Q4 2019 Earnings Call

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Good morning, and welcome to the Magnolia oil fourth-quarter and full-year 2019 earnings conference call. All participants will be in listen-only mode you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Brian Corrales vice president of investor relations, please go ahead thank you Andrew and good morning. Everyone. Welcome to Magnolia oil and gas is fourth-quarter and full-year 2018 earnings conference call participating on the call today are Steve chazen Magnolias chairman president and chief executive officer and Chris Stavros birth.

Executive Vice President and chief

Thank you officer. As a reminder today's conference call contains certain projections and other forward-looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements additional information on risk factors that could that could cause results to differ is available in the company's annual report on form 10-K filed with the SEC a full Safe Harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website. You can download Magnolias fourth-quarter and full-year 2019 earnings press release as well as the conference call slides from the investors section of the company's website at w w w. Magnolia oil, I will now turn the call over to mister Steve Jason.

Thank you. Good morning, and thank you for joining us today. I will provide a summary of some of our achievements in 2019 or Outlook and plan for 2022 always an update on our walk ins asset credit review some of the details of the financials and provide some additional guidance for the year before we take your questions with many accomplishments as an organization during 2019 RAV4 spoken calendar year as a public company. We've been in business for 18 months despite the continued challenging environments the energy sector the quality of our assets and the characteristics of our business office has served as well and continues to provide us with a strong Foundation our strategy of focusing on generating free-cash-flow combined with low levels of that supported are strong performance last year off position as well for this year.

During 2019. We invested 60% of our cash flow to our drilling completing Wells and unrelated production equipment collectively the DNC Capital. This is in line with our original objective and continue easy as part of our ongoing strategy as a small company part of our plan is also generate moderate growth and were able to grow our production volume by 10% in the fourth quarter of 2019 compared to the year ago. Free cash flow generated by the business providers with options allocate Capital towards opportunities that are most accretive to value. Our stocks are remaining free cash flow during 2019 was used to successfully complete multiple small oil and gas property Acquisitions further strengthening our overall asset base.

These Acquisitions would included producing properties expand our tradition in our poorest Carnes area by 30% and more than replaced. Our inventory of Wells drilled during 2019. Also allocated $79 million dollars for the repurchase 7 million Magnolia shares partly six million this year. We repurchased request be common shares, which are not included in the public flown in are essentially the same as the class A stock in terms of voting rights and economic value.

Outweighs for a capital program the Acquisitions and share purchased we end the 2019 with 47 million dollars more cash on hand compared to the prior-year.

One of our more important accomplishment over the last year was significant progress made towards further de-risking understanding are getting field asset our appraisal and exploration program using our current multivariate model long as associate science improved our ability to predict and better target areas to drill it getting we are beginning to see the results of our program to show up in our production mix too. Well, she brought online and getting them later half later part of the third quarter produced approximately 1700 barrels a day and during their first 30 days online and ravaged more than 1,500 barrels a day during the first 120 days off during the fourth quarter. We added to Wells that are combined rate of more than Eleven Hundred barrels a day during their first 60 days. These Wells are about fifteen Miles apart are in and are in new areas.

These are essentially export.

These recent new wells pushed up our fourth quarter oil production and getting by 24% sequentially.

We plan to allocate some incremental Capital towards getting this year and given our improved understanding and increased confidence in the field this additional activity represented early State development program for later this year to supplement our ongoing appraisal efforts initial plan should allow us to the lower our overall. Well cost and capture some efficiencies. That would be realized more brought. Once we move to a larger scale development the field we continue to evaluate several small and mid-sized bolts on oil and gas property acquisition opportunities while we were optimistic around the prospect for more bolt on deals in during this year. The recent weakness in volatility and product prices has frozen the process maybe little by little today in addition off the recent weakness in our Share Price is Right raised our cost of capital lower the amount or willing to pay on a transaction.

