Q3 2019 Earnings Call

Ladies and gentlemen, thank you for your patience and please remain on the line today's Gulfport Energy conference will be beginning shortly once again, we do thank you for your patience enough that you. Please remain connected today's Gulfport energy conference will be beginning shortly.

Greetings and welcome to the Gulfport Energy Corp. third quarter 2019 conference call. At this time all participants are in listen only mode. A question answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

It is now my pleasure to introduce your host Jessica handle. Thank you you may begin.

Thank you and good morning, welcome to go for Energy Corporation's third quarter 2019 earnings Conference call I am just cancel director of Investor Relations.

Speakers on today's call include David White, Chief Executive Officer, and President and quaint <unk> Executive Vice President and Chief Financial Officer.

Addition, with me today available for the question and answer portion of the call. It does anymore Chief operating officer.

I would like to remind everybody that during this conference call. The participants may make certain forward looking statements relating to the Companys financial condition results of operations, Glenn objective future performance and business.

We caution you that the results could differ materially from those that are included in these forward looking statements due to a variety of factors information concerning these factors can be found in the company's filings with the FTC. In addition, we may make reference to non-GAAP measures.

Until you actually to the comparable GAAP measures will be posted on our website.

Yesterday afternoon, Gulfport reported third quarter 2019, net loss of 48.8 million or 31 cents per diluted share.

These results contained several noncash or nonrecurring items as presented in our press release filed yesterday evening, which provided detailed reconciliations of the adjusted items.

Bearable to analyst estimates are adjusted net income for the third quarter of 2019, which excludes all of the previous mentioned adjusted items was 39 million or 24 cents per diluted share.

An updated Gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure.

This time I would like to turn the call over to David would CEO of Gulfport energy.

Thanks, Jess current thank you all for joining us on this morning's call.

Gulfports third quarter is underscored by continued strong performance from each of our operating areas and achieving the next phase of our 2019 plan provided at the start of the year free cash flow generation.

We exceeded our production targets, while adhering to our capital budget improved off balance sheet through the previously announced repurchase of senior notes and generated significant cash flow from our 2019 activities.

The third quarter, we reported $39 million of adjusted net income generated $219.4 million of adjusted EBITDA.

In addition, operating cash flow before the changes in working capital and inclusive of capitalized expenses.

The $173.6 million, we generated free cash flow of approximately $103.4 million during the third quarter of 2019.

Total net production averaged 1.57 billion cubic feet of gas equivalent per day, increasing 12% quarter over quarter and driven by the strong momentum carried over from the second quarter turn in lines in the Utica shale and continued performance based production in the school.

We remain on track to deliver on our 2019 production guidance and based on the remainder of the years activities. We currently forecast full year 2019 net production averaged at the midpoint of the previously provided guidance range.

During the nine months ended September Thirtyth, Gulfport incurred $423.7 billion and operated D. and see capital and $72.6 million in non operated DNC cap.

In addition land expenditures incurred totaled approximately $33.1 million during the first time up so the year.

Operating capital spend remains on target with expectations and with respect to Nonoperated activity. We continue to work towards recovering a portion of the Capline card to date through the sale of certain non operated interests.

We have a high degree of confidence we will be successful in accomplishing this and we remain fully committed to spending within the range for 2019 total capital budget.

<unk> of non operated divestitures and reaffirm our 2019 capital guidance.

On the strategic front, we continue to simplify the portfolio through noncore asset sales and recently entered into an agreement to sell certain overriding royalty interest associated with assets. The company held in the Bakken.

This transaction net to Gulfports interest totals approximately $8 million in cash and it's expected to close during the fourth quarter of 2019. In addition, the previously announced process to divest of certain water infrastructure assets Gulfport holds across all scoop position is in the final stages and we expect to provide.

For the details in the coming weeks I'm very pleased with the transactions. We have executed today divesting of noncore assets not contemplated within our current development plan and allowing us to strategically we invested capital elsewhere in our business.

