Q2 2021 Magnolia Oil & Gas Corp Earnings Call
Good day, and welcome to the Magnolia oil and gas second quarter 2021 earnings release and conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be and opportunity to ask a question and ask a question you May Press Star then 1 on your touched on phone to withdraw your question. Please press star.
And then 2 please note this event is being recorded.
I would now like to turn the conference the over to Brian Corrales Investor Relations. Please go ahead.
Thank you on Lee and good morning, everyone welcome to Magnolia oil and gas in the second quarter 2021 earnings conference call participating on the call today are Steve Chazen, and I know he 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 and other forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied and these statements additional information on risk factors that could cause results to differ is available on the company's annual report.
And on form 10-K filed with the SEC a full safe harbor can be found on slide 2 of the conference call slide presentation with the supplemental debt on our website you can download Magnolia of second quarter 2021 earnings press release as well as the conference call slides on the investors section of the company's website at Www Dot Magnolia oil and gas dock.
Com I will now turn the call over to Mr. Steve Chazen. Thank.
Thank you. Good morning, Thank you for joining US today My comments. This morning will focus on our first partial semiannual dividend, we declared yesterday and some.
Thoughts around our differentiated dividend framework.
I'll also discuss how we plan to allocate our capital of the free cash flow and the remainder of the year. Chris will then review our second quarter results provide some additional guidance before we take your questions.
Magnolia its business model and a disciplined approach of our capital investment has not changed since our inception, almost exactly 3 years ago. Despite.
Despite the volatility of your own product prices, we continue to consistently execute on our plan as demonstrated on the strength of our second quarter operating and financial performance, which included record net income and earnings per share.
Our plan has not changed we believe the business is fundamentally improve resulted in the strong productivity and efficiency and our giddings asset.
The other of our key corporate goals was to generate EBIT or equal to 50% or more of a realized BOE price. This is the.
The findings of accounting profit after all costs, including the <unk> DNA, but before interest and taxes, our average realized price and the quarter was $42.42 per Boe and <unk>.
EBIT of $21.85.
Strong margins are a direct result of our team's focus on cost control safety well productivity and.
This was especially pleasing to me because it's always been a corporate goal to earn a half of.
On the product price.
The quality of our assets and the business on burdened by a large debt should allow for continued moderate production growth with high operating margins, we will generate significant free cash flow at much lower prices and.
We now believe this can be achieved by spending within 55% of our EBITDAX on drilling and completing wells compared to spending within 60% previously.
Our share of total shareholder return on its allocate and the 2 main buckets, the largest being to improve per share metrics of the company by reducing our share count the.
The first half of the year, we repurchased 7% of the total shares.
And assuming a repurchase of 1% of the shares each of the next few quarters. It would provide investors with a 9% return before paying recently announced dividend.
Our differentiated dividend framework is aligned with the principles of our business model and designed to reinforce our plan.
I would characterize our dividend a special nor is it a function of a windfall product prices.
And the center approach is meant to a feel of a long term investors the seek dividends of security and sustainability moderate and regular dividend growth and dividend is paid out of actual earnings.
We believe our framework provides for a this rather and stretching for yield and trying to mimic and MLP or a royalty trust.
Dividend announcement yesterday conveys our continued softness of the business plan and the quality of our assets.
The first interim semiannual dividend of <unk> of shares payable next month, the secure and sustainable.
And oil prices below $40, a barrel and natural gas and NGL price of around half of their current levels.
We plan to declare the remaining annual dividend next February with the release of our fourth full time full year 2021 results. The second payment will be based on our longer term view of a product prices are approximately $55 a barrel of oil as well as the prior year's results.
We expect that each of these regular dividend payments should grow annually based on our ability to execute our business plan, which includes a moderate production growth and a reduction of our outstanding shares.
The dividend and will be paid out of real earnings. The total annual payment will not exceed 50% of the prior years reported net income.
While the stock prices are often volatile and both behave unpredictably, we want the dividend and to reflect the reality of the business. Our intent is to use this dividend framework and demonstrating the underlying results of our business and a stable product price environment.
