Q2 2022 Magnolia Oil & Gas Corp Earnings Call

Good day, and welcome to the Magnolia oil and gas second quarter 2020.

Thanks, Paul.

Michael Smith.

Only mode.

Okay.

Okay.

Question on the psyche followed by DRAM.

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

Ask a question you May press Star then one.

So Joe This is Joe Your question. Please press Star then two.

Now this is being recorded although I'd like to turn the conference all very cheap iron costs wages go up.

Thank you Maria and good morning, everyone welcome to Magnolia oil and gas second quarter earnings conference call participating on the call today are Steve Chazen, <unk>, Chairman, President and Chief Executive Officer, and Chris Stavros Executive Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain pre.

<unk> and other forward looking statements within the meeting of the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K.

Filed with the SEC, our full safe Harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website you can download Magnolia second quarter 2022 earnings press release as well as the conference call slides from the investors section of the company's website at Www Dot Magnolia oil gas dot com.

I will now turn the call over to Mr. Steve Chazen.

Thank you and good morning, and thank you for joining us today.

Magnolia just completed its fourth year as a public company.

Fight the continued product volatility our business model remains unchanged.

Our ongoing confidence in the business supported by our core values and based on our strong financial and operating results and our team's numerous accomplishments.

Over the last four years, we have profitably increased our production while transitioning our giddings asset to a full development mode.

Also continue to generate significant free cash flow, allowing us the opportunity to opportunistically repurchase our shares.

Our business model limits of spending on drilling and completing wells at 55% of our EBITDAX and is expected to provide mid digit mid single digit annual production growth over time.

The remaining unallocated cash flows can be used for small bolt on oil and gas property acquisitions share repurchases and dividends.

So far this year, we have far exceeded our plan. We now expect our full year 2022 production to grow between 12, and 14% while investing less than a third of our cash flows with the excess cash allocated to activities that should enhance our per share value of the company.

Our second quarter results set records for several financial and operating metrics, including net income operating income margins earnings per share and total production volumes, which exceeded our earlier guidance. We grew company total production, 14% year over year and 3% sequentially.

While spending just 31% of our EBITDAX drilling and completing wells and generating operating income margins of 68% production.

Production for the quarter was 74.2 thousand barrels per day was at the high end of our guidance due to better well performance in both our karnes and giddings assets ongoing efficiency is giddings, which led to more net wells and some additional non operated activity.

Our record production, which is unencumbered by hedges combined with strong product price realizations contributed to our record free cash flow of approximately $251 million, we repurchased a total of $4 1 million shares reducing our total diluted shares outstanding by 8% compared to last year's second.

Water.

The remaining free cash flow.

Allowed our cash balance to build the more than $5 billion at the end of the second quarter.

Our balanced approach to allocating our cash flow provides consistent production growth and a steady reduction in our outstanding shares.

Combination is expected to result in double digit annual dividend growth.

As announced yesterday, we have transitioned our semi annual base dividend to a quarterly base dividend when the initial rate of <unk> 10 per share on a quarterly basis, the new annualized payout of <unk> 40, a share represents a 43% increase to Magnolia is dividend compared to 28 cents per share distribution.

Shaded with full year 2021.

We believe that the increased dividend payment level, a secure and sustainable with product prices at less than half their current level and I expect our dividend to grow annually as we continue to execute our business plan, we plan to revisit the dividend payment.

<unk>.

Early next year based on our full year 2022 financial results and we will recast our results from last from this year using a $55 oil price environment.

We continue to operate two drilling rigs across our two assets and expect to maintain this level of activity for the balance of the year at current product prices, our capital for drilling and completing wells should be well below our 55% spending cap, resulting in significant free cash flow generation.

Most of the free cash flow is expected to be allocated towards improving the per share value of the company, including our plan to repurchase at least 1% of our outstanding shares each quarter. Magnolia is investment proposition is differentiated we believe that our moderate and consistent production growth combined with a gradual reduction of our outstanding shares.

As a result of the steady per share growth of the company and a growing dividend and now I'll turn the call over to Chris Stavros.

Thanks, Steve and good morning, everyone.

I will review some items from our second quarter and refer to the presentation slides found on our website.

I'll also provide some additional guidance for the third quarter and remainder of the year before turning it over for questions.

Beginning with slide three which shows a summary of our second quarter Magnolia continued to execute on our business model as demonstrated by our very strong second quarter 2022 financial and operating results.

