Q4 2019 Earnings Call
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Good day and welcome to the Bringle minerals fourth quarter and for your 2019 earnings Conference call all participants will be in listen only mode.
Assistance. Please signal conference specialist bypassing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded I would now like to turn the conference over to Joe Lieberman. Please go ahead ma'am.
Thank you operator, and good morning, everyone welcome to the Bergen minerals fourth quarter 2019 earnings conference call, joining us today, but Brigham founder and executive Chairman, Rob Rosen, founder and Chief Executive Officer, and Blake Williams, Our Chief Financial Officer before we begin I would like to remind you the our remarks, including.
The answers to your questions contain forward looking statements and we refer you to our earnings release spray detailed discussion of these forward looking statements any associated risks. In addition, during this call we make references to certain non-GAAP financial measures reconciliations to applicable GAAP measures can also be found in our earnings release.
A couple of administrative items to quickly cover first we have a new investor presentation titled fourth quarter 2019, Investor presentation available for download on our website Brigham minerals dotcom, we recommend downloading the presentation in the event, we refer to it during the conference call.
Second we will be presenting at the credit Suisse Energy conference on March 3rd.
And lastly, as a reminder, today's call is being webcast and is accessible through the audio link on the home page of our IR website I would now like to turn the call over to Budd Brigham founder and executive Chairman.
Good morning, everyone and thank you for joining US today, we're excited to announce another quarter of industry, leading production growth coupled with clear line of sight continued substantial organic growth in 2020, and a balance sheet, that's pretty founded to capitalize on acquisition opportunities.
To quickly recap our performance and no weve outperformed every quarter, thus far and my view the fourth quarter is our best quarter today.
Our results demonstrate significant outperformance relative to both expectations and to our peers and once again evidence is our commitment to under promise and over deliver.
This repeated outperformance should illustrate to the market, our differentiated business model and thus our assets relative to our peers.
We don't see any one achieving a consistent gross we're delivering.
Our team generated a tremendous 23% sequential quarterly production growth relative to our strong third quarter.
We produced approximately 9600 barrels of oil equivalent per day, which was 73% liquids.
Robin Blake will go into much more detail, but I consistent production growth demonstrates the uniqueness of our premium assets acquired bar highly technical evaluation too.
Utilizing our consistent disciplined underwriting approach and our differentiated strategy a pursuing only core tier one geology and liquids rich basins under a diverse portfolio of high performing well capitalized operators.
This strategy and our teams execution provides us with exposure to approximately 12700 gross undeveloped locations largely in the Permian basin under the very best of U.S. shell with no incremental future Capex exposure.
Our exceptional portfolio is generally industry, leading production cash flow and dividend growth and just clearly brasilia despite broader industry volatility.
Further our production growth translated directly to the return of capital to our shareholders via our dividend, which we were able to grow 15% to 38 cents per share despite having grown our share count, 12% and December associated with our follow on offering.
Looking forward, we continue to benefit from quality opportunity flow.
Accretively aggregating minerals via our ground game acquisitions in the fragmented space.
We undertook our December follow on offering in order to pretty low the balance sheet to capture those opportunities and deliver further incremental gross and most importantly increased value for shareholders going forward.
We've been executing our mental strategy since 2012 and of course prior to that executed in the NPV space through the previous Brigham companies.
So we understand that need to have a high quality well capitalized balance sheet to capture deals.
This is particularly important during turbulent times when others have to pull back activity due to macro disruptions the associated impaired balance sheets or the ability to deliver the capital returns that investors are requiring today.
Further we continue to actively pursuing larger mineral packages and while we were encouraged by many of our conversations.
We are still searching for the right deal.
We will remain steadfast disciplined in patient ensuring that any acquisition, we entered into meets or exceeds our strict underwriting criteria and represents an extremely compelling use of capital.
As the only public diversified high growth mineral company, we are in a very advantaged position, particularly relative to the numerous province with quality assets, but with a lack of options to provide them with upward mobility or exits.
After successfully executed IPO, our follow on offering and our consistent strong quarterly results. We feel we're well ahead of the competition and we will relentlessly use our advantage position as a public company to keep extending our lead.
Finally, I wanted to take this opportunity to reinforce that Brigham minerals house in the past and will continue in the future to align our company and ourselves with our investors to optimize value creation.
Starting with governance, we believe we was a pioneers in energy space in terms of designing and implementing an executive compensation plan, providing for superior investor alignment.
As a reminder, this plan was implemented at the beginning of 2019, well before many of our peers announced steps. This reporting season, the directionally point them towards shareholder alignment steel failed to take the more direct alignment approach we've implemented.
To recap.
My long term incentive plan compensation that was issued in April of last year is entirely allocated to performance based stock units, which are calculated based on absolute total stock with time.
Aggressive management teams long term incentive plan compensation is allocated 50% to orest shoes, and 50% to performance based stock units that are also calculated entirely based on absolute total stock with time.
We are aligned with our shareholders and only get compensated when we deliver a return to you.
Furthermore, it's essential that we add the highest quality individuals available to our leadership positions.
Individuals that are highly talented and skilled and that provide a wide breadth of perspectives and viewpoints.
On that front, we were very fortunate to bring onboard carry parts as our vice President General Counsel and corporate Secretary in early January.
She joins us from Ecuador, and was with Robin is our general counsel at Brigham Exploration company a prior public company.
Second we're also very excited with yesterday's announcement to add carry Clark to our board of directors.
Carry as an outstanding talent and is the senior Vice President land and General Counsel of University lands, which is part of the University of Texas system and manages 2.1 million acres of land set aside for the benefit of higher education in the state of Texas.
University lands goal is to responsibly stewards Atlantic manages and maximize the revenue generated from the land.
Since carry joint University land. The organization has delivered approximately $1 billion up that revenue from oil and gas royalties and surface activities annually to the permanent University fund.
It's a top priority for us to continue to enhance our board of directors as well as our executive management team with different perspectives and viewpoints in the future.
To conclude my remarks, I'm extremely proud of our team for delivering on the promises we made during both the IPO and the follow on offering further strengthening our reputation for consistently doing what we say we'll go into the.
With that I'll turn the call over to Rob to cover our operational results.
Thanks, but first I'd like to thank the brigade minerals team for their tremendous efforts. During 2019, our 42 person team here in Austin has since 2012 and assembling what I believed to be the preeminent minimal position in the United States a record full year 2019, operating and financial results that we announced yesterday clearly are supportive of that thesis our team has.
