Q1 2021 Magnolia Oil & Gas Corp Earnings Call
Good day, and welcome to the Magnolia oil and gas first quarter 2021 earnings release and conference call.
All participants will be in a listen only mode.
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Please note. This event is being reported I would now like to turn the conference over to Brian <unk> of Investor Relations. Please go ahead.
Thank you Tom and good morning, everyone welcome to Magnolia oil and gas is first quarter 2021 earnings conference call participating on the call today are Steve Chazen, Magnolia is 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.
<unk> and other forward looking statements within the meaning of the federal security laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied on these statements additional information on a risk factors that could cause results to differ is available on the company's annual report on form 10-K filed with the SEC.
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 first quarter 2021 earnings press release as well as the conference call slides from the investors section of the company website at Www Dot Magnolia Magnolia oil and gas Dot Com I will now turn the.
All over to Mr. Steve Chazen.
Thank you Brian.
Good morning, and thank you for joining US today My comments. This morning will focus on our business model and provide an update on our giddings assets I will also provide some more details of our for our plans for the remainder of the year, Chris will review our first quarter results. We will provide some additional guidance before we take your questions.
Our business model centers around disciplined capital spending and generating significant free cash flows.
We limit our capital spending to approximately 60% of EBITDAX, which is intended to generate mid single digit production growth.
As we shift the balance between Karnes and Giddings, we're going to generate higher production growth with lower levels of capital as a result of the improved efficiencies at Giddings, we plan to spend somewhat less than $300 million to generate year over year production growth of 6% to 9% that is in the high single digits.
There was a reduced amount of capital is needed for this level of production growth provides greater free cash flow from magnolia to improve its per share value.
The Optionality is a free cash flow provides allows magnolia to improve its business. While also enhancing shareholder returns and contrast, some of our more leverage peers have to allocate their free cash flow to reducing their debt, we clearly don't need to do that.
First quarter was one of the best quarters in our company's short history, we had record earnings EBIT margins of 48% just shy of our goal a 50% and free cash flow of a $100 million further with no oil hedges Magnolia can benefit fully from the improved oil prices.
During the first quarter, we spent just $39 million on drilling completing wells or 26% of our adjusted EBITDAX to deliver a 3% sequential production growth.
Production of getting to the driver or a better than expected production volumes.
Giddings production grew 22% sequentially and was up 45% from the same quarter last year oil production in Giddings increased 32% sequentially and was up 73% from the prior year quarter.
Our significant production growth in Giddings is accomplished by spending only $91 million.
D&C capital over the previous four quarters, demonstrating the quality of the acreage well cost a giddings are averaging about $6 million per well and one rig can drill about two wells per month.
And our initial quarter at Giddings, we now have a total of 28 horizontal wells on line. The eight wells added in the first quarter on line with an average production rate we reported last quarter.
Current operated rig in Giddings continues to focus on the initial core area, where we expect to bring online 'twenty to 'twenty four wells this year.
We plan to add a second operated rig this summer to drill wells in both of our asset areas production impact. The added activity is not likely to be realized till later in the year the biggest impact reflected in 2022.
Even with the additional rig our drilling completion cost will be somewhat less than $300 million for the year.
Over the last couple of years, a large portion of our free cash flow has gone on and adding small bolt on acquisitions now.
Although we have a better understanding return generating our giddings development, we do not have any need for any large scale. M&A. This allows more of our free cash flow to be used for reducing our share count.
We reduced our diluted share count by 4% on the from fourth quarter levels, and we expect a second quarter share count to average about 245 million shares we were able to accomplish our annual share reduction go on the first quarter alone, but we still plan to buy back about 1% of our shares each quarter despite spending.
$88 million during the quarter on share repurchases, we still exited the quarter with a $178 million in cash.
In summary, we had a great start to our business in 2021 with the efficiencies and better productivity at Giddings, we were able to do more with less on.
All while maintaining our low cost structure and strong balance sheet plus capital is needed to grow production, resulting in more free cash flow to improve the value of our business with no need for any large scale M&A activity, our free cash flow a sharp focus on share repurchases combined with a small bolt on acquisitions.
