Q2 2023 Northern Oil and Gas Inc Earnings Call
[music].
Greetings and welcome to the northern oil and gas second quarter 2023 conference call. At this time all participants are in a listen only mode. A brief question and answer 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 it is now my pleasure to introduce your host Evelyn and farmer Vice President of Investor Relations. Thank you everyone. You may begin.
Joined this morning by our Chief Executive Officer, Nick O'grady, our President and Adam <unk>, Our Chief Financial Officer, Chad Allen, Our Chief Technical Officer Jen oven.
Our agenda for today's call is as follows.
Nick will provide his remarks on the quarter and our recent accomplishments.
Adam will give you an overview of our operations followed by Chad Who'll review, our second quarter financials and walk through our updated 2023 guidance.
After our prepared remarks, the executive team will be available to answer any questions.
Before we go any further though 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 have described in our earnings release as well as in our filings with the SEC, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q.
We disclaim any obligations to update those 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 measure can be found in our earnings release.
With that I'll turn the call over to Nick.
Thank you everyone.
Welcome and good morning, everyone and thank you for your interest in our company.
As usual I'll get right to it with four key points.
Number one.
Our investment philosophy is driving tangible results.
Our second quarter, adjusted EBITDA was up 16% year over year.
Our quarterly cash flow from operations, excluding working cap was up 11% year over year.
Over this same period, our weighted average fully diluted share count was up only 3%.
Oil prices were down 32% and natural gas prices were down 69%.
Also this quarter's results included the impact from our recent share offering with no financial benefit from the acquisitions that had funded.
Suffice it to say, we've grown materially on a per share basis, while prices were down materially.
The point I am driving here is that our company is focused on a fairly simple philosophy.
Finding ways to grow profits per share to investors over time and through cycle.
We believe that is the path to driving sustainable share price outperformance.
While oil and gas prices go through down periods that can and will affect our profits. It is our job to find ways to grow the business through such times.
We are actively investing hedging and looking to drive consistent long term growth to profits and cash returns.
This has driven and will drive future dividend growth and share performance.
Number two.
Our investment cycle is pivoting to harvest mode.
As we entered 2023, we highlighted we would be spending approximately 60% of our capital in the first half of the year, even though the completion activity was somewhat back end loaded.
Our D&C list today is materially more complete meaning paid for than typical.
This means even as the number of wells turned online rises in the coming quarters. We are front end loaded much of the spending and we should see a market increase to free cash flow in the back half of the year.
Number three growth our growth continues on a strong pace turbocharged by the bolt on acquisitions of forge and Novo, which will come into play in the second half of 2023.
As we previously communicated Novo is expected to close on August 15th and will be financed with cash on hand and borrowings on our revolver.
We anticipate an acceleration of free cash flow for the back half of 2023 and continuing on into 2024.
Importantly, as oil prices have improved in the third quarter at today's strip, we believe that energy can fully repay our revolving credit facility by mid 2024 materially earlier than our internal expectations. When we made the acquisitions.
We have added hedges recently and completed our targets for Novo as oil prices have rallied locking in higher levels than we underwrote.
To put the acquisition and subsequent financing into perspective by.
Around this time next year based on our projections, we could have a business producing 20% to 30% greater amounts of cash flow than today with materially less debt than we just reported.
And this is at a backward aided pricing strip mind you.
This would imply from a total return perspective, when including our dividend yield.
We could deliver up to a 30 plus percent total return on our business, which compares favorably to the high payout low growth strategies, we've observed from some competitors and quite favorably with a long term returns of the stock market, which brings me to number four.
Capital allocation.
Our goal is to provide our shareholders with the highest possible total return over the long term.
We say this every quarter, but it is important to us and we believe it bears repeating.
We recently announced a 3% increase in our common stock dividend for the third quarter of 2023, our 10th straight increase.
Our view at N O G is that our scale should help us build a shareholder return program that can grow over time.
As a result, we're instituting a policy of annual reviews of the dividend with a potential for interim changes should we experienced significant sustained commodity repricing or if we execute on substantially accretive corporate actions as always we'll be mindful of risk and leverage while also providing and attract.
