Q1 2024 Northern Oil and Gas Inc Earnings Call
Operator: Greetings and welcome to the NOG's 1st Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode.
Greetings and welcome to the <unk> first quarter 2000.
That's right before earnings conference call.
All participants are in listen only mode.
Operator: The question and answer session will follow the formal presentation. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Evelyn Infurna, Vice President, Investor Relations. Thank you. You may begin. Good morning.
You didn't answer session will follow the formal presentation.
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Albany, Infrarenal: It's now my pleasure to introduce your host Albany, Infrarenal, Vice President Investor Relations. Thank you you may begin.
Albany, Infrarenal: Good morning.
Evelyn Leon Infurna: Welcome to NOG's first quarter 2024 earnings conference call. Earlier this morning, we released our financial results for the first quarter. You can access our earnings release and presentation on our Investor Relations website at NOGinc.com. Our Form 10-Q will be filed with the SEC within the next few days. I am joined this morning by our Chief Executive Officer, Nick O'Grady, our President, Adam Dirlam, our Chief Financial Officer, Chad Allen, and our Chief Technical Officer, Jim Evans.
Albany, Infrarenal: Welcome to I know Geez first quarter 'twenty 'twenty four earnings conference call.
Albany, Infrarenal: Earlier. This morning, we released our financial results for the first quarter you can access our earnings release and presentation on our Investor Relations website at N O G Inc. Dot com.
Albany, Infrarenal: Our Form 10-Q will be filed with the SEC within the next few days.
Speaker Change: I'm joined this morning by our Chief Executive Officer, Nick O'grady, Our President Adam Dirlam, Our Chief Financial Officer, Chad Allen, Our Chief Technical Officer, Jim Evans.
Evelyn Leon Infurna: Our agenda for today's call is as follows. Nick will provide his remarks on the quarter and our recent accomplishments. Then Adam will give you an overview of operations and business development activities. Chad will review our financial results, and after our prepared remarks, the team will be available to answer any questions. Before we begin, let me cover our Safe Harbor language.
Speaker Change: Our agenda for today's call is as follows.
Speaker Change: It will provide his remarks on the quarter and our recent accomplishments and Adam will give you an overview of operations and business development activities.
Speaker Change: John will review, our financial results and after our prepared remarks, the team will be available to answer any questions. Before we begin let me cover our safe Harbor language. Please be advised that our remarks today, including the answers to your questions may include forward looking statements within the meaning of the private Securities litigation.
Evelyn Leon Infurna: Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward-looking statements. Those risks include, among others, matters that have been described in our earnings release, as well as in our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q.
Speaker Change: Form Act <unk>.
Speaker Change: These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward looking statements.
Speaker Change: Those risks include among others matters that had been described in our earnings release as well as in our filings with the SEC, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q.
Evelyn Leon Infurna: We disclaim any obligation to update these forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and free cash flow. Reconciliation of these measures to the closest GAAP measures can be found in our earnings release. With that, I'll turn the call over to Evelyn. Thank you. And good morning, everyone.
Speaker Change: We disclaim any obligation to update these forward looking statements.
Speaker Change: During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and free cash flow.
Speaker Change: Conciliation of these measures to the closest GAAP measures can be found in our earnings release with that I'll turn the call over to Nick.
Nick O'Grady: Thank you everyone welcome and good morning, everyone and thank you for your interest in our company.
Nick O'Grady: And thank you for your interest in our company. I'll get right to it with four key points. Number one, coming out strong right out of the gate, saw significantly better than expected results in the first quarter, driven by two primary factors: strong well performance and a pull-forward of activity, with more wells turned in line than we expected. We had highlighted strong well performance last quarter as well, but it was less noticeable in Q4 results due to a higher level of curtailment.
Nick: I'll get right to it with four key points.
Nick: Number one.
Nick O'Grady: Coming out strong right out of the gates.
Nick: We saw significantly better than expected results in the first quarter driven by two primary factors strong well performance and a pull forward of activity with more wells turned in line than we expected.
Nick: We had highlighted strong well performance last quarter as well.
Speaker Change: It was less noticeable in Q4 results due to a higher level of curtailments.
Nick O'Grady: With the rampant mascot in full swing, our other JVs performing well, and higher oil prices, we are seeing organic activity accelerate, which bodes well for our 2024 production overall. The larger than expected till count increased our overall capital, but it was more than made up for by higher cash flow and production that will benefit us as we head into the second quarter. We expect modest additional pull-forward in the second quarter, though not to the same extent as good pricing continues to bring value forward for our investors.
