Q1 2020 Earnings Call
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I like the burned the conference over to miscarriage <unk> Vice President Investor Relations. Please go ahead.
Thanks, Nick.
Good morning, everyone and thanks for joining our first quarter 2020 conference call.
An updated presentation was posted to our website yesterday afternoon, we may reference that presentation on our call today.
Just a reminder, our discussion will contain forward looking statement a number of actions could cause actual results could differ materially from what we discussed.
You should read our disclosures on forward looking statements and our news release in our 10-K pretty your ended December 31st 2019 for the risk factors associated with our business.
We plan to file our 10-Q on Monday May 11.
Oh, we're going to change things up just a little bit today are prepared remarks, we'll begin with an overview from our CEO. Tom Jorden, followed by a few comments from some rack CFO Mark Burford also person on the call to answer your question is Blake Surveil VP of operations.
As always and so that we can accommodate more of your question. During the hour we have a lot of for the call we'd like to ask that you limit yourself to one question and one follow up feel free to get back into queue. If you like the without I'll turn the call over to Tom.
Thank you Karen and thank you all for joining us on todays call.
It would be an understatement of fiber to say that these are volatile times or macro environment has been shifting hourly over the past two months and it is best scramble to keep up with the.
At times this filled as if operational and market updates become out of date before update calls them.
Although we hope to give you a flavor of our current situation and outlook on this call the situation will change before nightfall.
First I want to express or well wishes for every one shelf, both physical and mental as we deal with the covert 19 crisis. The dual sharks of the covert 19 stand down into collapse in oil prices have brought none imaginable Cherilyn store company to our industry and ordination <unk>.
It is our sincere hope that you're all protecting yourself honoring health professional guidelines and remaining and good spirits. This working remotely is wearing all of us out.
Sure works has weathered the cobot drug chain crisis, well, we had an early start and that we stood up a task force in February to make contingency plans in the event that the pandemic worsen. This included preparing all righty infrastructure for remote work identifying key backup plans for critical personnel.
In the event they were to be in incapacitated, ensuring their critical processes, we're ready for remote work. So that we would not drop the ball on transaction processing.
Establishing new protocols to protect our field staff as they went about their routing.
Overall, we couldn't be more pleased with how our organization has responded.
Our office locations for Dan remote work may 18th.
The executive team has had daily calls to address issues as they arise everyday is a new issue a new challenge and the new work around.
I want to give a big shout out to our organization for the manner in which they have stepped up to the challenge. It has been humbling to be a part of such a high performing chain.
First and foremost our field staff have gone about their jobs with professionalism dedication and deference to social distancing and new health protocols, they are or heroes and this crisis. Our engineers have found new ways to slice and dice, our cost structure and attempt to lower.
Our lease operating expenses and liberate precious cash our marketing group has been heroic in finding markets for our products. We have built new tools to analyze fixed and variable l. we.
Jumped to understand our net operating income on each and every one of our properties. We had been proactive in shutting in properties that are not cash flow positive in this environment and finding creative ways to honor our volume commitments. We have worked with our partners up and down the value chain in order to encourage costs.
Cost reductions that allow us to continue to produce.
Through this crisis summer access demonstrated what a high performing team looks like.
The marketing situation has been particularly volatile the length between W.G.I. index prices are well head netbacks can be complex and rapidly changing.
Our operations group has built some powerful tools to track or wellhead, Netbacks, and we're making prudent informed decisions are which properties to produce and which properties to shut it.
Good relationships with some marketing counterparties have borne fruit during this time and allowed us to walk in fixed price contracts, where appropriate. We have also added to our hedge position further strengthening our confidential our marketing and production decisions.
Mark will provide more detail here.
Sure works, that's always valued flexibility and once again, we're reminded why we do not have services under long term contracts nor are we burdened with on Earth minimum volume commitments on volume delivery.
Our prior caution and enter into entering into long term commitments has paid off allowing us to react quickly to market signals as I mentioned previously we have scrubbed our cost structure to lower our lease operating expenses the creativity that organization as shown here has been amazing.
Although we are only a partial list of initiatives, we have renegotiated salt water disposal fees renegotiated gathering and compression rates on third party gathers reconfigured facilities to lower electricity costs reengineered compression systems to release unnecessary compression.
And scrubbed and minimized or chemical expenses.
