Q2 2022 Northern Oil and Gas Inc Earnings Call
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Greetings, welcome to Northern oil second quarter 2022 earnings call. At this time all participants are no listen only mode. A question and answer session will follow the formal presentation. If anyone to require operator assistance during the conference, please press ST zero on your telephone key pad. Please note this conference is being recorded. I will now turn the conference over to Eric romflow. Thank you, you may begin.
Good morning. This is aircromslolow, Chief legal Officer of ennog, and welcome to our second quarter 2022 earnings conference call.
Yesterday after the margket closed, we released our financial results for the second quarter.
You can access our earnings release on our Investor Relations website, and our Form 10 -q will be filed with the SEC in the next few days.
We also posted a new investor deck on our website last night.
I've joined here this morning by annog's Chief Executive Officer, nico Brady, our President Adam din, our Chief Financial Officer, Chad Allan, and 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 shadow a 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, to let me cover our safe harbor language.
Please be advised: in 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.
Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10 -q. we disclaim any obligation to update these forward-looking statements.
During 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 CE, O Nick O Brady.
Good morning everyone and thank you for participating in today's call. I'll get right down to and focus on five key points.
Number one.
Despite some nasty storms, the second quarter still broke records for nomg.
We generated a company record: 272 and a million dollars of adjusted EBITDA and approximately 114 million of free cash flow, the highest and second highest in company history respectively.
We produced nearly 73 thousand boe per day in the quarter and we have already generated over $26 million of free cash flow in the first half of 2020 -two.
More than we produced during all 2021.
We also hit an important milestone of one X leverage on an lqa basis for the first time in my tenure year at nnog, despite having a working capital surplus of over 85 million, which is additional cash that will come to us over time.
Number 2: acquisition discipline.
The deal 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 a risk-managed, return-driven strategy that adds 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 employe, which in turn will drive higher long-term dividend and buyback potential.
Number 3: diversification is key.
Although early spring storms had a temporary but significant effect on the williston basin, nog's 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 4: 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 nog's balance sheet is built to handle most acquisition targets we're analyzing without external equity financing.
nog is fully on the offensive. We have to firepower the scale and perhaps the broadest set of opportunities in the company's history.
With every high commodity cycle comes some newfound competition, but in the end it will be our disciplined analytical rigor and balance sheet strength that will set nog apart more than anything else through the cycles.
Number 5: shareholder returns.
Our goal is to provide our shareholders with the highest possible total return over the longm term. We have implemented a multi-prong 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.
Day 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 of face value which is accretited to the enterprise value. These notes were issued last fall at nearly 107% of par value and now have been retired at less than we owe.
If higher interest rates drive bond values below par value, we are prepared to take advantage of opportunities to continue to repurchase senior notes.
B on the equity side, we've retired 77 and a half million dollars year-to-date, including $2 million of common stock so far, the remainder being preferred stock. As a reminder, we have $13 million of remaining common stock buyback authorization.
See we also cleaned up a large portion of our outstanding warrants during Q2.
We did this in the capital-efficient manner to reduce future potential dilution and to mitigate associated hedging by our warrantholders that we believe could affect the trading of our common stock. Investors may have noticed a significant recent reduction in short interest in Park derived from this transaction.
De on Monday we announced a 32% increase to our quarterly common stock dividend to 25 cents 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 than special dividend structures which introduce unpredictability and volatility.
The 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 flow.
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. With that, I'll turn the call over to abam.
Thanks N.
Operationally in the second quarter finished as expected and we continue to see the year progressing right down the fairway.
We maintained a healthy pace of development in the first half of the year, Turning in line 10.1 net Wells in the second quarter.
Permian completions increased, contributing 60% of the additions, while the will has been made up about a third of the activity.
We also wrote online our latest marcellus patent, which increased nougx production in the region by 11%.
The new Wells of outperform and internal forecasts and we remain encouraged by the results.
Elevated organic activity on our acreage position, as well as the success we've had with our groundgme acquisitions, boosted our total Wells in process to FIF thousand-seven net Wells across 500 gross widits.
