Q4 2023 PHX Minerals Inc Earnings Call
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Good morning, and thank you for attending today's PHX minerals September 30th 2023 quarter and earnings conference call. At this time all lines will be muted during the presentation of the call with an opportunity for Q&A at the end.
A reminder, this call is being recorded I would now like to turn the call over to Rob Fink with F. N K I R. Please go ahead.
Thank you operator hosting the call today are Chad Stephens, President and Chief Executive Officer, Ralph to Niko Senior Vice President and Chief Financial Officer, Daniel Meso.
Vice President of engineering.
The earnings press release that was issued yesterday. After the close is also posted on th Xs Investor Relations website.
Before I turn the call over to Chad I'd like to remind everyone that during today's call and during the Q&A session management may make forward looking statements regarding expected revenues earnings future plans opportunities and other expectations of the company.
These estimates and other forward looking statements involve known and unknown risks and uncertainty that may cause actual results to be materially different from those expressed or implied on the call.
These risks are detailed in ph ex minerals. Most recent annual report on Form 10-K, as such maybe amended or supplemented by subsequent quarterly reports on Form 10-Q, or other reports filed with the Securities and Exchange Commission.
The statements made during this call are based upon information known to PHX as of today November nine 2023, and the company does not intend to update these forward looking statements whether as a result of new information future events or otherwise unless required by law.
That said I'd like to now turn the call over to Chad Chad the call is yours.
Thanks, Rob and thanks to all of you on this call for participating in PHX as September 32023 quarterly conference call. We appreciate your interest in the company.
The sequential improvement in our financial results and the continued strengthening of our portfolio reflect the steady normalization of the natural gas macro environment, which has recovered from historically low prices.
Since early this spring we have continued to express our rationale for projected improvement in the natural gas supply demand macro and price.
Just over the last few weeks the 12 month strip price has shown steady improvement recent.
The recent volatility in natural gas prices reflects realized versus forecasted weather, which indicates one of the warmest novembers since 1950.
However, underlying fundamentals, including weekly EIA storage data shows a tight are under supplied market on a weather adjusted basis.
Demand for natural gas from the power grid continues to increase on a year over year basis, and new LNG facilities construction appears to be on schedule.
As we draw closer to the commissioning of these additional LNG facilities, we believe it will drive improvement in sentiment as well as prices in mid to late 2024.
LNG export will be a significant demand driver in 'twenty 'twenty, four and 'twenty 'twenty five and we believe the Haynesville will be the primary source to feed these LNG facilities I believe this improving environment bodes well for our business in future quarters.
During the third quarter PHX continued to experience robust activity on our minerals.
Specifically in the Scoop play a local homa, where continental and other operators appear to have started full field development of the springboard three play with four rigs currently operating there.
We have consistently talked about this play being a catalyst for P E checks and while we are still in the early stages of development. The results to date have exceeded our expectations.
Our Haynesville minerals also continue to be actively developed and we are encouraged about our current well in progress inventory, which Danielle will talk about in a moment, which is that as is as high as it has ever been and will continue to drive production growth in the coming quarters.
We remain confident in meeting the updated 2023 production forecast, we communicated last quarter, which represents year over year annual growth rate for royalty production exceeding 20%.
Additionally, we expect calendar 'twenty 'twenty four royalty production growth to be similar to what we've achieved over the last few years. This reflects the benefits of this strategy we implemented when I took over as full time CEO in spite of periods of challenging commodity prices, we will provide more detailed guidance.
Early 2024.
With our strong margins P. H X continues to generate significant cash flow. This allows us to maintain ample liquidity as well as fund our mineral acquisition program.
Given the strength of our business. The board of directors has approved a 33% increase in our fixed dividend rate to three cents per share per quarter. This is the fourth dividend increase since 2020 and represents an aggregate increase of 200%, 200% from the 'twenty 'twenty right.
At this point I'd like to turn the call over to Danielle to provide a quick operational overview and then to route to discuss the financials. Thanks, Chad and good morning to everyone participating on the call for our September 30th 2023 quarter total corporate production increased 2% from the prior sequential quarter into 2000 and 348.
And then CSC, 80% of our quarterly production volumes for natural gas, which aligns with our long term position that natural gas is the key transition fuel for sustainable energy future.
