Q1 2022 Earthstone Energy Inc Earnings Call
Good morning, and welcome to Earth Stone Energy's conference call at this time, all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference call is being recorded joining us today from Archstone.
Our Robert Anderson, President and Chief Executive Officer, Mark Lumpkin, Executive Vice President and Chief Financial Officer, Pete Collins, Executive Vice President and Chief operating Officer, and Scott cylinder Vice President of Finance Mr. <unk> you may begin.
Thank you and welcome to our first quarter 2022 conference call before we get started I would like to remind you that today's call will contain forward looking statements within the meeting of <unk>.
<unk> Securities law.
Although management believes these statements are based on reasonable expectations. They can give no assurance that they will prove to be correct.
Statements are subject to certain material risks uncertainties and assumptions as described in our annual report on Form 10-K for the year ended December 31, 2021 the first quarter 2022 earnings announcement and in our Form 10-Q for the first quarter that we filed yesterday.
These documents can be found in the investors section of our website www dot or stone energy dotcom should one or more of these risks materialize or should underlying assumptions prove incorrect actual results may vary materially. This conference call also includes references to certain non-GAAP .
Financial measures reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in our earnings announcement release issued yesterday.
Also please note information recorded on this call speaks only as of today may 5th 'twenty 'twenty. Two therefore, any time sensitive information may no longer be accurate at the time of any replay listening or transcript reading todays call will begin with comments from Robert Anderson, our president and CEO followed by.
My remarks from Steve Collins, our C O O and Mark Lumpkin, our CFO and then we will have some closing comments from Robert.
Now I'll turn the call over to Robert.
Thanks, Scott and good morning, everyone. We appreciate you joining us today for our first quarter call. It's been a busy for months, but we're really pleased to talk about our strong results in the quarter, which reflect our ongoing transformation and significant positive momentum with the closing of the big Horn acquisition after quarter end, we have realized a further.
Step change in scale and efficiency as a quick reminder, in 'twenty 'twenty. Two we have closed on about a billion and a half dollars worth of asset acquisitions, we completed a high yield notes offering for $550 million and we raised $280 million in new equity all of this activity along with the 2021.
Acquisitions has created a more resilient and sustainable business with a much larger production and cash flow base and deeper high quality drilling inventory with continued balance sheet strength. It's amazing just how significant of a transformation we've undergone over the last 16 months.
However, we're focused on the future and we believe there are numerous opportunities to continue driving significant value from our asset base. We're focused on optimizing the development of our high quality asset base, while managing costs and reducing absolute debt our confidence is high that over the next several quarters, we will be able to dry.
Value through improving capital and operational efficiencies.
As we have done with all of our acquisitions, we will focus on reducing costs on these recently acquired assets, where we can even with the inflationary pressures.
With the Big Horn asset literally next door to our existing assets, we see some operating synergies with personnel and systems that will help us improve our operating procedures reduced downtime on wells and maximize margins our free cash flow is strong the initial well results on our newly acquired Delaware Basin assets are.
<unk> are exceeding expectations and our expanded operations are going smooth.
Looking forward I feel that we're well positioned to execute on our operational plans and generate even more substantial free cash flow.
The big Horn assets are generating large amounts of free cash, particularly given these high commodity prices in fact during the interim period between the effective date of January 1st and closing on April 14th the Bighorn assets generated such significant free cash flow that after preliminary purchase price.
Estimates the consideration for the acquisition was reduced by about $145 million we've.
We've been very pleased with our integration efforts. So far we believe that one of the most integral parts of integration is execution.
We have integrated the county land and financial reporting for the Chisholm acquisition in the Delaware Basin already and were well along the way of doing the same for bighorn.
Continuity and consistency are keys to our two operational efficiency as Steve will discuss further we've identified a couple of areas to potentially reduced drilling days on the Delaware basin assets.
We are making sure we have the right people in the field and we've been pleased with the smooth transition because of the personnel that have joined us.
We have also added to our office staff by hiring across all disciplines, including experienced technical staff from both of the companies, we acquired assets, which will allow us to keep that operational continuity and we've been able to attract talented employees from the industry. We are now approaching three months since closing on the Delaware Basin.
