Because we have a valuation in the $60 level, right? So we're clearly there with you. But how do you think about buying back your shares as an investment relative to drilling wells or reducing debt? So what's to limit your free flow and then buybacks versus debt and growth?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

Yes, I think on the free float, Doug, the key comment is that valuation is more important than float. If you bullet back to 2007 when we went public, we only had 15% in the float, we traded perfectly fine. You look to the volume and amounts that we trade on, on a daily basis, we're trading perfectly fine. Ultimately, investors care about that. But more than that, they care about the valuation and company's receiving appropriate valuation for their assets. So we believe the buyback, coupled with dividends and capital discipline, which we've exhibited for a long time, will ultimately return the value to where it should be fairly traded.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Okay, I know it's a tough one, honestly, John. My last question, real quick hopefully, Jack, going from 19 to 12 rigs in the Springer area, can you just talk about the completed well count that supports the same, the unchanged growth trajectory? And I'll leave it there.

Jack H. Stark -- President

Yes, that's a good question, Doug. And really, we're not changing the well counts. It's just the rig count. And the key thing there is it just really emphasizes the efficiency gains that we've received from our rigs. So I mean that's the simple answer and it's a real tribute to our teams for the efficiency gains that they've really brought to the table to our operations.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Understood. Thanks guys. I really appreciate the aggressive approach to this broken market. Thanks.

Harold G. Hamm -- Chairman and Chief Executive Officer

Yes, thank you, Doug.

Operator

The next question comes from Drew Venker with Morgan Stanley. Please go ahead

Drew Venker -- Morgan Stanley -- Analyst

Hi, everyone.

Harold G. Hamm -- Chairman and Chief Executive Officer

Good Morning.

Drew Venker -- Morgan Stanley -- Analyst

Just very, very thorough operational update. If we could just start on, on you just dropping rigs on Oklahoma. Is that a function of just really efficiencies, and still so going to get just as much done in the balance of this year? And then any thoughts you have on next year in terms of trajectory as we head into 2020 for activity in Oklahoma?

Jack H. Stark -- President

Yes, as I've mentioned to Doug there in his question, it was really along the same lines is really, we're dropping rigs because of efficiency but the well count doesn't change. So we are actually getting more done obviously with fewer rigs. And as far as trajectory is concerned, say for SpringBoard in particular, since these rigs are being put down in Oklahoma, we see SpringBoard production obviously growing to the fourth quarter where you see us up at 22,000 barrels a day is what our target is and we see that production continue to climb going on to 2020.

Drew Venker -- Morgan Stanley -- Analyst

Makes sense, Jack.

Operator

The next question comes from Arun Jayaram with JP Morgan. Please go ahead.

Arun Jayaram -- JP Morgan -- Analyst

Yes, I wanted to ask about you guys are pulling back in the South just given the efficiency gains that you're seeing. I wondered if we could read into any thoughts on future capital allocation between the Bakken and the South, and could we read into that decision as highlighting maybe a little bit more capital allocation to the Bakken as we think about 2020, and on a go-forward basis?

Harold G. Hamm -- Chairman and Chief Executive Officer

I think our capital allocation, as we have it laid out there, I believe in Page 4, is going to stay about the same next year versus this year. We -- drilling those wells awfully quick up there. And so 6 rigs can do what a dozen rigs can do down here. So our teams up there, got it down to very fine art. And so we see that capital allocation staying about the same.

Arun Jayaram -- JP Morgan -- Analyst

Great. And just a follow-up, you guys highlighted another, call it, a larger road development opportunity at Long Creek. Could you talk about -- this would be the one, call it, following SpringBoard, what you like about these larger projects? And could this -- could we see more of this in terms of mix toward these larger projects over time?

Tony Barrett -- Vice President of Exploration

Hi Arun, this is Tony Barrett. And obviously, what we've demonstrated over the last year in SpringBoard with reduction in cycle times, increased efficiencies, certainly translates here to the Bakken as well. What we like about these projects, this one in particular, it's contiguous 10 square miles of leasehold, high average working interest, integrated infrastructure.