Their activity levels in drilling completion and facility construction and midstream construction have decline, we have released contract labor I redeployed company personnel the taken many of these jobs.
And what was either a tremendous foresight our blind luck, we initiated an early retirement incentive program in January of this year in aggregate. Our early retirement program has allowed us to reduce over 10% of our head count on a purely voluntary basis.
We ended the second half of 2020, with a lower cost structure and a better higher performing organization.
We're also quite pleased with the trend of our drilling and completion costs and the second quarter were seeing total well costs for two mile Wolfcamp wells at less than $900 per foot.
These are actual cost not projections or targets. They include all drilling completion facility in flow back costs.
We look forward to resuming active drilling and completion operations in there in the near future and taking further advantage of these cost savings.
Any outlook for the future is a best murky, we have learned to lessons from past downturns first.
These downturns in our business never come pre labeled and how long they will last.
Nevertheless, forever and the recoveries are as unpredictable as the downturn itself. Thus if you're managing a company on the balance sheet, you must be inherently conservative financially as if the downturn will last a long long time.
The second lesson as a one must be very careful making long term decisions in the emotional funk of the downturn patience is a virtue at times like this for patients may prevent one from making decisions that will linger long after the downturn this past.
We have the flexibility to significantly increase or decrease capital in the remainder of the year, we have contingency plans for both.
Our base plan includes bringing additional rigs back mid summer and continuing to drill but deferring completions to 2021.
On the downside, we can forego this second half drilling and conserve cash.
To the upside if conditions improve we can bring the rigs back end stage completions in the second half of the year.
All of these contingencies generally fall within the capital guideline range previously communicated.
We will watch the pace of restart of the world economy, and its impact on oil natural gas and natural gas liquid prices, we have the flexibility to respond accordingly.
We will also be staging our organization back into the office sometime in the latter half of May we will return to the office in phases, keeping the health and safety of our workforce our top priority.
Finally, we remain optimistic regarding the long term prospects more industry, there will be an effective treatment or vaccine for cove at 19, the world economy will restart and respond in ways, we do not anticipate fossil fuels power our world and we'll continue to do so for debt.
Gates to calm.
As in prior crises, we will look back on the Prognosticators and Marvel at how much they got wrong, we can't be certain what the future looks like but similar ex will be there to respond to it.
With that I'll turn the call over to Mark for a few comments before we go to QNX.
Thanks, Tom.
As Tom discussed or capital guidance has significant flexibility in bringing back activity, both rigs and frac crews.
We'll continue our focus on ensuring that we make decisions during a return on investment.
And preserving our financial strength to generating free cash flow.
2020 hedges do you provide us with some shock absorber on our cash flow.
Our hedges generated cash settlements of $43 million in the first quarter.
And we estimate generating $230 million of cash in 2020 piece on April Thirtyth strip price.
You don't however, do you are hedges as justification for investment or production decisions.
We have seen continued improving our well cost per lateral foot and have an excellent inventory of drilling opportunity.
Our production forecast are highly dependent on when we bring back frac activity. If you defer our fracking activity or the remainder of the year, we will be declining once we bring bring back frac activity will begin to grow.
As discussed in the past our expectation establish a consistent drilling and completion cadence allows us for some growth in free cash flow generation sufficient for our dividend and greater with stronger commodity prices.
Want to position ourselves as the commodity market stabilize to build cash on our balance sheet to increase our liquidity and that option is to reduce our debt in the future.
So with that Nick I'll turn the call back over to you for Q1 day.
Well I'll begin the question answer session.
That's a question you make press Star then one on your Touchtone phone.
If you're using the speakerphone, please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
At this time, we'll pause momentarily to assemble a roster.
As a reminder, please limit yourself to one question and one follow up.
First question comes from Aaron.
Yeah, Rob.
Retail. Please go ahead.
Yes. Good morning. This is the RIN Jay ramps from JP Morgan, Tom how are you doing well run.
Given the during here Yeah I live in the Dream.
This is testing everything you've learned in your career and does the school and such.
I wanted to ask you about.
The DNC cost savings, you're currently looks like at leading edge all in costs at 900000, or pardon me $900 per per lateral but.
Can you talk about.
The improvements that you're seeing.
Maybe give us a little bit more color in terms of what is driving the improvements how much further can you push and your thoughts on.
Capturing these savings, particularly as you move down to lower activity levels.
Over the balance of the year.
Well I will say this.
