Q1 2022 Northern Oil and Gas Inc Earnings Call
Greetings and welcome to the energy first quarter 2022 earnings call and webcast. At this time all participants are in a listen only mode.
Yes short answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Mike Kelly Chief Strategy Officer. Please go ahead Sir.
Good morning, and thank you for joining us for <unk> first quarter 2022 earnings conference call yesterday. After the market close we released our financial results for the first quarter you can access our earnings release on our Investor Relations website, and our Form 10-Q will be filed with the SEC in the next few days, we also posted a new investor deck.
On the website last night.
I'm joined here this morning, with NRG CEO , Nick O'grady, our President Adam Darla, CFO , Chad Allen and our EVP and Chief engineer, Jim Abbott's, our agenda for todays call is as follows Nick will start us off with his comments regarding our first quarter and our business strategy. After Nick Adam will give you an overview of our operations and then.
Chad will review, our Q1 financials and updates to our 2022 guidance. After the conclusion of our prepared remarks, the executive team will be available to answer any of your questions.
Before we go any further though let me cover our safe Harbor language. Please be advised that our remarks today, including the answers to your questions may include forward looking statements within the meaning of the private Securities Litigation Reform Act. These forward looking statements are subject to the risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these forward looking statements.
Those risks include among others matters that we have described in our earnings release as well as in our filings with the SEC, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q, we disclaim any obligation to update these forward looking statements. During our conference call, we may discuss certain non-GAAP financial measure.
Yours, including adjusted EBITDA, adjusted net income and free cash flow reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued this morning.
I would now like to turn the call over to our CEO Nick O'grady.
Good morning, everyone and thanks for participating in today's call.
During this call I'll be focusing on six key points.
Number one first quarter 2022 was a record breaker for N O G.
We generated a monstrous $256 6 million of adjusted EBITDA and over $145 million of free cash flow.
That is more than double the free cash flow, we generated just one quarter earlier in Q4 2021.
We produced over 70000 BOE per day with only two months of Veritas included in this production production beat our internal forecast by about 5% as a result of better than expected well performance and we also received a slight contribution in March from a few Q2 completions that we're ahead of schedule.
Fight this we had in line spending.
We are increasing our free cash flow target for the year to greater than $425 million from 375 million prior on better production and better realized pricing.
Number two consistent outperformance, we are our proven and disciplined acquirer and we have successfully integrated our 2021 deals on time and they are performing better than expected.
As we mentioned on last quarter's conference call. We are conservative on development timing and the assumptions we utilized in acquiring assets and we are seeing more production on our assets than anticipated, especially on the Veritas properties.
Number three our diversified model continues to shine for.
For the quarter Permian volumes made up approximately 20% of our production volumes with only about two months of Veritas contribution.
I'd like to reiterate that we want a low leverage diversified capital allocation model and we're delivering that in spades.
Leverage in this quarter is that a run rate of about 1.1 times well ahead of schedule and we believe we're on a path to less than one times in 2022.
When this management team came on board four years ago, one of the major goals was to improve and deleverage nrg's balance sheet.
We believe that goal has been accomplished and it's permanently in the rearview mirror, which will allow further shareholder returns as I'll discuss next number for shareholder returns. During Q1, we delivered over 40% of our free cash flow back to shareholders in the form of dividends and preferred buybacks a record percentage.
And our record in terms of absolute returns.
Even with the strong shareholder returns, we still ended the quarter with less debt than we had forecasted we also increased and accelerated our dividend plan, which included another 36% increase to the quarterly dividend.
Throughout this year our goal is to keep all options open to deliver more shareholder returns and improve our discounted absolute and relative valuation.
As we have previously discussed we believe we have a premium business model that will continue to provide great returns to our shareholders. As noted in our release management is recommending another 32% dividend increase next quarter that would take the annual dividend to a dollar per annum.
The Board has also approved the buyback plan for our senior notes as well as increasingly authorizations for preferred and common stock repurchases.
Number five the future, we're seeing robust organic activity on both our Permian and Williston properties as we approach mid year, we hope and expect to see development towards the high end of our 48 to 52, well count this year, which should boost exit volumes for 2022 and set us up for significant production and free cash flow growth in 2012.
Three as.
As I mentioned last quarter, we see inclining volumes on our assets throughout this year recent severe storms in North Dakota will be a minor blip in April and while it will flatten out Q2 growth the trajectory for 2022 is actually materially improving with accelerating growth throughout 2022.
This has allowed us to increase our full year production guidance. Additionally, ground game activity is booming and we expect our free cash flow has significantly outperformed our prior expectations small scale ground game competition has picked up but we are getting significant traction in larger scale Wellbore development projects that may be too large for our competitors to handle.
