Good day, and welcome to the Chord Energy conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I'd like now to turn the conference over to Mr. Michael Lou, Chief Financial Officer. Please, sir, you may proceed.
Thank you, Caroline. Good morning, everyone. Today, we are reporting our second quarter 2022 financial and operational results. We're delighted to have you on our call. I'm joined today by Daniel Brown, Chip Rimer, and other members of the team. Please be advised that our remarks, including the answers to your questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and conference calls. Those risks include, among others, matters that we have described in our earnings releases as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q.
We disclaim any obligation to update these forward-looking statements. During this conference call, we'll make references to non-GAAP measures, and the reconciliations to applicable GAAP measures can be found in our earnings releases and on our website. We may also reference our current investor presentation, which you can also find on our website. With that, I'll turn the call over to our CEO, Daniel Brown.
Thank you, Michael. Good morning, everyone, and thanks for joining our call. Today, we'll discuss our integration progress, our new return of capital program, second quarter 2022 operating and financial results, and finally, our expectations for the balance of the year.
First, I'd like to take a moment to address and acknowledge our employees. I know the past several months have been challenging, but your hard work and dedication have culminated in the successful close of our merger on July 1, great progress on integration, and have put us in an excellent position to succeed as we move forward. My sincerest thanks for all you do for our organization. July 1 marked the end of two companies and the beginning of another. We chose the name Chord Energy as we feel the two common definitions of the word chord has significance to the merger and our organization.
First, the mathematical definition of chord refers to the joining of two points on a curve, which we view as a metaphor for our merger of two premier Bakken-focused companies. Second, in musical terminology, a chord represents multiple musical notes played simultaneously to create harmony. We thought this was very aligned with the harmony we strive to achieve with all of our activities as we work to simultaneously be good stewards of our team, our communities, the environment, and importantly, the investment our shareholders have entrusted us with.
Given this is our first conference call as a combined company, I'd like to talk about the progress we've made over the past two years and how that relates to our path forward. Over 2021 and 2022, our predecessor companies streamlined their cost structures and pivoted business strategy toward low reinvestment rates and high return of capital.
We did this while implementing progressive, shareholder-aligned long-term incentive programs. Additionally, we divested multiple non-core assets to focus on areas where we have competitive strengths. Oasis simplified and then divested its midstream company, which made the core E&P business more focused, less complex, and brought significant value to shareholders. We both grew our asset portfolios in core areas and did so in a prudent manner with a focus on value and our ability to return cash to shareholders while keeping leverage at appropriate levels.
Additionally, we prioritize ESG initiatives, significantly increasing the transparency of the business and providing a baseline from which we can improve. Finally, we returned a significant amount of capital to shareholders through multiple avenues, including base, variable, and special dividends, as well as share repurchases.
We've had a great deal of success and will continue to manage the business in a prudent, sustainable manner with a best-in-class balance sheet and emphasizing return on and of capital. Now, I'd like to provide a little bit more detail on integration progress. On that front, we remain as excited as ever about the future of our company.
The industrial logic of the combination remains sound, and we are well underway with integration, having announced the organization's leadership through the first few layers of the company, and are now working to select and implement the best practices, process, and systems across all of our organization. We're using the integration as an opportunity to challenge the status quo and seek ways to improve the way we do business.
We're having our leaders and teams keep an open mind and determine the best way to do things going forward without any bias towards the way things were traditionally done at either predecessor company, and think this is critical if we're to capture all the opportunity that this merger offers. We've seen great results. We have now identified over $100 million per year of merger synergies, which we expect to realize over time.
On capital and operating synergies, we see multiple opportunities to leverage each company's proven strengths in areas such as shortening well downtime, running a more efficient workover program, reducing drilling days, improving well completions, optimizing facility design and construction, and many other aspects of the business. We will elaborate more in the coming quarters, but I'm pleased with the progress we're making and the new opportunities the team have identified.
Now, moving to return of capital. Chord Energy announced its return of capital strategy last night, which is centered on a commitment to returning high amounts of capital to shareholders while maintaining financial strength. In accordance with this objective, we made the plan dynamic, as it allows for higher free cash flow return when projected leverage is at low normalized levels. We expect to pay out 75% or more of free cash flow when projected normalized leverage is below 0.5 x EBITDA, which, with our current strong balance sheet, is where we are today. If or when leverage is above 0.5x but below 1x, we expect to pay out 50% or more of free cash flow.