As previously announced during July we repurchased approximately $105 million principal amount senior notes or total cash spend $80 million.

The levels at workshop on so been trading we continue to see an attractive opportunity to retire senior debt at a meaningful discount and expect to continue reducing a portion of our outstanding debt.

Additionally, we continue to see American out previously announced equity repurchase program, which remains active and its authorized to be executed through January 2021.

We continue to evaluate potential uses of cash flow, we will remain disciplined in our allocation of capital both committed to maintaining a strong balance sheet and enhancing shareholder value.

Turning to our specific core areas in the Utica during the first nine months of 2019, we spent 13 gross wells utilizing roughly 1.2 operated rigs the wells had an average drilled lateral lengths of 12200 feet an increase of 18% over 2018.

And when normalizing to on 8000, actual we averaged they spud to rig release of 18.6 days down 5% over full year 2018 results.

As we noted earlier in the year during 2019, we focused on maximizing lateral lengths to allow us to deliver more with less and I'm pleased to report the drilling team in the Utica shale at a record quarter at the drill bit.

We actually did many of our previous drilling records in during the third quarter, we drilled our longest wells to date in the play with electrolyte over 16000 feet in a measured depth totaling nearly 27000 C.. We currently have one rig running in the Utica shale and plan to deliver an additional three gross wells during the fourth.

Quarter of 2019.

Turning to completions in the Utica shale, we concluded our 2019 Frac program during the third quarter and completed 47 wells in total during 2019, averaging 6.9 stages per day and completing a stage count at 2068 stages. This year the wells completed.

During 2019 had an average stimulated lateral length of 9800 feet and all 47 of the wells were turned to sales during the first nine months of the year.

This level of activity led to very strong production from the asset averaging 1.2 billion cubic feet equivalent per day during the third quarter, an increase of 18% over the second quarter of 2019, and 9% year over year.

The Utica continues to be a very consistent reliable asset in our portfolio. We are extremely pleased with the performance of the resorts here today and the team managing.

Switching over to the school during the first nine months of 2019, we spent eight gross wells, including seven Woodford wet gas wells and warm lower sycamore well utilizing roughly 1.6 operated rigs. The wells released had an average lateral length of 8400 feet and when normalized.

7500 foot lateral the wells averaged they spud to rig release, a 59 days during the first nine months of the year decrease of 7% when compared to our 2018 program average.

When isolating the well set to just the Woodford formation. The average spud to rig release totaled 54.5 days during the first nine months of 2019, a 14% improvement to our full year 2018 program average.

In temporal part of capturing cost reductions and efficiency gains is being repeatable and drilling team in the school continues to be committed to delivering consistent repeatable results out of this play.

We currently have one rig running in the Scoop drilling ahead on the wells Spud late third quarter, and we plan to deliver one additional gross well during the fourth quarter of 2019.

On the completion front during the first nine months of 2019, we turned to sales nine gross wells with an average stimulated lateral length of 7100 feet.

We had no completion activity in the scoop during the third quarter, but plan to complete and turned to sales five gross wells during the fourth quarter of 2019 production during the third quarter averaged 281.5 million cubic feet equivalent per day down 5% from the second quarter of 2019, which.

Does not include any new wells turned to sales and highlights the shallow decline nature of this asset.

In summary, both top quality core assets I was on track to deliver on all our operational guidance metrics, while forecasting capital spend net of certain non operated divestitures within the original budget provided in January .

I am delighted now to introduce Gulfports, Chief Financial Officer, Quintin, <unk>, who joined the Gulfport executive team in late August Quentin has an extensive background and corporate finance capital markets and oil and gas accounting and we believe his leadership is a strong addition to our team.

With that I will turn the call over the Quintin financial highlights and for his comments.

Thank you, Dave and good morning, everyone first off I'd like to thank Dave in the board of directors for giving me the opportunity be a part of the leadership team here at Gulf War I look forward to working alongside the entire called 14 to achieve our goal of maximizing value for our stakeholders.

