Q2 2021 Northern Oil and Gas Inc Earnings Call
[music].
Greetings and welcome to the second quarter 2021earnings call.
Time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.
Please note this conference is being recorded.
Now I'll turn the conference over to your host Mike Kelly Chief Strategy Officer, you may begin.
Good morning, and thank you for joining us for our discussion of northern and second quarter 2021 earnings release. This morning before the market opened we released our financial results for the second quarter you can access our earnings release on our Investor Relations website, and our form 10-Q will be filed within the.
The next few days with the SEC, we also posted a new investor deck on the website. This morning as well I'm joined here. This morning, with northern CEO, Nick O'grady, our COO, Adam Dirlam, our CFO, Chad Allen and our Chief engineer, Jim Evans, our agenda for today's call is as follows Nick will start us off with his comments regarding Q2 and.
Our overall strategy after Nick Adam will give you an overview of operations and then Chad will review <unk> Q2 financials, and our updated 2021 guidance finally, our executive team will be available to answer any questions. Before we go any further though let me cover our safe Harbor language. Please be advised that our re.
<unk> today, including the answers to your questions May include forward looking statements within the meaning of the private Securities Litigation Reform Act. These forward looking statements are subject to the risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these forward looking statements. Those risks include among others.
And as matters that we have described in our earnings release as well as in our filings with the SEC, including our annual report on form 10-K, and our quarterly reports on form 10-Q, we disclaim any obligation to update these forward looking statements. During this conference call, we may discuss certain non-GAAP financial measures.
Including adjusted EBITDA and free cash flow reconciliations of these measures to the closest GAAP measure can be found in the earnings release that we issued this morning.
With that taken care of I will now hand, the call over to northern CEO Nick O'grady.
Good morning I.
I would like to thank everyone for joining us this morning, we've.
And we've had a very productive first half of 2021.
Expanding significantly into 2 new basins, and we've continued to improve our balance sheet are.
Our disciplined investment approach has been paying off handsomely as our results show today.
I would like to focus on 4 key points.
Number 1 we had a monster quarter and 1 that truly highlights the flexibility and benefit of our differentiated and actively managed business model.
And a quarter, where the overall Williston basin volumes decreased.
Northern oil volumes increased by 14%.
And because of our ground game playbook and ownership of core rock and the Bakken augmented by an increasing Permian presence northern outlook is never tied solely to basin wide activity levels.
Strong well performance and accelerated pace of completions and robust realized pricing for both oil and gas resulted in us being able to exceed both internal and external forecasts.
All of our key financial metrics, including production EBITDA cash flow free cash flow and earnings per share were above forecast across the board and in most cases, New records for the company.
Our capital expenditures were less than forecast our production costs fell on a unit basis as we integrated our low cost Marcellus assets and as Workover expenses and the Bakken began to tail off.
And number 2.
Our free cash flow outlook, and our balance sheet projections continue to improve.
That decrease this quarter and we expect to meaningfully exceed our initial and recently updated free cash flow estimates for 2021, we now expect to end the year with a run rate leverage ratio of less than 1.5 times and to fall below 1 times by the end of the second quarter and 2022.
During our conference call in June related to the Permian acquisition, we highlighted that we expected to produce more than $150 million of free cash in 2021, and cumulatively more than 800 through 2025, we now estimate over $160 million of free cash flow and 21 and cumulatively more than $900 million through 2012.
5.
I would also like to point out that if the current pricing strip holds we expect to be able to retire all of our bank debt by late 2022, leaving only $550 million of 2028 notes as our sole piece of debt.
Number 3 northern <unk> M&A pipeline continues to grow the.
The M&A landscape continues to remain strong even as we work down last quarter's M&A backlog, having selected the best prospects with our recent Permian transactions, new opportunities continue to arise across many basins of interest and the United States.
To be clear, we could have transacted on many more deals and we have year to date, but we will not just do quote unquote wall Street accretive deals because we value transactions as any cash buyer wood, which is on return on capital employed and rate of return it's money in money out we want to buy assets with discipline not because we can.
Number for dividends and returns to our shareholders. Our board of directors has declared a 50% increase to our next quarterly common stock dividend for a total dividend of $4.5 per share as I mentioned last quarter successful M&A could accelerate our dividend strategy and with the Permian acquisitions and the associated financing, we expect to continue to increase divvy.
It ends over the coming years.