We really love this drilling and completion cost per lateral foot marker because it's easy to calculate it's easy to compare and its transparent, but I want to remind you and you won't be surprised to hear me say this around it's about return on capital and so during.
The year, we actually tried lowering our completion effort on a few projects.
And realize that know that wasn't there I'd answer. So we are back increasing our completion effort. So it's not always about costs I would love to be able to tell you that I can make the ideal well at the lowest cost structure possible, but thats not the way. It works so that that current number less than.
$900 a foot is a completion style that we're quite happy with go forward.
The reductions we've seen no internally I had a conversation early this morning with our Permian business unit manager and we were talking about how much of it is cost reduction from vendors and how much of it as engineering. He told me that internally in their discussions they think about 80 per se.
End of that cost reduction is coming from just service cost reductions and about 20% of its engineering.
So.
My answer is it's going to as activity picks up and demand for services picks up and the service sector recovers as they must and I want to underscore that point, we need a healthy service sector in our industry and they're seeing the pain of this as much or more than anyone.
So you know as prices recover activity recovers service costs are going to and shop.
And.
I don't view that as about thanks.
Great. Great then my follow up Tom you articulated your base plan that assumes bringing back some rigs a mid summer.
And perhaps restarting some completion activity in early 2021.
In your update you didn't provide a lotta outlook comments given all the uncertainty, but I was wondering if you could.
Perhaps give us some some maybe some thoughts on you know if you let to your base plan.
So how could oil production trend next year I don't know being offer maybe.
An exit rate and 21 versus this year, but maybe just some thoughts on on.
Hey, what 21 could could look like as you restart completion activity.
Next year on year based plant yeah ruined all all off you skate as best I can and then turn it over to Mark.
We're not trying to be coil here. The honest answer around is that there are so many things we don't know that giving a projection would have to weed out appointed a set of circumstances that we just don't have confidence in.
And it's not just drilling and completion activity. It's also shutdowns. This situation is so volatile we had a situation earlier.
Within the last few weeks were one point, we thought we were going to be shutting in massive amount of our oil production and then in the very last minute. We got a call from one of our marketing Counterparties, who said they were short oil for the month of May and they offered us a premium to produce more oil and so.
Yes, it's a function of drilling and completion investments and how we stage them. It's a function of shut ins all of which is tied into the pace of the restarted the world economy now I am I am hopeful that we're going to be back to a growth trajectory and 2020, not just 2021.
And I'm hopeful that we'll be bringing completion activity back in the second half of the year.
We have the band is so wide on what it could look like that we just decided not to give that degree of granularity at this point Mark you want to bail me out here I.
I think you guys said it well, Tom let me try and to evaluate what our outlook could be with the variability in our shut ins the timing of a potential depletion is no completions, but route I mean, basically though if we don't complete wells remain at here, we've talked about a decline rate in our production we will decline as I've said in my remarks.
Through the year and we have.
Stuart you talked about decline rates of 40% annually and our oil volumes. So.
We're not trying to be coy on the fact that we do have declines expect to have declined but when we start into our primary focus is when we start DG activity back in mix should we get a return on invested in we're prepared to start bringing on Boeing volumes as they have a better visibility in the market, but at this point in time completing wells at it.
In adult 20 is not a logical thing for us to do so as it is a market stabilizes, we gets more confidence and stability supply and demand balanced.
We will be ready to start making those investments in start bringing on additional volumes, but this point time in this market it doesn't seem to be a logical step in there so much volatility.
Fair enough. Thanks, a lot jets.
Thank you next question comes from gave dollar of Cowen. Please go ahead.
Hey, good morning hold everyone's doing well, Tom maybe just with curtailments, you mentioned eased up on acreage <unk> curtailments given that the marketing.
Company asking for more oil, but how should we think about I guess June and I guess generally would you comment on maybe what price need to see this start.
Falling somebody's curtailed wells.
Well June is.
The topic of today, we're will be having to do nominations here for June.
Yes. It's there are we've all learned more about marketing in last couple of months than we ever dreamed we have no.
The insurer.
Many of you follow it carefully but you know the WCS WTI price as a starting point and then from that you have either the mid cush differential or the W. TL de dark which incorporates the mid cush differential that WG, all being west Texas light.
But then you also have the Nymex role, which is a function of the the behavior of the out months and then you have against that various other elements to get your wellhead netback and we're making these decisions based on our wellhead netback and it's been remarkable to us.
