Q3 2022 Chord Energy Corp Earnings Call
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Okay.
Good day, everyone and welcome to the CT Energy third quarter 2022 earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions.
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At this time I'd like to turn the floor over to Michael Lou Chief Financial Officer. Please go ahead.
Thank you Jamie good morning, everyone. Today, we are reporting our third quarter 2022 financial and operational results. We're delighted to have you on our call.
I'm joined today by Danny Brown Chip Rimer and other members of our team.
Please be advised that our remarks, including the answers to your questions include statements that we believe to be 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 those currently disclosed in our earnings.
Releases and conference calls.
Those risks include among others matters that we have described in our earnings releases as well in our AR as well as in our filings with the Securities and Exchange Commission, 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 this conference call, we will make references to non-GAAP measures and the reconciliations to the applicable GAAP measures can be found in our earnings releases.
On our website.
We may also reference our current investor presentation, which you can find on our website as well with that I'll turn the call over to Danny.
Thanks, Michael and good morning, everyone. Thank you for joining our call.
Well, we've now completed our first full quarter of operations as CT energy and I'm pleased to be discussing our operating and financial results with you as well as our peer leading return of capital program. Additionally, we're going to give you some updates on merger integration progress, our ESG strategy and our expectations for the balance of the year, so with that jumping right into the third quarter.
Or I can say that our performance here exceeded expectations, we had a large volume beat which I think sets us up nicely for above consensus volume delivery for the second half of 2022 paired with that we are also lowering our capital guidance, which positions us for strong free cash flow delivery in the second half, which should be in line with street consensus given this.
Performance and combined with our strong balance sheet and alignment with our return on capital framework, We announced in August we anticipate delivering 85% of our free cash flow generated in the quarter back to shareholders.
Most importantly, we continue to see very strong well performance in the field, even as we address some operational items that I'll discuss in a moment.
So digging in just a little more on our results versus our guidance.
Production exceeded our guidance in the third quarter, largely driven by strong well performance, which you can see on slide 10 of our latest presentation.
However, some mechanical issues with the casing on a few of our new wells has extended the timing for the completion on those wells shifting our frac schedules to the right.
As a result fourth quarter production was updated to reflect this new completion timing as well as the associated volume impact of leaving surrounding wells, which are down waiting for completions operations to conclude offline longer than originally expected. We are also included in our revised fourth quarter expectations. The impact of many of our ESP in the Sanish area being offline due to a power.
<unk> caused by vehicle incident.
So in aggregate given our strong performance in the third quarter and taking into account the items above we expect to deliver total second half production volumes favorable to our August update with slightly less oil, but also slightly less capital importantly, we view these items as transient and timing related nature. The field is performing very well and we enter and we.
Dissipate no impact to our 2023 program.
On capital as I mentioned, we lowered our full year capital guidance versus our August update reflecting good performance in the third quarter, the schedule shifts and perhaps a bit too much conservatism built into our previous estimates I'll note. We continue to expect to Frac around 106 wells in 2022, which is about the same as our August update however, while total fracs are.
About the same a number of our turn in lines are pills will be pushed into 2023, taking our total til estimate down below 100 for the full year.
Now turning to our return of capital program given the strong quarterly performance previously discussed we delivered an exceptional adjusted free cash flow of $326 million for the quarter.
Recall that in August we announced a peer leading return of capital framework that returned 75% or more of free cash flow generated during the quarter when court has low leverage.
We expect to return this capital through a balanced approach of base dividends variable dividends and opportunistic share repurchases.
Our annualized base dividend of $5 per share has a yield of three 2% and represents a 233% increase in less than two years are.
Our base dividend is a core part of our return of capital strategy and importantly is designed to be resilient at low prices and to be sustainable through commodity cycles.
On repurchases in July we took the opportunity to repurchase a $125 million worth of stock at an average price of $106 25.
This represented close to 3% of the company over 50% of the non base dividend portion of our return program and we have an additional $300 million of share repurchase authorization today.
Given the above we have declared a variable dividend of $2 42 per share for the quarter and have gone above 75% of free cash flow in determining this variable dividend the aggregate variable payment of approximately $100 million is the difference between approximately 85% of the $326 million of free cash flow generated in the.
Third quarter minus the base dividend of around $52 million minus $125 million of share repurchases.
Since the merger closed and including our November payout. We will returned 865 $69 million of capital is corn and our third quarter return of 85% of free cash flow will amount to $277 million and represents an annualized yield of 18%.
