Q2 2022 Northern Oil and Gas Inc Earnings Call
Okay.
Greetings and welcome to northern oil second quarter 2022 earnings call. At this time all participants are in a listen only mode. A 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. Please note. This conference is being recorded I.
I will now turn the conference over to Iraq Roswell.
You may begin.
This is Eric Raphael Chief legal officer of NRG and welcome to our second quarter 2022 earnings Conference call.
Yesterday after the market closed we released our financial results for the second quarter.
Access to our earnings release on our Investor Relations website.
Our Form 10-Q will be filed with the SEC in the next few days.
We also posted a new investor deck on our website last night.
I'm joined here this morning.
<unk> Chief Executive Officer, Nick O'grady, our President Adam Dirlam, our Chief Financial Officer, Chad Allen, our EVP and Chief engineer, Jim Evans.
Our agenda for today's call is as follows.
Nick will start us off with his comments regarding our second quarter and our business strategy.
After that Adam will give you an overview of operations and then Chad will review, our second quarter financials and updates to our 2022 guidance.
After the conclusion of our prepared remarks, the team will be available to answer any 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 risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these forward looking statements.
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 today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA.
Adjusted net income and free cash flow.
Reconciliations of these measures to the closest GAAP measures can be found in our earnings release.
With that I will turn the call over to our CEO Nick O'grady.
Good morning, everyone and thank you for participating in today's call I'll get right down to it focus on five key points number one.
Despite some nasty storms the second quarter is still broke records for NRG.
We generated a company record $272 $5 million of adjusted EBITDA, and approximately $114 million of free cash flow.
And second highest in company history, respectively.
We produced nearly 73000 Boe per day in the quarter and we have already generated over $260 million of free cash flow in the first half of 2022.
More than we produced during all of 2021.
We also hit an important milestone of one times leverage on an <unk> basis for the first time in my tenure here at NRG, Despite having a working capital surplus of over $85 million, which is additional cash that will come to us over time.
Number two acquisition discipline.
We announced in June to acquire additional Williston properties is a testament to our strategy and we continue to find meaningful ways to add value to our business.
We continue to focus on our risks manage return driven strategy that as inventory and surety to our investments all with the goal of delivering superior total return for our stakeholders. This means focusing on return on capital employed which in turn will drive higher long term dividend and buyback potential.
Number three diversification is key.
Although early spring storms had a temporary but significant effect on the Williston basin.
<unk> diversified model continues to prove itself, where we delivered higher volumes driven by the benefit of having properties in multiple basins.
The Williston is now fully back online and we're benefiting from exceptional in basin pricing and lower inflation than in our other most active areas.
Number for future growth.
Organic activity on our acreage has been accelerating and exceeding our expectations.
Larger than typical meaningful ground game opportunities are at exceptionally high levels and while quality is as variable as ever. There are also an ever growing number of significant bolt on opportunities hitting the marketplace today.
I'll remind our investors that nrg's balance sheet is built to handle most acquisition targets, we're analyzing without external equity financing.
Energy is fully on the offensive we have the firepower the scale and perhaps the broadest set of opportunities in the company's history with.
With every high commodity cycle come some newfound competition, but in the end it will be our discipline analytical rigor and balance sheet strength that will set <unk> apart more than anything else through the cycles.
Number five shareholder returns.
Our goal is to provide our shareholders with the highest possible total return over the long term.
We have implemented a multi pronged approach, including repurchasing common stock and preferred stock canceling a portion of our common stock warrants repurchasing our senior notes at a discount and increasing cash dividends for our common shareholders.
During the quarter, we bought back our senior notes at 98% of par lowering fixed charges, which boost free cash flow permanently, but also at a discount to face value, which is accretive to the enterprise value.
These notes were issued last fall at nearly a 107% of par value and now has been retired at less than repo.
If higher interest rates drive bond values below par value. We are prepared to take advantage of opportunities to continue to repurchase senior notes.
On the equity side, we've retired $77 $5 million year to date, including $20 million of common stock so far the remainder being preferred stock.
As a reminder, we have $130 million of remaining common stock buyback authorization.
