Q4 2020 Magnolia Oil & Gas Corp Earnings Call
[music].
Good day, and welcome to the fourth quarter and full year 'twenty 'twenty earnings release and conference call.
Participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation there'll be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note that.
Event is being recorded I would now like to turn the conference over to Brian Korea. Please go ahead.
Thank you operator, and good morning, everyone welcome to Magnolia oil and gas is fourth quarter and full year 2020 earnings conference call.
Operating on the call today are Steve Chazen, <unk>, Chairman, President and Chief Executive Officer, and Chris Stavros Executive Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that may cause actual.
<unk> to differ materially from those expressed or implied in these statements additional information on risk factors that could cause results to differ is available in the Companys annual report on form 10-K filed with the SEC a full safe harbor can be found on slide two of the conference call slide presentation with a supplemental data on our website you can download Magnolia is fourth.
Quarter 2020 earnings press release, as well as a conference call slides from the investors section of the company's website at Www Dot Magnolia oil gas Dot Com I will now turn the call over to Mr. Steve Chazen.
Thank you Brian.
Good morning, and thank you for joining US today My comments. This morning will focus on how we plan to employ the characteristics of our business model to drive shareholder returns and update us on a update you on our giddings drilling progress in activity.
Chris will review, our fourth quarter and full year results, including year end 2020 reserves provide some additional guidance before we take your questions.
When starting the company a few years ago, we developed a business model with characteristics that we thought would appeal to generalist investors. A model was supported by maintaining low financial leverage philosophy, a disciplined capital spending sufficient for moderate growth.
Generates significant and consistent free cash flow and strong pre tax margins, we limit our capital spending to within a 60% of our EBITDAX, which also helps install a financial discipline throughout the organization.
Chart on slide four of a conference call presentation shows how we've allocated our operating cash flow since our inception in 2018.
While drilling completion capital is average 60% most of the remaining 40 per cent of the unallocated cash flow as it used to enhance value on a per share basis EBIT through acquiring small bolt on oil and gas properties or repurchasing our shares.
Also a build a significant amount of cash over this period last quarter I indicated that we ended the year with a cash flow balance around $200 million.
And this has now been reached we no longer need to continue to build cash and as a result, more cash will be available for share enhancing activities.
<unk> principal within our business model of limited drilling completion and infrastructure spending within 60% of adjusted EBIT Dax will not change we expect that most of the unallocated cash flow will continue to use either for acquiring small bolt on property, a repurchasing magnolia shares and the absence of acquisitions the available.
Cash flow will be used to repurchase our shares we repurchased two 4 million shares in the fourth quarter approximately 1% of our total shares outstanding.
We plan generally to continue this pace of share repurchases, which will reduce our overall share count by 4% each year.
Aligned with this plan our board recently increased our share repurchase authorization by an additional 10 million shares and we currently have approximately $13 5 million shares available for repurchase under the authorization.
Just for clarity, we view as a 1% is not the cap in this but it could be.
Pending on the stock price and how much cash we have it could be more than the 1% per quarter.
In addition to these value enhancing activities Magnolia intends to begin paying a cash dividend dividend in mid 2021. The first small fixed semiannual dividend will be paid after announcing our second quarter results. The second payment will include a fixed dividend plus a variable component to be paid around this time next year.
Based on a full year 2020 financial results combined with a current business outlook.
Total cash dividend outlook outlays will be capped at 50% of annual reported net income.
Michigan, a cash dividend at this time demonstrates our overall confidence in executing our business plan and the strength of our underlying assets. The debit is also additional element of our plan to focus on share enhancing activities. This will continue to allow us to deliver a moderate production growth, while spending within 60% of our cash flow oil.
Providing flexibility to allocate the remaining unallocated free cash flow in a manner that is most accretive to shareholder value.
Turning to our operations, we made significant strides last year in advancing the giddings asset from appraisal mode to a multi well pad development.
Turning to slide five as a presentation, our giddings assets reached record production levels in the fourth quarter total production in Giddings increased 39% with oil production rising 70% a sequential quarterly basis.
Results in the fourth quarter are still in the early stages, a reflecting our development look like for this asset.
