Q4 2019 Earnings Call
Greetings and welcome to the northern oil and gas fourth quarter and year end 2019 earnings call.
At this time, all participants are in listen only mode.
Question and answer session or follow a formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I'll now turn the conference over to our host Mike Kelly Executive Vice President Finance. Thank you you may begin.
Great. Thanks Diego Good morning, everybody, we're happy to walk him to northern <unk> fourth quarter, a yearend 2019 earnings call.
Before we get into the results, let me cover our Safe Harbor language. Please be advised that her remarks today, including the answers to your questions may include forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to risks and uncertainties that could cause actual results to be material materially different from the expectations contemplated by these forward looking statements. Those risks include among among others matters that we have described in the earnings release as well as in our filings with the FCC, including our annual report on form 10-K.
Our quarterly reports on form 10-Q, we disclaim any obligations to update these forward looking statements. During this conference call. We may discuss certain non-GAAP financial measures, including adjusted net income and adjusted EBITDA Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued this morning.
All right during the call Nick will make the summary comments before turning the call over to our CFO chat Alan only Chad will be Northern's, Chairman Brahma Crotty, who is going to wrap up our prepared comments with some concluding remarks after that we'll open it up or today, where we'll be joined by underlying our COO and Jim Evans our SVP.
Engineering.
Now I'll turn the call over the nickel Grady Northern's, Chief Executive Officer Nick.
Thanks, Mike and good morning, everyone, let's get right down to it and six point.
Number one.
Let's talk about hedging.
Many companies tell you there hedging but their books are littered with three way collars that are all hopelessly underwater today, that's not hedging.
That's gambling for the upside.
We're not going to play macro girl with your money.
This has never been more important to our companies and right now.
At current strip, our hedge portfolio for 2020 and beyond as a staggering mark to market value of over $300 million.
Today's spot price that would be even higher.
This is the value of risk management front and center.
Number two.
Fixed charges.
Much of what we worked on over the past few years alongside our scaling of the business.
Just to continue to drive our fixed charges, which include interest expense and preferred dividends lower.
Our fixed charges were over $9 a barrel in 2018.
Just under 550, and 29 gene and we are projecting well less than $5 per barrel. This year.
But we're not done.
The balance sheet steps, we have taken even in the last six months, particularly in the consent and exchange process have been designed to increase our flexibility.
Reduce debt and the risks associated with it.
The perpetual preferred equity that we have issued its far more flexible than a secured debt that it replaced with a lower rate on top of this.
Combined with the capital shifted to our revolver, we've significantly reduced before looking cost of capital.
Recent downward moves in floating interest rates have only accelerated these savings.
As a cap one note highlighted earlier in the week.
If this pricing persists through 2021, our debt to EBITDA ratio would be less than half of the median of their coverage universe, which includes many so called investment grade names.
This continues to highlight our superior risk management.
Between now and then we'll continue to look for ways to improve that further.
Number three the dividend.
We are here to protect our shareholders' interests long term.
We are currently postponing a decision around the dividend to next quarter in a marketplace such as today.
In this environment, we do not believe we are helping our investors what it with a return of capital until such time as we know the macro outlook is stable.
It should be obvious that we plan for low oil prices, but we're now preparing for an extended period a below threshold prices.
In the interim that money is much better suited to reduce our borrowings and continue to pad the balance sheet.
Northern is well prepared and we'll adapt our plan as the market evolves throughout the year.
Number four guidance.
This speech I'm, giving is not the one that I plan to give just a week ago.
For now we can tell you this.
We'll provide formal guidance no later than our first quarter call.
Many of our operators are changing their plans and real time, we're very comfortable with how much capital, we will spend and the free cash flow outlook, because we know what the lowest level scenarios are however, we want to be precise for our investors and have details on a unit by unit basis, and just need some additional time of their operating partners.
[noise] to provide the formal plan and all the details surrounding it.
We anticipate this guidance will provide ranges tied to sensitivities to activity levels commensurate with various commodity prices.
We would expect that our capital expenditures in the current environment to drop to approximately $200 million and 2020.
This is a testament to the beauty of Northern's actively manage non op model.
Approximately 150 million of that capital was committed to early this year or last year. That's why we hedge as we commit capital and as a result, we've locked in high returns on those projects.
We would also expect to see a number of our wells in process get duct by operators. This is a good thing.
And they potential tailwind to further capital reduction.
