Q4 2019 Earnings Call

I'd now like to hand, the conference over to your Speaker today, Jennifer Samuels, Vice President of Investor Relations. Thank you. Please go ahead Mr. Samuels.

Thank you Julie and good morning, everyone and thank you for joining US allow me to quickly remind you that we may discuss forward looking statements about her plans expectations and assumptions regarding future performance. These statements involve risks that may cause our actual results could differ materially from the results expressed or implied in our forward looking statements.

Please refer to the cautionary information about forward looking statements in the Fourq <unk> earnings release, the IR presentation and the risk factor section of our form 10-K, which was filed this morning. All of those documents are posted to our website. Our discussion today may include non-GAAP financial measures that we believe are you still an understanding and evaluate.

Meeting our performance a reconciliation of those measures the most directly comparable GAAP measures and other information about these non-GAAP metrics are provided in our earnings release and IR presentation here to answer your questions. This morning are president and CEO, Jay Ottoson, VP and CFO Wade Pursell, Chief operating officer her.

So we have some very positive news to talk about so let's get started I'll turn it back to you juliane to pick our first question.

Thank you if you'd like to ask the question. Please press star followed by the number one on your telephone keypad.

Your first question comes from Brad Heffern from RBC. Your line is open.

Hey, good morning, everyone.

Well I'm looking at the the zero time thought that you guys gave for the 41, New rock Star results, obviously, they're they're outperforming the per average bye.

Significant margin I'm, just curious you know how much of a driver of that why was that for the strong for Q performance and then how much of that stronger performance is assumed in the 2020 guide.

Hi, Brad Herb Yeah. So the 40 41 wells that are we showed their their their excellent top performers. There are no oh unbounded wells in there at all there all fully ban and how founded and so yeah. There part of the reason for Q performed really well.

And then some of that performance will continue into.

The first quarter and normal numbers decline normal decline curves nothing really.

Outstanding there or the one thing I will say is that we do periodically have shut ins to keep from flaring.

In some cases, and we did that during fourth quarter and again in January and then we do have immense like we had a 12 inch snowstorm in big string believe it or not at the beginning of February not limited our access to someone else. So.

Yep.

Well the perform as predicted and then we have you know other events that we got to consider with third party gas processing et cetera.

Okay got it and then I was wondering if you could just comment on inventory you know at this point do you have any sort of numbers that you could put around you know how much of how much Midland basin inventory is left either in terms of wells are years or maybe in terms of <unk> percent. That's been developed at this point.

Oh, Yeah right. This herb again, so the or what we did and I think it was slide 17, we showed a frame of reference since there's so many different pacings between companies on how Ah how they count inventory you know some do just pick something up I think I put that in.

On the call the taping yesterday.

Somebody sticks out of map some have IR cut off in the cut off very so the way we look at is.

We just have more than a decade of some of the highest quality inventory in the entire Midland Basin and that's why we showed that is because the inventory. We have is really high quality and then we're continuing to grow inventory as we look at additional intervals and you know, we really scratched the surface on that all over the last year and most of our.

Our developments to date have been those co developments, Oh, lower spraberry, a little bit and dean in their wolfcamp, a and Wolfcamp b and we very that co development, depending on the specific geology of Oh drilling spacing unit I.

I hope that answers it.

Yeah, Okay. Thank you.

Your next question comes from Neal Dingmann from Suntrust. Your line is open.

42 question Jay My first question for you heard been South, Texas, specifically looking at Slide 20, you certainly had strong results on that latest Bristol Wells. It was just give you confidence that further wells, maybe that northern area could be as high liquids or is positive, but any color you could talk on that.

Oh, Yeah, Neel, Yeah, we're really pleased with that a without well Oh, we are immediately started drilling another well in the general vicinity to the Austin chalk to confirm that type of result, you know whenever you have just one well ahead of that nature, you want to check it out but overall the overall.

Average well, we're really pleased to see is that that's pretty much. If you average those five well that's about in line with Delaware Basin average that we've seen from a couple different banks.

Issuing and that particularly well is considerably better than men, Delaware Basin wells and we don't have any takeaway issues here. So we're where we're pleased with it and we're going to go confirm it and we're going to drill longer lateral into it.

In that area.

Okay. Then my second question else on South, Texas, you mentioned in prepared remarks about.

A potential JV into play I'm, just wondering could you speak to wouldn't you know Jay when you guys are weighing all the options on this how you think about keeping versus shale versus a JV or some other structure how should all that thought process is going.

Yeah. Thanks for asking the question you know I think we're doing exactly what all our stakeholders should want us to do.

Which is exploring every option to generate more economic activity in value from the South Texas leasehold yeah.

We have engaged Scotia bank to help us do a abroad search.

Including.

Really for funding partners.

Including international.

Players and large gas consumers.

It could be that will receive some proposals as part of that process that could involve a and earn in.

To our acreage or a purchase so some or all the assets.

You know our existing PDP covers all our volume commitments or Nbcs some people call that.

So our plan assumes that nothing gets done I want to be real clear about that.

