Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to Laredo Petroleum Inc.'s fourth quarter 2019 earnings Conference call.
Name as Jimmy and I will be your operator for today.
At this time, all participants are in listen only mode.
We'll be conducting a question answer session after the financial and operations report.
As a reminder, this conference is being recorded for replay purposes.
It's now my pleasure to introduce Mr., Ron Hagood, Vice President Investor Relations you May proceed Sir.
Thank you good morning, joining me today, our Jason <unk>, President and Chief Executive Officer.
Chandler Senior Vice President and Chief Operations Officer, and Mcentire, Senior Vice President and Chief Financial Officer.
Additional members are management team.
Before we begin this morning, let me remind you that during today's call will be making forward looking statements. These statements, including those describing our beliefs goals expectations forecasts and assumptions are intended to be covered by the safe Harbor provisions to private Securities Litigation Reform Act.
He 95.
The company's actual results may differ from these forward looking statements for a variety of reasons many of which are beyond our control.
In addition, we'll be making reference to non-GAAP financial measures reconciliations to non-GAAP financial measures are included in yesterday's news release.
Yesterday afternoon, the company issued a news release a presentation.
Its financial and operating results for fourth quarter and full year 2019.
During today's call.
We do not have a copy of this release your presentation may accepts it on the company's website www Dot Laredo Petro Dot com.
I'll now turn the call over to Jason I got President and Chief Executive Officer.
Good morning, Thank you for joining or someone calls.
I'd like to start off today by reviewing.
From the fourth quarter listed on slide three.
Again surpassed items for the fourth quarter in a row for both oil and total production.
And our cheerleading cost structure.
Turning to slide.
Not only did we have a good quarter 2019 for transformational year Laredo defined by a deep blister highlights to numerous dimension on this call.
There are several significant ones are like you mentioned this morning.
How many companies we're talking about getting to a positive free cash flow, we achieved during the second quarter ultimately generate.
Free cash flow down 19, [laughter] company reduced capital expenditure.
Not for years.
Actually grew oil 2% until.
10% delivering free cash flow capital program.
This would not impossible without the dedication and focus of our operation teams, because well my $1 billion reduced our wells cycle times at Kemper operating cost it basin, leading loans as we reduced our lease operating expense or $3 or eight cents per via away for the full year 2019 from our 2018 cost of 360.
Seven for Barry.
The shift to wider spacing with also contributing to our success to date wider spaced wells outperformed our type curve by 12%.
Our hedging strategy are also helped mitigate the impacts of combined declines are proving our revenue by $48.7 million.
So have a significant hedges in place for 2020, which Michael will describe in more detail shortly.
[noise] described on slide five and as we've highlighted on previous calls the most important part of our strategy is to optimize our operations our existing footprint.
Every day, we love to improve well selection completion designs facilities and every aspect of our business to maximize our stakeholder return.
Other aspect of this strategy is to look at our inventory with fresh eyes are determined if new completion techniques can bring fresh sliced two additional zones where development.
As we mentioned in prior updates we believe there's additional upside our core footprint decline. We're just starting to flow back. Our first two wells are preliminary field estimates indicate both wells were significantly under the 8.2 million dollar well costs, we identified only highlight of the decline as higher rate target last year.
Well, we're continuing to clean up from a higher intensity frac designs and the initial results are very encouraging.
I hope everyone on the call can appreciate the strength, we haven't announced as a foundation and competitive advantage it providers as we look to the future.
One of the things I found in my life is hard work and opened a lot of doors for you.
Our cost leadership and balance sheet strength opened a couple of new doors for us as we completed two accretive acquisitions last year, one in Howard County, one on Western Glasscock.
These acquisitions aligned well with that second pillar of our strategy to increase in improved the quality of our inventory by shifting to higher margin higher return areas of the Midland basin, while maintaining our commitment to a strong balance sheet.
As we show on slide seven both acquisitions were completed valuation significantly below historic averages, allowing us to maintain a competitive leverage ratio.
Its proximity to our existing acreage position allows us to use our strengths as we've drilled our first well in Howard County, as expected and continue to transition our rigs to the area.
