Q1 2020 Earnings Call
Standby, we were about to begin.
Ladies and gentlemen, good day and thank you all for joining that's Falcon minerals first quarter 2020 earnings call. As a reminder, all phone participants are in a listen only mode, but instructions on how to share a question will be shared after today's prepared remarks to get started with opening remarks and introductions I'm pleased to turn the floor over to soften C.E.O., Mr. Brian Gunderson.
Welcome Brian.
The morning, everyone in thank you for joining today is called the discuss Falcons first quarter 2020 results before we begin I would like to remind everyone that during this call. We will make certain forward looking statements forward looking statements often address are expected future business financial performance.
And financial conditions, and also contain words like expects anticipate and similar words or phrases.
Forward looking statements by their nature address matters that are uncertain and are subject to certain risks and uncertainty, which can cause actual results to defer materially from that was projected in the forward looking statements.
We discussed these risks in the quarterly report on form 10, Q. and our annual report on form 10 K.
I would also like to caution you not the place undo reliance on these forward looking statements, which reflect management's analysis only as the date here of the company undertakes no obligation to publicly update our forward looking statements or to publicly released the <unk> results of any revisions to forward looking statements.
It may be made to reflect events or circumstances after that date hero or reflect the occurrence of on anticipated events.
Generally in our earnings release, we have provided reconciliation to the not gap measures referred to in our public disclosures such as adjusted even T.A. and pro pro forma free cash flow.
Lastly, the company will be attending several virtual investor conferences in the coming weeks, including the RBC capital markets Global energy and power Virtual conference.
The full 2020 cross sector inside conference and the J.P. Morgan 2020 energy power and renewables conference with that altering the call over the Falcons, President and Chief Executive Officer, Daniel Hers for his remarks Daniel.
Thanks, Brian welcome everyone in thank you for joining a Falcon minerals Corporation first quarter 2020 earnings call I hope, you're all doing well.
Ryan Gunderson, who you just heard from our Chief Financial Officer will give the financial report following my remarks, and we will then take questions.
I would like to begin today's call by offering our best wishes to all who are impacted by the cope with 19 pandemic and we are especially grateful for all of the front line workers battling this disease their heroic work along with the work of so many others to fight this pandemic and keep America.
<unk> inspires us all and hopefully we will soon returned to a more normal life.
Next I would like to acknowledge and thank all of my colleagues at Falcon several of whom had been displaced for their continuous work and dedication to the success at the business.
Even more importantly, I would like to thank this group for their inspiring dedication to supporting their communities. During these challenging times.
Group is raise tens of thousands of dollars and helped directly in among other things, helping those in need of food.
I hope everyone Who's listening to today's call continues to do whatever you can to help one another we all must do our part in this challenging period.
No.
<unk> business.
As we all know the energy industry is facing significant challenges and what summer, calling you double black Swan at that.
We can spend hours or even days debating the timing of the recovery and the shape, whether it will be a v. you were Nike swoosh or whatever.
I believe Plato's quote excess generally causes reaction and produces a change in the opposite direction, whether it be in the seasons or any individuals or in governments properly characterize is our markets and where we are ultimately had it.
Well Falcon minerals is not immune to the current environment I believe we are particularly well positioned to first weathered the storm and then to deliver outside value to our shareholders but.
The fact is we had falcon minerals have what most companies during the <unk> this period and V.
One we have a solid balance sheet.
Q.
Regenerate substantial free cash flow.
Three we have zero capital expenditures.
For.
We have significant future growth potential that is entirely organic without having to spend $2 and five we have world class operators.
The capital that will grow our free cash flow over the medium and long term.
And we will go whimpered that cash flow back to our shareholders.
Now the first quarter of 2020 provides a good indication of the potential.
<unk> minerals has and will have when we get to the other side of this period.
During the first quarter, we've produced approximately 5152 barrels of oil equivalent per day or be a wee per day of which 54% was the whales.
That was an increase of 28% over the fourth quarter of 2019.