Built in over 82000, net royalty acre position across the Permian Scoop stack DJ and will extend basins that generated 91% year over year growth in production volumes from an average of approximately 3900 barrels oil equivalent per day for the full year 2018 to 7400 barrels of oil equivalent per day for the full year 2018.
Our production growth, despite a 14% reduction pricing was able to deliver 64% growth in our royalty revenue from 2018 to 2019 and inclusive of our lease bonus we're able to surpass 100 million in revenues. During 2019 in fact from the second quarter to the fourth quarters of 2019 will have returned back to our shareholders one.
Dollar and four cents and cumulative dividends per share importantly, as Ben mentioned, but it's worth reiterating we're able to grow our dividend, 15% in the fourth quarter to 38 cents per share. Despite the 12% dilution associated with our December follow on offering.
That offering now provides the basis for us to continue to execute upon our accretive ground game acquisitions in 2020, which we anticipate will largely be concentrated in the Permian basin and execute upon the approximately 200 million dollar 2020 mineral acquisition budget that we announced yesterday I believe it's important to review the key drivers behind our outperformance first.
I believe a significant portion of our outperformance is attributable to our unique and deliberate strategy a building a diversified minimal portfolio in terms of both diversification across multiple resource play basins and diversification across high quality, well capitalize operators application of a fundamental financial principles such as portfolio theory to our mineral business makes us much less susceptible.
Issues experienced at any one basin or to anyone operator second our deliberate strategy includes using our technical expertise and experience as an ERP operator to identify core tier one geology across basins not restricted by area, but instead focused on the very best rock to ensure we are acquiring the most economic locations that will continue.
Good to see development activity, even in down cycles. We believe this strategy has generated and we'll continue to generate tremendous organic growth for shareholders to put this in perspective in the fourth quarter of 2018, our mineral portfolio produced approximately 4600 barrels oil equivalent per day, and if we done absolutely nothing not acquired even a single mineral acre.
Our portfolio would have produced via organic growth alone approximately 8100 barrels of oil equivalent per day in the fourth quarter 2019, representing approximately 80% organic growth over those four quarters as I. Just mentioned, we think theres still tremendous organic growth in the years ahead of us to the 12700 gross undeveloped locations, where one had.
Her 12 net undeveloped locations of was 52% are located in the Permian basin, and 35% of which are Wolfcamp, a and Wolfcamp b locations.
Of course, one of the primary reasons for going public was the opportunity to consolidate the highly fragmented mineral space and use liquidity provided by our IPO and follow on offering and our teams technical capabilities to continue to acquire minerals accretive Lee our team performed spectacularly in 2019 deploying close to 220 million in mineral acquisition capital that's 2019 acquisitions.
Contributed approximately 1500 barrels oil equivalent per day production to our fourth quarter production volumes. The portfolio that we took public in April of last year, and our 2019 acquisitions now serve as the foundation for 2020 production guidance. If you recall in November of last year, we're able to issue preliminary production guidance for 2020 that was approximately.
1000 barrels of oil equivalent per day higher research analyst expectations and last night, we further updated our production guidance such that we're increasing the midpoint from 10000 barrels of oil equivalent per day to 10500 barrels of oil equivalent per day, we look at the two guidance announcements combined we have in essence been able to increase our guidance for the full year.
2020 by roughly 1500 barrels of oil equivalent per day.
We believe our results in 2019 in the foundation they create for 2020 clearly demonstrate that our portfolio has inherent organic growth and then our acquisition team is creating substantial value through consolidation, which again for 2020 has already been prefunded and we're already starting to execute upon again looking at the entirety of 2019 our team access.
You did all of buds and my expectations and we are extremely thankful for their impressive efforts.
Now I'd like to turn to detailed look our record fourth quarter operating and financial results. Our record fourth quarter production volumes grew sequentially by 23% to roughly 9600 barrels oil equivalent per day and were up 110% from the fourth quarter 2018.
Production crop volumes across all of our basins, except for stack contributed to our our outperformance.
Although stack production declined by roughly 20% again portfolio diversification went out and the remaining assets fueled our exceptional growth for the fourth quarter. In particular are Permian volumes grew by roughly 45% to record 5050 barrels oil equivalent per day importantly, the development of our Permian assets in Scoop, which saw a 22% increase in volumes.
Helps improve our liquids content from 69% as of the third quarter, two approximately 73% in the fourth quarter.
As we mentioned in the past our production growth over the next year is largely driven by the conversion of our drilled but uncompleted locations or ducs. The fourth quarter was no different and we saw extremely strong conversions during the quarter I know some people were surprised by mid November conference call comments alluding to strong conversions that we're seeing and they clearly played out during the quarter as we converted third.
8% of our gross duck locations and 42% of our net duck locations in inventory at the start of the third quarter. Two proved developed producing locations for the full year 2019, we converted 86% of our gross and 92% of our net ducs and inventory at the start of 2019 as compared to converting 88% of our gross and 84% of our net.
So in inventory at the start of 2018.
Conversions occurred across all of our operating areas with notable turn in lines, including our Exxonmobil, St John's Bad and shell kudu pad and loving County.
In the Midland Basin, several pads were converted by partially in pioneer in skewed Continental resources converted our chance Catherine and Chester pads and marathon converted our star Fox pad in the Williston Basin Continental converted their care as Pat and Dunn County for US, which was comprised of nine wells in the DJ Basin PDC converted their Bash Meyer pad consisting of 13 wells in.
Noble completed their Harper pad, consisting of 11 wells both of which are approximate two wells ranch.
Despite the strong duct to PDB conversions in the fourth quarter, we're able to once again reload our DUC inventory during the quarter, replacing 95% of our converted net ducks and exiting 2019 with 5.9 net ducks in inventory, which will now in turn drive 2020 production growth I want to reiterate that we were loaded almost all of.
Our net DUC inventory, despite converting 42% of our net ducs that PDP during the fourth quarter clearly that's a testament to our teams technical ability to identify the most economic locations across multiple basins.
Our 892 gross were 5.9 net ducs and inventory as of yearend 2019 are anticipated to be completed by high quality, well capitalize operators, including continental resources broad that shell Occidental petroleum and Exxon Mobil, we're able to reload or DUC inventory as a result for the strong drilling activity that occurred on our assets during the fourth quarter.
We saw operators on average deploy 60 rigs terminal position drilling approximately 2500 net royalty acres as compared to 63 rigs and 2800 net realty acres in the third quarter as we've indicated many times you cannot look at rig counts in isolation, but also must look at net royalty acres being drilled as at the end of the day that decimal interest in each of our wells being drilled for us is very.
