Q4 2023 Magnolia Oil & Gas Corp Earnings Call
Good morning, everyone.
Andrea: Good morning, everyone. Thank you for participating in Magnolia Oil & Gas Corporation's fourth quarter 2023 earnings conference call. My name is Andrea, and I will be your moderator for today's call. At this time, all participants will be placed in a listen-only mode as our call is being recorded.
We're participating in Magnolia oil and gas Corporation's fourth quarter 2023 earnings conference call.
Andrea: My name is Andrea and I will be your moderator for today's call.
Speaker Change: At this time, all participants will be placed in a listen only mode. That's our call is being recorded.
Andrea: I will now turn the call over to Magnolia's management for their prepared remarks, which will be followed by a brief question and answer session. Please go ahead. Thank you, Andrea, and good morning, everyone.
Speaker Change: I will now turn the call over to Magnolia management for their prepared remarks, which will be followed by a brief question and answer session. Please go ahead.
Magnolia management: Thank you Andrea and good morning, everyone welcome to Magnolia oil and gas is fourth quarter earnings conference call.
Tom: Welcome to Magnolia Oil & Gas' fourth quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's president and chief executive officer, and Brian Corales, senior vice president and chief financial officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.
Magnolia management: Depending on the call today are Chris Sharp Rush, Magnolia is president and Chief Executive Officer, and Brian Corral Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks.
Magnolia management: And uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.
Magnolia management: This call information on risk factors that could cause results to differ is available on the company's annual report on Form 10-K filed with the SEC a full safe harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website you can download Magnolia is fourth quarter 2023, earning.
Tom: Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full safe harbor can be found on slide 2 of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's fourth-quarter 2023 earnings press release as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros. Thank you, Tom. And good morning, everyone.
Speaker Change: Our press release as well as the conference call slides from the investors section of the Companys website at Www Dot Magnolia oil and gas Dot Com I will now turn the call over to Mr. Chris Schott Rush.
Speaker Change: Thank you Tom and good morning, everyone. We appreciate you joining us today for a discussion of our fourth quarter and full year 2023 financial and operating results.
Christopher G. Stavros: We appreciate you joining us today for a discussion of our fourth quarter and full year 2023 financial and operating results. I plan to briefly speak to our results, which closed out a strong year for Magnolia and during which we took several actions to improve our overall business. We will also discuss our business model and our core principles in the context of some of last year's accomplishments and note how Magnolia stacks up compared to many other E&P companies on several key financial metrics. Lastly, I will provide an update on Magnolia's 2024 capital and operating plan, which follows the same principles on which the company was founded nearly six years ago. Brian will then review our fourth quarter and full year financial results in greater detail along with some additional first quarter guidance before we take your questions.
Chris Schott: To briefly speak to our ourselves, which closed out a strong year for Magnolia and during which we took several actions to improve our overall business.
Chris Schott: I will also discuss our business model and our core principles in the context of some of last year's accomplishments and note how magnolia stacks up compared to many other E&P companies on several key financial metrics.
Chris Schott: Lastly, I will provide an update on that going into 2024 capital operating plan, which follows the same principles on which the company was founded nearly six years ago.
Chris Schott: Brian will then review, our fourth quarter and full year financial results in greater detail along with some additional first quarter guidance before we take your questions.
Christopher G. Stavros: Starting on slide three of the investor presentation and looking at some of the highlights, Magnolia ended 2023 on a high note with fourth-quarter production volumes at 85.4 thousand barrels of oil equivalent per day, bringing full-year 2023 production to 82.3 thousand BOE per day. This represented year-over-year production growth of 16% for the fourth quarter and full-year 2023 volume growth of more than 9%.
Brian Corales: Starting on slide three of the Investor presentation, and looking at some of the highlights Magnolia ended 2023 on a high note with fourth quarter production volumes at 80, $485 4000 barrels of oil equivalent per day, bringing full year 2023 production to any to 3000 Boe per day.
Brian Corales: This represented year over year production growth of 16% for the fourth quarter and full year 2023 volume growth of more than 9%.
Christopher G. Stavros: Production at our gettings asset group 55% compared to the prior year fourth quarter reaching 63,000 BOE per day, which included oil production growth of 59%. Giddings production represented approximately 71% of overall magnolia volumes last year, and the Giddings area continues to see operating efficiency improvements in the field, such as fewer drilling days per well and realizing significant gains in stimulation stages per day. D&C Capital totaled $91 million for the quarter and $422 million for the year, representing 47% of adjusted EBITDA X for the year and leading to free cash flow generation of $413 million, or roughly 10% of our current enterprise value.
Production at our kitting SaaS had grown 55% compared to the prior year fourth quarter, reaching 63000 <unk> per day.
Brian Corales: Which included oil production growth of 59%.
Brian Corales: Giddings production represented approximately 71% of overall Magnolia volumes last year and the Giddings area continues to see operating efficiency improvements in the field such as fewer drilling days per well and realizing significant gains stimulation stages per day.
Brian Corales: D&C capital totaled $91 million for the quarter and $422 million for the year, representing 47% of adjusted EBITDAX for the year and leading to free cash flow generation of $413 million or roughly 10% of our current enterprise value.
Christopher G. Stavros: We return 74% of this free cash flow to shareholders through our dividend and share purchase programs, with the remaining allocated to our balance sheet, which helps support attractive bolt-on oil and gas property acquisitions geared toward improving the overall. Turning to slide 4, Magnolia's business model remains unique since it was devised in 2018 with the objective to create a highly investable, attractive E&P business that is enduring and focused on generating absolute per share value over the long term. As we have often expressed, Magnolia's primary objectives are to be the most efficient operator of best-in-class oil and gas assets, generating the highest returns on those assets while employing the least amount of capital for drilling and completing wells. Our high-quality asset base allows for a low reinvestment rate while still providing moderate growth for the business over time.
Brian Corales: We returned 74% of this free cash flow to shareholders through our share repurchase programs.
<unk> allocated to our balance sheet, which helps support attractive bolt on oil and gas property acquisitions geared toward improving the overall business.
Brian Corales: Turning to slide four Magnolia business model remains unique since it was devised in 2018, the objective to create a highly investable attractive E&P business that is enduring and focused on generating absolute per share value.
Brian Corales: Sure.
Brian Corales: As we have often expressed magnolia its primary objectives are to be the most efficient operator of best in class oil and gas assets generating the highest returns on those assets, while employing the least amount of capital for drilling and completing wells.
Brian Corales: Our high quality asset base allows for a low reinvestment rate, while still providing moderate growth for the business over time.
Christopher G. Stavros: This results in significant free cash flow generation, and we strive to return a significant portion of this to our shareholders in the form of share or purchase opportunities and a safe, sustainable, and growing dividend. Some of the excess cash may accrue to the balance sheet, helping us to opportunistically pursue attractive bolt-on oil and gas property acquisitions that improve the business, which helps to sustain our returns and enhance the dividend per share payout capacity. We continue to adhere to our core principles and believe this is a sound formula for creating long-term value for our shareholders.
Brian Corales: This results in significant free cash flow generation and we strive to return a significant portion of this to our shareholders in the form of share repurchases and a safe sustainable and growing dividend.
Brian Corales: Some of the excess cash may accrue to the balance sheet, helping us to opportunistically pursue bolt on attractive bolt on oil and gas property acquisitions that improve the business, which helped us sustain our returns and our cash and enhance the dividend per share payout capacity.
Brian Corales: We continue to adhere to our core principles and believe this sound formula for creating long term shareholder value for our shareholders.
Christopher G. Stavros: I'd like to spend a moment reviewing how this model has helped us achieve our goals over the past several years and as our operating program has shifted more to getting to assets. Slide 5 shows that Magnolia has had one of the lowest capital reinvestment rates compared to most other E&P companies while achieving a superior compound annual rate of growth in terms of production per share over the past three years. This is a powerful combination allowing us to maximize our free cash flow generation. Turning to slide 6, our corporate-level returns, or return on capital employed, continue to be some of the best in the upstream energy sector, highlighting our strategy of disciplined capital spending, including last year's success in reducing our well costs and the beneficial impact of our ongoing share repurchase.
Brian Corales: I'd like to spend a moment reviewing how this model has helped us achieve our goals over the past several years and as our operating program has shifted more to marketing asset.
Brian Corales: Five shows only has had one of the lowest capital reinvestment rates compared to most other E&P companies, while achieving a superior compound annual rate of growth in terms of production per share over the past three years.
Brian Corales: The powerful combination of allowing us to maximize our free cash flow generation.
Brian Corales: Turning to slide six our corporate level returns return on capital employed continues to be some of the best in the upstream energy sector, highlighting our strategy of disciplined capital spending, including last year's success in reducing our well cost and the beneficial impact of our ongoing share repurchases.
