Q2 2023 Earthstone Energy Inc Earnings Call
[music].
Good afternoon, and welcome to Earth's Stone energy second quarter 2020.
Three conference call at this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation for anyone should require operator assistance during the conference call. Please press star zero on your telephone keypad.
Reminder, this conference call is being recorded joining us today from Archstone are Robert Anderson, President and Chief Executive Officer, Mark Lumpkin, Executive Vice President and Chief Financial Officer, Steve Collins, Executive Vice President and Chief Operating Officer, Scott Landers, Vice President of Finance I will now turn the call over to claims JASO director of Investor.
Thank you you may begin.
Thank you and welcome to our second quarter 2023 earnings Conference call.
Before we get started I'd like to remind you that today's call will contain forward looking statements within the meaning of federal Securities law.
Although management believes these statements are based on reasonable expectations. They can give no assurance that they will prove to be correct.
These statements are subject to certain risks uncertainties and assumptions as described in our annual report on Form 10-K for the year ended December 31, 2020 to our quarterly report on Form 10-Q for the quarter ended June 32023 in the second quarter of 2023 earnings announcement.
These documents can be found in the Investor relations sections of our website at Www Dot Earth Stone energy Dot com.
Should one or more of these risks materialize or should underlying assumptions prove incorrect actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures reconciliation of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in our earnings announcement issued yesterday.
Also please note information recorded on this call speaks only as of today August 3rd 2023, therefore, any time sensitive information may no longer be accurate at the time of any replay listening or transcript reading todays call will begin with comments from Robert Anderson, Our president and CEO , followed by remarks from Steve.
Collins our CFO .
Our CFO and then we will have some closing comments from Robert I'll turn the call over to Robert.
Thanks, Kley and good afternoon, everyone. Thank you for taking time to join US on what has been a probably a very busy day for you all <unk> operational excellence continued during the second quarter with production setting record levels for the company, we reported second quarter production over 105000 Boe per day with the oil component of our <unk>.
Second quarter production over 44000 barrels per day we.
We have now had three quarters in a row with production approaching or exceeding 105000 Boe per day. This record level of production volume has is now tracking well above our original standalone full year's guidance, our low decline stable production base and strong new well results drove our production outperformance for the quarter.
This record setting production level once again continues to showcase our quality and productivity of our inventory and the strength of our underlying asset base, Steve will highlight several wells that drove our strong quarterly outperformance here.
The execution of our disciplined operating plan and the strength of our operational performance translated directly into strong quarterly financial performance, culminating in approximately $239 million of adjusted EBITDAX and about $42 million of free cash flow for the quarter.
Over the past few years, we strategically position the company as a significant operator in the Permian basin with more than two $5 billion of acquisitions completed.
A key piece of our strategy has been the initial entrance into the northern Delaware Basin in February of 2022.
Through the acquisition of Chisholm and the addition to that position with the acquisition of Tightest last August .
In the past 12 months, we have been searching for the next complementary asset acquisition to our new Mexico deals, while we integrated and executed on our development plan.
This quarter's results really show, what we can do with it with these assets.
Our recent announcements and pending close of the Novo acquisitions supplement this strategy with our asset base shifting further to focus on the prolific northern Delaware basin to which the large majority of our capital activity will be dedicated going forward.
With four of our five rigs focused on the northern Delaware Basin, we expect to see continued improvement in capital efficiency.
We believe that Novo transaction has all the right qualities to add significant shareholder value for <unk> and all of our stakeholders.
Just wanted to spend a few minutes highlighting several of those qualities first we are high grading and deepening our portfolio of future inventory in the Premier Northern Delaware Basin.
Novo adds 200 high return Derisked low breakeven oily drilling locations. Upon closing we will hold over 1000 future drilling locations with approximately two thirds of those in the highly economic Lea and Eddy counties in New Mexico. We currently estimate an inventory life of approximately 13 years at <unk>.
Current rig pace, providing years of high quality drilling inventory and future profitable growth for our style second novo significantly enhances our scale and operational synergies, we estimate fourth quarter production in the range of 130000 to 135000 Boe per day. This rep.
Presents an increase of nearly 30% growth compared to our second quarter reported volumes. This production level will propel us into being one of the top producers in the Permian Smid cap group.
The proximity of this asset to our existing assets should allow for synergies with a constant focus on operating efficiencies and cost.
