Q1 2020 Earnings Call
Good day, and welcome to the Magnolia oil and gas first quarter 2020, <unk> earnings release Conference call.
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At this time I would like to turn the call over to Brian Corales. Please proceed.
Thank you Chris Good morning, everyone welcome to Magnolia oil and gas is first quarter 2020 earnings conference call participating on the call today or Steve Chazen, Magnolia, Chairman, President and Chief Executive Officer Officer, and Chris Stavros Executive Vice President and Chief Financial Officer As a reminder, today's conference call.
I think certain projections and other forward looking statements within the meeting of the federal security laws.
These statements are subject to risks and uncertainties that may cause actual results could differ materially materially from those expressed or implied in these statements additional information on risk factors that could cause results to differ is available and the company's annual report on form 10-K filed with the FCC a full safe harbor can be found on slide two of the conference call.
Slide presentation with the supplemental data on our website you can download magnolias first quarter 2020 earnings press release as well as the conference call slides from the Investor section of the company's website at Www Dot Magnolia oil gas dot com.
I'll now turn the call over to Mr., Steve Chazen.
Thank you Brian Oh, good morning, Thank you for joining US today My comments will focus primarily on how that nobody is positioned to navigate the weak product price environment incurred downturn as well as providing an update on some of our recent activity like getting spiel.
Chris will review some of the details of the first quarter results. Our current financial position provide some broad guidance before we take your questions.
Magnolia strategy and business model that has not changed the quality of our assets and the characteristics of our business model has served us well since our inception. They continue to provide us with a strong foundation so long term.
Business model, but a kid on low financial leverage.
Designed to withstand period, two week product prices, we exited the quarter with 146 million of catching our balance sheet 450 million of Undrawn revolver, and 400 million of debt, which does not mature until 2026.
Our targeted annual capital spending for drilling completing wells remains at 60% of our adjusted EBITDAX and we generated 23 million of free cash flow during the first quarter.
We remain focused on the things that are in our control most of our current plan capital spending an activity for the year occurred in the first quarter. The current week product prices do not justify bringing new wells online.
As a result or capital spending expect to see a sharp decline for the remainder of the year.
We currently plan to drill a few additional wells and getting although we don't expect to complete a new wells until the fourth quarter or until we have some better clarity around product prices.
Our spending for drilling completion spec be less than an aggregate for the remainder of the year then we spend in the first quarter.
We have take also taken steps to reduce our operating expenses and overhead in order to better align our cost structure with the environment corporate wide salaries have been reduced by 10% excluding any additional savings from our capital program. We expect to realize at least 55 million improvement our 2020 cash operating cost synergy.
Today compared with our original plan.
Fortunately savings should be realized the second quarter and more fully captured in the second half the year.
Our cost reduction initiatives remain ongoing an ongoing effort throughout the remainder of the year.
As a company.
We have a run a focused business.
As a result narrow focus business really as a result, we can optimize our production on each well.
Sometimes that's an advantage, sometimes not but but right now this allows us. This focus allows us on generating free cash flow at very low product pricing very low product price environment allows us to.
To manage our business more effectively we can share.
Resources more easily because our businesses so narrow our underlying business in assets performed better than expected during the first quarter driven by strong production results from both our cars and giddings assets.
With no significant financial or operational restrictions or obligations. Our business model provides the flexibility to adjust our activity levels very quickly in response to changes in product prices.
For example, some portion of our acreage in getting this capability produce high flow rate natural gas wells, while we have not focused on this acreage during the last two years, we would consider allocating some capital is acreage should gas prices improve later this year, we expected these wells being fully comeback competitive with Haynesville wells.
In Giddings, we brought four new wells online during the first quarter with an average 60 day oil production rate of 800 barrels a day per well.
Two of these wells were drilled in the same pad to replicate early stage development. These two wells at 90 day average rates of 1000 barrels of oil today.
The cost of these wells.
We're more than 20% lower than the 2019 average Boston giddings, despite having lateral lengths that were approximately 25% longer.
Our recent positive results from getting to increase our confidence on the future development opportunity that field with a potential for several hundred drilling locations Giddings would be the first area, where we would bring back or rig and complete wells as product prices recover.
