PHX Minerals Inc. Q2 2023 Earnings Call
Good morning, and thank you for attending today's P. H X minerals March 31, 2023 quarter end earnings conference call.
At this time all lines will be muted during the presentation of the call with an opportunity for a Q&A session at the end.
As a reminder, this call is being recorded and I would now like to turn the call over to Rob Fink with F. N K I R. Thank you Robin. Please go ahead Sir.
Thank you operator, and thank you everyone for joining us today to discuss PHX minerals March 31, 2023 quarter end results.
Hosting the call today are Chad Stephens, President and Chief Executive Officer, Ralph to Niko, <unk>, Senior Vice President and Chief Financial Officer.
Danielle Meso PHX as vice President of engineering.
The earnings press release that was issued yesterday. After the close is also posted on <unk> Investor Relations website.
Before I turn the call over to Chad I'd like to remind everyone that during today's call, including the Q&A.
Q&A session management May make forward looking statements regarding expected revenue earnings future plans opportunities and other expectations of the company.
Estimates and other forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those expressed or implied on the call.
These risks are detailed in PHX minerals. Most recent annual report on Form 10-K, as such maybe amended or supplemented by subsequent quarterly reports on Form 10-Q, or other reports filed with the SEC.
The statements made during the call are based upon information known to PHX as of today May 10, 2023, and the company does not intend to update these forward looking statements whether as a result of new information future events or otherwise unless required by law with all that said I'd now like to turn the call over to Chad Chad the call is yours.
Yes.
Thanks, Rob and thanks to all of you on this call for participating in ph, Texas March 31, 2023 quarter end conference call. We appreciate your interest in the company and are pleased with the financial results we reported yesterday.
The first quarter results demonstrated the value creation potential inherent in our minerals only business model with.
We generated a significant improvement in adjusted EBITDA, even on lower realized commodity prices as we navigate through the current period of extraordinarily weak commodity prices and its impact on the industry.
This improvement in financial performance reflects the benefits of higher royalty volumes.
Which have much better cash flow margins, then working interest volumes and a decrease in LOE and other cash expenses as we divested non op working interest assets.
With higher margins, our model enables us to materially reduce risk and generate cash even when commodity prices are low.
We believe we will see an improvement in commodity prices, especially natural gas in the second half of the year as supply and demand imbalances improve.
Even if commodity prices remain depressed we believe there are near term opportunities for further growth in our asset base as demonstrated by our encouraging results this quarter.
Rig counts in the Haynesville dropped approximately 15% during the quarter from 676% to 64 rigs, but rig activity on PHX acreage went up from 10 in January to 14 at the end of the quarter.
This is an encouraging sign for us and it demonstrates the rigor and discipline, we have employed in identifying evaluating and securing minerals and the best rock quality in areas of highest drilling activity.
We have consistently spoken about our efforts to high grade our asset base and we now have a portfolio of highest quality projects, which should be the last to slow down in a commodity downturn.
We think we are seeing that dynamic play out in the Haynesville and scoop.
Operators in our core focus areas are converting locations, it's a cash flowing wells at a slightly higher pace this year versus last year, even with the lower commodity prices.
We can continue to convert cash proceeds from selling nonoperating assets into acquisitions to build our minerals portfolio as well as prudently manage our leverage we completed a little over $10 million in acquisitions during the quarter, adding to our royalty asset base for future periods.
With greater emphasis on the scoop and continue to see ample deal flow.
No our debt balance declined versus the December quarter, reflecting the positive cash flow generation of our model as well as flexibility in capital deployment.
At this point I'd like to turn the call over to Danielle to provide a quick operational overview and then to route to discuss the financials.
Thanks, Chad and good morning to everyone participating on the call.
At March 31, 2023 ended quarter total production increased 12% from the prior sequential quarter 2000, and 482, and then C. S E quarterly royalty production increased 29% sequentially to 2094, and then C. S E. A quarterly company record. This increase was primarily a result of <unk>.
New wells in the Haynesville skills, and Bakken being put on production the majority of which were purchased as undeveloped locations as part of our acquisition strategy. This is a clear indication of our successful execution of acquisitions ahead of the drill bit also note that we achieved this record royalty volume despite eight gross haynesville, well, where we have a high royalty interests.