Third Novo increases our financial scale looking into 2020 for the Novo transaction will meaningfully increase our stones financial scale through higher EBITDAX, but perhaps even more so a significant expected increase in our free cash flow generation as we intend to maintain our five rig drilling program, we expect free cash flow to increase by.
More than 60% in 2024 as compared to our stone Standalone plan before we agreed to acquire Novo.
Fourth we will maintain our financial strength and low leverage profile, even though we will finance the transaction with all cash and we will not issue equity we will not sacrifice the balance sheet.
As stated when we announced the acquisition in the fourth quarter being the first full quarter with Novo, we expect to meet a forecasted one point onetime leverage ratio based on the last quarter annualized adjusted EBITDAX and we expect to further deleverage to below one times debt to adjusted EBITDAX in 2024.
And finally, we will create a stronger more resilient or stone.
The Novo transaction will meaningfully strengthen our operational and financial base. We will have over 223000 net acres in the Permian basin with proved reserves of 460 million barrels of oil equivalent.
Upon closing we will have a production profile of over 130000 Boe per day, and an inventory of over 1000 locations, representing approximately 13 years of drilling inventory at our current five rig pace. All of these factors lead to generating significant free cash flow longer making her stone stronger and.
More resilient given the profile of the Novo transaction. We strongly believe this is a value creating transaction for <unk>. We will continue to focus on the small things that make a difference in our business as well for instance, we have divested over $100 million of noncore assets in the past year, including more than $50 million in the second.
Order of this year. This continued housekeeping will improve our margins and streamline our operations.
Lastly, I want to highlight our inaugural sustainability report, which we which was published last week.
And can be found on our website, we are committed to providing ESG related information and metrics to our shareholders and other stakeholders.
With that I'll turn the call over to Steve to provide an update on our operations.
Thanks, Robert and good afternoon, everyone. As you can see from our second quarter results. It was another outstanding quarter for the operations group, we maintained our rig counted five during the quarter with three in the Delaware Basin and two in the Midland Basin.
Allowing us to spud a total of 21 gross wells and 16.9 net wells and put on production a total of 17 gross 12 five net operated wells.
Robert mentioned, our operations team continue bringing some great wells online we have shown the area as a result of these wells on page 11 of our updated corporate presentation, which is available on our website.
Our earnings release highlighted a couple of pads that we've recently brought online in both the Delaware Basin and the Midland Basin I'll give a high level summary of those results in the Delaware Basin. We brought online two pads both in the Stateline area, which average with an average IP 30 of approximately 1800 Boe per day on one pad and 19.
<unk> hundred.
Okay.
On the other pad.
In the Midland Basin, we brought online a Pat a few weeks ago in Erie and County, where the IP 20 was over 1000 Boe per day and around 86% oil well.
We also brought online two wolfcamp D wells in the Midland County.
In mid July that are still flowing naturally but are looking good with average daily production over 800 Boe per day, and close to 90% oil on a Boe basis.
As we mentioned in Novo announcement, we will be transitioning from a rig from our Midland basin acreage to the novo acreage and shutting down the rig that Novo has operating Novo should finished drilling in August and we expect to move one of our Midland rigs in September to the Novo asset.
At our stone, we take pride in increasing value by improving the operations of our acquired assets given that mindset. We remain highly focused on overall operating expenses, we made significant progress on reducing yellow during the quarter lowering yellow.
Per Boe by 23 cents versus the first quarter.
This was achieved through lower cost cost for repairs maintenance chemicals during the quarter, partially offset by higher gathering processing and transportation costs.
Slightly higher Workover expenses.
We will continue to continue to focus on reducing our LOE per Boe and I can assure you that our entire team is working through their specific areas of responsibilities to achieve this goal.
We are starting to see some good news on the service cost front.
Rig rates have shown signs of softening and we are beginning to benefit as our rig contracts are renewed.
Over the past month, we renewed contracts on two of our five rigs and negotiated price reductions of 10% to 15% and we expect that trend to continue as our remaining three weird contracts rollover in the next two months.
We also see a softening for cementing services pressure pumping and the cost of production casing and tubing.
We are cautiously optimistic that we've seen the high point on surface cost.
We won't see those flow through our results in any material way in the in the current quarter and don't expect to see the full impact of those reductions until 2024.
I want to provide a little color on the cadence of our expected well counts for the next few quarters for.
For the third quarter, we expect to spud 24, gross wells or $18. One net wells in 17 gross wells or 14 net wells put on production.