Efficiencies for both drilling and completing wells continues to improve resulting in faster cycle times and lower overall well costs. The day, we have drilled two or three wells per pad going forward, our plans to increase some pads four wells and we may consider a few larger pads.
This should help continue to improve efficiency in the field, we expect total well cost to average approximately $6 million during this year.
Importantly, well productivity continues to improve as a six new wells, we brought on line in the fourth quarter and our initial core area performed better than the average of the previous 14 wells drilled in this area with total of 20 wells online for the last 90 days and a 70000 acre initial core area. These wells have averaged 800.
A <unk> 40 barrels a day of oil and $4 7 million cubic feet a gas a day. This production rate has increased by 4% from the prior level, a 783 barrels of oil per day, and $4 6 million cubic feet a gas per day with a previous 14 wells.
Additionally, we completed two wells in Giddings located in area of about 20 miles away from our initial core areas that were expected at the time to be gas here. These wells had an average 90 day production rate of 543 barrels of oil a day seven 3 million cubic feet a gas per day, while these wells it proved to be gas here.
Amount of oil production was better than we had originally estimated this area could provide for additional high return development potential over time.
Although a product prices have improved significantly from 2020 levels a disciplined policy around our capital spending remains unchanged. We're currently wanting running one development a rig in the initial core area a giddings the improved efficiency of getting us as provided us with the ability to drill a at a base of 20% to 24 wells.
Per year. This is basically twice what we were running last year. We also plan to complete 10 operated ducts in the Karnes area, mainly during the first half a year and are expecting a modest increase in our non operated activity in karnes.
Our 2021 D&C capital is expected to be doing 50% to 60% of our adjusted EBIT <unk> EBIT Dax, although a current product prices spending is likely to be in a lower half of this range.
I think I can say that we are running way behind that 50% level.
This quarter.
And probably into the second quarter too so.
We're as.
As we build out in the back half of the year.
It's going to be difficult to catch up.
In summary, we ended 2020 with a very strong operational financial performance, providing us with solid operational momentum that should benefit us during 2021.
We are optimistic on the outlook for a full year a development in giddings, we remain focused on activities that enhanced our per unit metrics, while further lowering our F&D costs and we're doing our reducing our G&A costs through improve our pretax margins and earnings per share.
Our plan to spend 50% to 60% of our adjusted EBITDAX on drilling completing wells is expected to result in mid single digit year over year production growth a combination of mid single digit organic growth and reducing our share count by 4% a year would result, a production per share growth from approximately 10% per year.
<unk>.
And that doesn't include the dividend payment I will now turn the call over to Chris.
Thank you, Steve and good morning, everyone as Steve mentioned that plan a review some high level points from the fourth quarter results and convey some thoughts around our year end 2020 proved reserves and provide some guidance for 2021 before turning it over for questions.
Starting on slide six Magnolia is fourth quarter 2020 financial and operating results were very strong the company generated total adjusted net income of $39 million, a <unk> 15 per diluted share and well ahead of consensus estimates.
Fourth quarter reported net income was <unk> 16, a share.
Our adjusted EBITDAX was $98 million in the fourth quarter with total drilling and completion capital of approximately $40 million D&C capital represented 40% of our adjusted EBITDAX for the quarter and as a percentage was better than our earlier guidance due to strong stronger production higher product prices improve D&C cost in giddings and lower non op.
Capital.
D&C capital for the full year of 2020 was 58% a adjusted EBITDAX and in keeping with our business model. Despite the much weaker product prices during the year.
Magnolia started bringing wells online during the fourth quarter. After an eight month hiatus due to a much weaker product prices last year total fourth quarter production grew 12% sequentially to 66000 barrels of oil equivalent per day.
Production in Giddings grew 39% sequentially with oil production at Giddings growing 70%.
Total production exceeded the high end of our earlier guidance as did production at Giddings did a better than expected well performance.
Looking at a quarterly cash flow waterfall chart on slide seven we began the fourth quarter with a $149 million, a cash and generated $90 million a cash flow from operations before changes in working capital.
