Q1 2021 Earthstone Energy Inc Earnings Call

[music].

Good morning, and welcome to Earth Stone Energy conference call at.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

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As a reminder, this conference call is being recorded.

Joining us today from Archstone are Robert Anderson, President and Chief Executive Officer, Mark Lumpkin, Executive Vice President and Chief Financial Officer, Steve Collins Executive Vice President of operations and Scott C lender Vice President of Finance Mr. Telander you may begin.

Thank you and welcome to our first quarter 2021 conference call before we get started I would like to remind you that today's call will contain forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange.

Change Act of 1930 for as amended.

Although management believes these statements are based on reasonable expectations. They can give no assurance that they will prove to be correct. These statements are subject to certain risks uncertainties and assumptions as described in the earnings announcement, we released yesterday and in our form 10-Q for the first.

Quarter that we filed yesterday.

These documents can be found in the investors section of our website www dot or stone energy dotcom should one one or more of these risks materialize or should underlying assumptions prove incorrect actual results may vary materially.

This conference call also includes references to certain non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures for the most directly comparable measure under GAAP are contained in our earnings announcement released yesterday.

Also please note information recorded on this call speaks only as of today may six 2021, thus any time sensitive information may no longer be accurate at the time of any replay or transcript reading.

A replay of today's call will be available via webcast by going to the investors section averse stones website and also by telephone replay you can find information about how to access those on our earnings announcement released yesterday.

Today's call will begin with comments from Robert Anderson, our President and CEO, followed by remarks from Steve Collins, Our executive Vice President of operations and Mark Lumpkin, Our CFO and then we will have some closing comments from Robert I'll now turn the call over to Robert Thank you Scott and good morning, everyone.

We appreciate you joining us for our first quarter 2021 conference call we.

We had a very successful start to the year as evidenced by our strong first quarter results in a quarter full of activity. We closed I R. M. We resumed a drilling program, we completed wells and we announced another acquisition.

In terms of results production volumes rose, 37% over the prior quarter to a little over 20000 barrels of oil equivalent or Boe per day, resulting from the contribution of the IRS acquisition that closed in early January and from turning six wells to sales late in the fourth quarter.

This production more than offset sorry. This mill this more than offset production losses due to the freeze in February that resulted in roughly 1500 Boe per day downward production impact for the quarter. Additionally, we did did a great job of controlling operating costs in the first quarter, which came in at $5 93.

<unk> per Boe lower than our guidance for the year.

The increased production volumes cost control and improved prices drove a 47% increase in adjusted EBITDAX to $43 $8 million in the first quarter compared to fourth quarter of 2020, with our capital expenditures coming in under $10 million for the quarter and fairly minimal interest expense we generate.

The strong almost $32 million in free cash flow.

In March we resumed our drilling program by putting one rig to work and in a few minutes, Steve will walk you through those activities. In addition to updating you on the integration of the IR M assets, which has gone according to plan.

We now look forward to closing and integration of our next acquisition. The Midland Basin operated assets of tracker resources, which we announced on April 1st the transaction is expected to close early in the third quarter and be highly accretive to all key financial metrics, while allowing us to execute on our strategy to continue.

Building scale within our low cost structure.

<unk> $126 5 million dollar acquisition price carries a PDP PV 10 value of $153 million, so where you're buying we're buying this at an attractive price and it further increases our position in the Midland basin by providing a meaningful increase in production from stable.

<unk> low cost and relatively lower declined producing assets.

We have estimated that these assets will add about 6000 Boe per day in the second half of the year.

We also add 49 wolfcamp locations to our inventory. However, we don't have plans to spend capital on these assets. This year, although the producing assets and locations are gassy or than our existing properties. The improvement in gas takeaway in NGL pricing do provide for attractive returns.

As a reminder, we are using a consideration mix of approximately two thirds cash and one third equity when combined with the free cash flow generated from the assets. The tracker acquisition is about leverage neutral and we expect to end 2021, with 1.25 times leverage with our goal of being much lower than that.

Tracker is a complementary next step in what we view as continued progress in our multi step consolidation strategy.

We are excited to get these two deals integrated into our business as they fit nicely with our efforts to increase our scale and efficiency through consolidation, which is a key and consistently articulated strategy for us here at Earth day.

