Q3 2021 Magnolia Oil & Gas Corp Earnings Call
Okay.
Good morning, and welcome to the Magnolia oil and gas third quarter 2021 earnings release and conference call.
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I would now like to turn the conference over to the Vice President of Investor Relations. Mr. Brian <unk>. Please go ahead Sir.
Thank you, Chris and good morning, everyone welcome to Magnolia oil and gas is third quarter 2021 earnings conference call.
Participating on the call today are Steve Chazen, <unk>, Chairman, President and Chief Executive Officer, and Chris Stavros Executive Executive Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal security laws. These statements are subject to risks and uncertainties that may.
Cause actual results to differ materially from those expressed or implied in these statements additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC a full safe harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website you can download Magnolia.
<unk> third quarter 2021 earnings press release as well as the conference call slides from the investors section of the company's website at Www Dot Magnolia oil gas Dot Com I will now turn the call over to Mr. Steve Chazen.
Thank you good morning, and thank you for joining us today.
Comments. This morning will provide a brief update on our business and operations, how we plan to allocate our free cash flow and how we plan to allocate our free cash flow for the remainder of the year. Chris will then review our third quarter results provide some additional guidance before we take your questions.
Our strong third quarter financial results demonstrate the quality of our assets and the efficiency of our capital program. We continue to execute in our business model, which prioritizes disciplined capital spending moderate production growth I pretax margins.
Low levels of debt. These principles combined with an improved lower overall cost structure as well as the non production allows us to achieve several records during the quarter, including EBITDAX free cash flow.
Net income margin and earnings per share.
We generated $143 million of free cash flow after capital outlays and interest on our debt and repurchased 5 million shares of stock during the third quarter or about 2% of our total outstanding shares were approximately 9 million. Despite the $79 million allocated this per share value enhancing activities.
<unk>, our cash balance grew by nearly 30% during the quarter to $245 million for.
For the year to date, the largest use of our free cash flow has gone towards opportunistically repurchasing our own stock. So far this year, we have repurchased 22 6 million shares or about 9% of the total shares outstanding when compared to the fourth quarter of 2000, Twenty's fully diluted share count there.
Before we have returned 9% to our shareholders in form of share repurchases for the first nine months of this year since establishing the share repurchase program in the third quarter of 2019, we have spent approximately $396 million acquiring our own stock and reducing our diluted share count by 34 million shares.
Our share repurchase efforts continue to enhance our per share metrics and we expect to continue to repurchase at least 1% of our shares each quarter.
Magnolia also paid its first interim semiannual dividend of <unk> <unk> per share during the third quarter, which is secured oil prices under $40 a barrel.
We plan to make the remaining dividend payment in the first quarter 2022 based on our full year 2021 results and adjusted for oil prices of $55.
Our total production volumes grew 4% sequentially during the third quarter as a result of continued strong well performance. Despite lower non operated activity and investing only 30% of our EBITDAX on drilling completing wells quality of our asset base as reflected in the continuing overall growth of our.
<unk> volumes, low reinvestment rates and finding costs and high full cycle margins.
We currently have two operated drilling rigs across our assets and plan to remain at this level into next year at.
At current product prices. This level of activity would result in the D&C capital program, well below our cap of 55% for our adjusted EBITDAX. One rig will continue to drill development wells that are giddings asset.
While still in the early stages of development and getting the results of our drilling program had become more repeatable and increasingly predictable.
The second rig will drill wells in both karnes and giddings areas, including some appraisal wells in Giddings, we continue to.
The improvement in our operating efficiencies in giddings, while maintaining well productivity in 2021 development program as averaged four wells per pad with lateral lengths, averaging greater than 7000 feet per well. This compares favorably to the prior year, where we averaged less than three wells per pad.
Average lengths about 6000 feet more wells per pad combined with longer laterals, while increasing the average drilling feet per day has helped in driving further efficiencies as giddings and partly offsetting some materials in oil field related inflation.
Our ability to generate annual moderate annual production growth with strong operating margins together with our ongoing share repurchase program and the payment of the secure sustainable and growing dividend are important components of magnolias total shareholder return proposition I will now turn the call over to Krista.
Rose.