Important.
The significant drilling activity on our minerals during the fourth quarter resulted in the conversion of 14% of our gross and 22% of our net permit cydex during the quarter again, despite the tremendous permit conversion pace, we're able to reload increasing our gross permits and inventory from 681 to 715 and maintaining a relatively flat net permit inventory count of approximately.
4.4 net locations as a reminder, permits typically are added to production and cash flow nine to 18 months out as it takes time to drill and frac, the well built facilities and turn in line the well in January we did see a downtick in rig activity during the month to 46 rigs running cross on mineral interest, but our net royalty acres being drilled increased 10 point.
Sent to almost 3000 net royalty acres being drilled during the month.
During January operators were drilling approximately 2200 net royalty acres for us in the Permian up from 1400 net royalty acres in Q4 2019.
The largest transition in terms of rigs running that occurred was in scoop, where we saw continental move rigs from what we refer to a central scoop in the seven or six once the area to both south scoop in the three north for West area, and what we referred to as extended Woodford play in Carter Stephens and loved counties in our extended Woodford play, which is in our other networks.
The acre bucket, we have acquired 2900 net royalty acres of which we believe continental will operate 1700 Nicolas acres and Exxon Mobil operates 600 net royalty acres were excited about this area potentially becoming a more meaningful contributor to our production growth over the next several years for reference Continental Exxon Mobil currently have six and two rigs running respective.
Early in this area.
As we are coming to the end of the earning season, it's always instructed to reuse and the more recent developments on our position in our loving County development area, where we have approximately 3400 net royalty occurs we continue to see both tremendous development and well results Oxy Exxon Mobil shell in emoji are all highly active in the area and our testing up to seven zones of development.
And there are Mcgregor unit is drilling to Avalon zones. The third bone spring carbonate and has drilled record Delaware Basin Wolfcamp results for US Oxy continues to deploy two rigs to silver test and permit incremental locations. Exxon Mobil also has deployed two rigs our position and recently has permitted incremental locations in the bone spring, which they would develop for us in their sand and.
Tonio unit shell has generated substantial well results for us in their nyala and Sable units and just recently completed drilling on our Q2 unit of note. So recently completed what we believed to be one of their first Wolfcamp B wells in the area and in treat and oil IP 24 of 1500 barrels of oil per day, and our Scoop development area. Despite continental's transition away.
Marathon and inventive looked to be on the verge of initiating the second wave obscure drilling for us on their fourth quarter call Marathon announced nine Springer wells that achieved an average IP 30 of 2100 barrels oil equivalent per day at 79% oil we have an interest in all nine of the Springer wells and we have a total of approximately 1300 net royalty occurs with.
In a six mile radius of these top performing oily wells.
Further event of as indicated there will be transitioning activity to the scoop and stack scoop areas have indicated approximately 70 undeveloped DS use that that we begin drilling in 2020, we have an interest in greater than 50% of these DS use and as a result believe will have approximately 3000 net royalty acres that we anticipate opentable drove our us over the next several years.
In summary, our outstanding fourth quarter results and our strong DUC inventory lays the foundation for 2020 production guidance as I indicated previously we're increasing the midpoint of our 2020 production guidance from 10000 barrels of oil equivalent per day to 10500 barrels oil equivalent per day up 5% were 500 barrels of oil equivalent per day from the.
Initial guidance, we provided in November I want to reiterate that our 2020 guidance is almost entirely on were underwritten by our current proved developed producing volumes in the anticipated conversion of our DUC inventory as demonstrated by our fourth quarter production growth. We continue to see strong conversions of Ducs into proved developed producing wells the remaining volumes come from our converted perm.
Yes, and Unpermitted locations consistent with our historical modeling methodology, we've been conservative on all the assumption surrounding activity, including timing rig levels in operating efficiencies. It's Austin instructive to note that this guidance only incorporates production volumes from our existing asset base and hence represents only an organic development of our mini.
Ill position.
No 2020 acquisitions volumes are incorporated in our guidance. However, we fully intend to deploy a 40 to 60 million a quarter and anticipate those acquisitions to contribute to production and cash flow in an accretive manner within 12 to 18 months of being closed given our fully funded 2020 mineral acquisition budget. We believe we will have the opportunity decrease.
Financial value as we continue to add to our mineral position, but Blake Eni as well as the entire management team believe we are uniquely position for another year of outstanding organic production growth of greater than 40% at the 10500 barrel of oil equivalent per day midpoint of our production guidance relative to our full year 2019 production volumes of 7400 barrels.
Oil equivalent per day with further incremental upside to our 2020 volumes.
Our ground game acquisitions, we believe our Prefunded 2020 mineral acquisition budget is significantly under appreciated element to our value creation story I'll now turn the call over to Blake. So we can summarize for you our financial performance Blake.
Thank you Rob I'd like to begin by highlighting another outstanding quarter of ground game mineral acquisitions with our team deploying 38 million across our focus areas.
This quarter in particular highlighted our unique advantage in evaluating and capturing opportunities across multiple oily resource plays with 61% of our acquired in our re in the fourth quarter coming outside the Permian many mineral buyers both public and private are restricted to an exclusive focus on highly.
Competitive Permian assets. However, our disciplined teams seeks out the best risk adjusted value opportunities regardless of location.
With that said, we will continue to focus on deploying capital so the Permian and a prudent and disciplined manner, ensuring our capital allocation decisions are in line with our growth and return expectations.
As Rob I already mentioned, our daily production for the quarter was 9627 Boe per day up 23% sequentially and comprised of 58% oil and 15% NGL. Our rapid growth was driven by our Delaware basin position, which also delivered a significant increase in oil cut to 58%.
From 54% in the third quarter.
We expect oil cut to remain in this range for the full year 2020.
Our portfolio generated a record royalty revenue of 33.1 million up 37% sequentially aided by asset outperformance and increased realized prices.
Lease bonus revenue contributed about half a million dollars.
Net income for the quarter was $12.4 million up 46% sequentially with a net profit margin of 37%.
Adjusted EBITDA for the quarter was 26.8 million, an increase of 40% over the third quarter and adjusted EBITDA, excluding lease bonus was $26.3 million, an increase of 44% over the third quarter.
Realized pricing for the quarter came in at 37 $39 per Boe up 12% from the third quarter.
By commodity type realized pricing was 50 555 per barrel of oil $1.88 per Mcf and 14 22 per barrel of NGL.
