Q3 2019 Earnings Call
<unk> energy incorporated earnings call at this time, all participants are him and he said only mode. Later, we will conduct a question answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press star zero on your Touchtone telephone as a reminder, this conference maybe color maybe.
I would now like to turn the conference over to your host Ms. 30, the Taliban the director of Investor Relations. Sir. Please go ahead.
Thank you good morning, everybody welcome that WPS energy third COVID-19 call. We appreciate your interest in W.P. ex energy Rick Muncrief, our CEO played out for our COO and Kevin Vann, our CFO for Juniper patents filed presentation. This morning, along with Rick play in cabin.
Members of the management team are available for questions. After the presentation.
On our website W.P., a counter dot com, you'll find today's presentation in the press release that was issued after market close yesterday.
So our Q will be filed later today. Please review the forward looking statements and display Manuel and gas reserves at the end of the presentation. There. They are important gold or remark. So please review, though so that Rick I'll turn it over to you.
Thank you David and thanks to each of you who are joining us this morning on the webcast.
Today, we're going to recap another strong quarter here W.P. acne.
I'll give you an update on the fourth quarter.
Sure you, where we plan to be five years from now.
Third quarter results were strong and compelling.
Back, but consistent execution on are great assets posh more capable and focused team.
Over the Williston Basin, we're now approaching 2000 consecutive days without an employee lost time accident, that's almost five and a half years I can tell your team.
Cost of comedy takes tremendous pride in this.
Out in the Permian, we continue to cut or flaring rates, even further at matter back last night last week it was down.
Just wanted to have percent.
That's incredible progress and it shows up in a growth for physical gas volumes.
We also alone or people practices to recognize and retain our talent.
On November 11 for the second straight year, we're giving our employees, who served our country and Youre forces a day off with pay for veterans day.
So thank you everyone here at W., PBX, who server country as well as many of you grew on this call.
Let's turn to page to recap a great third quarter.
One of the things you all know about W.P. exercise that we walk the talk we outlined who were going to do then we do it we said we generate free cash flow in the second half a year and we're doing exactly that.
Starting with $42 million in the third quarter. We continue to believe that figure will rise to approximately $100 million, even with lower commodity prices.
For the third quarter or capital expenditures were $264 million.
Right in line with her plan.
We also tightened the range for the full year, keeping the midpoint exactly where it was.
We're also getting more production for the <unk> from the same dollar.
Last quarter, we were as we raised our full year oil outlook by 4% and now we're doing is again for the fourth quarter expecting yet another 4% Bob.
That will push us passed our X ray projections for the year.
As you recall, we originally forecasted an estimated 5% to 10% exit rate growth from your at 29 team.
Now it looks more like 15%.
This is good news for now and for later as we enter 2020 with more momentum than we expected.
More importantly, we can generate free cash flow next year at $50 WT <unk> and two dollar 50, Nymex, let's turn to page three.
Here's a picture of the actions, we're taking to benefit our shareholders.
We foreshadowed this in February without a great amount of detail simply to give ourselves from flexibilities to see how opportunities in the market unfolded.
When they did we acted now you can see the details and full color.
So far this year, we paid down nearly $300 million of death.
Bought back nearly $60 million Workover shares reshaped our debt towers to save roughly $4 million per year and interest and are now generating sustainable free cash flow.
So when we say WPS has never been better position financially or strategically.
Our actions bear proof.
This is the power of having a world class portfolio in two best oil producing basins in the lower 48.
Coupled with our consistent execution, we're methodical decisive in tenacious and our execution.
Now, let's turn to page four.
We realized that everyone's interested in our 2020 plan and we'll announce these details next couple of months. Today. However, we want to go a step further and take you behind the scenes to see the plans for the future that we haven't W.P. X.
Five years ago, we laid out a vision for this company to work toward by the year 2020.
We exceeded most of what we wanted to do.
Even when commodity prices.
Collapse to more than 50%, where they were in 2014.
Now as we look at the most important metrics that will drive investor interest over the next five years, we think what you see in front of you allows us to compete against any sector not just energy.
This includes implementing a meaningful dividend.
Targeting seven targeting 7% to 10% free cash flow yield and driving our debt to EBITDA leverage metric from where it stands today at about wanting to have turned down to approximately 1.0.
This is in very precise and define terms our game plan for creating additional shareholder value.
Not only is this important to communicate externally, but also internally as well we want our entire organization to know we have a well thought out plan and we work diligently over the next several years towards these goals.
This is how we're going to assess our performance. It's a very targeted at attractive byproduct of how we plan to successfully manage our portfolio.
Can we do it.
I believe so absolutely.
It will depend on consistent execution strong capital efficiency and remaining opportunistic.
We've established a track record of doing very well and each of these areas over the last several years.
Now, let's turn to page five.
Ill hand, it now over to our President and Chief operating Officer Clay Gaspar.
Thank you Rick and good morning, everyone.
This quarter's major milestone for W.P. ex over the last five years, we've made some bold moves whether some really tough macro conditions and today said healthier than ever with an incredible outlook.
I would like to personally thank all of our stakeholders, including our investors vendors landowners partners and especially our employees who have taken this incredible ride with us and a few minutes you here Kevin talk about the great financial results for this quarter, including the much anticipated free cash flow numbers, but even more important than how weve.
Cotton here or even the quarter's results is the vision that Rick just laid out for the next five years. This represents several lofty goals that we will achieve just as we've done on so many other long term goals.
Third quarter results, along with the fourth quarter guidance allow the fall 2019 results come into focus.
And they look great.
