Q4 2021 Magnolia Oil & Gas Corp Earnings Call

Good day, and welcome to the Magnolia oil and gas fourth quarter, 2021, and full year earnings release and conference call.

Speaker 1: Good day and welcome to the Magnolia Oil and Gas Fourth Quarter 2021 in full year earnings release and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey holiday zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions.

After today's presentation there'll be an opportunity to ask questions.

Speaker 1: To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note that the back...

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Please note this event is being recorded.

Speaker 1: I would now like to turn the conference over to Brian Currall, Best of Relations. Please go ahead.

I would now like to turn the conference over to Brian Corral.

Mr Relations. Please go ahead.

Thank you Sarah and good morning, everyone welcome to Magnolia oil and gas is fourth quarter and full year 2021 earnings conference call.

Speaker 2: Thank you, Sarah. And good morning, everyone. Welcome to Magnolia Oil and Gas's fourth quarter and full year of 2021 Earnings Conference call. Participating on the call today are Steve Chazen, Magnolia's Chairman, President, and Chief Executive Officer, and Chris Stavros, Executive Vice President and Chief Financial Officer.

Depending on the call today are Steve Chazen, <unk>, Chairman, President and Chief Executive Officer, and Chris Stavros Executive Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results.

Speaker 2: As a reminder, today's conference call contains certain projections and other forward-looking statements within the meeting of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to different material from those expressed or implied in these statements.

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 Companys annual report on Form 10-K filed with the SEC our 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 that Magnolia.

Speaker 2: 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 S&P.

Speaker 2: A full safe harbor can be found in slide two of the conference call slide presentation with the supplemental data on our website.

Speaker 2: You can download Magnolia's fourth quarter and full year 2021 earnings press release as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Steve Chase.

<unk> fourth quarter and full year 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 and gas Dot Com I will now turn the call over to Mr. Steve Chazen.

Thank you Brian Good morning, and thank you for joining us today I'll provide some comments on our results and accomplishments in 2021.

Speaker 3: Thank you, Brian . Good morning and thank you for joining us today. I'll provide some comments on our results and accomplishments in 2021. I will then give an update about our plans for 2022 and how we anticipate allocating our significant free cash flow. Chris will then review our fourth quarter and full year results, provide some additional guidance before we take your questions.

And then give an update about our plans for 2022, how we anticipate allocating our significant free cash flow. Chris will then review our fourth quarter and full year results provide some additional guidance before we take your questions.

We ended a very strong year on a high note both operationally and financially.

Speaker 3: We ended a very strong year on a high note, both operationally and financially.

Speaker 3: Last year's achievements further solidified the strength of Magnolia's business model and strategy while also marking some important milestones.

Last year's achievements furthers further solidified the strength of Magnolias business model and strategy, while also marketing some important milestones higher product prices and our team's continued focus on managing our costs expanded our pre tax operating margin to 56%. We continued our capital disciplined spending.

Speaker 3: Higher product prices and our teams continued focus on managing our costs, expanded our pre-tax operating margin to 56%. We continued our capital discipline spending just 28% of our EBITDAX on drilling and completing wells which generated significant free cash flow and resulted in year over year production growth of 7%.

28% of our EBITDAX on drilling completing wells, which generated significant free cash flow and resulted in year over year production growth of 7%.

During the year, we returned approximately 65% of our free cash to our shareholders in the form of significant share repurchases as well as initiating our first dividend payment, we repurchased more than 25 million shares reducing our diluted share count by 10% at the same time, our cash position nearly doubled leaving us with them.

Speaker 3: During the year, we returned approximately 65% of our free cash to our shareholders in the form of significant share repurchases, as well as initiating our first dividend payment. We repurchased more than 25 million shares, reducing our diluted share count by 10%, at the same time our cash position nearly doubled, leaving us with about zero net debt a year or ten.

Zero net debt at year end.

Our greatest accomplishment last year was the execution of a full development program at Giddings Giddings now represents more than half of our proved reserves and key financial metrics improved confidence in the continued strong well performance at Giddings supported the addition of a second drilling rig in the field in mid two.

Speaker 3: Our greatest accomplishment last year was the execution of a full development program at Giddings

Speaker 3: Giddings now represents more than half of our approved reserves and key financial metrics.

Speaker 3: Approved confidence in the continued strong well performance at Giddings supported the addition of a second drilling rig in the field in mid-2021. Having recently increased our lateral lengths to greater than 7,000 feet, now averaging four wells per pad, our program continues to experience additional operating efficiency.

'twenty, one having recently increased our lateral lengths greater than 7000 feet now averaging four wells per pad. Our program continues to experience additional operating efficiencies. We plan to continue to operate a two rig program. This year, which we expect to generate high single digit full year production.

Speaker 3: We plan to continue to operate a two-rig program this year, which we expect to generate high single-digit full year production growth.

Growth.

Speaker 3: Operating efficiencies are expected to continue into this year, helping to offset some of the oilfield service costs and places.

Operating efficiencies are expected to continue into this year, helping to offset some of the oilfield service cost inflation.

Our goal is to continue to allocate a sizable portion of the free cash flow, we generate towards enhancing the existing business and improving our per share metrics. This could include some small accretive bolt on oil and gas property acquisitions with characteristics similar to our existing assets as I mentioned, we returned approximately <unk> <unk>.

Speaker 3: Our goal is to continue to allocate a sizable portion of the free cash flow we generate towards enhancing the existing business and improving our per share metrics. This could include some small accretive both on oil and gas property acquisitions with characteristics similar to our existing asset.

Speaker 3: As I mentioned, we returned approximately 65% of our free cash flow to investors during 2021. With the majority of this in the form of share repurposing.

65% of our free cash flow to investors during 2021, but the majority of this in the form of share repurchases, which reduced our fully diluted shares outstanding by 10%.

Speaker 3: to reduce our fully diluted shares outstanding by 10%.

Speaker 3: Most of our share repurchases last year was stock purchased directly from InterVest, our largest shareholder. As InterVest sold throughout the year, we were purchased approximately one quarter to one third of the amount they sold. Should InterVest continue to sell shares this year, we would expect to repurchase a similar proportion.

Most of our share repurchases last year was stock purchase directly from <unk>, our largest shareholder as interest sold throughout the year, we repurchased approximately one quarter to one third of the amount. They sold should Intervet continued to sell shares. This year, we would expect to repurchase a similar proportion.

Speaker 3: To adequately plan for this, we expect to keep a higher level of cash in our balance sheet to allow for these repurchases.

So adequately plan for this we expect to keep a higher level of cash in our balance sheet to allow for these repurchases beyond this year, we would expect to see a shift in how we allocate our free cash flow.

Speaker 3: Beyond this year, we would expect to see a shift in how we allocate our free cash flow.

Speaker 3: will likely lead to a more normalized level of share repurchases of about 1% per quarter.

Which will likely lead to a more normalized level of share repurchases of about 1% per quarter.

Speaker 3: During the third quarter of last year, we paid our first semiannual dividend installment of $0.08 per share, which we believe is safe and secure at $40 oil.

During the third quarter of last year, we paid our first semi annual dividend installment of <unk> <unk> per share, which we believe is safe and secure at $40 oil.

Speaker 3: Earlier this month, we announced our second semi-annual dividend of 20 cents per share. This brings the combined dividend payments in our 2021 financial results, recast at $55 oil and $2.75 gas to 28 cents per share. Our dividend philosophy is meant to appeal to long-term investors who seek dividend safety, dividend growth, and a dividend that is paid out of actual earnings generated by the business.

Earlier this month, we announced our second semiannual dividend of <unk> 20 per share.

This brings the combined dividend payments at our 2021 financial results recast at $55 oil and $2 75 gas to <unk> 28 per share our dividend philosophy is meant to appeal to long term investors, who seek dividends safety dividend growth and a dividend that is paid out of actual earnings.

<unk> generated by the business.

Speaker 3: We expect that each of the dividend payments to grow annually as we continue to execute our business plan consisting of moderate production growth and the reduction of our outstanding share.

We expect that each of the dividend payments to grow annually as we continue to execute our business plan consisting of moderate production growth the reduction of our outstanding shares.

We ended 2021 with positive momentum that should benefit Magnolia into this year. We are very optimistic on the outlook for our 2022 operational plan, which includes development at both giddings or karnes as well as some appraisal wells at Giddings improvement in drilling times are getting too will result in more wells and more.