The first quarter benefited from the connection for hooks ranch well on February set.
Importantly didn't know it took a few weeks for those wells to clean up as he typical and we saw Falcons production rise to over 5500 barrels of oil equivalent per day in March.
Furthermore, the hook swells continued to produce at or near the March levels in April.
As a reminder, we.
Present net revenue interest across the Hux ranch, which remains over 75 per se undeveloped is operated by Conoco Phillips and is among their best performing acreage.
This production drove free cash flow of $9.4 million or 11 cents per share for the first court.
Which would imply an approximate 20% annualized free cash flow yield based on the current share price.
My point this out again in the context of the earning potential of Falcon minerals.
Given the uncertainty of the energy markets and our desire to maintain a strong balance sheet through this period. The board decided to reduce the pay outrageous you know this quarter to 23% and pay a dividend of tuna assets.
Our view is that moving through this period with balance sheet strength is essential and will allow us to thrive and get back to substantial cash payout levels in the future.
Right.
Now, let's talk about the future.
<unk>.
Conoco Phillips T.O.G.S. announced that they will be voluntarily tailing in differing production in the U.S. as they do not want to sell their while at the price levels.
We view this as favorable to our value proposition and and our well aligned with both conscious flips any O.G.
Conoco Phillips further announced that they plan to continue to run for rigs in Eagleford, which will represent greater than 50 per cent of Conoco's total rigs running in the lower 48.
E.O.G. continues to highlight the economics of the Eagle for jail position of their ego per channel position, calling it it's bellwether asset.
More specifically you know g. plans to continue to run three rigs and three frat cruise in turn in line approximately 118 wells throughout the remainder of 2020.
Conoco when he he O.G. is continued commitment to run for in three rigs respectively. In the Eagleford turn wells in line and build docks should support future grows beyond even our current robust line of sight wells.
Yeah, I have an energy <unk> joint venture partner has secured substantially all of its sales in the Eagleford for May and June.
As the R.S. energy noted in Eagleford shale peace earlier. This week you approximately 250000 gross unit acres in which we own minerals is one of the most economically attractive areas <unk> U.S.
And specifically conoco when you know g. as highly attractive undeveloped locations, even at low oil prices in the Eagleford.
As well as you know g., having additional attractive undeveloped locations in the Austen chalk.
Continuing on with our we're continuing on with our expectations over the short term.
On March 12th almost two months ago, we implemented aggressive G.N.A. reductions to managed through what we thought would be a difficult period.
G.N.A. reduction started with my election to reduce my cash compensation for 2020 by approximately 50 per cent.
And the board producing it's cash compensation.
We believe it is vital that in this on certain kind that leadership is the first to make meaningful cuts in order to reduce cash costs. In total we now estimated reduction in G.N.A. for 2020 of approximately 20%.
Impaired the full year 2019.
Falcon is going to benefit overtime from having the large largest that capitalized and well run the operators prosecuting their multi year development plans across our position.
There's challenging period will demonstrate falcon strength.
We are currently benefiting from or producers strength is they curtailed production and preserve our reserves for a better commodity price in buyer.
That should provide even greater value through all of our shareholders overtime.
When we emerged from the current oil market challenges and we will emerge <unk> position better than ever.
We currently have 2.41 net line of sight wells of which 1.71 or ducks or waiting to be connected and as I noted earlier. This number will continue to rise is conoco Phillips continues to build ducks in eagleford and across our position.
To date in total we estimate that are operators of already invested over $300 million across our position in these wells.
Additionally, we will benefit from the volumes that are curtailed when they come back on line.
Furthermore.
I mentioned earlier, we still have over 75 per cent number hoax ranch yet to be developed.
We are encouraged about the potential for higher natural gas prices as about 30% of our production is natural gas.
Additionally, as a reminder.
We own mineral interest covering about 75000 gross unit acres in the core of the Marcella shale or approximately 1530 net loyalty acres, which implies in approximate two per cent net revenue interest.