Finally, we plan to pay our first semiannual dividend in the third quarter I'll now turn the call over to Chris.
Thanks, Steve and good morning, everyone as Steve mentioned I plan to review some items from the first quarter results and provide some guidance for the second quarter and full year 2021 before turning it over for questions.
Starting on slide four on the presentation on our website Magnolia delivered very strong first quarter 2021 financial and operating results. The company generated total reported net income of $91 million or a 37 cents per diluted share and adjusted net income of $94 million or <unk> 38 per diluted share both well ahead of concern.
This estimates.
Our adjusted EBITDAX was $151 million in the first quarter with total drilling and completion capital of approximately $39 million.
D&C capital spending represented just 26% of our adjusted EBITDAX during the quarter as a percentage this is better than our earlier guidance, mainly due to higher product prices higher production and lower non operated capital.
Total first quarter production grew 3% sequentially to 62 3000 barrels of oil equivalent per day also higher than our earlier guidance a production in giddings grew 45% from the prior year quarter with oil production at Giddings growing 73%.
From a year ago period.
Total production exceeded our guidance due to continued strong performance from some of our newer wells in giddings.
Looking at a quarterly cash flow waterfall chart on slide five we began 2021 with $193 million of cash cash.
Cash cash flow from operating activities during the quarter was a $118 million in cash flow from operations before changes in working capital was $142 million.
Our D&C capital outlays, including leasehold costs was $40 million during the quarter.
We allocated $88 million during the first quarter toward a share repurchase efforts, reducing our fully diluted share count by approximately 9 million shares.
Since we began our share repurchase authorization in the third quarter. A 2019, we have reduced our diluted share count by 25 million shares or by about 8%.
We currently have $12 6 million shares remaining under the repurchase authorization with.
We generated a $100 billion a free cash flow in the first quarter and ended the period with a $178 million a cash on a balance sheet.
$400 million a gross debt is reflected on our senior notes, which do not mature until 2026, and we do not expect to issue any new debt.
Magnolia has an undrawn $450 million revolving credit facility and our total liquidity of roughly $630 million is more than ample to execute our strategy and business plan.
Our strong balance sheet and consistent free cash flow generation as a relative advantage from magnolia, allowing us to improve our per share metrics, whereas cash flow from many of them more heavily indebted companies is consumed by interest cost with a need to allocate free cash flow to reduce leverage.
Our condensed balance sheet and liquidity as of year end 2020, a shown on slides.
Six and seven.
Turning to slide eight and looking at our unit costs and operating income margins, our total adjusted operating costs, including G&A or $10 47 per Boe for the first quarter.
Including our DD&A rate of $7 66 per BOE, which is generally in line with our F&D costs. Our operating income margins for the first quarter 2021 were $17 83 per BOE, a 48% of our total revenue compared to 29% and a fourth quarter a 2020.
Turning to some additional guidance for 2021, we expect our full year capital to be below our normal range, a 50% to 60% of adjusted EBITDAX, mainly due to higher than expected product prices and the improved efficiency of our capital program.
While we plan to add a second operated rig during the summer a total drilling and completion capital is still expected to be somewhat less than $300 million for the full year.
Cadence of our activity and capital spending is expected to see a modest increase in the second quarter and further increase during the second half of the year coinciding with the additional rig activity.
Overall, we expect to run one rig for the full year at Giddings with a second second rig drilling in both giddings in karnes with a mix a development and some appraisal drilling drilling at giddings.
Only a small portion of the production impact from the second rig will be seen late this year with most of the benefit not reflected until 2022.
2021 capital spending and activity is expected to deliver full year production growth of 6% to 9% compared to 2020 production levels of 61 8000 Boe per day.
Looking at the second quarter, a 2021, we expect production to average 66000 barrels per day, a sequential increase of 6% compared to the first quarter.
