Q1 2020 Earnings Call
[music] good day, ladies and gentlemen.
Welcome to the Diamondback energy first quarter 2020 earnings conference call.
This time of participants larger Notionally mode.
After the speakers presentation to be a question and answer session that you ask a question during the session will need to press star one of your telephone.
Please be advised that today's conference is being recorded require any further systems. Please press star zero.
As a reminder, this conference is being recorded.
I'd like to introduce your host for today's conference Adam Lawlis, Vice President Investor Relations, Sir you may begin.
[music].
Good morning, welcome to Diamondback Energys first quarter 2020 conference call during our call today, we reference an updated investor presentation.
Which can be found endeavor that looks like.
Sitting down with that today to try to start to see a case fantasy up there.
During this conference call. The participants may make certain forward looking statements relating to the Companys financial condition.
Guilty of operation plan objectives future performance in businesses.
We caution you that actually results could differ materially to know getting indicating these forward looking statements due to a variety of factors.
Information concerning these factors can be found in the company's finally get the FCC.
In addition, we have made reference certain non-GAAP measures reconciliations would be appropriate given the huge.
We found their earnings release issued yesterday afternoon, well know can always attracted stuff.
Thank you Adam and welcome to dialing back first quarter earnings call before we get started.
I'd like to take a minute to extend our thoughts and prayers all of those affected by the green bars and then.
The challenges presented showing for 20 to 20 are interested in it.
Perseverance is evident in the decisive action, we've taken reserve worst group through this cycle.
[music].
As a nation has now been working from home.
For almost two more snacking honestly, we say that begins.
Wouldn't early growth given the circumstances.
Our teams have reacted quickly to the rapidly changing landscape and adjusted or operating and capital program almost real time, you prepared on the back for the commodity price weakness.
Thank you today.
Crises, having away revealing care.
We have witnessed this across our organization.
Confident that you guys were stockholders and owners of the company.
Be proud of how our employees have responded and supporting the communities, where we live in India.
We have an organizational motivated and exceptionally talented people.
Turning to the first quarter.
Diamondback, Google production <unk> quarter over quarter, and unhedged oil realizations averaged 99% Adobe TR.
I just want realization almost two years.
Returned 80 operated wells to production.
As <unk> operations machine was executing officially before commodity price and prices weakened and we immediately ceased all completion activity March.
Expect to complete less than 10% of more 2020 will count in second quarter.
You'd be willing plans completions for the purpose of regional retention.
Because down back not slow operations in the fourth quarter of 2019 and maintain continuous operations with over 20 rigs eight completion.
Running through most of the first quarter.
Japanese stands at 790 million were little over 27% warm original capital budget for the year.
When commodity prices dropped we took immediate action and dropped all war completion crews Puma.
And are working down a rig counts as quickly as possible without paying early termination fees of existing rig contracts.
And you're running 14 rigs today.
He likes it may running 10 rigs in energy third quarter running eight down over 60% from beginning to you.
We also plan to entered the fourth quarter running seven rigs.
The ability to reduce further into too much anymore.
This rig count production combined with dark crude completion scheduled major <unk> exit 22 warming with over 150 Ducks.
This is over 100 ducs above what you will be required as a standard working DUC inventory for three to five completion food program, which is our base case program actually 20, Twond and we see things today.
While this may be a drag overall capital efficiency 2020, it will give us significant flexible flexibility and be a benefit to capital efficiency over the next couple of years, particularly in 2021 as we navigate among certain forward outlook.
Because capex as a cash flow statement number.
You start to see.
Reduction activity benefit or cashman at the end of it second quarter and through the back half of 22.
As read some activity reductions today are reflected two months later in cash flow statement.
While commodity price fluctuations are realized in the more in which they occur.
As a result, or capex spend will be weighted towards the front half, which one with the third quarter beginning to truly reflect a significant activity reductions that began in March and continued into the second.
I'm back is curtailing gross operating production.
By 10% to 50% this more due to the uncertainty in the forward well priced contracts and the risk of long unhedged realized oil prices for the month.
With differentials enroll already said heading into the market over $10 off that meets YOD.
The risk of Debbie T.I. flashes declining further outweighs the benefits and producing as much possible into an extremely low unhedged realized watches.
