Q1 2021 Bonanza Creek Energy Inc Earnings Call
Ladies and gentlemen, this is Jeff for your cost schedule P of momentarily and kind of telling you all will give me place for music.
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Ladies and gentlemen, thank you for standing by and welcome to the Q1 to 2021 Bonanza Creek Energy, Inc. Earnings Conference call. At this time, all participants lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to answer the question during the session unions Press Star one on your telephone.
Please be advised today's call is being recorded and of your card any further assistance. Please press star Zero I would now like to hand, the conference of you choose your speaker today, Mr. Scott Landreth. Please go ahead.
Thanks, Ryan Good morning, everyone and welcome to Bonanza Creeks first quarter 2021 earnings conference call and webcast on.
On the call. This morning, I am joined by Eric Gregor, President and CEO, Brant Demuth Executive Vice President and CFO and other members of the senior management team.
Yesterday, we issued our earnings press release posted a new investor presentation and filed our 10-Q with the SEC all of which can be found on the Investor Relations section of our website.
Some of the slides in the current Investor presentation, maybe referenced during our remarks this morning.
Please be aware that our remarks will include forward looking statements that are subject to many risks and uncertainties that could cause actual results to differ materially from these statements.
You should read our full disclosures regarding forward looking statements contained in our 10-Q10-K and other SEC filings.
Also during this call we will refer to certain non-GAAP financial measures because we believe they are good metrics to use in evaluating performance reconciliations of these measures to the most directly comparable GAAP measure are contained in our earnings release and Investor presentation.
We will start the call with prepared remarks, and then move to Q&A as with previous earnings calls, we will take questions from those on the sell side analyst community on today's call.
I ask that investors and others with questions to please reach out to me directly to schedule a call you can find my contact information on the Investor Relations section of our web site or within Yesterdays release, now I would like to turn the call over to Eric Gregor.
Okay.
Thanks, Scott Good morning, everyone and thank you for joining us today.
We're excited to host today's call to discuss our first quarter results provide an update on the integration of high point and discuss the company's initiation of an annual cash dividend of about <unk> 40 per share to be paid quarterly.
I'll start with the announcement of our annual cash dividend. This announcement represents a significant milestone for Bonanza Creek of demonstrates confidence in our business model and consistency of our projected levered free cash flow.
And our commitment to growing shareholder value.
We stress tested our business at low commodity prices to ensure we have the ability to pay a bowl of sustainable <unk> 40 per share annual dividend, which today represents a dividend yield of approximately 4%.
The resilient free cash flow of the business and strong balance sheet provides ample flexibility to support this meaningful dividend, while we also pursue other value accretive opportunities.
Free cash flow of in excess of our base dividend will be used to maintain our low financial leverage.
And to pursue the highest returning opportunities for our shareholders.
The first dividend payment is scheduled for June 32021 to shareholders of record at the close of business on June 15th 2021.
Our dividend announcement comes on the heels of closing the Highpoint acquisition.
The integration of high points assets into the Bonanza Creek business is underway and mostly out of schedule.
We acted quickly post closing to begin realizing synergies that translates to over $31 million of savings within the first year.
Several roles for rationalized the closing and we currently have of transition team working on accounting and other back office workflows and processes.
The combined assets performed to our expectations during the quarter. Despite challenges presented by extreme weather events in February and March.
On a pro forma basis, the assets produced $42 three Boe per day during the first quarter with 50% of the total volumes coming from oil.
Today, we are reiterating our production guidance of 40% to 40 for MB Boe per day for the remainder of the year.
On the capital front, we started our DUC stimulations in early January and turned the first two pads nine total gross wells to sales at the end of March.
Capital expenditures for the quarter.
$32 $9 million were below our guidance range due to lower than budgeted costs on planned activity and timing of certain non well projects that will be completed a few weeks later than originally planned.
We have reiterated our full year guidance in a range of $150 million to $170 million.
And we anticipate our <unk> capex to be up from <unk>. The <unk> will be relatively flat to <unk> and <unk> capex to decline from <unk> as we take a break from completion activities at the end of the year.
The weather in <unk> negatively impacted per unit LOE relative to both cost and production volumes.