If successful we will update you as always number six bolt ons legendary World War, two general Omar Bradley was famous for saying that amateur stock strategy, but professionals talk logistics to that point, we have not done M&A as part of just some pie in the sky strategic thinking we have done is to definitively.
Increase returns to our shareholders as the results speak to today, the strategic benefits are a residual benefit of smart financial decisions. The number of bolt on properties coming to market has accelerated dramatically since we last reported and we are evaluating a robust pipeline.
As always we're evaluating top quality accretive prospects in our core areas as one would expect with commodity prices higher and upside convexity for the buyer and more limited we will be cautious in our underwriting approach. Furthermore, you can expect our hedging strategy upon success will be geared towards locking in the majority of the PDP value.
I am optimistic we can close on meaningful value added M&A. This year as I've mentioned previously we do not expect these acquisitions to acquire northern to access the public common equity markets given our current leverage levels.
As is typical I'll remind you. This is not a cheesy tagline, we take it seriously when we say we are a company run by investors for investors and I want to thank each and every one of you for taking the time to listen to us today.
I'd now like to turn the call over to Adam and Chad to provide more details on operations and financials Adam.
The first quarter finish.
The elevated activity levels across our entire position had been encouraging and the Permian is leading the way.
Completions for the quarter came in above expectations as we added $10 six net wells to production.
Trend in a pull forward of activity remained a theme during the quarter with the acceleration coming from our Williston completions in.
The Permian assets performed up to expectations with the Veritas asset accounting for roughly 20% of the net additions during the quarter.
While completions were above expectations. We also saw the base asset outperform internal production forecasts are private operators in both the Permian and the Williston were the main contributors to that outperformance with continued improvements to well efficiency.
Our Marcellus assets have also been performing well and we have been encouraged by the shallower declines in connection with the change in well design.
With roughly nine months production under our belt. Our first completed set of wells are outperforming by 15% and we expect that outperformance to increase as we gather additional production data.
As we look to the second quarter blizzards in the Williston shut in significant gross volumes during April .
Based on our areas of concentration and our operators working diligently to bring wells back online. The net effect of N O G was not nearly as impactful.
In addition, our Permian assets have helped to partially mitigate the interruption and we expect to navigate the late winter weather effects moving through the second quarter.
On the drilling side activity levels remained strong we saw building our D&C list, which has a sitting with almost 50 net wells in process up from 42, and a half net wells when we entered the quarter.
As anticipated the activity levels during the winter months shifted from the Bakken to the Permian is the Permian made up 45% of our total oil wells in process compared to about a third when we finished the year.
Continuing with that theme the Permian also accounted for two thirds of the $13 three net well proposals that we elected to during the quarter.
We've been pleasantly surprised with the number of wells being proposed on our large Permian acquisitions and also saw a consistent development from our other ground game acquisitions that closed in 2021.
In the Williston as the rig count has jumped to a two year high AFP activity has risen for the fourth consecutive quarter and elections are up over 250% versus the first quarter of last year.
Totality the acceleration in both the Williston and the Permian provided us with a 40% increase in net will elections quarter over quarter.
We will continue with our barbell approach of high quality elections, and opportunistic ground game acquisitions, and while there will be monthly variations, we expect our current Williston and Permian assets to grow roughly in balance over the year.
We've also been keeping a close eye on inflationary pressures I've been impressed with the operators that we actively choose to partner with her.
Her well costs on new proposals remained well within the range of what we are modeling with average well cost effectively flat quarter over quarter at $7 million a copy.
This is not necessarily been the case for some of the other smaller operators that we have been observing through our ground game evaluation process.
Many of the deals that we have screened.
Elevated ERP cost and partnering with the right operators. During this period of time has been imperative to retaining capital efficiency.
On the ground game front deal flow remains at all time highs and despite the commodity price volatility and variability in quality. We have remained disciplined in our approach.
During the quarter, we closed 10 deals for 1.3 net wells.
326 net acres.
73, net royalty acres.
The acquisitions were fairly balanced between the Williston and the Permian during Q1, we continue to see some very compelling opportunities in both basins as we move into the second quarter.
Yeah.
The larger M&A opportunities continue to come to market, both in formal auctions and off market sales no different than the ground game deals that will be evaluated we're looking for quality assets and seeking to deal with realistic sellers.
It remains a concentration of quality not up deals in both the Permian and the Williston and we're currently screening a number of them.
Operators are also been approaching us on potential partnerships and to the extent, we can put something together that was mutually beneficial we will remain opportunistic on that front.
Discipline and creativity are essential in this environment, we're focused on layering and quality assets only to the extent that they're accretive to the enterprise.
Beauty is getting done what we were able to do last year with over $800 million in acquisitions is that we don't have to do anything we can let the assets, we've talked and do the work for us.
With that I'll turn it over to Chad.
Thanks, Adam.
I'll start by reviewing some of our key first quarter results, which was the strongest quarter in company history.
