Q3 2023 Berry Corp Earnings Call

Okay.

Good day, and thank you for standing by and welcome to the Berry Corporation you see.

One <unk> 23 earnings call.

At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star.

Our one one again please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to your first one.

Crabtree with Investor Relations Todd the floor is yours.

Thank you Liz and welcome everyone. Thank you for joining us for Berry third quarter 2023 earnings webcast earlier today Berry issued an earnings release, highlighting 2023 third quarter results speaking this morning will be Fernando Oahu, Our Chief Executive Officer, and Mike <unk>, Our Chief Financial Officer before we begin I would.

I'd like to call your attention to the Safe Harbor language found in our earnings release that was issued this morning the.

Our release and today's discussion contains certain projections and other forward looking statements within the meaning of federal Securities laws.

These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

These include risks and other factors outlined in our filings with the SEC, including our 10-Q, which will be filed later today.

Our website B O Y Dot Com has a link to the earnings release and our most recent investor presentation.

Information, including forward looking statements made on this call or contained in the earnings release and that presentation reflects our analysis as of the date made we have no plans or duty to update them, except as required by law.

Please refer to the tables in our earnings release and on our website for a reconciliation between all adjusted measure mentioned in today's call and the related GAAP measures. We will also post the replay link of this call and the transcript on our website I will now turn the call over to Fernando.

Thanks, Todd and welcome everyone and thank you for joining us in the third quarter, we continued to deliver strong financial and operational results generating $70 million and adjusted EBITDA.

And producing 25300 barrels a day, we execute on our strategy to maximize shareholder value and generate meaningful and sustainable cash flow.

With our shareholder return model.

The board declared total dividends of 21 cents per share a 50% increase compared to the prior quarter.

We are currently on track to meet.

Our goal to deliver 2023 cash return in the high single digits based on our current stock price.

On September 15th we closed our $70 million acquisition of Macpherson Energy Corporation.

<unk> on our strategy to acquire to acquire accretive producing bolt on assets, we have integrated the macpherson assets and people into Berry and have identified and already started implementing several initiatives that will reduce long term cost and improve free cash flow when.

When we announced this acquisition, we said that we expected these assets to enhance berries free cash flow by 15% to 25% in 2024 based on our Cogs are based on our cost savings opportunities implemented. So far we now expect to exceed these free cash flow estimates.

On an average daily production in Q3 was higher than the average for the first half of 2023.

This is an outstanding achievement considering that we are on track to spend approximately 30% less capital in 2023 than originally planned.

Due to a reallocation of capital to fund a portion of the Macpherson transaction.

Base production continues to outperform our expectations for the year, especially in the thermal diatomite reservoir, we have optimized our steam injection strategy the results of which.

Are shown on slide 12 of our investor deck.

We expect our 2023 production to be in the mid range of guidance, which was increased in connection with the closing of the Mcpherson transaction.

Our ongoing initiatives to lower operating and G&A expenses continue to bear fruit operating expenses on a Boe basis were about 10% lower in the third quarter than the first half of the year. Similarly, we reduced adjusted G&A by more than $2 million or 12% quarter over quarter.

We are still focused on lowering our cost structure in Q4 and into 2024.

In Q3, we had a promising test results from a well targeting light oil and gas reservoirs, which do not require steam to produce.

Undeveloped blocking the midway sunset field.

We are still executing the testing program.

Israel, our production results are exceeding our expectations and are being sold via existing infrastructure.

This project highlights the quality of our oil rich assets in the San Joaquin Basin, even after 100 years of production there are still meaningful opportunities remaining across our acreage.

I'm excited about this new development opportunities and look forward to providing further updates in the coming months I will now turn the call over to Mike.

Thank you Fernando.

More information is available in our earnings release issued this morning and in our 10-Q filing available later today, but here are a few highlights.

We delivered another quarter of strong financial and operational results, we generated adjusted EBITDA totaling $70 million and adjusted free cash flow of $35 million each were a slight increase quarter over quarter in.

In accordance with our shareholder return model, 20% of the third quarter adjusted free cash flow will be used to pay a variable dividend.

And we use the remaining 80% to fund a portion of the Macpherson acquisition.

The adjusted free cash flow expected to be generated in the fourth quarter will be used for debt reduction.

We are actively evaluating the optimal use of the free cash flow, we plan to generate in 2024 and beyond.