<unk> and we're pleased to share with you some of our early successes, Steve will highlight some of the drilling side, but on the completion side, we completed our first pad in the Delaware Basin since closing in February and brought on the two well minutes pad targeting the third bone spring harkey sand in April .
These two wells, which are about 7500 foot laterals located in Lea County, New Mexico has shown strong early production results, averaging about 1600, B O E per day per well with about 87% oil cut.
Over the first 24 days of production.
With the current strong commodity prices, we estimate that these wells will reach payout approximately four months from first production date.
After bringing on the minutes pad, we brought on a second two well pad in Lea County targeting a third third bone spring.
Which are now flowing back and while early we're very pleased with the initial results, which further supports our view of the high quality inventory, we expected as we pursue this Delaware basin acquisition.
Our capital spending for the quarter was about 16% below the midpoint of our guidance, but we do expect to see significant impacts from inflation going forward and we are maintaining our guidance for the full year of between 410 and $440 million and you'll hear more about that our near term focus continues to be on integrating.
These new assets and executing on our drilling plans as free cash flow is generated our plan for the remainder of the year is to pay down debt, but as you would expect will remain open to potential acquisition opportunities that could provide us with additional scale and high quality production and inventory, while still giving them.
The ability to maintain the strength of our balance sheet.
And finally after we get a few quarters of operating the larger bills business behind us we expect to be in a better position to consider shareholder returns in 2023.
But we do not expect to initiate any plans in 2022 and with that I'll turn it over to Steve.
Thanks, Robert and good morning, everyone. We continue to operate two drilling rigs in the Midland Basin and two drilling rigs in the northern Delaware Basin, our first quarter average daily production was.
Just over 35500 Boe per day, which is up 17% from the fourth quarter of 2021, we.
We have seen strong initial production results from the first two wells completed and brought online in the Delaware Basin since closing the Chisholm acquisition in February we're optimistic that we'll be able to improve capital efficiency on the Delaware basin assets over time.
Robert mentioned, we've identified an area or two on the drilling side related to preset surface casing.
That we're working to incorporate that will allow us to reduce days drilling in many circumstances.
We also recently completed six wells.
In Upton County on our better than pad they'll have an average lateral length of 7600 feet and were drilled and completed for a cost of approximately $800 a foot.
These wells are still cleaning up or the results are in line with our type curve with initial average daily production per well of 900 Boe per day.
Approximately 88% oil.
Let me provide an update on the operational integration of the assets acquired this year.
With respect to the Delaware Basin assets, which closed in February operation of the new assets is running smoothly.
This is in part due to bringing on bringing on field personnel that were previously operating the assets and for the most part executing their existing plans.
As Robert mentioned, we also hard additional technical staff that are focused on production completions and drilling engineering geology and land exclusively for the Delaware Basin asset.
Despite having only closed on our bighorn assets about three weeks ago I can say that things are going as expected and we do not foresee any material changes to the integration.
The operation of these assets as we have retained a large majority of the field staff that have been operating these assets.
Combining this with Earth tones approach to operating nearby assets, we expect to be able to implement some improvements over time to maximize production and minimize cost.
With an active drilling and completion program both areas, we find ourselves shutting wells in and working over wells before and after frac in areas with existing production.
Although this frac prep prep work increases production downtime in Workover expense. It is accounted for in our guidance with.
With respect to the Bighorn assets, we see some additional workover opportunities, which should enable us to reduce long term operating expense.
Potentially potentially reduced production downtime and increase production.
This activity is under review with economics, and operating efficiency driving these decisions.
Our capital program calls for a continuation of our four rig program with two rigs operating in the Midland Basin and two in the Delaware Basin.
Currently we have the Midland basin rigs in Reagan County, and Aragon County, well the two Delaware Basin rigs are in Lee County, and Eddy County, we're completing wells in Reagan and Iridium County as well.
As you can see by the first quarter capital expenditures being below guidance. The inflation pressure was not that impactful in the first quarter. However, we fully expect that over the course of the year service costs will continue to rise.
We have locked in casing deliveries for the next couple of quarters and sand is also committed throughout the year for our two areas with a fixed price contract on the Midland volume.