We have hedged production for nearly 100% of expected oil production before curtailments, including basis and won't protection and therefore can monetize into money hedges without materially impacting cash flow and productions curtailed.
When assessing where to curtail production, we focused on fixed and variable operating costs and underline marketing contracts choosing to slow production, where we do not need to spend significant dollars to do so.
We will continue to monitor future prices.
As we prepare to nominate production for June and the months ahead, it should meaningful curtailments persist or accelerate.
We will plan to update our investors reporting.
Looking ahead due to the volatility in commodity prices. There is significant uncertainty in our food business plan and we're planning to stay flexible on how many completion crews we bring back to work in the second half year, and which much more prudent get back to work.
We'll need to see some stability in the forward curve before making this decision.
In the interim.
Continue to focus on what we can control.
Which is our cost structure.
Preserve as much liquidity as possible.
We ended the first quarter with 1.9 billion liquidity.
And only have one term debt maturity due in the next five years 400 million maturity due September 2021.
With our reduction in spending current hedge protection and suspension of more buyback program, we expect to maximize liquidity and retain cash to pay downs it.
Our dividends remains our primary returning capital to our equity holders.
And the board of Directors has decided to maintain the dividend based on the current forward outlook.
Pain or interest expense pertaining to the people paying our dividend remain our priorities through these uncertain times.
To finish Diamondback is prepared to operate in a lower for longer will price environment and our cost structure will prove to be a differentiator through this downturn.
Low interest expense low leverage industry, leading low cash gene a.
The full hedge book strong midstream contracts and the benefit of fiber in Radnor will allow them to back to operate effectively through these uncertain times.
These comments now complete operator, please open the lines for questions.
Thank you.
Ladies and gentlemen has reminded you ask a question you need to press star one or your telephone to withdraw your question. Please press the pound key please standby what we've compiled the culinary roster.
And our first question comes from a lot of Bryan singer with Goldman Sachs. Your line is now open.
Thank you good morning.
No I wanted to follow up on the comment there towards the end with regards to the use of cash and free cash flow you talked about the spending the buyback you've got the 400 million dollar debt coming due in a scenario next year, a in a scenario where cash build.
Beyond that or where are your free cash flow gets you above the 400 million dollar cushion to pay down that debt do you still hold cash for future debt coming due or do you think about either bringing back the buyback considering variable dividends or distribution. Terry how are you thinking about that free cash flow and use of cash.
Well certainly that's been a multiple quarters out as we look into out and we look into next year into all of those options are still available to us.
In terms of we announced the suspension of Oh, the share buyback program.
But we also don't have a full and teaching them at the board level to hoard cash and so we will continue to be judicious in the way that we we allocate excess cash.
Hi lot and primarily through the form of that our dividend program.
Great. Thanks, and then my follow up is with regard to a cyclical versus secular benefits from the down cycle, you you've talked to a cost reductions that you see here this year and I wondered if you could speak to what you were kind of seeing as potential.
Cyclical versus secular impacts either on the productivity side and learnings.
There or on the on the top side what percent of the cost reductions you achieving this year do you think would extend if prices were in a rebound.
Well you know if we just look at the Delaware Basin, particularly I think we've taken over the last couple of quarters, we've taken a hard dollars a foot out of the DC unique component and those are permanent savings regardless of the cyclicality of more nature of our business.
In the Midland Basin side, we've probably taken out.
50, or 60 and again a lot of those were also going to be made permanent.
We understand that our business partners on the service.
Or we're really in a blind and we do know that you're in the future when commodity prices began to recover that side of our business we will have to.
Repair their balance sheets, and you know and you will require.
More a consideration from some of the operators and that's that's a cyclical nature that but we.
We don't know when thats going to occur we do think that the rate of change going forward just from a planning perspective and ready to changes you know is getting smaller relative to where it was the last time, we went through this and 15 and 16.
But it's still organizations intent to find those elements that will survive passed the cyclical nature and actually making permanent and the way that would go about prosecuting our development plan. So what percent is lot harder to predict it's small today than when you likely asked me that assisting us.
Good thing, but we're still trying every day to identify and like permanent so sage.
Good thank you.
Thank you and our next question comes from the line of Derrick Whitfield with Stifel. Your line is now open.
Thanks, Good morning all.
Good morning, perhaps.