Experiment experiencing instrument in production during the quarter due to pipeline constraints had those wells have been on for the full quarter. Our royalty production volumes would have been even higher we have been informed by the operator that these wells are back on line at this time.
On the working interest side production volumes declined 34% sequentially to $388 five and then Cfe in the March 31, 2023 quarter as a result of the sale of our legacy Eagle Ford and are not working interest well on January 31, 2023, and the natural decline of the working interest or is there no net working interest.
Volumes will also decrease in the next quarter as of March 31, 2023 quarter had a full month of production associated with the divested assets. This is consistent with our stated strategy to exit as part of our business.
Royalty volume represented 84% of total production during our March 31, 2023 quarter as recently of calendar year 2021 royalty volumes were only 45% of our total volume reflecting on our reported volumes over the last several quarters you will note. Our total corporate volumes have remained relatively flat.
This is due to the loss of volumes associated with the sale of working interest assets offset by the gain in our growing royalty volumes with the divestiture of our working interest asset virtually complete we estimate our total corporate volumes, which are now 85% royalty or steady growth in the coming quarters significantly our corporate volumes were up.
By 12%, despite working interest volumes being down sequentially, 34% due to the sale of non op working interest asset in January as I discussed a moment ago.
As we have grown our royalty volumes and divested of our non op working interest the quality of our asset base is enhanced with improving margins. Additionally, 79% of our quarterly production volumes were natural gas, which aligns with our long term position that natural gas is the key transition fuel for a sustainable energy future oil represented 13% of production volumes.
And NGL represented 8%.
During the quarter ended March 31, 2023 third party operators active on our mineral acreage converted 117 gross or point for one six net wells in progress or web to producing wells compared to 60 gross appoint two seven net with converted to PDP and the quarter ended December 31, 2022, the majority of the new wells brought online are located.
In the Haynesville Scoop and Bakken.
Yeah.
At the same time, our inventory of wells in progress remained consistent at 198 gross or six four net wells compared to the 203 gross or eight three net wells reported as of December 31 2022.
<unk> track record of well conversion and replenishment of the inventory of wells in progress or wet shows the repeatability of our business strategy. Additionally, we have mineral interest under a deep inventory of approximately 2000 gross drilling locations that will continue to feed the split activity.
In addition to our web we regularly monitor third party, operator rig activities and our focus areas in a dark 26 rigs president on PHX mineral acreage as of April 10. Additionally, we had 95 rigs active within two five miles of PHX ownership. The number of active rigs on our mineral acreage has actually increased quarter over quarter. Despite.
The recent decrease in natural gas prices. We believe this is a result of owning minerals in the core of the basins in which we focus with competitive economics across various pricing environment.
In summary, we continue to see steady development on both our legacy and recently acquired mineral asset, which should lead to annually increasing royalty by now I will turn the call to Ralph to discuss financials.
Thanks, Danielle and thank you to everyone for being on the call today.
As a reminder, we recently changed our fiscal year to a calendar year. So when I refer to Q1, I mean March 3rd day March 31st ended quarter, We will filed 10-Qs for the June and September quarters, and then a 10-K for the December 31st ended period.
Natural gas oil and NGL sales revenues.
Decreased 20% on a sequential quarter basis to a total of $11 9 million Branchiate breaking down. This number further royalty sales volumes decreased 4% to $10 1 million as a result of higher production volumes, but lower realized commodity prices working in.
Sales revenues decreased 60% to $1 7 million as a result of lower production volumes associated with the divestiture of the Eagle Ford and Arkoma assets as well as lower realized commodity prices.
Realized natural gas prices averaged $3.53 per M. C F, 38% lower than the prior sequential quarter realized oil prices averaged 76.01 cents.
Cents per barrel, 8%, lower and Ngls averaged $25 18 per barrel, 13% lower.
Realized hedge gains for the quarter were $630421.
This number is inclusive of the off market derivatives, where we receive and we received total cash of $256676.
Note that we do not have any remaining off market derivatives associated with the 'twenty 'twenty COVID-19 induced contracts, so the accounting and the understanding of our hedge contracts going forward in our financials should be a lot easier.
For everybody to follow for the quarter, approximately 48% of our natural gas, 45% of our oil and zero percent of our NGL production volumes were hedged at average prices of $4.06 $63 and $63.10 respectively.