Speaker Change: With the rapid mascot in full swing our other JV is performing well and higher oil prices, we are seeing organic activity accelerate which bodes well for our 2024 production overall.
Speaker Change: The larger than expected job count increased our overall capital, but was more than made up.
Speaker Change: For by higher cash flow and production that will benefit us as we head into the second quarter we.
Speaker Change: We expect modest additional pull forward in the second quarter, though not to the same extent as good pricing continues to bring value forward for our investors. This highlights one of the greatest facets of our non operated business model, which is the alignment with our operators.
Nick O'Grady: This highlights one of the greatest facets of our non-operated business model, which is the alignment with our operators. When prices are high, we typically see the economic incentives work their magic to bring forward value into the higher price periods, like it did here. And additionally, as we talk about the asymmetry of hedging, we produce more barrels when prices are higher, leaving us more on the hedge than we expected in a higher priced period.
Speaker Change: Mrs are high we typically see the economic incentives work their magic to bring forward value into the higher price periods like it did here and.
Speaker Change: And Additionally, as we talked about the asymmetry of hedging we produce more barrels when price is our higher leaving us more on edge than we expected in our higher priced period.
Speaker Change: While we've seen development accelerating into the highest price period of the strip for the year boosting our profits for the quarter. Our plans for all of 2024 remained largely unchanged with only very modest changes to the pace, our hope would be to the extent that commodity prices stay robust that it warrants activity.
Nick O'Grady: While we've seen development accelerate into the highest price period of the strip for the year, boosting our profits for the quarter, our plans for all of 2024 remain largely unchanged, with only very modest changes to the pace. Our hope would be, to the extent that commodity prices stay robust, that they warrant activity levels and returns that trend toward the middle or upper band of our guidance, which should translate into higher production as we exit the year and into 2025.
Speaker Change: All in returns that trend towards the middle or upper band of our guidance, which should translate into higher production as we exit the year and into 2025 with that said, we want to remain flexible with our capital as always to ensure we're earning significant returns.
Nick O'Grady: With that said, we want to remain flexible with our capital, as always, to ensure we're earning significant returns. Chad will highlight it further, but despite the lower headline free cash flow number under the surface, we've made substantial progress on the working capital front and made better progress than we anticipated on our balance sheet year to date. After closing the last of our Q4 acquisitions, we paid about $40 million in dividends, spent about $20 million on share repurchases, and still paid down about $50 million worth of debt.
Speaker Change: Chad will highlight it further but despite the lower headline free cash flow number under the surface. We've made substantial progress on the working capital front and made better progress than we anticipated on our balance sheet year to date <unk>.
Chad Allen: After closing the last of our Q4 acquisitions, we paid about $40 million in dividends and spent about $20 million in share repurchases and still pay down about $50 million worth of debt.
Nick O'Grady: All this was during a period of hefty investment, so we expect our free cash flow pace to pick up even more meaningfully in the second quarter and continue as the year progresses. Number two, waiting for the right opportunity.
Speaker Change: All of this was during a period of hefty investments. So we expect our free cash flow base to pick up even more meaningfully in the second quarter and continue as the year progresses.
Speaker Change: Number two waiting for the right opportunity.
Nick O'Grady: As we highlight nearly every year, our ground game business typically has a quiet first quarter, and this one was no different. Unknown Speaker We typically see people aggressively spending their budgets early in the year. Additionally, strong crude prices can have an effect on risk-taking from smaller competitors who may not have the wherewithal to invest in the down cycle. On the larger M&A front, we've been actively engaged. We've seen relatively wide bid-ask spreads, negative risk-U from high crude prices, and asset quality that's kept us from being overly aggressive.
Speaker Change: As we highlight nearly every year our ground game business typically has a quiet first quarter and this one was no different.
Speaker Change: Characteristically see people aggressively spending their budgets early in the year. Additionally, strong crude prices can have an effect on risk taking from smaller competitors, who may not have the wherewithal to invest in the down cycle.
Speaker Change: On the larger M&A front, we've been actively engaged we've seen relatively wide bid ask spreads negative risk SKU from high crude prices and asset quality, that's kept us from being overly aggressive.
Nick O'Grady: The good news is that on the more scalable front, we continue to work on drilling partnerships, carve-outs, and true non-op and JV opportunities on larger, more impactful, and bespoke processes. We shied away from some of the less value-added marketed processes that, in our view, have been both lower quality and saturated with returns that, in many cases, did not meet our threshold.