As we've said, all of our product here will be on pipe. And it's basically every time we do one of these projects, we learn more and we save more. So this particular project, again we said the peak on this was 20,000 net BOE per day so it's another large-scale development project that we have teed up in the north and it's really just -- the point here is, is that SpringBoard was not a one-time thing. We have opportunity to do this in multiple basins.

Jack H. Stark -- President

Arun, I got to add just a little something here to add a little more color. It's just that this is a reflection of us being into these plays early and getting a dominant position. We often talk about being an exploration company, in grassroots and getting in there at low cost as an early entrant. And the reason we were able to put these units together with these high working interests, I mean, look at SpringBoard, we're looking at 75% average working interest. Here, you've got 87% average working interest. That doesn't happen that often. And these are big projects. And it's really, as I said, just a result of being out early, having the vision and pulling the acreage and position together.

Arun Jayaram -- JP Morgan -- Analyst

Great. Thanks a lot, Jack.

Operator

The next question comes from Brian Singer with Goldman Sachs. Please go ahead

Brian Singer -- Goldman Sachs -- Analyst

Thank you. Good morning.

Harold G. Hamm -- Chairman and Chief Executive Officer

Good morning.

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

Good morning.

Brian Singer -- Goldman Sachs -- Analyst

Harold, you talked early on about the minerals interest at SpringBoard and your continued acquisition there and you've got a slide thinking about some of the longer-term potential goals, but I wanted to just see if you could add a bit more color on the medium-term objectives in both additional acquisitions that you see and then how you see the value to Continental accreting. Would that be from continuing to highlight on calls like these, would that be a spinoff, IPO, et cetera?

Harold G. Hamm -- Chairman and Chief Executive Officer

I think you hit the nail on the head there. Certainly, these IPOs are certainly creating a lot of value. So that's ahead of us. We -- our teams have been very successful. And acquiring these mineral interests early on ahead of the bit and being able to project where we're going to be within the next few years, just creates a whole lot of value. So that's exactly where we're headed, Brian.

Brian Singer -- Goldman Sachs -- Analyst

Great. And then to follow-up a bit more on the cadence of activity looking at the Anadarko basin down to 12 rigs by the end of the year, what would that get you from a wells drilled and completed perspective? And then what level of activity would you expect to bring back or to return to in 2020 if there is any increase?

Jack H. Stark -- President

I'll just say that really, when you look at the efficiencies, again, we're actually able to stay on track with what we put out there is our 5-year vision. And with even, with the reduced rig count as were talking about here, because of the efficiency gains we've experienced. And so it's -- we started out in SpringBoard with a high number of rigs out there, just, I think it was around 14, I believe it was, Pat? And keep in mind we did that because we had to get out in front of the road development. You have to get the road drilled before you even start completing it. And so that was a key driver in getting as many rigs focused in SpringBoard as we did have initially. So again, the well counts are the same and just, we're able to do with less.

Brian Singer -- Goldman Sachs -- Analyst

I guess just to follow-up on that, is the fourth quarter capex a good run rate that you would be expecting on an ongoing basis for 2020?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

Fourth quarter is significantly lower. I mean, you can do the math. With the -- we've got the incremental items that were unbudgeted and everything else. Excluding those, we're dead on track for the 2.6. I would look more at the annual than I would look at the core. The fourth quarter is typically lower. I mean, by -- just the timing of projects but also weather concerns and other, we tend to avoid those periods a little more than we might -- the summer months for instance tend to be heavier levels of activity for us. That's fairly normal for us. And -- but fourth quarter's not a reflection of next year, sorry.

Harold G. Hamm -- Chairman and Chief Executive Officer

Brian, I might add that we picked up acreage here that's going to have some work on in our teams who are busy right now looking at what's going to take to satisfy our drilling needs there. So we may very well pick up another rig. We could be more aggressive but we'll stay within our capex.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you so much.