With the enhanced cash flow to Pearson acquisition. We currently expect to further improve our leverage including through debt reduction we will provide additional details on those efforts in conjunction with announcing our 2024 capital plans in the first quarter of next year.

Berry continues to achieve its operational and financial targets. We are delivering strong cash flows and remain well positioned to continue to maximize shareholder returns while looking at ways to optimize our dynamic shareholder return model back to Ya Fernando.

Thanks, Mike our third quarter results demonstrate our ongoing ability to maintain operational excellence and deliver strong shareholder returns.

We are on track to meet our annual operating expense and production goals with lower Capex and G&A expenses.

We're also et cetera, but the new development opportunity in our midway Sunset field. Additionally, we are aggressively pursuing accretive producing growth opportunities in and outside of California.

Now, we will support our overall strategy to enhance future.

Future free cash flows and shareholder value.

With that I will turn the call over to the operator for questions.

Great. Thank you.

At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name you announced to withdraw your question. Please press star one one again please.

These standby, while we compile the Q&A roster.

Yeah.

Yeah.

The first question.

We will be coming from Charles Meade.

With Johnson Rice your line is now open.

Good morning, Fernando Mike and to the whole Berry team there.

Hey, Charles Charles Fernando.

Good morning, Fernando you mentioned that my question is about this new play development concept at Midway Sunset.

I guess theres two aspects of the questions. One you mentioned that it's it's performing better than your expectations, but but.

Could you give us a sense of whats your expectations are.

And maybe as part of that.

You can tell us.

Give us an idea for what this means at the kind of individual project or well level, what kind of what kind of productivity or what kind of resources are we talking about.

And what your sense is of the total inventory of this kind of opportunity.

Yes, that's a very good question Charles Let me give you a little background on the project itself. We're currently testing and undeveloped block in the north end of our midway Sunset field and this block is subdivided into different fault blocks and.

And we are targeting deeper reservoirs oil and gas reservoirs.

Which should be recoverable without steam now these are stacked reservoirs, we're talking about three or four different reservoirs and into this first well this first sidetrack.

We're testing seven different intervals now the deeper of the intervals. That's the one that we've tested so far in the Santos formation.

We're seeing production and the low triple digits, which is which is better than our normal production from.

From development activities in California, So that's very encouraging.

Now outside of this sidetrack, we also have to re completions that we executed in the same in the same block and we're currently producing oil and gas from does re completions as well from the shallower Antelope reservoir.

Now one thing to note is that for future development.

To develop this field with mostly sidetracked says, we've got about 100, or so idle wells nearby that we can utilize to two sidetrack and develop this field, possibly.

And then in terms of potential obviously, we're still evaluation that we are still evaluating this asset.

And we will update you in due time, we're looking at potential opportunities in terms of locations in the mid double digits for now it could be better than that depending on the results that we have but again, it's very very encouraging and it will be drilling the second well the offset well.

In this block.

At the end of November so, there's there's more information to come but it is very very exciting.

Yes, it sounds that way is.

Is the centers traditional field pay are you guys testing new horizons that have not historically been developed.

No. We're currently not producing from the Santos ourselves, but we have offset operators nearby operators that have produced from the Santos in the past.

Got it got it yeah that does sound doesn't really.

Compelling.

Question.

The other one didn't count.

Fernando I felt like you guys were telegraphing and you're up in your press release that.

Your.

I guess, you're angling more towards non California acquisition opportunities should we should we think about those as is.

As has been in Utah, which is your other operating area or are you trying to signal that you are looking beyond Utah.

No. Let me let me give you the full story on that and yes, we are aggressively pursuing M&A activity and in outside of California, We're looking for scale in.

In California, we are still focusing on bolt ons similar to the Macpherson that.

We can add value and realize operational efficiencies.

But outside of California, we are really focusing on accretive assets assets with non geology.

Assets, where we can mean, where we can maintain our production flat and thus maintain our casual deliverability.

That for years to come.

In terms of basis initially.

We're focusing in the western Rockies basins like the <unk> powder River.

But in reality, we're basin agnostic, if we find the right assets.

With the right opportunity.

Where we can maintain our production flat and deliver cash returns that'll be an asset that we look at.

Great I appreciate that detail. Thank you.

Okay.

Please standby for the next question.

Yeah.

Yeah.

The next question comes from Nicholas Pope.

With Seaport research Nicholas Pope you are live.

Good morning, everyone.

Hey, good morning, guys.

I was hoping to follow on a little bit with what Charles question on M&A.