As expected our diversified asset base continues to deliver consistent higher realized pricing versus peers with single basin exposure.
On costs gathering transportation and marketing expenses were 1.2 million or $1.40 per via we strong growth out of the Delaware in Scoop drove a further decrease in GTM costs versus higher costs, DJ and Williston basins by aligning our portfolio with operators, who focus on a full market chain for their product we.
Directly benefits from their planning and investments.
Severance and AD valorem taxes were 2.2 million or 6.7% of mineral and royalty revenue.
Gina expense before share based compensation was 3.4 million and in line with a third quarter.
On a per barrel basis. It was 380 per BOE, a decrease of 18% from the third quarter a trend we expect to continue as our asset gross.
Share based compensation expense was 1.8 million for the quarter in line with the previous one.
Looking at our balance sheets are follow on offering in December positions us well to continue to execute on consolidation opportunities with our ground game budget fully funded we had 51 million in cash and an undrawn revolving credit facility that was redetermined higher to 180 million this week, giving us total.
Pro forma liquidity of more than 230 million.
Our discretionary cash flow per share of class a common stock was 45 cents on a pre tax basis, which was up 22% from the third quarter.
And 38 cents per share on a post tax basis.
Federal and state taxes in the third quarter were inline with expectations.
This dividend represents all of our discretionary cash flow for the quarter.
As a reminder, we intend to begin gradually retaining some of our cash flow in 2020 to help fund our acquisition budget, which we anticipate will allow us to capture more value per share.
Ill now turn the call back over to Rob's wrap things up. Thanks, Blake. We appreciate you joining our fourth quarter 2019 call. Obviously, everyone is wondering when the generalist investors will return to energy a critical question and one that likely we only be answered when energy companies demonstrate a combination of execution returns and investor alignment, we believe that combination exists right now with rare.
And minerals and though we may be biased we have the results to back it up 37% profit margins, 23% sequential production growth next 12 months growth at our guidance midpoint of 40%, 10% annualized current dividend yield only small handful of companies possess greater than 20% profit margin double digit projected growth and a 10% dividend yield.
On top of this Brigham minerals has a fully funded 2020 minimal acquisition budget actively being deployed by highly technical acquisition team with a proven history of value creation in clearly aligned incentives. We look forward to sharing our first quarter 2020 results with you in early May operator, I'll now turn the call back over to you to begin the question and answer portion of our conference.
Paul.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before passing the keys with Joe. Your question. Please press Star then too and our first question will come from Bryan singer with Goldman Sachs and company. Please go ahead.
Thank you good morning.
The Brazilian resiliency in the activity in your acreage is certainly noted.
And.
Continuing after the call from.
On the last quarter.
January there count is down pretty decently, but the net acreage being drilled still robust how much of signal is the rig count reduction in January in terms of potential impacts for late year or 2021 production and can you characterize a bit more aware rigs or drop tourist is where rates are active today.
Yes, Brian Thanks for the question just kind of starting at the latter part there. So we just look at the fourth quarter 2019 rig count versus the rig count in January Thats. The 60 rigs that we had running on average in the fourth quarter relative to the 46 in January importantly in the Permian basin that recounts maintained relatively stable.
32 rigs in the Permian in the fourth quarter 30 in January the drop that did occur within the Scoop, where we went from 16 rigs eight rigs a lot of that as I mentioned in the conference call transcript relates to kind of the reallocation of continental's rig fleet from.
Central Scoop area in what we've turned the seven or six west area to South Scoop and the extended Woodford play so.
We did see that happened the DJ activity remained flat Wilson activity for also room remained relatively flat I think importantly, what did happen from the fourth quarter to January was that substantial increase in that net acres net royalty acres being drilled. So if you look at that we went from roughly 2500 acre of being drilled for us.
On average in the fourth quarter to 3000 acres being drilled in January. So importantly, it gets you more of a question of how many wells are being drilled for you as well as the net revenue interest that each of those wells because ultimately at the end to the day that activity translates to dust repellent replenishment and then further once those extra completed to PDP.
And so I think really what we saw happening was and continue to see happening is strong duck replenishment based on what we're seeing and also further what we're seeing really nice permitting activity in January so on net not necessarily concerned by direct dropping a rig fleet. When you see an increase in the net royalty acres being drilled and so as you mentioned, Brian you that tend to more.
Or impact.
Drilling activity with more impact the latter part of 2020 early 2021, but based on activity that we're still seeing we still see robust activity going forward.
For us and in particular, where it matters most in the Permian basin strong activity for us by Oxy Exxon Mobil.
Others, who are all drilling some really nice performing wells and in particular strong performance for us in our loving County development area, which we in particular tried to highlight and one of the slides for us in and of note.
You noticed oxy.
Within a page of their presentation point out in particular that silver tip barrier. So thats an area that we've been talking mouth since 2018.
Thats going to drive production growth for us for the next several years in concert with our Exxon Mobil position just to the south as well as the shell positions for us just south of that a little bit further.
Through one of the third quarter of 2019 acquisition. So we still think that there are substantial organic growth and we're seeing that happen and we're not concerned about late 20 early 21.
From a diversified portfolio going.
Great.
Thank you and then my my follow up is with regards to dividend distribution policy any changes in terms of how you're thinking about the percent of cash flow you expect to.
Return to shareholders and how that varies as the year progresses and ended 2021.
Yes, Brian just kind of ill jump in here at the start and then handed over to late but one of the things that we've talked about in the past is why we have cash on the balance sheet. We mentioned that both on the during the IPO Roadshow is will follow on road show, we continue to distribute a 100% of the cash available to us to distribute to shareholders. So obviously us wanting to consistent.
We.
Deliver on objectives. We've set for ourselves is one that is critical to us. So why we still have that cash on the balance sheet, we anticipate subject to a larger deal coming to us here in the first kind of four to five months of the year still fully distributing having 100% distribution rate through the first quarter probably into a portion of the second quarter and so.
At that point, we start to gradually.
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Lowered the distribution rate commented that 5% per quarter rate that Blake's talked about but I'll now turn over to Blake. So we can provide some further detailed but most importantly for US has continued to deliver upon what weve indicated investors our approach.
Yes, so the we haven't changed our long term.
Target of 70, 580% payouts.
The only thing that would change is what Rob just mentioned swap with cash on the balance sheets will will continue pushing 100% of that discretionary cash flow out. The door. Obviously, we're also should notes that were cognizant of of the dividend and the desire to have a growing dividend over time, So we'll take that as another very.