Speaker 3: We ended 2021 with positive momentum that should benefit Magnolia into this year. We are very optimistic on the outlook for our 2022 operational plan, which includes development of both giddings and cairns, as well as some appraisal wells and giddings.

Speaker 3: improvement in drilling times at getting to result in more wells and more capital for the same number of rates.

Capital for the same number of rigs.

Speaker 3: As a result of our strong balance sheet, Magnolia fully captures current high product prices by remaining fully edged.

As a result of our strong balance sheet Magnolia fully captures current high product prices, while remaining fully hedged.

Unhedged I should say.

Speaker 3: Our capital reinvestment this year will be well below our limit of 55% of EBITDAX at current product prices, providing high single-digit growth and generating a significant amount of free cash. The combination of organic production growth and share reduction is supportive of a growing dividend at Magnolia's double-digit return investment proposition. I'll now return the call over to Chris.

Our capital reinvestment this year will be well below our limit of 55% of EBITDAX at current product prices, providing high single digit growth and generating significant amount of free cash the combination of organic production growth and share reduction in support of a growing dividend.

He is double digit return investment proposition.

Ill turn the call over to Chris.

Speaker 4: Thanks Steve and good morning everyone. As Steve mentioned, I plan to review some items from our fourth quarter and fully your results and provide some guidance for first quarter and fully your 2022 before turning it over to your question.

Thanks, Steve and good morning, everyone.

As Steve mentioned I plan to review some items from our fourth quarter and full year results and provide some guidance for first quarter and full year 2022 before turning it over to your questions.

Speaker 4: Starting with slide four in the presentation slides found on our website, which shows a summary of our fourth quarter. Magnolia delivered very strong fourth quarter 2021 financial and operating results and achieved several record levels.

<unk> with slide four in the presentation slides found on our website, which shows a summary of our fourth quarter Magnolia delivered very strong fourth quarter 2021 financial and operating results and achieved several record levels.

Speaker 4: The company generated record totalment income for the quarter of $192 million, or 82 cents for diluted share. Our adjusted EBITDAX was $261 million in the fourth quarter with total DNC capital of $72 million, lower than our earlier guidance, and just 28% of our EBITDAX.

The company generated record total net income for the quarter of $192 million or <unk> 82 per diluted share. Our adjusted EBITDAX was $261 million in the fourth quarter with total D&C capital of $70 million to $72 million lower than our earlier guidance and just 28% of our EBITDAX.

Speaker 4: Magnolia is fully diluted, chair-counted, declined by 5 million chairs sequentially averaging 231 million during the quarter. Total company production volumes grew 3% sequentially and 15% year over year to 69.4000 barrels of oil equivalent per day in the fourth quarter.

Magnolia is fully diluted share count declined by 5 million shares sequentially, averaging $231 million during the during the quarter total company production volumes grew 3% sequentially and 15% year over year to 69 4000 barrels of oil equivalent per day in the fourth quarter.

Speaker 4: Our financial performance, including adjusted EBITDAX, pre-tox, operating margins, and earnings per share, continue to improve throughout 2021. As we've benefited from rising product prices, growing production volumes, and lower fully-beluded shares outstanding.

Our financial performance, including adjusted EBITDAX pretax operating margins and earnings per share continued to improve throughout 2021.

As we benefited from rising product prices growing production volumes and lower fully diluted shares outstanding we expect.

Speaker 4: We expect to continue to benefit from improved product prices this year as Magnolia remains completely unhedged on its oil and gas production.

To continue to benefit from improved product prices. This year as Magnolia remains completely unhedged on its oil and gas production.

Looking at the quarterly cash flow waterfall chart on slide five we began the fourth quarter with $245 million of cash cash flow from operations before changes in working capital was $251 million during the period with working capital changes and other small items benefiting cash by $8 million.

Speaker 4: Looking at the quarterly cash flow waterfall chart on slide 5, we began the fourth quarter with $245 million of cash. Cash flow from operations before changes in working capital was $251 million during the period, with working capital changes and other small items benefiting cash by $8 million.

Speaker 4: Our DNC capital spending, including land acquisitions, was $74 million in a quarter.

Our D&C capital spending, including land acquisitions was $74 million in the quarter.

Cash allocated towards share repurchases in the fourth quarter was $55 million and we ended the year with $367 million of cash on the balance sheet, where more than $1 50 per share.

Speaker 4: Cash allocated towards share repurchases in the fourth quarter was $55 million and we ended the year with $367 million a cash on the balance sheet or more than $1.50 per share.

Slide six shows our cash flows during the full year of 2021.

Speaker 4: Slide six shows our cash flows during the full year of 2021. For that full year, we generated cash flow from operations of $779 million before changes in working capital. We incurred $236 million drilling and completing wells, including leasehold acquisitions, and we spent 339 million on share repurchases and paid $21 million in dividends.

Our full year, we generated cash flow from operations of $779 million before changes in working capital, we incurred $236 million drilling and completing wells, including leasehold acquisitions, and we spent $339 million on share repurchases and paid $21 million in dividends.

Summarizing our product progress during the year, we grew our total production by 7% compared to 2020 levels reduced our diluted share count by 25 3 million shares or 10%.

Speaker 4: Summarizing our progress during the year, we grew our total production by 7% compared to 2020 levels, reduced our diluted share count by 25.3 million shares, or 10%, and leading to production per share growth of 18% over the period. This growth was all organically driven without incurring any debt, while building $174 million of cash.

And leading to production per share growth of 18% over the period. This growth was all organically driven without incurring any debt and while building a $174 million of cash.

Speaker 4: Turning to slide seven and looking at our cash costs and operating income margins.

Turning to slide seven and looking at our cash costs and operating income margins. Despite the substantial increase in product prices. During 2021, we realized only a modest increase in our cost during the year comparing the fourth quarter 'twenty one to year ago levels. Our total cash operating costs increased by about $1 50 per Boe in our revenue.

Speaker 4: Despite the substantial increase in product prices during 2021, we realized only a modest increase in our costs during the year. Preparing the fourth quarter, 21, to year-go levels, our total cash operating costs increased by about $1.50 per B O E, at a revenue per B O E rose by $25 a barrel. Our total adjusted cash operating costs, including G and A, were $11.32 per B O E in the fourth quarter of 2021.

<unk> per BOE rose by $25, a barrel our total adjusted cash operating costs, including G&A was $11 32 per Boe in the fourth quarter of 2021.

Speaker 4: Including our DDA rate of $8.37 for BLE, which is generally in line with our F&D costs, our operating income margin for the quarter was $31.63 for BLE or 61% of our total revenue.

Including our DD&A rate of $8 37 per BOE, which is generally in line with our F&D costs. Our operating income margin for the quarter was $31 63 per Boe or 61% of our total revenue.

Management's philosophy is to maintain our low leverage and a strong balance sheet. We currently have approximately zero net debt and expect to generate a significant amount of free cash flow through the year.

Speaker 4: Management's philosophy is to maintain our low leverage and a strong balance sheet.

Speaker 4: We currently have approximately zero net debt and expect to generate a significant amount of free cash flow through the year. Our $400 million of gross debt is reflected in our senior notes, which are callable later this year and do not mature until 2026.

Our $400 million of gross debt is reflected in our senior notes, which are callable later this year and do not mature until 2026, we have an undrawn $4 to $50 million revolving credit facility and including our $367 million of cash our total liquidity is more than $800 million.

Speaker 4: We have an undrawn $4 to $50 million revolving credit facility, and including our $367 million cash, our total liquidity is more than $800 million.

Our condensed balance sheet and liquidity as of the year and as shown on slides eight and nine.

Speaker 4: Our condensed balance sheet and liquidity as of the year end are shown on slides 8 and 9.

As Steve mentioned, we returned approximately 65% of our free cash flow to our shareholders during 2021.

Speaker 4: As Steve mentioned, we returned approximately 65% of our free cash flow to our shareholders during 2021. Although we initiated our first event payment during the year, most of the cash return to shareholders was in the form of share repurchase.

Although we initiated our first dividend payment during the year most of the cash returned to shareholders in the form of share repurchases.

Looking at Slide 10, this illustrates the progress of our share reduction since we began repurchasing shares in the third quarter of 2019.

Speaker 4: Looking at slide 10, this illustrates the progress of our share reduction since we've begun, repurchasing shares in the third quarter of 29.