Oil represented 12% of production volumes and NGL represented 8%.
Quarterly royalty production increased 3% sequentially to 2073, and then cfe compared to the same quarter last year royalty volumes have increased by 13% and 26% for the trailing four quarters.
Volume growth over the last 12 months as a result of the successful execution of our mineral acquisition program is important to note that as a mineral holder, we do not control timing on web development. So there can be some volatility on a quarter to quarter basis and volume associated with our business model, our better evaluated on a rolling 12 month basis.
Our total corporate volumes were down 9% year over year, which is due to the sale of our non op working interest assets in early 2023.
On the working interest side production volumes declined 7% sequentially to 275, and then Cfe in the September 30th 2023 quarter as a result of natural declines and some wells being worked out by the operator note that we are not participating in new working interest well. So working interest volumes will continue to decrease relative to our tone.
Volumes and become less relevant to the business.
Royalty volumes represented 88% of total production during our September 32023 quarter as recently of calendar year 2021 royalty volumes were only 45% of our total volume.
As we have grown our royalty volumes and divested of our non op working interest the quality of our asset base is enhanced with improving margins, which Ralph will talk about shortly.
We have high graded our asset base. This provides a much stronger collateral base with which to support our bank credit facility during.
During the quarter ended September 30th third party operators active on our mineral acreage converted 71 gross or 155 net wells in progress or web to producing wells compared to 81 gross or three net whips converted to PDP in the quarter ended June 30th the majority of new Wells brought online are located in the Haynesville in scoop.
At the same time, our inventory of wells in progress on our minerals, which includes DUC wells being drilled and permits filed increased to 278 gross or one one net wells and all time high compared to the 272 gross 91 net wells reported as of June 30th.
Continued track record of well conversions and replenishment of the inventory of wells in progress shows the repeatability of our business strategy.
Additionally, we have mineral interest under a deep inventory of approximately 2000 gross and drilled locations that will continue to feed the split activity.
This is who are we regularly monitor third party operator rig activities in our focus areas and have their 14 rigs present on T. H X mineral acreage adds of October night. Additionally, we had 56 rigs active within two five miles of ph at ownership in summary, we continue to see steady development in both our legacy and recently acquired mineral.
Assets, which should lead to annually increasing royalty volumes now I will turn the call to Rob to discuss financials.
Thanks, Danielle and thank you to everyone for being on the call today natural gas oil and NGL sales revenues increased 23% on a sequential quarter basis to a total of $8 9 million breaking down. This number further royalties sales of all our revenues increased 27% to seven.
9 million due to a 3% increase in royalty production volumes and 23% higher realized commodity prices.
Working interest sales revenues increased 1% to 1 million as a result of lower production volumes and 8% higher realized commodity prices realized natural gas prices averaged $2 40 per mcf, 25% higher than the prior sequential quarter realized.
The oil prices averaged $78 48 per barrel, 6% higher and Ngls averaged $20 35 per barrel, 8% higher.
Realized hedge gains for the quarter were 603000 for the quarter approximately 46% of our natural gas, 35% of our oil and none of our NGL production volumes were hedged at average prices of $3.26 and $74 92.
Two cents respectively.
Approximately 42% of our anticipated remaining calendar 2023 natural gas production has downside protection at approximately $3 35 per Mcf on the oil side approximately 41% of our anticipated production has downside protection at approximately <unk>.
And $1.16 per barrel most of our natural gas hedges are structured.
As Costless collars, which means that we also have upside on these volumes are closer to the $6 range. Our current hedge position is available in our most recently filed 10-Q.
Total transportation gathering and marketing expenses decreased 23% on a sequential quarter basis to 694000 and decreased 23% on a per mcf basis to 30 cents per mcf, primarily because of higher haynesville volumes.
As a percentage of total volumes, which have lower associated transportation costs, and where we have a meaningful number of cost free leases.
Production taxes decreased 16% on a sequential quarter over quarter basis to approximately 388000 due to higher production in Louisiana, which applies its tax rate to production volumes and not revenues.
Associated with our legacy non operated working interest wells increased 32% on a sequential quarter basis to 414000, we continue to have discussions with operators of our legacy working interest assets regarding escalating operating costs and overhead charges.
