Q3 2022 Crescent Energy Co Earnings Call
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Greetings and welcome to the Crescent Energy Q3, 'twenty 'twenty interim results conference call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press.
<unk> Star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Randy candle.
Chief Financial Officer.
Thank you you may please speaking.
Good morning, and thank you for joining <unk> third quarter 2022 earnings call.
Remarks today will come from our CEO , David Rocker, Charlie and myself.
Todd Waltz, Chief Accounting Officer, and Ben Cornering plate Rinn Executive Vice Presidents are also here today and available during Q&A.
This call may contain projections and other forward looking statements within the meaning of the federal Securities laws.
These statements are subject to risks and uncertainties, including commodity price volatility the continued impact of COVID-19.
No political conflicts, including in Russia, and Ukraine are.
Our business strategies and other factors that may cause actual results to differ from those expressed or implied in these statements.
Our other disclosures.
Disclaim any obligation to update any forward looking statements after todays call.
In addition, today's discussion may include disclosures regarding non-GAAP .
Financial measures for a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure. Please reference our 10-Q and earnings press release available on our website with that I will turn it over to David.
Thank you Brandy and good morning.
Next month will Mark our first anniversary of becoming a public company.
A lot has changed in the market environment over the last year.
But at present, we continue to execute the same strategy that we've used successfully over the last decade through market cycles and volatility.
Number one generating significant free cash flow.
Number two exercising prudent risk management and number three producing outsized returns on investment.
And thanks to the dedication expertise and hard work of everyone that the members of our team. We're pleased to discuss yet another strong quarter and exceptional progress on our value creation goals.
Before moving to this quarter's results.
I'd like to highlight some of the significant achievements from this past year, both operationally and financially.
Which add value to the company and keeps us well positioned for continued long term value creation for our shareholders.
To begin we continued our successful acquisition track record would be highly accretive $690 million Uinta Basin acquisition closed earlier this year.
We believe these assets add meaningful value for shareholders.
Significantly increasing the scale of our production base with approximately $1 billion proved developed PV 10.
While also enhancing our margins and adding attractive oil weighted inventory.
The transaction exemplifies the power of our acquisition platform.
And we expect our deeply experienced team of investment and operational professionals will continue to deliver value through our acquisition strategy in what remains a capital constrained sector.
Next we continued to demonstrate our commitment to balance sheet strength free.
Free cash flow and returns to investors.
Our cash flow generation allowed us to achieve over $250 million of debt reduction post acquisition and our leverage at 930 is in line with our long term target of one times debt to EBITDA.
We also announced 17 cents per share dividend again, this quarter, which has expanded 40% over the course of this year from <unk> 12 per share in the first quarter.
We continue to execute well operationally across the company, even as we face tougher market conditions and increasing scale of the business.
<unk> acquisition marked our seventh transaction since the beginning of 2021 and our team continues to successfully integrate these assets into our portfolio, while maintaining strong operations.
Crescent is an organization of scale with approximately 150000 barrels of oil equivalent per day of production.
And $1 4 billion of annualized adjusted EBITDA.
And $2 3 billion of adjusted EBITDA on an unhedged basis for the third quarter.
We also have approximately $6 3 billion.
<unk> developed PV 10 at 930 strip pricing.
Additionally, we have continued to create value from our large reserve base investing $600 million to $700 million in our development capital program.
Primarily concentrated across our operated positions in the Eagle Ford and Uinta basins.
We expect to generate in excess of two times our invested capital.
With our attractive drilling inventory and consistently low reinvestment rate.
<unk> has been able to compound value through the drill bit while preserving the strength of our balance sheet.
Importantly, we continue to prioritize our role as stewards of the environment through our ESG initiatives.
Joining the oil and gas methane partnership and publishing our second ESG report in September .
I encourage you all to read our sustainability report, which includes tangible operational metrics and targets, most notably our goal to reduce absolute emissions by 50% relative to our 2021 EPA reported baseline.
