Q3 2023 Ring Energy Inc Earnings Call
Good morning, and welcome to the ring Energy third quarter 2000, 2030 earnings Conference call.
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I will now turn the call over to Al Petrie Investor Relations for ring energy. Thank you operator, and good morning, everyone. We appreciate your interest and ring energy will begin our call with comments from Paul Mckinney, Our chairman of the board and CEO, who will provide an overview of key matters of third quarter and our outlook. We will then turn the call over to Travis Tom.
This brings executive VP and Chief Financial Officer, who will review our financial results calls and will return with some closing comments before we open the call up for questions.
Also joining us on the call today and available for the Q&A session are Alex tires executive VP of engineering and corporate strategy Marinos back Daddy executive VP of operations and Steve Brooks Executive VP of land legal human resources and marketing.
During the Q&A session. We ask you to limit your questions to one and a follow up.
You are welcome to reenter the queue later with additional questions. I would also note that we have posted a third quarter 2023 earnings corporate presentation on our website.
During the course of this conference call the company will be making forward looking statements within the meaning of federal securities laws.
Just as a caution that forward looking statements are not guarantees of future performance.
Actual results or developments may differ materially from those projected in forward looking statements and finally the company can give no assurance that such forward looking statements will prove correct.
<unk> disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise or accordingly, you should not place undue reliance on forward looking statements.
These and other risks are described in yesterday's press release and in our filings with the SEC.
These documents can be found in the investors section of our website www Dot ring energy Dot com.
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.
Reconciliations of these non-GAAP financial measures the most directly comparable measure under GAAP are contained in yesterday's earnings release. Finally as a reminder, this conference is being recorded I would now like to turn the call over to Paul Mckinney, Our chairman and CEO.
Thanks, Al and welcome everyone joining us today and thank you for your interest in ring energy.
It is amazing how conditions can change from one quarter to the next realized oil prices improved considerably in the third quarter setting us up for a record tying financial results. Despite several unanticipated downtime events affecting our sales.
Overall, we are reporting another great quarter and are encouraged by the positive mood in outlook, we see in the industry today.
As we discussed on our second quarter earnings call. Our efforts for the third quarter of 2023, we're squarely focused on successfully closing the founders acquisition and making significant progress on the integration of their operations into our business. In addition, we continue the targeted execution of our 2000 Twenty's redevelopment program.
Next we remain diligent in our efforts to drive cost efficiencies throughout our business and finally, we continued to generate solid free cash flow that was used to further pay down our debt balance exclusive of funding the founders acquisition.
Addressing the details of the quarter first we completed the final due diligence for the founders acquisition and close on the acquisition on the agreed to timeline. In addition, our plans remain on track integrating the founders assets into our existing operations. We remain excited about the opportunities afforded by.
The acquisition and look forward to beginning our development efforts on the acreage and the early part of next year.
As a reminder.
These assets are similar to the CVP assets, we acquired last year, having stacked pay zones of high quality rock with proven performance as we have successfully done with our other assets, we intend to leverage our extensive expertise applying the newest conventional and unconventional technologies to optimally develop the inventory of undeveloped drilling.
Cases afforded by the transaction.
During the third quarter, we continued our successful 2023 development program with the drilling and completion of two one mile horizontal wells in the north West shelf, one with a working interest of 100% and the other where their working interest of 75% and three one and a half mile horizontal wells in the Central basin platform.
<unk> each with a working interest of 100%.
Additionally, in our Crane County acreage within the CBP, we drilled and completed three vertical wells all with a working interest of 100% Lastly, we drilled and began the completion process on three one mile horizontal wells in the northwest shelf each with a working interest of 90%. These three.
The wells were completed and brought online in October So we will benefit from over two months of production from these wells in the fourth quarter, while the substantial majority of the drilling and completion capital was incurred during the third quarter.
Our third quarter 2023 was highlighted by continued strong cash flow generation, including $58 6 million of adjusted EBITDA that was 10% higher than the second quarter and also tied the record we posted in this year's first quarter contributing to the sequential increase in adjusted EBITDA was higher realized.
