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Edited Transcript of CLR earnings conference call or presentation 30-Apr-19 4:00pm GMT

Q1 2019 Continental Resources Inc Earnings Call

ENID May 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Continental Resources Inc earnings conference call or presentation Tuesday, April 30, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Harold G. Hamm

Continental Resources, Inc. - Executive Chairman & CEO

* Jack H. Stark

Continental Resources, Inc. - President

* John D. Hart

Continental Resources, Inc. - Senior VP, CFO & Treasurer

* Patrick W. Bent

Continental Resources, Inc. - SVP of Drilling

* Rory R. Sabino

Continental Resources, Inc. - VP of IR

* Steven Owen

Continental Resources, Inc. - SVP of Land

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Conference Call Participants

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* Andrew Elliot Venker

Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production

* Arun Jayaram

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Biju Z. Perincheril

Susquehanna Financial Group, LLLP, Research Division - Analyst

* David Meats

Morningstar Inc., Research Division - Senior Equity Analyst

* Derrick Lee Whitfield

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst

* Douglas George Blyth Leggate

BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research

* Jeanine Wai

Barclays Bank PLC, Research Division - Research Analyst

* John Christopher Freeman

Raymond James & Associates, Inc., Research Division - Research Analyst

* John W. Aschenbeck

Seaport Global Securities LLC, Research Division - MD & Senior Analyst

* Leo Paul Mariani

KeyBanc Capital Markets Inc., Research Division - Analyst

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Nitin Kumar

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Paul William Grigel

Macquarie Research - Analyst

* Subhasish Chandra

Guggenheim Securities, LLC, Research Division - MD and Senior Equity Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q1 2019 Continental Resources Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Rory Sabino, Vice President of Investor Relations. Mr. Sabino, you may now begin.

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Rory R. Sabino, Continental Resources, Inc. - VP of IR [2]

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Thank you, Sharee. Good morning and thank you for joining us. I would like to welcome you to today's earnings call. We'll start today's call with remarks from Harold Hamm, Chairman and Chief Executive Officer; Jack Stark, President; and John Hart, Chief Financial Officer. Also on the call and available for Q&A later will be Jeff Hume, Vice Chairman of Strategic Growth Initiatives; Pat Bent, Senior Vice President, Drilling; Steve Owen, Senior Vice President, Land; Ramiro Rangel, Senior Vice President, Marketing; Tony Barrett, Vice President, Exploration; Josh Baskett, Vice President, Oil and Gas Marketing; and Adam Longson, Director of Commodity Research.

Today's call will contain forward-looking statements that address projections, assumptions and guidance. Actual results may differ materially from those contained in forward-looking statements. Please refer to the company's SEC filings for additional information concerning these statements and risks. In addition, Continental does not undertake any obligation to update forward-looking statements made on this call.

Also this morning, we will refer to initial production levels for new wells, which unless otherwise stated, are maximum 24-hour additional press rates. We will also reference rates of return, which unless otherwise stated, are based on $60 per barrel WTI and $3 per Mcf natural gas.

Finally, on the call, we will refer to certain non-GAAP financial measures. For a reconciliation of these measures to generally accepted accounting principles, please refer to the updated investor presentation that has been posted on the company's website at www.clr.com.

Prior to begin the prepared remarks from Harold, Jack and John, I would like to address an erroneous posting from a third-party web hosting service to our corporate website this morning. As some of you may have seen prior to it being removed, our corporate third-party web hosting service inadvertently posted Campbell Soup Company's Analyst Day scheduled for June 13, 2019, on our corporate website. This was a human error unrelated to Continental Resources, resulting in the web posting company placing the event in the wrong corporate database after posting our slide deck this morning. This issue was addressed as soon as we were made aware of the third-party error. The correction has been made. And if you look at the corporate event section of the Campbell Soup Company, you will see this event listed in their corporate event. I'd want to make it abundantly clear there is absolutely no plan for Continental to host an Analyst Day or any other business update of any kind beyond our normally scheduled quarterly releases.

With that, I will turn the call over to Mr. Hamm. Harold?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [3]

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Good morning, everyone. Thanks for joining us on our call today.

Over the past 2 decades, Continental has captured a very dark portion of the best shale resources in the U.S., which has positioned the company well for the future. We're benefiting from those first-mover actions by developing these high-quality assets with low, best-in-class operating cost. This has been our success formula, which is underscored once again by our team's strong execution in our first quarter results. We saw 2018 become the breakout year we envisioned, and 2019 has proven to be equally fulfilling as our teams embrace the strategic shift to unit development within these large project areas all across our broad oil-rich inventory. We've initiated the first year of our 5-year vision for sustainable cash flow positive and oil-weighted growth, to again, almost double production. We also remain firmly focused on strong corporate returns.

As you can see on Slide 6 of our investor deck, our corporate returns compete against all industries and nearly double the average of the E&P industry.

During the first quarter of 2019, we applied our latest technological and cost-efficient completion optimization to legacy areas in 3 separate geologic domains in the Bakken with tremendous success.

On Slide 8, you can see the details of these 3 strategic step-out tests that confirm uplift of well performance across North Dakota and Montana. These results confirm what we've been saying about the Bakken and that continues to get better as the nation's leading high-quality oil play. And our Bakken production grew by more than 15,500 BOE per day for 8% growth quarter-over-quarter.

In our closely watched SpringBoard area, the production is forging ahead of forecast, with the first 28 days of April averaging approximately 14,000 barrels of oil per day. The exceptional execution of SpringBoard is another example of our team being the industry leaders in a play we own, and Jack will provide details on this significant event later on the call.

Next, Continental teams delivered the low best-in-class LOE cost of $3.59 per BOE. Recall, we are a two-stream reporting company, and these low production costs are almost unheard of for a company our size and for our oil-weighted production mix.

