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Edited Transcript of CLR earnings conference call or presentation 31-Oct-19 4:00pm GMT

Q3 2019 Continental Resources Inc Earnings Call

ENID Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Continental Resources Inc earnings conference call or presentation Thursday, October 31, 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 Operations

* Rory R. Sabino

Continental Resources, Inc. - VP of IR

* Scott Donnelly

Continental Resources, Inc. - VP of Southern Region Production

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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

* Bradley Barrett Heffern

RBC Capital Markets, Research Division - Analyst

* Brian Arthur Singer

Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research 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 Phillips Little Johnston

Capital One Securities, Inc., Research Division - Analyst

* Leo Paul Mariani

KeyBanc Capital Markets Inc., Research Division - Analyst

* Marshall Hampton Carver

Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

* 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 afternoon, and welcome to the Continental Resources, Inc. Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would like to now turn the conference over to Rory Sabino. Please go ahead.

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

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Thank you, Ben. Good morning, everybody, 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; Scott Donnelly, Vice President of our Southern Region Production; and John Hart, Chief Financial Officer. Other members of management will be available for Q&A as needed.

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

Also, this morning, we will refer to initial production levels for new wells, which, unless otherwise stated, are maximum 24-hour initial test rates.

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

With that, I will turn the 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, and thank you, Rory. And thank you for joining us on our third quarter earnings call. Results were exceptional with assets and execution driving cash flow, positive production growth and shareholder value. We generated $158 million in net income in the third quarter, alongside 20% oil production growth year-over-year.

Free cash flow is tracking towards $500 million for the full year, driven by our continued capital discipline while achieving consistent results across the Bakken and Oklahoma operations. The Bakken continues to be the premier U.S. oil shale play, and we saw a single day of record historic production volumes in September despite some weather impacts earlier in the month. This is a true testament to the quality of our teams in the field and the results of our shift to manufacturing mode, providing sustainable and repeatable results across our vast Bakken footprint.

This quarter, we want to focus on some exceptional oil rate results out of Oklahoma. Oil production in the South is up 62% year-over-year, driven by the quality of our wells and Project SpringBoard and the 2 new oil units we brought online in the STACK. We also saw a record daily production from this Southern region. As the company has shifted to unit development, our teams have been successful in execution and know exactly what to do. We're proud of our operational expertise and efficiencies they are achieving. Remember, efficiency gains out of SpringBoard have allowed us to release 7 rigs in Oklahoma. We can do more with less capital expense. We will provide some more operational color on the South later in the call.

For now, I just want to emphasize the differentiated and peer-leading position with our SCOOP and STACK assets. Continental will continue to be capital-disciplined, and we are committed to our CapEx target for the year. We're down now to 18 rigs, with 6 six rigs in the Bakken and 12 here in Oklahoma, delivering the same well counts budgeted for 2019 with 10% pure rigs on average. Our quarterly dividend is set to begin next month, the natural evolution for our company. We have also executed $187 million in share repurchases year-to-date as of October 29, 2019.

Continental is strongly aligned with shareholders. We're rightsized for the times and focused on positive cash flow. We're a low-cost leader with investment-grade debt. With the deep opportunities -- opportunity sets supported by a strong drilling inventory, we will continue to focus on delivering value and returns.

From a macro standpoint, we believe we're approaching the tipping point on the world supply balance on oil. It has been estimated that U.S. needs to be at about 800 land rigs to balance our supply and demand, and we're nearing that mark. Now we're at 807.

As the rig count indicated for both oil and gas, responsible operators are exhibiting capital discipline to balance the market. We see OECD crude inventories below the 5-year average, and the industry is adjusting to market conditions. While global financial market volatility may not be going away soon, Continental is focused on what we can control. We're executing at a high level with the lowest cost amongst our oil-weighted peers and feel confident about our ability to generate sustainable cash flow-positive growth through 2019 and beyond. Continental will continue to deliver operational excellence and shareholder value.

In regards to 2020, we're all looking ahead, and I can appreciate that many of you would like more insight into what 2020 may look like. I want you to know, at this time, we are assessing our plan for 2020, looking at our normal scenarios and uses of capital. We're going to refrain from speaking about 2020 until early next year as we usually do when we submit our annual budget. We understand you may have questions, but to be efficient with our time on the call, we'll hold off on that discussion for now.

Now for further operational color, I'll turn the call over to Jack Stark.

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

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Thank you, Harold, and good morning, everyone. We appreciate you being on the call. As Harold pointed out, our teams once again delivered exceptional results in both our North and South regions this quarter. In our Northern region, we completed 57 gross operated Bakken wells with an average IP of 2,313 BOE per day.

These results should sound familiar. And today, I want to highlight the consistent well performance we're getting from our Bakken assets. Since we began harvesting our Bakken assets in 2017, we've completed 440 gross operated wells with initial rates averaging approximately 2,300 BOE per day, and 80% of the production was oil.