As we completed several ducks in a karnes area late in the first quarter most of the company's second quarter sequential volume growth will come from Karnes. This is somewhat a function of running one rig during the first half of the year in a matter of timing of drilling and completions between karnes and giddings.
Well a price differentials are anticipated to be approximately a $3 per barrel discount to <unk> during the second quarter.
Fully diluted share count for the second quarter. A 2021 is expected to be approximately 245 million shares which is 4% lower than the fourth quarter 2020 levels.
We expect our shares outstanding declined further through the year as part of our ongoing share reduction efforts as we expect to repurchase about 1% of our outstanding shares per quarter.
I wanted to provide some additional information that should be helpful for those modeling our earnings for this year.
Following GAAP rules, we do not expect to have any material federal tax expense for the remainder of the year as a result of a valuation allowance associated with the oil and gas property impairments taken during the first quarter of last year.
The valuation allowance not been created last year, our noncash tax expense for the first quarter would've been approximately $20 million on our total net income.
Simply put our pretax net income should approximate our total net income for the remainder of the year.
Further to this point, we do not expect to pay any material federal cash taxes during 2021.
As we have announced previously last summer we provided notice to <unk> that we are ending our operating services agreement with a company.
That process is now nearly complete as Magnolia has built out its organization filled out most open roles with Magnolia employees and taken over the interest provided services that were part of the original agreement.
It's a transition from inner gas contract workers to Magnolia employees provides us with better operational control and should reduce our cost structure. Once the process is complete and into the second half of this year.
We expect to take a onetime charge to be reflected in our second quarter results for costs associated with the anticipate a termination of the services contract within a reverse including costs related to modernizing some of our it systems and software.
We expect to see a meaningful decline on a cash G&A starting in the second half of the year as a result at the end of the at the end of the <unk> contract and plan to provide more details around this with our second quarter results in.
In summary, Magnolia is high quality assets and continued capital efficiency should continue to generate strong operating margins and sizable free cash flow, allowing us to execute our strategy and improved per share value of the business. We're now ready to take your questions.
Yes.
We will now begin the question and answer session to ask a question Press Star then one on a touch on zone. If you are using a speakerphone. Please pick up your handset before pressing the keys in.
In fact anytime your question has been addressed and you would like to withdraw your question Press Star then two.
In the interest of time, please limit yourself to one question and one follow up.
We will pause momentarily to assemble our roster.
And the first question comes from Zach <unk> with J P. Morgan. Please go ahead.
Hey, guys. Thanks for taking my question.
You're now guiding to capital spending a somewhat less than $300 million in 'twenty, one, which you talked about being less than 50% of EBITDA given that the 22 strip is currently around $60. How should we think about spending in 'twenty. Two is that two rig program for the full year a reasonable expectation at this point.
Yes, just more generally how do you think about the balance between production growth and free cash flow generation.
Yeah.
<unk>.
Oh.
I think you should view the growth.
Amount a growth do you have in your view and the capital spending is not on correlated.
And so if you think we're going to grow in the low end of the single digits.
The upper single digits, you should have significantly less capital than than $300 million and if you think we're going to grow at the high end of it will be closer to the $300 million.
So and.
And then at the same thing would be true next year.
I think the run rate of the second half of the year on capital, which would be roughly twice what we spent in the first quarter.
And on annualized because we're running one rig in the first quarter will run a mostly one rig in the second quarter and then as we go into third and fourth quarter, we were running too so that rate whatever it turns out to be a.
<unk> will approximate what you should see next year.
<unk>.
That will generate.
A more all things being equal more growth.
Then we're showing for this year because we're.
We're basically running more and more rigs.
So.
The range of six to nine range.
Actually reflects differences in our gas as to what non operated activities would generate since we don't really know that it's picked up some recently, but it's still not a lot.
And <unk>.
How many.
Exploration style wells, we drill in giddings versus development wells.
And how the exploration style wells turn out so that's really the variance.
No.
And because of the variance we built into this.
The variance around the high end is probably.
Somewhat greater.
