Q4 2022 Northern Oil and Gas Inc Earnings Call
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Greetings and welcome to the northern oil fourth quarter and year end 2022 earnings conference call.
At this time all participants are in a listen only mode. A brief question and aspect session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now my pleasure to introduce your host Evelyn and further vice President of Investor Relations. Thank you everyone. Please go ahead.
Thank you Paul Good morning, and welcome to our fourth quarter 2022 earnings Conference call.
Yesterday after the market closed we released our financial results for the fourth quarter and fiscal 2022, you can access our earnings release and presentation on our Investor Relations website, and our Form 10-K will be filed with the SEC within a few days.
I'm joined here this morning by Energy's Chief Executive Officer, Nick O'grady, our President Adam Berlin.
And our Chief Financial Officer, Chad, Allen, and our EVP and Chief engineer Genmab.
Our agenda for today's call is as follows Nick will provide his remarks on the quarter and on a recent accomplishment.
Adam will discuss an overview of operations and Chad will review, our fourth quarter financials and walk through our 2023 guidance.
After our prepared remarks, the executive team will be available to answer any questions. Before we go any further let me cover our safe Harbor language. Please be advised that our remarks today, including the answers to your questions may include forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward looking statements.
Those risks include among others matters that we discussed 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'll turn the call over to Nick.
Thank you everyone I'd like to take a few moments to welcome Avalon to the energy team.
Everyone comes with tremendous amounts of capital markets and Investor Relations experience.
Excited to have her on board.
Alright, I'll get down to it with five key points.
Number one business fundamentals are strong.
Delivered strong results in the fourth quarter and the full year.
Fight lower commodity prices and severe weather, we generated approximately $90 million of cash in the fourth quarter and still well within our annual production guidance.
As we enter Q1, the business is back online and building momentum driven by strong turn in line activity in December .
Number two growth.
The fourth quarter was incredibly busy for the company we closed on three Permian acquisitions and then the first week of January we closed on our Midland Petro transaction.
In total these represented over $750 million of closings and over 900 million in acquisitions announced in 2022.
Which should translate into more than 20% growth in our year over year production on a reduced diluted share count.
This is following roughly 40% growth in 2022, all the more impressive given we are in a low growth era for most public energy companies.
As the largest best capitalized non operator with superior data insights and unmatched track record we are proud to be the preferred partner to the public and private upstream community.
Nrg's differentiated positioning sets the stage for significant relative and absolute outperformance in 2023.
We have transformed the company by diversifying and growing our footprint.
Enhancing the quality of our portfolio and meaningfully improving the strength of our balance sheet.
Despite inflationary pressures and lower current commodity strip, we expect to generate significant cash flow and production growth in 2023.
Our disciplined and efficient transaction underwriting prudent and sophisticated capital formation and superior data insights driven and we expect we will continue to drive consistent multi year equity outperformance.
Number three the 2023 outlook or.
Our 2023 guidance, which Chad will delve into later reflects capital efficient growth conservative cost inflation assumptions and as I, just mentioned significant and differentiated volume and cash flow growth throughout the year.
At our new elevated level of baseline production, we expect to generate significant levels of free cash flow in 2023.
As the Midland Petro project reaches completion it sets the stage for a substantial increase in free cash flow in the coming years, enabling us to further accelerate the company's growth and enhance shareholder returns.
Number four competitive advantage.
We believe our competitive advantage has expanded in 2022 over.
Over the last four years, we've not only rebuilt our infrastructure augmented the financial strength and improve the asset positions of the company.
But have also invested in data science to continuously improve our technical analysis.
With the launch of our purpose built AI powered system in January we expect to further enhance the power of our proprietary data and the accuracy and efficiency of our decision making.
More specifically, we believe our enhanced analytics will enable us to efficiently find differentiated value in properties and further enhance our risk management tools.
Our team does not rest on its laws and we believe we are unmatched in the non operated sphere, given our scale data data analytics and underwriting advantages.
We believe that few can compete with us for the high quality properties that we target daily and our scale allows us to play in a field largely on our own.