I mentioned this to point out the consistent performance we are getting from the ongoing multi-zone unit development of our Bakken assets. The consistency of our Bakken well performance was further reinforced on Slide 5 in our deck, which shows the first year average cumulative production per well from our 2017, '18 and '19 Bakken drilling programs. Looking at the slide, you'll notice it's hard to discern one year from the next because the cost of production curves track right on top of each other. That's what I call repeatable performance.

Likewise, the returns from our 2017 and '18 drilling programs have been outstanding as both programs have paid out in approximately 1 year. We expect our 2019 program will pay out in a similar time frame as well.

Looking at Slide 5, you can also see that these results are not concentrated in 1 area but come from units all across our leasehold. These outstanding results explain why we consider the Bakken to be the premier oil play in the U.S. and are pleased to control the largest acreage position in the Bakken with over 806,000 net acres and approximately 3,800 operating locations remaining in inventory.

Now I will point out that our third quarter production from the Bakken was down sequentially by approximately 3,000 BOE per day. This decline was driven by outside operator production and was down approximately 6,000 BOE per day due to weather and other transitory issues. Our operator production, on the other hand, was up approximately 3,000 barrels equivalent per day, thanks to the great job by our Bakken team.

Our Bakken team also continues to focus on building and optimizing our acreage position and, during the quarter, added approximately 10,000 net acres through strategic leasing, bolt-on acquisitions and trade.

Now let's move to the Southern region where our teams have been doing an excellent job growing oil production. In fact, approximately 50% of the company's third quarter oil production growth year-over-year has come from our Oklahoma assets.

To tell you more about this, we've invited Scott Donnelly, our Vice President of Southern Region Production, to join us on the call today. Scott?

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Scott Donnelly, Continental Resources, Inc. - VP of Southern Region Production [5]

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Thank you, Jack. Our Southern teams were extremely busy during the quarter. We turned a total of 80 gross operated wells to production. 63 of the wells were at SCOOP, and 17 were in STACK. Production averaged a record 133,266 BOE per day, up 11% year-over-year. Oil production was up an impressive 62% year-over-year.

One of the key drivers for this magnitude of our oil growth was our SpringBoard project in SCOOP. Oil production in SpringBoard averaged 23,641 net barrels of oil per day, which exceeded our target of 18,000 net barrels of oil per day by 31%. This outperformance reflects the operational efficiency gains and exceptional performance from the reservoirs. The thick Springer rows 2 to 3 came on strong, as expected, with initial rates averaging approximately 1,650 BOE per day per well with approximately 80% being oil.

I'm also pleased to report that the average performance of all 52 Springer producers are in line with the 1.3 million BOE blended-type curve that was announced during our January SpringBoard Conference Call and shown on Slide 8. The team's projected performance for the Springer was spot on.

Springer also has 30 -- SpringBoard also has 32 Woodford wells producing at the end of the third quarter. Slide 8 shows that the average Woodford well is trending nicely with the legacy Woodford oil-type curve early time.

To date, approximately 8.7 million barrels of oil has been produced from Project SpringBoard alone. We have approximately 39 wells that have been drilled and are awaiting completion with the bulk being completed in early 2020 and 9 drilling rigs drilling ahead in SpringBoard. Given the outperformance in the third quarter, which was driven by operational efficiencies and -- that brought wells online ahead of schedule, we have increased our fourth quarter target for SpringBoard from 22,000 net barrels of oil per day to approximately 24,000 net barrels of oil per day.

To the North in STACK, we burrowed one of the most impressive unit development projects in the company's history. The Reba Jo and Schulte units were developed within the STACK overpressured oil window and consist of 14 total wells and 2 separate benches within the Meramec reservoir. Combined, the 14 wells delivered an impressive 38,320 barrels of oil per day and 113.8 million cubic feet per day initial rate. This equals 57,292 BOE per day or, on average, 4,092 BOE per day per well with 67% of the production being oil.

The key to success for our Continental STACK development has been our team's ability to dial in to the right densities for each target as well as properly stimulating the rock during completions. Our teams have been able to maximize value from our units, thanks to our geologically superior acreage position and our team's operational expertise.

For example, in the Continental STACK, we have also seen 16% lower completed well cost compared to the industry offset in our most recent development projects. Our shifts to unit development mode in the South is driving improved returns and consistent outcomes.

As Harold mentioned earlier, our drilling efficiencies have allowed us to reduce our rig count in Oklahoma from 19 to 12 rigs while still achieving our corporate objectives. The completion teams continued to outperform as they completed over 530,000 lateral feet within a single quarter, all while averaging a 40% increase in stimulation stages per day.

Our production team turned on some of the biggest wells in our 52-year history while continuing to expand our gathering infrastructure. At the end of the third quarter, I'm pleased to say that approximately 65% of our oil and water in the South are currently being handled via pipe and growing.

I'm very proud of our performance of the third quarter, and I want to say a big thank you to all the members of the Southern region.

And with that, I will turn the call back over to Jack.