As we highlight in our Investor presentation, the combined Iran, and tracker transactions will increase our base production volumes significantly.

It will also add approximately 120 attractive drilling locations, while allowing us to maintain our low cost high margin operating metrics and improving our per unit G&A cost as we add minimal incremental staff now I will turn the call over to Steve to provide an update on operations.

Thanks, Robert and good morning, everyone.

First off let me update you from our call from our March call regarding the impacts of the storm in February although we only lost production for approximately a week. It took a little longer for third party gas plant to get back to full operating capacity we.

We did not have any material increase in expense due to the storm.

Now I'll move on to the current operations.

We have a good pace of activity underway.

As I mentioned in our last call.

We completed and turned to sales five wells in Upton County in late March.

Those wells will be a nice benefit to the second quarter.

These five growth three seven net wells are in our Heyman project area and are tracking.

For the type curve nicely. So it's still early.

These were shorter laterals with average completed lateral length of a little under 4600 feet.

And targeted the Wolfcamp, a and Wolfcamp b zones.

Peak 30 day production average 493 Boe per day per well with 86% oil content.

From a cost standpoint. These wells were completed with an average all in frac costs for $43000 per stage.

Given that these.

Our shorter laterals, which creates some minor costs inefficiencies for some upward price pressure on the service side compared to the lows. We saw in the fourth quarter. These wells had a higher per stage cost in the long laterals, we completed last year.

These costs fall within that range of what we expect for the balance of the year.

As you also know we resumed our drilling program in March with all three of our hamon.

With our three well Hammond project in Midland County.

We drilled the Jo mill, lower sprayberry, and a wolfcamp b well.

We expect to begin completing these wells in the second quarter and have them online by early third quarter.

We are currently moving the rig to a four well pad on the Spanish pro acreage acquired from Iran.

We are drilling to lower sprayberry, and two wolfcamp, a wells all of which are 5000 foot laterals.

These are the only iron wells planned for this year under our current one rig program.

We're excited to get these wells drilled and are intentionally drilling shorter laterals. So we can apply any lessons learned.

We will likely drill 10000 foot laterals, when we bring the well bring the rig back to the IR and acreage.

We are pleased with the performance of the new IRS assets and glad to have the IBM field personnel onboard with us at Archstone.

Which has really helped the operational integration go very smoothly.

We are focusing on optimizing the production.

Operating expense for the IRS wells.

One of the main ways. We're doing this is by changing the lift method from electric submersible pumps or ESP.

The gas lift or gas assisted fund your list.

Although it's early we have been very pleased with the results on the wells that we've changed lift methanol.

Yeah.

Let's see where there is more work.

Workover costs associated with Esp's, so as we shift wells the gas us over time, we ultimately expect to improve the run time.

And reduced failure rates and aimed decrease the per unit LOE down the road.

I'll now turn the call over to Mark to review the financials.

Thank you Steve so from the financial side, we're going to start today as we usually do at the recap of the balance sheet and liquidity and then get into some other financial matters for the quarter. As you guys know for US strong liquidity remains a focal point as we continue to increase our scale and we've fortunately been able to improve liquidity versus what it wasn't it.

Early January when we closed tracker and use a bit of revolver to do that so as you may have seen we recently announced an amendment to our revolving credit facility, which increased the borrowing base to $475 million from the previous $360 million. It also provides for an increase from 475 million to $5 50 million.

Upon closing of the acquisition of the Midland Basin assets from tracker and sequel, and we expect that to be completed early in the third quarter.

Go on to the cash balance and debt balance at quarter end as of March 31, we had a cash balance of $1 $4 million and a debt balance of $223 $4 million and this debt balance reflects the <unk> acquisition that we closed on January 7th of this year adjusted for the recently increased borrowing base to $475 million.

We now have a little bit over 250 million of Undrawn.

Bailable availability under the borrowing base, which puts us at over a 50% available under the borrowing base.

Based on the $81 $6 million of cash consideration to be paid in the track rate acquisition plus anticipated interim period cash flows that will reduce the cash requirement at closing, we actually expect a slight increase in liquidity at closing of the tracker acquisition given that the borrowing base oil increased by $75 million on closing.

