Q4 2019 Earnings Call
Good morning, and welcome to Centennial Resource developments conference call to discuss this fourth quarter and full year 2019 earnings.
Today's call is being recorded a replay of the call will be assessable until March 10th Twentytwenty by dialing 855.
[noise] Fivenine to 056 entering the conference I'd number 76799 from one zero or by visiting Centennial's website at Www Dot C. D E V I N C dot com.
At this time I will turn the call ever to Hasan <unk> Centennial's director of Investor Relations for some opening remarks. Please go ahead.
Thank you Rebecca.
Thank you all for joining us all the company's fourth quarter and four years 2019 earnings call.
Presenting on the call today are mark that Bush, our chairman and Chief Executive Officer, George Glitches or Chief Financial Officer.
Sean Smith, our Chief operating officer.
Yesterday February 24th we saw they form 8-K with an earnings release reporting full year earnings results for the company an operational results for our subsidiary Centennial resource production LLC.
We also posted an earnings presentation to our website, we will reference during today's call.
You can find the presentation on our website homepage, we're under presentations.
Www dot ceded Inc. dotcom.
I would like to note that many of the comments during this earnings call or forward looking statements involve risks and uncertainties.
It could affect our actual results from plans.
Many of these risk or beyond our control and are discussed in more detail into risk factors and the forward looking statements section we're filings with the FCC.
Including or annual report on form 10-K for the year ended 2019.
Which was also filed with the FCC yesterday.
Although we believe the expectations expressed or based on a reasonable assumptions. They are not guarantees of future performance and actual results or developments may differ materially.
We may also refer to non-GAAP financial measures that help facilitate comparisons across periods and with our peers.
For any non-GAAP measure we use a reconciliation to the nearest corresponding GAAP measure.
Can be found in the earnings release, we're presentation.
Which are both available on our website.
With that I'll now turn the call over to Mr., Mark Pampa, Chairman and CEO.
Thanks, Hey, good morning, welcome to Centennial's fourth quarter earnings call.
Presentation sequence on this call will be as follows George will first discuss our quarterly and full year financial results monetization of our salt water disposal assets and 2020 guidance. Sean will then provide an operational update including recently efficiencies well results and year end reserves and then I'll follow with.
My macro view, our current strategy emanating from the macro and management suggests succession plans now I'll ask George to review our financial results.
Thank you Mark Centennial finished 2019 was strong fourth quarter results as you can reference on slide 19 of the earnings presentation.
<unk> oil production for the fourth quarter averaged approximately 45000 barrels per day.
Which was up 13% over the prior year period, and 7% over Q3.
Average net oil equivalent production totaled 79734 barrels per day.
Which was up approximately 15% and 4% above the prior year period and Q3, respectively.
Revenues totaled approximately 256 million, which was a 12% increase compared to Q3, primarily as a result of higher production and price realizations.
Excluding the impact of basis hedges centennial's realized oil price was $53.25 per barrel for the quarter compared to 50 171 in Q3.
Shifting to unit costs on the last earnings call. We identified several initiatives to mitigate the increase in lease operating expense incurred during Q3.
<unk> preliminary results of those initiatives have been positive.
Hello, we per barrel decreased by 12% from Q3 to $5.30 per barrel, primarily as a result of reductions in equipment rental electricity chemical and labor costs.
Cash DNA for Q4 was $2.12 per barrel, which was up quarter over quarter, primarily as a result of a nonrecurring contract settlement charge without this onetime charge cash DNA per barrel would've been $1.88.
DDNA increased by 4% to 16 75 per barrel and lastly, GPM t. expense decreased 5% to $2, an 82 cents per barrel.
For the quarter, we recorded GAAP net income attributable to our class a common stock of 9.6 million.
Adjusted EBITDAX totaled 160 million up approximately 20% from Q3 due to higher revenues and lower Elouise.
Shifting to Capex. During Q4, we ran five rigs compared to six rigs for most of Q3.
For the quarter, we spud 22, gross wells and completed 27 compared to 21 gross wells and 17, respectively. During the prior quarter.
Despite completing 10 more wells during Q4, DNC Capex of approximately 163 million increased only 1.5 per cent compared to Q3.
Facilities and infrastructure capital totaled approximately 31 million, which was down 23% from Q3 because of a significant decline on the infrastructure side.
This trend will continue as we expect to see significantly lower facilities and infrastructure spending during 2020.