Approximately 40% of our anticipated remaining calendar 2023 natural gas production has downside protection through hedge contracts at approximately $3.31 per mcf on the oil side, approximately 55% of our anticipated.
Remaining 2023 production has downside protection at approximately $74.92 per barrel.
Most of our natural gas hedges are structured are structured as costless collars, which means that we also have upside on those volumes to the $6 range. Our current hedge position is available in our most recently filed 10-Q.
Total transportation gathering and marketing decreased 22% on a sequential quarter basis to 1.13 million and decreased 32% on a per unit or M. C. A fee basis to 45 cents, primarily as a result of our non op working interest divestitures.
In the Eagle Ford and Arkoma, which had much higher per unit metrics compared to our our royalty assets. These expenses are primarily tied to changes in production volumes.
Production taxes decreased 6% on a sequential quarter over quarter basis to approximately $581000. These expenses are primarily tied to movements in both production volumes and commodity prices.
Oh, yeah associated with their legacy non operated working interest wells decreased 46% on a sequential quarterly quarter over quarter basis to $546000 note that the Eagle Ford and Arkoma asset sales, which closed on January 31 of 2023 still had a full month.
The valor, we it's part of the quarterly results. We are moving the L. O associated with those assets would have shown a quarterly <unk> expense of approximately $350000.
Cash G&A was down 11% to 2.35 million compared to the prior sequential quarter as the prior quarter incurred costs associated with terminating our ATM program.
Adjusted EBITDA was 774 million in the quarter ended March 31, 2023, as compared to 5.33 million in the December 31st 2022 quarter.
Adjusted EBITDA was positively impacted by higher royalty volumes, which have much better margin than working interest volumes and a 20% decrease in total cash expenses, primarily associated with the sei over a lower margin non op working interest assets, while being offset by lower commodity prices.
The noncash gain on sale of $4 4 million was associated with the divestiture of the Eagle Ford working interest asset recall, the last quarter, we had a $6 1 million dollar impairment associated with held for sale accounting.
From our coma properties.
Again note that all of these are noncash items net income for the quarter was $9 6 million or 27 cents per share compared to $3 3 million or nine cents per share for the prior sequential quarter.
Note that this includes the noncash gain this quarter.
And impairment the prior quarter adjusting for these items and the unrealized mark to market on the hedges pre tax net income increased approximately a 100% to $4 7 million or 13 cents per share.
We had total debt of 26 million as of December 31, 2022, compared to $33 3 million as of December 31, 2022 as we used a portion of the proceeds from the sale of the Eagle Ford and Arkoma working interest assets as well as our discretionary cash flow to <unk>.
Reduced our debt level in light of current natural gas pricing environment, our debt to trailing 12 month EBITDA was 0.91 times at March 31 2023.
Lastly, as part of our regularly scheduled semi annual borrowing base Redetermination, our borrowing base was reduced by 5 million or 10% to $45 million.
This reduction is associated with current natural gas pricing macro environment and not a reflection on the quality of our assets. We continue to have a great relationship with our bank group and we look forward to continue to partner to partner with them across all commodity pricing environments.
Our asset retirement obligation liability or a R O associated with working interest assets stands currently at $1 million as of March 31st 2023, we have decreased this liability by $1 8 million since September 30th 2021 when our ear.
<unk> stood at $2 $8 million. This reflects again, it's just continued continuous improvement on our balance sheet profile.
We recorded an income tax receivable was $776000 this quarter compared to an income tax payable of 576000 in the previous quarter. This change was generated by our net operating loss due to the divestiture of the Eagle Ford working interest, which we anticipate.
We'll offset all federal taxable income in 2023 and be carried forward into 2024 <unk>.
Lastly, our mineral only strategy has mineral has minimal capital commitments, which allows us to pivot very quickly to reallocate capital was necessary via to reduce debt increase.
Increase or decrease the size of our acquisition program, all while maintaining excellent coverage on our dividend with that I'd like to turn the call over to Chad for some final remarks.
Thank you Ralph.
Before we close I would like to highlight a couple of important points from both Daniels and Ralphs comments first with our non op working interest divestitures largely complete we expect to resume growth in our corporate volumes, which will be primarily driven by our increasing royalty volumes.