Including the dividend. This framework provides ample free cash flow to repurchase our shares as well as to pursue a small bolt on and oil and gas property acquisitions that are accretive to our stock improve and improve our per share metrics. The.
All of us to provide superior total shareholder return by improving the first year value of the enterprise, while providing a secure and growing dividend.
Our disciplined capital investment provided 4% sequential organic volume growth and the second quarter, but most of our free cash flow allocated towards repurchasing our shares and the first half of 2021, we generated approximately $235 million of free cash sent more than 2.
$200 million, reducing our share count by $17.6 million shares or about 7% of the total shares outstanding the.
The approach start allocating our capital and free cash flow and provide the volume growth of 7% for the.
And fourth quarter of 2020 level on enhancing our per share metrics, and leaving our cash position nearly unchanged and around $190 million of mid year.
Plan to continue to repurchase at least 1% of our outstanding shares each quarter.
Okay.
We added a second operating rig and at the end of the second quarter was occurring currently drilling wells and Giddings field.
The plans for this rig to drill wells on both the current and getting the areas, including some appraisal wells and getting the out of the.
The operated well and will continue to drill multi well pads and theyre giddings areas, our capital run rate and expect the increase in the back half of the year 2 of the additional rig and activity, although our total capital of the far below our normal business model of spending levels as a percent of adjusted EBIT ex.
A portion of our capital and activity and the back half of the year of the directed toward drilling completing and some gas a year of wells in karnes and giddings and the benefits of recent strength and natural gas prices.
Basically this is a part of this thing we had some ducks and karnes, who we're going to turn the wells on.
Later in the year and when get with gas prices were strong we looked at the screen and we saw the gas prices were already strong.
We remain on hedges on oil and natural gas hedges put in place a year ago has expired. So we fully benefit from a higher prices finally of the universe of operating and other agreements with term and at the end of the quarter.
As all of the inclusion of the operating agreement, we expect and realized G&A savings of approximately 60, a barrel going forward.
To summarize our consistent and significant free cash flow generation combined with improved efficiencies and greater productivity and giddings, we can do more with less all while maintaining our low cost structure and strong balance sheets less production is needed to generate moderate growth resolve the more free cash borrowings to further enhance.
Our business through share repurchases and a small bolt on acquisitions.
A small a regular secure and growing dividend and outcome of this plan.
The current environment for a Magnolia presents a significant opportunity set we have strong cost management low capital intensity and and unexpected high product prices generates significant amounts of free cash flow Magnolia has very little debt and continues to build cash at the same time of the stock market in my view.
It's not anywhere near a intrinsic values for us and many others on our industry. We believe we have the opportunity over the next 18 months to make large purchases of stock.
This confluence of events might give us a chance and materially reduced our share count.
This is usually difficult to achieve a material reduction of share count without changing debt levels will inevitably lead to higher returns on capital employed and faster growth and earnings cash flow and free cash flow per share debt than we could have achieved without the buybacks will set a dividend rate and a secure levels.
And based on moderate long term prices by dedicating the vast majority of our free cash flow a significant sensible share repurchase future predictable and important dividend growth is highly likely likely without increasing financial risk.
I'll turn the call over to Chris.
Thanks, Steve and good morning, everyone and.
We've mentioned a plan to review some items from our second quarter results and provide some guidance for the third quarter of the remainder of the year before turning it over for questions starting with slide 4 and the quarterly presentation Magnolia delivered very strong second quarter of 2021 financial and operating results. The company generated total reported net income of a 116 million.
And a 48 per diluted share.
During the quarter, we had $19.2 million of pre tax special charges, most of which was associated with the termination of our operating services and other agreements with interest.
After tax affecting these items our total adjusted net income for the quarter was a $135 million or <unk> 56 per diluted share.
Both reported and adjusted net income were quarterly records from Magnolia and were well ahead of consensus estimates.
Net cash provided by operating activities was $188 million during the second quarter and a fully diluted shares average $242 million during the period.
Our adjusted EBITDAX was $195 million and the second quarter with total capital of $54 million for drilling and completing wells.