The risk adjusted total return.
Our capital allocation is about maximizing potential returns, making our dollars go the farthest they can from a value creation perspective.
The data overwhelmingly suggests N O G has thus far created more value and more long term dividend growth by acquiring assets at a significant discount to what we already view as a discounted value for our stock as you saw in the second quarter.
This is capital allocation 101.
But there have been and will be times, when these paradigm shifts, allowing us to create more value by pouncing on undervalued securities. We are continually evaluating all options and executing on what we believe to be the best path for the company and our shareholders.
We're truly excited to have executed on two large scale joint development projects in the second quarter, specifically forged novo these.
These two acquisitions are indicative of striking while the iron is hot.
On prior conference calls, we shared that the opportunity set for energy was the largest we had been presented with.
In both cases, forging novo were attractive and we're excited to be working with vital on Earth stone to create more value.
We believe <unk> is very well positioned from an asset and balance sheet perspective for the remainder of 2023 as well as for the year ahead.
Before I turn the call over to Adam I did want to bring a personal matter to our investors attention as.
As you may have seen a <unk> one plan I entered into about a year ago got executed last week and Additionally, I have entered into a modest monthly <unk> one plan to sell some shares over the next year to address some personal needs.
Over my five and a half year tenure here with NRG I have never sold a share of stock and had only been a net buyer with 15000 shares purchased with my own personal funds.
MLG is and will remain the vast majority of my net worth I believe in the company and by that fact, it shouldnt sure to all of you that I am aligned with you all and highly motivated to deliver results and stock performance.
Myself on always being direct and honest with you. So I don't want anyone to think that <unk> selling some shares means something about my views on the company's future or trajectory.
Quite the contrary, our executive compensation incentive structures are driven by all the right things corporate return on capital targets, making more money for our shareholders and driving the stock price higher over time.
A large proportion of our future compensation is directly achieved only through significant absolute long term upside in the stock.
It should be clear that we are is hungry and motivated as ever.
To find ways to drive share prices higher.
I just don't want this to be confused with personal decisions I may make from time to time.
So with that out of the way thanks for taking the time to listen today and a special thanks to the entire <unk> team from top to bottom.
Oh geez on an incredible upward path with a bright future ahead.
Driven by our unique investment focus culture.
Close by reminding you as I always do that we are a company run by investors for investors and with that I'll turn the call over to Adam.
Thanks, Nick.
I'd like to start by reviewing our quarterly operations and then we'll turn to our business development efforts in the M&A market.
Second quarter operations were down the fairway as we continued to find ways to optimize our development programs.
Maintaining capital efficiency.
And enhanced returns.
Turn in lines for the quarter were as expected.
Approximately 13, eight net wells to production on par with first quarter as well additions.
The Williston made up approximately two thirds of the organic activity driven by larger working interest with several of our top operators.
We exited the quarter with over 9000 producing wells.
We will continue to leverage our proprietary information to make well informed capital allocation decisions.
Looking forward, we have been working with our operating partners, mainly Midland Petro and our mascot project to adjust development schedules, which should drive long term returns and reduce both shut in times and costs as we prosecute the program.
This means that we will be deferring some of our completions into early 2024 that were originally scheduled to turn in line during the back half of 2023.
The new plan, which contemplates drilling and completing an increased quantity of wells in a single batch will set up a more capital efficient 2024.
We incur a substantial portion of the development costs in 'twenty, three and reduce future costs related to shutting in wells for offset fracs.
Even more encouraging are the well results in outperformance that we have been seeing not only with our mascot project, but across all of our active basins.
Despite some curtailments in production and deferments of completions in the Bakken related to lower commodity prices during the quarter.
Jeez, a record production levels in the Williston.
We continue to actively manage our positions in North Dakota, and Montana, resulting in some of the highest well productivity we have seen out of the basin to date.
In the Marcellus, we continue to see strong well performance with Q2 production exceeding our internal expectations by 6%.
Our wells in process continued to build as we added eight seven net wells quarter over quarter, which excludes the pending novo transaction.