As an early bonus to the year, we're able to acquire an additional 1100 acres in the heart of our position in Howard County for $22.5 million, increasing our total position.
380 acres.
This acreage will increase our working interest our operated acreage from in the area from 83% to 96% and increase our net well count from 102 124 net wells.
Our cost per acre was higher than our previous purchased the efficiency of the investment was much higher as a cost per net well was 28% lower than our previous acquisition.
We are in the process it incorporating the impact of this addition, and are planning as well as the impacts of lower commodity pricing for the next three years.
Gentlemen, flannel pivot to production maintenance mode focused on remaining cash flow positive at $50, a barrel and delivering over $100 million in free cash flow at $55 price high oil yields for our new acquisitions will allow us to improve our oil to over 40%. During this time period.
Our margins.
I'll now turn the call over to Michael for financial update.
Thank you Jason continuing on slide eight we're very happy with results of our recent senior notes issuance.
Well to address our pending maturities in 2022, and 2023 rolling them out to 2025 in 2028, accomplishing this and I'm very challenging high yield market for S&P companies.
Slide the downturn in commodity prices, we remain committed to operating within cash flow excluding on budget acquisitions as Jason mentioned, we believe we can generate a modest level of free cash flow. The next three years in a $50 per barrel $2.25 per inmate BT you environment. This projection grows to at least.
100 million at $55 per barrel with the same natural gas price our plan to apply free cash flow that has generated to paying down debt with the goal of reducing debt to adjusted EBITDA to our pre acquisition levels similar to the first quarter 2019, we expect outspend cash flow and the first quarter of 2020.
2019, we plan to utilize free cash flow generated during the remaining three quarters to reduce debt incurred in the first quarter.
Turning to slide topic, we give details of our strong 2020 hedge position. Our 2020 hedges are expected to generate more than $150 million of realized hedging.
At $50 per barrel and $2 in 25 cents per MBT.
Supporting our cash flow for the year as we transitioned to our more capital efficient Howard County acreage, we will continue to evaluate opportunities to hedge in 2021, where we have already hedged 1.5 million barrels of oil Brent price of $60 I will now I'll turn the call over to Karin Ford operations update.
Thank you Michael as Jason mentioned this shift in our development plan to wider well spacing driven returns and free cash flow focused strategy was a key driver of our success in.
In 2019.
Throughout 2019, we completed six widely spaced packages consisting of 38 wells.
As shown on slide period.
Combined loan production at these widely spaced I think you have outperformed our type curve by 12%.
Which contributed to the company exceeding production guidance every quarter and 29 team.
Another key driver of Laredo success last year was the continued progress today, our operations team to improve operational efficiencies reduce cycle occurrence.
And RIN cost out of our already low well.
On slide 11.
The top graph shows our continued upward trend in both the drill feet per day per rate and completed feet per day per Frac crew.
In fact, we set company records for both drilling and completions performance in the fourth quarter of 2019.
These improved operational efficiencies and reduced cycle turns also contributed to the company exceeding production expectations as wells were consistently put on production earlier than anticipated.
As shown on the bottom chart on slide 11, these performance improvement and continuous focus on cost reduction has allowed us to reduce our average well cost to peer leading levels.
We were also able to deliver the 2019 drilling and completions program below budget.
Even with additional activity.
On slide 12, and 13 weeks stand on the second pillar of our strategy vacation discussed.
We have now closed on three transactions in areas of the basin with higher productivity.
Establish acreage position.
On slide 12, we show the specific locations as these acquisitions in Howard and Glasscock County.
During these transactions we've added 175 per dislocation approximately three years in inventory at our current activity levels.
Moving to slide 13, I'll expand on how we look at our current development opportunities.
In short we plan to develop our highest rate of return wells first.
Fully leveraging our peer leading drilling completion and operating cost.
The graph at the top of the slide demonstrates the positive impact to cash flow generation.
That results from putting our cash flow to work in the new Howard County, Glasscock County areas.
This is our existing encourage.
The table at the bottom of the side further demonstrates the well economics at the recently acquired locations that are expected to lead to a substantial improvement in capital efficiency.
Turning to slide 14.
Since our initial Howard County acquisition.