Got it thanks for that and just one follow up you talked about paying no cash taxes for the remainder of a 'twenty. One just given that Magnolia is consistently profitable and generate free cash flow when do you anticipate becoming a cash taxpayer.
It's actually a more complicated question and you probably could guess.
A.
The b shares that we have.
Which was about 27% of a total shares.
Those are.
Physical theyre actually a partnership units and with a with a voting right attached to them.
And so they pay their own taxes.
Yeah.
And.
When they are sold they have to be converted to the a shares that's the only way to sell a more bought by us it doesn't matter a which we.
We get a step up in tax basis in that net provide shelter.
Going forward, so our ability to predict this depends on a number a b shares outstanding.
So it is true for sure.
That.
Given our level of spending and given the profitability of the business eventually will pay taxes, and while I don't enjoy paying taxes.
I agree is a person I've always dreamed of being the nation's largest taxpayer.
Okay.
So.
It's sort of a good thing.
Absolutely that makes a lot of sense Thats all from me thanks, guys.
Thanks.
The next question comes from Leo Mariani with Keybanc. Please go ahead.
Okay.
Hey, guys you alluded to the fact that.
In your prepared remarks here that you saw some some strong a recent getting dwell performance I was hoping maybe you could give us a little bit a color around that and then Additionally, just also wanted to ask about maybe some of the the wells that came on in 2020 at Giddings, particularly some of the ones early in the year on before you shut things down a.
Really the question around that is just how is the longer term well performance also looking at Giddings I think as you folks know historically Austin chalk well, sometimes haven't held up great over the long term I think obviously you guys are targeting a you know kind of a a better section here of a.
A better permeability. So maybe you could just kind of speak to those two things.
Well.
We said, we put on basically a wells during the quarter.
A ties to the drilling rate.
So.
That's what that is.
Virtual virtually none of them have been on for 90 days.
And.
So we don't put reporting 30 day production really isn't very useful for this because the wells tend to start out a little noisy and buildup over time, although it's been a little better lately.
<unk>.
You can actually see what the older wells are doing.
Because.
This is how many wells, we're putting on and the production clearly is not declining sharply.
So the answer to your question is a decline rate is much less say than karnes wells.
And so.
And the better wells.
A really quite quite strong in that period.
So it's but you can actually see it in the production because we're not drilling enough wells to make the production grow if we were faced with 50% declines in the other wells.
So.
It's been pretty pretty.
Remarkable.
Again, I think physically if you think about it.
Yes.
The historical fracking non and Austin chalk.
Basically just frac the chalk formation.
Against existing fractures.
Here, what we're doing is we're creating some some from the frac process, but we're also opening.
All existing fracture zones, and so you get it you get more.
Call a norm.
Non frac type production going into into the mix.
So I think the answer to your question is.
To some extent it's in the finding cost.
I mean, our finding cost is.
Less than $5 $5, a Boe for the wells.
And we and that continues to go down as we get more data.
So.
That will give you.
Putting the a royalty in there because a royalty is taken out of that give you an idea of what the wells are per.
Producing.
So I don't think its a.
I don't know I don't think its a great mystery that it's significantly lower.
On a current.
And produce a lot more oil over its life.
The reason we didn't talk about the eight wells is none of them had been on from the 90 days, but in a.
The ones that have a R.
A little above average above the average we showed you.
So you know.
No reason really to.
To put in a high numbers like that.
Okay and that's a.
Helpful color for sure.
Just a in terms of returning capital to shareholder is you guys have obviously been very aggressive with a buyback.
Clearly you've indicated that you can start to bring a variable dividend into play here as we get later in the year and in 'twenty. One. So maybe you can just talk about philosophically, how you allocate some of that free cash flow to.
Two the variable deal, but and you know versus a buyback and you also mentioned M&A opportunities with free cash flow. If I heard you guys right. It sounds like a mostly think it's a pretty small bolt on type stuff and not really anything chunky available.
So on anything chunky available that would compete.
That's a.
That's the issue I mean stopped to buy for sure, but it wouldn't it would be dilutive to our results and.