As we look to close novo in the Middle of August we expect to add an additional 6.1 net wells to our in process list.
The activity across our scaled position in the Permian has been accelerating where 50%.
<unk> activity now comes from.
But from just 18% of our oil weighted activity.
At the beginning of the year.
This has driven our in process list to all time highs with an average working interest that is nearly 20% higher than that of our average working interest related to our producing wells.
This means that we can do more regardless of a rig levels and provides us a seat at the table with our operating partners, giving us additional transparency as we prosecute our business.
Turning to well costs, we continue to have discussions with both our large and small operators regarding a cooling of inflationary pressures, which has been encouraging.
Regardless of size, each has seen green shoots and reducing overall well costs.
Quarter over quarter, we saw average well costs down 6% on an absolute basis.
9% normalized for lateral length.
This was driven both from longer laterals, and a stronger deceleration and inflation across the Williston.
Notwithstanding a further material upward move in commodity prices, we would expect to see the benefits begin to translate as we move into 2024, but remain conservative in our estimates given the overall market volatility.
During the quarter, we elected the nine four net wells with about two thirds of those weighted towards the Williston.
30% to the Permian and the remainder to the Marcellus.
Quality remains high as the consent rate held above 90%.
On the business development front, we alluded to the record backlog of M&A opportunities, we were seeing on our Q1 call and executed on some of the highest quality opportunities that were in the market during the first half of the year.
Our size and scale create a competitive advantage in the non op space, where we now have a myriad of ways to allocate capital to M&A.
Our ability to contribute meaningful capital alongside our operating partners. That's opened the door to an expanded set of opportunities, which we've now shown we can thoughtfully execute on.
By partnering with <unk> and operated asset or buying down and minority interest from our operators, we build alignment long data transparency and can take an active role as operational decisions are made.
This is by no means a shift in our acquisition strategy as we continue to review non operated packages drilling ventures, and our ground game opportunities.
Simply put we have more opportunities to deploy capital than others, which gives us the ability to be more discerning.
As we look at the assets that are in the market today. The current mix is robust, albeit limited and quality.
That said things can change quickly because we continue to source multiple off market opportunities.
Others are brought to market.
Regardless, we will remain disciplined in both our approach and underwriting as we navigate the rest of the year.
While our major acquisitions.
We closed on 13 transactions through various structures that will set up for the drilling of an additional 16 seven net wells through 2024, and we're also able to add an additional 942 net acres.
Four of those transactions during the quarter were through drilling partnerships in the Delaware as operators continue to search for capital to fund our drilling projects and manage capital outlay.
These capital management situations are not limited to smaller operators either.
Three quarters of the drilling partnership signed during the quarter were with our large cap operators.
All in all we remain extremely busy on the business development front with asset opportunities available to MLG remaining at all time highs.
Regardless of the opportunity set our focus remains on asset quality with resilience in any commodity market and generating meaningful returns for our shareholders.
With that I'll turn it over to Chad.
Thanks, Adam.
I'll start by reviewing second quarter results and provide additional color on the operated update we released on July 25th.
Our Q2 average daily production topped the high end of our recently released estimates at 90878 Boe per day.
A 25% increase compared to Q2 of 2022.
Oil volumes were up slightly over Q1, as we experienced better well performance across all basins.
Four charge for that occurs in Q2 of every year from our Marcellus properties.
Expect a firm transport program will expire in 2025 based on current estimates.
Budgeted Capex games is on track with our expectations.
We have encouraged $445 million a year to date or roughly 60% of our initial total budget and.
We have updated guidance to reflect development plan changes and deferrals discussed earlier as well as incremental capex proportion novo.
For the year, we anticipate budgeted capex to be in the range of $764 million to $800 million.
As we previously announced we anticipate Capex canes for the second half of the year to be equally weighted and the third and fourth quarters.
The balance sheet was further enhanced in the quarter, reflecting an active M&A season.
With a $500 billion senior notes offering the turmoil a portion of a revolver.
By a $225 million equity offering inbetween announcing forge and double acquisitions.