We established quarterly records for many of our key operating and financial metrics during the quarter, including production net income diluted earnings per share free cash flow and most notably operating income margins or EBIT of 68%. During the period. These results were supported by the absence of hedges on our production, which provided very strong product price realizations.

<unk>, our efforts around cost containment and supply chain management and stronger overall production growth. We generated total adjusted net income for the quarter, a $294 million and diluted earnings per share of $1 32.

Our adjusted EBITDAX for the quarter was $393 million in total capital associated with drilling completions and bringing on new wells was $122 million or just 31% of our EBITDAX D&C capital was somewhat higher than our earlier guidance due to the timing of our activity and more non operated activity than we expected which.

Benefit benefit our production during the second half of the year.

Overall company production volumes grew 3% sequentially and 14% on a year over year basis to $74 2000 barrels of oil equivalent per day in the second quarter.

Looking at the quarterly cash flow waterfall chart on slide four we started the second quarter with $346 million of cash and.

Cash flow from operations before changes in working capital was $362 million during the period with working capital changes and other small items benefiting cash by $20 million to $21 million.

Our D&C capital incurred including land acquisitions was $123 million.

During the quarter, we repurchased $4 1 million Magnolia shares for $102 million and ended the quarter with $502 million of cash on the balance sheet or about 10% of the company's equity market value.

Looking at slide five this illustrates the progress of the reduction in our total shares outstanding since we began our repurchase program in the second half of 2019.

Since that time, we have reduced our total diluted share count by nearly 47 million shares or approximately 18%.

Magnolia is weighted average fully diluted share count declined by 5 million shares sequentially, averaging $222 4 million shares during the quarter.

We had $12 3 million shares remaining under our repurchase authorization at the end of the second quarter, which is specifically directed towards repurchasing shares in the open market.

Turning to slide five and as Steve discussed we have transitioned our dividend payout schedule from a semi annual pace to a quarterly dividend schedule with an initially quarterly base rate of <unk> 10 per share.

This new rate represents a 43% annualized increase from our 2021 dividend rate.

Our plan for annualized dividend growth of at least 10% is expected to supplement the per share growth rate of the company and is aligned with our overall strategy of achieving achieving moderate annual production growth and reducing our outstanding shares by at least 1% per quarter.

We'll revisit our dividend payment rate early next year based on our 2022 results and recast that in a $55 oil price environment.

Our balance sheet remains very strong and we ended the quarter with a net cash position of more than $100 million.

Our $400 million of gross debt is reflected in our senior notes, which are not now callable and do not mature until 2026 include.

Including our second quarter, ending cash balance of $502 million and our undrawn $450 million revolving credit facility. Our total liquidity is $952 million.

Our condensed balance sheet and liquidity as of June 30th as shown on slides seven and eight.

Turning to slide nine and looking at our per unit cash cost and operating income margins. Despite the substantial increase in product prices over the past year, we've seen only a modest increase in our total cost.

Our total adjusted cash operating costs, including G&A or $14 <unk> per Boe in the second quarter of 2022, an increase of $2 64 per Boe compared to year ago levels.

Most two thirds of this increase was due to higher production taxes, which are directly related to the sharp increase in product prices over that period.

The modest per barrel cost increase is nominal compared to the increase nearly $30 increase in our revenue per Boe.

Including our DD&A rate of about $8 50 per BOE, which is generally in line with our F&D costs. Our operating income margin for the second quarter was $48 62 per Boe or 68% of our total revenue and more than doubled compared to year ago levels.

Simply put 92% of the revenue increase was captured in our operating margins on a year over year basis.

Turning to guidance for the second quarter or for the third quarter and the remainder of the year were currently operating two drilling rigs and plan to continue with this level of activity through the end of the year and into next year.

One rig will continue to drill multi well development pads in our giddings assets.

Second rig will drill a mix of wells in both the karnes and giddings areas, including some appraisal wells in Giddings, we continue to improve our operating efficiencies in the giddings field, which should help offset some of the oilfield service inflation.

As we've noted previously.

This will also lead to some additional net wells during the year.

Given the strong well results from both of our assets ongoing efficiencies and improved cycle times as well as higher non operated activity. We are raising our expectations for our full year 2022 production growth to between 12, and 14% compared to 2021 levels.

Looking at the third quarter of 2000 2022, we expect our total production to be between <unk> 74, and 76000 Boe per day, and our D&C capital is estimated to be between 105 and $115 million.