Our Q1 average daily production increased 11% sequentially over Q4, and increased 85% compared to Q1 of 2021.
Our adjusted EBITDA was $256 6 million.
Up 46% over last quarter, and our free cash flow more than doubled to 146 million compared to last quarter.
Both metrics were well ahead of wall Street analysts and internal expectations.
Our adjusted EPS was $1 58 per share in Q1.
Well above consensus estimates.
Oil differentials were better than expected in Q1 and came in just under $4 per barrel due to strong Bakken pricing and having more barrels weighted towards the Permian, which has a sub $2 oil differential.
Gas realizations continued to remain strong in Q1, but I wanted to point out is higher gas prices persists and the ratio with natural gas liquid prices tightened we would expect our gas realizations to fall back in line with our guidance.
Lease operating costs were $54 5 million in the first quarter were $8 50 per Boe.
Effectively flat on a per unit basis compared to the fourth quarter and towards the bottom end of our guidance.
As I mentioned on our last call specifically related to our firm transport commitments on our Marcellus assets.
He will be elevated in the second quarter as we make any required payments compared to our annual production expense guidance.
Cash G&A adjusted for onetime acquisition costs related to our Veritas acquisition was <unk> 86 per Boe.
Capital spending for the first quarter was $85 6 million, excluding non budgeted corporate acquisitions, which was below street expectations. Despite a pull forward in completion activity and additional ground game opportunities in Q1.
Our Williston basin spending made up 60% of the total capital expenditures for the quarter the.
Permian made up 35%.
The Marcellus made up 4% and <unk>.
Other items made up the remainder.
The balance sheet is in great shape.
We paid off nearly $85 million on our revolver after closing of Veritas acquisition in late January .
We currently have approximately 361 million drawn on our revolver, leaving approximately $390 million in availability.
Given the cash flow, we expect to generate.
We forecast the revolver to be Undrawn in Q1 of next year all of that could certainly move depending on commodity prices, how we use our free cash flow and other factors.
As we finalize our spring Redetermination, our current asset base would support a substantially higher borrowing base should we desire more liquidity.
On the hedging front with Opportunistically added volumes north of $80. Since our last report most of it is still our targets in 2023, and 2024 and a top up volumes from our <unk> acquisition.
We continue to target hedging, 60% to 65% of production on a rolling 18 month basis with select longer dated hedging tied to corporate acquisitions.
With respect to updated 2022 guidance.
Our production guidance is up 1000 Boe per day to a range of 71 to 76000 Boe per day.
We expect our production to ramp as we move through the year and exit closer to the higher end of our range.
We will see some slowing of growth at the beginning of Q2 and the severe storms in North Dakota, and expect a strong catch up as we enter the third quarter.
As a reminder, Q1 is typically our slowest quarter. So in terms of the cadence of our capital spend.
We expect them to be more weighted towards the last three quarters of the year.
As I mentioned earlier oil differentials were better than expected. So we are updating our guidance to $5 25.
The $6.
This outlook to generate more than $425 million of free cash flow after our preferred stock dividend and where we.
Salt and modest increase modestly increased production volumes and consistent growth in our common stock dividend.
As Nick mentioned, the steady volume ramp we expect throughout 2022 also bodes well for a strong setup for 2023.
With that I'll turn the call back over to the operator for Q&A.
Thank you and I'll be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad one moment. Please.
Our next question is coming from Neal Dingmann from true Securities. Your line is now live.
Yes, you don't hear me fine.
Sure Neal.
Good morning first question is on on strategy guys. Yeah. Good good detail, so far nikolay to lay out.
I'd call you all know the leaders in the small cap clubhouse when it comes to shareholder returns. So Nick for you or the team I'm. Just wondering do you all believe going forward that you know larger shareholder payouts are key.
For you and other small caps or do you prefer to build scale or you know what is the optimal plan.
Good morning, Neil.
I think.
They are solid logic to both M&A and obviously shareholder returns.
M&A is important.
We believe <unk> is the natural consolidator.
<unk> benefits from.
Continuing to scale in the public markets, we see huge synergies from getting larger to our cost structure.
Our cost of capital diversification as today's results speak to make for a better non op portfolio.
So to sum that up the analysis that we do internally still shows that M&A creates the most long term value creation at least financially.
We can grow our per share profits with few limits given the marketplace and opportunities out there.
It's impossible to manage the stock price day to day, but we can control and grow our business and profitability and let the market do its magic.
But I'd say the current plan is in all of the above strategy taken securities grow and improve profits and that being said I was a fundamental securities investor for 15 years.
So I'm not going to mince My words here I think we are terribly undervalued today, even if the strip gapped down $25.
That means that repurchasing our own securities and other forms of returns are as competitive as ever with any use of capital we're generating massive free cash flow, we've got significant authorizations in place for potential common preferred bond repurchases.