Leverage at the end of the quarter was 134 times net debt to annualized second quarter EBITDA.
At the end of the quarter, we had zero borrowings on a revolver with ample liquidity of over $1 billion to support our business.
We will finance novel with borrowings on a revolver. So we're likely to see our leverage ratio pick up again in the third quarter.
That being said, we expect to return to our stated leveraged targets in the next 12 months ahead of our initial forecast.
With the contribution of forging, though though as well as the current strip.
We expect the revolver to be on drawn by the start of the third quarter of 2024, as we organically delevered.
As we announced yesterday the elected commitment amount in the borrowing base will be upsized on a revolving credit facility to $1.25 billion and $1.8 billion respectively.
We closed an oval acquisition.
Turning to our revised annual guidance.
We have adjusted our 2023 production guidance to a range of 96000 to 100000 per day and.
And are anticipating production for the third quarter and the range of 99000 to 103000 per day.
Which contemplates a mid August closing for Novo.
We have tightened expectations for oil cut to arrange a 62% to 63% reflecting year to date pricing and adjusting for recent M&A, particularly novo.
Our till estimates for 2023 were reset to a range of 75 to 78 net wells, reflecting changes to the mascot drilling plan and.
Previously discussed deferrals experienced in the second quarter.
He made modest guidance revisions to eloise G&A and realizations, mostly related to anticipated contribution in the lower cost structure associated with our increased exposure to the Permian.
We have tightened arrange for eloise keeping the low end at $9.35.
Tighten the high end to $9.55 for.
For anticipated production expenses associated with forwards and novo.
Ah differentials were up in arms gas realisations to 85% to 95%.
Oil differentials to a range of $3 25 to $4 and 25.
Reflecting better pricing here today.
The increase gas realisations are tied to processing costs embedded within our alloy.
Are expected cash in non-cash G&A Rangers were tightened by bringing down the high end over the perspective ranges by five per Bowie.
In an effort to provide better transparency to our adjusted EPS calculation, we introduced guidance on our DD&A rate per Bowie for 2023, and the range of $13 to $13.80.
And the second quarter, DD&A was $12 and 87.
Which reflects the additional forged to our asset base with no corresponding production volumes.
A higher rate for the year reflects the addition of forge and over to our asset base.
So we gave a fairly detailed operations and guidance update we did not discuss taxes and we are frequently asked about the timing the expected amount.
We continue to expect to be a cash taxpayer in 2024, and our preliminary estimates as of today is the expectation of a 10% to 15 million dollar 2024 tax outlet.
With a more fulsome textile lay in the following years.
Changes in oil and gas prices could have a substantive impact on this estimate so.
So we'll keep you informed as time goes on.
With that I'll turn the call back over the operator for Q&A.
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One moment, please while I pull for question.
Thank you. Our first question is from Scott handle with RBC. Please proceed with your question.
Hey, I was wondering if you could discuss.
How you think about like the M&A landscape going forward and <unk> said, you strike familiar and taught but I guess from from Adam's commentary. It looks like the quality is made a cooling a little bit and as you kind of think about that relative to you know that free cash flow being deployed to debt reduction <unk> can you can you just give.
Your view of the landscape of M&A, and and you know kind of many managing the balance sheet over the next year.
Martin Scott, Yes, I think.
I think I also in my prepared comments talked a lot about capital allocation right, but I mean, I think we want to do what's right for the business and.
We weigh all of these decisions against each other I would agree that you know as we pointed out I think the <unk>.
Large scale M&A landscape for the moment.
But looks less exciting to us but.
But I'm also pointed out that that could change over time, and we get phone calls every day from things that may or may not be on the market will take those in stride.
Think that being said.
I think when we look at this and these dollars are fighting and I mean, I think that the adage I would give you. If you have a car loan at 2% and you're earning 5% in your savings account. It makes no sense to pay off that loan even if you Wanna have no debt. So we think about it the same way, which is that the extent we're focused on improving returned.
The stockholders and allocating capital.
In stride and so to that point, we have allocated obviously check to M&A, because it's provided a higher return to our stock.