while we expect product prices to stabilize will continue to be disciplined about our approach to him and keeping in mind that our objective around any transaction is to make the

any better

our strategy and business model for this year remains unchanged r d m c Capital spending expect the approx 60% of our cash flow providing us with free cash flow while continuing to maintain wage levels of debt. We anticipate some of drilling we anticipate shifting some of our operating Capital towards getting as our non-operated activity and cons expect to be 15 to 20% off than last year product prices remained week. We have the flexibility adjuster spending on our operated activity to accommodate our model as our operating locations in Karns are not going away a free cash flow provide this opportunity to allocate Capital towards opportunities that are most beneficial to our shareholders like to talk a little about our business plan, which hasn't really changed like we like I said earlier we tend to spend sixty percent plus or minus 5% over even drilling completing Wells Associated production equipment after interest expense.

Waiting funds of requisitions share repurchases and at some point dividends this drilling program should be enough to grow production the total of $6,000 a day over the over the two operating.

As far as Acquisitions we continue to have no large-scale or public m&a expect some bolt-on Acquisitions most likely in the Karns area significant number of current series opportunities, which will be available over the next couple of years right now. It's hard to come up with a value for either the buyer or the seller and our debt of course will contain a minimum.

A little discussion about the difference between currents and and and and getting the Eagle Ford Austin chalk and cars as well known the wells drilled quickly. They have high oil cuts off peak production the first 30 days and declined sharply over the next few months as a result. They have high internal rate of return that is equipped pay back. All of our acreage is held by production. The best time to drill for oil prices are high because most of the production is obtained in a short period of time before oil 50. That's approximately what you're going to get for it because cuz the payback is so quick.

And getting would we draw in the Austin?

There's two sources of production in the shock one from the natural fractures and one adult the fracking process. This leads to a larger drainage area than moving Speck just the fracking process as a result the wells initially produce a lot of water both formation and flat track fluid for both sets of fractures Peak production is generally around 90 days after completion with the decline rate is much less than a car as well. They somewhat longer the total amount of hydrocarbons produce over the life of the well is significantly larger than a car as well.

Getting as well as are most appropriate of one expects future oil price to be better than current ones one of our objectives with the appraisal process to reduce the overall cost in 2020. We expect to reduce the price of getting caught by about 20% virtually all of our acreage their self by production. We believe we have several large contiguous areas that are likely to work. Well one of which is about 70,000 acres is about a hundred sections the four walls perception that implied four hundred locations in this one area more than ten years of inventory with two years two rigs running. We have just completed a two well pad in this area. It appears that both walls are are each capable of producing a thousand barrels of oil a day. What's around 3 million cubic feet of gas a day.

The current situation and non-operated activities in Karns is picking up. We're currently operating one well in cars and effectively through not operated activity have another two-thirds to a phone that rig we are not we are also not abandoning bar currents but allocating more Capital to getting this year to enhance our development as the consultation is not going anywhere with shifting our operating rig to gettings over a short period of time expect gettings production to overtake Carnes on a daily basis and a little longer. Overtake cars than a barrel of oil basis.

But increased production gettings we can start building a base of lower declined production and more efficient manner ultimate reducing the amount of cash flow needed to keep production flat. The price of for this is lower wage growth this year as the gettings wells come on slower than Carnes Wells, but but also have a much shallower production profile.

Like to turn the call over to Chris. Thank Stephen. Good morning, everyone a plan to review some of the highlights from the fourth quarter and full-year 29 results and provide some additional guidance for 2020 before turning it over to you for questions looking at slide for the presentation that's posted on our website. We reported total net income for fourth quarter 2019 of Thirteen point six million dollars or five cents per diluted share and $85,000 or $0.28 per diluted share for the full year. Fourth quarter adjusted ebitda tax was $171 billion with forty-two percent spent on drilling completions and related production equipment or D&C Capital which was lower or better than our earlier outlook for a full year 2019. We spent sixty percent of adjusted ebitda tax on dnce Capital which is consistent with our business model is the prices declined. We stayed disciplined around are spending reducing r d n c Capital to 45% of our adjusted ebitda during the second half of 2019.

total production for the company

468.3 thousand really per day during the fourth quarter a 10% increase compared to last year and with oil production representing 52% of our total volumes. We increased our net acreage position in Iraq and Syria by more than 30% during 2019 adding nearly five thousand two hundred acres through bolt-on acquisitions.