We expect to hit the midpoint of our February capital guidance and at the same time.
Generate higher than expected oil production.
Our initial midpoint oil guidance for 2019 was 98000 barrels of oil today with our updated guidance Weve increases mid 0.5% to 103000 barrels a day.
As Rick mentioned, we're now forecasting a 15% exit to exit growth rate again with no impact on capital.
We know that the absolute numbers are important but just as important as the shape of the curve, which dictates the influence of the base production rolling into the new year.
The strength going into the fourth quarter provides great momentum rolling into 2020.
These goals are set sometimes with technical tensioned against each other for example sustained free cash flow excuse me sustained production growth and free cash flow, sometimes attention comes to the team short term and longer term guidance in isolation. Many of these goals are very easy to make the free cash flow generated third quarter is.
Not a one and done or an isolated goal for WPS anyone can just shut down capital activity for the short term and generate substantial free cash flow. The free cash flow goal that we have is set that we have set is married with substantial with sustainable and profitable profitably growing our business.
We expect to generate approximately $100 million and free cash flow in the second half of 19.
And at a $50 WT Guy, we expect to generate sustainable free cash flow for 2020 and beyond.
Now, let's turn to slide six and discuss our impressive performance driving well costs down.
Well cost up certainly doesn't show up in the short term.
The way it always does actually in the capital number excuse me, let me repeat that well costs certainly shows up in the short term in the quarterly capital number it takes a bit longer for those costs to work through the DNA math and ultimately show up in earnings if you take a look how far we've come and drive down the driving down DDNA you can begin to see.
Yes, and drilling better wells for a lower costs or and more generic terms, just making better investments.
Third quarter call last year I discussed the technical work that we're doing on the peco stay pad in the Delaware.
Just to remind everyone on the six well pad, which included in the upper and lower Wolfcamp, a the X.Y. intervals, we got we utilized.
Fiber optics, Microseismic chemical tracers, geophones and external pressure and temperature gauges, which allowed us to monitor the effectiveness of our stimulation and watch how changes to the Frac design impact each perforation cluster.
Leading us to more effective Frac design, and importantly, a cheaper frac design.
Since initial flowback, we've been monitoring the interactions of these wells real time from the external pressure gauges and that has improved our understanding of the drainage and parents job relationships.
The graph on the bottom half of this slide show the actual drilling completion and facility costs, including artificial lift per lateral foot completed for each quarter since the third quarter of 2018.
The Wilson graph is on the left in the Delaware is on the right.
These graphs highlight the financial impact of the Pega state technical learnings and the dividends that this work is paying in both basins.
In the Delaware, our cost per lateral foot is down 26% from the third quarter of 2018.
For an average 7500 foot lateral.
As I mentioned on previous calls we've applied these learnings from the Delaware to the Williston and the result is a 13% decrease and those capital costs.
The cost savings in both basins or primarily driven by the changes we have made to frac design fluid stage and proppant schedule.
Because most of these savings are related to changes we've made how we pumped the frac jobs. They are agnostic to commodity price and should be durable even into a higher price environment.
As we further optimize our Frac design drive for further efficiency and modifier casing designs. We expect these costs to continue to improve especially in Delaware.
Now, let's turn to slide seven talk about the exciting third bone spring results.
On the right side, you can see very strong results weve seen on five different pads focused on the third bone spring in the Delaware Basin.
These wells are all two mile laterals. The CBR 672, well pad has cumulative production of approximately 365000 barrels with approximately 55% oil cut.
We haven't given out our type curve for the third bone spring, yet, but for the five pads are trending above the 2 million Boe.
And the one pad is trending just above the 1.5 million Boe.
These results given greater confidence that the third bone spring.
And internal as productive as economic as the Wolfcamp, the upper Wolfcamp, which includes the upper and lower Wolfcamp, a as well as the X y.
We are actively working on what the ideal spacing and number of land landing zones are for the this price environment and should be able to communicate that sometime in 2020.
As I mentioned on the previous slide, we've driven well cost significantly down over the past year. Our two Manuel cost is just below $9.5 million for drilling completions in facilities. We continue to see the momentum in 2020 for cost to decrease, especially in the 50 to 55 WT World.
We continue to seek strong crude realizations in the Delaware for the quarter, we realized $55 a 96 cents per barrel of oil. It was just 50 cents off of Wi Fi pricing for the quarter.
As Graham comes on and mid fourth quarter, we should continue to see strong realizations in the Delaware hovering around the BDI for the foreseeable future.
I want to reiterate a point that Rick made.
Regarding natural gas flaring.
The University earlier, this week and a professor made a passing comment about those oil companies in west, Texas or happily flaring gas I can tell you struck at number with me Nobody is happy with flaring. We take this very serious in both Wilson and our Permian operations.
Last quarter I mentioned that we've stayed in full compliance with tight and getting tighter gas capture rules in North Dakota, Rick mentioned that we were as low as 1.5% flowing in the flaring in the Permian to get to this point, we've invested hundreds of millions of dollars into infrastructure and we've been focused on this for years Im very proud of our culture being great stewards of the.
Resources that we are charged to manage and that includes the natural resources as well as the financial resources.
Now, let's flip to slide eight and I'll discuss more about what's going on Wilson.
In the first quarter call. We showed early time results of our 2019 drilling program compared to 2018.
Now with a 180 days of additional production. The results continue to outpace very impressive 2018 numbers. We continue to demonstrate that our Wilson position is it true economic epicenter of the basin.