As the breadth of opportunities has expanded for us both from a basin and structural basis, our competitive advantage has only widened.
Number five shareholder returns our goal is to provide our shareholders with the highest possible total return over the long term.
We have implemented a multi pronged approach, including share repurchase programs repurchasing high cost debt and increasing the cash dividends for our common shareholders.
During the fourth quarter, we continue to tactically repurchase our common stock and senior notes as market opportunities allow we will continue opportunistic common buybacks and debt repurchases throughout 2023 and beyond.
A few weeks ago, we announced a 13% increase in our quarterly common stock dividend to <unk> 34 cents per share for the first quarter.
<unk> introduced a plan to accelerate the dividend further to our target of 37 cents per share about two quarters ahead of schedule.
We continue to have the goal of providing an attractive yield for our investors.
We strongly believe that the consistency of our stable and growing quarterly dividend is more valuable to our shareholders and our equity value over the long term.
Our goldilocks strategy should give us the ability to both pay healthy growing current income to our shareholders and also allow for our significant excess retained cash flow to provide for value added bolt on acquisitions and growth opportunities.
Going forward.
Main focus on driving the highest total return to shareholders focusing on optimal yield tax and capital efficiency and management of our overall leverage levels.
The good news is with the business positioned for strength, we anticipate being able to deliver continued growth to our returns.
Still leaving room for flexibility and the ability to scale the business responsibly over time.
2022 was another evolutionary leap forward for energy and I want to recognize the energy team from top to bottom for their hard work and dedication to always accomplished.
In closing I will remind you as I always do that we are a company run by investors for investors and I want to thank you all for taking the time to listen to us today.
With that I'll turn the call over to Adam.
Thanks, Nick.
On both the operational and business development fronts. We finished off another transformational year and look to continue our growth trajectory into 'twenty three.
In the fourth quarter turn in lines beat our internal forecast as we added nearly 20 net wells and completions returned to a relatively balanced mix is the Williston and Permian accounted for a 60 40 split.
While initial production results were outperforming internal estimates winter weather in December impacted production by approximately 10000 barrels a day.
As normal operations return, we expect to receive much of the benefit of our fourth quarter adds moving into the first quarter.
Looking further ahead, we anticipate a typical turn in line schedule, where spuds front end loaded and completions weighted toward the back half of the year.
Given the pull forward and well completions during the back half of 'twenty two our wells in process finished the year totaling 55, four net wells with the Williston accounting for roughly 80% of our whips, excluding our Marcellus ducks.
That said, we added six net wells in process with the closing of our mascot project in January and Accordingly, we now expect new drilling activity levels to be equally weighted across the Permian and Williston for 2023.
In the Marcellus, we have deferred most activity to 2024 as we focus on higher margin oil properties.
Continue to look for ways through acreage trades and other means to potentially add exposure in the back half of the year.
Q4, well proposals on our organic acreage remained healthy as we received over 125 <unk> during the quarter, which accounted for roughly 10 net wells the.
The combination of our operators staying disciplined in our acquisitions focused on the core of our respective basins led to a consent rate of approximately 95%.
Economics also continued to improve as we saw estimated IRR has increased by over 25% relative to our Q3 well proposals.
As we think about well costs going forward, but it's been encouraging to see a deceleration in inflation, which broadly aligns with the conversations that we've had with our operators.
We do expect and have seen some creep from some of our lowest cost operators in the Williston is long dated service contracts roll off.
This has been offset by a steadier state in the Permian, which has kept our overall AFB inflation modest.
We anticipate those minimal increases from leading edge indicators at year end to carryover into 2023, which results in an estimated 7.5% inflationary increase at the midpoint.
Right.
Yeah.
As Nick alluded to earlier, the fourth quarter was extremely busy for the business development team as we work to close some of the most impactful acquisitions in company history.
The $750 million of M&A completed in Q4, and Q1 has deepened our exposure to top tier inventory with the addition of approximately 8000 net acres in the Permian.
Okay.