Development plan has revolved around quickly and efficiently transitioning our drilling and completions activity to Howard County.
To accomplish.
And accelerated our first quarter drilling and completion activity levels.
During the fourth drilling rig and second completion crew.
This will enable us to complete all of our activity on our establish Reagan in Glasscock acreage in the first quarter of 2020 and allow us to fully transitioned to Howard County more quickly.
We already have two rigs operating in Howard County, and the third rig is expected by ended this quarter.
We expect to begin completion activities on our first 15 will package in Howard County during the second quarter.
This month, we executed an additional built on transaction on our Howard County acreage.
Primarily increasing working interest on existing Laredo operated acreage.
The acquisition increased our location count by 24 net wells at similar values to our original Howard County acquisition.
Which were well below historic averages.
Additionally, we're in negotiations with multiple third party infrastructure providers that operate in Howard County.
At this point in the development lifecycle of this area sufficient infrastructure has been built to accommodate our development plans.
Minimizing the need for capital investment.
Initial indications are confirming our expectations that transportation costs will not be significantly different from what we pay on our established acreage position in Reagan and Glasscock County.
From an operation standpoint, our transition Howard County on track and doubling level.
I just want to emphasize again that R&D and see activity in 2020 will be higher in the first quarter.
As we complete the remaining will packages on our establish acreage to accelerate activity on our Howard County position.
As we work to finalize or 2020, but I can we expect activity to moderate in the second half of 2020.
As we move to normalize development pace in Howard County, and balance capital expenditures and cash flow for full year 2020.
Moving to slide 15, and 16 I also want to highlight some of the company's key focus areas related to minimizing environmental impact as our operations.
He is leading to the forefront of the S&P industry and rightly so.
Water management and air quality are important to all of us.
Laredo has been focused on delivering on these principles for years.
On Slide 16, you can see in the chart that we have continually focused on increasing the percentage of recycled water use in our completion.
To significantly reduce the amount freshwater needed for our completion operations.
These accomplishes that building out 54000 barrels per day of water recycle capacity.
We're currently using 40% recycled water in our completion operations.
For full year 2019, this rita reduces our demand for freshwater by more than 11 and million barrels.
The bottom chart on slide 15, Chelsea now to flavored any cash relative to gross gas production for 32 companies in the Permian Basin.
Beginning in 2018.
We're very proud to be on the chart, where relative to our Peters.
Our current 1.7% flared gas.
Less than half of the peer average over the past two years.
We're proud of our results focused Stella minimizing the environmental impact of our operations and protecting the environment.
In addition to the water recycle infrastructure I just mentioned.
Slide 16 also highlights additional infrastructure, we had in place to help reduce the environmental impacts of flaring and trucking.
Importantly, this side also shows that these investments are not only the right thing to protect the environment, but also to enhance our overall economics.
With that ill turn the call and Jason for some closing comments.
2019 was a transformational year for Laredo ask started to pivot our strategy using our strengths to our advantage.
In 2020, we will begin to reap the rewards from our recent acquisitions as we benefit from more capital efficient development plan, all being protected by our 2020 hedges and debt maturities, which has been pushed to the future.
Alright, great companies undergoing transformation like we are executing as planned I'm very excited about our future.
Operator, we can now open the line for questions.
Thank you as a reminder, if you'd like to ask a question you May hit Star then one on your touched on telephone to withdraw your question press the pound key.
Please keep in mind then the interest the time, we ask that you. Please keep to one question and one follow up question before rejoining the queue.
Star then one if you'd like to join the queue and eight Q1 moment, while we gather the Q and thank you.
The first question comes from Brian Cynic singer with Goldman Sachs. Your line is now open.
Thank you good morning.
Morning.
Can you can you quantify a bit more the capex trajectory through the year you talked about the initial ramp up of activity happening now here in the first quarter.
What are the implications of that for Capex and then how do you see that.
Following ostensibly as we go through that remaining quarters of the year.
Yes, Jason I can we if you look at that kind of what we've done in the past I think we're going to model that.
Very similarly to what we've done before so we front loaded with the activity I'll, let carrying on a go into some of those details but.