Stockholder than almost anything else that does change though right.
And can shift and so for the moment I don't think we see a lot of of compelling large scale and many opportunities in the default patient which is to repay debt and then ultimately as we reach our targets you start to to that I mean, I think we have a sliding inside 13 in our presentation of <unk> say pretty succinctly, I think where willie.
Take leverage about one and a half turns for the right opportunities and I think when we really get below one times it tends to lead to.
Accelerated shareholder returns right and I think that.
That in and of itself should kind of give you. The governors of how we are going to look at this going forward.
Yeah. That's that's that's pretty clear things for that and you know my follow up you know just it'd be eating it is a view of what you're seeing out there from operators in the back and and permitted I think there may have been some modest deferrals in terms of.
Your operators you know completions in in in the back and are you still seeing that and you know how how is the Permian setting up in terms of like just the normal amount of opportunities outside of Matt mascot.
I think the back and some of the deferrals that we alluded to in our pre releases.
Really representative maybe one or two operators, where we've got some outside working interest maybe more sensitive from a commodity pricing standpoint.
We are having those conversations.
With the operators right now where we stand today those commodity thresholds are being met and so as far as anticipated completions and whatnot, we've got that couched Q.
Q for timing, but that's also going to be dependent on logistics and everything else and so even though that could get pulled that could potentially get pushed depending on kind of volatility and then as far as.
<unk>, New Mexico goes it's steady as it goes obviously, we had some commentary around the mascot project. That's obviously very specific just given the stack pay and and the overall kind of co completion activities that were running the ground with Midland Petro in that group, but everything else is generally steady.
As it goes and then I think you might've alluded to the ground game opportunities we.
We continue to see.
Those coming in the door.
Every single day in the size and the scope of what those look like are all very different.
That gives us the ability to to get picky.
<unk> of Oregon employ our capital dollars.
I appreciate the killer thanks.
[noise]. Thank you. Our next question is from John Freeman with Raymond James Please to say with your question.
Yeah, Good morning, guys.
John .
First question you mentioned on the AFP is how we went from.
Deflation is starting to kick in and was there any color ya'll can give on just where we stand on all things maybe on a leading edge basis.
Yes.
I think I would just caveat all of this I mean I think that.
Our view and I think it's one that's been proven by the desk time is that oil prices and service Kosovo will move in sync with each other right from a margin perspective.
And you've had a kind of unique environment over the last year, where you've seen.
Oil prices go down pretty materially natural gas prices go down materially and activities coming down with costs. So we're taking some time to come down to meet that and I'm bleeding edge, you're starting to see that that's also juxtaposed against a period, where we've started to see oil prices rally.
And so I think as we look forward I just want a caveat it and say that.
Wow the the last shoe to fall really what you are going to see and where you would see a material change the savings is gonna be completions and the completion cost is only going to materially come down to the extent that the rig count.
Ultimately stays down if prices rise I would anticipate you're gonna see the recount come up modestly and thus with that I think you're cancelled the same material savings from here are gonna be reduced.
So I would say as I've said to a lot of our investors you don't need to look really any farther than to the price of oil to think ultimately where the direction of service costs are gonna go, but more specifically G or tier I'll, let Jim around talk specifically to any meeting edge changes versus at nighttime.
Conversations that we've had with our operators were generally see that in more of a tangible casing. For example, even some of our smaller operators obscene reduction anywhere from 20% to 40%.
Based on some of the conversations that we were having earlier in the year.
So you know I think some of that's got a little bit of room to give some of that also has to do with logistics and some of the issues that we're running into sourcing standpoint last year. Some of the other larger operators that we've been talking to have been laying down Riggs some of that is strategic.
And going back to the service providers in order to cut.
Better deals drilling rates seem to be coming down marginally as well, but the next point I think we're going to stay relatively conservative, especially with the volatility receding on the commodity market.
Great and then just my other question on the the leveraged slide you reference Smith at 513.
<unk>, where are you off sort of view leveraging that 0.5 times range and and how do we talk about kind of flexing leverage.
