Q3 2023 Vitesse Energy Inc Earnings Call

Speaker 1: Greetings and welcome to the Vitesse Energy third quarter 2023 earnings call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the vertex energy third quarter 2023 earnings call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

Speaker 1: Please note, this conference is being recorded. I'll now turn the conference over to Ben Messier, Director of Investor Relations and Business Development. Thank you, you may begin.

Please note. This conference is being recorded I'll now turn the call conference over to Ben Messier Director of Investor Relations and business development. Thank you you may begin.

Speaker 2: morning and thank you for joining. Today we will be discussing our financial and operating results for the third quarter of 2023, which we released yesterday after market closed.

Good morning, and thank you for joining US today, we will be discussing our financial and operating results for the third quarter of 2023, which we released yesterday after market close you can access our earnings release and presentation in the Investor Relations section of our website, we filed our Form 10-Q with the SEC yesterday I'm.

Speaker 2: You can access our earnings release and presentation in the investor relations section of our website. We filed our Form 10Q with the SEC yesterday. I'm here this morning with Vitesse's Chairman and CEO , Bob Garrity, our President, Brian Cree, and our CFO , Jimmy Henderson.

I'm here this morning, with the test as chairman and CEO, Bob guarantee our President, Brian Murray and our CFO Jimmy Henderson, our agenda for today's call is as follows Bob will provide opening remarks on the quarter. After Bob Brian will give you an operations update.

Speaker 2: Our agenda for today's call is as follows. Bob will provide opening remarks in the quarter. After Bob, Brian will give you an operations update.

Speaker 2: Jimmy will review our third quarter financial results.

Jimmy will review, our third third quarter financial results.

Speaker 2: After the conclusion of our prepared remarks, the executive team will be available to answer any questions. Before we begin, let's 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.

After the conclusion of our prepared remarks, the executive team will be available to answer any questions. Before we begin let's 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.

Speaker 2: These forward-looking statements are subject to the risks and uncertainties some of which are beyond our control. That could cause actual results to be materially different from the expectations contemplated by these forward-looking statements.

These forward looking statements are subject to the risks and uncertainties some of which are beyond our control that could cause actual results to be materially different from the expectations contemplated by these forward looking statements.

Speaker 2: Those risks include, among others, matters that we have described in our earnings release and periodic filing.

Those risks include among others matters that we've described in our earnings release and periodic filings, we disclaim any obligation to update these forward looking statements, except as may be required by applicable securities laws.

Speaker 2: claim any obligation to update these forward-looking statements, except as may be required by applicable securities laws.

Speaker 2: During our conference call, we may discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, net debt, net debt to adjusted EBITDA ratio, and free cash flow. Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued yesterday. Now I will turn the call over to our chairman and CEO , Bob Garrity.

During our conference call, we may discuss certain non-GAAP financial measures, including adjusted net income adjusted EBITDA net debt net debt to adjusted EBITDA ratio and free cash flow.

Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued it yesterday now I will turn the call over to our chairman and CEO Bob guarantee.

Thanks Ben.

Speaker 3: Good morning everybody. Thanks so much for being on our call. With Brian Cree and I today is Jimmy Henderson, who joined us two months ago, and we are thrilled. He's a...

Good morning, everybody. Thanks, so much for being on our call with Brian Korean I'd today, as Jimmy Henderson, who joined US two months ago, and we are thrilled he's.

Speaker 3: had a wonderful, successful career as a CFO in the oil business, which is rare, and Jimmy not only brings a deep skill set.

Had a wonderful successful career as a CFO in the oil business, which is rare and Jimmy not only brings a deep skill set to the Jess.

Speaker 3: He's a wonderful guy and just has fit in wonderfully. So it's really moved the needle in improving our capacity. So welcome, Jimmy.

He's a wonderful guy and just his fit in wonderfully. So yeah, it's really moved the needle and then improving our.

Our capacity so welcome Jimmy.

Speaker 3: The TESS is a return of capital company. Not the first time you've heard that from me. Won't be the last time you heard it from me. And payment of our fixed dividend is our top priority. We paid our third quarter cash dividend of $0.50 per share in September . And earlier this week, the board declared our fourth quarter cash dividend of $0.50 to be paid in December .