Speaker Change: Good news is that on a more scalable front, we continue to work on drilling partnerships carve outs and two non op and JV front on larger more impactful and bespoke processes, we shied away from some of the less value added marketing processes that in our view have been both lower quality and saturated with returns that in many cases did not meet our threat.
Speaker Change: Sure.
Nick O'Grady: These market conditions ebb and flow and can change within a given year, so we stay active in all facets of business development to capture the right opportunities. Given the overall backlog, we're staying disciplined for the right transaction to grow our business, and I have the utmost confidence that over time, we will find great opportunities for growth. Number three, Dynamic Capital Allocation 101. With the positive acquisitions and relative weakness of our equity performance early in the year, we did elect to dynamically direct our capital towards share repurchases and simplifying our capital stack.
Speaker Change: These market conditions, ebb and flow and Ken change within a given year. So we stay active in all facets of business development to capture the right opportunity given the overall backlog, we're staying disciplined for the right transaction to grow our business.
Speaker Change: I have the utmost confidence that over time, you will find great opportunities for growth.
Speaker Change: Number three dynamic capital allocation 101.
Speaker Change: With a pause in acquisitions and relative weakness of our equity performance early in the year, we did elect to dynamically direct our capital towards share repurchases and simplifying our capital stack.
Nick O'Grady: Dynamic capital allocation is just that; a dynamic, flexible business model allows us to quickly adapt to changing circumstances. The contraction in our equity valuation in the first quarter, as I highlighted in our last earnings call, provided a favorable time for share repurchases, and we pounced on the opportunity at attractive prices. We also cleaned up the last tranche of our remaining equity warrants, which were issued as part of an acquisition in 2022 at lower prices than current in a net exercise-style exchange.
Speaker Change: Dynamic capital allocation is just that dynamic or.
Speaker Change: Our flexible business model allows us to quickly adapt to changing circumstances.
Speaker Change: The contraction in our equity valuation in the first quarter as I highlighted in our last earnings call provided a favorable time for share repurchases, we pounced on the opportunity at attractive prices. We also cleaned up the last tranche of our remaining equity warrants, which were issued as part of an acquisition in 2022 at lower prices than current and a net extra.
Speaker Change: Size style exchange.
Nick O'Grady: This simplifying transaction both reduces short pressure on our equity as well as long-term dilution potential in another value-added move. Most of those warrants were already accounted for in our diluted share count, but over time, the potential dilution from stock performance and dividend payments could have grown meaningfully, and we were very bullish on our outlook. As we look forward, one of the primary goals for this year is to put the business in a position to have increased optionality as we head into 2025, whether that's to further increase the dividend, allocate more to buybacks, or allocate more to growth prospects. The key to Dynamic Capital Allocation is to make decisions that maximize total return. While dogmatic, formulaic approaches may seem tempting, over time, they are prone to missed opportunities.
Speaker Change: Simplifying transaction, both reduces short pressure on our equity as well as long term dilution potential in another value added move most of those warrants were already accounted for in our diluted share count, but over time, the potential dilution from stock performance and dividend payments could have grown meaningfully and we're very bullish on our outlook.
Speaker Change: As we look forward one of the primary goals for this year is to put the business in a position to have increased optionality as we head into 2025, whether thats. The further increase the dividend allocate more to buybacks or allocated more to growth prospects. The key dynamic capital allocation is to make decisions that maximize total return.
Speaker Change: While dogmatic formulaic approaches may seem tempting overtime, they are prone to miss opportunities given weak natural gas prices high interest rates and an uncertain economic outlook in an election year. There is a high probability we will have market volatility events, which could potentially create great buyback acquisition opportunity.
Nick O'Grady: Given weak natural gas prices, high interest rates, and an uncertain economic outlook in an election year, there's a high probability we will have market volatility events that could potentially create great buyback opportunities, acquisition opportunities, or chances to grow the dividend for us. We want you to know that, as always, we are watching closely and are highly aligned with our shareholders to deliver. Number four.
Speaker Change: These or chances to grow the dividend for us.
Speaker Change: Want you to know that as always we are watching closely and are highly aligned with our shareholders to deliver.
Speaker Change: Number four.
Nick O'Grady: Confident for 2024 and 2025. We recently issued an updated and much-improved ESG report, and in it, I talk a lot about our philosophy of Kaizen here at NOG. Kaizen is a Japanese term which basically means continuous improvement, and that's built into our culture here at NO2.
Speaker Change: Confident for 2024 and 'twenty five we recently issued an updated much improved ESG report and I talk a lot about our philosophy of kaizen here at NRG.