His offers further potential upside to Falcon moving forward.
Now, let me summarize the medium and long term value proposition of Falcon minerals and and this is important.
When we forecast our business even in downside scenarios over the next five years <unk> currents script pricing.
Including the current market conditions only turning in line line of sight wells through the end of 2021, and then in 2022, returning to historical average wells turned on line and only two four well hooks ranch path.
Ads brought on line during that time of year period, we still generate free cash flow in that downside scenario.
Equates to approximately our current share price and we will still at that point have over 75 per cent of hooks ranch on developed as well as years of additional inventory.
Furthermore, in that downside scenario are net asset value is multiples of our current share price I believe this isn't the unmatched value proposition in the mineral space.
In conclusion Falcon minerals as well positioned to withstand this type of energy environment, and then thrive we have a solid balance sheet free cash flow zero capital expenditures future growth with no capital spending and world class operators developing the position.
Driving free cash flow back to you are shareholders Daddy's Falcon.
I will now turn the call over trying to give the financial report.
Brian.
Thanks, Daniel production for the first quarter was 5152 B.O.U. per day.
<unk> oil volumes were 54% of total production and 60% of total eagleford volumes for the period.
Yeah, that's that's generated 13.6 million and royalty revenue during that period.
That 13.6 million and revenue Falcon will return approximately 2.1 million back to its shareholders through the form of a quarterly dividend inclusive the amounts paid to the noncontrolling interests.
How can not realize price for oil during the first quarter was $43.10 per barrel average realize price for natural gas was one dollar and 94 cents per M.C.S.R.N.G.O. realizations average $14.05 per barrel.
[noise] total cash operating costs worth 3.6 million.
Looking at the component pieces Avalor production taxes were approximately point 8 million for the corridor. This reflects point 5 million decrease compared to the prior quarter, which is due to lower production taxes as a result of lower realize prices.
Marketing and transportation expense was point 4 million for the quarter.
G.N.A. expense was approximately 2.3 million for the first quarter cash G.N.A. declined to compared to the fourth quarter 2019, and does not reflect the full benefit of the cost cutting measures adopted on March 12th 2020.
Cash G.N.A. excludes approximately point 7 million of non cash stock compensation expense recognized in the period.
Adjusted either D.A. for the first quarter was 10.1 million up from 13% 13 present from 8.9 million reported in the fourth quarter 2019.
Falcons first quarter gap net income was 2.2 million on a standalone basis, and 4.5 million, including non controlling interest.
Gap income tax expense was point 4 million for the quarter, which consists entirely deferred income tax expense related to the amortization or deferred tax asset on the balance sheet.
Falcons effective tax rate, which consists entirely entirely different taxable income tax expense mentioned previously was approximately 9% for the first quarter versus the federal income tax rate of 21%.
The company is encouraging no amounts related to the current period income tax expense and therefore incurred no cash income taxes in the first quarter 2020. This is primarily due to the tax benefit basis step up related to the our assets that Falcon acquired as part of.
The transaction with Royal Resources 2018.
In addition, due to the stepped up basis in our assets, we expect to benefit from a cash income tax perspective for the foreseeable future.
At the end of the first quarter Falcon had 45.3 million outstanding on its revolving credit facility and 2.2 million of cash on hand, resulting in a net debt approximately 43.1 million.
Ended the first quarter.
Falcons DAT DAT L.T.M.T.V.T.A. <unk> ratio at the end of the first quarter was 0.95 times.
Active may 1st 2020 in connection with the company's spraying read a termination the borrowing bayes decreased from $90 million to $70 million.
Yesterday.
And declared a first quarter dividend of Q. and a half cents per share the dividend will be paid on June 8th 2020 for shareholders of record on May 25th 2020.
As I mentioned on the fourth quarter call, 80% of the dividends paid the classes shareholders. During 29 T. were classified as non dividend distributions and therefore represent a reduction of basis rather than ordinary income.
