Continental Resources Inc (CLR) Q1 2021 Earnings Call Transcript

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Continental Resources Inc (CLR)
Q1 2021 Earnings Call
Apr 29, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Continental Resources, Inc. First Quarter 2021 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, and thank you for joining us. Welcome to today's earnings call. We will start today's call with remarks from Bill Berry, Continental's Chief Executive Officer. Bill will be joined by additional members of our senior executive team, including Mr. Harold Hamm, Executive Chairman; Jack Stark, President and Chief Operating Officer; John Hart, Chief Financial Officer and Chief Strategy Officer; and other members of our team for Q&A. 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. 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. Berry. Bill? Thank you, Rory, and good morning, everyone. Thank you for taking the time to join us on the call. I hope you're all doing well. We've all seen a shift in investor expectations for E&P companies over the past several years to one appropriately focused on free cash flow and competitive returns to shareholders. The industry, as you know, has probably been a bit slow in recognizing and responding to this new investment paradigm. We, at Continental, have fully embraced this with our investor return efforts focused on free cash flow and moderate growth plans. In support of this, we're intentionally shortening the scripted portion of our earnings call to primarily focus on Continental's strong cash flow and shareholder capital returns and allow for more Q&A time. The first quarter results and our uses of free cash flow serve as an example of our continued commitment and capability to deliver competitive shareholder returns with strong free cash flow, driven by asset quality, cost control and capital discipline. During the first quarter, we generated $606 million of cash flow -- of free cash flow. That's versus analyst consensus estimate of approximately $450 million. We reduced debt by $560 million to end the quarter with a debt level of $4.97 billion or below $4.9 billion, considering $95 million of cash on hand. This is three to six months earlier than our previous target. And additionally, we reestablished a dividend that was suspended during the pandemic at twice the level prior to the pandemic. This quarter will serve as the foundation to meet or exceed all of our guidance for the full year and highlights the unique value opportunity of investing in Continental. There are four key elements of Continental's outstanding value proposition to investors: free cash flow commitment; capital discipline; strengthening the balance sheet; and cash returns to investors. I'd like to briefly discuss each of these. We have a consistent commitment to free cash flow. 2021 is projected to be our sixth consecutive year of positive free cash flow. We are one of only a very few unconventional E&P companies to have accomplished this. In support of delivering strong free cash flow, we're demonstrating our capital discipline stewardship with an expectation that at current prices, our capital reinvestment rate will be less than 50% for the full year. With respect to our balance sheet, we are accelerating our pace of debt reduction and now expect debt at year-end to be below $4 billion, down by $1.5 billion year-over-year. And we are well on our way to achieving our goal of being a leader in shareholder capital returns as we reinstated our dividend with the first distribution scheduled for May 24. All this financial performance and return of capital to shareholders is underpinned by our high-quality and expanding assets, low operating cost and the ingenuity and tenacity of our employees that have continued to stay focused on creating opportunities and efficiencies companywide over the past 12 months. Production remains on target to meet or exceed annual guidance with production as planned becoming more all related in the second half of the year. Additionally, we are projecting an approximately 12% return on capital employed in 2021, in line with our historic norms. So now let me go into a little bit more of the details. We are now projecting to generate $1.7 billion of free cash flow at $60 WTI and $2.75 Henry Hub in 2021. This equates to an approximately 18% free cash flow yield, which underscores our unique value proposition relative to the S&P 500 and all its sectors as evident on Slide four. Included in this update of free cash flow projection is our updated second quarter to fourth quarter 2021 crude oil differentials guidance per barrel of oil to a negative $3.75 to $4.75 and our updated second quarter to fourth quarter 2021 natural gas differentials of $0 to a negative $0.50 per Mcf. We reinstated a quarterly dividend of $0.11 per share, which translates to an approximate -- well, it was 1.7% when I wrote this yesterday, it's probably down around 1.5% dividend yield at current prices. As I mentioned earlier, this is double our previously issued dividend, which has been temporarily suspended at the onset of the global pandemic. We believe this is both competitive with our peers, the S&P 500 Index yield of approximately 1.4% and importantly, is expected to be sustainable given our strong cash flow generation and interest expense savings from our significant debt reduction. The dividend will be payable on May 24 to stockholders of record of May 10. We're forecasting material debt reduction to continue with our $4.5 billion debt target by year-end 2021 that we provided in February, is now projected to be achieved by the end of July and positions the company to meet our updated year-end target of $4 billion or below by year-end 2021, a $500 million improvement versus our previous guidance. Our ultimate long-term debt target of under $3 billion would support our goal of maintaining a debt-to-EBITDAX ratio of one or below to enable us to successfully weather adverse commodity price cycles. We have accelerated our debt paydown goals by full year due to our robust projected cash flow generation and a focus on returning to full investment grade. I'd like to talk a little bit about the ESG goals and highlight the ESG stewardship at Continental. As is shown on Slide nine in 2020, we reduced our greenhouse gas intensity and methane intensity by 23% and 31% year-over-year, respectively. From 2016 through 2020, we have cumulatively reduced those levels by 35% and 58%, respectively. Our goal is to strive for a