Our team has identified a number of low cost projects that provide high confidence emissions reductions opportunities and has increased efforts on detection and measurement of emissions, which are highlighted in the report.
We will continue to update the market on our progress in this important area.
Finally, we've continued to execute on our capital market strategy into what has been an increasingly volatile broader market.
In the high yield market consistent with our strategy, we issued $200 million of tack on notes in February to term out the <unk> that we acquired through the contango merger.
And through good performance and supportive of our Bank group, we increased our borrowing base and extended our term maturity to five years, ensuring no near term maturities.
In the equity capital markets, we completed our inaugural secondary offering in September which was the first marketed deal in the E&P space This year.
Raising gross proceeds of $86 million.
The transaction progressed, a significant goal for our organization, increasing public float by 15% and taking a key step in continuing to build public awareness and broader broadened our institutional investor base.
Further in connection with the transaction, we executed the concurrent buyback of over $2 5 million class B private shares.
Reducing total shares outstanding by approximately 2% at what we believe remains an attractive valuation of our business.
Additionally, we significantly advanced our public presence through increased research coverage, adding four research analysts since the closing of our merger with contango late last year.
And as a reminder, we describe our current investor base in three groups.
One our legacy private investors pulled approximately 55% pro forma ownership post transaction.
One from 60%.
Number two.
<unk>, our manager did not participate in the offering and remains an aligned and supportive long term shareholder retaining at 16% ownership in.
And number three the <unk>.
Public class a shares representing 29% ownership in crescent up from 25%.
We are pleased with our progress on these goals and we will continue to execute our capital market strategy in a methodical way that is aligned with long term value creation for all shareholders.
In summary, the scale of our achievements year to date is a testament to the strength of our asset base and the quality and performance of our people and we do not take this for granted.
Each of these accomplishments aligns with our broader goals, we set for ourselves and outlined to the market since becoming a public company late last year.
To put it plainly we've done what we said we were going to do and we're confident we are well positioned to continue to execute on our strategy of creating long term value for shareholders.
Now moving onto our third quarter results.
As I briefly touched on Crescent continues to perform in line with our expectations and what we anticipate will be our most active quarter of well completions for the year.
We spent $190 million of capital in the third quarter, the bulk of which was attributable to our operated drilling program, having maintained two and a half rigs across the Uinta and Eagle Ford and brought online 13 gross operated wells for the quarter.
Additionally, we participated in another seven gross and one net wells brought online across our non operated assets in the Permian DJ Basin and Eagle Ford.
Given the heightened completion activity total production increased 6% from 142 to 150000 Boe per day and oil production increased 8% from 64 to 69000 barrels per day.
On the financial side, the business generated $359 million, and adjusted EBITDA and $144 million and Levered free cash flow.
Delivering consistent cash flow despite the decline in commodity prices relative to the previous quarter.
Going forward, we expect our capital spend to be fairly flat quarter over quarter, while well completions in the fourth quarter will decrease ahead of increased completion activity in the first half of 2023.
Across the A&D market, we remain on pace to evaluate north of 150 transactions. This year and would characterize the past two quarters is a more challenging period to be a buyer across the sector.
And the energy market more broadly this past quarter saw sustained commodity price volatility.
<unk> by an increasingly complex geopolitical environment.
All while ongoing inflationary pressures continued to create headwinds across our industry in the form of supply chain constraints and service company to supply demand imbalances.
This combination of commodity price and cost uncertainty alongside an economy wide shift in central banking policy and the implied cost of capital has continued to challenge the bid ask spread and the energy asset market.
Even as an ever increasing volume of assets are coming to market a significant.
A good portion of these processes.
Main on the sidelines.
However.
A&D activity has begun picking up recently and we're expecting meaningful improvement in the A&D market over the coming months.
Fortunately for Crescent are.