Cash G&A was down 10% to $2, two 4 million compared to the prior sequential quarter on a per Mcf basis G&A decreased by 11%. We continue to focus on the cost side of the business and expect that the per G&A costs will continue to decrease going forward.
Forward as we grow production and scale the business, while maintaining absolute cash G&A in line with recent quarters.
Adjusted EBITDA was $6 3 million in our quarter ended September 30th 2023, as compared to $4 1 million in the June 32023 quarter I'd also like to point out that our EBITDA margins are higher than they have been.
And at least the last five years as we continue to show success in our minerals only strategy and we expect margins to continue to expand as we scale up the business.
DD&A was down 9% to 2 million compared to the prior sequential quarter net.
Net income for the quarter was $1 9 million or five cents per share compared to a net loss of $40000 or effectively $0 per share for the prior sequential quarter.
We had total debt of $30 million 750000 as of September 30th compared to $23 75 million as of June 30th as we partially funded our previously announced acquisition package totaling $13 4 million in September with cash on hand, and debt our debt to trailing.
12 month EBITDA.
It was 11131 times at September 32023. Additionally.
Additionally, during our regularly scheduled borrowing base Redetermination, our bank group increased our advance rate from 45 million to 50 million Lastly, I would like to remind everyone about our previously announced change to a calendar year fiscal year as such our next earnings report will be for the full year ended.
At December 31, 2023, which will be released in early March 2024, with that I'd like to turn the call over for.
Chad for some final remarks.
Thanks Ralph.
As I commented in my opening remarks, we are very pleased with our achievements over the last year and the momentum. It provides us moving into 2024, we have good current rig activity on and around our mineral position in both the scoop and Haynesville are royalty volume growth remains on trend for double digit production growth in 2020.
For and we continue continued to generate good acquisition deal flow.
Additionally, with our turning growth in operating cash flow our board of directors approved a 33% increase in our dividend of <unk> <unk> per quarter, and our bank group increased our borrowing base from $45 million to $50 million I think these two important events highlight our quality asset base and sustainability of our business model the.
The company continues to.
Make notable progress only through the hard work of our dedicated employees and the keen keen wisdom provided by our board. So in closing I. Thank them for their efforts, we do look forward to keeping you updated.
This concludes the prepared remarks portion of the call operator, please open up the queue for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from the line of Derrick Whitfield with Stifel. Please proceed with your question.
Good morning, and thanks for your time.
Hi, Derek Derrick.
For my first question I wanted to focus on your growth outlook with the understanding that you'll offer firm 2024 guidance next quarter.
Could you help frame your trajectory given the strength you experienced this quarter and old grows and the flattest improving with inventory that you have in the Anadarko and haynesville regions respectively.
Ralph do you want to you want to talk about sure. Yeah, I mean, I think Derrick I think it's all you know we have that level of confidence given the that the well in progress inventory right. I mean, you continue to see.
Active development and with you know 1.1 wells in progress on a net basis right and you continue to see new permits being filed on us on our minerals.
You know every week that we monitor it.
I think it's pretty you know its.
It's a pretty good assumption that those wells should be coming online over the next I guess 12 to 14 months through the end of 2024 and based on that on just that that amount of wells in progress. We think we can achieve the same growth rate as we have over the last few years.
Yeah, clearly that can be accelerated right. If there is additional rig activity come up coming online.
As well so we'll provide some more guidance some more specific numbers as Chad mentioned.
Early early in 2024.
And as.
Chad as I said in my prepared remarks, we're seeing that double digit greater than 20%.
Year over year growth with all of the rig activity deduction. The whips the oil you're referring to was really specifically related to some Bakken wells that were completed there's been some increased activity up there, but more than that was some of these wells.
We continue to talk about the continental's completed in the springboard three area that are that have a <unk>.
Higher oil component to it and we're really.
Excited about the performance of those the early performance of those wells.
That's great and for my follow up I wanted to ask for your perspective on the M&A landscape and your focus markets. Because you guys are likely aware studio announced yesterday at PSA for an asset package in the Anadarko and Appalachian Basin that sold for approximately nine times EBITDA on our numbers.
Well definitely a positive read through from a valuation perspective for you. It would appear the environment is getting a bit more competitive in your areas are those basins could you share your thoughts on that transaction and what you're seeing on the competitive landscape side.