How volatile every one of those markers I just lay down have been.
June looks pretty good to us today I think if if if we could.
Waive the checkered flag today on June we'd probably be producing the great majority if not all of our volumes and be very lightly curtailed or perhaps not even curtailed as all the.
Challenges all right when we go to nominate we're locking in and committing to produce those volumes and just how bold we want to be what we've seen is.
The near the near month has been a bit of a mirage.
Like when we when we looked at.
At April and May it looked really good until the very end of the month and then volume fell out that that was what happened with trading that was the headlines and so we have secured a lot of our June volumes or May and June were talking about pre sales at a fixed price.
Yes, right now I'd say June looks pretty good but the game is still being played for June.
Understood. Thanks, Tom that's helpful. And then just a follow up on the curtailments could you maybe just talk a little bit about timing to get the wells back back up and running.
And just how you think about that.
From a like I said just from a tiny perspective is that it any color there would be helpful. Thanks.
Yes, I would answer that gave I would say we think we can get the production back pretty quickly and I know every company will have a different answer and every company has different reservoirs, but we think for the great majority of our reservoirs that the reservoir response will be just fine we did a lot of work.
On that.
A number of sales like forever ago. It was probably four or five weeks ago, we had quite a technical session looking at our reservoirs and the response of the reservoir to shut in based on the age of the production.
Do we should we worry more about shutting in an all well versus a brand new well should we worry more about shutting in a well that sustained production versus one that's just recently Frac and then early flow back and we think we're in pretty good shape with our reservoirs to shut them in and.
Then bring them back when we need.
Great. Thanks, so much yep.
Thank you next question comes Virginia I Barclays. Please go ahead.
So anticipate generating free cash flow on the current strip can you clarify whether this is after the dividend and if so can you quantify how much free cash flow you're forecasting.
No, it's kind of a moving target because pricing is around.
Sure.
Yeah.
Yeah, Hi, Janine.
Yes, we do you expect to generate free cash so after the dividend and I guess, we would see at recent strip price, it's probably in the.
$50 million to $100 million range.
Okay, Great. That's really helpful. Thank you.
My second question, maybe just following up on urban earlier question.
In terms of 2021, we spend a bit surprised that just how much base declines are expected to improve next year based on.
The commentary from your peers even.
Even given the magnitude of the Capex, that's you're seeing this year. So can you discuss what kind of improvement you anticipate the recipe for next year I know you that historically you're at about 40%.
And any commentary on what that.
Maybe the backlog of your wells and progress could mean for capital efficiency and 21.
Sure Janine, we have looked at that in looking at our radar piece decline, it's been typically in that 40% range.
As we look at it plan, where we have limited completions through the balance of the year, our base decline does moderate and it could be down too close to the 30% range and that coming into 21. So.
That definitely does help us as we look at as we stage back activity tends to have some.
Sequential growth so we will.
Now that going force plus we do as we disclosed in our presentation 47 wells in progress that we will be.
How did the backlog and we can start.
Are you waiting the pace of which we bring those wells in the completion of depending on the environment. So we do have some things that will be setting us up to help help into a 21 and resuming more normalcy and we hope and 21.
And then maybe just a quick park you on that one in terms of the normalized level as well.
Congrats.
Around activity, but we've heard others kind of comment that it's about 10 operational duck curve Frac crew and is that a good rule of thumb for Sarah.
A frac crews to rig count tuning in somebody here just.
All right.
The number of operational wells in progress that you just normally so we've heard that the ratio of that is kind of like 10 of those to everyone. Frac crew is what you would kind of want to run Jay nominal turn Nick I'm going to turn that question over to Blake Sirgo, who is joining us so blake lunch take that.
Just want to make sure I understand your question the.
In general we can run about 10 drilling rigs with two frac crews, that's kind of our distribution to keep up.
Is that what you're asking.
I think.
I think asking what's having 47 when progress how many crews would you do have per.
Location in progress that you're asking Janine.
Yes, I can take it offline.
Got it appropriate just kind of the thing is that everybody's been talking about evolved and progress are done a tailwind for 21, but we're just trying to figure out what the normal level. So that we can figure out how much is actually a tailwind versus what you really need.
Yes, I mean, there there's a lot of elements that go into the engineering again, maybe offline would be better staging and the number frac crews as a function of water availability labor availability facilities construction midstream in there it's really complex.