Continued participation in the A&D market has kept our finger on the pulse all while the nature of our asset base with our low decline rate and multi year inventory of high returning locations has permitted us to stay patient and evaluating new transactions.
That patients allows us to continue to adhere to the disciplined framework and investment criteria that guide our evaluation process.
Our market presence and patients have also allowed us to find good value as we opportunistically divest non core assets.
Turning back to operations over the course of the last quarter, we ran one and a half rigs in the Uinta basin and one rig in the Eagle Ford and our development program continues to be underpinned by a returns driven decision making.
<unk> attractive returns on capital and short payback periods.
We plan to run one rig in the Uinta for the remainder of the year the shift we made in August .
This allows us to continue to validate our spacing and completions design optimization relative to the previous operator.
And while it is still early our initial data suggests those changes are translating into a positive impact on overall performance.
This process of validation and optimization comes at a good time as it corresponds well with managing our development cadence, while our midstream provider and additional capacity to our infield gathering system to support future volume growth.
As we have said in previous quarters, we continue to see if the industry trend of deferred maintenance impacts in our assets and service providers are not immune we.
We will continue to do our best with planning and operations to mitigate the potential for future impacts on cross sell.
And while the inflationary pressures continue to manifest.
Spec to remain within our publicly stated capital guidance range Pri.
Primarily due to increased drilling efficiencies across our Eagle Ford position.
Where our continuous acreage position allows us to extend laterals.
Most recently.
Through a pad brought online this past quarter with average lateral lengths in excess of 16000 feet.
As well as through the continuous improvement as we implement our development strategy in the Uinta.
Both of which we feel will continue to provide a tangible offset to costs as we work with service providers on establishing a consistent repeatable process.
Additionally, we've continued to see sustained inflationary pressures across our operating cost structure.
Approximately 10% year to date.
Primarily due to increased maintenance and commodity linked costs, but also due to high returning elective workover activity as well as nonrecurring expenses related to our recent acquisitions and merger with contango.
Looking ahead to next year, we expect we could see further inflation, particularly on the services side with the market remains anomalously tight but.
But we are confident our team will continue to find ways to achieve repeatable operational efficiencies.
As we remain focused on operations in Q4 and beyond we look forward to posting 2023 guidance over the coming months.
At a high level, we anticipate running a maitland maintenance level development program over the course of next year as.
We are mindful of margin compression into stabilizing commodity prices with the potential for sustained capital inflation.
Our organizational focus on generating attractive returns on capital as opposed to growing production ensures we will remain flexible, particularly as the A&D market continues to evolve and with it our view on the highest returning use of capital.
In short we're happy with the progress we've made this year and remain optimistic about our value creation potential given crescent current positioning and the unique opportunity set laid out before us with that I'll turn the call over to Brandi to cover our third quarter 2022 financial results in more detail and our remainder of the.
Your outlook.
Randy.
Thanks, David I third quarter results reflect yet another solid quarter for our business as we continue to prioritize shareholder returns in the balance sheet.
To recap, we produced 150000 net barrels of oil equivalent per day, and 69000 net barrels of oil per day, which reflected 6% and 8% increase quarter over quarter respectively.
Due to a higher plane and completion activity.
Additionally, we generated 359 million of adjusted EBITDAX of $144 million of Levered free cash flow mainly.
Maintaining consistent cash flow generation, despite the fall off in commodity prices.
Alongside earnings we announced a quarterly dividend payment of <unk> 17 per share consistent with the previous quarter.
Part of our forthcoming 'twenty 'twenty three guidance, we intend to reevaluate our base dividend within the confines of our 10% of adjusted EBITDAX framework and subject to board approval and look forward to declaring our 2023 dividend.
As part of our forward.
Outlook early next year.
Diving into the specifics our oil differential has increased modestly quarter over quarter, primarily due to growing production from argument debate that.
<unk> had been more than offset by the higher oil weighting of our production this quarter.