And the near charge me for certain girls opportunities, which obviously all y'all Darren.
Speeds here recently with a number of big transactions. So you.
<unk> in that slide talks about on the lower end, it's kind of harvest model towards a zero leverage our brand or some fast.
And making use the word harvest and your your prepared remarks, so I guess I am kind of two parts. It's a I guess should we assume that that means Easter.
Can you start targeting the lower end just given what you said about large scale M. A et cetera. Your comments at harvest, but then also what's not on at five how does just a commodity.
Environment kind of overlay on this charge figure it out.
90 dollar world I assume that you're leverage what you view as acceptable level is probably different furniture and a 60 dollar world.
Yeah, I mean, I would say that generally speaking we don't we're not running our leverage kind of just the one thing that this doesn't really point out too which is probably should is that we're not taking them for thinking about this on a normalized ratio right, we're not running spot $80 through and making the assumption of a one and a half times at one time celebrity 80.
Dollars forever right.
Using up a discounted price to that will kind of using up mid cycle price in our mind, but so.
So I mean, I think that to answer your question is like the the one thing I would point out to you know and and it specifically like I think when you think about the uses of of cash flow as you kind of reach those.
Those those targets is obviously you know share repurchases right in share repurchases to us it's not to suggest because we haven't done recently that we don't think our equity is an expensive at all bright I think that that's not the case that the reality has been that we've been able to buy assets out of material discounts or like I said in my call a an already discounted stock price on you. So.
You're just you're just getting a better return for the investors by doing so, but obviously to the extent that the environment winds up being less of them. That's an obvious default mechanic for it but I think you need to have.
The risk metrics and kind of edit both a cyclical oil price perspective, as well as an aggregate leverage respect it to a point, where you really want to do that and obviously the day that we have to have a view internally that that is a good use of that capital. Because there is also the default always are just piling cash and waiting for a better day I don't think we're afraid to do that either I don't know if that.
And answers it specifically Jonathan stop me, if I didn't get there.
It does not appreciate it thanks a lot Nick.
In the interest of time, we ask the participants limit themselves to one question and one file.
Our next question is from Neil Diamond with first Securities. Please proceed with your question.
Morning, guys my questions on the the second half, possibly twenty-four activity it sounded like.
I forget which line this is on but it sounds like based on your prepared remarks and look at this line you'll have a number of material number of wells in progress and if you have confidence in your tools will ramp for the remainder of 2024 I'm. Just wondering you know it sounds like this the case and can you give us ideas you know.
Just the degree of that and which areas will see the most activity.
I think it's going to be largely split kind of 50 50, maybe that gets pushed and pulled in your goalposts are kind of 40 60, depending on what's going on in a permanent versus the.
The Williston.
Maybe some of the larger working interest.
Or dizziness that we have I guess drilling down in that regard.
You'll see some activity on the Texas, Delaware side as well as the Midland Basin. We've also got.
The majority of our.
Awesome and then just in case the follow up <unk>.
It's been awhile and just wondering it and it seems like now on M&A. You. You know you guys continue now really just.
That's fine.
Oh, it sounds corny, but risk adjusted return rate. So there's the raw returned then obviously any engineering deck is going to run through but then you have to adjust that for the specific risks to the assets of sometimes it requires governance Uhm I think Adam talked about this in his in his comments and I think this is something that I would want to.
Reiterate to our investors, which you said just because we've done it several partnerships and sorta buy-down structure as of late doesn't mean that we're not still very active in our traditional Nana markets. In fact, I think that I wouldn't say, there's a preference one way or the other.
Say that the key things are that are capabilities are a lot larger than they were in that might be why it from a happenstance perspective that you've seen that as well as the ebbs and flows of the quality of the assets that come to market. I mean, we've seen several you know traditional nonoperated acids come carpet this year and they just happened to be pretty poor quality in the past.
And so I think that it's gonna come, but that's not going to be the case everyday.
So I don't think there's a preferred structure I think we just are returned thresholds in you know needs for governor nature or other things depending on the concentration in the specific risk.
Oh, Yeah, that's building.
