Q3 2019 Earnings Call
Good day, everyone and welcome to yield you resources third quarter 2019 earnings results Conference call.
As a reminder, this call is being recorded.
This time for opening remarks and introductions.
I would like to turn the call over to the Chief Financial Officer of your do resources.
Tim Driggers. Please go ahead Sir.
Good morning, and thanks for joining us we hope everyone has seen the press release announcing third quarter 2019 earnings and operational results.
This conference call includes forward looking statements the risk associated with forward looking statements have been outlined in the earnings release Energy's FCC filings and we incorporate those by reference for this call.
This conference call also contain certain non-GAAP financial measures.
Definitions as well as reconciliation schedules, where these non-GAAP measures to comparable GAAP measures can be found on our website at www Dot energy resources Dot com.
Some of the reserve estimates on this conference call and then the accompanying Investor presentation slides may include estimated resource potential another estimates or potential reserves not necessarily calculated in accordance with the Fccs reserve reporting guidelines.
We incorporate my referenced a cautionary note to U.S. investors that appears at the bottom of our earnings release issued yesterday.
Participating on the call this morning, or they'll Thomas Chairman and CEO .
Billy Helms, Chief operating officer combat occur you VP exploration and production <unk> E VP exploration and production.
Lance Terveen senior VP marketing, David strike, VP, Investor and public relations, there's no promise.
Thanks, Tim and good morning, everyone.
He or she has a deeply rooted competitive advantage and that is our culture.
<unk> for drives innovation and a long history of continuous improvement and success. Most importantly, our culture drives resiliency and an ever changing business environment. We have demonstrated this resiliency time and time again during the past 20 years.
As we will continue to do so moving forward and the 19 nineties, one vertical prospects were in short supply our culture faltered innovations that made the O.G.. Our first mover in horizontal shale gas technology as natural gas prices came under pressure in the late two thousands we introduced horizontal shale oil with the Eagle Ford discovery as ever.
Results of our first mover advantage you GE is now the largest onshore oil producer in the lower 48 states and among the lowest cost producers in the world.
In the wake up a pronounced commodity price down cycle beginning in late 2014. The company has remained a leader in low cost high return oil growth by switching to a premium drilling strategy.
Premium strategy uses a strict investment hurdle that produces strong economic returns using a flat $40 and 250 natural gas price scenario, ensuring that the company will generate strong financial performance even in commodity downcycled.
After our third consecutive quarter of exceptional result, we believe that you G 2019 operational performance will be the best in company's history to reflect our year to date performance. We have raised our U.S. oil growth target from 14% to 15% along with lowering our well cost and per unit operating costs.
Its targets.
Along well results have compounded the benefit of cost reductions to further improved capital efficiency, allowing you to deliver strong.
Above target production growth.
With lower than expected capital investment.
The copper that's called me turns and growth in the third quarter, the company deliberate over $330 million or free cash flow after paying the dividend.
Oh Gee continues to deliver returns growth and free cash flow competitive with the best companies in the S&P 500.
In addition to outstanding operating results, we continue to organically grow our premium well inventory in both size and quality.
This quarter, we added 1700 premium net wells, which represents a replacement rate more than two times are 20, not seen drilling program and brings our total premium drilling inventory to 10500 net wealth.
That is more than 14 years of drilling at our current pace.
Oh, geez diverse assets and exploration led business model position the company to navigate political and regulatory changes the company main things tremendous flexibility to adjust operations in activity across six different basins and has identified over.
5400 premium well locations, representing more than seven years or premium drilling or non federal acreage in the Permian one of our most active drilling areas approximately 90% of our federal acreage position is held by the legacy production and we have 11 years approach.
<unk> inventory or non federal leases.
What's reported 3.2 million net acres of Nonfederal leases in the U.S., which is approximately 75% of the company's total acreage. We're confident that we will continue to organically grow our premium inventory in size and quality much faster than we can drill.
Yes approach to reducing environmental footprint in the same matter that it continues to improve operational performance.
Company looks to innovate.
Through returns focus initiatives aimed at reducing greenhouse gas emissions and expanding water reuse throughout our operations.
Last quarter, we introduced our pilot project for a combined solar and natural gas powered compression station in the Delaware Basin. This is just one of the many projects that our team is working on that we believe will contribute to reducing greenhouse gas emissions and generate positive economic returns.
UGI and its employees are committed to environmental stewardship.
We believe we we're a leader in our initiatives to address environmental stewardship, and we are focused on finding new opportunities to continue to improve going forward.
Finally, as we close and on the ended the year our focus begins to turn to 2020, while it's too early to discuss.
Specific summer plan next year, we can to say the falling number one.
Our priorities have not changed we firmly believe that investing in high return production growth generating substantial free cash flow and delivering strong dividend growth delivers the highest long term business that you.
Number two our plan is based on a conservative outlook for commodity prices at $55 that'd be ti or we can deliver mid teens production growth grow our dividend and generate significant free cash flow.
Number three we believe well costs than per unit operational costs will continue to decline.
Number four we believe capital efficiency and F and de costs will continue to improve.
Number five we have high confidence and the ability of our organic exploration efforts to add and improve our premium drilling inventory faster than we are drilling.