The breakdown by basin remains consistent with the first quarter, as the Permian makes up almost half our oil weighted Wells in process, while the two -year high in willistson rig count is providing for additional activity.
The pace of development on our acreage footprint continues to accelerate, as we added an additional 16.7 net Wells to the drilling and completing list, knetittting 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 dnc list on average has incurred roughly 50% of the anticipated development spend and is consistent with the ramp completion activity we are expecting in the second half of the year.
Well cost came in as expected on inbound affe in the second quarter and averaged seven point two million fwell 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 115 well proposals equally balanced between the Permian and wills ste with the average expected rate of return far north of 100% and.
We also continue to partner with larger operators and benefit from their leverage of service providers.
Our active management of the portfolio on the buy side has provided us with the ability to foreorgo development opportunities with certain smaller operators who have felt the largest impact of the inflationary pain.
To that end. The NNA market has allied well in this current environment and we have been reviewing over $2 billion worth of opportunities.
While the bid-ass spread is real, there are a number of sellers of unrealistic expectations. Our attention remains on quality assets and reasonable sellers.
We have superior data scale and the balance sheet strength to meet the preferred counterparty.
one that is a reliable executor of acquisitions and that can underwrite with precision to generate a superior return for our investors.
From a ground gang standpoint we closed on four point two net Wells in Q2 and the acquisitions are expected to generate a full cycle of return on capital of 52% in 2020 -three and.
The will has been 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 package 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 are evaluating.
The focus remains in the Delaware, Midland and williston basins, which I ve provided for some of the most compelling opportunities to date.
As energy has scaled up and diversified over the last 18 months, the breadth of opportunities that we are able to pursue is also expanding.
Our ability to move quickly and underwrite assets as provided us with operator partnerships. As we co-develop acreage, physicians explore assets swaps. Look to partner on operated asset packages instead of various development agreements.
Pair with the typical non- packages that we see on an-off market. The addressable market has never been better.
While may it appear to be a sellerers's market, we continue to source unique opportunities and remain disciplined in only pursuing acquisitions that meet or exceed our return thresholds.
The batt, turn it over to jet.
Thanks alam. 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 imperily by the spring storms in the williston basin, where we have our highest oil cut assets.
Our adjusted EBITDA was T 72.5 million, which exceed the consensus estimates of the record for ennoogy.
Our free cash flow was robust at 114.3 million, the second highest in our company's history.
Our adjusted ebits was a dollar 72 cents per share in Q2, above consensus estimates.
Oil differentials were better than expected in Q2 and came in at $2 and 33 cents per barrel. Due to strong BX in pricing and having more barrels weighted towards the Permian, which has a sub $2 well differential.
Gas realizations continue 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 for the latter half of the year.
Combined with the seasonally water marcellus' differentials in the shoulder season, we expect gas realizations below 100% of byux in the third quarter.
These operating costs were 60 to four point six million in the second quarter, or $9 and 77 cents per VA, up on a per unit basis compared to the first quarter.
This was slowly expect, the factotor into our guidance for the year, driven by the second quarter occurrence of our annual firm transport costs in the marcellus.
Cash G name adjusted for acquisition. Cost related to our recent acquisitions was 93 cents per boe.
We continue to experience elevated GNA cost.
From costs associated with a highly active period of EA valuation, and many of those costs are not excluded from those figures.
Capital spending for the second quarter was 131.8 million.
Which was slightly above Street expectations, as we saw full-forward drilling activity and additional ground game activity late in the quarter.
Our willison basin spending made up 38% of the total capital expendures for the quarter.
The Permian made up 56% and the marcellus made up 5%.
The pace of our CapEx expendion ramp for the second half of 2022 will be dictated by tight conditions in the field, as we've seen both pull-forwards and delays.
A record of 57 net Wells in process, which means our growth trajectory remains very strong as we head towards 2020. -three.
The balance sheet is ingratiated, when the revolving borrowings ended only slightly lower quarter-over-quarter as a function of the $17 million deposits on our williston acquisition, as well as over a 13 million doll reduction in our 2028 notes.
In aggregate leverage will still down on an absolute and ratio basis, with an La ratio of one times.