Christopher G. Stavros: Our cost reduction efforts in 2023 helped further support these returns as we were able to meaningfully grow our production per share with capital that was 17% less than what we had expected at the beginning of the year and 8% below full year 2022 levels. Two key elements of our business model are maintaining our low leverage and generating high operating margins. Slide 7 and 8 demonstrate that Magnolia is best in class when coupling one of the lowest leverage profiles in the industry with some of the highest operating margins.
Brian Corales: Our cost reduction efforts in 2023 help further support these returns as we were able to meaningfully grow our production our share the capital that was 17% less than what we had expected beginning at the year and 8% below full year 2022 levels.
Brian Corales: Two key elements of our business model, our maintaining our low leverage and generating high operating margins.
Brian Corales: Slides seven and eight demonstrate the Magnolia is best in class one coupling one of the lowest leverage profiles in the industry, but some of the highest operating margins. This is compared to E&P companies of similar size to Magnolia as well as much larger companies is a testament to our underlying asset quality and the characteristics of our overall strategy.
Brian Corales: Blaspheme.
Christopher G. Stavros: This is compared to E&P companies of similar size to Magnolia, as well as much larger companies, and is a testament to our underlying asset quality and the characteristics of our overall strategy and philosophy. Turning to our 2024 guidance, shown on slide 9, we expect this year's plan to deliver similarly strong results at current product prices. Magnolia's capital and operating plan is expected to deliver high single-digit percentage growth this year, or approximately 7 to 9 percent, on both an oil and a BOE basis, with a capital budget estimated in the range of $450 to $480 million.
Brian Corales: Turning to our 2000 2024 guidance shown on slide nine we expect this year's plan to deliver similarly strong herself current product prices Magnolia capital and operating plan is expected to deliver high single digit percentage growth this year or approximately 79%.
Brian Corales: Both on oil and on a BOE basis with a capital budget estimated in the range of $450 million to $480 million.
Brian Corales: This would result in a spending level below 55% of our EBITDAX for 2024, assuming current strip pricing for products.
Production for the first quarter is estimated to be approximately 84 to 85000 Boe per day.
Brian Corales: Production of Chinese downtime caused by severe winter weather conditions during a portion of January.
Christopher G. Stavros: This would result in a spending level below 55% of our EBITDAX for 2024, assuming current strict pricing for products. Total production for the first quarter is estimated to be approximately 84,000 to 85,000 BOE per day, which includes production during facilities downtime caused by severe winter weather conditions during a portion of mid-January. Despite the transitory weather impact last month, our production has fully recovered and is running normally, and we are confident in our full-year plan and guidance of high single-digit production growth for the year. We expect first quarter D&C capital expenditures to be approximately $130 million and anticipate this to be the highest quarterly rate of spending for the year.
Brian Corales: Despite the transitory weather impact last month, our production has fully recovered and is running normally and we are confident in our full year plan and guidance of high single digit production growth for the year.
Brian Corales: We expect this we expect first quarter D&C capital expenditures to be approximately $130 million and anticipate this to be the highest quarterly rate spending for the year.
Brian Corales: Most of the full year 2020 for production growth is expected to come from our development program and our Giddings area.
Brian Corales: And is the main driver and will receive approximately 80% of our overall capital and includes some activity on our recently acquired assets.
Brian Corales: We plan to operate two drilling rigs and one completion crew during 2024 and expect to maintain this level of activity throughout the year.
Brian Corales: While this activity level is so much last year's operating plan lower well costs combined with improved operating efficiencies and allow for more net wells to be drilled completed and turned in line, helping us support Bengalis overall high margin growth.
Christopher G. Stavros: Most of the full year 2024 production growth is expected to come from our development program in our Giddings area, and as the main driver, we'll receive approximately 80% of our overall capital and include some activity on our recently acquired assets. We plan to operate two drilling rigs and one completion crew during 2024 and expect to maintain this level of activity throughout the year. While this activity level is similar to last year's operating plan, lower well costs combined with improved operating efficiencies allow for more net wells to be drilled, completed, and turned in line, helping us support Magnolia's overall high margin growth. Most of the development activity will consist of multi-well development pads and gettings with a smaller amount of development planned in the Karnes area in addition to some appraisal wells. For this year's development activity in Giddings, we currently expect to drill multi-well pads with somewhat longer lateral lengths of approximately eight and a half thousand feet.
Brian Corales: Most of the development activity will consist of multi well development pads in giddings, when a smaller amount of development plans in the Karnes area. In addition to some appraisal wells.
Brian Corales: For this year's development activity in Giddings, we currently expect to drill multi well pads, but somewhat longer lateral lengths of approximately eight 5000.
Brian Corales: We continue to run a focused business and in an industry, where operational execution and financial discipline are essential.
Brian Corales: The actions, we took last year to reduce our well costs helped to significantly reduce our capital improve our operating margins and generate additional free cash flow.
Brian Corales: Together with the acquisitions completed last year. These accomplishments have strengthened our position into 2024, and we expect high single digit growth.
Brian Corales: Margin and high margin total company production growth with our oil volumes growing at similar rates.
A strong five year history of demonstrated operating and financial results and expect our business model to enhance our share value over time.
Brian Corales: I'll now turn the call over to Brian to provide more details on our fourth quarter 2023 financial operating results.
Brian: Thanks, Chris and good morning, everyone I'll review, some items from our fourth quarter and full year results and refer to the presentation found on our website.
Christopher G. Stavros: We continue to run a focused business in an industry where operational execution and financial discipline are essential. The actions we took last year to reduce our oil costs helped to significantly reduce our capital, improve our operating margins, and generate additional free cash flow. Together with the acquisitions completed last year, these accomplishments have strengthened our position into 2024 when we expect high single-digit growth, high margin, and high margin total company production growth with our oil volumes growing at similar rates. We have a strong five-year history of demonstrated operating financial results and expect our business model to enhance per share value over time. I'll now turn the call over to Brian to provide more details on our fourth quarter 2023 financial and operating results.
Brian: Also provide some additional guidance for the first quarter of 2024, and the remainder of the year before turning it over for questions.
Brian: You closed out 2023 on a high note as we continue to execute on our business model during the fourth quarter. We generated total net income attributable to class a common stock of 98 million with total adjusted net income of 108 million or <unk> 52 cents per diluted share our adjusted EBITDAX for the quarter was $240 million with total capital associated.
Brian: We're drilling completions and associated facilities of $91 million or just 38% of our adjusted EBITDAX and below our guidance.
Brian: For the full year adjusted EBITDAX was 899 billion with D&C capital, representing 47% of EBITDAX.
Brian: Fourth quarter production volumes grew 16% year over year to 85.4 thousand barrels of oil equivalent per day for the full year production volumes grew 9% to 82 3000 barrels of oil equivalent per day.
Brian: During the year, we repurchased a total of $9 6 million shares and our diluted share count fell by 5% year over year.
Christopher G. Stavros: Thanks, Chris, and good morning, everyone. I'll review some items from our fourth quarter and pull your results and refer to the presentation found on our website, and also provide some additional guidance for the first quarter of 2024 and the remainder of the year before turning it over for questions. Magnolia closed out 2023 on a high note as we continue to execute on our business model.
Brian: At the annual cash flow water waterfall chart on slide 11.
Brian: We started the year with $675 million of cash cash flow from operations before changes in working capital was $872 million with working capital changes and other small items impacting cash by $59 million during the year, we paid dividends of $102 million and allocated 205 million towards share repurchases. We added 300.
Brian: $55 million of bolt on acquisitions, primarily in Giddings and spent $425 million on D&C.
Brian Corales: During the fourth quarter, we generated total net income attributable to Class A common stock of $98 million, with total adjusted net income of $108 million, or $0.52 per diluted share. Our adjusted EBITDAX for the quarter was $240 million, with total capital associated with drilling, completions, and associated facilities of $91 million, or just 38% of our adjusted EBITDAX and below our guidance. For the full year, adjusted EBITDAX was $899 million, with DNC Capital representing 47% of EBITDAX. Fourth quarter production volumes grew 16% year over year to 85.4 thousand barrels of oil equivalent per day. For the full year, production volumes grew 9% to 82.3 thousand barrels of oil equivalent per day.
Brian: D&C and facilities capital and we ended the year with $401 billion of cash.
Brian: Looking at Slide 12. This chart illustrates the progress in reducing our total shares since we began our repurchase program in the second half of 2019 since that time, we've repurchased 61 9 million shares leading to a change in diluted shares outstanding of over 20% net of issuances. This is one of the largest decreases in the <unk>.
Brian: Extreme energy space, but the majority of the companies increasingly increasing their diluted shares outstanding over the past five years.
Brian: Magnolia is weighted average fully diluted share count declined by more than 2 million shares sequentially, averaging $206 5 million shares during the fourth quarter, we have $9 2 million shares remaining under our current share repurchase authorization, which are specifically directed towards repurchasing class a shares in the open market.
Turning to slide 13, our dividend has grown substantially over the past few years, including a 13% increase announced earlier this year to 13 <unk> per share on a quarterly basis. Our next quarterly dividend is payable on March 1st and provides an annualized dividend payout rate of 52 cents per share.