Yeah.
We had actually looked at some of those assets. They originally.
Came from the old Brigham minerals.
Organization that merged in to become CDO and after that merger, we had done some unsolicited discussions around that and just couldn't couldn't come to evaluation.
What was paid was much richer.
And then we could we could justify.
So good for city of hope for forgetting that forgetting that price they were good assets, but at that price. It was difficult for us to make a decent return. So I think that demonstrates one we're out there in the marketplace.
In the relevant deal flow, but we're also.
We use our technical analysis and are our financial analysis.
To be disciplined about what we're buying and the economic returns.
We're trying to get for our shareholders.
Yeah, Derik I would just add also that sort of the as we call. It. The you know our bread and butter on the smaller acquisitions or we try to to aggregate the deal flow there is.
<unk> continues to be very robust and I think I think our view is that we sort of have our pick of the of the litter effectively there is enough deals where we can be very methodical and disciplined.
You know and achieve the best risk adjusted returns as possible.
By following the same.
Process that we have over the last going on for years now.
That's great. Thanks for your time.
Thanks Derek.
Thank you. Our next question comes from the line of Charles Meade with Johnson Rice. Please proceed with your question.
Good morning, Chad to you Ralph and the whole PHX team.
That's all I wanted to ask I wanted to ask about the.
A bit more detail on this continental wells that I think you referred to just a moment ago.
And specifically I think it's slide 23 of your updated presentation, you've got I think pads three and four are two different corbett pads that were drilled by continental and.
It looks to me like the wells I believe to the north we're targeting the sycamore.
The Sycamore section and to the South they were targeting the Woodford section. So my question is this.
First would you can characterize how.
How pleased or or how pleased you are with those results and then the second question is whether the choice of the Sycamore versus the Woodford is it is a either or sort of thing like pick one target.
Or is it a.
Is it can you do both in other words is there potential down the line for.
Continental to stack.
Sycamore in the south and add a woodford to the north.
Charles Good question I'm going to let our reservoir engineer Danielle answer that question as she tracks the well results and the performance pretty closely Danielle. Thank you Charles so.
So yes, we're very pleased with continental's results. This has been an excellent test a concept for them. So far we've seen on the production side outperformance to our original type curves. We've seen that these zones co produced very well together.
It's definitely not an either or situation, we fully expect that they will co produce and wine rack those two layers.
This is extremely thick section in this part of the Scoop play and we do expect that there are multiple benches, you can see that there is a schematic on page 24 of our corporate presentation as well just the thickness here would allow them to do two benches in each of those zones as well. So beyond this test we would expect future tests to even stock that further.
And I have.
Even further recovery down the road. So yes, we're very pleased with the results of that test and we expect them to fully take that development model and start.
Walking it across the field there.
So that's up a lot of upside then.
And Ralph maybe this is this might be for you. If you took the earlier M&A.
A question I Wonder if you could characterize for us.
Yeah, I guess the the the baseline of the conventional wisdom is that when we see volatility in commodity prices, it's harder to get deals done because it's harder to get there is just less of a chance to get buyers expectations and sellers' expectations overlap, but I wonder if you could comment on whether youre seeing that.
And whether that's a dynamic more generally that.
That is valid in the kinds of deals you guys are trying to do.
I mean.
To an extent I mean, I would agree with that but I think that.
When you look at our average deal size into deals that we did in September.
Would that basically shows us again.
There is there is a lot of running room, a lot of deal flow that we look at.
Even when there is.
Volatility I think.
If gas prices are moving yes.
Hypothetically just use between $3 and $3 50, you know even if its whipsaw in $3 $4 whatever it may be that price, there's still the ability to go forward.
I'm pretty good opportunities, where sellers expectations are reasonable I think it's when gas prices get like we saw in spring right when you get substantially below.
$3 I think the minerals the mineral holders effectively go we know theres very little holding cost to us just waiting for a recovery in prices and then they choose not to not to transact.
You know, which is exactly what we experienced and we were patient and then we executed on a great set of deals in September but I think it continues to be true that for every.
For every dollar of acquisitions that we make we probably look and pass add an additional three to $4 worth of acquisitions.
Some of that is we don't like the <unk>.
Asset profile some of it is pricing some of it is a combination of both but where we sit here today, even with what you've seen in gas prices.