So if product prices remain around current levels, we would expect our third quarter effective cash tax rate to be between 8% to 10%.

And as I mentioned earlier, we remain completely unhedged for both our oil and gas production, allowing us to fully capture the benefit of alright, hi product prices.

Oil price differentials are anticipated to be a two to $3 per barrel discount to <unk> and slightly narrower than historical levels.

Our fully diluted share count for the third quarter is estimated to be approximately 219 million shares which is 7% below year ago levels.

Finally last month, we released our 2022 sustainability report, which significantly expands on our earlier disclosures.

The report provides an update on our efforts our teams are executing to safely and responsibly develop our oil and natural gas resources. The report can be found in the sustainability section of our website, we're now ready to take your questions.

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

Yes.

Thank you Scott.

Crossing the Ts.

Part of your question.

I would like to withdraw your question. Please press star. Thank you at this time.

Okay Alicia.

Okay.

Our first question.

Neil Thank Matt with trade Securities.

Good morning.

Thanks, guys.

My first question is.

Just wondering how much pressure you got from your wife to boost that dividend.

So to sum up my first question is just on something you mentioned in prepared remarks and that is could you speak to your view you mentioned about adding value with the dividend and then I'm. Just wondering how you sort of look at the dividend versus buybacks. When you think about already or even versus organic or external growth. How you think about all of those.

In context of adding value.

Okay. So we'll start with the dividend.

We think we believe that the dividend.

Part of the business.

And we would we plan to grow it at least 10% on this base dividend.

Annually.

So what's it rationally expect that in.

In the fourth quarter, we will pay another 10 cents and then.

We will revisit the.

The rate in.

The first quarter based on this year's results recast to $55. So what.

That means that the $55 environment, we would easily be able to cover the dividend. So it doesn't really cut into the things the share repurchases are opportunistic model. The marketers. So that you may have noticed a little volatile.

And.

There's always opportunity to repurchase.

Purchased some shares during the.

Last month.

During the what would normally be a blackout period for us.

And a lot of people did that I'm sure.

Even some company I know other company.

So I think we will.

We continue to look at look at share reduction is an important part of it.

It's really just saying that the assets we view are worth more.

Way, then that way and so.

Our total distributions to our shareholders as the some really of the share repurchases plus the fixed dividend.

If we get to the point, where we're the dividend.

Sure.

Share price has not reflected that is too high.

We clearly shift to a different approach, but as long as we can we can.

As long as we can say you know this is actually pretty cheap, we'll continue to buy in shares and at an accelerated rate.

And this kind of environment building cash is interesting but.

Probably need to up our share reduction program.

<unk>.

We don't know anything about what <unk> is going to do <unk> acquisitions go where sort of picky.

If you buy pdp's pure PDP and you pay SEC value for it. So that's the forward curve at a 10% discount rate.

If you count overhead.

Almost nobody does when they talk about the purchase.

And <unk>.

Taxes, because you're going to pay tax on it youre, probably around a 6% real return.

The only way you get more is that their locations.

In the package that you can drill in and make returns 15, 2025%.

The packages that have been put up for sale.

Are virtually entirely D PDP and their wells and the wells that they talk about are ones that wouldn't be competitive for our business.

So we need wells in the packages I don't really like buying PDP. So we think the base return is too low for us.

But as far as drilling wells or concern.

Wells have to be competitive with basically giddings wells and if theyre not.

Not something we really can do so.

Yes.

But we do do a fair number we sort of need the radar.

Three small acquisitions 56789, and $10 million, maybe larger if we're lucky.

These are mineral interests or small working interests in generally giddings.

In and around our staff and we will continue looking for those.

And.

There's more of them now than there has been for a while so for as far as acquisitions, we need one that is clearly accretive to us and rates of return.

Forward.

And would fit into our business model and within our skill set we're not we don't know anything about north Dakota or the Rockies or.

Maybe one of us knows something about the Permian, but.

That's a little.

Probably not something we probably would do so.

And these orphan areas.

Like the Eagle Ford.

In Giddings.

Our places, where we can make decent money and a lot less competition for acreage in that sort of thing so.

How we think about it so we view the share repurchases as a form of a dividend or just a different way.

It gets to the point, where it doesn't work or we can't make it work.

<unk> will rethink the process.

But.

Right now we.

There seems to be plenty of volatility and plenty of opportunities to buy the shares at reasonable levels.

No thorough detail, Steve and then one follow up I could.