Perhaps for Travis or case with regard to your 2020 outlook I certainly appreciate the challenges of providing quarterly guidance in the current environment.
Assuming the capital plan outlined is it reasonable to send the previous exit rate guidance Brawley remains in place less relatively small time in effects associated with returning curtailed production back on line.
Yes, Eric. Thank you. That's that's fair I think we're we're sticking to that exit rate guidance ending.
Getting back to work in the in the back half a year I think if.
First of all curtailed volumes come back before we start completing new wells.
And you know if retail volumes come back and then we start completing wells late in the summer and go into the fall then that that number is certainly achievable.
We continue to be for Taylor.
They are returned back to work then and we'll have to update the market we have.
Now for time from a lot in the last month and a half and give you the latest data that we're seeing.
Thanks, very helpful and do you guys have been quite responsive in the environment. So certainly appreciate that as well.
With my second question focusing on the voluntary curtailments that you discussed for May are there any marketing limitations or technical considerations that would limit your ability to could tell volumes beyond that 10% to 15% level.
No we're still very far away from any any marketing commitments. In says you know we introduced a little over 250000 gross barrels of oil down in the first quarter and are you not true take or pay commitments are about 125000 barrels a day today, so we're still pretty pretty far what countries any any of those in.
The secondary thought behind the cash operating costs.
Oh, well, we will work curtailing in the.
The marketing.
Contracts associated with the barrels that worker talent.
Thanks, guys for all done in this challenging environment.
Thank you.
Thank you and our next question comes from a lot of Gail Nicholson with Stephens. Your line is now open.
Hi, good morning, everybody.
Workover and in <unk>, you know what percent Oh, we workover.
Comprise and then how should we think about workover activity going forward and you have any thoughts if making an adjustment workovers could have an effect on future well productivity.
Yes, so she'll guilt typically run 20, 2025, workover rigs on a daily basis, you know just doing routine maintenance and part of this curtailment effort. There won't be why now is that we've reduced that number to less than 10.
Maybe off some of those even less than five and so as wells you know fail have problems you're collecting at least in the month of my enough to go out and repair them.
You know.
As long as we don't.
We have those type of failed wells shut in for very long period of time, you know months I'm not worried about having to go back in and remediate those wells, yes, there will be a cost but that cost have been pushed out several months in that scenario, but the productivity shouldn't be a shouldn't be impacted.
Unless we're talking about multiple multiple months.
But that's the way we're taking about it now.
Okay, Great and then I really appreciate slide nine the color regarding the Midland based contract.
Just curious if you could talk about just how the pieces.
James I'm regarding at any age and a Brent contract on slide nine.
Yes, so no we wanted to show the slides show our investors, how we're thinking about curtailing volumes and you know wall.
We're exposed to flat price throughout the month, you know the role and the differentials that already been fixed going into May a you know I will say for its contract dependent. So you know all we speak for diamond backs contracts, but.
The majority of our Glenn based contracts have they Brent role component. So the Brent mall, because it's been unless contango, then get meteorites will be a significantly smaller number.
Okay, great. Thank you.
Thank you. Thank you.
Thank you and our next question comes from the line of Neal Dingmann with Suntrust. Your line is now open.
Well built in well my first question centers on really your three stream production growth and specifically how youre viewing that the time in rate of growth for each of the three steam streams to ramp. After your DNC is suspended the production is curtailed or maybe thought asked another way how do you view.
And I know you've got to guide out there, but how do you view the near term future oil versus natural gas growth.
Yes, no question, Neil with the with the production stream declining overall in the oil into declined faster than.
You'll be always I think we we framed our.
Oil production.
Base decline that you know in the mid Thirtys with our yeah, we base declines in the low thirtys percentages. So.
I'm hopeful that if we do get back to work, we're going to try to combat that declined some high oil percentage Midland basin activity.
But given the uncertainty today I think overall know those numbers that we put out there on base decline youre still valid.
Got it great details and then I'm just my second question really focuses on caused you know Travis for you in case you all can seem to be certainly the cost leaders in that group can you speak to kind of 850 years cash cost and I think what Midland.
Well cost down I think whats seven or 600 as Kirk start I'm. Just wondering you touched on this a little bit earlier is there room to squeeze even more out of that or how do you. All to you. Just just you know sort of these these margins going forward given what does Hello, your cost already down too.