And number six we have no plan is for large expensive M&A.
Any potential bolt on acquisition must compete with our premium drilling returns.
As we look to the future we know that the business environment will continue to change that our competitive advantage is rooted in our culture ensure that we can meet these challenges head on.
Oh Gee as a resilient company that will continue to differentiate itself as a leader among any company and any sector of the S&P 500 by creating significant long term value for our shareholders.
Next up is Billy to review, our third quarter operational performance and outlook for the remainder of 2019.
Thanks Bill.
For the third quarter in a row, we exceeded expectations delivering more all for less capital than we forecasted at the start of the quarter.
Oil production beat the high end of our target range at over 464000 barrels per day.
And we spent less capital than expected coming in right at the low end of the target range of one and a half billion dollars.
Well performance continues to drive production to the high end of our estimates.
As discussed during the second quarter call. The primary reasons for the improved well performance our enhanced completion designs along with the use of Diverters.
In a heightened focus on target selection.
Capital expenditures this capital expenditures continued to trend into the low end of expectations as their operating teams identified new techniques to lower well cost to improved capital efficiency.
As of the third quarter I can report that we have achieved our year end goal of reducing well cost by 5%.
We believe the cost reduction to be sustainable as it is driven by continued efficiency improvements not service cost reductions for example, if you look at our two most active plays the Delaware basin in the Eagle Ford the average time to drill a well has collectively been reduced by 20%.
As our drilling teams maintain their steady push to reduce drilling times, we require fewer rigs to execute our program compared to last year.
Specifically, we now plan to do only averaged 36 rigs this year as compared to 40 rigs back in February .
This is a tremendous testament to the to the efficiencies that you g.'s drilling teams.
They are able to realize faster drilling times with innovative advancements such as in house designed drilling motors engineered to improve performance and reduced failures.
We still plan to complete about 740 wells this year and expect quarter over quarter production growth entering 2020.
As Bill stated earlier, if oil prices are in the mid Fiftys, we expect growth in 2020 to be similar to 2019.
Capital expenditures capital savings from efficiencies realized throughout the year are beginning allocated to one of two areas.
Leasing acreage and new exploration plays.
And high return infrastructure projects that are lowering lease operating expense.
Across the board 2019 is shaping up to be the best year, We've had operationally and that's particularly notable across our company wide per unit operating expenses.
At the start of 2019.
Lease operating expense on a unit basis was initially forecasted to be flat year over year. However, we now expect full year 2019, l. only to be 4% lower than 2018.
At the midpoint of our 2019 DDNA guidance range of $12.65.
We're on track to deliver the lowest rate since EOG has transitioned from a natural gas company to all our permanent switch to premium drilling continues to transform the company driving down finding and development cost.
Reducing DNA and enabling UGI to deliver double digit returns throughout commodity price cycles.
Also of note during the third quarter, we entered into long term gas supply arrangements with generic energy.
Consistent with our strategy of having flexibility and diversity and marketing our products.
These arrangements to provide additional markets, where offtake and pricing diversity for up to 440 million beat to you per day, starting in 2020 with the ultimate goal of maximizing the realized price for our growing production of low cost natural gas.
Now I would like to provide some color on the Bakken and other Rockies plays.
In the Buck in this quarter, we completed 15 wells with an average IP 32150 barrels of oil per day 300 barrels of Ngls and two main cubic feet today of natural gas.
Our strong well results reflect the impact of UGI precision targeting and our new completion techniques.
To highlight for the quarter was the Clark's Creek 18 will that was completed in the three forks with an IP 30 of 3800 barrels of oil per day.
This well is our best well today in the Bakken.
Which along with strong performance from other wells completed this quarter.
Our testament to the continued improvements we see across our entire inventory.
And the powder River Basin, we completed a total of eight wells, including four wells and apartment three wells on the Turner and one well in the Niobrara.
It is worth noting that our premium inventory in the powder River Basin now includes the Parkman, which we have combined with the Turner play.
The Niobrara completion, the Arbor list for 73.
At an IP 30 of 1250 barrels of oil per day.
250 barrels of Ngls, and 4 million cubic feet of day of natural gas.
We continue to be encouraged by the results of our program and the powder River and look forward to its growth in the near future.
Next up is can to discuss the Eagle Ford.
Thanks, Bill you're after year quarter after quarter, you G.'s Eagle Ford asset deliver strong consistent results in the third quarter of 2019 was no different.
The Eagle Ford delivered high return oil volume growth with a continued decline in well costs.
We've exceeded our full year cost reduction goal of 5% in the third quarter by continued improvement in operational efficiencies.
Specifically, our drilling time has been reduced by 10% to 20% depending on the lateral length in the third quarter of 2019 compared to 2018.
We also drilled our fastest well to date in the Eagle Ford the Meadowlark beat to age which was drilled to a measured depth of 17288 feet with a 7500 foot lateral section in a remarkable 2.4 days.
Even after nearly a decade of development, our premium well inventory in the Eagle Ford remains strong at 1900 net locations representing over six years of drilling at current activity levels. We continue to have high confidence in our ability to grow our premium inventory in this play.
Our best Wall to date has a cost that is 20% lower averaged 2019, well cost. This difference in cost between our best well and the average well. This year is evidence of the opportunity ahead to convert or approximately 2200 remaining non premium locations to premium over time.