Shown on Slide Five or cash flow from operations before changes in working capital for the fourth quarter of 2019 was 163 million dollars are totally NC cash outlays for oil and gas properties was six million During the period or approximately 43% of our cash flow from operations for changes in working capital like every quarter since the company's Inception. We generated free cash flow during the fourth quarter generating 93 million of free cash after Capital during the. We repurchased 6 million Class B common shares of Magnolia stock in the fourth quarter for $69 ending the quarter and the year with a hundred thirty-three million of cash on the balance sheet side six shows a summary the company's total share counts since Magnolias Inception including the breakdown between Class A and B common shares, we purchased a total of 7 million shares including six million Class B and 1 million Class A shares through the through year-end 2019. The shares were the shares were purchased have roughly offset the

7.3 million shares

We've issued for Acquisitions. We also completed the exchange for all our outstanding public warrants which added 9.2 million Class A shares to the public float and simplified our capital structure long as he mentioned both the class A and Class B. Common Shares are essentially identical in terms of their voting rights and economic value. However, since the class B shares are not publicly traded the repurchase of these shares did not diminish public float. It was a total of 253.1 million shares outstanding at the end of 2019.

A long-term debt remained unchanged any of the year at approximately $390 million dollars and our net debt is a percent of total Equity is approximately 8% as part of our ongoing policy maintaining low leverage summer balance sheet as of December. Thirty One 2019 is shown on slide seven.

If you look at slide eight our total fourth quarter 2019 cash operating costs including GNA was $9.80 per Boe a 10% decrease from the prior year. We expect our pre-owned at Cash operating costs including GNA to be similar in 2020. I do want to highlight the improvement in our drilling completion and capital efficiencies at Carnes during 2019 are drilling days of decline about 15% from 2018 and pumping hours per day of increased 10% compared to last year these improvements resulting in 13% year-over-year decline in the cost per stimulate out for it in gettings. We are expecting total well costs to decline about 20% compared to last year's levels as we move towards development chilling later in the year as shown on slide nine wage approved developed reserves Reserve additions during 2019 were thirty-five million barrels of oil equivalent an increase of 13% compared to Prior your levels and we replaced a hundred two hundred.

42% of last year's parade

Our total d m c Capital improved property acquisition costs last year were 523 million dollars providing approved developed f&d cost of around $15 per Boe wage 7D cost is representative of our full cycle cost of development and should be closer to the d d n a rate that runs through our income statement over time. We limit our Pub bookings to one year development plan with the wells we expect to drill and complete this year turning to guidance for 2020. We expect to spend approximately sixty percent of our adjusted ebitda oxfordian C capital is core characteristic of our business model remains unchanged while our current plan anticipates drilling a completing a similar number of wells in twenty-twenty is compared to last year improved efficiencies of our drilling program combined with lower oil field service cost need to reduce our overall. Well cost by about 10% compared to last year. We estimate that this year's Capital activity program would result in total year-over-year growth and approximately 5% off.

growth in getting oil production of more than 20

Based on the pace of our Capital spending an estimated non-operated activity. We expect a shape or pattern of this year's quarterly production profile to be comparable to 2019 with higher spending and activity levels off the earlier part of the Year followed by increased production during the second and third quarters as Steve mentioned based on our increased confidence in strong results in gettings. We plan to move are operated rig in Karns took a few later this year to begin an early stage development program. The additional gettings activity is expected to be evident in our production volumes through this year. We also expect to lower overall well cost and gettings and capture efficiencies to our experience. That would be recognized more broadly through a larger scale development of the field over time.