During the quarter, we sold our equity interest in the Ironwood gathering system at Karnes per cash proceeds of $27 million.
The transaction has no impact to our operating our transportation costs at cards.
Our D&C capital included leasehold costs, including leasehold costs was $41 million during the quarter, we repurchased two 4 million shares of our common stock during the fourth quarter for $60 million, a approximately 1% a our total shares outstanding.
Including the recent additional 10 million shares authorized for repurchase by our board. We currently a 13 5 million shares remaining under the total repurchase authorization we.
We generated $44 million a free cash flow during the fourth quarter and ended the year with a $193 million a cash on the balance sheet.
As Steve discussed and based on the expected uses of our free cash during the year, including small including potential small bolt on property acquisitions share repurchases and a dividend payment in mid year, we do not plan to build significant amounts of cash during 2021.
Our $400 million a gross debt is reflected in our senior notes, which do not mature until 2026, and we do not expect to issue any new debt.
<unk> has an undrawn $450 million revolving credit facility and a nearly $650 million a total liquidity is more than ample to execute our business plan.
Condensed balance sheet liquidity as of year end 2020 are shown on slides eight and nine.
Turning to slide 10, and looking at our unit costs and full cycle margins. Our total adjusted cash costs, including interest are under a $11 per Boe.
Our DD&A rate has declined to roughly $8 per Boe helped by getting the well costs, which have declined by almost 30% as we were drilling wells twice as fast compared to a year ago levels.
Well productivity at Giddings has continued to improve and so we're seeing better results with lower costs as is evidenced through our low F&D costs are full cycle costs for the fourth quarter of $18 75 per Boe declined by 42% compared to last year's fourth quarter.
A full cycle margins doubled in the most recent quarter compared to fourth quarter 2019, and despite lower product prices.
We would expect our margins to rise significantly.
Based on current product prices and maintaining a full cycle cost structure at around the current levels.
Turning to our year end 2020 reserves in D&C costs on slide 11, Magnolia had a very successful organic drilling program during last year, a drilling program added 34 million barrels of oil equivalent after adjusting for acquisitions and excluding price related revisions are 2020 capital for drilling and completing.
<unk> wells totaled a $195 million in 2020.
Resulting in a proved developed proved developed F&D cost of $6 41 per Boe and replacing 135% of our 2020 production.
This F&D level is supportive of our current DD&A rate for our asset base.
Turning to guidance for the full year of 2021, we continue to expect our total capital spending for drilling completions and facilities to be between $50 to 60% of our adjusted EBITDAX for the year.
As Steve noted a current product prices are a percentage of capital outlays would likely be at the lower portion of that range. We expect to run one operated rig in giddings and plan to drill and complete between 'twenty to 'twenty four wells during the year on multi well pads and primarily in our initial core area.
We plan to complete 10 ducks in a karnes area, most of which should be brought online during the first half of the year non.
<unk> operated activity in Karnes is expected to increase modestly compared to 2020 levels.
We produced $61 8000 Boe per day during last year, and our 2021 capital and activity plan is expected to deliver mid single digit production growth on a year over year basis, a fully diluted share count of approximately 255 million shares in the fourth quarter, a 2020 declined by nearly 3% from.
The prior year.
We would expect our fully diluted shares to continue to decline through this year as we repurchase our shares.
A combination of mid single digit organic production growth and the continued reduction in a fully diluted shares is expected to result in production per share growth of approximately 10% this year.
Looking at the first quarter, we expect our D&C capital to be approximately 50% of our adjusted EBITDAX, Although as Steve said, it's running a bit lower right now.
The majority of our operated activity during the quarter, we will continue to be focused on giddings.
In Karnes, we plan to complete we plan to start completing some of the ducks in a latter part of the current quarter with most of the production benefit seen in a second quarter.
Production in the first quarter is estimated to be approximately the same as the fourth quarter levels, which incorporates a rough estimate a downtime due to recent impacts a cold weather in the field.
In addition to the weather related impact on production. We're also likely to see a modest amount of additional costs associated with these outages related to repairs and other items.
Oil differentials should be around $3 per barrel discount to NIH and similar to historical levels in.