Yeah, I think I'll answer does a little bit on the previous questions about the rate of change in cost is certainly lots more now than it was in 15 and 16. When we went through the cycle. You look there's there's two ways to work on that Theres things like I'd emphasize that we can make permanent those things live on forever and that's.
When we complete these wells faster get to TD faster you know those are all elements of.
You know Macon permanent cost savings you know.
Whether whether or business partners on the service side continue to offer concessions you know beyond this point.
There's probably going to be shown.
We do feel like the majority of those have been offered up in the month of April and May is as the industry as recalibrated quicker than anything we've ever seen I.
I think if you dig into the cash cost piece, we're going to try to keep elouise flattish production coming down so that's going to hurt let me a little bit DNA still gonna stay best in class and the other pieces of cash cost on the on the tax piece given that your percent of revenue.
Can you go down that should come down a little bit, but we're fighting for for pennies and nickels here and you don't deal that would go a lot of information or in our Dick.
You know what we're talking about costs, you know cost and in it you know improvements quarter over quarter, and and I think it's important to recognize that.
One of the reasons that we try to answer the questions with as much details, we can and why as case pointed out that we've we've updated the market four times in the last month and a half it's because when times are uncertain and our investors that owned the company have questions transparency is more important than ever so you know.
Well, that's why we you know even though we might have had a free pass tolling guidance, just not part of our culture of transparency.
They're going to tell you everything we can within the range of financial disclosure. So that you can make the best investment decisions that you can and the only way that we can do that is to be very very transparent and so whether it's in or decker in her prepared remarks or in the queue in a that transparency is going to core tenets of of down back energy and.
You tend to follow that through these uncertain times and into the future.
Yeah I appreciate all the detail is trying to set it certainly helps thanks guys.
You bet. Thanks Neil.
Thank you.
And our next question comes from a lot of Scott rubber with Citigroup. Your line is now open.
Well, it's good morning.
More Scott.
So before the downturn there is the expectation that you're you're well productivity on average would improve over the course of 2020 is your HBP drilling. So even further you shifted rigs now you're focusing obviously on best well economics, which includes not only productivity, but also obviously well cost in your minerals.
Actually.
We can provide some color on on the productivity trend.
On a go forward basis from here should improve.
As previously expected and any color on order of magnitude.
Well, there's there's two ways of looking real productivity. It's you know if you're completing the same well one month versus next does that productivity improve in the current month versus the prior month and there's also a way that productivity looks better on the macro sense, because you're shifting the mix of projects that you're doing and so most of what we were focusing on an earlier communication was higher.
Not in the shift from.
The Delaware basin more towards the Midland Basin, where we had mineral ownerships.
And within the or said wiper and then also not having to spend than you are limited infrastructure dollars. So we're still going to see that effect.
Through the course of this year as our program migrate more of the ventilation side and as I've answered a couple of times I still think there's room.
To see.
You know.
Changes that we're making due to doing things better than we've done in the past and those are the things that live on those warrants we make prudent.
Got it appreciate the color that's it for me I'll take that thank you.
Let me just add.
When you think about where the service sector is you know I certainly don't intend to be a spokesperson for the service sector I don't understand their their financials like they do and so really whether or not they continue to reduce cost and that's to the benefit at least near term debenture holders.
Those are really questions that are best asked and answered on that side, what I'm leaning into our organization for is how can we do think better every day.
Regardless of the cyclical nature of what our business partners on the service.
Appreciate it.
Thank you and our next question comes from the line of Scott Henry with RBC capital markets amount is now.
Yeah. Thanks, Thanks for all the color so far.
Dr was a pretty interesting comment that you guys would be carrying in.
100, Ducs into 2021 can you give a sense of it was that an intentional process through 2020, given the cost structure coming down enough from was it somewhat.
Where your rig contracts were in just didn't want to complete the wells or are you just wanted some.
Dry powder of wells to reactivate when you could so can you give us a sense of how you balance that that activity in decision through this year.
Yeah, It's really it's got a combination of all three of those I mean, we definitely have rig contracts and every dollar council.
And while those rig counts wind off this year, we didn't want to say early termination fees.
But also when you when you think about 2021 carried in a large number of ducks.
We're really covered off in both.
The the Bull case and the bare case.