The test is a return of capital company not the first time, you've heard that from me won't be the last time you heard it from me.

And payment of our fixed dividend is our top priority, we paid our third quarter cash dividend of <unk> 50 cents.

Her share in September and earlier this week the board declared our fourth quarter cash dividend of <unk> 50 to be paid in December.

Speaker 3: We continue to look at a lot of near-term development drilling deals and larger asset acquisitions that continue to be supportive of our dividend. During the third quarter, we are able to complete several impactful acquisitions that meet our very high return hurdles. As previously discussed,

We continue to look at a lot of near term development drilling deals and larger act asset acquisitions that continue to be supportive of our dividend.

During the third quarter.

We were able to complete several impactful acquisitions that meet our very high return hurdles as previously discussed.

Speaker 3: We buy whatever we can within our stringent economic parameters, and we're not limited by a budget.

We buy whatever we can within our stringent.

Economic parameters and we're not limited by budget.

Speaker 3: We are only limited by opportunity and economics.

We are only limited by opportunity and economics, we put hedges in place to protect these returns when the opportunities present themselves with that I'm going to turn this over to Brian Cree My long time partner and Vice President.

Speaker 3: We put hedges in place to protect these returns when the opportunities present themselves.

Speaker 4: With that, I'm going to turn this over to Brian Cree, my long-time partner and Vice President and President of VITAS. So, Brian . Thanks. Good morning, everyone. As Bob mentioned, we acquired additional oil and gas interest through our near-term drilling acquisition program during the third quarter that will result in approximately $50 million of additional CapEx, primarily in the second half of 2023.

Resident of the tests so Brian.

Good morning, everyone as Bob mentioned, we acquired additional oil and gas interests through our near term drilling acquisition program. During the third quarter that will resort that will result in approximately $50 million of additional capex, primarily in the second half of 2023.

Speaker 4: These acquisitions exceeded our internal hurdle rates and are expected to provide material increases to production and cash flow in both Q423 and across 2024.

These acquisitions exceeded our internal hurdle rates and are expected to provide material increases to production and cash flow in both Q4, 'twenty three and across 2020 for.

Speaker 4: The wells associated with these acquisitions have either already started producing or are in the process of being turned on to production in the fourth quarter. So the time between CAPEX spend and revenue receipt will be shorter than our typical acquisition.

The wells associated with these acquisitions have either already started producing or are in the process of being turned on to production in the fourth quarter. So the time between Capex spend and revenue receipt will be shorter than our typical acquisition.

Speaker 4: Additionally, we continue to see consistent pace of development on our existing assets.

Additionally, we see we continue to see consistent pace of development on our existing asset.

Speaker 4: The organic conversion of our inventory of undeveloped locations remains core to our business model.

The organic conversion of our inventory of undeveloped locations remains core to our business model.

Speaker 4: Since we like to provide insight into our pipeline of drilling and completion opportunities, as of September 30, 2023, we had 7.7 net wells that were either drilling or in the completing phase and another 10 net wells that had been permitted for development by our operators.

Since we like to provide insight into our pipeline of drilling and completion opportunities.

As of September 32023, we had seven seven net wells that were either drilling or in the completing phase and another 10 net wells that had been permitted for development by our operators.

Speaker 4: I want to touch a little bit on hedging. Over the last two months, we added to our oil hedges for the remainder of 2023, for all of 2024, and for the first half of 2025. We now have approximately 50% of our estimated fourth quarter 2023 oil production, and close to 40% of our estimated full year 2024 oil production hedged at $79 per barrel.

I want to touch a little bit on hedging over the last two months, we added to our oil hedges for the remainder of 2023 for all of 2024 and for the first half of 2025, we now have approximately 50% of our estimated fourth quarter 2023 oil production and Clos.

To 40% of our estimated full year 2024 oil production hedged at $79 per barrel.

Speaker 4: Thanks for your time. Now I'll turn it over to our new CFO , Jimmy Henderson, to review our financial highlights. Welcome aboard, Jimmy. Great to have you here.

Thanks for your time now I'll turn it over to our new CFO, Jimmy Henderson to review our financial highlights welcome aboard Jimmy Great to have you here.

