Q4 2019 Earnings Call
Welcome to the Earthstone Energy's conference call at this time.
As far not listen only mode a.
A brief question answer session will follow the formal presentation.
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As a reminder, this conference call is being recorded.
Joining us today from Archstone, or frankly, Penske, Chief Executive Officer, Robert Anderson, President, Mark Lumpkin, Executive Vice President and Chief Financial Officer, and then Scott Telander Vice President Finance.
You may begin.
Thank you and welcome to our fourth quarter Conference call before we get started I would like to remind you that today's call will contain forward looking statements within the meaning of section 27, eight or the Securities Act of 1933 as amended and section 21. The other Securities Exchange Act of 1930.
For as amended.
Although management believes these statements are based on reasonable expectations. They can give no assurance that they will prove to be correct.
These statements are subject to certain risks uncertainties and assumptions as described in the earnings announcement, we released yesterday and in our annual report on form 10-K for 2019.
These documents can be found in the Investor section of our website Www Dot Earthstone energy dotcom.
Should one or more these risks materialize or should underlying assumptions prove incorrect actual results may vary materially.
This conference call also includes references to certain non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in our earnings announcement released yesterday.
Also please no.
Information recorded on this call speaks only as of today March 12, 2020 does any time sensitive information may no longer be accurate at the time of any replay.
A replay of today's call will be available via webcast by going to the Investor section of our stones website and also by telephone replay.
You can find information about how to access those on our earnings announcement released yesterday.
Today's call will begin with comments from what Frank was then ski and Robert Anderson.
Followed by remarks for me Mark want can regarding financial matters and performance and then a discussion of our current environment and upcoming operations from Robert Anderson.
I'll now turn the call over to friends [noise].
Oh, Thanks, Scott Thanks to everybody for joining everybody website, joining on this call worsening before I address the our research and sharp declines in commodity prices and our 2019 performance and outlook for 2020, I want to address the management change.
Yes that will take effect at the end of this month.
As previously announced our Robert Anderson will take overhead as a CEO and I will remain a what birdstone as executive chairman, our Borden officers and staff could not have more confidence Roberts ability to lead earthstone going forward.
As many of you recognize he is a dedicated and capable executive who has proven that he can lead our company and has a skill set that spans multiple disciplines, including technical and financial.
He's really ban instrumental along with our other out staffing our outstanding staff.
And methodically building urge style, despite poor market conditions and the one were and right now to keep us in the enviable position that we are.
Many of our staff have been through this drill Roberts burns through this drill and we're going to do well during this downturn.
It's important to to emphasize that Robert and many of our team at bandwidth made through a number of these collapses.
You know most particularly thinking 2008 2009 in 2016.
We're very healthy company as we have band since 1986, when I first got start and we will be a survivor and we will be a consolidator.
We continue to run our business not only to survive in times of turbulence, but to thrive and create value for our shareholders over the long term we.
We focus every day on affectively dealing with the significant volatility that is constantly present in our industry or pursuing long term profitable growth.
And we will not abandon our fundamental and demonstrated strength of UBS.
Of maintaining a strong balance sheet cost control and operational efficiency.
Robert will briefly mention that we've made great progress in the last three years since a similar downturn in 2016, and we'll continue to build scale organically or through value enhancing mergers were simply not going to end up like many of our competitors. Unfortunately.
With inadequate inventory high cost and too much leverage.
I want to stress that we have the complete support of our board and major equity sponsor and we're working diligently on the M&A front, but we're not going to simply bail out any other entity and sacrifice our balance sheet for scale.
Before I.
Turning the call over to Robert I want to wrap up with.
What the couple of other parts and that being our alignment our management and staff alignment with our shareholders.
We've always structured our compensation packages to be at or below the midpoint and to make our marni through equity and centers in the last couple of years, we modified.
Our equity incentive to be performance oriented.
Based on relative.
Values with our peers.
For 2020, we further enhanced our alignment with shareholders by having approximately 75% of our management equity awards vast in three years based on absolute stock price increases, which requires an average return of about 15% over a base of six.
Dollars per share in order for us to realize target levels.
In other words.
Aside from the significant reputation on motivation that we have.
We are also clearly incentivized to increase our stock price to more money, we make for you all the more money we make for ourselves.
With that I'll turn the call over to Robert.
Thanks, Frank and thank you.