Secondly, despite a 20% sequential drop in our quarterly revenue, our EBITDA was 45% higher this quarter.
This is the result of a favorable mix of higher royalty volumes, which increased by 29% and that created a higher margin of 60% this quarter versus 40% margins the last quarter.
We anticipate operating with a higher cash margins going forward.
Lastly, as we have pointed out the hedges we established at the height of Covid at the insistence of our banks have now completely rolled off our.
Our current hedge book provides much better downside protection, while maintaining upside exposure.
We have made remarkable progress in transforming PHX over the last three years and have achieved on the specific plans, we originally established and communicated to the market.
We are now positioned to grow even further using the free cash flow from our quality assets and strong financial position and look forward to keeping you updated.
Deserving Lee I would also like to thank our dedicated employees for their hard work and congratulate them on our achievements to date.
Additionally, I would like to thank our board of directors for their support and insightful wisdom, they provide and executing our corporate strategy.
This concludes the prepared remarks portion of the call operator, please open up the queue for questions.
Thank you Sir we will now be conducting the question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for any questions.
And the first question comes from the line of Derrick Whitfield with Stifel. Please proceed with your question.
Good morning, and congrats on a strong start to 2023.
Thanks sure. Thanks, Eric.
For my first question I wanted to focus on 2023 guidance, while we haven't seen a material slowdown in activity across your assets yet and in fact, we've.
Somewhat seemed the opposite the expectation is for a further softening in gas focused activity.
In light of your width and the macro environment do you still feel comfortable with 2020, we gotta do is outline.
Yeah.
Hey, Derek its Ralph Yeah, I think at this point, we do you know again, if you look at the rig activity in on our minerals and as Chad pointed out right. I mean, we've really focused on buying minerals in the core of the core right. So in in theory right don't have the best margins and if you're an operator does.
Would be the last assets that you dropped where you drop a rig from <unk>.
You know we have followed what all the operators have stated publicly in terms of rig activity and we think there may be some softening coming towards the third quarter.
Of of this year from a from a rig count standpoint. This isn't the haynesville, but you know I think I think if you're an operator and you're looking forward into what the 'twenty 'twenty four curve looks like and if they have the ability to hedge.
Those volumes right, they're going to be they're going to have to make some decisions about whether they actually drop the rigs where do they keep them operating right and and hedge into a much stronger 2024 versus 2023.
I also think that would offset the haynesville any potential decline in the Haynesville is we're seeing very strong performance on our <unk>.
<unk> rich.
Assets, both in the Anadarko basin and some other areas of the country, where you know maybe that our nets are not that high but we still have interest in whether it be in the Bakken or in the Uinta Basin, you continue to see activity with oil prices, where they are so all of that to say is as we sit here today, we're still very comfortable with the.
<unk> that we provided.
Yeah.
That's great and then with respect to the M&A environment could you speak to what Youre seeing in the market at present, given the pullback in gas prices and further what is your preference at present for capital allocation between the Anadarko and Haynesville opportunity you've seen.
Yeah, Hi.
Hi, This is Chad.
Since since January when gas prices had a stunning breathtaking plunge.
We've really seen that.
Bid ask between sellers and buyers that the gap has widened quite a bit so its real difficult for us to transact in the Haynesville, given where we think the mineral values are and what the seller's expectations are so.
Our capital allocation to acquiring more minerals in the in the Haynesville has slowed down even though we do see deal flow, it's hard for us to transact at seller expectations value. So we've slowly.
Pivoted toward it and allocating more capital in the springboard and the and the Scoop stack area and the higher quality rock quality areas in where.
Operators are are going to be drilling more wells in the scoop stack area that are more liquids rich and we're having some success there.
The other thing I would also add Derek is that you know look it at.
We're very economic animals, right. So we want to allocate capital to the best rates of return and in a while you know.
Clearly our strategy is to grow the business, we're not going to grow for the sake of growing that that doesn't make any sense, if the economics aren't out there right. So.
And let me be let me be clear when I loosely use the word scoop stack.
That that nomenclature has some real bad headline news around it from several years ago, when our well performance and bankruptcies were were just ramping across that area, we have a very tight band.
The area that we're willing to acquire minerals in based on rock quality and well performance. So we're not going to get outside of that very.