And the Bull case, you will have a bunch of really high quality ducts that we can bring onto production quickly. It 2021, if we get paid for the.
For the commodity reproduce on the bare case, if it gets bad will then we probably will drill many if any wells at all in 2021 and whatever.
Volume maintenance that we feel like we can get paid for we can do that just by completing these extremely high.
Hi, ready return on across four basis Ducks.
So so in my follow ups could be on on the decisions you know as you look into that Bull case like what are the really the triggers that make you think about that bull case and it also just really quickly what do those ducs how much of an impact on your 2021 maintenance capital do those Dakota.
Well you know that we've we've never tried to predict all case oil price and you know what a bull case looks like in 2020, Warner I'm, not even I'm, not even saying that that that's necessarily going to occur what we're trying to produce produce what we're trying to do is rather than predict we're trying to cover all.
Both extremes wasn't likely outcomes could be next year in terms of the duck impact on maintenance Capex, Yes, Scott we came out a number of about a month ago. So we can keep exit rate production flat year over year in 2021, 25% less capital than 2020, I think that number still stands and that's probably.
Yeah, you're drawing down 40, or 50 dots I think you know our base case today, if you had to get to ask US is somewhere in the range of three to five completion crews.
And the rule of thumb, the rehab 10, working jobs for a each completion crews. So we're going to about 100 extra docks at yearend 2020 wants to have options with.
Yeah, and just to be more just as it goes in asking I guess in particular, you know what you what you all think about the Bull case of next year, just what price signal like what price does it have to be to start.
Thinking about getting a little bit more active than in dipping into those ducks.
Well, let's look at where we are today right. The first thing we'd have to do is.
I think deferred production back on and then you know to talk about increase activity.
Again, there's a lot of factors that went into that but you've got to have prices in the high twentys or low thirtys before we kind of signal going back to work in an aggressive or even in a non aggressive way, but again, we're going to we're going to take all these things into consideration before we come out there, but the market on what our activities.
Things are back half of this year or.
Into next year as well.
Okay fair enough. Thank you.
Thank you.
And our <unk> and our next question comes from the line of David Deckelbaum Whats Cohen with Cowen.
One is now.
Morning, guys, thanks sort of time today.
You bet David.
I was hoping maybe you could set a little bit more color on that the theoretical 21 maintenance program, how many wells that in the vision you being able that are needing to turn in line to hold that like that current exit guide flat and 21.
Probably felt about 150, David no plus or minus 10 or 15 wells on each study that you know just just based on the wells we're drilling today.
What gets completed we're going to be pretty heavy Midland basin, probably 70, 30, Midland Basin or 70, 525, Midland basin in areas, where we have no high mineral interest and.
The little capital required on the on infrastructure side.
I appreciate that.
And then I guess.
Just wanted to go back to the curtailments, one could you update us just on I know you kinda.
And your comments incentive if we need to do something in Japan, and obviously guidance changes.
What are your thoughts on June right now how do you see the market shaping up and down saying I know these curtailments are economically driven.
Price signals have improved a bit for June.
What do you, saying on the logistics side and the in basin side and how do you how do you see the shaping up you know us.
Now granted were several weeks away, but but how's that looking currently.
Well you don't give you looking a little better for Jim to be honest.
The dips in the roll into being significantly on the role quite significantly less negative on the dip side being.
Midland trading at a premium recently.
Hi Inn and on top of that the BTL trading at a premium to WT. So.
No I never thought 22 dollar level will be exciting, but here. We are looking at our cash costs for for June and I think you know as we sit today, we have nominations into needs as we sit today. It certainly looks better for the June month contract perspective, then benefit in that.
Yeah, Here's the 22, if I could just love and one quick one this.
Thinking about see the logistics of their curtailed volumes that you have now.
I guess about 2500, producing wells and Midlands, another 500, plus in the Delaware what percentage over all of those wells are being curtailed right now.
Or I guess, how many wells can you say are being curtailed.
Yes, just about 500 toll and I would say.
Over two thirds of those are in the Delaware and so what we really focused on.
And we've really focused on the term curtail because we're not shutting these wells in and having spent dollars to shut wells that we're trying to.
Let it be cash outflow and really just for tail producing wells through a lower level than than where they were in April and in March.
Thanks sort of color guys.