In other highlights for the quarter in September we successfully monetize 16 million or about 76% of our Crestwood units added approximate discount of six 5% gross proceeds were roughly $428 million and we're expecting cash taxes of around $10 million to $15 million.
The company took the opportunity to monetize these units given an attractive mix of market conditions, which allowed us to unlock this value at a fairly modest discount.
After the sale Kirk Court currently holds about $5 million Crestwood units.
Now turning to ESG you may have noticed we recently posted a letter to our stakeholders on our website along with pro forma ESG metrics for the combined company. We provided this information in the interest of transparency and to remind the markets. We are dedicated to providing robust disclosure and improving our performance in 2023, we plan to resume publishing a.
Full sustainability report after the integration is complete highlight.
Highlights include a trend of reduced GHT intensity improved freshwater intensity, our continued commitment to safety for employees and contractors and maintaining strong corporate governance.
<unk> is currently using tier four engines and dual fuel on a frac fleet and also battery systems on our rigs, which reduced the need for diesel generated power. These technologies have mutual beneficial impacts of reducing emissions, while also saving cost.
Onto the merger, we continue to make substantial progress on integration and remain very excited about our prospects going forward. We continue to make progress on the staffing side, having solidified leadership over the summer with for further progress on managers and staff in the third quarter, we continue to integrate software and processes across all verticals and as a reminder, we've.
<unk> over $100 million per year of total synergies versus our original expectations of $65 million.
On the capital side, we are optimizing our drilling rigs and are implementing best practices. We're also implementing new practices to optimize completions as well as facility design and construction.
On the operating side in the near term, we're expecting initial investments to create the groundwork to reduce artificial lift failure rate and we should start to see the benefits of that later in 2023. Additionally.
Additionally, we're centralizing maintenance and other operations, while consolidating routes and driving further efficiencies.
And on the G&A side, we remain on track for approximately $35 million of cash savings first the pre merger baseline.
All in all I'm very pleased with the progress, we're making and the new opportunities. The team have identified I can't thank our people and not for driving this progress in making it happen. Your efforts are a recognized and sincerely appreciate it.
And with those highlights I'll now turn it over to Michael for some financial updates.
Thanks Danny.
I'll highlight a handful of key operating items for the third quarter.
As you've seen it in our IR materials, we converted to three stream reporting for the combined company I just want to acknowledge the core team for their hard work on this front converting to three stream was a major undertaking and the accounting marketing reserves and planning teams than a ton of hours, making this happen. Thank you.
Crude realizations remain at a premium to <unk>, which we expect will continue into the fourth quarter. Additionally, we provided new disclosure on gas and NGL realizations, which are net of certain marketing fees.
LOE averaged $9 86 per Boe for the third quarter, reflecting higher workover spending.
As our guidance implies we expect this to trend down in the fourth quarter.
Cash GPT was $2 39 per BOE below the midpoint of the range provided in August .
Production taxes were approximately seven 9% of oil and gas revenues in line with guidance.
As a reminder, our production tax guidance increased from seven 5% range in the first half of 'twenty two to approximately seven 9% in the back half of the year, reflecting the recent increase in North Dakota oil taxes. This increase relates to our pricing trigger effective in June as a.
Result of W. Ti, averaging above $94 69 per barrel for three consecutive months. The rate is set to reset back to lower levels seen in the first half of 2022 <unk> average is below $94 69 per barrel for three consecutive months and.
Based on the latest <unk> pricing.
As expected to occur in November .
Cord cash G&A expense was $16 $3 million in the third quarter and that excludes $55 6 million of cash merger related expenses.
In the third quarter Court took the vast majority of the expected merger related expenses and we expect these items to fall significantly in the fourth quarter.
CT paid no cash taxes in the third quarter and fourth quarter cash taxes are expected to be approximately $10 million to $20 million.
An additional 10 to 15 for cash taxes associated with the September divestment of Crestwood units.
Capex was $231 million in the third quarter about $15 million below initial expectations. The delta largely relates to timing, which is reflected in our fourth quarter guidance overall second half 2022 capital expectations are down a bit from our August update.
CT is nothing drawn on its $2 seven $5 billion borrowing base, that's up recently from a $2 billion borrowing base and now we have a $1 billion of elected commitments re up recently from the $800 million level.
Cash was approximately $659 million as of September 30th.
In closing a huge thank you to the full core team for delivering a great third quarter and expectations for the remainder of the year.