In our Oklahoma region, our drilling and completion crews produced even faster cycle times by lowering drill days intent upon reaching current technical limits in drilling giving us the option of further reducing rig activity later on in the year. This is a definition of efficiency and excellence that our teams at Continental continue to achieve every day.

Oil differentials have improved as plans for added pipeline takeaway capacity materialize from the Bakken. Additionally, WTI has narrowed the spread between Brent pricing as more pipeline infrastructure is being readied to deliver domestic, light sweet crude to the international market.

Prior to concluding, I would like to highlight our team's success in acquiring minerals, which is ahead of schedule, underscoring our strong execution. Public equity markets continue to recognize the value creation of mineral strategies. We believe our approach is a unique vehicle for enhancing shareholder value and return as we continue to capture minerals under our existing drill schedule. We look forward to providing the market further updates on the long-term benefits of this relationship, which we believe may carry multibillion-dollar potential for the company. All of these achievements have been realized to allow us to deliver the last part of our success formula, and that is net earnings of $187 million for the quarter.

In conclusion, if you turn to Slide 13, you will see that there is no other management team more aligned with shareholders. This is not only across the E&P universe but also the broader market. The successful formula at Continental is simple: a powerful oil-weighted inventory coupled with industry-leading costs, equal sustainable cash flow positive growth and returns that compete across the market.

Now I'll turn the call over to Jack Stark for further detail.

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Jack H. Stark, Continental Resources, Inc. - President [4]

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Thank you, Harold, and good morning, everyone. I want to thank you for joining us on our call.

Our Bakken assets delivered another outstanding quarter with production up an impressive 24% year-over-year. We completed another 55 wells that flowed at an average initial rate of 2,300 BOE per day, and 80% of the production was oil.

As you know, we have moved to multizone unit development in the Bakken, utilizing our optimized stimulation technology. Since early 2017, a total of 194 optimized development wells have been completed in 23 separate units, and the results have been outstanding. In fact, the entire 194 development well program paid out in the first quarter of 2019.

Wells in the top 10 performing units are projected to deliver an average rate of return of approximately 100%. The location of these units are shown on Slide 7 with the top 10 performing units highlighted in red.

The key takeaways here are: one, outstanding results are being realized across a broad cross-section of our acreage; and two, multizone unit development of our Bakken assets is delivering results as advertised.

Now as Harold mentioned, the big news for the Bakken this quarter is the results from 3 strategically placed step-out wells announced yesterday. These 3 wells prove our optimized completion technology continues to uplift well performance from the Southern extents of our acreage in North Dakota all the way out into Montana. As expected, these 3 wells are outperforming nearby legacy wells by 80% to 110% during the first 60 days, and preliminary estimates show these wells are delivering up to 100% rates of return. This is great news for our shareholders as we can confidently say that the value and the performance of our inventory of approximately 4,000 Bakken wells continues to grow.

We can also say that the "core of the Bakken", as many like to call it, just got bigger. The location of these 3 wells can be seen on Slide 8. In Montana, the Baird Federal flowed at an initial rate of 1,680 BOE per day, and 85% was oil. The Burian, located in Southern Billings County, North Dakota, flowed at an initial rate of 2,400 BOE per day, and 80% was oil. In East Central Williams County, North Dakota, the McClintock flowed at an initial rate of 2,440 BOE per day, and 80% was oil.

Now let's move south into Oklahoma where we have more great results to share. As Harold mentioned, production growth in our SCOOP SpringBoard project is running significantly ahead of schedule. Production for the first 28 days of April has averaged approximately 14,000 net barrels of oil per day, only 2,500 barrels shy of the 16,500 barrels of oil per day we had been targeting by the third quarter. Our current projections show the SpringBoard oil production is likely to reach 18,000 barrels per day in the third quarter. This outperformance is directly tied to cycle time improvements and higher early time well performance.

This quarter, we announced our first Woodford completions in SpringBoard, and the results have been excellent. The 6 Woodford completions highlighted on Slide 10 averaged 1,660 BOE per day per well, and 75% of the production was oil. Early time, these unit wells are outperforming our legacy 1.5 million BOE parent type curve for the Woodford oil window. This reflects the performance uplift expected from today's larger stimulations and validates the current plans to develop the Woodford with 5 to 6 wells per unit.

Our Springer development in SpringBoard is proceeding as scheduled. We have drilled 25 of the 31 Springer wells planned for rows 2 and 3, and completion work is underway. We expect to have results from rows 2 and 3 by our next earnings call, but I can say that early rates from a couple wells that just started flowing back look solid.

In project SpringBoard as a whole, we currently have 39 wells producing, 33 wells completing and 9 rigs drilling ahead. I want to point out that our rig count in SpringBoard is down by 3 rigs from last quarter. Cycle time improvements we have realized in the project are allowing us to achieve our objectives for the year with 25% fewer rigs. There's no better proof of the efficiency gains our teams have achieved than that. These 3 rigs have been redeployed to other SCOOP assets.

In STACK, we brought on 2 outstanding fully developed units in the Meramec condensate and oil windows. The 5 well Tolbert unit flowed at an impressive combined rate of 5,900 barrels of oil per day and 77 million cubic feet of gas per day or 3,740 BOE per day per well. This 2-mile unit included 3 wells in the Upper Meramec and 2 wells in the Lower Meramec. Like our previous Simba and Boden units, the Tolbert unit wells on average are outperforming our parent type curve for the overpressured condensate window of STACK.

In the overpressured oil window, we finish development of the 3 well Lugene unit, which consisted of 3, 1 mile wells. These 3 wells flowed at a combined initial rate of 4,620 barrels of oil per day and 28 million cubic feet of gas per day or 3,090 BOE per day per well. Lugene wells are strong producers, slightly outperforming our 2-mile unit type curve for the overpressured window during our first 60 days.