Recapping Cos, we completed a 10000 foot lateral pad in December at $680, a foot and as Robert pointed out. We just completed a 7600 foot lateral pad at $800 per foot, although hard to normalize due to the lateral length differences you can see that the shorter laterals are less efficient and we're beginning to see.
The influences of cost pressures.
We were focused on efficiencies in order to drive down days on location.
Drilling and completion activities.
Now with a much larger production base, we expect to obtain some cost savings and lease operating lease operating expenses as well.
A much larger operation will allow for greater purchasing power on everything from vehicles to chemicals and compression.
With that I'll turn it over to Mark. Thank you, Steve and good morning, everyone as usual I'm going to take this time to provide some additional details on some meaningful metrics in several key highlights as you know you can find a detailed breakdown of our results and our earnings release and in our 10-Q I would also say it you can find additional information on our recent debt and equity financings and our April 14th.
The press release.
Well, we've had a lot going on since the beginning of the year relate to our balance sheet. So I'll start with an update of as of quarter end and then I'll give you more update as well as of March 31, 2022, we had a borrowing base on our revolving credit facility of $825 million with borrowings of $624 million at quarter end, we had approximately 201.
Undrawn capacity on our revolver in April we completed a $550 million notes offering and a 200 and even under our pipe offering and we use these proceeds in part to close when the Big Horn acquisition in mid April and also to pay the $70 million of deferred cash consideration from the Chisholm acquisition, which closed earlier in the year.
Also in conjunction with the closing of the Big Horn in mid April the borrowing base on our credit facility was increased from the 825 million dollar level at quarter end to $1.3 billion to $5 billion.
In conjunction with the closing of Big Horn, and we are lucky to reduce the commitments on the revolver from the $825 million at quarter end down to $800 million, so beginning with our quarter end debt and cash balance, but adjusting for all of this activity. Its April here's what it would have looked like.
On that basis, we would've had total outstanding debt of approximately $1.013 billion, which would've been comprised of $550 million of senior unsecured notes and $463 million of debt outstanding under our credit facility, leaving $337 million of Undrawn availability on the $800 million.
Of total commitments on the credit facility.
Given all the recent activity I think it's also important to break down our outstanding share count as you'll see in our 10-Q, we had approximately $113 4 million total common shares outstanding as of April 28, which includes both our class a common and class B common shares. This does not include the impact of the expected conversion of the two.
Hundred $80 million of convertible preferred equity that was issued in the pipe and April upon the expected conversion of these shares into class a common stock. Our total common share count will increase by $25 2 million shares, bringing our total outstanding common share count of $138 $6 million.
Now going back to the results for the quarter, our first quarter EBITDAX of $123 million was a 44% increase quarter over quarter, which was largely attributable to the incremental production from about half a quarter of the Delaware basin assets and also from higher commodity prices. We also generated $36 million our free cash flow.
In the first quarter, which marks our eighth consecutive quarter of positive free cash flow.
What's the first quarter, only including Delaware basin assets for about half the quarter and not including the big Horn assets at all we're excited about realizing much higher production and cash flow in the second quarter than what we saw in the first quarter, which will include the Delaware basin assets for the full quarter and the bighorn assets for about 83% of the quarter. We expect to have very significant amounts of free cash.
Flow for the balance of 2022, which is earmarked for repayment of debt under our credit facility.
From a leverage standpoint, we're really in a better position today than where we expected to be in early January one we announced the big Horn acquisition. The combination of a significantly larger downward adjustment in the purchase price of the Bighorn acquisition as Robert mentioned, and then just generally higher EBITDAX levels in the first quarter and expected going forward.
We have improved our position and outlook as you might recall, we originally were targeting getting down to 1.0 times debt to EBITDAX by the end of the year on an annualized fourth quarter basis, and if you look at what we did in the first quarter and of course. This was before Vic Warren close and it has the result of chosen minute, we were actually right around one point O times debt to <unk>.
EBITDAX in the first quarter when you take our quarter end balances on the debt side, plus or stones EBITDAX for the quarter and adjust to add the Chisholm EBITDAX from the period for the first part of the court quarter before we own the assets.