Overall, our 2022 closed acquisitions and ground game activity added approximately 125 high quality low breakeven net future locations to our inventory.
15% to our proven reserves, which increased to an estimated net 330 million barrels of oil equivalent.
Note that our year end reserves to exclude the impact of the recently closed Midland Petro acquisition.
Okay.
Petro represents an important evolution in our M&A strategy.
The transaction showcase northern scale and ability to provide creative capital solutions for our operating partners.
Generating best in class returns.
On the heels of our announced joint development agreement, we have been approached by multiple operators trying to find solutions for existing assets and desired development plans as well as partnership opportunities to co bid and acquire operated assets.
Not only are we wanted a few non operators with scale and a balance sheet to help move the needle pursuing large scale acquisitions. We also have the data insights to underwrite with conviction and participate alongside our operators is a load maintenance partner.
These competitive advantages have established MLG is a partner of choice and pursuing operated assets and at the same time broaden the opportunity set available to us.
As we move into 2023, the M&A backlog is spooling and we are reviewing more than $5 billion and non operated packages operated packages and joint development opportunities.
While there are more prospects than ever available to us our colors have not changed we remain laser focused on our consistent approach to capital allocation and our ground game.
In the fourth quarter, we closed on $1 two net wells and 127 net acres, finishing our 2022 ground game efforts acquiring eight seven net wells and over 1400 net acres across 24 transactions.
As we look ahead to 2023, we're seeing a variety of compelling opportunities across our respective basins and we will actively manage the portfolio in order to build on an already high graded drilling program and maintain our superior return on capital employed.
With that I'll turn it over to Chad.
Thanks, Adam.
I'll start by reviewing key fourth quarter results, which were solid across the board. Despite the impact of the recent winter storms.
Our Q4 average daily production was 78854 Boe per day, with 23% increase compared to Q4 of 2021.
Oil volumes were up 4% sequentially over Q3, and a normalized after the winter storms.
Our adjusted EBITDA was $264 8 million in Q4.
Top $1 billion for the year a record for our company.
Our fourth quarter free cash flow was robust at $87 million, despite growing activity and.
We generated almost $460 million of free cash flow in 2022, which.
Which is more than double the prior year.
Our adjusted EPS was $1 43 per share in Q4.
Roughly 35% year over year.
Oil differentials were again better than internally expected in Q4 came in at $2 42 per barrel due to continued strong in basin pricing and having more barrels weighted towards the Permian.
Which are typically priced tighter.
For the year.
Our differentials were $2 73 <unk> <unk>.
A record low for the company.
Driven by improvements in North Dakota, and the diversification of our business over the last several years.
Natural gas differentials were 92% of benchmark prices for the fourth quarter.
Lower sequentially, but better than our internal expectations.
Lower natural gas and NGL prices drove the reduction a function of lower gathering cost absorption.
And lower NGL uplift.
For the year, the average 113% of Nymex.
On the Capex front, we invested $142 9 million during the quarter.
Evenly split between the Williston and Permian basins.
Activity has been robust.
As Adam mentioned Q4 turn in lines were up dramatically from the third quarter and provide strong momentum as we enter 2023.
This has resulted in a D&C list of 62.2 net wells inclusive of the mascot project and has contributed to the pull forward of our capital spending along with the continued success of our high return ground game investments.
Our balance sheet remains strong.
We closed a $500 million convertible notes offering in the fourth quarter to fund in part our recent acquisitions.
As you may recall due to the features we selected there will be minimal to potentially zero dilution to our existing holders and to the extent. There is the company has options to manage this overtime.
In addition to the convertible notes offering.
To expand the capacity of our revolving credit facility to $1 billion from $850 million.
Reflecting the growth in our borrowing base to $1 6 billion from $1 3 billion.
As a result of our M&A activity with flex our balance sheet for the announced transactions in the fourth quarter and our leverage will be modestly higher over the next couple of quarters, but well within our comfort zone.
Our net leverage ratio should return to normal levels by the end of 2023 as our acquisitions contribute to our operations and were able to organically delever.