In addition to our unit development activity, we recently completed our first 3-mile Meramec lateral in STACK called the Blondie 1-6-7-18XHM. The well flowed at an initial rate of 2,460 barrels of oil per day and 5.6 million cubic feet of gas a day or 3,400 BOE per day.

As we continue to deliver strong repeatable results in STACK, I think it's worth noting what is driving these results. Our success is driven primarily by geology. As we have always said, our acreage is located in the overpressured window STACK and underlain by some of the thickest and best quality Meramec reservoir in STACK.

To illustrates -- Slide 12 shows all the Meramec wells completed from January 2015, to date that produced at an average initial 30-day rate of 1,500 BOE per day or more based on public records. Continental wells are highlighted in red on this slide. Two things are evident on this map. First is that the vast majority of the high-performing wells are found in the overpressured window. Second is the correlation between superior performance and Continental's acreage position is evident.

In addition to being in the right geologic ZIP Code, proper well density is also critical to unit development and well performance, and we established that quite a while ago.

In addition to the excellent well performance we're experiencing in both SCOOP and STACK, our operating efficiencies continued to reduce cycle times and cost. As I mentioned before, our cycle times in SpringBoard have come down dramatically with the Springer drilling cycle times down nearly 30% from Row 1. Total completed well cost for our SpringBoard, Springer and Woodford wells are down almost on $500,000 per well from our original 2019 budgeted costs. In STACK, our drilling cost per lateral foot has come down almost 16% this year. These operating capital efficiencies are materially accelerating our pace of development and reducing costs. This, in turn, provides added flexibility for the allocation of rigs, capital and production growth.

John will get into this further, but I want to thank our teams for their hard work and ingenuity that keeps Continental the lowest cost producer among our oil-weighted peers.

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

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [5]

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Thank you, Jack.

We are off to a great start in 2019 with first quarter results reflecting the strength of our team's execution. As we released last night, our earnings solidly beat consensus driven in part by strong oil-focused production with significantly improved oil differentials.

First quarter production came in at more than 332,000 BOE per day. Oil production for the quarter was approximately 194,000 barrels per day, up 4% over fourth quarter 2018.

As we predicted last quarter, we have seen improvements to our corporate oil differential in the first quarter, coming in at a much improved $4.77 per barrel, toward the lower end of our 2019 guidance. Our current expectation is for production and oil differentials to remain strong into and throughout the second quarter.

Our gas differential came in at an average negative $0.60 for the first quarter, negatively impacted by January and February market conditions. We have subsequently seen significant improvement with March and a much improved negative $0.36. We currently expect full year gas differentials to be within guidance.

In addition to strong production and oil differentials, our cost structure continues to be amongst the very best of our industry, as represented on Slides 4 and 5 in our investor deck. In the first quarter, we remain within or better than all of our cost guidance measures. G&A and production expense both came in below our guidance range with an oil-weighted production expense of $3.59 per BOE and total G&A of $1.60 per BOE.

Continental is consistently among the very best in margins generated by low cash cost and high return oil-weighted assets. We are pleased with our performance against these guidance measures. As we proceed through the balance of the year, we will continue to assess our results, and we will update guidance as appropriate. Obviously, we are performing exceptionally well versus guidance.

Regarding CapEx, as Jack mentioned, we have seen rapid improvement in our cycle times both drilling and completions during the first quarter, and our teams are performing at a very efficient level. These efficiency gains result in lower well cost and improve rates of return while at the same time increasing the number of wells that we are able to drill and complete with the static rig and completion crew count. Therefore, our first quarter 2019 CapEx came in higher than originally budgeted as we were able to spud an incremental 6 net wells and had first production on an additional 8 net wells versus our original budget.

Our current plan is unchanged, targeting the $2.6 billion capital budget for the year. Our higher level of spend in the first quarter is a product of our success in mineral acquisitions and operational efficiencies, as I just covered.

We do recognize that oil prices are well above the $55 price, at which we budgeted and provided guidance. At $55, we were projecting free cash flow of $500 million to $600 million. Recall that every $5 change in WTI is about $325 million in free cash flow for the year. We are now through a quarter of the year, and with the rise in oil prices, we are tracking towards $1 billion of free cash flow for 2019. We are strongly committed to meeting our corporate objectives, and this incremental level of cash flow will enable us to accelerate our debt reduction timing, reducing net debt to $5 billion or below this year assuming current commodity prices.

We can easily adjust to be within our $2.6 billion budget for 2019 while performing well on all of our other guidance. If these higher prices are sustained, we will make a determination of the proper use of additional cash flow later in the year. Any use of incremental cash will be prioritized towards debt reduction and building free cash flow.

As mentioned earlier, our pace of mineral acquisitions is going well in our new venture with Franco-Nevada. During the first quarter, we closed on mineral acquisitions of $51 million. Recall that Franco-Nevada covers 80% of the acquisition cost, and we split revenues based on hitting performance targets. As we are acquiring in areas we expect to develop near term, we expect a 50-50 revenue split.

The acceleration and SpringBoard production benefits our minerals portfolio as we own approximately 19% of the mineral royalties underlying CLR's leasehold position in SpringBoard.

In summary, with strong corporate returns, low-cost operations and high-quality assets, we remain confident in our 2019 outlook to deliver 13% to 19% year-over-year oil production growth alongside exceptionally strong free cash flow, favorably benefited by recent improvements in crude oil prices.

With that, we're ready to begin the question-and-answer session of our call and will turn it back over to the operator to take questions. Thank you for your time this morning.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Doug Leggate with Bank of America.