In any event, normalized leverage exceeds 1x EBITDA, we would pay the base dividend and use remaining free cash flow to rapidly pay off debt as our long-term leverage target is below 1x at normalized pricing, and maintaining a strong balance sheet is a key priority for the organization. As part of our return program, we are increasing the base dividend immediately to $1.25 per share per quarter or $5 per share per year. This represents an increase of well over 100%, and given our outstanding share count, represents an aggregate dividend payment of approximately $52 million per quarter. Our base dividend yield is the highest among our midcap peers, and importantly, is designed to be resilient at low prices and to be sustainable through commodity cycles.
In practice, at the end of each quarter, Chord expects to announce a variable dividend based on the difference between our targeted free cash flow percentage and the amount of capital used to pay the base dividend and repurchase shares during the quarter. We expect both variable dividends and share buybacks to play a role in our capital return framework.
In conjunction with our return of capital plan, we also announced the approval of a new repurchase authorization for $300 million, which is on top of the $125 million in shares repurchased in July. Our return of capital program is highly competitive, represents our core strategic values, demonstrates our competence in the asset base and our ability to execute, and maintains organizational flexibility. Now for a few words on the second quarter.
We pre-announced 2Q operating performance on July 1, and last night we provided actuals, which were generally in line with those initial ranges. As you recall, severe winter weather hit North Dakota in late April, which had a significant impact on the power grid and adversely impacted production and per unit costs. However, actual performance during the quarter was stronger than originally expected after the storms, as power was restored sooner than we forecast in May.
Volumes exceeded expectations, realizations were strong, and per unit costs were better than we expected. Capital was also below our expectations, although this largely reflected timing as activity shifted to later in the year. As we look at the back half of 2022, we are providing third quarter guidance and also updated full year 2022 guidance pro forma for the combined company.
Without the weather impact, our updated guide would be above our initial guidance, with the driver being good uptime and outperformance across the board on recent well completions. I encourage you to look at our latest investor presentation for some perspective on the new wells we've brought online over the past year, which are performing quite nicely. Including the weather impact, we are slightly below our original midpoint, but are very pleased with our operational performance. We updated our full-year 2022 capital budget range to $730 million-$760 million, reflecting our estimates for the second half of 2022's service pricing and expected completion activity.
The increase versus our original expectation reflects increases in pricing beyond what we originally forecasted February, as well as the shifting of some activity into the back half of the year where service costs are higher due to the inflation. The current services environment is just another example of why our merger makes great strategic sense.
The increased scale of the company will allow us to level load our program, including keeping a pressure pumping crew working full-time, which should lead to greater operational efficiency and therefore lower cost than we would experience otherwise. Also, on the topic of completions, we recently brought on the Bakken's first dual fuel frac fleet, which will drive our second half program while lowering our emissions profile.
We currently expect to run three rigs and about one and a half frac crews in our near-term focused areas, which include Sanish, Indian Hills, City of Williston, FBIR, and Cassandra. As a reminder, at our current completion space, we have over 10 years of inventory economic at sub- $60 per barrel WTI.
Finally, I want to discuss our ESG strategy. Chord Energy remains committed to our core ESG principles of providing safe, reliable energy in an ethically and socially responsible manner for the long-term benefit of our stakeholders. Transparency remains a key part of our strategy. We expect to provide more disclosure before year-end, including pro forma metrics for the combined organization. Throughout the remainder of this year and 2023, the board and management will evaluate our current strategy and identify areas where we can improve.
Shareholder feedback certainly influences this process, and we look forward to engaging with the investment community on this and other topics at upcoming conferences and in other investor discussions. With that, I'll turn it over to Michael for some financial updates.
Thanks, Danny. Second quarter results in our press release and upcoming 10-Q filing generally reflects stand-alone performance from our predecessor company. However, we provided tables in our press release and presentation which highlight performance from each legacy company, along with combined pro forma Chord Energy results.
I will now highlight a handful of key operating items for the second quarter. The numbers mentioned reflect pro forma Chord Energy and are calculated on a three-stream basis for both companies unless otherwise noted. As a reminder, we'll be moving to three-stream reporting for the combined companies with third quarter results. In the second quarter, pro forma Chord volumes of 158,600 barrels of oil equivalent per day were at the high end of the range provided on July 1st.