Thin fairway.
That's the area, we're going to focus on is to stay a stay within that area and in and again and if the if the deal flow is not there where the valuations not there we.
We will continue to pay down debt I think at some point.
Sellers' expectations are going to be.
We're going to have to come down or they're just going to hold these assets continue to hold these assets and we want to be in a great financial position to you now.
Allocate that capital at the appropriate time, but we're very patient.
You know in terms of of of how we evaluate these transactions and we're going to keep we're going to keep you know maintaining a very strong balance sheet and improving upon it for when the right time comes.
That's great and understood on your areas of focus and congrats again on a strong update this morning.
Thanks sure.
And the next question comes from the line of Jeff Gramm with Alliance Global Partners. Please proceed with your question.
Good morning, guys.
Sticking on the topic of Uh Huh.
Sticking on the Andy topic, Ah now almost $11 million of deals in the quarter, which given your commentary on bid ask spreads seem seems even more noteworthy.
How are you guys thinking about.
Managing the liquidity going forward, given the banks price related borrowing base cut and kind of juxtaposing that with.
You know your obvious.
Strategy to continue finding more royalty deals and a related point as it does equity.
Ever enter the conversation in terms of kind of bridging that gap and preserving liquidity as a means of acquisition funding or just kind of wondering how you guys are thinking about kind of managing those two conflicting components.
Well I think from a leverage standpoint, our strategy nothing has changed in terms in terms of our strategy right I mean from even going back to early 2020 when.
Now when a when Chad.
And you know became full time, CEO and and you know we changed the strategy from a liquidity standpoint, our goal was to get the bad debt the balance sheet or the debt to you now about one one to one times debt to EBITDA you know one to one two somewhere around there and that's exactly where we've been for the.
Last I think four or five quarters right from a high of almost three times back in in 2020, and and I think the plan is to continue to maintain that I think that.
From a royalty business standpoint, regardless of what the bank does the banks may do whether you know this is across the industry, it's not just related to us.
In terms of advanced rates I'm not having the the obligations are coming in on the non op working interest gives us a tremendous amount of flexibility to to react to again any you know whether it's what whether it's less access to them.
Net or.
Or a you know the bid ask spread on acquisitions turns in our favor we can very quickly reallocate capital. That's the beauty of the minerals business, which is just not available on.
On the war on the non op working interest side component, where you still don't control the timing, but you got to pay their bills.
You know in terms of how we fund acquisitions I mean, we've always said everything's on the table. It's very deal specific right. I mean, you just have to wait and see you know certainly nothing there's nothing that we're looking at one way or the other but we've always said that flexibility across the balance sheet is something that's important for us.
To consider.
Yeah, and Jeff Let me, let me add to that.
And when I when I talk about.
From 2020 to where we are today and using words like transforming the company.
The old company was really identified as a hybrid will head.
Half half the value of the company was in non op working interest have the company was in royalty reserves in royalty revenue and it was very difficult for anybody to get really interested investing in the company. So we've over the last three years.
Completely transform the company into a story thats a completely around growth in mineral royalty reserves acquiring minerals and increasing our royalty reserves. So that kind of a hybrid overhang has virtually been removed we still have a small bit of value in non op working interest that at some point will we will look at or consider.
Selling, but so with that where we are.
Clean balance sheet low leverage.
<unk> clean cash flow and high margins.
The real I guess kind of overhang right now is just our size. So we need that Ralph and I will continue to look at that larger sized deals our bread and butter has been this one to two to three 4 million dollar size deals that no. One else really focuses on they're too small to move the needle for most of them.
Our larger peer groups.
So we're able to transact, though the bid ask spread and the Haynesville is a little wide right now.
We're able to transact at this at this lower value area, because theres not a lot of competition, but we do need to grow.
And we're going to do so patiently and methodically, but at some point.
We'll look at larger deals and if theyre larger will most likely going to have to have to use some equity and we demonstrated that in the past that at the right time for the right deal at the right value, we would consider and will the board would consider.
Using equity to do so so we're going to continue to keep our head down execute on the deal size.
That's gotten us to where we are today, while we're also.
Looking around the horizon on the landscape for something larger.
Got it I appreciate all that commentary.