Third higher costs related to labor as well as road and location maintenance and volumes were impacted by freeze offs in short processing disruptions.
We expect production volumes to decline slightly on a pro forma basis in <unk>, and then stay relatively flat to slightly inclining in the second half of the year.
We have reiterated our LOE guidance of $3 to $3 25 per Boe for the remainder of the year, but importantly, you'll also notice Rmi unit Opex is down going forward.
Guidance for recurring cash G&A production taxes per cent of oil and oil differential have also been reiterated.
With that I will turn the call to the operator for Q&A.
And at this time, if we do have any questions from your press star one on your telephone keypad again, the star one on your telephone keypad for any questions you.
You already have some questions in the queue. The first question comes from the line of Mark Mahaney from Keybanc.
Hi, I wanted to get a sense of what the first quarter production downtime was just due to the storms did you guys quantify that for us.
Yes, we did we are we have and we can I'd like to I'd like to just discuss the kind of briefly here.
The the February impact.
I've got the intensely here, who is our SVP of operations Deane as I recall the February impact was about 60000 Boe exactly.
And in total and the March impact was a little bit less net about 50000 BOE total yes.
Obviously different in character one was on Arctic cold fronts of the other was massive snow event.
So they had slightly differing.
Impacts in terms of the character, but both are pretty significant.
Okay.
Just doing the math for you real quick it looks like it's somewhere around 1200 Boe's per day, if I'm correct here.
Okay, and then I guess just from the perspective of the cadence of production here. In 2021, you guys did say you thought it was going to tick down a little bit of in the.
In the second quarter versus first quarter pro forma levels.
Is that still correct in light of the storm downtime.
So basically I'm asking if you adjusted it for the storm downtime.
You know the number is lower but.
Would it be lower even when you include the first quarter net storm downtime.
It's still going to be a little bit lower than I think.
No.
Obviously, the the Q1 events lowered Q1 Q2.
We will certainly have recovered from that what we're anticipating is Q2 to be somewhere lets say notionally between say 41 Boe per day, and 42, and so that's a little bit lower than Q1, and then we anticipate.
Q3 to be.
A little bit over 42, and then Q4 to be exiting with a bit more strength, maybe 42 and a half or.
For a touch higher so.
Of the trajectory of the undulations are pretty subtle.
But nevertheless, we want to telegraph that that's kind of the shape and it's mostly a result of just the fact that 2020 meant we didn't invest a great deal of capital in new Stimulations and on both sides of Bonanza Creek for both the high point side and the Bonanza side had been stretching those.
Ace assets for quiet for quite a while through 2020, let me stop there and see if that answers. The question no I think it does for sure.
Let me just kind of of sort of a different line of questioning here for you folks obviously.
Keeping the production relatively flat you describe the trajectory it's up just a small amount how.
How do you think about it sort of longer term clearly at these commodity prices our returns on drilling wells looked pretty good.
What type of conditions do you think of kind of necessary at the in the marketplace for you guys can maybe put some some modest growth into the volume sign of longer term basis share. Yes. It's a great question, we do anticipate remaining mostly flat.
Through 2022, as well as 22021, so yes.
I think the best way to think about our.
Our operator ship of the combined assets is to take these and operate them, mostly flat obviously as a result of of stronger commodity price returns are up.
But we want to make sure that we take advantage of not only the strength in the commodity price, but also demonstrate the capital discipline, we believe that the pubs.
<unk> investment community is still.
Expect of public companies.
While generating obviously strong levered free cash flow.
And we'll have other opportunities even beyond organic growth through the drill bit to take advantage of.
Of attractive returns.
Alright, and obviously very sizable dividend that you folks the announced today.
Rent that you're kind of keeping the production of call it relatively flattish.
How do you think about the other uses of free cash flow, maybe as we get into next year. It looks like you'll be able to pay off our you know most of them all of the revolver here in in 'twenty. One obviously, you hinted at some inorganic growth potentially but absent that not happening obviously M&A is tricky to predict where are you.
How do you see the the free cash flow from Bonanza getting utilized for say next year, Yeah. No. It's a great question and M&A is very tricky to handicap and predict what we would anticipate is.
We'll we'll remain active in that conversation.