Leverage will tick up slightly next quarter with a willson acquisition closing of the ratio should still be well below one X at year-end.
We are monitoring the interest rate environment as well as our bottom levels, and we look to find ways to efficiently reduce leverage if the market opportunity is there.
Given the cash flow we expect to generate, we forecast our revolver. Will we 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 exptended our evolving credit facility.
With a substantial increase in our borrowing base and elected commitment: the one point three billion and either five million respectively.
Got a couplple with our free cash flow. Means of liquidity remains very strong.
On the dront, we opportunistically added hedges north of $80 per barrerel since our last report, most of the piller targets in 2023 and 2024 and the top off volumes from our recent acquisitions.
We continue to tarue hedging around 60% of production on our rolling 18 month basis with slight long- to hedge and QA corporate acquisitions.
Changes in the share of the curve had allowed us to add some of our first costless oil collars in 2023, all with the floor of the reasted: $80.
With respect to updated 2022 guidance. Our production guidance is unchanged from our June update, at a range of 73 thousand to 77 thousand buildaly per day for the year.
We bumked full year loe guidance modestly by about 30 cents, most sedriven by the increase in prcessing costs associated with higher NGL prices year-to-date and the slight impact from our pending wooleson acquisition.
As I mentioned earlier, oil differentials of both the williston and Permian have been materially better than expected, So rupting in our portfoliyear guidance to four thousandllars and 50 cents to $5 25 cents per berrel.
While bumping up our gas realization guidance, we do expect lower realizations in the second half of 2022, as I mentioned earlier.
Pr modeling purices North akota has raised production taxes to a lean percent. Of oil sales areapproximately nine cents per unit financial gas.
Which as well, was in the bonds of our existed production tax guidance through 2020 -two.
All in all, the slook should generate approximately F and million dollars freecash flow for the year, which includes pay of our deferred stock dividends.
With that, I'll turn the call back over. The operator for junit.
Thank you. If you would like to ask a question, please press star one on your telephone key P a confirmation tone will indicate your line. It's in the question Q, you may. You may press star two if you would like to remove your question from the Q and for a participant using speaker equipment and maybe necessary to pick up the headset before pressing the DAR ys.
Our first question is from Neil dingman, with Truest securities, Please proceed.
Morning all next details, Nick. My first question is on capital allocation, specifically your thoughts on balancing or suggested dividend and other shareholder return plan with what looks to be continued a very opportunistic ground game.
I think it just comes down to capital allocation and kind of a risk adjustedive return, I think.
You know.
Usually when you run at a pure corporate finance perspective, both on this ground game, still some of the highest returns as multiples and valuations of compressed overall. Obviously our own securities and dividend plants 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, as the opportunities come. But I think it's really still a multi-prom kind of all of the above approach.
Glad to hear that. And then second question on competitition specifically, could you discuss kind of today's industry competitition, such as from maybe spcs or other players, versus what you saw several quarters ago when, when you took over?
Sure yes, 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 Fed by us, as that's not something we're terribly interested in.
The reason for this is that PDP properties are mortgageable 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, the quote, quote cap rate. This, of course, assum you have an accurate view of the PDP declients and cost structures to be truly safe investments.
unsizable concentrated ground GA assets and the larger packages we always have some competition but we remain highly competitive. Our biggest competition is generally the whole case and or unrealistic development expectations. Sometimes we feel that like we know too much that we lose assets because buyers may be mismodeling. The reserves costs or development timing. We're fing to lose if that's the case.
As for spcs, et cetera, all I would say is that there's a reason you go through the IPO process, which is to build alignment and create value, not just for the company, but for the new investors as well.
It creates sort of a symbiotic relationship where the IPO of participant gets assets at a perceived discount. The company then builds trust and over time earns further access to capital.
Being public in having access to capital are not the same thing and it's not just a switch you simply pulled.
So facts have an inherent misalignment, which are designed to give free value into 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 this back, 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 would bear.
When I was a kid, my brother and I would build sandcastles at 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 in our castle, have been waived clean 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 determinative value.