Liquidity remains strong.
So we still have over $1 billion of dry powder in the form of unused revolver and borrowing base capacity.
In 2022, we retired $25 $8 million of our 2028 notes.
And we will continue to look for ways to efficiently reduce leverage if market opportunity arises.
With respect to hedging since our last report we opportunistically added volumes in the form of attractive Costless collars that provide downside protection with the optionality of participating in the upside of prices rally.
We continue to hedge volumes from each closed and pending acquisition based on our conservative hedging strategy.
5% to 65% of expected production on a rolling 18 month basis.
As it pertains to our 2023 guidance.
With a run rate capex from 2022 of approximately $500 million largely carrying over.
Capital plans from our 2022 acquisitions of approximately $220 million layered in.
And $25 million to $50 million.
Service cost inflation.
This translates to a range of 737% to $778 million.
Total capex guidance for 2023.
From a cadence perspective, we expect approximately 60% of our annual spend will occur in the first half of the year.
I want to point out that only approximately 25% to $60 million that is a specifically associated with the build out of our mascot project.
As expected to reoccur in 2024.
We do expect to see continued inflation in the first half of 2023.
But the decline in natural gas prices and subsequently what appears to be the beginnings of a reduction in overall rig count which is down approximately 25 from the peak in the United States.
Could lead to cost savings in six to nine months, if the current trend stays in place.
Additionally, we've seen debottlenecking and sand tubular is an added pressure pumping capacity all.
All green shoots towards stabilization a reduction in cost as the year progresses.
Regarding our 2023 production guidance, we expect to start the year at a range of 84000 86000 Boe per day in Q1.
Improving each quarter with a target fourth quarter exit rate of 96 to 100000 Boe per day.
Overall, the quarterly production should translate to an average range of 91090 6000 Boe per day for the full year.
With respect to the first quarter, we typically see season seasonal organic declines and accordingly Guy conservative given the end of winter in the Williston. However.
However, we do expect strong activity throughout the year to drive that higher exit.
On differentials, we're taking a conservative view given the recent downtick in natural gas prices and typical volatility of in basin oil pricing.
We believe that there is room for improvement potentially as the year goes on.
Hello <unk>.
G&A.
Should be largely consistent with 2022.
Adjusted for inflation and operating in public company costs.
With that I'll turn the call over to the operator for Q&A.
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One moment, please when we poll for questions.
Okay.
Yeah.
Thank you. Our first question is from Neal Dingmann with <unk> Securities. Please proceed with your question.
Good morning, all thanks for all the details Nick My first question.
Chad this is on capital spend or maybe specifically.
We were modeling how should we think about 'twenty, three capex sort of pre and post <unk>.
Potential transactions or maybe asked another way do you all assume there'll be at least a minimal amount of ground Gabe additions that we should put in the model.
Just really trying to speak to capex versus production expectations. This year.
We always leave room in our Capex guidance reflects capital. So the ground game is in there and that's so we can actively manage the portfolio throughout the year.
Whether we use it or not it depends on the cadence of well proposals that come in the door what their expected sputter sales times are and compare that to the yet to the ground game opportunities that we're seeing day in day out so meetings, we really wait the returns against one another.
And so we may have the opportunity to high grade our drilling program and modify it.
And we will definitely take advantage if we do.
I would say like any other year it'll depend on but we're able to get done and if there are compelling opportunities to flex forward through.
Through the ground game.
But again as I had.
Reiterate and we've budgeted a pretty hefty amount in our base budget every year for that amount.
Okay, great. So I thought you all did okay and then just second really on Bakken activity I'm, just basically wondering maybe for Adam how stable more recently have most of your operator plans have become then.
You all are receiving what I'd call more or less proposals than a year ago I asked that because obviously a lot of the gas is getting.
Gas guys will become very volatile.
Some other plans or volatile I'm, just wondering if youre seeing a bit more stability and maybe Boston versus Permian.
Just wondering how the proposals have become more recently thank you.
Yeah, I think you nailed it and I think in fourth quarter.