First quarter DNC capital is expected to be around 85% of our adjusted ebitda at current product prices and our heaviest level of spending during the year. We currently estimate that our non-operated cap activity cars to increase by 15 to 20% versus 2019 levels despite this higher rate of capital. We expect to generate free cash flow in the current quarter and throughout the year as are spending a gradually declines as noted in the press release. We estimate our total production the first quarter to be around 65,000 Boe per day as most of the wells turned in line are expected to current occur in the latter part of the Court will production is expected to be approximately 52% of our total volumes for the.

If we're faced with a continue.

The week product price environment. We have the flexibility to adjust our activity levels to keep our spending around sixty percent of our adjusted ebitda tax to wrap up. I point you to slide ten summarizing our cash flows for 2019 where we generated $658 million dollars of cash flow from operations for changes in working capital our cash outlays included DNC Capital organic drilling program, a four hundred thirty-five million, eighty six million dollars to cash for acquiring small bolt on oil and gas properties and seventy nine million towards the purchase of Magnolia, stock. We had 47 million dollars more cash on the balance sheet back end of 2019 and then at the start of the year and we did not incur any additional debt like last year. We expect to generate free cash flow every quarter in 2020 r d n c capital is expected to be off 60% of our adjusted ebit tax and we plan to shift some of our development spending to getting from Karnes later in the year. Although the m&a environment remains volatile. Steve mentioned our continued focus is to Jeff.

free cash flow providing us with options

Is to further enhance our business and the value of our stock. We're now ready to take your questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

The first question comes from Neil Diamond of SunTrust, please go ahead and Page envelopment activity to play and I'm just wondering your prepared remarks you gave some detailed on on a few sections. I'm just wondering could you provide further details your Chris on what gives you the wage increase confidence to begin that development process there?

Well, it's pretty straightforward. You know, we have a a model for for locating the wells. The model is delivering actually better results than the model predicted. So we have a birth part of it which which we have a hot humid very high degree of confidence. A lot of the activities that you see around is is designed to extend that but if there's there's there's part of it off it's fairly predictable. So that's where the this well of though. We just drilled a a just completing two well pads in this area. The wells are thousands off 12.

That's a oil, you know, three or four million a day a gas. But you know, it's pretty pretty easy to see I understand. This is not a seismic I'm talking about one rig half a half a rig for a year perhaps, you know, basically a half a rig for a year basis. This is thirty and forty million dollars. Yep, so and and it's really driven by the high degree of non-op drilling by people around us in in Carnes. So, you know, we bought your car will be important and we still see a lot of Acquisitions opportunities in the cars over the next few years. So I you know, I think

We have to get to the point where we we know the pad Drilling.

The wells have fairly predictable, you know ultimate recoverable reserves, you know, and we we know we can bring the costs down materially this environment but there's no reason not to not to do it. But again, we're driven. I think sometimes people we're driven principally we start out with the 60% We're only going to spend 60% off to spend a hundred percent. If we wanted to make we can make any production growth. We want it just by doing all Carnes Wells problem. Is that the wells off have a sharp Decline and so we're trying to do is build a base a production. It doesn't decline as much so it's this is easier to manage. The current current is wonderful, but I'm actually more wonderful than oil 60 or 70 because you know, well comes back so quick.

Let you know, you know.

What you're going to get, you know, when oil prices are lower you cut back and and and trying to build a base for the future not very complicated. But I think the ship is is pretty small small and and the total the only issue would has is that because the heating's wells, you know, don't pop up by a huge numbers in the first week, you know it, you know, it takes a 90 days really for them to settle down and you know it it'll slow the growth rate but it but as but as the as the year progresses and that's in the next year the growth rate it'll start to show up because you know, you'll have to space building. So I I don't think there's a lot question about the this size program how well the month we we continue to be surprised.

The extent of areas that we didn't think would be so good in are working out. Okay. Now they're not approving or whatever you have. But you know, at this point, you know, I think we'd be remiss in in not expanding the program but we're you know, we are we are determined not not significantly exceed the 6-month we seem to 60% is because you know forecasting failure on our part. So well those down and you know, that's all but we can't stop the drilling but God.

That's what drives our business or business not driven on volume growth is based on a jet in general, you know, Financial Financial strength.