Thanks, Steve and good morning, everyone as Steve mentioned I plan to review some items from our third quarter results and provide some guidance for the fourth quarter and some initial thoughts for 2022 before turning it over for questions.
Starting with slide four in the presentation found on our website, which shows a summary of our third quarter Magnolia delivered a very strong third quarter 2021 financial and operating results achieving several records the.
The company had adjusted net income for the quarter of 158 million or <unk> 67 per diluted share compared to total net income of $116 million or <unk> 48 per diluted share in the second quarter of this year.
Our adjusted EBITDAX was $221 5 million in the third quarter with total D&C capital of $67 million or 30% of our EBITDAX.
Its fully diluted share count declined by 6 million shares sequentially, averaging $236 million during the third quarter.
Total production volumes grew 4% sequentially to 67 4000 barrels of oil equivalent per day in the third quarter.
Reduction in Giddings now represents 55% of total company volumes is getting this has grown by 80% year over year.
The sequential improvement in our quarterly financial results benefited from higher product prices, especially for natural gas and Ngls increased production volumes and lower total cost.
Product prices have risen further into the fourth quarter and as a reminder, we're completely unhedged on all our oil and gas production.
Looking at the quarterly cash flow waterfall chart on slide five we began the third quarter with $190 million of cash cash from operations before changes in working capital was $211 million during the period with working capital changes and other small items benefiting cash by $6 million.
Our D&C capital spending, including land acquisitions was $68 million and we generated free cash flow of $143 million during the third quarter cash allocated towards share repurchases was $75 million and we paid our first dividend <unk> <unk> per share in September are $19 million ending the quarter with 245.
Cash on the balance sheet more than $1 per share.
Slide six shows our cash flow through the first nine months of 2021 for the year to date, we generated cash from operations of $528 million before changes in working capital.
During the nine month period, we incurred $163 million drilling and completing wells, we spent $284 million on share repurchases and paid $19 million in dividends.
Summarizing our progress during the first nine months of the year, we've grown our total production by 11% from fourth quarter 2020 levels reduced our diluted share count by $22 6 million shares or 9% leading to 20% production per share growth over the period.
This growth was all organically driven without incurring any debt and while building $52 million of cash.
Looking at slide seven illustrates the progress of our share reductions since we began repurchasing shares in the third quarter of 2019.
Since that time, we have reduced our total diluted share count by $34 1 million shares or approximately 13% in two years.
We plan to continue to repurchase at least 1% of our outstanding shares each quarter and currently have eight 5 million shares remaining under our repurchase authorization.
Management's philosophy is to maintain a strong balance sheet and we do not plan to issue any new debt or $400 million of gross debt is reflected in our senior notes, which are not callable until next year and do not mature until 2026.
We have an undrawn $450 million revolving credit facility, and total liquidity of $695 million, including our $245 million of cash and our condensed balance sheet liquidity as of September 30th as shown on slides eight and nine.
Turning to slide 10, and looking at our cash costs and operating income margins, our total operating costs and expenses declined by nearly $10 million sequentially and despite the increase in product prices.
Most of the improvement was in the form of lower G&A expenses and other associated costs as a result of the termination of the operating services agreement with <unk> in the second quarter. Our total adjusted cash operating costs, including G&A was $9 66 per Boe in the third quarter, representing a 14% sequential decline compared to the second quarter.
<unk> 2021.
Including our DD&A rate of $7 74 per BOE, which is generally in line with our F&D costs. Our operating income margin for the third quarter was $27 66 per Boe or 60% of our total revenue.
Turning to guidance for the fourth quarter, we continue to run two operated rigs across our assets and expect our fourth quarter capital to be approximately $80 million. This is lower than our earlier guidance and primarily due to ongoing efficiencies of giddings totaled.
Total production is expected to be in the range of 68% to 70000 barrels of oil equivalent per day during the fourth quarter.
As I mentioned earlier, we are completely unhedged for both our oil and gas production should benefit from that or any further improvement in product prices.
Price differentials are anticipated to be approximately $3 per barrel discount to <unk> during the fourth quarter and in line with recent quarters.
We expect our fourth quarter 2021 effective tax rate to be approximately 2%.