Making sure the market values us appropriately is part of my job and while there's only so much you can do I do take it really seriously.
So if this market situations sticks around we certainly don't intend to stand around and shrug our shoulders.
It's great to hear I loved that you'll use that debt buybacks as a potential backstop I completely agree and then my second sort of sizing. What you were just talking about it and it was really on capital markets.
You all as you mentioned certainly close some timely acquisitions last year, but its interesting that I think part of the underperformance I think to start the year was concerned about maybe potentially.
Additional equity coming around maybe further deals so I'm just wondering.
We estimate you all right now I mean are you should have an ironclad balance sheet I believe baidu towards year end. So given that how would you think about further financings or you know how would you consider you know when you look at further deals.
You know now that you're going to certainly be in a.
Materially different financial shape here in the coming months.
Yes, I mean, I would say based on.
Historic valuations that we're paying when we acquire properties if we were to be successful.
I think we could do upwards of about $900 million in cash acquisitions without having any material impact to our overall credit metrics.
And I would say our board of directors, you know to be clear our profits are up about 80% since the fall and our stock is roughly in the same place. So that means our valuation is contrast, and I would say our board is very.
I would say that not to mince words here, but I don't think the board is terribly excited about issuing common equity if the market is not going to value us property and we just frankly don't need to.
Great to hear thanks, guys.
Thank you. Your next question is coming from Scott Hanold from RBC capital markets. Your line is now live.
Thanks, All and you know like the enthusiasm it sounds like things are going quite well there.
Just to know first if if you know if I could delve into sort of the operating cost side of things. It seems like obviously the first quarter. Your Opex was looked pretty good and I know Chad you gave some color on obviously the the trend being you know up or maybe a little bit to you. If you could quantify that but then also from a bigger picture perspective.
Just just help us think about like you know just structurally where does ellery cost over time as the Permian becomes a bigger part of the equation.
Yes. So this is Nick I'll, let Chad talk a bit on the logistics for this year. The one thing you know.
Arms of our our ft commitments in the Marcellus that's an annual thing we pay we can spread it out you pay a one and done.
That's right, yes, they kind of make sure kind of hold you too well.
As you receive it when we when we originally booked the fair value for when we when we bought the Marcellus properties back in Q1 of 'twenty one.
We had we had to kind of a fair value with that and then any incremental increase now.
We have to kind of roll in as it comes along.
From a quantification standpoint, I think it's somewhere around <unk>.
Five to six $5 million to $7 million of of.
Of course that'll be coming through related to that.
Yeah, and Scott the reason that it's it's an issue this year versus say last year is that we paid at closing.
Last year, so we incurred and we still incurred at just in the actual capitalization of the transaction.
In terms of L O and the balance between the Permian I think is the Permian grows. It's obviously you know it's a gas play and has generally.
On a productivity perspective, lower operating costs.
As well as its closer to market. So as we book our G P <unk> Cos and L O.
It tends to be lower.
As Bakken production ages out obviously LOE per unit on any well goes up over time.
And so I would say our goal would be as we modestly grow our volumes in that mix shift changes over time that our <unk> would stay relatively static.
Okay, and that's relatively stag to say like the 815 number you guys posted in the first quarter or is that sort of a good benchmark.
I would say just to be conservative within the range of our guidance right I think and I think the other thing too is that when you think about how we bucket versus say some other peers, where we do a kind of all in one we.
We do have to account for the fact that liquids prices are very high and so your processing costs are going to float with the price of overall Ngls. So it's gonna be more elevated now obviously you are getting.
That and above that in revenue.
But it will you know that.
We will go down if.
Prices were to meaningfully contract in it if you know.
Propane prices went to.
$2 a gallon it's likely to go up somewhat because you have a lot of pop contracts as part of that.
Understood.
And then Nick you you, obviously I'm going to use your words, but to the ground game is booming could could you help give us a sense of like what's going on in and you know how big of an opportunity for you is that for you all what what what is really spurred you know sort of the uptick in in in that opportunity.
Yes, I mean, I think I think what's really changed.
And the dynamic is that if you go back five years to seven years ago. When prices were high operators generally would consent to all of their non operated properties and just spend extra money.
What's unique about it is that we're in 100 dollar world and they still want to spend money drilling their own wells and that stuff is still coming off.
And so what I would describe to you is we're not what we're seeing is instead of a quarter of a net well here with some acreage or a half in that while there were seeing pad developments.
Up to a 40% working interest that could be five to seven net wells well at today's prices that.
That could be $50 million to $75 million worth of capital.
And I don't want to scare anyone that where we're going and spending money like crazy, but I would just say the size of the transactions.
As well as the small stuff, which still exists.
Larger than we've seen in past trends out of Adam.