Speaker Change: Zen is a Japanese term, which basically means continuous improvement and that's built into our culture here at NRG after launching our AI powered data Lake system. Your car last year, we continue to enhance and expand its functionality and internally. We remained focused on improving data quality to further leverage our analytics our underwriting.
Nick O'Grady: After launching our AI-powered data lake system, Drakkar, last year, we continue to enhance and expand its functionality, and internally, we remain focused on improving data quality to further leverage our analytics, our underwriting, and predictive capabilities to help grow our business. Not a week goes by where I don't hear that one of our departments is building out new capabilities to exploit our massive trove of data. What that data is showing us gives me tremendous confidence in the people at NOG, our assets, and our outlook for 2024, 25, and beyond. We continue to add systems, talent, and new processes to get better and better at what we do. As with Kaizen, we're never satisfied with leaving well enough alone.
Speaker Change: And predictive capabilities to help grow our business not a week goes by where I don't hear that one of our departments is building out new capabilities to exploit our massive trove of data.
Speaker Change: That data is showing US gives me tremendous confidence in the people at NRG, our assets and our outlook for 2024 25 and beyond we continue to add systems talent and new processes to get better and better at what we do as with Kaizen, we're never satisfied with leading well enough alone for.
Nick O'Grady: For 2024 specifically, as I mentioned in my first point, our sound investment process and core tenet of focusing on high-quality assets is time and time again proving itself out with better-than-expected performance, and our culture of conservatism has delivered the strong results we've seen today. While we reiterate our forecast for the year, we're working diligently to augment those results and find additional paths to growth. Before I hand it over to Adam, I'd like to thank the entire NOG team for their hard work and dedication for another great quarter and thank our analysts and all of you for your interest in our company today. Thanks also to our operators out there for their incredible field work and the great partnerships we have formed. We've had another great start to the year.
Speaker Change: For 2024, specifically as I mentioned in my first point, our sound investment process and core tenant of focusing on high quality assets has time and time again proving itself out with better than expected well performance and our culture of conservatism has delivered the strong results we've seen today.
Speaker Change: While we reiterate our forecast for the year, we are working diligently to augment those results and find additional paths to growth.
Speaker Change: Before I hand, it over to Adam I would like to thank the entire NRG team for their hard work and dedication for another great quarter and thank our analysts and all of you for your interest in our company today.
Adam Dirlam: Thanks also to our operators out there for their incredible field work and the great partnerships reports.
Adam Dirlam: <unk> had another great start to the year and while it's early the assets are performing exceptionally well as we convert a lot of the money in the ground from the past six months into production and cash flow. This year as 2024 progresses. I also expect we will see more growth opportunities emerge and given what's in front of us today I remain confident that energy remains a superior.
Nick O'Grady: And while it's early, the assets are performing exceptionally well as we convert a lot of the money in the ground from the past six months into production and cash flow this year. As 2024 progresses, I also expect we will see more growth opportunities emerge. And given what's in front of us today, I remain confident that energy remains a superior investment product to our peers and that our growth trajectory is unmatched in the upstream space.
Adam Dirlam: Investment product to our peers and that our growth trajectory is unmatched in the upstream space as a management team, we are aligned and incentivize to maximize total return for our investors year in and year out that's because we are a company run by investors for investors with that I'll turn it over to Adam.
Nick O'Grady: As a management team, we are aligned and incentivized to maximize total return for our investors year in and year out. That's because we are a company run by investors for investors. With that, I'll turn it over to Adam. Thanks, Nick.
Adam Dirlam: Thanks, Nick.
Adam Dirlam: I'll open with some commentary on the first quarter's operational highlights and then shift gears to provide some additional color on what we're seeing on the M&A front. The first quarter picked up where 23 left off with continued acceleration of development and marking the fifth consecutive quarter of record production for NOG, production increased 4% quarter over quarter, driven by well productivity, and a pull forward in the Permian which accounted for three quarters of our well additions in Q1, partnering with top tier operators across all of our respective basins, with the likes of Mewburn, Permian Resources, Ascent, and Continental have helped drive the beat on production.
Adam Dirlam: I'll open with some commentary on the first quarter's operational highlights and then shift gears to provide some additional color on what we're seeing on the M&A front.
Adam Dirlam: The first quarter picked up or 'twenty three left off with continued acceleration of development and marking the fifth consecutive quarter of record production for NRG.
Adam Dirlam: Production increased 4% quarter over quarter, driven by well productivity and a pull forward in the Permian, which accounted for three quarters of our well additions in Q1.
Adam Dirlam: Partnering with top tier operators across all of our respective basins with the likes of Mewborn Permian resources.