UGI isn't the best position it has ever been in to maximize the value of this flagship asset now here's Ezra for an upgrade on the or an update on the Delaware basin.
Yes, Ken in the Delaware Basin, We announced the addition of just under 1700 net premium locations, including two new plays a third bone spring, which accounts for 615 net premium locations and the Wolfcamp middle or M for short, which contributes 855 net premium locations the third bone spring in the.
Wolfcamp EM combined added approximately 1.6 billion barrels of equivalence of incremental resource potential net to E. G.
Additionally, we added over 200 net premium locations from previously identified plays on the Delaware Basin.
These locations not only benefit from this year's reduced well costs and increased well performance, but also reflect further delineation and greater confidence in areas outside of our core acreage position.
The third bone spring as an example of making an old play new again UGI began drilling the third bone spring sand in our core Red Hills area in southeast New Mexico over 25 years ago through vertical and horizontal development to exploit these high quality reservoir sands fast forward to today, where modern drilling and completion technology along with the benefit.
Out of a large dataset of core samples and logs has allowed to yohji to exploit the tighter sands sales and carbonate rocks in the third bone spring.
Well over 1000 horizontal wells have been drilled in the traditional third bone spring sand target across the basin less than 50 wells of exploited these tighter reservoir targets with the advantage of a rich trove of technical data UGI is identified the sweet spots of these new targets and the result is an $8 per barrel of equivalent finding and development costs.
And decline profile somewhat shallower than other plays in the Delaware Basin.
We anticipate developing the third bone spring at approximately 880 foot spacing between wells with per well gross reserve potential of approximately 1.2 million barrels of equivalents for a targeted completed well cost of $7.6 million.
We also announced the Wolfcamp EM with 855, new net premium locations identified across a wide expansive UGI acreage position in Lee Eddie Loving and Reeves County.
This combo play with 63% liquids sits below the upper Wolfcamp plays and as planned to be a developed on 1050 foot spacing.
Typical wolfcamp and well is expected to produce approximately 1.5 million barrels of equivalence over its life for a 7.7 million dollar targeted completed well cost.
UGI began data collection analysis and delineation of this interval in 2014 and refined our precision targets to the highest quality portion of the reservoir.
Utilizing proprietary steering software, we have reduced our specific drilling target by over 20%, while simultaneously decreasing our drilling days by 50% compared to the 2014 delineation tests.
The combination of increased well productivity operational efficiency, lowering well costs and utilization of water gas and oil infrastructure has delivered another premium played at UGI portfolio.
Altogether in the Delaware Basin UGI now has an inventory of approximately 6500 future net premium drilling locations or 24 years of inventory at the current drilling pace.
This inventory is based on actual locations customized to the local geology across our over 400000 acre position and includes multiple targets within the 5000 foot thick column of pay.
We use proprietary core logging completions data to determine our targets and spacing and integrate real time data from every well we drilled to improve future wells in contrast to one size fits all manufacturing mode. Our continual process of data collection analysis, an application allows us to continue improving our wells lower finance and develop.
Hi costs, and optimize returns and net present value for each development unit.
We're also confident in our ability to add future premium locations to our current inventory through lower well costs increased well productivity, an additional delineation of targets outside of our core area.
Example, in the Wolfcamp oil play the well count averages a single target being developed at 660 foot spacing across the 226000 acre play.
During 2019 UGI is regularly drilled patterns of wells on tighter spacing, including the state Atlanta Seven unit number one age through five age a five well wolfcamp oil development at 440 foot spacing.
These two mile laterals averaged less than a $7 per barrel of equivalent finding and development costs generate over $50 million NPV, an average payouts and approximately three months. The bottom line is UGI is very confident that a lot of upside remains to the currently identified drilling potential in this world class basin.
In addition to the updated inventory at UGI is outstanding operational performance. During the first half of 2019 has continued through the third quarter in the Delaware Basin.
Total well costs for the Wolfcamp oil play has already reached the full year goal of $7.2 million, while operating expenses in the Delaware Basin are also moving down Notching, a 7% improvement year to date compared to 2018.
Well productivity in the Delaware Basin also continues to improve across our various place average cume cumulative oil production for the first 90 days compared to 2018 was up 15% in the Wolfcamp oil play and up 20% in the second bone spring.
The stand out for the quarter is the Mcgregor de unit number five age, which came online and initial 24 hour rate of 11500 barrels of oil per day, and nearly 20 million cubic feet per day of rich natural gas for its third first 30 days, the well averaged 6400 barrels of oil per day.
The Mcgregor was drilled as part of a three well package on 700 foot spacing on the Wolfcamp upper target the entire package produced a staggering 445000 barrels of oil and 1.2 Bcf of natural gas in the first 30 days of production.
These wells benefited from EOG is highly integrated multidisciplinary technical approach to development.
Data collection and apply in real time analysis to improved well performance of the hallmark of year G.'s approach to unlock upside potential across all of our assets and as highlighted with our announcement of additional premium plays in the Delaware Basin.
I'll now turn it over to Tim Driggers to discuss our financials and capital structure. Thanks Ezra.