No, I agree with the shift and hopefully to the market better realizes that the value you have in Gideon's and then well, you know, we also have cash on our books. And so, you know since birth it's a company doesn't sell stock.

But it might buy some, you know from from our perspective. Well, it's unpleasant maybe for shareholder. You know, I frankly thought I'd rather buy the stock at $9 and buy it at twenty-five. So

Well, right and and Steve you really just funnel that right into my second question was your comment just on production growth that seems you know, your freshman girls spend a little bit flat here the last couple of quarters, you know, there's been some comments out there. I think that's what some investors been, and maybe what's been hitting the stock. Could you you started to talk about this a little bit to give your thoughts on how you in Crestview just looking at production versus maybe free cash flow or other metrics that you all might use production growth is an outcome.

Of the cash-to-cash book discipline. It's not the goal.

The goal is to use the use the money as efficiently as possible to generate as much value as possible value within reserves and an actual current cash-flow, but if we could make the growth any number you want, you know, if we if we ran 85% to the whole years, we probably grow 15%

So we're not going to do that. It takes about you know that I can figure takes about 50% cash flow. The keys are to keep his flag.

So and anything above that, you know, you know will make us close the we we could we could drill more cons well and make whatever number on it, but that's not the business model. We

We call them.

Investors were we're doing the locations don't go away for us. We don't have any debts. So we don't have any debt coverage issues. Some people have we're not trying to make sure revolver is stays steady, you know, so we would rock trip any covenants so, you know other people have different issues and they want growth. I mean Jack Doyle's demand is going to grow let's say less than 1% this year and you know, people want the want the production to grow 20% and they wonder why oil prices

Are are are not so attractive and it's not the Saudis. So I you know, I you know, everybody's you gotta be live within your cash flow and we well prices are low wage. You get lower activity when oil prices are high you drove more and that's that's way the industry should react Urban the gas industry on Iraq.

Anyway, probably more more. You want to hear. No, I appreciate all the details. Thanks so much. The next question comes from Jeff of Northlake Capital Management, please go ahead.

Appreciate all the thoughts here. Steve was wondering kind of big-picture you mentioned, you know how the the shift to gettings and allocated more capital and growing That Bass kind of sounds like provides better, I guess stable production base for you guys to build off of going forward and you also mention that kind of I get the 50% cash flow kind of Maintenance level mode, which is kind of wondering how long does this all part of I guess a bigger plan longer-term to kind of set up the dividend story for you guys and you know to the extent you feel comfortable putting out any kind of timeline for when you think the business matures to that level but was just kind of wondering is that is that kind of part of the strategy or is it really just more? Well, you know, you know just generate, you know, having money is always good.

You know, you know and you know, so, you know, it's always good to have money cuz it has flexibility. You know, I don't believe in dividends as a way of providing management with discipline cuz if Management's undisciplined, you know, they'll do stupid things with the money like they themselves five million dollars a year.

And so

I I think we just got a well we'll get to the dividends overtime. I I do think that this year they'll be some dead bolt on acquisition opportunities in Karns. It was people get over the the roller coaster ride. They've been on

and you know, we'd be able to add get our total production of some some will come from Drilling and some will come from both ends. You know, I don't like that song and

I think we're you know I think as a practical matter I think this year will be a busy year for us

and you know once we get the more stable base in a little larger so I can spread more overhead over over over a stable base wage you know I think that's the time that we talking about dividends you know we're not going to be able to be with Exon for do it

After The Accidental linoleum Corporation or whatever for dividend. So, you know, you just not going to be able to compete with that sort of sort of situation. So, you know, we gotta suck on a value total value basis. I don't I think there's no question about our who have been to free cash and and not and not not waste of the money maybe with some of the others that show me the dividend is proof that they now have religions but

everyone your religion is understood. I I appreciate those comments and for my follow-up just going back to to getting here which is kind of wondering I guess kind of the more medium-term plan. So the second rig comes in is the idea that that is there for the foreseeable future and to the extent, you know, you mentioned if if kind of the front end of the curve bumps up cars becomes more attractive, I mean, is that kind of a catalyst to back in? I think we'll create more value with the ribbon gettings right now. If not offer

Goes down or the price of oil.