The size of the transaction relative to the rate of return in terms of competition, that's where we're focused our efforts on where you've got 2% to 3% working interest that are being shopped and got a lot of other people.
<unk> bites out of that and those are the things that room.
Going by it because it's not going to move the needle.
So.
In the room by ourselves here, just a couple of folks.
And tenor.
Our price.
Yes, so as you contemplated your full year guidance did you kind of also account for the fact that you know maybe theres. Some more ground game, you know pick up a ground game activity through the course of the year or is that potential upside to sort of the outlook at this point.
Potentially I mean, I think we take it each one in stride.
As you know Scott we budget for a good portion of the split in the year every year and so we've tried to be very careful so that when we are successful in this is not just additions to the capital and I'd say, we feel very confident in our capital outlook. We've been very very cautious in terms of that so I wouldn't I wouldn't make the assumption that.
Oh, it necessarily as incremental capital so to speak.
One thing I would say that that is an interesting trend we have noticed in the past 18 months, we had a discussion with their own board about it this week, which is that the conversion timing has been compressing.
Meaning that in past years, we would see six to nine months lead times from AFP to sales.
And we've been seeing things compressed sometimes less than three months and what what's good about that is it means youre not carrying on a percentage of completion those costs on your DNC list for a long time, so it tends to make your capital efficiency a bit higher because the money is coming in and going out and converting very very quickly. So.
Means you don't necessarily carry as many wells in process as you might have in the past, but that your capital is highly productive in turning much quicker.
Understood Thanks for that.
Yes.
Thank you. Your next question is coming from John Freeman from Raymond James Your line is now live.
Good morning, guys.
Got it.
When I when I look at you know you are close to achieving the target of being below that one times leverage and and given that the preferred stock is your most expensive cost of capital.
Maybe it makes some sense to shift more of that incremental free cash flow toward accelerating the repurchase of preferred relative to to paying off the revolver by <unk> 23, just given how much cheaper that cost of capital is.
Yeah, I mean, I think let's go through all three securities just to just so you can understand our logic clearly I'd say they all have their merits in their own way and I think given how much free cash flow. We're generating I don't think we have to choose just one we've obviously you attack the preferred first because as you point out correctly. It is the most expense.
Cost of capital.
And we're and we're monitoring and weighing all of them against each other but they have different considerations.
As I mentioned, the corporate finance modeling will tell you you know the preferred is definitively are most expensive.
It's deeply in the money now.
And that's certainly why we chose it first.
But then with respect to our bonds you know if the fed actions mean that we can retire debt. We just issued at about 107% of par for less than.
That in and of itself has value.
With a common stock.
One of our basically our number one focus when it comes to making sure. The market is valuing us appropriately and you cant ignore that either obviously the preferred does have some impact because it is in the money and effectively common stock at this point.
So bonds you now have the impact of saving interest in reducing risk and potentially actually some accretion in the sense that you can retire the loan for less than you owe.
The preferred has the most mechanical impact to our returns.
The float reduction from common stock may help our stock trade properly and is well boost returns so I think.
All options are on the table here and now, but I think it will be very logical about how we approach this in a measured and careful.
Okay. No I appreciate the thought process and then on the on the Capex front as you. All are you rightly pointed out I mean, you are literally the only the only small cap I can think of dairy earnings that was able to maintain the capex budget and I guess, what I'm trying to think about it as well.
I guess first on the ASE is that Youre getting today are you not seeing those move meaningfully higher from <unk> levels I'm, just trying to get a sense of the confidence you off guard and being able to maintain that budget because it is pretty remarkable what you've done so far.
Yeah, well I made Bloomberg intelligence retracting, our nickel they wrote last year, because they said small cap companies will be facing cost inflation. We're a small cap company, but we have large cap operators. So the reality is that the largest and best capitalized and most active operators are the ones that we are focused on from a capital.
Efficiency perspective.
And not to mention the fact that if you recall last year many operators as they were getting the synergies of lower cost wells, we're lowering those costs, we did not we kept ours consistent and flat.
Because one of the things and operator, operator, a may be seeing inflation operator be may not we see at all.
So in some ways I read it.
I've met a piece of an earnings review that said, we might not have the same visibility that operators.
Soundly reject that.
We actually have better visibility because we see everybody.
Costs. So we saw smaller capital life companies with significant increases.
Early last fall.
The other way I framed it up if you look at our D&C list is just the percentage of.
Private smid cap large operators.
Look at it from our Williston and Permian standpoint, obviously, EQT is operating 100% of our Marcellus asset, but she's got large cap operators operating 47%.
47% is private concentrated a true pride that our exposure to smid cap operators is roughly 6%.
Got it well I would say that you've clearly done a good job shoes and your partners because we've had a number of large cap companies that are kind of blowing through their budgets are starting this season as well. So you have clearly done a good job choosing our partners, but yeah, great quarter and I appreciate all the thoughts.