For the quarter, we generated a very healthy $31 4 million of free cash flow and that compares to $8 $4 million in the fourth quarter of last year. This a lot, it's a pretty significantly pay down debt over the course of the quarter with our having drawn up to $260 million of gross debt in early January for the closing of Iran, and we ended up.

Quarter at $223 million of total debt. So you saw a $37 million paydown from early January to the end of the quarter and we really we anticipate continuing to utilize free cash flow for debt repayment throughout the year.

From a capital expenditure standpoint, we total accrued capex of $9 $8 million in the first quarter and that's really what was the result of completing five growth three seven net short lateral wells and are initiating drilling operations and Havent run the rig for about a month of the quarter, we're not currently making any changes.

Two our guided 2021 capital budget of $90 million to $100 million based on what Brian one rig for the remainder of the year, but we expect to update guidance. If we do add a second rig.

I'm sorry, after mid year and also generally we'll update guidance around production and costs. When we closed the tracker acquisition.

Now looking at the first quarter 2021 financial metrics and starting with topline revenue for the first quarter were $75 $6 million with oil contributing about 80% of the revenues for.

For our production standpoint, our first quarter sales volumes were 20231 barrels of oil equivalent per day and were comprised of approximately 58% oil, 22% natural gas and 20% natural gas liquids. The oil percentage was a bit higher or quite a bit higher versus Q4 really due to the addition of the volume.

From <unk> acquisition, which have a little bit of a heavier oil content than our base production, but also from new wells that came online in December and a little bit of production from a pad that came online in mid March also a slight impact of ethane rejection during the quarter, which which probably took the oil content percentage up.

For center too as well as Steve referenced we lost about 20% or so of our February production volumes due to the winter weather, which reduced first quarter production by something close to 500 BOE per day as we previously stated first quarter volumes benefited from the six new wells turned to sales near year end and the acquisition of <unk>.

And the about 350 BOE a day impact from the wells that came online in mid March.

As a reminder, our production guidance for full year 2021, which does not include tracker is 19500 to 21000 Boe per day haven't fallen right in the middle of that range during the first quarter and considering the completion cadence for the year production should be relatively flat through all four quarters, a it might be up a.

A little bit in the second quarter versus the for it but first quarter, but it's a relatively flat looking our production profile.

And that's consistent with what we expected when we last visit with you guys. In March we will update our guidance to reflect tracker again and also would just note now and I think Robert mentioned this but we.

We've previously put out some indication that tracker should add roughly 6000 Boe per day of production on the second half of the year and of course, the exact timing of when that closes will impact how that gets incorporated into our guidance. As we will also look at where we are from a year to date standpoint, and what it looks like for the rest of the year.

Going to commodity prices for the quarter, our pre hedged realized prices were $57 56 per barrel of oil $2 79 per Mcf of natural gas and $24 40 per barrel of natural gas liquids for a total Boe equivalent for.

$41.32, that's a pretty significant increase quarter over quarter, which all of those are roughly up by about 40% versus the fourth quarter.

On the expense side on a per unit basis, our all in first quarter cash cost, which we include LOE production.

Production and severance tax cash G&A and interest expense in came in at $12 66 per BOE, a day and our lease operating expense was $5.93 per view in the first quarter, which as Robert mentioned was a bit below the bottom of our guidance range of $6 650 per Boe for the year and really that was a really good result for the <unk>.

Order that is despite some front end loaded workover expense on the IRA assets and also the impact of the freeze in February.

So when you look at that we're really pleased with our team's work in the field to achieve this result, and as you know our focus on both production and cost optimization really permeates through our entire organization and that includes the iron personnel that now work for us in the field are doing a really good job.

We'd like to see a few more months, what the IRA assets in our hands preferably without any of the exogenous events like the free as we saw in February but we're optimistic that we can maintain these lower LOE costs throughout the year.

And probably have a bias toward being on the lower end of the range of guidance for the year on low and it may even be able to beat that this also does not take into consideration what the tracker assets will do to our per unit operating cost. They will have a positive benefit because it is a lower.

Cost asset so we will fold that in weird.

Let's try for closing and update guidance there as well.

So it really considering how we're performing so far this year.

Still working on the <unk> assets and expect a positive impact from the tracker assets on a cost per unit basis, we're pretty optimistic that we're going to be able to continue driving cost down.