And for the fourth quarter, we expect to spud 24, gross wells or 16, seven net wells and 30 gross wells or 22.9 net wells put on production.
With that I'll turn it over to Mark. Thank you, Steve as usual I'll focus my comments today I'll provide some additional details on some meaningful metrics and key highlights, but I would remind you that a detailed breakdown of our results is available in our earnings release and in our 10-Q.
So let me start with some high level financial results adjusted net income for the second quarter was $76 million or <unk> 53 per share adjusted EBITDAX was $239 million and free cash flow was $42 million all driven as Robert mentioned by record levels of daily production now.
Now, let me take a minute to walk you through our debt and cash balances as of quarter end, which incorporates several significant transactions during the quarter at June 30th we reported having slightly over $1 billion of debt, which was comprised entirely of two tranches of senior unsecured notes, we had no borrowings on our credit facility and we had approximately 50 million.
Cash at quarter end.
These debt and cash balances are inclusive of our having paid a $75 million of deposit toward the Novo acquisition, having issued 500 million face amount of new senior unsecured notes and having received over $50 million of net proceeds from selling non core assets for from a leverage standpoint for the quarter, we posted a L. T M.
Leverage ratio of 0.8 times, we do expect to Novo transaction to close on August 15th and we estimate a downward purchase price adjustment of approximately $100 million to $120 million.
Upon closing and incorporating the estimated purchase price adjustment in our July 30, <unk> debt and cash balances. We expect to have net debt of roughly $1 $8 billion or perhaps a little bit lower than that.
We have with this all laid out on page 25 of our new Investor deck that was published to our website yesterday.
After closing on Novo, we do intend to utilize significant free cash flow to pay down borrowings under our credit facility in the near term.
Also upon closing the Nova transaction, they elected commitments on our credit facility will increase to $1.75 billion, which leaves us with close to $1 billion of Undrawn credit facility capacity.
From a production stock standpoint, our second quarter results really were fantastic because we hit record average daily production of over 105000 Boe per day, and that was comprised of 42% oil, 32% natural gas and 20% to 26% natural gas liquids as you know this significantly exceeded our forecasts in both our full year production guidance at all.
Informal second quarter production guidance, and really what's driven largely by better than forecasted well performance, which really applies both to new wells that came online during the quarter during the first quarter, but all sorts of PDP in general.
Our year to date average daily production of 105000 BOE per day has exceeded the top end of our 2023 production guidance last August if you recall, we closed on the tightness acquisition, which similar to Novo had significant flush production and we did anticipate a time seeing some decrease in our daily production rate in 2023 raw.
So up to the fourth quarter of last year.
Even the lower combined rig count post close it on Titus as we sit here today, we've now reported three full quarters since closing on tightest and we've essentially held production flat right around 105000 Boe per day, which again includes the record production for the second quarter and I would just point you to page five of our IR deck, where we've laid this out of what our guidance is.
<unk> been on production over the past six quarters and what actual results War and you can see how we've been able to maintain the 105000 Boe per day. So it's closing on Titus.
This is really a this is really attributable to both the quality of our asset base and our efficient operations and were really pleased that this is working out as well it is and we're able to hold production at those levels. We're looking forward to closing on the noble acquisition in the next couple of weeks, which really continues our pathway of high grading our asset base, which as you know it's now largely focused on the north.
Delaware Basin the basin.
Full details of our updated guidance in our earnings release, and Investor presentation, but I did want to provide some color today on production and Capex guidance in particular.
Including an assumed closing date for Novo of August 15th or guiding towards third quarter production of 115000 to 120000 Boe per day and to fourth quarter production of between 130000, and 135000 BOE per day, both 41% oil given novo's flush production.
While we do expect some decline in production as we head into 2024 relative to the fourth quarter of this year and we do expect production will fall below a 130000 Boe per day, which is the low end of our fourth quarter guidance range, we're not really in a position to get much more granular than that but we do expect after some initial decline.
Production in the first half of next year that fraction will flatten out during 2020 for especially on the oil side.
Moving onto our Capex guidance, we invested 174 million in the second quarter, which is a little bit lower than anticipated and I'm pleased that we're tracking well on capex as you can probably see from the math, we're right at $375 million of Capex spent year to date. So that's exactly 50% of our midpoint $750 million guidance range from the beginning of the year.
Air, which we are maintaining here during the second quarter, we did spend a little bit less of infrastructure. Some of that will shift into the third quarter, but net net we still expect to invest between $725 million and $775 million for the full year as we previously guided and are reaffirming now and we also expect this to be a little bit more weighted toward.