Over the last couple of weeks.
You know, it's you know.
To us it's still a buyer's market.
Got it thank you for that added detail.
Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Jeff Grant with Alliance Global Partners. Please proceed with your question.
Good morning, guys.
Hi, Justin on good morning.
The capital allocation question for you guys said that the dividend increase was nice to see.
As part of the.
Capital return program. So I'm wondering how you guys think about kind of the optimal balance of dividend growth and kind of the long term versus having sufficient capital to fund the acquisition pipeline and scaling the business, which is obviously still a core part of the business as well.
So I'll, let Ralph get into the specific detail of capital allocation, but I think at the highest level.
As we came into this year, we were working on the sale of some of our material non op working interest assets.
And we've been doing that over the last two or three years selling non op working interest assets and redeploying the proceeds into these two core areas on which were focused escape in the in the Haynesville and until we kind of got rid of those material assets, we were selling volumes and cash flow and redeploying into higher margin assets.
Which will be driving our volumes and cash flow in the coming years it was difficult for us.
To meaningfully allocate capital toward an increasing dividend, but now that we've.
Divested of a material amount of our non op working interest assets and we're looking into 2024, and our royalty volume growth there and it represents as Daniel alluded to.
90% or greater.
We feel a lot better about what our cash flow is going to be we're not going to be divesting of any material assets. So it gives us a whole lot more confidence and conviction around.
Allocating a higher portion of our free cash flow operating cash flow toward.
A dividend so I'm going to let Ralph it kind of give his thoughts around.
What we're doing there.
Yeah, I think Thats right I mean, I think it all is now that the transformation for lack of a better term rate of the company is complete.
There is a lot better visibility in terms of future cash flows and just as a reminder, right. The dividends our dividend policy has really been based on a fixed dividend right. So we want to make sure that that dividend is safe and sound regardless of commodity prices regardless of.
Whatever cycles, you may be going so.
Now did that their working interest is effectively out the door I think there is yeah. Its that much is that much easier clearly you know every quarter when.
When we discussed with the board.
The dividend.
One of the questions is you know do the kitchen, the acquisition to generate a high enough rate of return right, where it makes sense to deploy that capital towards acquisitions versus return of capital right and.
And it's a balance.
So this increase doesn't mean that the acquisition deal flow is good. It just means that we're again, we're trying to we're trying to find that balance.
But you know if the you know.
If much like in the spring right if the.
If the M&A market slows down for whatever reason right, we're not going to force it we're going to create more liquidity and pay down debt.
You know and consider again more return of capital.
Over time in that scenario as well if the acquisition market with good returns.
Aren't there so it's something that we think about and discuss with the board on a quarterly basis, we're very thorough we've been consistent and in the past and I think that's that's where we're going to keep doing going forward.
Great that makes a lot of sense I appreciate that and my follow up at the risk of being a dead horse with another acquisition question. Although nonetheless go to that topic. So it seems like during the quarter the acquisitions.
Pretty spot on with the transactions that you guys announced back in August So I guess it would seem to imply that the rest of the quarter was a bit quieter for you guys. The commentary on the call today seems very optimistic about deal flow and kind of future potential opportunities. So just wondering to kind of I guess reconcile those two thoughts is that just a function of.
You know kind of where things are in the deal flow funnel in terms of what's kind of.
Under discussions or just hoping to peel that onion back a little bit more to understand what's going on on the acquisition side.
Yeah.
There is there is an array of deals in various different stages right. Some that you know some have been closed since the quarter end somewhere under PSA. Some we're evaluating as we speak right and it all adds up to.
They're all in different stages, right and so none of them on their own by themselves are necessarily material and deserved sourcing their own press release.
But.
But I would say this quarter is not unlike prior you know not unlike the last quarter.
You know, it's you know we're seeing good activity and we're capitalizing on it.
And it certainly a better quarter on the M&A front on the acquisition front relative to what the spring time looks like is how I would characterize it as we get closer to the end of the year I am sure that will we will discuss that as a group in more detail.
Okay, great. Thanks, a lot of follow up to follow up on that I'm I'm encouraged.
Just here in the last week of closed.
I think it's three deals in the half a million to $800000 range.
And as Ralph said Theres no point in.
A press release on every one of those or just it doesn't it doesn't really.