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Douglas George Blyth Leggate, BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research [2]

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John, I think the first question, John, for you, if I may, the talking toward the goals of free cash. I've got multiple thesis to this question I guess because your costs are clearly trending lower, although you haven't chosen to change that guidance yet. The differentials are running better, and obviously, your case of development throughout the course of the year looks like is running ahead of schedule as well. So I just want to put all that together and to say that your last comment was you're going to remain committed to reducing debt and maximizing free cash flow, but should I interpret that then that you're not changing the $2.6 billion capital budget irrespective of all the great things you've done so far this year? Because clearly you've got the flexibility to if you chose that?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [3]

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Yes. We're comfortable where we're at. We're 4 months into the year. And as you referenced on guidance, we're doing extremely well on a lot of that. We'll continue to monitor that and update as we go throughout the year. We don't see any reason to adjust the CapEx budget today. We're doing, like I said, doing exceptionally well, and we're going to deliver strong results with that.

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Douglas George Blyth Leggate, BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research [4]

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Sorry, John, to level with you on this point because you're running ahead of us schedule, obviously, you're spending more early in the year. So if you continue to develop, would that mean you would slow down to stay within capital? Or you see what I mean? Because there's obviously going to upward pressure because of your efficiency gains, not so much because you're spending more. Did you slow things down just to stay within the $2.6 billion? Or how should we think about that?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [5]

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Yes. I think we can certainly moderate our level of activity throughout the year. We can -- we also have different working interest in projects. We don't have a lot of term contracts. The one -- of the term red contracts we've got, 90% of them expire this year. Even where we're at today and just projecting out, consistent throughout the rest of the year, we wouldn't be over that much, so it's not a large stretch for us to adjust. And so I think we're very comfortable where we're at today.

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Douglas George Blyth Leggate, BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research [6]

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And my follow-up is for Jack, hopefully, just a quick one. Jack, I'm not sure I interpret that the comment on the drilling -- the backlog will be inventory in the Bakken correctly. Your step-out wells are clearly bringing none -- what you previously second-tier or noncore areas enters as you expanding the core. But what was included in the 4,000 locations? Was that already assuming that this acreage was perspective? Or I guess another way to ask it is, how heavily risk was your acreage today and how risk to do you see going forward now? I leave it there.

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Jack H. Stark, Continental Resources, Inc. - President [7]

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Good question, Doug. And our 4,000 locations that we've talked about still stands. It did include these areas. We always saw these as being part of our portfolio to ultimately develop. What happened here as a result of our optimized completions, the value of that inventory has been uplifted and uplifted significantly. And so this suggests just a methodical, continued process here that we're going through to demonstrate that our optimized stims are uplifting the value all the way across the field.

And if you look at that slide on Page 8 as well, you noticed that there is just a constant growing pattern of wells that have exceeded matter -- exceeded 100,000 barrels in the first 90 days. And so this is a phenomenon that's happened across the whole field. It's just -- historically, the Bakken's been under simulated and now that we're actually properly stimulating the zone. We're really starting to unleash the true potential of the play.

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Operator [8]

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Our next question comes from Drew Venker with Morgan Stanley.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [9]

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In light of even some really harsh weather. Could you just talk about how you'd see the pace of volumes progressing as, I guess, SpringBoard ramps up and seems like you have a lot more momentum in the Bakken than I would have anticipated?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [10]

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Yes. Drew, that's a good question. Our teams, we've been working a very long time. All these guys working -- that's where they live, that's what they deal with. And so we had the weather situation better than most companies and to do that, so they get it done very well. We are seeing in the -- production increased as we go forward, coming out of that first quarter. So second half, we'll see additional production come on, and you referenced SpringBoard, and certainly, that's going to add a great deal to the second quarter production and particularly in the second half here.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [11]

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We've got a slide on Slide #9 that gives you a bit of an update on SpringBoard also. We're showing instead of 16,500 in the third quarter this year, we're expecting to be 18,000 or so, so we are uplifting that. You're seeing some improvement there, and as Harold indicated, we're showing sequential growth in production throughout the year. And again, as you know, it's very much focused on oil. So we feel very good about where we're at.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [12]

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Understood. And as a follow-up on the Bakken step-out program, can you talk about how many wells and what areas you plan to be testing later this year?

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Jack H. Stark, Continental Resources, Inc. - President [13]

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Well, Drew, we've done this. If you notice on that map on Page 8, we've done basically is we drilled a well -- a well as far south as we could and as far west as we could. So we feel pretty good that the areas in between are going to respond. And so -- and we are pushing it further to north, and we'll continue to do that as well. But our attempt here was to demonstrate as quickly as possible that this technology that we're using is uplifting the performance all across the play. And I think you can't ask for any better evidence than what we've shown here right now, with these extreme west and south and basically northerly step-outs that are delivering just pretty much as expected, outperforming legacy wells and really just performing as we've seen all these optimized stims perform across the play.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [14]

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And Drew, this evolution, you've watched has really occurred over the past 3 years. As we've foreword work with this technology improvement optimization, so going back to some of these legacy areas certainly is fun, to apply the latest and see how this turnes those areas on. So it's really very exciting.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [15]

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And is the authorized completion approach for the step-out areas similar in your process as to the rest of the play?

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Jack H. Stark, Continental Resources, Inc. - President [16]

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Yes. Drew, they are. The -- I mean they vary in design obviously but -- for the area. But what we're talking about is basically closer per cluster spacing and basically more stages and proppant than we've historically used out in these areas, so it's really the same, same model, applying it very effectively in each of these areas and couldn't be more pleased with the outcome that we've got.