During the third quarter production averaged 1.53 billion cubic feet of gas equivalent per day as opposed to 93% natural gas, 5% natural gas liquids in 2% oil net production for the quarter increased 12% over the second quarter of 29 team came in ahead of our previously provided expectations driven by.

Solid execution in the field and quality well performance across our asset base.

Looking to the fourth quarter, we plan to turn to sales five gross wells in the school during that month in December and taking this into account we reaffirm our previously provided for your guidance range of 1.36 to 1.4 billion cubic feet per day of production and we expect to come in right at the midpoint of that range.

Oh, the realizations front during the first nine months of 2019, our realized natural gas price before the effect of hedges, including transportation costs settled at approximately 59 cents.

Per mcf below him see below Nymex prices.

We reiterate our expectation for basis differentials to range between 49 cents and 66 cents per Mcf for the full year 2019.

During the first nine months of the year before the effective hedges are realized oil price came in at $292. A 93 cents below WTMJ as a reminder, following the sale of our South Louisiana assets. We now expect our oil differential averaged 84 to five dollar discounted W.G.I. for the remainder of the year. However on an annual basis Weve.

We reiterate our expectation expectation of the $3 to free dollar 50 cent discounted WT Guy.

Turning to Ngls before the effect of hedges are realized NGL price came in at approximately 35% of W.P.T.I. and based on these results in recent NGL strip pricing, we've updated our pre hedge NGL guidance to be 35% of W.P.T.I. for the full year 2019.

Our realized prices continued to be supported by strong hedge book and during the quarter. During the third quarter 2019, you realize the hedge settlement gain of 59 cents per Mcf b or $82 million for the remainder of 2019 or natural gas production continues to be well covered our hedge book with the with the fourth quarter of two.

The 19 fully hedged at $2.81 per M M B to you.

In addition, we have a large hedge position positioning covering our NGL exposure and expected oil production for the remainder of the year.

We recently took advantage the opportunity to layer in additional gas hedges for 2020.

We now have gas swaps in place for 2020 totaling 548 million cubic feet.

He per day on it at an average swap price at $2, an 88 cents per M. M B to you.

These additions to our 2020 hedge book provide an increase degree of certainty surrounding our cash flow profile as we plan for next year supporting the anticipated development of our assets and positioning US well continue to fund our program largely with cash flow.

We plan to continue to Opportunistically layer in additional hedges in 2020 to provide minus sites, where our realizations and cash flows with a focus on hedging at levels that provide us with an opportunity to generate free cash flow in 2020.

For the first nine months of 2019, our realized prices in hedge position resulted in adjusted oil and gas revenues of 967.3 million, which is composed of approximately 81% natural gas and 19% real liquids revenues.

In terms of cash operating expenses our per unit operating expense, which includes elouise production tax midstream gathering and processing and DNA totaled 92 cents per Mcf. He during the nine months ended September thirtyth.

These expenses were inline with our full full year guidance in are down 9% when compared to full year 2018 levels.

This reduction in Opex was driven by higher production and related economies of scale or my dry gas development of Utica shale as well as continued focus on improving our cost structure.

As we look forward to 2020 in a challenging commodity price outlook. We are actively looking for ways to lower cost and improve efficiencies and every aspect of our business, which includes taking a hard look at DNA in staffing levels.

Third quarter, we made the transition into becoming free cash flow positive with free cash flow from operations inclusive of capitalize expenses and before changes in working capital of $103.4 million.

We expect another quarter of meaningfully positive free cash flow in the fourth quarter.

Moving onto the balance sheet.

Going forward as they kicked off its fall borrowing base redetermination.

We're in a position of strength as it relates to our borrowing base processes. We currently forecast.

Very little revolver draw a year in 2019, and our previous 1 billion dollar elected commitment level sits well below the total availability on our facility about 1.4 billion.

Expect to keep our commitment level at a billion dollars. This fall redetermination.

As we look forward to 2020, we are focused on keeping our balance sheet in good shape.