Kind of in that in that same line of thinking I'm curious, how you're thinking about funding.

Any potential acquisitions, obviously with the Macpherson.

Pulled down on Capex, you got a fair amount drawn on the credit facility here coming out of the quarter. So just curious what the thinking is as you look at some of this potential M&A about how you might how you might fund it through cash or through what's available on the credit facility.

Yes, Nick this is Mike a couple of ways to think about that when you think about kind of the smaller ones the bolt on types like Macpherson.

We do like using the RVO.

And part of the reason, we like doing that as we can get it paid off really quickly and then once once that has paid off quickly you can get the cash flow the cash flow just falls right to the bottom line.

To your point, we are on the line and we just finished the Macpherson acquisition just before the end of the quarter. So it's not surprising to see the RBS and use there at the end of the quarter.

But part of it part of the story there is capital reallocation. So we have started reducing our capital will continue to do that for the rest of the year.

And even looking into next year, maybe to really help fund.

The purchase price of Macpherson, and we will do something similar to similar bolt ons. So that's why those things kind of pay up quickly.

As for larger acquisitions, yes, it really depends on what the opportunity is and kind of who we're talking to but we think theres multiple ways to finance that including equity.

In addition to raising debt.

And in that regard it would have to make sense from all of our financial metrics, including leverage.

Really aren't.

We don't have the appetite to increase our leverage on a long term basis, so you'll have to make sense from the financial metrics.

But those are really kind of the way that we're thinking about it.

Got it that's very helpful.

Thank you.

And then kind of back to the.

This new development work that Youre doing in midway sunset.

Just Claire.

Clarification is this.

Any plan development is that all expected to be vertical development is that like barely.

Kind of lower cost nothing no big horizontal does that is that right way to think about this.

Yes, that's correct it would be a vertical development. If we were to drill new wells will be vertical with sidetrack.

It would be directional just because we would have to access.

The reservoir through the existing well bores, but it's not a horizontal play it's a it's a vertical play.

I appreciate it that's all I have thanks guys.

Please standby for the next question, although I want to remind you if you'd like to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

To withdraw your question you would press star one one again.

Operator: Good day, and thank you for standing by.

Okay.

Yeah.

Operator: Welcome to the Berry Corporation using the 2023 Earnings call. At this time, all participants are in listen only mode. After the speakers presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.

The next call comes from Stephen Bush with Everglades Resources, Inc.

Is now open.

Good morning, gentlemen, thank you for taking my call.

Hey, good morning.

These sidetrack.

<unk> abilities.

Youre doing that so that they don't require permits is that correct.

Well they do require permits, but it's not it's not a new well permitted similar to a work permit for an existing well.

Operator: I would now like to hand the conference over to your first speaker.

And thats and Thats still be giving being given out in California.

Todd Crabtree: Todd Crabtree with Investor Relations, Todd Flores-Yours.

Yes, California is still industry still getting workover permits and sidetrack permits that's correct, okay, perfect and how has the permit permit outlook in general.

Todd Crabtree: Thank you is, and welcome everyone. Thank you for joining us for Berry's third quarter 2023 Earnings webcast. Earlier today, Berry issued an earnings release highlighting 2023 third quarter results.

For new wells.

In terms of specific numbers for us we currently have.

Todd Crabtree: Speaking this morning will be Fernando Araujo, our Chief Executive Officer, and Mike Helm, our Chief Financial Officer. Before we begin, I would like to call your attention to the safe harbor language found in our earnings release that was issued this morning. The release and today's discussion contains certain projections and other forward-looking statements within the and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

About 34 permits in hand sidetrack permits in hand, we expect to execute on utilized in 2024.

Now outside of that we've got it in a separate bucket. We've got about 26 permits that we call contingent in their contingent because are contingent on part of their technical work and results.

And on top of that we've submitted well over 100 permits in fact, I know 45 permits.

Four new wells in fact tracks 80 of which already have what we call sequel approval from from Cal Jim.

Todd Crabtree: These include risks and other factors outlined in our filings with the SEC, including our 10Q, which will be filed later today. Our website, BRI.com, has a link to the earnings release and our most recent investor presentation. Any information including forward-looking statements made on this call or contained in the earnings release and that presentation reflects our analysis as of the date made. We have no plans or duty to update them except as required by law. Please refer to the tables in our earnings release and our website for reconciliation between all adjusted measures mentioned in today's call and related gap measures.