So that really puts us in a much better position than we anticipated and from this 100 times leverage that we are at on the first first quarter adjusted on that basis, we expect to continue to tick down lower throughout the year and finished the year well below the 1.0 times debt to EBITDAX on a fourth quarter annualized basis.
Looking at the first quarter relative to our guidance, we were largely around the middle of our guidance for all guided metrics, except for Capex, which as already mentioned was about 16% below the midpoint of our guidance from a production standpoint, we produced an average of 35500 Boe per day in the first quarter and that was comprised of 44% oil.
29% natural gas and 26% natural gas liquids to reiterate what we mentioned last quarter, we expect to produce approximately 70000 to 74000 Boe per day with about a 41% oil component in the second quarter, which again factors and a full quarter of the Delaware Basin assets, we acquired in February .
And about 75 days of the Bighorn assets, which we acquired in mid April further for the second half of the year, we expect production to be somewhere between 76080 thousand Boe per day with the oil component again being about 41% and this of course includes the full contribution from both the Delaware basin assets and from the Bighorn assets so on them.
Full year basis, no changes to our guidance on production, but the build up results in production somewhere between 64250, and 67000 and 750 BOE per day and is comprised of about 41% oil, 33% natural gas and 26% natural gas liquids.
Total cash G&A for the first quarter came in right about where we expected and was that $6 $5 million compared to $6 $3 million in the fourth quarter of course, we added more volumes in the second and the first quarter compared to the fourth quarter of last year. So on a per BOE basis, our cash G&A went down by about 22 cents per Boe.
Quarter over quarter from $2 25 in the fourth quarter to $2 <unk> in the first quarter and we still expect full year 2022 cash G&A to be between the $31 million and $34 million range. We put out earlier this year and that would be about $1 35 per Boe based on the midpoint of both our.
Production in G&A guidance.
Moving over to low <unk> in the first quarter, we recorded LOE per Boe of $6 77, as we guided last quarter, we expect LOE per Boe to be elevated compared to the Arizona LOE per Boe prior to closing on these two acquisitions and we're maintaining our full year guidance for <unk> of seven hours from 25 to $7.
75 cents, we are monitoring both inflationary pressures and potential need for some higher workover activity on the recently acquired assets, but at the same time, we're hopeful that some of the operational synergies. We think we can achieve will offset that a bit and we're excited about that as we've now just gotten our hands on both sets of assets here and there.
Past 30 to 90 days respectively.
Turn it over to the capital expenditure side, we did spend 82 million in the first quarter, which was about 16% below the midpoint of our guidance of 95 million to $1 million to $100 million and this was largely driven by the impact of the timing of inflation.
And really what happened is we there was less realized inflation in the first quarter than what we expect to see going forward and I would say in hindsight, we probably baked in too much inflationary cushion in the first quarter at the same time, we do absolutely expect to see more significant impacts from the second quarter going forward on that basis, we're maintaining our.
Guidance of 410 to 400.
For the full year and I would say that we would probably lean towards the high end of that obviously in autos can perfectly predict how inflation plays out for the end of the year, but we're certainly expecting more pressure throughout the year.
On the hedging front, we are not really all that different from where we were when we reported our 2021 results in March which was right about 55% to 60% hedged for the remainder of year of the year with a mix of swaps and collars with that I will turn it back over to Robert for closing comments alright. Thanks Mark.
Today's higher commodity prices combined with our acquisition of accretive in well located assets that generate meaningfully high cash margin production has significantly strengthened our free cash flow profile.
As we look ahead to the rest of 2022 and as you've heard from us.
We remain focused on continuing to integrate these assets executing our operating plans and generating high levels of free cash flow, which we expect to use to pay down debt as Mark mentioned, we believe we are on track to significantly reduce our credit facility debt balances by the end of the year and stay well below our one time debt to EBITDAX.
Target <unk>.
Cash flow and a strong balance sheet helps to support our more robust drilling program compared to the past as we focus on demonstrating our ability to optimize our larger asset base and we are very optimistic that this will be a record setting year for <unk> over the last year and a half we've acquired a complementary mix of assets.
That have dramatically increased current production as well as providing exciting new drilling opportunities.