In Q4, we incurred approximately 3 million Atlanta capital, which was down from 11 million in Q3, keeping us within our original guidance range.
Overall centennial incurred approximately 197 million of total capital expenditures during the fourth quarter compared to 212 million in Q3, which represents a 7% reduction and marked our fourth consecutive decline in quarterly Capex.
On February 24th we signed to purchase and sale agreement with water bridge to divest our salt water disposal assets in Texas.
For a total purchase price of 225 million.
The consideration comprises 150 million in cash up front and up to 75 million of additional incentive payments that if achieved would primarily be paid out over a two year period.
We believe the incentive payments are reasonable to achieve based on our current Reeves county activity levels.
The divested assets, which are detailed on slides 10, and 11 consist of centennial's operated SWT wells interest in for non operated wells approved and pending permits and associated water infrastructure located essentially all in Reeves County.
These assets currently dispose of nearly half was centennial's gross water volumes in Texas.
Upon closing, which is expected at the end of Q1 after tax cash proceeds of approximately 150 million will be used to repay borrowings under our revolving credit facility.
Further reducing our already solid leverage metrics. Additionally, these proceeds will plug any funding gap associated with our development program, making us essentially cash flow neutral for 2020.
Water bridge as a longstanding partner centennial's and has historically disposed of nearly half of our produced water volumes in Reeves County.
The divested assets combined with water bridges broader southern Delaware system will provide significant flexibility and additional capacity to service centennial's water disposal needs.
After closing Centennial will pay a market disposal rate on the incremental volumes that the company doesn't already said underwater bridge, which is incorporated into our 2020 Louie guidance.
On slide 14, we summarize our capital structure and liquidity position.
At December 30, Onest, we had 175 million of borrowings on our credit facility and approximately 635 million of total liquidity.
Based upon an 800 billion electric commitment.
It is important to note that the elected commitment has a 400 million dollar cushion relative to our $1.2 billion borrowing base.
In that regard, we view, our liquidity position as somewhat insulated to the bi annual borrowing base redetermination process.
Turning to leverage statistics centennial's net debt to book capitalization at December 30, Onest was 25% and net debt to last 12 months EBITDAX was 1.8 times.
Also as illustrated on slide 15, I'd like to remind everyone that our first bond maturity is in the first quarter 2026, providing us with significant financial flexibility.
Before moving on to 2020 guidance I'd like to spend a moment to put fiscal year 2019 into context, which is detailed on slide six.
You will recall a year ago that we had forecast 2019 oil production volumes at 39000 barrels per day at the midpoint of our guidance with the six rig program.
At the time that represented 12% oil growth at the midpoint predicated upon the 625 to 725 million DNC capital spending range.
In fact, we ran a six rig program through early September wouldn't be dropped to five rigs as a result of increased efficiencies.
We completed 84 gross wells versus 70 at the original midpoint and raised production guidance twice during the year ultimately, we generated 23% oil production growth instead of the initial 12% guide.
And all of that occurred with $691 million of DNC capital, which is approximately 2% over the midpoint of original guidance.
Essentially we got much more efficient operationally, particularly in the second half of the year. This in turn allowed us to deliver a much higher degree of capital efficiency at a more attractive production growth profile in 2019 than most of the expected which is also a function of our wealth and acreage quality.
I'll now turn to 2020 guidance, which you can reference on slide 17 and 18.
Given the recent weakness in oil prices, we've decided to reduce our rig count beginning in April to four from five rigs in order to preserve capital and drilling locations until oil demand recovers.
For a majority of the gear, we plan to run three rigs in Reeves County, and one rig and Lea County.
This allocation will allow for the buildout of infrastructure in new Mexico, while meeting all of our leasehold requirements and Texas.
This program will allow us to Spudding complete 70 gross wells at the midpoint and is expected to drive 3% annual oil production growth.
You can see Capex for 2020 is estimated at $520 million at the midpoint, which represents a 25% reduction from 2019 levels.
Notably as a result of the higher rig activity earlier in the year. It should come as no surprise, the Q1 will be our heaviest quarter from a capex standpoint.
In total we expect this DNC program to generate mid point oil production of 43800 barrels per day.
Finally oil as a percentage of total production is expected to be 57%, which is consistent with what we saw during 2019.
Facilities infrastructure and other capital is estimated at $105 million at the midpoint, which is $57 million lower or 35% reduction compared to 2019 levels. Finally, our land Capex budget is $10 million to $20 million, which is down from the 38 million. We spent in 2020.