And then and then additional to that we also have over $100 workover permits in hand.

Message here is that we have we have a lot of permits in hand for activity coming out of especially for the first half of 2024.

Okay. That's good to know so just a quick question on the on the derivative hedges I mean, it's always up and down those are all mark to market and not cash is that correct.

Some of it.

The losses show up in the income statement are predominantly mark to market you are right.

Todd Crabtree: We will also post the replay link of this call and the transcript on our website.

Correct, Okay and then.

Todd Crabtree: I will now turn the call over to Fernando. Thanks, Todd.

Excellent.

Sorry go ahead.

Fernando Araujo: Welcome everyone, and thank you for joining us. In the third quarter, we continue to deliver strong financial and operational results, generating $70 million in adjusted EBIDA and producing 25,300 barrels a day. We execute our strategy to maximize shareholder value and generate a meaningful and sustainable cash flow. In line with our shareholder return model, the board declared total dividends of 21 cents per share at 50 percent increase compared to the prior quarter. We are currently on track to meet our goal to deliver to 2023 cash return in the high single digits based on our current stock price.

Are we doing any naked derivatives or is it all covered with production et cetera.

Got it all covered.

Right. So there's no speculating I just wanted to make sure that no no no absolutely not.

And there was a lot of reasons why side absolutely.

Absolutely Okay perfect. That's all I have.

Look forward to hear more.

Yeah.

Thank you for the questions.

I am showing no further questions at this time I would now like to turn it back to Chief Executive Officer Fernando Rahho.

Well. Thank you everyone and thank you for your interest in Berry. Thank you for your time, if we don't talk.

Before Thanksgiving happy Thanksgiving to all.

Fernando Araujo: On September 15th, we closed our $70 million acquisition of McPherson Energy Corporation, delivering on our strategy to acquire, to acquire a creative producing bolt-on assets. We have integrated the McPherson assets and people into Berry and have identified and already started implementing several initiatives that will reduce long-term cost and improve free cash, flow. When we announced this acquisition, we said that we expected these assets to enhance berries free cash flow by 15 to 25 percent in 2024.

And once again, thank you for your time.

Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

Yeah.

Okay.

[music].

Okay.

Okay.

Yes.

Fernando Araujo: Based on our cost savings opportunities, implemented so far, we now expect to exceed these free cash flow estimates. An average daily production in Q3 was hired in the average for the first half of 2023. This is an outstanding achievement considering that we are on track to spend approximately 30 percent less capital in 2023 than the originally planned due to our reallocation of capital to find a portion of the MacPherson transaction. Based production continues to upperform our expectations for the year, especially in the thermal dynamite reservoir where we have optimized our steam injection strategy, the results of which are shown on slide 12 of our investor deck.

[music].

Fernando Araujo: We expect our 2023 production to be in the mid-range of guidance which has increased in connection with the closing of the MacPherson transaction tax. Our ongoing initiatives to lower operating and gene inexpensive continue to bear fruit. Operating expenses on a BOE basis were about 10 percent lower in the third quarter than the first half of the year. Similarly, we reduced adjusted GNA by more than 2 million or 12 percent quarter over quarter. We are still focused on lowering our cost structure in Q4 and into 2024.

Fernando Araujo: In Q3, we had that promising test results from a well-targeting light oil and gas reservoirs which do not require steam to produce in an undeveloped block in the midway sunset field. We are still executing the testing program and initial production results are exceeding our expectations and are being sold via existing infrastructure. This project highlights the quality of our oil rich assets in the San Joaquin Basin even after 100 years of production. There are meaningful opportunities remaining across our acres.

Fernando Araujo: I'm excited about this new growing opportunities. I look forward to providing further updates in the coming months.

Mike Helm: I will now turn the call over to Mike. Thank you, Fernando.

Mike Helm: As always, more information is available in our earnings release issued this morning and in our 10Q filing available later today. But here are a few highlights. We delivered another quarter of strong financial and operational results. We generated adjusted EBIDET to $70 million and adjusted free cash flow of $35 million each were a slight increased quarter over quarter. In accordance with our shareholder return model, 20 percent of the third quarter adjusted free cash flow will be used to pay a variable dividend and we use the remaining 80 percent to fund a portion of the McPherson acquisition.

Mike Helm: Most of the adjusted free cash flow expected to be generated in the fourth quarter will be used for debt reduction. We are actively evaluating the optimal use of the free cash flow plan to generate in 2024 and beyond. With the enhanced cash flows from McPherson acquisition, we currently expect to further improve our leverage including through debt reduction.