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Operator [17]

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Our next question comes from Arun Jayaram with JPMorgan.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [18]

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John, I wanted to talk to you a little bit about your full year oil guide. This quarter, you hit just below the midpoint of that 190 to 200 range, and we think about the April production that you highlighted in Project SpringBoard. Could you give us a feel or maybe a range for 2Q oil volumes corporate-wide?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [19]

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Yes. I don't have exact numbers in front of me. We are continuing to show growth and maybe a little flatter here in the mid part of the year. But as we get out into the latter summer, early fall, it starts to turn back up again. That's just project timing. We -- I think we talked about a little bit about that back in the February call. We're on these large pads with these large number of units coming on. So probably a little flatter here but then turning up nicely.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [20]

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Okay. And similar question on CapEx. I think last quarter, you highlighted how CapEx trend down, I believe, 2Q, move up a little bit on project time in Q3 and kind of move down in Q4. Can you give us a little bit more color on your thoughts and perhaps 2Q CapEx with and without mineral spend?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [21]

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I think that you did a pretty nice job there. That is what we see second and third quarter coming down relative to the first quarter. Fourth quarter down from both of those second, third, probably relatively consistent with each other. Obviously, with that mineral spend, you're nicely below $700 million. So I think we feel very good. I think you know this, but the key on the mineral spend is that 80% of that is a passthrough because of our carry relationship.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [22]

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Great. And just my final question is, where are we in the steps to kind of -- to extract values from minerals? Are you still comfortable with the $125 million of spending without the reimbursement this year?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [23]

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On the $125 million, we're doing very well on that. I think you're asking if we go -- if we use all of that, what we do, is that what you're asking me?

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [24]

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Exactly, exactly.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [25]

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If you like look to last year, we went in and adjusted -- the $125 million is a per year type target, but we have the ability with our partner if we both choose to move amounts around within that program. So for instance, in the fourth quarter last year, we carried some from -- some of the amounts in the last year, we backed out of that and added back in there. We could clearly do that in '19. It's all opportunity-driven, and it's an economic opportunity as well as geology and our development plans. So if need be, we can make adjustments in conjunction with our partner if we chose do. Right now, we're good we're where at.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [26]

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I might add, we're very pleased with where we're at right now, too.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [27]

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Yes, yes. Keep going as well at it is. That's great for both parties.

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Operator [28]

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Our next question comes from John Aschenbeck with Seaport Global.

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John W. Aschenbeck, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [29]

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So for my first one, I just kind of had a follow-up to a question from earlier in the call. I was wondering how we should think about just a general progression on capital spending throughout the remainder of the year.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [30]

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Yes. I think the last question was Adam. Second, third quarter down from the first quarter, the fourth quarter down from there. It's -- right now, it's the lowest of the year. And with the -- excluding minerals, they're both below $700 million. Even with minerals, we should be below that. So we're in good shape.

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John W. Aschenbeck, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [31]

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Okay. Got it. Got it.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [32]

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I think the $2.6 billion for the year retaining as our budget plan for the year.

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John W. Aschenbeck, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [33]

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Okay. Great. Appreciate the clarification there.

And so for my follow-up, just industry consolidation has obviously been the dominant topic in the industry as of late. With that, just love to get your general thoughts on how you view the current M&A environment and your thoughts on what Continental's role, if any, is likely to be as an industry consolidators, especially if I just think of Continental historically has been a company that's grown considerably from exploration as opposed M&A.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [34]

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Well, it has -- and we certainly have grown this company through exploration, but strategic bolt-ons have always been of interest to us. And just this last quarter, we've done several of those, and we consistently do that within core areas of where we operate.

I might say that there is an unusual amount of interest with acquisitions. I think across the sector, the E&P sector I'm talking about, there's realization that companies are undervalued. And certainly, seen a correction with some of that just recently. So anyway, we continue looking at strategic opportunities that come about, and we've seen several of those recently.

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Operator [35]

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Our next question comes from Jeanine Wai with Barclays.

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Jeanine Wai, Barclays Bank PLC, Research Division - Research Analyst [36]

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So I just wanted to follow up on Doug's earlier question on the CapEx budget and use of the free cash flow. Assuming that oil prices stay constructive, in the past, you've talked about perhaps getting an early start on activity in the following year. And so I'm just wondering, are you thinking about that differently this year kind of given the narrative shift in the E&P and no longer prioritizing rewarding growth?

So for example, I know that the dividend conversation going on and to get closer to your net debt target, but with any additional free cash flow, are you aiming more likely now to go kind of below that $5 billion target with any extra free cash flow versus adding activity? Because I think you can reduce debt down to $4.2 billion based on what's callable. And I know there's a delicate balance kind of between getting on return on capital versus progressing to a low-debt model where you can defend the dividend at any oil price. So I just kind of wanted to check in on this.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [37]

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Sure. Well, appreciate that, Janine. Obviously, there is an opportunity out there if we choose to go with dividends, certainly would open the door to an area that the company hadn't participated in with investors. So that is out there, and we will be looking at that very closely. But we do want to get down to the point that we've talked about with debt, and so we could accelerate that prior to 2020.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [38]

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Yes. You may have noted in my script, I said $5 billion or lower. The or lower was added this time. Yes, we expect it. Our target as we go forward. I'm not saying it's necessarily all this year, but with that $4.2 billion, we would eventually like to get down to that. We're not putting off that level of cash flow for the 9 months remaining this year to get all the way down there, but eventually we will get down to a much lower than the $5 billion target. And we've got a lot of options with the great asset base we've got, with debt reduction, with dividends. I think you laid a number of those out very well, setting up outlying years, anything. We're chasing value. We're not just chasing just growth for growth or those things. So all of those options or things that can add to value.

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Jeanine Wai, Barclays Bank PLC, Research Division - Research Analyst [39]

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Okay. And then my follow-up question, it's more of a housekeeping question. I believe last year's budget had about $600 million of CapEx that was allocated towards wells that wouldn't produce until this year. And I was just wondering if you can remind us how much of this year's CapEx budget is allocated towards production next year.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [40]

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Okay. So the total budget for this year is about $2.6 billion. It's not about it is. The D&C component of that is about $2.1 billion something. Of that, a little bit over $500 million doesn't have first production until 2020. So the level of capital that we're spending in this year's budget on D&C with current year production is about $1.6 billion. So I think you may be working towards maintenance capital numbers are pretty low, so we're in a very good shape to deliver on our plans. Reduce debt and the other things that we talked about.