You know goes up, you know, we'll have more cash anyway, so, you know, I would I would expect we put a put the ring back in the car. And so I would think a year from now. We'll probably have the ring back in cards be my guess if everything works. Okay, and we still might have to exist getting

so I just get my hope is is to run two Rigs and and and and gettings one and one in Karns and then one Shadow essentially for the month. That's where we'd like to be the right now. It doesn't that doesn't I with the 60% and we get the idea would be with with I guess some growth from getting a couple months maybe a couple of bucks on the oil price, you know that can kind of allow you to put them on the cards without breaking the model. That's right. It can't can't break the model.

You know, you could always fool yourself into spending more money.

Got it.

heard crystal clear the history of the industry

I hear you. See thanks. Thanks for the time. I appreciate it.

The next question comes from Leo. Marinari Mariani, excuse me of KeyBank, please. Go ahead.

Yeah. Hey guys, just a you know a question on on free cash flow. Obviously, you guys talked about some potential m&a, you know later this year. I guess you really didn't do any deals. And in fact, it doesn't sound like anything is happening in the short-term sounds like the dividends away off, you know, we obviously had the buy back that you did in four Q which seemed you know, kind of one off on them. Just wanted to get a sense is is that something we could kind of see in the future is potentially purchasing chunks of some of those class bees from time to time in the absence of m&a here at 5:20.

I sure hope so. But again, I don't control that process.

You know, you know I'd like I'd like to but but I don't control the process controlled by a nervous and I have no idea what their plans are.

Okay, I understood High degree of confidence in the bolt ons this year.

So, you know, I I wouldn't take my comments to it as all that tentative, but you know, you've got all you got a number of people that are out there that tried to sell last year that couldn't say, you know, they thought they might have a window in the oil price went up for a couple of hours, you know prices come down they get deflated, you know in in the end. They're better off, you know, there's there's never been a bad time in the last decade to sell your oil assets a small oil assets.

Yep know that that makes sense for sure and I guess just wanted to touch on some of the activity and in the car and I guess you guys were saying hey, it's up fifteen to twenty percent, you know this year, you know, I guess that being said, I mean certainly, you know production lower. It sounds like in the first quarter a lot of those Wells maybe coming on later. Just wanted to get a sense that you guys have kind of good visibility on some of the timing of that production coming on in the Karns area. Just give in the the whole lot. Remember Wells this year. We got pretty good timing pretty good out. But we have a f he's from and a lot of those Wells have been drilled and and you know, they have this completion cruise on them. So, you know it you know, what you what it looks like sort of big factor is it was slow in the beginning of this first quarter?

the production and then it's it's picked up sharply as as as the wells that were ducks at the end of the

Have Peppa completed so I think you're so it's back-end loaded. And of course you got half the quarter on already. So, you know, so as we go in the second quarter. Should be all nicely.

Okay. Now that's helpful for sure. And I guess you guys also said that there were two recent Wells I guess and gettings area that gets one part of some of the prepared, you know, press release currents and I just recently fracked. I guess those sounded you know particularly strong. I know you guys said you're generally been surprised the up side by the predictive model you guys are using just you know, anything unique about Thursday is two new wells or anything. Is it sort of in a new area or actually in the area that we have a high degree of confidence in and we did it on a of a pack.

So the well basically affected the wells of the same obviously went in different directions, but you know, the wells of the same gives us confidence at the model is is not producing a variable resolved would actually a real result. Well, that's helpful. I guess that also gives you confidence on the The Well cost reductions on the 20% as well. That's right.

I would hope for more than 20% would be honest. They only let me send 20%

Okay, great. Thanks a lot. I appreciate it.

The next question comes from Don McIntosh of Johnson rice, please go ahead.