C. We also cleaned up a large portion of our outstanding warrants. During Q2, we did this in a capital efficient manner to reduce future potential dilution and to mitigate associated hedging by our warrant holders that we believe could affect the trading of our common stock investors may have noticed a significant recent reduction in short interest.
Part derived from this transaction.
On Monday, we announced a 32% increase to our quarterly common stock dividend to <unk> 25 per share for Q3 with the goal of providing an attractive yield for our investors. We strongly believe that the consistency of a stable and growing quarterly dividend is more valuable to investors and our equity value over time.
Special dividend structures, which introduced unpredictability and volatility.
He finally actions speak louder than words, our successful execution of acquiring and integrating accretive acquisitions has driven our free cash flow to record levels. We believe there is continued room for expansion.
We seek to maximize our long run total shareholder return by providing for a stable attractive dividend and ongoing free cash flow growth. While we have outperformed our peer group. We are mindful of the continued attractiveness of the stock and are pleased to have a robust buyback plan authorization, which presents further opportunity for our free cash.
So.
In closing I will remind you as I always do 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'll turn the call over to App.
Thanks, Nick.
Operationally the second quarter finished as expected we continue to see the year progressing right down the fairway.
We maintain a healthy pace of development in the first half of the year turning in line 10, one net wells in the second quarter.
Permian completions increased contributing 60% of the additions while the Williston made up about a third of the activity.
We also brought online our latest Marcellus pad, which increased in August production in the region by 11%.
The new wells have outperformed internal forecast and we remain encouraged by the results.
Elevated organic activity on our acreage position as well as the success, we've had with our ground game acquisitions.
Our total wells in process. The 57 net wells across 500 gross woods.
The breakdown by basin remains consistent with the first quarter as the Permian makes up almost half of our oil weighted wells in process, while the two year high in the Williston rig count is providing for additional activity.
The pace of development on our acreage footprint continues to accelerate as we added an additional $16 seven net wells to the drilling and completing with netting an increase of approximately eight net wells in the quarter.
The increase in Capex during the quarter was attributable to the pull forward in drilling activity as our D&C list on average as incurred roughly 50% of the anticipated development spend and is consistent with the ramp in completion activity. We are expecting in the second half of the year.
Well costs came in as expected on inbound fees in the second quarter and averaged $7 2 million per well up less than 3% from last quarter.
We expect well cost to increase in the second half of the year, but well within our per well estimates, which is already incorporated within our stated annual capex guidance.
In Q2, we saw a 115 well proposals equally balanced between the Permian and the Williston with the average expected rate of return far north of a 100%.
We also continue to partner with larger operators, who benefit from their leverage with service providers.
Our active management of the portfolio on the buy side has provided us with the ability to forego development opportunities with certain smaller operators, who have felt the largest impact of the inflationary pain.
To that end the M&A market is alive and well in this current environment.
I've been reviewing over $2 billion worth of opportunities.
While the bid ask spread is real and there are a number of sellers with unrealistic expectations, our attention remains on quality assets and reasonable sellers.
We have superior data scale and the balance sheet strength to be the preferred counterparty.
And that is a reliable execution of acquisitions and I can underwrite with precision to generate a superior return for our investors.
From a ground game standpoint, we closed on $4 two net wells in Q2, and the acquisitions are expected to generate a full cycle return on capital of 52% in 2023.
Williston made up approximately three quarters of the activity as operators remain focused in the core and have also done a better job of keeping inflation under control.
At a packaged level, we are slated to close on our recently announced Williston acquisition in the Middle of August and there are currently 13 additional acquisition opportunities that we're evaluating.
<unk> remains in the Delaware Midland Williston Basin.
Which have provided for some of the most compelling opportunities to date.
As LNG has scaled and diversified over the last 18 months the breadth of opportunities that we were able to pursue.
Also expanding our.
Our ability to move quickly and underwrite assets has provided us with operator partnerships as we co develop acreage positions explore asset swaps look to partner on an operated asset packages and set up various development agreements.
Paired with a typical non op packages that we see on an off market deal.
Dressel market has never been better.
While it may appear to be a seller's market, we continue to source unique opportunities and we remain disciplined and only pursuing acquisitions that meet or exceed our return thresholds.