You bet. Thanks, Okay.
Thank you.
Our next question comes from the line of Jeff Grant with Northland Capital markets. Your line is now.
Well I guess.
Good.
Morning.
I was curious how you guys made it kinda philosophical question.
I think environment, both on the commodity and well costs have obviously changed quite a bit over the last several months are you guys internally discussing may be reevaluating, well spacing or completion techniques as far as what an optimal design could be and you know with today's service costs, and then oil price environment.
Yeah. Those are certainly things that we that we that we're examining but one thing that you know I've been pleased with is that our spacing assumptions that had been validated now for almost five years really haven't ever change do you know we've never been part of that drill drill wells to closely are second to to tightly together. So you know the.
You know the the rule of thumb has always been you know the higher the oil price. The the closure space you can put your wells because you can capitalize on acceleration in the lower.
Right well is the water you spread out, but we've been we followed that but we've been pleased that that our spacing assumptions you know seem to struck the right balance now for multiple years and.
And a lot of technical review with our reserve auditors have validated that so we've never really tightened them up and in some instances, maybe even though the Delaware in some of the new developed zones. We might have you know slightly increased the increase the a the well spacing, but ER in a general sense, we've been very conservative on how we can't locations.
And how we how we develop these reservoirs.
And you know when you look at the completion side you know Jeff.
We're always trying to do everything we can to extract the most hydrocarbons from these rocks, you know, which stimulated rock volume near Wellbore is the key and I can tell you the softest engineering and geologists scientists that we have they are always you know tweaking the that so well we can look at spacing.
When we actually get down to completing the well you know it's that's just a constant work in progress and it's it's always evolving.
Our in it in and that will never change I can promise you.
Understood.
And then kind of more and more of a housekeeping one if I may the ducks that you guys are kind of building and real time here and I'm talking about a couple of times in the call already are those weighted to maybe certain operating areas or or Midland versus Delaware focused.
Yes, it's really got 70 30, Midland Delaware most of our rigs are moving towards Midland Basin.
Where we have high mineral interest in.
You know setting ourselves up for the most capital efficient returned to work possible.
Got it thanks guys.
Thank you.
Our next question comes from the launch of a seat Sen with Bank of America. Your line is now open.
Thanks, Good morning, I have one for case, one for Travis case on Counterparties that flow assurance. Thanks for all the detail update in the slide deck.
Question has there been some reports on the seaborne market I'm getting backed up can you talk directly by the condition of the export market, perhaps into the next couple of months and in terms of take or pay liabilities could you update us interior on what happens if there is a physical slope bottleneck in any of these spikes.
Yes.
I don't know all the details about the seaborne market, but I do you know it's more like would then what we what we've seen in pushing the last few weeks. So you certainly starting to see spread widening incentivized barrels to get on the water now take rate certainly spiked a little bit which would impact our realizations, but they've come back down a little bit here, but.
Overall, the whole point of the you know our marketing arrangements is to provide insurance in terms of in times of uncertainty, which which we're in right now and being able to call only for marketers and know that all our barrels are going to move is something that allows us to sleep a little better at night.
On the take or pay TV 125000 barrels a day is.
Take or pay from a from a sales perspective as well as from a a pipeline perspective, you know should the sale piece declared force measure, which would be daily instance, where those barrels don't move.
Our total pipeline commitments.
Right now on rail kinetic is about $20 million per pipe per year.
If we didnt than one barrel down each pipe.
Thanks, guys.
The Travis on a potential restructure scenario.
How quickly could you restart operations what are the price signals and what does some of the other broader considerations would you consider before adding a rig on a completion crew.
Well it should always be driven by economics, right and so.
The first thing we would do is obviously get or curtailed volumes back into the production equation and then following that would go look at economics about what was the service sector is going to charged to come back to work and then we'll balance that against what our expectations are for the forward curve and make an economic decision on that I think.
Alluded to you know some form of start you know the.
In the high Twentys or low thirtys.
But really.
If you if you flash all the way out there to what our will use look like and growth you know that's that's back to prices that you saw last year. So I think this.
We evolve as an industry into this new will order.
I think I think it's going to look a lot different than what we've historically a custom we've been accustomed to.
Appreciate it thanks correct.
Thank you and our next question comes from a lot of Charles Meade with Jason Marni Shapiro with Johnson Rice. Your line is now open.