Yes.
125, plus they are fees, we received about 100 of those were in the Williston and so looking at the end of the year. If we're looking at our oily basin kind of makeup that's about 80%.
Kind of the wells that are in process right now and so we see that kind of humming along the continue to add rigs and the operator makeup is certainly compelling as well when we're partnering with the likes of Vantiv.
Vantiv in Continental and Conoco, So we've been encouraged by the pace.
Alex Danielle.
Based on our guidance that we put forth today or you know.
Whether or not the Williston basin grows as a whole or not.
Probably say it probably remains pretty stable, we're going to have record volumes in the Williston by a big measure this year.
And I think it's a function of.
The working interest in the concentration with some of our operators we've got.
Significantly larger working interest that we're stepping into here at the beginning of the year.
Great to hear thanks Lloyd.
Thanks Bill.
Thank you. Our next question is from Scott Hanold with RBC capital markets. Please proceed with your question.
Hey, Thanks, one maybe underappreciated factor is this new AI system that you all have and it sounds like going to be coming going more full bore on it now can you just give us some context on what do you think this does to your your pace and maybe if I don't know if it's the right way to say, but quality of of sort of your ground game and in your <unk>.
Acquisition activity, where do you see upside like when you do.
Back looks at what you did versus what you know now with this system. What have you made a change in strategic advantages to having this in place.
Yeah, I mean, I think from a strategic standpoint, especially we branched out into multiple different basins.
Volume of opportunities coming at US is at an all time high and so we've got to be able to prosecute these evaluations and do it with conviction and whether you've got the volatility that you have from a commodity standpoint, as well as the inflationary pressures that ebb and flow. The fact that we.
Got north of 100, plus operators all of that information needs to be socialized then it needs to be done quickly in order for us.
Truly high grade.
And allocate capital appropriately and so by instituting the AI.
Program, we're able to take that real time data and truly harness all of the information that we have coming through the gyms and the revenue checks as well as all of the public data and do that with one source of truth and so that's going to be the key to our success as well as taking the look backs.
Various transactions I think we did one.
Just recently in terms of kind of the recent.
Major acquisitions, and I think we were within about 2% to 3% of original underwriting.
Yes.
The only color I would add to that is when you got 9000 gross well bores at this point in the business.
And the database has always been massive it's always been the secret to our success rate being in a half of every Williston well drills means you have full bore of knowledge, but the speed of which you can access that data and harnessed it.
Can take minutes now would take our engineering team a week to come through in the past.
Okay, that's good to hear.
And so my next question.
Just if you can be patient with me a second because there is a couple of pieces to it but like if I think about where natural gas prices are today and obviously the entrance you all made in Appalachia. The first thing that stands out to me as if I look back when you guys announced that acquisition gas prices were about $2 50.
And then they went to 910 and now back to 250, so early theyre kind of back to where it was when you made that acquisition do you think two things on it do you think that this environment does it make does it make it more ripe for opportunities on new gas plays from a competitive sort of ability to make an acquisition.
And number two when you do your look back at the Marcellus deal you did.
Do you like the returns on economics, I mean, there definitely was a step down in production versus where you originally expected, but do you think the all in returns still justified that move.
Yes, so I mean to the latter point.
Scott.
That transaction, even net of all of the hedging we did pay it out in one year, meaning we've got all our money back in one year of owning it.
Has 20 years of inventory on it so.
The pace at which it goes I would say the pace has been slightly slower than we thought but at the same time.
The cost structure, and well performance has been 20 or 30% better than what we underwrote. So net net we've done a lot better.
And so you know where.
We're thrilled to have it it is truly a call option, but we're also thrilled that we're not developing at this year that that that development really is in 2024, and that's really important to us because I don't.
While while it is economic today I don't really think we want to develop our gas properties at $2 gas.
But going back to the board that the larger M&A question. I said, we are based in fuel agnostic, but convexity of returns does matter.