The third quarter versus the fourth quarter, something like a split if you're assuming the midpoint of $375 million would be roughly $200 million in the third quarter and $175 million in the fourth quarter, partially related to some completion activity, we're picking up in progress from Novo upon closing here.
I would say all things considered we feel really good about the Capex plan and it looks like we're going to complete three to four more net wells by the end of the year than we had previously planned and we're gonna be able to do that within the same capital budget. So we feel like that's a very positive element of.
How things are going from an operational and spending standpoint.
Taken a sneak peek into 2024 and assuming the same five rig program throughout the year, we do expect that full year capital expenditures should be a little bit lower than 2023.
We're starting to see some of these service price reductions come into play as Steve mentioned most of those wont really hit hit until 'twenty 'twenty four and even some of the 'twenty 'twenty four benefits, we've got contracts run through about the first quarter. So we will see continued decreases in service costs throughout the year throughout the remainder of this year and really into the first half of 2000.
Four based on what we can see and think right now.
Well, let me turn to the expense side before I wrap it up and hand things over to Robert from an alloy standpoint, as Steve mentioned, the $9 13 per BOE for the quarter was at 23 cents per Boe improvement over the first quarter and as Steve mentioned in his team is working hard to optimize LOE costs, including as we incorporate the nova assets into <unk>.
Did put some guidance for the second half of $8 75 to $9 25 per Boe.
And really would expect that to be a little bit higher in <unk>, and a little bit lower and <unk> from a cash G&A perspective, we incurred about $12 million of expenses in the second quarter, which brings us to $25 million year to date, which is when you annualize that at the bottom end of our prior $50 to $55 million.
For the year range and it represents a cost on a per BOE basis of $1 27, which compares very favorably to our peers with that I'll turn it back over to Robert for closing comments. Thanks, Mark and we believe we have transformed <unk> into a company that offers an attractive value proposition to investors, including having a solid balance.
Once sheet with one of the highest free cash flow yields at one of the lowest enterprise values to EBITDA multiples in the E&P sector and a pro forma evaluation that is significantly below our total proved reserve value, which stands at $5 $4 billion, which is $1 $4 billion higher than our pro forma enterprise value.
Our deep inventory long history of operational excellence and consistent performance position or stone to continue outperforming for years. Our team has a long history of creating value for our shareholders. We will continue to work diligently to ensure that the long term value. We've created for our shareholders is ultimately recognize with that.
I'd like to now turn it back over to the operator for any questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May press star two 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.
Amit please while we poll for your questions.
Our first questions come from the line of Scott Hanold with RBC capital markets. Please proceed with your questions.
Yeah, Thanks, Hey, good afternoon.
I was wondering if you could gives us a little color behind those 1000 wells you have in terms of like what is the lateral lengths of those and you know as you bring all these assets together and continued to kind of look at opportunities to enhance.
Efficiencies and returns overtime, how much opportunity is there to extend those laterals you'd like swaps bolt ons or you know, obviously tactical kind of.
M&A.
Hey, Thanks good question.
I'm going to really generalize here, but what we put in probably at the beginning of the year in terms of our guidance and Footages, there, which are a little bit longer in the Midland basin, and a little bit shorter in new Mexico. So we'll go 9500 to 9000 feet of the two different areas probably stands about the same.
Most of the Novo wells 7500 to 10000 foot laterals.
So.
Going to fall into that bucket again, so that's the first half of your question. So it's about the same.
And we can probably come up with a little bit more granularity there if it would be helpful. For you secondarily the ability to extend laterals.
Is continues to get.
Tougher and tougher as offset operators develop their asset and we develop hours we.
We will look to make trades there could be some opportunities remaining in our chisholm acreage along with some of the tightest acreage and perhaps even in this novo where we can do some trading around acreage and maybe improve some lateral lengths and increased efficiencies things like that but for the most part.
I'd say, we have what we have and our job now is to go out and find bits of acreage, where we can go develop smaller units, but still very economic.
Understood Thanks for that and.
And then maybe a little bit of.
Context around you know what you're doing on the cash Opex I mean, it seems like it's been a bit stubborn in terms of trying to work. It down can you give some context of some of the efforts youre putting in place to see that drop and I think that novo's assets do you have a lower low so it'll probably makes it down but just on the base assets. This thing.
That have been a little bit stubborn and what youre doing to kind of make improvements there.