And of course, the ultimate goal is to maximize margin and that's a key piece of it on the general administrative side, our adjusted cash G&A expense was approximately $5 million or $2 <unk> $2 76 per Boe in the first quarter, which is really right in line with forecast and what we guided externally our growth in production has allowed us to continually improve our cost.

Structure over the past number of years, and we've been able to reduce cash G&A.

Now the $2 76 per BOE in the first quarter that compares to $3, 25% $3.25 per Boe last year and over $7 in 2017.

I'd also just note that the iron acquisition had very little incremental impact on G&A costs, and we really do continue to strive to reduce the cost structure as much as we can and are looking forward to the addition of the tracker assets as we continue to focus on lowering our per unit cost both on the LOE and G&A side from.

From an income standpoint, we reported a GAAP net loss in the first quarter of $10 $6 million or a loss of <unk> 14 per share, which included an unrealized losses of $22 $22 $4 million on our derivative contracts are adjusted net income, which excludes the impact of derivatives and transaction cost was a profit of 13.

$4 million or <unk> 17 cents per diluted share in the first quarter.

We reported adjusted EBITDAX of $43 $8 million in the first quarter up approximately 47% from the fourth quarter as is our practice, we remain well hedged for 2021 with swaps on approximately 88% of the midpoint of our oil guidance and approximately 82% of the midpoint of our guidance for gas and these are average.

Prices of a little over $50 for oil, including the basis differential which is positive and a little below $2.50 on gas, which includes a negative basis differential.

I'll turn it back over to Robert for closing comments.

Thanks, Mark as you all can see we each spent a little bit of time talking about costs and how we maintain our focus on that and it's a big.

A focus of ours inside the company with all of our folks.

Our strong financial position has continued to support our ability to execute on our growth strategy of increasing scale with high quality accretive acquisitions. We have worked really hard to find close and integrate Iran. And we will do the same thing with the tracker assets and we have been pleased that the IRS and tracker acquisition.

<unk> had been well received by investors, we are maintaining our focus on alignment with shareholder requirements by creating value with accretive acquisitions, gaining operational scale and incentivizing. Our team for performance. This is not a new course for us as we've been focused on incentivizing management for absolute.

Share price growth and corporate performance with our compensation plans as our investor presentation points out we are fully aligned with shareholders and our executive compensation program, but there still is a lot more work for us to do in all aspects and certainly continuing along a path of gaining additional scale.

Through acquisitions has a large component of our strategy.

With the continued growth of our production base through the <unk> acquisition and increased further upon the closing of the tracker deal. We are generating significant free cash flow on a one rig program and paying down debt at a pretty nice rate as I alluded to you in March about adding a rig in the second half of the year. We are now more like.

To add the second rig sometime after we close on tracker and we will essentially have combined three companies that were running three to four rigs.

In aggregate a couple of years ago into one company and with the strong cash flow profile and attractive drilling inventory, we anticipate still being significantly free cash flow positive even with the second rig as Mark mentioned, we expect to update guidance around the closing of the tracker acquisition we.

We have the inventory and the operational focus to continue to generate attractive returns via the drill bit and create scale and attractive returns through acquisitions as we have shown with these two recent deals. We are pleased with the strong foundation, we have built and will continue to execute our strategy of maintaining a strong balance sheet.

<unk> and disciplined growth the industry is primed with further acquisition targets that could add scale to our operations, but they must meet our criteria and complement our low cost high margin operations as well as allow us to protect our balance sheet and continue generating free cash flow, creating shareholder value remains.

Our primary motivation and our consolidation opportunities must be aligned with that objective now with all of that operator will be glad to take a few questions.

Thank you.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star followed by the number two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick at per handset before pressing the star keys, one moment, while we poll for questions.

Our first question comes from Neal Dingmann with Truest. Please state your question.

Good morning, all Robin I think my first question, Steve just wondering on that.

The press release, I see where it sounds like most near term activity will go towards upped and could you talk about either would that first rig or potential second.

Would you be returning back to Reagan or Midland thereafter.

Sooner rather than later this year, what maybe just talking about plans for a little bit.

Sure so.

We'll end up with having seven wells drilled in Midland County, and then the rig will go to Upton County.

At the point, where we pick up a second rig we basically got for blocks of acreage.