For example, buying assets at $100 oil has a lot more risk, even if you're hedging it versus buying it at 50 and buying gas last year was pretty unattractive to us on a risk adjusted return because ultimately there is a lot more that can go wrong. The next bill go right and that goes back to when we bought the properties in early 2021.
And so I would say as it pertains to gas it appears to us that our current that the longer term convexity on gas assets is very attractive.
That would play a role and we're certainly actively looking at gas properties day in day out.
Thanks for all that.
Thank you. Our next question is from Phillips Johnston with capital. One. Please proceed with your question.
Philips is your line on mute.
Yes, sorry about that question for Chad.
You mentioned the weak gas realizations that youre expecting for 'twenty three.
That's pretty similar to what we saw yesterday from one of your Williston operators.
You guys are obviously on a two stream.
Reported here, but.
Obviously, the big driver there is weak NGL prices in <unk>.
Of course, you realize there's a fixed component that's coming into play relative to lower Nymex prices, but I guess, the 75% to 85% of Nymex seems pretty low so I'm just wondering if you can.
Give us a little more insight as to what the drivers are there and what's different about this year versus last year.
In addition to lower NGL prices.
Yes, I think what we're currently seeing right now is in we're probably down in the even below that we're seeing some pickups from from past months that kind of creeped us up to that 92%, but we're currently realizing.
At or below those I guess with respect to where we currently sit I think you know some of the struggles in the Permian obviously with gas takeaway is going to also kind of creep into I.
I guess 2023, and that's kind of where we're being a bit more conservative I think with respect to realizations of gas prices fell.
It's kind of a four dimensional chess right you have you have your.
Your fixed gathering costs.
Getting it from wellhead to pipe that doesn't move but as the price of gas goes down that becomes a larger percentage and then you have the right.
Price of the NGL basket, which swings wildly because the actual yields from the plans changes depending on where the what the plants wont to do meeting whether ethane as economic or not to extract it and some people do it anyway, we'll leave them nameless, but some people do it whether it is or not.
Yes, more volumes, obviously, but you then.
If you're a three stream reporter, but youre, losing money.
And I think the thing to think about it though is that although NGL prices came down in the fourth quarter.
Gas prices really came down in the first quarter and so actually from a ratio perspective.
The <unk> propane and as an example, it was about one and a quarter to one versus gas in the fourth quarter, but it's over to today, so that actually helps the percentage and so really the absolute price of the gas.
First is the NGL impacts that as much and so we try to be really conservative because we're not we don't have a crystal ball here in terms of where natural gas Guy I wouldn't say, we're internally, particularly bullish.
But we try to run it and if you look at our track record in the past we've historically been very conservative in this because these are non controllable costs that we don't really want that theres no benefit to us.
<unk> doing anything, but taking a conservative run at it but I do think there as Chad mentioned in his prepared comments. There are some there is some room for improvement throughout the year and we'll update you accordingly.
Yes, okay.
Helpful.
On the reserve report.
Wondering if you could maybe share what your next 12 month PDP decline rate is.
For I guess for both oil and gas.
Perhaps you know how that's changed relative to where you were in the past couple of years I'm, assuming it's come down a little bit, but just looking for the approximate magnitude or so.
Yes, so our base PDP decline is going to be in the low 30, 32% to 34%.
Obviously as we go through the year and we start bringing on some of these acquisitions. The MPD projects those sorts of things our decline rate will increase throughout the year. So as we exit the year, we're probably going to be closer to mid thirty's to high <unk> and that kind of range, but that's kind of where we are today.
Okay makes sense thanks, guys.
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Our next question is from John Abbott with Bank of America. Please proceed with your question.
Hey, good morning, Thank you for taking our questions.
First question just housekeeping D.
DD&A came in a little bit high for the fourth quarter.
With the merger closing.
How do you think about inappropriate DD&A rate just sort of going forward.
Yes, John we were just looking at that this morning, I think when we roll in PTC and I think we're sitting right around $10 50 for kind of exit exit DD&A I think.
MPC will likely add a buck or two to it. So I think once we get that rolled in we will probably be somewhere in the $11 50 to $12 50 range I would guess.