Have you have on the phone in listening on the Internet with US today for for attending also thank the board and our executive team and management team and staffing employees for this opportunity I guess I will get baptized by fire in the current environment, but we've been through this before and as we go through the rest of this discussion this morning.
We will tell you how we're going to continue to create value going forward I intend to build on the strong foundation, we have created and also to maintain the high standards that drove our progress and success of prior companies those standards and the fundamental strengths. You mentioned are embedded in our company culture here at or stone and I believe that are.
Strong performance in 2019 is a direct result of our clear focus on shareholder alignment and performance or stone is well positioned for a solid future and I'm excited to be taken over.
The CEO role here to make that happen and continue building value for all our stakeholders with that said I want to take a few moments to provide an overview of wherever we have been and where we're going I'll, let mark cover our fourth quarter in 2019 annual results, but I want to point out a few summary statistics that highlights our progress.
Over the past three year period ended in 2019, we've increased our adjusted EBITDAX by 680% we've increased our production by 235% we've lowered our direct Ela we per BOE, we excluding taxes by 47% and lastly, we lowered our cash DNA per Boe by 40.
Yes.
I wish this during a pretty.
Volatile market, maybe not quite as bad as today.
While maintaining low leverage and we ended 2019 with a net debt to adjusted EBITDAX ratio of less than 1.1, So pretty fantastic company over the last three years further as in our prior successful public entities. We've built in organization from the field to the board room that can effectively deal with major downturns.
But continue this progression and handle a great deal of added activity with only moderate incremental costs, we intend to do even better in the future are clear intent is to be a consolidator, but as Frank mentioned, we're not going to abandon our fundamental practices and over lever our balance sheet our conservative.
Approach to the use of debt.
Along with strong heads, but hedge position and quality asset base positions us with flexibility to adjust our plans to respond to the current environment without seeing acceleration of leverage and we can actually de lever considerably if we curtail our capital spending plan.
From a guidance standpoint in January we set out at 2020 capital budget range of $160 million to $170 million based on that plan. The midpoint of our production guidance is 16000 BOE a day comprised of 64% oil 83% liquid.
This implied expected production growth of 20% on 20% lower capex compared to 2019.
While inflecting to free cash flow in the second half of 2020, assuming.
Existing service costs, and a $50 Wi Fi oil price, obviously, the commodity price environment has drastically change not only since we put out that guidance in January but just in the last five days, we are reevaluating our plans for 2020, and we are going to curtail material activity in the next couple of months.
Absent a significant improvement in oil prices.
From a practical standpoint, we have no long term service contracts, we have no minimum volume commitments and our land team just informed me we have negotiated extensions on all our 2020 drilling obligations and therefore, we can wind down our capital spending pretty quickly. So we will update our 2020 guidance in the near.
Or term and communicate all that accordingly, but we are going to cut our capital materially I will now turn the call over to Mark and let him discuss our balance sheet and financial results and then I'll come back and give you a brief operations update. Thank you Robert well, let's start today actually with a recap of our balance sheet and liquidity just given the focus on that in there.
Current environment well as previously discussed we did enter into a new credit agreement with respect to our senior secured revolving credit facility in the fourth quarter of last year, which extended the maturity date by a little over two and half years to November of 2024.
The initial borrowing base on that facility of $325 million. It's the same as on our prior facility.
As of December 31st 2019, we had $170 million of borrowings outstanding under the credit facility, which resulted in a remaining 155 million of Undrawn borrowing capacity. Additionally, we had a cash balance of approximately 14 million, resulting in total liquidity of $169 million. Obviously in the current environment liquidity is that.
Local point and we're absolutely.
Focused on that as well, while we would like while we would expect our lending banks to reduce their assume price decks, which likely will result in borrowing base is going down across the industry. It's really a little too early to get granular as they kind of figure out what that looks like and we figure out what it looks like but our expectation is that our practice of not taking funding on the credit facility.
Two extremely high Utilizations will give us ample headroom for any scenario.
I would also like to add that we as you can imagine have been running at a much different scenarios in the past few days around capital programs and assume commodity prices.
And I'll, just say that from all of our analysis, we don't come anywhere close to any financial covenant irrespective of what scenarios, we run from a capital or pricing standpoint, even assuming flat oil at $35 in perpetuity.