The benefits of EOG is balanced high return growth strategy continue to shine through in the financial results in the third quarter.
During the quarter to company generated discretionary cash flow of $2 billion invested $1.5 billion and capital expenditure before acquisitions toward the low end of our guidance and paid $166 million and dividends.
This well $337 million and free cash flow.
Cash on the balance sheet at September 30 was $1.6 billion and total debt was $5.2 billion.
For a net debt to total capitalization ratio a 15%.
A strong balance sheet district seat is a strategic imperative for year G.
As Bill mentioned, our first priorities for capital allocation in 2020, we'll be investing in high return drilling and supporting dividend growth.
Two bonds totaling $1 billion are scheduled to mature in 2020.
As those dates get closer we will decide whether to use cash on hand to redeem the bonds or to refinance one or both of them.
Alert now I'll turn it back over to Bill for closing remarks.
Thanks, Tim in conclusion, there are several important takeaways from this call first EOG is 2019 operating performance is the best in company history. Our high return disciplined growth strategy is producing strong returns strong growth and substantial free cash flow at the same time, we continue to go.
Get better and every area of the company.
Our premium inventory continues to grow in both size and quality much faster than we drill it.
Third the company continues to reduce cost and with our please but not satisfied mindset, we see endless opportunities to continue to lower cost in the future.
Fourth our GHG reduction and water reuse efforts demonstrate our leading innovative and returns focused approach to environmental stewardship and sustainability.
And fifth LNG as are resistant company, our culture produces sustainable success as we look ahead, we're confident and excited about the company's ability to continue to create significant long term shareholder value with performance that competes with the best companies and the Aesynt by S&P 500.
Thanks for listening now we'll go to the QNX.
Thank you Sir.
Question answer session will be conducted electronically.
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Yes.
The first question will come from Bryan singer Goldman Sachs. Please go ahead.
Thank you good morning.
Good morning, Brian .
Can we started on the two new zones in the Permian Basin first how are these being integrated into the drilling program and given the greater wet gas mix what are the implication for gas Ngls growth and infrastructure needs and second in your prepared comments you mentioned the bone spring three helps mitigate the decline profile of the company can you add more.
Color on the reasons and is this the type of decline.
Rate improvement, you've and referring to in the past or would that be driven by other exploratory projects under evaluation.
Brian I'm glad I asked for Ezra to combat, although two new zones.
Yes, Brian this is our thanks for the the question Theres kind of a lot. There. So let me third apart piece by piece and maybe I'll start with the Wolfcamp middle first of the Wolfcamp EM.
With regards to how it will be integrated into the into our development. That's a deeper zones across much of our core acreage position. So one great thing about.
Being able to turn this new bench premium is that it has the benefit of having preexisting well control seismic infrastructure for both oil gas and water gathering.
And one way to look about that the greater wet gas mixes.
I think it's on slide 47, an arm.
Slide deck, where we have the Delaware basin.
Play matrix, it's very similar to the Wolfcamp gumbo in per well reserves in the.
Gas or oil and NGL makeup kind of a combo.
Percentage there and it's also very similar in cost and so that gave us gives us great confidence.
In having a premium play there and the fact that.
It's going to be a high return play for a long time in the Wolfcamp combo, we've turned about 50 wells to sales in the past two years and they're generating over 100% greater return and approximately $8 million of MPV per well. So we're very excited about that play.
On the third bone spring sand.
Shifting gears to that as we talked about that's kind of a tale of two plays we've got the the more traditional sand target, which definitely because of the better prosody and better permeability. The decline rates are very similar to those in the first bone spring in the second bone spring and yes, I would say a aside bar that that is the type of.
Reservoir quality that we're looking for a in our exploration.
Program.
And then the second part of that third bone spring, probably a little bit slower to integrate it because it's really as you step outside of our core area and were delineating and some of the new acreage positions on it are these emerging tart targets that I talked about the a third bone spring these shale and carbonate targets in their industry has drilled about 50 wells in those top.
Gets and we're very excited about the potential there.
Again, as we as we move into those new areas.
Great. Thank you and then my follow up is if you could talk a little bit about the operational momentum into 2020 . It is a daunting task to grow 15% from your large base oil production.
How are you setting up in terms of late 2019 in early 2020 activity and do you expect reasonable growth through the year or at a bit more back end loaded.
Yeah, as we said early in the remarks.
Brian that are.
We're really.
Cabinet fantastic operation this year and operational momentum that we've got going in the company is going to carry over into 2020 someone will ask ability to comment a little bit more on the specifics about that.
Thanks Bill.
Yeah, Brian a is we'll go into 2021st of all its a little bit early to kind of give you too much detailed guidance on where we are we don't expect to be able to to reduce our rig count any further in 2019 as we go into 2020, depending on what oil prices look like we'll we'll set what our activity is going to look like but we certainly had the capability.
Increasing rig activity if the process. So warrant a the bottom line is we fully expect to deliver quarter over quarter production growth as we enter in to a 2020.
Uh huh.
So the growth of the amount of which would be dependent on what the oil price it looked like.
Next we have Subash Chandra of Guggenheim partners.
Yes. Good morning first question is on I guess deflation understanding that your budget for next year and your capital efficiencies are dependent on it.