Turning to unit costs at the midpoint Ela, we is estimated to be $6.20, Errol, which is partially reflective of higher water disposal fees from the portion of our water volumes in Texas that are impacted by arrest WD sale.
Additionally, midpoint DDNA is estimated at $16 GP empty at $3 any sense and cash DNA at $2. In 15 cents you can reference how that compares to our 2019 actual results in the summary table on slide 19.
With that I'll turn the call over to Sean to review operations.
Thank you George this was another consistent quarter of strong execution for Centennial.
As we highlighted last quarter, our operations team continues to do a tremendous job driving down well costs. As a result of efficiencies gained in the field as seen on slide seven we've been able to reduce our spud to rig release in the fourth quarter by almost 40% to 19 days on average compared to last year.
Importantly, we were able to achieve this while remaining inside of our 30 foot target window, 95% of the time during the entirety of 2019.
Similarly on the completion side, we've increased our average stages pumps per day during the quarter by 30% year over year to 6.4 stages per day.
Overall these efforts resulted in over 20% reduction and fourth quarter, well costs for our 7500 foot laterals compared to the prior year period.
Combined with longer laterals and larger pad size. This has translated into a material improvement in our overall capital efficiency.
Importantly, we believe there are additional efficiencies to the gain and this would be a primary point of focus receded in 2020.
Now turning to results for the quarter on slide eight in Reeves County, the Bodacious, two well pad was drilled using approximately 6200 foot laterals in a stacked staggered pattern targeting the third bone spring sand and Wolfcamp upper a intervals. The pad delivered an average IP 30 of approximately 18.
Hundred barrels oil equivalent per day, or 210 barrels oil per thousand foot of lateral per well.
Overall Centennial completed 10 third bone spring sand wells in Texas during 2019, but the majority of them being paired with a wolfcamp upper ray.
We have not only proven the viability of co developing these two zones, but most importantly, our third bone spring San results to date have been on par with our Wolfcamp appraise.
This highlights the quality ever inventory additions with the third bone spring sand.
As a reminder, it wasn't too long ago. When we were one of the few companies in this area of the southern Delaware Basin to develop a third bone spring sand with modern completion techniques. Approximately two years later, we've developed this zone into a top tier reservoir for Centennial with essentially zero entry cost.
Also in Texas, the Lucy Pruitt and Nicholas pads. Each consisted of three wells in the Wolfcamp upper a spaced at our usual 800 to 900 foot spacing.
Lucy Prudes were drilled with approximately 7000 foot laterals and reported an average IP 30 of 1700 barrels oil equivalent per day or 214 barrels of oil per day per thousand foot of lateral per well.
Drilled with approximately 10000 foot laterals, the Nicholas Welzenbach achieved an average IP 30 of almost 1900 barrels oil equivalent per day.
Now turning to new Mexico on slide nine the Airstream 24 state calm pad was co developed with four wells targeting the upper and lower portions of the second bone Springs sand.
He is approximately 10000 foot laterals delivered an average IP 30 of over 1800 barrels of oil equivalent per day or 1500 barrels per day of oil.
This is another important test as previous operators in this area have historically targeted this interval with four wells per section.
Notably the air streams were drilled at 900 foot spacing, representing approximately six wells per section.
We believe this co development pattern will allow us to accommodate more wells per section on a portion of our acreage while draining the reservoir more effectively.
The duck on pad consisted of four 7004 wells targeting the first second and third bone spring sand and second bone spring shale intervals.
Combined these wells delivered average IP thirtys of approximately 1700 barrels oil equivalent per day, or almost 200 barrels of oil per day per thousand foot of lateral per well.
Shifting to slide 13.
Total proved reserves increased 15% to approximately 300 million barrels oil equivalent at year end 2019.
We organically replaced approximately 243% of our 2019 production at a drill bit FMD cost of just over $13 per Boe.
At year end, our proved reserve value on a PV 10 basis was approximately $2.2 billion, which represents a reduction from year end 2018, primarily as a result of lower commodity prices across the across all three streams.
Now before I turn it back over to Mark there are few important items I'd like to note.
Our 2020 plan represents an almost 30% reduction in our overall capital budget year over year, while still just playing positive oil growth.
On the DMC front. This is partially a function of the decline in rig count, but also driven by our material reduction and well cost.