We have both enhanced our acreage position adjacent to our legacy assets in the Midland Basin as well as expanded into the Delaware Basin, we feel really well positioned to execute a successful drilling program as we have demonstrated recently and we believed that our high quality asset base exceptional operations team and consistent track record.
Of operational excellence will allow us to optimize our future free cash flow generation.
Now with that operator, we'll be glad to take a few questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.
Free to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from Charles Meade with Johnson Rice. Please proceed with your question.
Good morning, Robert and team this is Austin filling in for Charles.
Hey, good morning Austin.
Now that she doesn't have a big horn acquisitions are complete is that still on the A&D market or is 2020 to more of a year of execution and debt reduction.
And then as a follow up how is the current state of the A&D market.
I don't think Theyre mutually exclusive I think we as a team both management and staff can continue to look for opportunities that make sense, we can be a little bit more picky on what we're looking for perhaps and at the same time we are.
As you've heard.
We focused on executing on our plans for this year. So we'll continue to look at opportunities in the market. There Theres a pipeline full of opportunities as you could guess at $100 oil theres lots of people lining up to sell it's just you know is there going to be a.
Our bid ask spread between where the buyers and what kind of price deck, they want to use versus what the sellers want to get paid at so that's I think that's what's going to impact the A&D market this year or at least in the near term.
Thank you for the color and and I understand that in the near term you plan to run a two rig program in the Delaware.
But after a couple of quarters of execution can be seen additional rig in the 2023 program.
Yeah, we're doing a lot of planning right now and as you're aware it does take a lot of preplanning more so than in the Delaware, we have federal acreage and you need to have long lead time for permitting.
But we're going through that exercise now to try and figure out what we could do if it makes sense to increase our activities on the new Mexico side, and the economics being strong like we see right now.
We'd love to have more activity out there, but we're going to we're going to walk before we run and make sure that Steve and our guys are executing as you know as well as we can before we decide we're going to jump into another rig out there.
I appreciate it that's all from me.
Your next question comes from John White with Roth Capital. Please proceed with your question.
Good morning, guys and many congratulations on all you've gotten done over the past.
12 months.
Yeah.
Thanks, John .
So again on the Delaware are your first couple of wells look really good and you provided us with some additional color on the payback.
But it is a new basin.
And it's new Mexico, not Texas are you are you seeing anything or experiencing anything now that now that you're now that this year property debt that maybe you didn't anticipate before you closed on.
Not really I mean, there's always a few surprises both positive and negative there's some low hanging fruit that I think the operations team will be able to.
Create some good efficiencies and improve the cost structure I mean, it's tough in an inflationary environment, but at the same time I think there's some things we can do both on the production and the drilling side.
And then it's just a matter of getting your arms around what the prior operator was doing and what we need to change and dealing with the local situation, which is federal permitting and new landowners and you know different purchasers and things like that so there's nothing that.
Surprised us negatively just you know we've just got to continue to execute and find ways to drive down the cost structure. If we can.
Okay, well I'm I'm sure you'll execute very well that's what you guys do so.
Thanks for that additional detail and I'll pass it along.
Your next question comes from Sebastian Chandra with Benchmark. Please proceed with your question.
Alright, thanks, so it looks like.
You layer on layering in hedges there.
And Uh huh.
<unk> hedges.
Thinking about.
You know how 'twenty, two and then probably more so 23 progresses.
How do you think about additional.
Additional opportunities to protect your your flow.
Flow assurance out there and your net backs.
And what the market might look like at the moment.
Yes, the Bosch, it's mark here I'll I'll try to address that one.
The standpoint of the financial hedges, we actually put all of those why hedges in 'twenty three 'twenty four on the week or two after we announced the big Horn.
And we had sort of saying that coming would have loved to have and I'll speak more in two weeks prior and been able to put those hedges on two weeks before because they did really start moving upward in terms of the swap rates in futures contracts on the Oaxaca kind.
Kind of in mid mid to late January .
That's sort of the financial piece of it and that's sort of roughly half of our gas hedged based on kind of what this year looks like that give us some financial protection from the standpoint of flow assurance. We're very focused on that we've never as I think you know really been want to go buy a bunch of firm transport for us.