Non dividend distributions are treated as a reduction of basis until such time, but the investors basis, it's fully recovered.
Can generate non dividend distributions due to the company's high pay out ratio coupled with the step up in the tax basis Falcons mineral interest that was received as part of the transaction with Royal resources in 28 teeth.
Expects the greater than 50% of the dividend paid to class a shareholders during 2020 won't be classified as non dividend distributions in 2020.
Again.
<unk> more than half of our distributions made during 2020 will not be comprised of taxable dividend income.
It will generally results and non taxable reduction to the tax basis shareholders common shares to reduce tax basis will potentially increase the shareholders capital gain or decrease the shareholders capital loss when the shareholders sell their <unk> their common shares.
I'm, Daniel mentioned, B.Q. and a half a sad dividend payment reflects a payout ratio, 23% pro forma free cash flow.
Pro forma free cash flow per share was approximately 11 cents per share for the period, we define pro forma free cash flow has adjusted even G.A. inclusive of non controlling interest less interest expense and pro forma cash income taxes are estimate a pro forma free cash flow.
The first quarter 2020 did not include an amount for pro forma cash income taxes Falcon did not have taxable income for the first quarter to decrease the average realize prices and as mentioned previously utilization of the tax benefit from a stepped up asset.
Basis, resulting from the Royal transaction in 2018.
Did an ongoing uncertainty continued market volatility and expected production curtailments over the coming months.
<unk> original 2020, Guy then should not be relied upon.
They're guidance has been temporarily suspended during the suspension. The company may provide periodic updates as appropriate as noted in our press release file get his updating the company's full year 2020 cash G.N.A. guidance to.
1.25 million to 7.75 million, which reflects approximately 20% reduction from Kashi N.A. for the full year 2019 with that I will now during the call back over to Daniel Daniel.
Thanks, Brian.
Why don't we open a the call up for questions.
Certainly thank you both entered audience joining if you would like to ask a question I need clarification on anything covered in today's call simply press star and one on your telephone keypad pressing starring one will push Caroline into a cue and we will take your questions. One at a time also a friendly reminder, that if you're joining us. This morning on a speaker phone. Please be sure that you return to your handset prior depressing.
And one to be sure that your second does reach our equipment once again, ladies and gentlemen that is star and one if you would like to ask a life question.
Minimal here first from Brian Downing with City group.
Martin gentlemen, I hope, you're well and and thanks to take my questions I I wanted to start with the question digging in on the the dividend payout policy. So retaining cash flow makes sense in the current on certain commodity price environment, but I'm curious how either you or the board is thinking about approaching that pay out ratio going forward is there a particular stressed case.
Leverage ratio or absolute net debt, you're targeting or anything above and beyond the balance sheet before getting back to a higher pay out ratio at some point.
Yeah, Thanks, Brian Hope, you're doing well as well so the company was built to pay out substantially all of our free cash flow and that's what we intend to do over time I expect it will be back to doing that when we see the economic and energy market.
Return to a more stable environment. You know we're pleased that we're fortunate to have a solid balanchine yeah under one times Levered and so it really is simply about getting back to a more stable economic in energy environment, and then I would expect that we'll see our.
Or pay a ratio returned to its traditional level of 90% plus.
Got it that's helpful. And then as you mentioned in the prepared remarks, a good portion of your current minus site development is currently in the waiting on completion bucket you tried to dimension operator plans any sense for the the completion pace there or what.
The price or Macroenvironment conditions, you think operators.
We'll need to to lead to a more pronounced level of completion is.
Yeah I liked that question, we spend of course, a lot of time thinking about that.
As a team internally and really dissecting, what operators, they're saying publicly what they're saying to us.
And now we're in we think a very good position in the core of the Eagleford in the current crop R.S. energy I mentioned this in my remarks put out a nice piece earlier this week that conoco Phillips in <unk> position, which really covers are 250000 gross unit acres has some of the most.