similar year-over-year greenhouse gas intensity reduction range in 2021. Notably, based upon our current operation program, we anticipate achieving as much as a 45% reduction from 2016 to 2021. And we aim to continue with additional methane intensity reductions as well. We'll be out with our 2020 ESG report by midyear 2021 and look forward to continuing our constructive dialogue on the positive role the U.S. oil and gas industry is playing in responsibly sustaining America's energy future. As I switch gears to our operational performance, we're on track to deliver on our second quarter production guidance of 160,000 to 165,000 barrels of oil per day and 920 million to 940 million cubic feet per day and plan to meet or exceed our annual production guidance for the year. As we stated in our April 12 update, Continental only saw a modest adverse impact to full month production due to the cold weather in February. As a result of our long experience in the Northern Rockies winter regimes, significant preplanning efforts by our operational teams and active support and interaction with government regulators, utilities and pipeline companies, we were able to keep a large portion of our production flowing during these extreme conditions. Their operating teams were literally working 24/7 during absolutely miserable conditions to keep as much gas flowing as possible. My thanks to each and every one of them. We're on track to deliver approximately 143 gross operated wells in the north this year, inclusive of the Bakken and the Powder River, with Bakken production already ramping up in the second quarter. In Oklahoma, in the first quarter, we brought online 14 wells, the majority of which were gas. This will shift to oil-weighted wells in the second half of 2021. Companywide, we are on track with projections to see growth in the second half of the year versus the first half. Operational advancements in 2020 have carried over structural savings in 2021. Improvement in design, processes and execution are driving costs down. We are implementing new equipment, technologies and methodologies and everything from drilling to stimulation to work over. These advancements are showing great results and demonstrate the potential for additional structural savings. Our employees are never satisfied with where we are in our performance and it shows in our drive for continuous improvement. We're seeing our completed well cost trend lower in our asset areas, thanks to a significant step change in cost performance by our teams during the recent downturn. By keeping our teams intact, they have been able to optimize our operations over the past year to be more efficient than ever before. Turning to Slide seven. Our Bakken well cost continues to trend lower, thanks to structural improvements and enhanced operational design. In 2021, we are targeting well costs 7% below 2020 at $641 per lateral foot. Combined with our projections for consistent year-over-year performance from our Bakken wells, our 2021 lock-in program is projected to deliver a composite of more than 70% rate of return at $60 and $2.75. In Oklahoma, our oil and gas assets continue to afford us commodity optionality, which is a significant attribute as it provides great flexibility in various commodity environments. Just as the gas commodity fundamentals last year suggested we should switch to gas-weighted drilling, which we did, we see the fundamentals this year supporting more oil-weighting for our Oklahoma assets. This is expected to be realized in the second half of the year. And as I mentioned, we'll expect to see oil growth in the second half of the year. We are seeing strong repeatable performance from our condensate assets across the basin, and 2021 results year-to-date are no exception. Our average condensate unit well continues to improve year-over-year. We're also seeing significant cost savings in these wells. In 2021, we are targeting condensate well costs 17% below 2020 at $891 per lateral foot. Savings are being driven by structural efficiency gains through execution and translates to over 50% average rate of return for our wells at $60 and $2.75. Combined with strategic gas hedges, where approximately 264 million cubic feet per day of our company's second quarter to fourth quarter 2021 natural gas is hedged with the midpoint of swaps and collars at $2.93 and market optionality to various markets. We are very pleased with the results from our condensate assets. Last quarter, we announced our strategic entrance into the Powder River Basin. We closed on this transaction on March four and we'll begin drilling with two rigs in the Powder in the second quarter with our first well expected to spud in the next few days and the second rig to spud in early June. We're looking forward to sharing more details with you later this year. In closing, our investment case is driven by repeatable asset performance and accelerated capital returns to shareholders through both our reinstated dividend and exceptional progress on debt reduction. Time and time again, our teams at Continental have been able to transform challenging market environments into opportunities to deliver organic growth, operational efficiency and cost savings that are structural in nature. These accomplishments underscore the strength of our team, our assets and our operations. Our first quarter results reflect our organization's capability. Our assets, technical expertise and unrivaled management alignment come together to deliver an investment opportunity uncommon in the oil and gas sector. Our management team acts like owners because we are owners. This unique alignment with shareholders drives our innovative and sustainable approach to delivering our corporate goals on behalf of all stakeholders. With that, we're ready to begin the Q&A section. I'll turn the call back over to the operator.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Neil Mehta of Goldman Sachs. Please go ahead.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, guys. And thanks for taking the question, and congrats on a strong quarter. The first question I had was just thinking about your takeaway coming out of the Bakken. There's obviously a lot of uncertainty around Dakota Access, although it seems like things moved in the right direction in terms of getting the pipe to flow. I'd just love your perspective on how you're thinking about getting barrels to market out of the Bakken, the Dakota Access risk and any views in terms of how that pipe is likely to flow from here.