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Jack H. Stark, Continental Resources, Inc. - President [6]

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Thanks, Scott, and great job by you and your team.

Now there's one thing I would like to add before handing the call over to John. Our report has been circulating that unfortunately cast some doubt on the performance of our SpringBoard project. The outstanding results we announced yesterday should put those doubts to rest. I want to emphasize that our Springer well results came in as guided in our January conference call. In addition, oil production growth from SpringBoard has beat expectations every quarter since the project began approximately 1 year ago. We cannot stop inaccurate reports like these from coming out, so we encourage shareholders to rely on our guidance and our track record of delivering results.

With that, I'll turn the call over to John.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [7]

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Thank you, Jack. Good morning, everyone. 2019 has been marked by our ability to execute and deliver. Our net income, production growth and our cost metrics are all driving strong, double-digit return on capital employed and increased shareholder value.

As of October 29, we have repurchased 5.5 million shares for $187 million. We plan to continue prioritizing our share buybacks with our excess cash. We see tremendous value in the acquisition of our stock as our share price does not reflect our strong earnings, cash flow and the deep oil-weighted inventory we have for future growth. Given our focus on share repurchases, our debt has stayed relatively constant throughout the year with our net debt-to-EBITDAX holding at a solid 1.6x at the end of the third quarter.

Our previously announced quarterly dividend of $0.05 per share will be paid on November 21 to shareholders of record as of November 7. As Harold mentioned, this is the natural evolution for the company and something we have guided to expect over the last couple of years.

Continental is focused on generating shareholder value and maximizing returns. Not only are we delivering year-over-year oil-weighted production growth, dividends, buybacks and corporate returns that compete against the broader market, but we have also made strategic decisions to build our minerals portfolio.

Year-to-date, our minerals entity has spent approximately $120 million in acquisitions across SCOOP and STACK. 80% of this $120 million has been reimbursed by Franco-Nevada. As we highlighted on Slide 16, 90% of our minerals are under Continental-operated units. Year-to-date, over 75% of Continental wells spud in the South have underlying mineral ownership.

Volumes and revenue continued to grow, and we expect our minerals entity to continue increasing in scale significantly over the next few years. Ultimately, we believe the minerals entity could make an attractive IPO candidate. We are pleased with the progress to date.

We also want to highlight our capital discipline. Third quarter nonacquisition CapEx came in slightly lower than the second quarter and almost 10% lower than the first quarter. As we look to the fourth quarter, we continue to expect CapEx to be significantly lower, around $550 million. Each quarter, it's been lower throughout the year. This is by design as we expect to be roughly in line with CapEx expectations for the year. Fourth quarter and annual CapEx include an incremental CapEx incurred from the previously unbudgeted bolt-on acquisitions and increase in mineral activity, as we discussed last quarter.

Even after tightening our guidance for many of our cost metrics last quarter, we continue to see strong results in our LOE and G&A. All differentials continue to trend in line with our expectations, while gas differentials continue to be impacted by the weakened NGL pricing. We do see future relief as new projects come online. For example, the Bakken Elk Creek pipeline will start in November, and the MidCon Arbuckle 2 pipeline will come online in the first quarter of 2020. As we guided to last quarter, third quarter production is relatively flat with second quarter. However, in the late third quarter and early fourth quarter, we have additionally brought on approximately 50 highly productive gross operated wells. The production from these wells will be realized in the fourth quarter where we expect production at approximately 350,000 per day.

We feel good about our production profile and expect full year production to be at the mid- to upper end of all of our annual production guidance. 2019 has been a year of execution across all of our disciplines, and we look forward to seeing this trend continue. We will remain disciplined and focused on maximizing free cash flow and shareholder returns.

With that, we're ready to begin the Q&A section of our call, and I will return the call back over to the operator. Thank you.

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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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Guys, the -- I had to go back in my archives to dig out our stock primer from a couple of years ago, to remind myself that not all stock is created equal. And I wanted to ask, why now to go back to the STACK? What's the running room left in the STACK? Hopefully, Rory, doesn't think this is multiple questions. And relative to SpringBoard, what's the capital allocation going forward within the Southern area? But great results in the STACK, obviously.

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Jack H. Stark, Continental Resources, Inc. - President [3]

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Yes. Doug, this is Jack. Good question. As far as the running room, we've got 55, 60 units out there in the oil and condensate window that we have available to us in the future. But we would operate, and so that's, I guess, the quick answer to that.

As far as the pace at which we're drilling right now, we've got 2 rigs up there. We're drilling -- they're both drilling in a single unit right now, and we've also got another well that's being completed there. So right now, we're continuing our activity.

As far as looking forward ahead, 2020, when we get our plans put together, we'll go ahead and give you some more clarity on how we allocate our capital and rigs into -- in Oklahoma.

