Q1 2022 Magnolia Oil & Gas Corp Earnings Call

Good day, and welcome to the Magnolia oil and gas first quarter 2022 earnings release and conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero.

After todays presentation, there will be an opportunity to ask question too.

To ask a question you May press Star then one on a touchtone phone.

To withdraw your question. Please press Star then two please.

Please note. This event is being recorded I would now like to turn the conference over to Brian Crowley. Please go ahead.

Thank you, Matt and good morning, everyone welcome to Magnolia oil and gas as first quarter earnings Conference call.

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

Actual results to differ materially from those expressed or implied 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 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 and I know he is first quarter of 2022 earnings press release as well as the conference call slides from the investors section of the Companys website at Www Dot Magnolia oil 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.

We continue to execute on our strategy and business model.

Which limits, our spending to 55% of our EBITDAX on drilling completing wells.

This is expect to deliver mid single digit annual production growth along with high full cycle operating margins.

The remaining 45% will be allocated towards a mix of accretive bolt on acquisitions.

Dividends and share repurchases.

During the first quarter of 2022, we grew our total production and 15% year over year, and three 5% sequentially, while spending just 28% of our EBITDAX drilling and completing wells and generating operating income margins or EBIT of 62%.

Quarterly production was at the high end of our guidance, mainly due to better performance at our giddings assets.

Total production at Giddings grew 24% and oil production grew 31% compared to the same period last year.

Our free cash flow in the first quarter was approximately $200 million and we distributed nearly all of it to our investors through share repurchases and dividends.

We repurchased a total of 6 million shares during the first quarter, reducing our total diluted share outstanding by 9% compared to last year's first quarter.

Also paid the second installment of our semiannual dividend of <unk> 20, a share which is based on our full year 2021 results recast at $55 oil.

Bringing the total dividend associated with 2021 results to 28 per share.

But the significant return of cash to our shareholders. We ended the quarter with $346 million of cash on our balance sheet roughly unchanged during the quarter.

Together with our 15% production growth and 9% decrease in our total diluted share count our year over year production per share growth was 27%.

The combination of continued moderate growth and share reduction provides greater capacity for dividend growth overtime.

We continue to operate two drilling rigs and expect to maintain this level of activity for the balance of the year.

Efficiencies, such as faster drill times longer laterals and more wells per pad or expect to lead to more net wells during the year, leading to approximately $25 million of additional capital.

We expect to see another $25 million of spending resulting from increased oil service cost inflation for both material and labor.

The longer laterals and shorter cycle times are expected to benefit our production volumes during the remainder of 2022 and into early next year.

As a result, we now expect our full year 2022 production growth to exceed 10% compared to our previous forecast of high single digit growth.

Yeah.

Our operating team continues to make strong progress steadily advancing the development of our giddings assets and we've been successful in offsetting some of the oilfield cost inflation through ongoing efficiency gains.

We have improved our drilling feet per day by about 20% compared to a year ago, an increase the lateral length of the air we're getting as well by about 15% to 8000 feet with some wells and expect to surpass 10000 feet.

With getting still in relatively early stages of development, our operating teams improved understanding and growing experience will allow us to increase the oil and gas recoverability from the asset to the application of modern completion techniques.

Further fuel field efficiencies.

Giddings now makes up 80% of that.

Nearly 60% of our total company production compared to one third of our volumes in 2019.

Magnolia remains very well positioned in the current environment.

We believe that reinvesting in our business to achieve moderate predictable annual volume growth is important for a company of our size while balancing this with meaningful amount of cash returned to our shareholders.

A gradual and measured approach toward both the appraisal and development of Giddings field has created operating efficiencies leading to some additional net wells and higher growth this year.

At current product prices, we expect our capital for drilling and completing wells be less than a third of our cash flow well below our 55% spending cap and resulting in significant free cash flow.

The absence of hedges on our production allows for strong product price realizations. Most of the free cash flow is expected to be allocated towards improving the per share value of the company, including our plan to repurchase at least 1% of our outstanding shares each quarter.

We will also expect our dividend to grow at least 10% annually.

The production growth combined with a steady reduction of our share count.

Oh no okay, all over to <unk>.

Yeah.

Yeah.

Thanks, Steve and good morning, everyone.

I plan to review some items from our first quarter and referring to the presentation slides found on our website I'll also provide some additional guidance for the second quarter and the remainder of the year before turning it over for questions.

Beginning with slide four which shows a summary of our first quarter Magnolia continued to execute on our business model building on last year's accomplishments and as demonstrated by our very strong first quarter 2022 financial and operating results.