Pricing and sales volumes.
For all products.
During the third quarter, we sold 17509 barrels of oil equivalent per day, which was an increase from the second quarter of 2023, but fell short of our expectations. While our sales benefited from the August 15th closing of the founders acquisition as planned several unanticipated in temp.
Barry downtime events.
At certain third party natural gas processing facilities affected our natural gas and NGL sales.
Additionally, we incurred three weeks of downtime due to a tank battery fire that shut in oil natural gas and associated NGL sales at that battery.
I'm happy to report that the production is back up to expected levels as evidenced by our third quarter exit rate, which was in excess of 19000 barrels of oil equivalent per day. This places us in a solid position to achieve our fourth quarter sales volumes guidance of 18900 to 19500 barrels of oil equivalent per day that we will.
I'll discuss in more detail later.
We generated $6 1 million of adjusted free cash flow during the quarter, which marked our 16th consecutive quarter or four straight years of generating positive adjusted free cash flow.
Six and a half million decrease from the second quarter was driven by increased capital spending of $10 8 million and $800000 of higher cash interest expense that was materially offset by adjusted EBITDA of $5 1 million.
On an accrual basis, we spent $42 4 million on capital projects during the third quarter, which was at the high end of our guidance range of 37 million to 42 million.
Driving our higher spending with an increase well level activity compared to the guidance. We provided in early August.
During the third quarter, we drilled eight horizontal wells and three vertical wells and completed and placed online eight total wells as a reminder, our guidance was to drill five to seven horizontal wells and one to two vertical wells and complete and place online five to six total wells during the period.
We stepped up our spending program for these projects to help ensure we deliver on our production guidance for the fourth quarter and set us up for a good start for the new year.
We were pleased to complete the sale of our noncore operated new Mexico assets to a private buyer on September 27th for net proceeds of $3 8 million consistent with the sale of our non core Delaware basin assets are close in the second quarter, the new Mexico asset sale emphasizes our focus on building and developing our.
Core operating position in the north West shelf and the Central Basin platform in Texas that continues to generate significant returns for our stockholders also is consistent with the Delaware basin asset sale. We used the net proceeds from the new Mexico asset sale to further pay down debt.
On that point, while we borrowed the initial $50 million from our credit facility to fund the third quarter cash outlay for the founders acquisition our borrowings outstanding at September 30 is where only $31 million higher than the end of the second quarter. The $19 million difference reflects our net pay down of debt.
And as another clear example of our commitment to improving our balance sheet, increasing liquidity and better position. The company for long term success before turning this over to Travis I'd like to discuss our updated outlook for the rest of the year.
We anticipate a continued positive pricing environment benefiting from previously mentioned five wells coming online early in the quarter and a full quarter of production from the wells associated with founders acquisition.
We are now targeting total capital spending of between 35 million to $40 million in the fourth quarter due to increased drilling and completion activity. This brings our full year capital spending program to 148 million to $153 million.
Our fourth quarter development program is focused on a balanced and capital efficient combination of drilling three to four horizontal wells and two to three vertical wells as well as completing and placing online eight to 10 wells. Additionally, our capital spending program includes funds for targeted capital Workovers infrastructure.
Upgrades leasing cost and non operated drilling completion and capital Workovers.
A primary assumption that underpins our capital spending plans is that W. T I oil prices will range between 65 and $85 per barrel.
As in the past, we have designed our spending program with flexibility to respond to the changes in commodity prices and other market conditions.
We continue to expect fourth quarter sales volumes of 18900 to 19500 barrels of oil per day.
More barrels of oil equivalent per day despite the.
The reduced volumes from the new Mexico asset sale and the additional volumes expected from the stepped up capital spending program, we anticipate 69% of fourth quarter sales to be oil.
Additionally, our third quarter production exit rate of over 19000 barrels of oil equivalent per day increases our confidence in our fourth quarter outlook. So with that I will turn the call over to travel to discuss our financial results in more detail Travis.