As I mentioned earlier tactical and technical learnings in the Delaware have also improved the economic performance in the Williston wells the current well costs and Wilson is $6.7 million, which includes drilling completions facilities and artificial lift. We believe these are basin, leading costs and over.
Overall, well leading economics.
You can see the impressive right results continued to demonstrated by the bird bear pad and we continue to demonstrate this and the wells that we're drilling today now I'll turn it over to Kevin Vann, our CFO for the financial update thank you click.
With the well performance we are seeing in both basins, coupled with your teams management of well costs W. PX sets and an enviable spot in the industry. In addition, WPS strategic management of the midstream and marketing to get your has differentiated our price realizations and has limited the amount of our flared natural gas as both clay and Rick mentioned the.
James today are pretty straightforward consistency continuous improvement and sustainability.
All of the WPS team take execution to heart, regardless of whether its operational nature or on the financial side of the house, what you see in the third quarter is part of the basis for our long term often.
Turning to slide 10, as Rick and Clay both indicated earlier, we generated over 40 million of free cash flow for the quarter and expect approximately 100 million over the last six months of 2019.
Also despite the decrease the decrease in average realized prices for all commodities over the last nine months, our adjusted EBITDAX increased 29% from 775 million last year to a little over 1 billion for this year for the quarter adjusted EBITDAX was up 22% of the same period last year.
At 108.6 thousand barrels per day, our oil production is 30% higher than the same period of 2018.
As you often see in the Williston, our third quarter results were outstanding the team enjoyed great weather for the first two months of the quarter and then faced some really wet conditions in September .
When comparing to the second quarter of 2019, our oil production was up 11% as we have mentioned in the past the timing of the large multi well pads and Willis and contribute to the lumpy quarterly growth.
At nearly 227 million cubic feet per day, our natural gas production for the third quarter was up 41% versus the same quarter of 2018 and up 10% since the second quarter of this year.
The Delaware Basin led the charge on our gas growth as we had our stateline processing capacity online for the full quarter. This year versus the same quarter of last year.
From a sequential quarter perspective, we were an ethane rejection for most of the quarter, which also led to higher natural gas volumes.
Our NGL production of 27000 barrels per day was 97% higher than the third quarter of 2018 from a sequential quarter perspective, we were down 1%. However, and again, we were not recovering ethane from most of the quarter.
At 173.4 thousand equivalent barrels per day, our total production is 40% higher than the third quarter of last year.
For the third quarter, we are reporting an adjusted EBITDAX of 352 million, which 64 million higher than the third quarter of prior year for US. These results demonstrate the quality of underlying assets and the execution by the team and the face of lower commodity prices, we were still able to grow EBITDAX by 22%.
We are also reporting an adjusted net income of 38 million versus 29 million in 2018. The improvement was driven again by the higher oil volumes. However, there were other noncash items that impacted the quarter as well first depreciation depletion depletion and amortization was 48 million higher this quarter versus 2018.
Which resulted from higher production volumes, however, our DDNA rate per barrel at $15, an 11 cents continues to improve.
Last year that rate was over $17 I can remember when the rate was over $25 per barrel for WP X. I know DNA is a noncash charge for the period. However to me it speaks volumes to the quality of your rock and how you're managing your cost also unlike some companies we have not recorded a significant impaired.
Affecting our DNA rate.
Lease operating expenses and GP and T. were 28, and 23 million higher this quarter than last last year, and again were primarily driven by the higher oil volumes.
Our capital expenditures incurred for third quarter for the third quarter totaled 264 million of this amount approximately 233 million relates to drilling and completion activity for operated wells and $22 million for midstream infrastructure.
Turning to slide 11, I'm very pleased to announce that we're raising our fourth quarter oil production guidance to 109 to 111000 barrels per day up 4% from our estimate we provided during the second quarter Conference call. This also increases our full year guidance to 102 to 104000 barrels per day. Despite this increase in production as clay mentioned.
And we're not changing our fourth quarter capital guidance of 260 to 275 million, which keeps our full year guidance unchanged as well.
This increase in our fourth quarter production estimate results in an increase in our 2018 2919 exit rate to approximately 15%.
Now turning to slide 12, I'm very proud of the entire WPS team and their bias for action as we hit a really optimal spot in the debt markets. This quarter, a timing was about as close to perfect. As you could want from my seat, but the issuance of the 600 million a five in a quarter notes and the subsequent repurchase of higher coupon debt, we have not only.
We decreased our annual interest expense, but now our next significant maturity is not until 2023.
Also as Rick mentioned earlier, we have reduced long term debt by approximately 300 million. This year and leverage is close to a turn to half we got to this point by having top quality assets and remaining disciplined to our goals. Sometimes we were questioned about our capex and particularly the investments we were making outside of DNC.
As you can see now those investments allowed us to monetize certain midstream and midstream equity investments that may have put some pressure on capex short term, but have helped reduce leverage long term.
I'd like to go back I'd like to go back and look at what I said last year during each quarterly call as I read my transcript from the third quarter of 2018, I noted that I was looking forward to 2019, when we would be funding our capex from our own internally internally generated cash flows I also remember, saying that we had goals of leverage down to one point.
Five turns.
We didnt need high oil prices, we are prudent risk management managers here WPS and made the hard decisions with our balance sheet that later became clear as to why we made them.
I'm proud of the WPS team and proud we are executing year in and out on what we say we are going to do.
I'll now turn it back to Rick for some closing comments.
Thank you Kevin.
Truly an all our would be part of this creative hardworking organization.
Our team is motivated opened a new ideas and we'll leave that roll up their sleeves to get the job done we've proven that time and time again.