And and certainly with an eye toward continuing to drive value accretion for our shareholders on that front.
We continue to think about share repurchases, although we haven't yet initiated a share repurchase plan. We continue to think about that and to talk about that with our board.
Those things can be tricky as you know.
The commodity driven.
Idly cyclical business.
Because generally you have you have flash cash when your share price is genuine genuinely high and generally low on flash cash when the share price is attractive to repurchase so we want to be thoughtful about that and we want to demonstrate disciplined.
To our shareholders. So we're going to continue in the conversations around M&A in A&D to the extent, we can we can drive value accretion for our shareholders.
We will continue to have conversations with our board and understand how the investment community thinks about share repurchases.
And rather than let.
The cash is simply pile up.
On the balance sheet.
We'll find good opportunities, whether thats, a special one time dividends or increasing the base dividend, we want to have all of the tools at our disposal.
And as.
As long as we've got a strong balance sheet lots of Levered free cash flow available post dividend debt opportunities will present themselves.
Okay. Thank you.
Thank you.
Our next question comes from the line of Neal Dingmann from true Securities.
Good morning, Eric based on some of that you just had a really nice zone that the obviously not only the cash flow kicking up but the talk about the stable production of well into next year. It seems like kind of looking at our numbers here there is.
Theres certainly a number of levers you could pull if you wanted to.
Production of little bit could you could you talk maybe drill down a little bit more on that comment you made about it sounds like you have a lot of confidence when talking to you and Brent over the stable production just thoughts about that and I know I don't want to get too much of the next year, yet, but just maybe.
What sort of knobs, you could turn to.
The either cranked up as prices continue to ramp here to maybe continue to crank the free cash flow or could continue to crank the production a little bit more.
Yes. It is of Great question, and we certainly we've got available permits in inventory, we've got available locations in the inventory, we've got lots of opportunity to move across.
260000 acre position here.
And D J.
On Hereford we want it takes the more time and continue to really apply kind of rigorous geoscience and be sure. We understand all of the work that was done all the data that was collected I know you didn't ask about Hereford in particular.
But I think it is important to understand where we're hard at work to understand that asset and really.
Be sure we understand what makes it tick, but we've got plenty of opportunities across the acreage position to drill.
And develop organically really what we want to do and we've got obviously the financial capacity of the liquidity to step on the accelerator.
We do think.
There is some potential as.
World oil prices continue to push upward for OPEC to continue to own.
<unk> been up and release some of that we also think it can remain a little lumpy or uneven as we as we continue to move forward with regard to.
Global oil demand, so we want to be careful.
The about demonstrating capital discipline to our shareholders.
And find ways that present themselves uniquely today to those with the strong balance sheet lots of Levered free cash flow.
To capitalize on we think DJ is of very very interesting environment with low multiples of <unk>.
The piped basin.
Enough regulatory concern that there is not a great deal of competition.
For bidding and we want to make sure that those organic opportunities for growth are going to remain there theyre in the subsurface we continue to build location inventory and permit inventory.
But the time right now is really ripe for us to create shareholder value through.
Events that might be.
I don't know.
Inorganic in nature of that that provide us opportunities today that might not be around forever, whereas the the organic growth opportunities for the drill bit will will definitely be there. So let me stop there and just see if that is.
Is enough kind of color and character around the way, we're thinking about it between organic opportunities, which will remain available to us.
Inorganic opportunities, which we think we can capitalize on in an opportunistic fashion.
No very very well said shows all of the Optionality you have and then maybe just a follow up maybe the more per Brent just on spending.
Certainly it was a bit lower even this first quarter than we thought second quarter looks like just ticked up don't pick up a little bit more on the midstream side. So I'm just wondering it seems that spending continues to be the.
A bit of less than we thought maybe could you talk a little bit on the remainder of the year.
I guess more pertaining to after you spin the current quarter for a little bit of on midstream.
How do you think I know you've got the guide out there, but it certainly seems like.
Going forward this will continue to.
Sort of tick lower just based on the organic.
Yes, thanks Neil.
The first quarter cash.
Capex number was a bit lower than we anticipated part of that was some excellent work by the guys in the field to save some money on some some projects but to your point.