Infrastructure facilities and other Capex is down 35% year over year and is the outcome of several initiatives.
As a result of our SPD divestiture will no longer be responsible for that systems associated capex, whether it'd be the drilling of incremental as to be D wells or the construction of small gathering lines or large diameter pipe.
In 2020, we also expect to tie into existing tank batteries and reuse existing pads saving further dollars on facilities Capex combined these cost savings make as much more capital efficient.
Our 2020 plan also as many other advantages that might be less obvious, but arguably just as important.
First we're not going to grow production just for growth sake by dropping a rig at the end of the first quarter. This will not only preserve capital, but also high quality inventory that would otherwise be produced in a sub optimal oil price environment.
Not to mention growing incremental volumes in a market that currently does not value growth.
Centennial also continues to focus on replacing over one times, our drilled inventory each year, whether it be from organic inventory additions swaps or trades 2019 was no different as we organically replaced approximately one and a half times, our drilled inventory last year as shown on slide 12.
Yes.
While this might not be rewarded in the market currently it will continue to be key for centennial going forward.
If you go back and look through our presentations as early as 2016.
Centennial's goal has not changed a bit we're determined to reached the point, where our development program is entirely funded through cash flow from operations, while providing moderate oil growth on an annual basis and our asset base certainly has the ability to deliver on these goals I don't think there's any question with regards to our asset quality, which.
As evidenced by our well results and consistent execution of our annual guidance.
Now I'd like to wrap up by saying how truly honored I am to succeed Mark as CEO and we'd like to personally. Thank the board for this opportunity I'm excited to lead such a great organization and I look forward to continued execution, while driving long term value for the stakeholders with that I'll turn the call back over to Mark.
Thanks, Sean.
Now I'll provide some thoughts regarding the a little macro picture and relate them to Centennial is 22000 strategy I'll also discuss our management succession.
Two things are apparent regarding that 2020 global oil supply demand picture.
First us oil year over year growth will be less than past years, and second global demand will likely be less than 1 million barrels per day. This year.
See there's 2020 business plan response to the current corrupt corona of hours induce low oil price is simple.
Oh or timing balance sheet preservation over production growth.
Okay. Thanks budget is approximately 30% lower than last year.
At least it still expect to achieve a small amount of production growth.
We believe the slowdown.
Yes.
In overall us production growth will allow the global market to rebalance within a reasonable timeframe and we plan to preserve our balance sheet until that occurs.
By monetizing our salt water disposal system and reducing from a five to the full rig drilling program, we expect to be essentially cash flow neutral. This year based on a current forward strip.
I'll remind everyone that we have 80000 reasonably contiguous acres in the heart of arguably the best U.S. shale basin.
One of the few companies with a multi year track record of exceeding our production target while staying within our original capex estimate each year.
Also note that unlike many other shale companies ceded has not had any spacing or well pattern to bottles from the get go lease space, though Texas wells at a conservative 880 feet. When you aggregate acreage quality operational execution, a clean balance sheet and good management, that's a strong.
Combination.
Speaking of management I. Thank all of you have seen a press release announcing our management changes that will take place June 1st.
I'll be retiring and Steve Shapiro will replace me as non executive Chairman, John Smith will be promoted to CEO and met garrison will be promoted from Vpgs sciences to COO.
Retiring simply because of reached an age where I need to step off the stage.
I'm 73 years old and when I started this company as this back in 2016, I told everyone likely stay for four years until 2020.
Clearly the oil market and S&P equity valuations didn't develop as I expected, but I'm staying consistent with my original career plan.
We're fortunate to have a competent team to come in behind me.
Some of you May remember, Steve Shapiro from his days as CFO and board member of Burlington Resources, where he was very well regarded by the investment community.
He was with Burlington until the buyout by Conoco Phillips in March of 2006.
Joined exceeded board in October of 2019.
John Smith has been with Centennial since 2014 and has been functionally running much of the company's since 2018, I believe he'll do a great job in the CEO role.
Matt Garrison isn't LG alumni, who has been received as since 2016 and has been one of the drivers of this significant production growth we've achieved since inception.
I'll be working closely with his team over the next three months to assure that this is a seamless transition.
Thanks for listening and now we'll go to Q in a.
Thank you the question and answer session will be conducted electronically. If you would like to ask a question. Please do so by pressing Star then the number one on your telephone keypad.