<unk> being a bigger block out of those but we have for blocks of acreage due in Midland and two in Upton County, and the rigs would rotate back and forth between those to begin with and then we will sprinkle in some other.

Either Reagan area or other areas over time.

Okay and then just the question continues to be asked out there a forecast I think even with that second rig again if prices remain.

Solid or strong like this I think you could still continue to throw off some pretty nice free cash flow.

When you and Mark and the team look at it the thought of.

When you get to that I guess, what that ideal level.

My ideal level might be different than what you.

Frank decided these days, but when you do hit that level, what's maybe the most near term plans where that free cash flow at that point Besides maybe.

<unk> debt continue to pay down.

Yeah.

Yes, that's something we continue to look at Neal but.

Course of business is to pay down debt to some.

Minimal leverage amount and we don't have that exactly figured out whether that's a half turn or not.

And then utilize any other free cash flow to continue to grow our business is looking for opportunities bolt ons acquisitions in you know in a near where we have operations already probably makes the next step.

Thank you.

Alright. Thanks.

Our next question comes from Jeffrey Campbell with Alliance Global Partners. Please state your question.

Good morning.

Hi, Good morning, first I wanted to first I wanted to ask about the Capex spending cadence the first quarter 'twenty. One look like there was about maybe 10% of current guidance.

I'd like it was mainly completion costs, one short laterals and I think you said you got a rig going in March. So I was just wondering how do you.

Not not assuming the second rig that the guidance we have now howdy.

<unk> spending unfolding over the next three quarters.

Hey, Geoffrey this is easy it's basically spread out equally quarterly.

So you think we're going to work.

Keep the rig busy all year long, so thats sort of a fixed cost and then you and then you figure out when we have completions and we'll kind of complete wells in batches and so that that.

<unk> cadence is about equal over the rest of the year. The production cadence ended the year's completions don't really pick up until the first quarter of next year, but that's the cadence it'll be equal through the rest of the year.

Oh no I appreciate that.

My second question is without it I'm not asking for.

So granted specifics here, but.

To help us modeling.

If you decided to bring the second rig on.

Can you give us a range of costs this year and just maybe a range of them per monthly cost do you anticipate that net.

Red might contribute to that.

To the spending.

It's really going to be dependent on when we start but we bring a rig on even in the latter half of the year, we're probably only going to have drilling costs and no completion costs until the very end of the year with that second rig just to build up some inventory to frac. So.

I don't know if it's exactly half, but if you think about what we spent in the first quarter or a cadence of equal for the rest of the year at roughly 25 million bucks or so or 30 million Bucks a quarter you can say half of that capital is to a rig.

Without the completion side, so I don't know that's order of magnitude.

Jeff I would just gas and again it depends on timing.

Probably add $30 million to $40 million of Capex in the 40, probably includes a little bit of completion activity of 30, probably doesn't so it just depends on.

July one which is going to and we're not going to pick up a rig July one, but that looks a little different than September one, but I think $30 million to $40 million is kind of a fair guess.

Yes, that's very helpful. I appreciate that and for my last one.

Regarding M&A. This I'll ask this in a more broad way.

As oil prices have firmed and some analysts are calling for even higher prices.

Do you think this increases or reduces your opportunity set as you continue to look to consolidate small cap E&P space.

Yeah.

It will definitely increase the number of opportunities we get to look at.

I'm not sure. That's what you were looking for does it make us any more likely to be able to acquire assets. A lot of these are asset opportunities go through competitive processes, and our discipline isn't going to change.

Just because there's more activity or oil prices are up we're going to keep the same financial and technical discipline and we'll see if we're successful or not.

No that was what I was looking for.

[laughter].

Our next question comes from Scott Hanold with RBC capital markets. Please state your question.

Yes, I think so.

Just curious on your pro forma asset base, including tracker, what do you all see as sort of the ideal rig count obviously you discussed.

Our likelihood of bringing a second rig is is that the ideal pace and cadence.

With the pro forma assets that we shouldn't think about it through 2022, assuming you know obviously no other M&A or bolt ons or is there a point, where three is really the most efficient because it lines up with adding a full time frac crew.

Scott, we've been really fortunate and Steve and his team working with our vendors that we're not overly concerned about lining up a frac company with our number of rigs perfectly.

