Q2 2021 Bonanza Creek Energy Inc Earnings Call

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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.

All of them.

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Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the Q2.2021, Bonanza Creek Energy earnings Conference call.

At this time all participants on the listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you would need the press Star then 1 on your telephone.

Please be advised the today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I would now like to hand, the conference over to your speaker for today, Scott lender you may begin.

Thank you good morning, everyone and welcome to Bonanza Creek second quarter 2021 earnings conference call and webcast on.

On the call. This morning, I am joined by Eric Gregor President and CEO Brent debuted.

Second of Vice President and Chief Financial Officer, and other members of the senior management team.

Yesterday, we issued our earnings press release posted a new investor presentation and filed our 10-Q with the SEC all of which can be found on the Investor Relations section of our website.

Some of the slides in the current Investor presentation, maybe referenced during our remarks this morning.

Please be aware that our remarks will include forward looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from these statements you.

You should read our full disclosures regarding forward looking statements contained in our 10-Q10-K and other SEC filings.

Also during the call we will refer to certain non-GAAP financial measures because we believe they are good metrics to use in evaluating performance.

Reconciliations of these measures for the most directly comparable GAAP measure are contained in our earnings release and Investor presentation.

We will start the call with prepared remarks, and then move to Q&A as with previous earnings calls, we will take questions from those of the sell side analyst community on today's call I ask that investors and others with the questions to please reach out to me directly to schedule a call you can find my contact information on the Investor Relations section of our web site or within Yesterdays release.

Now I would like to turn the call over to Eric Gregor.

The <unk> CEO Eric.

Thanks, Scott Good morning, everyone and thank you for joining us today.

We appreciate your time and interest in Bonanza Creek.

As with previous calls we will keep our prepared remarks short in order to leave plenty of time for Q&A.

It was a very busy second quarter for the company.

We began the quarter with the announced closing of our merger with Highpoint resources on April 1 and quickly followed that up with the announcement of 2 additional transactions of mirth.

The vehicles with the extraction of oil and gas on May 10th and the acquisition of Crestone peak resources on June 7.

Both transactions are subject to stockholder approval and customary closing conditions, but once extraction and Crestone peak are combined with Bonanza Creek to create civitas resources it.

It will become the largest pure play of DJ operator.

Not to be lost in all of the M&A activity during the quarter as a very positive second quarter for Bonanza Creek plus high point the.

The integration of the 2 companies is proceeding well and ahead of schedule.

Our second quarter production of $42.3 Boe per day was flat to the pro forma first quarter and slightly better than the slight decline we had expected during our first quarter call.

With our release yesterday, we raised our production guidance to a range of 41 to 44 Boe per day, with 48% to 52% coming from oil.

We did of lack of limit this and all other guidance for the third quarter, giving the pending mergers.

Our unit LOE are.

Rmi Opex and recurring cash G&A expense all showed significant improvements from <unk> due to the increased volumes associated with the high point merger.

And from our focus on efficiencies and capturing synergies.

When we first announced the Highpoint merger in November of 2020, we promised $31 million in first year synergies I am pleased to say that on an annualized basis, we have already captured well over $31 million in synergies as shown on slide 9 of the Investor presentation, we posted yesterday.

I'm proud of the work done across the organization to effectively integrate high point into Bonanza Creek.

The reinforces my confidence in our ability to successfully integrate extraction of Crestone peak and continue to deliver synergy value to shareholders.

We have lowered our LOE guidance to a range of $2.85 to $3 per Boe.

And established recurring cash G&A guidance of 8 to $9.5 million for 3 of Q.

Guidance for Rmi, Opex, and severance and AD valorem taxes were unchanged, except for limiting the guidance to 3 of Q.

Capex for the quarter was just under $41 million, which brings year to date capex to approximately $74 million.

We still believe in annual Capex range of $150 million to $170 million of appropriate for full year of Standalone Dci, but we have provided <unk> guidance of <unk> $55 million to $65 million.

Finally, 1 last item related to <unk> guidance, given the current strip for <unk>, which is about $55 per barrel, where our oil differential begins to escalate we estimate our oil differential to be in the $6.50 to.

The $7 per barrel range for the third quarter.

Bonanza Creek paid its first ever quarterly dividend of <unk> 35 per share in June the.

The annual dividend of $1.40 per share represents approximately 3.7% dividend yield at the current share price.

The Bonanza Creek Board of directors declared that the third quarter $2021 fixed dividend of 35 per share. All of you paid on September 30 to shareholders of record at the close of business on September 15.

<unk> is committed to returning capital to shareholders through increased dividends and as previously announced we anticipate that the annual dividend will be increased to $1.85, approximately 46 per share per quarter at.

At closing the.

Pending transactions with extraction of Crestone peak.

In the earnings release, we provided certain <unk> metrics for the individual companies forming sabotage the.

The 3 company has produced a total of 162.3 million Boe per day during the second quarter.

Bonanza contributed $42.3 Boe per day of those volumes extraction contributed 76, 6 and Crestone peak contributed $43 for.

We will provide additional information on the merger transactions as we progress towards closing in early Q4.

With that I will return the call of the operator for Q&A.

Thank you.

Ladies and gentlemen, as a reminder to ask the question you will need the press Star then 1 of your telephone.

Withdraw your question press the pound key.

Again, Thats star 1 to ask the question.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Leo Mariani with Keybanc. Your line is open.

Hey, guys just wanted to see.

If we can get a little bit more color on what you guys are sort of working on in terms of integrating all 3 companies and obviously now and there has to be.

The vote and what non you guys have to close these deals, but you certainly put some some language in the in the press release that you guys are kind of working fast and furiously on this I know you originally had a $70 million synergy target.

But clearly on <unk>. It looks like you have ceded that $31 million targeted I guess faster than expected. So as you just kind of any update to your thoughts on the ability and amount of synergies on these deals.

Thanks, Good morning Leo.

The what I would say is as you would expect.

It's all of the.

It's not complicated it's not complex, but it takes a great deal of time and energy and where we are interviewing all of the employees of the 3 companies that are coming together and as we continue to have conversations and evaluate.

What will become the civitas organizational structure, there are necessary changes that need to be made.

This will be.

New company entirely.

Theres just a lot of work that has to be done in terms of getting to know folks.

In terms of evaluating the strengths and talents of each individual.

And a lot of decisions that have to be made in terms of how we're going to a range the.

The structure itself.

And I would say that's the biggest part of what is.

Ongoing today is the effort around organizational structure.

I think.

Much of the decision making around.

Rationalizing our downtown office space has been has been done.

And I'm happy to happy to talk a little bit more about that.

Much of the decision, making around rationalizing office space in yards and the field has been done of <unk>.

Obviously, we haven't realized the savings, but I think we've got pretty good plans in place and.

And again, it's just it's just a great deal of work, but having accomplished the high point synergy savings ahead of schedule.

And the cultural integration ahead of schedule as well I have got a great deal of confidence in our.

Our team's ability to both put.

Put this together quickly and.

And execute the close and transition swiftly and without.

Without any excess friction.

Let me stop there Leo and see if <unk> got a follow up question, specifically around what I've mentioned.

Yes.

There was a pretty thorough of oxy, but you guys are working fast and furiously.

Obviously I want to put the cart before the horse I know you have to get these deals.

Deals under your belt, but.

How are you feeling about other potential opportunities in the DJ to meet the roll up other asked answer of other companies in the is that something net.

The Civitas, we'll start looking at immediately kind of after close or perhaps even before maybe there are some targets that you guys already have your.

Youre sort of focus on at this point.

Yes, we continue to be focused on on value creation and disciplined Leo but we haven't stopped looking we basically carried straight through.

With with our.

Core analysis team and core analysis tools and continuing to have.

The the work that happens behind the scenes all of the analysis that needs to be done obviously, we can't do anything.

And we can have any in the value conversations with anyone during the pendency of these transactions.

We wouldn't think to do something like that but continuing on with analysis, particularly technical analysis.

Is core to our business.

And it's exactly what you would expect any.

Any business like ours to continue doing even independency of the transaction technical and operating analysis as to how to drive value.

And our strategy spin.

Specifically I would say that we're going to continue to create value for shareholders.

If you look at our trading multiple today civitas on an EBITDA basis for 'twenty 2.

It does make things a little bit more challenging.

And we're.

We're going to remain disciplined so I would say that here in front of everyone.

That because where we're a disciplined value creating organization.

Not going to we're not going to pay through our multiple.

Yes.

That means things get a little bit more challenging when the multiples depressed for compressed so.

That's the fact and it doesn't come as a surprise to anyone on the call.

But we will continue running the analysis and executing our strategy.

And.

We'll kind of take it from there beyond that I don't I don't know.