Operating costs, excluding production and other taxes for the quarter were $15 33 per Boe.
A 4% increase quarter over quarter.
And David briefly mentioned this increase is partially driven by inflationary pressures in certain commodity linked cost that a meaningful piece of our overall increase was driven by increased maintenance activity and high return elective workover projects.
Additionally, we incurred certain nonrecurring operating expenses over the course of the third quarter, primarily due to the expenses stemming from our first year as a public company as well as our most recent acquisition.
Clean as nonrecurring expenses, our operating costs, excluding production taxes were decreased to $14 87 on a per unit basis outside.
Outside the high end of our prior Opex guide.
Adjusted recurring cash G&A totaled $8 40 per BOE, which is in line with previous expectations.
We continue to benefit from synergies associated with it he went to face an acquisition, which added significant scale to the broader business.
All contributing minimal incremental G&A.
I would note this calculation excludes certain nonrecurring expenses associated with the contango merger and the formation of craft and energy as a new public company.
And we expect an incremental $3 million to $5 million of one time expenses for the remainder of 2022, including post merger integration and other transaction related costs.
For the full year, we anticipate $25 million to $30 million of nonrecurring expenses impact G&A and operating expenses due to these factors.
On capital spending we invested $190 million in the third quarter drilling five gross operated locations in the U S. At five in the Eagle Ford.
Additionally, we brought online another 13 gross operated wells and he went to that.
Today, we brought online 50 gross operated well at 48 net operated wells. This year as part of our 2022 program and continue to see high productivity and strong returns on capital.
We expect the significant majority of our programs to payback in the range of 12 months to generate more than two times our investment at today's commodity prices.
Today, we are continuing to operate one rig in both the Eagle Ford and he went to beat them.
If they came off quarter, we shifted to one rig if you went to in August as we began to implement and monitor optimize spacing and completion design and manage volumes ahead of our third party gas gatherers plant expansion.
And David mentioned, we expect the third quarter to be our most active this year for wells turned in line.
For this upcoming quarter are guiding relatively consistent capital spend to the second and third quarter, but lower production due to less completion activity.
For full year 2022 capital guidance, our estimates are unchanged at 600 to 700 million with approximately 80% allocated to operated development in the Eagle Ford and Uinta Basin.
As discussed on our call last quarter, we expect to end up between the mid to high end of our original guidance range subject to timing adjustments associated with our operated program around the end of the year.
Similar to the others across the industry with continued to see inflationary pressures that have been able to successfully mitigate a portion of those pressures through increased drilling and completion efficiencies across our operated assets.
Given the rapid escalation in development cost coupled with the significant task of integrating it 30000 barrel of oil equivalent per day at that we're pleased with the efforts our team has put forth to keep us within our guidance range set at the beginning of this year.
On the balance sheet, we exited the quarter with LTM leverage onetime and 625 million in liquidity.
Since closing the acquisition at the end of the first quarter, we've repaid $256 million in debt and as we continue to generate significant free cash flow for the remainder of the year, we expect to maintain leverage at or below our target level of one times EBITDA by year end.
In September of this year, we completed our fall redetermination, increasing our borrowing base.
From one eight to 2 billion and extending our term maturity and additional two and a half years.
Ensuring we have no near term maturities for the foreseeable future.
Additionally, we successfully negotiated a 50 basis point reduction in interest rate margin for amounts outstanding on our credit facility.
Taken together, we're pleased with the outcome of our determination process, which speaks to the relative strength of the business. The outlook for substantial cash flow are growing proved reserves and our strong balance sheet.
Additionally, last week, we signed a purchase agreement to divest our noncore operated Midland basin position for total proceeds of $80 million subject to customary purchase price adjustments.
The proceeds of which will be used to repay debt in the near term.
And we anticipate the transaction to close by year end 2022.