Brian Corales: During the year, we repurchased a total of 9.6 million shares, and our diluted share count fell by 5% year-over-year. Looking at the annual cash flow water waterfall chart on slide 11, we started the year with $675 million of cash. Cash flow from operations before changes in working capital was $872 million, with working capital changes and other small items impacting cash by $59 million.
Our plan for annualized dividend growth is an important part of Magnolia is investment proposition and supported by our overall strategy of achieving moderate annual production growth, reducing our outstanding shares and increasing the dividend per share payout capacity of the company.
Brian: You'll have the benefit of a very strong balance sheet and we ended the quarter with zero net debt and $401 million of cash on the balance sheet, our $400 million of principal that is reflected in our senior notes, which do not mature until 2026, including our fourth quarter, ending cash balance of $401 million and our undrawn $450 million revolving credit facility.
Brian Corales: During the year, we paid dividends of $102 million and allocated $205 million toward share repurchases. We added $355 million in bolt-on acquisitions, primarily in Giddings, and spent $425 million on DNC and facilities capital, and we ended the year with $401 million in cash. Looking at slide 12, this chart illustrates the progress in reducing our total shares since we began our repurchase program in the second half of 2019. Since that time, we have repurchased 61.9 million shares, leading to a change in diluted shares outstanding of over 20% net of issuance. This is one of the largest decreases in the upstream energy space, but the majority of the companies increasing their diluted share count outstanding over the past five years. Magnolia's weighted average fully diluted share count declined by more than 2 million shares sequentially, averaging 206.5 million shares during the fourth quarter.
Brian: Our total liquidity is approximately $850 million, our condensed balance sheet as of December 31st as shown on slide 14.
Turning to slide 15, and looking at our per unit cash costs and operating income margins total revenue per Boe decline to the substantial.
Brian: Declined due to the substantial decrease in product prices, and especially natural gas prices when compared to fourth quarter of 2022, our total adjusted cash operating costs, including G&A were $10 55 per Boe.
Brian: In the fourth quarter of 2023, a decrease of $1 60 per Boe or 13% compared to a year ago levels. The year over year decrease was primarily due to lower production taxes and G. P N T.
Brian: Our operating income margin for the fourth quarter was $17 56 per Boe or.
Brian: Or 43% of our total revenue the year over year decrease in pre tax operating margins driven by the significant decrease in commodity prices.
Brian Corales: We have 9.2 million shares remaining under our current share repurchase authorization, which is specifically directed toward repurchasing Class A shares in the open market. Turning to slide 13, our dividend has grown substantially over the past few years, including a 13% increase announced earlier this year to $0.13 per share on a quarterly basis. Our next quarterly dividend is payable on March 1st and provides an annualized dividend payout rate of $0.52 per share. Our plan for annualized dividend growth is an important part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth, reducing our outstanding shares, and increasing the dividend per share payout capacity of the company. Magnolia has the benefit of a very strong balance sheet, and we ended the quarter with zero net debt and $401 million of cash on the balance sheet.
Brian: On slide 16, but I know you had a very successful organic drilling program. During last year. A total proved developed reserves at year end 2023 were 135 million barrels of oil equivalent excluding acquisitions sales and price related revisions. The company added 44 million barrels of oil equivalent of proved developed.
Brian: Reserves during the year total drilling and completion capital was 422 million in 2023, resulting in organic proved developed F&D cost of $9 60.
Brian: Per Boe and reflective of our drilling program. Our organic proved developed F&D cost declined by approximately 40% compared to last year as a result of our well cost reduction efforts and strong well results.
Turning to guidance, we expect our 2020 for D&C capital spending to be in the range of $450 million to $480 million, which includes an estimate of non operated capital that is about the same as 2023 levels. We expect first quarter D&C capital expenditures to be approximately $130 million and expect this to be the highest quarter.
Brian Corales: Our $400 million of principal debt is reflected in our senior notes, which do not mature until 2026. Including our fourth quarter ending cash balance of $401 million and our undrawn $450 million revolving credit facility, our total liquidity is approximately $850 million. Our condensed balance sheet as of December 31st is shown on Spot 4. Turn to slide 15 and looking at our per-unit cash costs and operating income margins, total revenue per BOE declined due to the substantial decrease in product prices and especially natural gas prices when compared to the fourth quarter of 2020. Our total adjusted cash operating costs, including G&A, were $10.55 per BOE in the fourth quarter of 2023, a decrease of $1.60 per BOE, or 13% compared to the year-ago level. The year-over-year decrease was primarily due to lower production taxes and GP&T. Our operating income margin for the fourth quarter was $17.56 per BOE, or 43% of our total revenue. The year-over-year decrease in pre-tax operating margins was driven by a significant decrease in commodity prices.
Brian: The rate of spending for the year totaled.
Brian: Total production for the first quarter is estimated to be approximately 84 to 85000 barrels equivalent a day, which incorporates the impact of production facilities downtime caused by severe winter weather conditions in January.
Brian: Despite this impact our production has fully recovered and we are maintaining our guidance for high single digit production growth in 2020 for most of this growth is expected to come from our development program and our Giddings area oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston.
Brian: In the age and Magnolia remains completely unhedged for all of its oil and natural gas production.
Brian: The fully diluted share count for the first quarter of 2024 is expected to be approximately 205 million shares which is 4% lower than first quarter of 2023 levels. We expect our effective tax rate to be approximately 21% with most of this being deferred or cash tax rate is expected to be between six and 9% for 2024.
Speaker Change: We are now ready to take your questions.
Speaker Change: Yes.
Speaker Change: We will now begin the question and answer session.
Speaker Change: I ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the key.
Speaker Change: To withdraw your question. Please press Star then two.
Brian Corales: On slide 16, Magnolia had a very successful organic drilling program last year. The total approved developed reserves at year-end 2023 were 135 million barrels of oil equivalent. Excluding acquisitions, sales, and price-related revisions, the company added 44 million barrels of oil equivalent approved developed reserves during the year. Total drilling completion capital was $422,000,020 in 2023, resulting in organic approved developed F&D costs of $9.60 per BOE and reflective of our drilling program. Our organic-proof developed F&D costs declined by approximately 40% compared to last year as a result of our well cost reduction efforts and strong well results. Turning to guidance, we expect our 2024 D&C capital spending to be in the range of $450 to $480 million, which includes an estimate of non-operating capital that is about the same as 2023 levels. We expect first quarter D&C capital expenditures to be approximately $130 million and expect this to be the highest quarterly rate of spending for the year.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: And our first question comes from Neal Dingmann of Truest. Please go ahead.
Neal Dingmann: Good morning, Chris Dream, and our guys. Another nice grid and guide my first question's on Gideon's, specifically you all talk about the recent acquisitions and how these assets are are looking you'll definitely realizing its early days and then maybe Chris anything we should be thinking about on the development plans specifically there.
Chris: Yeah. Thanks, good morning.
Chris: [noise] Giddings is is one of those fields, Oh feels that it's sort of just keeps getting better.
Chris: And.
Speaker Change: My level of confidence.
Speaker Change: Now.
Speaker Change: Versus say five six years ago is quite a bit better.
Speaker Change: And in a lot of that is is born out of the results, obviously and certainly.
Speaker Change: You know, what we've learned and what we've been able to do with the field.
Speaker Change: So sub surface and.
Speaker Change: As I said, it's one of those one of those fields that.
Speaker Change: You know, where where you it's gone through different phases of its life.
Speaker Change: The last several decades, and we happened to get involved.
Speaker Change: Oh really prior to it going through this latest phase and utilizing modern frac techniques and design.
Brian Corales: Total production for the first quarter is estimated to be approximately 84,000 to 85,000 barrels of equivalent daily, which incorporates the impact of production and facilities downtime caused by severe winter weather conditions in January. Despite this impact, our production has fully recovered, and we are maintaining our guidance for high single-digit production growth in 2024. Most of this growth is expected to come from our development program in our Giddings area. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston, or MEH, and Magnolia remains completely unhedged for all of its oil and natural gas production. The fully diluted share count for the first quarter of 2024 is expected to be approximately 205 million shares, which is 4% lower than first quarter 2023 levels. We expect our effective tax rate to be approximately 21%, with most of this being deferred. Our cash tax rate is expected to be between 6% and 9% in 2023.
Speaker Change: So.
You know where this is headed is you know we've we've got a sizable position more than half a million acres.
Speaker Change: And we've done some recent acquisitions and I think that's improved our position and will help us learn some more there.
Speaker Change: Some gas your areas of giddings or some oil your areas of giddings, but I think the proof is in the pudding in terms of the results having been born out when we picked it up with the original acquisition that the field and the asset was producing maybe.
Speaker Change: Maybe 10000, a day equivalent or so you know as I said, it's producing more than 60000 a day now.
Speaker Change: And that will continue to grow and this is really what.