Thanks, Paul and good morning, everyone. Overall, we had a great quarter with record tying EBITDA technically there was less than a $5000 variance. So it's a great reminder, to favor paper clips and make every penny counts.
Our realized oil price was up $9 from the second quarter. So that gave us the license to resume capital projects and Halloween Workovers that were deferred last quarter. This catch up work contributed to our higher LOE and capex spend in the third quarter of 2023.
Of course, the scheduling of getting the production back on line was a bit tricky.
So along with the gas takeaway issues in the fire that Paul mentioned, we were a bit lower on volumes compared to the forecast, but with record EBITDA and the knowledge that these deferred volumes were back online at a higher price environment. We are very pleased with the results.
So let's dive into the numbers.
During the third quarter, we sold approximately one 1 million barrels of oil one six bcf of natural gas and 243000 barrels of Ngls for a total of $1 6 million or 17509 Boe per day.
Realized pricing was $81 69 per barrel of crude <unk> 36 per Mcf natural gas and $11 22 per barrel of Ngls or $58 16 per Boe.
This was 15% higher than the second quarter 2023 of $50 49 per Boe.
Our third quarter average crude oil price differential from Nymex W. Ti futures pricing was a negative <unk> 78 per barrel versus a negative $1 77 per barrel for the second quarter almost a dollar improvement for those without a calculator.
This was mostly due to the Rguest WTO active Etfs the increased 91 per barrel in the Rguest CMA role and increased 21 cents per barrel on average from the second quarter.
Our average natural gas price differential from Nymex futures pricing the third quarter was a negative $2 45 per mcf compared to a negative $3 seven per mcf for the second quarter.
Our realized NGL price for the third quarter averaged 16% of Debbie Ti compared to 13% for the second quarter.
The combined result was revenue for the third quarter 2023 of $93 $7 million, which was up $14 3 million or an 18% increase from the second quarter.
Hello, He was $18 million versus $15 9 million for the second quarter on a per BOE basis LOE for the third quarter was $11 18.
$10 14 per Boe for.
For the second quarter.
Louis per BOE after the third quarter of 2023 was slightly above the guidance of $10 50 to $11 per BOE, primarily due to lower sales volumes related to the unanticipated and temporary downtime previously discussed.
Contributing to the sequential increase in absolute low even from the second quarter increased due to a higher well count from the <unk> acquisition and higher expense workover activity, including projects deferred from the second quarter.
Partially offsetting the overall increase in sequential quarterly absolute LOE for the third quarter was the sale of our non core Delaware basin assets during the second quarter.
Keep in mind, the disposition of our noncore operate in new Mexico assets had minimal impact on the third quarter low given the transaction closing date of September 27 as.
As such we look forward to seeing a full three months of cost reduction during the fourth quarter.
As a reminder, but the new Mexico, and Delaware Basin assets had a higher lifting cost profile that our core properties.
Production taxes were $4 million or $2 95 per Boe versus.
<unk> $4 million or $2 55 per Boe for the second quarter with the tax rate remains steady at approximately 5%.
DD&A was $22 million compared to $28 million in the second quarter on a per BOE basis, G&A sequentially increase from $13 65 from $13 23 per Boe.
Cash G&A, which excludes share based compensation was $3 five per Boe versus $2 89 per Boe for the second quarter of 2023.
Excluding transaction related costs cash G&A was $3 15 per Boe for the third quarter versus $2 75 per Boe for the second quarter and $3 85 per Boe for the third quarter of 2022 and.
An 18% decrease year over year.
Interest expense was $11 4 million versus $10 6 million for the second quarter with the increased substantially due to a higher interest rate and one additional day in the period.
I would also note that interest expense includes about 400000 per month and noncash amortization.
Due to the sharp increase in oil prices since June 30th which is a good thing our third quarter loss on derivative contracts was $39 2 million compared to a $3 $3 million gain in the second quarter of 2023.
We recorded an income tax benefit of $3 $4 million versus a benefit of $6 4 million in the second quarter.
As a reminder, a significant driver in the level of our second quarter tax benefit was the release of the valuation allowance during the period.