I haven't heard you talk in a while or maybe give your suggestions.

Suggestions on on when you look now without getting you've had a lot now of successful wells would you say how much are you able to quantify beyond the original 70000, how much you've got sort of high confidence in delineated already are you able to talk about that.

Well.

What we have.

We just don't think of the actually the same way that somebody might think about in the Permian.

We look at it how long a.

Period of forecast period, we can forecast and actually pick the locations and they'd be the same rough quality as the ones that we're currently drilling.

And I think in Giddings, we have around a five year.

Forecast, so we have about five years.

Two rigs.

Drilling activity in Giddings with the same sort of results we're getting now.

That's really my way of looking at rather than looking at acreage does not really in our real estate business at least at least not deliberately.

And so that's the way we look at it and that's a lot of locations.

And they may not be.

Maybe five or six here and we're going to drill a pad.

In the fourth quarter.

In giddings with a eight well pad. So we're starting it now it will go and run through the third quarter and the fourth quarter. Some time. It will go on so you know the scale of the business is growing well.

We're adding some infrastructure.

Away some more of the.

Costs are out of the structure so it.

It's going to be a bigger business three years from now than it is today and so we feel pretty optimistic about it as far as far as this acreage stuff.

Yeah.

Some ways misleading to give you a bigger number because youll.

You'll divide by something.

And get a number that doesn't.

That's probably not reflective of reality, but if you think about it is five years of inventory and maybe more but certainly five years of inventory based on what we know now and a two rig program that gives you an idea sort of how much. We've got so I think for five years, we're pretty safe in a bit.

And it will continue to grow the two rigs will continue to exceed.

The decline.

Work on the decline so what what we have will grow in production every year.

So we're pretty safe I think on this.

Mid single digit growth.

No again, if we can find something that another acquisition of reasonable size reasonable bidding not large.

Size that fit into our business model and we get extended we would do that and then add a rig to go with it but.

Right now, we're pretty full up on what we need to do.

Thanks, Steve I appreciate the time.

Sure.

Our next question comes from Leo Mariani.

Hey, Sterling.

Yes.

Yeah, Hey, guys I was hoping to hear a little bit more about some of the progress on the step out wells here in 2022.

And really just trying to get a sense. If you all are starting to maybe kind of <unk>.

<unk>.

The sweet spot I know you originally had this 70000 acres sweet spot there in giddings.

You talked about kind of another 25000 acres that was kind of looking.

More perspective that could kind of move into that sweet spot category just wanted to get a sense of the recent drilling results here in 2022.

Some of the progress there.

Basically.

Two things we've been working on one is.

Spacing, we never really had any good idea what got what spacing and so we found the spacing for the oil rich areas to be a little narrower than we have been drilling closer together. So theres more locations and then the gasior areas about what we were doing was.

Okay, because the gas flows better.

So.

We've been doing a lot of that as far as the areas of concern we continue to add to inventory.

As I answered the last question I don't think.

It is misleading to give you.

Acreage number because youll divide by something and get a lower number of locations I think the way you should look at it is that.

We got two five years with two rigs running full time in giddings.

That's that's the inventory of the wells that look just like the ones. We're currently drilling.

Going on the.

Extension program has been very successful.

And so.

<unk>.

We continue to keep a five year inventory of high quality wells at work and much lower oil price environment than today.

No.

These wells have very short paybacks.

At R. R.

Doing very well.

Some of the extensions were better than others, but all of them or economic wells.

Okay.

And I guess just in terms of.

Recent well costs at Giddings, I know you guys used to throw out a number of around $6 million or so to get one of these wells down and there's been some inflation would you guys be able to update us on kind of the overall.

Well cost and could you also provide a little bit more details on some of the infrastructure projects, we talked about at Giddings does that more 'twenty two we're kind of more.

Some years beyond 'twenty three 'twenty four.

Yes.

Correct, Yes, it's where it's been running at about a 1000 per lateral foot.

In terms of the drilling costs now.

We picked up.

The length of our laterals has obviously started risen through the year and over the last year or two so we're doing a lot more.

On that I mean as far as follow on on what you were asking before I mean, we picked up a lot of momentum.

<unk> of our drilling results.

Operating efficiencies and other things, which Steve mentioned has added a lot of new wells.

The well performance.

Performance or the production you can sort of see it in the volumes that we've had through the year.

It's pretty indicative of the momentum we picked up just in terms of some of the efficiencies.