In conclusion, the outlook continues to improve as we are steadily exceeded our targets. We are ahead of our free cash flow forecast and production outlook. We continue to grow our shareholder returns all the while improving our balance sheet, we have lowered our unit costs through scale and high quality property acquisitions and the quality of assets testing the market is impressive and the Pos.
Abilities for value creation continue to excite us we are a company run by investors for investors and I truly want to thank each and every 1 of you for joining us today.
That let me turn it over to Adam drilling.
Thanks, Nick our operational plans for the year remain on track and continue to play out largely as we've expected and the Bakken activity levels have started to pick up as we brought online 10 net wells during the quarter of 55% increase quarter over quarter.
Drilling activity continues to pick up steam too.
And our operators have been steadily working down their drilled but uncompleted well inventory and they've started to reload their pipeline of new drills.
We've seen a ratable increase and new well proposals and more notably we have seen an outsized percentage of those well proposals across our acreage footprint.
During the quarter, we elected a 50 <unk> up more than double from Q1.
As encouraging if not more we have yet to see any sort of material inflation overall well costs during.
During the quarter, new proposals average less than $6.5 million and were actually down 7% versus our Q1 average we benefited in Q2 from having higher activity levels with some of our most efficient operators and as.
As it stands right now we continue to remain conservative with our internal assumptions model and well costs at an average of $7 million to $8 million a copy depending on the operator and completion methodology, which should buffer any potential for cost inflation.
And the Marcellus completions on our initial well pad commenced in early July and production to date and has been right in line with our expectations.
Cost savings with EQT had been a focus and we've been pleasantly surprised with the efficiencies, we've seen and been able to generate cash.
Turning to the Permian and our outlook for <unk> future and the base and get stronger by the day and less than 1 year since entering the play we have now closed on over $100 million worth of deals and we have responsibly built a scaled position across more than 3000 net acres.
Our playbook and the Permian is really the same successful playbook, we've historically used and the Bakken.
Build out of the top tier position partnering with the best operators and the basin.
Activity levels remain elevated and the play which continues to present compelling opportunities for northern.
As it pertains to overall deal flow for MLG, we're extremely busy both at a ground game and packaged level on.
And the ground game front, we closed on 11 transactions in the quarter almost doubled from what we signed up and the first quarter.
High grading the opportunity set between the Bakken and the Permian the number of transactions were evenly split between the 2 basins and.
In total we picked up 2.8 net wells and over 600 net acres.
This barbell approach has enabled us to diversify across operators and regions, while adhering to our hurdle rates, even as we run sensitivities for lower commodity prices.
If the bid ask spreads start to widen out and various areas the ability to pivot will certainly be a competitive advantage for us.
Given where we are and the calendar, it's worth noting that typically we see smaller competitors exhaust their budgets mid year, and we expect we will see even more opportunities as the year for dresses.
As it pertains to potential for larger M&A during the quarter, we looked at over 10, new packages focusing on high quality assets that will see activity levels, regardless of the price environment with the high volume of prospects available the opportunities are for strength and our disciplined means only a select few meet our return.
And criteria.
Consolidation has been a theme that is alive and well and we will continue to evaluate multiple opportunities and the current market.
Now I'll turn it over to our CFO Chad Allen.
Thanks, Adam.
And I have a few highlights to go over for this quarter, starting with a quick summary on northern financial performance.
Our Q2 production averaged 54006 hundred 23 barrels of oil equivalent per day, and 33000 and 346 barrels of oil per day.
Up 42% and 14% sequentially over Q1.
Our adjusted EBITDA for the quarter was $132.8 million and our free cash flow was $46.2 million up 35% and 11% respectively. Over Q1 significantly ahead of wall Street and internal expectations.
Oil differentials were $5.46 during the quarter, which was an improvement of approximately 17% over Q1.
Operating costs also continue to trend down and the second quarter.
Lease operating expenses decreased 13% over the first quarter on a per unit basis.
Cash G&A, excluding onetime acquisition related costs to the Marcellus and Permian transactions came in at 77 per BOE this quarter about 9% better than the midpoint of our previous guidance.
Capital spending for the second quarter was also below wall Street, and and internal estimates at $68.4 million, excluding the reliance acquisition.
We continue to improve our balance sheet and liquidity profile since the end of last year through debt and equity offerings and free cash flow.
And the first 6 months of 2021, we produce $87.9 million of free cash flow more than and the entirety of 2020.