Speaker 4: During those two and a half years, we have reduced our total diluted share count by 36.8 million shares or approximately 14%.

During those two and a half years, we have reduced our total diluted share count by $36 8 million shares or approximately 14%.

Speaker 4: Most of our share of purchases last year were stock purchased directly from Intervest or larger shareholder. Earlier this month, Intervest sold 6.9 million additional shares to the market. And a separate transaction magnolia were purchased or purchased another 2 million shares from Intervest or nearly a quarter of the total share sold.

Most of our share repurchases last year with stock purchase directly from manifest our largest shareholder earlier this month and invest sold $6 9 million additional shares to the market in a separate transaction Magnolia repurchased or purchased another 2 million shares from <unk> or nearly a quarter of the total shares sold.

Speaker 4: We currently have 15.8 million shares remaining under our current Repurchase Authorization, which is specifically directed towards class A shares Repurchased in the open market. Class B shares purchased directly from NRBES do not count against the share Repurchase Authorization.

We currently have $15 8 million shares remaining under our current repurchase authorization, which is specifically directed towards class a shares repurchased in the open market class B shares purchased directly from Airbus do not count against the share repurchase authorization.

Speaker 4: Turning to slide 11, we declared our first or final semiannual dividend for 2021 of 20 cents a share earlier this month. The dividend payment was based on our full year 2021 results recast at mid-cycle product prices of $55 oil and $2.75 natural gas.

Turning to slide 11, we declared our first where final semiannual dividend for 2021 or 'twenty share earlier this month the.

The dividend payment was based on our full year 2021 results recast that mid cycle product prices of $55 oil and $2 75 natural gas.

Speaker 4: Inclusive of the interim dividend pay during the third quarter of last year, the total dividend associated with our 2021 results equated to 28 cents per share or yield of about 1.3%. We expect our dividend to grow at least 10% annually, which is in line with our expectation for mid-single digit annual production growth and the reduction of our outstanding shares by at least 1% per quarter.

Inclusive of the interim dividend paid during the third quarter of last year. The total dividend associated with our 2021 results equated to <unk> 28 per share or a yield of about one 3%. We expect our dividend to grow at least 10% annually, which is in line with our expectation for mid single digit annual production growth and the reduction of our shares.

Of our outstanding shares by at least 1% per quarter.

Speaker 4: Looking at our year end 2021 reserves and DNC costs on slide 12, Magnolia had a very successful organic drilling program during last year. Magnolia books only one year proved undeveloped reserves, and as a result, 81% of our 2021 Pro Reserves were developed.

Looking at our year end 2021 reserves in D&C costs on slide 12, Magnolia had a very successful organic drilling program during last year Magnolia books, only one year proved undeveloped reserves and as a result, 81% of our 2021 proved reserves were developed.

Speaker 4: Improved undeveloped reserves at year end 2021 represent what we expect to convert to approved developed producing during 2022.

The proved undeveloped reserves at year end 2021 represent what we expect to convert to proved developed producing during 2022.

Speaker 4: Our drilling program added 31 million barrels of oil equivalent effort, adjusting for acquisitions and excluding price-related revisions.

Our drilling program added 31 million barrels of oil equivalent after adjusting for acquisitions and excluding price related revisions last.

Last year's capital for drilling and completing wells totaled $232 million, resulting in a proved developed F&D cost of $7 48 per Boe, while replacing 198% of our 2021 production.

Speaker 4: The F&D level is similar to the overall DDNA rate for our asset base and indicative of the capital efficiencies and low development costs in our gettings assets.

F&B level is similar to the overall DD&A rate for our asset base and indicative of the capital efficiencies and low development costs in our giddings assets.

Turning to guidance for 2022, we plan to continue to run two operated drilling rigs across our assets.

Speaker 4: One rig will be dedicated to drilling development wells and getings. With the second rig drilling a mixer development wells in both carons and getings. In addition to also drilling some appraisal wells at getting.

One rig will be dedicated to drilling development wells in giddings with the second rig drilling a mix of development wells in both Karnes and Giddings. In addition to also drilling some appraisal wells at Giddings.

We continue to improve our efficiencies in the giddings field, which should help to offset some of the anticipated oilfield cost inflation.

Total D&C.

Speaker 4: Total D&C and facilities capital is estimated to be approximately $350 million for the year and which includes a higher than average amount of spending on facilities associated with our core development area in Giddings, which is expected to provide future operational and economic efficiency.

<unk> capital is estimated to be approximately $350 million for the year, and which includes a higher than average amount of spending on facilities associated with our core development area in giddings, which is expected to provide future operational and economic efficiencies.

Speaker 4: Our non-op capital is estimated to be approximately the same as the 2021 level.

Our non op capital is estimated to be approximately the same as the 2021 levels.

We expect that this program activity level to deliver full year production growth in the high single digits with production at giddings, increasing by approximately 20%.

Speaker 4: We expect that this program and activity level to deliver full year production growth in the high single digits with production beginnings increasing by approximately 20%.

Speaker 4: As I mentioned earlier, we remain completely on hedge for both our oil and gas production, allowing us to fully capture a higher product price.

As I mentioned earlier, we remain completely unhedged for both our oil and gas production, allowing us to fully capture higher product prices.

Oil price differentials are anticipated to be approximately a $3 per barrel discount to <unk> and in line with recent quarters.

Speaker 4: Oil price differentials are anticipated to be approximately a $3 per barrel discount to MEH and in line with recent quarters.

Speaker 4: We expect our 2022 current effective tax rate to be in the range of approximately 5 to 8 percent with an equivalent amount of cash tax.

We expect our 2022 current effective tax rate to be in the range of approximately 5% to 8% with an equivalent amount of cash taxes.

Speaker 4: Looking at the first quarter of 2022, we expect total production to be approximately 70 to 72,000 barrels of oil equivalent per day. And our DNC capital is estimated to be in the range of $85 to $90 million.

Looking at the first quarter of 2022, we expect total production to be approximately 70 to 72000 barrels of oil equivalent per day, and our D&C capital is estimated to be in the range of $85 million to $90 million.

Speaker 4: Our fully diluted chair count for the first quarter should be approximately 228 million shares. We're now ready.

Our fully diluted share count for the first quarter should be approximately 228 million shares.

And now ready to take your questions.

Thank you we will now begin the question and answer session.

Speaker 1: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad.

Ask a question you May press Star then one on your telephone keypad.

Speaker 1: If you're using a speakerphone, please pick up your handset before pressing the keys. Let's draw your...

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Speaker 1: At this time, we will pause momentarily to assemble our raw.

At this time, we will pause momentarily to assemble all of that.

Yes.

Speaker 1: The first question comes from Leo Mariani with QBank. Please go ahead.

First question comes from Leo Mariani with Keybanc. Please go ahead.

Speaker 5: Good morning guys, a couple questions here on Giddings. I wanted to get a little better sense of roughly how many Giddings wells you guys expect to drill in 2022. And then kind of roughly how many of those are appraisal wells. And perhaps you could give us a little bit more caller about what you think might accomplish with the appraisal program here in 22.

Yes. Good morning, guys couple of questions here on getting a wanted to get a little better sense of roughly how many giddings wells you guys expect to drill in 2022, and then kind of roughly how many of those are appraisal wells and perhaps you could give us a little bit more color about what you think you might accomplish with the appraisal program here in 'twenty two at Giddings.

Sure.

Speaker 3: Sure, maybe a little oversight on getting quickly. At this point, we have two areas that we've whatever...

Maybe a little oversight on giddings quickly.

At this point, we have two areas.

That we have.

Whatever the whatever the term of art is de risked.

Speaker 3: where we sort of know what will happen when we drill the wells. One is the traditional core area, and one is a little smaller than that, but not a lot smaller, and a little gassier. So it may add another month to the payback period on the wells. So instead of four or five months, it'll be five or six months of payback. I was trying to number a wells in that area. Is that another four or five areas, which model well?

Where are we sort of note we sort of know what will happen when we drill the wells one is the traditional core area and one is a little smaller than that but not a lot smaller and a little gas here. So it may add another month to the payback period on the wells, So and set a four or five months five or six months and payback.

A fair number of wells in that area that another four or five areas, which model well.

Speaker 3: that are similar in size.

That are similar in size to these.

Speaker 3: And we'll spend this year looking at those and seeing how many of those we can bring to fruition.

We will spend this year looking at those and see how many of those we can bring to fruition.