That we've got a good good relationship with our vendors to the point, where they know what our schedule is so I think if we go to two rigs we can keep our efficiency and our timing about the same.

And we don't necessarily have to have three rigs running so we can have a full time frac crew.

So I don't know that we know the optimum yet, but I'd say right now two rigs looks pretty good and we still develop a lot of free cash flow and we continue to de lever to the point, where we get sub one times in 2022 without any issues running two rigs.

Okay that makes sense and just another question around M&A.

Can you just discuss for.

Corporate protect perspective.

How capable are you taking on a lot more like you know how big right now as your organization could you.

Double your size and still.

Be able to execute so so you know well how was the organization sized for potential consolidation down the road.

Yeah, that's a great question and.

We are sized to be able to handle more production, maybe not and activity, but maybe not double at the moment. So every transaction is a little bit different.

And these two transactions.

It's very minor additions.

Additions to our staff.

In the office, obviously theres some field staff and that's through low and will continue to work hard on that.

So I don't have a real good number for you other than we have the capability and the motivation to continue to grow.

And we've got the management team and the management plans and the next level of authority in place to where we can really.

Handle more than what we're doing right now we have great great staff, great team and I know, we can accomplish a lot more.

Okay, I understand then and if I could have one last one here and you all talked about you know some.

Some you know at least from the I think from the you know.

Frac cost going up a little bit from Lowe's and <unk> and unit noticeably in your presentation.

On page 14, where you show the 2021 expected range.

Went from 40, Kate of 40 to 45, and and you know obviously it seems like you're able to handle this in your capital budget. If you. If you could confirm that was sort of baked in there you know originally or there's a little bit of leeway for that plus secondarily. You know if you could discuss where specifically is that.

The pressure coming from.

Sure Yeah, I'll handle the first part and let Steve handle the pressure part, but are where the pressures R&R in our costs that we're seeing but the first part is we definitely had a little bit of inflation built into our.

Capital plans on thoughts for the year, we just didn't know what it was going to be and I think we were surprised a little bit on some of the costs continually continuing to inflate.

We were hoping they would subside after the first quarter steel prices for instance, and I stole some of Steve's Thunder, but steel prices for instance, do we thought might level off and they continue to be still continues to be a hot commodity in the entire economy of the world and growth. So.

But we definitely had some inflation built into our thinking so Steve.

Yes, Rob that you are right on the drilling side. It was the steel on the completion side.

Probably the two everything has drifted up just a little bit which we expected.

Sand prices, probably are the largest factor in that but they have leveled off pretty good.

Yes.

Sand suppliers.

Kind of ramp up their production level.

And their employment level things are getting a little better.

Fuel cost is a big one to diesel has gone up quite a bit. So those are probably the two biggest numbers, but they also seem to have leveled off. So I think we are you know our models are correct.

Scott, It's Mark I would just add and you know in the fourth quarter, we kind of felt like that was the lows on the frac side, and we completed a longer lateral pad for a little under 38000 per stage and that was really good.

What we just did here recently was more like 43000, a stage that was a short lateral Steve mentioned, there is some cost and efficiencies.

On the short lateral and because that was like 4600 foot laterals.

And at a smaller pad like that probably 43000 on that pad is probably equivalent to something more like 40000 on a longer lateral.

So just a little context there.

And yes, we did bump up the range for the year from 40 to 45, partly because we do have a little bit of a shorter lateral.

Program in place then we probably will next year, but also just a little bit of cash on the cost side. It doesn't affect what we think will ultimately deliver as Robert mentioned, we had a little bit of cost inflation.

Into what we put out for guidance, but it probably takes away the cushion.

Understood. Thanks.

Our next question comes from John White with Roth Capital. Please state your question.

Good morning, and congratulations I thought it was a strong quarter.

You reported.

Significantly higher.

NGL price than I was expecting in.

I've seen several other companies report higher than expected NGL prices I'd be interested in your comments on on that market and the strength behind it.

Hey, I'll tell you one little piece do you buy propane John go look at your propane costs, because they have gone up tremendously I buy a fair amount of propane so to Steve just because of where we live but.

That is one key mark Mark dive into the details I'll, let him handle it.

Yeah. Thanks, Thanks, Jonathan Good question.

Yes, we'd love to probe the propane price in the NGL pricing in the first quarter and there are some positive things going on there and potentially some more positive things in the future.