We had some midstream.
Projects that were pushed due to the weather.
So those are still as we reiterated the guidance those are still within our capital program. This year.
But as Eric's prepared remarks suggest <unk> will be up.
And if you if you think about our $150 million to $170 million guidance for the year. Obviously, we've spent about 32, so far the second quarter in the third quarter will probably consume roughly $100 million of that.
Guidance amount and then it'll fall away in the fourth quarter as we take of stimulation break so does.
Does that help with the guidance.
Exactly what I was looking for thanks, Bobby Thanks, guys great quarter you bet.
Yes.
Our next question comes from line of Mike <unk> from steel.
One of them, Mike Good morning, everybody Hi.
I wanted to see.
You talked about a little bit in your prepared remarks, but I wanted to see if there's anything more you can say on.
On the integration of the high point of assets at this point.
Maybe relative to the $150 million of synergies you identified last fall.
The announcement of the deal.
Yes, Thanks, Mike.
It's going really well as I mentioned in the prepared remarks, mostly ahead of schedule and let me give you a couple of just.
Examples of that.
The sum of the two companies total head count would have been if you simply out of the two companies up in and didn't rationalize any roles at all would of been 233 total bodies. That's all of high point plus all of Bonanza Creek.
And then we calculated our steady state run rate of the combined company of 140 for bodies. So the difference is 89 bodies.
And obviously people are expensive and one of the main reasons.
One of one of the main kind of value generators of consolidation.
And to put a fine point on the pace here 48 of those 89.
<unk> took place at close.
And since that time, we've added another 18 to that so we've got a total of 66 out of 89 total reps that had been scheduled have already taken place and were barely 30 days past close so of three quarters of the riffs.
And those kind of long term people savings are already beginning to accumulate I'd say that that is that is fairly.
Fairly aggressive of ahead of ahead of schedule ahead of the schedule. We had put in front of US I am pleased I'm pleased that the team has been able to act.
That.
Aggressively it's never easy to do these are fees of friends and colleagues and it's hard work.
But nevertheless necessary because that's what the investment community demands of consolidation.
Another example of savings that are ahead of schedule Highpoint had.
Two offices in Denver that of Denver Tech Center office that came with the fifth Creek acquisition and for floors at at of downtown Tower, We have now effectively reduced.
Call it for five floors in Denver to one floor. So we've taken 80% of the real estate costs out of the combined company.
And as it turns out Mike one of the things that you probably.
My suspect, but all of it but I'll say it to be clear.
Those real estate savings were not included in our $31 million synergies and that puts us way ahead of anticipated and the reason. They werent included is because we didn't have any way to handicap.
How we were going to going to be able to carry of the business. The high point business through BK and reject those contracts, let me stop there and say if <unk> got any other questions happy to happy to talk more of that kind of the operating side of the business Rmi the gathering system.
And so on but let me stop there with those two examples Mike.
Yeah. That's helpful. I appreciate that.
Also just looking at your NGL realizations of look really strong at over 40% of the WTO and the first quarter I just wanted to get your thoughts on how that market looks for the remainder of the year.
Hey, Mike the sprint.
So yes, obviously NGL prices were very strong have been most of the winter they remained strong.
I don't know if we're we're tracking it.
Close to 50% of of W. Ti, but looking at this mornings.
Rice's on Mount Belvieu, they still are close to that but there is a steep backwardation in that market similar to <unk>. So.
I think going forward, we're going to trend slightly.
Slightly down, but I think they'll remain strong at least through the spring of course of lot of that is due to the Asian demand for propane specifically.
And naphtha cracks of have widened as well so I think theres a good fundamental strength in the NGL market.
I don't know if I would model it yet.
Mid forty's, but maybe model it.
35% to 40% of WTO going forward.
Okay. Thanks Brent.
It's difficult to do is there any thought around trying to hedge any of those prices.
Yes, the deepest market as the propane market and that is the most important for us it's about 40%, 45% of our value of the Y grade barrel for us.
So if we chose to hedge we would probably use.
The propane swaps the.
The color market in the in the Ngls is really two things to do anything of size. So.
We might layer in propane.
Hedges.
Got it okay.
Last one for me.