Operator

The next question comes from Paul Grigel with Macquarie. Please go ahead

Paul Grigel -- Macquarie -- Analyst

On the spacing at Long Creek, could you touch on -- is that similar to other projects within that same area within the Bakken? Is it tighter? And how should we be thinking about multiple benches of either the Three Forks or [Indecipherable]? Just trying to understand that a little bit more.

Tony Barrett -- Vice President of Exploration

Sure. So Paul, this is Tony again. This particular area is interesting because up until this point it's been fairly underdeveloped, with just parent wells within these sections. Our plan is, calls for 56 wells to be drilled across -- in addition to the 5 existing wells in the unit. About half of those will be Middle Bakken, half of those will be Three Forks 1. So the spacing is consistent with what we've done in the area in the past and seen great success, and we expect the same here.

Paul Grigel -- Macquarie -- Analyst

Okay, no, that's helpful. And then I guess maybe on well costs and balancing of capex with capex being a little bit more front half loaded, it seems like the completion counts may be trending down a little bit. Is that just a simple timing factor, a little bit of when wells come on throughout the year? And how should we be thinking about kind of leading edge well cost and efficiencies, both in the South and up to the Bakken?

Pat Bent -- Senior Vice President, Operations

Yes, this is Pat Bent. And I would think about it in terms of the efficiencies you've seen in the drilling rigs as well. So our completion crews have exhibited similar efficiency gains from a stage per day perspective. And so as you look in the Bakken, as well as in Oklahoma, you've seen anywhere from 20% to 30%, even 40% increases in stage per day count. So that helps our costs as well. So that continues to drive our cost down. And so you're going to see a commensurate reduction in our completed well cost as you go throughout the year.

Paul Grigel -- Macquarie -- Analyst

Okay, thank you.

Harold G. Hamm -- Chairman and Chief Executive Officer

Thank you.

Operator

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

Derrick Whitfield -- Stifel -- Analyst

Congrats on a strong operational update.

Jack H. Stark -- President

Thank you.

Harold G. Hamm -- Chairman and Chief Executive Officer

Thank you.

Derrick Whitfield -- Stifel -- Analyst

Perhaps beginning with the Bakken, several of your industry peers have noted gas processing constraints in the current quarter and throughout the balance of the year. Are you guys experiencing any growth impediments in the basin?

Harold G. Hamm -- Chairman and Chief Executive Officer

We have a very large footprint though that allows us to work within certain areas over a vein, within certain areas due to these constraints. So we're able to work around them. And we've led the industry up there on gas capture and we still do. And so we've been working ahead of that. But here in the second half of the year, we've got a lot of new facilities coming on, gas plants and pipelines, that's gathering systems. So our production up there is ahead of schedule and we're doing very well for what we have. The footprint, it allows us to work around these -- it's been framed pretty well.

Derrick Whitfield -- Stifel -- Analyst

Great. And as my follow-up, regarding your water assets. Could you comment on what led you to your decision to monetize the STACK assets sold? And further, how motivated are you based on your current valuation to monetize additional assets?

Harold G. Hamm -- Chairman and Chief Executive Officer

Yes. This was a pretty simple situation. We were kind of winding up toward what we had to do. We still had a few projects there within this area. But other people had a lot of development work yet to do. And so it just made sense that our team would commercialize this area and offer it for sale. So that's what we did. And is well received out in the market and it brought a decent price. And so serving the general public is going to be -- have a lot more value than just through Continental.

Derrick Whitfield -- Stifel -- Analyst

Thanks for your time and comments.

Harold G. Hamm -- Chairman and Chief Executive Officer

You bet, thank you.

Operator

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

Jeanine Wai -- Barclays -- Analyst

Hi, good afternoon everyone.

Harold G. Hamm -- Chairman and Chief Executive Officer

Hello.