Adam Dirlam: And continental have helped drive the beat on production.
Adam Dirlam: Unpacking. This further we saw 2020 threes ground game investments add nearly 5000 barrels a day of production over the fourth quarter, while also seeing outperformance on our novo and Utica assets.
Adam Dirlam: Unpacking this further, we saw 2023's ground game investments add nearly 5,000 barrels a day of production over the fourth quarter, while also seeing outperformance on our Novo and Utica assets. Turning lines topped expectations with 25.3 net wells added in Q1 as the Mascot project pulled forward 2.4 net wells that were expected to come online in the second quarter.
Adam Dirlam: Turning lines topped expectations with 25, three net wells added in Q1 as the mascot project pulled forward two four net wells that were expected to come online in the second quarter.
Adam Dirlam: The wells were added late in March, and as they clean up, we expect to receive the production benefit in the second and third quarters of the year. With higher conversions in Q1, we had an expected drawdown of our wells in process and ended the quarter with 52.4 net wells in process, 40 of them in our oil-weighted basin. Permian now makes up 60% of our oil-weighted wells in process, and our exposure to top-tier operators remains consistent across all of our bases.
Adam Dirlam: The wells were added late in March and as they clean up we expect to receive the production benefit in the second and third quarters of the year.
Adam Dirlam: With higher conversions in Q1, we had an expected draw to our wells in process and ended the quarter with 52 four net wells in process.
Adam Dirlam: Do you have them in our oil weighted basins.
Adam Dirlam: The Permian now makes up 60% of our oil weighted wells in process and our exposure to top tier operators remains consistent across all of our basins.
Adam Dirlam: The pace of their fees was active in the fourth quarter and we are seeing a healthy backlog of well proposals as we head into Q2.
Adam Dirlam: Pace of AFEs was as active as in the fourth quarter, and we are seeing a healthy backlog of well proposals as we head into Q2. At the end of the quarter, well proposals not yet spud totaled 24.7 net wells.
Adam Dirlam: At the end of the quarter, well proposals not yet spud totaled $24 seven net wells.
Adam Dirlam: During the quarter, we were validated with over 180 acre fees and elected to over 90% of the proposals on a net basis.
Adam Dirlam: During the quarter, we were balloted on over 180 AFEs and elected to over 90% of the proposals on a net basis. January and February kicked things off with robust gross activity on our organic acreage, offset by lower average working interest. Recently, we have seen that turnaround as March and April had three times the net well activity than in January and February. New well proposals are showing moderate signs of deflation, as absolute and normalized costs in the Permian have declined and have been the lowest that we've seen in the last 12 months. Estimated oil costs in Williston also ticked down 5% quarter over quarter.
Adam Dirlam: January and February kick things off with robust gross activity on our organic acreage offset by lower average working interest.
Adam Dirlam: Recently, we have seen that turnaround as March and April had three times, the net well activity that in January and February.
Adam Dirlam: New well proposals are showing moderate signs of deflation as absolute and normalized cost in the Permian have declined.
Adam Dirlam: And have been the lowest that we've seen in the last 12 months.
Adam Dirlam: Estimated well cost in the Williston also ticked down 5% quarter over quarter.
Adam Dirlam: All that said, we continue to remain conservative with our forecast, especially in light of a higher-priced commodity environment and accelerated development. Turning to the M&A landscape and our business development efforts, Q1 was frothy as competition leaned in with new budgets, as is typical to start the year. And, customarily, we are happy to let the bull run by.
Adam Dirlam: All that said, we continue to remain conservative with our forecast, especially in light of our higher priced commodity environment and accelerated development.
Adam Dirlam: Turning to the M&A landscape and our business development efforts Q1 was frothy as competition leaned in with new budgets as is typical to start the year.
Adam Dirlam: And customarily we are happy to let the bull run by <unk>.
Adam Dirlam: Stay disciplined with our underwriting, waiting for the appropriate opportunity. Despite some elevated competition in our ground game, we were able to pick up over 1,700 net acres of longer-dated inventory and 0.6 net wells in the process. In the Bakken, we also closed on a joint development agreement and will be kicking off development across four to five units in the third quarter. We continue to get creative with structuring, and we see significant upside with this project, having a site line to add up to 10 more drilling units to the program. There was no shortage of shots on goal as we evaluated over 120 transactions in Q1.
Adam Dirlam: Staying disciplined with our underwriting waiting for the appropriate opportunities.
Adam Dirlam: Despite some elevated competition in our ground game, we were able to pick up over 7500 net acres with longer dated inventory and <unk> six net wells in process.