We are exploring that and I think we mentioned that in March and continue to explore that but we're also coordinating with our main gas processors at the end of the day.
We're going to do everything we can within reason to make sure we have flow assurance and there's multiple different ways to sort of tackle that and I assure you. We're focused on that and we don't have all the solutions right. This moment, but we are working on that and felt good about the ability to do that.
Yes, so mark I guess put it another way.
Are there opportunities.
And.
Or did you take opportunities to further hedge.
<unk>.
The basis there.
No I mean, all the while we.
We have one place in 'twenty three 'twenty four we're put in.
Definitely in February maybe some even in late January and we have not added to that since then.
Yes, so curious.
So why not have they become unfavorable or do you feel pretty comfortable at this point.
I mean, it's sort of it yeah, I guess, our philosophy on hedging what it'd be great to completely take that risk out, yes, and you know we obviously felt there was more risk there than we did on underlying Henry hub or W. T. I, because we had more basis there.
I mean, we're trying to get a chunk of it covered not completely get it done and I'm not saying, we might not add more hedges I'd say generally speaking the hedges we put on place on the wall Ha look.
Pretty good in the money for 'twenty, three and maybe a little out of the money in 'twenty four and that's just a function of how the market has responded as we've heard about different pipes, adding compression or in a case or two yep.
Working on plans to potentially build a new pipe.
We're monitoring that I mean, if that daily weekly.
And it's something that we want to be relatively well protected but we're also not going to go hedge 100% of it.
Okay got it.
And then on the Delaware results could you sort of put that in context.
What may be.
Their results have been in that particular interval.
<unk> this is Robert.
This is the first time that either Chisholm or us completed Hartford wells.
So it's not a new interval other operators are completing them and we're really pleased with the results and they are probably a little ahead of our type curve.
But it's something we identified and along with the Chisholm team that we should go tackle these two wells in this zone.
Okay got it okay.
And then finally could you just kind of reviews sort of a locked up status of lock ups out there.
If there is any sort of.
Imminent, a lockup that expired.
The Chisholm Guy the Chisholm acquisitions grew.
Group is still locked up except small shareholders like management some of the management folks who got shares and that will expire generally in June .
The Big Lorne shares are locked up I think for 60 days and then 120 days I'm I'm going off memory. So we've got we've got a couple of months in the first round and then a couple more months after that before the other.
Remaining shares come out of the lockup.
But to add that <unk> those shares arent registered yet so even the shares that are out of work up on Chisholm are trading yet and until the registration statement gets filed and gifts effect of it.
Even though they're not locked up they practically can't sell them.
Gotcha Okay.
Thanks, guys.
Your next question comes from Jeffrey Campbell with Alliance Global Partners. Please proceed with your question.
Thank you.
First I believe your high yield debts, not callable for two years I just thought I'd ask.
And you've talked about reducing the revolver debt just longer term, what's your plan regarding balancing.
Higher coupon unsecured debt versus.
Lower coupon secured debt and our credit facility.
Maybe let me hit the first part of that and Robert might kind of add on to longer term.
One obviously today is a static point in time, just like April 14th was when we closed on big Horn and did the pipe of the bond I mean, it looks like we're going to pay down the large majority of what's on the revolver balance by year end, if we do nothing else this year and really like you're probably looking at sort of a static case over running four rigs.
The course of this year and four maybe five next year and there is a bunch of free cash flow and we should get to a point where were building cash because to your point the higher bonds are callable for at least a couple of years, we think that having a chunk of the high yield.
And place takes away some of the risk of sort of bank capacity.
Being reduced over time and that was one of the big drivers of doing the bond in the first place. So we'd have a mix of termed out fixed rate debt versus the revolving floating rate debt that that can change in a patent capacity and honestly from a go forward basis setting aside what are what do we do with the cash if we start building cash.
We're in a really good spot as we look at acquisitions to be able to more easily finance acquisitions. So that's a positive for us and part of what gives us that ability is the fact that we just don't have that much drawn on the revolver relative to what the borrowing base or even electric commitments are Robert do you want to pick up on a more maybe more strategic uses of cash.