So where you put the ESG committee in place on the board.
The already exceeding some pretty stringent emission standards just want to see any thoughts on what kind of initiatives. The committee will be looking to implement.
Andrew.
Well, we're going to thanks, Mike and I. Appreciate you recognizing that it's something we've given a lot of thought to and obviously the investment community.
Expect.
Sponsored by the operators to have ESG committee is in place.
We've always taken our responsibility for stewardship of environmental resources people resources.
Water land Air resources, all of that we've always taken it very seriously the.
<unk> Committee helps.
Formalize some of those some of those measures and we're still in the process of establishing kind of the key performance indicators, but it's going to be aimed at.
More around kind of the global.
Metrics as you've as you started to see and I've started to recognize.
For us half dozen or so.
Kind of key frameworks for.
Global climate change and the proper measures they are still of lot of room to.
Two.
Worked within various frameworks and establish what is most meaningful to the various operators for.
For us obviously air emissions of very very important the <unk> does a good job in maintaining oversight.
And along the Denver front range as you know.
The front range area is an EPA non attainment.
Serious non attainment and likely heading to severe non attainment.
In terms of ground level ozone.
We're way ahead on on.
EPA EPA title five facilities in the.
The engineering and application of title of five principles and applications. So I feel really good about that.
The ESG committee is going to help us formalize what are the metrics that are important to Bonanza Creek important to our constituencies on the ground Seo GCC CDP.
Our shareholders and kind of the global.
Shareholder.
Community in general in oil and gas specific kpis were still working on to be really honest because it's pretty complicated when you look at the various metrics out there that we can draw from let me, let me stop there and I'm happy to happy to answer more questions on that front, Mike, but I don't want to stop and see it.
<unk> got a specific one that I can follow up on.
Yes.
That's helpful color appreciate that Eric.
It's all for me Thanks, guys. Thanks, Mike Thanks, Mike.
Our next question comes from the line of Nicholas Pope from Seaport Global.
Good morning, guys, Hey, Nick.
<unk>.
Wanted to touch a little bit on the new assets.
The added a slide here on just kind of the.
Performance of Bonanza versus high point and kind of similar areas.
Was hoping you could maybe dig.
Dig into that a little bit.
Kind of what's the biggest components of kind of improving.
What you see as kind of of the ability to improve well performance, what's going to be the big the biggest drivers of that kind of list that you laid out.
And also in terms of spacing.
<unk> touch a little bit on kind of Bonanza versus.
Hi point kind of where things might be on a kind of relative.
Percentage of kind of hop.
Optimally drilled or kind of remaining inventory on kind of comparable acreage.
Yeah. Thanks, Nick So let me touch quickly on the.
The real value drivers or if you do of regression analysis on.
Various factors that drive well performance that regression.
Allow you to explain something like 60% to 80% of the variation between between wells in a given.
The comparison set of sample set.
And those regression model is almost always point to geology, which kind of dog Gregor rock matters.
And so that's important but when you normalize or stabilize the sample set for geology.
What is what is really important is the amount of time.
For the amount of distance or lateral footage that has landed and remains in the best rock and that requires active geo steering.
I think everybody talks about geo steering, but theres a difference between.
Kind of heel to toe.
Drill it as fast as you can.
And <unk>.
Active geo steering, which uses the kind of real time at the bit.
Log logging, while drilling data to evaluate the highest quality reservoir and remain in the highest quality highest prostie of permeability and oil saturation at all times and then once you've done that.
<unk> got to you've got to drill case and cement in a way that <unk> got adequate zonal isolation.
With a large with a large mono board so.
One of the key differences between the way Bonanza Creek operated in the way High point, operator was high point intended tended to set inner.
Intermediate casing.
And then run production casing inside of that and that naturally restricts the size of the production casing generally to about a four and a half inch nominal production casing.
Don't set intermediate casing, which results in a mono bore.
With five and a half inch.
Hi collapse of <unk> 110 production casing and that.
Combined with.
A really high quality of primary cementing job that provides the zonal isolation allows you to drive 100 105 barrels a minute.
And of the Wellbore delivering a lot more horsepower and a lot more kinetic energy to the rock, which drives greater fracture surface area larger stimulated reservoir volume.