One of the context of the continued volatility in commodity prices and in particular, given the recent data revenues in oil it's important to consider the impact for our hedge strategy. We've continued but if benefit from a strong hedge book with realized gains in the fourth quarter of $2.2 million, bringing realized commodity gains for the full year 2019 to approximately $16 million.
In 2020, we have about 70% of the midpoint of our previously released production guidance or 8000 barrels a day swapped added W. W. API price of just over $60 per barrel and we've got a decent bit of oil hedges in 2021 as well.
Similarly, though not as impactful we also have attractive natural gas hedges for 2020 at a net price of $1.79 per Mcf after the while high differential on about 43% of the midpoint of our previously issued gas production guidance. These hedge quantities in price level levels, and particularly on the oil side significantly insulate us from the down.
Outside prices were experienced in 2020 and to a decent degree in 2021 as well based on prices as of March 9th the Mark to market on our hedge book is estimated to be approximately $80 million I would also highlight for you that 100% overhead program as via swaps. So we don't have any of the downside exposure associated with other hedging strategy.
Such as three way collars or put spreads.
Okay now looking at our fourth quarter financial metrics and starting with the topline revenue for the fourth quarter were $66.8 million with oil contributing about 90% of the revenues broken dark fiber production standpoint, due to the execution efficiency and reduce cycle times, our fourth quarter sales volumes exceeded our expectation by a decent bet and.
Averaged 17571 barrels of oil equivalent per day and were comprised of approximately 66% oil, 15% natural gas and 20% natural gas liquids.
For the year. This put us at an average of 13429 barrels of oil equivalent per day, which was approximately 10% above the top end of our 2019 guidance.
In terms of commodity pricing for the fourth quarter, our realized prices were $56 to 92 cents per barrel realized natural gas prices were $1.24 per Mcf and natural gas liquids price were $40, a 90 cents per barrel fourth quarter realized prices increase on a quarter over quarter basis for all three products with realized natural gas and natural gas liquids.
Prices, having significantly increased by 71% and 39% respectively.
From an income standpoint, we reported a GAAP net loss in the fourth quarter of $5.6 billion or a loss of nine cents per share what's reflected the impact of unrealized loss on our derivative contracts of $26.5 billion.
We recorded adjusted net income a non-GAAP measure of $18.2 million or 28 cents per adjusted diluted share for the fourth quarter. Please Sir earnings release for explanations and reconciliations of non-GAAP measures.
We recorded a company record adjusted EBITDAX 49.9 million in the fourth quarter, which was the 67% sequential increase from the third quarter for the full year adjusted EBITDAX grew 51% to accompany Roddick record hundred $46.3 million.
On the cash cost side, we achieved our targeted sub $10 per barrel of oil equivalent combined lease operating expense and cash going to expense in 2019 coming in at $9 in the 72 cents per barrel of oil equivalent and we guided towards the midpoint of $9 in 25 cents per be for 2020, NRG or guidance release.
Our capital expenditures for the fourth quarter totaled $58 million, resulting in full year capital expenditures of approximately $210 million or about 3% above our guidance as Robert mentioned, we are and will continue to evaluate adjustments our capital plan as it relates the fourth quarter and really even prior to any potential changes to our capital plan.
We expect the first quarter to be our largest spend for the year and this is really driven by running a frac spread for the most most of the quarter beginning in mid February and by the completion activity on the 15, well not project that largely occurred in the first quarter.
From a production standpoint, we expect 2020 to be much smoother than what occurred in 2019 with the back end loaded completions. We had been broadly speaking, we expect the first quarter production to be down a decent bit versus the fourth quarter 2019, given the flush production. We experience then which peaked around the middle the fourth quarter and then beyond that we expect the second quarter.
It would be relatively flat compared to the first quarter and really the balance of the year is of course dependent on what we ultimately deal in the capital side.
Our prior plan had some.
Yes, the current sequential growth expected over the course of year, but with the expectation of good curtail the capital that obviously changes the slope of the production curve, so with that I'll turn it over to Robert Thanks, Mark Okay. Let me start by saying, our technical and operations team did a terrific job last year with great performance.
We had some great strides in the efficiency of our drilling and completions in 2019, which when combined with generally reduced service costs allowed us to significantly drive down drilling and completion costs from over $1000 per lateral foot to approximately $850 per lateral foot from 2018 to 2019 this reduced.