In summary, Magnolia is well positioned financially into this year and we expect a positive operational momentum gained from our giddings yourselves last year to continue to benefit our results into 2021.
We're now ready to take your questions.
Yes.
We will now begin the question and answer questions.
A quick question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up.
Thank you Keith.
Can you tell me a question has been a J I.
I would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble a cross check.
A question comes from Sal <unk> with Goldman Sachs. Please go ahead.
Good morning, and thank you for taking my questions.
My first question is on free cash flow allocation framework.
You had mentioned that given your strong balance sheet.
We have a good result in bidding.
<unk>.
Bulk of the free cash flow towards share repurchase dividends and small bolt ons.
A big acquisition.
You provided a framework in terms of how we should think about free cash flow locations worldwide.
How are you thinking about.
Potentially between.
The flick between share repurchase and dividends.
So as we.
As we look at it.
<unk>.
So historically, we had a.
Fair percentage of the cash flow went to acquisitions.
We really don't need acquisitions at this point they are generally dilutive to us.
Because our finding cost is so low that we couldnt duplicate that kind of a finding cost in an acquisition there might be some some acreage or something near our staff, but to buy a producing.
Assets.
<unk> dilutive to our numbers.
So you should you should think that there might be some small things there I don't know how much because but there's nothing right now.
We're probably we're not going to build a new cash.
And so.
There'll be a small of what we would view a sustainable.
Two semi annual payments of dividends.
Doug.
Our interest expense is only about $25 million $26 million a year. So we can out of whatever you want to say it is our EBITDA.
So I think of it.
It'll be a small number relative to that.
At the end of the year.
A year from now we'll look at how much in addition to the semiannual dividend, we need to pay I don't have a fixed number really depends on how successful we are in reducing our share count.
If we can if we can maybe talk down the stock or something.
And buy stock on weakness or that sort of thing.
We'll be looking to do that in size.
Otherwise otherwise, we'll do it at a 1% quarterly rate so I think we're.
We don't really know how to answer your question of how big a dividend could be.
Yes, we would prefer to put the money to work and basically increase in the stock price.
But.
We also see a need for dividends.
Going forward, but.
It's a current product prices hold.
There'll be a fairly sizable.
A special payment over and above the base dividend a year from now.
So we're not going to hoard cash we got plenty of.
Plenty of cash for what we need at this point. So it just depends on how successful we are in a share repurchase.
The 1% number one per cent a quarter you should view as a minimum number.
Not not the maximum.
I don't know if thats helpful or not.
That is super helpful. Thank you.
My follow up is on the double.
GAAP results.
Highlighted attractive F&D costs to a sub $7 per Boe to add proved developed reserves in 2020 metal cost in giddings is expected to be a wood.
In 'twenty one versus 2020.
Wanted to get your thoughts on 'twenty and 'twenty one expectations.
With respect to productivity and cost you highlighted that there's potential for both of them to improve here.
And also if you can provide the oil mix after a day.
Group net revenues.
Added in 2020, what is the oil make some of those results.
We'll get somebody to be filed in a.
Okay here.
A close of business with current Crystal Chris will give you as a percentage share in a minute.
A.
We think the.
The finding cost for us.
The mix that we ultimately anticipate between.
Between.
Giddings in Karnes, what we see.
Similar to <unk>.
And what it was this year.
We give you.
One year of pods.
Basically this year for funds.
You could look at that number and come up with a sort of a very conservative number from.
I'm looking at what we say, we're going to add this year.
As we move.
From a.
Those pods moved a PDP.
So I think we sort of tell you that we'll give you a year this oil number in a minute.
It's a.
We can give you. The total proved reserves we're about we're about 45% oil I don't have the PDP breakdown on oil we can reach out to you after the call.
That would be helpful. Thank you so much.
Anything else.
The next question comes from Seth <unk> with Jpmorgan. Please go ahead.
Hey, guys. Thanks for taking my question.
I guess first you guided to about 5% to 8% total production growth in 'twenty one.
Most of your activities in Giddings, but you do have the 10 Ducks and guard cards in the first half, which will be able a oily or I guess, what would that imply for oil growth on a year or an oil mix for the year.