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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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Okay. My follow-up is really more of a housekeeping question. You guys are -- very helpfully published a 10-Q at the same time you published your numbers, and it seems that one of the standouts was the decline in nonoperated revenue in the quarter. I'm just wondering if you could offer any color as to what was going on there because it seems to us that your underlying operated performance was a lot better than, perhaps, even the headline results suggested, and that things outside of your control may have contributed to not achieving the full potential, especially in the Northern area. Any color you can offer on whether that can be remediated down on future quarters.

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

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Sure, Doug. That's one of the things that Jack had in his script that he was touching on. That's -- there were some weather issues at one of our larger non-op partners dealt with, and then there's just the timing where they had some curtailment due to offsets and other things.

A key part of that is all of that is transitory. So a good portion of that has come back online here in October. It's not all back on, but it will be as we go forward. So nothing really negative, just more timing and just momentary impact.

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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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I apologize. My line dropped halfway through the call...

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [7]

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No, no, no. No worries at all. I gave a little more color as well.

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Operator [8]

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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 [9]

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I was wondering if you could maybe give us a little bit more detail on what is driving the better performance that you're seeing in the South because one of your comment is that the wells are essentially performing in line with your tight curves. But I was wondering what is contributing to the higher oil up at SpringBoard that you're seeing relative to the guidance.

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Jack H. Stark, Continental Resources, Inc. - President [10]

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That's a great question, Arun. SpringBoard is just a tremendous asset for the company, and oil asset. And there's a lot of things that play into, obviously, the outperformance. And the first thing comes on just the reservoirs themselves. I mean the Springer and Woodford, as you can see on Slide 8, are just performing right in line with the expectations. The team has done a great job of identifying what the proper density is in here and how they anticipate these wells will perform. And I mean, I couldn't ask for really more, as Scott said, spot-on projection of where we could be.

The next part of that really is just the production is exceeding our guidance and substantially here in the third quarter as a result of really just the efficiencies that have continued to build here from our row development. And so -- and what does that translate to? It translates to more wells on sooner. We're still going to end up by year-end, putting on the same number of wells. We just got a lot more of them on in third quarter than originally planned, and it's, again, just comes down to that operating efficiencies that are still building. This -- we're still continuing on.

And I can't help but mention, just from an operating cost standpoint, when you think, right now, we've got 65% of our water and oil on pipe, I mean, it continues to just drive our operating costs down. And from an oil differential standpoint, the -- it's the lowest oil differential we have in the company. It's really sub-$2 in there for the barrels. And so -- and on top of all this, this is -- one of the really great things about SpringBoard is that we own approximately 19% of the minerals underneath this asset.

So when you put it all together, it doesn't get a heck of a lot of better than this. And we've got a lot of developments sitting out in front of us. We've got probably 40% of the units in the Springer still remain to be drilled, and we've got about 80% of the Woodford units in the project yet to be drilled. So a lot of headroom here to continue to grow it, and it's just a fantastic project.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [11]

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Yes. And I guess, my follow-up, Jack, is based on your -- the 5-year outlook that you unveiled, I think, it was maybe in January, it calls for a pretty ratable growth from both the Northern and Southern divisions. I think it's a 12.5% kind of CAGR. So just wanted to know, is beyond -- it sounds like you still have 40% of the activity at SpringBoard. But what are the next phases of growth that -- or projects that you have in the South, which will support that longer-term growth objective?

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Jack H. Stark, Continental Resources, Inc. - President [12]

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Yes. Well, quite frankly, we've drilled and are currently testing some wells, initial wells we've drilled in our SpringBoard 2 project. And really, our -- from competitive reasons, as we've mentioned before, we're really just not going to really get in any details right now and not really going to provide an outline. But I guess, just know that we have SpringBoard 2 in the queue, and we have SpringBoard 3 and SpringBoard 4 down in this -- in Southern Oklahoma that we also are currently really just continuing to build our positions through strategic leasing and acquisitions.

And so we will come out with more color on this as we solidify our positions. And -- but right now, we're very pleased with where we're at and how this project and this, basically, this region is growing.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [13]

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Great. It sounds like there are more meat on the bone in Oklahoma.

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Jack H. Stark, Continental Resources, Inc. - President [14]

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Yes. And I should add, if you noticed, 50% of the oil production year-over-year has come from Oklahoma. I don't think a lot of people would have thought that.

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Operator [15]

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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 [16]

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A lot of great color already, so just hoping you could talk a bit more about fourth quarter and where that trajectory is heading early next year. So on the CapEx side, John, I think, you said 4Q CapEx around $550 million and then, on production. Can you give us -- I just want to confirm that $550 million. And on production, give us a sense of the oil mix in 4Q.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [17]

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Yes. The roughly $550 million on CapEx for the fourth quarter is what we're projecting. Today, around $350,000 on the overall mix or on production. The mix -- oil ratio, I think, this quarter was about 59%. We're kind of the 58% to 60%, 58%, 59% in the fourth quarter. So it's really good. It's really solid. We're very pleased with that, and to carry us into 2020.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [18]

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And as far as the activity level, the spend is down quite a bit in fourth quarter sequentially. Is that the current run rate for drilling rigs and frack crews, a good starting point for next year? Or has that picked back up once budget is reset?