Mike Helm: We will provide additional details on those efforts in conjunction with announcing our 2024 capital plans in the first quarter of next year. Berry continues to achieve its operational and financial targets. We're delivering strong cash flows and remain well-positioned to continue to maximize shareholder returns while looking at ways to optimize our dynamic shareholder return model. Back to you, Fernando. Thanks, Mike.

Fernando Araujo: Our third quarter results demonstrate our ongoing ability to maintain operational excellence and deliver strong shareholder returns. We are on track to meet our annual operating expense and production goals with lower capital expenses. We're also excited about the new development opportunity in our midway sunset field. Additionally, we are aggressively pursuing a creative, producing growth opportunities in and outside of California. We'll support our overall strategy to enhance future future free cash flows and shareholder value.

Operator: With that, I will turn the call over to the operator for questions. Great, thank you. At this time, we will conduct a question-and-answer session as a reminder to ask a question you will need to press star 11 on your telephone and wait for your name to be announced.

Operator: To withdraw your question, please press star 11 again. Please stand again.

Charles Meade: We'll be coming from Charles Meade with Johnson Rights. Your line is now open. Good morning, Fernando, Mike, and to the whole berry team there. Hey, Charles. Good morning, Charles.

Fernando Araujo: Fernando, you mentioned that my question is about this new play, the development concept in midway sunset. I guess there's two aspects of the question. One, you mentioned that it's performing better in your expectations, but could you give us a sense of what your expectations are? And maybe as part of that, you can tell us, give us an idea for what this means at the individual project or well-level, what kind of productivity or what kind of resources we're talking about, and what your senses of total inventory of this kind of opportunity.

Fernando Araujo: Now, that's a very good question, Charles. Let me give you a little background on the project itself. We're currently testing an undeveloped block in the north end of our midway sunset field, and this block is subdivided into different four blocks. And we are targeting deeper reservoirs, oil and gas reservoirs, which should be recoverable without steam. Now, these are stacked reservoirs. We're talking about three or four different reservoirs, and in this first well, this first sidetrack, we're testing seven different intervals.

Fernando Araujo: Now, the deeper of the intervals, that's the one that we've tested so far in the Santos formation. We're seeing a production in the low triple digits, which is better than our normal production from development activities in California, so that's very encouraging. Now, outside of this sidetrack, we also have two reconpletions that we executed in the same block, and we're currently producing oil and gas from those reconpletions as well from the shallower and to low reservoirs.

Fernando Araujo: Now, one thing to note is that for future development, we could develop this field with mostly sidetracks as we've got about 100 or so idle wells nearby that we can utilize to sidetrack and develop this field possibly. And then in terms of potential, obviously we're still evaluating this asset, and we'll update you in due time, but we're looking at potential opportunities in terms of locations in the mid-double digit for now. It could be better than that, depending on the results that we have.

Fernando Araujo: But again, it's very, very encouraging, and we'll be drilling the second well, the offset well, in this block, come at the end of November. So there's more information to come, but it is very, very exciting.

Fernando Araujo: Yeah, it sounds that way. Is the census a traditional field pay? Are you guys testing new horizons that have not historically been developed? No, we're currently not producing from the Santos ourselves, but we have offset operators, nearby operators, that have produced from the Santos in the past. Got it, got it. Yeah, that does sound, does sound really compelling.

Fernando Araujo: The second question, if that other one didn't count, I feel like, Fernando, I feel like you guys were telegraphing in your press release that you're, I guess you're angling more towards non-California acquisition opportunities. Should we think about those as being in Utah, which is your other operating area, or are you trying to signal that you're looking beyond Utah? Let me give you the full story on that, and yes, we are aggressively pursuing M&A activity in and outside of California.

Fernando Araujo: We're looking for scale. In California, we're still focusing on bolt ons, similar to the McPherson that we can add value and realize operational efficiencies. But outside of California, we're really focusing on on accretive assets, assets with non-geology, assets where we can maintain our production flat, and that's maintain our cash for the variability flat for years to come. In terms of basins, initially, we're focusing in the Western Rockies, basins like the UNFAP, Pions, Powder River.

Fernando Araujo: But in reality, we're basing agnostic if we find the right asset with the right opportunity where we can maintain our production flat and deliver cash returns. That'll be an asset that we look at. Great, I appreciate that in detail. Thank you.