Much more of that I can say, but feel free to follow up with the specific and I'll try to answer.

No that was that was very helpful color for sure and just lastly for you guys here could you speak a little bit to the kind of current permitting situation out there in the DJ and I know, obviously you guys had share can give the robust answer on the Bonanza Creek side, but do you of any insight potentially on tenant how things might be going.

And maybe some of the crestone or the extra day lands in a little bit more of a.

Call It <unk>.

And the more urban.

The environment and less rural and legacy of Bonanza.

Yes, we've submitted dozens of <unk> applications.

And those are all outstanding.

We feel like like the the environment, the regulatory environment is growing more and more constructive.

We haven't received any any approvals, but we're very confident in.

And the fact that we will confident in the fact that many of these are already cleared completeness and we've got very open channels for the regulators and for the municipalities.

We've got great relationships, all along the western corridor through the Crestone peak and extraction.

Community Relations team government relations teams and regulatory teams and then moving further south.

We feel confident in our relationship in and around the Watkins asset base.

That will continue to be able to generate permits going forward. The combined company has 300 permits approved right now in inventory.

And that will take us well out into 2022 and beyond.

And that excludes Hereford in Grover. So if you included those stellar assets to the north than we'd have even more even more permits but.

We generally exclude drove around Hereford from that from that list.

So let me let me stop there and see if you want to follow up on any of that.

I think that was again very thorough for sure and I appreciate your time.

Thanks Leo.

Thank you.

Our next question comes from the line of Neal Dingmann with Trust Securities. Your line is open.

Good morning, My first question I guess, what I would say the majority of these days I'm, just wondering going forward, what what sort of preferences.

Preferences for incremental shareholder return and I asked, especially considering the notable quarterly dividend you all of already pain.

Hey, Neal Thanks for the question.

Again, it is a core tenant of BCE and more importantly, going forward for <unk> to return cash to shareholders.

The Buck 85 of share announced an announcement of.

For the second of the 2 announced transactions.

There's a pretty strong base dividend.

And what I would say is we continue to remain focused on.

Returning cash and what I would add the other thing I would suggest is.

The Civitas board, while we've had lots of conversations with the board has not yet formed and as a consequence of that is not.

I had the opportunity to take up.

The in for kind of a formal policy.

Expanded cash.

Capital allocation practices and policies.

So once we get a little closer to close I anticipate that we will have more to say about that but we're absolutely committed to returning cash to shareholders and I think every tool in the toolbox should be made available to us as we move.

Over commodity cycles and through various.

Phases of the business development.

But again the next day here at the deal obviously, the quarterly given today's very nice.

Secondly, just most of the question is on anticipated well spacing on slide 8 tours you all are sort of of the wider side, though it sounds like you may have submitted some plans to broomfield for a bit tighter well spacing. So I'm just wondering how youre thinking about average spacing going forward.

Yes, the way, we think about about spacing and stacking Neil is.

We'll we'll adjust along the way it's price dependent.

So when the prices are high and the resource can support. It then we will maximize the returns of the capital invested in the rock and in some cases, where the rock is.

Is better more well developed in terms of geology, porosity and permeability and pressure.

It will sustain more wells per section.

But we aim to maximize returns and cash on cash return of maximizing at the IR 9 metric.

And Thats the way, we think about so.

When prices are high that means we're going to be able to down space, just a little bit and when prices weaken a bit will op space.

And we think about that.

Relationship not just in spacing and stacking where you have multiple horizons like the codell, but we also think about stimulation designed the same way.

And if you run these if you run out of these options as you as you apply the permits and then.

Develop the pad set surfaces drill out production of intervals and start stimulations you've got.

You've got the staggering options along the way that allow you the opportunity to maximize the economic return of the incremental capital invested.

So what we're shooting for is Mac.

Maximizing the return and spacing and stacking and stimulation design will be dependent on that in much the same way that production will be dependent on.

Notionally half of our EBITDA generated we like to think about this rather than kind of.

For the old school thinking about.

About setting a particular stimulation design are of particular spacing and stacking regimen.

Independent of price, we like to think about.

Things like reinvestment rate.

As of.

On the independent variable and things like production is dependent variables in the same way that we think about.

Price commodity price in particular.

As the independent variable and spacing stacking and stimulation design as the deepened and variable maximizing and economic metrics like cash on cash return of <unk> 9.

Okay.

Those economics of that Optionality makes a lot of sense. Thank you. Thank you Neil.

Thank you.

Our next question comes from the line of Mike <unk> with Stifel. Your line is open.

Hey, good morning.

Eric.

Your LOE came in the little bit better than we were expecting I guess below your guidance and then you lowered your guidance for the.

Third quarter wanted to see you.

There was anything in particular, there that drove that.

What you're thinking in terms of how sustainable that might be as you look.

In the fourth quarter. After these mergers close.

Good morning, Mike Thank you.

Yes.

If I were to sum it up briefly I would say.

Many of the connections, including produced water connections and other.

The low indirect opex related items just came in ahead of schedule in terms of.

Connecting the high point system to the BCA systems, rationalizing things like routes and other ita.

Items.

The tend to drive LOE on a unit basis.

All of that is moving ahead of schedule and it allowed us to take.

Take down Q2, and also take down Q3.

Below expectations.

And I anticipate that's only going to get better as we move.

Through close and Buildout civitas.

Just a great deal of operational synergies when you think about <unk> and high point clearly the industrial logic made a great deal of sense.

And when we announced the extraction deal 1 of the things we pointed to is the downtown office space. There is a better redundancy and in terms of square footage in.

G&A.

Broadly in the field there was a little less cash.

Of overlap, but when you layer on Crestone peak on deck. So G. It creates a similar dynamic between those 2 companies that existed within.

Within <unk> and high point and we just expect these direct opex numbers in.

Cash cost structure across the board to get meaningfully better over time as we grow.

Our efficiencies and scale and capture these synergy savings.

Okay. Good.

It looked like the.

The merger related costs for the.

Highpoint deal.

Higher than we had anticipated on the CF, where all of those merger related costs.

The high point.

For the quarter or some of the extraction and the Crestone peak in there as well.

Any thoughts about what those might look like.

In the fourth quarter for finish.

Finishing up the extraction of Crestone peak transactions.

Yes, it's a good question, it's difficult to untangle perfectly and completely.

Transaction related costs from kind of a run rate.

Costs, we've done we've done our best and you can see the 2 the 2 category of separated.

But.

When we announced extraction and Crestone peak, we clearly we're in the throes of the integration work and a lot of the transaction costs carrying through and as the parent and the issuer there are.

These costs will carry through on the <unk>.

<unk>.

Going forward, so I would imagine net.

We will continue to see.

To see merger related costs transaction costs running through Q4, and probably bleeding into Q1 as well.

Generally speaking Q2 <unk>.

<unk>.

Not just the.

The the tail end of the high point merger related transaction costs, but also.

The extraction and Crestone peak, starting to ramp up at that time, because we really didn't stand down any of that.

Merger and transaction apparatus, including all of the various advisers on all sides of the business legal.

Banking and all of the rest audit Hey, Mike It's Brent. So if you kind of circle up $3 million to $5 million in the second quarter.

That would be associated with.

What we've been doing beyond the high point.

Okay. That's helpful. So it sounds like.

There was a fair bit and there'll be a high point.

Maybe a little bit less.

In the fourth quarter would that be your best guess at this point.

Yes, obviously fairness opinions get paid upfront.

So that was the large chunk of it yes.

Yes, all of the legal of lot of the legal work is done on the on the front end as well because you are paying that.

As you go and a lot of that is associated with both merger agreements and then importantly, the ask for filings.

Okay, and then last 1 for me just.

Now that we're closer to.

The the mergers any thoughts I know, it's still early for looking into 'twenty, 2 but you guys of.

Told us what the.

The extraction and the Crystal peak.

Given us of looked at their EBITDA and the production for the quarter I guess as you look into next year.

We assume you guys are trying to hold things flat.

And the idea in terms of activity levels, So what you might be.

Looking at 2 to accomplish that.

Yes, it's still pretty early im going to stick with stick with Mike What we've said already which is.

Notionally, 50% of our EBITDA generated reinvested.

We think that will run right now.

Given the quality of assets Notionally flat production.

Running 3 operated rigs on a.

Pretty much of level loaded basis, and 3 level loaded frac crews moving around the.

D J acreage position so.

I think generally speaking that still feels pretty good but I would emphasize.

Our thinking is.

This hole.

Input is as reinvestment rate output is production.

Just like I discussed earlier in the Niels.

Neil's question around spacing.

Some things are dependent on others and were not being dogmatic about about holding production, we do expect at the hold flat.

