Ovintiv Inc (OVV) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2021 Fourth Quarter and Year-End Results Conference Call. As a reminder, today's call is being recorded. (Operator Instructions).

I would now like to turn the conference call over to Mr. Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest.

Thank you, operator, and welcome, everyone, to our fourth quarter and year-end conference call. This call is being webcast and the slides are available on our website at ovintiv.com.

Please take note of the advisory regarding forward-looking statements at the end of our slides and in our disclosure documents filed on SEDAR and EDGAR.

Following our prepared remarks, we will be available to take your specific questions. (Operator Instructions) I will now turn the call over to Brendan.

Good morning. Thank you for joining us. 2021 was a momentous year for our company. I want to start by acknowledging the incredible work of our entire staff whose teamwork, expertise and dedication generated the results we'll discuss today.

The global events of this week are a reminder of how critically important it is that our team continues to provide the world with responsible, affordable and reliable energy. Corey and Greg will be touching on multiple proof points throughout today's call on how our strategy to deliver superior returns is resulting in value creation for our shareholders. We are absolutely committed to this strategy. I believe we are the only peer who is set to maintain production and not increase capital year-over-year in 2022. As a result, we are set to deliver some truly eye-popping cash return yields. We had a banner year in 2021. I'm confident our team will continue to deliver industry-leading capital efficiency and value to our stakeholders in 2022 and beyond.

Before we get into the details, I want to take a moment to cover some of today's key highlights. First and foremost, we are once again set to increase our base dividend. A 43% increase this quarter marks the second raise in the last 6 months and reaffirms the resilience of our business. We believe that a sustainable and growing dividend is a core component of our value proposition.

Our efficiency gains and cost elimination are flowing through to increase shareholder returns. We continue to deliver on our cash return framework with additional buybacks underway in the first quarter of 2022. Since we started our buyback program in the fourth quarter, we have purchased approximately $4.3 million of our outstanding shares.

Our incremental cash returns are set to double once we achieve our $3 billion net debt target, which we now expect to reach in the second half of this year. In addition to our financial and operational excellence, we continue to lead on the ESG front. We have set a new Scope 1 and 2 GHG emission reduction target of 50% by 2030.

Finally and importantly, we are reaffirming our previously announced 2022 capital and production plan. This 2022 outlook ranks #1 amongst peers in capital efficiency and for now allows us to deliver an 8% cash return yield, which spikes even higher once we hit our debt inflection point.

We had a banner year in 2021 that's given us financial and operational momentum into '22. We achieved a number of key milestones in our pursuit of shareholder value creation. Our strategy is working and the evidence speaks for itself in our achievements.

Capital allocation framework we announced last fall delivered approximately $150 million to our shareholders in the fourth quarter alone through share buybacks and our base dividend. We also generated approximately $1.7 billion of full year free cash flow, alongside net earnings of $1.4 billion. We reduced debt by $2.3 billion year-over-year, and as a result -- and we are once again investment-grade rated.

We also continued our focus on ESG stewardship. We knocked our methane reduction target out of the park, and we achieved full alignment with the World Bank Zero Routine Flaring by 2030 initiative, a full 9 years ahead of the World Bank's target.

Finally, we more than offset inflationary pressures in 2021 and reduced our average well cost by 11% year-over-year. This performance was and continues to be differentiating versus peers. Combined, these 2021 proof points demonstrate the successful execution of our strategy.

I'll now turn the call over to Corey.

Thanks, Brendan. As outlined, our 2022 plan is underpinned by our industry-leading capital efficiency profile. This leading performance will generate over $400 million in incremental free cash flow for Ovintiv in 2022 alone when compared to the average capital efficiency of our peers. We are also reaffirming our previously announced $1.5 billion maintenance capital program that generates 180,000 to 190,000 barrels per day of high-value oil and condensate.

This full year capital and production level is roughly flat to our second half 2021 profile. At $85 WTI and $4.50 NYMEX, roughly in line with current strip, we expect to generate about $2.9 billion of free cash flow in 2022 and achieve our milestone $3 billion net debt target in the second half of the year.