I'm curious if you're seeing any evidence as some of the other operators.
Our slowing down or.
Or at least say they are slowing down.
The best Yep. Thank.
Just in general the the U.S. sale industry.
I think you know year over year production growth is slowing that's certainly not the case for UGI I think.
We continue to differentiate ourselves.
By continuing to improve and are well productivity remains very very strong and robust. We continue to is as Rick pointed out we continue to to drill record wells.
And the and we and we continue to have record drilling times and and were set new records really literally almost every play on well costs. So.
The keep the key to success in any business is getting better all the time and lowering your cost and and getting your production up and and maintaining a very very strong performance and I think that yields you culture is quite unique in that business.
And it really sets you apart.
Yeah, I guess a question was do you see cost deflation.
Actually occurring.
Hello.
Our ability to comment specifically on that yes. This is Billy Helms, what we see on the service side I guess is the service industry is is pretty much at a low I wouldn't expect to see much further cost reductions on the service side I think.
Services are at a pretty low price period point at this present time and for them to stay healthy.
To be able to service our industry I think.
There's there's not much room to go any lower.
So I think the important thing forward to differentiate as Bill said on LG is that we're not dependent on service costs to really continue to reduce our well cost I think that's an important point to make.
Our operating teams continue to find ways to drill the wells faster figure out more efficient completion techniques drive our lease operating cost down to improve our overall economics, and that's really what's driving yield use continued efficiency gains.
Right. Okay got you and then my follow up is I guess a philosophical question.
Acquisitions, Youve rolled out corporate and maybe at some would point because you have so much inventory that you can find organically.
But it just seems that the Andy market is is that sort of it.
At least in recent history historical lows.
And the costs if your growth I think your slide suggest.
30, $35000 for flowing Boe per day, and Theres acquisitions, there equal to or less than that number.
Do you see an opportunity to exploit what hopefully is a temporary.
Divergence in the market.
So I think we want to be really clear on that we we do not envision doing any large M&A extensive M&A, especially expenses.
M&A is a large M&A days or.
Just really not in our game plan, we have tremendous called <unk>.
Confidence in our organic ability to generate.
Very strong even better.
Quality inventory that we currently have than we can do that organically at a much much lower costs even.
Compared to what you might think M&A could produce so.
Our game plan, we'll we'll be continuing to focus on organic growth a low cost.
Growth, adding inventory that would be additive to the quality that we have and adding that it really low cost and we believe we can add very much a large amount of inventory that ways. We I think we've commented that were operate we're looking.
We're operating in six different basins and we're we have active prospects in 10 different basins ongoing right now so it's the most robust.
Exploration efforts.
Then when the company 40 years without that out I've seen in the company. So we've got a lot of.
Confidence in our ability.
To more than replace and to improve our inventory going forward at very very low cost.
Next we have Charles.
Rice.
Good morning builds to you in the whole team there.
I would just pick up or maybe on the points you've just commenting on.
I'm, a little bit differently going back to your your prepared comments I think it was <unk> 0.3 on you on your points differentiate.
Do you said you for mid Fiftys oil you expect to grow or exceed <unk> mid 50 W grow oil comparable to rate and did you grew 19.
Grow the dividend.
And then I believe was also growth free cash flow in in your makes sense would you guys would have better capital efficiency. In 20, you have 90, but can you can you give me an idea it.
What is that increment that we should be looking forward. It did I get that whole set up.
Correct.
Now that you're exactly right Charles you, what we said what we say.
Is that weaken.
We believe we can deliver.
Mid teens growth, we can grow the dividend and generate substantial free cash flow with oil.
At about $55. So.
We want to continue to operate obviously, if you look at the company right now we're operating at it contains a very high level.
Optimum level.
And we're generating a lot of free cash flow.
We are producing really really strong growth.
And if you look over the last two years, we've grown the dividend over 70%. So that's what we want to continue to do in the future. We want to continue to to make sure that first of all that we're maximizing on returns are companies focus has always been on returns and returns come first and vote.
All of them growth is just an expression of reinvesting at high return. So we want to operate at <unk> point.
At a level at a growth level, where we continue to get better every year and so next year.
Because of the operational momentum we have this year and the ongoing cost reductions, we see that continuing going into next year and so our focus is to is to get better and then make better returns next year.
And that will help us.
To grow at a very healthy right.
And it also help us to generate.
You know very substantial free cash flow and so.
We're also focused on the dividend we want to have a as we've talked in the pass.
I think we kind of Vicki.
Very good.
Indication of the last the last two years with dividend increases of 30% or better per year, and we want to do that going forward, we're not going to commit to that the level, we're going to increase the dividend specifically, what we want to continue to have strong dividend growth.
In the future and so.
Of course that all depends on the the macro environment, what that oil prices and we evaluate that every quarter. Our board does and we'll make those decisions on a quarterly basis, but but our goal is to.
To get our dividend yield up.
To the 2% a yield level as quick as possible.
That's helpful elaboration. Thank you and then if I could ask the follow up on the the middle Wolfcamp, a <unk> have sort of as Europe .
As you talked a little bit about when you were talking about the third bone Springs in response to an earlier question.
How many other oh.
How many other.
Wells in the industry had targeted the carbonate into shale, but do you have a similar sense for how many other.