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Operator [41]

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Our next question comes from Derrick Whitfield with Stifel.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [42]

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Congrats on the strong quarter in operations update.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [43]

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Thank you.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [44]

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Thank you.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [45]

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Shifting over to the STACK, what was the genesis behind 3-mile Meramec lateral and are you for planning more in 2019?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [46]

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Well, the genesis was we are operating teams we thought we could do it and do it very efficiently and turned out we could, and we had the branded quarter -- branded section that we decided we just go ahead and develop from the same pad, and so was able to do that. And we felt like it's a very, very strong area we produced throughout the entire lateral. And this is a great well out there. We're beyond reporting single wells, have been for a long time, but this is such an exceptional well that we thought everybody ought to know about it that is in a very good place. Our team did a wonderful job.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [47]

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Very good. And perhaps as my follow-up, regarding the Woodford update and Project SpringBoard, the update looks overwhelmingly positive relative to the your legacy 1.5 million barrel type curve. Could you remind us of the spacing for the Woodford in this room and the productivity of the wells exceeded your pre-drill expectations?

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Jack H. Stark, Continental Resources, Inc. - President [48]

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Yes. We're looking at 5 to 6 wells per unit in here, typically. And so -- and as you said, the performance of these wells, they come, on early time, come on very strong. And what we've done in here is used our latest stimulation technology as compared to our legacy, so -- we're seeing what we would anticipate to get some uplift as a result of that. And also, it's -- based on these results, early time sure is supporting that 5- to 6-well density.

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Operator [49]

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Our next question comes from Neal Dingmann with SunTrust.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [50]

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Jack, maybe just adding on to Derrick's question there, sticking with that the Woodford sort of development, could you talk about just sort of continued expectations on one of the variability I'm looking at, like prior slides where you looking at what you had like specifically with the pile well 24 hours, just a little bit higher, I think around 18 or so -- 1,800 or so and a little bit oily, so I'm just wondering overall versus the last you had here looks like, not too far off, but about the same $16.60 with about 75. So really my question is kind of expectations for that going forward as far as from an oil percentage in kind of from an IP percent.

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Jack H. Stark, Continental Resources, Inc. - President [51]

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Yes. As you know, we've said the average for the Woodford, we're anticipating out here is about 70% oil. And that's because you get from an oilier side on the east side, and as you move to the west of the unit, Project SpringBoard, you get a bit more gassier here and get into that more condensate window. So you're going to see a gradational change, but the average we're talking about here is going to be in that 70% range.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [52]

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Okay. And then size-wise, you're still anywhere as the pile is a little bit, more things this closer to lower 18 versus closer to 16 expectation. Will that, too, Jack, shift as you go east to west kind of?

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Jack H. Stark, Continental Resources, Inc. - President [53]

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Excuse me there. Yes, I think that this is a very good outcome in here. These are unit wells that are coming in after a parent well in here, and you'd expect to see a bit of degradation. Plus, also remember what we've seen in here when we come in and do the density development, there's just -- these wells come on a little bit slower with oil because basically the stimulation fluid that has been pumped as we're stimulating these wells. It takes just a little while to get that water back out. But boy, when they come back on, they come on strong. So anyway, so we're -- I think this is a fair expectation going forward.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [54]

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Okay. And then just lastly, cognizant not having a 2020 out there, obviously, not even yet. Just thoughts when you look forward towards the end of the year, next year, on reallocation in between the Bakken and let's just use the whole entire MidCon because, again, you are getting such fantastic results obviously in both these broader plays. So I'm just wondering as you all are stepping back, Jack, you, Harold and the team are sort of looking at it on a longer term. Does it come down to just simply economics? Does it come down to the amount of inventory? I'm just wondering now when you are on a go forward, how you think about reallocation or if there will be any between sort of the 2 broader plays going forward.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [55]

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No, I don't see a lot of difference in reallocation. We've tried to get by 1 year before we project out what CapEx is going to be next year, but we might see -- the expansion of CapEx the following year, but a lot of things come into it. And we mentioned earlier that we keep an eye on supply and try not to oversupply the market as well. So that's several things, as you mentioned, and adds that perspective that comes into it.

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Jack H. Stark, Continental Resources, Inc. - President [56]

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The beauty of this is that we do have that optionality to move capital around if need to, need be, for whatever reason. But I refer you to our 5-year projection to look at capital allocation. And there, you can see that in general, we expect to see about 60% to 65% of our growth over that 5-year period coming from the Bakken, and I think that pretty well would correlate with -- and that capital range is probably going to be in that maybe 60%, 50% to 60% probably Bakken, 60%.

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Operator [57]

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Our next question comes from John Freeman with Raymond James.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [58]

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On Slide 10, you all show the big cost reductions that you've had and the efficiencies gains as you all switch the wellbore design. And last quarter, you all mentioned that you're close to begin testing of a new wellbore design in the STACK. And then I'm just curious if that started when we make it results and more details on that.

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Patrick W. Bent, Continental Resources, Inc. - SVP of Drilling [59]

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Yes, John, this is Pat. And yes, we have started development in STACK. Don't have that PD'd yet nor completed. So that should be Q2, and we'll put some results then.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [60]

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Okay. Great. And then just a follow-up question, a little bit of a follow-up on what Neil was discussing. If I look at just thinking about just the Bakken relative to the 5-year plan, are the -- the step-out wells, especially the ones in the west and Montana and then the one that was the extreme southern step-out in the Bakken, do those results -- do you feel those are significant enough to potentially change the allocation of activity within the Bakken relative to the 5-year plan?

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Jack H. Stark, Continental Resources, Inc. - President [61]

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Sure, it can influence the allocation here as we try to maximize the value of any of these units with the infrastructure that's in place, all those types of things. And so, again, what this does is just -- it proves this uplift in performance expands across our acreage and gives us just more optionality for the development.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [62]

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One thing, John, that I throw in there is that the we have one other area here in southern Oklahoma that also is begging for CapEx. It's oily Woodford and we've talked about. And here in the South, I mean, obviously, the results that we've had in the STACK that -- we've got an area here that is also begging for additional CapEx that's compete with that.