So I don't perceive these as real competition. I think as a team, we spent nearly five years building a strong investor base, a good reputation with sellers as a fourthright and reliable partner scale and now woodles of liquidity. I still believe we remain the best in most viable counterparty.
Great details. Always when love these analogies.
Every Board.
Our next question is from Derek whitfield. whit stfeel. Please proceed.
Thanks thenan. Good morning on, and Nick. I love that analogy.
What is price?
With my arur and new one.
Was 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 ll close in Q3. We have old production increase in about four thousand barrels in Q3 and then another three thousand barrels in Q4. Is that asseeme about right?
I mean, I think, what we're only going to have.
On the wols and acquisition, we're only going to have- let's call it- 45 days or so. Derek great, we're going to close in mid-August. The effective date goes back, but that'will be in the purchase rightice settlement. We'll get that cash flow but it won't be in the form production.
I think we see steady ramp. But I think you're going to have.
In the fourth quarter you're going to have a much the, depending on the timing, of which you're probably going to see the largest impact from completions, just because even if we have a very aggressive turn in line schedule in Q3, you're only going to get a portion of that volume. Jim, I don't know you want to comment towards that there. Case asj: we've got some pretty large pad in the williston right now that our workking through. We expect those be mostly towards late Q3, early Q4. That's when we're kind of expecting our big ramp in production from the willstant, which is obvly our highest oil cut area. So we kind of expected we kind of 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 the stronger bakkenand MOB performance in 2022? Is it perhaps longer laterals or tighter elections?
It it's a combination of the operator mix and operator, S. You know, remaining discipline. We're not seeing necessarily the step outs that we've seen in four runs in the past, and so you know you've got our low cuttos and you know what we would consider some of our best. You know top three operators contributing to that Chang. Yeah, I see a lot of the stuff that you came on in the first half of the year was well to be elected to in 2020 where well, prices were a little bit lower. sooperators are still kind of sticking to that core. You know, as we've gotten into 2020- two here with high prices, we think some operators are to step out a little bit. So we would expect some some well performance degradation towards back half of the year in 2020. 3, but so farrow, we're very pleased of theperforce that we're ining.
perrifect very helpful and thankkes for your time.
Our next question is from Austin, acquaining with Johnson Ray. Please proceed.
Good morning Nick to your team. Thank you for taking my questions.
Well first question. First question is Northern see it to be one of the few companies who are not having to increase CapEx outlook due to inflation. 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 bake in deflation in 2021, So we effectively were running cost structures from prepandemic. We never really changed that forecast and I added inflation on top of it. So, as it stands today, the only cadence and frankly, for this quarter in particular.
The only caseence that really can change that is either if you have a full forward of activity which really just borrowing from future quarters or if we had the lumpy success that you have in the ground game when you're acquiring because when you acquire the acreage or and the well boars you're accruing immediately for the capital. So the Wells happen process it might not cost very much money but you're booking all the costs of those Wells of process and so that's why it can be quite lumpy. The frankly that stands today. We're really comfortable with the guidance where it is if we had a material acceleration of 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 gold post pretty much all here and I just think that.
You know the thing is that when' 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 whereour cost structure is today and bed some small piece. And we spent a lot of time, particularly at the end of last year, as we were looking towards this, because we had a fairly grade assessment from what we're seeing in terms of where cost ultimately we're going to go, and we do expect costs to continue to increase throughout the year. But you, as you could note from our average cost, you know we're still nearly a million dollars. You know a well below where we've effectively budgeted it, but we- that's our average for the year, but weactually budgeted for higher than that as you go throughout the year. That's a function of the operating partners that we actively manage to participate with. So we have an idea: our operating partners, cost structures, their propensity to overrun and, using that data in 2020, moving into two y one and into two twenty 2, you can leverage that and structure around it.
I appreciate the color and I'm at the follow-up.
How would you prioritize your cash? Return to shareholders is a top priority of buying back the preferred shares, followed by the increase of the base dividend than debt reduction and finally repurchasing our -common shares.
I don't know it's that simple because I think it's really opportunistic I would say.