Speaker 3: The other driver, which I don't think we can underestimate, we're doing some experimental work to see how what the space it would be appropriate spacing is.

The other.

Another driver, which I don't think we can underestimate we're doing some experimental work to see how.

The space it will be appropriate spacing is.

Speaker 3: We space very widely currently, so there's no need to space tightly. But we've done some work in the wells of only been on production for a few months, so we can't really tell because the goal is to make sure that when you drill a daughter, or whatever the term of art is, that well actually generates more reserves for you, not just a faster production.

We face very widely currently so there's no need to space tightly, but we've done some work.

The wells have only been on production for a few months. So we can't really tell because the goal to make sure that when you drill.

A daughter, well or whatever the term of art is.

That well actually generates more reserves for you not just a faster production.

Speaker 3: And so we'll wax the curves that those pretty well, but so far it's encouraging.

And so we'll watch the curves of those pretty well, but so far it's encouraging.

Speaker 3: Obviously, you know, this is generated a large number of additional low kicks.

Obviously.

This is generate a large number of additional locations.

Speaker 3: So I think this year they'll be looking at spacing. We're looking at lateral lengths. We've extended the four to 7,000 feet and we'll probably try longer ones than that. We are already trying longer ones seeing what kind of economics we can have. We've got a number of areas.

I think this year there'll be bookings looking at spacing, we're looking at lateral lengths, we've extended extended from 4% to 7000 feet and we'll probably try longer ones and that we are already youre trying longer ones seeing what kind of economics, we can have and we've got a number of areas that look promising that we will be.

Speaker 3: that look promising that we'll be at least beginning the testing out phase. That testing out phase can last a couple years.

At least beginning the testing phase and testing out based on the last couple of years.

Speaker 3: And to the extent we have more releases we can acquire their role to tell you absolutely nothing about it. But, but we're released up, I think we'll be slightly more forthcoming than in the past. We've got a very long running room in gettings.

To the extent, we have more leases we could acquire there will tell you absolutely nothing about it.

But.

But what we're really stopped by they will be.

Slightly more forthcoming than in the past.

We're we've got a very long running room in giddings.

Yes.

Speaker 3: The vocation stuff is sort of a game of wires poker. So I don't really want to get into a location thing, but a lot of locations. So as a large long-term shareholder, I feel confident that...

As location stuff assort with gaming wires poker.

No.

I don't really want to get into a location thing but a.

A lot of locations and so.

So large long term shareholder I feel confident.

My errors will still be cashing giddings checks.

Speaker 3: My, my, errors will still be cashing, getting checks.

Okay.

Speaker 5: Very helpful overview for sure. Maybe just switching gears a little bit here. I just wanted to clarify, I know you all have a plan to repurchase.

Very helpful overview for sure.

Maybe just.

Switching gears, a little bit here I just wanted to clarify I know you all have a plan to repurchase roughly 1% per quarter I know it can be more than that as well, but when you look at that do you basically tell yourselves that hey that 1% is what we'll just call kind of regular way through the market repurchases and do you kind of view the <unk>.

Speaker 5: you know roughly one percent you know per quarter

Speaker 5: You know that 1% is what we'll just call kind of regular way through the market repurchases and you kind of view the purchases from Intervest to kind of be on top of that sort of a supplement to kind of this regular way 1% is that sort of the right way to think about it?

<unk> from <unk> to kind of be on top of that sort of a supplement to kind of just regular way, 1% is that sort of the right way to think about it.

I think thats, a good way to think about it.

Speaker 3: I think that's a good way to think about it. If you look at a...remember I always talk about comparing this to an industrial company as opposed to an oil company. Correct me if I'm wrong! Yes, I'd love a Republican 1989.

So if you look at our.

If you remember I always talk about comparing us to industrial company as opposed to an oil company.

And so what of industrial companies have they have good balance sheets have regular growth.

Speaker 3: And so what are industrial companies? They have good balance sheets. They have regular growth.

Speaker 3: They're cycles in every business, but generally regular growth. And they repurchase.

No there are cycles in every business, but generally regular growth.

And they repurchased some shares every year.

And they basically reduced their share count a little every year and they pay growing dividends and predictably growing dividends. So that's the model.

Speaker 3: and they basically reduce their share account a little every year and they pay growing dividends and predictably growing dividends. So that's the model. It's not really to see how much money we can distribute this year or any particular year. So if you look at the 1%, I view that as something we can do. At this sort of pace of buying down shares, we'll be down close to 200 million shares.

It's not really to see how much money, we can distribute this year or any particular year. So if you look at the 1%.

I view that as something we can do.

So at this sort of pace of buying down buying down shares will be down close to $200 million shares.

No.

Speaker 3: in a wife. And so, you know, it's by and two million shares a quarter, which we can do in the open market once there's more shares distributed. We won't have to rely on the Intervest. You know, I view Intervest as truly, you know, proving the value per share.

In Hawaii.

And so by.

By 2 million shares a quarter, which we can do in the open market once once there's more shares distributed.

They rely on <unk>.

<unk> as a.

Truly <unk>.

Proving the value per share.

Of the company.

Speaker 3: of the company. As we buy in their shares, I believe, perhaps wrongly by the way, but I do believe firmly that I'm buying shares at a discount to what this business ought to be able to generate over time. And as I look at gettings and I look at carons and I look at other nearby opportunities, I think we got a hand in our...

We buy in their shares I believe.

Thats wrong by the way, but I do believe firmly that I'm buying shares at a discount to what.

Business ought to be able to generate over time.

And as I look at Giddings, and a look at Karnes and I look at other nearby opportunities I think we got it.

Sure.

Speaker 3: That's so called vettus-ish-nanola. Where call it then? Bye.

That so called debt position.

Call it that but.

Speaker 3: You say, you know, as a small private at business, I just soon own this.

You say you know.

As a as a.

Small private businesses I just soon own this.

Speaker 3: I don't really know what the guys at the big companies are doing. So I look at this as what I like to own this stock for a long period of time. And the buy-in in the shares at 1% is part of a long-term plan. The inner best thing I've always viewed as an opportunity, because you don't usually have an opportunity, is what they do is they go out and sell with shares.

I don't really know what guys are with the big companies are doing so and so I look at this is what I would like to own the stock for a long period of time.

And the buy in the shares at 1% as part of our long term plan.

The interest thing I've always viewed as an opportunity because we don't usually have an opportunity as what they do is they go out and sell the shares to the market.

Speaker 3: And so let's say they want to sell 7 million shares. So the price they get is the clearing price for the 7 million shares. And I buy two or three million shares on top of that.

So, let's say they want to sell 7 million shares so the price they get as a clearing price for the 7 million shares and I buy two or 3 million shares on top of that so I'm getting a fair price we are not just negotiating with them.

Speaker 3: So I'm getting a fair price. We're not just negotiating with them.

Speaker 3: to get a price, we're actually market testing the price.

To get a price we're actually market testing the price. So we're getting a little little discount off of what we could do negotiated and I think thats fair for the shareholders, but we're also careful im also careful about not overpaying for the stock so if the stock got.

Speaker 3: So we're getting a little discount off of what we could do and negotiate it. And I think that's fair for the shareholders, but we're also careful. I'm also careful about not overpaying for the stock. So the stock got...

Sure.

Sure.

Over over priced by some measure.

Speaker 3: over price by some measure. You know, we probably slow up the process because the market's so volatile, you'll always have a chance.

So I think we've probably slow up the slow up the process because the market is so volatile you'll always have a chance.

Okay. That's very helpful. Maybe just last quick one for you guys. So I know you had the 2022 production guidance out there kind of high single digit growth certainly looks good.

Speaker 5: Okay, now that's very helpful. Maybe just last quick one for you guys. So I know you have the 2022 production guidance out there, kind of high single digit growth, so it looks good. Just any rough indication of what you think the oil cut will come out to be here in 2022.

Any rough indication of what you think the oil cut will come out of <unk> to be here in 'twenty two.

Yes, I would say similar to what we saw in 2021.

Speaker 4: Yeah, I would say similar to what we saw in 2021. What we did.

We can't tell exactly because.

If we shift shift a couple of wells to some of these.

Speaker 3: If we shift a couple of wells to some of these.

Okay.

Speaker 3: How far away? Gettings locations. We actually don't know. We got a model with the predictions, but I wouldn't bet my life on the model.

How far away Giddings locations, we actually don't know we can we've got a model that predicts it but I wouldn't bet my life on the model.