Yes.
John I feel like a broken record because I tell everyone. This over and over but we are more conservative than our own operators in many cases on performance timing and costs.
It doesn't mean, we won't be wrong from time to time. It doesn't mean, we won't choose to spend less or more from time to time, but it does mean, we're pretty careful in and over the long term are pretty accurate.
I appreciate guys.
Thank you. Your next question is coming from Charles Meade from Johnson Rice. Your line is now live.
Nick I have to say.
That Omar Bradley quote a you have to reach pretty deep in the back for that one.
Got it.
I got it from my mom actually.
Well, we'll work to buffer so I have to say the the.
The metaphor is maybe maybe a bit lost on me, but still I I was impressed with the b the obscurity of it but.
But let me ask a real question about your.
Your quarterly production cadence and here's I I think what I heard Adam say is is that you could have a slight incline in <unk> and what I'm curious about is.
<unk> was going to have a full contribution from Veritas and.
And so it is was that comment just about.
Kind of a you know pro forma production or is that or kind of on a on a pro forma basis are you actually declining a bit and an extra month of Veritas is what's bringing you back up.
Yes, I mean listen the storms in.
North Dakota, where no joke and there was no for parts of April there were significant portion I think Adam did mentioned this we materially outperformed the aggregate just by where were located but it will have it will have an impact sort of flattening it out and kind of offsetting it a bit but if you think about it. This way all of that oil is getting started in the local tanks and then it's going to come to.
Sales in May once those things come off so within the quarter, we may be proven wrong and it winds up being a blip, but you know it did have an impact on April than slows it out but you just you just basically stealing from Peter to pay Paul So on it on an annualized basis, it only wind up increasing production.
Production, you know sort of either later in <unk> and <unk>.
Okay. That's helpful. And then and then Todd maybe picking up on this inflation question I think I had them already addressed a bit yeah.
Could you guys do get to peak behind a lot of curtains, you up you get to you, but I'm just curious what insight you could share with US you know not only across different plays but you've already talked about you know different different operators are you seeing different pressures in in different parts of the country or are you seeing different kind of.
Pressures, whether it's on she'd be theirs or completions or something from from one.
Sort of operator to another and in and what if anything.
Does that kind of suggest you about how 23 is going to play out.
Yeah in terms of.
Certain basins are certainly seeing a difference between the Bakken and Permian.
The larger Bakken operators that were exposed to as long as the privates are good.
A lot better yeah are a function of a steady state rigs long term contracts if people are going back to the well.
Providers are going to try to recover those contracts and so our operators in North Dakota are certainly.
Conservative in that regard.
Albeit at two year highs in the Permian, It's a function of what kind of rig program Youre right. I mean, there's a handful of operators you know smaller onesie twosies guys that are running one of the jewelry rigs.
And they're the ones that we're seeing struggle. The most you know you've got a frac crews that are potentially not showing outstanding that's not showing up those types of things and so that's where we're actively.
Getting in front of the larger privates as well as you know.
The larger publics in that regard in order to mitigate things and then as far as kind of 'twenty three is shaping up but I don't know how much.
<unk> there is to add rigs.
At this stage in the game in terms of.
Availability and so in terms of moving things, Florida, I think it's gonna be steady state and it's just going to depend on on rig contracts. How long those are when those roll off and effectively the price of oil yeah, and I would say you know theres lots of sand in the world and it's not that hard to make a steel pipe.
So I think those shortages will be relatively shortly lived I would anticipate by 2023 of those capacity issues. Those are more easily solvable than the physical number of rates or the people that work on them.
So I think those are shorter term bottlenecks if that makes sense, yeah that does but just to clarify Adam it and in your comments. Nick go up you know, adding rigs you're talking about for the industry in the aggregate if I understand it correct yep.
Yeah.
Thank you guys.
Yes, I mean.
So I was just one thing to think about it and not do it if we wanted to double our output next year. It doesn't you don't add any net rigs we don't add any net production is simply working interest in existing alright sure. So so we don't have the same types of issues about ramping up or down that data and operator test.
Thank you.
Thank you next question is coming from Phillips Johnston from capital One your line is now live.
Hey, guys. Thanks.
You mentioned inclining volumes in each quarter for the remainder of the year.
Yes.
I guess, an update on the net well schedule I think the original plan was around $5 six or so in Q1 and sort of jump into 18 in Q2, and then sort of roughly 13 or so in each cooler in the back half of the year to kind of round out the 50 total.
Q1 was closer to 10 and a half weeks.
Obviously got some weather here in Q2, so wondering how that cadence might have changed.
Yeah, So I think that you know.
Foreign Inclining volumes perspective, I think I would expect sort of a.