You know, the preferred stock is in the money. So the delta between the preferred stock in the common stock narrows, especially as our common dividend goes. So the cost of capital difference between them is relatively de minimus at this point in time. So I, I think common stock has gone up. I think we still you, we are a risk, a verse group. So you know, debt reductionions still plays a big role and I think there's a difference between paying down debt and buying in your bonds. youin the sense that to the extent that know, high interest high, you know, Fed funds rates, means that bond 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 o. So that actually has a impact to the equity value as well as the overall- you know So the overall debt levelsso I think that you, we really try to stay flexible. I that a 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 yield doesn't matter and when they have really high yield, that tends to create its own set of problems and its own. We don't really want to go down either. one of those past. We have no interest in being and upstream M L P of old. But I think we will be very, very flexible and you know we have put mechanisms both from an authorization perspective and and just in terms of our own internal mechanics around se C rules to be able to be very, very opportunistic.
Thank Thank you. That all for me.
Our next question is from John freeman with Raymond James, Please proceed.
Good morning guys.
No right, good thingss. First question: if I heard you right, I think you said that y God you know just a lot of opportunities in the pipeline for acquisitions and Delaware, midlim and Wilson basin. And I didn't hear you mentioned the marcellus and I'm just wondering if that's by design or it's just you know other, you know it got really competive- or just any other reasons why that one wasn't wasn't mentioned.
Mean we've looked at two or 3- you know, potential acquisitions this year in the marcellus. They just weren'in a fit. I think you know my prepared comments were around kind of the 13 process. These are are effectively current right now and so you know we've run those out kind of quarter and kind of put those the bed. So we're actively looking. It's just a matter of not being a fit at the moment and we had one marcellus prospect iveness.
Exciting to us. It didn't trade John , you canandidit, you know. Then the old whole gifts, the old whole case came to buy this.
So the follow-up I had, it's kind of the prior Atlantic questions, think that you answered you obviously done a great job managing the cost line, versse everybody else in the space and how to continued CapEx increases and I mean close you to this. But just Jo, I going to have better insight than just by anybody, given the number of operators and callross the basins at yller and I would give sort of an idea of what you would assume. Just doesn'it stand now what you would assumes a reasonable cost inflation number to plug in for next year.
It's difficult to know, in the sense that I could certainly tell you how we see it exiting, but I think you know if oil prices are $50 next year is going to be a very different answers. I think it's would be very presumptous to make the assumption. I mean, I think feder parapist if you know.
Cost increases tend to be sticky.
And so you know I think we've got about what Jim, about 15% between now and the end of the year and total set right. Yes Yeah, that's far right. I guess the kind of frame it up is it's going to deend on your operating partners, it's going to depend on your working interest associated with them, and so as we get towards the end of the year and kind of frame up and have a better idea of the cadence, So's kind of the pills and whatever else is kind of in the backlog in terms of aaffe that'll be drilling into that- we'll be a little a better frienda out up.
I appreciate the answers, guys. Well done.
Is jh.
Our next question is from John Abbot with Bank of America. Please proceed.
Good morning guys and thank you for the thanks. You Re taking my questions sort of similar along the lines of the prior question on inflation but you know, given the pivot it seems, towards going with larger companies versus smaller companies, can you provide any sort of color on the difference between afv costs between a larger operator and a smaller operat at this point in time?
I mean I've seen just from anecdotally John and I'll let the smarter people in the romance of the rest of this. But when we've seen kind of stand-up rig operators looking at the development capital.
In the Permian two to $3 million are well difference, and that's because they're paying spot prices for every single item. They're borrowing the rig, they're barying a frac crew. So we've seen.
one F E, that was $16 million orateral for its ilaterals, maybe not B to say, in that thevariability is certainly whyide in the Permian, just given the number of different operators you have, may relative to will is stand, I guess the only other thing that I would qualify it with this, you know, we're not necessarily just focused on well, cuse right. I mean we're solving for a required rate of return and so it's going to, you know, also needed taken a consideration: completion methodologies offsets, all those tyes of, you know, technical aspects to it. So what we're happy to elect to, you know, maybe above average a F E, to the extent that it's going to meet our bur rates.
apciate and it sounds. Second question is sort of on maintenance CapEx. I mean it'll, like you, have a very strong trajectory 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 you say main is GX, what the production levels you're picking? Right said that let's just just choose the 77 thousand boe per exit rate, potentially somewhere around there.