As Brendan mentioned, we take great pride in our sustainable and growing base dividend. Our substantial free cash generation, declining leverage profile and lower legacy costs and interest costs give us the confidence to increase our base dividend for the second time in 6 months with the 43% raise starting in March.

One of the most exciting elements of our business is that our industry-leading capital efficiency is showing up in very impressive free cash flow. At these prices, we are reinvesting about 35% of our cash flow, leaving 65% or about $2.9 billion to distribute to shareholders along with continued debt reduction. Our strong 2022 plan provides continued shareholder returns, and we are underway today on our first quarter buyback program of over $70 million.

Collectively, we will return approximately $120 million to shareholders in the first quarter across our increased base dividend and incremental buyback program. Our 2022 cash return yield of 8% is very competitive in today's market across both industry peers and the broader economy. This yield is before we inflect from the 25% to 50% distributions. We are set to double this yield once we achieve our $3 billion net debt target and increase shareholder returns to at least 50% of available free cash flow.

Our 2022 stats are compelling. We see our cash return yield continuing to grow in 2023 at the same price deck. To illustrate this, we took the 2022 program and rolled it forward to show the free cash flow and cash returns that we can generate once we double the actual returns post $3 billion of debt. The returns also benefit from the roll-off of our 2022 hedges as we see free cash flow yield over 35% with cash returns exceeding 18%. And as a reminder, we see no material cash taxes over the next 5 years at strip pricing.

I'll now turn the call over to Greg to highlight the impressive strides his team is making on the operations front.

Thanks, Corey. Despite our strong full year results and key milestone achievements, I wanted to take a minute to address a few headwinds we encountered in the fourth quarter.

First, unplanned midstream outages and permitting delays in the Montney reduced fourth quarter production volumes by 90 million cubic feet of gas per day and 3,000 barrels of oil and condensate per day. Specifically, permitting delays in British Columbia prevented us from completing an 8-well pad in the Montney in the fourth quarter.

In response to these issues, we are leveraging our multi-basin portfolio and flexible operations to redirect activity and minimize any go-forward impact. Also, our shift to longer lateral development across the portfolio led to a limited number of turned in lines for the fourth quarter.

For example, in the Permian, we only turned in line 3 wells from September through November, and 13 of our 16 fourth quarter wells didn't have first production until December. I'll cover this in more detail in a minute, but our shift to longer lateral development is key to delivering a strong 2022 capital efficiency.

Finally, higher commodity prices increased our Canadian royalty rates. These rates are calculated on a sliding scale based on price, which reduced our fourth quarter Canadian production volumes and impacted our per unit cost. Most importantly, and I really want to emphasize this, these items have a limited ongoing impact and are embedded in our strong 2022 plan.

With that being said, I want to stop for a second to say how proud I am of our team. 2021 was a record operational year at Ovintiv. We generated industry-leading efficiency metrics that resulted in 11% lower drilling and completion costs across the portfolio year-over-year. The development program we implemented last year has strategically positioned Ovintiv for success in 2022.

In the Permian, we are using our technical knowledge of longer lateral development to significantly de-risk this year's program. In 2022, our Permian program will drill and complete an average lateral length of over 14,000 feet per well, a remarkable 25% increase from last year. The efficiency gains from extended laterals are critical in maintaining consistent year-over-year costs and achieving industry-leading capital efficiency. 2021 was a pivotal year for completions and provided us with a recipe for success heading into 2022.

In '21, we utilized local wet sand on 40% of our completions and will transition to 80% utilization this year. We have a material competitive advantage in the sand sourcing space that will generate over $70 million in savings this year. Not only have we proactively secured local sand supplies, but we also have the logistics experience required to deliver the sand volumes needed to support our Simul-Frac operations.