William B. Berry -- Chief Executive Officer

Yes. Thanks, Neil. Appreciate the question. We've seen a continuation of positive comments coming out of everything from the core to the owners of the pipeline, but this is strongly expected to continue to operate the core fields that it was appropriately handled. I know it's still back and forth with the courts. We mentioned before that we've put in place some plans and have ability to move all our oil out of the Bakken with some of the things we've done already. But our anticipated base case is that the pipeline is going to continue to flow. And I'll open it up to Aaron Chang. I don't know, Aaron, if you've got anything to add to that.

Aaron Chang -- Vice President, Oil and Gas Marketing

No, Bill. I think, like you said, we continue to believe the pipe will remain operational and -- but we positioned ourselves to be able to execute on our 2021 plan under any DAPL operating condition. As such, we're always looking at a risk-weighted approach to moving more from transportation out of the basin to markets like Cushing, and we've done so in an accretive manner.

Neil Mehta -- Goldman Sachs -- Analyst

And the follow-up is, you guys have done a great job of driving your debt lower here and on target to get to sub $3 billion, it looks like. How do you think about the use of free cash flow once you've achieved that objective? And then any thoughts on divestitures, including around water assets in order to help accelerate getting toward your goals?

William B. Berry -- Chief Executive Officer

Yes. Thanks. The water assets, as you know, we looked at doing something with that last year. We think we have a very significant asset in our water assets. And we were engaged in some discussions last year and opted to not pursue it further because we wanted to keep the operational flexibility that it provided us by keeping it all under 100% Continental. That said, It's a very significant asset that we do have an opportunity at some point in time to move a different direction on. So from that perspective, the cash flow is fine. Sorry, Neil, your other question you were asking?

Neil Mehta -- Goldman Sachs -- Analyst

Yes. Just you guys are driving toward your debt target, right? And so -- and you're getting there through organic free cash flow generation. Once you get to your target, kind of debt target, how do you think about allocating incremental cash flow to shareholders? The dividend was a first step, but is there more to go?

William B. Berry -- Chief Executive Officer

Well, the dividend, and as you see what we're doing with the cash flow that we're returning by paying down the debt. And what we're looking at is a full suite of things that are in our quiver, so to speak. We've got, obviously, a program that's in place for share buybacks as an opportunity. We've got debt to pay down that we want to continue to drive our sales down toward that one multiple dividend we reinstated. And of course, we reinstated it at a level that we felt there was a strong position to start, but it also was a reflection of our comfort and confidence in the go-forward ability to increase that over time. And so all these things are vehicles we have for shareholder return.

We're just seeing that there's a real focus in the company. And hopefully, you're seeing that manifest itself with where we are today. We have a $1.4 billion budget. That's where we started. We talked about 65% to 75% as far as the reinvestment ratio. That [$1.4 billion] at today's price is somewhere maybe around 45%, 50% in that range. But we're still very comfortable that that's the right spend rate and that continues to spin off cash and get it back to the shareholders is what our plans are.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks, guys.

Operator

The next question comes from Arun Jayaram of JPMorgan Chase. Please go ahead.

Arun Jayaram -- JPMorgan Chase -- Analyst

Yes. Good morning. Good afternoon. I had some thoughts. Bill, you talked about the new investment paradigm and perhaps a little bit of a follow-up to Neil's question, but how are you thinking about 2022 balancing? You mentioned maybe some semblance of growth, but balancing production growth. You talked about the $3 billion debt reduction target and dividend growth on a go-forward basis.

William B. Berry -- Chief Executive Officer

Yes. The -- and probably what you're touching on a little bit, Arun, is what's the comfort with the industry and where should the industry be going as far as growth rates. And we're still in that position that, that with the fundamentals that are out there now and the -- as we've said for over a year now, that we should not be trying to overproduce into an oversupplied market. There's still inventory overhanging that's out there this year. But even when you get into the 2022 time frame, we don't think the industry should be trying to grow more than 3% to 5% on an annual basis.

And as Jack highlighted the last call about the inventory that we have is an inventory that can support a lot more growth in that, but we think that's a reasonable range that people should be targeting. And so, Jack, I don't know whether you've got anything else you want to add on the inventory to share with Arun?

Jack H. Stark -- President and Chief Operating Officer

No. All I'd add is that last time we talked, we mentioned that this inventory, we've got enough to grow the company with a 5% compounded annual growth rate over the next 10 years. And if you look at the first five years of that inventory, it represents about 1/3 of the inventory. And the rates return on that, last time we talked at $50 is right at about 50% and at $60, it's right around 65%. So it's a very robust inventory. And also, it's a very well-defined inventory. We know density, we know the reservoirs very, very well, and our teams are doing a great job of just continuing to maximize the recovery and drive down costs and really increase the capital efficiencies. And we've highlighted debt on Slide seven and eight here. I won't go into it, but if you can see how we've continually increased the capital efficiency of the results over, what, the last three, four years.

Arun Jayaram -- JPMorgan Chase -- Analyst

Great. Thanks for that. And just my follow-up. You guys have guided a 2Q oil between 160,000 to 165,000. I know last quarter, you had mentioned how your operated rig count would rise from two to seven in the north, two rigs in the PRB and five in the Williston Basin. I think you're at four today, and some of that was just to offset some of the declining activity from your key non-op partners that you mentioned. So I just wondered if you could help us think about how your TILs could trend over the year and maybe a second half trajectory for oil?

William B. Berry -- Chief Executive Officer

Well, we see our oil as a percent of our production increasing in the second half of the year. And it's really, I guess, say, based on the fact that if you look at our completions in the back half of the year, second half of the year, about 70% of the wells will probably be in the Bakken, maybe upwards of around 70%. And compared to the first half, we're around 50%. So I mean, that's one of the key drivers there. But at the same time, too, we're also going to be switching our rigs in Oklahoma, I mean, as far as -- it's oil-weighted in nature as well. Last year, we were probably -- second half of the year, we were probably 70% gas.

This year, we're probably going to be about 60% oil with those rigs. And so anyway -- so we're making that strategic shift to -- as we keep saying in Oklahoma, we love the optionality you have with the commodity there. And so we're moving in that direction to take advantage of that.

Arun Jayaram -- JPMorgan Chase -- Analyst

Got it. Thanks a lot.

Aaron Chang -- Vice President, Oil and Gas Marketing

Thank you.

Operator

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

Derrick Whitfield -- Stifel -- Analyst

Thanks, and good morning, all.

William B. Berry -- Chief Executive Officer

Good morning.

Jack H. Stark -- President and Chief Operating Officer

Good morning.

Derrick Whitfield -- Stifel -- Analyst

With regard to the 2021 capital outlook and the operational efficiencies you noted, would it be fair to assume that there's downside to your capital plan if you achieve your targeted completed well cost on Pages seven and eight?

William B. Berry -- Chief Executive Officer

Downside in which direction there? Meaning that we could drive the costs lower? Yes, we're still trying to drive it even lower, if that's the thought, Derrick.