Jeanine Wai -- Barclays -- Analyst

Hi. Let's see, I guess, my first question is circling back to Doug's question. As it relates to the up to $1 billion buyback program by the end of '20, the debt reduction target, how do you manage the free cash flow allocation between the 2 of these if next year for example, commodity prices are lower than expected and you have maybe just like $500 million free cash flow? I know you mentioned in your comments that valuation is more important than float. But the debt reduction target is also, I think, a pretty important corporate initiative?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

Right. Right now, our debt-to-EBITDA is 1.5x. So that's pretty solid. Solid investment grade rating with strong outlooks in that. If you look beyond just that metric to other debt metrics that are actively followed, debt per flowing barrel for instance, well, that's continuing to decline even if we kept a flattish type debt. We want to balance both of them. If you're in a $60 environment, you're balancing both of them. If you're in a $50 environment, you clearly have less cash flow. That's just the math in that scenario.

I would suspect we would probably -- where we're at today, we would lean more toward the share buyback and keeping the debt constant with the strong metrics that we've gotten. Frankly, the improving volumetric metrics. So we'll balance both of them and commodity price obviously is a variable in that and it's -- it moves around constantly. So we very actively manage those over the full five-year horizon. We've got a lot of cash flow coming in. So I think we can achieve a number of goals in a number of different scenarios.

Jeanine Wai -- Barclays -- Analyst

Okay, great. And then my follow-up question is on the medium-term plan. I believe the five-year plan calls for capex somewhere in the low $3 billions in 2020 and 2021. And kind of just putting everything together, given the improvement you're seeing and efficiencies in the south, perhaps over time moving to larger project sizes in the Bakken that might also drive additional efficiencies, and just overall better than expected well performance. Do you anticipate that this low threes level is still the right ballpark over the next couple of years?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

You gave a lot of variables there. Those are all reasonable things that we're reflective of. We'll be coming out with our 2020 guidance early next year, kind of consistent with our normal time frame. All of those variables plus others are things that will go into that. The key is that we feel strong about our five-year plan and where we're at on that. We'll judge where the markets are. We'll judge all of those variables that you made. And we'll make adjustments as appropriate. And we'll update you not only in the context of 2020 but of the full 5-year projection.

Jeanine Wai -- Barclays -- Analyst

Okay, great, thank you for taking my questions.

Harold G. Hamm -- Chairman and Chief Executive Officer

Certainly.

Operator

The next question comes from Mike Kelly with Seaport Global. Please go ahead

Mike Kelly -- Seaport Global -- Analyst

I wanted to circle back to Derrick's question on the water infrastructure. And I did want to get your thoughts on the potential to monetize additional assets here in the near term. And I was curious if really a primary motivation here could be to sell assets at a relatively fair value and recycle the proceeds into an accelerated share repurchase which is an asset you clearly think is mispriced?

Harold G. Hamm -- Chairman and Chief Executive Officer

Yes, certainly that could be a driver. I think it all has to do with timing of our development. These are very valuable to us during the development stage. But as we wind up our development and, to serve the general public around us, it may very well be more valuable to other operators out there. So we'll look at each one of them as it comes up. But there is a lot of value within the facilities that we have.

Mike Kelly -- Seaport Global -- Analyst

Okay. And if I -- looking at the Long Creek development, I'm just curious here what you think is a reasonable expectation for what you could do to well cost under this 56 well development, average well costs that are first, versus kind of your base case Bakken development has been?

Pat Bent -- Senior Vice President, Operations

This is Pat Bent again, and that's a great question. Obviously we've seen that over Continental's life cycle, as we get on these larger pads and are able to have redundant activities that we're able to lower our cost anywhere from 10% to 15%, the Bakken's a great example of that. If you go back a few years and look at our well costs, some of our cycle time, much higher than they are today. So we still see that 10% to 15% opportunity out there in front of us.

Mike Kelly -- Seaport Global -- Analyst

Appreciate it. Thank you.

Operator

The next question comes from David Deckelbaum with Cohen. Please go ahead.