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Operator [63]

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Our next question comes from Nitin Kumar with Wells Fargo.

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Nitin Kumar, Wells Fargo Securities, LLC, Research Division - Senior Analyst [64]

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I just wanted to touch base. John, you mentioned the Bakken differentials being stronger. Kind of widen out a little bit here early in April. Just your thoughts on what the dynamics there now do you -- how should we think about going forward for the year?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [65]

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I think the Bakken differential obviously improved dramatically. You had a little bit of a blow out in December, but we've seen sequential improvement through the first quarter. April is looking strong as well. We did guide a little bit wider this year relative to last year, just taking some of that into account we're at the low end of the guidance. I think what we're seeing going forward right now continues to be strong and improving differentials. Take -- just think over the next 12 months the amount of takeaway capacity that you've got coming into the basin. That will continue to benefit it as well, and that spread kind of throughout this -- throughout the next few months, next 12 months. So I think we feel very strong, and we'll continue to monitor that and our associated guidance as we go throughout the year. But so far, very good.

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Nitin Kumar, Wells Fargo Securities, LLC, Research Division - Senior Analyst [66]

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Great. And just sticking with the Bakken here, I couldn't help but notice that the step-out well in the Montana strong results obviously, but maybe about 2/3 of your IPs in the core of the basin in the North Dakota side. What are your well costs out there? That's question one. And then, two, any type of plan with tested outcome?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [67]

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We'll take on Montana first. I mean the beauty of that area is that also you're only look about 2/3 the cost, is we've got all the infrastructure in over there. We've got 50,000 better acreage -- acres there we don't have acquire. Just an area that got the rock that we just need to go develop it. It's a very good area. You talking about Divide County. Sure. You saw recently that it's a leap toward that area, and we've seen some good results up there as well.

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Operator [68]

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Our next question comes from Paul Grigel with Macquarie.

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Paul William Grigel, Macquarie Research - Analyst [69]

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Just following up on the Bakken there, as you do step-outs. Is there a material difference in well cost as you look at Montana or Southern Billings County given a little bit shallower in the quarter?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [70]

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Yes. I just talked about that on the last question there but you must not have been on the phone there. But the beauty...

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Paul William Grigel, Macquarie Research - Analyst [71]

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I guess just actual drilling, Harold. I understand appreciate the infrastructure and the land cost because what the actual drilling the D&C cost is not actually cheaper?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [72]

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Yes, it's shallower, and both those areas that we just talk about. And so it's -- the drilling cost is cheaper, and certainly I mentioned infrastructure -- Jack, you want to add...

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Jack H. Stark, Continental Resources, Inc. - President [73]

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When we look at Montana, our costs out there are in the $6.5 million to maybe $7 million range. And say, when you get Southern Billings County, we're doing more about than $7.5 million range there. And so as Harold said, the costs are down substantially there. And the performance that we're seeing there is just great definitely in Billings County. I mean the way that Burian is performing it's really going to raise return 100% or higher on our well there. And out there in Baird Federal, I mean, we're looking at -- knocking on door of 50% rates of return out there. So I mean that's really just excellent outcomes in each of these areas, and we just have a lot of running room.

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Paul William Grigel, Macquarie Research - Analyst [74]

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Thanks for bearing with me on the sultry on trying to get down to the -- to be honest with the infrastructure part right there. I guess turning to further south to the MidCon. As you mentioned, the 3 rigs removed the different parts of the SCOOP. Could you talk with the drilling efficiencies, why they move there versus maybe other areas you do with the Bakken and relocated them around?

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Jack H. Stark, Continental Resources, Inc. - President [75]

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They have been moved to other great the areas down there in the SCOOP, and we're drilling -- you'll get to see some results with some of that activity here down the road. So anyways, it's -- they're all being put to good use.

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Operator [76]

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Our next question comes from Leo Mariani with KeyBanc.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [77]

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You certainly did a good job highlighting some of the cost reduction that you've had on the SCOOP wells. I know you're expecting further 7% reduction. I think in your prepared comments, you talked about some efficiency gains in STACK as well. Could you maybe talk a little bit more about the well cost progression there in terms of where the costs may have been, say, a few quarters ago where they are today and kind of where you're expecting the STACK well cost to go later this year?

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Patrick W. Bent, Continental Resources, Inc. - SVP of Drilling [78]

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Sure. I think we mentioned it last quarter. But as we explore the monobore design in STACK, we would anticipate an additional $600,000 in savings for those costs. So that again is looking forward. Currently, when you look at down-hole tool reliability and just lateral total refinement, our cost drop just through efficiency gains, from a pad to pad perspective.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [79]

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Okay. That's helpful. And I guess just over to the Bakken side, certainly, you had some very nice step-outs here. Wanted to get a sense of whether or not your geologic and economic models are projecting, that you guys would continue to see wells that are as strong as you move up north into Divide County or do you think maybe those wells would be closer to some of the rates that you see in Montana versus a few of the more counties in the Bakken?

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Jack H. Stark, Continental Resources, Inc. - President [80]

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Yes. I think that if you go to Page 8, I think it's just always interesting to note that there's a green dot up there on the northeast part of Williams County, almost in Divide, that's a well that produced over 100,000 barrels in the first 90 days. And so as we move up in that direction, I do think that we will see average EURs go down. We're -- but I also think -- as we talked previously, well costs go down and the returns are the key here in the value creation are going to be able to get. So I really think that we're going to find the economics of what we see as we move further north will continue to compete with what we're seeing down south. Probably going to be a bit less or a bit higher water cut. But the bottom line is I think we're going to have a very economic performance out there.

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Operator [81]

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Our next question comes from Subhash Chandra with Guggenheim partners.