It resulted in reduced cycle times and as Mark pointed out we got more wells online a lot sooner and all of this contributed to the company record production and EBITDAX levels and achieving our targeted sub $10 per Boe cash DNA anello. He costs in terms of proved reserves. This successful drilling program has resulted in.
In a 33% increased in proved developed reserves on a year over year basis. This 2019 operational performance has positioned us with some meat meaningful momentum heading into this year.
In 2020, our drilling and completion program is solely focused on our Permian basin acreage. We just finished drilling on a five well project in Upton County on our Hammond 30 unit and we are keeping the rig in Upton County drilling a six well pad on our Ratliff project, which will take us into may during which we plan to reevaluate our drilling program.
Based on current prices and expected reduced capital costs.
In February as Mark mentioned, we picked up the frac spread to complete three wells on our Wttg project in Reagan County that were drilled back in 2019 with these wells coming online in the second quarter. Upon concluding these wells, we will consider delaying our future completion activity based again on near term forecast for prices.
And the potential for reduction to costs, we continue to focus on wellhead economics with this in mind and given current oil prices, we would only drill in our highest return areas in Midland and Upton counties, focusing on the Wolfcamp, a b as well as the lower Spraberry up in Midland County.
In 2019, we ended up with average operated lateral length of over 10000 feet, which really helped drive some cost efficiencies.
We continue to work on trades and acquisitions to increase lateral lengths in areas with shorter laterals to maintain or increase this efficiency in those areas.
As we've discussed with you in the past the majority of our acreage position has not been densely drilled in most of our projects. We're just now coming back to areas that were previously drilled as such we view each area individually and determine spacing as appropriate. So we've reduced some of the locations that we had from our prior year based on.
Updated spacing.
Assumptions generally Reagan county is spaced at about 1100 feet between wells in the same target, whereas Upton Midland counties average about 900 feet between wells in the same target.
A lot of factors go into this determination, including rock quality reservoir pressure in existing producers.
So in summary during this volatile time, you can rest assured that our practice will continue to first and foremost protect the balance sheet.
We will also pursue value enhancing acquisition opportunities with our normal financial discipline, our acreage in inventory provide drilling locations with attractive economics for many years to come however, we will be cautious and utilizing capital in the near term we.
We expect to continue to demonstrate our ability to generate peer leading margins and during this recent drop in oil price look for opportunities to build value.
With that operator, we'll now turn it over for questions.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad participants using speaker equipment and may be necessary to pick up your handset before pressing the star case, a confirmation total indicate your line is in the question Q.
You May press Star too if you would like to remove yourself from the Q1 moment. Please while we pull for questions.
Yes.
Our first questions come from the line of John Mcintosh from Johnson Rice. Please proceed with your questions.
Hi, Good morning, guys. This is actually often filling in for Don.
I just want to say congrats on great fourth quarter.
My first question.
You have the.
Additional.
2020 outlook yet.
Well.
Give us a couple of weeks.
Definitely with no long term commitments, we can ratchet down.
Activity.
However, being in the middle of operations, it's a little hard to shutdown of frac or shutdown of drilling crew.
In the middle of a pad so give us a few weeks and we'll come back to the market with some updated guidance both on the production for the year as well as a capital program. It's fair to say that absent some significant change and oil prices and the next few weeks, we're going to pretty significantly cut active.
City.
Makes sense.
And then I guess they will have them.
Hey, I deal with the 2020 corporate decline rate would be.
You know our PDP wells.
Given a whole bunch, a new wells that came on at the end of the year.
As in the Thirtyish percent range, 32% to 34% something like that.
And that's what those PDP wells look like year over year.
We continue to add wells kind of balance out that but again, we'll.
As we look to figure out our capital plan exactly for the year, we'll come back with some adjusted production numbers Hey, John This is Frank going ask us summer here associates over there your colleagues that.
That you know.
Teasing you a little bit my usual response is give me a price deck and I'll tell you exactly what we're going to do and.
And that's what we're struggling through I will say that.
Matt.
A bunch of our folks Robertson with us long time, as well as a bunch of our folks.
We can gear down.
Fairly quickly and we can gear up.
Fairly quickly if you take a look at 16.
We phase down as I recall, we had a couple of rigs running and our Frac crew weve phased out or rig we cut our fracs and we ended up probably would 13 or 14 docks at the end of the air somewhat and we were able to re kick up pretty quickly going forward and that's the elements of the plan that we.