We continue to evaluate several small to midsize both on an oil and gas property acquisitions opportunities.
Oh, the M&A market has been stagnant so far this year due to weakness in volatility in product prices are some side the process beginning dilution.
We expect opportunity to expand our business will be or later this year once market conditions clarified as always we will ensure that anything that has done is accretive to our business and is clearly positive for our shareholders.
To summarize Meg noise financial position remained strong and the balance sheet provides us with a competitive advantage. Our current cash balance would allow us to fund all remaining capital spending for this year as well as our cash overhead and our interest payments at least the remainder of 2020 before considering any revenue generated by our.
Production.
Our free cash flow generating business model continues to provide optionality to allow allocate capital towards opportunity that are most beneficial to our shareholders.
I'd like now I'd now turn the call over Chris Stavros.
Thank you Stephen Good morning, everyone as Steve mentioned in Atlanta review, some high level points from the first quarter speaks to some more detail around our cost savings initiatives and provide some guidance for the second quarter before turning it over for questions.
Looking at our quarterly cash flow summary on slide five of the conference call presentation posted on our website, we generated $135 million of cash flow from operations and our total cash outlays associated with drilling and completing wells was $94 million during the quarter.
Free cash flow after changes in working capital and capital spending was $23 million during the first quarter and we've generated free cash in every quarter since inception of the company.
We repurchased 1 million Magnolia shares for approximately $7 million and closed on a bolt on acquisition, primarily non op oil and gas properties in the karnes area for approximately $70 million.
Acquisition closed in the second half of the first quarter and contributed less than 800 barrels per day of production to the quarter.
And we ended the first quarter with 150 $146 million a cash on the balance sheet.
Reiterating steves comment regarding a cap our cash position, we currently have sufficient cash on hand.
And our remaining planned capital expenditures cash overhead and interest at least through the remainder in the year and carry us into 2021 before consideration of the revenue generated from our oil and gas production.
Turning to costs on slide six our total cash operating costs in the first quarter, including Gionee.
<unk> was $9.42 from Neely, 14% decrease from the prior year period.
Our cash operating margins after all cash costs were nearly $20 from during the first quarter.
Adjusted EBITDAX was $124 million in the first quarter with total drilling and completion costs of approximately $101 million or 81% of EBITDAX and lower than our guidance.
Looking at slide seven of the presentation total production from the company average 68.4 thousand Boe per day during the first quarter.
10% increase compared to last year's first quarter and approximately the same as volumes in the fourth quarter 2018.
Well production represented 55% of our total volumes during the first quarter production exceeded our earlier guidance and as Steve mentioned, our stronger by volumes were due to better than expected well performance from both our cards and getting field assets.
Our gross long term debt a $40 million in senior notes remains unchanged in the quarter and we do not expect issuing any new debt.
We have approximately $600 million liquidity, including an undrawn $40 million to $50 million credit facility.
Condensed balance sheet and liquidity as of March 31 are shown on slide eight nine.
To summarize magnolias financially well positioned to manage through the current challenging period of we product prices.
As part of our cost reduction initiatives in response to much weaker product prices, we expect to achieve approximately $55 million of savings in our 2020 cash cost compared to our original plan.
The improvement in costs are largely comprised of savings from field level operating expenses gathering and transportation general administrative expenses and contractor fees large majority of the savings come from payroll and other people related costs and equipment optimization in the field.
These savings are part of our initial cost reduction efforts and we expect to see more over time and this is also separate and apart from the cost reductions, we expect to realize from our capital program.
While a portion of the cost improvements should be evident in second quarter. The full benefit of the savings is expected to be realized during the second half a year.
In terms of our drilling and completion costs as we started the year, we expected our average well cost to decline about 10% compared to 2019.
In giddings drilling and completion costs on a multi well pad, we drilled have already seen at 20% reduction despite the wells, having lateral lengths that are 20, 25% longer.
We continue.
When we continue our early stage development program at Giddings, we should continue to capture additional efficiencies, which would further reduce our overall well costs.