Total second quarter production grew 4% sequentially to $64.9000 barrels of oil equivalent per day with both of our karnes and giddings assets contributing to the increase and total oil production grew 11% sequentially and year on 32000 barrels per day the.
The sequential improvement and our quarterly financial results benefited about equally from both the increase and product prices and our production growth.
While oil prices have risen and further into the current quarter prices for natural gas and Ngls have been particularly strong.
Looking at the quarterly cash flow.
The chart on slide 5 we started the second quarter with a $178 million of cash and cash flow from operations before changes in working capital was a $175 million during the quarter with working capital changes and some other items benefiting cash by $21 million, our D&C capital spending was $54 million and the second quarter and we allocated 100.
The $21 million towards repurchasing our shares and reducing our fully diluted share count by approximately $8.6 million shares.
We generated a $134 million of free cash flow and the second quarter and ended the period with a $190 million of cash on the balance sheet.
Slide 6 illustrates the progress of our sheer reduction efforts since the original share repurchase authorization was put in place and the third quarter 2019.
Since that time, we've reduced our total diluted share count by $29.1 million shares of about 11% and under 2 years.
For 2021 year to date, we have spent $209 million toward reducing our fully diluted count by $17.6 million shares a plan is to continue to repurchase at least 1% of our.
Outstanding shares each quarter, we currently have $10.5 million shares remaining under the current repurchase authorization.
Magnolia remains unburdened by a large amounts of debt on.
$400 million of gross debt is reflected on our senior notes, which do not mature until 2026, and we do not expectation of the new debt.
We have and an undrawn $450 million revolving credit facility and our total liquidity of $640 million, including our $190 million of cash is more than adequate to execute our strategy and business plan.
Our strong balance sheet consistent free cash flow provides a strong element of security and Mr. Product price volatility is also an advantage and allowing us to opportunistically repurchase our shares pursue small bolt on accretive acquisitions and pay a sustainable and growing dividend.
A condensed balance sheet and liquidity as of June 30 are shown on slide 7 and 8.
Turning to slide 9 and looking at our unit costs and operating income margins. Our total adjusted cash operating costs, including G&A were $11.18 per Boe and a second quarter income.
Including our DD&A rate of $7.32 per Boe of which is generally in line with our F&D costs on operating income margin for the second quarter was $21.85 per Boe or 52% of our total revenue.
And as Steve referenced earlier, our business is fundamentally improved and large part due to the strong productivity and efficiencies of our giddings asset our second quarter production and getting the <unk> grew 55% from last year's second quarter and with the oil production growing 97% from the year ago period.
Recent giddings wells have averaged approximately $6 million with continued efficiencies offsetting some of the modest inflation experienced in the field.
The results of recent wells drilled as part of our early stage getting development continue to be representative of a strong outcome. We previously disclosed as part of this program and with continued strong oil production scene.
Slide 10 helps to illustrate how our business has improved compared to 2019.
And while our current total production is similar to 2019 levels Giddings now represents more than half of our overall volumes compared to 1 third in 2019 and more importantly, our level of D&C spending. This year is expected to decline less than 40% to lessen and 40% of our adjusted EBIT tax compared to 60% and 2019.
Moving to higher amounts of free cash flow and a more profitable business.
And our expectations of that we will of reduced our diluted share count by 11% over this period.
All of this has been accomplished at the product prices that are similar to 2019 levels.
Turning to guidance for the remainder of 2021, we expect a full year capital to be well below the spending rate of 55% of adjusted EBITDAX to generate moderate long term production growth.
The addition of a second drilling rig in late June our total D&C capital for the second half of the year is expected to be between a 150 and $175 million.
The second rig is currently drilling wells and the getting steel and we ultimately plan to use this rig to drill wells and both the karnes and giddings assets.
Including some appraisal wells and giddings.
We expect on a smaller portion of the production impact from the second rig to be seen later this year with most of the benefit not reflected until 2022.
Our other rig will continue to drill multi well development pads and our giddings area.
Looking at the third quarter of this year 2021, we expect production to average approximately 67000 barrels of oil equivalent a day, representing a sequential increase of about 3% compared to second quarter.