And better Stimulations now <unk>.
Generally speaking our higher intensity stimulation cost a little bit more but if you spend 5% more on total D&C capex, but your yield of 100% better or twice as good of well.
I think the economics are pretty clear and Thats what were trying to demonstrate on slide 11, we've done a head to head well performance comparison, we've done of historic three year comparison across all of Wattenberg, where we share like acreage and then we've given you a map there on the left to describe the acreage.
The primary driver is of course stimulation intensity, but it requires that you construct the right Wellbore architecture at the outset, because if you don't then you can't deliver the energy to the rock and overwhelm the reservoir and deliver the fracture surface area, which drives unconventional shale performance.
And then.
Theres gas lift.
You have to have good low pressure gas gathering operations at the surface. Because if you don't have low gathering system pressures expressed at the wellhead then the reservoir has the bok higher pressure to get to sales across the meter and so low gathering system pressure expressed at the wellhead allows the reservoir to perform better.
On load better faster and so on but you combine all of these things with <unk>.
Gas lift energy from the outset combined with the fact that we apply.
Active reservoir pressure management to maximize.
The oil sweep for the front of the curve using the solution gas drive energy, which I've talked about in the past and I'm happy to talk about here.
That really does outline kind of the three or four key metrics that that our regression analysis would point to driving performance.
Nicole I'm going to I'm going to and the kind of what drives the well performance of the difference on slide 11, I want to pivot to.
Spacing and stacking because thats another key element.
We have it we have an operation.
Obviously operating in a wildly variable commodity price environment and the volatility of of our realized pricing means you've got to maintain optionality as far end of the development cycle is you can generally what that means for US is we will we will permit as many wells as we as we.
Believe we can.
Subject to regulatory scrutiny and the other.
Restrictions in any given day su and what that does is allows us because of the long time, the long lead time and development planning.
<unk> increased the number of wells.
Permitted into of DS. You then you have the option to of course set surface and drill all of those wells or.
Provided the commodity price doesn't support that you can skip slots or you can set surface and drill only the the production intervals necessary what I'm trying to say is you create optionality deeper into the cycle by permitting more wells per <unk>.
And then exercising that option as you set surface then as you drill out production and then deeper into the cycle you can even even retain optionality. The Dynamo provides for maximizing the economic returns based on stimulation design, even as we ZIP wells together total heel.
<unk>.
Spacing and stacking our price dependent.
And the commodity price dependent and even even of a really good hedging strategy can't take all of the volatility out of realized pricing. So in order to help blunt the effects of the volatility of that does carry through we maintain optionality as deep into the process as possible using this.
This kind of Dynamo plus development Optionality of approach and I think it is somewhat unique.
Two hour.
Kind of eastern rural acreage because of the way the acreage lays out, but also because of our relationships and the Dynamo optionality.
Yeah.
That's great that's extremely thorough.
Very helpful.
Thanks, Nick.
And at this time is training of the questions. You can press star one for you on your telephone keypad for any questions and we do have a question from the line of the.
Excuse me for Philip Johnston from capital one.
One of the fill up yet.
Hey, Hey, guys. Thanks, just one for me actually.
We look back at the November guidance, when the deal was announced.
You guys are expecting combined volume sort of trend of the.
<unk> 47 to 48000 per day range throughout this year and we're now obviously looking at something closer to the 40% to 44 range for the rest of the year.
It looks like your recent well results continue to show strong performance.
I'm wondering if your base PDP decline rate is maybe been a little steeper than expected or are there other.
Factors to consider obviously, we've had some timing deferral of wells, but.
But at some point you would expect that to normalize thanks, yes.
Yes, Thank you Philip.
It's a great question and no doubt we did make.
Significant.
Structural changes to the development plan between the November 9th announcement and the.
April 5th guidance, it's one of the unfortunate consequences of a five month period between announcement and.
And guidance Nevertheless, essentially that that difference between let's call. It for the sake of argument 47, and bow down to <unk> 42, and BOE per day.
But between November and April that really was the result of our deferring 22 wells that were built.
Built into the production performance plan when we made the announcement of November three pads 22 wells.