And to some extent it depends on how we drill wells.
A.
Because we can we can sort of manage that almost anything we want.
So.
Okay.
So.
I think for planning purposes, you could use the fourth quarter numbers.
Percentages as a guide but understanding that.
Gas.
For the fourth time in my 40 year career gas prices were to be decent.
We have a lot a gas locations we could drill.
And in parts of Giddings.
And we may drill some more of these wells the so-called gas wells that produce 500 barrels a day a oil.
Depending on where we are in a in the second half a year, we're laying out our program for the back half a year and we don't know how much we're going to spend a development and how much in exploration.
Prove up additional areas and that's why we're sort of reluctant to talk about.
The numbers, obviously, if we spend it all in development.
We would.
Yes.
These.
Would be on the high end of the.
Outlook.
The guidance, we're giving you.
Maybe through the guidance.
Thanks.
So I guess, that's when you're talking about drilling $20 to 24 wells in giddings and in 'twenty one.
A singer.
It's a single single rigs results.
Okay, So thats not necessarily the plan for 'twenty one.
No and it sounds like Youre, not ready to give a split of kind of a development between the core area and the day.
Delineation area Youre more waiting to see what happens with commodity prices in the back half of a year.
If commodity prices and the.
We have to a a plan I mean.
We don't want to waste money.
And so.
So we want we want to spend on delineation of whatever you want to call it or exploration. However, you want to describe it.
That's a thoughtful and doesn't overwhelm the program and confuse people so.
We didn't we didn't think we our original bottom was too was to add a rig at the beginning of the year drill a pad in karnes and then and then going to.
Drill in Giddings with a giddings results have been so strong.
I think with a karnes wells are not competitive.
And so.
We're rethinking how we're going to manage the back half of the year in a way that.
As thoughtful.
Got it thanks for the color that's all from me.
The next question comes from Steven Becker with Keybanc. Please go ahead.
Hey, guys just wanted to ask about the six new wells at Macquarie.
Is there anything thats really driving that a better performance there.
Thanks.
Oh.
Yes.
Over time, we learn how to drill and complete the wells better.
Theres nothing physical about it.
Its simply we.
We learn where to.
People tend to view all even in the Permian They tend to view all of this is the same from well to well it is really hard.
And so as you accumulate more data to become more efficient and deciding where we're and how youre going to complete the wells also make you pick better locations.
But it's fundamentally caused by.
By experience so it isn't really caused by anything line.
A phase of the moon or something.
But clearly less less drill time, let's drill time and a whole when you spend less time on a whole you get better results from that just a fact.
Okay, great. Thanks, that's all from me.
Thanks.
The next question comes from Dun Mcintosh with Johnson Rice. Please go ahead.
Morning, Steve.
I appreciate the color on the <unk>.
On the dividend and the share repurchase program I was wondering if you could maybe kind of give us some context for how you would prioritize those that at higher or lower prices.
A follow up you've taken out to 65 or 70, or maybe we have a pull back here.
If you're a 55.
When it comes to the dividend and the share repurchase where do you kind of stack those up.
Well.
We have some fundamental views about.
But the company's earnings potential over time.
And so if there's a pullback in oil prices.
Sure.
We obviously didn't plan for $60 oil going into the year.
Or whatever it is.
And so.
We continue to plan basically for a significantly lower oil price.
Get more cash.
We would prefer to use as a repurchase shares because that gives us more more growth per share.
There is no real we only have $400 million, a bonded indebtedness theres no real debt pay down and our interest expense is $25 million. So I just don't.
That's not a very likely use.
And so.
If we have extra excess cash.
We'd probably distribute that.
It's also I think useful to remember that the company as a purchaser of shares not a <unk>.
Hello, a shares and the management of our purchasers of share is not sellers a shares.
Sure.
Our goals are not necessarily to push the stock price up as much as possible.
Factors that a our goal our objective is sort of the opposite.
On the other hand.
I own a 7 million shares so.
My wife thinks dividends are great.
Okay. Thank you and then maybe just one operational question. It sounds like you are a pretty a.