The fully diluted share count is expected to be approximately 232 million shares in the fourth quarter and we expect it to decline further into next year as we continue repurchasing our shares.
Looking into 2022, our current plan is to continue to run two operated rigs on our assets and our operated activity should be similar to the levels seen during the second half of 2021, one rig will continue to drill development wells in giddings with a second drilling second rig drilling a mix of development wells in both Karnes and Giddings in addition to.
Drilling some appraisal wells at Giddings.
This level of activity should generate year over year production growth in the mid to high single digits.
As Steve mentioned earlier, we continue to improve the improvement in our operating efficiencies at giddings, while maintaining well productivity.
Some of these improvements include increased drilling efficiencies.
Up to up to 10 up 10% compared to last year in terms of drilling feet per day.
A 14% increase in average lateral lengths per well more than to more than 7000 feet and a greater than 30% increase in the average wells per pad leading to fewer paths.
Since we're still in the early stages of development in Giddings. These improvements should allow us to partially mitigate some of the materials and oilfield inflation into next year.
As summarized Magnolia is high quality assets and capital efficiency should continue to generate strong operating margins and sizable free cash flow, allowing us to execute our strategy. Our strong balance sheet provides element of security amidst product price volatility and is also an advantage in creating optionality for us to opportunistically repurchase our shares pursue small.
I'll bolt on accretive acquisitions, and pay a safe sustainable and growing dividend.
We're now ready to take your questions.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
It's a good question you May Press Star then one on your telephone keypad.
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Two.
The first question comes from Neal Dingmann of Suntrust. Please go ahead.
Good morning, Steve Great quarter by the way guys, Steve I can't help but notice you continue to have very impressive efficiencies that to me most releasing resulted in this 4% sequential production growth with only about 30% EBIT and so my question around that is would you suggest the clubs to this.
Coming from Giddings upside or really just what else should we read into this.
Yes, it's really driven by giddings.
The current is pretty predictable.
Our costs are predictable production is reasonably predictable the only the variation you know we're running two rigs you're going to have some variation a world thats delayed or starts a week earlier or later.
Looks like something is happening and really nothing is happening.
It's basically the efficiencies at Giddings, we continue to look for opportunities there.
They are outside the current area and we'll continue to do that.
In the next year.
Only I don't know if I call a disappointment, but the only only difference this year is that.
And we haven't had a lot of non op activity, it's been much less than historical.
And so next year.
So what what's happened is we drilled less net well thought we would drill.
Generally speaking the non op was was like running half a rig.
For the year and it's maybe half of that this year, maybe not even that.
So if that continues.
May add a rig sometime next year to make the net wells work to compensate for the non op.
But that's the only change I've seen that's where it would probably be mostly focused on.
Oh.
New opportunities in the Giddings area, we see a number of areas that look interesting we've drilled some wells we don't have.
Complete we don't have 90 days of results to talk about but.
No.
I remain optimistic about it over the next decade or so.
And great point, and that's kind of my thought on Giddings and then just a follow up Youll continue to you bought back.
Quite a fair amount of stock back and I'm just wondering given your stock has gone up like others do you still see the <unk>.
Discount when you look at.
The options to do with that.
Shareholder return does that still look to be most accretive most the best use of proceeds or maybe just talk about that a little bit given that you have to run the <unk> all of that.
I don't.
For 40 years, I've never talked about the value of the stock.
So.
I'm not a stock market expert.
<unk>.
And if I were I'd be wrong around half the time.
Maybe more but at least half.
This year, they are wrong or right. So I guess, it's 50 50 so.
The.
The stock is.
It depends on your view about oil prices.
The industry works reasonably well at $60.
Oil.
And works almost too well.
At 85.
So.
Not a believer in 85, let $60 works really well for us.
And so I think I think the share repurchase makes sense, we obviously have a shareholder of sizable shareholder.
I don't want to I don't want him I don't have any control over them or don't know what he's going to do.
But I don't also don't want to be harming existing shareholders.
So we buy shares and quantity at the same price he gets.
Which is basically set by by the market forces.
And that's worked out for us.
I don't know what our average price of 13 boxes lessons and less than $13 for all of the shares we purchased.