System and.
It's not just driven by the Frac crews is driven by a lot of the follow through and what's the right pace of field activity to get it done prudently and its lowest cost structure.
Great. Thank you so much.
Thank you. Our next question from that'll Digman of Suntrust. Please go ahead.
[laughter].
My first question, Tom just wondering you you've hit on this quite a bit but wondering when you. When you think about between the curtailments and then just a pure sort of I don't know I guess I'd call. It didn't see suspension or slowdown how how different do your are your requirements sure margins are ready to return requirements on on each of these to bring these back.
Well, we look at full cycle return on every investment we make so you know as Mark said.
We had some drilling in progress and we'll have some uncompleted wells.
To start a new well today with W. CCI that has a to handle in front of it doesn't make a lot of sense now the completion decision as a go forward some caution that that's a little different decision.
We would generally.
For our program broadly like to see a three in front of the W.G.I. price before I think a lot of new drilling completion.
It's interesting to us.
Is that am I answering your question, that's that's spot on Thats exactly right on and then really just a second partner is.
You guys are taken.
You know a bit more of a just I would say conservative, but that's been a slower pace both.
The mid con over the last several quarters as well as even calibrate stable pace in the Delaware versus some others with that I'm. Just wondering how you all think about PDP decline I would think potentially might.
Yes potentially.
Slowing down a little bit here, but I'm just wondering any comment you could.
Make on on how you view the current PDP decline either those assets.
Well all that Mark comment, yes, the way I think about PDP decline as I hate it I mean.
I haven't PDP decline, but you know this is.
These are strange times and.
I've learned a few things in my career and Thats. The one thing you want to folks on first a survival and making sure that you preserve your balance sheet to the extent you can preserve your assets preserve your organization and so we're making decisions first and foremost to make sure that were healthy when the things inevitably.
Recover and lot of things, so I don't like hard.
Secondary priorities in terms of survival decisions, Mark you want to comment on that yet and yield so even the PDP decline, it's definitely going to be declining decreasing it with lower activity as we go into the 21 period.
And we are just managing our investments in looking at our investments, making sure that when we get to a environment. We want to continues completing in drilling new wells that we have a visibility for full cycle return on investment.
Thank you I'll start off on production shut ins, that's definitely a challenge and what we look at for return cash flow return. Obviously, we're clearly looking at our cost structure all elements that go into the annualized net operating income of each well done a lot of work is typically when we look at evaluation of our shut ins free and curtailments.
We want to make sure we're getting positive cash off those wells, so thats a little bit different this year on and make sure you can be positive cash on what you're producing and not set yourself up for potentially negative cash on that production. So.
Finally, the drilling investment full cycle returns and then on that kind of curtailments were scrubbing every well, making it our base and even the whole base of looking at every well seen if we can get a positive NOI on those productions you all sorry.
No right now I will say that we're really pleased to have those mid continent assets other generating really good cash flow as the strip firms up on gas. They are looking better and better we have some investment opportunities there when we get back to work that.
We'll compete nicely with our Permian assets, particularly if oil prices stay depressed and then finally to the extent that we've had.
Bottlenecks.
This is just nice to have a diversity. So we're we're really glad we have those mid continent assets.
No great details guys. Thanks, so much.
Thank you next call for Michael CLL of Stifel. Please go ahead.
Yeah. Good morning, Tom you mentioned some of the changes you made so lower.
Lease operating expense and.
I guess other than slowing activity and curtailing production can you talk about any changes that you've made operationally if any to respond to the.
The lower price environment, I'm wondering if anything in terms of well designers spacing has been changed.
To respond to the lower prices.
Well, we have not changed any well desire spacing and mostly because we have not configured a new project from drawing board to go forward I don't want to anticipate our spacing or well designed to change materially but in answer to the first part of your question one of things that we didn't give much.
Detail on preamble was our.
Project that we undertook to replace our contractor workforce by redeploying employees.
As we lowered our drilling completion activity.
We found we had a lot of employees that are engaged in drilling completion that suddenly had idle time and you know what what happens at similar actually happens with all of our peers is because our capital expenditures tend to be elastic you end up with a pretty good field contractor work.
Force and so we embarked on a very systematic comprehensive project to release, our contractors and redeployed company employees cities contractor positions and that on a gross basis that savings was over 40 million dollar.