We do not want our wells turned to sales in a low pricing environment and the majority of the cost burden comes with the completion not the drilling.
Certain private operators with strong balance sheets have already unlikely Wilson significantly curtailed or shutting in some of their existing production. We are fully supportive of these moves to preserve inventory and the oil in the ground for periods, where it makes an economic return.
This means production declines modestly from Q4 19 levels driven mostly by shut in production in deferred activity.
These volumes will be saved for better periods, we are not here to drill holes in the ground for the sake of it our balance sheet and risk management program are built to endure this period of time.
What we can tell you that we would expect did generate significant free cash flow in the environment as it stands currently.
Number five capital allocation.
Our process to seek out the best wells in the basin and only those that make a fully loaded returned that meets our cost of capital we'll get the not.
With a limited number of employees and a flat organizational structure, we are able to adapt faster than any other operated N P. In a volatile market.
Typical operator must playing out drilling schedule six to 12 months in advance we can and do make our decision to participate in wells on a real time basis. This means we are not stocking stuck drilling wells that do not meet current hurdle rates due to rig commitments and that if we choose to significantly dialed back our capital investment we simply alone.
Then not to participate and retain 100% optionality on any future well proposals.
We can make these decisions within hours not days or weeks.
We non consented 21 gross wells or just under two net in the fourth quarter, representing nearly 14 million and capital.
This equates to an 87% consent rate for Q4, our second lowest percentage of the year.
An 88% for 2019 as a whole.
In total we non consented over 30 million of capital in 2019.
Process is driven by returns to optimize capital and we will not change this discipline to chase growth for the sake of it.
In the first quarter to date, our consent rate fell to 79% even as prices were significantly higher over a majority of this period.
We expect the nonconsent rate dropped to rise dramatically in an environment like today.
And overtime as rigs move to only the highest areas of returns you see that start to return to normal levels as volatility subsides.
Number six free cash flow.
Given the enormous changes we've seen in the past week, we're still working on finalizing every contingency in the budget.
However, we can tell you we would expect at a low thirtys oil price degenerate well in excess of $100 million a free cash flow this year.
That capital will be focused on debt reduction during a time of distress in the space.
As capital Allocators, we will as always compare their returns for every dollar we spend including the returns on capital from retiring our various debt instruments with that of investments in our properties.
In closing we have worked tirelessly for moments like this when existential shocks to the space mean that we stand apart from our peers.
Northern will survive and thrive in this downturn, where there is distress there is opportunity and I firmly believe we will come out of this stronger than ever.
With that I'll turn it over to our Chief Financial Officer chat Allen for a quick review of the year end in quarterly financials.
Thanks, Nick I have a few highlights to go over this quarter, starting with a quick summary on all those financial performance.
Our fourth quarter production increased 21% year over year, and 8% sequentially for an average of 43941 barrels of oil equivalent per day.
Adjusted EBITDA was 114.2 million for the quarter.
This was driven by higher production, primarily from the significant number of that well adds during the quarter and the continued outperformance of our event pocket acquisition.
Offsets have been the PERC production curtailments that continued during the quarter as well as poor realized gas prices.
Oil differentials and the carrying a fix Delaware wells that have yet for turned to sales.
Based on why curtailments have been frustrating. However, the endgame remains the same with significant processing capacity coming online and improvements the NGL takeaway that should lead to improved pricing in the long run.
Cash DNA came into the dollar 10 cents per BOE. He this quarter slightly lower than the third quarter.
Which continues to be one of the lowest in the industry.
Adjusted for one time items, including severance related to the parts of our former CEO. It was approximately 91 cents per Billy.
Oil differentials were $7.65 during the quarter and full year differentials came in.
Higher than the midpoint of our guidance, which was due in part to the significant narrowing of Gulf coast differentials and seasonal factors.
Such as refinery maintenance and the rise in basin production later in the air from higher oil prices.
In the current environment, we would expect oil differentials to narrow substantially throughout 2020, although they began elevated levels at the beginning of the year as is typical during the winter season.
Shut ins.
Combined with higher L. away from done Buck in Dover, Although we up sequentially the $8, an 84 cents per Billy.
We expect this to stabilize in the coming quarters as field issues normalize and we get the full production benefit of newer wells that turned to sales late in the quarter, even if our aggregate volumes declined modestly in this current environment.