So it's worked out well for the people who bought the stock in the offering.
Well I think for the shareholders.
Stock's gone up a lot that's for sure.
Luckily my wife doesn't.
Isn't computers.
For me.
Okay.
She does count dividends.
But.
But I guess I guess I hate to get into the valuation, but I think as a practical matter.
Once we set the dividend in February we could fairly easily grow that tenant that dividend, 10% a year.
For a very long time.
And for me that is an attractive investment.
It is not.
Hello, or something like that but it's a fairly attractive investment.
Yes.
So.
And I just I just think that's the way I think about it how much can we distribute.
Doesn't.
<unk>.
That we can give.
And taken my case.
And how much.
Can we continue to grow the M&A market is not real attractive right now almost everything is dilutive to us.
You've got we've got a low finding cost and.
And our purchase of PDP.
Production, maybe two or three times, our finding cost to go in and.
The locations that come with these bep packages.
Basically it wouldn't meet our economic standards for drilling we withdrawn.
Somebody might wouldn't be us so it makes it very difficult to drill the drip to buy anything in the current environment, we find some small pieces here and there.
Our existing areas, but other than that.
So.
Share repurchases and dividends for the next few years.
It will be the driving force.
And one center verses gotten to whatever level of ownership of any of that at once.
It will shift to a more more dividend intensive strategy.
I guess, Steve you were very careful when you do your wife is watching those dividends close. Thank you again thanks.
Sure.
Okay.
Thank you. The next question is from Leo Mariano of Keybanc. Please go ahead.
Hello.
Hello are you on mute Leo.
Yes, Hello, guys can you hear me yes.
Yes, now we can hear you okay.
Okay, Great I, just wanted to dig a little deeper into getting here.
Clearly you guys did increase.
Your ability to drill more wells per pad longer laterals, I know, you've kind of historically talked about kind of a rough 6 million dollar type well cost.
Laterals are getting longer so just wanted to get a sense of maybe you can give.
Give us a little idea of kind of what the cost per foot maybe have done.
During the course of 2021 and it sounds like you guys are optimistic that you might be able to continue to reduce those maybe a little even in the face of inflation and then just any comments you could make on results in the development area to 70000 development area.
I think you guys did say prepared remarks that theyre looking at more consistent these days, maybe a little more color to add around that.
So the existing area. They look very much like what we showed you before we drilled more wells there really isn't enough difference to talk about it's a little better.
And but it's not it's.
It's about the same.
But again, we have a repeatable model.
It's designed to do that.
Stop designed for very.
Large swings.
Outside of that we continue to look for areas. Some of them are a little gas here, but the economics are the same especially now with gas.
Reasonable prices and Ngls and NGL pricing.
The economics are basically the same even though youre drilling a gas youre well because theres always some oil fair amount of oil associated with the wells. So.
Pretty optimistic about that over or over next year.
We were cautious this year on our capital and what we spent.
We'll be cautious next year.
Probably a little less cautious next year than they were this year.
So.
I think the Giddings thing is working reasonable part of the cost per well.
We.
Basically overcome inflation.
So far in <unk>.
<unk> is basically in steel and labor.
Cost and the labor costs, I'm really not bothered with.
Okay.
We want good crews.
We want the best crews if you got to pay a few dollars more per hour or whatever it is or.
Im really not worked up over that.
These are these are small box. This isn't I always tell people. This is not three app, where we got to raise the price of the Scotch tape.
Order to pay for the for the.
Stop.
We already got the raise.
So there's no question about passing that through.
So.
I just think that.
No.
If it goes up the total cost goes up a buck or two.
And that's about all we see right now.
It's driven by the fundamentals the well costs I don't think.
Moved very much.
Even with a little longer laterals and stuff with it sort of doing what it's supposed to do.
And we're getting better at it.
So.
I just.
Wouldn't worry about this for.
So you get a lot more inflation and a lot more craziness now people start.
Increasing your capital program by 100% and things like that.
After this when you put more pressure on the.
On the service companies I think Thats, one thing, but with a small program. We have we can we can have good crews.
And manage and manage this reasonably well now if you had.
Some other company with 25% or 30 rigs running.