We added new wells and so we got a lot better at this Steve referenced the.

Eight well pad that will be coming on later in the year late in the year. So.

There's a lot to be set for that.

Okay.

It was around.

And yes, we've added some some infrastructure.

<unk>.

Will it be about.

Kind of about $20 million about $20 million of the capital was spent on infrastructure. We had originally planned that.

The deviation on the on the <unk>.

Both the production frankly in the <unk>.

Capital is does non op stuff because it started it's not predictable we can't predict when they're going to drill a well we can't predict when and again, we cant predict when they turn it on.

Because they have their own reasons for turning it on so but its picked up materially in the back half of the year.

Somebody woke up and said oil is $100, maybe we should drill some oil wells.

<unk>.

But thats really.

A lot of our inability to predict.

Both capital and at least.

Generally we're not short of money on the capital.

No.

I view the money is very well spent an extra $20 million of capital.

It's just going to give us more production next year.

Yes.

Production next year should be quite strong again.

Based on where we are now.

Okay. That's helpful. I guess, maybe just on the follow up on the infrastructure.

Is that kind of a rough number where you've got relatively small call. It $20 million a year for the next couple of years, just trying to get a sense. If you look or do you think.

We look at infrastructure needs.

You won't see that I don't think I think this was a one time opportunity.

Lower our costs.

Basically the hall less oil by truck.

Okay. Thanks, guys.

Our next question.

Yeah, Thanks, Jerry with Goldman Sachs. Please go ahead.

Thank you and good morning.

Mike.

We're at total unsold on though on creating value for the organization and on capital returns.

I wanted to do a quick follow up there.

So, let's envision a scenario where oil prices remain at 100 and gas prices.

We remain above four.

In that scenario if.

You have a 10% dividend you plan to request a net 55 to.

$74 gas.

If the share repurchases don't come through more than the current base of.

Of deployment.

Is the plan then debate cash on the balance sheet for the future D really.

Will you look to kind of make the investors hold true one time special dividend at the end of the year.

We expect to be able to retire the shares.

At a higher level than the 1%.

We've actually been sort of twice that.

So there as you go through that goes to these noisy periods in the market.

The market backs sort of oddly.

You can buy a lot of shares I think what's happening is somebody's cell shorting, the shares and selling them to us.

But.

Barbara where theyre getting the shares from but but we continue to buy their shares and we expect to continue without regard to what Airbus stars.

We shouldnt have any trouble spending.

Spending all the money.

Most of the money as far as far as a special dividend goes.

That's the point, where we're not going to build cash on the balance sheet.

The only reason we have it up so higher is an expectation that would be able to make it make some.

Some will require some shares from from inner vests over time, but generally our cash balance.

Couple of hundred million dollars would be plenty.

We can survive easily in any environment.

As far as the dividend is concerned.

We have a bias on the dividend to pay more dividends as it was pointed out by the first speaker.

My wife doesn't.

It doesn't look at the stock price.

The mark to market, but she doesn't count the dividends so.

So this will be a good a good year for our dividend program.

That's great awesome.

If you try to forecast forward to some other environment.

You can't buy the shares I don't know exactly what we would do.

That environment, because you'd have to you know the question simply is is the $100 oil and $4 gas sustainable is there or is it going to be some other number but I think as the.

Sort of progresses.

Youre going to find we're going to find some some small I mean $25 $30 $40 million acquisitions.

To build to build the business.

As we get closer to 100 days in production.

No.

In giddings, not not off somewhere.

But there's a fair number of sort of family ownership out there thats been sort of sticky.

And.

We've been able to do some of that to use some of the money, but but generally speaking.

It's just hard to forecast what you would do in a very different environment, but right now I think we're reducing the share count.

It is a valuable thing for the people who wanted to stay in the stock.

It makes it makes a lot of sense.

And I appreciate that comment.

I guess just following up on getting since be saying can you remind us where you were before.

On a spacing.

And where are you heading right now in the oily part of the acreage I mean, one could argue that you probably have more than five years of inventory in the court.

Alleging that Youre planning <unk> into account right now.

Okay.

Yeah.

We haven't we have we have more than five years, probably for sure but five five years, we could add we've been lay out.

We were part of sort of agnostic, we don't pay much attention to whether it's in oil area or a gas area.

We just looked at.

We think it's all about money.

And so what we find is in the gas we're drilling some gas year wells in some oil your wells and it really isn't.

It's almost strategy free it's sort of how much money can we make and how come.