David Deckelbaum -- Cohen -- Analyst

Just curious on -- implied in the guidance, there was a higher royalty or production tax. Is that more exemplary of the fact that -- is Bakken outperforming relative to the original plan that you had there? And I guess what does that imply for sort of the rest of the asset base as you think about your production guidance for the year?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

I think all of the assets are performing well. We are obviously ahead of projections. We raised the guidance accordingly with that. The Bakken's been part of it. The way that North Dakota has a higher oil severance tax and then they have a fixed tax for gas there. So the rate ends up being higher. When you mix that in, it's given us a little bit higher rate. The key is though, it's also got very strong margins. So it's all part of the balance and more than offset with the G&A and LOE and other cost reductions we've had.

David Deckelbaum -- Cohen -- Analyst

Appreciate that. And I guess just moving to the south. As we think about the next several years, where does SpringBoard 2 fall into the program? And how soon do you think we'll learn about that?

Jack H. Stark -- President

Well, we -- as we've said before, we've kind of, I guess, we've been quiet about exactly where and when we might be moving there, mainly for strategic reasons. When we came out with SpringBoard #1, there's a lot of competition in there that we don't necessarily need. And so -- but it is that -- obviously it's in SCOOP and it's in an area that we feel very strongly about. And so we'd love to put it on a map and show exactly where we're headed ultimately, but it's not really the right strategic thing to do for us.

Harold G. Hamm -- Chairman and Chief Executive Officer

I think maybe the timing -- I think if you ask when perhaps we could do that. And so answering that, I would expect it's going to be first quarter of 2020.

Jack H. Stark -- President

From a timing standpoint?

Harold G. Hamm -- Chairman and Chief Executive Officer

Yes.

Jack H. Stark -- President

I'm sorry I missed that part of it, yes. That seems like reasonable time, sometime first, maybe first half 2020, yes.

Operator

The next question comes from Betty Jiang with Credit Suisse. Please go ahead.

Betty Jiang -- Credit Suisse -- Analyst

I have a question on 2020, just higher level speaking with the oil price volatility. Is the governor on the program to generate a meaningful level of free cash flow for buyback and debt reduction? Or would you like to keep some level of, say, double-digit production growth and then let free cash flow be the outcome?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

The -- obviously, commodity prices impact the cash flow. We're committed to as free cash flow regardless of what the price environment is. In your lower price environment, we would moderate the level of activity and we would back off the level of growth. But we will be generating free cash flow in a variety of scenarios. When you get up into that $55 to $60 range, we can do all of the things above that you mentioned. But if you're thinking of a lower price environment, we would moderate our level of activity to reflect that. So...

Betty Jiang -- Credit Suisse -- Analyst

Got it. And then a follow-up on the Long Creek project. Would it be incremental to a baseline, say, a 6-rig program in the Bakken? Just trying to understand the implications of these larger projects both in the SCOOP and Bakken. Like, would that lead to just lumpier production growth or corporate production growth?

Harold G. Hamm -- Chairman and Chief Executive Officer

No, Betty, it's not. Actually, this -- that's a normal program up there. And so it's a good project that I don't believe will have a lot of lumpiness in production. We are going to have 2 rigs on it. And as production comes on, it'll lead right to market.

Betty Jiang -- Credit Suisse -- Analyst

Got it, thanks.

Harold G. Hamm -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from Neal Dingmann with SunTrust. Please go ahead.

Neal Dingmann -- SunTrust -- Analyst

Hi guys, thanks for taking the question. Harold, in the past, you've altered completion activity if you viewed weak, sort of gas or oil prices to be temporarily weak. So my question is, if you could comment today about how you view sort of the current oil and gas market given the fundamentals? And if this has impacted any of your near term activity decisions?

Harold G. Hamm -- Chairman and Chief Executive Officer

It's not. We're not drilling wells and we're not completing. We're not going to do that. It's -- we're certainly watching price and very cognizant of what's going on with price. We are practicing capital discipline in every regard, and we think all operators should be doing that. And that's our driver and going forward. So I think the -- we're in a price cycle here that we're seeing rigs go down in the U.S., 4 or 5 a week. Where the level is that we need to be at, is anybody's guess. That I think we are probably 100 rigs more in the U.S. than is needed today.