We established corporate records for many of our key financial metrics during the first quarter, including net income diluted earnings per share free cash flow and most notably operating income margins or EBIT of 62%.

These results were supported by the absence of hedges on our production, providing strong product price realizations, our efforts around cost containment and continued moderate production growth.

We generated total net income for the quarter up $209 million, including an effective tax rate of 8%, which was at the high end of our guidance and due to stronger product prices.

Using our total diluted shares outstanding included including both class a and class B common stock as calculates to <unk> 92 per diluted share for the first quarter.

Our adjusted EBITDAX was $298 million in the first quarter total D&C capital of $83 million was lower than our earlier guidance, representing just 28% of our EBITDAX.

Overall company production volumes grew three 5% sequentially and 15% year over year to $71 8000 barrels of oil equivalent per day in the first quarter.

Looking at the quarterly cash flow waterfall chart on slide five we started the year with $367 million of cash cash flow from operations before changes in working capital was $268 million during the period with working capital changes and other small items impacting cash by $28 million.

Our D&C capital spending, including land acquisitions was $84 million.

Mentioned, we returned the majority of our free cash flow to our shareholders during the first quarter.

Most of this cash return was in the form of share repurchases, where we spent $130 million buying and 6 million shares.

Cash allocated to repurchasing our shares during the first quarter was more than 50% greater than our capital outlays for drilling and completing wells.

Looking at slide six this illustrates the progress of our share reduction since we began repurchasing shares in late 2019.

Since that time, we have reduced our total diluted share count by nearly 43 million shares or approximately 17%.

Magnolia is weighted average fully diluted share count declined by $3 6 million shares sequentially, averaging $227 4 million shares during the quarter. We currently have $14 3 million shares remaining under our current repurchase authorization, which is specifically directed towards repurchasing shares in the open market.

As shown on slide seven we also used $49 million of cash of 20, a share to pay a final semiannual dividend associated with our full year 2021 results recast using oil prices of $55 inclusive of the interim dividend paid in the third quarter of last year. The total dividend associated with our 2021 results was 28.

Per share, we expect our dividend to grow at at least 10% annually based on the continued successful execution of our strategy.

Our philosophy is to continue to maintain low leverage and a strong balance sheet. We continue to have approximately.

We 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.

Including our first quarter, ending cash balance of $346 million and our undrawn $450 million revolving credit facility. Our total liquidity is approximately $800 million, our condensed balance sheet and liquidity as of March 31 can be found on slides eight and nine.

Turning to slide 10, and looking at our per unit cash costs and operating income margins.

Despite the substantial increase in product prices over the past year, we've seen only a small increase in our total cost.

Our total adjusted cash operating cost costs, including G&A were $13 18 per BOE in the first quarter of 2022, an increase of $2 45 per Boe compared to year ago levels.

In our revenue per BOE rose by more than $21 per barrel over the same period include.

Including our DD&A rate of $8 21 per BOE, which is generally in line with our F&D costs. Our operating income margin for the first quarter was $36 48 per Boe or 62% of our total revenue.

Simply put we captured 88% of the revenue increase in our operating income margin on a year over year basis.

Looking at a few specific cost items, our overall lease operating expenses increased compared to the prior year, mainly due to higher workover related activity and some general labor and materials inflation.

The work over activity, which can vary from period to period has already started to have a positive influence on our production.

The increase in <unk> expense is largely a result of much higher natural gas and NGL prices.

As prices move higher the P&C expense would also move higher and vice versa.

Finally, G&A expenses declined on a year over year basis as a result of savings realized from last year's termination of the <unk> operating services agreement and par.

We offset by some additional personnel costs associated with our growth.

Looking at our total cost structure, we would expect the remainder of the year to be similar to first quarter levels on a per Boe basis.

Turning to some guidance for the second quarter and our view for the remainder of 2022. We are currently operating two drilling rigs and plan to continue with this level of activity through the end of the year.

One rig will continue to drill multi well development pads in our giddings asset the second rig will drill a mix of wells in both the karnes and giddings areas, including some appraisal wells in giddings.

We continue to improve our efficiencies in the giddings field, which should help to offset some of the oilfield cost inflation and will also lead to some additional net wells this year.

Our total capital is now estimated estimated to be approximately $400 million for this year.

This represents an increase of $50 million from our earlier expectations as Steve discussed about half of this increase is a direct result of drilling faster and drilling longer laterals, leading to more net wells for the year. The other portion of the increase is due to oilfield service cost inflation for both materials and labor.