Sets us up well moving into 2023 led by strong well performance and continued focus on cost control, which leads to excellent return on capital and a peer leading return of capital program with that I'll hand, the call back over to Jamie for questions.
Ladies and gentlemen at this time, we'll begin the question and answer session.
And you May press Star and then one using a touchtone telephone.
If you are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the keys to ensure the best sound quality.
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Once again that is star and then wanted to join the question queue.
We will pause momentarily to assemble the roster.
And our first question today comes from Scott Hanold from RBC capital markets. Please go ahead with your question.
Thanks Al good morning.
I was kind of curious on.
Shareholder returns and and you know if you can give us some thoughts on what you think about the mix going forward.
The context being you obviously were fairly aggressive in July with buybacks, but it looks like it's shut down from that point so.
As you see it do you find that.
Buy backs or more opportunistic versus when wind prices when the stock price goes down versus something that's more sustainable.
Some context around that would be great.
Thanks for the question Scott Scott, It's good to hear you good to hear you asking a question so.
We've got you on the on the return of capital program. If you look at what we did over the over the course of the quarter. It represented over about 55% of our sort of what I'll call discretionary return programs. So that's the non base dividend portion of that program and so we think that share repurchases are a meaningful or a meaningful avenue and a meaningful.
Part of our overall return on capital strategy and certainly did that certainly represented that within within <unk>. As we look forward I anticipate those will continue to be a meaningful part of our return of capital strategy. As you as you note, though we look at this we do look at this opportunistically not.
Not programmatically and clearly early early in the quarter represented a great opportunity for us to do that and so we leaned in hard to that element as a result of that opportunity that we saw and when we think about opportunity. It really is around sort of are not just not just where we think the inherent.
The value of our shares are but also a relative trading performance and so we take lots of factors into account when we think about that but but we do anticipate it is going to be a meaningful part of our return on capital strategy.
Both now and as we move forward.
Got it thanks for that.
I guess my next question is going to target more on the on the identified synergies and integration I guess holistically.
Obviously, you all have identified $100 million targeting can you give us some context, just obviously as you know everybody here is sitting on the outside looking in just just give us a sense of like how should we see the synergies kind of evolved into I guess it would be ultimately free cash flow, because obviously theres a lot of things going on.
Such as inflationary pressures and everything else, so like where do you think like from an investor and analyst perspective, we're going be able to step back and saying look yes, you hear the synergies.
Obviously outside of the G&A, which are you know us.
It's pretty straightforward.
Yes, Unfortunately to your point Scott, we've got we've got a bit of a sort of changing changing backdrop that we're that we're identifying new synergies against as we see inflation and overall cost move up. The good news is is that the overall organization is is much better positioned than either organization would have been standalone to weather. These this sort of inflationary environment.
And so the cost we're seeing are we.
We're trying to hold ourselves accountable very deliberately with how we're thinking through synergies and the identified synergies that we've got and so what I think youll see is our cost structure being lower both from an operating perspective.
The low prospective a G&A perspective, and a capital perspective than it would've been otherwise but of course those overall, we have the factor inflation into this as well and so the 100 the $100 million in synergies is really sort of at a same same cost level and so as you see as you see cost increase some of those will will erode, but it would have been at.
Much worse had we not been able to do this and so we're trying to we're trying to be intellectually honest about this and hold ourselves accountable for it we've got a lot of work streams internally within the organization to make sure. We're actually realizing these synergies, but do understand that with the with the backdrop moving it can be a little hard to quantify at the end of the day, what you should see generally though is an impact to our free cash flow is.
As mentioned due to a lower cost structure, both on the Capex and Opex side.
Yeah, Yeah, and I guess it does hit a lot of different line items too, but I guess big picture is that.
As we started thinking about 2023, Capex and I assume it's too early to give much color on that but.
It would be interesting to hear if you. All think you can hold the line a little bit more relative to peers, given given those synergy savings potentials.
Yes, it's a great it's a great.
Questions, Scott and to your point, we're not ready to give full detailed guidance on on 23, yet that's probably something that's going to happen.
Towards the beginning of next year, but I will say just more more generically that we feel really good about our ability to deliver next year.
And I think given some of the impacts we saw across 2022, both the weather that we saw in April and now some of these til delays towards the latter part of the year, we're likely to show a little growth year over year for essentially a similar activity level, when we think about capital.
With the inflation, we've seen to date through sort of run through the system and given where we think things are going as we move forward we're expecting.