Speaker 2: Thanks, Brian , and thanks, Bob, for all the kind words. I'm certainly happy to be here. And good morning, everyone that's listening in today. It is great to be back and involved in this industry that I continue to feel is so important and provides a vital resource.

Thanks, Brian and thanks, Bob for all the kind words.

Certainly happy to be here.

And good morning, everyone. That's listening in today it is great to be back and involved in this industry that I continue to feel is so important and provides a vital resource.

Speaker 5: It's been wonderful to reconnect with many of you in the investment and the banking and research arenas as we continue to tell the exciting Batiste story.

It's been wonderful reconnect with many of you in the investment banking and research arenas as we continued until the exciting but test story.

Speaker 5: I especially want to thank the VITAS team for making me feel welcome and helping me get up to speed since I joined.

I, especially want to thank the Vitesse team for making me feel welcome and helping me get up to speed since I joined.

Speaker 5: And lastly, congratulations to the Texas Rangers on the exciting win in the World Series last night.

And lastly, congratulations to the Texas Rangers on it sorry, the World series last night.

Speaker 5: Now on to a quick review of the financial results for the quarter and our financial status. I'll assume you all can refer to our earnings release and our 10-Q, which were filed last night, for all the details on the quarterly and year-to-date results, so I won't bother repeating all the details that were included in those documents, but just to highlight a few items.

Now on to a quick review of the financial results for the quarter and our financial status.

Assume you all can refer to our earnings release, and our 10-Q, which were filed last night for all the details on the quarterly and year to date results. So I wont bother repeating all the details there included in those documents, but just to highlight a few items.

Speaker 5: As both Bob and Brian described, we've continued our return of capital program through the dividend and strengthen our future cash flows with several acquisitions, which obviously supports the dividend.

As both Bob and Brian described we've continued our return of capital program through the Desert Inn and strengthen our future cash flows with several acquisitions, which obviously supports the dividend.

Speaker 5: Both activities continue to be cornerstones of our strategy.

Both activities continue to be cornerstones of our strategy.

Speaker 5: As for the results in the quarter, our production levels remain fairly consistent at just over 11,000 B.O.E. per day, with about 67% of that being oil. As we were previously reported, we expect the fourth quarter of this year to increase to 12,300 at 13,000 B.O.E. per day, with further increases in production next year in 2024, primarily due to the recent...

As for the results in the quarter, our production levels remain fairly consistent at just over 11000 Boe per day with about 67% of that being oil as we previously reported we expect.

The fourth quarter of this year to increase to 12300 to 13000 BOE per day with further increases in production next year in 2024, primarily due to the recent acquisitions that we announced.

Speaker 5: Likewise, adjusted EBITDA was flat sequentially at $34.7 million, and adjusted net income was $11.1 million.

Likewise, adjusted EBITDA was flat sequentially at $34 $7 million and adjusted net income was $11 1 million.

Speaker 5: gap net income was a loss of one point five million and you can see the reconciliation of those numbers in the press release that we filed last.

GAAP net income was a loss of $1 5 million and you can see the reconciliation of those numbers in the press release that we filed last night.

Speaker 5: Cash CapEx and Apposition Cost in the quarter were approximately $34.1 million.

Cash Capex and acquisition cost in the quarter were approximately $34 $1 million.

Speaker 5: We funded this investment with operating cash flows and with draws on the credit facility.

We funded this investment with operating cash flows and withdraws on a credit facility.

This resulted in outstanding debt, increasing by $15 million in a quarter, which put us at $56 million drawn as of September 30th.

Speaker 5: We do expect further outspend in Q4 as we fund the remaining CapEx and acquisition costs, as we disclosed a couple of weeks ago.

We do expect further outspend in Q4, as we fund the remaining Capex and acquisition cost as we disclosed a couple of weeks ago.

Speaker 5: Continue to fund these costs as well as our dividend through operating cash flow and on our credit facility.

We will continue to fund these costs as well as our dividend through operating cash flow and on our credit facility.

Speaker 5: With that, let me turn it over to the operator for any Q&A that we might have today.

With that let me turn it over to the operator for any Q&A that we might have today. Thank you all.

Thank you.

Speaker 1: Please jump in if you'd like to ask a question. Please press star one under telephone keypad and a confirmation tunnel indicate your lung is in the queue. You may press star two if you would like to remove your question.