During the third quarter, we reported a net loss of $7 $5 million or four cents per diluted share.
Excluding the estimated after tax impact of pre tax items, including $33 $9 million for noncash unrealized losses on hedges.
$2 2 million for share based compensation expense.
An approximate reduction of approximately 200000 and transaction costs, our third quarter 2023, adjusted net income was $26 3 million or <unk> 13 per diluted share.
This is compared to the second quarter of 2023, net income of $28 $8 million or <unk> 15 per diluted share in second quarter 2023, adjusted net income of $28 million or 14th.
Sure.
Turning to cash flow metrics as Paul discussed we generated another record level of quarterly adjusted EBITDA and a 10% increase from the second quarter of 2023.
We look forward to growing our operating cash flows as we continued to execute on our 2023 development program and further investment initiatives to grow our business.
As Paul discussed we received $3 8 million in net proceeds for the sale of our noncore operated new Mexico assets.
And consistent with the recent disposition of our Delaware assets was used to further pay down debt.
While our debt position increased as a result of the closing of the <unk> acquisition. We recognized that remaining focused on debt reduction is a key priority for the company.
This was evidenced by our paydown of $19 million, excluding that third quarter borrowings the founders acquisition of $50 million.
As a result on September 30, we had $428 million drawn on our credit facility.
With a current borrowing base of $600 million.
We had $171 2 million available net of letters of credit.
Combined with cash we have liquidity of 171 4 million.
Our leverage ratio of 169 times.
I would like to note that excluding the estimated $11 $9 million net deferred payment due next month for the founders transaction our leverage ratio was 164 times Sn.
Essentially we were leverage neutral for the quarter was all of the increase due to the deferred payment.
As we discussed previously while the founders acquisition added debt to our balance sheet in the near term. We believe we are better positioned to pay down debt more quickly over the long term.
Of course realized commodity prices, the timing and level of capital spending and other considerations impacts the cadence of quarterly debt pay down.
Moving to our hedge position for the fourth quarter of 2023. We currently have approximately 593000 barrels of oil hedged or approximately 49% of our estimate oil sales based on the midpoint of guidance.
We also have 518 million cubic feet of natural gas hedged at 31% of our estimated natural gas sales based on the midpoint.
For a quarterly breakout of our hedge positions. Please see our earnings release and presentations, which include the average price for each contract.
So with that I will turn it back to Paul for his closing comments Paul Thank.
Thank you Travis.
We believe our strategic acquisitions over the past year have placed us in a stronger position to take the company to new heights, given the accretive the highly accretive attributes of our collective transactions, including per share growth in production reserves adjusted free cash flow and other key metrics. In addition to two transactions further.
Strengthen our balance sheet and accelerate our ability to pay down debt.
They also increase our inventory of low risk high rate of return drilling locations and our proved our capital allocation flexibility.
With respect to the fourth quarter of 2023, we are squarely focused on the efficient integration of the assets from the founders acquisition and the successful completion of our 2023 capital spending program.
Complementing these efforts is our ongoing focus on reducing operating costs.
With the primary goal of maximizing our free cash flow generation to pay down debt, we will remain disciplined by prioritizing our capital spending on high rate of return drilling and re completion projects, we believe targeting excess free cash flow to pay down debt will drive long term value for our stockholders.
Speaking of improving value for our stockholders, we are disappointed with our lagging stock price performance when compared to our peers, we are delivering competitive and oftentimes peer leading returns yet our stock price has not reflected that performance. We are continuing to investigate what we believe to be the potential call.
<unk> and we will address those potential causes within our control.
Wrapping up and as I have consistently said in the past we believe staying the course with our sense of urgency our resolve and our commitment to our value focus proven strategy better prepares a company to manage the risks and uncertainties associated with our industry and should generate sustainable and competitive returns to our stockholders.
We believe we are well positioned for the fourth quarter and 2024 with.
With the continued pricing environment production benefits from our recent acquisitions and the continued success of our capital spending program. We also believe 2024 will be a strong year for shareholders with that we will turn this call over to the operator for questions operator.