This has allowed us to fully <unk>, the Marcellus and Permian transactions and extend our maturity wall by retiring and the remaining $65 million of our Ven Bakken note and our second lien notes.
As of June 30 pro forma for the closing of the Permian transaction earlier this week.
We had approximately $350 million outstanding on our revolving credit facility, leaving around $315 million of available liquidity, including cash on hand, moving on now to our updated full year 2021 guidance that was included in our earnings release.
We have increased our production guidance for the year, primarily driven by the integration of our Permian properties and the acceleration of some planned Q3 development into Q2.
That will likely translate into a somewhat flat production profile and Q3 before increasing again in Q4.
Additionally, we expect to shift some of our plan and natural gas development into 2022.
Some of that Capex will be reallocated to our oil properties as noted in our increased oil percentage guidance of 63% to 64% for 2021.
That should be cash flow and free cash flow enhancing for 2021 at current pricing levels.
Yes.
Oil differential guidance has been lowered by over a dollar on the high and a.
A function of strong pricing and the Williston and Permian basins.
Our updated guidance on gas realizations reflects a strong pricing year to date.
This guidance implies high 70% realizations for the remainder of the year inclusive of our Marcellus properties.
On the cost guidance, it's fairly universal reductions across the board with reductions for G&A cost and low that is much lower than we experienced in Q1.
While our LOE guidance is $8.60 to $8.90 per Boe.
The run rate should be around the low end of this forecast for the.
Remainder of the year because of this guidance includes Q1, which was $9.92 per Boe.
Do note that the benefit of higher NGL prices will have a modest impact to our low numbers as pop contracts, our increase and some processing charges and our low Inc.
However.
These will be more than offset by the additional revenue from higher gas and liquids prices and will be a net benefit to overall margins.
We've also simplified our production tax guidance to account for being a 3 base and company at 9% to 10% of oil and gas sales.
Finally, we reduced the high end of our capital expenditure forecast for $260 million, a $10 million reduction.
While prices are higher and could certainly warrant higher spending.
We're maintaining a disciplined approach and not chasing lower quality prospects as we focus on full cycle stress tested returns.
And with that I'll turn it over to the operator for Q&A.
And at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is and the question in queue.
You may price start to if you like to remove your question from the queue.
And who participated using speaker equipment and may be necessary to pick up and your handset before pressing the star keys.
1 moment, please while we poll for questions.
And our first question is from Alex <unk> with Bank of America.
Please proceed with your question.
Hey, guys, Thanks, Ravi and the call.
Good morning, Alex.
So my first question is really just kind of on the breakdown between the Marcellus and the Bakken and clearly we saw some pretty impressive.
Gas utilization I mean, you guys elected to report things as consolidated so just trying to get any color. There you could offer as far as the split and.
And on production as well.
Yeah.
Yes, as far as the split between the Bakken and Permian and we certainly saw.
We're very solid pricing and.
And the Bakken north of call it 120% to 130% realizations, there and then.
That was offset by the by our Marcellus production that was in and around.
It's around 70% ish, 60% to 70% realizations there.
Okay, Yes.
And in terms of production, we're about 80% and.
And the Bakken and 20%.
And the Marcellus.
Got it that's helpful.
And then the other question I wanted to ask was just on on hedging. It looks like you guys have layered in some more hedges for 2022.
Obviously, you're not at your leverage target yet.
But you know.
And anticipation of getting their mid year, so just kind of.
Curious are you happy with your hedge position right now.
And then beyond when and when Youre looking at getting to that target should we expect any change in strategy.
Yes, I mean, I think my first comment is that there is no question that as our balance sheet and proves our hedging.
Needs to protect credit are reduced as we noted in our earnings presentation due to the balance sheet improvements are targeted percentages down about 1500 basis points on a rolling 18 month basis to about 60% to 65% for.
And from previous periods, where we were typically at about 3 quarters I would anticipate like our dividend as our leverage continues to tick down so too will our internal hedging requirements.
Let's also get real here oil is near $70 not because the world is out of oil are that demand is through the roof, but because of the largest cartel and the world is holding back about 5% of the world supply artificially.
And the cartel is beginning to ease those restrictions you also have the delta variant massive government actions and trying to kill demand for our products. So the concept of being wildly bullish and riding the upside because of a feeling doesn't exactly feel like prudent financial management to me.