Adam Dirlam: In the Bakken, we also closed on a joint development agreement and we will be kicking off development across four to five units in the third quarter.
Adam Dirlam: We continue to get creative with structuring and we see significant upside with this project, having a sight line to add up to 10 more drilling units to the program.
Adam Dirlam: There is no shortage of shots on goal as we evaluated over 120 transactions in Q1, and we're already seeing momentum in conversions through April.
Adam Dirlam: And we're already seeing momentum in conversions through April. Shifting gears to the larger M&A landscape, we remain as busy as we've ever been evaluating opportunities for the right fit. In the first quarter alone, we reviewed over 30 potential transactions, yet the quality of properties had been variable at best.
Adam Dirlam: Shifting gears to the larger M&A landscape, we remain as busy as we've ever been evaluating opportunities for the right fit.
Adam Dirlam: In the first quarter alone we reviewed over 30 potential transactions.
Adam Dirlam: Quality of properties had been variable at best.
Adam Dirlam: Quality is starting to pick up and the mix of prospects have included non op packages joint development programs minority interest buy downs and the co purchasing of operated assets.
Adam Dirlam: Quality has started to pick up, and the mix of prospects includes non-op packages, joint development programs, minority interest buy-downs, and the co-purchasing of operated assets. Looking ahead, we are actively engaged in over 10 processes with asset values ranging from 100 million to over a billion while continuing strategic discussions on other off-market opportunities. We're encouraged by the conversations that are taking place, but any potential transaction will need to have the right fit at an asset level, as well as from a risk-adjusted return perspective. With that, I'll turn it over to Chad. Thanks, Adam.
Adam Dirlam: Looking ahead, we are actively engaged in over 10 processes with asset values, ranging from a 100 million to over $1 billion, while continuing strategic discussions on other off market opportunities.
Adam Dirlam: We're encouraged with the conversations that are taking place, but any potential transaction will need to have the right fit at an asset level as well as from a risk adjusted return perspective.
Adam Dirlam: With that I'll turn it over to Chad.
Chad Allen: Thanks, Adam.
Chad Allen: I'll start by reviewing our first quarter results and provide additional color on our operations.
Chad Allen: I'll start by reviewing our first quarter results and providing additional color on our operation. Average daily production in the quarter was more than 119,000 BOE per day, up over 5,000 BOE per day compared to Q4 and up 37% compared to Q1 of 2023, establishing a new NOG record. The oil production mix of our total volumes was in line with our guidance at just over 70,000 barrels a day, and gas was a larger contributor as compared to the past, reflecting 2.3 net wells in Appalachia and a full quarter's contribution from the Utica aquifer.
Chad Allen: Average daily production in the quarter was more than a 119000 Boe per day.
Chad Allen: Up over 5000 Boe per day, compared to Q4 and up 37% compared to Q1 of 2023 <unk>.
Chad Allen: Establishing a new MLG record.
Adam Dirlam: Oil production mix of our total volumes was in line with our guidance at just over 70000 barrels a day and gas was a larger contributor as compared to the past, reflecting two three net wells in Appalachia and a full quarter's contribution from the Utica acquisition.
Adam Dirlam: Adjusted EBITDA in the quarter was $387 million up 19% over the same period last year.
Chad Allen: Adjusted EBITDA in the quarter was $387 million, up 19% over the same period last year but modestly lower than the last quarter, mainly due to lower average realized prices per BOE in the. Pre-cash flow of $54 million in the quarter was lower sequentially and from the same period last year due to the pull-forward of activity in the quarter.
Adam Dirlam: Modestly lower than the last quarter, mainly due to lower average realized prices per Boe in the quarter.
Adam Dirlam: Free cash flow of $54 million in the quarter was lower sequentially and from the same period last year due.
Adam Dirlam: Due to the pull forward of activity in the quarter.
Adam Dirlam: But the peak of this growth capital should crest as we reach mid year.
Chad Allen: But the peak of this growth capital should peak as we reach mid-year. We anticipate an acceleration of free cash flow in the second quarter as tills come online and begin to contribute to production and revenue. Adjusted EPS was $1.28 per diluted share.
Adam Dirlam: We anticipate an acceleration in free cash flow in the second quarter as tools come online and we begin to and begin to contribute to production in revenue.
Adam Dirlam: Adjusted EPS was $1 28 per diluted share.
Adam Dirlam: Oil differentials were in line with our expectations at an average of $3 99.