We will now begin the question and answer session.
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At this time.
Pause momentarily to assemble our roster.
And our first question here will come from Jeff Grant with Alliance Global. Please go ahead.
Good morning, guys. Thanks for the time.
Was curious.
Good morning.
The the downtime events that are that impacted production in the quarter do you guys have any any kind of ballpark estimate for what that curtailment was and at the risk of maybe being too greedy. If you could break it out by the exposure on the on the processing plants versus the fire.
Yeah I'll go ahead and begin this and then I'll turn it over to Marinos. He knows the details far better than I do but you know a little over 50% of the.
The downtime events were associated with these gas processing and compression facilities.
And then.
Then the fire itself I don't really remember the percentage, but it was pretty substantial was 25%. So it's 25% you. Once you go ahead and addresses.
The total overall volume was about.
Again these are estimated numbers.
Because they're not sales are based on our production volumes, but about 600 Boe's a day.
About 130 of that was from the fire that 600 BOE a day is for the quarter for the quarter, yes equivalent for the quarter. Thank you Paul So we trimmed it up to about 102 days yet so about one third of that was for the battery fire and then 330 to 350 of that was for the gas plant in.
We had a couple of other weather related what we Didnt mentioned in the call, but that's basically the breakdown.
Got it that's really helpful. Thank you and for my follow up.
I know you guys haven't put out a 24 guide yet so certainly not trying to front run things here, but just looking at the Q4 numbers.
Capex range that you guys provided is it fair to think that that's kind of a run rate maintenance number relative to that Q4 guide or how might you guys.
And at that kind of commentary or I guess, just ultimately trying to think about.
It did maintenance Capex number for you guys looking ahead.
Yeah, and so I'll ask a good question.
We are currently evaluating various different capital spending levels for 2024, and trying to understand the merits and consequences associated with those different capital spending levels.
Let me reiterate a couple of things that I've said, oftentimes and I know I sound like a broken record, but we are squarely focused on reducing our debt.
And so and we know that the rate of.
Debt pay down is a direct function of product prices.
And our capital spending levels and so that's the reason why we're looking at these capital spending levels, but I think that the capital spending levels that we're forecasting for the fourth quarter.
Pretty close to might be a little higher than what is necessary for true maintenance.
<unk>.
As you know we fell short on our production in recent times and so that's part of the reason why we stepped up our capital spending to try to make up for that but I think that yeah. Our true maintenance capital spending levels are probably just a little less than what our fourth quarter capital Guide.
Guidance is.
But it's close to that.
Paul If I may say, one more thing too.
The $35 million to $40 million includes some facility upgrades in terms of ESG related things that are not necessarily tied to maintenance, but tied to us becoming a more a better operator in terms of emissions and et cetera.
And then on that note I'm, just going to take this opportunity to kind of expand on that.
We take our responsibility as a publicly traded company in an oil company very seriously with regard to ESG, primarily associated with these emissions and also preventing spills.
We're probably spending more capital as a company or a public company for our size and many others out there just because we were that focused on not only meeting, but just getting ahead of the requirements that we believe are coming our way when we look at the things of the EPA are doing in other organizations in the pressure they are placing on our industry.
I don't believe our industry can afford to not step up in this regard and so we are we're spending a little bit more capital on projects like that that really go on <unk>, but we believe that in future sustainability reports as we disclose our emissions.
People will recognize the benefits associated with what we're doing.
Yeah agreed and I appreciate the insight guys. Thanks for the time.
Thanks, Jeff.
Our next question here will come from Neal Dingmann with Truest. Please go ahead.
Good morning, guys. Paul a question for you I was just wondering now with founders rolled in could you just talk about you guys have.
Done a great job of recent deals of sort of what I would call.
Combining operations and then.
Continuing to see more efficiencies as a result, but I'm just wondering now.
With founders tucked in could you talk about how we might see incremental efficiencies now.
From the DNC side, given the combination.
Yeah, very good again I'm going to address it initially then I'll turn it over to Marinos, an extra I think Alex might want to chime in as well.