Accordingly, we are creating our 2020 budget with a focus on not materially drawing our revolver to fund drilling and ensuring leverage remains at manageable levels.

As we think about capital allocation going forward I agree with Dave statement that the market is presenting a presented us with the unique opportunity to reduce our debt at attractive prices.

Over the past several months, we've seen a shift in investor sentiment with liquidity and leverage becoming a primary focus for companies such as ours.

Our strong current and projected liquidity provides us with the unique opportunity to retire notes at a meaningful discount while maintaining adequate liquidity going forward.

Retiring senior notes at a discount provides three benefits to us as follows first it reduces our annual cash interest cost, thereby improving our cash flow profile.

Second it allows us to chipping away at our outstanding debt balance and improve our leverage ratios at an accelerated way and third it allows us to capture discount which is pure value accretion to our equity holders.

As we look at capital allocation decisions going forward, including debt and share repurchases. We will continue to evaluate all options available to us to with careful consideration of the implications are these decisions.

On our balance sheet health.

I will now turn the call back over to Dave for closing remarks.

Thank you quick as we focus towards 2020 and beyond we ever in the process of refining the budget, but before we turn it over to Q and eight I want to provide some color to our thoughts surrounding the capital and operational plan first message remains consistent and we carry forward our commitment to allocating capital.

In a disciplined manner focusing on returns operating within our cash flow and maintaining reasonable leverage metrics. We continue to put an emphasis on bottom line returns not topline production growth and expect our 2020 plan to generate neutral to positive cash flow with production and output.

Not a target as we look to identify areas of improvements we have concluded that to create sustainable operational efficiencies. It is necessary for capital spend to be more evenly weighted throughout the year.

In 2020, we will begin the transition to a more level spend between quarters and wireless shift will result in a reduction in capital efficiency in the near term, we forecast increased efficiency in 2021 and beyond unbelievable is a much more balanced inefficient way to run off business.

Shifting to the balance sheet and as Quintin mentioned, we are implementing a measured approach maintaining reasonable leverage while ensuring adequate liquidity based on current strip pricing and including our recent build out of hedge book, we expect very little if any revolver draw to fund our drilling and completion activities in 2020.

Lastly, published alongside our formal guidance early next year, we plan to discuss a longer term view of our anticipate that activities and provided to your outlook based on certain commodity price scenarios.

In closing considering the current supply and demand dynamics, we continue to have the view that over the next several years North American natural gas will live within a range of $2 and 60 to $2 a 90 cents per M. M BT.

Considering this and all the previous mentioned goals for 2020 plan at $2.60. We forecast out 2020 capital program to be roughly cash flow neutral should commodity prices improve beyond. This we would remain committed to our program and evaluate all options for incremental cash flow.

Practicing disciplined as we allocate capital to the highest return proposition.

Good commodity prices be below that threshold, we were just star activity and above all ensure that the 2020 program was funded largely within cash flow.

I believe not focusing on topline production growth, but rather building our capital plan towards a neutral to positive cash flow will allow us to maximize value in a challenging commodity market preserving our high quality core inventory for a more constructive natural gas environment in the future.

This concludes our prepared remarks, thank you again for joining us for our call today, and we look forward to answering your questions.

Operator, please open the phone lines for questions from the participants.

Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time <unk>.

Hey, confirmation total indicate your line is in the question Q.

You May press star to if he would like to remove your question from the Q for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys once again that a star one to register questions at this time.

My first question is coming from Neal Dingmann of Suntrust Robinson Humphrey. Please go ahead.

Ill hand, I wasn't couldn't day my first question, probably for you or Donnie you you mentioned the sort of operating efficiencies, you're looking to do and maybe because the steadier plan. My question is be you know in order to drive that how do you think about what you know as far as running that you know multiple rigs space.

Well when you think about that end up in the Utica in an over in the you know the mid con.

Obviously, we hear a lot about you don't need several rigs to considered more efficiencies. So I'm just wondering how you view that it again respective of knowing you don't have a full 2020, playing out but just how you and died down do you think about that in order to get these efficiencies.