I mean, if you like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your along is in the queue.

First start to if you will like to remove your question from the queue for participants using speaker equipment. It maybe once started to pick up your handset before pressing the star keys.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.

One moment please poll for questions.

Speaker 1: And our first question comes from the line from John White with Roth Capital Partners.

And our first question comes from the wrong.

Oh.

From John White with Roth Capital Partners. Please proceed.

Speaker 6: Good morning and congratulations on the quarter and congratulations to Mr. Henderson for his new position.

Good morning, and congratulations on the quarter and congratulations to Mr. Henderson for his new position.

Thanks, John I appreciate it.

Speaker 6: You said you're, as you put out in your press release, you said acquisition activity accelerated in the quarter. Do you want to provide some more details on those acquisitions, were they all producing properties, and were they all in the box?

You said, you're a as you put out in your press release, you said acquisition activity accelerated.

In our in the quarter.

Do you want to.

Provide some more detail on those acquisitions, where they all producing properties and where they all are in the Bakken.

Speaker 4: Thanks John , this is Brian and I'll handle that. Yeah, you know, as we've always said, the acquisition pipeline is something that we've developed over the last 10 years, but it can be lumpy. And we were just fortunate to see several different transactions come together kind of toward the middle and latter part of the third quarter.

Thanks, John This is Brian and I'll I'll handle that yeah, you know as we've always said the acquisition pipeline is something that we've developed over the last 10 years, but it can be lumpy and we were just fortunate to see several different transactions come together kind of toward the middle and latter part of the third quarter.

Speaker 4: And they weren't really producing assets. Although what I would tell you is that our near-term development program is typically about buying AFEs or wells that are in the process of drilling. And that's really what the majority of these were.

And you know they they werent really producing assets, although what I would tell you is is that are you know because our near term development program is typically about buying <unk> or wells that are in the process of drilling and that's really what the majority of these were.

Speaker 4: But there was a little bit of uniqueness to them in that several of these wells that we acquired were further along that drilling process. And so we were really happy with the rates of return, especially given that the wells started to come online toward the latter part of the quarter and more of them will come onto the fourth quarter. So even though they were near term development acquisitions, they were just coming online faster and our typical acquisition would indicate.

But there was a little bit of uniqueness to them and that several of these wells that we acquired were further along that drilling process and so we were really happy with the rates of return, especially given that the wells are starting to come online kind of towards the latter part of the quarter end and are more of them will come on in the fourth.

Quarter, so even though they were near term development acquisitions. They they were just coming online faster than our typical acquisition would would indicate.

Speaker 4: Thank you. And all of them in the Bakken? Yes, all of those were in the Williston Basin.

Thank you and all of them are in the Bakken.

Yes, all of those were in the Williston basin.

Okay. Thank you I'll pass it back to the operator.

Yes.

Speaker 1: Thank you. Our next question comes from the line of Donovan Schaefer with Northland Capital Markets. Please proceed.

Thank you.

Question comes from the line of Jonathan Schaffer with Northland Capital markets. Please proceed.

Speaker 7: Hey guys, thanks for taking the questions. I want to start off by asking about natural gas price realization. I know that natural gas is a very small part of the overall production for you guys. But just with how wide, the significant price swings have been over the last 12 months being 10X, what they were.

Hey, guys. Thanks for taking the questions I want to start off by asking about natural gas price realizations.

I know that natural gas is a very small part of the overall production for you guys.

But just with how wide you know just how significant price swings have been over the last 12 months.

You know being something like Tenex.

They were.

Speaker 7: this last quarter, when you take all that into account, it can still be somewhat material to the top line, even as a small piece.

This last quarter.

When you take all that into account like it can still be.

Somewhat material to the topline, even though it's a small piece of the.

Speaker 7: So I have to ask about, you know, realizations being $0.88 for MCF in the quarter. I mean, I know you do it net of transportation expense. So that maybe makes it not like an apples-to-apples comparison with, say, like a peer or someone else producing in the basin.

Picture, So I have to ask about you know realizations being 88 cents per mcf in the quarter.

I know you you do it net of transportation expense. So it was that maybe it makes it not like an apples to apples comparison with say like a peer or someone else.

Did you say that based on but I just wanted to.