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

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We'll come out with 2020 in the February time frame as, I think, Harold commented on earlier. We look forward to doing that. We're in the midst of that. We've got a lot of optionality.

The thing about run rate you need to consider is how much more efficient we are now at the end of the year compared to the beginning of the year as we talked about rig changes throughout the year, and a lot of that was just driven by efficiency. We're in line with where we expected to be. Dollars spend-wise in the fourth quarter, we're in line. Wells completed, and productions, obviously, was increased previously this year on the forecast, and we're -- as I talked about on the call, we're doing very well with that. So '19 is -- frankly, is probably ahead of pace a little bit, and it sets us up nicely.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [20]

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But I think, Drew, that you probably referred to, some of the costs that we're seeing were a result of the slowdown in rig activity [at play.] So Pat, you might want to -- I think he asked if these were costs baked in. Now we're still seeing some...

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Patrick W. Bent, Continental Resources, Inc. - SVP of Operations [21]

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Yes. Drew, this is Pat Bent. And so with respect to where we're at from an activity perspective, we're currently at that 12 rig count we talked about. We've got 1 stem crew in the South, 2 in the North. We may exit the year slightly higher.

But with those activity levels, we see really the preferential market pricing that we've been able to take advantage of, work with our partners. And so we've seen rig prices decrease in that 20% to 25% range. We've seen double-digit percentage decreases in our stimulation pricing. So across, really, all the service product lines that we engage in, we've seen some preferential treatment there, and we'd anticipate that carrying on into 2020.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [22]

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And Pat, were those price decreases -- was that relative to third quarter? Are you saying third quarter versus second quarter?

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Patrick W. Bent, Continental Resources, Inc. - SVP of Operations [23]

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Yes. Second quarter, the growth at third quarter and fourth quarter relative to second quarter.

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Operator [24]

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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 [25]

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Well, I think Drew just touched on my cost-savings question about how sticky they are. So I'll move to my next one.

So it's on buybacks, and it's just a broader question. So in terms of the 5-year plan and the $1 billion repurchase program, I know we're only in year 1, so there's plenty to go here. But are the buybacks strictly opportunistic? Or is it meaning the free cash flow now a bigger part of the near-term capital allocation process? So I'm assuming that you won't be done with buybacks after you hit the first $1 billion, so I'm just talking more broadly.

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

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Well, we -- it is opportunistic. It's according to what the market sees in our stock price, but certainly, there's been opportunities that we've laid in on. And we just have to see how that continues. The market, as you know, hasn't valued oil and gas as it should, and we very well may continue after the first $1 billion is gone.

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Jeanine Wai, Barclays Bank PLC, Research Division - Research Analyst [27]

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Okay. So it's not as if you're trying to back solve some kind of return in the near term. It's just that free cash flow, when it shows up, you'll just pay it out or buy back the stock.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [28]

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It's the indication of the available cash that we have and that we're able to generate, coupled with the misalignment of the share valuation with what we think is an appropriate valuation. We think it's a tremendous investment opportunity.

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Operator [29]

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Our next question comes from Brad Heffern with RBC Capital Markets.

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Bradley Barrett Heffern, RBC Capital Markets, Research Division - Analyst [30]

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Just as a follow-on to that question. As it relates to the debt, obviously, you guys haven't really paid down this quarter or the prior quarter, and the cash has gone to the repurchase. Should we think about the targets that you previously had, the $5 billion and the $4 billion, as just being moved out? Or as long as the stock is at current levels, are you effectively going to allocate all the free cash to the repurchase?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [31]

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So it's probably a mixture of all those. Debt -- if you look at net debt this quarter, it was down a little bit from last quarter. It's not huge. It was $30 million or so, but it -- we did improve it. We also called some bonds, which will reduce interest expense as we go forward, and we'll continue to work opportunistically to do things in those regards that we think are smart for the long term.

As we go forward, the $5 billion is a target that we retain, and we want to achieve that target. I think we've got a number of ways that we can achieve that going forward, and we'll continue to work on that.

Today, where the share price is, yes, we're prioritizing share buybacks today. But we do continue to retain that target and continue to work forward as we go forward. It may take a little longer. It may not. It depends on a number of variables.

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Bradley Barrett Heffern, RBC Capital Markets, Research Division - Analyst [32]

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Okay. And then another question on Oklahoma. Obviously, you guys have had better results than effectively all your peers in the SCOOP/STACK, and you've seen a lot of them moving away from the play. I'm just curious if there's the potential that you might do a larger acquisition to build your footprint there, given that you seem to be the best operator.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [33]

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Well, thanks for that. We do have good operation there. A lot of those people up there that claim to be in the STACK weren't in the STACK. So that's a -- that was one of the big discrepancies out there. It is a good play. A lot -- everybody saw that, and a lot of people tried to tag on to it, even though they were outside that area altogether. So yes, we're going to keep our eye open -- eyes open to opportunities. We always do up there as well. And if we find a bolt-on that works, we'll be announcing that.