Then do anything for us so I'm pleased with the activity and the and the stuff that's in the queue.
Alright, great no that makes a lot of sense. Thank you guys for the time.
Thanks Chip.
Thank you. Our next question comes from the line of Jonathan Schaffer with Northland Capital markets. Please proceed with your question.
Hey, guys. Thanks for taking the questions and congratulations on the results and the dividend raise.
I wanted to first ask.
I Wonder if this asked so with the dividend increase.
Mentioned it's.
Very serious commitment from you guys. It's intended to be fixed so you need to be certain you can underwrite that over a long period of time.
Was there.
So I guess, what I'm wondering is your decision to do the increase this quarter was it primarily just based on the legacy business before the 13th the $13 million and acquisitions and the ones you've done.
Since then.
That being accretive and positive in nature, and the solid economics and all of that behind that.
Was it would it could it be done an underwritten with just where it was before or.
Do you feel like you can do it now in part because of the strength of those acquisitions was or was it a combination of both just trying to understand if there's a relationship there.
So it's.
Yes, it's up.
Really as I alluded to a minute ago.
We had not done increased dividends.
Earlier, because we are divesting of non op working interest volumes and cash flow associated with material non op working interest assets today, our royalty volumes represent 90%. This time last year. It was about 65% to 70%. So we've sold off.
And we knew we were going to be selling those assets, so with that divestiture overhang.
Was hard to have conviction around allocating a certain percentage of our cash flow toward a dividend. When we knew we were going to be selling some of that cash flow, but now we've successfully a sold.
The non op working interest assets and be redeployed those proceeds through this year and some pretty high quality assets that we're pretty certain we can.
See through public data and what's going on on the ground that the wells we've bought into we're going to be completed kind of as we speak going into the December January timeframe, and theyre going to really be adding to our volumes and cash flows which gave us real conviction around between.
No longer having a divestiture overhang and good quality assets being developed as we speak to to increase the percent of cash flow allocated toward a dividend.
Rob do you want to add to that no.
No I think that's right. It's a balance it's hard to say you can't just you know.
It's not just one thing right. So it's a combination of all of those factors together.
I don't think its a good exercise to go back and say, what if something else that happened what would the dividend have been I'm sure.
So maybe to think through kind of the relationships and the linkages I think maybe I'll rephrase. It based on what Chad said, so it seems like it's more on those acquisitions were part of and I think you included this in the release.
That was part of an overall indication that you're returning into more of a growth orientation now that you've.
Almost complete you did the whopping and the swap out in the portfolio of working interest production for royalty production. Yeah that that's achievement allows you to then focus on.
Deploying capital in a way that that grows production and then in turn that's kind of how you and plan to be going forward or investing certain amount growing a certain amount of royalty production was while at the same time positions you to raise the dividend is that those.
Those linkages slow okay.
That's why we continue to highlight our royalty production volume growth because historically, we also had the non op working interest piece that combined made up our total corporate volumes and in Daniels notes today, we we highlighted the fact that our year over year corporate.
<unk> were down 9%, because we had sold a material amount of our non op working interest assets, but our royalty volume is continuing to grow and will now be the main story instead of having to reconcile royalty volume growth versus total corporate.
So that's it's the royalty volumes that has continued over the last three years compounded annual growth rate as we show in our best relation slide deck of over 20% and that's that's where the business is focused not not not non op working interest. So now that that's gone and we're focused on this 20 plus percent royalty volume growth.
We have real conviction around allocating.
Bigger piece of that cash flow from those volumes into a dividend.
Got it okay understood.
And then.
As a follow up.
This is sort of a little bit of just a housekeeping modeling question, but with the scoop, becoming a larger part of the production mix.
Should we be thinking about the mix of oil and natural gas as we head into 2024 and also the trend on transportation costs with.
The impact from the Haynesville. It should we should we expect transportation costs to keep falling.
On an mcf.
Mcf basis in 'twenty, four is or would you kind of at a new run rate here.
Donovan.
On the on the split between oil and gas right around that 80% because the even though the scoop is growing the haynesville is growing as well right. So.
In the Haynesville is a bigger piece today. So it doesn't have to grow as much to mitigate oil can grow but if the haynesville is growing at a faster clip than that then the scoop given its size right youll, probably plus or minus a couple of percentage points.