But we're not dogmatic about that we're going to let that be what it is as we as we manage reinvestment rates, we think thats the most sensible mark.

Model.

Bill.

Great. Thanks, guys I appreciate it.

Thanks, Mike.

Thank you. Our next question comes from the line of Philip Johnston with capital 1.

Your line is open.

Hey, guys. Thank you just to follow up on Neil's question on cash return.

If we assume of locate scenario of $45 of oil $2.50 gas kind of held flat forever.

Our pro forma leverage ratio still stays below half the turn indefinitely and the pro forma of free cash flow yield.

Still being sort of the 69% of range over the next 5 years based on the current share price.

That suggests obviously you guys could either raise the pro forma for 85 base dividend pretty significantly.

Start paying variables.

Buyback of a significant amount of stock or some sort of a combination of those options Eric.

Eric I know you said of all of the options from the tail and obviously the for.

Our needs for him or things up.

You may be talk about what options you guys might be leaning towards and kind of what some of the advantage of advantages and drawbacks of you guys see regarding buybacks versus variables.

Yes.

It's a great question Phillips.

I don't want to front run the board, but what I can tell you is.

We recognize that.

When our trading multiples are compressed the way they are today.

That our shares are a bargain.

We also recognize that it's a pretty.

In terms of.

Opportunities to allocate capital that buying back our own shares may in fact be 1 of the most compelling uses of free cash flow.

And.

No 1 on this call would be surprised by that statement.

It's purely a matter of.

How you allocate capital for the highest returning opportunities. So if we can buy our own shares back at such a discount why would why wouldn't we consider doing sales. So I put that out there juxtaposed to that is the the historical.

Performance of this industry in terms of how ineffective we've been.

At timing.

Share repurchases.

In terms of the cycle.

<unk>.

We want to be counter cyclic as much as we can.

We'd really want to be buying our shares back when theyre down in the.

The depths of say 2020.

Lows as opposed to today, but again, you don't always have that opportunity.

I really like the dividend I think it's strong but I think the board will also consider.

Some sort of special of variable construct and I say that only because.

It does give you some flexibility to use your post dividend free cash flow generated for purposes. What else are you going to use it for it to either return cash to shareholders vis vis of 1 of these couple of tools.

Of the pay down debt and since our debt is already.

Pretty low on a leverage ratio basis, 1 might argue we're over <unk>.

And it wouldn't make sense to run our debt in a lower so to optimize our capital structure.

We might we might leave it kind of where it is and find other ways to return cash to shareholders.

All of that remains to be really hammered out by the by the state of the board.

I don't think I have said anything controversial because this is pretty fundamental.

<unk> allocation strategy, but I do think it's really important for us to consider share repurchases, particularly when our when our market price is.

Substantially below our Inc.

Intrinsic value Thats, just built in savings and why not buy yourself back of the at a discount.

Yes.

At the very thorough answer and I would agree with pretty much everything you said.

In terms of guidance, obviously, we had a pretty good picture of Q3.

And obviously you haven't given anything on Q4, just given the uncertainty.

When the deal is closed but I guess for those of us that assume the October 1st close just for modeling purposes.

Should we just kind of add up the 3 entities second quarter volumes and assume the fourth quarter of looks fairly similar.

Are there some are there some moving parts there that would maybe put queue for a little bit higher or lower than that sort of second quarter run rate no. I think that's actually pretty good sell ups and then you'd want of season and starting to capture synergy savings star.

Starting from the moment of close moving forward.

But I think thats.

If I were doing it today I'd take the 3 separate models built up and push them together and I'd run them out and.

And while we while we anticipate.

As providing a fourth quarter stub period guidance shortly after.

Clothes, and then probably not too long after that sometime in Q4 of providing a more comprehensive 'twenty 2 guidance.

But we want to get after it pretty quickly, but if I were you I'd do it exactly like you suggested and then sprinkle in some synergy savings throughout Q4.

Philippines.

I would just caution that the what's in the 10-Q is not meant to be of pro forma yes. It is.

Some of the products.

Okay, and then just just to clarify on the rig count.

If im not mistaken under the 3 companies Creek Crestone is really the only 1 for running a rig today and you guys mentioned, adding a rig in Q4, so that would be sort of the per.

On a pro forma basis would that be going to a 2 rig program or.

Am I not thinking about that correctly.

Youre thinking about it correctly I think it's entirely likely the Crestone peak will continue running their rig.

It's entirely likely that both <unk> will pick up per rig.

So it'll probably be fractions, you wouldn't want to carry.

1 for rig for the full quarter for each because it's likely to be picking up rigs throughout the quarter for each of the 3 companies.

But that's what I expect and then of course <unk> right now is running 2 frac crews.

So.

You'll want to think about that as well, but <unk> not running a frac crew and Crestone peak.

I'll be picking up of Frac crew in the not too distant future. So I think shortly after close we will be getting.

Approaching that activity pace fairly quickly within a couple of weeks after close you'll see us start picking up rigs and kind of getting after that pace.

So.

Maybe like a 3 rig program between between the 3 companies by the end of this year kind of thing.

I think so yes, okay perfect. Thank you Eric.

Thanks Phillips.

Thank you.

Our next question comes from the line of Nicholas Pope.

Your line is open.

Good morning, James P.

Nick.

Kind of following up on the rig question.

I mean, it's been.

When this when it comes in.

On your assets, it's going to be like a year and a half of the show last pattern.

The rig actively drilling.

Could you talk a little bit about maybe.

What goes into the company kind of restarting the drilling program and maybe where costs.

Our relative to where we were when we last kind of left of the drilling rig in 2020.

Just to help kind of with the production modeling sure sure. So.

I anticipate on the PCI stand alone basis.

We will be running in the I'm going to call. It $500, maybe $520 per linear foot of lateral of per lateral foot. That's a combination of <unk> and Srs that's on the <unk> stand alone.

We acquired at the bottom of the market a bunch of oil country tubular goods, particularly.

The.

Hardening grade alloys, the HCP 110 for for 5 and a half production casing. So we bought that at the bottom of the market and that will carry us through our startup.

And of course.

So G and Crestone peak also continued with their D&C pace of development.

But for us in particular, we're pretty confident we've maintained all of our engineers are utility players.

And right through Dean and I've been sitting here at the table Dean and I are D&C guys ourselves, but we've maintained our utility players through the operations organization. So we really havent havent given up any of the capabilities.

Even though we did.

Have a reduction in force back in April of 2020, we've maintained all of our D&C capabilities, along the way and we bought some cable some supplies at the bottom of the market. So I feel really good about about our ability to pick up of rig and start right, where we left off.

And I think <unk> and Crestone peak, particularly Crestone peak has maintained their drilling activity. So there they're sort of fight trend right now and I'm very confident that <unk> team can pick it right up.

For all of the same reasons that.

The <unk> confident in ourselves.

Got it that makes sense.

And just going back a little bit.

Is there any update on where activity is on the French Lake asset.

Yes, that's of Great question.

Oxy continues to work with.

Mr Service out of French Lake.

We feel pretty good about the progress we've been making.

But it is progress in.

An incremental bites and what I mean by that is.

Through.

Through Covid.

Were very restricted access to folks just just because of the slow pace of.

The recovery and then as we moved into for our Q and then into 2021.

We began discussing.

With with the <unk>.

Surface owners out of French Lake.

Moving forward and it's just been flow and continue we continue to make incremental progress.

I don't have anything new to report in terms of massive.

Shifts forward into development, but we've got.

Our surface use agreement done and ready to be executed and we continue to meet with the with Mr. Serbian as representatives as as we have those conversations and Ham.

Hammer out small details and continue to work forward. It's a good relationship both with us.

And the operator, Oxy and also with the owners and Theres just a lot of details that need to be worked out.

And we are.

We're making progress on it.

That's great.

And then 1 last thing there's a comment in there about the Crystal peak side there is the <unk>.

$750 million of debt cancellation, I, just want to make sure I understand that correctly is that all taken care of.

With kind of the deal.

Metrics and it's really not associated with kind of Bonanza Creek and for the tough going going forward.

Yes, it will be eliminated at or before closing.

I've got Sandy here with me, but and.

She's our chief accounting officer here at <unk> and understands the details.

Certainly better than I do but.

I think because of the way.

Crestone peak ownership is structured in the private.

It is it is an elimination that happens.

In route to close and we will not carry through to the civitas.

The combination basis.

Alright, well I think I took all my questions.

Thanks, Nick.

Morning.

Thank you.

As a reminder, ladies and gentlemen, Thats star 1 to ask the question.

Our next question comes from the line of Noel Parks with Tuohy Brothers. Your line is open.

Okay.

Hey, good morning, Noel how are you really.

Good Thanks, how about you were doing well thank you.

Good good.

Was intrigued to sort.