Last, we completed 75% of our wells last year using Simul-Frac. In fact, roughly 1 in every 5 Simul-Frac completions in 2021 was pumped by Ovintiv. We have been at the forefront of Simul-Frac development for several years and are well positioned to continue expanding the efficiencies of this technology into the future. In 2022, we have already set a new Ovintiv Permian completion pacesetter, completing over a mile of lateral footage in just a single day. In 2021, we delivered differentiated performance versus peers across the portfolio by drilling and completing wells at a significantly faster rate compared to the industry average.

In today's inflationary environment, the simplest path to mitigate higher cost is to reduce the amount of time spent on location, and that is exactly what we are doing. By establishing a new efficiency frontier, we generated well cost savings of approximately $60 per foot in 2021 compared to the industry average. These savings were achieved simply by operating faster and more efficiently than the company on the other side of the lease line.

Our path to industry-leading capital efficiency is a 2-pronged approach: lowering well cost and improving well productivity. We are delivering on both. Longer laterals and faster than peer drilling and completions activity are some of the ways we keep cost down, but we are also making better wells. Through enhanced completions and new artificial lift designs, we generated a 10% increase in stack oil productivity and a 14% increase in Pipestone Montney condensate well performance.

As a reminder, the economics of our Montney program are supported by our high-value condensate production, which received WTI pricing last year and a premium to WTI in the fourth quarter. Also in the Montney, we brought on 19 of the top 20 wells industry-wide across the play in 2021.

In the Permian, we continued our leading well performance in the basin with consistent year-over-year well performance. As a reminder, we deliver these top-tier wells despite not resorting to up spacing, which would leave premium resource behind. These well results are a great example of how we are actively utilizing our multi-basin portfolio to transfer learnings across assets in real time to enhance well productivity.

I want to commend the incredible work our team has done to generate industry-leading capital efficiency in the face of multiple industry and macro challenges. From durable goods to service costs and labor, the inflationary pressures our teams are facing are very real. However, our combination of spending fewer days on location through efficient operations, lowering the cost of key commercial inputs such as wet sand and delivering industry-leading well performance will maintain industry-leading capital efficiency.

In our well designs, pipe, pumping and sand make up almost half of our drilling and completion costs. We have zeroed in on these areas of opportunity to utilize our culture of innovation to drive down costs and offset inflation. Our fully integrated supply chain team has a competitive advantage in today's environment, and they have risen to the occasion.

Today, we have 100% of our pumping pricing secured approximately 85% of drilling and completion services contracted and over 80% of our OCTG supply secured. These achievements give us tremendous confidence in our reaffirmed 2022 plan. The combination of leading well results and leading cost performance is translating to that incremental $400 million per year of free cash flow relative to what our peers could achieve.

I will now turn the call back over to Brendan.

Thanks, Greg. We believe it is just good business to continuously extend our ability to generate superior returns.

Last year, we made significant progress extending the premium resource life across our portfolio. First, in conjunction with the rollout of our capital allocation framework, we announced our disciplined approach to low-cost property bolt-ons. We are committed to staying disciplined and only acting when we can generate a strong full cycle return at mid-cycle pricing.

Despite the current price environment, we've had a strong start to this program and added 80 net locations across our portfolio at a modest cost of only $11 million. At under $150,000 per premium location, I'm not sure I expect us to do quite that well over the long term, but we are off to a heck of the start with this program. As a reminder, we see the magnitude of this program is up to $300 million per year.

Second, we're actively pursuing organic inventory appraisal on an ongoing basis, and we assessed over 500 potential premium locations across our portfolio. It's worth noting that this organic assessment and appraisal program is built into our $1.5 billion CapEx budget.

As a result of the organic efforts, our 2021 reserve replacement ratio was just shy of 270%. If we adjust out the impact of higher prices, our reserve replacement ratio was still a very impressive 200%. Our total proved reserves increased by 500 million barrels of oil equivalent to approximately 2.3 billion barrels of oil equivalent at year-end. The strong performance across all 3 of these initiatives is providing sustainability to our business and helping us maintain over a decade of premium inventory runway across each of our 3 core assets.