A portion of our capital actions and activity will be directed towards drilling and completing some gas wells and both karnes and giddings and order to benefit from the recent strength and natural gas prices. This includes the completion of several prolific natural gas wells in karnes.
And as Steve mentioned, the natural gas hedge we put in place a year ago has ended and we are now completely unhedged for both oil and natural gas, allowing us to benefit from the recent strength and product prices oil price differentials are anticipated to be approximately $3 a barrel discount to <unk> during the third quarter the.
The third quarter fully diluted share count is expected to be approximately 237 million shares and is expected to continue to decline further by year end due to our ongoing share reduction efforts the.
Interest operating and other agreements were terminated at the end of the second quarter, resulting in several onetime cash and noncash charges that I mentioned earlier as a result of the conclusion of the operating services agreement the run rate for a cash G&A costs beginning in the third quarter is expected to decline to approximately $2, a boe compared to $2.60 per.
During the full year 2020 are in excess of 20%.
Finally, I want to mention the Magnolia issued its first corporate sustainability report and the second quarter. The report demonstrates Magnolia is commitment to sustainability outlines our core values and objectives and a justice factors that are important to our investors and other stakeholders of.
A brief summary of this report as shown on slide 11, and the <unk>.
And is available on our website.
To summarize Magnolia is high quality assets and capital efficiency efficiency should continue to generate strong operating margins and sizable free cash flow, allowing us to execute our strategy and contribute to our total shareholder return proposition, we're now ready to take your questions.
We will now begin the question and answer session.
Ask a question you May press Star then 1 on your Touchtone phone.
If you are using speaker phone please pickup your handset before pressing the keys to.
To withdraw your question Please press star.
And then.
Our first question today comes from Oman, Choudhary with Goldman Sachs.
Hi, good morning, and thank you for taking my questions.
Sure Good morning Omar.
Thank you. My first question is on cash flow and how you plan to deploy a free cash flow and you talked about increasing the dividend next year based on a few if I don't know.
Long term oil prices and.
GAAP capping it at 50% of earnings.
I was wondering if you can help us putting them on.
We should think about the excess free cash flow after you pay the dividend.
How would you kind of combating the opportunity to buy back shares versus investing towards the growth given the root zone and so just generating on organic operations without some of the attractive at current commodity prices.
Okay.
The business model and really doesn't change.
To constrain us we use the 55% of drilling to keep us from trying to of China.
Profit up or speed the drilling.
And provides for a reasonable and mid single digit growth rate and the business and Thats really our target.
As I said in my remarks.
A.
The focus now because we believe there'll be large amounts of our stock of available for sale over the next couple of years.
And is on share repurchases the share.
The.
When you model the share repurchases at a reasonable price into the model. It has a dramatic effect on our earnings our cash flow per share and all of those things.
Drilling more wells is really not and the cards, except based on the 55% so.
If you think about the dividend this way, we give the information of how much we could afford a.
At $40 oil that's.
And that's what this interim dividend.
That's information for you and we can say that we get very safely pay that type 2 so a 16 cents a year.
We're going to re price the whole dividend and package next and February that's going on.
A larger dividend than the <unk> for sure we're going to reprice. It based on our results. This year, we're going to take this year's result, repriced to the lower price because we believe that's a long term value.
Long term price.
And so the dividend per se.
So it is much less and we could in theory for to pay but the the share reduction.
And I'm trying to build value and the stock.
The the ought to be clearer about we want the stock to go up.
And not from dividends the dividend after we get through this period, where we have this opportunity to buy shares.
And then we'll reevaluate the dividend plan, but right now it's very rare to have the opportunity to buy so many shares and bring the capital structures such that your return on capital employed of significantly enhance your all your mec share metrics and we Havent raised we haven't increased the risk and.
The company because of the debt stays the same the sofa.
It's a strategy to make the stock go up.
On a dividend.
2%, 3% whatever it is the stock varies at every day.
And our.
So the.
The.
The dividend is a placeholder for the future and as we get through this period, we'll be able to pay a regular a safe dividend a rig.
But a regular growing dividend.
Think about it.
If we grow the production profitably and 5 or 6% a year and we buy and 4% of the stock each year.