Yes, the biggest pieces if you look on a barrel of liquids about 35% of it is propane at about 35 per cent is ethane propane prices were exceptionally strong in the first quarter, they've come down a little bit since the quarter in April I think there was a week period, where they're down about 15%.

But they have kind of leveled off and actually flipped into a little bit of contango relative to Brent here recently.

That strong pricing.

I'll also say that we did reject ethane and probably about half of the volumes for the quarter the impact of that as we have a little bit lower overall reported volumes at.

It probably shaved.

For 500 barrels a day equivalent all of our production for the quarter.

But the result is you get a higher NGL price, probably a buck or two and a slightly higher gas price.

So that also sort of.

Add a little bit of boost to the NGL pricing because you end up with less ethane in the barrel. So it's a heavier barrel that youre going to get a better price per dollar of the barrel for I'll also say that here. We are in a situation where a year ago, there was tight transportation and fractionation of.

Permian liquids and Thats really flipped theres very adequate.

Availability of fractionation and takeaway capacity and it sort of flipped the dynamics around in terms of yes, we've got a little more of a chance to go try to negotiate some better rates on the fractionation in particular, and we're actively doing that I'm optimistic that it's going to.

Give us a little bit of other.

Other things being equal boost for the NGL prices going forward, but that is not done.

I'd say it was really reflected in the first quarter, but its positive there the propane market in particular, it's very tight it's not necessarily correlate with WT I am parts of the barrel are.

Propane is the biggest piece, that's not necessarily correlated with with Dolby Ti and we're pretty bullish on propane just given where things sit from a production and storage.

And potential demand perspective, so that's really a strong result, I mean honestly, we lost chocolate production in the quarter because of the February freeze, but the NGL price increased from a cash flow standpoint, almost completely offset that.

I appreciate those details so to sum up it's ethane rejection and stronger propane pricing.

But more of the propane than the ethane rejection, yes.

Okay and with all due respect Robert I don't buy any propane I have natural gas.

Yeah.

You need to buy some propane John.

Help us out.

Yeah.

Thanks, John.

Our next question comes from Noel Parks with two Oh. He brothers. Please state your question.

Okay.

Good morning.

I know.

I was wondering given the couple of transactions now.

You've done or in process of doing this year.

Just a sort of a ballpark.

At the current strip.

And assuming with higher prices.

Sort of cost base revisions from last year on there was proved reserves would have gone away can.

Can you.

We're also assuming a second rig can you roughly ballpark what your pro forma proved reserves might look like after the transaction.

Oh, that's a good question and as we file.

Our proxy youll, probably see more information regarding that but if you look at our investor deck.

We actually do have a reserves summary in there.

And we break it out by entity.

Proved developed and.

And then total and we've got Burrstone IRS and tracker now the dates aren't exactly the same and it's at $50 oil, but you can do some some rough back of the envelope calculations to see what that does in terms of value.

Other than that we're not going to go too much farther into the details until we get our proxy file.

No Thats fair enough.

And.

Yes.

I'm wondering a little bit as well.

Well two things.

<unk>.

Looking for a lot of deals before you arrived at the ones that you took so I guess I'm interested in hearing more about what was on the market that you took a pass on.

Also.

Just wondering as you look at the Midland in particular.

The more developed including legacy developed vertical parts of it and the less developed.

How do you how do you weigh that and.

And looking at.

What's attractive to you.

Sure.

Just thinking at least where we're at.

Third as Archie maybe inherent more in the way of.

Completion inflammation and what's optimal for what's going on with it and the subsurface as opposed to areas with oil and more running room that maybe might take a little worse. So I guess those areas that probably dwindling at this point.

Yeah, that's a good question and it doesn't matter what we've looked at in the past or what we look at the future. We keep the same view and as we gain scale and bigger bulk in our production. We probably can look at more deals that have upside or running room, but generally speaking we like a <unk>.

Combination of.

Strong cash flow therefore production base.

And it's got to fit within our structure that we talked about is low cost structure high margin.

We might be a little bit ambivalent as what the ratio of oil to gas is.

But generally speaking this basin is outside of as you move east a little bit it's pretty oily right I mean, 40% to 50%. The tracker is a little bit lower than that but it's still attractive to us because it's a low cost business.