You'll see that our CapEx is a little bit higher in the second half, and that is, and as a result of that, our production guidance is also higher for the second half. Both crude and gas realizations were strong in the second quarter as markets are fairly tight around the Williston, and markets continue to remain strong for the second half as well. LOE averaged $10.06 per BOE for the second quarter, reflecting downtime and higher workovers related to the weather disruptions that Danny mentioned. As you can see in our guide, we expect per unit LOE to decrease a bit in the second half of the year, reflecting less downtime. Cash GP&T was $2.81 per BOE, in line with the midpoint of the range provided on July 1st.
Production taxes were approximately 7.4% of oil and gas revenue at the high end of the July 1st preliminary range. Our production tax guidance for the third quarter of 7.7%-8.1% reflects the recent increase in North Dakota oil taxes. This increase relates to pricing triggers as of the beginning of June, WTI averaged above $95 per barrel for three consecutive months. The rate would also reset back to lower levels if WTI were to average below $95 per barrel for three consecutive months. Pro forma Chord cash G&A expense was $32.6 million, but $23.6 million excluding approximately $9 million of merger-related costs. CapEx was $172.7 million in the second quarter, below initial expectations.
The delta largely relates to timing, and we updated our full year CapEx forecast for latest pricing trends. Overall, pro forma free cash flow was over $300 million in the second quarter. As of July 31st, Chord had nothing drawn under its $2 billion borrowing base revolver, and we've got $800 million of elected commitments under that revolver. Cash was approximately $96 million as of July 31st as well. We're providing that July 31st data so that analysts have a reference point after merger cash consideration, special dividends, share buybacks, and a significant amount of transaction costs that were paid in July. Chord Energy also has $400 million of senior unsecured notes due June 2026. Chord's debt ratings were recently upgraded by both Moody's and S&P.
As Danny mentioned, we have announced a peer-leading return of capital framework. This includes a declaration of a base dividend of $1.25 per share payable August 30th to shareholders of record on August 16th. Additionally, Chord repurchased approximately $125 million under its repurchase program in July at a weighted average price of $106.25 per share. This equates to about 2.7% of the company's market cap. We've also announced a new $300 million share buyback authorization on top of that. Overall, we continue to demonstrate a commitment to significant shareholder return with over $1.1 billion returned to shareholders in the past 18 months.
In closing, thank you to the entire Chord team for an exceptional hard work during a quarter with extreme weather conditions and significant amount of merger integration work. As a result of that hard work, we are executing extremely well from an operational standpoint, identifying more synergies than originally anticipated, which all bolsters our sustainable free cash flow outlook and our peer-leading return of capital program. With that, I'll hand the call back over to Caroline for questions.
Thank you. We'll now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question comes with Derrick Whitfield with Stifel. Please go ahead.
Good morning, all, and congrats on your quarter and update.
Thanks, Derrick.
With my first question, I wanted to focus on the announced increase in PV-10 synergies from the Oasis and Whiting merger. Relative to your base case, could you elaborate on the one to two primary drivers and if there are additional capital synergies you're sensing now that the teams are fully integrated?
Thanks for the question, Derrick. I'm gonna maybe talk about our integration process and the synergies we're seeing broadly, and then ask Chip to maybe add some additional detail and maybe identify one or two areas that we think may be driving this. I'll tell you honestly, Derek, it's a lot of little things. You know, one of the great things about the merger is that we really are using this as an opportunity to do a bit of self-reflection and look at how we do business. We are looking line by line across all aspects of our operations, our processes, our systems. Unsurprisingly, you know, Oasis focused on certain things, Whiting focused on certain things and got very good at those things.
What this process has allowed us to do is really look under the hood on each other's side, identify the best way, we think to go about doing things. In some cases, you know, we'll decide, and we have decided that maybe the Oasis way and the Whiting way, neither one was the right way to do things, and we're sort of implementing a new thing moving forward. This opportunity through the merger is really giving us a chance to sort of reflect on how we do things. We're seeing improvements really across the board through lots of different categories.
I'll turn it over to Chip, and he can give some more specifics on some of those that may be larger than others. I will say it really is across all aspects of our organization and business.
Yeah, Danny, thanks. Derrick, thanks for the question. I wanna say, I wanna ditto what Michael and Danny said also. I really appreciate the teams working through the last quarter through rough winter conditions. You think about the day job they have to do and the night job to put this together. As Danny indicated, it's across all phases, but I'll give you a couple, Derrick, as an example. On the completion side, one of the legacy companies was doing their completions, we believe will impact actually our downtime on our production side. It'll be less sand that enters the wellbore on the production side phase. When you do that, we think we can improve our downtime drastically. When you do that, we have a couple things.