With that I'll turn it over to Jeff.
Thanks, Adam I'll start by reviewing some of our key second quarter results, which was again one of the strongest quarters in company history.
Our Q2 average daily production increased 2% sequentially over Q1 and increased 33% over Q2 of 2021.
Oil volumes were down slightly driven almost entirely by the spring storms in the Williston basin, where.
Where we have our highest oil cut assets.
Our adjusted EBITDA was $272 5 million.
Which exceeded consensus estimates and was a record for NRG.
Our free cash flow was robust at $114 3 million the second highest in our company's history.
Our adjusted EPS was $1 76 per share in Q2.
Above consensus estimates.
Oil differentials were better than we expected in Q2 and came in at $2 33 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 Q2, which is leading to the increase in our annual guidance for gas realizations. However, as gas prices have risen the NGL spread has narrowed which will lower realizations in the latter half of the year.
Combined with the seasonally wider Marcellus differentials in the solar season, we expect gas realizations below a 100% of Nymex in the third quarter.
These operating costs were $64 6 million in the second quarter or $9 77 per Boe.
On a per unit basis compared to the first quarter.
This was fully expected and factored into our guidance for the year driven by the second quarter occurrence of our annual firm transport cost in the Marcellus.
Cash G&A adjusted for acquisition cost related to our recent acquisitions was <unk> 93 per Boe.
We continue to experience elevated G&A cost.
Second quarter was $131 8 million.
Which was slightly above street expectations as we saw a pull forward drilling activity and additional ground game activity late in the quarter.
Our Williston basin spending made up 38% of the total capital expenditures for the quarter.
The Permian made up 56% in the Marcellus made up 5%.
The pace of our Capex spending ramp for the second half of 2022 will be dictated by tight conditions in the fields as we've seen both pull forwards and delays.
A record 57 net wells in process, which means our growth trajectory remains very strong as we head towards 2023.
The balance sheet is in great shape, while the revolver borrowings and it only slightly lower quarter over quarter, that's a function of that $17 million deposits on our <unk> acquisition as well as over $13 million reduction in our 2028 notes.
In aggregate leverage was still down on an absolute and a ratio basis with an LCR ratio of one times.
Leverage will tick up slightly next quarter with the Williston acquisition closing of the ratio should still be well below one times at year end.
We are monitoring the interest rate environment as well as our bond levels, and we look to find ways to efficiently reduce leverage if the market opportunities there.
Given the cash flow, we expect to generate with forecast our revolver undrawn by mid next year. Despite funding the Williston acquisition. This year, while that could certainly move depending on commodity prices, how we use our free cash flow and other factors.
As previously announced in early June we amended and extended our revolving credit facility.
The substantial increase in our borrowing base and elected commitment of $1 3 billion and $850 million respectively.
That coupled with our free cash flow means our liquidity remains very strong.
On the hedging front, we opportunistically added hedges north of $80 per barrel since our last report most of the filler targets in 2023, and 2024 and the top up volumes from our recent acquisitions.
We continue to target hedging around 60% of production on a rolling 18 month basis was slightly longer dated hedging target corporate acquisitions.
And the shape of the curve have allowed us to add some of our first costless oil collars 23.
All with a floor of at least $8.
With respect to updated 2022 guidance our production guidance is unchanged from our June update at a range of 73 to 77000 Boe per day for the year.
We've bumped full year LOE guidance modestly by about 30 <unk>.
Mostly driven by the increase in processing costs associated with higher NGL prices year to date.
And a slight impact from our pending Williston acquisition.
As I mentioned earlier oil differentials in both the Williston and Permian have been materially better than expected. So we are updating our full year guidance to $4 50 to $5 25 per barrel.
While we are bumping up our gas realization guidance, we do expect lower realizations in the second half of 2022 as I mentioned earlier.
For modeling purposes, North Dakota has raised production taxes to 11% of oil sales and approximately <unk> <unk> per unit for natural gas.
As well within the bounds of our existing production tax guidance for 2022.
All in all this outlook should generate approximately $500 million of free cash flow for the year, which includes payment of our preferred stock dividends.
With that I'll turn the call back over to the operator for Q&A.