We're very front loaded and then in activity will kind of drop as the year progresses, but I'll, let Karen give you some of the highlights of that activity yeah, just to add to that so Jason. This in 2019 was very similar for US our expected as we're kind of online in 2020 budget is it will be running one frac crew bus.
Thank you all have months of an additional frac crew so for us at 29 pull similar cadence we fundamentally at all those additional completions were doing the same thing for 2020 with the two Frac crew starting in January so expectation deals that will be down to one frac crew by the in the first quarter. We've also picked up the.
Fourth rig.
The primary reason for that leads to really get ahead and accelerate our transition to Howard county to get to drilling down to the Frac crews as single Frac crew is in there. So expectation there running four rigs to kind of makes that transition as quickly as possible will most likely be down to two rigs by the time, we moved into the second.
Year.
Great, but no specific numbers that you're.
That you're putting out on the first quarter failure.
No not yet again, where it will come out with a full budget here. Shortly one of the things that we highlight highlighted just below algo was that we added 1100 acres in Howard County, it's right on top of the drilling footprint and so we as a company or 100% dedicated to being a free cash flow positive and staying.
So when you've added working interest in enterprise.
In the area that you're drilling we just wanted to get tight on our budget. So we'll we'll come out with the new number shortly but it's a it's a good thing for us to push it out because again, we closed on this acreage just over a week ago. So just trying to factor that into our planning as we go forward, but we're excited and look forward to kind of rolling that out shortly to.
Great and then my follow up is with regards to the balance sheet slide six you highlight how you compare relative to peers and you've talked multiple times here on free cash flow can you just talked about where you ultimately see or desire your net debt to EBITDA to go.
Or what is a steady state.
Net debt to EBITDA that you're targeting and then what is your tolerance level. As you think about further bolt ons acquisitions to how high that at least temporarily can go.
Highlighted before that our goal is the good it down to pre acquisition levels before we started that ultimately I connect the public company you want to be driving it down to up 1.0 or something like that so we're we're again, 100% dedicated to drive in that number down we're just working through the levers that create that opportunity for us weve.
We've got a water infrastructure that we look at all the time we've got.
Royalty minerals that we could monetize so theres lots of options to help us push that number down we're thinking through all those when we think about kind of M&A activity.
We're looking for things that would be more like.
Glasscock, where you're bringing in production as you do those.
This environment.
ER stress on some companies that have less healthy balance sheets. So we're looking for things, where we can pick up production and get the inventory.
Lower rates and then be able to use our drilling machine.
Optimize and develop though so let's that's kind of what we're thinking about for the future, but ultimately we are.
Looking to push that debt to EBITDA down and not flex flex up and so we'll have to will navigate that as we start to look at these opportunities.
Thank you.
Thank you. Our next question comes from a seat Sen with Bank of America. Your line is now open.
Good morning, So Jason on the strategy to further expand.
Inventory depth in the Howard County, how do you how do you see the runway in.
What's kind of the.
Funding strategy here, if you go by doing that yes, and where we're working through that Theres lots of things that are cannot turning through the market right. Now we're trying to find those things that would be.
Good fit for US again, we've got a balance sheet that we can.
Used to our advantage and it's just a matter of again looking at what's the appropriate discount rates on pdps those are getting probably a little bit higher these days and like that in the past. So again I think that allows you to pick up some production and not.
Stretchered debt to EBITDA, but that may be those maybe things again, where we pick up something and then look at monetizing the water system. So.
We are again, just working through that right now, but the goal is not to really increase our debt to EBITDA adds to drive it down over time.
Got it.
And my follow up is for Karen Karen you noted that the ups spaced wells are producing more oil than originally anticipated what's driving that delta in your opinion.
Yes, so many I, we've got one here in the side I think slide 10 in our in our debt lower kind of showing overall, the well performance of all the widely spaced packages. So you're seeing kind of variability around the type curve that we have released on average were 12% above.
So we're very happy with that performance, we do they continue to support the type curve that we had out there.
Well performance, both above and below the curve.
Performance that we want to the 13 20.
These packages are both single and co developed.
Same thing said, we're just getting good performance from the completion design work that we're doing made the right decisions I think on the spacing.