We've also presented a bold vision today for where we want to go and what we want to accomplish for our investors and or employees.
We're excited by the challenge and the opportunity.
We know what it requires and as always WPS, we defined by our courage, our focus and our results as we execute our plan.
At this time, we can open the lines for questions and I'll turn it back to you operator.
Ladies and gentlemen, if you have a question you meet breast sorry that number one on your touched on telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the county.
As a reminder, please limit to one question per person. Thank you.
Our first question comes from the line of very quick.
Stifel. Your line is open.
Good morning on congrats on a strong quarter and the introduction of your five year vision.
Thank you.
Thanks Derek.
Perhaps for recur clay regarding your base decline initiative and your five year vision could you generally walk us through the progression of declines under that initiative and confirmed that it does not comprehend secondary or tertiary recovery as that mitigating factor.
Yes, Great question. This is something that we have.
We have owned wholeheartedly. This year, we've talked about our our base decline, peaking and of course, that's on the back of some very substantial growth over the last few years and it's just it's just math, we all understand exponential declines and hyperbolic decline is and how that manifest into ultimately base declines and so was we think about our 45.
Percent base decline that we've experienced in 2019 and roll that forward into 2020 released kind of hovers around 40% and then you just keep that work and that is way down now. This is all assuming a 50 to 55 dollar environment, which is very nominal growth out during that period and would naturally occurs as you have fewer and fewer.
There are a lower percentage of your total production is that wedge production and you have more of it and just a little bit more seasoned type wells and so no secondary recovery no.
Shenanigans with buying or selling assets. This is just the natural course of a really really strong portfolio that we have announced today.
Okay, Thats, great and perhaps as my follow up if I look at chart.
Sure.
DNC charts on slide six theres are quite impressive.
Do you have a view on what your maintenance capital would be to hold Q4, 19 production flattish and in Q3 capital efficiency levels.
Yes, I think Q3 capital efficiency first of all I think we'll continue to do better than that I assume in this price environment. I think we have our eyes on continuing to work that down we've talked about $8 million to $900 million in the past I think that kind of.
Rallies towards the lower side.
Well well.
Well performance continues to improve and then the cost per entry of each well continues to go down that obviously supports it I'd put it on the low end of the 88 to 900 that we've talked about before.
Our next question comes from the line, Brian Downey from Citigroup. Your line is open.
Good morning, Thanks for taking the questions maybe following up on that one as you see on slide six with the impressive cost controls.
We think about that in the next year could you maybe dimension and further cost cutting runway and if any of that impact some of the potential Capex guide posts. As you think about 2020 is and then as we all refiner capital efficiency estimates.
Yes, Brian happy to do that this clay again, the as we think about 2020, obviously, we havent.
We have gone through that with the board yet as Rick mentioned in the coming months will give a little bit more are a lot more granular detail on it but just directionally I think looking at what we're doing in third and fourth quarter I think that.
Impressive work that we're that were manifesting in the in the well costs I think should continue as a few other things that we have our eyes on.
That we've we've we've tried out during the year I think some of these tests are really working quite well a different casing design in the Permian as an example, as we fully baked that into 2020, that's a few hundred thousand dollars, a well call it two to $400000.
There's some things we're doing in regards to contracting sand that continues to work in our favor specifically in the Permian.
In the to tell you what's the same team brilliant idea is continue to be creative there are other things that are that are coming our way as well. So we'll continue to work towards that.
I wouldn't guide too far below where we're at today.
Without having now all those things in hand, but know that we have some we keeps things in our back pocket and we'll continue to.
Try and be really creative on how do we continue to improve our investment options.
That's helpful and then taking a step back the bulk of your oil growth. This year has come from the Williston Basin, just curious as we put together the pieces of the strong Delaware well performance from the flight deck, the third bone Springs results.
The cost reductions how should we think about and Delaware oil volumes in particular trending as we as we head into next year.
Yes, I think Delaware.
Mentioned in the previous question about the base decline. It's a perfect example, what's happened in 2019, you're essentially at your apex of your base decline, we're running five rigs, but remember these are 50% oil wells. They take our state of the R. 22 day, two mile wells cycle through pretty nice, but it's it's.
About 1000 barrels per day per quarter increases what we're seeing in that environment 45, plus percent base decline, you're offsetting all of that and then continuing to gain ground as I've mentioned rolling into 2020, even at the same rig program you don't have as much base decline to make up for and so that helps boost that.
That production growth, a little bit and of course, as we start talking them and detailing out capital plans that number certainly has the capacity to go up as far as rig count if we so chose to do that.
Great I appreciate the color.
Thank you.
Our next question comes from the line of Bryan singer of Goldman Sachs. Your line is open.
Thank you good morning.
Ryan.
Following up on the Willis then slide eight shows the consistent well performance improvements that you've seen can you talk about the sustainability of that as you go into 2020 2021.
How you see the inventory shaping up relative to the type curves that you've shown and any opportunities to that you'd be looking forward to extend that.
Yes, Brian Great question I think we had this probably same plot. This time last year really excited about the great 2018 results and I think throughout the warning there that look this is some on the back of some north on the island, absolutely World class rock that they're not making any more of that we're kind of have spent through.
That inventory, we have a little bit more here and there but it's this this is kind of maybe R.R.R. apex of the of the productivity of these wells and then my team goes and blows it in outperforms 2018.
I'm incredibly excited about the work in 2019, there's so much that goes into it.
We're not improving the geology, obviously, you know that well.