Speaker Change: What the you know the returns.
Speaker Change: The quality returns that we've seen in the business.
Speaker Change: <unk> are really you know in many cases, a function of the outcome of giddings, So where does it go.
Speaker Change: You know frankly, I think there's more for us to go after.
Speaker Change: Here and there I mean, some of them will be a little bit smaller or some things might be a little bit larger like you know on similar terms. So what we did or size, what we did back in <unk>.
Speaker Change: The fourth quarter of last year I will just have to see I can't tell you that we'll go after everything or anything and everything but you know, we'll we'll go after some things and you know we're starting to integrate the assets that we recently acquired.
Operator: We are now ready to take your questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing. To withdraw your question, please press star then 2.
Speaker Change: Early days look good. It's this particular as it happens to be an update oil here.
Speaker Change: The wells that we plan to drill our shallower several thousand feet shallower as I said, a little bit oily or what the economics broadly you know quite similar too to giddings as a whole overall, so I remain optimistic about our prospects going forward for the feed.
Operator: At this time, we will pause momentarily to assemble the roster, and our first question comes from Neal Dingmann of Truisk. Please go ahead. Morning, Chris and team, and guys, another nice printing guide.
Christopher G. Stavros: My first question is about Giddings. Specifically, can you all talk about the recent Giddings acquisitions and how these assets are looking, you know, definitely in its early days, and then maybe, Chris, anything we should be thinking about on the development plan specifically there? Yeah, thanks, Neal. Good morning.
Speaker Change: <unk> and what it's going to mean to Magnolia going forward.
Speaker Change: Yeah definitely loved the footprint, there and maybe following up a little bit with getting noticeable as you pointed out the operating margins are certainly notable and I'm. Just wondering you know when you look at the expanded getting results I mean is that potentially and you know well that would even lead to you think even lower reinvestment rates, but certain.
Christopher G. Stavros: You know, getting it is one of those fields, old fields, that sort of just keeps getting better. You know, my level of confidence. Now!
Christopher G. Stavros: Compared with, say, five, six years ago, it's quite a bit better, and a lot of that is born out of the results, obviously, and certainly, what we've learned and what we've been able to do with the field. So, you know, the subsurface and, you know, as I said, it's one of those fields that, You know, where you it's gone gone through different phases of its life over the last several decades. And, you know, we happened to get involved, really prior to it going through this latest phase in utilizing modern frack techniques and design. So, um... Where this is headed is, you know, we've got a sizable position, more than half a million acres, and we've done some recent acquisitions, and I think that's improved our position and will help us learn some more. There are some gassier areas of getting, there are some oilier areas of getting, but I think the proof is in the pudding in terms of the results having been borne out. When we picked it up with the original acquisition, the field and the asset were producing maybe $10,000 a day equivalent or so.
Speaker Change: Notable how.
Speaker Change: You know how good your reinvestment rate and as you highlighted the operating margin I'm just wondering.
Speaker Change: Baked on maybe a higher gideon's plan could we see even potential increases in it.
Speaker Change: Yes, it's it's a that's a tough one I mean, it I think the results are pretty good over you know three year five year type period.
Speaker Change: And if you want to say, it's almost through a cycle if you will.
Speaker Change: I don't think it's going to be meaningfully different I mean, there might be some things around the edges as we as we learn more.
Speaker Change: But I think the outcome if I had to look out I think the outcome is not gonna be meaningfully different which I will take that you know sort of any day of the week.
Speaker Change: Absolutely. Thank you all next quarter.
Yeah.
Speaker Change: The next question comes from Leo Mariani of Cam Partners. Please go ahead.
Leo Mariani: Hi, guys I was hoping you could provide maybe a little bit more color on the increased activity in 2024, I think in the press release, you guys alluded. The fact that be a you know some more wells this year or is there any way to quantify that is it you know kind of five or six wells in <unk>.
Leo Mariani: Kind of any detail around.
Leo Mariani: Any of the split here or is it primarily more of a development drilling program. You did mentioned there would be some appraisals is that a fairly similar appraisal split.
Christopher G. Stavros: As I said, it's producing more than $60,000 a day now, and that will continue to grow. The quality returns that we've seen in the business are really, you know, in many cases, a function of the outcome of getting. So where does it go?
Leo Mariani: As last year, and I guess, there's going to be some drilling on the newly acquired acquisition from the fourth quarter or do you. All also consider that kind of an appraisal drilling and is it just a handful of wells any color around the kind of complexion of the program this year versus last would be helpful.
Christopher G. Stavros: You know, frankly, I think there's more for us to go after here and there. I mean, some of them will be a little bit smaller, some things might be a little bit larger, like, you know, in similar terms to what we did or the size of what we did back in the fourth quarter of last year. We'll just have to see.
Speaker Change: Yeah, Thanks, Leo I think.
Speaker Change: Yes.
Speaker Change: Repeated some of what I said and answered your own question in some ways, but anyway, yeah. So well, we'll probably drill maybe a little more than a half dozen additional wells you know.
Speaker Change: This year versus last year net wells.
Christopher G. Stavros: I can't tell you that we'll go after everything or anything and everything, but we'll go after some things. We're starting to integrate the assets that we recently acquired. The early days look good.
Speaker Change: Yeah. Most of that is you know.
Speaker Change: Our part of it anyway is.
Speaker Change: Some of the new assets that'll be broad or integrated into the plan. Some of it is just you know the ongoing development at Giddings and.
Christopher G. Stavros: This particular asset happens to be a bit oilier. The wells that we plan to drill are shallower, several thousand feet shallower, a little bit oilier, with the economics broadly quite similar to Giddings as a whole overall. I remain really optimistic about our prospects going forward for the field and what it's going to mean to Magnolia going forward. Yeah, definitely love the footprint there.
Speaker Change: Keep in mind that that the average lateral length, that's a little longer in this year's program compared to last year I would tell you also that the working interest in the wells is also a little bit higher.
Speaker Change: As far as appraisal goes no I wouldnt consider.
Speaker Change: You know the drilling on the new assets as appraisal.
Speaker Change: In Giddings Ah, but there may be depending on product prices. There may be some appraisal drilling in giddings just to sort of see if we can learn a little bit more around other areas. So we'll see how that goes.
Christopher G. Stavros: And maybe following up a little bit on getting, you notice, as you pointed out, the operating margins are certainly notable. And I'm just wondering, when you look at the expanded reinvestment results, is that potentially, and will that even lead to, do you think even lower reinvestment rates? It's certainly notable how, you know, how good your reinvestment rate and, as you highlighted, the operating margin. I'm just wondering, based on a higher Giddings plan, could we see potential increases in this? Yeah, that's a tough one.
Speaker Change: And so that's that's by and large you know some of the Colorado I would tell you that the current program will be.
Speaker Change: Fairly similar to what it had been not really very different.
Speaker Change: Italy.
Speaker Change: Okay. That's that's helpful. And then just do you have any color you might provide on a few of the big picture expense items, I think that perhaps the new oily asset had a little you know kind of higher cost any kind of you know range and all I can kind of throw out there L. O. He's going to continue to tick up a little bit and maybe DD&A.
Christopher G. Stavros: I mean, I think the results are pretty good over, you know, a three-year, five-year type period. And if you want to say it's almost through a cycle, if you will, I don't think it's going to be meaningfully different. I mean, there might be some things around the edges as we learn more, but I think the outcome, if I had to look out, I think the outcome is not going to be meaningfully different, which I would take, you know, sort of any day of the week. Absolutely. Thank you all. The next question comes from Leo Mariani of MKM Partners. Please go ahead. Hi guys.
Speaker Change: And it may be G&A is not not really changed anything you can have high level on some of those kind of key cost items.
Speaker Change: Yeah sure well the the new assets.
Speaker Change: Especially the latter acquisition that we did in giddings, considering that it is or the or in nature.
Yeah, there is a little bit more in the way of L. O. We as would be common or typical and as we're also sort of bringing it up to Magnolia standards. If you will.
Leo Mariani: I was hoping you could provide maybe a little bit more color on the increased activity in 2024. I think in the press release, you guys alluded to the fact that B, you know, some more wells this year. You know, is there any way to quantify that?
Speaker Change: You know, where where owners of the assets where the prior folks might've been viewed as more renters of the assets. So you know there's some things that we need to do or probably will do to bring it up to our standards.
Christopher G. Stavros: Is it, you know, kind of five or six wells and just kind of any detail around any of the splits here? Or is it primarily more of a development drilling program? You did mention there would be some appraisals. Is it a fairly similar appraisal split versus last year? And I guess there's going to be some drilling on the newly acquired acquisition from the fourth quarter. Do you also consider that kind of appraisal drilling? And is it just a handful of wells? Any color around the kind of complexion of the program this year versus last would be helpful.
Speaker Change: However, I will tell you that you know my my choice and my my view is that we're going to pursue sort of a program to focus a little bit more on L. O N E.