Year to date, we've divested over $100 million of noncore asset we're supposed to decrease 2022 production by one and a half to 2000 barrels of oil equivalent per day, and EBITDA by $25 million to $30 million relative to our prior full year guidance.
And the capital markets as we hit on last quarter, we recognize that the current market positioning and awareness across it is not yet at a level consistent with peers of similar size and more nuanced aspects of the business such as our lower decline rate and the impact of hedges have on near term cash flows are still not fully appreciated and reflected in our current valuation.
And while some of these features will improve over time as we continue to post positive results complete accretive acquisition and legacy acquisition related hedges continue to roll off we sell D market visibility and education is a key piece of our strategic plan for 2022 and beyond.
We are committed to an active approach to building awareness of our story, which we intend to accomplish by engaging with the market to expand or followership improve our floating and increase equity research coverage.
Last quarter, we took a tremendous drop in doing just that through our inaugural public equity offering which was the first E&P marketed equity offering of the year. Initially marketed for 5 million shares we received significant enthusiasm for the offering from both existing and new investors in our business, allowing us to exercise the green shoe option and salad additional 750000 shares.
The offering was complemented by the company's concurrent purchase and retirement of just over $2 5 million class B private shares at the same price per share and received by the selling stockholders.
Wind offerings remain pro rata across our legacy private investors with the exception of the units owned directly by kit here and co who continues to retain its ownership and compress it.
Pro forma for the transaction of private investors on 55% of the business maintaining significant alignment with <unk> public float will take care of retained its direct investment in <unk> as a supportive long term shareholder.
In addition to take care of retaining a stake members of our management team and board of directors continued to increase their direct ownership and crossing over the course of the quarter further promoting the alignment. We believe is crucial to creating an optimal outcome for our shareholders.
In light of the offering we want to reiterate that we do not intend to pursue a public share buyback program like many of our public company peers, which.
Which we believe would run counter to the creation of long term value that increased float and market presence provide however, we may continue to conduct similar buyback of our private shares in connection with future secondary offering.
That is a tool available to us that does not compromise public float, but we will continue to evaluate based on the implied returns associated with that use of capital and impact of our balance sheet.
Looking forward to this upcoming quarter, we anticipate a slight decline in production given the increased completion activity in the third quarter of this year is a significant portion of our development capital will be driven by drilling activity for.
For the full year 2022, we anticipate to land near the midpoint of our production guidance range due to the continued inflationary pressures impacting our operating cost structure at the low end of our EBITDA and free cash flow guidance when accounting for the divestitures and decreased commodity prices.
As a reminder, our prior guidance was established along at our first quarter earnings in May and provided at $100 per barrel of oil and $6 pregnant and Btu gas.
I am pleased with our results year to date and the progress we've made at the operational results are continuing business as usual and Crescent had taken a significant step forward in expanding our public markets positioning through its inaugural secondary offering with that I'll turn the call over to David to provide the closing remarks.
Thanks Brandi.
Moving on to Q&A I want to reiterate some of our year to date highlights, which we believe provide the foundation for sustained value and success.
First we completed the Uinta basin acquisition, adding significant scale to the business and increasing our runway of high margin oil weighted inventory.
Second we increased our dividend by 40% passing through the accretive nature of the Windsor transaction, while continuing to Delever the business, having repaid over $250 million of debt over the past six months.
Third we continue to post strong quarterly results, while successfully integrating a number of new assets into our business.
Creating a business of scale with approximately $2 3 billion, an unhedged annualized adjusted EBITDA and approximately $6 3 billion improved developed PV 10 at 930 strip pricing.
Fourth we've continued to create organic value across our $600 million to $700 million capital program developing high returning locations and managing an inflationary environment with repeatable operational efficiencies.
We've continued to prioritize our role as stewards of the environment publishing our second ESG report and committing to reduce absolute emissions by 50% by 2027.
And finally, we've continued to prioritize capital markets activities, raising incremental bank and high yield debt completing the year's first marketed E&P equity issuance, which increased our public float by 15%.