Turning some additional guidance, we continue to target our capital spending for drilling completions and related production equipment to be approximately 60% of adjusted EBITDAX. This is a core characteristic of our business model, which remains unchanged.
We released our cards operated rig in April and are currently operating one rig and are getting sealed asset.
We have ceased all well completion activity for the time being due to very weak product prices and expect to have several more drilled and uncompleted wells by the end of the year compared to our original plan.
This reduction activity will be reflected in much lower capital what our total spending for the year below our outlays during the first quarter.
We currently expect that our full year 2020 capital will be less than half of last year's spending level.
Magnolia operates approximately 75% of its total production volumes. We currently expect shut in less than 5% of our operated production during the month of May and a smaller amount for June as a result to very weak product prices. This includes a mix of operated production in both cards and games.
Duties Curtailments, we currently expect our total second quarter production to be in the range of 60 to 65000 Boe per day.
We estimate our oil production to be approximately 50% to 54% of our total volumes.
Looking at our second quarter expenses unit cash operating costs, including DNA or expected decline about 5% from first quarter levels as a direct result of the cost reduction initiatives. We have it we have implemented.
Finally, as we disclosed in our press release, we incurred at $1.9 billion noncash pre tax asset impairment.
Significant weakness in product prices.
As a result of the impairment we estimate our DDNA rate should decline approximately two approximately $9 per BLE for the remainder of the year.
In summary, Magnolia is properly positioned to endure the current downturn in product prices are significant cash balance should help us withstand the intermediate term volatility and allowing us to take advantage of potential attractive opportunities to further strengthen the company.
We're now ready to take your questions.
We will now begin the question and answer session.
Last question. Your press Star then one on your Touchtone phone. If you are using the speakerphone. Please pick up your handset before pressing the keys.
If at any time at your question has been addressed and you would like to withdraw it. Please press star then too.
At this time, we will pause momentarily to assemble a roster.
Okay.
Today's first question comes from Leo Mariani with Keybanc. Please proceed.
Yes.
Hey, guys just wanted to follow up a little bit on activity levels here just in terms of the rig in getting I'm not sure if thats still contracted through certain time, and then I guess if prices stay low maybe that that rolls off because I was hoping you could.
Yes that and I also wanted to see what type of oil prices you guys might need to start fracking wells again, you mentioned is a possibility in the fourth quarter. So what would you can see for that to happen.
So I think we start with the rig.
The rigs under contract, but we've made a range of with the contractor. So we can extend that period come back next year or whatever we can we can do that.
But I think were.
There is so cheap to drill.
And it isn't that much money completions, a different story, but two tilting to drill.
We decided to go and drill and this is the three well pad.
Drilling. So these days are pad drilling that will bring on maybe in the fourth quarter, but.
The next year.
I don't really know.
What the what the price that we'd go back in.
Mike.
The margins are so wide on these wells ones are off and running.
Okay.
You can do almost anything.
For completion costs were reasonable so I'm going to get somewhere in the thirtys.
Whether it's 30 or 35 or some other number I don't know, but somewhere in that area, we start completing wells.
Oh, but probably not before probably not until we had more.
More confidence in.
Where the economy is headed so.
Somewhere in that area, we should be.
Take our our operating costs and Chris talked about.
Ill and other stuff and take the $9 DNA Ray.
Somewhere in that Thirtys, we'll start to report earnings.
So.
No.
Since October old fashioned investors.
So what I'm looking for.
Okay. That's a that's very helpful for sure and I guess just in terms of.
The recent drilling giddings, so it looks like that two well pad was that as a rousing success you guys mentioned.
So for several hundred locations just wanted to dive into that a little bit more.
Do you guys feel like that the drilling program at this point has identified.
Some key sweet spots.
Throughout getting that can be the target.
Future pad development here and you think that several hundred locations as a pretty high probability at this point Tom will can can tell us about the progress there.
Well you know.
Sample sizes, so 20 some wells.
So and we've experimented with different areas.
In this one area I think we pretty pretty high confidence the other areas. We've had some good results, but not many wells.
So I think the pad drilling will work.
In this good area and I don't really know how many locations there are no given the current pace of drilling.