While we've run through our key financial and operational wins on today's call, I want to take some time to highlight our recent accomplishments in our initiative to drive ESG progress. As I mentioned earlier, we are very pleased to announce that we have resoundingly beat our methane emissions reduction target. We achieved a reduction of over 50% at year-end '21, 4 years earlier than our original target.

Another key proof point of our progress is our strong venting and flaring performance of less than 0.4% in 2021. In addition, we are one of the first E&Ps to declare full alignment with the World Bank Zero Routine Flaring initiative in '21, 9 years ahead of the World Bank's 2030 target.

We are continuing our momentum by setting a Scope 1 and 2 GHG emissions reduction target of 50% by 2030. We are in action today on this initiative and have already achieved more than 20% reduction since our 2019 reference year. Starting in '22, this target is tied to compensation for all employees. We believe that ESG transparency, consistency and continuous improvement are critical, and we are committed to further driving our ESG progress.

Finally, before we turn the call over to Q&A, I'd like to reiterate the key reasons we believe we provide a differentiated value proposition. First, our leading capital efficiency remains advantaged versus our peers. Second, we're providing a compelling cash return yield in 2022 of approximately 8%, and we see this doubling when we achieve our $3 billion net debt target and going up from there as our hedges roll off. We are committed to continued debt reduction, and we have a strong track record of delivering measurable ESG results.

And finally, we're set to deliver on our strategy over the long term. We have over a decade of premium inventory runway, a top-tier multi-basin portfolio and a unique culture of innovation. Our focus on disciplined capital allocation, responsible operations and leading capital efficiency have positioned our business to thrive in '22 and beyond.

This concludes our prepared remarks. Operator, we're now prepared to take questions.

(Operator Instructions) Your first question comes from Greg Pardy with RBC Capital Markets.

Thanks for the rundown. I was going to ask you about efficiency gains and so forth, but it looks like you certainly got that covered. Brendan, we typically talk about the big 3 with you guys, the Permian, the Montney and the Anadarko. What kind of role do you see the Bakken playing on a go-forward basis, either in terms of production contribution and/or free cash flow generation?

Yes. Thanks, Greg. First off, would I just sort of comment on the portfolio, and I've said this before, but just to reiterate, we have no plans for a large-scale dilutive M&A. We're very happy with the portfolio we've got, and M&A is not a strategic necessity. And as I think you've heard us say before, for us, it doesn't come close to competing with the strategy that we have today. And when we think about the Bakken we've worked very hard to get the portfolio where we want it. You saw us take action last year to exit the Eagle Ford and the Duvernay, since their returns weren't competitive with the rest of the portfolio.

The Bakken is very competitive. I've said this before, it's a smaller asset compared to the larger 3 core assets, but it generates fantastic returns. The dips have strengthened significantly recently. Our innovation is working well there, both on well performance and costs. And we really like what we've seen there. So I think it's playing an important role in our portfolio.

And I think the other thing I'd add, Greg, in this market where we're still severely undervalued versus our peers, we have to ask ourselves whether getting materially smaller is going to make it even harder to attract investors. So that's something we also think about.

And then the second question is, maybe just to dig into the -- just the repositioning. Just maybe a bit about what the trajectory is going to look like this year in terms of capital and production. I mean, I know you provided first quarter guidance, which is super helpful. What does the year kind of look like? Is it again more of a front-end loaded CapEx back-end loaded kind of production year? Or is it around midyear that everything sort of comes together?

Yes. No. I appreciate it, Greg. Obviously, there's some shape to the curve here. I'll let Greg chime in too on how we've designed the program. But really, our entire strategy here is anchored on creating value by generating superior returns and being disciplined with our capital. And one of the challenges with our industry is that there's always a bunch of forces trying to leak returns away.