And adding research coverage from four analysts over the course of the year.
The achievements, we've had our first year as a public company continued to demonstrate <unk> differentiated business model is working and will continue to position the company for success into what remains an attractive market backdrop for our sector.
Thanks, again for joining us today and with that we will now be happy to take your questions.
Yeah.
Okay.
Thank you.
At this time, we will be conducting a question and answer session.
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We have a first question from the line of Neal Dingmann with Truest Securities. Please go ahead.
Good morning, guys. Thanks for the details could you talk maybe just a bit about more of your maintenance plan. I know you don't have a specific 23, but I'm just thinking about.
Around maybe flat production and how you might think about cost Oss and everything.
Is it a sector next year. Thank you.
Yeah happy to take that Neil it's Ben.
What I'd say is as David <unk> noted in the opening remarks, we expect to kind of be in maintenance mode next year.
Thinking about running kind of a two rig program that we've been running more recently into next year, we've talked about that in the past to maintain to slightly grow our production. That's a two to three rig program. So I think thats. What you should continue to see from us from a activity level, but we'll be obviously coming out with guidance here in the near term as it relates to cost <unk>.
<unk> look we're seeing the same trends that everybody else in the sector is seeing.
Which is expected given the move in the commodity price and increased activity.
Can we noted that when we came out with our guidance coupled with the Uinta basin transaction or an increase of 10% to 15%.
We've done a good job combating that both through enhancing laterals lengths in the Eagle Ford and then also.
Changing our completion design in the Uinta, which is meaningfully below.
Where the prior operators costs was before you take into account the.
Inflation, but.
On the outlook our view from here is that inflation is really going to be tied to activity and continued activity in the sector and so while we still see pressure, we certainly have seen the pace of increase in cost moderate.
And we think that our low decline asset base will continue to advantage us in an inflationary environment just given the.
The relatively lower amount of capital that's required for us to invest back in their assets to maintain our production. So hopefully that answers your questions, but happy to.
And upon that.
Thank you Neil do you have any further questions.
So I was just wondering about the Uinta, if youre re stimulate or what youre doing there to revitalize that thank you.
Yes, it really.
It's in our Investor presentation, I don't have been performing in terms of the exact page, but really what we've done in the Uinta is twofold one.
We've widened out spacing.
Which you would expect to deliver better results and then coupled with that we've increased completion intensity.
In terms of the amount of proppant and fluid that we're pumping in the in the reservoir.
And we've changed that in terms of the types of things that we're pumping into the ground, which ultimately is lowering the cost of that completion.
Thank you do you have any further questions Neil.
Thank you we take the next question from the line of Lloyd Burn with Jefferies. Please go ahead hey.
Guys David.
Nice job.
You talked about the A&D market is.
And how you scrutinize the 150 transactions in the market might be getting better as you look out.
So maybe you could address that and then also.
You talked about when you sold actor scale.
And does that mean that you'd rather scale up the winter in the Eagle Ford or it doesn't really matter as long as the.
The value is there.
Yes, we can start on <unk> quickly I think if we looked at the portfolio that was just an asset.
There's going to be difficult to scale around given where it was in the basin.
And frankly, it wasn't going to be a place where we're very committed to spending capital on so ran a process and felt like we've got good value. So I don't think its a direct.
Correct statement on the broader Permian or anything like that I think it was just got answered.
And kind of how we felt about the capital opportunity relative to the portfolio.
In terms of the broader market honestly.
David David here.
Much of this burden.
We are really active post the signing of the <unk>.
It's heiko murdered at over $1 billion of transactions through Q1, and then Q2 and Q3, there are commodity volatility, having a tough time to kind of be a buyer of value.
As we work down from here or are we kind of remain in active dialogue on a number of conversations see kind.
Kind of the stability in the market a bit although today is the volatile provider.