Speaker Change: Ah broadly through the year ought to try to get that down a bit so.
Speaker Change: As we transition with new asset into the first quarter, you might see a little bit more in terms of bump in L. O. We not very meaningful frankly, but a little bit and then my my hope and view is that you know we're going to try to attack this and manage it.
Christopher G. Stavros: Yeah, thanks, Leo. I think you repeated some of what I said and answered your own question in some ways. But anyway, yeah, so we'll probably drill maybe a little more than a half dozen additional wells this year versus last year, net wells. You know, most of that is, you know, or part of it anyway is... Some of the new assets that will be brought or integrated into the plan. Some is just, you know, the ongoing development and getting... Class B We'll be doing some diesel drilling and gating to see if we can learn a little bit more about other areas, so we'll see how that goes. So that's, by and large, some of the color I would tell you. The current program will be fairly similar to what it was, not really very different. Channel.
To the point, where we could see some decline later into the year.
Speaker Change: Yeah.
Speaker Change: Okay. No that's helpful and I guess just anything on any of the other cost is the G&A per barrel was still pretty flat and if there's any impact on G. P. N T from a new app that either or is that pretty pretty ratably flat right now.
Speaker Change: Not really I mean, yeah, you know G. P. N C actually I think we're doing a pretty good job, there and and you know well, we'll see how that goes I'll just say, we're doing a good job around that that G&A I, you know not going to change very much frankly at all not meaningfully.
Speaker Change: On a per barrel basis.
Yep.
Speaker Change: Hey, Thanks, guys.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Charles Meade of Johnson Rice. Please go ahead.
Good morning, Chris and Brian and the rest of the liabilities team there.
Speaker Change:
Christopher G. Stavros: That's helpful. Do you have any color you might provide on a few of the big picture expense items? I think that perhaps the new oil asset had a little higher cost. Any kind of range at all you can throw out there if LOE is going to continue to tick up a little bit and maybe DDNA and maybe GNA have not really changed? Is there anything you can have a high level on some of those key cost items?
Charles Meade: Chris I I see.
Charles Meade: At risk of frustrating you I'm going to I'm going to ask one more question about the about your activity on those recently acquired that's all right. That's.
Speaker Change: That's all right you wouldn't be the first ones [laughter], well, maybe it'll be the best.
Speaker Change: I wonder it presumably I think you you indicated actually that that you guys had a slightly different view of that asset or maybe maybe you. You thought you had a differential insight around that asset and so I'm curious.
Christopher G. Stavros: Yeah, sure. Well, the new assets, especially the ladder acquisition that we did in Giddings, considering that it is oilier in nature, Yeah, there is a little bit more in the way of LOE than would be, you know, common or typical. And we're also sort of bringing it up to Magnolia standards, if you will. We're owners of the assets, where the prior folks might have been viewed as more renters of the assets.
Speaker Change: If you could tell us what for the activity you have maybe you just can be characterized the number of wells that you're going to that you're going to drill the number the pad you're going to do on that new with a newly acquired asset and if there's any.
Christopher G. Stavros: So, you know, there are some things that we need to do or probably will do to bring it up to our standards. However, I will tell you that, you know, my choice and my view is that we're going to pursue sort of a program to focus a little bit more on LOE broadly through the year to try to get that down a bit. As we transition with the new asset into the first quarter, you might see a little bit more in terms of a bump in LOE, not very meaningful, frankly, but a little bit. And then my hope and view is that, you know, we're going to try to attack this and manage it to the point where we could see some decline later in the year. Okay, now that's helpful. And I guess just anything on any other costs?
Speaker Change: Any aspect would be well designed that's gonna test, perhaps some of those differentiated ideas that you have it in which case, what's good about a timeline for any results or update there.
Speaker Change: Yeah. Thanks, Charles It's you know.
Speaker Change: It's a little early days to be too granular specific around that.
Speaker Change: You know, how we're going to drill the well or wells there will be a handful of wells that will be drilled.
Speaker Change: Later this year, we'll have some results that probably you know through some of this data. These datasets you will be able to see over time.
Speaker Change: I I I, just don't know, where we're still sort of studying it and looking at you know prior results to see how this how its gone.
Christopher G. Stavros: Is the G&A per barrel still pretty flat? I don't know if there's any impact on GP&T from the new asset either. Is that pretty flat, too?
Speaker Change: We may make some smallish modest changes going forward, but.
Christopher G. Stavros: Not really. I mean, you know, GP&T, actually. I think we're doing a pretty good job there and, You know, we'll see how that goes. I'll just say we're doing a good job around that. GNA, I'm not going to change very much, frankly, at all.
Speaker Change: Were not quite frankly, where these are these are going to be probably more single wells frankly.
Speaker Change: At this stage, so or where we're just not quite there yet you know frankly, we yeah. We closed on the deal you know all about three months ago. So we're still integrating it and devising it developing it folding it into the plan. So it's still somewhat early days.
Christopher G. Stavros: Not meaningfully on a per barrel basis. Yep. Okay. Thanks, guys. Okay, thanks. The next question comes from Charles Mead of Johnson Rice. Please go ahead. Good morning, Chris and Brian and the rest of Magnolia's team there.
Speaker Change: Okay, well, thanks for that detail and then a second question. This is about excuse me up.
Charles Mead: Chris, at risk of frustrating you, I'm going to ask one more question about your activity on this. That's all right. That's all right. You wouldn't be the first one.
Speaker Change: Uh Huh A&D in the Eagle Ford Eagle Ford more broadly how do you how would you.
Speaker Change: Characterize the opportunity set for Magnolia and how much of your attention are you spending on looking at opportunities right around giddings and how much of it is directed to you know the larger.
Christopher G. Stavros: Well, maybe I'll be the best. Presumably, I think you actually indicated that you guys had a slightly different view of that asset, or maybe you thought you had a Differential Insight on that asset. And so I'm curious. If you could tell us, for the activity you have, maybe just kind of characterize the number of wells that you're going to drill and the number of pads you're going to drill on that. Newly Acquired Asset, and if there's any... Any aspect can be well-designed that's going to test, perhaps, some of those differentiated ideas that you have. In which case, what's the kind of time? Yeah, thanks, Charles.
Speaker Change: Eagle Ford and also talk trend across Texas.
Speaker Change: Yeah, It's a fair question.
Speaker Change: You know a.
Speaker Change: Percentage of my time.
Speaker Change: You know, it's a pretty pretty meaningful I mean, because it's there's a lot of things out there and again as I said earlier much of this is borne out of our own experiences and knowledge and as we gain further understanding of.
Speaker Change: The wells that we drill and Directionally, where we want to go and what you know what what excites us what what is more attractive for us and I've said this to folks before you know at the end of the day.
Christopher G. Stavros: You know, it's a little early days to be too granular specific around the, you know, how we're going to drill the well or wells. There will be a handful of wells that will be drilled. We will have some results later this year that you will be able to see over time. I just don't know, you know; we're still sort of studying it and looking at prior results to see how this, how it's gone. We may make some mistakes.
Speaker Change: Where we're trying to and maybe this is why we're not overly open about what our plans are but we're trying to build a little bit of a mosaic around the asset and.
Speaker Change: Fill in and some of the blanks.
Speaker Change: And improve the business based on some of the quality areas that we see so we won't go after everything it's not like I say well you know.
Christopher G. Stavros: Smallish, modest changes going forward, but we're not at the point, frankly, where these are probably going to be more single wells, frankly, at this stage. So we're just not quite there yet. Frankly, we closed on the deal about three months ago, so we're still integrating it and devising it, developing it, folding it into the plan. So it's still somewhat early days. Okay. Well, thanks for that detail.
Speaker Change: I would like to own all the acreage everywhere.
I am not not that.
Speaker Change: But there are some areas that look interesting and will help us and will help the business.
Speaker Change: Where I can see this you know enhancing the runway if you will and provide more sustainability for the business over time.
Speaker Change: So I think the opportunity set is reasonably good.
Speaker Change: Alright, thanks for that.
Speaker Change: Sure.
The next question comes from Oliver Huang of T. P. H N. Cao Please go ahead.
Christopher G. Stavros: And then a second question. This is about, excuse me, and D and the Eagle Ford more broadly. How would you characterize the opportunity set for Magnolia and how much of your Spending is on looking at opportunities right around Giddings and how much of it is directed to the larger, Yeah, it's a fair question. You know, a percentage of my time, you know, it's pretty, you know, pretty meaningful. I mean, because there's a lot of things out there.
Good morning, Chris and Brian and thanks for taking my questions.
Oliver Huang: Just wanted to hit on the 'twenty 'twenty four outlook really quick I think you all did a great job last year and being able to exceed our initial expectations.
Oliver Huang: Capex of 17% lower for nearly in line production volumes and I know last year is probably a unique year just kind of given the misalignment to start the year on service costs, but I was kind of look forward into 2024, what are some of the key levers or upside catalysts that you all foresee where I'm most excited about that could drive better than expected capital.