Questions are limited to one question and one follow up question. If you would like to withdraw your question press the pound key.
And your first question comes from the line of Matt Portillo with TPH.
Good morning, guys.
Morning, Matt.
Just a strategic question from a capital allocation perspective investors are looking for industry participants to move towards capital allocation strategies that are able to generate cash free cash flow under strip pricing.
For 2020, backstop, the outspend with the salt water disposal, but as we look out into 2021 and beyond if crude remains depressed that these $50 levels should we expect to further pouring back of capital towards the cash neutral program.
Yeah in.
21.
You know if crude remains at $50.
I think it's pretty well certain it will prioritize.
[music].
The balance sheet again over production growth.
And.
That I think is very very likely.
It'd be really really odd too.
It's a in that kind of environment that seem to have let's say, we're going to grow production in.
50 or $52 oil environment.
Again that would go back to the macro picture that I've articulated I think that we're going to see a significant slowdown at us production growth. This year I'd say, that's that certain to happen.
If you play that out in 21.
You say, you're at the 50 or $52 oil.
Oil price environment.
A dose in Florida say that the U.S. year over year production growth in 21.
I would probably be zero.
Under that price environment.
So.
One would expect.
A significant tightening and global supply demand.
So I don't think you did go to many years.
With.
You asked year over year production growth of zero.
Before you see a rise in oil prices so.
That would be the thesis that we would work under that we would preserve the balance sheet C. diff.
And that the.
The significant slowing and yield US you year production growth.
They wouldn't be too many years before you would see an increase in in global oil prices.
Thank you Thats very helpful. As this as my second question just curious if you could dig a little bit into the facility spend as it relates to 2020 any incremental color you can provide on where that capital of $105 million of capital is going towards and then just a bigger picture question over time, how should we.
Think about that facility spend as the asset starts to mature and as you start to spend more and more capital at the drill bit.
Yes, John you want to feel that you, but thanks for asking the question, Matt. So as we talked about is pretty material decrease and facilities and infrastructure spend year over year. So we're certainly seeing the benefit of a maturing the asset on the facility side. Those are allocated costs are really at the wellhead to that income.
Tank batteries and things like that what's needed to hook up to the well we do think we're seeing some incremental savings there by going back in to re existing facilities and utilizing what was there from last year in years. Prior so we're seeing some nice efficiencies gains there on the infrastructure side.
As it were still a young asset as you well, but as we've developed this over the previous several years.
We've been able to spend enough infrastructure to where the position is pretty well set up so on an annual basis. There is a nice reduction in infrastructure spend.
From 2019 to 2020, we do have a few items that are outstanding that include as we've talked about in previous calls our electrical substation still needs to go live a portion of that was spent last year, but the remaining portion will be spent in 2020, and then second part of that is theres, a little bit of infrastructure that needs.
To be spent in new Mexico to bring that up to where we needed to be before full development. So that's where the lions share of the infrastructure spend is for 2020.
Thank you.
And your next question comes from the life mine of Scott Hamilton with RBC capital markets.
Yeah. Thanks settlement first congrats Merck on under long and successful career leadership, They think Barr Nunn as Ben said.
To to the industry and hope you.
I hope you all the in your future endeavors.
Ben.
My first question is then you're maybe Mark you want Mr.
George you want and Sylvan Lake manpower, but you talked about your view on the back from in House.
Since and look to develop its assets moving forward in this environment than.
No and you did talk about your maybe a point that which number could gets more balanced can you give us a view on when you think that occurred in.
Bigger picture has your view one hedging oil change given what's happened over the last couple of years.
Yeah.
On the macro situation there's got.
Yes.
It would.
Seemed like to me that.
Absent the Corona virus.
We were on the verge of.
Being balanced sometime in the second half of this year.
Where we were we were likely to see.
$65 WT Ani into second half of this year.
Now.
You lay the Corona virus on air.
And I think it's probably pushed.
The balance situation into the into likely 21.
In my view and so what I think we're going to see happened is.
You asked year over year production growth is going to slow down considerably from the 1.2 million barrels a day that we saw in 2019 to probably.
400, maybe maybe five 600000 barrels a day this year.
And then likely.
Considerably less than that in a in 21 at 22, and so I think we're going to see a balancing in 21 or no later than 22.
As we see a structural change in in the ability of total us production to grow.
Short of oil going to $80 stabilizing there, which I don't think any of US believe is.
That likely.