You could have sort of a 10% of area dividend growth.
And we think for many investors thats and attractive outcome.
Especially from me.
So that's the story.
Gotcha and Thats really helpful. Thank you.
And I guess my next question is probably more on the operations side.
Maybe you can talk a little bit more about the giddings program.
Any update that on a prison active would be any any anything you've just seen recently from a well performance.
Thank you and we have 30.
We have over 30 wells and the core area at this point.
And they are highly predictable.
The newer wells look like the older ones, except maybe a little earlier.
There is nothing really new and some of them haven't been on a long enough to sort of to.
A measure of everything, but we're highly confident we're getting great predictability great.
Great outcomes of course, and this environment are we looking as good but and the decline rate is low and the reason we can reduce a reasonably when we started we were karnes producers of the required rate was real high here of the decline rate is much less so we're much less capital intensive and that's what's driving this whole thing.
And the.
And there's nothing going on at Giddings, there wasn't the same as last quarter and the quarter before we just have more and more wells and we've got a lot more to drill.
It's a very positive story of at this point.
That's why we tried to draw the comparison of new money between now and 2029 and soda.
Indicative of what's happened over the last couple of years, it's much better and it's clear and it's much better and I thought it would be 1 and we bought the giddings asset.
I would not of imagine the Saka I think if I looked at my plan that we put together when we started we're sort of a near 6 of the plan and this is.
3 years.
Those that had some comments and we are seeing the same thing and the core data.
And when we do well. Thank you so much for your comments I appreciate it sure.
Thank you.
Our next question comes from Leo Mariani with Keybanc.
Hey, guys wanted to stick with the operations here I think you guys, a clearly identified and the path that you've got a 70000 kind of core acreage position within a much larger footprint.
<unk>.
You talked about kind of 30 wells and the core I guess do you feel that those 30 wells of sufficiently.
Sufficiently appraised and entire 70000 acre sweet spot and I know you're going to do some further appraisal work this year with that second rig so what's your thoughts on the potential of expanding that 70000 acres.
Late this year and into next year and.
And would that be a contiguous expansion of your more we're looking at other sweet spots and the greater 430000 acres.
No.
The answer to your question is that we continue to step out.
And Ed.
And that's true.
A simple as that.
We have sort of a model if you want to think of it that way.
And step out and add every time, we get a well we can add some more data we try different kinds of spacing that sort of thing.
Yes.
And I hate I hate sports analogies.
But if we want to go to a baseball, which I think has 9 and a trend and I mentioned.
Brian and assured we that's right.
And.
And we're sort of and sort of in the second inning here.
And we.
We have other areas. We're looking at we don't want to talk about them because of.
And there is still a leasing and that sort of opportunities and.
And.
We want to retain those rather and tip somebody office of what we're doing the core area continues to grow and continues to have significant opportunities for more.
And the spacing is still a work in progress.
And when we talk about extensions or whatever this is testing other areas to figure out so see if we can build the model and some other area. We don't really know the answer to that at this point, that's why we do of the global wells.
You can always imagined and answer.
But and.
And Fortunately have to drill a well the figure it out and then what you find is the well may be good or bad or indifferent and it gives you a data. So you might have to drill 2 or 3 more wells the figure out of it's really true.
Went to a gas area a couple of quarters ago, We think those are the.
And the gassy, well make a 600 barrels a day of oil and black oil so.
And.
At some point, we might start developing that but we try to keep our capital under control.
This is a.
We're not trying to.
We're trying to maintain a.
As a mid single digit growth rate and I'm not trying to burn all of the money drilling wells.
And with all the things to do we want to pay dividends and want to buy shares on.
All of these things are important for a small company.
Small company.
The stock needs to go up.
It's not an MLP, it's not a.
Royalty Trust you don't want a dump all of the money out the.
And the money and small companies made by the stock going up.
And it's a.
A different model and some large company.
Just a different way of thinking about things just because of the small.
However, weakness.
We might we might near a 1 billion and sales.
Okay very helpful for sure in terms of the way you guys are thinking about it.