Interest you wells are targeted this this section.
In the Wolfcamp in.
Yes, Charles this is Ezra I'm glad you asked that question I was just sitting here trying to figure out if I'd actually mentioned that are not the wolfcamp middle or M. As we call. It it roughly correlates to the Wolfcamp b and part of the C. As known by some other operators and so really across a the Delaware basin. There have been a few hundred wells.
Drilled a in the similar target there and so we've got a that's one of the reason we've looked at all that data there landing zones, we've incorporated that with our own data.
To go ahead, and and announces premium play.
Got it that that's what was after thanks guys are.
Next we have Jeffrey Campbell of Tuohy Brothers investment research. Please go ahead.
Good morning, and congratulations on the quarter.
I thought I thought the supply agreement was Janeiro is interesting and innovative.
Two questions. The first one is what's sort of long term price uplift versus Henry hub do you expect from that portion of your supply. This index to the Jae Kim marker and second is just kind of deals you're looking at repeating again in the future maybe wish there or maybe another LNG export.
I'm going to ask a labs to comment on that one yeah, Jeff Hey, good morning, Thanks for the question.
You know first to start off I mean, it kind of follows up with let Billy talked about entering a this new transaction and the gas sales agreements that were down washing here you know, it's really consistent with our marketing strategy and you know in how we're trying to diversify ourselves points and having multiple options and you know really when we undertook this process.
When you really look engineer I mean, they are the industry leader I mean, you look at the 7.5 Bcf a day, that's being exported today on LNG you know they represent 5.5. So you know expanding our business with them, we're very excited about and I.
No. Just a reminder, you know that starts at the 140000, and then B to use a day starting in January of next year that ramps up to the for 40, but on your question just on on the price realizations. You know that contract starts up next year will be incorporating that into our guidance. So I can give any specific color on that but.
Well I can tell you that's what got US excited about it. It's just when you look at the amount of LNG demand growth, that's going to be coming on especially over like the next 10 years. It's it's definitely all in Asia Pacific region, and so tying into that indicee, especially with significant weather events and those interest in those areas. It's a it can provide as you look historically for for significant upside.
So.
That's what got US excited about that and then your last question there and just about you know new structures, a new deals I mean, we're very excited about this first and we're going to stay poised I think no. We're going to continue to watch the market, we're always looking for new opportunities and and diversifying our portfolio. So we'll we'll definitely be saying active.
Future as we look at a new structures that might that may come in front of us.
Well, thanks, so that color Lance I appreciate the my other question earlier on the call there was.
Discussion of the corporate decline and slide 49 notes that longer laterals exhibit shallower declines than shorter laterals and I assume that's a comparison within a given play I wondered if some of the portfolio plays as a whole extend a shallower declines than others and does this.
Help influence attracting capital.
Yeah, Jeffrey that decline right. You know is something that we're very much focused on and the company and and so as we continue to.
Focus our capital and high grade or capital, we do consider that as part of the process and so we're looking at low decline lower decline place, particularly in our exploration efforts.
Some of the newer plays we've announced in the last several years have lower decline than some of our historical plays and then we're also looking and focused on lower funding costs. So low finally costs low decline plays are certainly a preferred for us and a that's a focus over exploration effort.
And it really is a function of the quality of the rock.
In combination with the completion technology and they work together to to help in that regard. So we're focused on that and that that helps the company get better that's part of the process. We've been going on the last several years has helped us get better than the last couple of years certainly this year and we think that will continue.
To help us in the future.
And next we have no dangling from Suntrust.
Well I guess for all the details you talked a little bit I see.
You always done in your slide five or do you break out the.
Premium sort of parameters because my question is more around slide 36 and just.
What caused the changes in both you know what you were able to add but also to the Eagle Ford Bakken and Woodford I think there was down a little bit on those im just wondering what does contribute to that.
[noise] Billy would you comment on that yeah, I think a important point to take away Neil is that a this represents our best estimate going forward on each play the Eagle Ford is we've talked about its an update relative it take into account number wells were drilled and.
Then what we have remaining a the important point on the Eagle Ford is to recognize as Ken discussed we have 2200 remaining locations that we can continue to work on to convert to premium overtime. As we continue to move into areas that are less developed so I think thats the upside on the Eagle Ford.
For the rest of the plays is just represents kind of what we see.
As the remaining inventory at this point in time for each one of these.
Plays that are mentioned here and overall, it's it's in keeping with replacing more than replacing what would drill every year.
Very good and then bill maybe just one sort of broad question I'm. Just wondering when you know when you look at what's been mentioned today about the growth versus the free cash for shareholder return I'm. Just wondering you know when you sort of put out there that the 15% growth 55. You know is your is your primary delta.
You know kind of what free cash flow you want achiever, what's shareholder return I'm just wondering how you all go about thinking about that.
Yeah, certainly the free cash flow is an important component of it. So it's a balance of you know Apple.
Allocating capital at the.
Right right that we can get better and we can increase our returns every year.
It.
Is certainly focused on generating substantial free cash flow and continuing to increase the dividend in a very strong matter too. So we want to work on all three of those and then as you know we have been reducing our debt and Tim talked about that and they opening remarks, and so we want to continue.