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Operator [34]

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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 [35]

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Jack, following what you said earlier, you spoke of the oil and as I think you mentioned the SCOOP. Could you just maybe comment on how you see the future overall maybe for 4Q and then into 2020, just the overall oil cut trending this quarter and next year?

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Jack H. Stark, Continental Resources, Inc. - President [36]

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Well, Neal, like we said, we'll touch on '20 when we get to our announcement around the first of the year. We'll give some perspectives there. But as John mentioned previously, he was saying, our oil cut is in the fourth quarter, probably looking in that 58% to 59% range.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [37]

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Exactly.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [38]

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Okay. Okay. And then, Jack, in the prior decks, you had those slides that showed the unit economic model slides, showing the optimal well count. I think one was in the overpressured Meramec and the other over in the SCOOP. And I think, I'm looking here at the Meramec, one that showed around the best PV-10 was around 8 wells there. And going to non-SpringBoard, I think, in the SCOOP Springer, it was around 4 to get there. Could you comment? Is that still in the ballpark of what you're seeing is sort of to maximize each of those?

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Jack H. Stark, Continental Resources, Inc. - President [39]

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Yes. I mean in STACK, I mean, it's really pretty much spot on with what we're seeing out there when we have 2 zones developed that are well-developed, and we feel we can put -- like in Reba Jo and Schulte, we put 4 wells in the upper and 3 in the lower. And so we had 7 wells total.

And there are units out there where we only have 1 zone. So we may have 2 or 3 wells in those units. So as we've said, in the past here, on average, we'll probably going to have 2 well -- 2 zones to target per unit, and we could have up to 4 wells per zone. So I really think that our teams have really dialed in on the density, and they dialed in on to -- into it very early and have really guided our outstanding performance that we show on, say, Page 9. When you look at that, you take a look at those curves and look how we had a unit oil-type curve that you're referring to there. And look how the Schulte, Homsey, Jalou and Reba Joes have all just extremely outperformed that unit.

So we're very pleased with it. We obviously feel we've got -- dialed in on what is the appropriate density here. Down in SCOOP as far as Springer is concerned. When we're in the thicker areas, obviously, we can have more wells. In thin areas, have fewer wells. And so -- but is 4 a good average? Yes, I'd say 3, 4 probably good average, depending on where you're at in the units.

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Operator [40]

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Our next question comes from Brian Singer with Goldman Sachs.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [41]

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Harold, very big picture, I know there's a lot of moving pieces in the broader oil macro. And you highlighted some improvement on the supply side that you see coming. I guess as it relates to Continental, what would you need to see in the broader oil macro environment to raise activity? And how does the priority of free cash flow and the level of buyback impact that activity level?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [42]

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Brian, I think that when we get into a balanced situation, we're going to see a significant move. It won't be $5 to $10. It's going to be a significant move in the commodity price. So we're already seeing the production rolling over, and I think everybody is becoming aware that the earlier -- the estimates were much too high this year in the U.S. And so capital discipline is working as it should be.

And we frankly need it in both areas. We need -- it's not only just in oil but also natural gas, and we're seeing that as well. But there's a couple of plays that, obviously, the rig count hasn't come down like it needed to. That's Haynesville and Marcellus. It's -- I'm sure everybody's tracking those 2 plays. They definitely need to back off there to see this market balance. So it takes both to make an oil field as we say. And so it's going to have to continue a little bit. But when it does, it will be a big move.

You get into 2021, you don't see these long-term projects coming on like we see yet in 2020. So people tend to look out about a year ahead. Once we get in 2020, the outlook will be a little bit disciplined, I figure, in the future as far as supply goes.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [43]

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And is that -- do you need to wait on the futures curve to move to make -- for Continental to dedicate additional activity to benefit from that? Or is that something you can start planning on based on your macro outlook ahead of time?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [44]

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Well, obviously, Brian, we have plenty of inventory that we could move forward. But I think responsible operators want to see it happen before they make a move. I don't think it'd be good to make those adjustments prior. That's not the example that we need to be setting out there for the industry. So I'll wait to see it happen.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [45]

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Great. And I -- my short follow-up is on the Bakken. You talked in your comments about some of the non-op and weather-related issues that have come back, and some of the production that was down has come back online. Do you anticipate beyond winter weather any other kind of hiccups or so on the nonoperated side or the operated site in the Bakken? Or should we expect more steady-state sequential growth from here?

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

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No, it's going to be steady-state sequential growth in the future, Brian. Some of this is more than just weather, or a few of these, outside operators. One was Elk Creek NGL line that had to be put into place. And that these gas plants, even though they're built, they will depend on it before they start production. So they've got about 3 of those coming online around the first year -- between now and the first year. So some of that was a hold-up as well.