Pad for ever so little bit more color for you there.
I appreciate it and then as a follow up I was wondering.
Good.
Hi, 19, a little under 1.1 times leverage ratio I was wondering if you will expect to change that.
How you expect the change every 20 Tony.
I assume most activity, but the commodity price.
Yes.
Honestly, because the hedge position.
It doesn't matter, yes, but it's just not a huge impact and certainly.
You know, assuming some pretty significant curtailment of activity and we kind of the math right now as we're hedges on 70% of oil production based on the midpoint of guidance, if we cut activity pretty significantly and the guidance is going down. So we probably got it's a higher percentage hedged and 78 so while.
It's not.
Well it matter some it just isn't a big impact for us because we've all got fixed price swaps on so much of the oil production that we actually de lever.
If we see saw activity you were going to de lever.
And then the ratio and going up.
Right.
And as I guess my final question is DLC into next 12 to 18 months DLC any M&A activity.
So on balance sheet, Miss I guess the price collapse.
Well or where.
We're actually excited about the opportunities that are out there.
And we will be able to probably grow easier in times like this given our balance sheet and our track record and things we've done in the past then when oil was 100 bucks. So.
I don't wish bad luck on anybody, but we're going to continue to be diligent in looking at opportunities and I think theres going to be.
A lot opportunities over the next 12 months.
Hi, Thank you very much and again congrats on the great color.
Thanks.
Our next question has come from the line of Neal Dingmann of Suntrust. Please proceed with your question.
Morning, guys. Robert one just one question more just to kind of a two parter. That's all I've got is just on the non up Im just wondering what number one what kind of color you all usually get on that as far as how much advance on that you could talk about just you talked a little bit and the release of how much activity and then sort of my second question also related to that is.
The scenarios, either because financial year operationally, you would think about going non consent there. Thanks.
We've had discussions with a couple of our.
Parties that have thought about doing having some activity this year.
We've got this 15 well project.
Completed and online and so that is behind us and everything else going forward from a non op position.
Perspective is on hold so we have nothing staring us in the face anything material.
I think does that answer both parts and really no I would just add we weren't expecting a whole lot of activity on the non op side before.
Even what activity, we were expecting and nobody excited about drilling right now.
And there is nothing and progress either.
Okay, and one more if I could just on rather than just talk about our you are mark I know you you definitely we're talking about and I know, you'll make us more detailed decision down the road depending on what these prices do but the one versus zero rig sort of operators scenario.
Sounds to me like you're pretty confident you could generate some pre cash flow on either maybe just.
Talk a little bit to on the comments you had on both of those and number one if thats the case and number two in that 2021 is overall growth, it's still kind of be the trend would still positive. Thank you.
Yes, I mean, there's a lot of modeling and your question there so.
Some of it is a philosophical thing and the efficiencies we've gained over the last year in 18 months makes it somewhat difficult to want to let let our rig go because our team is just you know we're on fire and doing really well, but at the same time, we got to be cognizant of where these prices are none of this.
As any impact on our financial Wherewithal I mean, our balance sheet is in such great shape, if we don't.
Continue to run a rig we're just with the free cash flow, we pay down debt and then we'll have some inventory to start next year or whenever the prices in prove to Frac wells and quickly jump back onto the production growth train as it makes sense, but it's all going to be under the idea.
Profitable growth with.
Our view of future prices.
Thank you so much.
Alright, Thanks Neil.
Next question has come from the line of no parks of Coker and Palmer. Please proceed with your questions.
Good morning.
No.
Morning.
Sort of along the same line.
Just wondering sort of feel that the world has changed.
With the.
Saudi Arabia, Russia standoff on.
On the production cuts and.
In the.
Really strange we've I was wondering.
Are you hearing from service companies you know checking to see just in case you wanted to do something.
Later in the year or.
Okay, then having baskin Robbins volatility Im just thinking about as you look at the trade off.
Yes, the stability of running in keeping a rig.
And then efficiency.
Conserving capital just wondering.
Youre there.
Even more geared back on the service side that could could move the needle on on your decision either way.
Well there's definitely.
Some service guys who are nervous.
Those with strong balance sheets, probably are less nervous and making whether this storm much like the guys.