Neal Dingmann -- SunTrust -- Analyst

Very good. And then one, just follow up. You also had I definitely notable success in a number of your Bakken step-outs such as the Baird Federal and others. I'm just trying to get a sense, when I look at either latter part of this year or may be even 2020, how much of these step-outs will continue -- will contribute to the overall incremental Bakken activity versus what I'd consider your sort of older core areas?

Jack H. Stark -- President

Yes, Neal. Yes, we will continue to do some step-outs. The teams are already talking about looking at doing some unit developments out in these areas. We don't have any specific timelines there yet, but they clearly have these areas on their table.

Neal Dingmann -- SunTrust -- Analyst

Very good. Thank you.

The next question comes from Brad Heffern with RBC Capital. Please go ahead.

Brad Heffern2 -- RBC Capital -- Analyst

Hey, good morning everyone. Question on the minerals. So you called out that 19% number of the minerals that you own under the SpringBoard project. I just want to make sure I was interpreting that correctly. Does that mean that if you had an 80% NRI before, it's now 84% or any more color you could give around sort of what's been accomplished within the minerals JV?

Steven K. Owen -- Senior Vice President, Land

You bet. This is Steve Owen. Just to put it in perspective, 19% net mineral acres under our total leasehold position out there would give us an average of 2% increase in net revenue. So your 80% would actually give us more like an 82%, 82.5% net revenue.

Bradley Barrett Heffern -- RBC Capital Markets -- Analyst

Okay, got it. And then just thinking -- sorry, thinking about the minerals longer-term, it seems like you guys have had may be more success than you would have expected and it's been going faster. So I'm wondering if that's pulling forward future mineral spend from later on in the JV timeline or if it's increasing the overall amounts of spending?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

The $25 million that we talked about that was unbudgeted, that's pulling from the last year in the program. So that's a good question. Yes, that is pulling that forward from later in the program. Ultimately, we along with our Franco-Nevada, will look at the total size and scale. And if there's continuing activity beyond that, it's something we can certainly talk about expanding that at some point in the future if that's necessary. But for now, we're pulling forward from the latter year tranches to now.

Bradley Barrett Heffern -- RBC Capital Markets -- Analyst

Okay, thank you.

Operator

The next question comes from Leo Mariani with KeyBanc. Please go ahead.

Leo Mariani -- KeyBanc -- Analyst

I know that you specifically highlighted some numbers around the water infrastructure with $100 million of EBITDA on the remaining assets here. Clearly, you monetized a piece of it recently. Certainly seems to imply you guys think there's significant hidden value there. Can we expect to see other water deals maybe the end of this year or will these deals kind of really pick up in 2020? How do you see kind of the remaining water infrastructure assets being monetized over time?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

We don't have any near term deals planned for that. Now to be clear, the $100 million's what's left. It did not include what we sold. That was separate and distinct from that. So our remaining assets have about a little over $100 million now of EBITDA. We see that growing with our development and our activity going forward. So it's a very valuable asset. If we ever did anything in the near term, it would probably be a small stake, but there's nothing brewing or contemplated right now. But it is very valuable.

Leo Mariani -- KeyBanc -- Analyst

All right. That's helpful for sure. And then I guess maybe you guys could just talk a little bit about your oil cut, kind of sitting around 58% or so in the first half of 2019. How should we expect the oil cut to kind of move as we get later into 2019 into early next year?

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

If you look forward, again we see oil growing a little bit in third quarter, gas probably a little off a little bit. So overall BOE more flattish with the second quarter. Fourth quarter, because of that capital spend in the third quarter, we have a significant uptick in production. A lot of that is oil weighted. I don't have the percentages. We don't look so much at the percentages. We do to absolute volumes. I'd say it's probably somewhere flattish in that range. The key is the absolute volumes are growing significantly and we're focusing on the oil side.