Wanted to get you a question on the on the 2 rig program you guys theoretically talked about kind of a 5% to 6% production growth longer term Steve.
But just looking at the data you guys have grown more than that just running the the 1 rig.
For the past several quarters and I know there was some benefit of ducks in there, but are you of any concern that kind of running 2 rigs continuously to continue to see such a strong well performance at giddings kind of puts the growth a little bit into overdrive or are you kind of happy to grow a little bit more of the well results are outstanding.
The next year.
We will take what we can get.
But.
Thats correct.
Okay.
I think we want.
We do want to spend maybe not 50, but we want to spend some money the problem with 1 of them running 1 rig is the.
Error bar.
Because 1 rig.
Rigs delayed 2 weeks for something and it makes it makes the extra noise and the other thing thats going on is the and the reason some of the numbers are a little different than we had hoped as the.
The non op activity, not a giddings, but and karnes is.
And.
The and less and we bought.
And so.
This gives us more control over of the outcome of the second rig.
I suppose if I wanted to manage the production better I could shut in the wells, but doesn't seem all of it seemed like at all a good of an idea.
But it's possible.
And if things go well that net.
<unk>.
The next year, we could exceed the number.
Yes, no and that makes a lot of sense and I guess, just lastly, I just wanted to kind of clarify the mechanics.
Of the the growth and the base dividend.
And as the barrel a variable dividend you certainly talked about kind of reassessing everything.
And in February, but I, just wanted to kind of make sure I understood.
It sounds like there will be this semiannual base dividend and sustainable and a much lower oil price, but perhaps maybe just come full circle and talk a little about how the the variable dividend payout would work or not.
And be a very.
I'm not going to be a variable dividend.
Okay.
On a taken off the table okay.
I listen to all of these other guys calls and I was confused.
So I think the sockets that we would run was selected and industrial companies.
You have a very secure dividend and we give you a defined numbers of how we computed.
And we know that there is room to grow that dividend, but not in a variable way.
And a way that is based on results.
And I'm trying to convey information to you about our business can't rely on the stock market and do that so we're trying to convey information about how strong the business is at.
Fairly low oil prices that we can afford to do this.
The point of the dividend.
And so I like dividends 2 of my wife, a specially but.
And that's really the point of this know now this will evolve over time.
But.
A variable dividend.
Dividend and investors care about 3 things.
The care of buses and safe that is it's a balance sheet issue.
They care about the this paid out of earnings not out of smoke.
And then and they care that a grows.
That's what we're trying to deliver on this dividend.
Those 3 factors it's safe.
It's out of earnings and it grows that's the plan over time, it's not complicated.
And it's what.
The industrial companies do.
This isn't some scam to throw a bunch of money or the fully of the things are really good. We don't have any debt. That's the fundamental difference we don't have to pay down debt.
And so all of the cash that will be used to pay interest and buy and debt is basically funneled to the shareholders either and share reduction.
Or and some dividend payments over time more will be shifted towards dividend, but the fundamentally that's the plan.
And it's just like lots of people and the non oil and gas world to do that.
The trick the opportunity for us is the opportunity and this period to make significant.
A large company buys a $1 billion of stock out of his 50 or $100 billion.
Really doesn't change anything.
For us, we're buying large quantities and it will change our earnings and all of our metrics without harming our financial stability financial stability is a real important to me.
And thats it.
It's delivered I'm, sorry, but it's deliberately differ.
Thank you.
Thanks.
Our next question comes from Jack <unk> with J P. Morgan.
Hey, guys. Thanks for taking my question, maybe just a follow up on Leo's question.
And the elegance of spin $80 million to $90 million a quarter on capex and the back half of the year run and the 2 rig program.
I know, it's early but but as you look out do you see Magnolia continuing to run that 2 rig program through 'twenty, 2 and I guess just in general how are you thinking about activity levels with the current 2022 strip near 65 of the barrel.
We expect to run the 2 rig program next year.
If you do the 55% of the.
And there's plenty of money to do that.
Probably won't hit 55% of if you'd run the numbers growth.
Yes, im very cautious about operating activities.
I want them to be safe and wanted to be efficient and I wanted to be focused.