Derrick Whitfield -- Stifel -- Analyst

No, it was even more around the capital side because we were working through the numbers at your target and it seemed like there would be some downside if you guys attained for the year that average target.

William B. Berry -- Chief Executive Officer

Downside to what, Derrick? I'm sorry, I'm not sure I have all the...

Derrick Whitfield -- Stifel -- Analyst

The 2021 capital plan.

William B. Berry -- Chief Executive Officer

That -- the $1.4 billion that we fashioned...

Derrick Whitfield -- Stifel -- Analyst

$1.4 billion, correct.

William B. Berry -- Chief Executive Officer

That we could actually spend less than that, that's what your question is?

Derrick Whitfield -- Stifel -- Analyst

That is correct.

William B. Berry -- Chief Executive Officer

Yes. We had factored into that bud get, the fundamental cost savings. I believe I said, we spent most of last year kind of took advantage of the pause and slowdown. So we had a lot of our drilling engineers and production engineers, we weren't drilling as actively as were in 2019. We had them working on how to drive the cost down. So we kind of came out of the shoot with an expectation that was given to Pat Bent and his team to drive it lower, and that's all reflected in that number.

Derrick Whitfield -- Stifel -- Analyst

Perfect. And then with my second question, shifting over to your ESG slide. Several of your peers and the majors are pursuing CCS and/or other renewable projects to offset their Scope one emissions. From a business opportunity and ESG perspective, could you comment on your desire to pursue something similar to this as a means to offset carbon emissions from your operations?

William B. Berry -- Chief Executive Officer

Yes, I'd probably start at the high level with you, Derrick, and say that our goal as a company is to look at all waste and that -- be it whether it's going in the air or going into landfills, whether it's going into any type of byproduct. This is something that we think all industries should look at all the time. And so we're looking at all our waste and what happens to it and trying to take that to the absolute de minimis level. So that's our primary pursuit, is to reduce the actual emissions come, whatever form they're in. We hope that there are some economic business opportunities out there.

And clearly, there are right now with some of the ones you see going on in some spaces, the 45Q tax is something that everyone is trying to see if there's an opportunity to make that work. So I think it's incumbent on the industry to try to take a look first at reducing its submissions. And then second, look at any type of carbon capture. We think the carbon capture is going to play a role in the future.

Derrick Whitfield -- Stifel -- Analyst

Very helpful. Thanks, guys.

Operator

The next question comes from Neal Dingmann of Truist Securities. Please go ahead.

Neal Dingmann -- Truist Securities -- Analyst

Morning, all. Bill, my question for you or Jack. I'm just wondering, how far in advance -- you guys really pivoted at key times over the last -- I mean, whoever made the decisions there first in gas and now more toward oil. It certainly implies that it does look like your Bakken is going to be a much bigger plan for the remainder of the year. How far in advance or -- I'm just wondering, you're looking -- going forward in 2022, and forward is obviously difficult to tell the balance between gas and oil prices. I'm just wondering, how do you determine kind of what the -- where the focus is going to lie?

William B. Berry -- Chief Executive Officer

Well, we've got a pretty robust programming internally where we sit down multiple times a week and talk about where the world is going. Got the whole team involved in it everywhere from finance to operations to marketing and specifically look at those type of things, look at the fundamentals. And that kind of drives the decision. And the nice thing about this company is that we make pretty quick decisions. So once we see the stars lining up, we go ahead and make the directional changes as appropriate. And some of them will work out and some of them won't, but we're just hoping that -- we're batting above 500 at the end of the day on these things. And this is one that I think works out well for us.

Jack H. Stark -- President and Chief Operating Officer

Neal, I just want to add. I mean, we really want to give some kudos to the teams because, obviously, as Bill said, we studied the market in a macro cost way. And the teams are also very tied in, and they came to us with a recommendation to looking at Oklahoma and said they have the optionality to move into a more gas-weighted portfolio early last year. And it really made good sense. And so anyways, we -- it's a team effort here, and it's great to see that everybody is tied in.

William B. Berry -- Chief Executive Officer

Yes. I just want to reinforce what Jack mentioned that, that was a team's recommendation to management. That was not a management recommendation but a team's. We all had our perspective on that, but just to show that the whole company is engaged in making these decisions.

Neal Dingmann -- Truist Securities -- Analyst

No. Very well understood. And then just secondly, it's interesting to hear now you're going to start to be a little more active in the PRB. I'm just wondering, what is the plan there? I guess why I ask, you have, as Jack has pointed out, so many great Tier one top-tier locations already in the Bakken, Anadarko. I'm just kind of wondering what maybe the overall plan or goal is in that area because, I mean, certainly, you could stay put in the two basins you have and had, as Jack said, for years and years. So I'm just kind of wondering what you're maybe trying to achieve in that, I don't know, the next year or two or three in that, the PRB?

Harold G. Hamm -- Executive Chairman

That's a very good question. I like the word hitting the ground, following up with what Samson had going up there and a continuation of that program. two of the five gas wells in Powder River Basin is the result of their program. So we're just following along to it. And these are very high-quality premium locations that we're going forward with up there in Powder. So we're proud of our position up there, and we think it's going to work out very well for the company.

Neal Dingmann -- Truist Securities -- Analyst

Well, I like what you see, Harold. Thanks so much for the add.

Harold G. Hamm -- Executive Chairman

Yes.

Operator

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

Jeanine Wai -- Barclays -- Analyst

Hi. Good morning. Good afternoon, everyone. Thanks for taking our questions.

Aaron Chang -- Vice President, Oil and Gas Marketing

Thank you.