Speaker 7: Understand kind of what drove that lower What would it maybe be if you treated it as there's a way to compare it to

Understand kind of what drove that lower would it yeah, what would it maybe be if if you choose it if there's a way to compare it to.

Speaker 7: Someone who does, doesn't report it in that of transportation expenses. Just trying to kind of wrap my mind around it and compare to what I see elsewhere.

Someone who does a doesn't reported net of transportation expenses, just trying to kind of wrap my mind around it and compare to.

What I've heard what I see elsewhere.

Speaker 5: Yeah, thanks for the question, Don, good morning. Yeah, so unfortunately, practice is very and how you handle transportation, as well as two stream versus three stream reporting. For us, we report two stream, meaning that we have crude oil and natural gas only and not the NGOs. And the natural gas includes.

Yeah. Thanks for the question good morning, Yeah.

Yes, so unfortunately practices vary and how you handle transportation as well as 232 stream versus three stream reporting for US. We report two stream, meaning that we have crude oil and natural gas only and not the Ngls in our natural gas includes.

Speaker 5: the NGL component of that. I think one of the biggest, where the couple of impacts, impacts in the third quarter that reduced our realized price. And one is that the NGL prices were very low as storage levels continued to be high coming out of the summer.

The NGL component of that and I think one of the biggest couple of impact impacts in the third quarter that reduced our realized price and one is there.

NGL prices were very well as storage levels continued to be hired coming out of the summer.

Speaker 5: That's certainly a seasonal thing, and we expect to improve as we go through the winter, assuming that it does continue to get cold on the east coast especially.

That's certainly a seasonal thing and we expect to improve as we go through the winter assuming that it does continue to get cold on the east coast, especially so that should improve.

Speaker 5: So as should improve, there's certainly quarter over quarter here in the fourth quarter. The other component is, as you mentioned, gathering transportation and downstream costs.

Certainly quarter over quarter here in the fourth quarter.

The other component is as you mentioned gathering transportation and downstream cost.

Speaker 5: We net that out of our price, not all producers do. Some show that as a separate G&T price, but the way that we are paid, that's really just the part of the net revenue we receive at the well-hats. That's how it's handled here. So that...

We net that out of our price not all producers do some show that as a set of separate GNP price, but the way that we are paid that's really just a part of the net revenue we receive at the wellhead. So that's that's how it's handled here.

So that.

Speaker 5: I'd have to make that adjustment, as others might show it as a different line item in the income statement.

You have to make that adjustment as others might show it as a different line item in the income statement.

Speaker 5: The other way that affects our net back price is that a lot of those costs are fixed by the operator. So they have fixed fee versus like a percentage of proceeds type contract, which most people have gone to. And as prices of gas or NGLs goes down, obviously that fixed fee becomes a higher percentage of the net price. And so it has more of an impact at lower prices than it does at higher prices.

The other way that affects our netback prices, there's a lot of those costs are fixed.

By the operators so they have fixed fee versus like a percentage of proceeds type contract.

Most people have gone to and as prices of gas or Ngls goes down.

See that fixed fee became a higher percentage of the net price and so it has more of an impact at lower prices than it does at higher prices.

Speaker 5: Hopefully that's helpful, but happy to follow up with you if that doesn't get you where you need to be.

So hopefully that's helpful.

But well.

Happy to follow up with you, yes that doesn't get you where you need to be.

Speaker 7: Okay, you know, that is, that's very helpful. And they want to ask about, you know, the hedge book additions just between the, the release yesterday and then the update release with the recent, you know, near-term development acquisitions.

Okay.

That's very helpful.

And then wanted to ask about.

The hedge book conditions just between.

The released yesterday and then the update released with the the reset.

Since you know near term development acquisitions.

Speaker 8: So, I think the only of them.

So oh, there's I think the only if.

Speaker 7: If my notes are correct, the only change to the hedge positions between those two was really the addition of...

If my notes are correct, the only change to the hedge positions between those two was really the addition of <unk>.

Speaker 7: you know, it's hedges in 2025. And it's not a huge quantity in terms of the total, yeah, maybe it's like 10% or something of the total volume at that point, but I'm guessing maybe it's sort of tied to...

You know its hedges in 2025, and it's not a huge quantity in terms of the totally I mean, it's like 10% or something of the total volume.