Thank you.
I'd like to ask a question. Please press star one on your telephone keypad.
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Our first question is from Neal Dingmann with trade with Securities. Please proceed.
Good morning, all nice details Nick.
My first question is on capital allocation and specifically your thoughts on balancing your suggested dividend.
Other shareholder return plan with.
What looks to be continued very opportunistic ground game.
I think it just comes down to capital allocation.
Kind of a risk adjusted return I think.
Yeah.
Usually.
When you run a pure corporate finance perspective.
Bolt ons ground game still some of the highest returns.
As multiples and valuations of compressed overall, obviously our own securities.
And dividend plans have started to compete with that significantly and so you've seen us.
We signed this plan to have a lot of flexibility.
And so we've really been kind of ratcheting that up especially as the opportunities.
Opportunities come, but I think it's really still a multi pronged kind of all of the above approach.
Glad to hear that and then second question on competition, specifically could you discuss.
Today's industry competition, such as from maybe specs or other players versus what you saw several quarters ago. When you when you took over.
Sure Yeah, I mean like any other cycle, we definitely see pockets of competition here or there in the current environment. We've seen some competition for very small interests and on the larger side of transactions for PDP heavy properties, that's fine by US that's not something we're terribly interested in.
The reason for this is that PDP properties, our mortgage bowl and given how difficult raising equity capital has been groups are using debt and asset backed securitizations, which are more readily available to fund these and much like real estate China arbitrage.
Gross cap rate.
Of course assumes you have an accurate view of the PDP declines cost structures to be.
Truly safe investments.
On sizeable concentrated ground game assets and the larger packages, we always have some competition, but we remain highly competitive.
Our biggest competition is generally the whole case and order.
Unrealistic development expectations.
Sometimes we feel.
Like we know too much that we lose assets because buyers maybe miss modeling the reserves costs or development timing, we're fine to lose if thats the case.
As for specs et cetera, all I would say that there is a reason you go through the IPO process, which is to build alignment and create value not just for the company, but for our new investors as well.
It creates sort of a symbiotic relationship where the IPO participant get assets at a perceived discount. The company then builds trust and over time earn further access to capital.
Being public and having access to capital are not the same thing and.
And it's not just a switch you simply pull.
So stocks have an inherent misalignment, which are designed to give free value to the sponsor in the form of a zero basis promote.
And for the seller to be able to dictate the price of the sale into the stack.
Rather than let the market and investors decide what those assets are worth.
Which begs the question as to why you would choose that path and I think the answer is obvious which is that the value you get at least initially is self selected and much higher than the market with Baird.
When I was a kid my brother and I would build sand castles that my mother, and my grandmother's place in Massachusetts.
We were determined to make them strong enough to survive the tide coming in.
Every morning, though we went to the beach and our castle waste cleaned by the tide. That's my view of markets you can financially engineer all the things you want but in the end the power of market forces will ultimately be the determinant of value.
So I don't foresee this as real competition I think as a team. We've spent nearly five years building a strong investor base, a good reputation with sellers as a forthright and reliable partner.
Scale and now oodles of liquidity I still believe we remain the best and most viable counterparty.
Great details.
Loved these analogies.
[laughter] every quarter, but.
[laughter].
Our next question is from Derrick Whitfield.
Please proceed.
Thanks, and good morning, all and Nick I Love that analogy.
Thanks.
With my.
The new one.
With my first question I wanted to focus on the production trajectory for Q3, and Q4 and thinking about the production outages in Q2 and the acquisition that will close in Q3, we have oil production increasing about 4000 barrels in Q3, and then another 3000 barrels in Q4 does that seem about right.
So let me I think we're only going.
In the half.
On the Wilson acquisition, while we're going to have let's call. It 45 days or so derik right. We're going to close in mid August the effective date goes back but that'll be in the purchase price settlement will get that cash flow better but won't be in the form of production.
I think we see steady ramp, but I think youre going to have.
In the fourth quarter Youre going to have a much depending on the timing of Wes you're probably going to see.
The largest impact from a completions just because even if we have a very aggressive turn in line schedule. In Q3, you are only going to get a portion of that volume.
Jim I don't know if you want to comment towards that yes, they RK it's Jim.