Yeah, I think mark hit it right I mean, our focus is going to be paying down the debt and then after the revolvers paid off what do we do with that cash and definitely look for more opportunities to spend that cash through acquisitions. You know, maybe we increase our capital plan a little bit next year, but it's still going to be significant free cash flow, but first.
Quarter, it would be to try and find more opportunities to grow our business.
And then you know, we'll see what happens towards the end of this year and other opportunities and consider some kind of shareholder return program in 2023.
Okay, Great. That's good color I appreciate it.
I thought it was interesting to see drilling in Eddy County.
This occurred.
Mistake occurred earlier than I would've expected.
Wanted to could you add some color on your activities, there and perhaps how the.
The assets there are select assets there are competing with places like tracker.
I can count in other parts of your portfolio.
Yeah, Good question and good observation.
We're drilling a couple wells now on our bigger block in Eddy County, We've got a couple of other wells planned for later in the year.
And we'll probably stay on track just because of the difficulty of changing your plans midstream when you got federal permit.
Timelines, you've got to deal with so there are good economics.
And we wanted to go test out our ability to go execute on those areas.
Some historical wells had been under completed we'll call it lower intensity fracs.
We've got the infrastructure there so that cost is sort of already embedded in it. So we're gonna go test this out and see what kind of results. We get maybe we come back with a more fulsome program next year, who knows.
You know it does make it a little bit more gas in certain areas in Eddy County, So that's good while gas prices are seven or eight bucks.
Similar to area in County, we liked the economics, there, it's a little cheaper drilling both in area in Eddy there similar compared to other places in there to respective basins, where they're a little bit cheaper.
And and it drives some economics that are favorable so with gas prices where they are.
We're on track with our five well.
Pat in Erie County, hopefully, we can get those on quickly and we'll see what kind of results we get before we you know.
Decide whether we're going to expand our program in either of those two places.
Okay and then my last question.
Regarding additional acquisitions.
Our wood.
More exposure to Delaware basin to be a priority due to the additional personnel that you hired in improving operations that youre seeing.
We are definitely focused at looking at deals in the Delaware Basin, but we're also still looking at stuff in the Midland Basin. So you know some of it is driven by opportunities and.
Seller buyer either.
Agreeing on a price deck to use or a disagreement and you're too far apart and you're not going to get a deal done so its opportunity driven in both places and we are we definitely want to increase our footprint on the new Mexico side.
And.
Thus, while we have increased our team. So you know I'm not going to rule out either one of them though.
Okay. That's fair thanks, very much I appreciate it.
Your next question comes from Neal Dingmann with Truest. Please proceed with your question.
Hey, good morning, guys. Thanks for all the details.
Robert for your remark.
My question is on shareholder return your.
Yours is a little unique given you look forward and one you've got a ton of free cash flow coming to your centers at least based on our estimates looks to be a notable discount.
To most of your peers out there, especially you know some a bit a bit larger ones.
And then three though we obviously you have a unique situation when it comes to float.
And with the lockup that was mentioning so given all of those things that are coming in.
How do you all think about that cause I guess, where I'm going with that is.
Is it just purely.
I don't think there's a need at this point to do that so I don't think investors a lot. So I'm just wondering in your debt is going to be had at a fantastic level very soon so if you take those two things off is it truly looking at.
Shareholder return.
It makes sense and where the value of those are versus where you were seeing deals or and if so on that shareholder return you would just work with those larger investors are just wondering how you're thinking about that because again you guys are in a bit of a unique situation there.
Yeah, and again, Neil I don't think they are exclusive decisions I think you could have a shareholder return plan as well as continuing to look at M&A opportunities.
And theres ways as long as you have things that are flexible.
In your return.
Program, there's ways to do both and until we get a couple of quarters behind us and sit down towards the end of the year and see.
See what the future looks like we're not we're going to be.
Flexible in the way, we think about it.
It is.
You hit it.
You know we've increased our float tremendously over the last year and we love that that was our goal for the past several years and it's helped by <unk>.
Selling or buying deals where some of the selling parties.
We're locked up or weren't locked up and they've sold some shares and sell to create some additional float and we hope to continue that in the future as well. So there's a lot on the table and there's nothing nothing that.
We've made any decisions on just yet.