Great. Thank you.
Thank you. Our next question comes from Richard Tullis with capital One Securities. Your line is now open.
Hey, Thanks, good morning.
Jason looking at the one Q production guidance it looks like it's roughly flat quarter over quarter.
How does the well gross.
And slow quarter over quarter for the rest of the year, particularly since you you plan to bring on it looks like around 28 net wells in one Q. So that's about 10 more than the fourth quarter. So is that production kind of rolling into the second quarter. How do you how do you see that play it out.
Yes, let Karen answer that but yes, we are definitely front end loaded so you'll see the impacts and the following quarter, yes, I'll refer to slide 10, again, so same same slide into that so cadence looks very similar to what we did in 2019 or front end loading any additional activity now say overall that helps with the annual.
Oil growth and also cash flow for the year.
Thank you look at the 29 pain.
Production actual production numbers on a quarterly basis, we expect to see the trend very similar to that so we're doing kind of the henne front end loading on the completions right now in the existing acreage, we're really see that impact in second quarter.
And then they.
The trend therefore going forward from there as we should again see kind of an uptick in four keys that we didnt see this year as Howard County, well start to come online.
Okay.
Thanks, Karen it's helpful in and then just.
Lastly, Karen.
Laredo has done a great job with.
Reducing cash controllable cost over the past couple of years.
You see a small up tick in new in the one Q guidance compared to the fourth quarter.
How do you see the costs trending as we move through the year as you move more activity away from your kind of traditional production corridor.
Centric areas.
So as we're transitioning to Howard County.
Talked about Kelly, our infrastructure in place and what the plans are for going in developing there.
We do you expect to see a little bit of an uptick as we're transitioning yen, but something on the.
On the order that 20 cents, so nothing really significantly impacting the overall elie numbers.
Okay. That's all for me thank you.
[music].
Thank you. Our next question comes from Derrick Whitfield with Stifel. Your line is now open.
Yeah. Thanks, good morning, all and congrats on a fourth consecutive strong quarter.
Thanks, Eric.
Perhaps for Jason are carrying.
Permian flaring, it's become a topic of increasing investor concern is outlawed in your prepared comments well flaring is less of an issue for Laredo, what are your expectations for the upcoming Texas Railroad Commission report and what changes if any on flaring regulations do you expect.
Oh I hate to speculate again on what we see there, but I think with what we're trying to emphasize that were whatever comes out were well ahead of it.
We've had a focus on reducing emissions for a long time and build our facilities. So that we don't have to flare other times, we flare when there's.
Just some disruptions downstream from us we don't have to flair to sell our oil. So I think thats for US we think we're in pretty good shape.
No matter what comes out multi but we'll be ready for.
Thanks, Jason and then as my follow up for Karen could you speak too early time expectations for DNC design and costs for your Howard County Wells and more specifically do you anticipate being able to maintain your peer leading DNC costs as you pivot into Howard County.
So we've already moved to the rigs.
And to Howard County, So all the operations are going really well there.
We wanted to accelerate that could take advantages there.
Increased old productivity of those wells, but everything on track from just to surface.
Playing alone and getting the rigs and so to the answer is yes, our expectations are that we're going to be able to operate.
Very similar to levels to what we've been doing on existing acreage position Sunday DMC, and then as a very minimal making from alwy standpoint as well.
Yes, we've got a lot of worth looking at the offsets in the area, there's quite a bit of spacing test and other things in the area that we've been able to take advantage against a little completion designs.
And right now we're doing a little bit of work looking in a little bit their completion designs on the existing acreage we plan to do that there as well just based on what we're seeing from the offsets in our spacing plans, but overall, we expect to operate very similar levels, who is very similar cost structure.
Great very helpful. Karen Thanks for your time off.
And I'll, just I'll, just adding up where we have been we highlighted here some of the designs with more sand per foot. So we have been testing those on our existing acreage position.
The idea there is that cost us for San has decreased we're also again, we pushed wells out and have a little bit wider spacing. So the completion designs that worked in the past and we may have opportunities to improve those were just starting when we when it did that analysis. It was going to take about six months or so to see the result, so we're starting to hurt.