Sorry to hear your discussion of a little earlier about.

Viewing frac design in terms of the economic conditions and.

The first of all it came to mind when you are talking about that was.

Is that.

A separate discussion from.

Jeff.

General plan of managing your your DUC inventory.

Take advantage of either favorable.

Service costs are near.

Near term pricing.

As opposed to using it too.

Just sort of judiciously bring.

Cash onboard.

A good time for.

Ease of the budget or or for commodity prices versus the outlay of cash for for a couple.

Completions.

I'm going to say, it's all of those things no.

What's built into that to that approach is.

Essentially it starts at the very front end of the.

Building out of development plan and of course. These development plans are built out to the end of life of the assets. So.

Today, we will look at of development plan for <unk> that is built out to the end of life. We call. It of depletion plan runs all of the way out of the last well for the last acre to.

For the last dollar of land developed.

And you prioritize that bringing forward your best economics to the front end and buried within that is.

Our our physics engine, which which runs behind all of these decisions you've heard me talk about Dynamo in Dynamo as our core kind of economic development optimization engine.

The special IP, we've created.

B cei.

And nowhere in the.

No matter, where within the basin or where along the creaming curve.

We.

Invest capital.

We can drop across her on that acreage and Dynamo will generate an optimized type curve and we will back calculate based on current commodity price.

Based on current.

Capital factor input so the costs right to have the cost model that is current and you have of revenue revenue model that is current.

<unk> Dynamo will optimize the economic returns.

On those dollars invested and that will back calculate both the spacing stacking and stimulation design and then as we as we work our way forward through that development plan.

We set up.

Meetings with municipalities and with Seo GCC and with others as we prepared <unk> use and we set these.

Of these units up we tend to permit at higher density, meaning more surfaces per pad than than might ultimately be necessary because you want to maintain the option in the event the price the price ribs.

Because again maximizing.

The return might require more wells per section.

But if price retreats.

And then Dynamo will predict fewer wells per section and we can run out of options along the way meaning.

The spud fewer wells if you have if you have all of the slots of approved and then even if you of spud it and set surface you don't have to drill out all of those surfaces. If prices don't support it you can drill out just the.

Of the production intervals necessary and even after you of TD cased and cemented the well bores.

You still have an opportunity to both lean into higher intensity and larger stimulation designs or back off the stimulation intensity as necessary, while youre zip and the wells together. So think of this like a series of options that you exercise as you move down the road.

Getting ultimately to the very last stimulation for the very last stage and the very last well in the very last heal.

When you are effectively run out those those opportunities, but then you still have artificial lift designs you still have reservoir pressure management vis vis choke and pressure pressure management.

Regimes to maximize your return and Thats the way we think about this is all driven by.

By running those options out as long as possible and making every incremental dollar of investment on a maximum returns basis.

Based on which option we are playing at that at that very moment.

Great I was just curious is that.

Is what Bonanza Creek was doing with them.

With diner Maura.

A more granular analysis than either crestone ore extraction themselves have been doing at home.

Yes, it's different it's different in general and in principle.

But we are bringing these 3 companies together because of the relative strengths of the companies.

<unk> got <unk>.

Particularly along the west side of the basin very very strong assets.

It's.

The Niobrara and all of its in all of its horizons plus the Codell are much better developed along the western flank of the basin.

Right along the synclinal access the highest quality of reservoir.

It's deeper it's hotter, it's higher pressure and it's better developed both in the thickness and kind of Petro physical terms.

<unk> got higher quality assets, along the west.

Crestone peak and <unk> bring those higher quality assets. They also bring.

Great people great teams in terms of community government relations.

And.

ESG, we've inherited strong.

The capability is practices from from those 2 teams and because we were operating <unk> in high point, where operating along the eastern flank and of more rural area.

Didn't have to build those muscles nearly as much as.

As the folks operating along the Western corridor, so we bring those strengths into the <unk> organization.

And now we've got we've got all of those operating practices and capabilities plus access to better resources.

Along along the western flank just in terms of better developed rock.

And that when you add all of the undeveloped upside to the south and Watkins and the quality of that resource.

We think we're bringing the very best of the best companies together and.

It's a lean talent driven organization strong and technical and operational capability.

But what I would say specifically around Dynamo that's unique to <unk>, but.

I don't think running.

Running out the options was necessarily something that was unique in our development planning and I can tell you I am impressed by working together with these 2 teams through.

Through the pendency of the transactions at how sophisticated each company is in different ways.

So bringing all of that together is just a real strength in this consolidation.

Terrific and just the last 1 from me just kind of a bit of housekeeping.

Jim.

In the quarter the midstream operating expense.

Came in a good bit lower than I had expected.

And I was just wondering if.

You could talk about the the <unk>.

Drivers of that.

I'm just wondering if debt.

This potentially more of a onetime effect and we might see it.

Go up from here.

Yes, no I'm going to attempt to answer that right now and I've got Scott and Sandy and Dean here as well, who will think about it while I'm while I'm working.

I think it's Rmi Opex you are talking about and remember when we pulled together.

The point of BCE.

Hi point didn't really have the equivalent of an rmi that as a wholly owned.

Set of accounts of wholly owned gathering and compression operation and a set of accounts.

They booked a lot of the gathering and compression charges too low and so when we brought <unk> and high point together.

Youll recall and you can actually look back through the last couple of quarters and you'll see this alloy went up on a unit basis and the reason for that was because high point brought over incremental gathering and compression charges that were booked at low <unk>.

Now, we're starting to manage that down and we're taking advantage of synergies and efficiencies.

But 1 of the not necessary or natural benefits of that was because they didn't have those gathering and compression accounts book to an rmi like entity, then Rmi got the benefit of all of the dilution of the bow in the denominator and it took the unit costs down on an Rmi opex basis.

But the low went up and if you look quarter over quarter.

Before and I think if you add those 2 together and you call them direct opex, it's going to be in line with expectations of what you would expect meaning the of some of the 2 together. The 2 parts are going to look different from 1 another before and after the transaction.

But when you put them together it will make sense and the combination on a unit basis will continue to come down over time, as we manage efficiencies and synergies.

Does that answer the question on Rmi, specifically of the midstream Opex.

It does thanks a lot. Thank you.

Thank you.

Our next question comes from the line of Ray Deacon with feature of <unk>. Your line is open.

Yeah, Hey, good morning, Eric and Brian Hey, good morning spread.

I had a question I recall.

The couple of quarters back when you announced the extraction deal you talked about the economics being the strongest on the western side of the basin.

And.

I noticed in August the.

The gas prices are over for I was just wondering if you could talk about kind of what would the returns look like at the at the moment.

Yes.

I mean in short rate of their strong those those wells.

Because there is so much there.

It's really it's a really well developed the resource.

It's deeper yes, it's higher pressure yes.

But boy of those strong wells and because gas is worth something of these days and Ngls worth something these days all of that.

Thermal maturity and gas energy brings a lot of oil with it which is worth something today too and these are big curves I mean, these are million Boe type curves.

Some of these are 15000, even even longer in some cases lateral lengths, which are going to make those type curves even larger.

The economics on an IRR basis are going to be north of a 100%.

At anything that resembles today's strip and you can see that actually in our in our latest.

Rollout material of our launch deck, where we've created the skyline of the creaming curve you noticed we truncated all.

All of that.

Inventory on the left side of that curve, it's all of truncated at 100% because it gets it gets well north of that in.

We didn't we didn't want to we didn't want to create the scale of that kind of win went too far because we wanted to know if all make sense, but that's on slide 15 of our last rollout deck. The 1 that featured the <unk> plus Crestone peak.

Right right.

And just 1 last 1 the.

The increase the widening of the basis of 675 on the crude side of the <unk> is there the sort of a chance that that reverses and what are the drivers of that.

Yes, so you'll notice that was marked on a 730 strip, which we noted I think in our in our.

Investor deck.

Since then the strip has come down a little bit and actually because this is a function of.

Of strip pricing as well as an escalator as well as some of the white cliffs Ddos and other kind of market basis around here, it's going to move around.

We think generally speaking.

It's in the right range, but it's actually the midpoint of $6.75 implied by that range of a little higher than the way we would see it today if prices stayed where they are today, but we just.

Wanted to be clear with everyone net.

Not only do we have this ti escalator on our.

Oil gathering and.

Sales contract.

But that white cliffs basis has expanded just a little bit as well.

Got it great. Thank you.

Thank you.

I'm showing no further questions in the queue.

I would now like to turn the call back over to Eric for closing remarks.

I wanted to thank you I just wanted to thank everyone for joining us on the call today and I wanted to point out debt.

We will be at Entercom coming up in just a week or 2 happy to sit down with folks then.