Variable into our decision, making process on pushing that discretionary cash out the door.
Thank you.
And our next question will come from Pearce Hammond with Simmons Energy. Please go ahead.
Good morning, and congrats on an excellent quarter.
My first question pertains to the acquisition market for minerals and just curious in the environment. We're in right now or you are you seeing better package quality are you seeing less.
Yes competitive market.
More seller motivation have prices come down just frame up for us how you see that market you must feel confident about it because of the guidance that you've outlined as far as what you want to spend on minerals. This year.
No I mean peers. Thanks, thanks for joining the call and appreciate the question. We're excited as a management team about 2020, we think having been at the mineral game for quite Awhile now some of that's going back even to 2008 2090 to remember being involved in the Williston basin. It's opportunities like this that only present themselves every three to four years.
There's in terms of being a will consolidate and take advantage of this type of situation where people are concerned about crude oil prices and so no thinking back to 2008 2009, the opportunity that presented itself, Jeff Boyd our VP of acquisitions was active in the Williston basin at that point and he has many times told us that period during 2000.
Nine there's never been and better opportunity to buy minerals, when crude prices retreat and people start to see that negatively impact the checks that they see typically there is a lag there because these this rapid decrease in February pricing really won't be felt until end of March April check. So theres. Some time has to go mine, but I think are.
Yes. It is no. It typically people are panicky, we can be patient and picky in terms of what we buy I think another kind of data point that that really comes to mind and in particular since forming Brigham minerals is that time period in 2014 2015.
Where there was you know it again turbulence in the market has been referred to.
Looking back in 15 16, we deployed about 80 million in capital thinking back to that time period, we should have been more aggressive that was a tremendous opportunity at that point to buy and consolidate in the mineral space.
So I think at opportunities like this present themselves infrequently and so I think the beauty of this is weve as we mentioned on the call on the pre roll on that.
Remarks here to start that we're differentiated from almost every other minimal company in that we prefunded the 2020 budget.
Different than anybody else in the energy space, we're having our borrowing base redetermined up and so we have the capacity to work with and so then we kind of layer in the competition. We think about some of the other publicly traded mineral companies that are that are out. There. There are couple that you know for unfortunate reasons, just don't look to be in the market acquiring minerals at this point just because of something.
But it happened and so that presents opportunities another at the larger mineral companies that's out there has been.
Publicly indicated there are more focused on continued to aggregate minerals under their operator, and so that presents opportunity.
Got it think that some on some of the smaller deals that we participate in.
People will get panicky, and so I think that us maintaining that consistent disciplined approach to bind deals is important and so you can be at rest assured that we'll do that.
When I kind of think about it stepping back you know our goal as accompanied has to be very yohji like in terms of the technical approach that we take to to underwriting locations finding those core locations, but yet kind of we think back to some of.
Berkshire Hathaway is kind of activities that they undertook after the financial crisis in 2008, where they are very disciplined had capacity to work with they make made the tremendous investments and GE and Goldman Sachs that you know that they were there and ready when the opportunity presents itself and so that's what we're striving to do here in 2020 and take advantage of that.
Generation. So we're in particular excited about 2020 and the potential to continue to consolidate and you know as Bob mentioned I think an important point beyond that is just for some the private equity backed firms that are out there that clock continues to tick in terms of their waterfalls the cost of capital that charge them. So.
There are increasingly under pressure forced to deliver the private equity backed firms are going to be forced to you have distributions that are LP. So in that regard the clocks in our favor so.
But are like Theres anything else add to that.
Yes, Thank you, Rob and I love the Warren Buffett reference so.
Then as my follow up.
You increase your position and the net royalty acre position in the scoop and stack and Q4 slightly in both of them.
You want investors have a more negative view of that area. So I'm just curious whats your differentiated view would have people now fully appreciate about the scoop and stack.
Yes, I think in terms of scoop and stack again, it gets to kind of my previous point peers in terms of making sure when you're underwriting deals you underwrite them appropriately in terms of the number of wells per bench that were giving credit for as to how many we believe are being drilled.
The number of the Eurs per location. So we're very conservative in the utilization of all those.
Underwriting criteria when you look at the price per acre that we paid I think roughly about $7000 per net royalty acre. We're factoring in those and you can see how differentiated that is relative to some instances you know you're paying 15% $20000 per acre.
In the Delaware basin in the Midland basins, and so you know what we're trying to do you is as Blake mentioned on a risk return risks risk adjusted basis still buying assets and so one of the things that you probably also noticed was during the fourth quarter.
Deployed about 19% of the dollars are so to the Williston basin. There was some really nice opportunities in kind of the southern part of Williams County that we really wanted to.
Attacking and felt were very interesting to us, especially given our history, there's Brigham exploration company and so you know the key all along has been to underwrite to the correct number of horizon the correct.
Number of wells per horizon. So when you see some of the commentary by WPS and others in terms of up spacing more typically the not you're seeing these on operators up space to our number of locations. So when you think about our reserve report.
And how we include those volumes in those 12700 locations that are referred to their underwriting to kind of the four wells per wolfcamp, a and upper and lower locations that we have booked on our on our Threepi Reserve report. So we're very careful underwriting deals booking deals for reserve so being very conservative.
Just in our methodology.
Thank you very much.
Our next question will come from Leo Mariani of Keybanc. Please go ahead.
Hey, guys wanted to ask the question around fourth quarter production. It was obviously substantially all your guidance there for Q.
And just wanted to get a sense was that 100% organic in in terms of the beat there was there any need volume that showed up from some acquisitions in the prior quarter or maybe any prior period type adjustments, where maybe you guys had under booked some of the production in the previous quarters and didn't realize you had it in until Fourq you just trying to get.
Handle on how for Keyw is so incredibly stronger.
No I think when you break it down by area. So in particular with you were to reference slide 10 in the in the DAC and we provide you know as we've indicated and pass through the portfolio area overview break breaking down kind of six key areas for US you can see the production by area and really the production outperformance was driven by the Delaware.
Jason So if you looked at those the full roughly 4600 barrels a day relative to what we did in the third quarter I think we're up.
In terms of production volumes up upper 40% in terms of production increases 48% I think.
The terms of exact numbers and so really it's just that outperformance that we're seeing in particular in the loving County development area kind of organic growth there.
What we're seeing oxy do for us what we're seeing Exzeo, how we're seeing shell perform.