We continue to be focused on debt reduction, especially given the current pricing environment.
Reduced our net debt by approximately 32 million compared to the third quarter and a further reduced our second lien notes by 76.7 million since year end.
As Nick highlighted biggest benefit of these transactions. We've undertaken is not just the aggregate levels of debt.
The reduction in fixed charges.
In the third quarter of 2018.
Our interest expense was over $8 per Boe.
Refinance is done in late 2018 in late 2019 should drive this below $5 per view this year inclusive of dividends on our preferred stock.
That's over $3, a netbacks improved during an incredibly challenging time in the capital markets.
Capital spending for the fourth quarter was 134.6 million.
Which consisted of 85.6 million of organic DNC capital.
And 45.3 million of total discretionary acquisition capital inclusive of acquisition DNC capital.
We turned 14.6 net wells to sales approximately two not wells above our stated guidance.
Which came on in late December.
Our net wells and process grew to 28 25.8 at year end.
Up 1.5, net wells from the prior quarter and three net wells from the beginning of the here.
We've talked about accruals in the past and hard Capex could fluctuate based on timing and percentage complete our wells and process or any given time.
So the additional net wells turned to sales coupled with the growth in our in process, while inventory attributed to approximately $25 million of additional spend in the fourth quarter.
I should highlight the changes in the number of our net wells in process and have a big effect on the timing of our Capex.
On the hedging front.
Our hedge book is a testament to our commitment to protect our invested capital cash flow stream and our balance sheet.
We have approximately 27600 barrels per day hedged at an average price of $58 for 20 point, which is expected to represent at a minimum 75% of our oil volumes for 2020, assuming current pricing environment.
Based on the March 10th 2020 closing oil strep, a mark to market value of our hedge book was approximately $300 million.
Lower oil prices persist, we can expect to generate a significant amount of free cash flow from our hedge book.
With that I'll turn the call it or northern Chairman Brahma, great. Thanks, Chad I want to sum up remarks by emphasizing that northern is operating from an inevitable position of strength.
In this challenging macro times the key takeaways in front of lots are as follows our hedge book.
Protects us well into 2022, we expect.
Should be at least 75% hedged.
Oil and 2020.
Ah prices up $58 per barrel, we're also position to be over 50% hedged in 2021 at prices of more than 55.
Now there's a barrel.
To frame the value creation here, our hedges, which are valued more than $300 million.
Our more than the current market value of our senior secured notes and nearly equal to our current market cap.
We believe we have significant free cash flow, even if oil average is there any $5. This year as Nick mentioned in his comments.
We expect.
Well in excess of $100 million, a free cash flow this year.
If this conditions persist to help frame. This just a 100 million represents a 20.
8% yield on our quarter end market cap. This is without question the best in class in the industry.
Sorry.
Our first of all of these core strength, we easily have the ability to nonconsent wells and immediately drop our capex two at a fraction of what it was in 2019 at the same time with our data relationship and discipline.
Evaluation process Northern has the ability to take advantage of distressed opportunities in there what was that.
We already are witnessing early stages of this in front of us, which we believe will ultimately pay huge dividends for shareholders going forward.
For.
Building a fortress balance sheet is well underway, we have decreased the balance on the senior notes.
Our highest cost debt by more than 50% since the end of 20 to 2018 down.
To balance of just $341 million at the same time, we increased our borrowing base by 88% to $800 million, our total debt down from 90.
Our total debt is down over 94 million.
Since the end of third quarter, we ended 2019 with adjusted debt to EBITDA of less than 2.3 times miles away from nearly seven times leverage in 2018.
It's also worth highlighting that we have found ourselves in this strong relative position not simply by chance or luck alone rather our position is products the gene a strategic vision.
That's consumed with the notion of controlling risks.
This approach coupled with a superb execution is how we have positioned northern to not only make it through what many calling the energy Armageddon, but.
What's to come out of the other side as well as much stronger company finally, I simply couldn't be more excited about the strength of our quarter in management team.
Which benefited.
From key promotions and new.
Oh hires at the end up 29 team.
Since we requested in northern in early 2018, Orla has come outperformed the S&P exploration index by over 37%.
Which includes major large caps and refinery.
We have outperformed our Bakken peers by staggering 57%.
Well the stock price is an absolute basis.
On absolute basis does not reflect what we have accomplished yet.
The northern northern uncertainty is off to a great start.