And we will continue to look at deals like that again, as we gain size and scale on our base production and cash flow, we're going to look for opportunities that have inventory, but we're not going to go out and do a deal thats, 100% inventory.

And borrow money to go do that.

In fact, most of the deals we're looking at come with production and sometimes they're a little bit lopsided, one way or the other but.

Everything we've looked at in the past.

Year or two.

Has some component of both of those and it varies.

Great. Thanks, that's all for me.

Thanks, Phil.

Thank you for just a reminder to ask a question at this time press Star one on your telephone keypad to remove your question from Q you can press star two on your telephone keypad.

Our next question comes from Gail Nicholson with Stephens. Please state your question.

Good afternoon, you guys already have a very competitive cash margin with your larger cap peers. Despite a smaller production day.

But I wanted to dig into a bit more when we look at that <unk> 21 level at sub $6 per BOE you had some anti normal weather in the quarter and then I think you had a little bit more normal workover activity than the normal the normal pace and we remove those two.

Hello, We then and then more importantly, when we look at the transition from ESP and gas lift how should I think about that improving the <unk> going forward I know you talked about being towards the low end. This year for the guide range, but really when we kind of clear 21, I mean, it's kind of been a five to 550 world in 'twenty two board.

Well, we would definitely hope so and were targeting that as an internal goal.

Gail, but we're going to we're going to leave some of that cushion on our on our side for a moment until we figure out how these wells are performing in terms of the cost side.

Our target without the LOE is definitely below $5, a Boe I'm, sorry, without the workovers below $5 a Boe the tracker assets are going to are.

Going to help us and once we get some new guidance out there for you.

You'll see that we're going to be really competitive with our peers then.

Gail it's mark here, just just on the first quarter I mean, I cannot leave before surprised when the numbers came out of the alloy as well as they did and that was even versus March when I had seen a couple of months free lump stuff.

Yes in terms of the Workover that was about what we expected, which was elevated and that'll still be a little bit elevated at least for the second quarter, but that's probably about it where we did really really really well and.

Probably a 30 or so.

Wing and LOE per BOE was on the direct <unk>, which excludes the workover. So the non workover piece.

I mean honestly, it's just a testament to Steve for the folks in the field.

Doing the things we talk about doing that are very focused on reducing cost structure and some of that is some of the initial effect of moving some of.

The lift mechanism.

Thinking about going forward.

I think there is upside.

You know we're not the.

Team that usually is going to over promise anything and come up short.

And we're probably hesitant to tell you things might come out a little better than what we told you before.

But there is some reason for some optimism if we continue to execute.

I'd love to sit here and tell you that we're definitely going to be below the range for the year, we've really only seen one full normal month of IRI them. Because we closed in January February was messed up because of the storm so we'd like to see some more months like that but the early trends are really good and really a testament to.

The Archstone approach took to manage the assets in the field.

The other big swing thing in all of this Gail as Workovers arent necessarily planned.

When bad things happen in the field in terms of somebody Fracs, a well and it hits you.

And it was a good well and we have to go spend some money to return it to production.

Those are kind of nonrecurring events that at least we hope they're non recurring that are really hard to plan on so.

That is what we hope to avoid.

Throughout the rest of the year.

Great and then I know, there's moving pieces in the back half for here at the track of what we will get the.

Legacy position of the asset base and the completion tempo and CIL.

Project production trajectory for the rest.

On a quarterly progression free time, I think it's down to queue up for re queue kind of flattish for Q pre tracker or any detail that you can provide there just on top of the P&L.

It's probably a little flip flop of that I mean for the first quarter were a little over 20, but that was as Robert mentioned 500 Boe per day sort of artificially low because of the storm.

At the end of March we are definitely.

Decent bit higher than that so we're starting from a base for the quarter with the production. We brought on in late March were probably up a little bit in the second quarter.

And then maybe kind of a step down in Q3 and kind of roughly flat in Q4.

Okay, Great I appreciate the clarity thanks, guys.

Thank you and that's all the questions we have for today I'll turn it back to Robert Anderson for closing remarks.

Okay. Thanks, everybody. We appreciate the time and now it's been a long day. So we'll hop off and go back to work and we'll talk to you next month or next quarter.

Thank you. This concludes today's conference all parties may disconnect have a great day.