Good morning drivers to you in your home team.
Thank you Charles.
Jobs, you you anticipated.
Yes, Mike My question in your responses or earlier, one I wanted to I guess the point that you guys are prepared for a lower for longer scenario, but also it it it seems from the outside looking in that you guys are more prepared.
More on your front foot for for a V shaped recovery in other words, you know, you're you're you're better position to another and others in the in the industry to go back to work hard and in the back half of the area.
Is that an accurate read you thinking in how how would you elaborate on that.
Yeah, well first we're certainly not into prediction of what recovers may look like the shape or U shaped or whatever.
What we're trying to do is demonstrate flexibility to our investors that whether it's lower for longer we're prepared for that with our financial strength, whether the market signals that just trying to go back to work. We're also prepared for that but again back to my transparency comment you know when these uncertain times, which ever scenario plays out.
You can count on US you know stepping forward and letting our investors know exactly what we're thinking about the business in the strategic rationale behind the decisions that we make.
Got it and then and then maybe following up little bit on the on that I could I get that you're not completing wells right now, but you guys are still going to run a completion crew for for part of the quarter and I know you said that's for for their up you know lease leased retention or lease obligation consideration I'm curious.
I imagine there have to been other options you evaluated about you know weve, even going back to the mineral owners and and you know maybe offering up Oh.
A rental for or some other thing or are there. Other considerations that are going on that that are that are leading due to complete.
15, or 20 wells are so it into Q, rather than do some of those other lease obligation options.
Yeah, Charles you know a lot of those well probably already in progress heading into the quarter. So you can have that discussion you'll make completion.
We are working with our mineral owners and they have been pretty.
You know pretty easy to work with any gift, giving were flat prices.
So if we can we can push out whatever we can whenever we can work. We're trying to do that you know she party and 1200 80 acre unit you don't get in touch with 40 mineral owners and in a month, but we have done a and working diligently to extend leases and extend completion date, Charles just to add to that.
The complexity as you know unless you're actually inside you know, it's hard to its hard to communicate but I'll tell you Orlando organization and our land professionals no. They are engaged you know almost they're engaged every day and what feels like a knife what to work on lease terms.
Void, you know having to drill or complete well and you know when we're not getting paid for the commodity show.
<unk> indicated you know a lot of our mineral owners understand the business and are trying to make you know concessions.
But also you it's very difficult at times to get everyone on the same page and all the Texas one person to say no and then your your hand is for so really proud of our land organization and the work you're doing to get us to the point, where we're only running one completion crew.
To honor minimal obligations this quarter.
Thank you for the detail.
Thanks, Charles banking.
Thank you and our next question comes from a lot of Richard Tullis with capital One Securities. Your line is now.
Thanks, Good morning, everyone I'm.
Travis generally how much runway do you have as far as well inventory to to continue on the current path, where you're drilling in areas with a higher in arise and lower infrastructure needs.
Yeah, Richard I think we you know we try to be a train starts as possible and show what our gross to net inventories on slide 13, plus 14 in the deck and you'll be update that every every year I think well one of the benefits of falling down is not burning through as much inventory that quickly.
So I think without needing to complete 150, 860 wells keep production flat.
75% of in the Midland Basin, you got a a pretty long runway of high quality inventory.
You know to survive lower for longer environment, Yes, we've got over 12000 gross locations still thrown at us Richard and no.
With this with this slowdown in activity or stoppage in activity exactly as Kay said, we're actually extending our inventory runway.
As a result of completing those wells and then devices.
Okay. Thank you and.
Secondly.
You know any plans to resume testing of the limelight acreage in the second half of the year or does that just need to wait for substantially higher oil prices.
Yes, it probably takes the way, we're having discussions with the mineral owners right now on on extending or well delaying our next time.
Okay. That's all for me thank you.
Thanks.
Thank you.
Next question comes from the line of Jason Wangler with Imperial capital. Your line is now.
Hey, good morning, I just had one obviously something we've talked a lot about the past, but probably we're now but you know as far as.
We've got plenty of inventory, certainly, but you're not you're in a much better position in so many others around you as you think about this planning out and maybe at some point getting a more aggressive very are you seeing anything that's maybe interesting M&A side or maybe how do you just kind of see that playing out as we kind of go forward and environment.