Maybe around a 10% increased cost for for 2023 relative to 2022, but we're refining those numbers and we're going to give sort of full detailed guidance around that after the beginning of next year.
I appreciate all that thank you.
And our next question comes from Derrick Whitfield from Stifel. Please go ahead with your question.
Thanks, and good morning all.
Good morning.
Perhaps for Danny or Michael wanted to touch on inventory, it's certainly a topic of focus throughout earnings thus far as we talked about it in the past the market generally overvalued Permian inventory and undervalues Williston inventory as investors are increasingly focused on the quality and depth of inventory are there any general high level com.
Hence you could also and the resiliency of your returns and the impact through mile laterals will have on your ability to sustain comparable capital efficiency as you look out over the next three to five years.
So Derek.
I Love the question and I would tell you Michael and I had a conversation about this recently and so since you you mentioned him I thought you had some great comments and the conversation that I had with them. So I'm going to ask him to respond to this and I may weigh in with some color comments as we as we go forward, yes Derrick.
Great question look I would say, it's a couple of things and I like the way you framed it.
Think that with more three mile laterals with the synergies that we just talked about as well and that coming through you will see capital efficiency hold pretty strong through our program over the next few years.
So the sustainability of that capital efficiency. We think is actually very strong we are not seeing may be the same.
The same magnitude of cost pressures that you might see like in the Permian.
And so there might be some additional pressures where other companies are seeing that we might not be seen not necessarily quite as much.
And then I think the other important piece that you kind of touched on as well as the predictability of our inventory versus maybe.
Other basins in general.
Our.
More mature basin than we have.
I think very good strong predictability.
Our inventory.
A little bit less of the.
Things that other other basins or are being challenged with with.
As their spacing and parent child degradation I think things are just a little bit more understood in the Bakken. So the predictability I think is a very strong consideration as you're looking at not only the capital efficiency, but in the resiliency and the length, but also that predictability piece.
Terrific.
As my follow up I wanted to build on Scott's first return of capital question.
You've clearly stopped short of increasing the payout to 85% your messaging.
It would appear that your you have a strong balance sheet, clearly and cash position and that that could allow you to sustain over 75% for the foreseeable future is that a fair assessment.
Hi.
Derek we've got a we've got a strong balance sheet, we think we've got a great.
A great return of capital plan and program, which does have some pluses at the end that allows us to lean into those.
If we think that's the appropriate thing to do so given the free cash flow generation, the low reinvestment rates that we've got and our balance sheet I think we're in a great position for return on capital.
Thanks for your time this morning.
Thanks Derek.
Our next question comes from Neal Dingmann from <unk> Securities. Please go ahead with your question.
Hi, everyone. This is Patrick enright stepping in for Neal Dingmann here.
Let's see at the start of your presentation you mentioned.
The operational delays in the third quarter I believe is due to a casing issue.
First part of my question is whether this is a one off or something that you've seen.
We anticipate may occur in the future.
And then the second part to that is what what is the what was the impact of that.
The casing issue two the two I guess the surrounding wells.
Is there a typical downtime.
Frame that you can provide.
Thanks for the thanks for the question Patrick I might I might lead off quickly and then ask chip rimer to toe weigh in on some where operational specifics that generally speaking we see this as a one off event.
Sort of for a discrete.
For a discrete set of wells that are involved in this and so nothing nothing.
Nothing sort of.
Systemic or or or.
What we think will be repeatable associated with this and so that's good news that is frustrating.
But I'm going to let I'm going to ask chip to weigh in and provide some more detail yeah. Patrick This is chip rimer. Thanks. So thanks for the question and Youre right Danny It's a one off issue we've already repaired.
Wells and with the second one will be done today or tomorrow, probably anticipate.
Fracking. These wells later in the month sometime here, we had those prior set for in the third quarter and.
Pushed towards later to the into the fourth quarter, but thats the impact on that and then you had it exactly right. We have some of these wells and depends how many wells you have around you have to do a frac protect and shut those down and so when you look at it probably the what we adjusted our guidance to probably 75% is associated with this event, but it's a onetime event.
I feel real good that we're gonna be able to track that and keep it going.
Terrific, Thanks very much.
Yeah, and it really it's really we had it we had we had a white space in the back. So we're just extending this down.
We didn't have a period of time, there we didn't have a completions running and so it's just it's just pushing it down a little further.
Great. Thanks.
Our next question comes from Phillips Johnston from capital One. Please go ahead with your question.