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Operator [47]

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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 [48]

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Congrats on a strong ops update. Well, certainly not pressing for your 2020 plan, could you comment on your estimated maintenance capital to hold Q4 production flat, assuming current capital efficiency levels?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [49]

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Yes. We'll true that up with the 2020 plan as well, as we always do. Historically, we've said it's -- for D&C only, it would be 1.5 to 2. I would say, if you're looking in a multiyear, it would still be in that range. If we're looking at holding for flat for 1 year, we could probably do it towards a tighter side or maybe a bit better than that. But it kind of depends on that perspective also. So nothing materially different from what we talked about before.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [50]

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Got it. Great. And then, as a follow-up, picking up on Arun's earlier question, how should we think about the production level where SpringBoard 1 plateaus and the timing for the official introduction of SpringBoard 2?

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

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Well, again, the SpringBoard 2, at least some view on this performance will be part of our '20 program that we'll come out with. But you can expect SpringBoard production to continue to grow into 2020.

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Operator [52]

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Our next question comes from Phillips Johnston with Capital One.

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John Phillips Little Johnston, Capital One Securities, Inc., Research Division - Analyst [53]

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Just to follow up on some of the questions about the South. It looks like your oil mix there increased pretty significantly at about 34% from 28% in the second quarter. Is that improvement mostly just a function of the flush production that you saw from the large completions there that you had in Q3? Or are there other factors there to consider that sort of drove that? And I guess, maybe also how should we think about that mix going forward over the next few quarters?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [54]

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I think the -- a couple of things to consider there, other than just the Springer production that everybody is anticipating. But also, the Woodford production and the blend of those 2. And so there's, not just necessarily flush production. We're seeing this has a lot lower rate of decline than initially anticipated.

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Jack H. Stark, Continental Resources, Inc. - President [55]

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Yes. If you look at those, I think it's on Chart 8 there, our Woodford wells, they're averaging -- once we've grown them, so far averaging about 77% of oil. So I mean, they're knocking right on the door of the 80% that we get there in the Springer. So anyways, we're -- they're just very oil-rich reservoirs that we're targeting here, and so it's going to definitely have an impact on our performance.

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John Phillips Little Johnston, Capital One Securities, Inc., Research Division - Analyst [56]

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Okay. Okay. Great. And then just maybe for Harold or John, just on the share repurchase program. Looks like you guys have bought back about 5 million shares so far at an average price of around $34 and change. The stock today is closer to $29, so you're about $25 million-or-so underwater at this point. Obviously, you're planning for the long term here rather than 6 months, but you do have a relatively small share flow to begin with.

So I guess, my question is, has there been any serious consideration at the Board level to adopt a variable dividend strategy just on top of the fixed dividend that you've already established with an ultimate goal of paying out a targeted percentage of your actual realized free cash flow to shareholders every quarter?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [57]

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We bought back 5.5 million shares. We're a little bit under $34 or $33 and change on that. We're going to realize a significant upside in that in the future. So maybe a little bit under now, but you're right, we've looked at the long term.

When you're looking at a company that's made well over $500 million of net income in 9 months, positive cash flow, good production growth, the right mix, great inventory, it's not a $28 or $29 stock. That's why I said earlier, we think it's a tremendous investment opportunity. In regards to dividend and stuff, I wouldn't speak for the Board. That's -- we've got our first dividend coming out here in a couple of weeks. We're extremely excited about that. We think it's a momentous milestone for the company, and we'll go from there. But I appreciate the insight.

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Operator [58]

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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 [59]

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So just a question to follow up a little bit on the Bakken here. I guess over the past year, you guys have done some pretty successful step-outs in the Bakken. Just wanted to get a sense of what does the longer-term well performance look like on some of those step-outs? And have you guys kind of been continuing that program in the second half of this year?

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Jack H. Stark, Continental Resources, Inc. - President [60]

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Well, as far as the step-outs are concerned, we're pleased with the performance of those wells. I don't have the numbers for those projects right in front of me. But as I remember, seems like in the first 90 days, our Baird well out in some county produced like 65,000 barrels equivalent. I think our [Aburion] down south was like 95,000 barrels of oil equivalent. And then I think our McClintock was probably about 120,000. And these are all in the first 90 days. So that's all I can recall at the moment, but they're very good wells for us.

And as far as -- I think part 2 of your question is, how does all of this fit into our plan? Is that...

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [61]

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Yes. I think we're offsetting the McClintock. So right now, the...

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Jack H. Stark, Continental Resources, Inc. - President [62]

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Yes, that's a good point, Harold.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [63]

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Unit, so the activity is continuing.