Christopher G. Stavros: And again, as I said earlier, much of this is born out of our own experiences and knowledge. And as we gain further understanding of the wells that we drill and directionally where we want to go and what, you know, what excites us, what, what is more attractive for us. And I said this to folks before, you know, at the end of the day. We're trying to, and maybe this is why we're not, you know, overly open about what our plans are, but we're trying to build a little bit of a mosaic around the asset and, you know, fill in some of the blanks and other properties where I can see this, you know, enhancing the runway, if you will, and provide So I think the opportunity set is reasonably good. All right, thanks a lot.
Oliver Huang: And also any sort of color on what drives the lower end higher end of the Capex guidance range would be helpful as well.
Oliver Huang: Yeah.
Speaker Change: Thanks, Oliver I, you know I don't I don't know how how much of a disconnect there was but.
Speaker Change: You know we got after this early.
Speaker Change: And I credit our teams both on the on the supply chain side and on the operation side drilling completions and working with everyone to make it happen.
Speaker Change: But it didn't just happen it took a lot of work you know talking with the vendors and you know.
Speaker Change: Creating some linkage between us and them as being true partners and we did benefit from some of the.
Speaker Change: The weakness and.
Oliver Hong: Sure. The next question comes from Oliver Hong of TPH & Co. Please go ahead.
Speaker Change: Large gas.
Speaker Change: Gasior fields are to the north.
Christopher G. Stavros: Good morning, Chris and Brian, and thanks for taking my question. I just wanted to hit on the 2024 outlook really quick. I think you all did a great job last year in being able to exceed initial expectations, and I know last year is probably. They kind of look forward into 2024. What are some of the key levers?
Speaker Change: East of Us.
Speaker Change: Where you know activity was slowing up and we saw some benefit from that you know the proximity to us.
Speaker Change: So, but it did take a lot of work in terms of what's left you know we've locked in.
Speaker Change: Our costs are for the certainly for the first half of the year.
Speaker Change: So I'm very comfortable with where things are headed in the first half of the ear in terms of our outlook.
Christopher G. Stavros: or are most excited about that could drive better, and also any sort of color on what drives the lower and higher. Thanks, Oliver. You know, I don't I don't know how much of a disconnect there was, but, you know, we got after this early. I credit our teams, both on the supply chain side and on the operations side, drilling completions and working with everyone to make it happen. But it didn't just happen; it took a lot of work, you know, talking with the vendors and, you know, creating some linkage between us and them as being true partners. And we did benefit from some of the larger, you know, gassier fields to the north and east of us where, you know, activity was slowing down, and we saw some benefit from that, you know, proximity to us.
Speaker Change: For the second half of the year. It doesn't seem to me is that as if activity's just gonna Soaraway higher.
Speaker Change: In fact, you know maybe you sort of see things you know flat to a little bit lower softer.
Speaker Change: Where our gas prices are it's not not all that pleasant.
Speaker Change: And so you know, we'll just have to see it it may provide us with a little bit of wiggle room, you know for the back half of the year.
Speaker Change: But generally.
Speaker Change: We feel pretty good on the.
Speaker Change: Specific areas or items, you know, we we did a terrific job around efficiencies last year, especially on the on the completion side and completion stages per day.
Speaker Change: I I'd like to think that we could.
Speaker Change: See some improvements on.
Speaker Change: On the drilling side and we'll work towards that.
With some hopefully some efficiencies and and maybe some something on the cost side as well, but we'll see.
Christopher G. Stavros: So, but it did take a lot of work, you know, what we've locked in on our costs for the, shortly for the first half of the year. So I'm very comfortable with where things are headed in the first half of the year in terms of our outlook. You know, for the second half of the year, it doesn't seem to me as if activity is just going to soar higher. In fact, you know, maybe you sort of see things flatten out a little bit lower or softer. Considering where gas prices are, it's not all that pleasant.
Speaker Change: Hmm.
Speaker Change: But that gives you a little bit of color.
Speaker Change: Yeah, that's definitely helpful and just a quick follow up on a comment you made earlier.
Speaker Change: Now potentially higher working interest in wells this year.
Speaker Change: I'm wondering if there's any way to kind of quantify the magnitude of that shift really just trying to get a sense of how the net lateral footage amount of increase on a year over year basis.
Speaker Change: Yeah.
Speaker Change: We can we can get back to you and answer that more specifically.
Speaker Change: Sounds good thanks for the time guys.
Christopher G. Stavros: We'll just have to see. It may provide us with a little bit of wiggle room for the back half of the year, but generally, things feel pretty good. Specific areas or items, you know, we did a terrific job around efficiencies last year, especially on the completion side and completion stages per day. I'd like to think that we could see some improvements on the drilling side, and we'll work towards that, with hopefully some efficiencies and maybe something on the cost side as well, but we'll see. So I hope that it gives you a little bit of color.
Speaker Change: Thank you.
Speaker Change: The next question comes from I T Mo dock of Goldman Sachs. Please go ahead.
Speaker Change: Hi, Good morning, Thank you for taking the questions.
Speaker Change: I guess you mentioned, there's still a lot of opportunity in acquisitions in the gaming video.
Speaker Change: I'm just wondering if these are largely smaller acreages are are there are entities that are relatively large as well and what is the level of interest maybe that those players to try and replicate what you are doing versus hanmi authored or would be you and does that mean that you would be more active in M&A this year versus last.
Christopher G. Stavros: Yeah, that's definitely helpful. And a quick follow-up on a comment you made earlier. We can get back to you and answer that more specifically. That sounds good.
Okay.
Ati Modak: Okay, thank you. The next question comes from Ati Modak of Goldman Sachs; please go ahead. Hi, good morning team.
Speaker Change: Well I I I don't know what I don't know what the other operators are looking to do or willing to do or are able to do frankly, if they're looking to replicate our plan or whatever.
Speaker Change: Hum.
Speaker Change: I I I.
Christopher G. Stavros: Thank you for taking the questions. I guess you mentioned there's still a lot of opportunity and acquisitions in the Giddings area. I'm just wondering if these are largely smaller acreages or are there entities that are relatively large as well, and what is the level of interest, maybe, that those players have to try and replicate what you are doing versus handing the asset over to you?
Speaker Change: I wouldn't think that this is necessarily going to be a more active year than what we just had in 2023.
Speaker Change: Where we're going to our plan is to digest and integrate some of what we've done.
Speaker Change: Last year, which was you know overall a bit of a heavier year and to yield related activity for us acquisition. So there is some.
Christopher G. Stavros: Does that mean that you would be more active in M&A this year versus last? Well, I don't know what the other operators are looking to do or willing to do or able to do, frankly, if they're looking to replicate, you know, our plan or whatever. I wouldn't think that this is necessarily going to be a more active year than what we just had in 2023. We're going to, our plan is to digest and integrate some of what we did last year, which was overall a bit of a heavier year in teal-related activity for us in acquisitions. So there is some digestion and integration that needs to occur.
Speaker Change: Digestion and integration that needs to occur.
Speaker Change: So I think it'll it if there are some things they'll tend to be a bit smaller.
Speaker Change: But may you know hopefully pack, a punch and and really you know again as I said feeling that mosaic of what we've been trying to accomplish.
Speaker Change: You know in recent history and going forward so.
You know I I don't think it's gonna be larger at least that's not my sense right now.
Speaker Change: Got it and then anything that one be expectations for well productivity in 24 versus the prior years. If you can talk about oil basis, how should we think about the trends this year.
Christopher G. Stavros: So I think it'll, if there are some things, they'll tend to be a bit smaller, but may, you know, hopefully, pack a punch and really, you know, again, as I said, feeling that mosaic of what we've been trying to accomplish in recent history and going forward. So, you know, I don't think it's going to be larger. At least that's not my sense right now.
Speaker Change: Yeah.
Speaker Change: Yeah, I mean, that's been talked about to be honest and and it's it's sort of an evolution of of the you know the program in Giddings over time I mean early days you know there were.
Speaker Change: The population set of wells was.
Christopher G. Stavros: Got it. And then anything around the expectations for well productivity in 2024 versus the prior years, if you can talk about oil on a food basis, how should we think about the trends? Yeah, I mean, it's been talked about, to be honest, and it's sort of an evolution of the, you know, the program and getting over time. I mean, in the early days, there were the population set of wells was smaller, obviously, and much more focused and concentrated within a very, very limited area, and as that's been brought out...
Speaker Change: Small, we're obviously and and much more focused and concentrated.
Speaker Change: But any very very limited area and as that's broad doubt.
Speaker Change: You know there may have been some movement around the productivity, but frankly, I'm not in a major way or or terrible way.
Speaker Change: I think that this year's program and results should yield similar results to what what you saw twenty-three I don't see any major change frankly.
Speaker Change: Got it. Thank you for taking the questions I was going to do it.