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Subhasish Chandra, Guggenheim Securities, LLC, Research Division - MD and Senior Equity Analyst [82]

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So Harold, since you brought up M&A and some of the things you might have looked at recently, I'm just curious, what they fall more in the tuck-in category or have you been rethinking your approach to corporate large-scale M&A?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [83]

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No. I think these are mostly the tuck-in category. Bolt-on, as we call them, strategic stuff within our operating areas, particularly Mid-con maybe more so than Bakken.

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Subhasish Chandra, Guggenheim Securities, LLC, Research Division - MD and Senior Equity Analyst [84]

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Got it. Okay. And then my follow-up is sort of looking a little further down the path here, you'll be done with the Springer wells of SpringBoard by 2020, and so some questions have sort of revolved around you would have peak production at that point from SpringBoard and then what happens in 2021. So I'm curious if the Sycamore-Woodford program takes it forward from there, for further growth or is that when others SpringBoards come into play?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [85]

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We have other SpringBoard. We have been pointing that out there to everybody. We talked about it, but just hadn't pinpointed it. So -- and most of this is HBP stuff, so that's a good part.

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Jack H. Stark, Continental Resources, Inc. - President [86]

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Yes. My response it, Subhash, is that it's both. It is Woodford and Springer, other SpringBoard projects, I mean, because you're going to find it there definitely is a potential to expand. And obviously, we have other sites on additional SpringBoard activity.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [87]

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But when you look at the 5-year plan, you see that there's not a lapse in production out there.

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Operator [88]

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Our next question comes from Biju Perincheril with Susquehanna.

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Biju Z. Perincheril, Susquehanna Financial Group, LLLP, Research Division - Analyst [89]

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Quick question about the first quarter oil volumes. Just wondering if there are any special onetime assessments. As strong as it was, I -- given the uptick in Bakken and the SpringBoard volumes, I would've thought, though, company-wide oil number would have been higher. So can you talk about what are -- what could be the offsets to those 2 areas and how you see the oil mix progressing through the rest of the year?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [90]

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Yes. Go ahead, John.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [91]

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Yes. We've got it on the oil growth review, 13% to 19%. And I think with that, you get 60%, maybe above 60% oil ratio on a two-stream basis. We feel exceptionally well about that.

When you're looking at a quarter, you've got to realize that wells come on at various times throughout the quarter. And so what you're looking at SpringBoard as it's come on, where we're at now and stuff, it did -- wasn't all on at the beginning of the quarter.

So our oil volumes are doing great. You always have -- you asked about adjustments. You always have adjustments like that we've also got areas where production was off-line or things. It all balances out. I think it is a very normalized number that we reported for the first quarter, and it's a good benchmark that carries you forward. So we're in great shape.

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Biju Z. Perincheril, Susquehanna Financial Group, LLLP, Research Division - Analyst [92]

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Got it. And then my follow-up, thinking about areas that you can step out in existing areas. In the SCOOP, just on southern portions of the SCOOP and Love county, there's been some pretty good Woodford wells. I think you have had some acreage there. Do you still have acreage there? Any plans to test that area?

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Jack H. Stark, Continental Resources, Inc. - President [93]

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Yes. I was going to say that, I mean, we have cut loose a few extra rigs out of SpringBoard, and some of the work that we're doing down there. I'm not telling at this moment that we're actually in Love County, but what I'm saying is we had the building of the option to take care of that type of activity. As you see, there are there continues to be, I guess, I just say some interesting activity that's going on down there in SCOOP.

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Operator [94]

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And our final question comes from David Meats with Morningstar.

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David Meats, Morningstar Inc., Research Division - Senior Equity Analyst [95]

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I'm also interested in those 3 noncore Bakken wells, which are very impressive. You guys already talked about this is well cost over there, but I was wondering particularly in that Montana area if there's any difference in typical gathering costs or the average working interest is different out there.

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Jack H. Stark, Continental Resources, Inc. - President [96]

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Well, working interests are very high.

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Steven Owen, Continental Resources, Inc. - SVP of Land [97]

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We're 100% in the Baird Federal. So average is we're look at 80%, 90%.

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Jack H. Stark, Continental Resources, Inc. - President [98]

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Yes. I mean -- and our position out there, which is a sizable position, We're looking at 80%, 90% working interest. So we're strong.

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David Meats, Morningstar Inc., Research Division - Senior Equity Analyst [99]

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So that's the working interest. And what about the gathering and transport cost? Is there any kind of material difference between those costs out in that Montana area or in the core?

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Jack H. Stark, Continental Resources, Inc. - President [100]

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No. We're really not seeing anything anomalous out there on that. I will tell you that the production out there in Montana, though, does have a tax benefit. For the first 18 months, I believe it is, you end up getting your tax reduced down to just a half of 1% for the first 18 months. So it is a -- it's very nice bonus that you get for the production that you have out in Montana.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [101]

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It's production incentive and -- that's what developed area to begin with. And certainly, that's what we keep looking at it...

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David Meats, Morningstar Inc., Research Division - Senior Equity Analyst [102]

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Okay. That's good color. And just my quick follow-up you on the motivation for drilling this, but it sounds like your answer to other questions that you just really testing the back end of the drilling cube here and just wanted to make sure there's no plans based on these strong results to incorporate these areas more in your near-term development plans.

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Jack H. Stark, Continental Resources, Inc. - President [103]

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Well, based on our results, we got the opportunity to incorporate this into our plans -- they compete head-to-head with some of the inventory that we're drilling. So I mean what it does is it just essentially gives us a larger playing field here to develop.

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Operator [104]

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Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. Rory Sabino for any closing remarks.

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Rory R. Sabino, Continental Resources, Inc. - VP of IR [105]

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Thank you very much for your time today. Please follow up with the IR team if you have any further questions. Thank you.

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Operator [106]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect, and have a wonderful day.