Speaker 3: So there's some variants and also if we drill some currents well they're oilier. So we can sort of manage this to whatever we want really and without really changing anything. And so we'll follow the economics here rather than trying to manage the number to exactly some numbers.

So there is some variance and it also if we drill some karnes wells, they're oily or so.

We can we can sort of manage this if to whatever we want really.

And without really changing anything and so we'll follow the economics here rather than.

Try and try to manage the number to two exactly some number.

Speaker 6: Again, as we just talked about, you know, we're basically buyers of shares, not sellers.

Again.

As we just talked about we're basically buyers of shares.

Sellers.

Okay. Thank you guys.

Our next question comes from Neal Dingmann with.

Speaker 1: My next question comes from Neil Dingman with, Truist, please go ahead.

Please go ahead.

Steve I wanted to ask the shareholder return question, a little bit different I know, you've always said your wife appreciates the dividend. So I'm just wondering if can we assume.

Speaker 7: Even I've had to answer sure to return a little bit different. I know you've always said your wife Appreciate the dividend so I'm just wondering if we assume Because it's not a bit more dividend in your term

I'll just add on a bit more dividends in the near term.

Right.

Yeah.

We like dividends at our house.

Speaker 8: Oh. And, uh, so I don't think, I think we're pretty well aligned. You know, I've got a, you don't really need to gas.

Okay.

Okay.

<unk>.

So I don't.

I don't think I think we're pretty well aligned.

Uh huh.

You don't really need to gas.

Speaker 3: I got a 25 year, or 22 year history of dividend.

I've got a 25 year 22 year history of dividends.

Speaker 3: that one could look at, unless there's been brain surgery between that and then and now, you can get a pretty, you know, it's crystal stop me if there's brain surgery so drag me out. But, you know, unless there's been some brain surgery, this returning money shareholder is not a new concept for me.

One could look at unless theres been brain surgery.

Between then and now.

You can get a pretty critical stop meter range.

<unk>.

Okay.

But unless theres been some brain surgery.

This returning money to shareholders is not a new concept for me.

Speaker 3: And so, you know, actually, actually grew with dividends.

And so akshay.

Oxy Oxy grew its dividends.

Speaker 3: Essentially every year I could force to change.

Essentially every year.

I could I could force change.

Speaker 3: good dividends every year for a very long period of time.

Good the dividends every year for very long period of time.

And it's part of part of the culture of the business and part of what attracts people to businesses were smaller.

Speaker 3: and it's part of the culture of the business and part of what attracts people to business. We're smaller, so growth is also important.

<unk> growth is also important for.

Speaker 3: small company, but the point of the growth is to generate more cash to pay more dividends.

For a small company, but the point of the growth is to generate more cash to pay more dividends.

I mean for the share repurchase is to generate fewer shares so each shareholder will get more dividends.

Speaker 3: to generate fewer shares so each shareholder will get more dividends.

Speaker 3: You know, somebody said, well, I might want it right away and somebody else will say it's okay to be deferred. You know, we picked deferred.

Somebody said, well I might want it right away and somebody else will say, it's okay to be deferred.

We picked differed.

Speaker 3: I mean there's funny choices to pick people who want to pay it right away and we just assume picked deferred because you know as the inevitable cycles occur you will still be there growing the dividend.

They're funding choices to pick people, who want to pay it right away and we just assumed pick deferred because as the inevitable cycles occur we will still be there growing the dividend.

Okay, well said and then my second just on D&C.

Speaker 7: And well, Stan, and then my second just on DNC, just amazing. I'll continue to spend, I think you said 28% even down the DNC with this solid growth. I'm just wondering is that repeatable given? I think you're seeing that at meetings maybe just a good, a good one. Thank you. Well, you know, luckily you don't see the forecasts that are given until it's fire, fire, fire, see the suit you see.

Amazing Youll continue it's been I think you said, 20% EBITDA on the D&C with its solid growth I'm. Just wondering is that repeatable given what youre seeing that are getting maybe just.

Thank you.

Well.

Luckily you don't see the forecasts that are given to us by our fire.

Steve.

<unk>.

Speaker 8: So the answer is I doubt it. You know, because we had a lot of improvement without much cost change this past year.

So.

Yes.

The answer is I doubt it.

We had a lot of improvement.

Improvement without much cost change this past year.

Speaker 3: And, you know, I don't think we can repeat that. We've caught off.

And I don't think we can repeat that we've cutoff.

Yes, a lot of efficiencies a lot of efficiencies.

Speaker 3: So I think that yeah, and so I don't think so. But it's going to be nowhere near 55% either.

So I think that yes.

So I don't think so.

But it is.

It will be nowhere near 55% either.

Speaker 3: And I don't, the problem with now talking about percentage.

And the problem with <unk> now talking about percentages.

Speaker 3: is that all this money that's piling up in people's...

Is that all this money that's piling up in peoples.

Speaker 3: you know, cash boxes, it's all on spreadsheets.

Mil cash boxes.

All of us on spreadsheets.

Speaker 3: And you know, at the end of the year you're going to have so much in your bank accountant. I just assumed wait for the money to get there. But so I don't really know what the percentage is going to be. But then certainly going to be anywhere near 55%. And the other point I would make is, you know, with only two rigs running.

And at the end of the year, you're going to add so much in your bank account and I just assume wait for the money to get there, but so I don't really know what the percentage is going to be.

But there is certainly going to be anywhere near 55%.

Other point I would make is.

With only two rigs running.

Speaker 3: to add another rig is a 50% increase in capital roughly. And so we're not up for that either. So I think that's first.

To add another rig has a 50% increase in capital roughly and so we're not up for that either.

No.

Right.

I think thats pretty pretty straightforward.

That's very straightforward. Thank you.

Thanks.

Yes.

Our next question comes from Doug.

Speaker 1: Our next question comes from that poem with JP Morgan. Please go ahead.

With J P. Morgan. Please go ahead.

Hey, guys. Thanks for taking my question.

Speaker 2: Hey guys, thanks for taking my question. I guess first off on cash return, you've obviously built up a pretty sizeable cash balance.

I guess first off on on cash return, you've obviously built up a pretty sizeable cash balance you would buy back stock, but that's slowed a bit somewhat out of your control just given when and how much <unk> decides to sell.

Speaker 2: You've been buying backstock, but that slowed a bit, someone out of your control just given when and how much interventions fast to spell.

Speaker 2: At current commodity prices, you're going to generate a lot of free cash flow this year. If that cash balance continues to build, could you consider a variable or special dividends?

At current commodity prices youre going to generate a lot of free cash flow this year.

That cash balance continues to build.

Could you consider a variable or special dividend.

Speaker 3: I don't think we go to a variable or a formula based dividend. We have a formula but we're not...

I don't think we go to a variable or a formula based dividend.

We have a formula, but we're not going to tell you what it is.

Speaker 8: So, but generally speaking, you know, in a normal environment, whenever that is, next time we get to that, if we ever do again, you know, we would spend around half the money on small, both on acquisitions, half the free cash flow around a quarter on dividends.

Yes.

So.

But generally speaking.

In a normal environment whenever that is next time, we get to that if we ever do again, we would spend around half the money on.

On small bolt on acquisitions have the free cash flow around a quarter on dividends and around a quarter.

Speaker 3: and around a quarter, you know, share repurchases the 1%. But, you know, there's no perp, there's no year like that, right? So, that's what the cash is for to allow us to, to extra, you know, to, if the opportunity came to buy something that was near and I don't see much of that, by the way.

On share repurchases to 1%, but there is no there is no year like that right.

So.

That's what the cash is Florida to allow us to extract.

If the opportunity came to buy something that was there and I don't see much of that by the way.

Speaker 3: uh you know we could do that.

If we could do that.

Sure.

We're not going to allow the cash build.

Speaker 3: There's no point to that. So could we put up?

There is no point to that so it could could we put out a.

Speaker 3: I'll call this special dividend rather than a formula-based dividend. If it continues to build up and we get a clearer line of sway, it's bananas.

I'll call that special dividend, rather than a formula based dividend.

If it continues to build up and we get clear line of sight on which flipped.

<unk> is going to do and I think by the end of this year.

Speaker 3: Intervest is going to do and I think by the end of this year we'll have a clear line of sight. I think a special single special dividend to sort of pay out the

Well clear line of sight.

I think.