Yeah. Thanks, Neal I appreciate you calling it.

The way that we currently have all programs where we.

Drill all of our wells pretty much in the first half of the year and then shutdown activity is a pretty inefficient way.

So run that program and what we're trying to do in 20 and beyond its have a rig continually running throughout the year and use that to be able to drive efficiency. So overall, we should see a total number of less rigs drilling the same number of wells. So I think that it'd be a lot more efficient so.

I'll, let Tony provide some extra color on that yeah, and the unmet ethic just add on to what they said yeah. We've we've run multiple rigs in both plays but we do that in that.

Wanted to quarter culture is a you know getting this consistency where you got the same cruise.

And I'll just throw out the school you look at the Scoop, we've gone from 70 plus days to 60 days with this TD to well one in five no in 35 days in the Scoop. So that's what the consistent program can get you did see those kind of efficiencies.

Got it got it and then just the follow up again, knowing you don't have the for the details in the full plan for next year, but just.

You know how do you think about you know you obviously you know given your bonds or they can the 60 use and get more the stock is a currency and you know versus obviously a growth I'm. Just wondering when you look at a you had a fair amount of free cash flow. This quarter. You know how do you sort of balance you know a day, but when you start seeing these saying this are you doing anything you can talk around.

That would be appreciated.

Yes, So I think Clinton said it nicely in his remarks as we see in terms of where our debt levels are trading, we'll see attractive opportunity or to purchase debt. So we've got a keen focus on that and a in the near term. So I Wouldnt say, that's kind of high priority for us.

Just picking up on your question around drilling activity. If we look at this year and how we transition from 19 to 20 with a relatively low activity of drilling we just have one well in the one rig in each basin running now.

In the program going forward, where were more reasonable we would see the transition between years. So 20 to 21 being a lot flatter than the transition between 1920 years. So that's another benefit predictability within the program that we're trying to move towards so should flatten it out.

Sure, let Tony Sky be a lot more efficient and I think overall will be able to drive a cost reductions through our program.

Very good thank you all for a detailed.

Thank you Neil.

Your next question is coming from Jason Wrangler of Imperial capital. Please go ahead.

Good morning, everybody.

Maybe kinda similar to Neil's question, but maybe on the on the debt repurchases versus kind of the outstanding balance on the facility. Just how you guys think about that I know Clinton kind of mentioned you know liquidity. Obviously is important but also the discount is there how do you kind of balance that as you look at a couple of transactions happening in the fourth quarter as well as the operating cash.

Well, you guys should be generating going forward.

Yes, Jason as we look forward to the fourth quarter.

And our anticipated asset sales, we think will be roughly.

Undrawn on the revolver at year end and as Dave mentioned, we're targeting a program in 2020 that'd be neutral to positive cash flow. So we feel like we're in a pretty good position of strength as it relates to liquidity because we've got a billion dollar commitment on a revolver with nothing drawn at year end and then very little wrong from 2020, so that provides option.

Now, let me and flexibility to utilize some of that revolver to do things that create value such as buying back.

On Pandora stocks, so that's kind of how we view that we went in.

Heavily rely on the revolver, meaning get into it in a material way to do that because you know liquidity is very important as we look out over the next few years, you never know commodity prices will be.

But we wouldn't be opportunistically using that liquidity to take advantage of opportunities to create value for our stakeholders. So that's that's kind of how we view it I can't give you a level at which we would draw it and we're we're thinking through that right now no one I, probably didnt ask it as well as I could have I guess, what I'm asking because I guess as you sit now.

And I think you already kind of answered it is the idea would be the payback the revolver for the most part with with cash flows and then start to look back at whether its bond or share repurchases. After that is that fair.

I would say we were always we're looking forward over the next couple of years at our plan and we're considering capital allocation with a view over the next couple of years and how it impacts leverage liquidity cash flow cash flow per share when kind of look at it on a holistic basis, so the timing of when.