Our guys.
We're communicating with them everyday because they do want to know what the plan is they recognize in low prices that we will probably come back activity and when we see a clear view of where prices are headed we may jump back to activity faster than others because of our balance sheet. So.
It's.
I expect that they may come patent and saying hey will reduce prices costs. If you guys will keep activity going but theres a balance between all that so.
We're communicating with them everyday into team sport.
We need them to stay in business to be able to grow and be efficient. So we pick the best players to go on the team and at some point.
We'll take a breather, if we need to know its market Mark again here I would you add a couple of things too that I mean, one thing you guys, who have known Frank around for a long time and fall than whether it's at or center part entities. No is that we're not.
Kind of a group that panics and we came in Monday morning, no in the world's rapidly changing and.
And not knowing exactly what all the answers are and we still have Jack what all the answers are what we do know is that we've got the balance sheet and liquidity and the cost structure the hedges to weather the storm.
Honestly I came in Monday morning, We ran look some downside scenarios that I'd also looked good and they both inbound and I thought.
Theres, a lot changing weather service cost or the dynamics when OPEC in Russia or the demand shock on the current virus piece all those things are still unknown and very knew what we're not going to do is have a knee jerk reaction and overreact when.
What changes over the next two weeks, we don't know next two months, we don't know, but things could change and we're going to do the prudent thing because we want to drill economic wells and.
We're going to do all those things and.
Assess those changes both in real time, and as we go along which isn't to say that it's not encouraging to see the industry go make the changes that a lot of folks have announced and even as we've talked to private people have talked about cutting capex, it's encouraging to see that and we're going to cut too if oil.
Six where it is but we're going to be measured about how we do it and we're not back in the corner, where somebody else is making a decision for us.
Great just trying to think did you did you say that you would heard something about private company cutting capex.
I I was just stages anecdotally.
You know its public guys and private guys are all having the same conversation and their offices.
And making decisions about what you're doing right now given the quick changes we've seen.
Okay, great. Thanks, and I was wondering if I was thinking about from.
Sure out not acquisition.
Just thinking about farm and then usually.
Take a look good.
Looking to.
Yes, let it outside party drill to earn interest.
Is that kind of deal or anyone would sort of let you complete docs for them in return for him for an ownership interest I'm just thinking that.
You, having 510 15 million to fair on your credit line could be pretty meaningful occur.
Some other parties.
The next few months.
But the situation might be.
I don't know, where you're getting five or 10 or 15 million on our credit line. Our liquidity is a lot more than that but the answer to that no. This is frank.
[music].
The answer is that.
Without without sounding cocky here, we've we've always had our plans in our pockets.
You just never know how rapidly you know the industry and the commodity prices are going to deteriorate like they did here. If you wanted to take a look at how we reacted you know probably review on our quarterly activity in in 2016 is a good gauge and we will we will you know.
Phase down as we need and with our our operation staff that has been what does forever will gear up now your question wise.
Your question was.
Is there are opportunities to drill to earn acreage do you know completions things along those lines.
No.
I'll tell you after 47 years and 35 being an independent there I anticipate there will be opportunities to that.
[music].
But I think I think everybody that's holding those opportunities right now is shell shocked and they're just not going to do anything we're trying to try to get there actually under control. Some cases, it's probably going to take them longer than we do and I do think theres going to be opportunities. So one thing that's been in the back of my mind.
Is it.
Essentially.
You know taking over meaningful acreage positions with a drill to earn.
But as I said earlier, we're not going to sacrifice our balance sheet in other words.
In other words were not going to go draw on our lines of credit for our non cash flowing assets, you know drilling to earn or things like that might be something were well consider but I think everybody's and shellshock right at the moment and.
And.
I think we'll see opportunities, but it's going to take some time to sort out.
Great and just.
Good I'm, a little bit more in your current operating areas.
As far as the books offsetting.
Is there anybody who's got significant.
Our drill drill to hold our HBP issues. These days are most was pretty much caught up on that.
I'd say most folks are under HBP status for the most part other than.
Continuous development.
Clauses that are in some of those leases. So there could be some activity that has to occur because of those continuous clause.
Drilling clauses, but.
Operator mineral owners and Leaseholders are quite.
[music].
Paying attention here to what oil prices are and they probably don't want a whole lot activity new wells coming online at.