Locations will significantly out last may.
So.
I'm, not really really concerned about counting up locations, but.
We should have a very profitable business remember they don't decline they produce a lot of oil.
A lot of product over their lives.
If the costs, which I think we can get down around $6 million, a well that 50% more say that occurred as well.
More than twice as much production.
Three times the production.
With a lower decline.
You know, we'll continue working on cards of course, but I think this this will provide a balanced of the business.
And if you don't know about product prices. If you go for these longer life things were the money.
Might not get the best price today, but if you have confidence over two or three years, you'll do a lot better in the giddings wells that you will occur as well our as well as we look at it no product prices are high drill Eleanor cards.
Because you've got real short paybacks.
But but in the giddings is for the longer longer play where you are less confident about oil price.
[music].
I guess.
Thats, how I'm thinking about or at least today.
I think it makes so that makes a lot of sensor just lastly on M&A, you sort of talk about that potentially starting to maybe loosen up a little bit here you had the one deal in the first quarter I'm, assuming that was kind of a legacy deal negotiated towards the end of the year that sort of closed here, maybe just talk more about what's your M&A side, and just kind of how you prioritize free.
Cash flow from here on out.
Well.
Everything's got to compete with Giddings.
Our cards.
So if the money is better spent completing.
Getting your current wells Thats, where the money go.
We don't there's really nothing much to buy and getting so there's really nothing there.
Upgrade ensures we have so much I.
There might be a few hundred acres here and there, but fundamentally nothing very large there.
[music].
Most of stuff isn't really in a different part of the basin that might be available.
Not all it interesting.
We pay you know.
One or two times cash flow $30 oil some.
So our bid price like that.
So.
If you go to cards or there is always small pieces around.
And as some of these private equity things on why we might find some there, but we're not going to be big players there because.
Right right now, we got a pretty long runway I don't view that.
In this environment or environment I perceive the next couple of years.
Drilling locations are going to be rare in special.
I think there is lot lot of locations around.
And.
Im not really concerned about locations right now I'm concerned about cash flow generated.
Okay, great. Thank you.
Thanks.
The next question comes from Jeff Grampp with Northland. Please proceed.
Morning, guys.
Steve I thought your your comment on May be gap make in some sense and getting to get after what was interesting. So its open the diving into that more can you give us a sense I'm sure. The gas price has to make sense relative to the oil opportunities you have so theres a little bit more variability in that but ballpark is there kind of a gas price.
Relative to oil and if you look at maybe 21 strip prices that.
I'm observable number, but just trying to get to get a sense of what that inflection point as to where that could be interesting.
Yes.
The what the well, though the wells with work now to be honest, but but we probably wouldn't we probably wouldn't do anything with until we got closer to $3 for gas.
And they also produce some liquids the artist there aren't dry gas wells, they've got about 20% liquids.
So NGL prices, which are toilet right now.
[music].
So the it brings us somewhere else so it so a little.
Some of that to it but.
I think I think it's probably closer to $3.
$2.
We can drill of giddings oil well.
Even.
$30.
The.
Easier and more attractively.
Gas wells, but we we could drill a lot of gas wells high high volume gas flows.
Got to inflate our view is that we've either way.
All right understood and on the cost cut that getting that 20% number that you guys referenced can you kind of maybe split that out.
In terms of maybe from efficiencies that you're seeing from from doing pad development, that's driving that versus maybe just generic kind of oilfield service company type of coffee that it's not it's not driven by oilfield service guys.
That.
You get little better crews now than you had before because they don't leave weeded out some other crudes, but.
It's driven by the fact, the wells, we're drilling faster because we know more about it.
Especially driven by knowledge rather than anything else, we're drilling the wells faster. We don't have completed we've gone through an experimental phase if you want to make it without way is principally driven by by know what we're doing as opposed to prime and guessing what you're doing and trying to learn so I think we'll be down another.
10% or so.
At some point here.
Once we start completing the wells so I think we're.
We're really on the or in the early days, but again, it's driven by no knowing.
We have better feel for what you're doing than we did.
Maybe a year ago.