And how easily can we deployed into some area. So we may drill more gas wells, but it really isn't shifting based on product price, it's really shifting based on what we can do quickly.

What we're going to organize and how we can bring the land position together so.

Yes.

I think we're right now by sheer chance, where sort of splitting between the oily areas in the gassy areas, but it could shift to more oily or are more gassy.

Just.

Yes.

Again, not necessarily driven by product right off the price of natural gas falls to $52.

We have a different view, but.

For dollar or better number.

Pretty unlikely that well.

We will pass on any gas locations will continue to be active in that but.

The oil area also is good it's just a little more complicated on land that's all.

That makes a lot of sense. Thank you.

Our next question comes from Austin I'll call, Ladies Johnson Rice. Please go ahead.

Good morning, Steve and team. Thank you for taking my questions.

Sure.

With capex of $122 million in the quarter and a midpoint of 110 for the <unk> Guide.

Going forward should we think of about $110 million to $120 million quarterly run rate guidance range.

M.

Our ability to forecast the non op activity is shown to be <unk>.

Non existent.

So you can use a number like that if you'd like.

And you probably just as accurate as we are.

Yes.

Okay.

Because.

We just can't we just can't.

We just can't.

It's not a lot of money it just just a lot of noise.

And Thats.

So we've adjusted for the in flight, we don't see any more inflation than we outlook last.

Last quarter.

We're drilling more net wells or participating in more net wells and we'll get more net production in the.

Production of $100 oil or $90 oil is pretty attractive and so you get your money back certainly in six months.

All right.

I don't see why why we would cut back.

And that activity just to make some imaginary number that somebody has got a lot of money.

Money is not our problem.

I appreciate the color and as a follow up.

Would it still be hard to get a new rig last quarter, you said it would be but the industry seems to be adding a rig every week has anything changed.

Right right now we would.

With two rigs running.

If we wanted to add another rig it might take six months to add a rig.

Oh.

So.

We don't have any plans to do that there's no real need to do it right now.

But if there were it would take us about six months to add a rig.

And that's.

At some point in the future, we will have to add a third rig but.

Certainly not imminently.

That's all from me. Thank you for your time thanks.

Our next question comes from Nicholas Pope.

Go ahead please.

Sure.

Good morning, everyone.

Good morning.

Hmm.

You guys gave a fair amount of detail on getting inventory.

As you kind of shift back to Karnes, how do you how do you think about the inventory and.

And the runway that you have.

And that asset right now and is there I mean.

I know, it's very blocked up but with operators is there opportunity to expand on that side of the Eagle Ford for you guys.

Yeah.

Frankly, not a lot.

Yes.

Some operated in more of it in the non op area.

So.

And sometimes the wells arent competitive with the <unk>.

Giddings wells so.

We stay away from them. The Giddings wells are basically more give better returns for us so.

We could go into a mode for a year or so we just relied on the non op.

And take the rate basically.

Both rates for a home for a whole year in giddings, and probably do better than fooling around on it.

Drilling some wells in karnes.

As always some more in karnes.

It's a gift that keeps giving.

So, but right now the well simply arent competitive.

What we can do in Giddings and will will probably stay with that sort of plan for a while.

Would there be any interest in expanding.

Outside of that concentrated area or just not think it's competitive in other parts of the Eagle Ford even in nearby.

The question is how do you do that.

There's a number of fairly large.

Stuff out there private equity.

That sort of thing out there but.

The drilling locations.

By the PDP and you get bigger I guess.

But the drilling locations tend not.

Tend to be not competitive with what how else, we would spend the money and basically in giddings, so it wouldn't drill well locations.

With these.

Promoters.

So put out there.

I think.

There might be some small deals.

Certainly not a focus.

For the company.

At this point because it just it's just too expensive.

Basically you got to buy <unk>.

I don't think Youll make a return of more than 7% or 8% on a PDP acquisition.

Which is not something thats real exciting to us we can.

Cook the books, a little bit so generate some free cash it looks like a lot more free cash.

Because we're completing this asset but.

As a business matter doesn't make doesn't make a lot of sense to me.

Got it I appreciate the comments.

That's all I had.

Thanks. Thank.

Thank you.

Hey, Scott.

A question and answer.

On today's call from <unk>.

Thanks.

You may now disconnect.

Okay.

[music].

[music].

Okay.

Yes.

Yes.

[music].

Yeah.

[music].

Okay.

[music].