Providing an outlook, where we can we think we will be able to transact at value as we look over the next six to nine months.
And the other thing I'd, just say, we're even better positioned today.
Really coming out of all the accomplishments that we have completed for the last couple of quarters. We've successfully integrated the Uinta acquisition, it's going well, we've continued to pay down debt on the balance sheet and completed.
And equity offering that was really well received so just as a business, we feel really very well positioned going into next year, we do expect to see.
Continued activity in the A&D market and the things that have gotten done have gotten done at very attractive values, we think.
Okay, Great and let me ask on the back of that you talked about paying down debt and your balance sheet is in great shape, what are the priorities for your.
Levered free cash going forward is just building cash at this point waiting for the right opportunity how do you think about that.
Hey, Lloyd it's Randy good question, so cash flow priorities <unk> continue to be the dividend and the balance sheet alongside earning and last night, we announced another 75 per share per quarter dividend, which is in line with our last quarter's dividend equates to roughly a 5% yield.
We expect to continue to.
Keep the dividend framework keeps us in the near term are paying out 10% of our adjusted EBITDAX.
We would expect next quarter's dividend to be in the same range that roughly 17 cents a share and then we will look to reset it alongside guidance.
In 2023.
So it's really a balance sheet strength long term target amount of debt maturing, which we are at now that the dividend will look.
Organically into our.
<unk>.
Our capital program right, where we're spending capital and then mentioned this earlier, we are fortunate to count.
And then.
The Eagle Ford today, and then if there is excess cash.
Thank you for your focus on debt repayment.
That's great.
Thank you for you guys, if I could squeeze one more in on the drilling efficiency side, because it's a pretty good job, obviously with the longer laterals.
Helping to offset inflation is there more there going forward.
I know neill touched on it a little bit in the Uinta, but just in general.
How do you see efficiencies in.
Maybe offsetting some of the inflation.
<unk>.
Yes look I think our teams have done a really good job today and we've done a good job combating this year Theres always room for continued improvement so don't want to over promise there, but we're driving every day to reduce our cycle times and to.
Do the things that we've done this year to reduce costs. So I think you'll see continued efforts on that and then really.
I think as we noted earlier, it's really just how active is the sector is going to be in.
Ultimately, where do we land there in terms of some of the supply chain constraints that we've seen but again like I said it has moderated but we do see continued pressure so.
Hopefully not to the same extent that we've seen over rate of change this year, but.
But we're seeing pressure and we're constantly pushing back trying to be creative to continue to lower our cost structure.
Great. Thank you.
Okay.
Thank you we have next question from the line of Toric comments J P. Morgan. Please go ahead.
Hi, This is Evan on for Terry Thanks for taking our questions. So first you mentioned.
We're planning to increase completion activity in the first half of 2023, just wanted to see get your thoughts on what youre expecting for production cadence entering <unk>, but also through 2023 for any high level commentary you can provide.
And then.
Randy.
Our prepared remarks, we do expect production declined slightly quarter over quarter, and that's just really driven by til activity.
As you know, we don't provide quarterly guidance.
Would you.
Ben mentioned earlier, just as we're thinking about 2023 and that it's going to be more of a maintenance levels I would expect on an average for the year, we would be plus or minus 140000 a.
Good day.
Got it. Thank you that's helpful.
And then also I was wondering if you could provide a little bit more color on working capital in the third quarter. If there is any kind of carryforward into the fourth quarter.
Yes, good question Randy.
We would expect that to normalize in the fourth quarter, there's a little bit of noise just related to the Uinta transaction.
I would expect that to normalize going forward.
Okay.
Great. Thanks, that's all from us.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to David <unk>, Charlie CEO for closing remarks over to you Sir.
Great. Thank you all again for your time and your support of the business.
As you hopefully heard today.
Think that the business is doing really well and we look forward to keeping you updated as we move forward.
You very much.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation ladies and gentlemen.
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