At that point, but I'm guessing, maybe it's sort of tied to the.

Speaker 7: the addition of these acquisitions, so you're sort of looking out and saying, okay, we underwrote things at a certain strip.

The addition of these acquisitions, so you're sort of looking out and saying, okay. We we underwrote things that a certain strip.

Speaker 7: you know, and then what can we hedge that same strip, you know, what can we hedge that at compared to how we underwrote it? So I guess first, you know, am I kind of thinking about it conceptually the right way or was it just an opportunistic thing to pick up?

You know and then and then what can we hedge that same strip.

Oh, you know what what can we hedge that out compared to how we underwrote it.

So I guess first you know my kind of thinking about it conceptually the right way or was it just an opportunistic thing to pick up some smaller volume of hedges in 'twenty five and then how does that 25, sorry 70 $575.

Speaker 7: smaller volume of hedges in 25, and then how does that $75 swap price, how does that compare to how the curve where extra prices were for that time period when you underwrote some of these?

Yeah swap price.

How does that compare to what how the curve where strip prices were for that time period. When you underwrote some of these.

Speaker 4: Thanks, Donovan. This is Brian . I'll take a crack at that. You had several questions in there. So is it opportunistic? It's kind of a combination of both, right? I mean, we did see a nice run-up of oil prices starting in September and into early October , shortly after we had made those acquisitions. And so it was a great opportunity for us to lock in prices associated with the expected production from those acquisitions at much higher prices than we had underwritten those acquisitions at. And that is part of the 2025.

Thanks, Dan This is Brian I'll I'll take a crack at that you had several questions in there. So is it opportunistic it's kind of a combination of both right. I mean, we did see a nice run up of oil prices starting in September and into early October shortly after we had made those acquisitions and so it was a great opportunity.

<unk> for us to lock in prices associated with the expected production from those acquisitions at at much higher prices than our than we had underwritten those acquisitions add in that that is part of the 2025.

Speaker 4: But also keep in mind that historically our company has liked to be closer to having hedges in place for approximately two years out.

Hedges, but also keep in mind that historically, our company has liked to be closer to two having hedges in place for approximately two years out and so it just kind of part of our normal process of starting to lock in hedges Theres still a lot of backwardation in the market as you get out into 2025. So we took advantage of.

Speaker 4: And so it's just kind of part of our normal process of starting to lock in hedges. There's still a lot of backwardation in the market as you get out into 2025. So we took advantage of an uplift that we saw over a couple of days and got above $75 in 2025. So we pulled the trigger on that.

Of an uplift that we saw over a couple of days and got above $75. In 2025. So we pulled the trigger on that I just want to touch on on your comment about a 23 and 24, we actually did add quite a few hedges for 'twenty, three and 'twenty four increasing our our average price I think.

Speaker 4: I just want to touch on your comment about 23 and 24. We actually did add quite a few hedges for 23 and 24, increasing our average price.

Speaker 4: I think at the end of the second quarter, we had hedges in place for 2024 that accounted for maybe about 20% of our expected production. Now we're hedged at closer to 40% of our expected production, and we increased that average price from 76, which is where we stood at the end of the second quarter, up to a little bit over close to $79. So again, it's a combination of both opportunistic. When we see those prices go up...

The end of the second quarter, we had hedges in place for 2024 that accounted for maybe about 20% of our expected production now we're hedged at closer to 40% of our expected production and we increase that average price from 76, which is which is where we stood at the end of the second quarter up to a little.

Over a close to $79. So you know again, it's a combination of both opportunistic when we see those prices go up.

Speaker 4: We'll take advantage of it and I think from our hedge book you can see that we kind of like to be in that mid to upper 70s before we lock in hedges and that's kind of historically how we've handled it and my expectation is that's how we'll look at it on a go forward

We will take advantage of it and I think you know from our hedge book you can see that we kind of like to be in that mid.

Mid to upper seventies, before we lock in hedges and that's kind of historically, how we've handled it and.

My expectation is that that's how we'll look at it on a go forward basis.

Speaker 7: OK, and then lastly, just.

Okay, and then lastly, just.

Speaker 7: I'm curious if you can comment on the state of the M&A market, if you're assessing a lot of opportunities still.