It's it's creativity around stimulation, how we flow these wells back thinking about artificial lift and all of those disciplines coming together to make sure that uptime is maximized productivity is maximized and all do this with a cost focus in mind to ultimately yield tremendous return as I look forward and.
The 2020 and beyond.
I don't see a significant falloff in geology from 2019, I think we've kind of tested what we're going to be testing. Similarly in in 2020, I don't know that I can predict a another vertical step in that and the shape of that curve for 2020, but.
I have full faith that the teams going to be able to continue to perform at this very high level continue to watch costs and ultimately continue to provide.
Incredible full rate of returns on on these investments.
Great. Thank you very much.
Thanks, Brian .
Our next question comes from the line of real Thompson of Barclays. Your line is open.
Hey, good morning.
Record clay.
I understand that your base declines are higher in the Delaware than in the Williston, which makes sense. Given you entered the Delaware only in mid 2015, I guess going forward would you look to toggle activity back the Delaware to help mature that asset how should we think about balancing activity and growth between the two basins. Knowing you have less inventory runway in them Nelson.
Yes. So the we have in my view, we have toggle activity in the Delaware that basin from the inventory from the capabilities.
What we could do we could run a heck of a lot more rigs.
We've chosen to really live in the mantra financial discipline capital discipline and and in doing so you've seen that production increase.
Very moderate over the last several quarters and so your base decline is flattening out pretty substantially and thats whats baked into the the plan going forward now I'm, not saying well, we will never add rigs to the to the Permian of course, we will when the timing is right, but were and do so in a very thoughtful fashion continue to generate free cash.
Cash and then continue to watch that base decline such that the overall company based decline approaches that 30% that we outlined in the in the five year plan.
I'm sorry. The promised my question is just kind of toggle from Williston back to the Delaware, but.
Appreciate the answer.
Well, let me introduce Ricco interjects Delta to win on play talks about recently, we've seen apex remember we had we had laid a couple of Permian rigs down this quarter. This year and so you think about five rigs trying to offset the decline from a seven rig program it really.
I think extenuating.
The circumstances, but we are as close as youre going to see sheller base decline. So so we do have the opportunity to toggle some rigs back as you see improving cash flows to just be very thoughtful but once again displays point, we've been very very focused on returns.
And you cannot you cannot deny that the returns that we see or in the in willison Arnold not only the best in our entire portfolio, but I would put them up against anybody's best in anybody's portfolio. So we are staying disciplined and so you'll see in the next couple of months water plans or 2020, as we get those lock down.
Okay look forward for that.
In terms of the five year vision just wanted to clarify if these are targets for 2024 2025 or could some of these objectives. We reached ahead of that timeframe. You previously suggested your preference to let the base declines moderate before instituting a dividend you mentioned getting closer to 40% base declines in 2020 at what level do you think its right to sort of an ounce of dividends.
Well I think.
Two thing we say five years from now so I think you where you would look at kind of year end 2024.
It's not too dissimilar than what we did back in late 2014, we laid out a five year plan that when we had the snazzy 2020 vision that we do we attached to it.
And that's one where we had the take off pointed been.
The previous year 2013, PX produced domestically 16000 barrels of oil day for the year.
And that plan was built all around growth and switching from a gas commodity.
Dominic Dominic folio to one its oil dominated.
And our goal by 2020 was to be at 80000 barrels a day, we a lot of people that really doubted that and so gives you a lot of.
Satisfaction to see that operationally, we did exactly what we laid out a matter of fact, we exceeded that.
So if you think about now what.
What we need to do is not only as a company, but as the industry units.
These decelerate growth and really focus on returns and and.
Cash back to shareholders all sorts of things. That's that's why we've laid this out so I think that from from our perspective, we're going to.
We will probably look at.
Implementing a dividend.
The next two to three years, I think that you're going to a flatter decline and as we've mentioned we.
With that with the equities trading with Atlas, while we implemented that opportunistic share buyback program. So.
First things first will be very thoughtful about that but the five year plan simply as a framework and the goals that we plan on the building continuing to build a company around and with that being the outcome and and.
2024 year end.
Helpful. Thank you.
Thanks.
Our next question comes from the line of Josh Silverstein from Wolfe Research. Your line is open.
Thanks. Good morning, guys just following up on those last comments and so many clients. It earlier, one thing thats missing from that Feiger outlook is as a growth rate.
I think that you guys, we're still targeting to try to be a 10% plus growth next year.
The long term growth rate fit into this.
Well, that's something we'll we'll continue to fine tune, Josh we have the capabilities are certainly to do that but we.
We want to make sure first things first that.
We're getting a message loud and clear from investors that.
That.
While growth is still something to look at people want value people want returns and so thats what were were certainly tron too.
To deliver for for investors and and so but I do think you'll see some of the growth rates that you've talked about we could certainly deliver.
On a 10% annualized 15 per se annualized who wanted to but I don't know that we have to go to that level of matter fact.
Less than that is could be if you really want to.
Truly focus on free cash flow generation, that's what you need to need to do.
Thanks, and I want to see how do you guys address the woolston inventory within this timeframe as well does that does that basin go to a.
Flat profile in the growth and comes from the Delaware Basin, just to extend the the inventory there and I know you guys also have.
100 million dollar annual land spend.
Is this something that could be used to replace the inventory up there as well.
You know Josh as good question, we the worst case scenario. If you don't add a single acre and this just we drill up or inventory over next few years. In this becomes just a very very strong free cash flow generating asset that requires no capital. That's a worst case scenario I could tell you we have a a very does talent.
Dedicated team looking too.
To build gold inventory, even on our existing acreage we have or.