Jeanine Wai -- Barclays -- Analyst

Hi, good morning. Our first question is on the Bakken. And we noticed in the updated presentation that your projected 2021 type curve, it's improved since last quarter's projection. Now it's better than 4Q '20, it's better than the 2019 wells. Can you provide maybe a little commentary on what's changed in your outlook there and whether the increase is on oil as well as on BOEs? And then maybe if you can comment on the corporate oil trajectory growth between the north and the south this year as well because it seems like the north is doing better.

Jack H. Stark -- President and Chief Operating Officer

Sure, Jeanine. Yes, it's really just a function of where we decide to put the rigs. We've got a really large footprint up here. And depending on where the rigs are any time, you'll get a varying -- variance in the performance. But it's all -- as you can see, if you look at it over the last three going on four years now, you can just see how consistent it is no matter where we move in the play. And the amount of shift is really, in my mind, is not really that significant. I think the overriding factor here, as you look at that chart on Page 7, is how consistent it's been.

And that's what we love about the Bakken in our position here because it's just so consistent -- such a consistent performer and with low water cut. And so I mean it's great. So I wouldn't read anything into it other than it just continues to validate the strong inventory that we have here in the Bakken.

Jeanine Wai -- Barclays -- Analyst

Okay. Great. And then maybe my follow-up question is back on debt reduction. You're estimating you'll hit the below $4 billion by year-end. Do you have any early thoughts on how you're thinking about the timing of getting to your ultimate target of less than $3 billion? And maybe how you're planning on balancing cash return to shareholders with potential inorganic expansion opportunities and maybe some modest growth?

William B. Berry -- Chief Executive Officer

Yes. I think you start with our investment thesis of 65%, 75% reinvestment ratio. And then from that, as you spin off the cash and the rest of the cash, they're not -- that's what you're really probably addressing, Jeanine, what do we do with that? And then that's what we're looking at, returning to shareholders in all the forms that we were talking about. So we've got lots of vehicles to do that, and we plan on staying on that path.

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

Regarding the timing on the -- hitting the $3 billion target, obviously, we're generating a significant amount of cash flow. That's not a new feature for us. We've been doing it for a while. We expect '22 to put off substantial cash flow as well. So we should be approaching that $3 billion target relatively quickly. We'll give you color on that when we give you the '22 guidance, but I feel good about over the next 1.5 years.

Jeanine Wai -- Barclays -- Analyst

Great. Thank you very much.

Operator

The next question comes from Scott Hanold of RBC Capital Markets. Please go ahead.

Scott Hanold -- RBC Capital Markets -- Analyst

Thanks for taking my question. I'd be interested in your perspective on what you all think about hedging at this point in time. I know the curve is very backward dated. It doesn't look like you've done a lot of incremental stuff, if any at all, on oil, but it does seem like you did make mention that you put some gas hedges on into 2022.

William B. Berry -- Chief Executive Officer

Yes. Just to maybe start with philosophically how we approach hedging. And philosophically, we approach hedging as something that we actually prefer not to do. We think our investors and our investor base prefer to be able to participate in the commodity. That said, what we do with our preference not to hedge, we actually go through and look pretty robustly at whether we should. And of course, the factors going into that is commodity fundamentals, it's the balance sheet, debt-to-EBITDA, those type of variables. We do look at oil and gas, I think that's what you're highlighting, a little bit differently.

We think that the approach on hedging, we think gas is a little bit more range bound than oil is. And so that's as a result of putting in all that sophisticated analysis that we do internally just about every week on whether we should be hedging or not. That's what has yielded us with a 0 amount of our oil hedged after May. And as I mentioned in my comments, yes, you're seeing a bit of the gas that we've been out there hedged. And again, because we think that the potential for gas because of the structural nature of the dynamics of the fundamentals there, it can be more range-bound. With that, I don't know whether -- Aaron, you got anything else you want to add from a marketing side?

Aaron Chang -- Vice President, Oil and Gas Marketing

No. I think Bill covered it. From a macro standpoint, we're still very constructive on both the commodities in the medium term, recognizing that there is some near-term noise as vaccine rollout continues across the world with the expectation that demand and return will follow. And I think that aligns very well with our oil and gas hedging program for 2021.

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

Scott, you made a reference, it sounded like '22 -- gas hedges in '22. Our gas hedges go out through the balance of '21. There's a really nice summary in the 10-Q that we filed last night that you can pull that gives a breakout of swaps and collars. You'll see very relatively high attractive gas floor prices as well, around $3.

Scott Hanold -- RBC Capital Markets -- Analyst

Okay. So I'm just going to confirm, nothing in 2022 because you think Slide eight on your presentation does indicate 2022?

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

It does. It's maybe a very limited amount in the beginning of the year, where we don't have much there.

Scott Hanold -- RBC Capital Markets -- Analyst

Okay. Okay. Fair enough. And then my next question is on the PRB. Obviously, very exciting to get started. I know you guys have not quite got a rig out there yet, but can you give some sense of what formations you initially look at targeting? And did you inherit DUCs? And lastly, just holistically, do you sense the position is big enough for Continental where it's at right now?

Tony Barrett -- Vice President, Exploration

Well, first of all, Scott, this is Tony Barrett. Thank you for the question. Regarding DUCs, no, we did not inherit any of those. On the question of targeting, our early program, as I think we've discussed before, is really targeted toward the high rate of return sands have been proven by our predecessor, Samson. So early time drilling, and we'll spud our first well this weekend out there. We'll be focused on the Frontier and Turner formations, which I'm sure you're familiar with. So did that answer your question?

Scott Hanold -- RBC Capital Markets -- Analyst

Yes, sir.

Tony Barrett -- Vice President, Exploration

Alright. Thank you.