A lot more complicated with two or three rigs.
That's the advantage of a small company they are disadvantages.
The major advantage is you get to keep this under control.
Okay. That's that's helpful and just a couple of things around.
Some of the comments that you folks made Steve you did mentioned potentially adding one it sounded like that third rig.
In 2002 to offset the fact that there isn't much non op activity just wanted to make sure I understood that would that be kind of it.
A partial rig for the year and Marty Congratulates on moments incentives for a short period of time and so.
We probably would send the.
Wherever you want to call.
Development of our exploration.
Or whatever you want to call out activity to that rate because.
You'll be drilling single wells.
Or maybe a two well pad with it.
And that will be simpler to do in that and then focus the other two rigs on.
Pure development.
And the idea is.
It's a certain number of net wells in our mind the drill a great production growth we're looking for.
And we're not getting the net wells.
We hope we have overestimated how much this year.
Overestimated how much the non op with D. Now the Giddings wells did better than we thought so as are compensated for some of that.
We still have a vision of what the net wells at a $1 billion.
Well rig would be.
I would guess sometime in the spring.
For a relatively short period of time to just.
Make sure we're drilling the right number of net wells.
It's not going to generate a lot more capital spending.
Okay. Thanks.
Both spending at such a low level, we're only spending or whatever it is 30 some percent of our EBITDA.
It wouldn't be the end of the world to go to <unk>.
Yes, now that makes that makes a lot of sense for sure and then just a couple number clarifications from you guys.
So we noticed that in the last couple of quarters cash taxes is starting to come in a little bit still a low level, but again they were kind of zero next year. So I wanted to see if you guys had any thoughts on where those May go and then also just noticed on the oil cut was 49% in the second quarter, 46% in the third quarter, where do you guys anticipate that going to begin to <unk>.
You're welcome.
I'll, let them answer about the cut but as far as taxes are concerned.
Continue to spend that 40% 45%.
And you have these earnings which are.
Our financial statements are fairly accurate because we're looking at real finding costs and while we have some.
Tax loss carryforwards, and some increased DNA from the conversion of the B shares.
Essentially you're going to pay taxes.
It's not going to be full tax rate I don't think next year, but I would think that the cash taxes will go up some.
Next year, I really don't know how much but but.
Probably not a huge number.
<unk>.
If you only spent $35 40%.
And.
You're generating EBIT margins of 50% 60%.
At some point youre going to pay taxes.
Which is not the end of the world.
Got it.
It's better to pay taxes, and then generate at that net operating losses.
[laughter].
No doubt.
Alright, guys I appreciate it. Thank you answered the question on the.
Yeah, I think on the cut in the oil cut I mean part of it is for sure timing drilling timing and part of it is certainly for this year.
It is a bit of a lower non op spending and drilling activity in karnes that Steve mentioned and so.
I think had that come in.
As we had originally expected you probably would have had the oil cut.
Little bit higher and so that's.
That's not to say that what we're seeing in giddings is.
Sort of.
Strong on the oil cut and relatively better than.
What we probably thought early days.
Thanks, guys I appreciate it thanks.
Thank you. The next question is from among to Honey.
Goldman Sachs. Please go ahead.
Great. Thank you for taking my question.
One from me Steve.
Mentioned the sector looks like 600 on the oil price and oil prices are currently much higher would love your thoughts on on the macro and your long term oil price expectation of $55.
No.
There are a lot of moving pieces here on the macro.
Oil prices are higher longer term, how does that impact your free cash flow deployment between dividends share repurchase organic drilling and completions.
Wow.
Yeah.
I'm sort of return driven.
And.
So if oil prices were.
65% or $70 on a long term basis, rather than my view of it around 60.
We.
Eventually the inner about shares will be gone.
They will go to whatever level, they are going to be and so we're then looking at buying shares in the open market.
It is very difficult to buy shares of our stock in the open market at this point, there's just not enough volume in.
And that's just a fact, so the share repurchase part of it just won't be executable at the level that we're doing now.
So it leaves really I mean, there's only a small number of things you can do as far as raising the capital goes.
I think spending a lot of money is the road to Hell. So.
We're capped at 55% I might reduce it to 50.