Got some pretty large pad in the Williston right now that are working through we expect those to be mostly force late Q3 early Q4. So that's one we're kind of expecting a big ramp in production profitable estate, which is obviously our highest oil cut area. So.
We kind of expected to be Kevin later towards the end of the year that we see that big ramp.
Terrific and then as my follow up referencing slide 15 could you share your thoughts on what's driving stronger Bakken well performance in 2022 is it perhaps longer laterals are tighter elections.
Yes, I think it's a combination of the operator mix.
Operator.
Remaining disciplined we're not seeing necessarily the step outs that we've seen in full runs in the past and so.
<unk> got our LOE costs.
What we would consider some of our best top three operators contributing to that Jim.
Jim.
Yes, and obviously a lot of the stuff that came on in the first half of the year was wells that we elected to in 2020, where oil prices were a little bit lower so operators are still kind of sticking to that core as we've gotten into 2022 here with high prices, we've seen some operators start to step out a little bit.
So we would expect some some well performance degradation towards back half of the year end of 2023, but so far we're very pleased with the performance that we're seeing.
Perfect very helpful and thanks for your time.
Our next question is from Austin <unk> with Johnson Rice. Please proceed.
Good morning, Nick and to your team. Thank you for taking my questions.
Well first question first question is northern seems to be one of the few companies.
Who are not having to increase capex outlook due to inflation can.
Can you can you provide some color on how you set your inflation expectations at the beginning of the year.
Yes, I mean, I think the simplest part is that we baked in inflation. This year, but we also didn't bacon deflation in 2021, so we effectively we're running cost structures from pre pandemic.
We never really changed that forecast and I would add and inflation on top of it so as it stands today.
The only cadence and frankly for this quarter in particular.
The only cadence that really can change that is either if you have a pull forward of activity, which really just borrowing from future quarters.
Or if we had the <unk>.
Lumpy success that you have in the ground game when youre acquiring because.
And you acquire the acreage Oracle and the well bores.
Our accruing immediately for the capital several wells happened process it might not cost us very much money, but you are booking all of the cost of those wells are processing. So that's why it can be quite lumpy.
But frankly as it stands today, we're really comfortable with the guidance where it is if.
If we had a material acceleration in development it still won't really change that it just changes the timing of that within the year.
But.
We've been right in the middle of the goalposts pretty much all year and I just think that.
The thing is that what we've done this historically speaking we don't necessarily look we try to look beyond our nose and we don't just look at where our cost structure is today and make some small piece and we spent a lot of time, particularly at the end of last year as we were looking towards this.
We had a fairly gray of assessment from opioid or seeing in terms of where costs. Ultimately we're going to go and we do expect cost to continue to increase throughout the year, but as you could note from our average E&P costs were still nearly a $1 billion well below where we've effectively budgeted it but that's our average for the year, but we.
<unk> budgeted for higher than that as you go throughout the year.
That's a function of the operating partners that we actively manage too.
Participating with.
We have an idea.
Our operating partners cost structures their propensity to overrun.
Using that data in 2020, and moving into 'twenty, one and into 'twenty two.
You can leverage that and structure around it.
Okay.
I appreciate the color.
Follow up.
How would you prioritize your cash return to shareholders is a top priority buying back the preferred shares followed by the increase in the base dividend and debt reduction and finally repurchasing our common shares.
I don't know if its that simple because I think it's really opportunistic I would say.
Yeah.
The preferred stock is in the money so the delta between the preferred stock and the common stock narrows, especially as our common dividend goes up.
So our cost of capital difference between them is relatively de Minimis at this point in time. So I think common stock had gone up I think we still.
A risk averse group and so debt reduction still plays a big role and I think there is a difference between paying down debt and buying in your bonds.
In a sense that to the extent that high interest high.
Fed funds rates means that Bonnie.
<unk> bond prices go down.
We're not just retiring debt, but we're actually creating enterprise value because you're buying it at a discount to what you all.
So that actually has an impact of the equity value as well as the overall.
Overall debt levels.
So I think that we really try to stay flexible I think that a.