Operator

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

Doug Leggate -- Bank of America -- Analyst

Thanks. Good morning, everybody. Guys, I think I heard Mr. Hamm on the call. I wonder if I could just ask you guys to -- I think you touched on it already, but just your current perspective on the commodity outlook because obviously, there's a lot of moving parts that's been talked about already. But the fact that you are one of the most levered stocks without any hedging to the upside, I'm just curious how you see the near-term and medium-term commodity outlook playing out as you see it evolving through a number of cycles before, but I'd appreciate Mr. Hamm's perspective.

Harold G. Hamm -- Executive Chairman

Well, Doug, as we said, there is still an overhang of oil inventory in the world. And we recognize that. And -- but I think that U.S. producers in general have been very disciplined in their approach and watch the market and what the demand is. We still see some curtailed demand due October 19, and everybody is anxious to see, waiting the return of demand back to normal. But I think going forward with activity at [Port Adeline] and, I mean, if you look at [420 rigs] operating in the U.S., we see that supply and demand is coming back into balance and which bodes well for commodity prices in the future.

So obviously, as long as OPEC functions as they do, it had been reasonably in different remains in the industry, we feel very positive about the commodity risk.

Doug Leggate -- Bank of America -- Analyst

I appreciate that perspective, Harold. Thank you. And Bill, the reason I asked the question was because I wanted to set up my second question like this. I mean, John's done a pretty good job laying out the debt, the debt targets and the flexibility you have to go to $3 billion. But if you think about it, that a lot of companies in the sector that don't really have an investment case now, if you like. And what I mean is growth is no longer on the table, at least in a meaningful size. Some of them don't pay a meaningful dividend. One of the easiest ways to create value in this sector is to take out someone else's cost by an efficient operator.

So I'm just curious, you clearly have a strong cash flow trajectory in front of you. You still have a relatively small flow. Is there any update on thinking on what consolidation could look like in Continental's future in light of everything going on in the Bakken in particular? And I'll leave it there. Thanks.

William B. Berry -- Chief Executive Officer

Yes. Thanks, Doug. No doubt, I think we all see it the same way, consolidation in the industry, which was a little bit happening last year, needs to continue. There's a -- there's opportunities for doing that. And we're seeing that in the various basins as we speak. There are things going on. And we participate in actively understanding what the opportunities are and whether they meet our economic thresholds and whether it's in something that fits strategically for us. So as we've talked about in the past, from an M&A perspective, we're always on watch.

There's opportunities. We're bolting on a couple of really nice assets last year, kind of under the radar because it wasn't a big splash. But if you look at the impact to the company, it was pretty significant from the things that were added to it. So our hope and desire is that the consolidation in the industry does continue.

Doug Leggate -- Bank of America -- Analyst

So the outside sales under way in the Bakken right now, no interest?

William B. Berry -- Chief Executive Officer

That's such a broad question there. Clearly, good assets for sale and there are bad assets for sale. And we started in with the rocks. And if the rocks are bad, we have no interest. If the rocks are good, we're interested at the right price.

Doug Leggate -- Bank of America -- Analyst

Okay. Thanks for the answers, guys. Great quarter.

William B. Berry -- Chief Executive Officer

Thank you, Doug.

Operator

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

Nitin Kumar -- Wells Fargo -- Analyst

Good afternoon, gentlemen. And thanks for taking my question. I guess I'll start off with John. You highlighted the strong free cash flow and the dividend is a great statement of that. Taxes are the other side of that coin. I'm just kind of curious, as you look ahead in your free cash flow outlook, when do you expect to start paying cash taxes both in the current regime and maybe what the Biden tax proposal is asking for?

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

First of all, it's good to hear your voice again. Look forward to seeing you again in the future as we move forward. We talked a bit about this in the past, it hasn't changed a lot. We have substantial net operating loss carryforwards at a federal and a state level. So if you look at it in a current regime, putting off a free cash flow at the level that we are, certainly, you convert to cash taxes at some point. We see it being five to seven years in the future in a current regime. In regards to potential changes in tax codes, there are a lot of moving variables there.

Rate is certainly part of it. I think you're referring to IDC. But even within IDC, if there is a change or if there's not, we've already addressed that. If there is, it gets back to the period that you're allowed to amortize over that. In the past, they've talked about maybe converting to a 5-year amortization if they did something of that nature. Those NOLs are a very effective bridge between where we are today to then preserving a substantial amount of free cash flow that the company can generate. So it might trim a year or two off of that if they went to a 5-year type [AM]. So we'll just have to monitor and watch that, and we'll go from there.

Nitin Kumar -- Wells Fargo -- Analyst

Thanks, John. Thanks for the detail there. And as my follow-up, you guys talked about how your -- you don't expect to use more than 3% to 5% growth is required. Some of the private activity in some other basins is picking up. I'm just curious, what are you seeing in the Bakken? I mean with prices in $60 and cost of a $30 to $40 world, there is an opportunity. Just your thoughts on the Bakken in general.

William B. Berry -- Chief Executive Officer

I think Pat can probably give you some good insights in that with what's going on in the drilling rig because that's really going to be the leader. And in the Bakken, we're seeing a little bit of movement, but not a lot with the rigs back in place. Pat, do you want to talk about that?

Pat Bent -- Senior Vice President, Operations

This is Pat Bent. There hasn't been a lot of movement in the Bakken from a rig activity perspective. 13 or 14 rigs currently, as you know, and as we've talked about, Continental will add a few rigs as we exit the year, but don't see a lot of increased activity anywhere on par with some of the other basins.

Nitin Kumar -- Wells Fargo -- Analyst

Great. Thanks for the color, gentlemen.

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

Thank you.

Operator

Our next question comes from Leo Mariani of KeyBanc. Please go ahead.