So.
Playing into C. diff strategy.
The strategy is pretty simple its preserve the balance sheet.
As we watch.
US production growth year over year, frankly weaken over.
Over the next the.
12 to 36 months permanently weaken let me say.
And.
Have cdaf in a position where we have.
Significant inventory at that time.
And a strong balance sheet at that time.
And we are located in arguably the best the U.S. oil shale basin.
Where we can then.
Grows significantly and have the ability to.
Two.
Two.
Add some additional acreage during this week period and the Nbn.
Small company, but a small high growth company.
And.
When we see that pricing signals go that way. So that's simply put is our strategy.
And the whether that period is 12 months or 24 months I can't tell you, but I don't think it's going to be.
Much longer than 24 months.
Period of the low oil prices.
The hopefully that answers your question.
Yes, it does good and just to both the hedging is your hedging views changed.
Oh the hedging.
Since we can't tell exactly when this when this is going to turn around it's not the.
It's.
I'd say at least at this period in time is probably not a good time to hedge oil.
So.
I don't think we'll be hedging any oil.
At least during my tenure, which is not that long. So you cannot you can see how Sean wants to play that I mean that strategy may change after at least.
I've been a tourist anti hedger.
Maybe that's been a good move maybe that's not many good move but.
That's one philosophy that might well change.
As I transition away from the organization.
Right.
Good shown on the spot on that Wonder if you say that one for the second quarter conference call.
I'd, probably say that for the May conference calls.
They do.
Okay.
Fair enough.
My follow up question. Your 24 completion quarter was extremely robust relative to what I think you'll even modeled and what we're expecting well played a role that with it.
Few headed with the size of well pad that yet coming online in no time you. Those can can you give a little color on the what caused such a high completion, calling for Q.
Yes, Sean.
Sure Yes. Thanks for the question. It certainly wasn't doug's, we don't have a practice of building up DUC inventory happened in the past and that's certainly not something that we we look to obviously when you're doing pad development. There's just some lumpiness that comes along with ads. So we had a fewer completions in Q3 versus Q4 really related to Jim.
The pad timing of when wells were being completed and brought online so nothing.
Strategically position there it was really just the timing thing.
Understood. Thanks.
Your next question comes from the mine of US It soon with Bank of America.
Thanks, Good morning, Mark the older best on your retirement.
Your views will be missed and Sean the congrats on on the new role.
Sean on slide six.
You know you talked about DCM of Capex were completed foot that was down nicely in 2019.
What does the 2020 budget imply who is in your prepared remarks, you talked about long lateral and larger pad sites.
Any thoughts on 2020 lateral length about sites would be appreciated.
Sure Yeah. Thanks for the question and pointing that out again I think slide six is a great representation of.
Pride, if you will from the operation side of things, where we reduced well costs pretty significantly from what we thought we were going to accomplish beginning in the year to where we ended up at the ended the year I think if you roll that forward. That's a good view of how we have guided our 2020 I look forward at DNC costs on a per foot basis, maybe just kind of.
The difference there I think it's a decent way of looking at what we've got going forward, that's driven by a combination of things IVC pad size reuse of existing facilities and then really the operations team continued to drive efficiencies in the field in.
Any of that drive is really working with our technical team. Obviously, we've done some things with bottom hole assemblies, and mud systems and whatnot I think thats been effective but really working with the technical teams geology reservoir engineering et cetera has really helped us to identify any drilling hazards and avoid knows as we're going and I think that.
We've shown that we've been able to drive efficiencies pretty materially year over year going forward I do think there is some more opportunity to lower those costs throughout 2020, but until we execute on those none of that's baked into our 2020 guide.
Got it John Thanks, and Georgia, a quick one for you.
Thanks for the update on on infrastructure spend.
Can you discuss a good rule of thumb to estimate through acquiring infrastructure spend beyond 2020 boast a water disposal in both.
The electric substation spin.
Yeah. The challenging thing there is there does does tend to be a little bit more lumpiness on the infrastructure side relative to facilities. So said, it's frankly difficult to give you a good number on that I think I had referenced on last quarter's call that the relative split of facilities and infrastructure.
As approximately 75% 25%.
Historically, and I think Thats, that's generally a good rule of thumb going forward.
Although I would say on monetizing the SWT system will obviously.
Lower that requirement on a go forward basis in 2020, we have the power substation, which which is adding some incremental capex costs. So it's really tough to predict but I do think overtime.