A flattening of the overall production in Q2, we'll have to see just as as the field is coming back to life, but there is a chance of modest growth, but I do think from a completions perspective, you'll see a modest uptick and flat to up in the second and in third quarter and I think in the fourth quarter youre going to see a pretty substantial.
The uptick in the number of completions, we have so.
You know I would say you know 10 to 12 wells a year for the middle the middle quarters of the year and I would say probably 15 plus in the fourth quarter. That's helpful. Yeah. I mean, obviously, there's things that move around from month to month and depending on when we're adding those wells you know earlier or later in the quarter. That's obviously going to drive things too, yeah, and I would add and we've been consistently surprise.
As you would imagine that $100 oil people are highly motivated to get their wells to sales. So it's probably the third straight quarter, where we've seen some pull forward.
And so you know.
That's definitely will play a factor into it but I don't think it's gonna have I don't think its going to materially change, there's maybe one or two on the margin.
Okay.
Just on the Capex front would it would that sort of trend same level to where Q4 is probably going to be the peak or something.
Yeah, that's right that's right I mean, I would think we should see in aggregate a handful more completions each quarter. This year. So we should see some step up in the Capex, obviously, we spent less than a quarter of our capex this quarter.
But but I don't I don't think it's going to be massive and remember were a percentage of completion rate. So it's really about the wells in process. So if you look at our Capex. This year, it's not.
X wells completed times the cost of those wells right. We our D&C list went up by six and a half wells. This quarter. So we're carrying the cost of all of those wells in process. So.
Just because the fourth quarter is where all our completions or some of that capex is going to be borne in the second and third quarters.
Okay, and then wanted to check to see.
What level of preferreds are trading at these days I think the last update I had was mid March or so when they were about 136.
Yeah, I mean, I think at today's prices is going to be somewhere between.
It really depends on your on your.
What your Delta ratio is right. So they're deeply in the money, but you could make the argument there 85 delta or is there 100 Delta right.
But you're talking about like $1 35 to 150.
What do you really think about it the exchange ratio, which is about 20 to 60 and change so.
The number of share rate 20 to $22 61.
22 62 so.
It's that and then did the simple math on a preferred add like four years of coupons and that will kind of get you pretty close to the spot price.
All right makes sense.
Thank you next question is coming from Noel Parks from Tuohy Brothers. Your line is not a lot.
Yeah.
Yeah.
Hi, good morning.
Okay.
No no no.
You know I.
Wanted to check in with you on one thing you were talking about are the the ground game and A&D market activity in general and I just wonder what are your thoughts on assets finding their way into the best hands.
I think of.
The peak of private equity coming into the sector and I imagine that sort of scrambled things a bit in terms of Jefferies.
You know owners holding on to assets longer than they might have been just because they didn't want to take the loss. So I'm. Just wondering where you are we are we somewhat.
Back to a normal market that you know where activity and pricing are roughly proportional to your go to market conditions to fundamentals.
Let's see here I think.
I think that.
$100 oil is.
Confounds people to some degree.
Think that there is a lot on the market for sale. There's a lot of variability I think on the very small scale stuff. There, there's always competition, but I think theres probably more today.
And Thats a function that people are making more money than they assume they would and they are trying to reinvest some of those dollars you get a few kind of Johnny come Latelies and people want to chase that you know frankly, we're like a matador, we're happy to let the bull run by when that happens in 2018, we saw a little mini version of this one oil spiked up to about $70 people love.
Taking risk when the prices up and they're feeling flush.
But we maintain our discipline and we're still getting plenty done I think on a big scale stuff, maybe there's a bit more competition than a few years ago as people have raised a few dollars here and there.
But I still think we manage the risk and concentration where others can't.
<unk>.
Everyone understands that risk plays a bigger role when prices are elevated I think sellers are frustrated because they want to get every last dollar out based on the current strip.
No I would just say at $100 oil the whole case always looks great, but in the end I think sellers need to be realistic when you're in this type of environment, which is that.
I think that's the challenge in this market, which is that if you've held an asset.
You needed to sell it and monetize it it might look you might say Oh, why would I, even do that at today's market pricing.
And the answer is because this is a cyclical business and there's a lot of risk and you can't take that for granted.
Right right and and I. Thank you.
Been pretty clear on it but just to just to double check.
As you noted you're you're right primarily in assets.
Assets that have larger operators.
But we didn't.
Just thought a lot of pressures from a lot of sure disparate directions, depending on.
Operator activity level like where we are of course, so it sounds like they are not seeing.
Seen any issues as far as completion pace by operators, they're not sort of getting in trouble with sand hauling or or.
I don't know what equipment issues or anything like that.
They're they're always cost overruns, there are always problems. The real question is how do you underwrite it how do you budget. It you know we have an entire planning group that spends all their time and as I'll say AD Nauseum. We spent a lot of time to try to under promise and over deliver even internally not just what we talked to our investors about so we.