As of year, no that's gross net but really tremendous effort on the part of our operational team to look at that workforce and find a way not only to keep our own people deployed but the lower overall cost structure, but throughout our organization. It's just been humble.
Selling for me to watch the innovation and creativity that our operating groups have brought to the task of keeping our production on by lowering our cost structure and.
I wish we could provide more detail, but it's been fun to be a part of and that quite frankly. It makes me want to work out much harder to earn a spot on such a high performing team.
That's nice to hear.
You also mentioned.
I appreciate the uncertainty here, but you said you probably need to see $30 plus price before you can really.
Make economic sense of new drilling and completions.
I'm wondering.
In terms of.
Can you say, even just broadly what kind of price you'd need to see before you go back to growth.
Growing production.
Well I, yes.
If you give me a little wiggle room I'll answer the question.
I think today, if you told me.
That there was some sign in the Heaven that said strip was what we were going to see I think there's a high likelihood we were drinks and completion crews back in second half of the year and get after.
The challenges with what's happened.
We'll have much faith and strip.
The strip holds up until you get to the near month and then it falls off money.
So we're kind of looking for some signs that the macro environment is moving substantially to recovery I think if we saw the world economy restarting. However, sluggishly, however, slow burn on restart, but if we just saw the momentum moving in that direct.
Listen and thought you know the strip is probably a reasonable indicator I think we as long as oil was I would say w. CCI in the mid threes, we'd probably.
Be willing to lend forward.
Mark you want to comment on that yes, sure Mike I think you've been terms. If we were obviously baking ourselves a lot of flexibility second half a 29, knowing especially through the summer period still uncertainty on the on the economy, what demand growth with respect to establish and do we get in the fall you see some stability I think as Tom said, we'd like to bring back.
Some activity.
And if we add some of that confidence to do that with the underlying commodity and inventories we expect to do that in.
And as we go into 21, if we have continued north of $30 oil will have a program, we could probably being a similar level of five to 600 million a capital going into 21.
At a $30 below $30 strip, which works out now and we could start seeing sequential growth in our our quarter to quarter growth and it is going to comes back to when we start bringing back activity and when we start bringing additional new wells on.
That's really helpful. Appreciate it guys.
Thank you our next call.
A question for Michael Hall, Heikkinen Energy Advisors. Please go ahead.
Thanks very much.
Yes, Mike kind of hit on.
Some of what I was I was hoping to ask about but I guess, maybe thinking a little near term.
About the completions pace I was little surprised to see the to Twoq completions be where they were relative to the rest of the year does that just a function of.
Of kind of carryover activity that spilled in April and those completions already happened.
Or is there ability maybe to smooth out the back half of the year with some of those completions or just trying to get a little bit of process.
Our insight into your thought process around around that shape.
Yes, Michael those are pads that are in progress that we had started in March and they were just carrying over into April. We basically just finished up with things that were already in progress they'll be counted in first production starting in the second quarter essentially in April has our presentation shows.
One of the things we did talk about their lease obligations are a factor and what we're doing right now I know there's been a lot of talk about some of our regulatory bodies, giving the industry broad relief.
We still have individual contracts and.
To extent that lease obligations require first production.
We're going to preserve our asset so some of that is involved and lease obligations.
Okay. That's helpful.
That makes sense.
I guess, maybe as a.
Another question here.
The Twoq period I'm, just curious as it relates to the curtailments that you've outlined does any of that been a function of true inability to flow or is it is it really all Ben.
Just purely economic.
Economically driven decision, making just trying to its purely economic we've had flow assurance. We've got good relationships with our Counterparties. Every every curtailment. We've made decisions on has purely been economics and market forces.
But no.
There is there.
I want to produce any well in lost some units.
But we certainly have the opportunity to.
[laughter], let's now take that opportunity that's helpful.
I appreciate it and good luck out there.
Thank you again, if you have a question. Please press Star then one.
Next question is from Jeffrey Campbell Toy Brothers. Please go ahead.
And.
Good morning.
Yes, Tom you mentioned.
Leading macro data points to have increased investment confidence you spoke about I guess broad economic recovery.
Just wondering what relative importance to your place on more.
I guess oily markers such as the very high inventories that we haven't both crude oil and gasoline Carla.
Well I.
I worry about it I worry that the amount of oil and storage is going to put a dampener on the recovery because we'll have to bleed that storage soon I.
I don't have any particular insights on that other than what you and I both read.