Going out in and.
No transacting.
So in some areas there. So there is some creative things that we can do there so.
I'd say just stay tuned we gotta, we've got a good team working to add and I'm a lot of confidence so.
Just like it does add one quick point on that.
As we think about this five year vision it doesn't contemplate any material ads, there's no change the portfolio and there's no.
Kind of Goofiness on like negative growth to get there or anything like that think of the consistency of our message is the same plan same team headed in the same direction. We just wanted to articulate essentially the boundary conditions of our strategy and as we think about the importance of growth. We thought it was an important message not to included on this slide.
Indicating for the more generalist investors I think they can relate to these all these outside a little bit of the base decline I think everything else every one of these other factors could be slapped on any other S&P 500 company and I think you'd be pretty aspiration form.
Great Thanks for that.
Our next question comes from the line of Dave Dallas from Cowen Your line is open.
Hi, Good morning, guys. Appreciate all the prepared remarks on the five year vision was wondering I guess, if we could just.
A little bit more into the assumptions I guess, just around gas and NGL realizations and you kind of hit on this in the last call, but I guess, how this shapes or changes your view if at all on acquisitions.
Well you know as far as either Theres two questions. There one is around the realizations on Ngls and that's really I think you've seen from macro perspective NGL prices.
Pull back.
You don't open a Wilson, we've actually got some better.
Better or gas recoveries recently however.
Or gather up there is still building out some of their their NGL infrastructure. So we've actually had to do some some trucking volumes and that can hurt a little to your real realizations as well but.
As far as.
The second part of your question.
Around acquisition will continue we get this question Lotto around our thoughts on on M&A and will always.
To be thoughtful about this certainly with the portfolio have we we we don't need to it's not a half to.
To do things will continue to to be thoughtful.
And looking to evaluate and and we'll we'll just see but the Atlanta anywhere, but I can tell you whatever we do whether it's adding rigs dropping rigs buying assets selling assets. It all has to be supportive of this five year vision that we have out there and so.
I think thats, probably the most simple and clear answer I can give you.
Awesome. Thanks, Rick and then just a follow up I guess, just given the co development pads that youve.
Put on production earlier this year and just some of the other CBR pads could you maybe just talk a little bit about how some of the results there of change your thinking if at all on spacing in the Permian moving forward.
Thank you, yes, yes, very topical question gave on appreciate that we didnt cover that in two to too much detail in the prepared remarks, but last quarter, we went into a little bit deeper I would say its continuation of that message. We think four to six wells per landing zone for Stateline Wolfcamp, a kind of the upper wolfcamp.
It seems that in this price environment. This cost environment seems to provide the right overall return for us.
We continue to explore that isn't for is it six.
We've been wider than that we've been looser than that.
Tighter than that and we continue to to explore how not just the that well spacing, but the stimulation landing zone.
To landing zone Delta makes a difference thickness of the reservoir and several other kind of second order considerations as well.
Thank you could.
You bet.
Your next question comes from the line of me are being nine of Suntrust. Your line is open.
Rick It thinks it's kind of been asked around this but maybe asked a little bit different way just curious because you're just general thoughts on an M&A thoughts in the context of potential opportunities as pressure is placed on the private and public operators to liquidate assets out there in order to maintain some adequate debt metrics, providing some opportunity.
So just want to how you view that today and in context of everything else you've been saying.
You know Neil is it's interesting.
Discussion in there to number one is I think that we we need to and we will have a consolidation or industry I think that most most everyone are readily agreed to that.
I think were companies really equity thoughtful is a bigger.
If you're a publicly traded company you need to make sure that you're you're.
Doing something is not just to add scale and we.
We are not proponents that bigger is always better we are proponents of better is always better and if that means you stay.
The size you are or if you need to.
Bolt on something to truly makes you better than then that's fine and so I'll just offsets that doesn't it goes for any company I do think that there are.
Companies that.
That our global public side and on the private side the need to really strongly consider rolled into cells into a stronger entity.
But thats going to be there called and how that how it all plays out, but but as for as far as AOS.
We do think number one that consolidation needs to happen in our sector.
We are too it is tricky to make sure that is truly accretive and not just something too to build scale or were build inventory and number three for us it really needs to tie into our five year plan and if we can look ourselves. The I'd say. This this transaction supports that nothing gets up and we probably have to.
Have you have at least some degree of consideration to.
Okay, Great Great answer and then claim maybe shifting gears a bit to clay you will certainly appear to have about the lowest Bakken well cost I've seen in the play today could you discuss maybe just the factors enable you to do this in Israel and possibility of improving these additionally.
Yes, Thanks Neal I.
I agree with you.
Looking at the well cost I can't find anybody that's.
Plunging us in that regard.
That's certainly.
On the back so some really really inventive creative hard working team members here in Tulsa and up in the basin itself.
Because that extends over into the L. OE side, as well really really happy with what we're doing on the Ela, we when you really extract out our numbers compared to the pure play guys. It you can really compare.
The company the company on.
Incredibly happy with that and I can tell you will notice.
It always has been that case. So we have made huge improvements I think when when a team like this is shown the trajectory of continuous improvement you just don't bet against them the comp the question earlier for well performance.
I hate to doubt my team I, just don't want to throw out a vertical type curve and say hey, These things just go straight up forever.
Same thing with well costs well costs continue to chip away continue to make strides elderly.
Rick mentioned the safety culture, there I mentioned last quarter, the incredible gas capture environmental work that the team is doing this is I mean, it's a holistic approach it's not.