Despite the modest increase in capital for this year, we still expect our spending to be less than it was during 2019.

This was during a period when we were also operating two rigs when production when our production was more than 10% lower than current levels and when oil prices were around 60 and natural gas was under $3.

Our cost per lateral foot for drilling and completing wells. This year expect is expected to be about half the level when compared to 2019.

As a result of the additional efficiency driven net wells, we now expect our full year 2022 production growth to exceed 10% compared to with our compared with our earlier guidance of high single digit growth production.

Production growth at Giddings, this year should be around 25%.

Looking at the second quarter of 2022, we expect total production to be between 72 and 74000 Boe per day.

Most of the wells are scheduled to be turned on and turned in line in the latter part of the second quarter, which is expected to benefit production growth during the back half of the year.

Our D&C capital is estimated to be between 101 hundred $10 million for the second quarter and is expected to be in this range for the remainder of the year consistent with the $50 million increase I described earlier.

Should product prices remain at their current elevated levels, we would expect our second quarter effective tax rate to be between 8% to 10%.

As I mentioned earlier, we remain completely unhedged for both 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.

Our fully diluted share count for the second quarter is estimated to be approximately 223 million shares which is 8% below year ago levels.

Now ready to take your questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you are using a speaker phone please pick up your handset before pressing the keys if at any time. Your question Thats been addressed that and you would like to withdraw your question. Please press Star then two.

In the interest of time, we ask participants to please limit yourselves to one question and one follow up.

At this time, we will pause momentarily to assemble our roster.

And our first question will come from Neal Dingmann with Truest. Please go ahead.

Good morning, all and thanks for the time My first question guys is on capital allocation specifically.

Amazingly you all were able to continue to spend about 50% more on shareholder returns at the end of the drill bit and I'm. Just wondering two things here. One this is largely due to the strong well results should continue to see it get in and do you anticipate this report this portion of our proportion of spending on the foreseeable future.

Yes.

The Giddings wells are doing very well.

And the Giddings program is doing very well.

So I think that you have to attribute.

The ability to spend less and produce more.

Basically as giddings.

Although karnes has done well also.

The.

Proportion I mean basically.

There's only a few items you can spend.

The excess on.

You can spend it on dividends you can spend it on share reduction.

Or you can spend on acquisitions.

So.

We spent essentially all of it on dividends and share reduction.

In the second quarter, it's probably going to be similar we'll probably spend the bulk of it.

A fair reduction.

So you know all the share price stays so reasonable rolling trading it.

The low multiple polo.

Earnings or cash flow.

And so long as you have this money.

Put it in the share reduction because we believe maybe rightly or wrongly, but as we've reduced the shares.

It basically allows for larger and larger dividend increases because the way we manage.

Manage the dividend size as we recast the current year and the $55 oil environment.

And then figure out how much we can afford to spend on dividends out of that part of that.

So as we reduce the share count and reboot and as production goes up.

The percentage of.

The growth of the dividend, we'll follow back. So if you if we bought it at 4% of the shares.

We grew the production 6%.

In the current year than dividend.

Dividend would go up 10% roughly.

Obviously, if we're doing better than that Morpheus reduction.

More and more volume growth.

The dividend will be high growth higher than 10%.

No love to hear it.

It's a great plan space and then secondly, just.

Maybe operationally specifically a bit more on <unk>.

So if you could could you speak maybe broadly as to what the I don't know what terms you can kind of color you can give on this but what's the aerial extent.

The current delineation program and then how concentrated is the current development side of that program with those two rigs.

The development program is fairly concentrated.

In a couple of areas.

Maybe totaling.

Hello.

Less than a 100000 gross gross acres.

However.

So they are understanding of the reservoir has grown a lot over the last year. We spent a lot of effort trying to understand the reservoir better.

<unk>.

Without being too.

Sure.

<unk>.

He aerial standards growing.

Geometrically.

Because we find areas that we thought wouldn't work.

We found ways to make it work.

By better drilling techniques or avoiding.

Depleted reservoirs in the path of the chalk is quite clear.

And there are areas that were depleted by the earlier wells.

And if we can avoid those depleted areas will find large scale pockets of oil and we think that's working pretty well at this point.

And so it sort of opens the size of the.

So area aerial extent quite a bit.

So.

Can't really say how much.

We don't know exactly but it does open the aerial extent quite a bit so our inventory.

We try to keep a five year drilling program.