And we when we might buyback certain securities is is considered in light of that kind of a view in the world.

Okay.

That's all I had I appreciate it.

Jason Thank you.

Thank you. Our next question is coming from Josh Silverstein of Wolfe Research. Please go ahead.

Thanks, Good morning, guys I'm I was hoping you can provide a little bit more context around the updated hedge profile clearly clearly you added a lot more protection.

For for next year, but I was curious how you added swaps above where they were before considering the decline in the.

In the forward curve and then just as it relates to the 20 twos and 20 threes, where there was that part of this with the options.

Yeah, Good morning, Josh.

No we've talked about our view of long term gas prices throughout this year being in those 260 to 90 window really considering supply demand.

Factors more than anything else. So while we were looking at where 2020 was we look out into the 20 320 422 window and saw that we could sell those long dated calls outside of that window and bringing some dollars back into 2020 <unk>.

And help us in a position that we need to for next year. So I think given the volume that we were able to accomplish and the price level I feel a much much better about where we are for 2020.

Also as we sold throughout the year this shoulder season into the winter as the time when we get a real look into next year and will be actively layering on top of what we've already announced another set of hedges and I think that will allow us to get a much better sense of what next year's program looks like so.

Last question to provide any color on that the only additional thing I'd say is it the sell a long dated call. It $2, a 90 cents you're effectively capping your upside on a portion of your production in those outer years.

That's what we're above $2, a 90 cents. That's a good problem to have and you know, we'll still have some unhedged production above those levels. It but it to 90, we can make really good money and generate a lot of cash flow. So were okay taken on that that cap to our or realized pricing in order to bid up near term prices with 22.

20 swaps.

Got it okay. We can certainly follow up offline on this but does that too I guess is to 88 number now does that include the premium is now that you'll be receiving from those from those calls.

Yeah, we've rolled the don't we effectively sold calls for value.

Call option that we received proceeds for but rather than taking the cash and putting it on our books, what we did as we roll that value into swap in California that allowed us to swap. It we were doing them up to 95 star blended average now is to 88.

Got it understood. Thanks, guys.

Appreciate it.

[noise]. Thank you. Our next question is coming from Jane touch and go of Stifel. Please go ahead.

Good morning, and thanks for taking my questions I have a question on well costs I'm. Just curious if you can provide some commentary on how you see well cost trading out on that the food basis. In the school then you took I'm trying to 90.

Hey, good morning, Jay this is daunting.

Yeah. When you when you think about a costly and I'll just talk at a higher level on cost when you look at cost for US we focus on quality, we focus on efficiencies.

You know, that's what's driving the value and cost as a part of that for sure. When when you look at the school, we continue to drop those days down.

Well go from 65, plus or minus days last year were down under 60 today, we're drilling some of those wells less than 40 days. So that's a definite an impact on your cost plus you have the service environment.

That's really been hit pretty hard over the last year and I think.

Probably see more that next year. So both bases were seeing costs come down we're seeing inefficiencies go up and I wouldn't expect anything different in 2020.

Jay and I would add that they're going to this more ratable spent through the year picking up what I said earlier, we would expect that the efficiencies as a year long operation on a rig would add incremental value to us. So so that's another way I think we see it.

That's perfect. Thank you. So much my second question no is that isn't on the unit cost structure. So the baby expecting like flat the unit cost job true a full golf board. So trying to find out what do you see like a modest improvement.

[noise] Yeah. James this is quite and we expect generally to be around the same range that we put out for guidance in 19 on a per unit cost basis next year, we'll have more color on that here as we put out formal guidance probably in early January but generally we're we're not expect any any big uptick.

Downturn and the cost structure, we're continuing to work on everything including DNA as we mentioned earlier and we'll have more details on that in early January Jane I'd like to follow up on that all the gionee piece.

This new process that we're adopting for our plan and budget, which we didnt have last year. When I joined we've changed people around brought new people and you've just heard quintin speed. We are taking a look at GE in a.