Our stable and growing dividend is really important. We also are very mindful of managing the yield expectation on that I don't think when companies have really low yields it doesn't matter and when they are really high yields that tends to create its own set of problems in its own.
So we don't really want to go down to either one of us basket no interest in being in.
An upstream MLP of old.
But I think we will be very very flexible and we have put mechanisms. Both from an authorization perspective, and just in terms of our own internal mechanics around SEC rules to be able to be very very opportunistic.
Thank you that's all from me.
Our next question is from John Freeman with Raymond James. Please proceed.
Good morning, guys.
Hi, how are you.
Great. Thanks first question, if I heard you right Adam I think you said that you've got.
Just a lot of opportunities in the pipeline for acquisitions then.
Delaware Midland.
In Williston Basin, and I Didnt hear you mentioned in the Marcellus and I'm just wondering if that's by design or just other.
<unk> gotten really competitive or just any other reasons why that one was it wasn't mentioned.
We've looked at two or three.
Central acquisitions this year in the Marcellus that just weren't have said I think on my prepared comments were around kind of the 13 processes that are effectively current right now and so.
We've run those out.
Quarter and kind of put those deferred so we're actively looking at it's just a matter of not being a threat at the moment.
We have one Marcellus.
Prospect that was exciting to US you didn't trade John candidate.
It didn't build hold guests the old Hull case came device.
Yeah.
So the follow up I had its kind of on the prior line of questions Nick that you answered.
<unk>, obviously done a great job managing the <unk>.
Cost line, while most everybody else in this space have the continued capex increase Susan.
Matt hold you to this but just you all are going to have a better insight than just about anybody given the number of operators across the basin.
Again sort of an idea of what you would assume just as it stands now you would it seems a reasonable cost inflation number to plug in for next year.
Okay.
Difficult to know.
In the sense that it's certainly tell you how we see it exiting but I think.
If oil prices are $50 next year is going to be a very different answers I think it's.
It'd be very presumptuous to make the assumption I think centaurus paribus at <unk>.
Cost increases tend to be sticky.
So.
We've got about what Jim about 15% between now and the end of the year total right, yes, yes, that's about right.
The way to kind of frame. It up is it's going to depend on your operating partners, it's going to depend on your working interest associated with them. So as we get towards the end of the year and kind of frame up and have a better idea of the cadence of kind of the tilson and whatever else is kind of in the backlog in terms of AFC is that'll be drilling into.
That will be able to better frame that up.
I appreciate the answers guys well done.
Thanks, John .
Our next question is from John Abbott with Bank of America. Please proceed.
Good morning, guys.
Thank you.
Thanks for taking my question sort of similar along the lines of the prior question on inflation.
Given the pivot it seems towards <unk>.
Going with larger companies versus smaller companies can you provide any sort of color on.
The difference between ASC costs between a larger operator and a smaller operator at this point in time.
I mean, I've seen just from anecdotally, John and I'll, let the smart people in the romance of the residents but.
When we've seen kind of standup rig operators looking to just redevelopment capital.
In the Permian $2 million to $3 million of well interference.
That's because they are paying spot prices for every single item. They are borrowing the rate they are borrowing a frac crew so you've seen.
One that was $16 million.
Two mile lateral.
We did not participate in that so the variability is certainly wide.
Permian just given the number of different operators you have relative to the Williston I guess, the only other thing that I would qualify it with this or not.
Necessarily just focused on well cost Brian I mean, we're solving for a required rate of return and so it's going to.
Also need to take into consideration completion methodologies offsets all of those types of <unk>.
Technical aspects to it so we're happy to elect to.
Maybe above average fee to the extent that it is going to meet our hurdle rates.
Appreciate it and it sounds and second question is sort of on maintenance Capex I mean, it looks like you have a very strong trajectory.
The end of this year, which probably will help your spending potentially in 2023.
But if you had to guess at this point in time, where do you think maintenance Capex just sort of thinking about inflation is overall and if you do have the color where do you think about it in terms of your various areas.
Well when you say maintenance capex, what's the production level and you are picking right.
Yes.
Let's just choose the 77000 Boe per day exit rate potentially somewhere around there.
Yes, I mean Thats 58.
62 wells probably.
So.
Okay.