Appreciate it and then the second questions on the acquisitions that you just sort of you just closed on here.
Any you know you just got them in the door any pleasant surprises any changes in activity levels versus what you originally assumed.
Yes, yes, I mean I think.
Maybe a few anecdotes to start first like a small anecdote like our are.
Our first Midland acquisition that we closed in October is performing exceptionally well.
And but we actually just did this look back this morning and in aggregate. We are ahead of schedule and the assets are performing really well.
As a non operator, you just have to say like anything this will change and pivot depending on the environment.
But we underwrite conservatively and focus on good geology, and so they should be relatively resilient.
Hmm.
And so ultimately while while drilling schedules move around here and there I don't think we expect any major surprises in 2023.
I appreciate it thank you for taking our questions.
Yes.
Our next question is from Donovan Schafer with Northland Capital markets. Please proceed with your question.
Hey, guys. Thanks for taking the questions. The first one I wanted to ask is I know it is.
Definitely get way too early to get specific at all on guidance or any type of an outlook for 2024.
Obviously, but I'm just wondering if you can talk about this at a much higher level.
Broadly in terms of.
Given the high level of M&A activity.
That you've had you done a lot, including this quarter in the preceding four quarters.
Is there any kind of.
Embedded growth in that that you would expect to translate into 2024 in terms of the cadence you see rigs moving through that acreage, yes, I know.
Maybe we assume if we assume something like an $80 oil price roughly just when you're looking at all that acquisition activity that you did and you kind of hold things constant.
Do you see that as something leading to incremental growth in 'twenty for over 23 or would would growth in 'twenty for over 23 need some additional kind of proactive proactive activity on your guys part.
Yes, I mean, I think the simple to say and you know way to say this and assuming obviously keeping costs constant for a second Donovan. If we spent the same levels of activity. This year that we are.
Next year, we would certainly see growth.
We do highlight this in our earnings presentation, but the effective roll off of some of that in BDC activity.
What we try to highlight it.
Obviously the guidance is for 91% 96000 barrels a day youre, obviously going to exceed that at some point as that project completes.
And as Jim pointed out earlier your decline rate is going to be a little bit higher as you've kind of reached at CNET, but you need about 70 net wells a year or two.
Just to kind of hold above 90000 barrels a day flat and probably grow it a little bit from that base over time.
And so youre talking about $6 million to $700 million of sort of sustaining capital underneath that those levels, but obviously we are.
Our guidance is more like 750 ish. This year. So if you continue at those levels youre going to grow I will say when you talk about one year to a one year that the cadence of that spending really matters too right. So.
Because you're going to carry forward those barrels into a year. So not all dollars are equal but that should be some good.
So some good goalpost for Ya.
Okay, great Yeah, that's very helpful.
Then.
If I could get another.
For second question I know this it might seem a little bit like a bit of an oddball question.
And when you probably haven't gotten in a while but I am curious to know if you would ever consider taking non op positions outside of these U S shale plays.
There are still there are still some conventional onshore opportunities here and there.
There.
And then you have things like Gulf of Mexico, or Canada, or you know moving somewhere international and I know you don't.
That certainly wouldn't fit into our core competency or you have this real differentiated knowledge base, but of course, you know building you have to start somewhere to build that knowledge and so I'm. Just curious if you think about stepping out into some of these other areas doing a little like a small degree of dabbling to build that.
Elizabeth I'm, just curious to know just how you think about that.
Well I will agree that is an oddball question, but.
The answer is I don't think so I mean I think.
I think we've seen a handful of Canadian opportunity center away and they've never never made it past the email inbox I think.
We take great Pride and we take this really seriously about having technical knowledge. We spent over two years in the Permian before we bought 60 acres right and so.
You Gotta do you if youre going to do something you need to do it well and I think that.
We've seen this one we've been shopped conventional opportunities in the United States, which is within this country and those are just simply our technical.
Team is focused elsewhere and so we want to focus on what we're good at so I'd say, that's a relatively low probability outcome for us.