In some detail we do have a voluntary early separation program Ah that's going to allow us to help reduce our DNA. So all the levers are being looked at and all the levers are being pulled a once we get a full handle on what next year. It looks like I think you'll be able to get a sense of where we've taken it.

I appreciate it that you and the last question if I might.

Should we be thinking about that high school basis differentials to ones that midship pipeline is online.

So the question again, please Jane Austen quite catch yeah, Yeah, Yeah, Scott basis differentials. So it shouldn't be thinking that yeah natural gas price realizations for school production might see incremental improvement once the midship pipeline is online.

Jamie This is quinn, we its going to be roughly the same is it and it is right now somewhere in the 45 cents range is what we're projecting <unk>.

I appreciate it thank you so much.

Thank you Jay.

Thank you. Our next question is coming from Leo Ronnie of Keybanc capital markets. Please go ahead [noise].

Hi, guys just wanted to.

At the plan on the asset sales here, So I guess, you've got the Utica non ops as well the scoop water assets pending sounds like you're pretty close on those deals.

He's really got the kind of final to kind of significant asset sales that you guys are planning dispose is there anything else that might be coming down the pipe next year.

Yeah, you know one of the benefits of having a new planned budget process is just like we did one we found the scoop water assets [laughter] around the second quarter as an opportunity we're gonna take a full scrubbed through everything I don't have anything right now Leo in front of.

But I expect the discipline that we've got and looking at our business if there might be some small things shake out.

But I think you've touched on the main things got.

Okay, and I guess just in terms of the you cannot can you give us any metrics around that in terms of roughly how much production is associated with that or are sort of how much acreages to kind of gave us a sense of what that could amount to for you folks.

Yeah, it's not high is it kind of a de Minimis type thing you know we've done a great job. This year in managing costs related to watch what we operate and I'm very happy with that I think the issue with a small dollars that we had and not all is there was a significant over run and I just don't like that.

And so we've had the same issue in years past and I've talked about it on these calls before and so we're really just trying to balance that back out and say Hey, we've got our no budget.

Where we wanted it to be Oh, but it's not a meaningful amount of production or anything else.

Okay. That's a that's helpful and I guess I'm just with respect to the budget. Obviously I. Appreciate the fact that you guys have yet to kinda finalize where in 2020 shakes out, but just from a high level I mean, it it sounds like the way you guys are is sort of describing it that you know there's a good chance if we could have slightly lower activity next year in kind of home or Capex is that.

And I had a direction you guys are moving.

Yeah, I don't have any issue with that were not chasing a production target here as Quintin mentioned, we're focused on returns I think the build up our hedge book here has got off to a great start in these new hedges. We've got help a lot. We've got some more work to do there I think that will dictate what kind of apps.

<unk> level and spend we've got but moving to this more ratable capital through 20, and 21 and beyond I wouldn't be surprised if next year is down a little bit from from where we all this year. So I think your directionally right.

Okay. Thank you.

I appreciate Atlanta.

Thank you. Our next question is coming from Jeffrey Campbell of Tuohy Brothers. Please go ahead.

Good morning, [laughter] I'll follow up the last question, just asking a slightly different way, which is as you move in a 2020.

Bearing in mind, the current commodity environment.

Do you believe the fewer longer laterals that you've drilled in the Utica can maintain steady production there next year.

Yeah, we're very pleased with a well performance there and so I think that's fair Jeff.

Okay, Great and then kind of following on what's that.

With the <unk> significant inventory neither can winding down I was wondering if you see anymore capital going to the Scoop next year.

As a percentage of spend.

Yeah, because this is kind of a new process in our organization or how I like to have the planet budget done.

Really prefer not to front run what we're doing here are earlier this year, we talked about capital moving between the two different basins, we still have that as an option were not F. T bound deny the place. So we can do that based on economic attractiveness and so yeah, I think we have that flexibility as.

You know the Utica wells or cheaper and quicker. So the dollar comes back to you faster versus the scoop, which has the liquids component. So that'll all be factored in as we work through the plan for raw for this coming year.