For my follow up on the hedging side of things I'm looking out into 'twenty four it looks like you guys tacked on a little bit more to.
So the hedge book for 'twenty for you guys, obviously have a strong balance sheet not not very capital intensive given the royalty.
Asset base and so thinking about the constructed you you guys have on the gas pricing is.
Is it fair to expect that.
The hedge book for 'twenty, four is probably not going to be that significant, thereby providing some more pricing upside to you guys or how are you thinking about balancing.
Balancing locking in some cash flow versus giving some price upside.
I'm going to let Ralph talk about the actual hedges and then I'll give you our view of the gas macro yeah. I mean, I think it's there's actually you got to think about two things right. So you know because we have.
Some are fairly high royalty volume growth component right from new wells coming online right, even as we get into 'twenty, two three and 'twenty. Four those are volumes that are not yet currently on our books right. So you cannot hedge that so so our philosophy has always been look let's be.
Those are fully exposed to movements in commodity price right, both up and down.
But the existing PDP production that we have right. We think is let's be a little bit more aggressive on.
That PDP.
Ponant in let's use collars right, where you know think of it as catastrophe insurance is really the way that I think about it right because we're locking in you know.
Yeah, Let's just use an example, you know let's say it's into 'twenty four right you can lock in $3 by $5 on the existing PDP well, we still even even if the market stays stays below three bucks, we still generate really good cash flow at three with those hedge contracts and we have and we explore exposing yourself.
Up to five in that example, I gave and then the the volumes that are going to come online are 100% exposed to it. So you know I think it's a prudent thing to to layer in a minimal amount of ore or the appropriate amount of hedges is a better way to say it that basically covers all of our fixed expense.
And it covers you know covers our dividend payment right. That's the catastrophe insurance that I was kind of talking about.
And then remain.
Exposed to the upside.
Which we continue to be bullish on natural gas chat, we'll talk about that here in a second as we go forward. So that that's been that's been the strategy and in in a contango market where forward prices are higher than they are today right. That's you.
You know, we think that's the appropriate structure.
Alright, so Jeff.
Following up on that if that gives you a picture on our view of how and why we hedge and it really.
<unk> is rapidly.
The bank bank requirements, but.
When you look at the gas macro picture and how kind of miserable. It is right now coming out of winter. The two obviously the two headline pieces of news there where the mildest winter weather we've had in quite some time heating degree days were way down by <unk> 20, almost 25%.
And Freeport the Freeport LNG terminal has been down out of service since last June that to date from last June to today. It took out 800 Bcf of demand for the winter alone.
Freeport the absence of Freeport LNG export.
Demand down by about 300 Bcf, so between weather and Freeport gas prices have collapsed and you saw that really in January one of the sharpest drops in January natural gas prices since like 2001. So.
Really got the attention of the industry.
Surprisingly power demand has remained resilient.
Natural gas has been responsive to that power demand by really being priced associated with the PRA coal and so prices just under the price for <unk> coal.
And there's more demand for natural gas at the current prices to feed the power demand.
Month, you saw.
Milder weather so the market expected about 125 to 100 Bcf of increase in storage, but she actually when you saw about 65 Bcf of half the expected amount and inventory change. So it does suggest that maybe.
We're not as on a Bcf per day supply metric, we're not quite as oversupplied as the market believes.
And with Freeport now back fully in service as of the end of March.
That there will be a couple of terminals that we are going to have some maintenance in the coming June July period, but with Freeport back in and when you have all the LNG export capacity back in service going into the fall and this coming winter, we think that there'll be a balancing it will reach equilibrium and if we have a normal.
Winter with normal heating degree days.
The normal export capacity for LNG prices will move back up above $3.
And Thats kind of our overall view in how and why we we hedge based on kind of that that would be.
Got it alright, well, thanks, so much that Ralph I appreciate the time.
Sure.
And as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if he would like to remove any question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our next question comes from the line of Donovan Schafer with Northland Capital markets. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
I wanted to start off with.
So for this quarter the natural gas pricing came in quite a bit better than I expected excluding hedges.
No it's not from the NGL uplift since we report that separately.
So.
Wondering if there's something here being a royalty company if there's a timing lag when I look at benchmark prices Henry hub fell more than 50%.
From the fourth quarter to the first quarter, but your pre hedge realizations. So.