Operator: Please stand by for the next question.

Nicholas Pope: The next question comes from Nicholas Pope. With Seaport Research, Nicholas Pope, you are live. Good morning, everyone. I was hoping to follow on a little bit with Charles question on M&A. In that same way of thinking, curious how you're thinking about funding, from any potential acquisitions obviously with the McPherson. You can pull it down on capex. You got a fair amount drawn on the credit facility here coming out of a quarter.

Nicholas Pope: So just curious what the thinking is as you look at some of this potential M&A about how you might fund it through cash or through what's available on the credit facility. Yeah Nick, this is my couple of ways to think about that. When you think about kind of the smaller ones, the bolt-on tights like McPherson, we do like using the RBL and part of the reason we like doing that is we can get it paid off really quickly and then once that's paid off quickly, you can get the cash, the cash load just falls right to the bottom line.

Nicholas Pope: To your point, we are on the line and we just finished the McPherson acquisition just before the end of the quarter. So it's not surprising to see the RBL in use there at the end of the quarter. But part of the story there is capital reallocation. So we have started reducing our capital and we'll continue to do that for the rest of the year and even looking into next year maybe to really help fund the purchase price of McPherson and we would do something similar to a similar bolt-on.

Nicholas Pope: So that's why those things kind of pay off quickly. As for a larger acquisition, it really depends on what the opportunity is and kind of who we're talking to. We think there's multiple ways to finance that including equity in addition to raising debt. And in that regard, it would have to make sense from all of our financial metrics, including leverage. We really don't have the appetite to increase our leverage on a long-term basis. So it would have to make sense from the financial metrics, but those are really kind of the ways we're thinking about it. Yeah, that's very helpful.

Mike Helm: Thank you.

Mike Helm: And then kind of back to the this new development work, they are doing in midway sunset.

Mike Helm: Just clarification, is any plan development? Is that all expected to be vertical development? Is that like fairly, you know, kind of lower cost? Nothing, no big horizontal. Is that is that right way to think about this? Yeah, that's correct. There would be a vertical development. If we were to drill new else would be vertical with sidetracks, it would be directional just because we would have to access the reservoir through the existing well-bores, but it's not a horizontal play. It's a vertical play.

Nicholas Pope: I appreciate it. That's all I have. Thanks, guys.

Operator: Please stand by for the next question. Although I want to remind you, if you'd like to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, you would press star 11 again.

Stephen Bush: The next call comes from Stephen Bush with Everglades Resourcesing. Your line is now open.

Fernando Araujo: Good morning, gentlemen. Thank you for taking my call, on these sidetrack possibilities. You're doing that so that they don't require permits, is that correct? Well, they do require permits, but it's not a new well permit. It's similar to a work of our permit for an existing well. And that's still being given out in California. Yes, California is still getting work of our permits and sidetrack permits. That's correct.

Fernando Araujo: Okay, perfect. And how is the permit permit outlook in general for new well? In terms of specific numbers for us, we currently have about 34 permits in hand, sidetrack permits in hand that we expect to execute and utilize in 2024. Now, outside of that, we've got it in a separate bucket. We've got about 26 permits that we call contingent and they're contingent because they're contingent on further technical work and results. And on top of that, we've submitted well over 100 permits.

Fernando Araujo: In fact, I know 45 permits for new wells and sidetracks. 80 of which already have what we call sequel approval from from Calgem. And then and then additional to that, we also have over 100 work over permits in hand. The message here is that they know we have we have a lot of permits in hand for activity coming up, especially for the first half of 2024.

Fernando Araujo: Okay, that's good to know. So just a quick question on the three of its edges. I mean, it's always up and down. Those are all marked market and not cash. Is that correct? Some of it. Oh, the losses that are show up in the income statement are predominantly marked market. You're right. Okay. And then are we going to go ahead? Are we doing any naked derivatives or is it all covered with production? No, no, no, absolutely not. There's a lot of reasons why it's not. Absolutely.

Operator: Okay, perfect. That's all I have before to hear more. Thank you for the questions. I am showing no further questions at this time.

Fernando Araujo: I would now like to turn it back to Chief Executive Officer Fernando Arajo. Thank you, everyone, and thank you for your interest and very thank you for your time.

Fernando Araujo: If we don't talk before Thanksgiving, happy Thanksgiving to all. And once again, thank you for your time. Thank you for your participation in today's conference.

Operator: This does conclude the program and you may now disconnect. Thank you.