So we will always have five years, so we know.

But if we.

We could be much much much longer than that with two rigs.

So.

It actually.

It's a gift that keeps giving.

Is that are we understand the more the more we can.

More more more growth there'll be overtime.

We would be at 6%.

Mid single digit growth does that include some decline in karnes probably.

No.

Conservative number.

Very good thanks for the details.

Thanks.

Our next.

Question will come from Leo Mariani with Keybanc. Please go ahead.

Hey, guys just wanted to follow up a little bit at Giddings here.

Obviously, you talked about better well performance there.

Would there be any way to like give us kind of a round number quantification like hey, these wells or 20% better than they were last year on productivity anything you could share on that would be helpful.

Well, it's you know, it's something like 20%.

Oh.

Yeah.

We don't know exactly because you know it varies.

Don't feel exactly the same well for me.

Year to year.

So we're drilling one well drilling longer laterals. We were 4000 feet you know couple of years ago, and I'll drill in eight to 10000 foot well.

But where productivity is soaring.

Yeah.

We're drilling the wells a lot faster.

And.

Less time to spend them in the whole of the better off you are.

So.

Significantly better.

Of course, you know.

The dollar oil everything always looks tomorrow.

Yes, Okay makes sense and then I guess just based on the answer to kind of your previous question I know the plan was to drill some step out appraisal wells here in 'twenty two.

Should I take it that you had some incremental success would that here this year as you've kind of talked about some of the areas that maybe you didn't think would work would work. So just wanted to make sure I understood that.

Yeah, that's right and we're going to drill some more.

So we try to kind of also trying to figure out what the right spacing is.

Part of this program to try to you know.

Optimize each well.

So we've spent some time with that also to try to figure out what the correct spacing is.

So we're closing in on that to some extent.

<unk>.

Yeah. The answer your question is that Oh.

The appraisal program is going well.

Okay very helpful.

Wanted to just see if you could maybe.

Quantify a little bit what the kind of rough increase was here in 'twenty two.

And the number of sort of lateral feet drilled kind of versus the earlier budget you obviously had referenced.

Clearly being able to to go faster on these wells is it like a 10% increase in lateral feet or something versus that earlier budget, just trying to get a ballpark of what that might be.

Yeah.

I don't know.

So your earlier budget, yes, yes.

Yes, I think what we said was we're drilling wells on average that are exceeding 8000.

Maybe a little higher than that and we're continuing to sort of push more to the extent that it makes sense.

As Steve said in his remarks, I mean, some of the wells that we're drilling will exceed and surpassed 10000 feet. So.

Last year, it was sort of running seven ish.

Yeah.

Yes, the simple way to look at.

It is.

Virtually every month, we will drill that.

The drill part of it we drill a well at a at a record short period of time.

And so what's happened is are.

We're going to drill more wells.

With two rigs than we thought we were going to drill even with the longer laterals and all of the stock.

What that does is create more completion costs.

And so what you are looking at with the $50 million is actually the completion cost.

Extra wells.

That are caused by the quicker drilling time.

So I think if you wanted to think that's the easy way to come up and so we wind up drilling completing more net wells than we thought.

But we continue to set records virtually every month for how fast we're drilling the well.

Or is it too.

Just have a better understanding of the reservoir. So so so that you can.

Skip over some of the problems that are that might be in the well bore.

Okay, great update it sounds like things are going well thanks guys.

Our next question will come from Zach Par Ham with J P. Morgan. Please go ahead.

Thanks, guys.

I guess first one just on on cost inflation can you talk a little bit about the drivers of the Capex increase, particularly the portion driven by inflation and maybe just give us some color on how contracted you are on some of your key service lines for the rest of the year.

Yes, Chris wants to answer that for them.

Well I mean first off we've got everything all the materials and necessary items to complete or are scheduled planned for this year.

Really sort of the point is what's not up I mean sort of everything has moved higher whether it's mostly focused on your completions.

And some labor too it's not so much the sand necessarily but it's hauling it and so you try to look at some specific things that you can do.

Make some arrangements are tricks on moving sand.

But look every every item is up and while we baked into the updated numbers is pretty much accommodating for most if not all of it for this year.

We also continued oh.

Contract ahead. So we don't you know we're not stopping at the end of the year or so as we can.

As the year progressed as we continued to add to that the sales. So we always have a significant amount.

Contracted running room ahead.

Got it.

Then maybe just a follow up on on cash return you've talked about basically the dividend on the 55 to $2 75 price environment.

And given that the strip is trading below book will probably.