Meaningfully less than that so is that just changes in kind of differentials or is there like a month, maybe lag or something because of the way royalty revenue gets recognized.
Yes, theres, some theres a little bit of there's a little bit of a lag in there.
So if a well is already on production right, we accrue for it but.
And then we true it up when a when we actually get.
A check but.
You know if it's a new well as an example, so let's say that.
The a new well is publicly announced on I'm going to make this up this is not an exact while I'm just giving it as an example.
It's available on.
January 15th right, where we can book that well, but that well actually came online on December one right. So.
That December one to December 31st right gets baked into.
It's effectively that lag that you were talking about the gets baked in to.
The current quarter right and so this is this is normal of every single.
Mineral company out there and it happens every quarter, sometimes up sometimes down.
It's just a reflection of you know.
The operators, making the debt.
The production data available for the mineral owners to be able to book that well.
Okay. Okay. That's helpful.
And then turning to the Scoop.
On the stack.
We've heard about continental kind of accelerating activity in the Bakken.
No that it's private and you know Harold Hamm is back in charge.
Are you seeing signs of anything like that.
Continental in the scoop or the stack.
Yes, absolutely so they have ramped up activity in some of their core springboard plays we see permitting we see ducks and what's getting filed.
Regularly with increasing pace and we assume that.
As they see their results come in they'll pick up the pace out there as well so all that bodes well for future development out there of course.
Yes, we're dominant we're watching one area, where we've got a mineral interest under 15 wells.
As we speak they are completing them and they should be on production here by mid to late June going into early July yes. So that if you look at page 21 of our corporate presentation. That's posted on our website that will have the map of the springboard the replay and and again you can look at this later at your at your leisure, but if you look at.
Theres a number four on the map those debts that those 15 16 wells that continental is drilling that we have an interest in.
They are.
They are fully ramping up in this area.
There's just no other way to say it.
And again this is prior to continental going private but I think Harold Hamm has already stated that this is the best quality rock in his inventory. So you know I mean, I don't know what he's going to do but.
I would think that means that again. This is you know the last place where he would slow down.
Okay.
Okay.
And then last question.
Had been making very rapid progress on the transition to being royalty only.
And kind of just given that patients.
84% was.
Royalty last year last quarter, but that's sort of an average so what's kind of the run rate right now is it.
You know north of 85, and then when you plan how aggressive you are wanting to get to 100% or will you be happy with kind of no rush just north of 90 sooner than later and then take your time.
You know I mean, I think I think the way to think about it is yes, we're in that sort of mid eighties as a range right and as new volumes come online and for royalties and working interest depletes down right without any reinvestment or participation in new wells you know when.
Youre going to see it start to move towards 90.
We have we've stated this before that I think we started off with maybe around 2000, working interest well bores and we've sold about 1500. So there is 500, but you know left but I would say you know in this pricing environment you know it probably doesn't make sense, we don't want to force it Theres no.
We got great pricing last year on the assets that we sold.
We're not going to we're not going to force sit in this pricing environment, but I would say out of those 500 right. It's the old 80, 20 rule, you know 80% of the values and 20% of the assets right. So we're gonna focused on on on the you know we re rank all those wells and we focus on the bottom, let's say bottom hundred.
And we'll figure out a way to monetize those and that's gonna have a de minimus impact if any to cash flow.
Or to our reserves right. So that's kind of how we think about it but I think anything with real value in this pricing environment, where you know I don't I don't we don't think it makes sense to force it.
There is no need there's no difference between being 85 or 90% and 95% for my understanding you're playing a long game yeah totally makes sense. Okay. That's helpful. Thanks, guys.
A follow up if I have any other questions.
Thanks, Jonathan Thanks, Tom.
At this time there are no further questions I would like to turn the floor back over to Chad for any closing comments.
Thank you operator, again I'd like to thank our employees and shareholders for their continued support I would also like to note that Ralph and I will continue to expand our investor marketing activities over the coming weeks and months through a series of non deal road shows and conference presentations aimed at expanding investor awareness.
If you'd be interested in meeting please don't hesitate to reach out to myself, Ralph or the folks at think IR. We look forward to hosting our next quarterly call in mid August .
And have a good day.
Thank you everyone. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yes.
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