Well from a high level and then I can let's deep dive into the details.
It is stubborn because you have some things that are contracted like compression for instance, and all our compression contracts for the most part we're up at the beginning of the year and I can tell you. They didn't go down they all went up and labor is a fixed cost so whether it's our guys or labor that we use in the field, that's not going down.
So where we use that labor, including our own team we're.
We're continuing to.
See some increases there and we'll continue to see increases over the year I'll, let Steve address the things that we have done and where we are seeing some savings.
When we worked hard to renegotiate sand contracts workover rigs like Robert said compression in field labor stay about the same or increase part.
Part of that is leftover from the supply problems back from Covid.
We worked hard on chemicals.
Feels like not not our field labor contract field labor and Workover rigs.
We're balancing out by working hard to get those down.
Hey, Scott one thing I would just say this this is mark speaking to you know we don't report <unk> separately from <unk>. So it is embedded in L. O N E.
As we do our own internal benchmarking against our peers like that's one apples to oranges pieces, because a lot of folks don't include that in there.
And I'll say that was another piece that earlier this year caught us a little bit by surprise because a lot of these GPO contracts have.
Inflation escalators CPI.
Just to the CPI I mean, I want to say like on that basis is lower in the first quarter increased our LOE by 20 cents per Boe relative to the model like that sticky that that's not going away.
Like that's just the reality of the inflation linked to the contract, but it does sometimes when you're comparing <unk>.
Cross peers if.
If you don't include that or some folks might even have part of that embedded in there and their revenues. It is a bit of a a non non apples to apples basis.
Yeah.
And I'll end on you're right Novo, probably will help us out a bit.
But I guarantee you that Steve and his team will continue to look for other opportunities to reduce cost and when you look at it at an all in cash cost basis.
Our G&A per BOE continues to be working in the right direction and down and we will continue to work hard to lower our fixed cost side of our business.
Alright, I appreciate the context from all of you. Thank you.
Thank you our next questions come from the line of Neal Dingmann with true Securities. Please proceed with your questions.
Hey, guys. Thanks for the time maybe.
Robert a little bit on the last question you were just talking about.
My question is twofold here.
You had mentioned about possible investors and if it is.
Successful divestitures I'm just wondering how you know how much you think that might be combine that with what it sounds like you could certainly with all the new properties new scale get well.
Improved well productivity all of this sort of leads us to believe certainly could be under not even before by mid next year. One times would you think about where would you estimate might be too early to talk about but where do you think about shareholder return it.
You're starting to get well under one times at that point.
Okay. Neil you asked a lot of questions in there.
I'll start from the backwards and shareholder returns.
Is.
It's on our mind I don't think anything's changed you got it right we get under one time, we get our revolver paid down to.
To sum amount next year, and we start thinking about what we can do on the shareholder return front and we haven't given up on continuing to evaluate different opportunities or options for that.
But again like we've said in the past, we will focus on creating value and if we see the right opportunity come our way, we'll figure out a way to make it work and acquire more assets as it makes sense and we will.
Try and see if we can balance that with shareholder returns at some point.
Okay. Okay.
And then just maybe a quick one.
Second part of that just on divestitures.
How sizable can those be.
Probably not too much different than what we've already done in total over the next 12 to 18 months its another $100 million, perhaps maybe it's a little bit more oil prices continue to go up maybe that helps us out a bit.
It's sizable but are things that would streamline our operations for for sure and.
We don't we don't.
We don't know if we're going to be successful in selling assets, but we'll we'll sell what makes sense to sell.
Got it and then maybe quick one for you or Steve just really noticeable on those top two wells I. Appreciate you kind of have that slide that lists all of the wells and some of your top wells in both bolt and that sort of course in Eddy County.
Again, what's the plan to drill in that area and is there anything unique about those two wells.
Yes.
Oh nothing unique.
We've got lots of wells like that we love all of those wells equally.
I think we're going to finish up some drilling on that state line area. Later this month next month, something like that and we'll be completing some wells probably in the late third quarter fourth quarter and bringing out another I can't remember exactly if it's three wells or four wells something like that.
And of course more wells that would be at the end of the quarter. We will get started so we've got some more lined up in and then we've got probably hopefully some a few other surprises.
<unk> County, as we complete wells there that we're working on now.
I always like your surprises thanks, guys.
[laughter].
Thank you our next questions come from the line of <unk> Chandra with the Benchmark Company. Please proceed with your questions.
Oh, Thanks, Hi, Robert.