Youre going to be around that 80% split being natural gas and as far as your other questions on that on a per unit metric.
I think it's the same we're going to provide more granular.
Guidance.
As we get into.
Early 2024.
You know, but even in even in the Haynesville.
There is not.
Not every lease is a cost free lease right. We have some leases that are cost bearing leases right. So it's not going to go to zero right is it going to stabilize around where it is today or fluctuate a couple of a couple of percentage points, one way or the other depending on.
How many cost free leases versus cost bearing leases on any given quarter come online. Yeah. It's you know there's going to be a little bit of variability, but none of it is going to be.
None of it should be a drastic increase the decrease that you see from 2022 to 2023 is really just a reflection of having the mineral.
The minerals, having better economics than any of the working interest did right. The higher per unit metrics that you see in prior quarters were really associated with the working interest.
I hope that helps okay.
No it does and if I can squeeze in one last one on.
Just kind of zooming out at a more macro natural gas price supply demand level do you have any thoughts there.
The rig count has definitely come down and some of the gas focused basins, but at the same time.
We're still getting strong production in.
The oil rich basins and there is associated gas coming from that I mean, I think the EIA, even had like one of its daily blog.
Or something on that talking about.
Gee, we're getting we're getting these natural gas production increases in the Permian.
People aren't there drilling in the Permian to produce gas, they're going after it for the oil, but they get the gas with it so I.
Just do you have any thoughts and are there maybe regional differences to highlight.
If it depresses prices in the Permian at all.
How much of that would propagate to Henry hub or.
Places, where you sell your gas.
Well Yeah, you you saw it just about 10 days ago.
There was one weather forecast that flipped.
Sometime last week.
Natural gas prices they were up at $3 50.
Frontline.
Was that the like $3 50, maybe a little bit above that $3 55, and the weather forecast flip to a warmer.
And the prices collapse or two or three day trading period today, its down back down to right around that three I think $3. So a dramatic drop and it's all weather related when you look at the EIA storage data and it comes out this morning, I hadn't had a chance to look at my phone because of the call here what the what the storage number is today.
But.
Yet over the last three weeks I think it is the EIA storage numbers suggests that where supply and demand is tight.
Not enough we're short.
Short supply were it not for a warmer than normal.
14 day forecast.
What happens after that 14 day period and really when winter sets in in early December.
Who knows these days with whether it is a wildcard in Albania is a wildcard so I, it's hard for us to do.
Forget forecast what prices are going to be but.
To your question to your comment about there is more natural gas associated gas coming from the Permian, but it's later in 'twenty four there are several.
Kinder Morgan and energy transfer have a pipeline that's being built as we speak earlier this summer flaring out in the Permian Basin went back up to some of the highest flaring volumes in the history of the Permian Basin.
I had read some articles I thought that that.
The Railroad commission and even Exxonmobil and Chevron, we're trying to publicly shamed these operators into to stop the flaring practices from an environmental perspective, but because of the amount of wells being completed associated gas from those wells and no takeaway capacity they.
They were flaring.
Flaring the volume so it's.
It's hard to know exactly what the number is going to be once the Kinder Morgan energy transfer.
Line is in service.
But that'll be in mid to late 'twenty, four and Thats right when Exxon Mobil's LNG export facility comes in to service and then first quarter twenty-five simplest.
LNG export facility comes into service and so the timing of that associated gas coming from the Permian could probably keep the market balanced weather weather adjusted.
We have a normal winter.
Exit winter into spring at a normal kind of storage number.
The gas price should stay at $3 or above we have a warmer than normal winter for the rest of the winter.
All bets are off who knows.
Okay. That's very helpful. Thank you guys and congratulations again I'll take the rest of my questions offline.
Thanks, Thanks for being here.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Stevens for any final comments.
Again, I'd like to thank our employees and shareholders for their continued support I would also like to note that Ralph and I will continue to expand our investor marketing activities over the coming weeks and months through a series of non deal Roadshows and conference presentations aimed at expanding of this investor awareness, if you'd be interested in meeting please don't hesitate to reach out to us.
Well Ralph are the folks at <unk> IR, we look forward to hosting our next call in early March to discuss our full calendar 2023 year end results. Thank you have a good day.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.