Leo Mariani -- KeyBanc -- Analyst

Hey, guys. Just a question around capex here in '21. It looks like you had about $293 million of spend in the first quarter. If I'm doing the math right, that leaves about $370 million per quarter for the rest of the year to hit the budget of $1.4 billion. Is that pretty ratable? And is 1Q kind of the low point on spend for the year?

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

It's -- I don't know -- I don't recall if it's a low point, but it's fairly ratable throughout the year. So it should be -- steps up a little bit to get to that average. We are very fixated on $1.4 billion, we're committed to that. And frankly, we're on track for it.

Leo Mariani -- KeyBanc -- Analyst

Okay. All right. Great. And I guess just with respect to the Bakken, I guess, I think you guys were talking about how you're starting to bring wells on in the second quarter. I just wanted to get a little sense of kind of the cadence there. Did you not really have any wells come online in the Bakken in 1Q? And then it sounds like you're picking up in 2Q, but is it generally just more second half weighted with a lot more Bakken TILs? I just want to make sure I can understand how that's working.

Jack H. Stark -- President and Chief Operating Officer

Yes, Leo, this is Jack. Yes, you're right on point there. In the second quarter, we're probably going to see upwards of about 65 wells completed in the Bakken. So really, we're moving -- we just -- it's basically a timing issue up here. And while we're talking about this, I think I ought to mention just Long Creek because it plays a part in that. We bought on 11 wells here recently up in that play, but -- for that project. But we're building that infrastructure out to allow us to handle all the products online, and we'll begin drilling in there with two rigs in August.

And these 11 wells, just as a heads-up, these -- the IPs on these 11 wells, they're right around 1,900 BOE per day, 80% of well, very strong wells. And in Long Creek, we plan on 56 wells total drilled. This is the first 11 of those. And so anyways, it's just a good indicator of the horsepower we've got there and the quality of the production we expect to see coming out of Long Creek.

Leo Mariani -- KeyBanc -- Analyst

Okay. Great. Thank you.

Operator

The next question comes from Charles Meade of Johnson Rice. Please go ahead.

Charles Meade -- Johnson Rice -- Analyst

Yes. Good day to everyone there. And thanks for taking all these questions. I just wanted to push a little bit further on the oil trajectory in the back half of the year, if you guys could give a bit more insight. It looks to me like there will be -- that we'll actually see sequential growth beginning in 3Q and then carrying on into 4Q and that, that new growth path you established in the back half of '21 should be what we see looking out at '22, assuming nothing strange happens with the oil strip. Is that kind of the right read? Or can you offer any comments around that?

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

We've given some guidance on the second quarter. There's obviously a consensus out there, average that you can pull or you know for the fourth quarter. I would say we're in line with what we're seeing. The consensus is projecting for the year. So between those, I think that's probably giving you a pretty good cadence, and the market seems to have it modeled fairly well and in line with our expectations.

Charles Meade -- Johnson Rice -- Analyst

Got it. That's helpful. Thank you. And then if I could go back to the -- I'm sorry, did I interrupt?

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

No, I just said, you bet.

Charles Meade -- Johnson Rice -- Analyst

Okay. If I could go back to the question of optionality and maybe get you guys to give a little bit of a picture of what that looks like when you do have those meetings internally. Based on the way you guys kind of shifted to gas last year and at the same time, you put in some price protection right around $3, it looks like that it's at $3 is the level, if you can hedge it that gas starts to capture more capex dollars. But that's -- of course, that will be versus an assumed oil price. And so can you give us a sense of how that conversation goes and if that's the right framing for how we should think about the optionality you have?

Harold G. Hamm -- Executive Chairman

Well, that's a good question. At the same time, I mean, we've seen oil prices run up over 50% this year. So it becomes a balance. And the good thing about is that optionality, we have great assets, [Indecipherable] here. And we also of course, have great assets both in Oklahoma and the Bakken and North Dakota for oil. So we go either way. But it's hard to hinge it on $3 at such on gas. You have to see where oil price is, but we will go with the best product for...

Jack H. Stark -- President and Chief Operating Officer

Yes. And by no means that we don't need $3 or upwards to $3 to make these things economic out here. I mean our condensate wells that we brought on, we bought on literally in the last -- let me pull up my notes here. In the last two quarters, we brought on 32 wells in the springboard condensate window, all right? And the average 24-hour IP on those is 16 million a day and 400 barrels of oil a day. And those wells are extremely economic at $2.50. You're economic down $2 and below. So you just need to know that these are very strong wells.

And what we saw is just more of a macro environment that was indicating that we were very constructive on natural gas and still remain that way here through the rest of the year and into next year, some. And so the fact is, it made sense for us to take advantage of that and go ahead and focus our rigs more on natural gas. And so now we're seeing stronger oil prices in the -- in our projections here. And so it makes sense to start maybe focusing a little more on it. So bottom line is we just love having that optionality and it's one of the strengths of the company.

Charles Meade -- Johnson Rice -- Analyst

Thank you for that added detail.

Harold G. Hamm -- Executive Chairman

Thank you.

Operator

The next question comes from Paul Cheng of Scotiabank. Please go ahead.

Paul Cheng -- Scotiabank -- Analyst

Thank you. Good morning. Bill and John, once that you reach the $3 billion mark of your longer-term debt target, will you consider that you're coming out with a formal line, a cash return policy similar to some of your peers that whether it's using cash variable dividend or that buyback? And on that basis that -- do you have a preference between the two as a supplemental way to distribute the cash back to the shareholder at -- when that is -- get readied? And secondly, Bill, how was the 130 -- 143 well in north? Do you have a breakdown between the Bakken and the PRB? And also the 67 wells in the south, do you have a breakdown between the STACK and the SCOOP? And also that I think you mentioned that it's going to be maybe done more in toward into the second half. Do you have, say, what is the second quarter, the well going to come on stream for those four regions? Thank you.