The those those costs are going to continue to come down.
Appreciate the color. Thank you.
Your next question comes from the line of caution Harrison with Simmons energy.
Yes.
Good morning, then thank you for taking my questions.
So my first one just looking through.
Looking through the K it looks like there was a section where you talked about acquiring in about 24000 acres in the Permian basin.
Well just wondering if you could share any additional color on what that pertains to and then also it looks like there was about $84 million or proved unproved property acquisitions was just wondering what all that was related to thank you.
Yes, first I'll I'll feel the first part of that and Uh huh.
I don't know George or something you month.
Wanted to check on the second part of that lime appeal in the first part of that question.
So you did your homework looking at the K on Air Kashi.
The job.
Yes, they are.
The the acreage this mentioned in the K is.
Is something that.
If you know my track record LG Leah.
We don't like to stand still on our existing.
Plays and let let up.
Just to answer in a circuitous man or is that Oh.
We're consistently looking for exploration plays.
That acreage relates to the new exploration play somewhere in the Permian Basin.
And for confidentiality reasons.
We're still working on acquiring acreage in that particular play.
We'll be drilling it and testing it.
Sometime in the first half of this year.
And.
Thats all the information I'm prepared to disclose this time relating to that.
So for the second half of it.
George you want to field. So if you can feel that particular question sure Kashi I don't have the can front of me, but I.
I think part of what you're describing.
We'll include some of the activities Mark just mentioned, but also some.
Some smallish organic leasing and acquisitions, we've done throughout the course of last year. So nothing.
No one driver that kind of drove the number but a compilation of of different things.
Got it that's that's helpful. Thanks for the comments on both fronts and then.
There was the there was a comment I think in the release that most of the spending most of the DMC spending in 2020 would be on operated as opposed to non op. I was just I was just curious in 29 team what percentage of DMC was allocated to non op and how does that track entering 2020.
I think kashi for out for 2019, it was less than 5% and I think we're taking a consistent view with that for 2020.
Awesome. Thanks, Thanks for that in a mark best of luck in retirement.
Thanks, guys.
Your next question comes from the line of Neal Dingmann with Suntrust.
Guys and congrats on on the new position. My first question centers on your slide nine on the southern Delaware results Im just wondering here do you envision doing more of these multi zone pads, such as the bodacious or will sort of more of the focus on this year target.
Multiple some of the pad such as the Lucy probe or you're just targeting multiply weds multiple wells in the one formation.
Sure Yeah. Thanks for the question I think that going forward. It will be a combination of other those but I think what we've shown is that doing multiple reservoirs in new Mexico.
Although the single pad is definitely successful and it allows us to develop the asset and the most efficient way. So certainly that will be a large portion of our development going forward.
Okay. My second question just follow up on what you all are just talking about little bit on acreage given the slowing activity is there any issues on holding existing acreage or is that maybe part of what are the tend to 20 million land capex is directed towards or is it most of that HBP.
Mark I'll take that one so we do have a small portion of our our land budget.
That goes to making sure that weekend or retain our position together, but the majority of our acreage is held with the with the rigs and so I think that the combination of the two will allow us to keep our position together in 2020 and beyond.
Great. Thanks.
Okay.
Your next question comes from the line of will Thompson with Barclays.
Hey, good morning, Mark Congrats on your retirement and congrats Tomorrow, Sean map promotion.
Maybe for Sean or George maybe can help us understand the potential production cadence through 2020, you're coming off a strong for Q with 27 completion, you'll be carrying a fifth rig through April.
How does that set up for one half versus second half and then it was mentioned the prepared comment the tdev still target the moderate oil growth at four rigs to what would that reasonably.
Before on growth in 2021, I know, it's a tough question, but maybe any color you cannot provide would be helpful.
Sure Yeah, I think yeah, I didn't have question, but I think where we're dropping a rig at the end of the first quarter and so the balance of the year, we'll be running four rig program. So.
There will be a little bit of Lumpiness, obviously, we don't give quarterly guidance because annual guidance, but first quarter. I think you can assume is going to be our highest capital quarter, because we have an extra rig running and I think from a production point of view, you'll see the effects of that in Q2, but then you also see what we are forecasting for the midpoint of our production for the.
Here. So I think you can make some generalized assumptions from that statement.
Okay. Thank you and then.