Yeah, Hey, Jason. This is this is all about demonstrated in our financial strength and getting to the other side of the recovery.
When were there when the when the market signaling is there I think that question that has more validity right. Now you know it's it's it's doing what we're doing which is you know maximizing cash flow and preserving liquidity.
Fair enough I appreciate it thank you.
Right.
Thank you.
And our last question comes from the line Michael Hall Heikkinen energy.
He is now open.
Thanks, Good morning, I appreciate the time a lot of been addressed the one that's kind of been touched on a little bit but wanted to follow up on is just in the context of.
Signaling.
Sort of price signals are required to get back to kind of quarter on quarter grocer or move beyond that maintenance capital.
Program and 21 number one might those prices theoretically it looked like it sounds like maybe last year's type level, but just wanted to confirm that and then.
Number two maybe more philosophically like how are you thinking about the the combination of growth and payout from on a longer term basis is.
The the growth side of that combination structurally lower than it was a year ago, let say after what we've just been through or isn't really not affected and that'll really just be a function of what what prices and returns look like whenever that time comes.
I think our industries is evolving perhaps a more rapid pace than it ever has I mean, we're making changes at the end of last year you as an industry you know a slower growth integrated returned model and that I've got kicked into hackers that got kicked into higher speed in March. This year. You know so you know this new oil order as we look ahead, you know as Gordon.
I have what feels like a at least today. It is going to feel like a lot lower growth in a more prescriptive way of returning you know a investments are returning you know returns to our through our investors and.
I think I think it's still going to evolve over the course of this year, but you know certainly under what the strip looks like it's gonna definitely be a lot lower or lower.
Growth profile, but you know we want to make sure we maintain a dividend and resumed.
Ah you maximize our cash flow and you know and when appropriate you own the market signals you have peer leading growth deal accomplish all those at the same time.
Okay. I mean is it fair to say in a 40 to 50 range all else equal today, knowing that all else equal the heart assumption to make but you know that that's maybe round about the though the level that would signal getting back to a quarter on quarter growth profile.
Yeah. Good it's more it's more than just the just an oil price I think I said earlier that if you look at some of the prices that we got to 2019.
Thats certainly a signal with that you can you know get more a you know get more aggressive on the growth but I.
I think we've got to be pretty careful in being too prescriptive going you know what exact twice signals may look like before you get back to growth again, and just want to make sure you maintain or dividend maximize our cash flow and when it when it is time to grow you know down with back we'll have peer leading growth along with the dividends and maximize cash flow.
Understood I appreciate the color and you can find Nicole.
Just just just finished I thought you know Oh I'm.
Got it went on a little little so we earlier about you know transparency and I think it's important again to emphasize it here.
You know, we're trying to communicate as transparent as we can the way that we see the future and you can count on us as the future gets cleared you know we're going to update the market like you said, we've done at four times in the last.
Five weeks and we're going to continue to be communicative and we're going to continue to demonstrate.
One of the hallmarks of or.
Corporate culture, which is transparency and we'll just we'll let you know as these things as these things evolve.
Yes.
Thank you.
And this does conclude today's question and answer session I would now like to turn the call back to Travis Stice for closing remarks.
Sure. Thank you listened before close this morning I wanted to share with you would you guys are final thought we've.
We've all had what feels like in unreasoning amount of time to reflect.
Over the last couple of months as we've worked remotely or sheltered inflation.
We're not we're not doing that and looking back at the over 35 years I've had in the industry. There's been several significant events that stood out no. The challenger space ship disaster in 1986 them.
Natural prices for 2007 in 2008 of of course 911, and now were enrolled in a in a worldwide pandemic calls brother Corona virus, well when I look back at both historical events that did I participated in.
During those times there were really.
True defining attributes that I feel we're demonstrating the first is is really the resiliency of American people you know even in the face of human tragedy in financial tragedy, we found a way to move forward.
And the second attribute and I think it's important in today's environment is so.
Hope that we would get through this and hope that our situation would get better.
So as we.
Yes, this country back to work.
Lets count on that resiliency once again.
Let's also remind each other the importance of hope.
Hope for ourselves for kids, and our grandkids that tomorrow, we will be better.
Thank you for participating in today's call. Please reach out if you have any questions.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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