And we will have the extended set of task team with us at the time. So we will be able to go into a little bit more detail. Then thank you everyone have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the Q2.2021, Bonanza Creek Energy earnings Conference call.

At this time all participants on the listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need the press Star then 1 on your telephone.

Please be advised the today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I would now like to hand, the conference over to your speaker for today.

Got lender you may begin.

Thank you good morning, everyone and welcome to Bonanza Creek second quarter 2021 earnings conference call and webcast.

On the call. This morning, I am joined by Eric Gregor, President and CEO of brands abuse.

The executive Vice President and Chief Financial Officer, and other members of the senior management team yesterday, we.

We issued our earnings press release posted a new investor presentation and filed our 10-Q with the SEC all of which can be found on the Investor Relations section of our website.

Some of the slides in the current Investor presentation, maybe referenced during our remarks this morning.

Please be aware that our remarks will include forward looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from these statements you should read our full disclosures regarding forward looking statements contained in our 10-Q10-K and other SEC filings.

Also during the call we will refer to certain non-GAAP financial measures because we believe they are good metrics to use in evaluating performance.

Reconciliations of these measures for the most directly comparable GAAP measure are contained in our earnings release and Investor presentation.

We will start the call with prepared remarks, and then move to Q&A as with previous earnings calls, we will take questions from those of the sell side analyst community on today's call I ask that investors and others with the questions to please reach out to me directly to schedule a call you can find my contact information on the Investor Relations section of our web site or within Yesterdays release.

Now I would like to turn the call over to Eric <unk>, President and CEO Eric.

Thanks, Scott Good morning, everyone and thank you for joining US today, we appreciate your time and interest in Bonanza Creek.

As with previous calls we will keep our prepared remarks short in order to leave plenty of time for Q&A.

It was a very busy second quarter for the company, we began the quarter with the announced closing of our merger with Highpoint resources on April 1 and quickly followed that up with the announcement of 2 additional transactions.

The merger of vehicles with extraction of oil and gas on May 10th and the acquisition of Crestone peak resources on June 7.

Both transactions are subject to stockholder approval and customary closing conditions, but once the extraction and Crestone peak are combined with Bonanza Creek to create <unk> resources.

We will become the largest pure play of DJ operator.

Not to be lost in all of the M&A activity during the quarter as a very positive second quarter for Bonanza Creek plus high point the.

For the integration of the 2 companies is proceeding well and ahead of schedule.

Our second quarter production of $42.3 Boe per day was flat to the pro forma first quarter and slightly better than the slight decline we had expected during our first quarter call.

With our release yesterday, we raised our production guidance to a range of 41 to 44 Boe per day, with 48% to 52% coming from oil.

We did of lack of limit this and all other guidance for the third quarter given the pending mergers.

Our unit LOE are.

Opex and recurring cash G&A expense all showed significant improvements from <unk> due to the increased volumes associated with the high point merger.

And from our focus on efficiencies and capturing synergies.

When we first announced the Highpoint merger in November of 2020, we promised $31 million in first year synergies I am pleased to say that on an annualized basis, we have already captured well over $31 million in synergy of as shown on slide 9 of the Investor presentation, We posted yesterday.

I'm proud of the work done across the organization to effectively integrate high point in the Bonanza Creek.

Reinforces my confidence in our ability to successfully integrate extraction of Crestone peak and continue to deliver synergy value to shareholders.

We have lowered our LOE guidance to a range of $2.85 to $3 per Boe.

And established recurring cash G&A guidance of 8 to $9.5 million for <unk>.

Guidance for Rmi, Opex, and severance and AD valorem taxes were unchanged, except for limiting the guidance to 3 of Q.

Capex for the quarter was just under $41 million, which brings year to date capex to approximately $74 million.

We still believe in annual Capex range of $150 million to $170 million of appropriate for full year of Standalone Dci, but we have provided <unk> guidance of $55 million to $65 million.

Finally, 1 last item related to <unk> guidance, given the current strip for <unk>, which is about $55 per barrel, where our oil differential begins to escalate we estimate our oil differential to be in the $6.50 to.

The $7 per barrel range for the third quarter.

Bonanza Creek paid its first ever quarterly dividend of <unk> 35 per share in June the.

For the annual dividend of $1.40 per share represents approximately 3.7% dividend yield at the current share price.

The Bonanza Creek Board of directors declared that the third quarter 2021 fixed dividend of <unk> 35 per share all of your paid on September 30 to shareholders of record at the close of business on September 15.

So the cost is committed to returning capital to shareholders through increased dividends and as previously announced we anticipate that the annual dividend will be increased to $1.85, approximately <unk> 46 per share per quarter at closing of the pending transactions with extraction of crest on pig.

In the earnings release, we provided certain <unk> metrics for the individual companies forming set of toss. The 3 company has produced a total of $162.3 Boe per day during the second quarter.

Bonanza contributed $42.3 Boe per day of those volumes extraction contributed $76.6 and Crestone peak contributed $43 for.

We will provide additional information on the merger transactions as we progress towards closing in early Q4.

With that I will return the call of the operator for Q&A.

Thank you.

Ladies and gentlemen, as a reminder to ask the question you will need the press Star then 1 on your telephone.

Joining the question press the pound key.

The next I want to ask the question.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Leo Mariani with Keybanc. Your line is open.

Hey, guys just wanted to see.

If we can get a little bit more color on what you guys are sort of working on in terms of integrating all 3 companies and obviously now and there has to be.

The vote and what non guys have to close these deals, but you certainly put some language in the in the press release that you guys are kind of working fast and furiously on this I know you originally had a $70 million synergy target.

But clearly on HCR. It looks like you have ceded that $31 million targeted I guess faster than expected. So as you just kind of any update to your thoughts on the ability and amount of synergies on these deals.

Thanks, Good morning Leo.

The what I would say is as you would expect.

It's all of the.

It's not complicated it's not complex, but it takes a great deal of time and energy and where we are interviewing.

All of the employees of the 3 companies that are coming together and as we continue to have conversations and evaluate.

While we will become the <unk> organizational structure.

There are necessary changes that need to be made.

This will be.

New company entirely.

Theres just a lot of work that has to be done in terms of getting to know folks in terms of evaluating the.

The strengths and talents of each individual and a lot of decisions that have to be made in terms of how we're going to a range.

The structure itself.

And I would say that's the biggest part of what is <unk>.

Ongoing today is the effort around organizational structure.

I think.

Much of the decision making around.

Rationalizing our downtown office space has been has been done.

And I'm happy to happy to talk a little bit more about that.

Much of the decision, making around rationalizing office space in yards and the field has been done of obviously, we haven't realized the savings, but I think we've got pretty good plans in place.

And again, it's just it's just a great deal of work, but having accomplished the high point synergy savings ahead of schedule.

And the cultural integration ahead of schedule as well I've got a great deal of confidence.

And our teams ability to both.

Put this together quickly and.

And execute the close and transition swiftly and without.

Without any excess friction.

Let me stop there and see if you have got a follow up question, specifically around what I mentioned.

Yes, I think there was pretty thorough.

But you guys are working fast and furiously.

And obviously I want to put the cart before the horse I know you have to get these.

Deals under your belt, but.

How are you feeling about other potential opportunities in the DJ to maybe roll up other asked the answer of other companies and is that something that.

The Civitas, we'll start looking at immediately kind of after close or perhaps even before maybe there are some targets that you guys already have here.

You're sort of focused on at this point.

Yes, we continue to be focused on on value.

Creation and disciplined Leo but we haven't stopped looking we've basically carried straight through.

With with our.

Core analysis team and core analysis tools and continuing to have.

The the work that happens behind the scenes all of the analysis that needs to be done obviously, we can't do anything and.

And we can have any any value conversations with anyone during the pendency of these transactions.

We wouldn't think to do something like that but continuing on with analysis, particularly technical analysis.

Is core to our business.

And it's exactly what you would expect any.

Any business like ours to continue doing even independency of the transaction technical and operating analysis as to how to drive value.

Our strategy spin.

Specifically I would say that.

We're going to continue to create value for shareholders.

If you look at our trading multiple today civitas on an EBITDA basis for 'twenty 2.

It does make things a little bit more challenging.

And we're going to remain disciplined so I would say that here in front of everyone.

That because where we're a disciplined value creating organization, we're not going to we're not going to pay through our multiple.

Yes.

That means things get a little bit more challenging when the multiples depressed are more compressed so.

That's the fact and it doesn't come as a surprise to anyone on the call.

But we will continue running the analysis and executing our strategy.

And we'll kind of take it from there beyond that I don't I don't know.

Much more of that I can say, but feel free to follow up with the specific and I'll try to answer.

No that was that was very helpful color for sure and just lastly for you guys here could you speak a little bit to the kind of current permitting.