When you look at just the tremendous well results that you guys talked about in their Mcgregor unit that area. If you kind of think about eight to 10 mile radius around there where we have about 3400 net royalty acres. There just some tremendous wells seven wells being drilled develop sorry, seven horizons being developed for us across that area is just tremendous that.
Asset and importantly, also we've consistently message. This that we stayed on the eastern side of the Delaware Basin in terms, the our allocation of capital, which has tended to be the more oily part of the basin relative to some of the far western breeze or the culberson physician.
So you know because of that and concerns regarding gas and Ngls you've had people redeploy capitals in the eastern portion of the base, where we've been more heavy and you saw that kind of play out in terms of the rig allocation or the net royalty acres being drilled force here in January.
We are aware the net rule takers being drilled for US was about 1800 in January relative to about 1000 acres being drilled for us on average in the fourth quarter. So it's the technical team undertaking the work to understand where those operators are going to be allocating capital and rigs to you and so that's the that's the fundamental differentiator and we kind of consistently alluded to that in some of that.
From the prior comments, but.
I'd also I'd also add to that when we when we put together all of our projections.
Typically we've got Ducs coming online a good six to nine months out so to the extent some of our operators specifically in the areas that Rob just mentioned bring wells online faster than that we saw a good bit of that happened in the fourth quarter.
I think you know the important point to that is having the 40% conversion rate of our Ducs, we're still able to reload the almost the entirety of the dock balance as I mentioned, 95% of those net ducs were replenished, which is key for us and so when you think about it in my comments that foundation is set for 2020 in terms of hitting that 10005 barrels.
Day mid point, because its operators like continental shall oxy Exxon Mobil that are going to continue to bring online those wells to production for us.
Okay. So just to be crystal clear on this point here. So basically it was all organic and there was no prior period adjustments that may be production that wasnt accounted for in second quarter third quarter that was pulled into Fourq Q.
Well I don't think we will consistently have prior period adjustments just because we are bar conservative in terms of our bookings of our production in revenue volumes are just to level set so everyone understands and Blake can get into this in more detail. How we book revenues. We don't book revenues. If there's just an IP report in IP 24 report.
Recorded by with the state of Texas or the state of Oklahoma, What we want to do and make sure that you know that those wells performing that theres longer term history. So we will not book revenues to the income statement until there's state reported monthly production data or we have a check in the door and so those are kind of couple that.
Key caveat, so we consistently have prior period adjustments rolling through our books.
And.
But nothing of the ordinary in the fourth quarter relative so I think the at the point, which Blake made in terms of some of the ducks hitting the income statement faster than we had planned remodeled what is a significant one but yet the key point to take beyond that is the activity on our portfolio reloaded. Those ducs. So we're still in really great shape for 2012.
Yeah.
Okay, that's great color and I guess, just with respect to the 46 rigs that you've got in January obviously step down from Q4.
You guys have visibility on maybe that rig count starting to climb back on the near term do you view. This as maybe just a temporary blip on the on the dropped to 46 and that can change in the next few months, how should we think about that.
Yes.
February it's still too early to tell we're still in integrating all the permitted locations that we have on our position. So we'll have to wait on that but I think you know the key for US is that we always try to stay in those tier one core areas, where the most economic locations that operators have so we're hopeful at the end of the day that that rig count is going to inch up and we're going to be.
More towards that kind of level that we're at before but we'll just we'll have to see overtime, how that goes I mean, the rig counts going to bounce around overtime.
But I think the positive take away from the January numbers, the net royalty acres being drilled for us at that time, yes, Rob pointed out there is movement in the scoop stack, which created.
A little bit of noise in the in essence in January yes, but I think you know a key kind of.
Counterpoint to that is despite continental deploying some rigs to maybe some areas, where we don't have as much coverage with them and the MRC NC, that's by minerals from and really what we see happening it's kind of that second wave of drilling in scoop and south scoop that I alluded to in my remarks.
That you've got marathon was just some tremendous Springer results those nine wells averaged in IP 30 at 2100 barrels a day almost 8% oil cut them in their conference in their remarks in their conference call, indicating that running the two to three rigs and attacking this Wally area, where we have those 1300 acres in that six mile radius and then also with.
Intensive talking about redeploying activity from the stack to school, where we have greater than 50% overlap with them in scoop and South skewed also is very positive in my mind for the next two to three years as we have almost 3000 net royalty acres that we think that theyre going to drill to us. So I think when you think about it longer term.
From we're set up well to capitalize upon activity as its redirected just because of the portfolio of assets that we put together under a number of diverse operators.
Okay. That's helpful for sure and I guess, just with respect to the M&A side of things. Obviously, we've had a lot of volatility here recently and unfortunately, it's been to the downside I know that minerals positions are pretty resilient, but you guys talked about kind of looking for.
The write larger size deal to do you think that that gets delayed a bit.
Type of environment that we're currently experiencing and maybe could you give us just kind of some high level characteristics around what that optimal sort of deal will look like for Brigham him.
Well I think similar to you kind of my comments regarding the ground game and it taking couple of months for.
Smaller mineral sellers are on readjust the expectations is probably going to take some of that in terms of some of the larger packages that are out there in terms of people that were hoping for bigger numbers in terms of readjusting expectations and readjusting come to a new normal and so that that might delay us a couple of months, but I think in terms of what my mind.
Optimal opportunity is integrating.
The Delaware position of Midland Basin specific position into the fold.
That being said there are deals out there with Williston basin positions that are attractive that we're looking at right now as well and so given our longstanding history in the Williston and we're very positively inclined to potentially looking there I'd say on the DJ Basin. We're very careful we'll just because of the continuing kind of regulatory.
The uncertainty that will be resolved over kind of the next 12 months as those rules could continue to get implemented and so you know in terms of where I see and then also in terms of larger deal were also as we've indicated in the past looking to branch out into new areas and so I think one that we continue to monitor is the Eagle Ford and look at transactions there and so in terms of.
New area that we're looking at is the Eagle Ford, we've always been kind of hesitant on the powder River.
Wide basin area.
A lot of that acreage rig count not tremendously high and then what you've seen in terms of some recent commentary regarding some of the down some of the infill testing results haven't necessarily indicated that those wells are economic sub kind of upper sixtys low seventys pricing. So obviously cautious there so in terms of where I see a larger deal will be.
Deployed the capital to you at the Delaware Midland Williston Basin Eagle for and these guys can jump in with further comments I'll just make a general Tom and I mean, we've been through a lot of these cycles and.