To the to pay off those bonds as they mature. So so we look at we look at all that.
But primarily it's it's really.
Focus and the capital on generating really strong returns and certainly working on the dividend.
Very helpful. Thanks, guys.
Next we have Leo Mariani of Keybanc.
Hey, guys I fully appreciate that you guys don't have.
2020 guidance out there you certainly talked about the mid teens oil growth rate.
$5 Debbie T I wish sounds great I guess, just from a high level kind of philosophical respected in order to kind of achieved that do you guys think you'd have to you increased activity in capex at all maybe a little bit to do that when you think the efficiencies are such that you could do that with a similar type of activity.
[noise] last Billy to comment on that.
Yeah Leo a this is Billy Helms.
I think the takeaway would be a we're going to be targeting as bill said, how do we continue to improve what we do.
We're not going to give you any specific guidance on how much capital that's going to deploy we had the capability of increasing activity. If the if the commodity outlook supports that but we're going to stay extremely flexible at this point in time to make sure that as we go into the next year, we're doing so with a discipline that we.
Want to maintain and each one of our program so.
I guess you know, we certainly had the capability of doing whatever the market.
Shows us it's prudent to do.
And our programs will support it and we have the teams to execute any kind of any of those programs. So well just kind of leave it there for right now.
Okay, I guess just.
Wanted to see if we can get maybe a little bit more kind of a high level update on some of the new plays I certainly realize you guys aren't ready to announce any exploration plays by now you've drilled the number of wells in 2000 in 19 really just wanted to get as Jan said, whether or not on some of the wells you drilled you think that you're getting competitive economics.
Given these early stages here on to the point, where are you know you can foresee some new premium drilling inventory I any comments on that.
I'm going to ask as where the comment on that.
Yes. Thank you for the question. This is Ezra as we've discussed previously we're very excited about our our exploration program and build mentioned that we're currently leasing and testing and in over 10 different basins across all of our divisions are focused primarily on oilier plays with her.
Hi rock quality that we've applied we're searching for these plays were prospecting for plays that we've applied a core and log data and our reservoir models developed from you know our multi basin approach, so really leveraging off of our efforts in the Delaware Basin, the powder River basin.
The Eagle Ford and Woodford oil window to really identify a rock quality that will perform very well in combination with our horizontal drilling and completions technology and hopefully deliver a slightly shallower declines and hopefully we'll be very competitive a with our with our current inventory again, we want to.
Increase the quality of in our inventory not just add to the to the back end as far as that you know.
We're confident in our reservoir models and.
Hopefully, we'll be able to update you on a on a future call.
And next we have Scott hanold of RBC capital markets.
Yeah. Thanks to you all talked about them hitting some of your cost reduction targets. This year in and it sounds like you've got some new efficiencies you're seeing in place is there anything specific you can point Delta to you know instead of you know he we're drilling faster, but like specifically, what's happening on the ground and maybe even Bourbon technological side, that's a unit.
Using that a improved the uplift.
Yes, but we will comment on that yeah Scott.
It's not any one specific thing that helps us achieved this re improved efficiencies.
It's a it goes back to what bill talked about in his opening comments, it's the culture of the company. It's the.
The drive of every one of our operating teams to continue to get better and I couldn't be prouder of the execution those guys have made.
One example on the drilling side.
To help us get the wells drilled faster is I mentioned in the prepared remarks, a innovations we've made on designing drilling motors that enable us to increase the speed at which we do and the reliability of those tools keep them in the ground is just one example.
There's several examples on the completion side that go along with that to allow us to complete motor lateral feet per day than we used to a year ago add old much lower cost and still deliver the same productivity improvements that we're seeing as would deliver the production from our from our wells So its a.
It's just a number of different things and it's hard for us to capture a mall and one call like this.
But just to say that everybody in the in each division is working hard to try to continue to improve everyday.
Okay understood and then you know if I could try a question on next year's activity just at a high level I mean, it seems like this year, if I'm not mistaken.
New you've got her around 400 million of that $6.3 billion budget allocated to you kind of research development and technological improvements you know as you look into 2020 years should we expect a very similar amount or <unk>. If I'm not mistaken is out of 29 team is going to be heavier what does 2020 look like.
Scott when we not I think ready at this point to give you a specific number on that but Oh, we do.
Certainly have an ongoing you know exploration and leasing program and and so we'll continue to keep that up.
But we don't we won't give me a specific number on that that we're still working through all those details.
Next we have Joseph Allman of Baird.
Thank you good morning, my questions on political risk Bill you GE has been very good at reducing political risk for example, not operating in Colorado.
What steps might you take to reduce the political risks that you I addressed in your slides related to federal acreage.
Well I think as we've talked about I think in the opening remarks, we do have a very active permitting process going on so we're well ahead of that we have two to four years of the permits in hand.
And you know we.
Have the ability to modify our operations and we have a lot of flexibility with a you know the different operating areas and shifting rigs here and there.
And so we will we have been and we will continue to.
Actively.
Develop our.
Ah Federal acreage position you know very strongly so a will.
We the we've not really ever I think had a problem working with a any the regulatory changes we have a great relationship with the BLM.
And Greg relationships with the state governments that we are active then so a it all works together, we try to be a good citizen and good operator.