Question on you know now that you're here right. Whatever here is you know 35000 Boe per day.
Are you thinking any differently about building the business and running the business for instance.
Like the Wolfcamp D is there going to be more for lack of a better term exploration and what you do more of a focus on maintaining or increasing the inventory count versus PDP type transactions things of that nature.
Yeah. She Bosch, we are now definitely more focused on inventories and straight PDP and it all depends on what the what the seller has I mean, we've looked at deals where they're still up.
Outsized PDP component compared to inventory, but it's got really good inventory. So we spend time looking at that and see how infineon hour.
Development plans and portfolio, but we are even like the Wolfcamp D. There's a whole bunch of other zones out there we could talk about those arent exploration and we're not an exploration company, we will take low risk development opportunities and go exploit does it makes sense in our development plan in Wolfcamp D is like that.
The Jo mill and in places the lower Sprayberry the same in the Midland side of the basin and then you get into new Mexico, and there's the Avalon and deeper benches in the Wolfcamp and shallower benches above the Avalon all of those things are proven in certain areas and then we've got good geologic reasons to believe theyre going to work in other areas.
Where we have drilled them and so we're excited to add those kind of locations into our portfolio, but we're not going to go out there and explore for 'twenty.
25000 foot vertical wells lets see the next gas play or something like that that's not our that's not our game.
Got it.
And do you have any sort of theories and or ways that you want to tackle that disconnect between you.
Your multiple and now what's the size of the house.
Do you have the Ham Permian presence I you know some of the I guess old excuses have gone by the wayside as that's why your multiple is what it is but how.
How do you think internally about tackling that deficit and getting something closer to any P value.
Yes that is a great question and we wrestle with it probably every day and the one thing that we can do is we can continue to perform.
And we just did another deal or in the process of closing another deal. So I think folks need to see that we've done another good transaction and I believe they will the results are pretty impressive on that acreage position.
And I'm confident that our team can operate at and maybe even shave off some costs, we're starting to see some good efficiencies and.
Efficiencies that are sticky they are staying with us and I think as we continue to show those results.
Investors will take notice and probably can't avoid taken a hard look at ours down.
We do have some.
Larger inside ownership.
With with Encap and post out they're sticky investors.
And then we've got other investors, who hold large positions that over time they'll probably.
Sell off some of their shares and that'll be great for trading volume and liquidity and allow folks to get in our stock at the appropriate time. So we work really hard everyday to prove to the market that we bought good assets and we can execute on this.
Perfect sounds like a plan. Thank you.
Thanks Giovanni.
Thank you our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.
Good afternoon Robert.
And Steve marketing and the rest of their stone crew.
Mark going back to your.
To your comments I wanted to I wanted to see if I, if I understood correctly it sounded to me.
Like you were attributing most of the most of the I guess the beat or most of the outperformance versus your a versus your plan.
Was coming from the tightest assets and if that's the right understanding or are there. Some reasons that you would point us to.
To for why that's not going to continue.
Yes, so that's.
That's a few questions those are great questions and I know I spent a bunch out once and I would say as I was sitting here realize that how long theyre going I was wondering how we can shorten this next time.
But thinking about Titus I.
I wasn't really attributing our ability to hold production flat for the past three quarters at 105, a day to tie that that's just the timing of the benchmark and that was the first time.
And seven quarters, we didn't do a new acquisition. So we've now actually had three full quarters with no acquisitions.
So since then we've held production flat at 105, I mean back then our model was if I'm thinking about this right our guidance for <unk> last year. It was 98 to 102.
1000 Boe per day, and we came in at almost a 105.
And then candidly you know we are midpoint of the guidance pre novo as 100, a day. This year our model was lower than the 104 something that we did in the first quarter and certainly lower than 105, we just did this quarter.
It's not related to the tightest per se I would say really it's related to the capital efficiency and being able to turn drilling and completion dollars into better wells than we had anticipated and then I would say on top of that the PDP has declined less.
I'm thinking specifically about the second quarter and we had this call in May I was pretty darn nervous about even a 100 today and as I told you. We had just shut in a bunch of stuff in Lea County that was heavy oil and like literally overnight lost 4000 barrels a day of oil.
The bofa was higher than that and.
And really what's happened is.
That hit like it was we had downtime that was higher than normal and <unk> and it came out almost exactly what we expected. So we started looking at well Hey, how are we 105, a day and really kind of the same oil content that we had expected.