I mean that's 68 to.
62 Wells probably.
So.
But remember it's going to be.
Yes that's call it four and 50 to $5 million hand waving. But again, I think it's a little early to kind of make those assumptions.
But on.
Understand Hey, Thank you very much for taking my questions.
Yeah welcome.
Our next question is from Noel parks with two E Brothers. Please proceed.
Hi good morning.
Hi good.
Say you knowa.
Maybe as a subset the discussion about what you think about cost trends. I've been hearing hear and there from some operators that they're starting to see a little bit of trouble with materials delivery and and with that sort of backing its way up into slowing completion. So even though you know the estimated cost aren't are different, they're just starting to see that the, that that of schedule, you schedule padding or schedule slippage. I'm just wondering: are you hearing about anything like that? And and you yourar region?
Yeah absolutely and addthink we've seen material delays as much as six months on pads and.
What I'd say is I remember when I looked at June . I think be an entire net well or it seuse me to happen at well delayed in one well that came on six months early. So it's always a pushing forll. There're always delays the.
You know, the fields are very, very tight.
But statistically speaking it hasn't really been a major issue for So on. That's the beauty of the diversification in the 500 Wells that we have in process right, So we don't have one particular operator, you know, creating a big problem for us to the extent that they've got a big problem for themselves. I mean, I think our secret sau no, 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 that's why we are where we are at this point in the year with reatic budget unschedule.
Got CHA.
And I. there definitely has been a an air of caution among the operators as far as you know, committing or even previewing what the execution there for 2023- I I guess I'm just taicking in in your view. If, if say, you know, pick that number, you know by this time next year we're up in other 10%, 15 cent, 20% order, do you have any any sense of whether we might be be peaking C in terms of the service environment? I I've heard from some operators- you know we are paying the most we've ever paid for services and in a particular basase- and and then others than saying that, that they do see signs of new equipment coming online from the service companies, not at the the pace that you were have seen in past booms, but that sort of that steady crickle is on the way again, just where you had need inside on that.
I mean, I think that you know, follow the money. I think you know I've been.
Involved in the energy business for 22 years now and I've never seen the cycle in which is the service in the ider makes its the money and with relatively low barrier. Century and new equipment does the market. So Yeah. This won't go on forever. There's no as I think I said this in the last call. There's no shortage of the ability to the pipeper and in the United States or frankly to make a a pressure pumping unit. It's really just time and you know fixing some of those issues that are pleading frankly the entire world economy. So I have a lot of optimism that this in time will will pass and frankly you know.
What I would say is that there are a lot of other risks that can solve those issues for you right. That will in natural gas prices themselves to the extent that you see weakness in pricing, you will see slowing activity. If delays become So rampant, then ultimately that will become self-defeating to some degree.
So yes, I think that there will be a peak, which is it next year or this year, I'm not sure. There are certain items that we have seen to start to slow down. Things like labor take 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, to Star one on your telephone keypad if you would like to ask a question. Our next question is from nichoollas. Cope with Seaport research, Please proceed.
Hello everyone.
It was good morning.
I was curious if you could UH kind of expand a little bit, UH looking at kind of a split of of CapEx spending in in two ques UH.
Pretty big jump in in Permian is kind of a split and and is that really the opportunity said, is that where you're seeing?
Kind of the returns or driving that CapEx or is that kind of the rate we should expect as kind of a split?
Between these three assets right now.
You know that we guided I think 45, 45 and 10 for the year and I looked at it yesterday and it's about the same in the annual. I think it's just happ 't stand. Yeah, I think it's just cated to development. If I look at our CS during the quarter, you know, but look at I kind of our working interest between the Permian and the williston know our I working interest in North Dakota was around 8% whereas our koreian was around eighteen.
Got it okay. Uh, that's all I had to think. Most of everything else has going to been asked. Thanks, guay.
Sure you going to ask more.
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.
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