And I was inundated with investors at the beginning of this year, telling me, we should be hedging everything and $45 because oil was going to be dead forever.
And the strips and never been and accurate predictor and or has short term investor sentiment.
Our view of hedges and general is that the long term value of our hedges zero, meaning youre going to win some and youre going to lose some.
And importantly live to fight another day, and our hedging Counterparties Tommy consistently that 90% of their E&P clients only start hedging 1 and panic mode and oil is breaking down how we would much rather have discipline and be consistent.
We talk all the time to our investors about the asymmetry of hedging this quarter. As an example, we had more net completions and nearly 2000 barrels a day of oil production more than we expected because oil prices are high and.
And we throttle our development and our operators natural accelerate their plans to capture that.
Compare that to a quarter a year ago, where we wound up more than 100% hedged because activity was deferred and curtailed.
And this environment with higher pricing, we will see more well proposals and more production less downtime and so naturally we become less hedge.
And the second quarter of 'twenty, we made $77 million on realized hedge gains we for went about $27 million and profit this quarter and <unk> 20 was an existential moment it seems like a fair share to me.
For those investors that want to quote unquote play the upside.
And my comment would be if you sort of unhedged versus hedge stocks coming into 2021, and you bet on the unhedged ones for performance you would have lost by a mile.
And I personally find it a bit incredulous given in 2019, and 2020, we realized over $220 million and hedging gains and there were over 250, bankruptcies and oil and gas and 2020 alone no 1 knows what the future prices for oil are but I can tell you what we know when we hedge if were locking and good returns or not and we have been.
Our weighted average IRR of elected wells this year at $55 flat at about 50%.
The hedges we've added since last quarter are well north of $60. So explain to me why that it's necessary to gamble.
We have a choice here, which is candidly to be a sheep or wolf and last time I checked cheap get slaughtered.
It's the roll the dice mentality and wild optimism that has gotten this industry and to so much trouble and the first place so while our balance sheet will be strong enough to absorb any volatility I'm going to be unapologetic, when I say when Adam and my team commit capital to projects that earn enormous returns we want to make sure we don't throw that away on false assumptions, just because it's a rounding error.
And are on our balance sheet that being said as I alluded to and the beginning I do think we will naturally leave more room for upside over time.
Yes, I appreciate it.
The thorough and very thoughtful response, Nick that's all thanks.
Our next question is from Scott Hanold of RBC capital markets. Please proceed with your question.
Thanks, and then.
And I'll just tell you that's a mirror your sentiment on that.
I agree that I think the industry loses on hedges, because they're more reactive and proactive so I appreciate your views.
And it's very insightful and and fresh to here.
My first question is is this is that.
Adam I think you mentioned that.
There is some gas development projects that are getting moved into 2022 and the year then moving some capital to oil properties can you can you just talk about that and give a little more detail that did EQT push out its development plan, a little bit and and then for you guys to I guess move more capital to oil properties.
How does that logistically work with euro elections do you just.
Take a broader look at your opportunity there or just it was just the nature of seeing more things come in that you could concern too.
Sure.
And as far as the Marcellus goes we have roughly about $2.2 net wells added in early July and.
And.
Initial plans for kind.
For the next pad were slated towards later in the year call. It Q4.
We've kind of taken a look at plans there and really it's just a function of IRR and pricing realizations and so we expect that pad effectively to be pushed into early next year.
And so the Marcellus is effectively locked and loaded we've got our annual work flow that we come to the table with every year make tweaks based on kind of the market rig availability.
Price realizations, all those types of things and.
And so thats effectively the plan for the foreseeable future for homeowners.
Solid standpoint and.
And as far as the activity levels I mean, we've seen a significant increase.
Both in the Bakken and the Permian as operators are working on the docks, we've seen and <unk> more than double and the second quarter I was looking at just the third quarter to date and we've already got north of 40, <unk> and the door and so.
I think we're going to continue to seek out of that activity flex forward I think our election rate during the quarter was north of 90% and <unk>.
Really focus towards our core operators we've got.
Loss and continental Conoco, and our plus all adding activity this quarter and.
And.
And we received a <unk>.
<unk> of <unk> from <unk>.
During the quarter as well that were expected to.
Spud and start getting to work there and that was.
And those.
Acreage that we picked up from the flywheel acquisition and certainly encouraged by their well results I think they actually pointed it out and.