You might stumble into diluting yourself, but you Shouldnt go out deliberately to do that.
So.
So that's a real estate the principle of this.
That's why the large deals there are other people who have.
Not a different set of alternatives firms buying the shares are concerned.
We.
As far as a on the shares a concern.
As long as the.
We look at the earnings is sort of actually valuable information, our finding cost in our DD&A rate of approximately the same as Chris pointed out.
So the earnings we have.
A.
It's available for for.
Improving things.
That is reducing the shares or whatever and so if we're going to earn.
I don't know what.
Let's say, we just annualize the first quarter. So if we're going to earn a $1 $40 50.
<unk> stock in the 10 to $11 doesn't.
Does not strike this is expensive.
So as long as we can do that.
That will be the principal focus.
Over time as we reduce the share count the amount of dividends will go up because I view the share the dividend is sort of a lump sum and its just divided by the number of shares outstanding So while we might pay a little less than we might otherwise pay.
And this year, maybe next year.
It's a share count declines or just more money to pay more dividends.
Per share and Thats really the goal as long as a stock.
As clearly inexpensive.
A priority will be share.
And there are people, who don't want on oil stocks.
We don't want on us.
He has got a 1 billion shares can call up Mr. <unk> symbol glad we glad to a rate.
I'll take those shares off their hands.
Okay. Thanks, guys.
Okay.
The next question comes from Neal Dingmann with Truth Securities. Please go ahead.
Good morning, all.
Steve just following up on that comment you just had I mean I agree to stock the shelves do look cheap.
Again my comment was a question I guess would be is there a guineans returns our sales phenomenal. So I'm just wondering how do you when you interest sort of debate the ops versus the finances behind that when you think about stock buybacks versus.
The incremental getting delineation using that money for.
Okay.
The Giddings is there forever.
Sure.
Net locations don't go away.
Yeah. So.
So to some extent.
Since we don't sell shares as a company and no plans to do some.
Buy something with a bunch of a bunch of a watered stock.
A.
Our objective is to keep the stock on a reasonable range yeah.
We could spend more money and grow more on that.
Argument about that.
A.
But the locations will still be there and the opportunity to buy the shares.
As a.
Sort of now.
Not the most popular segment in the world.
And long as people have that view and we can buy the shares cheaply now we'll do that because we can always accelerate the drilling.
Yeah.
My objective is to spend the money is why these leads as I can.
Over the over time.
And.
A.
And so the business will.
Grow nicely.
Without pushing that and our finding costs will stay low if you start accelerating just to generate free cash flow.
For what and I don't know.
No.
Hugh.
We'll get we'll get sloppy.
Just the nature of oil oil guys.
So this is a way to control our costs.
And we can make the growth on anything we wanted to be.
And then so.
Oh hi.
High growth became more involved we could probably do that but.
But right now a growth of 6% to 9% and buying and 4% on the stock every year.
Strikes us as a rational.
Approach to generate a pretty safe 10%.
Per share metrics.
10, 11, 12, 13% metrics.
On a per share basis, and we think thats.
Should we be attractive to a to a generalist investor.
No I would agree with that comment Stephen I think you just kind a hit on my my my follow up.
And it was around you know you're getting this growth.
My follow up is really these days, obviously as you mentioned any type of growth.
So taboo and so but but for you. All you mentioned it takes a little capital to boost guineans.
Just anything else you would think about how you guys had great growth with just one rig.
You know again, given what I know how investors feel about growth.
But how cheap it is to grow on getting maybe anything else you can say around that thank you Steve yes.
Putting a second rig on.
And most of that will be you can give us some in karnes.
$65 environment, while karnes is still isn't as good as giddings.
Bye bye.
Norm North American standards, it's probably still some of the best money you could spend.
So.
And so.
That's sort of a balance we're drilling and we'll look into next year.
To see.
What needs to be done, but I don't want.
Ratcheting up the rigs and then bringing them down and that sort of thing. So I've tried to be sure that we're able to continue.
Whatever we're doing because we just manage better that way.
Hum.