Economic locations in the U.S. and so we expect to see we we expect to see completions and wells coming on line I in the second half of this year and into 2021, we we run conservative cases.
Of course, but I think the best indication is really looking to you know g.'s commentary a day anticipate 118 additional levels coming on line in Eagleford.
From this point forward in the year I think that's a reasonable a reasonable guide as to what others may do but you know the the the reason we pulled our guidance really is a function of wanting to be conservative and and not put forward aggressive guidance given the uncertainty.
And the marketplace today, but I, but I guess, Brian I would say no lined with conoco and E.O.G. and B.P. Dab in in in the core of Eagleford is exactly where I want to be and not having our resources I in our reserves wasted.
Fat low commodity prices you know, that's we think that puts us in a uniquely strong position and will really benefit our shareholders meaningfully overtime.
Thank you for your question, Brian as a reminder to our phone audience. Please return to your handset prior to pressing star and one to be sure that your signal does reach our equipment.
Limit yourself to a single question on a single follow up and if you have further comments or questions you're invited to recycle with star in one well next we'll hear from Derek Whitfield that's people.
Oh, good morning <unk>.
Morning, Derek.
Perhaps for a Daniel you referenced <unk> elements and you're prepared remarks regarding Q.T. production.
What's your sense on at these curtailments impacted your production and more broadly are you aware of any material curtailments of of production at present and I. Certainly asked this question understanding of the challenges associated with Ford got it in this environment.
Sure things Derek and.
So number one I guess, we're pleased as I mentioned that March we had volumes Ah averaging access and 5500 be a wee per day. So we're end during this period in a relatively strong position with both existing volumes is as well as significant line of sight.
And ducks.
We have not seen any curtailments.
Ah across our position to date and as I also mentioned you know hooks ranch, we saw a at a flat level two merger nearly flat level come March which we we view is very favorable for hooks ranch production as well as you know, creating a solid base for the stack.
Quarter.
Great and that's my follow up well M.A. is likely of secondary important for the current environment I wanted to ask if you could share your views on the emanate environment and both still flow and sell our expectations.
They could present, a mere two medium term opportunity for your business.
Sure and as you know there that's the subject I enjoy talking about in the dressing show you know there has been.
<unk> of dollars invested as you know by private equity firms in putting together divisions in mineral in minerals companies and building minerals companies and knows businesses will need an exit overtime.
And so we see yeah, we see potentially over the medium term and probably you know less likely the short term activity ramping back up.
From our perspective, though one the salaries expectations remain robust and rightfully. So this is an asset class that's highly valuable yeah, where if it's if it's in the best areas. There will be activity overtime that there will be production overtime in like.
Growth over time.
<unk> expectations, you know will remain I think relatively high and there'll be patient.
<unk> Falcons perspective.
Typically you know we look at our business.
And I I really tried to very clearly lay out how we you know when we run our downside case that we see greed cash flow, that's equal to or occurring share price over the next five years at current strip pricing.
When we think of acquisitions.
It has to be fantastic, we have a great asset base, that's going to generate a ton of cash flow. Our net asset value is multiples of where we trade.
So for us to do anything it really has to be it can't just be a creative to the dividend or to free cash flow yeah anybody can die in a in this business of creative free cash flow asset given the decline profile <unk> well, we buy has to be intrinsically a creative across all metrics starting.
With net asset value per share of the quality of the asset the operators as well as a free cash flow. So when we think about our business. We think about the value of that we have in anything overtime that we would do would have dad meaningfully to to what we have.
[noise], Jeff Grampp with Northland. Your line is open good morning.
<unk>.
Morning Jo.
Was curious Daniel you, bringing up the Marcel gas exposure that that you guys have <unk> are you seeing any prospects of development on that in 2020, and maybe related topic is that a potential you know acquisition market for you guys do you spend any time up there is a <unk>.
Dominantly Eagleford for any you know acquisition you know development that might tell you my <unk>.