And we'll have a pretty good idea and you'll get to know where that split so when we actually come out with our final budget.

Okay that was helpful. Thank you.

Last one for me somebody in piece of been successful is selling or our eyes as assets generate cash payment.

Attractive cash flow multiples and in fact, you guys just sold.

Like I say, our eyes in the Bakken I was just wondering if.

This is a potential go forward, our aero and they gulfport quiver, particularly in relation.

Other potential asset sales as you work on getting that done down overtime.

Yeah, Jeffrey I think that's a very insightful view and it's certainly something that we think about Oh and through this process will be able to see what impact that has all but don't have any specific plans today, but it certainly is a as you said in an arrow in the quiver in so yeah.

Okay.

Okay, great. Thanks, very much appreciate it.

Thank you.

Thank you. My next question is coming from Kashy Harrison of Simmons Energy. Please go ahead.

Just one quick one from me good morning, and thanks for taking my question I was just wondering where were you guys see maintenance Capex now for a for the business. Thank you.

Yeah. So if you tell me what gas price you want I can probably address that but it's something five and a little bit less it's probably fair as me sort of mudslinging, a number which I hate to do but or something like that.

All right that was it for me thank you.

[laughter].

Thank you our last question today is coming from an all parts of Coker and Palmer. Please go ahead.

Good morning.

Good morning.

[noise] in [noise].

Like hearing your thinking about your.

Your development pace and im trying to smooth that out.

Just wondering do you have a view on.

Where a seasonality in gas prices is headed I just wondered if it didn't you're you're thinking there's an assumption embedded of either seasonality getting more pronounced in in the shoulder months or I guess it could make an argument that longer term export demand that might gets worked out so it just.

Looking for your thoughts on that.

Yeah, you know that I think that's a in insightful question as to how the markets absent export coal behaved with summer and winter draws being quite different and where we're going with the impact of exports to Mexico, and particularly LNG, which don't have that same seasonal.

So what I would expect to see going forward is the high level frequency to change and that we might see some price moves that are tied more to those export.

Draws then the domestic demand. So I think that's a very good way to think about where it will go away I think probably until 2025, when we see a step up in volumes, leaving the U.S., we won't be as much but I think we're going to start to see more and more of that nothing that's going to do.

Dictate a lot of the changes within our North American markets I think that's a very good thought of yours to look that hey, I know well I'll follow up on a micro that was the macro kind of thought from our company's perspective, if you looked at our production profile at least here in 19, we match.

My first our production for the year in September .

And if you think about gas prices.

That's probably not an optimal time to have your maximum production you know because that's the shoulder month and typically low so the evening out in the capital spend will allow.

Our production profile to be a little more evenly weighted through the year. Some gets the benefit you know we are production comes down in the fourth quarter in the first quarter. When do you typically have you know January February we have the highest gas pricing. So one of the benefits of even even capital spend as you getting rid of that kind of lumpy production and 10 months the don't make sense.

Where you have spikes in production, so hopefully that will help us going forward.

Great. Thanks, and my my other question was.

You know sort of the silver lining we've had in this tough.

Stretchy is for energy has been on the service cost right.

And certainly a big contributor to through efficiency.

Do you.

Can you.

For see any scenario, where you you know we're dealing with no meaningful service cost inflation.

I know you said that you were planning to introduce more like a two year view.

When you.

Next update guidance. So I'm just wondering I guess, maybe looking at your too you have any assumptions for cost inflation in there.

No I think the way I'd look at it is we built up a service industry capability based on some pretty strong growth.

And now the efficiencies plus the impact of where product prices have gone, we're completely oversupplied and so I think to be able to get back any sort of balance is going to take a long time. So several years, a there maybe some equipment retirement and upgrading et cetera.

But we've not seen anything that would suggest that there is a short changed course short supply of equipment, we need a and so I think that's a whole to the produces a benefit.

Thanks, that's all for me.

Thank you appreciate it.

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