We're very excited about the founders acquisition.
The very first thing we recognize when we made that acquisition that we believe that there are significant improvements in reducing operating costs, there associated with getting a better handle on.
Water handling and disposal and.
So we have been spending quite a bit of time.
In that regard since we've acquired the assets. We are excited about the progress, we're making and once we finish some of those investments change the way the water is handled and reduce those operating cost.
We will be prepared to launch our drilling campaigns out there we believe that the.
Economics of the associated drilling on the founders are very competitive matter of fact, some of them are equal to our very best investments that we have in our inventory and so youll see that we will be spending money. There once we get a handle on the operations generate any more you want to sure.
Hello, Paul.
One thing Neal on the.
On the drilling and completion costs in general the last quarter, we have seen a.
Pretty good reduction in completion costs.
Specifically, the frac companies and Encasing costs, we've actually procured.
All the casing that we think we'll need for the first quarter and it's about <unk>.
Half the price of what we paid the same time last you're procuring tasting for our first quarter of 2023. So those are benefits that I think we're going to see throughout the entire company not just the founders assets.
And that we're excited about that so that kind of goes into the and sort of a maintenance question from earlier on to it.
That's a moving number because of the benefits that we're seeing on the cost right now.
Yeah, Let me let me add one more thing this is Alex again.
Bringing this asset.
We found some low hanging fruit by just lowering some pump sales and by rapid part of the decline on the at and we'll continue doing that going into 2004. So thats. One thing is the blocking and tackling.
As we bring in the asset the other thing is that we also optimize the infrastructure and start deploying some of the capital for next year. If you reference slide 19. It shows you on a relative basis, what the investment type that Paul was talking about you can see.
<unk> founders investments versus some of our other investments in TEP verticals really brings on a lot more oil to a higher oil content, meaning like over 90% oil per well.
You should be able to see that in 2004.
Great details guys and then.
Paul maybe for you to try this just question on going forward.
It looks like it will get.
This has remained stable and look at your operations continue to be as efficient as we think.
Looks like free cash flow could continue to ramp quite nicely.
Have met your prepared remarks I know.
It's always priority, maybe just talk about how you think about.
<unk> versus more accretive deals versus maybe shareholder return.
Yeah.
Yes, very good and then this is the.
The classic question that we get all the time I get shareholders, a furnace emails with their opinions and all of this.
So yes, just in general.
That is not our friend.
Our interest.
Interest expense is considerably higher than our G&A expense and so.
During times of high interest rates like we experienced it behooves any company to reduce our debt and so that's the reason why we're focused on it so now with respect to taking on more debt.
We would be willing to take on more debt through an acquisition of some kind.
But it still has to be balance sheet, improving so in other words, the the ratio of the collateral backing up that debt half to improve versus the debt.
And and we have to buy these properties, if we're going to pursue them in an accretive manner and so yes, I am willing to take on more debt, but it will reduce the leverage ratio and actually strengthen the balance sheet by doing so if we were to occur or pursue something in that regard travelers are more you want to say.
Now just taking a step further but not too far getting into the shareholder return look we're always looking at the cost of capital on that as well and the question that is often come out would you guys consider any sort of share buybacks or winter dividends coming.
And those are things, we look at where is our dollar best spent.
And given the right opportunities and think anything is really on the table, but for now I think it's still a focus on that.
Yes.
Go ahead, Paul Yes, just a little bit more when you if we were to do a stock buyback today.
That would take.
Proceeds away from paying down debt. So essentially you are adding debt.
Buy stock back and don't forget you don't you don't get additional real barrels of production. So if you.
You use those funds are proceeds to accretively buy assets, you get the production and cash flow to help pay that down. So we're all about acquisitions, but our focus on acquisitions up to now has been clearly that the result of that would be a totally accretive.
On many metrics as you can you strengthen your leverage ratio, but at the same time, the future cash flow from those assets have to accelerate our ability to pay down debt and we've been successful in being able to do that as you see.
Our ability to pay down debt.
That has increased over time, and we believe it's going to continue.