Thanks for listening now, let me turn over to back Mike Kelly.
Great. Thanks, Brom, but then I'll turn the call over the operator for the Q and a portion of the call Diego. Please go ahead with the instructions. Thank you.
Ladies and gentlemen at this time, we will conduct our question and answer session.
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For participants do that speaker equipment, and maybe necessary to pick up it had set before pressing the star kits.
Our first question comes from Dunkin Mackintosh with Johnson Rice and company. Please state your question.
Good morning, Nick.
And thanks for the you know I understand that haven't given a full 2020 got but just looking for a little more color on that on a 200 million Capex you talked about 150 million of that's already in process Wonder if you can give us a little color kind of around the cadence of that and kind of how you find out Kate that additional 50, and if there's room for maybe even that 50 turns into to 40 or.
Given that flexibility that you all highlighted opening remarks.
Well.
On a cadence spaces that will really come down the accrual what I would say is that in terms of wells that are in process. We still think it's a moving target in terms of how many could potentially.
Deduct up and you may wind up not spending that money. So I don't want to I don't want to go quite there yet, but I would say that the 200 million as a number we're very comfortable with.
With that certainly with risk to the downside assuming that.
On that total number.
Yes, we continue to see operators.
Delaying some of that that completion dollar so just for everyone on the phone.
If a well is $8 million about 3 million of that is actual drilling capital in five or five that is probably the frac.
So while we're accruing for the full cost of those wells.
It is possible that we see a number of those be delayed.
So in terms of the cadence I think done we'll be able to give you more details a pretty shortly doggedness is that we're having those conversations with the operators right now on a unit by unit basis, obviously, our working interest all fluctuate in that regard and so I think you've got operators kind of reshuffling things understanding what they can talk what they cat.
And so once we once we nailed that down on a on a more specific level will be able to comment anymore specificity.
Okay, great. Thanks, and then understanding also that you know you're planning to re address the dividend on the on the ones you call. It the latest <unk>. If we if we are staring down the barrel $30 oil for the rest of 2020.
And.
Does that cash that cash flow go obviously some of the debt reduction, but I mean, do you really placing emphasis on debt reduction over the dividend. Even if you have 30, you know if prices stay low kind of well into 21, just how you're thinking about that.
Yeah, I mean, I think that.
You're giving people money back or in an environment like this is probably not necessarily helping them.
So I think that are the best thing that we can do it is focused on that debt reduction, especially if this last longer I.
I mean, let's let's let's be blunt about this if you look at though those leverage multiples that I discussed into 2021, a good portion of the oil and gas business is a insolvent.
And so therefore, we are most definitely want to be one of the survivors and we will be a and so the goal here is no mistakes and that is something that I think you can't put enough emphasis on and this is Ron we are.
Definitely planning to make the company's stronger with every moved that we make.
We've said that before and giving today this dividend, which we were absolutely certain weaken initiate them continue even at $40 oil prices.
When oil is that 30, and you really don't know where it is going to land, it's just prudent.
To hold off.
Excess capital would be best used by reducing the most expensive debt we have.
And continue to make the company's stronger we will.
Hi, this strategic meetings with the largest shareholders and look to see what we can do to continue that path that we've started with the company.
Alright, Thank you Ron Thanks, Nick and I look forward to falling on 20, it's gonna be tough road, but.
Highlighted you're set up better than most of to handle it.
Thanks, Don.
Our next question comes from Derrick Whitfield with Stifel. Please state your question.
Thanks, Good morning off and I agree with the last call are you guys are certainly position the company and the best manner possible.
[noise], perhaps building on the last question or the his his first question I should say with regard to your and process Wells do you have a view on how many have been completed or in the process of being completed.
As far as Q1 goes out your furniture.
Correct.
I think we've got to like a couple per my don't have the numbers in front of it on answer a couple of per month for January and February.
We only you know in our prior guidance is what I. This is some helpful color, we expected less than seven net wells to be turned to sales in Q1, as we alluded to in the cap actually had some come on.
Oil prices went up $8 in the fourth quarter.
And you know Chad talked about accruals, but what that means is a lot of that capital got brought four late in the your operators rushed to put them on to capture those higher prices.
So.
We expect it only probably sub seven wells net wells turned to sales in the end Q1 prior to the meltdown and that's typical to just because of seasonal factors in the Bakken, but if it had been nine about two of those came early.