I'm curious if you can comment on kind of.

The the state of the M&A market.

What.

If you're assessing.

Assessing.

A lot of opportunities still.

You know I guess, you can comment both on AR.

Speaker 7: ground game or near-term development, as well as something larger or package-type deals.

Our ground game or are you know near term drilling our near term development as well as you know something larger package type deals.

Speaker 7: in both those kind of opportunities that have you seen directional changes or we're using more potential in one versus the other.

And in both those kind of opportunity set.

Have you seen directional changes or where youre seeing more potential in one versus the other.

Speaker 7: the time or going forward, just kind of in general trends and what kind of the state of affairs are there and opportunity versus not, you know, sometimes it's better to just set things up for a while.

Time or going forward.

Just kind of in general trends and what what kind of the state of affairs are there in and opportunity versus not you know, sometimes it's better to just set things up for a while.

Speaker 3: Yeah, David. Thanks for the question. This is Bob. We are seeing

Yeah, David Thanks for the question this is Bob.

We are seeing.

Speaker 3: a lot of deal flow both in the near term and in the larger asset class.

A lot of deal flow both in the near term and in the larger asset class.

Uh huh.

Speaker 3: It's possibly because the price of oil has been fairly stable, but this is the biggest deal flow we've seen in years.

It's possibly because of the price of oil has been fairly stable, but this is the most.

This is the biggest deal flow we've seen in years.

Speaker 3: Now that said, that doesn't always correlate to us closing those deals.

Now that said that doesn't always correlate to us closing those deals.

Speaker 3: But it's great. There's a real nice smorgasbord of opportunities.

But it's it's great.

As a real nice smorgasbord of opportunities.

Speaker 3: About half the company is engaged in some form of reviewing and analyzing and closing deals.

About half the company is engaged in some form of reviewing and analyzing and closing deals. So.

Speaker 3: So we're very busy, but again, can't promise that we're going to close those things, but you know, at the end of the day, we are underwriters. So we're having a lot of fun.

We're very busy but again can't promise that we're going to close those things.

But.

At the end of the day, we are underwriters, so we're having a lot of fun.

Speaker 7: Yeah, I'd actually prefer that you promise that you don't close on any of the ones that are coming at it from an economics standpoint. Right on. Okay. All right. Well, great. Thanks, guys. I'll follow up with any other questions. Thanks, Don. Thanks for your service. Thanks.

Yeah, I would actually prefer that you promise.

Don't close on any of the ones that are right on but right coming out it's coming at it from an economic standpoint, so right. Okay, alright, great. Thanks, guys.

Follow up on any other questions.

Thanks for your support Donovan. Thank you.

Speaker 1: Thank you. Our next question comes from the line of Jeff Grant with Alliance Global Partners.

Thank you. Our next question comes from the line of Jeff Grant with Alliance Global Partners. Please proceed.

Speaker 9: I'm just wondering all thanks for the time. With curious on the cost side of things, well cost specifically, just an update there in terms of what you guys are seeing, how does a leading AFE maybe compare to, this time last year, maybe first half of this year, and then, relatedly, what kind of costs are you guys baking into that 24 guide? Thank you.

Oh, thanks for the time.

I was curious on the cost side of things, our well cost specifically just an update there in terms of what you guys are seeing you know what how does our leading edge E F E maybe compare to.

This time last year, maybe first half of this year and then Relatedly what.

What what kind of costs are you guys baking into that 'twenty four guide thanks.

Speaker 4: Sure. Thanks, Jeff. This is Brian . I'll take a crack at that and let Bob add anything that he wants to add.

Yeah.

Sure. Thanks, Jeff This is Bryan I'll I'll take a crack at that and let Bob add anything that he wants to add but.

Speaker 4: You know, we've talked about this on most of our calls, we didn't see as much cost inflation in the Bakken as I think some of the other basins have seen over the last year, year and a half.

And we've talked about this on most of our calls we didn't see as much cost inflation in the Bakken as I think some of the other basins have seen over the last year year and a half, but as we mentioned on our <unk> call. The difference between the first quarter in the second quarter, we were starting to see a nice.

Speaker 4: But as we mentioned on our 2Q call, the difference between the first quarter and the second quarter, we were starting to see a nice, you know, small but nice trend back to lower AFVs.