But I also want to remind listeners that we produce oil to gas and natural gas liquids as well.
Yes, it's nice to see the firm up in natural gas prices. That's that's has a significant impact on us. So it's all about oil. It's it's really a three phase sale.
But yeah.
Do worry about what impact the storage situation will have on oil demand.
Yeah, you're kind of anticipated my follow up question, which was.
Assuming the Nat gas price improvement materialize.
The way we're.
Start prognosticating now.
How would just influence your capital allocation in 2021, I think you mentioned something about the Metcon earlier, but I was wondering are there also parts of your Permian acreage that could benefit.
From those better Nat gas prices as well.
Thanks.
Well I mean, yes, and yes.
Our our midcon production looks quite a bit better.
Particularly you know in our in our broader can't asset, we have some opportunities and that eastern margin.
Yes, there just tremendous wells really amazing wells that are low decline.
But you know natural gas prices also greatly benefited us in the Permian and it's not it's not Nymex, it's been really nice to see that wall Hall from up.
Net flows right back to our wellhead Netbacks, we spent too much time this year with.
Almost zero Netbacks on our Warhol.
And it's really been nice to see.
Yes.
Greater the dollar wall Hall and to the extent that that holds in and that's going to have that makes our Delaware basin assets look down much better for investment standpoint as well.
Thank you, Jeff Tencent changed our gas price realization thats.
Where from 20 to 25 million additional cash flow. So definitely the gas price improvements are a positive to us in both our cash flow and in our economics.
Great. Thank you.
Thank you next question comes from Diane Bryantt Downey Citigroup. Please go ahead.
Hey, guys. Thanks for taking the questions. Most of mine were taken but just had a quick one on the the mid con as a follow up I realize it's it's not a huge part of the oil production base and you've had minimal recent turn in lines, but I was curious on the sequential oil declines in particular, there are they were a bit higher than than we had assumed on a base PDP decline six.
Eventually just wondering if there's anything one off there in either of the the one Q or for Q 19, mid Con oil production numbers that was leads that large sequential decline.
Yes, Brian we there isn't anything that we had seen an unusual in the numbers that just different flexion at some of the wells. We had brought on in a decline in not only ours, but theres a fair amount of non operated production in our mid continent base with share some wells and it does add that type of decline in it.
Yeah, if you want to weaken that look into some detail. How this off one were we just don't have that for us.
Okay, Great I appreciate it yeah.
Thank you next question from Doug Leggate Bank of America. Please go ahead.
Thank you. Good morning, everyone saw him I apologize I was little lead getting on because there's multiple multiple things going on this morning, as you know so I apologize if I'm repeating an earlier question.
I wanted to just kind of revisit a high level question that we've been asking all your peers frankly in this.
In light of everything that's going on but it takes available commissioned and everything else and the question is that when we come at the other side of this new companies like yourself bulletproof balance sheets tremendously conservative strategy over the years consistent focus on returns all good things that have been part of this business.
What is what is the strategy look like longer term in a recovery, Saudi and I'm not asking when you bought to work so to speak it's more about what is the right balancing growth cash returns.
In the context of I guess, the signals from Saudi that they're not going to totaled <unk> million. Bosnia goes out of U.S., how do you think about that.
Well.
A couple of questions there.
Our approach is going to be what it's been we were going to be very prudent in the investments we make.
We're not going to be growing for growth sake, but we're also deeply committed to our dividend and our capital structure going forward will include honoring our dividend.
Now.
I don't know what happens with the global price War and what the Saudis do.
I suspect there'll be some consolidation in our industry and I suspect that better operators will survive better balance sheets and better operators.
We're going to see some shake out here in the U.S CMP sector.
We're not expecting things to go back to 2019 levels for some time.
But we're going to manage our balance sheet, we're going to deploy capital prudently, we're going to return cash to our investors and we're going to try to be the best operational company in the business and that's our outlook.
Mark you want to comment on that.
Tom I think you said it well I, just say that Weve never been about growth as Tom said, it's always been about return on our investment that will still be a key to how we think about moving forward I would say that we have probably as Tom said, we want to make sure we generate free cash flow to return cash to our dividend I guess I'd like a little bit more on top that I think we want to have a little bit more.
Free cash flow above that even so we can have some more liquidity on our balance sheet and have outlook to be paying down some debt with takes additional free cash flow.