Yeah, I guess to frame it up a little bit differently in terms of the M&A landscape I think.
The most interesting opportunities that we're seeing currently are within the basins that we're already in.
Not to say that we're not canvassing different basins within the lower 48 because.
Because we look at the Eagle Ford, we look at the Haynesville, we've looked at the DJ we've looked.
In other basins in that regard, but I think even stepping out into any of those basins youre going to have to have a hurdle rate.
Thats going to need to be compelling in order for us to dedicate cigna.
Significant resources to that and so I think we'll continue to keep our ear to the ground.
Take a look at.
These other basins from a sales standpoint.
But even then it's going to have to be a higher bar.
Okay. Thank you. That's that's very helpful. Just a good touch point for me to kind of.
Driving that point home. So thank you could demand.
And that's it for me thanks, guys.
Thanks Tommy.
Thank you. Our next question is from Noel Parks with Tuohy Brothers. Please proceed with your question.
Hi, good morning.
Good morning to all.
So just a couple of thing was interesting to hear you say that.
The longer term outlook is.
He is making you see gas assets is very attractive with this pullback in that you're certainly looking at those properties. So I'm just wondering as you do your evaluation process, how do you sort of weight.
The issue of.
Yes.
Getting more concentrated than say in gassy assets incrementally.
Infrastructure uncertainty.
Do you sort of broke that into your model.
Okay.
I mean, I think it all goes in there I mean number one we don't you know.
We certainly don't.
Pick some esoteric gas price that we think it should go to to underwrite. These things you have to underwrite them by based on the World Youre living in now and then stress that further.
I would say that you know infrastructure is really important just using an example, when we underwrote our Appalachian properties we.
We certainly never modeling growth just given the infrastructure constraints within that base and then we ramp pretty punitive differential analysis, while we went through that.
And based on that we're not in use.
The Haynesville is an example, where we've observed.
As it has grown materially in the last few years that infrastructure has gotten really tight. We also did the same thing when we were looking in the Permian recognizing the same thing and so are our internal analyses factor in sometimes differentiator views on those things we've suffered through in infrastructure constraints in every basin, we operate in and the key thing.
As to understand what short term and what's long term and what's going to have a meaningful impact on the actual value of the properties.
Gotcha fair enough.
Just wondering and apologies if you touched on this before.
You are right.
On the path to maybe going non consent on.
More of what the proposed to you in <unk>.
For example, Appalachia.
Over or other.
Other places that wait a little bit gas here.
Yes, I mean in Appalachia. The good news is we.
We have a multiyear.
Program with EQT and its more happenstance than a function of the gas environment, but there are no completions. This year. So there'll be minimal capex, we may spend some drilling capex as we prepare for the 24 plan at the end of the year, but not not a ton.
Longer term planning, I think where you're going to see that.
Non consent lever getting pulled or not getting full or is going to really depend on inflation and how that interacts with commodity prices.
Because.
Obviously, depending on who the operators are because at the end of the day, we're we're an IRR driven shop right.
And so if you have a gap down in commodity pricing, but inflation stay sticky then there's going to be things that.
You may or may not meet our hurdle rate.
I think the good news is that most operators thing.
Typically disciplines in terms of sticking to the core and so I think you've got some buffer in that regard versus a lot of the science experiments that we've seen in cycles past yes.
And just to elaborate on that and all like as an example, we came into the Permian later, where.
Delineation had been largely.
Made and so we don't have a ton of acres in the areas that are noncore are going to be really subject to some of the swings in commodity prices you see now in the Williston, while because we have a large legacy position we own a lot of non core properties to avon's points Theyre, just not being developed and so it did a lot of the operators and some guys are doing the work for us Thats right great.
Right.
Great. Thanks, a lot.
Yep. Thank you.
Thank you ladies and gentlemen, we have reached the end of our question and answer session I would now like to turn the call back to Nick O'grady CEO for closing remarks over to you Sir.
Thanks, everyone for joining us today will work really hard to execute on the 2023 plan and we'll see you on the next quarter.
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