Starting to get our first wells, what these higher sand concentrations and new frac techniques coming in but.
Some early positive indications.
Cline Wells I briefly mentioned in my prepared comments.
They looked really good encourages team just knocked it out the park on the cost structure, we haven't we've cut coming from the time, we originally drilled wells till now you've cut over a million dollars of cost out of there. So beat expectations. There and then initial were only 10 days ended the flow backs, but initial production is very encouraging so when we think about inventory and runway.
Well, we highlighted in the past decline is something that we were excited about so more and more to come on that but we've got some really good results I think starting to come in.
Very helpful. Jason Thanks.
Thank you. Our next question comes from Noel Parks with Coker and Palmer. Your line is now open.
Morning.
Morning.
You know continuing on the topic of the Cline could you give sort of review for us because even before.
The acquisitions you you did in fourth quarter in Howard County on your legacy acreage you you had been putting a good deal of.
Energy on the technical side into.
Sure evaluating the pass for for decline could you just kind of were remind me of when that started.
Now that you know where that process took you too and then how that carries over to.
Operating income in Howard County now.
So this is Karen yet so we've actually turned quite a few cline and as a company in our history.
Really the changes that took place as we started talking that client and it was really the cost coming down of wells, so the fines or deeper more extensive.
So even with really positive productivity trend that cost difference just had us prioritizing wolfcamp in front of that as cost has come down through 2019 that really balanced kind of shift where the rates returns became very competitive, yes, or no can't wells.
So we decided we wanted to look at.
The newer completion design on declines with.
Transition because of the cost structure.
We completed any closer to 2017, the largest completion, we put on a client equals their pounds per foot. So no.
Got it.
Hi analysis that we've gone through more with the Wolfcamp.
So we've just to 20 400000 jobs up these two levels.
Jason talking about.
Overall performance looks good there are like that the really encouraging pieces of upside.
We generally see a little bit more pressure, a little bit more required to get to say into what the DC completed well.
So we can continue to drive down the call Stephen from our assumptions with the cost reductions. The rates returns are just going to get better and better. So we do see the sorry, Ed yes definitely potentials inventory.
And our focus is high freighter return so continue to work on them and kind of see where they fall out in our inventory.
Yes, I think it's again, we we saw a big jump when we went to 1800 pounds. So we're we're starting to test with these 2400 panel here what is that pointed out diminishing return because we havent seen it yet we've got a big jump on did 1800 pounds and just again, there's a lot of new Frac technology techniques that have taken place since we last night.
100 pound jobs so.
It's really early very encouraging I want to the overhype it yet but.
I'll start out and production looks like it's up.
Great. Thanks, a lot and.
Could you just.
Also talk about.
Guidance of your rig contracts.
Point.
Just going on the service cost environment, and then of course as Youve.
Moving.
The rigs and planning for the whole atomic program for this year.
So on on our rig contracts I mean.
We're.
Pretty much sale pretty flat costs for the high performance rates other types of rigs that were wanting to run we're getting a lot of performance uplift. So thats, helping with the overall cost cutting program. So I think highlighted some of that but overall seem pretty flat service cost environment.
Our contracts we.
And to not sign long term contracts on the rigs. We've got three that are under contract right now, but one that will be under contract.
This quarter next quarter that were again, so I can't answer question I really think any major impact on labor costs in day rates himself as we're moving in Howard County.
Great. Thanks, a lot.
Thank you. Our next question comes from Karl Blunden with Goldman Sachs. Your line is now open.
Hi, Thanks for taking the question.
Just a quick follow up here on the.
The M&A.
Trajectory going forward I understand the the desire to keep leverage in check when you think about just the amount of potential spending is there anyway to frame kind of low end in high end of how much cash might go out for four acquisitions over the course of this year.
And then if it's something larger something strategic comes available how would you fund I would that necessarily be done with divestitures.
Yeah, I'd say, we havent.
Not giving any guidance really emphasize that we're looking forward we're looking at.
Things that are.
Again, we played these these smaller things going on at 4000 to.
And now 7000 acre range, but again it just theres a lot of things comment to market.
Our real focus is again, when we do something it is going to keep the debt to EBITDA.