Now I would expect you know as we as we've gone from February to Marshall see a lot of that reduce further.
That's helpful.
Yes, Thanks, Nick and as my follow up perhaps for yourself for Adam.
Could you speak to your decision process for consulting or non consenting wells and specifically what I'm targeting as.
While oil prices are unsustainable clear at this level are you planning that you strip for that purpose and apply historical hurdle rates to that decision process.
Yes, I mean, we're taking a look at an operator by operator basis understanding kind of what their completion timeline as and so I think what you're going to see especially in the short term with operators, who are balloting wells that were planned in a completely different price environment. Those are all going to getting Arkansas on it right and so what I also.
So expect to see as a lot of those well proposals theory send it and so we'll get another bite at the Apple at a lot of those.
Those wells kind of down the road when they re propose them of it. So if you're looking at spud to sales times with operators that are in the short term that that need to complete these wells, whether it's to service debt or other kind of corporate initiatives that they have then we're certainly going to be non consenting wells I think though the more technical or or the art that comes into it is understood.
Turning which operators of the ability to essentially Doc solid rate of return wells that get brought online in a much higher price environment and so based on kind of preliminary.
You know preliminary conversations that we've had with operators, though the ones that can art are doing that with the stuff. That's been proposal, but I would imagine kind of going forward, our perspective basis. The other proposals themselves themselves start to slow.
It's very helpful. Thanks for your time guys.
Our next question comes from Jeff Grampp with Northland Capital markets. Please state your question.
Hi, guys I'm just curious how do you guys are kind of a assessing I guess the trade off I'm in terms of use of free cash flow you mentioned, obviously debt reduction to focus on but also maybe being opportunistic on on acquisitions.
Let's talk about that the balancing act there and maybe your ability and intra specifically to repurchase bonds in the open market given kind of yield that we're seeing on this.
So on the bonds.
Obviously.
What I, what I said in my speech was a pretty clear, Jeff which is that we compare the returns on capital to every single dollar we spend whether it be those bonds, whether it'd be the stock whether it be investments in new properties.
In terms of acquisitions, we made a you know it's early ask again later as the magic a ball would say, but I think in the next three or four months, we will likely see some tremendous distressed opportunities.
And to the extent that you can do those and they help your balance sheet and the overall corporate returns then we'll consider everything but we are economic creatures, we are numbers driven.
We're not going to go and buy a bunch of properties betting that oil prices go up tomorrow, because we don't know any better than the next Guy I'm. You know one of my mentor is once said that a harder hit hardest thing to predict even more so than the stock market is the oil market and here. We are today. However, what I would say everything is on the table.
We obviously want.
We are in an enviable position, we are far more protected than most and we have a lot of cash coming in the door and we want that cash would be the most productive it can be.
Got it appreciate that and my follow up I was wondering I'm looking at the new slide that you guys posting at slide eight kinda updating that came well performance over the last few years and you guys kind of reference that 20, I guess is looking even stronger than 19 or maybe some high grading efforts in there. So it's kind of wondering how you guys are ours, maybe you know thinking about making them.
Performance assumptions for 20 is there an expectation internally that there's maybe a little bit more to grind higher in terms of productivity or just in general how you guys might be kind of baking in assumptions. When you do ultimately provide kind of affirmative guide.
I think that just the quality of the well proposals we had coming into this year I happened to be a lot stronger in terms of efficiency gains specifically as the industry continues to you starved of capital I think you're going to see those slow way down not just in the Williston when all basins companies simply don't have the money to spend on.
On research projects, and such and try new things and so I think it really comes down to becoming the center.
But I do think.
As we talk about we are very selective in our process.
We've worked very hard in the acquisitions, we've done from the ground game all the way after the corporate deals to continue to high grade and core up our properties and that was manifesting itself in the drill schedule for 2020, and Jim I don't know if you want to add to that.
Yeah, I would just at that you know like Nick mentioned, we had a very good set of wells coming into the year and I think we'll see is that well is that are going to get completed or the while they're the best performers you're going to want to get your wells that are going to generate the most cash flow online this year and you're going to be talking up your wells are a little more sensitive to oil prices. So I think we'll just see kind of a natural regression back to that.
Core of the wells that are getting completed.
Got it sounds good I appreciate the time guys.
Our next question comes from Neal Dingmann with Suntrust. Please state your question.
Good morning, Nicked us like question around what do you guys little bit talked about already Nick My question would be on just the.