And today, inflation and supply chain challenges are those culprits. And we believe it's our focus to make sure that doesn't happen and that we capture the benefit of higher prices for our shareholders. And if you look at -- since the start of this latest price cycle, prices are up some $30 a barrel on oil and something like $1.75 on gas. And over that same period, our capital efficiency has gotten better by 33%. And on margins, we've captured 85% of that price increase. We think that's some pretty leading value capture, and we think it's very important to our performance today. And so when we built the 22 program, our priority was to hang on to that capital efficiency and hang on to that margin expansion. And so the cadence of activity and the production profile that you're seeing are really outputs out of that design. And so you will see some shape through the year as production grows.

And Greg, I'll invite him to talk a minute here on just the shorter shape of the capital profile, but the biggest influence on that is a working interest factor. But Greg, why don't you tackle that one?

Yes. Thanks, Brendan. Yes, just to build on Brendan's comments, we're going through a bit of a transition right now in our operating tactics. And as we go to longer laterals, which we think are critically important for us not only to effectively develop our position, but to also combat inflation. As we go to these longer laterals, we think it's just critically important that we stay efficient. And we're going to have some lumpiness that will be built into that.

So as we go to the longer lateral strategy and level loading our frac fleets, and when we talk about level loading our frac fleets. One of the things we recognized as we were going into the planning for 2022 away to ensure that we were getting the best cost on our frac services was to take the white space out of the schedule. So we've worked with our providers, and we entered into some really innovative agreements that are win-win that allow us to really effectively utilize our equipment and to keep those crews busy year round. And by doing that, we're going to not only receive lower cost, but see better efficiencies and our ability to execute.

So -- but the end result of all that is we're going to have a little more lumpiness in the schedule as we go through our lumpiness in the production and the capital, I should say, as we go through this transition. So you will see a little more capital in the front half of the year as we do that. But really, our intent is to have the most capital-efficient program we can for the full year, and the production is just an output of that. But I feel very confident in our ability to deliver on both the production and the capital that we've guided to.

Your next question comes from Arun Jayaram with JPMorgan.

Brendan, let me start with the 2022 guide. Your 1Q oil and condensate guide is a little bit below the low end of the 180 to 190 range. And so just wanted to get your thoughts. Obviously, as you shift to longer laterals, there'll be some shaping of their profile. But how long would it be to hit off the midpoint of that range as you think about the full year?

Yes, Arun, we're very confident in hitting the midpoint of that range. We're right on track as we sit here today. The piece that's driving the shape is really that turned in line timing that Greg was just commenting on. So I'll get him in a moment to just flesh out a little bit more of the details there. But really, what we did, again, is kind of turned our heads to how do we preserve this capital efficiency and make sure we're capturing that value. And so, that's why the shape of the program is the way it is and the production profile just sort of falls out of that. But we're very much on track as we sit here today and feel very confident about hitting that midpoint through the year. So Greg, you maybe want to touch on the turned in line time and cadence.

Thanks, Brendan. Yes, on the turned in lines, as I was just saying, with our cube development strategy and going to longer laterals, we're seeing a little more lumpiness in the turned in line. So as I mentioned in the prepared remarks, in the Permian, we only had 3 wells come online from September to November and 16 of our wells coming online there in December. And so -- sorry, 13 of the 16 wells coming online in December. So we had a back-ended loaded turned in line.

As we look forward to Q1, we're going to see a similar profile there. We have a number of wells that will be coming online, roughly 2/3 of our wells that come online in the quarter, will come online in the back half. And so that's what's causing that dip in production. It's really just a timing effect. We're very happy with our well performance, which is some of the things we showed in our deck today. We're really happy with the efficiency of our crews and our teams. We're just seeing a little lumpiness with the turned in lines that are showing up in the production rates.

Yes. And my follow-up would be just to get some thoughts on the portfolio, Brendan. There's been some press reports around Ovintiv potentially hiring an investment bank to look at potentially monetizing the Uinta Basin position. So a couple of questions regarding this press report. One is could you give us a sense of kind of the annualized kind of cash flow from the Uinta?

And secondly, could you confirm or deny that you may be looking to do this? And the question would be is, if you did get some proceeds from an asset sale, could this perhaps from a timing standpoint, get your debt down and then maybe lead to an acceleration on the timing of increasing your cash return?