That's the Hilton the Sebring and the Aes pad all three of those all three of those pads were delayed.
From <unk> to <unk> and from one two pads from <unk> to <unk>.
And the result of that obviously is the fact that.
We saw a realized $35 million more cash at closing with.
Without a change in our 'twenty one capex.
But more importantly, it means we were able to capture value.
Bye.
Kind of referring to those slides earlier in head to head performance between.
Legacy High point performance and legacy of Bonanza performance, we wanted to put our combined teams.
Stimulation capabilities on those 22 wells and.
And we're confident that we're going to drive higher rates higher.
High rates of return.
More growth in the future and higher Levered free cash flow.
We did so even knowing that it was probably going to be something a little bit difficult to explain but if you think about 22 wells.
The deferred in that period of time, even 250 of 300 BOE per day for 22 wells easily explained the full year of 5000 Boe across that time horizon.
And we believe over the long arc of time, it's value accretive, even even given discounting and backwardation of the strip because we're likely to almost double the performance in the EUR of those wells by applying more.
More intense stimulation designs and better reservoir pressure management, let me stop there and just see if that helps explain.
Kind of the structural change to the schedule and then I'm happy to pick up on the conversation around.
Kind of for <unk> and <unk>.
Yes.
I think that completely explained the question. So thank you very much Eric.
Thanks Phillips.
Our next question comes from the line of Noah Apart from them too early for this.
Hey, good morning.
Hey, congratulations.
<unk> on the deal closed and.
Just had the.
Few things I wanted to run by you.
I think last quarter, we were talking about.
In terms of the service cost debt.
The completion market stimulation market.
Was tightening up.
And.
I believe.
Current Frac crew is is under contract for them.
Remember right and so as is the.
The contract begins to age of just curious.
You can just talk about each company's relationship with its it service providers and what might be what might be on the table as you as you continue on.
Current agreement.
It gets towards exploration.
Yeah. Thanks, Noelle. It's a good question generally speaking there is there is there is a bit of upward pressure on all things steel.
In the space and frankly around around the world.
And you probably know that within within our <unk>.
Basin in particular.
We've got <unk> acquired for the balance of our of our 21 program and well into our 'twenty two program.
Frac horsepower is also experiencing some upward pressure, but the thing I'd like to say I'm pleased.
That our operations team.
The took advantage of of our free agency on 15 docs that we.
Put into the schedule. So we carried 30 and that we were going to operate legacy Bonanza Creek, We added 15 more to the plan for 2021 and.
And those 15, we're not committed under contract yet so we went out to RFP and we held the line in fact got got better then.
The.
The 21 Frac pricing for the balance of those of those 15 so.
We actually put a little bit of downward pressure on our aggregate horsepower in total frac services costs by adding the <unk>.
We did so by by driving some competitive tension.
Our fracture business, our fracture stimulation business.
Meant that we.
We had had the divided up amongst some of.
The other service providers.
But we did so in order to be certain that we could deliver the highest value to our shareholders. So we managed to hold.
The Frac services in line at least for 2021 I do believe in general there is some upward pressure.
The Ole this is Brad I think also obviously fuel costs are up so that does impact how we think about inflation pressure that's right.
Yes, you're fueling.
25% to 30000 horsepower thats not a small thing.
Sure sure.
Well, thanks and.
I guess.
The other sort of.
I guess you call it another.
Integration question, if you will so given the importance of the relationships with the state and the regulators.
I'm just wondering what the combined I don't know if you.
But that under the government relations.
<unk>.
You know.
Umbrella, but.
The combined.
For the combined effort from legacy high point.
And you know what what does that look like.
Do you do you have people in place who has sort of familiarity with.
The thing Stan with the.
The different tiers of permits you're seeking and so forth and also.
Have the.
The relationship with the regulators.
Okay Ignatia for so long.
Yes, it's a good question we did bring.
Some of the some of the best and brightest talent from.
High points.
And regulatory compliance team into the organization.
And we've we've.
I think improved through the process, we've improved the workflows.
The talent of the organization and.
There is there is.
A lot of depth of understanding across both sets of assets.
With regard to.
The permitting and regulatory both CDP and Seo GCC.