Pretty enthused with what you've been able to get done a giddings you know in the past you've talked about preserving karnes inventory for higher oil prices.
First if you could kind of revisit that you know are we there today it sounds like.
You've got a pretty set plans for at least a first half of this year, but.
At what point would you know.
A rig back in karnes.
You understand that the karnes wells.
Don't compete with.
With the Giddings wells.
The finding cost is much higher.
And while a and the payback is similar.
So the rates of return are much higher in the Giddings wells.
And so you allocate your cash when we when we talked about this other plan.
It was it was less obvious leaves us obvious to us.
As long as that remains true.
That's what drives our whole planned as the free.
Returns if you will.
On the Giddings wells as long as they stay sort of like this we're going to be light on karnes.
And heavier on Giddings, and we're going to avoid doing acquisition.
P type acquisitions, because it doesn't compete.
If you have a industry that's.
Challenged over time shall we say you need to really be cautious about spending money just just for growth.
Just to add.
And not not generating real returns.
If.
Look at our EBIT calculation for interest and taxes, the DD&A rate is sort of like the <unk>.
The final cost a little bit more but sort of like it. So the earnings are actually real earnings for us and indicative of what the program looks like on an earnings basis.
And we're going to try to make that better.
Over time.
We don't want a degrade that either but.
Just a thrown a bunch of money.
At stuff the Karnes wells, just like the Giddings wells, we'll be there for a long time low locations are not going away.
Okay. Thank you.
The next question comes from Noel Parks with Cowen. Please go ahead.
Good morning.
Good morning.
Actually.
Talking about where we are with.
Crude prices I think improved as much as they have I think were nearly 15 bucks more.
Now to where we ended the year.
I was curious about the non core inventory at good day.
<unk>.
In this price range does any of that.
Become a possibility.
Alright.
What inventory.
You cut out.
Alright, the inventories outside the 70000 a core.
Okay.
Yes, it does.
With a.
A significantly higher oil prices does any of that come close to being in play now.
Well, we drilled two wells a way outside.
And those two gas so called gas well. So those are clearly economic in this environment and there is probably more of it is also they had a lot of oil.
Almost 600 barrels a day a oil so.
Hi.
The short answer is you all.
There is but but on the other hand.
We're maximizing our returns per dollar and we're not going to run out of these high return locations anytime soon.
Great.
Sorry, if you touched on this already but are you hurt your long term planning for crude.
Are you sticking with sort of <unk>.
Mid forties.
As a.
As your baseline number or.
With a 44, 45% to 50.
$2 50, or so per gas.
Gas.
Okay great.
Alright, thanks, guys.
I wouldn't take those numbers as a bank those are his planning numbers I don't know.
Not a not a great record except in gas.
Great prices.
So there is no fair enough fair enough. Thanks, a lot.
Thank you.
The next question comes from Nicholas Pope with Seaport Global. Please go ahead.
Good morning.
Good morning.
I had a question on you.
Lease operating expenses, there was a lot lower than a than I was expecting to look great for the quarter.
<unk> seen a lot of other operators.
It's kind of activity started to restart in the second half of the year that number climbed up with Workovers and everything else just activity ramping up.
<unk> dropped a lot from from third quarter, and so I was hoping you could talk a little bit about where operating expenses are and as activity has ramped up where we I know you haven't guided to that necessarily but like where should we expect.
Third quarter and fourth quarter that day.
We expect a forward.
So in the.
The workover activity.
As a sort of a real it comes and goes and it makes a numbers lumpy.
But the other point is the production is up considerably so the cost per Boe.
<unk> come.
Come down.
<unk>.
We also made some when we went through the valley of death.
In the second quarter last year.
So we looked at every nickel we were spending on production.
And we found some things that we should a diamond we didn't do that we've now done that.
So right sizing compressors and that sort of thing.
Fundamentally lower.
The number so.
We work on what we can fix and we work on operating cost at work on G&A per barrel. Those are the things that sort of in our control and we keep our capital under control. So our finding cost stays under control. So we're very focused on this EBIT calculation.
So.
It could be there'll be probably a little more this first quarter from the.