Yeah, So we actually have rigs running on our position by the operators that you would expect the biggest in the best we expect a number of wells on line late this year and you know I bring it up as.
As you know real upside if if gas prices move higher.
But yeah, we have activity on our position currently yeah, we've steadily seen activity as far as acquiring additional minerals up there we have a fantastic landeene very small as a reminder, we only have 10 fulltime employees, but.
They have actively and they've been very active in the market for years in Appalachian. It's a market, we keep very close tabs on.
Got to think thanks for them from I follow up was curious if if we look at your duck inventory.
Do you know you know depending on the level of granularity you want to get into on the call, but how that kind of breaks out in terms of of operators or maybe at least directional is it any different from kind of traditional weightings that maybe being heavily conoco waited and then maybe a combination of you know Devin B.P.E.G. and those types of folks.
Just confirming the question you said the operators you know the breakdown of operators in line of sight.
Yeah, I I was specifically curious on on Ducks, but if you don't have that off hand, if you want to look at <unk> level that it works too it's.
I mean, it's.
I'm looking at the this out of grows to end on that basis, but focusing in on the net side. You know, it's it's quite consistent with how our business break breaks down which is you know roughly 40% conoco and yeah call. It a 20% B.P. Dab.
20 per cent E.O.G.
Data that's perfect I person at the time.
Thank you very well.
Gentleman. Our next question will come from Kyle May at Capitol One security.
The morning. Appreciate you you haven't seen any production shut ins yet, but just wondering if we can kind of revisit you're you're near term expectations and if you could give us any color on perhaps your anticipation for potential production shut ins and second core or or any thoughts there.
Sure morning, Guile so.
And then again I want to emphasize just yeah first what the operators, but our operators have highlighted is both kind of go any O.G. their U.S. production <unk> really between three O.G. thinking about the Delaware and potentially the eagleford neither they.
I haven't been the specific yet I and then Conoco Phillips talks about the lower 48, Yeah, certainly I would imagine a disproportionate shot names in areas like the Bakun Ah and Eagleford, the eagleford sets out very well given our proximity to the market.
So just by by way of where our assets are located in the pricing. We receive we think we're reasonably well position.
Number one number two you know exiting exiting March with 5500 barrels of oil equivalent approximately.
That a a nice mark and if you kind of look across what they're they're saying across the U.S. broadly you know 20% to 30% over those couple of months I think I've seen reports Ah and Ah suggestions that it's <unk> producers are simply looking to shot in.
Yeah and May in through June and people expect almost all of all of oil to be back on line that is no more curtailments beginning in July I think Goldman at a report out either last night or this morning, suggesting 1% of total U.S. production curtailed beginning in July.
So yeah, I think we're extremely well positioned as I said, we yeah. If we had 20 per cent of our production curtailed in May and June.
That would be yeah, reasonable and frankly I would be pleased to not have sold our oil led at the price levels and then dad the benefit of that production you know coming back add full levels and some even suggest pressure adopt levels above where they had gone off line into a positive.
Environment, you know puts us we think in a very good position that stable production in the in the second half of this year, coupled with <unk> completion activities and 118 wells that they anticipate turning in line and then the 1.71.
That we have behind that were yeah, we feel pretty good about where we're headed late this year in into 2021.
Oh, I guess one other point tile is you know the even strongest commitment you know really is conoco, yeah, who continues got operate for rigs.
Including across our position.
In an environment, where you know they were curtailing they're building Ducks day highlight the fact that they're building ducks because they see the benefit of the quick turnaround in bringing those wells online through the recovery.
Very good for us.
Thanks, Daniel that's really helpful and as my follow wondering given the the current environment, if your thoughts or perspective around hedging has changed at all.
Thank you.
So.
Or and our thoughts really haven't changed in the sense that.
We're constantly considering in evaluating the best way to maximize value to our shareholders and so yeah, we have.
Constantly and we've we've historically look good hedging reconsidered hedging and you know as prizes as prices foul yeah. We're happy we didn't edge as prices fell prices are now in the strip is now in a better position and so that's very good we consider it.