So I.
I think thats Thats the road to <unk>.
Bad returns.
So generally so only leaves you with dividends.
So and then I guess.
That's your answer.
And then given you have like a cap of 50% towards dividends today like would that mean that a variable dividend would be on the cogs once the animas chairs.
I don't like ratable dividends because dividend investors in my limited experience.
Care about three days, they care about balance sheet quality.
They want to make sure the dividend safe.
Care that the dividends are paid out of earnings.
So you don't pay a so called cash flow that you pay it out of what you earn and then and then finally, they care about growing dividends.
So if we had some excess.
We would just pay.
A special dividend.
And wouldn't be part of the normal dividend stream normal dividend streams.
Our working assumption would be that once once you see the dividend in February you can plan on.
At least a 10% increase in that every year. So we will.
Want to keep that for the.
Standard dividend Investor and if we build too much cash.
We can pay a special dividend, but it won't we're not going to put up.
In there.
Again, I'm very cautious about tying.
Payments to things that arent related to earnings.
Cash is free cash flow thing is.
Free cash flow is the difference between your EBITDA and your capital.
And so I don't know what that means exactly.
And more money or less money and generate more or less free cash flow and I don't know, whether that's permanent or not so I looked at the permanent dividend level.
The growth in that is the way to so investors can rationally look at the company and if we get build too much cash.
We can distribute them in for one time.
Sort of thinking sort of distribute the cash my wife, all like that.
That makes it a lot of sense. Thank you.
Okay.
Yes.
Thank you very much. The next question is from Charles Meade of Johnson Rice. Please go ahead.
Good morning, Steve and Chris and the whole crew there.
I'd like to go back to the to the question of the of the.
The product mix for Q4.
I appreciate your earlier comments that it relates to.
The non op activity.
In the Karnes area, which for reasons, we don't need to go in too much.
It can be difficult to forecast, but.
Are there are there things are the things.
Are there things happening in <unk> with your turn in line schedule or other things that would.
That would make it that would make the.
The mix change versus <unk>.
It looks like there was actually a slight decline on a quarter over quarter and I'm guessing that that in.
Without knowing anything else I would expect to see that same trend to play out in <unk>.
<unk>, especially with the with the strength in giddings, but what are the what are the pieces there.
Well don't forget.
Yeah.
Most of the wells that are going to be producing.
In the fourth quarter are producing now we're halfway through the quarter.
Okay.
And so whatever we do.
We are going to affect the first quarter or the second quarter.
More than the more in the fourth quarter at this point.
So.
I think thats roughly roughly.
Similar to the third quarter because of the carryover works that way right.
You lose sight of the fact that.
One one or two or three or four six wells even.
It doesn't move the thing very much.
The other thing we're.
Wow.
I'm sure. Some people believe natural gas prices and NGL prices are are going to double from here.
Works, we are attracted to <unk>.
Drilling in.
Gas and NGL areas.
Profitability is exceptional on those wells, we've got a lot of Ngls.
Getting I think nine bucks.
A barrel or something like that for Ngls as a year ago, we're getting over 40 now.
Yes.
I really underestimate.
The windfall effects of that and Charles we did tell you last quarter that we were steering some of our activity towards the completion of some gas year wells in karnes, and some docs and so that had an influence over the cut in the third quarter and sort of dribbles into the fourth quarter.
As well.
It did also have a bunch of oil so they werent, but they were.
Generally a little more gas little more gassy.
This is deliberate.
Right.
Deliberate way of thinking about it because.
I view $5 gases, a lot of gas in the United States.
<unk>.
So.
But just at $5 very long, you're going to going to be a lot more so.
<unk>.
Despite their hedging.
A lot of hot air in the United States too.
Yes.
We kind of have you anticipated.
A bit my my second question, Steve you talked about the.
The result of getting becoming not just more repeatable predictable and.
But maybe a little bit.
Another piece of the picture there is there has been some.
Really eye opening strong.
Well results are offset to your position in giddings. So I'm curious as you look at that 22 in your I guess, you've already approached to bid or adjusted a bit with the saying Youre more open to those more gassy areas how is.
How is that playing out between some of these these are your well results offset well results coming strong versus the tilt.