Christopher G. Stavros: There may have been some movement around productivity, but frankly, not in a major way or a terrible way. I think that this year's program and results should yield similar results to what you saw in 2023. I don't see any major change, frankly.
Speaker Change: Okay. Thanks.
Speaker Change: The next question comes from Nicholas Pope of Seaport Research. Please go ahead.
Nicholas Pope: Good morning, everyone.
Nicholas Pope: Hi, Nick.
Nicholas Pope: A quick question on the reserves details that you provided in the presentation.
Nicholas Pope: Thank you for taking the question. Okay, thanks. The next question comes from Nicholas Pope of Seaport Research. Please go ahead. Good morning, everyone. Hi Nick.
Nicholas Pope: The price related revisions just wanted to make sure is that.
Nicholas Pope: Is there is there anything specific there or is it kind of balanced across the two assets is it just tail the tail of some of those PDP reserves coming off just trying to make sure I understand that $15 million.
Christopher G. Stavros: Quick question on the reserve details that you provided in the presentation, the price-related revisions, just wanted to make sure that there is anything specific there, or is it kind of balanced across the two assets? Is it just the tail of some of those PDP reserves coming off? Just trying to make sure. Yeah, and when you roll forward from last year, which had significantly higher prices, you do lose reserve. So the year-over-year change in the SEC-required pricing was relatively significant. Both oil and gas. So it's across both aspects. Fairly... It's both an asset and a liability. It's both assets, but I mean, just remember... think we're at 75 plus percent of our 75% of our production is getting So it's probably proportionate, and on the Kitties Acquisition... Can you be a little more specific, what was the timing of the close of that? It was right around mid-November.
Nicholas Pope: And I hit the uptick there.
Speaker Change: Yeah, and when you roll forward from last year.
Speaker Change: Which had significantly higher pricing.
Speaker Change: You do lose reserves.
Speaker Change: So the year over year change in the SEC required pricing.
Well it was relatively significant.
Speaker Change: Both oil and gas.
Speaker Change: So it's so across both both assets.
Speaker Change: Really it's those assets.
Speaker Change: It's both assets, but I mean, just remember.
Speaker Change: We're at 75 plus percent of our 75% of our production is giddings.
Speaker Change: So it's probably a proportionate.
Yeah.
And on the <unk> acquisition.
Speaker Change: Can you give me a little more specific what was the timing of the close of that acquisition.
Speaker Change: It was right around mid November.
Christopher G. Stavros: Okay, that's all I had. Thanks. Great day. The next question comes from Jeff Jay of Daniel Energy Partners. Please go ahead.
Speaker Change: That's all I had thanks.
Speaker Change: Great. Thanks.
Speaker Change: Okay.
Speaker Change: The next question comes from Jeff J, Oh, Daniel Energy Partners. Please go ahead.
Jeffrey Leon Campbell: Hey guys, I was just kind of curious, you talk about the efficiency gains, particularly on the completion side, can you help me understand, I guess, like, how significant that increases? Further efficiencies to come. We're looking into that now. I mean, we're going through that process right now.
Jeffrey Leon Campbell: Hey, guys I was just kind of curious you talk about the efficiency gains, particularly on the completion side.
Jeffrey Leon Campbell: Can you help understand help me understand like how significant that that increases in it can you sort of looked around and benchmark that against your peers. What do you think there's further efficiencies to come this year.
Jeffrey Leon Campbell: Okay.
Speaker Change: Where we're looking into that now.
Speaker Change: We're going through that process right now.
Christopher G. Stavros: You know, as we look to the latter part of the year, or we're trying to think ahead into the back half of the year with our equipment and crews. I don't know how much I can really add to that specific item for EHA.gov. I just... And Jeff, if I'll just maybe add one thing Chris talked about a little bit earlier is, you know, we did a really, really good job on stages per day on the completion side. One of the focuses for this year is on the drilling side, you know, to improve more of those efficiencies. Right, I got it.
Speaker Change: As we look to the latter.
Speaker Change: For Shin our or China.
Speaker Change: Thank you head into the back half of the year.
Speaker Change: On our equipment and crews.
Speaker Change: Cruise.
Speaker Change: I don't know how much I can really add.
Speaker Change: On that specific item for you J F I just don't.
Speaker Change: I don't know.
Speaker Change: Jeff I'll, just maybe add one thing and Chris talked about it a little bit earlier is we did a really really good job on on stages per day on the completion side. One of the focuses on more for this year was on the drilling side.
Speaker Change: To improve more of those efficiencies.
Right got it I guess, you know what I saw on the press release that their cost is getting as well costs were down about 20% of my curiosity was peaked about sort of how that might sort of you know a break.
Brian Corales: I guess, you know, what I saw in the press release that the cost of getting oil costs was down about 20%. My curiosity was piqued about sort of how that might sort of, you know, break down between efficiency gains and sort of price, and other notes if there was a way to help me understand the interplay there. Well, a lot of it was, as you know, a lot of it was steel and OCTG.
Speaker Change: Break down between efficiency gains and sort of pricing and I don't know if you could if there was a way to kind.
Speaker Change: Kind of help me understand the interplay there.
Speaker Change: Well a lot of it was as you know a lot of it was steel of CTG.
Christopher G. Stavros: But there were meaningful steps in STEM and FRAC, so there are meaningful benefits there as well, and Tim Rezvan. The next question comes from Zach Farnham of J.P. Morgan. Please go ahead.
Speaker Change: But there was a you know there are meaningful.
Speaker Change: Steps in and stamp in Frac, so that they are meaningful benefits there as well.
Speaker Change: Excellent. Thank you.
Speaker Change: The next question comes from Zach Farnum of J P. Morgan. Please go ahead.
Zach Farnham: Yes, thanks for taking my question. I guess first, just could you quantify where your leading-edge DNC costs are in dollars and maybe give us some color on how much cheaper you expect the wells to be on the newly acquired shallower acreage? Yeah, the wells are now running, about 1,100 feet deep.
Zach Farnum: Yes, Thanks for taking my question I.
Speaker Change: Yes.
First just could you quantify where you're leading edge D&C goldstar in giddings, and maybe give us some color on how much cheaper you expect the wells to be on the newly acquired shallow water acreage.
Speaker Change: Yeah.
Speaker Change: Yes, the wells now are running.
Speaker Change: About 1100 of afoot.
Christopher G. Stavros: I would say, and that's about 20% lower than a year ago. For some of the longer laterals that we'll drill this year, that's maybe $9 million, roughly, per well. The well costs for the newer stuff, Class A, Yeah, I... As I said, they're shallower, quite a bit shallower, 3-4,000 feet shallower. But you don't get the exact efficiencies of pad development, too.
Speaker Change: I would say and that's about 20% lower than a year ago.
Speaker Change: And so that you know for the longer some of the longer laterals that will drill this year. That's maybe you know 9 million roughly per well.
Speaker Change:
Speaker Change: The.
Speaker Change: The well costs for the the newer stuff.
Speaker Change: Yeah.
Speaker Change: As I said, they're shallower quite a bit shallower three 4000 feet shallower.
Speaker Change: But there you don't get the exact efficiencies of pad development too so.
Speaker Change: Hum.
Christopher G. Stavros: That's sort of what I know right now. In fact, we need to drill one first before we can give you a better answer, but it is shallower.
Speaker Change: That's sort of what I know right now.
Speaker Change: Exactly.
Speaker Change: We need to drill one first.
Speaker Change: He can give you a better answer but it is it is shallower.
Speaker Change: So on a per foot.
Christopher G. Stavros: So on a per foot basis, it should be, should be a little cheaper. Got it. Thanks for that color.
Speaker Change: It should be.
Speaker Change: Should be a little cheaper.
Speaker Change: Got it thanks for that color I guess also wanted to ask on natural gas gas differentials have widened out a bit versus both Henry hub and ship channel over the last couple of quarters. We've also heard some concerns on ship general widening out further given increasing Permian volumes flow into the Gulf can you just give us.
Christopher G. Stavros: I guess also wanted to ask about natural gas. Gas differentials have widened out a bit versus both Henry Hub and Ship Channel over the last couple quarters. We've also heard some concerns about the ship channel widening out further, given increasing permeant volumes flow into the Gulf. Can you just give us your thoughts on how you expect gas differentials to trend in 2024 and going forward? Yeah, well, to be honest, I mean, all our gas goes to Ship Channel. We are a price taker. You know, I still think it's the second-best hub outside of Henry Hub to deliver your gas. We're closer to market than the Permian. We have all the infrastructure we need.
Speaker Change: Your thoughts on how you expect gas differentials to trended 24 and going forward.
Speaker Change: Yeah.
Speaker Change: Yeah, well to be honest I mean, all our gas goes to ship channel.
Speaker Change: We are a price taker.
Speaker Change: I still think it's the second probably best hub outside of Henry hub to deliver gas.
Speaker Change: We're closer to market in the Permian.
Speaker Change: We have all the infrastructure we need.