$30 oil also and so like I said in my prepared comments we've got.
A couple of obligation areas that this week, we got negotiations done and.
We're pleased that we can extend those into 2021.
Great. Thanks, a lot.
Thanks, Phil.
Our next question has come from the line of Gail Nicholson of Stephens. Please proceed with your questions.
Good morning, Thank you for cutting men in regard.
Thank you guys did a really good job driving down expenses at night.
When you look at 22.
There is potential.
Further improvement.
You posted a really good.
Right.
Fourth quarter.
Well you know oil prices did drop 20 bucks or so maybe more so those same concessions from companies, whether it's a drilling contractor or a chemical supplier.
Those guys see what's going on and this will create some opportunities I think for costs to come down a little further and we work on an everyday and now we're going to be even hyper focused on.
Our margins given that hey, we may not have as much.
New activity, but we got a bunch of wells out there and we got to figure out how to operate them, even cheaper given where oil prices are engaged in the fourth quarter. We obviously had the flush production so.
A big.
Denominated there on the cost per Ela per BOE, Inc.
We obviously will have that the balance of this year.
But from a kind of through Robert's point.
A service provider perform performing ex activity, we think theres some potential.
Downward pressure there.
Great and then just on the standpoint hedging.
If the nominal hedge program.
This is a different environment and things will change how are you just thinking about has progressed to this year in regards to 21.
Okay.
Yes, we're thinking about it.
You know if we knew that this was going to happen, we probably should have hedged everything we could have a you know we didn't see this black Swan event or whatever you want to call. It but we continue to be diligent and look at options that we have four.
Putting more hedges on or considering hedges as we go forward.
Okay, great. Thank you.
Our next questions come from the line of Andrew Bond of Alliance Global Partners. Please proceed with your question.
Good morning, all this is Andrew bond, calling in from the line of Bhakti Pavani.
My first question is.
What kind of Capex level should we be thinking about if you would want to maintain production at at around like 12, 12500 Boe per day.
You know, we're just not ready to come out with that I mean, we're still running scenarios in real time.
Yes, we've got some idea.
I think our focal point is on making the right decisions in terms of.
Activity as it relates both to wellhead economics, but also as it relates to just the disruption of shutting down in starting back up.
Give us a month or so and we'll give you.
More clarity then.
That makes sense and then my second question.
With the coveted 19 situation now being called the pandemic.
How are you as a company preparing for this and do you see this impacting your your operations in anyway.
Okay.
We work pretty remotely.
Or have the ability work pretty remotely as it is and we actually had have had discussions over the last couple of days of you know who is absolutely necessary to come into the office and probably the person who has to.
Print out a check to pay a vendor is probably the only person has to be here and everybody else can work remotely. So in our operations teams are all in the field, obviously thats remote they don't need to worry about.
Being in big groups and.
Unfortunately, we have a group of us in the room here today, but we're all going to go self quarantine for the weekend. After this past week.
So.
Sounds great. Thanks, very much we appreciate the color and congrats on the record year.
Yeah. Thank thank you Andrew.
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Your next question comes from the line of Peter Peter. Please proceed with your question.
Hi, its Peter and his thank you very much your time nice work guys.
A quick question on clarity regarding Hammond 30.
That came up late last year I know you drilled vertically and then we're planning think remember last guidance for as you complete the horizontal parts that well again in Q2, I thought I heard order in the call that those were those horizontal.
Segments were completed already I.
I just wanted to ask clarity I missed that part.
Sure, Yes, it's quite easy. So we were we had drilled the ratliff wells to the intermediate section and then because of some surprised offsetting frac activity. We took the safe route and went and drilled our Hammond 30 wells and now we're back on that Ratliff. So there is all five Hammond 30 wells are drew.
Build waiting on completion and again Thats under review.
That timing and then the Ratliff wells were back over there with the rig right now we'll finished drilling those six wells out and then we'll figure out both timing of completion and what to do with the rig.
Got it so the timing completion for both Ratliff and are subject to the capital.
Susan can you guys are in the process will make in now.
That's right.
Thank you very much that clarification.
You bet. Thanks, Thank you Peter.
We have reached the end of the question answer session I will now turn the call back over to management for any closing remarks.
Thanks to everybody for listening and asking questions and we'll be updating you all here shortly with the capital and everything like that and we appreciate your interest in the company have a great day.
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