Especially especially single special dividend disorder.

Payout.

Cash.

Speaker 3: wouldn't be unreasonable again at my heart, that's always be well.

It wouldnt be unreasonable again at my house that will always be welcome.

Got it thanks that makes a lot of sense I guess, just one on the model on an operating cost both LOE and <unk> ticked up a bit higher during <unk> can you just talk about what drove that and your outlook for operating cost in 2022.

Speaker 2: Got it, thanks. That makes a lot of sense. I guess just one on the model on operating costs. Both LOE and GP&T ticked a bit higher during 4Q. Can you just talk about what drove that and your outlook for operating costs in 2022? I'll just say on LOE, LOE an quarterly basis for small company, even a large one, by the way.

I'll just say on LOE.

Hello, and a quarterly basis for small company, even though ours are by the way.

Yes.

Speaker 8: is volatile because workovers go in and out of that. So your workover activity is expense.

As volatile because workovers go in and out of that.

So youre workover activities expense.

So it becomes part of <unk>.

Speaker 3: And then, you know, the next quarter, you don't do so many workovers. It looks like you did a bit of better job and you really nothing happened. And you see it all the time, even the largest companies, you see those changes and almost all of these would relate to workovers. And they tend to do workovers in the fourth quarter of a week. This has been true for a quarter century. I've been watching guys do workovers in the fourth quarter for some reason.

And then.

Next quarter, you don't do so many workovers it looks like you did a better job and you really nothing happened and you see it all time, even the largest companies you'll see those changes as almost all of these were related to workovers and they tend to do workovers in the fourth quarter for this has been true for a quarter century I've been watching guys do workovers in the fourth quarter.

For some reason.

Speaker 3: I guess that you know, they figured nobody cares about their operating class.

Yeah.

I guess.

They figured nobody cares about their operating costs or something.

Speaker 3: So that's what you're really looking at in the LLE. I'm in Chris County. Yeah, on the GP and T, I think it's really related to the gas and NGL prices. And yeah, being higher. The higher I think it's sort of just some of them are percentage. All right. That's right. The contract of what you get, the contract, and so the cost, you know, when NGLs are 35 bucks a barrel, you can abay more. You certainly saw that in the fourth quarter. Yeah. Yeah. Yeah.

That that's what you're really looking at Neal Ali I think Chris the <unk> I think it's really related to the gas and NGL prices.

Yes, being higher and higher I think it's sort of just some of them are percentage alright.

The contract once you get the contract and so at cost.

Ngls are 35 Bucks, a barrel and you've got to pay more you certainly saw that in the fourth quarter, yes.

It works sort of like.

Severance tax.

For really for part of it that's right.

Speaker 8: We're really from part of it, is right?

That makes sense thanks, guys.

Speaker 1: Our next question comes from Emmering Child 3 with Goldman Sachs. Please go ahead.

Our next question comes from Charles <unk> with Goldman Sachs. Please go ahead.

Thank you good morning, and thank you for taking my questions.

Speaker 9: Thank you, good morning and thank you for taking my questions. My first question was around efficiency improvement in greetings, which you mentioned is offsetting some inflationary pressures. Can you help us disaggregate the two? What is the secular efficiency improvement and what are you seeing from a service landscape right now? And one more second, I can tack on like how long do you think can drill on lateral lens in in getting area?

My first question was around the efficiency improvement in Giddings, which you mentioned is offsetting some inflationary pressures can.

Can you help us disaggregate the two what does the secular efficiency improvement and what are you seeing from us.

<unk> landscape right now and one more if I can tack on like how long do you think you can drill on lateral lengths and getting CAGR.

What was that last question Omar.

Long Canyon.

Speaker 9: How long can you drill on lacquer lens in getting getting radio? I won't give it.

How long can you drill on lateral lengths and getting getting stadia.

For how long.

Well, we know how much we physically can do.

Speaker 3: Well, we know how much we physically can do.

Speaker 3: Right now, you know, we're up around 10,000 feet. Question simply is...

Right now we're up around 10000 feet.

Question simply is is it worth doing.

By adding the additional footage or regaining something because it costs more to drill longer.

Speaker 3: by adding the additional footage are regaining something because it costs more to drill longer.

Speaker 3: And that's really the question, and we could do maybe more than 10,000.

And Thats really the question.

We could do maybe more than 10000 feet.

Speaker 3: because we're good understanding and the reservoir at this point. So it's more an economic question than a physical one. And we don't know the answer yet. And there may be an answer.

Because we have good understanding of the reservoir at this point.

So.

It's more of an economic question than a physical.

And we don't know the answer yet.

And there may be a different answer in different parts of it also.

Far as the service cost.

Speaker 3: Some of it, I think it's like steel and stuff is pretty temporary. Steel guys, they're like other service providers. They build capacity and eventually they'll be playing a steel. Probably not till late next year, I don't think, but eventually that'll fix itself. And some of that sort of already come off and we're.

Some of it.

Like steel and stuff is pretty temporary steel guys there alexia.

Our other service providers.

<unk> build capacity and eventually bill there'll be plenty of steel probably not till late next year I think.

Eventually that will fix itself and some of that sort of already come off them.

We are.

Speaker 3: We don't have any purchasing issues this year. We're set for this year's program. On labor costs, which is truck drivers and that kind of stuff.

We don't have any purchasing issues. This year were set for the <unk> program.

On labor costs, which is truck drivers that kind of stuff.

We've been through a downturn in the.

Speaker 3: oil business from last couple years. We've had a lot of people who used to work in the business, were driven out.

Oil business from last couple of years, a lot of people who used to work in the business were driven out.

Speaker 3: going to work somewhere else, Walmart, Amazon, whatever. And to bring them back is challenging. It's an age, especially in the field I'm talking about. It's true for service companies as well as.

Gone to work somewhere else Walmart Amazon whatever.

And.

To bring them back is.

So challenging.

It's an AG, especially in the field and talking about.

True for service companies as well as <unk>.

Speaker 3: heart operations. People tend to be a little older than the average, a little closer to retirement. For kid years ago, their kids used to take the jobs because they were good jobs. And now, maybe there's less of that.

Our operations people tend to be a little older than the average little closer to retirement.

For years ago their kids used to take the jobs because they were good jobs.

Now, maybe there's less of that.

So.

Speaker 3: You know, I think the answer is, there's a fairly sizable labor component that's gonna increase, affect our GNA a little bit also. You know, some of our people, IT people, counting people, which, you know, who could work at Amazon or something.

I think the answer is there is a fairly sizable labor component, that's going to increase will affect our G&A a little bit also.

Some of our people people counting people.

Who could work at Amazon or something.

Speaker 3: Penarrow L. People are all going to get good size raises this year. I mean, they've been through a tough time. I'm not really bothered by all this.

And Royal people are all going to get good size races. This year.

And they've been through a tough time I'm not really bothered by all of us.

Speaker 3: Missed the way it is when you have a sickle-go-bus, this sickle-go-bus always have to pay more. Sometimes you forget that. Get ads. They added about a dollar and a half of barrel equivalent.

Miss the way it is when you have a cyclical business cyclical business always have to pay more sometimes you forget that.

Get AD they added about a one dollar and a half.

A barrel equivalent.

Speaker 3: this past all in, all in. You know, which is, you know, so you're talking about when you're through probably a couple dollars total, is it rolls through? So that's $2 a B-O-E. So I think the oil price went up.

Its passed.

All in all in.

<unk>.

So you are talking about when you're through probably a couple dollars total.

As it rolls through so it's $2 a Boe.

So I think the oil price went up more than $2.

Of.

Speaker 3: And so, you know, I told you this before, it's not like Johnson and Johnson, they gotta find somebody to pay more for the band-aid.

And so.

Told you this before it sounded like Johnson <unk> Johnson.

Got to find somebody to pay more for the for the band days.

Speaker 3: We're already getting the money and giving a little bit to the workers. Doesn't strike me as is.

We're already getting the money and give it a little bit to the workers.

It doesn't strike me as either unfair or unwarranted.

Makes sense.

Speaker 9: Make sense. My next question is on nonopactivity in cons. Any latest update there?

And my next question is on non op activity in karnes any any latest update there.

They don't tell us.

Yeah.

Speaker 3: He sort of get the bill and you pay it.

You sort of get the bill in your path.

You don't really know because.