And their earnings release.
We're talking about 6 months payout. So certainly 1 of our more efficient operators and love to see them kind of get them after things and as far as the ground game goes.
Going to obviously be a function of both the overall activity levels in the basin.
But it's also going to be a function of overall.
Competition and variability and overall returns and so we're going to continue to run sensitivities and.
And down commodity cycles, and make sure that it's meeting our rate of returns and as Nick alluded to.
Layer and that activity will continue to hedge out those returns.
And Scott. This is Mike just wanted to clarify 1 thing that Marcellus, while we're pushing out a little bit of activity and also pushing out that capex too. So it's going to be additive in terms of free cash flow for this year and then also it's just going to be additive for general economics and rates of return as Youre, bringing on kind of first production and a period, where you had higher basin really.
<unk> and.
And Scott just to.
And the way the simplest way to think about it is that we generally have a fixed amount of money, we want to spend in any given period of time.
And generally speaking we have more opportunities than and then that capital and so it's just a force ranking and so with robust oil prices. Obviously the return profile for a lot of those properties are higher and so we just shifts some of the capital to that and we move it from time to time and.
Function of managing kind of inbound <unk> and ground game activity for us and Canada and deploying the capital as such yes, and you can see that and our consent rate. This quarter right, which is that we may have probably non consented and much of that stuff because it was on budgeted, but when theres room and the budget for that and the returns.
<unk> increased markedly as they have then it simply makes it a pretty simple mechanical.
Right right, yes, and just.
And again to that point.
And when you look at the Marcellus, obviously that we're talking to EQT at this point so.
The election to push it into 2022 I'm, assuming they made that versus you because the fact I mean, so the question would you would you non consent and stuff that you've EQT you did want to push out for this this year.
I think I think given the fall period for differentials into the shoulder season. It wouldn't have made sense for either of us and we had numerous conversations about it and it made all of a sense and the world Yeah, and I mean, it's a true JV and so there is a much more collaborative approach and so we're having monthly and quarterly meetings discussing these things and making the decisions collectively.
<unk>.
Okay.
And then the hub.
And the Bakken and the Permian, Yes kudos.
And I was looking for yes, yes, I mean, if there was a disagreement on.
It was it's been pure economics, right. So when you're doing something that's NPV and IRR enhancing its not a very difficult question and Thats certainly.
Given the way that structure and if we had some major disagreement and we of course could have expressed that but we didn't.
Got it.
That's great I appreciate that and then.
If I could ask a second question here and.
If I turn to I think it's page 7 you obviously show a very strong performance of wells, so far year to date and and when you look at the mix of the wells you are concerned and obviously you said it stepped up pretty nicely.
Would you on this curve kind of put that mix of wells, where you would expect based on where you're seeing some moving pieces it pretty consistent with that or should we expect just some minor degradation now that things are being.
I guess level load across the base and a little bit more now.
Yes, Hey, Scott This is Jim I think with the <unk> that we're seeing the operators are still primarily focused in the core areas I think we've taken a pretty conservative approach here and we haven't seen any kind of a smaller operators that rig to start drilling and tier 2 areas. Yet so I think going for at least for the rest of this year, we would expect that well per.
For months will continue and kind of in line with what we've seen so far this year.
And I don't think you're ever going to see well performance.
Equates to 2020, and probably any basin and United States, just because so few were actually economics. So.
And the wells that came online in 2020, where are the best probably will be in the U S history, but but theres still.
Well above our 5 year average and pretty damn close.
Yeah, and I mean, I'd just point back to kind of the old vintage of comments that I mentioned before I mean, we would book.
<unk> is probably the top 1 or 2 operator and the basin.
They've got some of the most high well efficiencies that we've seen and.
That activity will be able to flex going forward as well.
I appreciate it thanks guys.
Okay.
And our next question is from Jordan Levy would choose Securities. Please proceed with your question.
Good morning, guys I appreciate the commentary.
Wanted to see if you could talk to the dynamics youre seeing and the bid ask spread both in the Bakken and the Permian and maybe the Marcellus as well and how thats kind of evolved as we've seen commodity prices move up.
Yes, I mean, its I guess.
A little bit counterintuitive.
Certainly seen folks chasing things.
And it's a function of activity as well as just opinion on oil pricing.
We've got competitors that are running $70 price decks, that's not something that we're going to be doing but we've got.