Got it sounds good at present time.
Thanks.
The next question comes from well Thompson with Barclays. Please proceed.
Hey, good morning, everyone.
Steve what would cause you'd be more proactive about shutting in production and maybe can you remind us what your marketing arrangements look like and whether you expect any impact from SDMA Raul you're mentioning you mentioned, reducing GP in ti costs in that $55 cash savings correct me, if I'm wrong, but I believe a lot of getting barrels are we're moving by truck.
Just help us understand where the opportunity yes.
Okay.
Oh.
I started ticking naive Buda wells.
So we can influence the product price by whatever we do.
Exxon might be able or oxy or somebody might be able to influence the product price and bottom have long and transportation they've got to transport from the Permian whatever we basically so locally.
So you know.
Some of the getting wells are our our truck, but thats in the costs and ultimately we'll deal with that.
But the pipeline that we could.
Oil pipeline that we could.
Okay.
Acquired with one there that we could refurbish if you want to think of it that way.
Once we once we get going again so.
Im not there's more money there.
To be had down the road now right now.
On the road trucking is easier were if the well contributes to free cash.
No.
In a predictable way, we're going to produce we're not going to shut in.
For.
To speculate on oil prices again, I get a figure I got a lot of locations our money to do that.
I don't really have a way of predicting oil prices.
I can prove that to add too.
And so I think you just got to you got to take you got to run this like a real business, so wacky oil business.
And somebody other people have different objectives that may have different cost structure. They may have take or pay requirements by we don't have any of that.
We just don't have any any any anything we have to do.
We could set everything in I suppose.
I don't know what the gain would be in that.
The production when it comes back.
Of.
The the period that you are shut in does it sound like putting oil in a tank and then just moving the tank.
That recovery to spread over several years. So I just don't have the cash now.
And.
Can work with it is in this.
Depressed environment.
We will generate free cash may is going to be ugly for sure.
But.
We will survive may and June looks a little better in June will be better.
So I'm not really.
It's up at the same business model.
Somebody else might add that might be five or six basins.
Got a lot of overhead.
Maybe commitments to ship and different basins.
Lot of companies have more more more complexity than we have so.
The sort of a simple business, we can generate food well generate free cash.
We'll run the well.
If not we won't and we we look at that everyday on each well.
So.
Pretty straightforward calculation it would be just like.
It's like running a private business as opposed to trying to.
Optimize something for public business I'm, not really worried about.
We can make lots more production next year, if we needed.
But I was hoping to obviously, even if we didn't produce anything we're probably not going to move product price.
Okay, Okay, and then in terms of getting.
Where are you in terms of completion designs proppant intensity et cetera, just just curious Dan how are you still tinkering with well design.
And I know you only challenge and getting does that well costs getting well costs down would that you you're right move into larger pad development, just given that your stone delineation mode, you mentioned $6 million.
The opportunity does that include moving to larger pad development.
It's what what a pad small pad with would be about $6 million. That's I don't view that is the ultimate objective.
Thats just whats.
Obviously visible now.
Thanks.
No. We once you get there you move the goal posts.
You got to be able to you got to decide that you're going to this business is not at $80.
Barrel oil business or $70 business or $60 business or 50 dollar business. It's a business that is got to work at much lower prices.
No. It's nice if it goes up but I think right now you could theres lot of demand destruction to take a while to recover.
While guys are always optimistic that next quarter or better and maybe a little better but I don't think you should.
No longer run your businesses, if oil is going to be $65 forever.
And that means less debt plus interest expense less overhead.
[music].
And type tighter control and whats how you spend your money.
Need to spend money on stuff that works in the Thirtys.
Thanks from your peers are regarding the hardware.
Hi, just at the on the fall just some terms the completion design can you just give us.
There really isn't much change that is that we already monkey with this lot.
I'm sure that will be tweet.
But right now we know.
We'll get it down to $6 million run rate and then we'll we'll look at it against the of something we can do take another 10% out.
So.
Right now.
If you can produce thousand barrel of oil a day wells.
For 90 days or longer.
And with a much lower decline in karnes.
Completion design, probably okay for now.