<unk> two.
To gasior areas, how is that how are you guys approaching that and what should we look forward.
The acreages are forever so.
Location stone.
Dumbo away.
Hum.
We look at what other what other people.
Our doing.
We try to we try to see how that fits.
Into the modeling we have.
<unk>.
And.
So we sort of like them drilling.
Their acreage up because generally we have offsetting acreage.
So we're always happy to have somebody prove it up for us.
So from my perspective, we'll let them experiment.
We can drill next year or the year after.
So I'm not really I view, one of the problems in giddings historically for us was that.
There was nobody else drilling so nobody believed their results.
So we hope these guys drill in.
They make good money and that would be swell and because we've got more acreage and they got bylaws.
Got it thanks, Steve.
Yes.
Thank you ladies and gentlemen, just a reminder, if you wish to ask a question. Please press star one.
When.
The next question is from Noel Parks of Tuohy Brothers. Please go ahead.
Hey, good morning.
Good morning.
Just had a couple of things and.
When I was thinking as you.
Look look ahead and in your modeling and.
Hum sort of plan various scenarios are we at the point that.
Essentially you have self funding.
Maintenance drilling are we at the point of essentially where the interest rate environment is irrelevant or neutral.
As you look ahead and think about cost of capital as you forecast.
Wow.
<unk>.
Well for us for us, we're not borrowers of money.
And.
When we plug said I didn't even want to borrow the $400 million that we did when we started as I complained about that.
So we got $24 million of interest expense roughly.
We could borrow cheaper I guess on that now wanted.
But I don't think.
But the kind of returns we're making.
Even it.
$60 $65 oil price.
I am not sure leverage.
Particularly helpful or anything.
Anything.
And.
If we don't we didn't have any interest expense that can pay more dividends my wife would like that better.
So.
I just think that.
Yes, it doesn't really matter to us.
At this point.
What the interest rate environment is of the extent that the interest rates oil is about demand people always want to look at what the Saudis youre doing or Russia is doing and certainly they can muck things up for a while.
Now if they make an error.
But it's really bought demand and demand is going to be strong.
In the next year and I don't know.
It will be over time.
Certainly into next year.
Economies open up.
International Flying build which is a major user of it.
So.
Youre looking for a very strong demand on oil prices.
I think for the next some period of time, that's important more important than what the fed or some of them.
Somebody does and the extent that we are bound and determined to.
Weaken the dollar.
But just when we get oil is paid in dollars.
And so.
No.
We'll make more dollars may not be able to buy anything.
We'll make more dollars.
Yeah.
I think this is about demand youre in a clearly strong demand growth there in time.
And as the World economy opens up.
Youre going to have a lot of demand, Paul and the Saudis and Russians for their own reasons.
Our.
No.
Our feeding to the <unk>.
Some of the growth frankly.
My guess is they like $80 oil or $75.
Fair enough.
And.
Thinking about the.
The Eagle Ford from the technology standpoint.
You view, the Eagle Ford as having essentially caught up technology wise with the advances over a few years ago. When there was a lot of capital flowing into the Permian and less into the Eagle Ford.
The players has essentially caught up with technology and advances from other basins.
I guess I'm talking about pre Covid days, when we have a lot more activity or is there still.
Fruit to harvest.
Some some gaps that might still be.
The Eagle Ford well I'm talking not the not so chalk of the Eagle Ford itself in Karnes and rest in the rest of that play.
There is.
And the general play I think there is more room.
There's a lot of inefficiencies in the play if you look if you look.
Karnes is extremely well developed because because the wells are so good.
But as you as you move to the weaker areas where were procured gasior.
They are.
Probably not as efficient as they could be.
On the other hand for us.
Where we are they are not.
Monkeying with that is not an efficient use of capital we can put that capital to work in giddings or even some of our current stuff and make a lot more money over the next five years.
Trying to.
Try and try to do some kind of a science project and sort of a marginal production.
Okay. Okay, great. Thanks, a lot. Thank you.
Thank you very much ladies and gentlemen, we have no further questions.
And at this conference has now concluded.
Thank you Paul.
You for attending today's presentation and you may now disconnect.
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