And the its these troughs these down cycles or when when we have the opportunity to compound to accrete the most value.
It's a particularly given that.
Our strong balance sheet and in an environment where.
As we mentioned on the call that a lot of the and a lot of the companies that have been accumulating minerals.
We have terminal capital private equity capital or high net worth and I don't have the upward mobility and the option. So we're just going to.
The Premier public high growth mineral company with a larger funnel than anybody else.
Tier one areas, where in a very advantaged position to make some very accretive acquisitions. During 2020, so I really cannot be set up better for us in that regard.
Thank you for the color.
And our next question will come from Kyle May have capital one Securities. Please go ahead.
Hey, good morning, and thanks for taking the question.
Just wondering as we're thinking about your guidance for 2020 can you provide any additional details about the cadence of wells turned in line or your thoughts around production growth that are baked into your assumptions this year.
Yes, it's pretty consistent with the with where we see rigs right now so when we put that guidance together.
As Rob already said, it's mostly PDP and duck conversion. So I would say that for sure think about it it's really mostly those two buckets and it as we've seen over the last two years, we've had about a 90% conversion rates.
Of those ducs within a year, so that's going to be the vast majority of it and then as you think about the back half of the year.
Into 21, it's a pretty consistent rig counts in hit rates.
Versus what we saw kind of in the fourth quarter. So you can kind of take that 50, 560 rig number and run that through.
Got it okay, that's helpful and.
You've often talked about the diversity of your assets, but I was looking at kind of the.
I guess, the M&A activity in the last year and kind of we've been focusing on really on the Delaware is there any consideration to to sell any of your other assets or maybe change the focus of the portfolio.
We're always looking to optimize the portfolios so you'll see us here in the in the first quarter announced a smaller is divestiture from when the areas that gassier area that we put together a small position.
I think roughly four to 500 net rules acres that were divesting and just we think there that capital is better to be redeployed to one of the oily areas that we're in particular find very attractive opportunities such as the Delaware and Midland basins Williston basin. So we're constantly rationalizing the portfolio, we will do so into the future.
It's just something that we think you know inherently we'll always look to and try to determine if theres a.
Potential source of capital that can be we redirected elsewhere. So that's that's always at the top of mind for us and the guys on the finance team.
Got it Thats helpful. Alright, Thank you.
And our next question will come from John Freeman of Raymond James. Please go ahead.
Hi, guys.
Morning.
The first question I had just to make sure I understood sort of Blake. When you were talking about how you know sort of the long term.
Payout ratio targeting doesn't really change.
Given sort of the overall kind of market conditions, but.
Am I right understanding at least based at the current strip and based on the current 2020 guidance.
I realize there's a lot of moving parts to this because this is not assuming acquisitions and.
You know any changes on the on this trip, but should we think of like the initial step down in the payout ratio, maybe being pushed back maybe one quarter two quarters from what I think most of us for thinking it would start around prior to all this second quarter.
Yes, that's essentially the comment that I was making is.
A variable in our decision making on.
Peeling some of that cash flow back and holding it back for acquisition funding.
Is looking at the dividend and where the level sits today, because obviously one of our.
Key tenants as they were trying to have an increasing dividend over times. Obviously, we've got activity that continues to backfill so even in the face of.
Reduced prices like we're seeing here in the force the first quarter.
We think the portfolio can continue to combat some of that.
And so thats just goes into our our calculus there so.
Sure you could definitely see us.
Push 100% out in the second quarter.
If it if it's going to make sense for the to keep that dividends steadier growing.
Great and then just my follow up question, obviously, you said that.
Can you still going we largely concentrated on the Permian in terms of acquisitions, but given what you all we're seeing in the market with some of these last competitive basins, especially in the in the Williston.
The big increase in activity there and then just based on the commentary.
Here contain it sounds like to see a lot of opportunities and these other basins and mentioned about possibly the Eagle Ford being a new area.
Is there anything from.
Personnel technical or otherwise.
Any additions that need to be made in the organization as you sort of think about getting more active in some of these other basins and potentially even stepping into a new area like to Eagle Ford.
Well, John John just to kind of remind everybody how the organization set up so roughly the 42 people that I talked about on the call. When we first started and just talking about how we're tremendous job they've done over the entirety of 2019 is the fact that probably half the staff is on what I'd call. The acquisition side. The technical team. So that's the group of geology.
Just relet reservoir engineers analysts that are evaluating each of the deals we're set up to execute upon a high level of deal flow because if you remember some of the comment that probably been made in previous second third quarters, we probably have a 10% or so success rate in terms of ultimately closing a transaction. This bought brought to us to review so.
The teams have to be set up to.
Handle a significant a deal flow as well weve.
Throughout 2019 set up the deal teams such that we can handle larger deals as they come in and evaluate those so we think that that works been done.
So subject to.
Continuing on with the ground game as is and new larger deal it be thinking about kind of the DNA in positions that we might need to add into 2020 as you continue to add PDP locations and.
Build out.
Increase the number of checks that come in the door, it's really some incremental additions on the reservoir engineering staff because of the monthly accrual process that we go through the the reserves process. The deal in deal integration. It's on the accounting side to process transactions in particular on the revenue accounting side.
And so it's it's we think the teams built out, especially on the management side to handle those situations and so more it's going to be on.
Some some of the some of those type of positions, we were kind of thinking five to five or so five to six positions that we might need to add in 2020 to handle kind of that ground game going forward. So we don't see a big increase in the DNA budget.
During 2020, but I'll qualify that in the event that there is a much larger transaction that were enable able to effect into 2020, we'll have to reevaluate that but I think the big plus for US is the scale that's going to happen. So as you think about us ramping up from roughly the 7400 barrels a day that we did in 2019 realm.
So to the the 10500 barrels a day in guidance that we mentioned that you're going to see that dollar per BOE, We go down and Thats the beauty of the business and so the other thing as you think about.
A much larger transaction. It just makes a lot of sense from our side from private equity side that in essence, you're saving significant amounts of DNA by integrating two larger positions together, you're probably talking about.
$15 million a year just on cash DNA, probably an equal amount on equity compensation per year and so there is significant savings that can be achieved so much the same as what people are talking to oil and gas companies in the small small and mid cap space that they need to integrate their operations. The 17, a savings that's no different here than what we're seeing on the middle of.
Space that we can achieve significant savings by integrating a larger transaction together with us.
Great. Thanks for all the answers and congrats on the results.
Appreciate it. Thank you thanks for dialing in.
Our next question will come from Welles Fitzpatrick of Suntrust. Please go ahead.