Hey, guys. Thanks, maybe just a follow up on Scott and Derek's question on capital return.
It makes sense you guys got aggressive on the buyback given more of the stock loans in July but.
I know the Formula uses variable dividend is sort of a pool I'm just trying to get you to your total target. So just wondering why you plug the 85% rather than 75%.
So Philips I appreciate the question as you as you know when we put that framework out we put we put that framework intentionally out with some pluses at the end to give us some flexibility and so if we felt like we were in a position where we could lean a little harder into return of capital.
Given given quarterly performance given given the balance sheet, we had an opportunity to do that and we think that performance we saw in the quarter and given where our balance sheet fits currently it was an appropriate thing for us to do to lean in a little harder into this return of capital strategy and Thats why we landed on the 85%.
Okay makes sense and then just I guess, you've got about 5 million units remaining.
Crestwood.
Just wondering what the plan might be for that and then.
I guess, if you did ultimately monetize that.
I believe the tax leakage would be a little bit higher than the units that you just sold so can you remind us what the potential tax implications would be.
Sure Great question Phillips.
So, yes, we have $5 million remaining shares, but I would say is that the.
The share sale that we did in September was was pretty opportunistic we saw a great chance of doing a few things one.
Monetizing some of the units at a good discount really helping the trading of the Crestwood units as well by removing an overhang as you know those are always kind of tricky monetization and so this is a way to to really have a pretty elegant solution, but it was pretty opportunistic it came very quickly and.
Came together.
At a great discount for us as well.
I'd also note that.
We are very happy shareholders, they're doing a fantastic job, they're our largest midstream provider and we're the largest customer on their system. We love what we're doing and you see the well productivity that we've been talking about and the strength of that we feel very confident in Crestwood is doing.
So we really like we like those shares their pain are really strong.
Distribution as well so we like that side of it as well. So we have no no current intentions on that side to speak of but.
You mentioned the tax.
Tax perspective on that.
So what youll notice that the large sale that we did in September comes with very little tax leakage on those those units, but the remaining units have actually a negative basis associated with them.
And that will lead to if we monetized, let's say today at the current share price that Crestwood is trading at it would be about a 40% to 50% tax tax leakage on the remaining shares.
So that gives you a kind of a band of what that might look like in today's prices, obviously that changes a little bit if prices move up or down on those units.
Alright, Thats very good color, thanks, very much Michael I appreciate it.
Absolutely.
Our next question comes from David <unk> from Cowen. Please go ahead with your question.
Thanks, Danny Michael Chip I appreciate you taking the time today.
Absolutely no problem.
Wanted to talk about just the Crestwood monetization, obviously now you have.
Almost $700 million of cash on the balance sheet and you project to be quite free cash generative.
A pretty generous return of capital program, but in any way how do you. How do you think about the cash balance right now appears to be a bit elevated and it doesn't seem like the crestwood monetization, that's necessarily going or being considered in terms of return of capital. So maybe there's more.
But just wondering how youre thinking about that heading into next year.
Yeah. Thanks for the question David So it's a great question.
And we continue to evaluate the use of proceeds here and I would say as always we have been.
Transparent about our thoughts here, we frame our capital allocation decisions really around four different buckets those for being around organic growth opportunities debt repayment opportunities inorganic opportunities or M&A type things and then share returns.
I'd say, we think we've got a pretty robust framework for share return perspective, I talked briefly about our capital plans and our capital plans for four.
For 2000, or 2023, and and obviously, our as you mentioned our balance sheets in a great spot. So debt repayment isn't really something that we that we're very focused on and so I think we have given this this return framework that we've got that we feel is pretty robust.
We also do think about how we're positioned within industry and we mentioned before the consolidation is an important is an important theme for us and that we need to participate in that one way or another.
And so we we think having a little bit of firepower on the balance sheet to be opportunistic if the time, if the opportunity presents itself as a good thing for us and so on but we're going to be very prudent about that.
I will say that we've passed on we passed on a few opportunities and were very discerning on these sorts of things, but we think we're well positioned to be a consolidator and just given.
Given our balance sheet, and where the where the banks are at currently it probably makes little sense for us to have a little firepower around that and but we'll continue to evaluate this the use of proceeds and really all capital allocation in the framework I mentioned earlier and really our goal at the end of the day is to be seen a great capital Allocators Cross cycle, and that's really important to us.
Thanks, Danny some nice and fulsome response.