In an emergency of course, we can do whatever.
But we just manage better.
If we build slowly and thoughtfully.
And again, a locations aren't going away and I don't have any items.
I don't really care, what the banks thing because.
The only reason, we don't reduce our line of credit as people misinterpreted.
Okay.
So we just don't have that kind of on that.
Net.
Net debt needs.
I think this is the right strategy for a multiyear program.
And you don't want it.
What would ruin the strategy of what would change the strategy.
It would be if the stock were to go to.
Some huge double or triple on the same price environment, and then the share repurchase strategy wouldn't work anymore.
We have to endure a more dividends.
Sure sure well said as always Steve Thanks, so much.
Sure.
The next question comes from a mountain Choudhary with Goldman Sachs. Please go ahead.
Hi, Good morning, and thank you for taking my question.
Sure good to talk to you.
My first question most of my questions have been already asked so I have two quick ones for you.
The first question was around Giddings appraisal program.
And your expectations from that program as you add a second rig this summer.
Yes.
Yes so.
Some of it's a second rig will be used for pad drilling.
And some will be to look at for a new areas.
And would the spacing a that I don't know.
We're still putting together a petro physical work total it'd be four wells I think that'll be a.
And there might be three by the way or some other number but but four is currently where we are now and that will be spaced over a year to look for areas, where basically its look for areas, where we can.
Economically lease more land.
To build a footprint in the areas and see if we can find some areas where we can we can we can add to our footprint.
So that's about the production because we have.
We got enough in the core area for a number of years, but.
I don't want to since we got this on their way to being figured out I don't want a.
Lose the.
First mover advantage.
Got it and any color around the expectations in terms of like whether it would be.
Oil as you'll focus ADR a.
Do you expect the appraisal program to be more gas.
In the gassy, a part of your acreage footprint just trying to understand.
How about that.
I said I think we're you know we're looking for basically a.
For a giddings well about 50% of oil.
And.
There might be some that are.
40% oil there might be some that are 60, but when we get through we're looking for a balance.
Gasior parts.
And on.
While we had a good good day for gas this last quarter.
It's not a.
It is still a pretty weak commodity and until we get.
On gas prices that a regularly over over $3 or so.
Would rather focus on the oil your parts.
Got it and then.
My second question follow up question was really a round.
On the infrastructure Buildout in Giddings.
I think last you mentioned was that if the program a successful. This is an early 2020, you would consider a building a pipeline infrastructure.
But the trucking cost itself is lower because you're a assets in giddings, a located closer to a refining demand centers.
I just wanted to get your latest thoughts around a potential.
A lot of pipeline infrastructure to reduce cost on the road.
Okay.
That's something we're actively working on.
So generally the idea is that.
We were able to reduce the number of Ma.
Mount a production facilities, we had youth centralized production facilities and carry the oil to a trunk line.
And take that down it's not very far in operating expenses and then we probably put in a water disposal line to go with it.
Through this for the <unk>.
Same area.
<unk>.
It's not a lot of money to do it but it would generate significant efficiencies for us and as a business and as the.
What it looks like.
Over the next two or three years it is clear.
Clearly, we can probably do that.
We may have some some people come in and ship on online too.
But generally speaking we see opportunities to do that.
Because you wanted to make sure you had enough locations and you can figure out where they were.
Before I put the line in the right now we have enough wine a subtlety probably do that.
The principal issue.
Is getting that right away.
It's not whether the line makes sense. So you have a bunch of a rich people live and river Oaks, who have Ram chips there.
And so no.
Nobody wants a pipeline and there are a range yet.
So.
That's a fundamental issue.
Got it that's really helpful color. Thank you so much.
Sure.
The next question comes from Noel Parks with Tuohy Brothers. Please go ahead.
Hey, good morning.
Good morning.
I just.
Wanted to ask I'm, sorry, if you touched on that's already a good.
That can bring that youre going to be bringing on I was just curious about the rate you got from that and what the market looks like in a.
What are you taking on on.
Pricing on whether you locked in for some period.