And quite a few swings at bat and so really it's just a function of managing the overall competitive landscape the variability and economics, and then being able to pivot between the different basins, where we've got the exposure to obviously, there's a lot more activity and a lot more competition and the Permian.
And based on our relationships and contacts and and.
And overall activity levels, there's probably 3 or 4 deals that are walking in the door on.
On a daily basis, obviously, the Williston is a little bit.
Suppressed in terms of activity levels relative to the Permian, but you also have and operators pick up rigs and they're staying disciplined and the core of the basin and it's not nearly as competitive and given our foothold there its our backyard our ability to gross up our working interest on well elections all of those touch.
And if things were just kind of force rank the 2.
You have them amongst each other and so that's kind of why you're seeing the barbell approach that we've taken.
Thanks, that's great color and.
Kind of along similar lines I, just want to get your thoughts on what the pipeline looks like as it relates to deals where you can boost your interest and existing positions.
And also how you weight those when youre evaluating transactions versus.
New areas Youre looking at.
Yes, I mean, I think we're pretty picky.
There are a lot of assets testing the market some of them are appropriate and some are not I'd say from a volume perspective.
I thought our engineering team is going to die during the first half of the year and it has not let up it's probably even more intense and frankly, what that's meant is that.
For assets that are probably threshold.
Maybe there is a good value, but they may not fit the bill they are just getting passed on.
But they are there.
Our has good prospects out there now than there were and the first half and we continue to work through each 1 and I think it's a fine it's a fine line between the assets that make strategic sense and the things that you want and also solving for relatively rigorous return thresholds right.
The 1 thing that we've highlighted last quarter and I would highlight again is that.
There are there are pockets of competition and there are pockets, where it becomes less competitive and so as we continue to build size and scale. There are areas, where we think we can get both high quality assets and <unk>.
And at good values and that generally comes where the.
And the size of those prospects others can't be competitive on and so I think we've mentioned as you get towards that $100 million Mark there are few with the wherewithal to write those kinds of checks today and so I think that that's where we see.
Our ability to create a lot of value there are a lot of assets out to the market that we'd love to have and it really just comes down to solving for price.
At the end of the day.
We don't want to follow the path that many public companies have which is that they have higher multiples and so they pay those multiples to the sellers at the end of the day, we want to buy them just like they would buy them and the market on a cash on cash basis.
Great. Thanks for that and thanks for taking my questions.
Our next question is from Nick Pope who is a private investor. Please proceed with your question.
Good morning, everyone.
Nicolas how are you great.
Great.
Hey, Lisa.
I was hoping you could talk a little bit about I.
And I guess, where things are from a.
From a working interest standpoint and.
And the Williston, specifically and just I guess.
I guess, what's the comfort level is on creeping up working interest and versus where you where you guys operate now.
Or if you even think about.
Yes, no and interest is.
I mean, I think like anything else, it's a re.
Risk adjusted factor right.
Being in for out of every 10 wells that were drilled and.
Means that we have a large database and so there are periods, where we can get comfortable with higher than normal working interest and there are places, where we would not be.
So we have we have units and which we have upwards of 50% working interest and we're very comfortable and that because these are core core areas with core for operators.
And then there are parts, where we would not take that risk smaller operators that may have.
Midstream issues or development and risks or their own balance sheet risks and you want to make sure, but I do think that.
Alignment is important if you're taking a disproportionate amount of the risk ultimately depending on that operator to do.
To be motivated to do the best day.
Best job becomes a little bit riskier.
And so we have many units some of our units it came online towards the end and the second quarter are ones that we've worked for the operators, where we have upwards of 30% working interest and I think it really just depends but I think that that's a risk that goes into the underwriting pasture because the larger the working interest the larger the single well risk for larger.
The larger the development risk is frankly, I don't know Adam you want to add that that's right I mean, I know your corporate average is around 7 or 8 I think year to date, our wells added to production is around 9%.
In total and the Williston, and maybe a little bit higher and the Delaware and to Nick's point.
And we're doing it is run and sensitivities at different price decks. The other thing that plays into what we're going to flex up activity as the whole shale 3 point or kind of a paradigm and and.
And reinvestment rates and obviously a lot of these operators hub chunky non op working interest and.
For a lot of our competitors.
And having that type of exposure and 1 particular unit regardless of overall well quality is something that they're not necessarily willing to take and it could be a circumstance, where it's more of a drop and the bucket based on our overall asset base and so it provides an opportunity for us to pick up things that more.