Yeah, we consider and they're looking at it.
Very closely.
And we're gonna do whatever it is to to maximize but we think is the value to our shareholders.
God.
And our next question will come this morning from peers Hammond with Simmons energy.
A good born and then thanks for taking my questions and Daniel Thanks for the helpful color on the answers just now on the curtailments.
Brian My question is do you have a target further per cent drawn on your revolver that you would like to achieve and I guess set another way at what level that do you want to reach before you can increase the payout ratio for the dividend.
Oh, it's only the first part of them could could already Daniel for the second part. So the answer is we don't have a specific in our target about where we want our our D.O. balance to be other than we want to maintain modest leverage going forward to hang on I've been committed to that over the life of the business do you want to speak of the dividends.
<unk>.
Yeah, and we're really different and and I would differentiate us from certain peers.
Who have leverage of size you know what we have a net $43 million of dad under yeah. I think it was 0.96 times leverage our balance sheet is strong are payout ratio is.
Entirely focused on independent.
Stability of economic and energy markets. So as soon as we see some stability there that's when I would expect us to return to the 90% pay out ratio hopefully that will be the next time, we speak on in earnings call as we move into August, but we just need to move through this this.
Challenging period for the U.S. in the World.
Okay. Thank you then you know and Brian and then my follow up Brian or do they Daniel can you tell us about the mental so she bought in the corridor.
Sure you know very small $2 million we paid.
I think about a third of the price that we've historically averaged on a price per net net acre basis, and so we're going to be extremely cautious and disciplined in buying any minerals, we have that as I said, a very small team, but very good dean.
And we're engaged in the market and to the extent there opportunistic.
Places we are to buy minerals, we are playing very selective offsets.
Great. Thank you very much.
Thanks Bears.
Our next question Gentleman will come from the line of David Snow Energy equities incorporated.
Hi, Good morning, Yeah, I was going to ask about that a little acquisition too. This breaks your hiatus. It was a initiated to protect the leverage of the hooks ranch and I'm curious so you know how what the.
Find more of these a burden s. underground in this distress market that would be possible for you to acquire given your very frugal position and cash management and what what the gross acres are and just from work.
Run a quality operators and that kind of thing on that deal you just did.
Sure. So we are frugal, we consider that to be an absolute compliment when you have an asset base like we have that has the inventory that we have.
<unk>, we think being.
Frugal is the right approach the asset quality is in line and I don't want to be overly specific but the as the quality is in line with our current position. It's in our backyard operators are I imagine yeah highest quality operators.
And we will continue to.
We will continue to look at add a those opportunities. This dig caliber 2000 gross unit acres.
It is you know it is a very very it was a very good deal and I think you're going to see.
Opportunities like those but it is going to take time people, you know and I've heard others say three to six months and we know.
And mineral owners need to see their most recent checks to understand the drop in their cash flow, but but we have.
I mean, we have a very strong relationship in the area. We operate with the communities we operate in and when we won't get the mineral owners is our partners as they often times real retain portions of the minerals. So we're here to partner with them, Yeah, and they look at it I said as a potential source.
If they need money or for whatever reason you know and we're here to be partners with them. So we'll continue to be frugal will continue to be engaged with our our communities and they won't see it may take you know more time to see deals like this but.
We're hopeful.
Just one last question a rule of thumb is.
And in the past any way that rowdy acres are worth three times working interest on land.
<unk> pardon little label here next from Sean car at free from Capitol.
Yeah.
Gone.
[noise] and hearing <unk>.
Well, Sir that star and one if your line had dropped we'll move forward next to wealth Fitzpatrick at Sun Trust.
You guys How're you doing.
Doing well how are you well good wells.
Good all things considered I I apologize in advance if if if he gets hit on any of this earlier, it's obviously a busy day the the slow down in acquisition shall we see that it's kind of a run rate for this year, obviously, a great price, obviously, you'll have a little bit more capital to play around with with a a the lower.