Hey, good afternoon.
Hey, how are you.
Good good.
Obviously, the the kind of go anywhere strategy is a big advantage.
Given that so many of your peers are pure plays and you guys. Obviously also have.
Deep desire to kind of make money and and the bus to go after stuff, that's maybe a little bit cheap or whether that's as Oklahoma or whatnot.
Is there is there any interest in going after some of these larger overriding gas packages in the northeast.
If if they're at the right price or is that just completely outside of the corporate strategy.
Well, it's kind of one just starting off with from formation and this even goes back to being Brigham exploration and the time there that we've always been Wally liquids focus so when when Bod and everybody else in 2005 2006 was redirecting the company's focus from.
The South Texas Gulf Coast kind of the conventional asset play to resource plays you know they screen, we screened a lot of different opportunities there was opportunities in the Barnett shale at that time.
And then but the Wilson kept coming to the top because of the economics. The superior economics, we believe were inherent there with the way we play.
And just the supply demand balance economics, and so we were post the sale of that asset to the status will now Ecuador had the same philosophy in that we wanted to focus on the oily liquids rich plays because thats, where we feel that the capital is going to be deployed where it significantly tougher to bring on line those wells production and so you're going to have significant.
We better economics there.
Thus kind of seen consistent with that really non is interested into venturing into pure gas play.
The other counterpoint to that is you know people are having to peel off these positions and create these overrides because there is used to begin with inherently they're trying to find methods to capitalize and find capital to work with the continued to drill and so our other key tenant is always to be under high quality well.
Capitalize operators, because we think that that that that enhances the probability of development occurring and so.
All those key facets of our business strategy in upload approach steer us away from that type of investment override in get those gas assets and instead direct us keep directing us back towards.
Delaware Basin Midland Basin, Williston Basin looking at the Eagle Ford and so you'll see US continue focus on those areas.
We also think that overrides or different risk profile than pure minerals. So we've kept the portfolio.
Essentially 90, 899% mineral interests or mineral like interest.
And so we don't have that much in overrides.
It's more of a financial contract its contract out of the lease as opposed to owning the asset into perpetuity like we have with all of our mineral interests.
Okay perfect. Thank you those those my follow up appreciate the time.
Thank you.
And our next question will come from William Thompson of Barclays. Please go ahead.
Hey, Robert Blake I appreciate the color on the organic growth and if I heard you correctly, you said, 80% organic growth in 19 from the year end 18 portfolio.
So I can ask about maintenance capex, whereas your current net docking permit count relative to sort of maintenance levels to hold production flat exit to exit 20, I guess I went to 21 to exit 2021.
I don't know I know, it's not easy question just curious for your thoughts to help us understand sort of the underlying organic potential of your reported 14 years of inventory.
Yes, we'd probably I'll start off and Blake can chime in but I think we probably need to work through that math, because you know you've got a Q1 taken in decline into account the base decline of the asset.
And then factor in the Ducks, the timeline and such and so I think you know.
Something we probably have the financing the reservoir engineering teams work on in report back in May of this year, but you know everything that we're pointing to and what we're seeing is that given that kind of 5.9 Ducs that we ended 2019 with and that are gone and we anticipate as Blake mentioned, 90% of those likely given our hit.
Toric conversions in 2018, and 29 team to be converted for US, we're anticipating 40% organic growth in 2020 relative to 29. So sorry 20 2019. So that's the jump from 7400 barrels a day to the 10500 barrels a day at the midpoint, but it's definitely something we can work.
On but instead, we're focused on.
Delivering kind of consolidating and making sure we delever.
Organic growth and then growth through our acquisitions because Uh huh.
We mentioned in some of the earlier comments, we think that that acquisition budget, which again to reiterate acquisitions for 2020 aren't included in that guidance number so they're significant upside there that's been prefunded and so we think it's an underappreciated part of the story and so that's going to drive growth late 2020 into 2021.
I guess, a follow up on that as part of the pushback on minerals the risks to production growth from S&P capital discipline and upstream spending declined. Obviously you guys are levered to some of the best capitalize the MPS on some of the best acreage. So curious years perspective, given the increase in purchasing power to end to end fees from the cost deflation inefficiencies I should we look to like footage drilled there.
Pleaded relative to like the rig count.
Just curious on whether we could still see footage drilled increase or footage.
Footage.
We did increase relative another year and declining upstream spending.
One of the things that we've talked about is.
Visiting and revisiting whether the the number of rigs operating on our properties and acres being drilled or the correct metrics to look at and instead may be transitioning to a gross wells spud net wells, but for us on on a quarterly basis. Because we think that then that then more meaningfully depicts the the manufacturing mode development, that's happening on our properties.
So I think we're going to do a lot of work around that centered around that whether we changed the metrics in which we kind of diebolds activity that's happening in our on our portfolio because net at the end of the day, it's that net debts mill interest than feeds into the dock balances, which then feed into production volumes and cash flow. So really I think we're going to do some work here.
In March now that the take 10-K's filed we can put our first in reporting cycle behind US we have time for that type of analysis. So that's something I think we're going to work on and evaluate but I would think consistent messages from what we've heard from operators is that perhaps there's kind of 7% to 10% decrease in capex budget, but as.
You mentioned there has been cost deflation I think an underappreciated part of the story is also the efficiencies on the drilling side that are happening and so in particular when you think in just one not because I'm looking at the page because as the silver to page Oxys, obviously point to point to reduce drilling times as people get more efficient more the.
Drilling activity goes in manufacturing, though projects so I think it's.
We ended the day Betty kind of alluded to this on her comment yesterday that although we're seeing these capex budgets decrease.
Probably the gross number of wells, perhaps might stay flat from 2019th 2020, because the cost deflation in the rig in drilling efficiencies rail drilling and completion efficiencies operators, we're seeing and attempting to implement so I think there's there are some solid work there thats been done that looks to point to perhaps flat overall.
[music].
Gross spuds in 2020 relative to 2019.
That's helpful. Thank you.
This concludes our question and answer session I will like to turn the conference back over to Rob Rossa for any closing remarks. Please go ahead Sir.
We appreciate everybody joining us on the call. This app. This morning into this afternoon. So thanks for joining us and again just want to reiterate the management teams banks to the entirety of the team here for the tremendous results that they put up in 2019 very thankful for their efforts and also just.
Look forward to getting together with everybody in early may to discuss in review with you. Our first quarter of 2020 results. So thanks again for everybody joining.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.