But you know small, but nice trend back to to lower our fees.

Speaker 4: I don't know that I would say that that trend necessarily improved into the third quarter, but I think it's been consistent. I think we started to see the price of oil go back up. You're drilling in completion costs are going to have some correlation to the price of oil, but I think we're happy with the AFEs that we've been receiving in terms of where their costs are coming in. Our operators are doing a good job. My sense is that sometimes it takes a while for us to get all the actual costs in. It's one of the benefits of being a non-operated working interstoner is you don't see the costs as quickly as the operators do. But the trends that I think we're seeing is certainly the operators are doing a very good job of managing costs out there in the field. And I don't think we're seeing the inflation that we saw in 2022. I think that 2023, third quarter is kind of a continuation of the second quarter.

I don't know that I would say that that trend necessarily improved into the third quarter, but I think its been consistent I think you know we started to see the price of oil go back up your drilling and completion costs are going to have some correlation to the price of oil, but I think we're happy with our with the a S that we've been receiving in terms of where.

Are there where their costs are coming in our operators are doing a good job. My sense is is that are you know sometimes it takes a while for us to get all the actual cost and it's one of the benefits of being a non operated working interest owner is is you don't see the cost as quickly as our as the operators do but the trends that I think we're seeing is certainly the operators are.

Doing a very good job of managing costs out there in the field and I don't think we're seeing you know the.

The inflation that we saw in 2022, I think that 2023 third quarter is kind of a continuation of the second quarter.

Speaker 9: Got it. Great. Thank you. And for my follow-up, on the, I guess, tangentially related to your own M&A aspirations, you know, HES is obviously one of your larger operators. There's going to be a changing of the guard there soon. Do you guys have an opinion on that, positive, negative, non-event, as it relates to how it'll impact the tests? And prospectively, just curious how you guys are thinking about looking at opportunities underlying HES acreage, given that change.

Got it great. Thank you and for my follow up.

On the I guess tangentially related to your own M&A aspirations. You know perhaps is obviously one of your larger operators are just gonna be a changing of the guard there soon.

Do you guys have an opinion on that positive negative not event as it relates to how it will impact the tests and prospectively. Just curious how you guys are thinking about looking at opportunities underlying has acreage.

Given that given that change.

Speaker 3: Well, you must have been in our conference room the last week, Jeff, because it's been a big topic of conversation.

Well you must have been at our conference from the last week, Jeff because it's been a big topic of conversation.

We are.

Speaker 3: No, Chevron for what they've done in the DJ, and we think that they're a very good operator.

No sure.

Everyone for what they've done in the D J and we think that they're a very good operator.

We are under Hess in in a lot of and a lot of wells.

And we I can't predict.

Speaker 3: if it's a good thing for us, Jeff, or a bad thing. But we do like Chevron and, you know, we got our head on a swivel. Usually when M&A like that happens, it's beneficial because, you know, the smaller assets do shuffle, but we haven't seen that yet. So,

If it's a good thing for us, Jeff or or a bad thing, but are we do like Chevron and we.

We got our head on a swivel usually when M&A like that happens.

It's beneficial because.

You know the smaller assets do shuffle, but we haven't seen that yet so.

Speaker 9: We're looking out. We don't know yet. Yeah, no, I know. It's early. I thought I thought I'd ask. So thanks for the time guys. Appreciate it.

We're looking out we don't know yet yes.

Yeah, No I know, it's early I thought I'd I thought I'd ask so thanks for the time guys appreciate it.

Thank you Jeff.

Okay.

Speaker 1: Thank you. Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back to management for closing remarks.

Thank you ladies.

Ladies and gentlemen, there are no further questions at this time I would like to turn the call back to management for closing remarks.

Speaker 3: Well, thanks everybody for your time. Ben does a terrific job in answering any questions that you have and we really appreciate your interest and support. See you in a couple of months. Thank you. Bye-bye.

Well thanks, everybody for your time, Ben does a terrific job in answering any questions that you have and we really appreciate your interest and support in a couple of months. Thank you bye bye.

Speaker 1: Thank you, this includes today's conference. You may disconnect your lines at the time. Thank you for your time.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Speaker 10: ?

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Yeah.

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