Speaker 3: You don't really know because a lot of these companies have big positions, not just in carons, but maybe in the Permian. And they're releasing positions and that sort of thing is very different. Carons is all held by production. And so you can drill a lot today or you can put the thing off for two years without losing anything. Probably not true in some of the leases somebody might have in West Texas.

A lot of these companies have big positions not just in karnes, but may be in.

The Permian.

And there are leasing positions and that sort of thing is very different cards. It's all held by production.

You can drill a well today or you can put the thing off for two years.

Losing anything it's probably not true in some of the leases somebody might have and in West Texas.

Speaker 3: where you have a lot of competitive pressure. So I would get the modus activity for those people who need to switch to continue to have a lot of activity in the Permian. A decent current as well, we have no trouble competing with the Permian law into your economic.

We have a lot of competitive pressure.

I would guess it would be modest activity from those people, who can who need to switch to continue to have a lot of activity in the Permian.

A decent karnes, well with no trouble competing with a Permian well on pure economics, but.

Speaker 8: But I do think that there's other issues in the Permian with leases and that sort of thing. And competing people, forcing people to stand out, unfendably, they don't go along with wells. You see a lot of that in the Permian. You don't see that much of it in the currents. So all I would say is that I don't think there's going to be a lot of activity.

I do think that there is other issues in the Permian with leases and that sort of thing.

And competing competing people.

Forcing people to stand out and penalty if they don't go out with wells you see a lot of that in the Permian, you'll see that much of the cars. So all I would say is that.

I don't think theres going to be a lot of activity.

Speaker 3: You know, I could be wrong and, you know, that's a mixture of cash somewhere to cut word of it turns out. 24.

Can be wrong.

<unk> got some extra cash somewhere to cover if it turns out.

Got it that's helpful. Thank you.

Thanks.

Our next question comes from.

Speaker 1: Our next question comes from Noel Parks with two wee brothers. Please go ahead.

Mark Smith.

Alright.

Two we brothers. Please go ahead.

Hi, good morning.

Good morning.

Speaker 4: I certainly wanted to talk about a few macro topics.

I sort of wanted to talk about a few macro topics.

Speaker 4: to sort of look at what happened just in, you know, last three months or so when, I think in November , we had maybe just touched 80 for the first time and managed to hang in there. And then of course, you'll not always see nine.

Just sort of look at what happened Justin.

Last three months or so when I think in November we had maybe Jeff touched 80 for the first time managed to hang in there and then of course, you can always seen 90.

Speaker 4: And so we've got some pretty clear motion in oil, but also NGL think your real-life prices were about $35 a barrel, and I can't remember the last time we saw NGL prices like that. So just wondering, if you talk about your thoughts on the NGL outlook, how you feel about visibility there? Well, you know, NGL.

And.

So we've got some pretty clear motion and oil, but also NGL realized prices were about $35 a barrel and I can't remember the last time, we saw NGL prices like that so just wondering.

Just talk about your thoughts on the NGL outlook, how you feel about visibility there.

Well, you know Ngls, mostly about gas.

And.

Yes, so it's 80% 80% of the value was sort of gas and 20%.

Speaker 3: Yeah, so at 80% of the value is sort of gas and 20% is, you know, called sort of oil.

<unk> cost sort of oil.

So.

Speaker 3: You know, the pricing is really, you know, driven by gas prices and some by law prices. The demand is very strong.

The pricing is really <unk>.

Driven by gas prices and some by oil prices the demand is very strong.

Speaker 8: for feed stocks. So I don't see weakness in it per se, but it does float with the gas price effectively. So, gas prices are...

For.

For the feedstocks, so I don't I don't see weakness ended per se, but but but it does float with the gas price effectively so gas prices are.

$5 and change before another $4 and change it could be some other number tomorrow.

Speaker 3: $5 and change before or another, $4 and change, and could be some other number tomorrow.

Speaker 3: People in the East forget that March and April follow February .

These people and the people in the East forget that March and April followed February .

And so.

Okay.

Speaker 3: Right. And they have and they have and they have forgotten it for decades. My God. It's called February 15.

Right and they have their own and they have they have forgotten it for decades.

No.

My guidance February 15.

Speaker 3: Right. And you know, March and April come and somehow get's warmer every year.

Right.

In March and April come in and somehow gets warmer every year.

So.

It's a cyclical commodity and it's heavily influenced by gas so.

Speaker 3: It's a cyclical commodity and it's heavily influenced by gas. So I, you know, but I think the fundamental demand into the market is very strong, petrochemicals and that holds up that whole sector is...

But I think the fundamental demand in the market is very strong petrochemicals in that wholesale that all sectors.

On fire really.

Right great.

Speaker 4: Right, great. And I'm not doing a thing I wanted to ask you about. I know we've talked in the past about as far as the US's ability to expand production, that there are some...

Another thing I wanted to ask you about and I know we've talked in the past about.

As far as the U S is the ability to.

Expand.

Reduction.

There are some.

Speaker 4: pretty serious constraints, physical constraints on raising production, you know, just, you know, backwarded stress and the lead time that it takes, you know, from standing up a rig to actually, you know, getting a cash back. I just wonder, given what's happened with the cost environment last few,

Pretty pretty serious constraints physical constraints on raising production.

Just back weighted at strip and the lead time it takes.

Standing up a rig to actually.

Getting our cash back.

I just wonder given what's happened with the cost environment last few.

Speaker 4: last few months Just what what are your what are your thoughts on just sort of the macro thoughts on on us supply and You know what what really can do over the next year or two

Last few months.

Just what are your what are your thoughts on just sort of the macro thoughts on on U S supply and.

What what really can do over the next year or two.

So not much this year.

Speaker 3: You know, I think the supply that constraints on steel and labor and stuff will stop people from large scale increases.

I think the supply constraints on steel and labor at a staff, we'll stop people from large scale increases.

Hum.

As we go into next year.

Speaker 3: Now the most of the people that run, you know, E&T's are

Most of the people that run.

E&ps.

Drillers at heart.

Okay.

Speaker 3: Chan, they can hardly wait to drill more well.

And so they can hardly wait to drill more wells.

Speaker 3: and they see the margins of $80 or oil.

And they see the margins at $80 oil.

Oh.

And it's pretty enticing.

Remember this so called free cash flow number they talk about is simply the EBIT tax less what they choose to spend drilling.

Speaker 3: Remember the so-called free cash flow number they talk about is simply the ebit backs less what they choose to spend drilling.

Right.

Speaker 3: Not some, you know, gods give a number just what they choose to spend.

Not not some guy.

<unk> given a number of just what they choose to spend.

And so.

<unk>.

I think over time.

Speaker 3: you know i think over time you know that they'll choose to spend more because they'll see the margins that are available to them and how it's a creative to whatever but

They'll choose to spend more because they will see the margins that are available to them and how it's accretive to whatever.

But probably not so much this year.

I don't think they can really do much this year some of the private people, Mike, but the public ones I think really can.

Speaker 3: I don't think they can really do much this year. Some of the private people might, but the public ones I think really can.

And so maybe next year may even take another another.

Speaker 3: And so maybe next year, maybe take another, you know, other year beyond that. So, you know, you need to be cautious about US production for the next, you know, 18 months, I think.

Another year beyond that so.

Yeah.

Josh about U S production for the next 18 months I think.

Speaker 4: Right. Great. And just the last one for me. Any updated thoughts on what you're seeing in the Andy market and evil food for non-operated interests? I know you said in the past that might be kind of a sweet spot for you and the acquisition market. So if the non-operated interest were home by people like you's over about 100, that would be good.

Right, Great and just the last one for me.

Any.

Any updated thoughts on what Youre seeing.

On the A&D market Knievel Ford for non operated interests I know you've said in the past that might be kind of a.

Sweet spot for <unk>.

For you in the acquisition market.

It's a non operated interest for hone by people with iqs over about 100 that would be good.

Speaker 3: but I can pick one. But what you're saying would be true, but they seem to think they should get the same price as an operator.

But.

But.

What youre, saying be true, but they seem to think they should get the same prices and operated interest.

Okay.

Right right and so.

Speaker 8: Right. Right. And so that's an interesting story.

That's an interesting story.

Speaker 3: But generally speaking, we're not really in the market for PDPs.

But generally speaking we're not really in the market.

Pdp's.

Speaker 3: We can generate PDPs really cheaply as a company.

We can generate pdp's really cheaply as a company.

But cheaper than buying PDP from some third party.