So anything that we do here, just really upside to our plan, which is to drill economic wells.

So with that said you know again this is a it's obviously a difficulty in the market out there we're doing what we think a any active is good activists management team would do to pursue all the alternatives and.

No specific timeline.

We're just we're going to anything we didn't get here will be upside to blow through what is a very robust plan.

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I would happen.

What happened.

Long answer field to build the calling your next question comes from Gabe Daoud from Cowen and company. Your line is open.

Hey, good morning, guys or Jay I guess, just given a decrease in Permian footage turned to sales are expected to turned to sales and 20.

Versus 19, I think there's some worry over the trajectory of Permian volumes throughout the year and even though it's early also some worry about how Permian volumes trend. It's a 2021. So can you maybe just the just the cadence for this year and how you view the Permian program overall evolving over the next couple of years.

Ah, Yes gave this turban, yeah, I don't really see any concerns on a cadence at all really what we're doing is growing well production at a pretty good clip there at 5% to 10% and we're really working on the free cash flow and.

That's that's really the focus and we plan for free cash flow to continue to grow 2020, 2021 and beyond.

So it's a program that.

I think does all the objectives, we said from a strategic level.

Got it thanks, or ER, and then I guess, just as a follow up you're exiting.

2020 in the Permian with quite a bit a dog. So I guess is that natural backlog or do you anticipate maybe exiting 2020 would something less than than entering the year I think it's about 40 ducs or so.

Ah, Yes, I gave the DUC count it's just the normal course of business with our you know we're running five rigs and we're running two frac spreads nodes rigs are running continuously their drilling a and pretty much. This summer lateral length wells and then the frac spreads. Its just the size of the pad, sometimes you're gonna have six well pad, sometimes you know.

Two well pad at some four so it just and you bring all those wells on at one time. So that can just move your DUC count around I think the dot.

A drain down in 2019 was pie five wells, but that's just a matter when the pads are timed that's all.

There's no specific strategic objective to do any drawdown or build of docs.

Okay got it got it okay. Thanks, guys.

As a reminder to ask a question. Please press star one. Your next question comes from up from like style of from Stifel. Your line is open.

Yeah, Hi, good morning, everybody.

For the city give a few more details on your plans for South Texas of the 16 wells put a drill or just not completions [noise] do you know at this point how many of those are planned to be in the Austin chalk.

Mike All nine completions are planned to be any Austin chalk at this point.

Okay interesting and.

Oh hypothetical I guess it you know if you did do something in the Eagle Ford say, it's even flat out sold it would that change your plans for the.

For the Midland this year and now so.

If at all.

Mike This is really speculative now because the odds are that nothing happens.

Our focus is on would first beyond reducing leverage.

Generated free cash flow and reducing leverage that's that's our those are a priorities.

Got it and.

Question for for we've done the 2022 notes I'm just your thoughts on the ability to do anything with with those or is the market not amenable to that right now.

Yes, good question.

Yeah, you know what they're they're still ways away. Their 22. So there if the ended the year there nearly three years away. We'll just we'll just continue to generate some free cash and hopefully chip away at it Mike and look for look for better opportunities. Then I think exist right now for any potential rebuy, but we like where we are though.

Pretty good thank you.

Sure.

Your next question comes from Gail Nicholson from Stephens. Your line is open.

Good morning, everybody I apologize I got on a net but I'm not sure. If this is already answered, but you guys continue to show really good efficiency prevent bethesda drilling side as well the completion side I'm, just curious where current nonproductive time is today and you see that's an incremental improvement if you could continue there and pick up even more efficiency.

Gains into 24 time frame.

Uh-huh Gail this is herb Oh, we do detailed nonproductive time evaluations of every well, we drilled and every well we complete and Theres no single silver bullet, it's a lotta grinding work to do that and you worked closely with the contractors.

The biggest gains tend to be in improved communications between the different aspects you know if you've got 13 contractors out there on a on a completion going on or having the best communications, what really drives. It. So that's that's really been answered no silver bullet lots of grinding work.

Okay, Great and then defense, probably maybe for weighed on hedging you've taken a really strong hatch Buck this year on how you're thinking about 21 and with the continued volatility that we have experienced in the commodity as it had to decide you changed at all.

Yeah, that's a great question and we do have a really we like our hedge book for this year I think we have 80% of our little hedged and we will strategically just do something very similar is what we've done in the last year, two and and that's watch the strip and pick a price that we feel confident in you know.

We've already put a few hedges in the first quarter of 21, and we'll just continue to try to opportunistically layer on hedges, but we will continue to to add hedges as we move through 20 looking looking into 21 that next Gen. Short answer is we haven't really changed anything strategically we just well we'll watch it closely and has as.

We as we can will will will layer hedges in.

Great. Thank you.

Sure.

We have no further questions I would now like to turn the call over to Mr., Jay Ottoson, President and CEO for closing remarks.

[noise] well I'd, just like saying, thanks to everyone, who join for your time and attention today and we'll look forward to talking with you at the end of the first quarter. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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