Situation out there in the DJ and I know, obviously you guys have share it can give a robust answer on the Bonanza Creek side, but do you of any insight potentially on how things might be going on maybe some of the crestone or the extra day lands in a little bit more of a.

Call it.

The more urban.

The environment and less rural and legacy Bonanza.

Yes, we've submitted dozens of <unk> applications.

And those are all outstanding.

We feel like like the environment, the regulatory environment is growing more and more constructive.

We haven't received any any approvals, but we're very confident in.

And the fact that we will confident in the fact that many of these are already cleared completeness and we've got very open channels for the regulators and to the municipalities.

We've got great relationships, all along the western corridor through the Crestone peak and extraction.

Community Relations team government relations teams and regulatory teams and then moving further south.

We feel confident in our relationship in and around the Watkins asset base.

That will continue to be able to generate permits going forward. The combined company has 300 permits approved right now in inventory.

And that will take us well out into 2022 and beyond.

And that excludes Hereford in Grover. So if you included those stellar assets to the north than we'd have even more even more permits.

But we generally exclude drove around Hereford from that from that list.

So let me let me stop there Leo and see if you want to follow up on any of that.

No I think that was again very thorough for share and I appreciate your time.

Thanks Neil.

Thank you.

Our next question comes from the line of Neal Dingmann with tourists Securities. Your line is open.

Good morning, My first question I guess, what I would say the top of the majority of these days I'm just wondering going forward, what what's your preferences for incremental shareholder return and especially considering the notable quarterly dividend you already paid.

Hey, Neal Thanks for the question, we again it is a core tenant of.

<unk> and more importantly, going forward <unk> to return cash to shareholders.

For the Buck 85 of share announced an announcement of.

The second of the 2 announced transactions is there is a pretty strong base dividend.

And what I would say is we continue to remain focused on.

Returning cash and what I would add the other thing I would suggest is.

The Civitas board, while we've had lots of conversations with the board has not yet formed and as a consequence of that is not.

Had the opportunity to take up.

The full of kind of formal policy.

Expanded.

Capital allocation practices and policies. So once we get a little closer to close I anticipate that we'll have more to say about that but we are absolutely committed to returning cash to shareholders and I think every tool in the toolbox should be made available to us as we move.

Over commodity cycles and through various.

Phases of the business development.

But again the nice.

Nice to hear in the deal obviously, the quarterly given today's very nice.

Secondly, just most of the question is on the anticipated well spacing on slide 8 tours you all are sort of of the wider side, though it sounds like you may have submitted some plans to broomfield for a bit tighter well spacing. So I'm just wondering how youre thinking about average basis going forward.

Yes, the way, we think about about spacing and stacking Neil is.

We'll we'll adjust along the way it's price dependent.

So when the prices are high and the resource can support. It then we'll maximize the returns of the capital invested in the rock and in some cases, where the rock is.

Is better more well developed in terms of geology, porosity and permeability and pressure.

It will sustain more wells per section.

But we aim to maximize returns and cash on cash return of maximizing at the IR 9 metric.

And Thats the way, we think about so.

When prices are high that means we're going to be able to down space, just a little bit and when prices weaken a bit will op space.

And we think about that.

The relationship not just in spacing and stacking where you have multiple horizons like the codell, but we also think about stimulation designed the same way.

And if you run these if you run out of these options as you as you apply the permits and then.

Develop the pad set surfaces drill out production of intervals and start stimulations you've got.

You've got staggering options along the way that allow you the opportunity to maximize the economic return of the incremental capital invested.

So what we're shooting for is.

Maximizing the return and spacing and stacking and stimulation design will be dependent on that in much the same way that production will be dependent on.

Notionally half of our EBITDA generated we like to think about this rather than kind of.

The old school thinking about.

About setting a particular stimulation design are of particular spacing and stacking regimen.

Independent of price, we like to think about.

Things like reinvestment rate.

As an.

Non independent variable and things like production is dependent variables in the same way that we think about <unk>.

Price commodity price in particular.

As the independent variable on spacing stacking and stimulation design as the deepened and variable maximizing and economic metric like cash on cash return of <unk>.

I think those economics for that Optionality makes a lot of sense. Thank you. Thank you Neil.

Thank you.

Our next question comes from the line of Mike <unk> with Stifel. Your line is open.

Hey, good morning.

Eric.

Your LOE came in a little bit better than we were expecting I guess below your guidance and then you lowered your guidance for.

Third quarter wanted to see if.

There was anything in particular, there that drove that and.

What you're thinking in terms of how sustainable that might be as you look.

In the fourth quarter. After these mergers close.

Good morning, Mike Thank you.

Yeah.

If I were to sum it up briefly I would say.

Many of the connections, including produced water connections and other.

Allo indirect opex related items just came in ahead of schedule in terms of.

Connecting the high point system to the BCA systems, rationalizing things like routes and other <unk>.

Items that tend to drive LOE on a unit basis.

All of that is moving ahead of schedule and it allowed us to.

Take down.

Q2, and also take down Q3.

A low expectations.

And I anticipate that's only going to get better as we move through.

Through close and build out <unk>.

A great deal of operational synergies when you think about PCI in high point clearly the industrial logic made a great deal of sense.

And when we announced the extraction deal 1 of the things we pointed to is the downtown office space Theres, a better redundancy and in terms of square footage in.

G&A.

More broadly in the field there was a little less.

Kind of overlap, but when you layer on Crestone peak on the XO G. It creates a similar dynamic between those 2 companies that existed within.

Within <unk> and high point.

And we just expect the.

The direct opex numbers in.

Cash cost structure across the board to get meaningfully better over time as we grow.

Efficiencies and scale and capture these synergy savings.

Okay. Good.

It looked like the.

Merger related costs for the.

Hi point deal, we're a little bit higher than we had anticipated on the CF, where all of those merger related costs relative to the high point.

For the quarter or for some of the extraction and the Crestone peak in there as well.

Any thoughts about what those might look like in.

In the fourth quarter for finish.

Finishing up the extraction Crestone peak transactions.

Yes, it's a good question, it's difficult to untangle perfectly and completely.

Transaction related costs from kind of a run rate.

Costs, we've done we've done our best and you can see the 2 the 2 category of separated.

But.

When we announced extraction and Crestone peak, we clearly we're in the throes of the integration work and a lot of the transaction costs carrying through and as the parent and the issuer there are.

These costs will carry through on the BCE I okay.

<unk>.

Going forward, so I would imagine net.

We will continue to see continue.

Continue to see merger related costs transaction costs running through Q4, and probably bleeding into Q1 as well.

Generally speaking Q2 had.

Not just the.

The the tail end of the high point merger related transaction costs, but also.

The extraction and Crestone peak, starting to ramp up at that time, because we really didn't stand down any of that.

The merger and transaction apparatus, including all of the various advisers on all sides of the business legal.

Banking and all of the rest audit Hey, Mike It's Brent. So if you kind of circle up $3 million to $5 million in the second quarter.

That would be associated with.

What we've been doing beyond the high point.

Okay. That's helpful. So it sounds like.

There was a fair bit in there beyond high point.

Maybe a little bit less.

In the fourth quarter would that be your best guess if the split.

Yes.

The fairness opinions get paid upfront.

So that was the large chunk of it yes.

Yes, all of the legal lot of the legal work is done on the on the front end as well because you are paying that.

As you go and a lot of that is associated with both merger agreements and then importantly, the S 4 filings.

Okay, and then last 1 for me just.

Now that we're closer to.

The the mergers.

Thoughts I know, it's still early for looking into 'twenty, 2 but you guys of.

Told us what.

The extraction and the Crystal peak.

Even the so looked at their EBITDA and the pro.

Production for the quarter I guess as you look into next year should we assume.

The hold things flat.

The idea in terms of activity levels.

You might be looking at 2 to accomplish that.

Yes, it's still pretty early im going to stick with stick with Mike What we've said already which is.

The notionally, 50% of our EBITDA generated reinvested.

We think that will run right now.

Given the quality of assets Notionally flat production.

Run 3 operated rigs on a.

Pretty much of level loaded basis, and 3 level loaded frac crews moving around.

The DJ acreage position so.

Generally speaking that that still feels pretty good but I would emphasize our thinking is.

This hole.

Input is as reinvestment rate output is production.

Just like I discussed earlier in the Niels.

Neil's question around spacing.

Some things are dependent on others and were not being dogmatic about about holding production, we do expect at the hold flat.

But we're not dogmatic about that we're going to let that be what it is as we as we manage reinvestment rates, we think thats in a sensible.

Model.

Bill.

Great. Thanks, guys I appreciate it.

Thanks, Mike.