No and economical.
And I'm always reticent about expanding the activities too quickly.
But it's likely if the if the strip were right and the.
The unlikely event that is right I guess is the way to say it.
That will be on well under 55%.
And that will provide opportunity for other things, but you should plan on that I think the question about what the growth will be next year sort of depends and bend.
The timing and that sort of thing maybe depends on non op activity.
But.
That's the.
And a little more control and we have now so we can forecast better.
I don't see any reason to expand the business next year.
Sort of like where we're going now a sort of like the growth that we're getting now.
And so you don't want to.
And I like the low finding cost candid.
This is Ron is the.
Economical business.
It's not designed to.
So to anything but generate decent returns on it.
Something.
Medium cap or whatever it's called the investor would like to own.
And Thats the idea of we're trying to appeal of that.
And.
The reason the people wanted and these larger companies they want higher dividends and to keep the money away from the management lets the drill a bunch of stupid wells and so I'll take responsibility for not drilled and the stupid world.
Got it that's helpful color and then maybe just 1 quick 1 on the quarter can you talk a little bit about what drove your gas price realizations and this quarter you were at $3.48, which was well ahead of the Capex.
Okay.
No.
And it's just.
And we divided the sort of data.
Yeah.
Yes.
And looking obviously much better than and now than it was and the third and the second quarter sales.
NGL prices are really low.
I mean, you got to remember if you go into this quarter.
The third quarter.
These energy oil prices are.
A very attractive for us.
We don't we don't actually know.
Nothing special.
So much of that is checked with the cash.
Alright fair enough. Thanks for the question thanks for the.
Sure.
Our next question comes from Charles Meade with Johnson Rice.
Good morning to you and.
And Chris and Brian.
Thank you going back to your earlier comments.
Shutting in wells, so that you don't exceed your growth target debt that would really be a novel way to run it and I havent heard that 1 before.
Yeah.
Yep.
Steve You mentioned in your prepared comments debt.
Debt U.
See a lot of stock.
First sales.
And that you could do you could ramp up your buyback program passed that debt, 1%. So it's kind of a 2 part question on there.
Are you are there specific blocks and specific and Youre talking about there or are you more do more meaning just the the.
And the stock that's for sale of every day.
With daily liquidity and and then the second question is.
And if you're successful with your share buyback program and.
As you sort of what pointed out and making the share it and make the stock price go up at some point it would it seems like that would naturally come due and Ed so.
How do you how do you imagine that might play out.
We will start with the first question answered the first 1.
<unk>.
We have a private equity owner.
Owns about 35% of the company.
The used to own 50%.
So you see a lot and some of the larger companies they have private equity people. They sold off the stuff from and then sort of a dump the stock into the market.
To look at liquidity.
And here assuming oil over some period of time and I have no idea of what theyre going to do and those.
Both of those blocks will be for sale we bought.
Last quarter of 5 million shares from members of work.
And the prior quarter of the same thing.
So.
They have a life and.
And instead of a dumping into the market.
When the when they sell shares.
We will buy some of those shares so that everybody gains by his sale the.
So 7 million shares into the market, we might buy another 5 million shares so everybody not just the.
People, who buy the stock, but our existing shareholders gain because of the share count goes down.
And so unlike most people when the stock is and the private equity guys to all of the stuff that you just don't but and what we're doing is we're absorbing some of that and we don't have any idea of when or if for whatever reason understand kind of inside information, but given the life of the fund and the recent past you would expect the Soma.
Mark is going to show up over time, and we could actually go to them if we wanted and.
And maybe and buy some stock, but we prefer to do and part of and offering so that we don't pay too much.
Oh yeah.
And at some point, that's come through and Thats right.
But.
And we are set up we're set up I wouldn't carry the almost $200 million of cash now, we don't need $200 million of cash.
We do it on pay.
And the need arises.
So.
Our 2 or 3 years.
No no.
And we'll shift more.
Towards the dividend model.
It's very difficult and buying shares and the market.
2.2.
Assemble large quantities of shares may seem like it's a lot of volume that's really and in fact very difficult even buy and the 1% a quarter and open market is not that easy.