Let's not paint the takes lets get real cheap on whatever it is the for the short term. When this is very much of a long term focus true value creation.
Team than I think.
Greatly exhibits the ideals of the WPS culture.
Great keep up the good work thanks, guys.
Thank you.
Your next question comes from the line of Leo Mariani of Keybanc. Your line is open.
Yes. Thanks, guys I was hoping you could provide just a couple more thoughts around the uses of free cash flow over the next handful years, if I'm kind of reading your remarks correctly. It sounds like it's going to be a few years for the dividend gets implemented so should we just thinking more in terms of.
Stock buyback would that free cash flow. The next couple of years until you guys are ready to kind of get that did enrolling.
This is Kevin and I think as you think about our free cash flow as as we we put the share repurchase program out there for a reason, we've obviously said that it was going to be opportunistic when we repurchased our shares but you know the exercise that we do everyday is were coming in when we're not in a blackout period and were looking at what we believe our in.
Maybe to be to be versus where we are triton that day, and we're bouncing that up against what's our projections for free cash flow for that quarter.
So first and foremost I'd say that we've got to 400 million dollar.
You know stated goal out there, but it's always going.
Thanks contingent it's contingent upon the tied the timing of which is always contingent upon where our stock is trading versus what we believe our in Ivy.
We were opportunistic over though the third quarter and into the fourth quarter buying back 60 million shares that we think about longer term.
I kind of look at those those tenets of our five year.
Goals really to be.
We're not going to compromise.
Leverage and we're not going to compromise some of those other goals in order to.
To do things that kind of I look at as as potential uses of that discretionary cash flow. We wanted we are committed to returning value to shareholders and when I think about a dividend.
Yeah, you'd like to see that that decline rate come down you'd like to see that the variability basically of your cash let's go down but we also had been we've proven that were pretty good risk managers. When it comes to how we're going to lean into some hedges and leaning into hedges gives me comfort that we can.
The more we do and opportunistic markets.
The quicker, we can lean into potential dividend as well.
Okay, that's great color and.
Obviously, a few questions already on the M&A front, but just to kind of look at that little bit differently. I think you guys still had some significant midstream infrastructure in the portfolio, which are going to be adding to overtime. How do you kind of think about that in terms of the five year plan in vision here.
Well I think as we've said the past gives us some optionality. The five year plan that you saw their approach, we didnt really contemplate any.
In the divestitures, we did contemplate any acquisitions or.
Just a base plan with the with the static portfolio we have now.
Aldi is at some point in time this infrastructure may may fit better and someone else's portfolio than ours and it could be that the monetization thats. The right right thing, we just have to make sure that.
It's not a.
Maybe now or pay me later type type deal where we.
We get some cash in the Doornail only to see significant margin erosion over over the next next number of years or forever really so.
But it is it is very valuable fees for portfolio, it's absolutely not seen in our equity price today salt recognized but it.
It's something that.
We'll always be looking at potentially.
The best path for B of monetization or keep it in the portfolio.
Thank you very much.
Your next question comes from the line of Subash Chandra of Guggenheim Partners. Your line is open.
Yes, hi, good morning.
Badlands good morning.
Badlands area.
Is there an update there is it still too early in watching those wells.
Yes, the buses clay I would say, it's too early to to ring, the bell and say they are.
Ready to drill in the portfolio, we're working those pretty hard we have some production from them, but as you as you know we've.
We've talked about the remoteness of that.
Group of wells and so it takes a pretty good capital injection for some infrastructure.
Along with just the support of the drilling costs themselves. So we're working on that continuing to look again, we've got our.
The best and brightest focused on this to crack the code.
Have a high degree of confidence that if it can be done it will be done.
But I would I'd give it still just a little bit of of caution we're not ready to ring. The bell on that one just yet.
Got you and then.
My second question is on the gas hedges for 2020.
It's just that the Permian Diffs haven't really improve that much at least in the forward curve et cetera, how do you or your content sort of with taken we have what do you think you need to work to hedge book there some more.
This is Kevin what kind of continue to work the hedge book I mean realistically obviously the on a longer term basis.
The cash that we expect to realize in as we such as the portfolio transitions more and more to the Delaware of an overall basis, there's going to be more gas coming as a portfolio. So it will will be subject to higher cash flow risk there.
The next year, it's still relatively small percentage of our overall phase and cash flows but at the same time.
You'll see us lean into some of those lean into some 22000 2021 hedges.
Over the next several months.
Okay, great great job guys. Thanks.
Thanks.
Your next question comes from the line of Kashi Hasan Siemens Energy Your line is open.
Good morning, everyone. Just just one quick one from me clay great work to you and the rest of your team under is driving costs lower and lower.
Well, we've taken a look at the second half 19, Capex run rate of 265 million a quarter give or take and was wondering if.
You know if for example, you were to hold the same level of activity in the Delaware and the Wilson flat into 2020, if that wouldn't be a reasonable proxy for about.
For the for the 2020 program.
Yes, Kashi same we're at kind of a steady state mode. Now you saw in the third quarter, you'll see it again in the fourth quarter numbers. This 265 million dollar run rate for the current activity is sustainable.
If we chose to do that kind of just run forward, obviously you'd be looking at.
That times for for the year.
But again, let me just caution we haven't gotten to a budget approved from the board yet we're doing that in a few weeks have the really wholesome discussion and there's a lot of things on the table. We have very good dialogue, we get challenge from all sides as a with a good board should channel Challenger management team and we'll see where that shakes out.
Gotcha Alright, that's it for me thank you.
Thanks, Sir.