Guys I know, it's a tricky one so answer if you don't mind I'm, just going to pause a little bit on this because.
I understand the issue about the dividend and so one but.
Volatile commodity environment, a big dividend has never been out an ideal part of an MPV strategy for obvious reasons.
The big issue is how much of the total cash flow was reinvested viruses return to shareholders, whether it be a variable dividend buyback or something like that.
And that's kind of really most of the visit my issue protecting a relatively small dividend still implies you're reinvesting an enormous amount of cash flow in a normalized oil price environment. My question is why not shift thought too.
Somebody for example.
Percentage of cash flow to guess returned to shareholders as an ongoing commitment because otherwise the industry ends up too much drills and thats kind of what I'm getting a little bit of cash flow for a dividend.
Living that's still doesn't really get as to a point, where the industry has been more.
So everything is growth that we can absolute terms. So any comment on that Mark I know you might have talked about this before.
Sure Doug Thats something that we at the tension that we all are looking at with the mountain return, we can generate from our drilling programs, which is still important to us.
We think we have a great asset base great returns so the amount that we diverted away through dividend and or debt repayment or other cash build on the balance sheet does to try to take away from that returns but that thing.
This mark is evolving and we are also evolving our thinking to wear.
Percent more a larger percentage dot being to be set aside for dividend.
Other returns to shareholders is prudent and the amount that we endesa, making sure we get reinvested into high rate of return projects.
Is.
As is always been of just a part about how we think about the business. So.
Yes, I understand.
So let me let me just grew a quick follow up your question is a good one yeah, you're asking about really are.
Philosophical capital structure and investment structure going forward and I think there have been some good.
White papers written on that topic on should the industry view itself differently and not invest every penny they can.
But we live in a marketplace as you told me. If you told me that we were dealing with a 50 dollar w. anti price. That's one discussion. If you tell me would you have $30 Whr price. That's another discussion. The challenge is if it's the ladder and were $30 Devry G.
Price and you say well why don't you just invest three quarters of your cash flow or whatever the number is were liquidated.
And I think that's a that's a difficult position for any MP company to be and is have part of their long term philosophy involved liquidation and so you don't want to in higher price environment. It's a different discussion. The then current prices, but it's a good discussion nonetheless.
Yes, I wouldn't labor the point, Tom I guess, what I'm really getting out and you seem to brilliantly to be honest, but what it really getting a is that.
The returns in marks talking about requires an oil price assumption.
Ill now oil price assumption has been subsidized by Saturday for four years in the U.S. grew 50%.
My point is that relying on a subsidized oil price to justify business model is maybe not the right balance going forward I just wanted to see how you guys were thinking about up I take your point and you're right. There's a lot of debate run. This is going to continue for some time, but I. Appreciate you taking my questions no Doug as always thank you.
Thank you our final question comes from Metropolis with capital one. Please go ahead.
Thanks, Good morning, everyone just a quick.
Question for me everything else has been asked I believe but looking at the.
The number of wells completed in the first quarter I believe it was 20 net and you also had.
About a dozen completed at the very end in the fourth quarter could you kind of sketch out how.
The cadence of the completions for the first quarter and all so what would contribution did you get in the first quarter from the the late for Q completions.
Yes, Richard on I guess the contribution we got from the.
For Q completions.
We had been we had the contribution from those and then we'll first quarter completions are fairly muted on the contribution that we saw in the first quarter completion. So.
Anyway, we do have some carryover from the first quarter to second quarter bets that most of Frac activity has occurred.
In through April and they were just out being brought on and they are part of the overall evaluation and we look at May in the curtailments are part of that evaluation.
All right Mark Thanks, so much appreciated.
This concludes our question answer session now like to turn the conference over to Mr., Tom Jorden for any closing remarks.
I want to thank everybody for joining us and I'll finish for I began.
I just want I wish everybody well through this coded crisis I know, it's been tremendous grain and there's a lot of loss out there.
We have all felt it some more than others and that's a good time for us to reflect on what we're grateful for and I want to tell you I'm deeply deeply grateful for similar Ericsson position, we are in a decent grateful for our employees and our tremendous workforce I'm grateful for our owners.
I'm also great over our industry and overall, we play in this world economy.
And so I, just really want to express my appreciation everybody for your good questions wish everybody well and we look forward to screen you on the other side.
So thank you.
Conference has now concluded.
Today's presentation you may now disconnect.
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