And of course that is also dependent on energy prices.
But from the overall health of the company.
Remaining focus on these debt adjusted per share metrics as the only way youre ever going to.
Did you weigh out and grow the company profit related for your shareholders.
Yes, Thank you Travis.
I think its cost of capital and it's going to be great. You can get a have a rent the amount of free cash will decide what to do it. So thanks guys.
Youre welcome.
Again, if you have a question. Please press star then one to join the queue.
Our next question will come from Noel Parks with TUI. Please go ahead.
Hi, good morning.
Hey, good morning, all.
So.
We seem to be entering one of these stages, where we sort of have increased.
Macro uncertainty geopolitical side also.
And it's in new Wildcards recently.
I think other companies generally have been pretty proactive in down.
Down cycles as far as.
Just getting little judicious with rig activity and I'm, just thinking with your horizontal inventory and also the Brooklyn inventory now.
Are there are there different prices if say we did have a.
A pullback into next year.
Just where it might be easier to keep vertical activity going in.
Sure careful there instead of some of the Horizontals are is the differential we get to returns just not not enough to really make a difference.
Yeah I mean.
If you look back in our history.
Last 12 months, you can see that.
And when prices were lower earlier this year.
Exiting last year, we actually did curtail some of our capital spending program.
As I alluded to earlier, our budget plans are with the mindset that oil prices will remain between $65 $85.
You fall below $65 and even as you approach $65 we will.
Tighten up the capital spending requirements, we will only focus on those that have the absolute best returns.
And so we do have a mix we do have some vertical wells that compete with our horizontal wells typically in the past our best returning investments where the horizontal wells, especially those in the northwest shelf.
But now with the founders some of those are vertical wells will compete handsomely with that and so.
Rest assure we will focus.
Low price environment, we will continue to be active but we will focus on those highest return aspects because.
Our strategy going forward until our debt is down to well below our leverage ratio of one.
We're going to we're going to be focused on maximizing our <unk>.
Free cash flow generation from those investments and so that's just the way it.
Did I answer your question no.
Absolutely absolutely and.
And just my Mic.
My other one.
Service cost environment, certainly sounds encouraging as far as the.
Year over year changes in it services materials and.
I was just thinking about.
Again with sort of if we have more volatility in the system with prices.
Do you have a sense yet.
In your in your regions that.
With the other operators.
As everyone's activity level.
Are we stable right now or would you say, it's either trending higher or lower one direction or the other of these days.
You know and I talked to quite a few Ceos I think all of US are of a very similar mindset right now.
Disciplined in our capital spend everyone is focused on.
Our real returns to the shareholders. So.
If it wasn't for our debt and perhaps our size and scale we would.
We would be delivering some kind of a real return either through a stock buyback or through dividends or something but.
Everybody is focused on disciplined capital spending that's a reason why even though we're at.
Historically on the higher end of energy prices, you're not seeing the rig rates increase because everybody is focused on on discipline and I don't know about another CEO that'll tell you anything different than what I'm, telling you, they're focusing their capital on the highest rate of return opportunities they have and their focus on.
Real returns to their shareholders and you you can't go wild with your capital spending and that kind of environment. So everybody is disciplined and this was also part of the reason why we're seeing a pullback.
And some of the cost and the availability of many of the services that we depend on for drilling and completing our wells.
It's good that natural gas prices fell in Europe, which allowed a lot of the steel manufacturers just go back to making steel, which reduced the demand for this deal here in other areas and so.
Yeah, I think that.
The discipline is the primary cause for now the pullback that we've seen or the.
This slight pullback in some of the costs associated with drilling and completing our wells.
Great. Thanks, a lot.
Youre welcome.
And this concludes our question and answer session I would like to turn the conference back over to Paul Mckinney for any closing remarks.
Thank you Joe and on behalf of the management team the board of directors I want to thank everyone for listening and participating in today's call. We appreciate your continued support of the company and we look forward to keeping everyone apprised of our progress. Thank you again for your interest in ring and have a great day and have a great weekend.
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.