Competitive prices as well, so really just run and sensitivities and deploying capital as such.
Got it I mean, I think that really kind of answers my question there.
It seems like a higher working interest that wasn't sure what what kind of like participation level was for you guys.
And here recently and it definitely sounds like it's crept up so.
That's helpful. Thank you.
Got it.
And as a quick reminder, if you have any question you May press star 1 on your telephone keypad to join the queue.
Our next question is from Jim Leucyl Wood.
And being partners. Please proceed with your question.
Yes.
And I found it curious that youre not seeing any material inflation increase.
And just because I've been on a lot of calls and there seems to be a little bit of a creep.
And with your competitors and various basins and does that is that a function of productivity that youre seeing or is that just that you have a lot of competition for oil services and it's keeping the price low.
Some of it just has to do with think of it as the statistical average and the bell curve, which is that some of our operators.
Who are active and development work.
Hard to work down their cost structures and so our average has fallen as they become a bigger slice of the pie.
And the other factor and it's just that we never really budgeted for the downtick that was really experienced.
Late last year, and so as Adam mentioned in his call, we've and budgeting $7 million to $8 million and net in those numbers.
And experiencing significantly less and that so to the extent that there is inflation and won't really affect our numbers because we never really set that bar at those levels and then it's just a function of the active management of the overall portfolio of flex into the most efficient operators and so thats, what youre seeing and this quarter.
Great Great Alright, thank you.
Okay.
It is worth noting that.
We have effectively cut our budget 3 times this year as we realized the delta between those 2 pieces and so and some of that.
Got asked that question last call and obviously when we made the Permian acquisition, we've reduced the base capex alongside that and obviously doing it again today.
And our next question is from Scott Hanold of RBC capital markets. Please proceed with your question yes.
And just get a follow up and you talked about seeing some opportunities across a number of basins and certainly your focus has been Bakken Permian.
So far but can you give a little bit of color on.
Other opportunities or areas Youre seeing.
Eagle Ford popped up and there has there been other basins that are of interest and can you remind us places that you wouldn't expect.
Spec to see northern pursue.
Yes, yes, I mean I think.
We have seen a number of Eagle Ford transactions and unfortunately.
And none of them have early pass muster and I think.
The issues with the Eagle Ford.
And we really want the Tri factor, which is we want assets that have solid base production and have a bunch of upside and obviously have good economics and so and.
And the Eagle Ford generally we've seen assets that are either.
And the tier 2 or tier 3 areas that are going to be very vulnerable to any price volatility or and the core areas. We've seen them, where they've had limited remaining inventory and so that's really made it difficult to find the 1 that's in the right spot.
It is a play we've done a lot of work on and we have looked at them.
And obviously, the Permian being the most active basin.
Is dominant in terms of the actual deal flow and the Bakken and it's been surprisingly much busier than we've thought come.
Coming into this year, given the overall rig count, but obviously thats been slowly but surely changing.
And then I'd say.
There are basins.
Net or a struggle and what I would say is that if it was pure economics or rock alone I think the DJ basin would be and area of focus I think the political concerns and make it difficult I think the geologic and performance issues and the Anadarko basin and make it largely a non starter that being said, sometimes these packages have assets in these basins that.
And have come along with it so to the extent and we can value at a zero I think we're fine with doing that or is it a deep deep deep discount.
But I don't think we would ever pursue assets based on those basins themselves and.
And we've taken a look at a handful of additional Marcellus packages as well and you haven't been.
And when we get them across the finish line, but.
Certainly certainly there as well.
Yes.
And so I don't want to make it seem like were distracted and we're pretty focused on the basins of interest sometimes.
These portfolios might happen stance have assets and other places and to the extent that they came along with it so be it but I don't think it will be an area of focus.
Got it thanks Nick.
And we have reached the end of the question and answer session and this does conclude today's conference to access the digital replay. Please dial 870, 76068, and 5.3 or 2016127 for 1.5 and answered and access.
137 to 194, 8 and you.
You may now disconnect your lines at this time.
Thank you for your participation.
Okay.
Thanks.
Yes.
Yes.
And then.
Yes.
And.
Yes.
And.
[music].
Yes.
Okay.
And.
[music] accordingly.
And.
And then.
And.
And.
And.
Thanks.
And then.
Yes.
[music].