So let me do it this time.

Got it.

Youll consider taking that price up when you when you lay out the dividend.

Literally take the gas price up.

But we base it on that so that we can always pay it.

A true dividend Investor I don't mean somebody who's just.

Who wants to participate in oil price.

Two dividend investor wants certainty of getting at which is caused by your balance sheet and how much you pay out it'll be earnings.

And a growth rate that they can count on.

And so that's what this base dividend is intended to cover.

And it'll grow.

Least 10% a year maybe more earlier.

Who knows what later, but so it is intended to appeal to the person who wants the the.

Sure dividend.

Uh huh.

Beyond that right now the sensible strategy is to repurchase of shares.

I think a significant disconnect between prospects for our industry.

And the stock price.

It is an opportunity to buy your shares which really shouldn't be missed.

And I think that's the.

Certainly this year, that's really the plan.

Once we get beyond that and it becomes more difficult to buy shares or so.

If the if the stock dogs or kind.

The stocks start to reflect.

Some kind of.

Reasonable terminal value for the industry right now they think that the whole industry is going to go out of business in five years.

So I think that once we get beyond that and the stock start to reflect that.

A more reasonable valuation.

But then what will we will.

Look it.

Other ways to return money good dividends.

Right now the focus is on buying as many shares which I think are mispriced overtime.

I have more confidence in the product price and I probably ever had in my life.

At least for the next few years.

And so I think that the.

Reevaluation of the industry from 4% of the S&P that maybe 10%.

It's probably an order over time, so the focus for now will be on them.

Growing the base dividend as we promised.

And.

Buying and buy it and the shares while the Bally remain.

Reasonably priced.

Got it thanks for that color.

Our next question will come from Meng Chattering with Goldman Sachs. Please go ahead.

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

Well I mean, the Euro you had indicated strong macro environment in the first half and then you were concerned about slowdown in second half.

Would love your updated thoughts on the macro here.

Well I don't know you know.

No.

Perfect.

Predicted predictions are always hard, especially about the future.

And you know I don't know anybody who's got a particularly good record.

For the industry I don't see you know.

Well, it's much risk during this year, maybe there'll be some modest decline in oil price, but not much.

Because it's so tight.

You know the the oil got oil and gas gods up in the sky or where they're located to look down on us.

And they you know they looked at each other and look at the industry over time, the oil and gas Guy I'd say you know.

I've given these guys lots of opportunity and they continue to too.

Uh huh.

Trac defeat from the jaws of victory.

But you know the overproduce and this time, we're going to make it so they can.

So we're gonna tightening labor markets, and we're going to tighten the supply chain and so we'll keep these in the oil and gas guidance at this time, we're going to fix it so they can't overproduce and destroy the good thing.

Not that they wouldn't if they could put.

And that's what's going on now and we have this.

Environment, where even if you wanted to grow a watch you couldn't you can't get the supply you can't get labor you can't it can't drill wells.

And as long as that goes on I think I think the product prices will be relatively strong.

A serious recession were heard oil and gas.

It's like it hurts almost everything else.

So you know it.

111 instance.

When you raised interest rate what are you doing well you're punishing autos.

Housing.

And.

And in the stock market.

So I you know I I don't know if that brings in placing down or not.

But they seem to think it will.

As long as the.

Demand stays pretty good.

Don't see a bunch of supplies coming on I don't know I don't.

I'm not worried about Russia, I'm sure, Russia, selling a fair amount of oil.

Away from the general markets that discounted prices I'm sure all the Iranians are too so even if this whole thing ended.

Shouldn't be that much additional oil that come on the market.

And the demand is very good and the Saudis don't.

Don't think plan on flooding the market with oil.

So you know we're looking at a pretty good product prices for the next couple of years I think.

And natural gas.

So surprisingly strong.

Oh, you know basically competing its cold.

And so I I really think that.

We're in a pretty good place could there be a recession sure.

Most recessions are caused by a competence at the fed.

And.

I doubt if this next one will be a change of that policy.

Hello.

Sure.

Yeah, Yeah, I appreciate the color Oh.

Really helpful and then I.

On your point about higher natural gas prices.

I'm just wondering I mean, you do have a lot of acreage, which which are gassy.

Sure.

Giddings asset.

Any thoughts around.

You know pulling that forward from a development perspective.

How does that tie into your thoughts between relative economics between oil drilling in giddings and gas trading in giddings.

You know oil I don't think is at a low price.

Yes.

Yes.

One $7 gas or $100 oil how about some of each.