Chad Allen: Oil differentials were in line with our expectations at an average of $3.99, at the lower end of our guidance. Williston differentials ranged from a low of $6.60 in January to a high of $6.95 in February. While Permian differentials saw a market widening from $0.69 in January to $2.26 in February, on the heels of higher production from areas with higher deductions within the base, we still expect oil differentials to moderate and have begun to see some evidence of that in late March and in April.
Adam Dirlam: At the lower end of our guidance.
Adam Dirlam: Williston differentials ranged from a low of $6 60 in January to high of $6 95 in February.
Adam Dirlam: While Permian differentials saw a market widening for 69 cents in January to do.
Adam Dirlam: Two $2 26 in February on the heels of higher production from areas with higher Ddos within the basin.
Adam Dirlam: We still expect oil differentials to moderate and have begun to see some evidence of that in late March and in April.
Adam Dirlam: For natural gas realizations were 118% of benchmark prices for the first quarter.
Chad Allen: For natural gas, realizations were 118% of benchmark prices for the first quarter due to better winter NGL prices and in-season appellation differentials. However, we are still anticipating an erosion of gas realizations as we close out heating, with Waha gas solidly negative combined with shoulder season gas and NGL pricing. We expect markedly lower realizations in the second quarter, perhaps as low as the mid 70% range. Overall, for the year, however, we believe our guidance remains solid.
Adam Dirlam: Due to better winter NGL prices and in season Appalachian differentials.
Adam Dirlam: We are still anticipating an erosion in gas realizations as we closeout heating season.
Adam Dirlam: With Wahoo gas solidly negative combined with shoulder season gas and NGL pricing.
Adam Dirlam: We expect markedly lower realizations in the second quarter.
Adam Dirlam: Perhaps as low as the mid 70% range.
Adam Dirlam: Overall for the year. However, we believe our guidance remains solid.
Adam Dirlam: While it has been plagued by not only under capacity.
Chad Allen: Law has been plagued by not only undercapacity but by maintenance-driven outages, and we expect things to modestly improve later in the year. It's also worth noting our net exposure to WAHA is minimal, with approximately 60 million a day hedged through WAHA Basis and WAHA gas swaps for the balance of 2024 at very attractive prices. LOE was flat sequentially at $9.70 per BOE.
Adam Dirlam: Maintenance driven outages and we expect things to modestly improve later in the year.
Adam Dirlam: It's also worth noting our net exposure to wahoo is minimal with approximately 60 million a day hedged through wahhab basis, and while hot gas swaps for the balance of 2024 at very attractive prices.
Adam Dirlam: Hello, Lee was flat sequentially at $9 70 per Boe.
Chad Allen: It's like the continued work over expenses, pick up an activity of our mascot project and a $2.3 million firm transport charge in the Marcellus. Transportation expense should moderate to a quarterly charge of approximately $1.5 million per quarter through the end of Q1 2025. As discussed on our fourth-quarter call, we anticipate LOE per BOE to be relatively flat through the second quarter before gradually declining as production ramps further in our mascot project and the transportation charge falls to a lower run rate.
Adam Dirlam: Reflected continued workover expenses pick up of activity of our mascot project and a $2 $3 million firm transport charge in the Marcellus.
Adam Dirlam: Transportation expense should moderate to quarterly charge of approximately $1 5 million per quarter through.
Adam Dirlam: Through the end of Q1 2025.
Adam Dirlam: As we discussed on our fourth quarter call.
Adam Dirlam: We anticipate LOE per Boe to be relatively flat through the second quarter before gradually declining as production ramps further in our mascot project.
Adam Dirlam: In the transportation charge falls to a lower run rate.
Production taxes were nine 6% in line with guidance as production ramp in the Permian.
Chad Allen: Production taxes were 9.6% in line with guidance as production ramped up in the Permian, which has a higher production tax rate. On the CapEx front, Enron continues to experience a pull-forward of organic activity driven by the strength in oil prices.
Adam Dirlam: Which has a higher production tax rate.
Adam Dirlam: On the Capex front.
Adam Dirlam: We continue to experience a pull forward of organic activity is driven by the strength in oil prices.
Chad Allen: Distro CapEx to $296 million, inclusive of ground gain capital. It was a bit higher than anticipated for the first quarter. Of the 296 million, 68% was allocated to the Permian, 26% to the Williston, and 6% to Appalachia. If we continue to see strength in oil prices, expect to see CapEx trend toward the higher end of our guidance range for the year. With that said, the higher capex should be accompanied by higher production as our DNC list is actively converting tills and spuds and drawing down our working capital, specifically on the working capital front, including the impact of derivatives.