There's cost associated with that, with work over rig reduction and cost. There's a savings cost on other parts of that business when you're doing the work over side. There's a safety piece that gets improved. What we haven't included in the thing is wells stay continually flowing, you know, or pumping or working. There's an upside on the production side case. You think about that, and the other one I'd like to point out is probably the facilities build. There's a modular design that is prefabricated in a shop. You bring them out to location. You minimize the impact on location size to about 30%. Labor is cut about 50% when you do that. There's also a safety piece on that. When you think about.
I think there's also an ESG component, not just a cost savings, but an ESG component. On the drilling side, on the completion side, we're using basically batteries to minimize when we need more power, so we're minimizing the diesel impact, and CO2 is going down. On the completion side, as Danny indicated, we brought the first dual fuel fleet into the basin, and we're using CNG, so we're minimizing diesel and CO2 is going down. You have these values on cost that we see, and we also see the value on the ESG side. I'm really proud of the team and what they've done and their impact.
That's great. As my follow-up, I wanted to ask if you could speak to the A&D market in the Williston at present, with the understanding that you're still digesting this recent merger. I wanted to get a sense as to your appetite to participate in further industry consolidation.
Yeah. Thanks, Derrick. I think you know we continue to see a range of opportunities from a small private opportunities to larger asset opportunities to other corporate opportunities. I think it really is a range across the Williston. We are obviously very focused on integration, but also open to looking and examining further consolidation, recognizing that sometimes you don't control the timing of those opportunities. We'll be on the lookout, you know, for anything. I think we're very happy with what we're seeing with our transaction and bringing the two organizations together. We think we've got a significant inventory depth and great position.
If we see opportunities to make our company better and deliver more value to our shareholders, that's something we're absolutely gonna look at. You know, I see a range of opportunities there. We'll be looking at them, but also think our status quo position is a pretty dang good one.
That's great, Danny. A great update, guys.
Thanks, Derrick.
The next question comes with Phillips Johnston with Capital One. Please go ahead.
Hey, guys. Thank you. Nice to see the higher payout ratio. As you noted, I don't think anybody else in the mid-cap oil group is really close to that level. The question that many will of course have is sustainability over time. Just wanted to get your updated thoughts on overall inventory depth. I mean, you mentioned that you're okay with status quo, but just wanted to drill down a little bit and get your thoughts on inventory replenishment over time. I think that the last figure I have from you guys is around, you know, 1,000-1,100 gross locations for the combined company based on, you know, four to five wells per DSU.
Thanks, Phillips. This is Danny. I'll ask Chip to weigh in if he's got some incremental comments here. You know, I think that's still sort of how we see the world. I will say that as we're looking through and evaluating as we can move from potentially two-mile laterals to three-mile laterals, which we like because, you know, obviously it delivers significantly more lateral footage from the zone, but at a lower capital cost. You know, those counts may change a little bit, but the overall lateral footage will stay about the same. One of the things we've talked about internally is we focus a lot on well counts and sometimes rig counts, and what really matters is the lateral footage that we actually deliver in zone.
From that perspective, you know, and maybe normalizing to the scenarios we talked about before, we still see that, you know, 1,000 wells-1,100 wells. As we convert to three-mile laterals, that number may go down, but the lateral footage stays the same and the capacity to deliver production for our organization stays the same as well. Generally speaking, I think we feel like we've got about 10 years' worth of inventory from a development pace perspective. Obviously if we see opportunities to bolt on and increase that and it makes sense for us to do so, we're gonna be very inquisitive about those types of things. The inventory depth is pretty significant as we stand today.
Okay. I guess-
This is Chip. Okay, go ahead.
Sorry.
I'm sorry. This is Chip Rimer. I was just gonna add on to that. Yeah, I agree 100% with what Daniel's saying, and we're really looking at how we manage and how we can basically take two-milers to three-milers, 'cause you imagine that last mile is probably 40%-50% of the cost of what it is, typically what you do on a two-miler, so that capital efficiency. So the more you can do that. So I agree 100%. You really can't think in a world of rigs or wells anymore. It's actual lateral feet.
Okay. Then just to follow up on the M&A question. You know, the 75%+ ratio would of course still leave you guys in a position to build cash at a pretty rapid clip. What kind of appetite would the board have to do a deal that would temporarily push the leverage ratio above kind of the, you know, 0.5x threshold or potentially even above the 1x threshold?