Speaker 3: Lots of secrets and buying PDPs from some third parties.

Speaker 8: If there were a fair number of undeveloped or locations or whatever you want to call it, you know, in the carons area, we had a real good grasp of it. And that'd be a different story, but it would cost us two or three times our DNA rate.

If there were a fair number of undeveloped or locations or whatever you want to call. It.

In the Karnes area, where we had a real good grasp of it.

That would be a different story, but.

It would cost us two or three times, our DD&A rate too.

Speaker 3: to buy a PDP in currents, where I could spend basically a DDA in a rate or less.

Bye.

Our PDP in Karnes.

What I could spend basically our DD&A rate or less.

Okay.

<unk>.

In Giddings.

Why am I here to buy just to make some private equity got rich.

Speaker 8: You know, why am I here just to make some private equity direct? I mean, yeah. So...

So I really think that thats.

So it's not something we're much interested in if we can get locations, we get some upside with it.

Speaker 8: not something we're much interested in. If we can get locations, we get some upside with it, I think we could talk about that, but absent a significant amount of upside, the perfect acquisition was the original Giddings acquisition where we paid for the production.

I think we could talk about that but absent a significant amount of upside.

The perfect acquisition was the original Giddings acquisition were repaid for the production.

But there was a lot of optionality of upside to it so as we look at acquisitions.

Speaker 8: But there was a lot of optionality or upside to it. So if we look at acquisitions of, you know, anything other than a few million dollars, we're just buying fill-in locations.

Anything other than a few million dollars, but we're just mindful and locations.

Speaker 8: looking at acquisitions, we're looking more for what can we do to make it better.

As we get to look at acquisitions were looking more for what can we do to make it better.

Speaker 8: And it's really not cost reduction. It's really, you know, locations that somebody didn't understand that they had. Because other than that, we don't need to do...

And it's really not cost reduction, it's really locations if somebody didn't understand that they had.

Because other than that we don't need to do anything in that area.

Speaker 8: can't find that we'll just do nothing. We're not pressed. We don't have to worry about growth and we don't have to worry about maintaining our heart.

We can't find Apple just do not.

We're not pressed we don't worry we don't have to worry about growth and we don't have to worry about maintaining our.

Margins.

Right right. It is interesting you said, you're describing it as locations where somebody doesn't understand what they had.

Speaker 4: right right you know it's interesting you said the describing of his locations for somebody doesn't understand what they had i'd my first thought as well the the ego for the rom-on-nuff that can't be many people like that but on the other hand i think of how much

My first thought is well the Eagle Ford has been around long enough that it can't be many people like that but on the other hand, I think of how much.

Speaker 4: Energy comparatively has gone into the Permian over the last five years. I guess it dawns me, well, I guess there could be locations or acreage held by production in someone's hands that just hasn't received a lot of study. But I guess my question is, is that anywhere near your neck of the woods? Were there be opportunities like that?

Energy comparatively has gone into the Permian over the last five years.

I guess, it dawns me well I guess, there could be locations or acreage held by production in someone's hands.

Hasn't received a lot of study, but I guess my question is is that anywhere near your neck of the woods, where there'll be opportunities with them.

There are clearly some.

Speaker 8: But you know, it's held that way for a reason, which it has to do nothing with the physical aspect with who owns it, and whatever they think about that.

But.

It's held held that way for a reason, which it has to do nothing with the physical aspect with loans.

And whatever they think about that.

So again the <unk>.

Speaker 3: So, you know, again, the perfectly rational party, you know, what they would do, but there's no sell or I ever met that was perfectly rational.

Perfect rational priority.

What they would do but.

There is no no seller I ever met that was perfectly rational.

Speaker 4: Fair enough. Thanks a lot.

Fair enough. Thanks, a lot.

<unk>.

Our next question comes from Nicholas Pope with Seaport Research. Please go ahead.

Speaker 1: Our next question comes from Nicholas Poe with C-Port Research. Please go ahead.

Good morning, guys.

Good morning.

Speaker 10: Kind of following on the M&A question, I was kind of curious, you did have an acquisition during the class.

Kind of following on that M&A question.

It was kind of curious.

You did have an acquisition during the quarter what was the $7 5 million.

Acquisition lifted.

On the cash flow.

Speaker 3: It was a small land acquisition. We were going to drill some welds. Some welds were going to be drilled there. We knew the welds were going to be drilled. And it was a price that made sense for us to buy the acreage. And I think the welds are being drilled. And is that in Carns County? Or is it getting related?

Small small and small land acquisition, we're going to drill some wells, we're going to be drilled there, but we knew the wells, we're going to be drilled.

There was a price that made sense for us to buy the acreage.

And I think the wells are being drilled.

Got you and Thats is that Karnes county is it or is it getting relief.

No. It was cars clients current with the current related acquisition got it.

You bet.

The comment on the repurchase of of the class B shares from from <unk>.

Speaker 10: Comment on the repurchase of the Class B shares from Intervest. I kind of wanted to clarify there from the prepared remark.

I wanted to clarify there.

From the prepared remarks.

Speaker 10: The comment, I think, was the Christmas that was that the Sherry purchase from Pearl Manoeuvres were not part of it.

The comment I think it was Chris made that was that.

The share repurchase from from manifest we're not part of the region.

Speaker 10: That's right. Agreement. Is there any limit on that or is it just as that comes available, you guys have flexibility to make purchase?

To redecorate agreement is there any limit on that or is it just as that comes available you guys have flexibility to make purchases.

Speaker 8: Because we're dealing with an insider.

Because we're dealing with an insider.

Which is one of our directors, who was the head or the <unk>.

Speaker 8: one of our directors who was ahead of or the nominal

Nominal.

Named party in interest.

Uh huh.

Speaker 8: of the board excluding that person approves each acquisition separately.

The board, excluding net versus approves each acquisition.

Separately.

Because it's an insider trade essentially.

And so that's really that there is no real limit to that understand that they are not.

Speaker 8: And so that's really there's no real limit to that. You don't understand that they're not exactly-

Exactly shares.

Speaker 8: It has two parts. One is the partnership interest, which is what you care about, which is an interest in the whole business. And the second is a voting rate.

It has two parts one is the partnership interests, which is what you care about which is an interest in the whole business.

Second is a voting right.

Which is the share but it has no economics with it.

Speaker 3: So when you buy it, you're buying a partner, you know, a piece of the company directly. And that's extinguished.

So when you when you buy it you are buying a partner a piece of the company directly.

That's extinguished when we buy it.

So if.

Speaker 3: So, you know, if we buy 1% of the B shares.

If we buy 1% of the B shares.

Speaker 3: That 1% ownership is spread over all the owners directly.

At 1% ownership is spread over all of the owners.

Directly.

It's a little different than buying the stock exactly.

Speaker 3: But the reason why it doesn't count is because the board hasn't approved any v-shares because they're done when it shows up and to ensure that the arms length discussion with the internet.

But the reason why it doesn't count is because the board hasn't approved any b shares because they are done.

It shows up and to ensure that.

Arm's length discussion with.

Interest.

Got it.

Speaker 7: I got it, that makes sense. And on the operation side, there was another comment in the release that activity was skewed to cars during 4Q versus Giddings. What was that split? Like what was brought online in the quarter? I was a little off of my production model in there. I was a little off of my production model in there.

On.

That makes sense.

And on the operations side, there was another comment in the release that active.

Activity was skewed to karnes during during <unk> versus giddings.

What was that split like what was brought online.

In the quarter, because I was a little off from our production modeling there.

It was mostly karnes activity, yes, we brought online.

Speaker 8: I was mostly killing you. When you're running one completion crew.

Oh, it's mostly when Youre only running one completion crew.

This quarter to quarter variation doesn't have any intrinsic meaning.

Speaker 3: This quarter-quarter variation doesn't have any intrinsic meaning.

Speaker 11: Yeah, and the timing of, you know, when these things get turned in line, can skew things. Scue things, and you try to make more of it than...

And the timing of.

When these things get turned in mind.

Skew things skew things.

You try to make more of it.

As warranted.

Got it that's all I needed I appreciate the time guys. Thank.

Speaker 7: Got it, that's all I needed, I appreciate the time guys. Thank you.

Thank you.

This concludes our question and answer session as well as our call for today. Thank you for attending today's presentation. You may now disconnect.

Speaker 1: This concludes our question and answer session as well as our call for today. Thank you for attending today's presentation. You may now disconnect.