Yes, Arun, I appreciate the question. I think -- I don't think you'll be surprised to hear that we don't comment on speculative deals. But what I would say, and I talked about the Bakken here earlier, but talk about the Uinta, I mean, it's a smaller asset, again, compared to our 3 core assets, but we really like what we've seen in the play. We drilled 6 new wells into what was our second cube there last year and the performance has been very impressive. Team's done an excellent job on cost and the drilling and completion design. So there's a lot of undeveloped potential in the play. We're excited about the resource here. It's not receiving a material amount of capital in 2022. But it is a key part of our portfolio.

Maybe I'll just flip it to Corey for a moment. You asked about the sort of relative magnitude of cash flow, so he can fill in that.

Sure. Yes. Just to give you some perspective, it's production for 2021 is about 15,000 BOEs a day and then cash flow is kind of $200 million to $250 million.

And then maybe, Arun, just to close it off for you, the -- because you asked about the impact potentially on the inflection point on cash returns. I would just say, obviously, we're getting quite close to that organically with the free cash flow that we're delivering from the business. So I think in terms of a value driver, it's not going to materially move that around. But I'll just leave it there.

Your next question comes from Neil Mehta with Goldman Sachs.

I'll start here on Slide 5 because the free cash flow yields that you're showing are really robust at that commodity price environment. And Brendan, it's been, I guess, 3 quarters now that you've been on job. As you think about the valuation discount that the stock trades at, have you figured out sort of the root cause of it? And how do you think about the catalyst to change that? And where I'm going with that is if you pull forward maybe some of this cash return as the balance sheet strengthens, do you think that's one of the mechanisms perhaps to close that valuation discount?

Yes, Neil. Yes, I appreciate the question. I think you've hit it. I mean, when we study and then talk to our shareholders, really, where we're seeing the market reward in today's environment is the ability to increase cash returns to shareholders. And you're seeing us do that with the base dividend increase today. But obviously, our strategy is aimed at accelerating our debt reduction and increasing those cash returns. So it's our belief that executing on the plan and delivering on that is what's going to shape that valuation going forward.

Yes. And to that end, if oil stays up here or stays elevated relative to your base case, do you -- what would it take for you to pull some of that forward and make that 2023 outsized capital return more of a '22 event?

Yes. Well, and that's why you've seen us point to the second half of this year where we'd hit that $3 billion inflection point and to be in a position to dramatically step up those cash returns. So that's absolutely our focus, Neil, and how we're thinking about operating and executing the business.

Your next question comes from Doug Leggate with Bank of America.

I'm so sorry. I'm going to be on this cash return issue. Just for one more question. It seems to me that reflecting on what Neil just asked, folks don't -- still don't understand equity, volatility and balance sheet, capital structure. It seems to me that as you reduce your debt, your cost of capital comes down, your multiple expands your valuation goes up. While you still have that amount of debt, you still have the opportunity to buy back your stock at such a deep discount. So my question is, with the line of sight that you have to get to your debt targets, where do you ultimately want the balance sheet to be? And why not step in more aggressively? Why do you have to wait? So you have you hit the $3 billion before you step up this sort of cash going back to buybacks, what's the reason for the wait?

Yes, Doug, I appreciate the question. It's something we spend a lot of time thinking about. I think really it comes down to risk. We're in a business where we are price takers, and there's commodity price volatility. And today, it feels great. You look at the prices on the screen, and there's a lot of reason for the optimism that you hear from us.

But ultimately, we need to ensure that we create the financial resilience in the business so that it's prepared for what inevitably will be price cycles in the future. And so, that's why you see us walking and chewing gum at the same time here where we're marching up cash returns. Again, we did increase the base dividend by 43% today. So marching up those cash returns, achieving the debt reduction and really, now we're very close to that inflection point that you're pointing to. So I think, Doug, what you're hearing from us is just a balanced approach here. I think we need to make sure we get to at least that $3 billion of net debt, but before we flip that switch on the cash returns.