Well, I think I don't want to speak for the board because that's a discussion we would have at the board when that situation presented itself. You know, I think organizationally, if we saw a deal that we thought would make us a better organization, and over the long term, deliver more value to shareholders, then, and that situation would take us to a leverage sort of above 0.5x or even potentially above 1x, that's something we'd absolutely look at if we thought it was the right thing for us to do. I think maintaining a low leverage ratio is something that's very important for the organization. Our financial strength is a key tenet. That's why we've made this return of capital framework dynamic.
If we found ourselves in that scenario, we would use incremental cash flow to delever pretty quickly to get back down under one, which we think is where we should be as an organization. If we saw the right opportunity, I think that's something we would be open to. Again, it would have to be the right opportunity. We'd have to think it delivered incremental and additional value to our shareholders over time. I wouldn't say that we would be inhibited from doing that, but we would want to get back down into a low leverage spot as soon as we could post any deal like that. Having said all that, I don't think we feel compelled to do anything.
Again, we feel like we've got a great position as we stand, but if we see opportunities to improve that, of course, we're going to look at them.
Sounds good, guys. Thank you.
Thanks, Phillips.
Again, if you have a question, please press star then one. The next question comes from David Deckelbaum with TD Cowen. Please go ahead.
Well, thanks for taking my questions today.
Thanks, David.
Just wanted to talk a little bit about just the capital program. You highlighted some of the delays from 2Q moving into 3Q CapEx, you know, up in the $200s. It seems like the implications, we sort of get back down to this $150 level. When we think about 2023 and some of the efficiency gains that you're experiencing, dropping down to three rigs instead of maybe running three and a half, four next year, some of the increased synergies that you're identifying, how do we think about the cost levels that you're experiencing in the fourth quarter, you know, kind of being sustainable into 2023?
You know, I guess just thinking about the trajectory of if you're maintaining these levels heading into 2023, should we really see significant incremental spend on top of the absolute level that you're at in 2022?
Yeah, I think. This is Danny. I'll make a few comments and then ask others to weigh in. You know, obviously, we're not specifically talking about 2023 right now, and we're still putting our development plan together, and we'll talk about that in coming quarters. Generally speaking, you know, we're looking at sort of, I would say a maintenance to a maintenance plus program, but the plus on that would be pretty small. You know, perhaps very low levels of growth, but not significant growth year-over-year. There is some cyclicality in how we deliver production.
We will have one completion crew sort of running continuously through the year, but then we'll have another one that runs in the middle part of the year that will deliver production. Sort of our peak production is probably going to come in sort of the fourth and first quarters, and then it'll dip a little bit until we start completing again and when we get back in the next year. If you take a fourth quarter number and then apply that into the next year, that's probably gonna lead you astray a little bit in what the overall delivery is gonna be for 2023. I think from a 2023 standpoint, we're, you know, it should be sort of a similar plan from a delivery standpoint.
As we mentioned, a moment ago, we will be dropping rigs from four to three , but the lateral footage we deliver over the year is gonna be pretty similar, year-on-year. I think you should think of the 2023 plan as pretty similar to the 2022 plan.
I appreciate the color on that. Just maybe as a follow-up, you know, you highlighted certainly in the presentation that well performance of the combined companies, you know, has at least been matching or slightly exceeding some of the targets. With some of the integration, I guess, some thoughts going into 2023, you know, it looks like you're evaluating completion designs and things like that. Are there any material changes that you're looking at at undertaking that would change perhaps some of that performance going into 2023?
Go ahead, Mike. David, I would say that we're, as we talked about earlier, I think we're really looking at sort of all aspects. I think a lot of these are maybe incremental changes relative to the way either organization did things previously. If we see, I would say, you know, revolutionary changes that we think could offer a significant improved performance, clearly we're gonna be investigating those. I think most of these things is really about the sort of incremental improvement. When you stack a whole lot of those things up together, they deliver some pretty impressive results. Unless Chip maybe comment more.
You know, I would agree with Danny. Also, I think I give credits to both legacy companies and their subsurface teams. The subsurface teams have really understood, I believe, well spacing on DSU or infill drilling in like our Sanish area, and be able to really bring impact to the company. As Danny said, there's small little things here, but they have gone through. They have a program, and they go back and they review wells, what the lessons were, how we're gonna get better. It's a small incremental piece as we go along.