Okay. Thank you.
Thanks.
Our next question comes from that Neal Dingmann with Suntrust. Please proceed.
Only also Steve just maybe add onto what you're just saying and the getting if you'd said a couple more detail I know not long ago. Youd mentioned that you never talked can you talked about just on cost on services, obviously tough business right now and I'm, just wondering for you or Chris and maybe in some of the.
Your estimates are forecast forward are you anticipating that part of that 6 billion dollar cost the cost continued to fall or maybe just just talked about what's your anticipated on no. We're not we're not we're not thought.
I feel I never feel sorry for service companies.
Excuse [laughter] discussion.
I always say take a couple more and good work for less.
So I'll make cut their CEO pay down to mine so.
[laughter] half that.
Thank you.
Our I already tried that I already did that experiments some other place.
Yes.
And anyway.
I think we're not counting on that I think they're pretty close.
Where are you gain to be honest in a service companies is not what they charge per hour or per day or whatever is the quality of the cruise.
Yes.
If you got they recruit their crews.
Huntsville.
Then you're going to get Huntsville style outcomes.
If these are experienced people.
I've been around a victory needs that people are trying to protect you're going to really get good outcomes.
It's much more about the quality of the cruise.
Then about exactly what they charge, we pay a little more frankly for the better cruise because of all.
All I got to be as the data have better.
And they are so I.
The issue is service companies generally is that.
As the business expands the crews get lousy here and you get worse results into costs or.
Isn't that the service companies get rich.
[music].
Because there's too much competition, but.
Why don't we get rich.
But but I really think thats thats the key element we are counting on.
The cruise.
Hey, good quality cruise.
But as far as actual cost reductions, we're not looking at that I don't think theres a lot more there to be honest.
Okay. No that's fair Fair point, and then you touched on this but I'm just kind of curious your philosophy.
Down cycles like this when you think about shut ins and drilling and completion suspensions and.
Ducs I'm just wondering you know when you put all that together I mean, Steve you mean.
You always say doesn't make sense drill obviously in these kind of prices, but I'm just wondering anything else that I'm just wanted to how you you've you've said in a little bit you've had obviously you're going to have much more major DNC suspensions I'm. Just wondering could you just talked about kind of given your past how youve heightened fruitful.
We have only site in what what does it make sense.
We're not starting into manage.
Production or something.
Some other people are clearly managing something else.
On a lot.
But.
About a quarter our productions outside operated.
If they don't actually communicate with us.
When we know what's going on.
We see the run rate.
So are we read the press releases.
So.
You don't really know what the motivation is so.
And again, a large company may think it's managing price. It may have some contracts or something you don't really know what's going on.
On the drilling.
Yes, we added a rig contract we negotiated with.
Contractor and so we've got pretty cheap prices for drilling some wells is where we would drill next anyway.
So we'll drill those wells Fargo completions go we'll wait and so we've got more clarity on product prices, but I'm guessing that's somewhere in the thirtys.
Right.
In the rest of and in Karnes, you know I assume that.
Third party operators the outside operators will pick up pickup at some point there I guess so.
I don't like building docs.
But we are going to build some.
And.
Mostly because I got it.
Pretty good confidence of oil will get to.
Somewhere in the Thirtys.
If I thought this was stopped that needed fifties wouldn't I wouldn't I wouldn't building ducks.
Thanks, I appreciate really appreciate the time thanks.
Sure.
The next question comes from Jeffrey Campbell with Tuohy Brothers. Please proceed.
Good morning, Thanks for taking my questions sorry.
Steve regarding the actual gettings locations identified in the Preadolescence was wondering does this center mainly on the recent success area or is this kind of a broader.
Number refining rulings done.
Now is centered on where where we reason.
Thats, a recent but where we're doing the development drilling.
Okay, great. Thank you.
The most every MPS doesn't align its corporate structure to the current reality, but magnolia seems to have use more on the scalpel running machete compared to some peers is January largely where you want it currently and how far out in the future are you looking to.
These judgments.
Could you today is not where we want to be.
Needs to be reduced sharply.
So we're working on a plan to reduce.
Materially from here.