The rig rates have not changed very much.
Yeah.
And so.
It's the same people, we have who run the first route for them and we were therefore on during a downturn.
So they are here for us now.
So I don't think we are.
I don't think it's a lot different.
The.
You said a lot of amount of inflation in our field inflation is caused by a transportation costs.
And in steel and things like that.
Which everybody knows you can see as we talk about it on TV every day, so it must be right.
Sure.
That's where the inflation is but.
I would also add that there is.
A modest amount of inflation in oil price.
Yeah.
And so the margins in this or.
A.
You talked to it a few pennies back to steel producer or a guy runner drive on a truck.
And so.
Or.
Do you see price a sand doesn't change for example.
But the hauling a the sand costs more so that's a sort of thing youre seeing.
That's true American industry in general.
We're not having UBS deliver our sands.
Right.
And could you just walk through.
The components of your.
Your cycle time now just.
On average you're drilling days completion days and if there is a.
On a rig Marlborough demoed in there.
Like now take a free.
We averaged two rigs or two wells two wells two wells a month.
The actual drilling time is less than that but.
That counts.
Moving a rig and that sort of thing every so often.
I don't think that changes very much.
And so some quarters it might be a little more a little less depending on how many moves of it when we do the so called exploration wells.
Those are single wells.
And.
That take a little you don't you don't have the pad efficiency. So youll see some day degradation errors, we do drill a three or four of those but.
And a development oil that's really all and then the completion just defense we use one completion.
Greg and we use in karnes and Giddings, just a met depends on the schedule.
If we drill a well in January or March or whatever you want to say, we could get a get to it right away or it might take a couple of months.
And again.
Three months per quarter, well, it's a big deal with somebody studies, a stock from our perspective.
Doesn't really make a lot a difference whether it was a <unk>.
I will start producing in June or July.
So I just.
It just depends again with a small program like ours.
Small changes turned into a big deals, but they are really not.
Great Fair enough. Thanks, a lot.
Thank you.
As a reminder, if you have a question press Star then one to be joined into the queue.
The next question comes from Nicholas Pope with Seaport Global. Please go ahead.
Good morning, guys.
Good morning, Brian.
Hey, I was trying to reconcile a little bit.
The capital cap.
Capex.
Guidance for the year.
I think coming into the year, you were talking about expecting an average of 6 million.
On.
Giddings wells to drill and complete.
Just kind of a.
Back of the envelope math.
That's.
I'm struggling to get to a $300 million with a 30.
Hi.
Well count in Giddings during the year.
I'm trying to understand if there's maybe some more on non op activity that might be expected in Eagle Ford.
On a karnes area and just could you help me out a little bit.
So yes your.
Issue is sort of a right.
So you don't have to do it even more more than that you look at the first.
First quarter, we spent about $40 million crude a little non op activity in some completions from docs.
You would expect that in any quarter.
There were a giddings wells sort of.
246, probably drilled in a quarter.
So.
That's what a one rig program costs.
And if that's all we did.
You could spend $40 million a quarter.
And it would fluctuate with completing docs or what are we didnt harms or whatever but that's sort of the answer.
When we put the second rig on an oil cost another $40 million a quarter for a full quarter and so you.
You do that and then the rest would be in a non op.
Area.
Some of the second a rig will be used in karnes and.
And some of them will be done to drilling these exploration Giddings wells you get a little mismatch on the on the.
On the wells drilled.
That's right.
Yes.
And as a.
And our average.
Got it okay.
Yes, it's a struggle to get the 300.
It's a good problem, it's a good problem.
And then you all are on pace on that.
<unk> talked about kind of entering the year around six two or at least that's the average for 2000 and expectation of $6 million in for D&C and for forgetting does that has that kind of a right.
Got it.
The current wells that are less expensive.
Yes.
Okay. Thanks, that's all I had thank you.
Thanks.
Okay.
Okay.
I think we're done includes our question and answer session, which also concludes today's conference call. Thank.
Thank you for attending today's presentation you may now disconnect.
Yes.
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Yes.
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