The 10-K shows about 1.6 billion or about 20000 per flowing barrel PDP PV 10 at 52 around 52 W. Guy.
I would that my math indicate your turn enterprise value implies less than 3000 per net acre.
Would you consider selling some acreage that's been a back part of your inventory stack to further offset outspend just curious on any thoughts there.
Yep.
We'll outfield.
Likely.
No I mean bleed.
Not not any significant acreage to too.
Cover any outspend at this point, we've got our acreage pretty well cored up.
And we sold a little bit of acreage it was on a western fringe during 2019, and so right now.
I'd say that the acreage we have which is just a tad less than that 80000 acres.
Is pretty much a 100% core.
So.
At this juncture, it's it's unlikely we'll be selling any any acreage.
In either Lea County, or Reeves County of any consequence, and we're not looking at the option of.
Using acreage sales to to try and equilibrate to cash flow neutrality.
Okay. Thanks for taking my question.
Okay.
Your next question comes from the line of Leo Mariani with Keybanc.
Hey, guys wanted to.
A follow up a little bit on some of the macro thoughts and comments no mark that you articulated.
Hopeful rising oil prices in 2000 in 21, just wanted to get a sense of whether or not there's flexibility in 2020, if we weren't again in the oil price recovery say in the second half of 2020.
I see Dan considering consider adding another rig or would you just kind of stay Pat with the existing four rigs here.
Well weve.
I mean at least we certainly have the flexibility I mean, they're certainly going to be rigs available to be picked up.
And.
You know if you look at some of the.
Some of the third party forecasts.
You know there their forecasts out there that are forecasting by the fourth quarter WT I'll be $65 barrel.
You know so.
You know war that to occur where that tightening to occur.
Say that we would certainly consider.
Adding.
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Back a rig but the.
At this and so I'd say.
At this juncture, we expect to see the tightening in 21.
And probably the most.
The most likely scenario would be that we would we would continue.
With the.
The program, we've articulated through through 20.
And then if indeed, we see as the tightening and oil prices firming.
That the.
It's possible, we consider adding back that rig in 21 as opposed to making a change to our capital program. In 20, that's the most likely scenario kind of even if oil prices firmed up in the in late 2008, we'd probably stand Pat until 20 want it and make a change in 21.
Okay. That's that's helpful color in terms of thinking over there for sure.
Just question on the cash DNA guidance you guys came in just over $1.80 per BOE. In 2019. Thank you guys are saying that could go up to say 20 to 32000 in 20 here. So you kind of moving up a little bit on a per barrel basis, just wanted to get a sense.
You know what might be driving that I guess I would've thought maybe with less rigs that gene a really wouldn't be going up here in 2000.
Yeah George.
Sure I think.
We did a very modest amount of hiring during the course of 2019. So I think there's there's a little bit of increased cost associated with that but we are very well staffed for.
For current levels and.
I think if you.
Factor in at least for Q4 that there was.
Roughly a 2 million dollar contract settlement charge in our DNA, there's a bit of an offset to Q4, there, but if you if you step back and look at our dollar per BOE, we which at the midpoint, we're saying for $2022.15.
Thats still rates very well relative to the small and mid cap peers out there on a dollar per per BOE basis, we are very much towards the lower end of that metric I think philosophically, we tend to run very lean and efficiently. So while we are seeing a little bit of increases relative relative to where we've been historically I think overall the.
Company is very well placed from a cost standpoint on DNA.
Okay. That's.
That's helpful color and I guess, maybe just on the DMC, an app well costs per lateral but what were the main drivers that caused the big reduction, which I think you guys said it was primarily in the second half of 2019 to get that being year over year reduction.
Sure I'll feel that one I think that it was kind of a a couple of things you know obviously service cost came down a little bit at the middle half of last year, but that was a portion of it the greater portion of it was really efficiencies that we're seeing in the field I think we've just had that much more experience and repetition now.
And our portion of the Delaware basin to where we understand what it takes to get these wells down that in combination as I said earlier with our technical teams identifying any potential drilling hazards. When you can avoid those you reduce your dray days of drilling and completions and so the combination of all that has allowed us to be that.
Much more efficient and our DNC costs.
Thank you.
Great. Thanks, Leo Rebecca do we have anymore questions in the United.
There are no further questions great will this number but it can disconnect. Thank everybody for their interest in centennial and feel free to reach out with any questions. Thanks, a lot have a great day.
Thank you for participating you may disconnect at this time.
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