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Jack H. Stark, Continental Resources, Inc. - President [64]

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Yes. And so the activity is continuing. We do have the unit offsetting the McClintock drilling, as Harold said. And again, we -- there's -- we've got so much territory to cover out here. These step-outs were really designed to give us a good perspective on what we could expect in these areas, so we could put these into our queue and our plans in the coming years. And so bottom line is we're pleased with what we're seeing.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [65]

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Okay. That's great color. And I guess, have you guys been impacted at all by sort of the lack of gas processing there? In the Bakken, you obviously referenced some plants coming on by the end of the year. Has that curtailed any of your production in '19? And just trying to get a sense of whether or not we'll just see kind of a smoother runway next year with a lot more processing capacity in the basin.

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [66]

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It has. It's -- we've been fully aware of the processing capabilities that we've had up there, and moved rigs are around the field to offset that lack of plant facilities. But certainly, what's coming in now is going to set us up real well going into the future. So we're pleased with where we're at, and Continental has led the way with more gas captured than anybody else in the field. So we're proud of what we've done and where we're at.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [67]

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That's great color, for sure. And I guess, just lastly, with respect to weak gas and NGL prices, which you guys clearly touched on. Obviously, those have not been very good here in the last couple of quarters. Does that kind of cause you to sort of think a little bit differently about capital allocation where you might kind of shift more activity to the North versus the South, given the higher percentage of oil up there? Or how do you sort of think about that?

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Harold G. Hamm, Continental Resources, Inc. - Executive Chairman & CEO [68]

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Well, we've shifted operations here in the South to more oily areas. But certainly, we'll continue to do that. But we're pretty well positioned where we're at in the North at this particular time.

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Jack H. Stark, Continental Resources, Inc. - President [69]

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Yes, we've got plenty of oil inventory down in Oklahoma to continue to have comparable allocation of dollars going forward.

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Operator [70]

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Our next question comes from Marshall Carver with Heikkinen.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [71]

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I want to make sure my math's right. So you talked about sticking to the original number of well to sales out in Oklahoma. I have your original guide for the year, was to have 100 net operated wells to sales. And you're at 90 through the third quarter with 56 in the third quarter. So if we're sticking to 100 for the year, would that just be 10 net wells of sales in 4Q? Or do you think you could go a little bit over that 100 target?

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Jack H. Stark, Continental Resources, Inc. - President [72]

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Well, I mean, at this time, we're just -- we're not really -- we're sticking with our guidance at this point. There's always be some timing issues and things that can change a little bit up or down, but we're just staying with our guidance.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [73]

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So a huge slowdown into 4Q would be the way to think about it?

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Jack H. Stark, Continental Resources, Inc. - President [74]

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Yes, we've got a big slug of wells come on here late in the third quarter.

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [75]

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I don't know if I'd call it a huge slowdown. I'd say -- as we talked about last quarter, we had a significant amount of completion activity in the third quarter, and those wells came on late third, fourth quarter. So the -- we've talked about production on the call to see a strong production here in the fourth quarter. Capital spend is just not as high, just the timing of these big projects.

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Operator [76]

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Our next question comes from Subash Chandra with Guggenheim Partners.

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Subhasish Chandra, Guggenheim Securities, LLC, Research Division - MD and Senior Equity Analyst [77]

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Back to SpringBoard here. Is this a fair way to think about it that the Spring allocations, which I think, on your original presentation, you would be drilled out on next year, peaks you out on oil production in the play? And then, the Woodford puts you in maintenance mode beyond that point in time? And any commentary on what the well costs are per foot between the Springer and the Woodford?

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Jack H. Stark, Continental Resources, Inc. - President [78]

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As far as well -- oil production growth, no, I don't see -- as we transition -- as we drill up our, say, our Springer inventory here that the Woodford will continue on and continue to grow our oil production there. If you take a look at those curves there on Slide 8, you can see the Woodford production is very robust and actually has a lower decline rate than the Springer as well, which will sustain the volume very well. And as far as cost, I don't have any cost per foot now that I have on top of my head.

Pat, any comments?

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Patrick W. Bent, Continental Resources, Inc. - SVP of Operations [79]

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I think we've targeted, for the Springer, on a 2-mile lateral, somewhere around $1,000 per completed lateral foot, so $10 million well cost. We're not quite there yet, but we're working our way towards that. And with the [no set] design we have on our Woodford that we've been successfully -- that has been successfully deployed, we're right in that range. Maybe a little bit less as well.

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Subhasish Chandra, Guggenheim Securities, LLC, Research Division - MD and Senior Equity Analyst [80]

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Got you. Okay. And my follow-up, in the STACK, if I wrote the numbers down correctly, there was a sequential decline, I think. What was the reason beyond that? Is that again timing or non-op?

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John D. Hart, Continental Resources, Inc. - Senior VP, CFO & Treasurer [81]

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No. Oh, I thought, Scott, I'd let you grab it. No. Right now, I'd say timing is a big part of it. You get basically just the cadence.

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Operator [82]

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

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Rory R. Sabino, Continental Resources, Inc. - VP of IR [83]

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So we're at the top of the hour. Thank you very much for joining us today, and please reach out to the IR team if there's any further questions. Thank you.

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Operator [84]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.