Basically generally.
How much advance warning you all yet if you know with your operators as far as if they're going to slow they got potentially go as far as to shut in wells I'm, just wondering how much sort of that they had steel had been you know when you start looking at your plan.
I think it depends.
I think that in general we're getting this information in real time, we have a lot information already.
I think you're making the assumption that they know right. So.
It's about at these big these these big companies a corporate executives are starting to make changes that the operating folks may not even be aware of just yet which is so we are a little bit of a derivative to that so obviously it takes some time, but in general once we have the information were given it a in relatively short order below what we are very good at doing is obviously we are.
I have a portfolio manager and were very good at predicting and so we've really giving you the targets or free cash flow in that and the budget because ER and the production kind of goalposts around that you can obviously, we're not we're not quite there in terms of the cadence to show to you today, but we're very confident in kind of what those contingency scenarios are.
I hope that this is enough information for everybody at the time gain to show how differentiated with that we are.
No totally understandable that's good that's good color in it.
And then one other or actually two if I could just.
Your bonds for summit Unexplainable reason has not we can like much like some others, but weakened a little bit nonetheless, or this week.
Just one I forget do you have the option with some of the free cash flow to buy more the bonds back or what's the status with that.
We do Neil.
And then just lastly for Brom I don't know Bob you can add a little color.
Robert obviously been very notably active buying shares and again just.
Any comments you all I mean, obviously now stock you know it yet given the hedge position I think you guys summed up very well have an immense heads position I'm a little.
Unexplainable, how you know your stock dropped versus some others given this disposition so Brian any color just on.
I know everybody talks about potentially going private.
Yeah, certainly notable I guess I'd just go back, but first I know, what you and Robert had bought a fair amount of shares and anything you could say around that.
So that's a great question, let me see how I can respond to your intelligently.
From my perspective as a shareholder.
Right and knowing that everything we just shared with all shareholders.
This stock is obviously being treated like any other oil and gas stock while the company's radically different.
So if we were buying stock at a Buck 60 Bucks 70 Bucks 80.
Basically as opportunity, Bob and I haven't.
Spoken about you know anything that.
As it relates to this so the in that they're buying is their decision in my case and I know I'm planning to go by some stock when I can which is not going to be till Monday.
So therefore, oh you know if if the current shareholders that they're really investors that the company probably would look at this as a buying opportunity and tried to accumulate more shares.
But as far as going private theres nothing I can I can mention to you about that there is no plans. There's no discussion that is absolutely not something that we have any knowledge of oh from the discussion with anybody.
For now business as usual.
I still love this company as a public company with a currency our currency today is not a performing a as good as the company is but that will take care of itself and then the currency allows us to.
Put it to work, we will put the currency to work for now.
We are going to use the excess cash flow we have to decide on raise the best way to spread that there may be oh opportunities. It by some shares back then that's the way to give share back to return to the shareholders. There may be opportunity to why some of our bonds back but.
As I have always told you guys. We we collectively on the one thing in mind and that is to serve the entity itself. Our goal with every move is to make the entity itself it itself stronger.
And as Nick and I have told you guys are long term objective is basically closer to one time debt to EBITDA.
That's where I really feel in oil and gas companies should be in closer to one times debt to EBITDA. So you have the ability to go through any a period of time when commodity prices doing these crazy things and then when they come back up is your opportunity to really go ahead then.
I'll make bold moves and grow your company for right now.
We're into either the storm I don't believe anybody knows which direction. This Harry caned really is going to go and anybody we think stay no I would love to hear about it so.
So the prudent thing to do is too close to hatchets.
They save.
Well come out of the Hurricane when you can see the direction and you start making your moves accordingly, and we are best situated to do that.
Oh, well said thanks from the thanks Kim.
Thank you.
Our next question comes from Jason Wangler with Imperial capital. Please state your question.
Hey, Good morning, Nick you mentioned in your prepared remarks, obviously, you know talking a lot about go forward Capex, but I think you also mentioned you know looking at shut ins and something that you support obviously early days, but can you maybe talk about.
What you're seeing there in real time, and if the impact that you think it would kind of have eye on your production is as you look forward, if we kind of stay in this environment.
I'm.
Sure Jason <unk> number one.
As you all know we are very diversified. So if you we have 45 operating partners and it really jockeys from one period to the next step who becomes a bigger part of that drill schedule in the overall based production [noise]. There are a handful of private operators in the Bakken or they run their business.