If I could ask one about 'twenty three I know youre not prepared to give explicit guidance, but.
Thinking about just sort of benchmarks or goalposts is it fair to say with fourth quarter. The implied guide of or explicit guide. The 170 to 200 includes perhaps a little bit more activity than we would see on an average run rate basis next year.
One is that fair to say and then too.
I guess, if we think about just cost inflation on top of what we're seeing now do you still have outstanding Rfps for most of the work to be performed in 'twenty, three with Frac crews and drilling rigs.
So on the on the RFP side, we've got we've got rigs contracted through the better part of next year not completely through the full year, but through the better parts, let's just sort of think through kind of third quarter timeframe.
And so from a rig standpoint.
That's nice to know I will say there is no on any of these things, particularly with some of our completions cost a lot of these costs are pass through in nature, and so as we see fuel cost move up our costs move up and we can see labor adjustments and thats, where stuff not so much on the rigs, but with some of the other services. We have so I think it helps it helps secure those services for you certainly on the drilling.
It helps lock some of your cost in what you can see some cost movement, even with even with your contracts on some of the some of the balance of the program, but feel great about the services.
The availability of services for us as well as the as the rates. We've got currently as we've got currently under contract with respect to activity.
Fourth quarter.
To your point, we've got a lot of activity in fourth quarter, it's probably not on a on a run rate basis, probably a little more than what we would do on average over the course of.
2023, so it may not be the best marker to use if you are trying to project out what our 2023 program. It looks like my comments earlier with respect to kind of how we're thinking about 'twenty three is probably better way to think about it so.
I think probably slight production growth over year over year.
We recognize we had some hiccups over the course of this year with the weather that came through in earlier in the year and then with these til delays, so a slight slight production growth likely year over year for on an inflation adjusted basis.
Maybe.
Similar cost, but factoring in inflation is probably 10% up something like that.
I appreciate the answers.
Okay.
Yes.
And once again, if you would like to ask a question. Please press star and one.
Our next question comes from Paul Diamond from Citi. Please go ahead with your question.
Good morning, all thanks for taking my call.
To touch base quickly on as you guys progressed towards three mile laterals.
Has there been any kind of unexpected pinpoints or unexpected simplicity that you guys have encountered or has it all been pretty low.
One of the mill.
Yeah, I'd say one of the great things about Bakken is it's pretty easy, it's pretty easy drilling up there.
We've certainly seen that with these three mile laterals I'll ask Jeff to weigh in more but.
The program's gone very very well.
Knock on wood, it's gone very well.
Paul So I appreciate the question and the drill outs. So that's always one of the challenges. We've had we have a coil unit out there and then go three models, we've been able to go.
10 of these out right now we've been able to almost near the top all the way to the end plus we used dissolvable plugs and so we feel real good about clean outs and thats actually going to save us when it's all said and done because some of our plant had to clean out some of these going forward. So I see a big savings there going forward.
Understood. Thanks, and then just one quick follow up you guys have talked about wanting to be very selective on what any potential.
Bolt ons or acquisitions and should you passed on a couple of deals was it.
Was it more of a pricing or an acreage or kind of what was the rationale on passing and kind of what makes what in your mind is that sweet spot for a deal.
Yes, I think I think you factor all those things in and.
And so you.
You want to make sure that year.
Which I think is appropriate and how do we weigh those things against one another it may be cost in acreage and quality of inventory and quality of existing production.
So there's a whole lot of factors that go into it.
We think we're in a great position, we've got a deep inventory base within our own position currently but.
But we do think we are a very sensible consolidator and so we're going to be opportunistic and look to participate in that market, but also recognize that we need to make the organization better through these actions not just bigger through these actions. So it will be very.
We'll be selective but when the opportunities present themselves, we want to be able to act on them. If they are the right thing.
Understood. Thanks for the clarity.
Thanks, Paul.
And ladies and gentlemen, with that we'll conclude today's question and answer session I'd like to turn the floor back over to Danny Brown for any closing remarks.
Thanks, Jamie well to close out I'd like to thank everyone for their time today I'm very happy with how the integration is progressing and think we are creating an excellent company with a differentiated opportunity to create value.
We remain very committed to our core strategy, which revolves around being strong capital allocators, retaining financial flexibility and returning significant amounts of capital to shareholders. We're doing this with a focus on sustainability and drive for further improvement across every aspect of our business. We're excited about the opportunities going forward for our shareholders employees communities and other <unk>.
Holders thanks for joining our call.
Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.