But remember it's going to be.
Yes, thats call it $450 million to $500 million.
<unk>.
Again, I think it's a little early to kind of make those assumptions.
But.
I understand.
Thank you very much for taking my questions.
Yes, you're welcome.
Our next question is from Noel Parks with Tuohy Brothers. Please proceed.
Hi, good morning.
Hello.
Yeah.
No.
Maybe as a subset of the discussion about what you think about cost trend.
<unk> been hearing here and there from some operators that.
They are starting to see a little bit of trouble with materials delivery.
And.
With that sort of backing its way up into slowing completion, so even though the.
The estimated cost aren't.
So just trying to see that.
That bit of schedule schedule patting, our schedule slippage I'm just wondering.
Hearing about anything like that in any of your region.
Yes, absolutely I think we.
We've seen a material delay as much as six months on pads.
What I would say that I can remember when I looked at June I think.
An entire net wells or excuse me a happened at well delayed one well that came on six months early so it's always a push and pull there always delays.
The.
The fields are very very tight.
But statistically speaking it hasnt really been a major issue for us.
The diversification of the 500 wells that we have in process right. So we don't have one particular operator.
Creating a big problem for us to the extent that they've got a big problem for themselves.
Our secret sauce is that.
We generally don't take everything at face value, meaning that we make assumptions that things take longer that they cost more and thats why we are where we are at this point in the year.
Budget.
Okay.
Gotcha.
<unk>.
Yes.
Definitely it has been an air of caution among operators.
As far as permitting.
Viewing.
What's your expectations are for 2023.
Yes, I'm just thinking.
In your view.
Okay.
If they pick a number.
By this time next year, we're up another 10%, 15%, 20% whatever do you have any any sense of.
Whether we might be peaking.
In terms of the service environment.
I have heard from some operators.
We are paying the most we've ever paid for services in a particular basin and then others.
In saying that.
Do you see signs of new equipment coming online from the service companies not at the pace that you would have seen in past booms, but that that sort of that steady trickle is underway.
Again, just wondering if you had any insight on that.
I mean I think that.
Follow the money I think.
I've been.
Involved in the energy business for 22 years now.
I've never seen a cycle in which is a service provider makes a ton of money and with relatively low barriers to entry and new equipment does enter the market. So yes. This won't go on forever there's no.
As I think I said this in the last call. There is no shortage of the ability to make steel pipe for United.
States are quite frankly to make it.
Our pressure pumping unit.
Really just time.
And fixing some of those issues that are plaguing frankly, the entire world economy. So I have a lot of optimism.
This in time will pass and frankly.
No.
What I would say is that there are a lot of other risks that can that can solve those issues for your oil and natural gas prices themselves.
To the extent that.
You see weakness in pricing you will see slowing activity if delays become cell ramp and then ultimately that will become self defeating to some degree.
So, yes, I think that there will be a peak.
Is it net.
<unk> year this year Im not sure there are certain items that we have seen it start to slow down.
Things like labor It takes a lot of time to fix when you have these issues, but eventually capitalism is a beautiful thing they usually do.
Right.
Great. Thanks, a lot.
As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from Nick with well.
With Seaport research. Please proceed.
Hello, everyone.
Good morning.
I was.
I'm curious if you could.
Kind of expand a little bit.
Looking at kind of the split of Capex spending and <unk>.
Pretty big jump in Permian is kind of a split in and is that really the opportunity set is that where youre seeing.
Kind of the returns are driving that capex or is that kind of the rate. We should expect this kind of a split between these three assets right now.
Nick we had guided to I think $45 $45 million 10 for the year and I looked at it yesterday and it's about the same run annually.
Happenstance.
It's just a cadence of development.
If I look at our ads during the quarter.
Then looking at kind of our working interest between the Permian and the Williston.
Our average working interest in North Dakota was around 8%, whereas our current handle was around 18.
Got it Okay. That's all I had I think most everything else within it.
Thanks, guys.
Sure you don't want to ask.
Okay.
There are no more questions at this time I would like to turn the conference back over to management for closing comments.
Thank you all for joining us today, we very much appreciate your interest and we'll see you next quarter. Thanks.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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Yes.
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