Like a private person would to make money.
Not to grow production or whatever and navy or whatever those metrics are.
So in the case of values as an example, slawson, which is one of our important producers are they have no debt or do they have the ability to flex their production up and down and it will have some impact on us as you know it could be a and it really just depends on how much flush production, we have with them in any given period.
The overall.
On the margin, it's it's not going to be some huge impact demand. Jim I think you could give us a based on a slawson historical curtailment activity in low prices that you could give us a total me I mean, it's.
Sorry, I'm looking at the sheet here.
Yeah. So.
[music].
Yeah, So net net to us it it's somewhere between a thousand in 2000 barrels a day in any given point in time again I don't want those barrels produced at $35 oil a I don't have a debt covenants to worry about like some other public companies might.
We we do have debt, obviously, but we're in very good shape and so therefore, he has shown a propensity overtime to preserve those barrels one of the reasons. Our position is strong as it is today than the last downturn in 2015 in such a he curtailed wells and activity and preserve that production for periods of higher pricing that is what you're supposed to do in this bid.
Yes.
It will have some modest impact on what we would produce in a normal period, if we were to spend that $200 million, but at the end of the day, a it's not going to have a huge enormous impact in fact, especially when the spot barrels are in a thirtys you just wind up being more hedged.
No I appreciate the color. Thank you.
Our next question comes from Phillips Johnston with capital One Securities. Please state your question.
Hey, guys. Thanks, Nick I think on the third quarter call, Yes, demented maintenance capex at around 200 million or so which is obviously when you're anticipating this year spending to be thinking that prepared comments. You mentioned that you would expect production to decline modestly from the fourth quarter levels I just wanted to reconcile those.
To comment.
So felt we just we just covered that in the last question to some degree, but what I'd tell you is that what I said on the call as I said, we could maintain on an annual basis those levels.
Would that would have men at the time as we would've come and significantly higher and they would have crested down so wouldn't have been exit to exit being flat. It would have been averaging for 2020 higher obviously, we will lose some volumes decreased dominance and some other capital we spend this year will be docked that is the delta between but we're discussing here so the adult.
Between you know if that $200 million that we spent was all productive and all turned to sales.
That would obviously have more of an impact than money. That's being spent four wells that are suddenly going to start the not complete ER and the rest are just be curtailments. So the reality is that would that also means is that a before you look at it that is a negative is that would mean in 2021 of the oil prices were tend to normalize to some.
Degree you'd have <unk> flush production come back online with no cost and you'd only have to complete those wells as opposed to drill all that capital. So it's really just a moment in time.
Okay, and then I guess I heard your comments around acquisitions, but in terms of expectations around ground game acquisitions for the remainder of the year what should we model and is the is is there any ground game acquisitions in the 200 million dollar figure.
But that 200 million dollar figure is an all in capital number the only way we would really see ground game as if it was to replace organic activity that had lower returns. So that $200 million is everything yes, Phillips, we had a handful of deals that didnt close in Q4, and so you'll see a little bit of Q on activity I think we mentioned.
Matt in the press release, so there's a some more detail there from there obviously, we're looking at everything on a prospect of business and I'm not a lot of stuff is obviously, Pennsylvania right now, yes, but that $200 million includes everything.
Okay sounds good thanks, guys.
Oh.
Thank you. Our next question comes from Joseph Dawson with Artisan. Please state your question.
Hi, Thanks for taking my question when do you want to use your spring revolver Redetermination.
It's not set yet.
Do you expect one in the spring.
Your acquired you're required to a year.
Okay that makes sense and given this environment do you think it'd be more prudent to look to pay down the revolver with kessel, you generate or two but I backed bonds.
I think there's a balance of all of them.
Okay that makes sense and do you have flexibility to stop paying to preferred dividend if you choose to.
Correct.
Okay. Thanks for a.
Hello.
Yep.
Thank you we have reached the end of the question and answer session I'll now turn the floor back to management for closing remarks. Thank you.
Great. Thanks, Diego and thank you everybody for dialing in today for Sandy off in your way. Please take note a two items one we have a new presentation posted to our new website to we've got a busy schedule over next several months attending conferences, so probably all be virtual now in nature, but nonetheless.
40, catching up with a number of you either on the road or on the phone. Thank you.
Thank you.
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