Okay. Thanks, Mike.
Mike are you might remember that we have.
And contract with Intervest too.
[music].
On the back office some.
Well management and that sort of thing.
So.
That is not that might be a target for reduction.
Hi, Thanks, and that actually kind of leads to my last question, which is.
Is there any sense one year at the point.
Thank you eliminate that can expand your mix program again.
Did you might develop and house capability for those assets are you likely to keep using something like the current operating.
No what will use our it doesn't we could do that now.
Okay. Thank you.
The next question comes from the B shoot Perincheril with Susquehanna. Please proceed.
Good morning, all thanks for taking my question.
Thank you but.
When youre assuming at summit is how should we should think.
Im sorry.
Southern looking for a price but.
Yes.
When you go back to work is it should I think about the first couple of its going to getting.
And only then going to.
Picking up activities and cards.
Something like that.
Oh.
The first rig.
First we did in the first completion crew will go to go to.
Greetings, we'll probably to completion crew in karnes.
Similar time, because we have some docks there.
So.
As far as drilling.
I would think next drilling would be giddings.
I don't I, just I, just don't know if oil is $35.
Probably would be giddings, if oil goes to $45, we probably put.
Are we going to cards.
But.
Just depends on how certain on hand over time about the direction of prices.
If you got a high degree.
If you think it's still Wyatt volatile.
We volatile be bad volatile not volatile.
And then you probably would would.
It's been more giddings and listen cards.
If you thought it was.
If you had a spike in prices.
We might we might drill water karnes wells.
Because of the payoffs real quick you produce 4000 barrel, a day wells or something like that.
When you back real quick.
Then you've got a long low cost stream after that so it's a good well that's a good well.
You can read a lot of money upfront picture money back real quick.
That's very helpful.
And Mike.
Follow up was on.
The gas Optionality, you talked about those wells.
Lose much deeper or is there an appreciable difference and while cost.
But you expect from the Das networks there.
There are somewhat more expensive, but of course, we haven't drilled one and we're not using some of the stuff. We've learned said so I don't really know it would run us.
If there is somewhat more expensive I want to guess, it's a 7 million dollar well or 8 million dollar well, but not a $10 million.
But thats just a guess.
That's helpful. Thank you.
Our next question comes from Koshi Harrison with Simmons Energy. Please proceed.
Good morning, all in the thanks for taking my questions.
So Chris maybe one for you I was wondering how we should think about.
Just a 2020 exit rate based on your current expectations. When if you have a sense of how much capital of that or activity you would need to hold that production plot at least through 2021.
When we just don't know right now mainly.
We sort of see out into the the current period, but beyond that.
What is encouraging is what you're seeing now to giddings and the decline rate. So it's obviously, it's a more efficient operation, which I think is what's what's leading us to allocate money. There first so that's that that in.
Sort of the other gas production that we have certainly helped the decline rate in the efficiency of the production overall.
I can't speak to an exit rate right now.
What we get waiters World. We're lucky we can do next month.
Our exit rate.
So.
But I figured being able to figure June was a major victory.
Yes.
Alright fair enough.
And then Steve maybe one for you.
Talk you talked a bit older about just needing to adjust the business to whatever prices right in front of view.
So I was just wondering.
How we should think about.
Or maybe it doesn't involve but how you think about inventory that if you are if we are in fact in that 35, 40 40 $45 world for for quite a bit of time.
How many locations do lose ordering back getting inventory that you talked about in the past still pretty much unchanged.
And by the getting that dynamic inventory.
The getting so we've taken care of the risking of that.
So what weve.
That's sort of works.
$35 sort of environment.
Yeah, we'll be might be more locations $60 environment Karnes I think it works on the same general area.
So we never had a lot of high.
Well that required $55 or $60, maybe a few marginal wells in karnes.
Out of the main.
Fairway.
You just never had a lot inventory that was sensitive to the product price.
Reasonable product price changes.
So that's why we only have a small reductions in our.
Shut in wells, because well sort of work there.
If you have a workforce that is focused in the some narrow area get a lot of flexibility if somebody in five basis, just doesn't have that kind of flexibility in this business is inherently more costly.