Distribution, so should we should we kind of model that flat or maybe it does that even accelerate if you can pick some more stuff off of that type of of return.
I think.
<unk> on the side of conservatism Welles is the right approach you know we are as David the previous person asking questions mentioned, we're frugal, we think and we're very focused on her balance sheet as anybody and everybody should be across any and in this.
<unk> at this point and so from a modeling standpoint, if you want to assume flat. That's fair. If you want to assume zero, that's fair as well I will be opportunistic, but understand that for us to buy something.
It really has to be fantastic, knowing how strong our current asset base is and how frankly undervalued, we see our current equity.
Okay, perfect and then.
Any thoughts on the announce conoco shut ends a does that impact you and and be held how long can can one of your or at least sores or leave resource yeah shut in wells and declare force measure before before that Lisa actually lapses and you might have a revenue.
Opportunity on the on the bonus side.
Sure well then then we did address that earlier, so yeah, but I'm happy to answer it again, but take a look at the transcript yeah to confirm consistency.
Essentially yeah. We're we're very pleased with our producers not selling or reserves at depressed levels. We have not seen any shut ins to date, we're exiting yeah. The first quarter I at 5500, plus B. a we'd per day. So we're starting from a very strong.
Position yeah.
Konica when neo G. has not been specific with respect to where they may shot in certainly for someone like kind of go the block and obviously seems much more attractive given the favorable pricing we receive a given our location premium yeah. So I think we're.
In a very favorable position I think both of you know considered you know <unk> potentially are are going to shut in in certain areas in may in in June.
Then we expect to see those volumes really come back as they've disgusted.
And that puts us in we think a very good position for the second half coupled with <unk> completion activity Conoco's Conoco's continue drilling a with four rigs including across our position.
In building Ducks, and then the 1.71 net ducks that we have on our position plus the additional line of sight wells. Yeah. We think we're in a pretty good spot.
[noise], our next question or before we take our next question I'd like to remind our phone audience than it is star in one if you would like to ask a question natural here from Jeffrey Campbell at two brothers.
Oh, good morning, Daniel and Brian It's good to hear voices, some you're doing pretty well are you wouldn't be here and the same for me.
<unk>.
Great.
Good to tell it was just <unk> yeah, you that was the restrain first quarter or 20 pound made in part to enable some level of pay out during the expected Prof period during the second and third quarter.
Oh right I mean, we think yeah, I think we would've been able to maintain Ah Ah we would have maintained a nice dividend during those periods as well, regardless, but yeah I I think one it it has to do with being prudent managers in always protecting the balance sheet a special.
When you're in the midst of a global pandemic.
So one it's it's just being protective into yeah. We certainly think you know when you look at at this this conservative payout ratio that puts us in a nice position.
For you know 2223 in the remainder of the year from a dividend standpoint.
Right.
And my follow those your overall Nat gas production is not insubstantial and prices are training higher I. Just wanted to do you have any kind of a revenue sensitivity for.
Upwards of moments in mind Mex prices that you could share or we could get that off line I feel I haven't had.
Yeah I mean.
We why don't we follow up off <unk> off line on that we have 30 per cent as you point out 30% of our volumes.
Or from natural gas. So it's you know it is it is quite helpful. If we see a natural gas prices trend iron and you know.
Is of course people are now, noting does offer in a way a bit of a hedge against oil prices with the associated natural gas that comes from development oil wells. So a bridal follow up with you yeah for a specific sensitivities that's not hard.
[noise] I Mr hers, Mr. Gunderson at this time, we have no signals from the audience I'll turn it back to your both for any additional or closing remarks that you have.
Right. Thank you Jan I. Thank you everybody for joining we wish you all well be safe and please try to help another person today.
We'll see Pearson by.
[noise], ladies and gentlemen, and stuff.
Thank you all for your phone your participation you may notice connector lines I mean, I hope that you enjoy your weekend.
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