Fixing.
As a lifestyle the wells, but not a lot more but a little more from that in production. It will be the same similar to the fourth quarter.
Otherwise it would've been up.
If it wasn't for the loss for the league.
Got it that makes sense.
And.
Two.
I wanted to clarify there was a comment about the iron that ironwood sales that.
Did you all see it.
You don't expect.
Transportation costs now.
It was it was really a Pat a passive investment that came with the original deal.
We didn't do anything to encourage somebody wanted bought out.
Who were running at before.
And they offered us the same deal we werent generating.
Any cash from it never generated net cash generate a small amount of earnings but not much.
And we thought.
We could use $25 million, a $27 million more than they could.
No.
We took it but if we did we didn't do any new contracts or anything like that because it was always partially own.
So we opened about a third of it.
And somebody else added so we always had a contract.
<unk> contract so.
And where the major customer on the.
The line so.
You would guess that we would know what our activity would be and maybe better than somebody who just bought it.
Alright.
That's all I needed I appreciate it. Thank you. Thank you.
As a reminder, if you have a question. Please press star then one to be joined into the queue.
Next question comes from Neal Dingmann with <unk> Securities. Please go ahead.
Steve My question do you have so much a good day and obviously a good acreage in Giddings would you all consider drilling partnerships or anything of a light yes, a net ordered maybe a bedside acreage more.
Generally I don't like to give away money.
Okay.
Sure.
So.
And.
The problem with dealing with the people who do that this is like the old I used to have a guy I work for.
Every time I got into some trouble you would say well if you are going to play it in the play in the mud you expect to get your boots Dirty.
So if you drill a.
Fooling around with these.
A guys.
Youre going to get your boots Dirty.
The goal is not to make the business more complicated.
We run a straight.
A forward simple business.
Yes.
If he brought somebody in heat and what some of the.
Yeah.
A $5 finding cost.
Yes.
So why would I do that even though it's stretched out over a long period of time.
The value is still there.
And.
I just don't.
I always.
When we started this three years ago.
Okay.
News, the only way anybody's ever made money in the oil business.
You could guess oil prices correctly, but I don't know anybody whoever was able to do that successfully over time, so put that aside.
Second thing would be that you've got optionality for a very low price that is.
In my.
In my prior employer that was a.
Thought process, there and hear a same thing I knew that there was a lot of oil in place in Giddings I didn't really know how to get it out a whether it would be successful or not but I knew I wasn't paying much for the option.
And to sell the Optionality.
To sum.
Some guy has been a dirty my boots.
Strikes me is not a lot a phone.
Well I like the answer and just what you and Chris are thinking these days on layering in hedges are just hedges in general.
Okay.
No.
I looked at other People's results.
And I noticed huge losses on mark to market on hedges.
Which goes to the principle that estimating predicting oil prices is difficult.
Especially about the future.
And.
Gas I've always had a sort of negative view and so we hedged a little bit a gas.
We don't really need to buy the insurance.
Yes.
Unique.
Oil fluctuates over time and.
And if you if you don't get when it runs off and you don't get to reap that youre going to wind up with below average prices I mean, I don't believe that some that Goldman Sachs is some sort of fold philanthropic activity, where a selling you a this protection for free.
He expects to make money, sometimes you make deep meeting.
But on average if you do it all the time youre going to get the below are a below average price.
For a busy selling protection.
Insurance and we don't need to buy the insurance, that's why we carry a low debt.
And the cash we went through the second quarter it wasn't fun.
But we went through the second quarter without really using.
Except for some working capital changes.
Not really losing anything we put a survive that.
So and hedged and we were unhedged, so I'm not.
Yeah.
Yes.
Some things that we know how to do.
Forecasting oil prices is not one of them.
Yes.
No I'm glad to hear is it seems like the banks only wants to make money on those thanks. Thanks, Steve.
Thank you.
I think we are.
Go ahead.
This concludes our question and answer session.
Conference has also now concluded. Thank you for attending today's presentation you may now disconnect.
Thank you.
Okay.
Yeah.
Okay.
Sure.
Yes.
Sure.
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