Your next question comes from the line of BG, Fannie Cerium of Susquehanna.
Thanks.
Good morning.
Going back to a base decline discussion in the Delaware Basin.
Beyond the natural improvement from slower growth and perhaps the.
The wider well density that you mentioned.
Can you talk about me any other variables or maybe on the completion friend from your take US stay test that that could help with the decline.
I don't know.
We're trying to.
Give a give a thought around the completions tweaks that would change base decline and I'm not drawn anything there, but I do think on the production side artificial lift how quickly we can get these wells to dub.
Offset.
Having to shut in wells for offset fracs, either our opportunities were offset opportunities all that significantly impacts the base decline.
And also impacts our base production and so those are the things that.
How we how we manage that over time, how we improve that I think we'll continue to get better now as we think about the the the first couple of weeks of base decline.
How aggressively we flow these wells back that's something we talk about.
Very thoroughly we have we have been more and more aggressive kind of working towards a more aggressive flow back.
In some parts of the basin I think it may make sense to be less aggressive in kind of flatten that decline out that would translate into a an overall flatter base decline. So those are the things that we talk about quite a bit.
I'd say, that's all in the mix of things that we're looking at we're always trying to get better at.
But those are probably a little bit second order to the big thing, which is just when you're growing 50, 60% a year on the back side of that you've got a really steep base decline you got a bunch of big new wells in the mix and those dominate that decline as you get fewer of those relatively speaking to the total production.
That just not your your base decline matures and that's what we're working on now as we're a little over 100000 barrel a day company, but we are relatively immature hundred thousand barrels a day as we roll forward for a few years that that overall production number will go up modestly but that base decline the maturity of that of that type of production goes.
Is up pretty dramatically.
That's helpful and then the.
The four to six wells per section density that you mentioned when do we start seeing.
Those wells.
Becoming.
Being brought online.
Yeah, we have some online now.
I would say relatively.
Early I don't know when the first of those those wider spaced wells.
Went with their vintages, but yes, we have them on that line now we've been working this spacing for quite a bit our initial thought might push was let's let's go tight quick let's figure out where that line is step on the other side of it and then we can dial back at any time and so we're really.
We're really watching that and again, we have to be very cognizant of commodity price when you're chasing $65 barrels you can get much more aggressive and the right thing to do to be more aggressive when you're in kind of this 50 to $55 environment need to be more thoughtful about.
What you are willing to invest in that that full cycle returns how does that really pan out.
As you dial this back in one with one dollar the other.
Pretty good thank you.
Speed you.
Okay last question comes from the line of Jeff Grampp of Northland Capital markets. Your line is open.
When you guys. Thanks for squeezing ma'am.
What's curious if I'm looking at slide six here and seeing the cost reductions you've gotten particularly in the Delaware was curious.
How lateral length has maybe changed over the past year, if thats been a benefit at all to the cost structure and maybe if you can just kind of give us a flavor for average lateral length. This year versus what the 20 to 2020 program could be.
Our lateral length has improved has lengthened a little bit year over year.
6800, and I'm trying to remember that number from last year.
Last year 68.
In that ballpark 7500. This year. So there is a little bit of benefit from that.
But I would say when you're looking at quarter to quarter, it's not.
That's not the big driver.
It's an excellent point, though because I wanted to emphasize as you push this to two mile laterals, which.
All of our peers talk in different terms. If we were just talking in two mile laterals completed lateral foot state of the art, what we're actually doing that numbers actually closer to 900 $950.
Per completed foot. So there is opportunity as we further drill we drill further continue to push on the more.
Two mile laterals work more of those into the to the mix.
That number continues to naturally work its way down and again in state line, where the focus of our activity is almost all of those are two mile laterals and so you're getting a really good feel closer to that.
The $950 per foot.
The average we're talking about for the third quarter, though everything in there that's every trouble well and downtime and any issue bank all that in Thats. The number you're seeing represented there.
Okay, Great details and for my follow up switching over to the Bakken was curious beyond the one year production chart that you guys provided in the slides.
Is the outperformance that you're seeing and maybe if we just look at maybe 2018 versus 2017 from Sammy there is enough data there is the outperformance continuing to that degree.
That narrowing it all and I guess, asking just to try to get a sense of acceleration versus high recovery factors or if you guys have any opinion on that yet.
Yeah at some point it is acceleration we are.
The recovery factor is exceptionally high for.
A resource play it's not exactly a shale.
That we're drilling up there.
These are very high recovery factors, but you're starting to bump up against that and so what we're looking at now is how do you bring that value for create more NPV from that well and you certainly see that we think looking at a 365 day look if you are still materially outperforming at day 360.
Five that's probably a good investment.
Even if it costs more in our case, our cost of have either maintain or drop down and so as obvious benefits benefit on both sides of the equation.
As I think about 18 kind of second year performance or 17 second year to 18 second year performance. They start to narrow a little bit, but 18 is still substantial relative to 17, you steel still see a pretty significant gap and again, that's significant gap and 19 relative 18, I would expect SEC.
And your performance for it to narrow, but there's such a nice.
Running start 270 days or so in that it's not like the lines Cross on 366 day, and then you really degrade.
Recovery after that.
Certainly understood and then good detail thinks that I'm guys.
Thanks, Jeff.
And I would now like to turn the conference back to Rick Muncrief.
Thank you very much you want to thank everyone everyone on behalf of the management team in a company for joining US today on this call. We look forward to talking to you and about three months figure how good day ladies.
Ladies and gentlemen, this concludes today's conference call. Thank you all for joining you may now disconnect.