It's definitely going to be asked that specific, especially when you get into the you know the drilling partnerships and some of the <unk> fries and so you kind of need to understand what the runway.
On a prospective basis, Australia can buy an asset in time, but then what kind of governors do you have in place in order to maintain that alignment and so that it's been a boil down to the social issues and and how those discussions are going with a particular operator we've.
We've had operators come to.
To us and propose buying an asset and it's something where you know they're gonna be renting yes. It for a period of time and so is that the right partner for us.
Maybe maybe not depending on what we can put in those joint operating agreements and what everybody can kind of live with so.
It's as much a social issues when we're talking about some of these partner.
Partnerships as as it is the essence themselves.
Thank you how our next question is from Carl Mein, Wisconsin Right. Please proceed with your question [noise].
Good morning, the Academy and Chad into the hole and O. G crew. There I think I think I have just one question and its own slugged him.
And at first I want to say, thank you for giving US. This detail about you know about how the you know the actual or comparing to your your acquisition case, but my question is this.
How much it it seems to me that.
Most of the Delta between your acquisition case in this new.
The new guest completion plan.
It seems like we've seen some of it in queue to but most of it is still in front of us and and.
If that's the case is there anything that we can you is there anything that that the way that you know at the end of the queue to your actual warhead plan <unk> does that suggest that.
We're gonna see that.
We're <unk>, we're gonna see that got grow in the back half of 23.
Certainly I mean to the extent that it continues at the base. It as of course, I mean, I think we take it.
One well at a time Charles So I think we've been pretty conservative and when I say, we all give Jim 100 per cent credit and his teeth, but.
Softball, maybe I'll take credit on top of that phone [laughter], but but but seriously I think the answer is that we try really hard to take conservative tact.
Performance.
And and and timing for that matter because time he doesn't move all along moves all around all the time, but I I do think that we've been really encouraged really through every producing period on these assets of how the walls have performed even when there have been issues here and there like there always are on these things really.
I think.
The old Adage, you know in real estate is location location location and I think it's the same thing as it pertains to this asset but just this is just a you know if this is a ferrari of assets sitting right in the heart of Midland County, No virtually no vertical penetrations on the properties.
I certainly think.
I'll I'll I'll, let Jim add anything once but I certainly think that we're optimistic that we can see continue performance on the assets.
Yeah that was just that you know the original expectation was that there was gonna be another batch of while I was getting completed a third quarter coming online kind of towards the end of the third order. So what you see on that graph there for the daily production is is ramping that's kinda last batch of wells for this year. So even though it is succeeding you know the original four cats, you kind of expect that to just switch.
As you get that kind of towards the Q3 Q for where we originally thought there was another batch of wells up wrapped production further will continue to see the production kind of decline uhm until we get to the end of 2023, and then that next big Basketball's will start coming online and you want to keep two of next year, which will drive the capital efficiencies gone in 2024.
That's helpful color Dream. Thanks, Nick.
Thank you. Our next question is from Donovan Schaefer with Northland Capital markets. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
<unk> I wanted to ask.
Talking about well cause I know for operators.
Have the real direct relationship with the service providers and a lot of times. They negotiate that pricing ahead of time before you guys would even get the if he's from them, but I am curious you being.
That you guys are are really kinda charging the path on the non operator business model and.
You know and and reaching such large scale and you you've talked a lot about <unk> advantages that you get.
I'm curious if you know as things stand today or or maybe it's the case, where this is the potential thing in the future.
Could there be an evolution here or or maybe you already here, where you're able to get better pricing.
With service providers.
You know your smaller minority interest across all of your walls in your your huge footprint you could have a service provider that actually has more exposure to you an aggregate than they do to a single specific operator. So I'm. Just wondering are you <unk> are you ever able to bring that to bear.
<unk> and get involved in that kind of level of conversation and negotiating pricing with the service providers Uhm and if if maybe not yeah is that something you would ever aspire to is there a way where that ever makes sense I'm kind of evolving the business model.