And I.
I guess, what I'm getting at is knowing that I mean, obviously, they're not exclusive but you know.
If looking at your share value of shares are trading at.
Pick a number of PV 10 TV.
<unk> 15, and you see deals out there that are.
Ever PVA to PV 10.
It makes sense just to strictly focus on share returns versus further deals if your shares are.
Certainly cheaper than what deals up market.
Yeah, I mean, I get that but we're also trying to continue the scale building process right and and maybe as we continue to get bigger the multiple expands if you look at it from a different aspect and the multiple expands and we gain that so.
Maybe we have to take a step backwards to be able to take two steps forward. We've done that in the past 16 months. Good argued all along the first deal we did it for box.
Two the selling group.
Was quite dilutive when you think about $14 stock today so.
I don't really worry about that let us see what the opportunity is lets see it how it fits into our.
Development growth and ER, and then we'll figure out whether that makes sense or not.
Great place to do that to the multiple is certainly and then just lastly on.
Oss in place and the logistics I'm wondering.
It doesn't.
It seem that youre, having much issues or you're.
Not any more than anybody else I'm, just wondering does that.
Largely viewed as the new increased scale and size is that helping.
Kind of on a go forward and then how do you get comfort that going forward with the rigs that you're running now the frac crews that you're running you'll continue to have added accurate adequate amount of casing tubular is et cetera.
Well some of it's been pre bought we'll call. It like we've ordered pipe for the next six months or thereabouts.
And we've worked with vendors for a really long time and that relationship building process. Steve has developed over years not just in the last three years.
And it's the these vendors have.
I have been very supportive of our growth and we've been supportive of their growth needs and together, we're trying to make this work in.
There are a lot of problems I mean, I heard a whole slew of them from Steve. This morning, but we've been able to navigate around those and we've got great relationships with our vendors and that does create a difference when the vendors want to come work for us.
Got it great nice job. Thank you.
Your next question comes from Jeff Robertson with water Tower Research. Please proceed with your question.
Thanks, Good morning, Robert or Steve can you talk about the permit situation in the Delaware Basin. If I recall correctly, you had a couple of years worth of permits to support a two rig program when you acquired Chisholm.
I'm just wondering now that you've owned the assets for a couple of months.
Where you are in as far as stretching that inventory out and how long does it take to get a permit right now.
You want to answer I think we're still in the.
10 months to a year to get a permit I think we're well positioned with our permits to keep the two rig program moving along.
Somebody asked the question earlier about surprises and operating and we really haven't seen a lot of surprises in operating when it comes to drilling and completing a well, but the planning side is a challenge. So if we change that plan and we're in we're looking at that for next year.
We got to ramp up our permitting.
Schedule a little bit.
But it's not going to keep us from doing what we want to do.
Robert on a high level around.
Corporate strategy, the bighorn assets spring.
A lot of free cash flow.
Just some asset spring a lot of inventory in the Delaware Basin. So I think you all talk about having roughly a 13 year inventory at current rig pace.
But with the amount of deleveraging you can do in India.
Free cash flow outlook for 2023, how do you think about the asset base and acquisitions as far as.
Once that cash flow like bighorn or do you since you can generate a lot of cash flow do you need ones with more inventory to develop and maybe be able to expand a drilling program lectures.
Assets provide.
Yeah, I think we like things that are opportunities that provide both of that you know some good strong cash flow, but inventory and if you can find them in two different deals and you kind of do them about the same time or close to it like we did with Chisholm and big Horn.
And that's a double win or whatever you want to call. It a home run.
And we continue to look for opportunities, we're not going to be as focused on a pure PDP deal.
Unless there are some bolt on reason to do it right. It's sitting right next door and we know we can operate it for half of what the existing operator has it for you know and we can see some large upside there, but you know our ability to be a little bit picky on what we spend our time on.
Is it is a.
Aided by the size of the business we have today, so hopefully that gets you your answer.
That's helpful. Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Robert Anderson for closing remarks.
Hey, Thanks, everybody. We appreciate your time and now it's a busy day, but.
We will talk to you next quarter end.
In the interim if you have questions you know how to get hold of us. Thanks a lot.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.
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