Christopher G. Stavros: You know, is gas in general challenged? Yes. You know, Zach, it's going to be interesting to really see how this evolves in the market. You know, you've probably seen some of the comments from some of the independent producers, the gas here producers here, might be reducing their activity a bit. And so this is a market, and the operators will respond to the economics.
Speaker Change: Now is it is gas in general challenge yes.
Speaker Change: Yeah.
Speaker Change: Yeah, exactly it's going to be interesting to really see what how this evolves and the market.
Speaker Change: You've probably seen already some of the comments from some of the.
Speaker Change: Independent producers gasior producers here.
Speaker Change: Maybe reducing their activity a bit and and so you know this is a market and and the operators will respond to.
Speaker Change: So the economics so it.
Christopher G. Stavros: So it will be interesting to see that response and to the extent that things attract attraction pulled in that may, over time, bring things into better balance. So we'll see.
Speaker Change: It will be interesting to see that response and to the extent that things are pulled in.
Speaker Change: That may over time break things into better balance so we'll see.
Speaker Change: Got it thanks, Chris Thanks, Brad.
Speaker Change: The next question comes from Tim resident of Keybanc capital markets. Please go ahead.
Tim Rezvan: The next question comes from Tim Rezvan of KeyBank Capital Markets. Please go ahead. Good morning, guys.
Tim: Good morning, guys for squeezing me in.
Christopher G. Stavros: Thanks for squeezing in. I'd like to start on repurchases first, just trying to understand if we sort of back into a repurchase amount based on your, you know, one, two shares that stand. If you think about it, not wanting to have a free cash flow deficit in a quarter, you've been pretty methodical with the repurchases. Is anything changing, or is it just because of the heavy first quarter CapEx that maybe you're pulling back? Well, we didn't, we're not forecasting the share of purchases really. I mean, I think, If I recall, I think we bought 2.5 million shares, exactly, in the fourth quarter, and I think that was about the same. It's not exactly the same as the third quarter.
Tim: I'd like to start on repurchases first just trying to understand if we sort of back into like a repurchase amount based on your <unk> shares outstanding.
Tim: You know kind of information suggests maybe a little lower than that $50 million ish range that you've run do you think about it is like not wanting to have a free cash flow deficit in the quarter, just trying to understand kind of you've been pretty methodical with repurchases.
Tim: Is anything changing or is it just because the heavy first quarter capex that maybe you're pulling back a bit.
Speaker Change: Well, we didn't we're not forecasting the share repurchases really I mean, I think you know.
Speaker Change: If I recall I think we.
Speaker Change: Bought in two and a half million shares exactly in.
Speaker Change: In the fourth quarter and I think that was about the same it's not exactly the same as the third quarter. So sequentially. The amount of shares repurchased was the same the dollar amount might've been a little different because the you know the shares might've been bought in a little bit less expensively, which is fine.
Christopher G. Stavros: So, sequentially, the amount of shares repurchased was the same. The dollar amount might have been a little different because the, you know, the shares might have been bought in a little bit less expensively, which is fine. I look at the share of purchase, I mean, just a broad comment, I look at the share of purchase program as sort of ongoing and opportunistic. And, you know, there might be some shares that become available in the market. And, you know, I'm not saying that I know anything, but if that were to happen, we could certainly lean in. If I feel as if, you know, there's a disconnect in terms of perceived value, we could certainly lean in. You know, the share of purchase and the dividend are sort of symbiotic in a way. There's an integral relationship for us with that. The more shares I buy in, the more it supports our dividend payout per share capacity. So, you know, that's sort of how I think about it. Okay, we're just, if you do the math on that $205 million for the first quarter. It seems a little light.
I look at the share repurchase I mean, it's just a broad comment I look at the share repurchase program as sort of.
Speaker Change: Ongoing and opportunistic and there might be some shares that come available in the market and you know I'm not not that I know anything, but if that were to happen. We could certainly we'd ann if I feel as if.
Speaker Change: Theres a disconnect in terms of perceived value we could lean in.
Speaker Change: The share repurchase and the dividend are sort of symbiotic in a way there's an integral relationship for us with that the more shares I buy in the the more it supports our dividend payout.
Speaker Change: Our share capacity, so that's sort of how I think about it.
Speaker Change: Okay. Okay. We're just if you do the math on that $2 5 million for the first quarter. It seems a little light. That's why I was just trying to understand if there's something there and I guess, it's not so.
Christopher G. Stavros: That's why I was just trying to understand if there's something there, and I guess there isn't. So, thanks, Chris. I appreciate that. I thought it was interesting you said you should have a similar oil cut through 2024. If we look at the Giddings asset in general, you've seen oil cuts call it kind of mid-30s, is your confidence that you know you have enough well control and getting that? You're confident the oil skews you're going to be getting from the 2024 program. Is that what sort of?
Speaker Change: Chris I appreciate that.
Speaker Change: As my follow up.
Speaker Change: You I thought it was interesting you you said you should have a similar oil cut going through 'twenty 'twenty four.
Speaker Change: If we look at Guinea basket in general you've seen oil cuts I'll call it kind of mid thirties.
Speaker Change: Is your confidence that you know you have enough well control and getting that day.
Speaker Change: You're confident of the oil skus, you're going to be getting from the 'twenty 'twenty four program is that what sort of.
Christopher G. Stavros: gives you confidence in sort of that oil cut staying where it is. I'm pretty confident with this year's program on oil volumes, if you will. I think we ran in a 41-42% mix of oil for the fourth quarter, right in that range.
Speaker Change: Gives me confidence in sort of that oil cut staying staying where it is you're trying to create a little bit yeah. No. Tim. Thanks, So I'm pretty confident with this year's program on the oil the oil volumes if you will.
Speaker Change: I think we ran in the 41, 42% mix of oil for the fourth quarter right in that range.
Christopher G. Stavros: If I had to take a view, I think it'll be somewhat similar through the year, maybe a little movement, but not all that much on the oil volume. They'll grow, as I said, they'll grow year-on-year, for each quarter, and they'll grow on a similar basis to the overall BOE volume, so I'm pretty confident with that. That's what the program is designed to deliver, and it's just in terms of well control and the confidence in getting, yes, that's how I feel. Okay. Thank you. The next question comes from Paul Diamond of Citi. Please go ahead. Thanks for taking my call. Just one quick one for you.
Tim: If I had to take a view I think it'll be somewhat similar through the year, maybe a little movement, but not all that much the oil volumes.
Speaker Change: So they'll grow as I said, they'll they'll grow year on year.
Speaker Change: For each quarter and they will grow on a similar basis to the overall volume so I'm pretty confident with that that's what the program is designed to deliver and it is just in terms of the well control and the confidence in Giddings, Yes, that's how I feel.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from Paul Diamond City. Please go ahead.
Speaker Change: Oh. Thank you good morning, Thanks for taking my call just a one quick one for you as you guys think about getting this going forward as far as your addressable.
Paul Diamond: As you guys think about getting going forward, as far as just the total addressable acreage and your progress to that, what you see is the right size of what you want to be at. Is that something we should think about as a single-year effort, or is that more of a multi-year goal? You know, I see this evolving over years. I don't see it necessarily all occurring at once or in a shorter term. It's, you know, the amount of learning that we picked up and experience has been, you know, over this five, six-year period, it's not all going to come at once here for us as a result. So we're still, you know, we have a large physician that will, where we'll continue to learn through our own activity.
Speaker Change: The total addressable acreage and you got to kind of your progress to bats D. C is like you're right sized about what you Wanna be at I think that's something we should think about it like a several year effort or is that more kind of a multiyear goal.
Speaker Change:
Speaker Change: Ah I see this.
Speaker Change: Moving over over years, so I don't I don't see it necessarily all occurring at watts or in a shorter term. It's it's you know the.
Speaker Change: The amount of learning that we picked up in an experience has been you know over this five six year period.
Speaker Change: It's not all going to comment once here for us as a result, so we're still.
Speaker Change: Have a large position that will where we'll continue to learn through our own activity and as an extension of that.
Christopher G. Stavros: And as an extension of that, you know, we could and likely will pursue some other small opportunities that make sense. Understandable. And do you think those smaller opportunities are more kind of blocking out existing acreage, or are they more kind of further along areas you guys are really interested in exploring out there? Mainly the former, you know, filling in.
Speaker Change: Could and likely will pursue some other small opportunities that make sense.
Speaker Change: Understood and do you think those are smaller opportunities and more kind of blocking on existing acreage or are there more kind of further.
Speaker Change: Further long areas, that's really interesting exploring up there.
Mainly the former.
Speaker Change: Filling in.
Christopher G. Stavros: Understood? I'll leave it there. Thanks for your time. Okay, thank you. This concludes our question and answer session. The conference has also concluded. Thank you for attending today's presentation, and you may now disconnect.
Speaker Change: Understood Okay.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: This concludes our question and answer session. The conference has now also concluded thank.
Thank you for attending today's presentation and you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].