Yes. This is Ron sort of like you run it was your money.
So.
Some third parties money.
That.
Makes sense that's helpful. And then maybe just a minor housekeeping question for me I was just you talked about the lateral link on the on these giddings, while being I think 2020, 25% longer than last year.
I was just curious what that lateral length was for these pads and yes. That's a good idea of how you think about the long term lateral length of the wells you'd be targeting giddings, or if you might get a little bit longer overtime.
6000, roughly is what we're doing now.
We were.
Below fivex or before.
Yes, as you get long, we don't have a lot of times. Some places you're limited by your leases, we don't have that kind of strength. So.
But we probably wouldn't experiment.
We would.
We would experiment in a higher price environment to see if it worked rather than trying to stretch the model a little bit.
In run run unnecessary risks right now.
Got it makes sense alright, thank you.
Thanks.
Our next question comes from Brian Delaney with Citigroup. Please proceed.
Good morning, Thanks for taking the questions, Chris Steve mentioned earlier that the industry needs less interest less debt.
Obviously, no no credit facility balances as you're thinking about capital allocation Magnolia senior notes have recently been trading around 80 to 85 cents on the dollar at least that's what we see on the screens is that something you've considered using cash on hand, our credit facility availability to repurchase any of those notes below par would there I guess would there be any limitations or difficulties.
I wanted to do that strategy in the open market and could that be part of the magnitude capital allocation suite.
Pro probably not right now.
And talking about limitations I mean, I'm not sure how much of that you could have liquidity is or how much of that you can.
But probably not enough to make a difference frankly.
The other part of his zone.
Got five more years on maturity.
Six action.
So you got to.
While to go here.
In the give up that optionality to.
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For very small gains I guess view.
Our interest expense 20.6 times 424 million a year. So if you bought it for goodbye at all for for 80 cents a dollar so now you're down to 20.
Save.
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Our the anything.
It just isn't worth it through for the option for them for the fact, you don't have to worry about paying it back for a while so.
A lot of people have pretty wide discount some geysers, 60% discount 70% discount in large sums.
Yes.
There to sort of starts to make sense.
If you just doesn't make a lot of said that if and when we look at it and we you can see buying $1 million. It at 80 at 15 cents at 85 cents would be challenging.
So.
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If I sort of like the Optionality of the data out there so far.
Okay. All right that's helpful. Thanks for taking mix.
Yeah.
As a reminder, if you do other question. Please press Star then one.
Our next question comes from Irene Haas with Imperial capital. Please proceed.
Yes, no question I have for you is your crude price realization come down a little color as to as we go through this year, what the premium would be versus W.G. I assume that you don't probably have any gravity issue at the second question is what Steve said earlier, you said, there's lots of demand destruction. It will take time to recover Steve can you quantify.
What is the time that would required.
Right.
The product price, Chris can talk about product price, but.
At prices.
You guys you got to disaster of May.
And then.
Looking better in June you really have a hard time coming up with.
With that product price that you have any competence in for for this quarter.
All of sudden let's say the.
The price of crude WT goes to minus $55, just screws up the whole calculation because as the average over the month.
And so you see anybody thinks that they know what the answer is.
Could make a lot more money than this production business that's for sure.
So and you know.
I think there's a lot of demand goes airline to disruption cars all that stuff.
They say this 30 to 30, 30% demand destruction.
I think that's going to take a while to get back back to the 100 and other other people in different views, but.
And if you actually know you also use make you could make some money, but all the stuff I guess from watching television.
Got the everybody on television seems to know all they seem to know a different number.
Chris.
Yeah, I read on the on the differentials side.
Generally we've seen.
Premium on on our realizations compared to the BTI, but I see said with trying to.
In the midst all the volatility right now you could have a couple of days and just throws it completely out of kilter, but.
As this gets to be again more normalized over time, I would expect that premium to sort of be there I just trying to quantify this is virtually impossible.
Okay. Thank you.
Thanks.
So at this time, we are showing no further questioners in the queue and this ends our question and answer session as well as our conference. Thank you for attending today's presentation. You may now disconnect.
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