Thank you. Our next question comes from the line of Philip Johnston with capital 1.

Your line is open.

Hey, guys. Thank you just to follow up on Neil's question on cash return.

If we assume of locate scenario of $45 of oil $2.50 gas kind of held flat forever.

Our pro forma leverage ratio still stayed below half the turn it definitely in the pro forma of free cash flow yield.

Still being sort of the 6% to 9% range over the next 5 years based on the current share price.

That suggests obviously you guys could either raise the pro forma for 85 base dividend pretty significantly.

Start paying variables.

Buyback of significant amount of stock or some sort of the combination of those options Eric.

Erica.

I know you said all of the options on the table and obviously the <unk>.

Or do you see the hammer things up.

You may be talk about what options you guys might be leaning towards and kind of what some of the advantage of the advantages and drawbacks of you guys see regarding buybacks versus variables.

Yes.

It's a great question Phillips.

I don't want to front run the board, but what I can tell you is.

We recognize that.

When our trading multiples are compressed the way they are today.

That our shares are a bargain.

We also recognize that it's a pretty.

In terms of.

Opportunities to allocate capital that buying back our own shares may in fact, the 1 of the most compelling the uses of free cash flow.

And.

No 1 on this call would be surprised by that statement.

It's purely a matter of.

No.

How do you allocate capital to sort of the highest returning opportunities. So if we can buy our own shares back at such a discount why why wouldn't we consider doing sales. So I put that out there juxtaposed to that is the the historical.

Performance of this industry in terms of how ineffective we've been.

At timing.

Share repurchases.

In terms of the cycle.

<unk>.

We want to be counter cyclic as much as we can.

We would really want to be buying our shares back when theyre down in.

The depths of say 2020.

Loews as opposed to today, but again, you don't always have that opportunity.

I really like the dividend I think it's strong but I think the board will also consider.

Some sort of special of variable construct and I say that only because.

It does give you some flexibility to use your post dividend free cash flow generated for purposes. What else are you going to use it for it to either return cash to shareholders vis vis 1 of these couple of tools.

For to pay down debt and since our debt is already.

Pretty low on a leverage ratio basis, 1 might argue we're over <unk>.

And it wouldn't make sense to run our debt in a lower so to optimize our capital structure.

We might we might leave it kind of where it is and find other ways to return cash to shareholders.

All of that remains to be really hammered out by the by the set of the board.

I don't think Ive said anything controversial because this is pretty fundamental cash.

<unk> allocation strategy, but I do think it's really important for us to consider share repurchases, particularly when our when our market price.

Substantially.

Substantially below our.

Intrinsic value, that's just built in savings and why not buy yourself back of the at a discount.

Yes.

At the very thorough answer and I would agree.

We were pretty much through the Senate.

In terms of guidance, obviously, we had a pretty good picture of Q3.

And obviously you haven't given anything on Q4, just given the uncertainty.

When the deal is closed but I guess for.

For those of us that assume the October 1st close just for modeling purposes should we just kind of add up the 3 entities second quarter volumes and assume the fourth quarter will look fairly similar.

Are there are there is some moving parts of that would maybe put queue for a little bit higher or lower than that sort of second quarter run rate no. I think that's actually pretty good sell ups and then you'd want of season and starting to capture synergy savings.

Starting from the moment of close moving forward.

But I think thats.

If I were doing it today I'd take the 3 separate models built often I would push them together and I'd run them out and.

And while we while we anticipate.

<unk> is providing a fourth quarter stub period guidance shortly after.

Clothes, and then probably not too long after that sometime in Q4 of providing a more comprehensive 'twenty 2 guidance.

But we want to get after it pretty quickly, but if I were you I'd do it exactly like you suggested and then sprinkle in some synergy savings throughout Q4.

Philippines the perfect.

I would just caution that the what's in the 10-Q is not meant to be of pro forma it for some of the products.

Okay, and then just just to clarify on the rig count.

I am not mistaken under the 3 companies Creek Crestone, it's really the only 1 for running a rig today and you guys mentioned, adding a rig in Q4, so would that be sort of the per.

On a pro forma basis would that be going to a 2 rig program or.

Am I not thinking about that correctly.

I think youre thinking about it correctly I think it's entirely likely the Crestone peak will continue running their rig.

Entirely likely that both <unk> will pick up per rig so it will probably be fractions, you wouldn't want to carry.

1 for rig for the full quarter for each because it's likely to be picking up rigs throughout the quarter for each of the 3 companies.

But that's what I expect and then of course <unk> right now is running 2 frac crews so.

<unk>.

You'll want to think about that as well but.

<unk> is not running a frac crew and Crestone peak will.

We will be picking up of Frac crew in the not too distant future. So I think shortly after close we'll be getting.

Approaching that activity pace fairly quickly within a couple of weeks after close youll see us start picking up rigs and kind of getting after that pace.

Okay. So maybe like a 3 rig program between the between the 3 companies by the end of this year kind of.

I think so yeah okay.

Perfect. Thank you Eric.

Thanks Phillips.

Thank you.

Our next question comes from the line of Nicholas Pope Seaport. Your line is open.

Good morning, Jamie.

Hey, Nick.

Kind of following up on that rig question.

I mean, it's been.

When this comes in.

On your assets, it's going to be like a year and half of the show last pattern of rig actively drilling.

Could you talk a little bit about maybe.

What goes into the company kind of restarting the drilling program and maybe where costs.

Our relative to where we were when we last kind of left of the drilling rig in 2020.

Just to help kind of with the production modeling sure sure. So.

I anticipate on the PCI standalone basis.

I'll be running in the I'm going to call it $500, maybe $520 per linear foot of lateral or per lateral foot. That's a combination of <unk> and Srs that's on the Dci stand alone.

We acquired at the bottom of the market a bunch of oil country tubular goods, particularly.

The.

Hardening grade alloys, the HCP 110 for for 5 and a half production casing. So we bought that at the bottom of the market and that will carry us through our startup.

And of course.

<unk> and Crestone peak also continued with their D&C pace of development.

But for us in particular, we're pretty confident we've maintained all of our engineers are utility players.

And right through Dean and I've been sitting here at the table of Dean and I are D&C guys ourselves, but we've maintained our utility players through the operations organization. So we really havent havent given up any of the capabilities.

Even though we did.

A reduction in force back in April of 2020, we've maintained all of our D&C capabilities, along the way and we bought some some supplies at the bottom of the market. So I feel really good about.

Our ability to pick up of rig and start right, where we left off and I think <unk> and Crestone peak, particularly.

Particularly crestone peak has maintained their drilling activity. So there they're sort of fight for them right now and I'm very confident that <unk> team can pick it right up for.

For all of the same reasons that.

The <unk> confident in ourselves.

Got it that makes sense.

And just going back a little bit.

Is there any update on where activity is on the French Lake asset.

Yes, that's of Great question.

Oxy continues to work with.

Mr Survey out of French Lake.

We feel pretty good about the progress we've been making.

But it is progress in.

An incremental bites and what I mean by that is.

Through.

Through Covid.

Were very restricted access to folks just just because of the slow pace of.

The recovery and then as we moved into for <unk> and then into 2021, we began discussing.

With with the <unk>.

Surface owners out of French Lake.

Moving forward and it's just been slow and continue we continue to make incremental progress.

I don't have anything new to report in terms of massive.

Shifts forward into development, but we've got.

Our surface use agreement done and ready to be executed and we continue to meet with with Mr. Serbian as representatives as.

As we have those conversations and.

Hammer out small details and continue to work forward. It's a good relationship both with us and the operator Oxy and also with the owners and Theres just a lot of details that need to be worked out.

And.

We're making progress on it.

That's great.

And then 1 last thing there's a comment in there about the Crystal peak side. There is the $750 million of debt cancellation I just want to make sure I understand that correctly is that all taken care of.

With kind of the deal.

Metrics and it's really not associated with kind of Bonanza Creek and some of the tough going going forward.

Yes, it will be eliminated at or before closing.

I've got Sandy here with me, but.

She is our chief accounting officer here at <unk> and understands the details.

Certainly better than I do but.

I think because of the way.

Crestone peak ownership, the structured and they're private.

It is it is non elimination that happens.

And route to close and we will not carry through to the civitas.

Non of combination basis.

Alright, well I think I took all my questions.

Thanks, Nick.

Morning.

Thank you.

As a reminder, ladies and gentlemen, Thats star 1 to ask the question.

Our next question comes from the lot of Noel Parks with Tuohy Brothers. Your line is open.

Okay.

Hey, good morning.

Hello, how are you.

Good Thanks, how about you were doing well thank you.

Good good.

Always intrigued to.

Sort of hear your discussion of a little earlier about.

Viewing frac design in terms of economic conditions and.