It is a function of two things I mean, some of the early wells, but not every single well, but on average our early well results are better than what our model has been and then secondly, even just looking at PDP. The PDP decline rate on a unit cost wells that were online.
By year end or maybe even like by light first quarter. They didn't decline as much as we had forecasted so net net we do probably have some conservatism.
Around some of the forecast as it relates to type curves, but we're really encouraged that they're doing better than we expected and it's not really just the tightest assets. I mean, there certainly are a part of it I would say the Delaware generally speaking.
It has just look better than what we modeled in.
It's a little bit we're sitting here, telling you that the fourth quarter is going to be 130 to 135, a day and we think that's pretty reasonable. We're also telling you it's going to drop next year.
We recognize that we told you about last year. It never actually dropped so you might think we're being too conservative. We don't think we're being too conservative I mean, if that turns out to be the case fantastic.
But we're adjusting in real time, as we're seeing some things outperform relative to prior expectations.
That that is a helpful elaboration mark thank you for that.
And then my follow up and perhaps this is for Robert or Steve I'm curious about the Wolfcamp D.
Results in and there's there's two things that that are at least two things that are notable to me, but I'm wondering if you could just give us a bigger context, one it's a high oil cut you at least say there.
I don't have a lot of we don't have a lot of Wolfcamp D. A.
So look at in the industry, but but my recollection that has a higher oil cut than what we've seen from some of the results in in a in Midland County, and then the second piece, if you could kind of put into context the.
The rate.
Which which isn't a you know which it doesn't you know it doesn't seem like a barn burner rate to two are you now just on the face of it but that it's not an artificial lift and you know maybe maybe what you and I recognize you want to keep them off.
No.
You you'd like to have it flow naturally, but at some point when you put it on artificial lift where might that rate go.
Okay. Let me, let me start by giving you just a little bit of info on the Wolfcamp D.
So.
If youll recall, our first deal in the basin, we bought Lynden energy private public company that operated by Crown Quest, we participate with crowds Western Wolfcamp D wells, primarily admit in Howard County. This was several years ago really good results. Since then <unk> has drilled a lot of Wolfcamp b.
Both in Midland County on the Midland Glasscock County line and so this was a easy.
Easy initial development for us being in the right area. We've since seen good Wolfcamp D development or initial development in Reagan and Upton counties.
And some of it's been there for a while a very large operator in the basin drilled a three well wolfcamp b pad in Reagan County, several years ago, and notwithstanding some privates, both in Upton and Reagan who developed the D. So we see it in lots of places we're going to <unk>.
Continue to watch what these are.
Private operators results will be in these two areas Upton and Reagan and we see that as an opportunity to add some additional.
Development for us in the Wolfcamp D is just at this point ours haven't been on long enough to see meaningful amounts of gas.
We're not exactly sure where that's going ahead on this block of acreage, but we've got plenty of data to compare this versus other wolfcamp D developments in and we're pretty pleased.
Steve you can talk about the artificial lift side of it and what happens when we put it on Lyft I think it's going up but its going up I can't tell you how much it's going to go up in the pumps are going to be big enough to handle quite a bit of fluid. Those pumps are ready to go we started out about 2000 pounds of flowing pressure here and were down about 750, so theyre coming close I'm going to think that.
Next three or four weeks will be.
Oh, it's got to do a stumble a little bit if it had three times I put the pump in it.
So we're ready to go I had that conversation before I walked in here.
But yes, its high oil cut but that's also good because those asp's are going to be from that more efficient. So I'm looking forward to doing it.
Right right well I'll stay tuned on that it will be interesting. Thank you for the detail.
Thanks Charles.
Thank you our next questions come from the line of Michael Schiavo with Stephens. Please proceed with your questions.
Hi, everybody.
Robert You said you plan to stay at the five rig program for next year and Mark you said.
That you expect production to decline in the first half from fourth quarter levels.
So I guess in the second half.
And it sounds like that would result in less capex this year given the.
Lower.
Contracted prices, you're getting on your rigs and other deflation.
Do you have a sense of what you'd need to spend to keep production flat and do you have any desire to do that.
I'll tell you what Michael one thing we don't do is buy these high declining private equity backed companies and try and keep production at the peak.
Novo in Titans are two examples of those and great examples and we don't mind letting those come down and we will fix the right capital plan for us and develop the asset so like we've said and Mark did a good job. After we bought tied as we let it come down and we've had three quarters of a 105000 BOE a day.