Sure. I guess the net debt is an important point there, right? So not the debt.

Correct.

My follow-up is an operational question. You obviously had permitting issues, and it doesn't look like they're going away, at least in the near term. So can you walk us through how the reallocation of capital to your 100% working interest has still allowed you to hold the capital program of $1.5 billion.

Yes. No, it's a great proof point of how the multi-basin portfolio can manage some of these unique basin risk. So I'll flip it over to Greg here to just talk about how we've reallocated that capital and held to the '22 guide. So Greg?

Yes. So when we think about the issues going on up in British Columbia, we're in contact with the regulators there. We know they're working hard. It's come to a resolution with all of the indigenous tribes there. And we're confident that they will do that, and we think it will be coming shortly. But in the interim, we can rotate capital that's the benefit of our multi-basin approach. We can rotate that capital to other areas. So in the first half, that capital is being rotated over to Alberta, it's our pipestone projects, and then down into the Bakken.

If the issue continues to persist, we can continue to rotate that capital. But again, we feel very confident that they will resolve the issues there, and we'll be able to go back to work in BC. But again, we see very competitive returns from all of our programs. So regardless of working interest or location, we can allocate capital to any one of those programs and generate similar results. So that gives us the confidence to deliver on the guide for this year.

Your next question comes from Neal Dingmann with Truist Securities.

Can you talk a bit about, obviously, Brendan for you or Greg, I'm just wondering, you guys continue to progress very nicely on the -- obviously, the free cash flow. So my question is, as things progress, let's say, on a sort of normalized level, what do you see on an ideal reinvestment? I mean, obviously, that's gotten down pretty low. Is there a base level or is something that you would like to keep it under? How do you think about reinvestment versus having that capital for other things?

Yes, Neal, you're right, it's gotten real low, like down into the mid-to-low 30s here at today's prices. And so if you remember, we've got a commitment to invest no more than 70% of cash flow. Obviously, to your point, we're well inside of that limit here today. But we are committed to that disciplined capital allocation. And really what's driving our decisions here today is the -- a little bit of the questions Doug was just asking; how do we make sure we get the debt reduction done as soon as possible and drive those cash returns up?

Got it. And then maybe for you or Greg, are you seeing opportunities? I know now that have this cash; you want to get to that next level where you can have the obviously bigger payout. And I'm just wondering if you see some ideal bolt-ons and different things that you've talked about, would that take priority over getting to that higher payout? Or is it still let's get to the cash first and then -- then we'll let Greg do more of this thing over there.

I think that's why we wanted to give an update on the bolt-on activity to date to just give a sense of scale and where it's obviously a pretty modest amount at $11 million. So it's not really shifting around the timing of achieving those other objectives. So it's really just a piece of opportunistic business for us, whereas we see these accretive opportunities to add inventory, we'll step into them, but it's something we're not going to let kind of get in the way of getting to the other milestones.

Your next question is a follow-up from Neil Mehta with Goldman Sachs.

I apologize for the follow-up here. S&P inclusion. You had a really nice GAAP EPS number. And I know that positive earnings is one of the criteria for S&P inclusion. How are you thinking about that possibility? And how should investors think about that?

Yes. So we -- I'll pass it over to Corey here to hit the punch line on that. Thanks for asking, Neil.

Hi, Neil. Obviously, the criteria for the index inclusion required the last quarter to be positive earnings plus the prior 12 months. And now we have met all the criteria with a positive fourth quarter earnings. So we're looking forward to getting included in the index. Obviously, that prediction on timing, there is a little bit more difficult as the decision process there is a bit more opaque. But we've met all the criteria, and we'll do everything we can to get in there because it will be a nice pickup in passive investment kind of in the 5% to 7% range is sort of the rule of thumb we looked at.

At this time, we have completed the question-and-answer session, and I'd like to turn it back to Mr. Verhaest.

Thank you, operator. That's the end of our call today. The call is now complete.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.