Flat to ultimately pushing it down at the end of the day.
So that's how we will manage that we're also just focused on playing in our fairway and all of our parents highlights on her operational success and thanks to assess the team is an advantage to us I mean, when I look at some of our peer presentations were $500000 $10 million cheaper in some cases than their wells when you take down.
Per well basis, that's a 10000 dollar an acre advantage that we have in the basin right now so our plans are to use our competitive advantage on the capital side to that creates success in this.
In the M&A World.
That makes sense and no passes somebody else, that's a little premature to to discuss but in terms of.
Using cash from the revolver to fund those acquisitions and Sarah limit on how much you would go to before you felt uncomfortable from a liquidity standpoint.
Yeah.
Probably wouldn't comment on that yet I mean, it just depends on opportunities and like that but wave I can leave.
With all the work we've done we've set ourselves up to be a again have plenty of liquidity.
To execute on our business.
So will will navigate that as these opportunities come available to but it's a little or little bit too early to be talking about that right now that you yeah understood. Thanks very much.
Thank you. Our next question comes from a steep chowdhry with Ivy investments. Your line is now open.
Hey, guys. Congratulations on the core on the solid quarter, just a question around sort of.
Asset sales you had mentioned sort of the water infrastructure. How can we can we put some parameters around data what sort of EBITDA our volumes in sort of.
What's where profitability is generated there.
Not not yet.
We're we're working through that process again, one of the one of the.
It is an asset to us they have been selling for good rates. We are only customer right now on that that system and so we we got to think through if we monetize it I would naturally cause your lease operating expenses to go up which is something that we're proud of but the team is also looking to make a few modifications.
To the system that could increase to the revenue generating capacity from where it is today. So we're looking at it evaluating that we we check it all the time, but it is something again in our portfolio that.
Should we find one of these acquisitions that we'd like them make that may make more sense than it does and any other incident, but.
It is it is something thats in our portfolio that we think as real value.
Thanks appreciate that and then just one one other question around the same line of thought process.
The mid royalty acreage can just an update on what's how many rough approximately royalty acreage we have been the portfolio.
Yeah.
750 750.
All takers.
Alright, great. Thank you guys appreciate it.
Thank you more next question comes from Kashy Harrison with Simmons Energy. Your line is now open.
Hi, good morning, and thanks for taking my questions.
Good morning catching.
So I think earlier in the call you mentioned that perhaps the cost for the Cline well cost will decline were tracking a bit lower than anticipated.
Would you haven't early estimate for the Cline cost on the lateral adjusted basis available.
We won't give now just yet again, we are again, we've we've just really mentioned thats kind of in the comments, but given that but well have just been drilled we got 10 days of flow back. So we want to get tied on all our costs, but.
Second as we.
Your next kind of event, where we released results I think thats something that we'll be able to give me a lot more detail on but it's again very encouraging early off for us.
Gotcha, and then and then just for my and my follow up question, just a quick clarification. So.
So for 2019 spend it looks like you came in around $482 million.
What was the split between the DMC bucket and then the other bucket that's production facilities and other capitalized costs and then I think last year. The average lateral length was maybe around 11000, maybe 11400 something like that.
Just wondering how we should think about the average lateral length in 2020.
Yeah, Hey, good morning, let me give a little color on that 2019, so you're right 482 for the billion for the year DNC part was right around 425 million and with the balance kind of split between facilities land data capitalized DNA et cetera.
Yeah, and this can I'll answer on the on the lateral link so yes.
The on on averages were move into the Howard County, and then also than you'd acquisition or Western Glasscock.
Most packages the way that the Dia Hughes are going to line up our 10000 foot laterals there since any covenant foot laterals in there too we'll be looking at those are the scheme. There. So a extend those but they really fall kind of in those two categories 10075 on our existing acreage position a lot more variability and each one of the.
He is with very large blocks the nature of that asset base. So in general.
Those are the types of actually will be completing and 20.8 700000 foot laterals, so probably averaging just.
Below the 10000 foot with averaging this third.
Okay. That's helpful. That's all for me thanks, guys.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to run haygood for any closing remarks.
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