If we hadn't have done Novo I think we've been pretty.
Consistent in our message that we keep production flat with our rig count at the time and our capital at the time. So I think that stays kind of the same thing here once we get to flush out of the Nobel asset.
That makes sense. So the five rig program seems like operationally, where you want to be right now.
For now that's right yes.
Works really well to have four rigs running in new Mexico.
Yep Okay.
And on the noble acquisition, if it does close here in the next couple of weeks.
Do you have a sense of what youre going to do there.
Of the the early development and I know they you'd highlighted when you did the acquisition that ovation pad is that going to be a kind of a model where you expect to get to with a lot of their acreage.
Just want to see how the.
The plan of attack is for the new acreage you're getting.
Yeah, I mean, you heard Steve the de Novo rig that they got running right now and will complete its pad here finished drilling as Pat here. Some time later this month and will move a rig over there as soon as it's done drilling a pad.
After closing that it's working on a pattern.
In the Midland Basin and will develop at the same but maybe not 22 wells or something all at one time, we'll probably take smaller bite sizes, there and develop you know anywhere from four to seven or eight wells at a time.
It's still a little bit of a work in progress and this is a little bit of an art, where you've got to take a rubik's cube and figure out which colors you want to match up and all of that and we're working through that right now, but it probably won't be as big as that 22, well project all at once.
But larger project sizes are to come on the on the Novo project.
Great. Thank you.
Thank you our next questions come from the line of Noel Parks with Tuohy Brothers. Please proceed with your question.
Hi, good afternoon.
I know.
I just had a couple you know one thing.
It's encouraging to hear how.
We're making progress with costs and.
That's the.
The.
10 o'clock and so forth.
Some given your Eric it's really vary by basin hasn't been listened to companies. During this earning season. So I was just curious do you do you sort of think this is.
I'm going to be a normal sort of.
In the in the cell site I'm, sorry in the service cycle at.
This time around.
<unk>.
I think I'm sort of wondering about as you know a lot.
The tightness kind of did stem stem is the effect of COVID-19.
But also.
Looking forward.
With associated gas in the Permian.
Sort of being a bit of a wildcard depending on on how oil is doing.
Just that.
There is a chance there is transfer infrastructure challenges heading forward.
<unk> sort of distort activity a bit so just any thoughts yet on that would be great.
Well I mean, there is always an ebb and flow and there always seems to be a delay in costs coming down when prices have come down and now we're back up a few bucks and so do do we see some.
Potential for costs, just not coming down as fast.
A little bit of it is supply and demand you know theres rigs that are leaving gassy basins in haynesville as a good example, and coming to the Permian and so where operators can narrow high grade rigs, but and maybe its a even a little cheaper price than you know.
Lower quality or poor performing rigs or something like that so I think it's going to take some time the pressure pumping is probably the biggest.
A number that we're all working really hard on.
And if we can get some relief there I think we'll feel really good going into 2024.
Great.
As your efforts in the northern Midland.
Kind of intensify.
Just curious what's the electrical infrastructure situation look like up there.
Adequate scrapped.
I think you're probably talking about the northern Delaware right not the northern Maryland, sorry, Yes, Northern Delaware sorry.
And the good news is as there is infrastructure. There is not like we are in no man's land and also the good news is we have the ability based on our portfolio to change our activity.
And move things around so when it does get backed up and it does from time to time, either on gas or water.
We can see that and we have the ability to move our plan around a little bit and we're planning accordingly. So there is some infrastructure we're spending some dollars we've talked about it now for six or seven months.
Some of our capital plan this year is infrastructure.
We got we got.
Pretty aggressive in the timing of getting a lot of things done in the first half of the year is slipping a little bit in the third quarter, but thats. Okay were still ahead of where we need to be in terms of bringing new wells on and that is not having any infrastructure. So it's getting better as we spend money up there ourselves and other operators in the midstream guys continue to see.
The benefit of adding capacity.
Specifically on the electric side.
With Titus and Chisholm, we've released almost 50 generators since we took over so the electricity has come in and we're making that happen.
Hello.
Quite a bit.
It's always there when you start, but we get it there.
Okay.
Great. Thanks, a lot.
Operator.
The end of the day for a lot of folks and we are backed up here because we have a business that we're going to run. So we appreciate all the calls and.
And all the questions and we look forward to visiting with you next quarter.
Thank you that does conclude today's teleconference. We appreciate your participation.
You may disconnect your lines at this time enjoy the rest of the day.