So.

So it means we avoid leased to avoid the gassy areas I'm, just drill oily areas and now it gives us more flexibility to drill around but I can't really add Rick.

As a practical matter if there is no no rig to add.

Reasonable.

Price and with a good crew, but I need to I need a good crew you'd say to make it work and you know what.

He wanted to add a rig you wouldn't get a good crew right now.

And you know I don't I don't want bad cruised bad crews make for bad problems.

All right.

I think we'll go along and we're not really differentiating between oil and gas anymore, because the gas stuff works pretty good, especially in the NGL pricing.

No that makes sense. Thank you.

Okay.

Again, if you have a question. Please press Star then one our next question will come from Charles Meade with Johnson Rice. Please go ahead.

Good morning, Steve and Chris and Brian I, just wanted to say again.

Julie when your color Steve comes in the form of unfiltered opinions.

I don't I don't think I don't think you're looking at all of our role as a commentator on CNBC, but they can really use your.

Yeah.

I was I was thinking of it becoming a security analyst.

[laughter] pay as a isn't very good so no no.

Hasn't been especially in this wonderful sector.

[laughter], but actually I actually do have some serious questions about about your confidence here.

First point on your on your longer laterals. So it's it's great that you're you you're extending them from a seven to 8000 feet on average in and I'm curious, though this. This is this is this is for a long time been what are the best ways to increase your capital efficiency. So I'm wondering what is it what what's hot what's changed that you're doing this.

Now are you going to a new area with with this bigger leases and and more more lateral available to you without work or is this instead, perhaps something like you're doing more land work.

Ahead of your rigs to to put.

To put the longer and longer laterals together what are the drivers there.

So we don't have the same issues with land that we have today in karnes or people have in the Permian.

So you don't have these land issues, because we own so much of this.

And so we can always and.

What you have is you drill through the talk.

You have zones that are depleted from earlier wells.

The question is how to sort of drill around them or keep yourself from losing circulation as you pass through them.

And so we've learned how to do that and therefore, we can.

Yeah.

It becomes less of an issue of the loss of circulation as you pass through it because you know how to deal with that.

Got it and so forth. So it's not a lab if they get out of land limitation. It's it's a it's a drilling and engineering.

Yeah exactly.

So with her role not within the control of some guy who is a.

Ah Ranchette lives and River Oaks.

[laughter].

Okay.

Second question Steve.

I just tried to get get you to opine a little bit more you would with the with the benefit of all your all your experience you mentioned that you can't pick up another rig now because you'd be picking up a rig at a higher rate than it would have probably you have a green crew.

As you as you play the movie forward in your head for Magnolia and the industry in into <unk> into 'twenty. Three are you concerned that just to pick up on that Wouldnt issue of crews that you might still have your two rigs, but that your your crew is going to get a.

Halved.

To start up and our nuclear somewhere and you're going to wind up with a 50% Green crew and is that going to is that going to happen to kind of.

Across the industry and lead to more inflation in 'twenty three.

I don't know about the inflation.

Certainly they've got to do something.

You know with us without <unk>.

Coupled with.

With only two rigs the crew controlling the crew is easier frankly than somebody who is running 20 rigs or 25 rigs.

Oh.

You too.

We could make a deal with them.

Contractor on the crude.

The Uh huh.

Who runs a water one of them, it's really hard to make that kind of decision.

The contract will use those some people to train new ones.

No about inflation.

But it certainly is.

Make sense.

Yes.

You may make it less efficient.

Right.

Relation in the normal sense of the word, but instead of taking 20 days to drill a well it takes time too.

Right now not so much inflation, but but efficiency could be on the on the yes.

Got it.

You do have to you know we had this big downturn.

A lot of people lost jobs and to retract him to the industry.

<unk>.

You're going to have to pay to do that.

Maybe some layoffs.

And Amazon would help maybe we get some of their truck drivers but.

That's really.

If you're going to have to recruit them.

Somewhere.

To do this so you can you can get them out of that.

Community colleges and that sort of thing.

Trained them on on your crews.

It takes time, but you can actually do that.

If you work at it we don't really have any turnover.

In our own people.

Field hands and stuff.

Uh huh.

So you know.

Now the industry pays well.

Good benefits. So I mean, it's not a bad industry work, but we did have this downturn in a lot of people went off to do other things.

As it turns out that some maybe some of those other things.

Yeah.

Temporaries.

Thank you for sharing your insights.

Thank you.

This concludes our question and answer session, which also concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.