For Steve just wanted to clarify on the two new gettings. Well said that we was just asking about are those two different than earlier in the call when you were referencing how you found that y'all had an area like 70,000 contiguous acre block that you were it was more of a step out in the you were highly confident or those the same two worlds are talking about in both instances. No, I'm not saying the sacred locked sacred block is is is a part that we we have a high degree of confidence.

These two new wells off. The pad are within that block. The other Wells are away off the block all the other Wells. We've talked about are nowhere near the walk.

Okay.

Presentations and so when you think about those remaining six hundred locations that you've conservatively highlighted, how would we how would we think about an average oil rates to go go along with the 600?

I don't know, you know, you're you know, the the the the 70,000 was sort of an example of one area. So we didn't know we got set up for areas. And you know, we in some of those areas. We only have one or two Wells, you know in this larger block we've got more so I I don't really know but you know the

You just hard to do it. I understand. You know, we're probably not going to get to this in anybody, you know with with two rigs. It will take the rest of my neck, you know, certainly might have or maybe yours too drill it off. So I you know, you know, our our interest is basically to Define it and and and then figure out the program to develop it will be and that's going to take us a while. So I think the only point of the 400 locations was to say, you know, we got ten years of activity is a minimum wage with two rigs maybe more and you should you should do it as you know, I don't know when we'll do some exploration just disorders Square it up. Some of those countries may be better than this block by the way. So I we just are not in a position to sort of got forecast beyond beyond this because you know, it's plenty dead.

Got it. Got it. And then you know, you also talked about reducing the well costs by you know, 20% or even more in 2020. Can you give us a sense of you know capex per well or capex per rig in the in the getting sealed today and just based on what you know about the characteristics of the field. Do you think it's do you think it's possible that those costs could eventually come down to the costs around the the Carnes area?

You know, so, you know, the the wells to this point we've got, you know, we've taken Coors and a lot of science fairs order stuff.

And the gathered data, so we sort of understand what we're doing. So as we drop that, you know, the the wells.

It should be in the seven million dollar range, you know, the formation is deeper here than than in Karnes and and you know, we're cuz we have so much acreage with drill and you know, six thousand foot laterals at this point cuz we know we're not really restricted by by acreage. So when we major longer lateral some point it's a more complicated drilling because of the field but off, you know, so I I think around 7 right now and you know, I would hope at some point we'd be down in the five and half and six

You know, I think that's a little ways away know that that's that's also very helpful. And then finally, I mean, I know you've talked about, you know, having a high confidence on bulletins month for twenty twenty, you know, we've heard of assets outside the Permian, you know, sounds like they may be going for you know PDP teens or maybe even pv20 these days a month. So just wondering, you know, just you know, just wondering what you're seeing on valuations in general in the in the eagleford. And and I mean, I, you know, we make a bid we we win but but they don't sell.

Because they want more the the fundamental issue is that we're willing to pay a reasonable price for the pdp's and we're not willing to pay very much for local.

And they want money for the locations because two years ago. Some guy called them two locations were five million dollars each or something.

And so and they marked a lot of these are private Equity people that have marked the market.

Assets on some basis that I don't quite comprehend. So, you know, they don't want to take you know, they're not prepared at this point to take a loss at some point, you know, the you know, they'll take the take the hip but but right now they're you know, they don't really they don't really want to take the loss but I'm not I'm not really concerned that there's not a lot of buyers for this sort of acid. The only value really is in for somebody who can integrate the assets and spread your overhead. These companies may may be nine ten thousand a day and they got overhead a 30 million dollars or forty million dollars.

You know we can make that all go away.

And so, you know that that's the only value somebody couldn't buy it and run this asset and then make any money with you know, that kind of overhead. So our principal objective is not just more locations. That would be nice. But but also to spread over head cuz that's a real value-add that we have compared to somebody else not to start all over again.

That makes sense. Very helpful. Thank you. Thanks.

This concludes the Q&A session and the Magnolia oil fourth-quarter and full-year 2019 results conference call.

Thank you for attending today's presentation. You may now disconnect.

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