The first of it came to mind when you are talking about debt was.

Is that.

A separate discussion for.

Jeff.

General plan of managing your DUC inventory to sort of take advantage of either favorable.

Service costs of our near.

Near term pricing.

As opposed to using it too.

Just sort of judiciously bring.

Cash onboard.

A good time for.

Either of the budget or or for commodity prices versus the outlay of cash for for <unk>.

Completions.

I'm going to say, it's all of those things no.

What's built into that to that approach is essentially it starts at the very front end of.

The building out of development plan and of course. These development plans are built out to the end of life of the assets. So.

Today, we will look at of development plan for <unk> that is built out to the end of life. We call. It of depletion plan runs all the way out of the last well for the last acre.

For the last dollar of land developed.

And you prioritize that bringing forward your best economics to the front and and buried within that is.

Our our physics engine, which which runs behind all of these decisions you've heard me talk about Dynamo in Dynamo as our core kind of.

The development optimization engine is this fits the <unk>.

Special IP we've created.

At BCE I.

And nowhere.

No matter, where within the basin or where along the creaming curve.

We.

Invest capital, we can we can drop across her on that acreage and Dynamo will generate an optimized type curve.

The back calculate based on current commodity price.

Based on current.

The capital factor input so the costs right you have the cost model of its current and you are of revenue revenue model that is current.

And Dynamo will optimize the economic returns.

On those dollars invested and that will back calculate both the spacing stacking and stimulation design and then as we as we work our way forward to that development plan.

We set up.

Meetings with municipalities and with <unk> and with others as we prepared <unk> use and we set these.

These units up we tend to permit at higher density, meaning more surfaces per pad than than might ultimately be necessary because you want to maintain the option in the event the price the price ribs.

Because again maximizing.

The return might require more wells per section.

If price retreats.

And then Dynamo will predict fewer wells per section and we can run out options along the way meaning.

The spud fewer wells if you have if you have all of the slots approved and then even if you of spud it and set surface you don't have to drill out all of those surfaces. If prices don't support it you can drill out just.

Of the production intervals necessary and even after you of TD cased and cemented the well bores.

You still have an opportunity to both lean into higher intensity and larger stimulation designs or back off the stimulation intensity as necessary, while youre zip and the wells together. So think of this like a series of options that you exercise as you move down the road.

Getting ultimately to the very last stimulation of the very last stage and the very last well in the very last heal.

When you are effectively run out those those opportunities, but then you still have artificial lift designs for you still have reservoir pressure management vis vis choke and pressured pressure management.

Regimes to maximize the return and Thats the way we think about this is all driven by.

By running those options out as long as possible and making every incremental dollar of investment on a maximum returns basis.

Based on which option we are playing at that at that very moment.

Great I'm, just curious is that a.

Is what Bonanza Creek was doing with with.

With Guyana more.

A more granular analysis than either crestone ore extraction.

We have been doing at home.

It's different it's different in general and in principle.

But we're bringing these 3 companies together because of the relative strengths of the companies.

<unk> got P.

Particularly along the west side of the basin very very strong assets.

It's the.

The Niobrara and all of its in all of its horizons plus the Codell are much better developed along the western flank of the basin.

Right along the thin client will access the highest quality of reservoir it's.

It's deeper it's hotter it's higher pressure.

And it's better developed both of the thickness and kind of Petro physical terms.

<unk> got higher quality assets, along the west <unk>.

Crestone peak and <unk> bring those higher quality assets. They also bring.

Great people great teams in terms of community government relations.

And.

ESG.

We've inherited strong.

Capabilities practices from from those 2 teams and because we were operating <unk> in high point, where operating along the eastern flank in a more rural area. We didn't have to build those muscles nearly as much as as.

The folks operating along the western corridor, so we bring those strengths into the <unk> organization.

And now we've got we've got all of those operating practices and capabilities plus access to better resources.

Along along the western flank just in terms of better developed rock.

And that when you add all of the undeveloped upside to the south and Watkins and the quality of that resource.

We think we're bringing the very best of the best companies together and.

It's a lean talent driven organization strong and technical and operational capability.

But what I would say specifically around Dynamo is that's unique to <unk>, but I don't think running.

Running out the options was necessarily something that was unique in our development planning and I can tell you I am impressed by working together with these 2 teams through.

2 of the pendency of the transactions at how sophisticated each company is in different ways and so bringing all of that together is just a real strength in this consolidation.

Terrific and just the last 1 for me just kind of a bit of housekeeping.

The.

In the quarter the midstream operating expense.

Came in a good bit lower than I had expected.

And I was just wondering if.

You could talk about the the <unk>.

Drivers of that.

I'm just wondering if that is essentially.

There's potentially more of a onetime effect and we might see it.

Go up from here.

Yes, no I'm going to attempt to answer that right now and I've got Scott and Sandy and Dean here as well, who will think about it while I'm while I'm working.

I think it's Rmi Opex you are talking about and remember when we pulled together high.

A high point in BC EI Highpoint didn't really have the equivalent of an rmi that as a wholly owned set.

Set of accounts of wholly owned gathering and compression operation and a set of accounts.

They booked a lot of the gathering and compression charges too low and so when we brought <unk> and high point together.

Youll recall and you can actually look back through the last couple of quarters and you'll see this alloy went up on a unit basis and the reason for that was because high point brought over incremental gathering and compression charges that were booked at low <unk>.

Now, we're starting to manage that down and we're taking advantage of synergies and efficiencies.

But 1 of the not necessary or natural benefits of that was because they didn't have those gathering and compression of accounts booked to an rmi like entity, then rmi got the benefit of all of the dilution of the bow in the denominator and it took the unit cost down on an Rmi opex basis.

But low went up and if you look quarter over quarter.

Before and since.

I think if you add those 2 together and you call them direct opex, it's going to be in line with expectations of what you would expect meaning the of some of the 2 together. The 2 parts are going to look different from 1 another before and after the transaction.

But when you put them together it will make sense and the combination on a unit basis will continue to come down over time, as we manage efficiencies and synergies.

Does that answer the question on Rmi, specifically of the midstream Opex.

It does thanks a lot. Thank you.

Sure.

Thank you.

Our next question comes from the line of Ray Deacon with feature of <unk>. Your line is open.

Yeah, Hey, good morning, Eric and Brian Hey, Good morning, Brad.

I had a question I recall.

Couple of quarters back when you announced the extraction deal you talked about the economics being the strongest on the western side of the basin and.

Noticed in August the.

The gas prices are over for <unk> I was just wondering if you could talk about kind of what would the returns look like at the at the moment.

<unk>.

Yes.

In short rate of their strong those those wells.

Because there is so much they're just it's really it's a really well developed resource.

It's deeper yes, it's higher pressure yes.

But boy of those strong wells and because gas is worth something these days and Ngls worth something these days all of that.

Thermal maturity and gas energy brings a lot of oil with it which is worth something today too and these are big curves I mean, these are million Boe type curves.

Some of these are 15000, even even longer in some cases lateral lengths, which are going to make those type curves even larger.

The economics on an IRR basis are going to be north of 100%.

At anything that resembles today's strip and you can see that actually in our and our latest.

The rollout material of our launch deck, where we've created the skyline of the creaming curve you noticed we truncated all of that.

Inventory on the left side of that curve, it's all of truncated at 100% because it gets it gets well north of that.

We didn't we didn't want to we didn't want to create the scale of that kind of went went too far because we wanted it all makes sense.

But that's on slide 15 of our last rollout deck. The 1 that featured the <unk> plus Crestone peak.

Right right great.

Just 1 last 1 the the.

The increase the widening of the basis of 675 on the crude side of the <unk> is there sort of a chance that that reverses and what are the drivers of that.

Yes, so you'll notice that was marked on a 730 strip, which we noted I think in our in our.

Investor deck.

So since then the strip has come down a little bit and actually because this is a function of.

Of strip pricing as well as an escalator as well as some of the white cliffs Ddos and other kind of market basis around here, it's going to move around.

We think generally speaking.

It's in the right range, but it's actually the midpoint of 675 implied by that range of the little higher than the way we would see it today if prices stayed where they are today, but we just.

Wanted to be clear with everyone that.

Not only do we have this ti escalator on our.

Oil gathering and.

Sales contract.

But that white cliffs basis has expanded just a little bit as well.

Got it great. Thank you.

Thank you.

I'm showing no further questions in the queue.

I'd now like to turn the call back over to Eric for closing remarks.

I wanted to thank you I just wanted to thank everyone for joining us on the call today and I wanted to point out debt.

We will be at Entercom coming up in just a week or 2 happy to sit down with folks then.

And we will have the extended set of task team with us at the time. So we will be able to go into a little bit more detail. Then thank you everyone have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.