And it it really has worked out well for us on the path.
Great. Thanks, Bill and then my second question is on the Austin Chalk <unk>, what is preventing the Austin chalk from making into the list of Premier plays. It you you clearly have many great wells do you just not have enough to call. It a premier play or is it really on the cost side.
And your drilling a couple dozen while the year so.
It would seem to be it's at least a great plains not premiered way yeah, well I think first thing is when you think about the Austin chalk, it's a really big play it goes a long ways and it's got all different kinds of aspects to it.
And we've been very successful and in our <unk> under our Eagle Ford acreage, we have a great results and the Austin chalk and it's certainly an exploration target for us and Oh, we have multiple.
Places and that in the play that we're looking and testing and so.
You know they keep our competitive advantage on making sure we get the acreage otherwise spot you know, we we haven't talked about anything specific.
But we will at some point and we'll give you some so updates on on our progress on the chalk.
Next we have I really xyrem.
I'm JP Morgan.
Hey, Bill wanted to talk to you or ask you about the potential sensitivity to your 2020 program to lower oil prices I think you outlined and a mid teens oil growth at 55, if oil prices.
Average closer to $50 per barrel would you adjust activity accordingly, and could you discuss broadly the assistant sensitivity to your oil growth rate a at a 50 dollar number.
Well, we can't give you any specifics there rune, but certainly we would adjust our capital.
Again, we want to.
You know have.
Great returns that's number one you know we want to have a strong oil growth we want to have substantial free cash flow. So we continue to work on the dividends. So we really balance all those.
And the we would set it appropriately you know based on our macro view of oil and in 2020 and anticipate point you know, we don't want to speculate.
Whether it's going to be higher or lower we're just trying to give you some guidelines of kind of where we where we see our efforts next year.
Great Great and just a follow up I know the reduction in your rig count in the second half has garnered a lot of attention, but it sounds like this decline was driven by rig efficiencies I guess my question is you know in 2019, Bill you're delivering caught 740 net wells force.
6.3 billion and capital.
If we were going to bake in the rig efficiencies you're seeing today.
Assessed deflation or do you have any thoughts on what your Capex dollar could do incremental to 2019 could we see another call it 5% to 10% improvement and no well costs next year.
Again, Ren we're not going to give you any specific numbers, so, but we do certainly believe that our capital efficiency will improve next year over this year, we definitely believe that our well costs. We'll continue to decrease next year too so.
And we're certainly hopeful operating costs will continue to go down. So the company just incrementally is getting better every quarter and our culture and our people are divisions were just doing a tremendous job and doing that and so along with oil prices you know, we bake all that it and that'll that'll really determinant.
On our plan will be.
Next we have Michael Skalla Stifel.
Hi, good morning, everybody.
If you are successful with these new exploration plays they turned out to generate better returns than even your premium inventory.
I want to see how quickly they could move to the top of the drilling inventory.
And.
If they're not just additive.
Would that allow you to actually replace some inventory to where you could look at monetizing some of the the inventory Thats maybe at the end of the end of the spectrum.
Yeah, Michael Thank you for your question now that the plays the ones. We're looking at least 10 different basins most of them.
Or in areas where.
We could increase activity you know reasonably fast not.
Know jump in with 10 rigs at one year, but we could incrementally I think add rigs to each one of these plays and develop the infrastructure, they're not in most of them or not and places were you couldn't do that fairly quickly.
So if they were incremental to our returns we would certainly move that way on each one of them as quickly as possible.
And it we have a lot of inventory obviously in the company and a you know we have sold I think about six over $6 billion of properties over the last 10 years.
And we'll we'll continue to look to get value you know through a possibly monetizing any of that we don't think they'll ever get to premium category. So.
Certainly that would be another avenue to to add value to the company.
Okay. Thanks, and then Billy you mentioned last quarter, you were pleased with those.
First three Niobrara wells in the powder and then it looks like he added another one this quarter.
Well one year nearby competitors that some favorable things to say about the Niobrara. This quarter just wanted to see how you're viewing that zone relative to the other targets in the powder River basin.
Building on last ability to comment on that.
It's really dictated by the learning is that we're taking into account, but also the infrastructure. We have there now and as we mentioned in earlier calls.
The face of activity will be really.
Married up with our level of spending on infrastructure to grow that play.
But it looks to be a play that we can can't in a c. as a growing another leg of growth that we'll have in the future.
Well, ladies and gentlemen, this will conclude our question answer session.
I like to spend a conference call back over to Mr. Thomas was closing remarks, Sir.
Yes, I dislike the say that again you know we're just so pleased with an out another outstanding performance by U.G. and the third quarter and we want to say many thanks to every one in the company for making it happen they're doing a fantastic job.
The company continues to improve in every area.
Our costs continue to fall well, we'll results are very strong capital efficiency continues to improve in in our premier inventory continues to grow.
So are high return organic growth machine is running at the most optimum level and the company history.
Most importantly, we're very excited about performing at an even higher level and 2020. So again. Thank you for listening and thank you for your support.
And we thank you sir into the rest of management team for your time also today.
Cause now concluded again, we thank you all for attending today's presentation I have to send me made disconnected lines thinking to take care of a great there for one.
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