Are absolutely seeing cost pressures were absolutely seeing delays and we're seeing as Adam mentioned frac crews not showing up.
The best part about our business is when your average working interest is less than 10% no one thing.
It means all that much and if you model it correctly in Europe , and you have engineers that and planning people that are very careful about that you're generally more pleasantly surprised and disappointed and I'm looking at the last six quarters and our weighted average fees and consents are coming in at seven.
When we're looking at our budget for the year, especially going into this one.
We're looking at you know call it a $7 million to $8 million in order to account for those types of things.
Got it thanks.
Thanks, a lot appreciate the description of our against sort of just remind us about.
Planning profitable town.
Yes.
Thank you next question is coming from Nicholas Pope from Seaport Research. Your line is now live.
Yeah.
Nicholas.
Perhaps your phone is on mute Nicholas.
Please pickup your handset.
Your phone off mute.
Yeah.
Nicolas you can hear me I can hear you if not please press star one again to reenter the queue.
Our next question is coming from John Abbott from Bank of America. Your line is now live.
Good morning, and thank you for taking my questions I do apologize if some of these topics may have been covered was a little late getting on the phone.
My question Nick here is first on the.
Deal activity, which I'm sure there's been a lot of questions already asked but how are you thinking about deal activity sort of over a multiyear horizon is there a point, where you slow down me whats your sort of latest thoughts overtime, just organic activity over a multiyear horizon.
I think that in my prepared comments I gave my sort of professionals talk logistics I think.
We're opportunistic which means that you know this isn't some strategy of you know we need to get bigger or we need to keep buying or we need to do all those things we take each opportunity as it comes in the door and if it makes sense and we can do it at the at the prices that we feel are generate the returns we want we'll do it in.
And that ebbs and flows frankly, and I think the risk profile of that ebbs and flows I think the risks are.
Within the market today is significantly higher than it was in 2021.
We did that in in a mid cycle period of time, obviously, we're now enjoying the fruits of that at $100 oil, but obviously the risky depending on your viewpoint.
Well it could go to a 150 and it could also go back to 50, and I think but that convexity is really important.
Especially to our board as we look through those so the pipeline is as big as it's ever been and we go through them. You know last year was a bit of an anomaly in the sense that we had for successful transactions I can tell you all four of those there were specific reasons, why we were able to get to.
To be successful, we had one that needed money to make an acquisition of another one that needed money for capex. Another one.
That was exiting the business entirely right. There's always a reason that that really helps things happening.
Whereas typically our batting average is very very low and so.
I think if we can find transactions that.
That meaningfully add value and returns and actual numbers I mean I don't.
I can't say enough to look at our results. It has been proven on every per share statistic, even as we tap the capital markets that these transactions have added meaningful value.
That being said you.
You know, we can't control seller appetite and what their desires are and so we plot along with the way, we do things and sometimes we're successful and sometimes we're not but in terms of slowing down or going or or going it's our job to find ways to grow that is why we are a public company and that's why we're capitalists is our job to.
Grow and find ways to make a better company and if we can do so great. If not we're really happy with the business as it stands today, we don't need to do anything.
But I think we'd be doing a disservice to our stockholders if we didn't at least look.
Appreciate it and.
When you are out there looking to.
Actually repurchased their shares.
I mean, you can figure stock is undervalued and.
But when you start to look at relative performance or your.
With the shares and you've gone through and you've made these large acquisitions.
You know they've had been done at prices and they've improved your size.
Outside of like.
Hi back stuff I mean, what else do you think might be done and it just sort of improve shareholder relative performance I mean, you're having a nice screen day to day today, but what else do you think could be done.
I mean, I'm incredibly proud of how we've transformed and built this business.
Quarter's results like I said are are another validation of that.
I really think we've done all the right things from a business perspective and in our acquisitions in the last year.
<unk> taken us to new Heights.
At the same time, making sure the market values us appropriately. It is part of my job and I take that very seriously.
Based on how the market is undervalued us in.
As a professional securities investor for a long time, I think I have some credence in my beliefs here, we may just need to capitalize on that and look to generate returns on our own securities.
If this market situations sticks around we certainly don't intend to stand idly by.
Entering massive free cash flow.
We've got significant authorizations for every single security that we have outstanding so if necessary. We've got all the options on the table and cash is king we have that we have the big stick. So put simply we care a lot about our stock price. We have an incredible business model that is still in my view misunderstood and underestimated.
And we will try hard to make those who believe in us proud.
We have tons of upside you know from in basin pricing to overall moves in oil and as I've been saying AD Nauseum for four years asymmetry works in our favor.
So when prices are high you know everything that we're doing it comes on faster and produces more.
Really appreciate the color there Nick and thank you for taking our questions.
Thank you we reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
Thank you all for joining US we'll see you on the next one.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation.
And today.