Appreciate the color, guys.
Thanks, David.
The next question comes with Fernando Zavala with Pickering Energy Partners. Please go ahead.
Hi, guys. Good morning. I was hoping to dig a little more into the thought process behind the updated return framework. Specifically, how you thought about balancing the building cash for potential M&A or, you know, share purchases in downturns versus paying out the vast majority of your cash flow currently.
Yeah, thanks, Fernando. I'll talk about the cash balance piece. I think that's a good question. You know, I think one of the great things about having a really strong balance sheet is that we believe it affords us a lot of flexibility, including the flexibility to be opportunistic if we see the right opportunity out there. As a result, I don't think we feel compelled to build a big cash balance because we see we've got that inherent flexibility just because the financial strength of the organization.
I think really that's why we've got that 75% plus out there, because in very low leverage scenarios, we would anticipate returning, you know, a very significant portion of our free cash flow to shareholders.
Got it. Thanks. Quick follow-up. Just wanted to get updated thoughts on the Crestwood ownership and the plan for those heading forward.
Yeah, I think, you know, from a Crestwood perspective, we continue to really like the company. Clearly, they're a very important strategic partner for our organization. The equity performance has been very good, or the unit performance has been good. We like the company, we like our ownership stake in that. I think it's, you know, over the long term, we recognize that that's not a core strategic holding for us, but we're pleased with that investment and think it is a great organization for us to have a holding in.
All right. Thanks. That's it for me. Appreciate it.
Next and last question comes with Bertrand Donnes with Truist Securities. Please go ahead.
Morning. I'm not sure if you explicitly outlined it, but I assume part of the rationale for the combination of the two companies was kind of a midstream position that could maybe reduce some of the constraints you've seen before. Have you had enough time to kinda look into this? Are you maybe gonna reshuffle the operational plan specifically for this? Or do you think you'd just, you know, focus on the highest return areas and kinda let it shake out?
Well, I think when we're looking at development plans, and I'll ask Chip to weigh in. Clearly, we sort of take in all aspects into account as we build out a development plan, both those areas where we get the highest returns, but if you can't get those returns reliably to market, then those may not be the best area for you to go in at that time. We try to work, you know, as long in advance or as far in advance with our midstream providers as we can so that we do get the right infrastructure in place so that we can work in the areas that we wanna drill.
That's an iterative process, and so as we build out this plan, we sort of take all that into account, preferentially going into those areas that we think offer us the best return, but also being cognizant of the infrastructure constraints that may be there, and work with our midstream providers to get those sorted out over time. Maybe I'll ask Chip to add incremental comments to that.
Yeah. This is Chip Rimer. Thanks again for the question. Daniel is exactly right. It's a holistic look at the program. What are your best returns? Where you have takeaway, where you don't have takeaway, thinking way ahead to make sure that we've talked to our midstream providers so we can have that access, they're connected to our wells. There's another ESG component on this thing. You know, you wanna make sure that every molecule is captured and flowed down and put down that line. That being a proven operator, that's what you've got to do and make sure we're connected with a third-party provider. We work really close with them.
Our teams work really close, and we each, you know, every time we're going through a budgeting process and I'm trying to understand what wells we're gonna go to, it's all around returns, but can we move that product down the line?
I appreciate the color. Just shifting gears back to the new payout plan. Is there mechanically a way that you look at it? I know you have the $65 and $3 Henry Hub, but if the market were to kinda rebalance, would you readjust those prices, or is that more of your long-term view regardless of what the strip looks like?
Well, I think as we look at the strip, if the strip fell appreciably, then clearly we would look at those prices again. We think that the $65 and $3 sort of represents a reasonable long-term sort of normalized mid-cycle view. But clearly our thoughts on that may evolve over time, and we wanna make sure that we are sort of keep financial strength of the organization. If we found ourselves in a very different environment, we would absolutely go back and look at that and reevaluate.
Thanks, guys. Great quarter.
Thank you.
Thank you. This concludes our question and answer session. I would like now to turn the conference back over to Daniel Brown for any closing remarks. Please go ahead.
All right. Thank you, Caroline. Well, to close out, I'd like to thank everybody for their time today. I'm very pleased with the exceptional progress we've made in transforming our organizations. We remain committed to our core strategy, which revolves around return on and of capital, balance sheet strength, and being a sustainable operator. We're excited about the opportunities going forward for our shareholders, employees, communities, and other stakeholders. With that, thanks for joining our call.