Hi point of Bonanza, where each others' largest working interest partner. So we understood. It a great deal of what they were working on already but some of the compression for example, and operated gathering systems were unique.
To high point, and we needed to understand sort of the unique permitting relationships there.
I think we've got a very solid handle on that as part of the integration work and obviously Hereford was also unique.
And we've got we've got the right people working on the Hereford asset base and continuing to develop relationships.
Across all of these assets, where we needed to build.
Kind of new people into the organization.
Great. Thanks, that's all for me. Thank you. Thanks Noah.
And we do have a follow up question from the Mike of line of Mike Shannon from Stifel.
Hey, Mike Thanks.
Hey, Brett.
The one follow up Eric you talked about.
Some of the Wellbore architecture differences between the Bonanza and high point of Wells I believe those 22 wells you delayed completion on were ducks. So I'm just wondering if you were oh.
You will be able to use the the larger production casing and higher intensity frac on those or is it kind of too late in the process to complete those wells the way you'd like.
Yes.
Shrewd observation, Mike and you're absolutely right and that's one of the things that.
We wanted to take this in fact, it's one of the key drivers.
For us wanting to take the combined teams.
Modeling and design capabilities and apply to those 22 wells those are.
Drilled and completed cased and cemented or sorry drilled and cased and cemented.
And subject to stimulation and they are mostly for and a half inch casing designs and so what we're going to need to do is you won't be able to drive a 100 to 105 barrels a minute down of that four and a half inch casing. The friction losses, just too high so we're going to have the pull back the treatment rate.
And constrain and drive the kind of kinetic energy delivery into the end of the reservoir through.
Smaller <unk>.
Smaller smaller perforation total flow areas and constraining.
Through stage in perf architecture.
The pressure drop and drive the intensity not so much through.
Higher rates, but through constrained exit and smaller TFA as in terms of the perf clusters. It accomplishes the same objective.
But it slows the pace down a little bit because you have to constrain the stages of little bit more slightly smaller stages.
Lower <unk>, our total flow area and the perf clusters in order to generate the high intensity pressure drop the extreme limited entry conditions by you can.
You can generate the same intensity.
But it requires a little bit different engineering, and we wanted to make sure that the teams. The combined teams had a chance to do the proper modeling to ensure that we're maximizing the economic returns of those opportunities because they were different.
From the from the more traditional high.
High rate.
The high intensity stimulation and five five inch well bores that we're more accustomed to designing to the.
The other thing I want to point out is there was a real opportunity to optimize infrastructure tie in for example, the Hilton Sebring are close in proximity to Rmi.
And had had high point.
<unk> day, and tie ins and facilities on those two pads independently.
There would have been incremental facilities and tie in dollar spent that arent necessary.
Unlikely to achieve an inferior total outcome so the.
The real opportunities there to create value by deferring.
And getting the combined team to look at both facilities design as well as stimulation design, let me stop there Mike.
Yes, that's helpful. Eric just one follow up to that do you have any history of the higher intensity frac in the four and a half inch.
Production casing or is there, but I would say a little bit of risk to the doing that and kind of trying something new.
No.
As a matter of fact.
Surface intermediate and for in a half inch production casing was was the standard leading up to kind of 2013 2014 when.
We began to recognize as an industry that rate.
Extreme limited entry and kind of kinetic energy to overwhelm the rock was the way to drive well performance.
And so while we have to do is we have to look back in time and figure out fluid systems that can accommodate it.
These are this is physics, it's pretty well understood I'm not concerned that we won't get the well performance is.
It's just going to take a little bit more time and energy to understand thoroughly how to how to develop those stimulation designs and we will take the time necessary.
To deliver the kinetic energy that might mean, a little bit longer stimulation periods as we ZIP code of heal simply because you've got to constrain the energy and smaller stages.
Because you have lower rates, but it's not a question of whether or not you can deliver the energy to the reservoir. It's how you concentrate the energy to the reservoir.
Got it very helpful. Thanks.
Thanks, Mike.
And no other questions in the queue.
Okay.
Brian Thank you and I want to thank everyone for joining us. This morning, and thank you for your support of Bonanza Creek, everyone have a nice day.
This does conclude today's clean email and now disconnect.