I mean, Donald an interesting concept to answer the short answer is no I mean, I think the one thing I want to tell you that the <unk> is not necessarily like that you know if if exxon is drilling a well for us for example, the a V. It's just an estimate right. So it's not always tied directly to their latest service contract or cost which is why.
Oftentimes you know you can take the a P at face value with the assumption that may be in today's environment that will see savings on the back in or in a period like last year, where we might have a different assumption of where that wells ultimately gonna cost versus the fee. So it is really an estimate of nice yeah. They tried to have contingency pieces in them and all those things, but they're not necessarily.
Really always eating edge just like you know we didn't really see it in the first quarter of that that's E.
A big change to those a V cost, but there was an assumption that perhaps bottle as well as being.
Come in under budget effectively.
As to whether we could aggregate are interested and go to other service providers do something the answer is no I will tell you where where significant non operators oftentimes our credit profile is used to help the operating groups.
Get a better term just because obviously, we're a credit worthy counterparty were rated entity and stuff like that so in that respect we have kind of flesh on muscle of time, especially with some of our smaller groups, but I don't know if we just sit there and say hey, we only 10 per cent interest across all your wells and go to neighbors and tell them to lower the rig right. So I don't know if that were there yet but.
No I mean, I think the more realistic concept has to do with the drilling partnerships that we have in place and it's all going to be a good situational specific but you know if we put together Ah Ah Ah no drilling program with an operator and I kind of have those gargoyles as to how many wells are gonna be drilled in those stretch.
It's things a lot of times, what will build into those contracts or covenants for cooperation with the service company and so the operators obviously, taking the lead on that but when we're getting into the water and take away another midstream contracts.
A covenant with.
I need to provide those contracts to us will provide our input compare that to our underwriting.
They don't move things along accordingly.
Okay, and just to be clear on that are there's some cases, where you talk about the the benefit of your credit kind of been brought into the picture or there's some cases, where it's sort of a joint and <unk> what are they called joint and severed or several liability does that yeah that good.
Added weight to your credit because in under certain contracts or something if the operator word to for whatever reason you know worst case scenario default. Then you guys. You know provide some of that support or is it pretty much always like a joint in separate.
Liability, where you're you're the the value of your credit goes just as far as your your minority interest.
Yeah everything is several okay. None of these operates like the current development agreements or anything like that or joint ventures, everything just got it got it wrong.
Right right and then.
And then my a X y Z.
Except wise, the operator undergoes a contract run out liable if they default that's right right sure enjoy working interest owner and receive you'll be paying.
Having that kind of qualitative information is something that helps facilitate the process.
Sure, Okay, and then as a follow up with the Marcellus you know it looks like you guys strong production there that Ottoman since you talked about I'm curious with the mountain Valley pipeline approval happening with that feeling that happened in the man and.
And I know, there's been some holdups with like the fourth circuit court, but it looks like just yesterday the U S Supreme Court.
You know the stuff gets all contentious and so the fourth circuit Court tried to you know put a temporary hold on things U S. Supreme Court I guess yesterday said no you can't even do a temporary hold we're gonna give these guys the benefit of the doubt and let them proceed with everything.
So it seems like the weight of the courts and everything is and you know Congress to this plan is really getting thrown behind getting the mountain valley pipeline done.
I'm just curious if that if any of these news events.
If you have any color commentary or thoughts related to that and your interest current interest and potentially perspective interested in them ourselves.
Not really dominant I mean, I think that you know like I think you have something similar last quarter to the extent that it had a long term improvement for basis differentials awesome, we'll probably see more development on our land.
Get infrastructure built without you know kept telling me to special interest in this country, but that's all water conversation.
It just takes Congress and the Supreme Court.
[noise] I got around a similar situation Rosemary access pipeline right I mean, it was all fits and starts and so I don't think we're gonna be planning on anything to the next point.
Obviously optimistic, but we're not making any business decisions around or.
Okay, Alright, Thank you guys I appreciate it.
All of it.
Thank you there are no further questions at this time I'd like to pass the floor back over to Mr. O'grady for any closing remark.
Thank you all for your interest in our company and listening today, we'll see you on the next corner.
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