And this is like a unique opportunity over the next couple of years to really get the business. So the return on capital employed has significantly improved and.
And.
And we're tighter, but we haven't raised the risk does normally people don't the larger companies don't want to and.
Volume was buying and the shares because it increases their apparent risks of we've got a lot of debt we don't have the issue.
So I really think that it.
Just a different because of the way we're set up.
Always better to be lucky than good I think.
Right now you're painting, you're painting the picture well. Thank you for that and then what.
1 question about the.
And the current ducks and the specifics of the gassy.
Karnes wells.
Regard that as more of a you're kind of a high quality of our high rate oil area. So what am I missing that you guys have the <unk>.
A little off the <unk>.
And <unk> gas wells. This is the Haynesville wells.
And so just a little gas of the year than the normal okay. All we're trying to tell you.
Maybe maybe.
Lee.
Is that you should expect to see the gas percentage, a little higher mix quarter and it's been this quarter.
And we probably did in the a gallon.
And we try to make an explanation for it and we just we just did a total debt was going to be and that explain it.
Well the message received thank you Steve.
Yeah.
And it's all Brian's fall.
Yes.
Hello again.
And then.
Yes, we'll have to have a taco for lunch the competency.
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Our next question will come from Neal Dingmann with true Inc.
Hey, guys. Thanks for getting me and ahead of the class is lunch I know it starts early.
You never want to cash between him and lunch.
And well said.
And a debt and he doesn't share.
Hi, My first question just you mentioned the prepared remarks about the plan to go into a little bit more gas wells, obviously, given the gas prices.
Was this shift to always kind of been your plan I know some folks had mentioned there's some out there saying all of these guys of gas here and I don't believe that to be the case could you just talked about that plan, Steve and would you shift back to more oily later in the year or next day, they're really there really isn't much shift this is a tweak.
We're drilling oil wells, principally we have a gas a gas year area and giddings that we've talked about a couple of quarters ago I think.
Landing anything there, but and $4.
And I certainly tempted.
Because I'm a bit of gas bear for.
And maybe 40 years.
So.
So I attempt to flip of that that much. So we're on oil producers, we produced gas and Ngls.
And that's what we'll be you shouldnt over.
All of our emphasize is the shift so all we're trying to say is.
The a little gas a year because of the stocks and these wells, but we're not going to put a gas rig to work.
At this time.
I don't trust, the oil drillers, and I Trust gas drillers less controllable markets.
So the so Chris I mean, nothing different on the guidance there.
No no no no.
I think he said, it's not a shift not a shift this is a tweak.
The 1 or 2 quarter tweet or timing, yes, more and more timing because we were in and put the wells on in the winter of essentially.
And I thought.
Okay, Okay, well said and then my second is just on car and so on how many just ballpark how many locations you have left there and are there opportunities to do some small bolt ons and we'll continue to boost I know, what a year ago and getting the wasn't coming on a strong you're continually boosting some locations that are just your thoughts around how many you have.
Now and you can kind of keep boosting that day.
I think we keep a 3 to 5 year inventory and.
And we sort of keep it there and we look for small bolt ons and there is a lot of activity there from the sort.
Private equity and.
And we're not pressed and karnes.
To be honest.
And the financial statements of small acquisition small amount of money those are basically buying interest and very wells and stuff that we have mostly in giddings.
This.
I'm very focused on.
The capital efficiency.
And not spending and I got a well over here and it.
It doesn't decline as much.
Less of a bogey keep the production growth.
I'm not interested in.
Emphasizing the treadmill.
No I understood and then just I guess just the combination of the 2 I guess your oil.
Progression of the next late this year and into next year is going to be the same as it's always been that right yes.
Yes, it will be similar and we.
And also in Karnes, you've got a.
Got a lot of a non op ex.
Potential opportunity and that's the only place where and we don't have any control really over that and we don't know what theyre going to do and.
Some of our.
Forecasting issue is we can't predict it and it makes a little noise in numbers.
It doesn't make the locations go away, obviously, and we don't know what the thought process is of a lot of these people if there isn't a.
Very good thanks, guys.
Thanks.
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