Leo Mariani -- KeyBanc -- Analyst

Okay, thanks.

Operator

The next question comes from John Freeman with Raymond James. Please go ahead.

John Freeman -- Raymond James -- Analyst

On the minerals business, now that it's been about 1 year since Shell formed that and obviously, it's been very successful. Just any updated thoughts or plans to expand that to the Bakken? Is there anything that we're not thinking about in terms of -- that would make it, any disadvantages or anything in the Bakken that prevent it from happening up there?

Harold G. Hamm -- Chairman and Chief Executive Officer

That's always been a possibility. The Bakken has -- and our team certainly is approaching a lot of different areas with open eyes. And as opportunity would present itself, we'd certainly be looking at it.

John Freeman -- Raymond James -- Analyst

Okay. And then just my one follow-up on some of the questions that Neal asked on the step out wells which obviously have performed great after the 120 days. I believe in the past, you all talked about potentially looking to push a little further north of where the McClintock is for may be some additional step out testing is -- just any updated thoughts on that?

Jack H. Stark -- President

Sure. Yes, it's in the works. And as we said, we're just going to continue to step out and apply this, our latest stimulation technology in these old areas. And basically, as we've seen, we typically have seen, a say, very, very significant uplift in performance as you'd expect. And so it just takes time to get it, done but we're -- it's in the queue.

Harold G. Hamm -- Chairman and Chief Executive Officer

I just might that we do like the rock to the north there, too.

Jack H. Stark -- President

Sure.

Operator

The next question comes from Marshall Carver with Heikkinen Energy Advisors. Please go ahead.

Marshall Carver -- Heikkinen Energy -- Analyst

The 12 rigs in the southern region in 4Q, what would the split be between the SCOOP and STACK?

Pat Bent -- Senior Vice President, Operations

Of those 12, 2 in the STACK. 10 in the SCOOP. This is Pat.

Marshall Carver -- Heikkinen Energy -- Analyst

Okay. And a follow-up, you talked about leading the industry in terms of gas capture in the Bakken. What was your gas capture rate in 2Q and how would you see that trending?

Jack H. Stark -- President

For the year, I think our gas capture is in that right about 88%, 89% range. So we're fully in compliance with what the NDIC has basically mandated, that they went up there and that's exclusive of any kind of incentives that they're willing to put in place, that have been in place as well. So we are definitely a leader in gas capture up in the Bakken.

Operator

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

Rory Sabino -- Vice President, Investor Relations

Great. Thank you very much for joining us today. Please address any further questions to the IR team and have a great day.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Rory Sabino -- Vice President, Investor Relations

Harold G. Hamm -- Chairman and Chief Executive Officer

Jack H. Stark -- President

John D. Hart -- Senior Vice President, Chief Financial Officer and Treasurer

Tony Barrett -- Vice President of Exploration

Pat Bent -- Senior Vice President, Operations

Steven K. Owen -- Senior Vice President, Land

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Drew Venker -- Morgan Stanley -- Analyst

Arun Jayaram -- JP Morgan -- Analyst

Brian Singer -- Goldman Sachs -- Analyst

Paul Grigel -- Macquarie -- Analyst

Derrick Whitfield -- Stifel -- Analyst

Jeanine Wai -- Barclays -- Analyst

Mike Kelly -- Seaport Global -- Analyst

David Deckelbaum -- Cohen -- Analyst

Betty Jiang -- Credit Suisse -- Analyst

Neal Dingmann -- SunTrust -- Analyst

Brad Heffern2 -- RBC Capital -- Analyst

Bradley Barrett Heffern -- RBC Capital Markets -- Analyst

Leo Mariani -- KeyBanc -- Analyst

John Freeman -- Raymond James -- Analyst

Marshall Carver -- Heikkinen Energy -- Analyst

More CLR analysis

All earnings call transcripts

AlphaStreet Logo