William B. Berry -- Chief Executive Officer

Thanks, Paul. And so let me address the variable dividend question, and then Jack will go into the wells and the price of those that we're seeing in the different areas between the Bakken and the Powder and the SCOOP and the STACK. On variable dividend, we have a cash return to our shareholders and the cash return to our investors that we're focused on. And we just see a variable dividend is something that is out there as a possible tool, a dividend that we reimplemented and reinstituted and that's also got an opportunity to grow. We have also a cash buyback or stock buyback so that we can go in. So there's a lot of different vehicles and then that's on top of the debt paydown.

So we really look at all those. And as to what's the appropriate one, it depends on the circumstances at the time. So -- but that's why we wanted to bring the dividend back. We wanted to bring it back early. Our assets support it. The cash flow supports it and the desire of the Board and this company is to have a significant return to shareholders. And so the 65% to 75% is, I think, the number that you can kind of hang your hat on that we're going to be going forward with, is a number that we're going to be restricting our reinvestment ratio to. And as far as the wells go, Jack, you and Pat want to talk through that?

Jack H. Stark -- President and Chief Operating Officer

Well, yes, as far as the 143 wells in the north, 11 of those, I would say probably 10, upwards of around 10 will be in the Powder. The rest are in the Bakken. And as far as in the south is concerned, I don't have the number off the top of my head, but I would say out of the 67 you mentioned there, gosh, I'm going to say 85% or so are really all going to be in SCOOP, in our SpringBoard project areas. So I think that's a fair estimate there.

Paul Cheng -- Scotiabank -- Analyst

Jack, do you have what the second quarter number wells going to come on stream?

Jack H. Stark -- President and Chief Operating Officer

Second quarter wells coming on stream. Well, we have about -- it's going to be getting close to around 100 wells between north and south in the second quarter. And I'd say about 65 of those, as I mentioned previously, are going to be in the Bakken. The others, obviously in the south.

William B. Berry -- Chief Executive Officer

Thanks, Paul.

Operator

The next question comes from Noel Parks of Tuohy Brothers. Please go ahead.

Noel Parks -- Tuohy Brothers -- Analyst

Good morning.

Jack H. Stark -- President and Chief Operating Officer

Good morning.

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

Good morning, Noel.

Noel Parks -- Tuohy Brothers -- Analyst

I'm just curious. As you're starting to really dig into the project at the Powder River Basin, is there any particular sort of science that you're going to be doing that's important in these early wells? I'm not sure how much you might have inherited from the former operator. So just curious about what you might be looking for as you're starting on those.

Tony Barrett -- Vice President, Exploration

Hi Noel, this is Tony Barrett. Well, obviously, we inherited some data from our predecessor, as we've said before, on as far as production information, some core rock data, all of that type of stuff. As most other operators do, we've been prudent in acquiring 3D seismic, which was available over that area. So that obviously helps us with our drilling and hazard avoidance and all that good stuff. In addition, we'll do a normal thing that we do in the Mid-Continent in the Bakken that we'll collect well log data when it's appropriate as we go through the program and move through the different areas and look at the different formations. So nothing unusual in the Powder that we don't already do in our other operating areas.

Noel Parks -- Tuohy Brothers -- Analyst

Great. Thanks. And another question kind of at the opposite end of the portfolio. I just was curious. Last year when there was a big slowdown in activity with the weak prices, I was wondering, what were your trends for maintenance spending, for instance, in the Bakken with older wells there? I was just wondering, is there a catch-up from last year that you still have to do or want to do on the sort of older vintage wells? Or do they really warrant the money or manpower given how you're trying to allocate your budget?

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

No, we're right on track. I mean, if you look at the number of DUCs coming out of last year and coming out of this year, it's relatively consistent within a handful few of each other. Our maintenance capital multiyear, longer-term for several years is $1.35 billion. That ranges depending on project timing between $1.2 billion and $1.5 billion, but I would -- as I said, I would focus on that midpoint. We've maintained our wells. They're operating at high levels. Productivity is strong. So we're well positioned. There's no catch-up per se.

Operator

This concludes our question-and-answer session. I'd like to turn the conference over to Rory Sabino for any closing remarks.

Rory Sabino -- Vice President, Investor Relations

Good. We are past top of the hour here. Thank you very much for joining us today. Please reach out to the IR team with further questions, and have a great day. Thank you.

William B. Berry -- Chief Executive Officer

Thanks, everyone.

Jack H. Stark -- President and Chief Operating Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Rory Sabino -- Vice President, Investor Relations

William B. Berry -- Chief Executive Officer

Aaron Chang -- Vice President, Oil and Gas Marketing

Jack H. Stark -- President and Chief Operating Officer

Harold G. Hamm -- Executive Chairman

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

Tony Barrett -- Vice President, Exploration

Pat Bent -- Senior Vice President, Operations

Neil Mehta -- Goldman Sachs -- Analyst

Arun Jayaram -- JPMorgan Chase -- Analyst

Derrick Whitfield -- Stifel -- Analyst

Neal Dingmann -- Truist Securities -- Analyst

Jeanine Wai -- Barclays -- Analyst

Scott Hanold -- RBC Capital Markets -- Analyst

Doug Leggate -- Bank of America -- Analyst

Nitin Kumar -- Wells Fargo -- Analyst

Leo Mariani -- KeyBanc -- Analyst

Charles Meade -- Johnson Rice -- Analyst

Paul Cheng -- Scotiabank -- Analyst

Noel Parks -- Tuohy Brothers -- Analyst

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