Nick O'Grady: This drove capex to $296 million inclusive of ground gain capital.
Adam Dirlam: Was a bit higher than anticipated for the first quarter.
Adam Dirlam: Of the 296 million, 68% was allocated to the Permian, 26% of the Williston is 6% to Appalachia.
Adam Dirlam: If we continue to see strength in oil prices.
Adam Dirlam: We expect to see Capex trend towards the higher end of our guidance range for the year.
Adam Dirlam: With that said the higher capex should be accompanied by higher production as our D&C list is actively converting tilson spuds and drawing down our working capital.
Adam Dirlam: Specifically on the working capital front.
Adam Dirlam: Excluding the impact of derivatives.
Chad Allen: We have seen an improvement of approximately $40 million in our working capital since the end of the year. At quarter end, we had over a billion dollars of liquidity, a prize of 32 million dollars of cash on hand, and 987 million available on our evolving facility, which was expanded at the end of April as a part of our semi-annual borrowing-based redetermination. However, our borrowing base remained constant at $1.8 billion.
Adam Dirlam: We've seen an improvement of approximately $40 million in working capital since the end of the year.
At quarter end, we had over $1 billion liquidity comprised of $32 million of cash on hand and.
Adam Dirlam: $987 million available on our revolving facility.
Chad Allen: Which was expanded at the end of April as a part of our semi annual borrowing base redetermination.
Adam Dirlam: While our borrowing base remained constant at $1 8 billion.
Chad Allen: We increased our elected commitments to $1.5 billion and added three high-quality banks to our syndicate. At quarter end, net debt to LQA EBITDA was 1.25 times, and we expect this ratio to trend down throughout 2024, barring significant cash M&A activity. As Nick discussed earlier, We're actively repurchasing shares in the first quarter despite the limited open window. We repurchased 549,000 shares for $20 million of our common equity at an average price of $36.42.
Chad Allen: We increased our electric commitments to $1 5 billion and added three high quality banks to our syndicate.
Adam Dirlam: At quarter end net debt to LTM EBITDA was one five times and we expect this ratio to trend down throughout 2024, barring significant cash M&A activity.
Chad Allen: As <expletive> discussed earlier.
Chad Allen: We're actively repurchasing shares in the first quarter Despite limited open window.
Adam Dirlam: We repurchased 549000 shares for $20 million of our common equity at an average price of $36 42.
Chad Allen: We are committed to allocating capital to share buybacks where there is a market divergence between our absolute and relative performance. And finally, before we go, Q&A. I'd like to address a few adjustments to guidance. We anticipate production of 117,500 to 119,500 BOE.
Adam Dirlam: We are committed to allocating capital to share buybacks, where there is a market divergence between our absolute and relative performance.
Chad Allen: And finally before we go to Q&A I'd.
Adam Dirlam: I'd like to address a few adjustments to guidance.
Chad Allen: Anticipate production of 117500 to 119500.
Chad Allen: Daily per day in Q2.
Chad Allen: BOE per day in Q2. Flat versus Q1 given the pull forward in March. Barney's continued pull forward should see CapEx down sequentially and a significant improvement in our free cash flow. Our Q2 expectation for oil volumes is also in line with Q1.
Adam Dirlam: Flat versus Q1, given the pull forward in March.
Adam Dirlam: Foreign continued pull forward.
Adam Dirlam: We should see Capex down sequentially and a significant improvement in our free cash flow.
Chad Allen: Our Q2 expectations for oil volumes is also in line with Q1.
Chad Allen: We have tightened the range on production expenses, and they are starting to come down as well as oil differentials, which the quarter date appears to be appeasing. We may make further adjustments when we report Q2 as needed. With that, I'll turn the call back over to the operator for Q&A. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Chad Allen: We have tightened the range on production expenses, which are starting to come down as well as oil differentials.
Adam Dirlam: Which quarter date appear to be improving.
Chad Allen: We may make further adjustments when we report Q2 as needed.
Speaker Change: With that I'll turn the call back over to the operator for Q&A.
Chad Allen: Thank you we will now begin the question and answer session.
Chad Allen: If you have dialed in.
Speaker Change: I'd like to ask a question. Please press star one on your telephone keypad.
Chad Allen: Nature has in front of the queue. If you would like to the counter questions in sequence Star one again.
Operator: If you would like to withdraw your question, simply press star 1 again. You are called upon to ask your question and are listening via the loudspeaker on your device. Please pick up your handset and ensure that your phone is not on mute when asking your question. Once again, press star 1 to join the queue.
Operator: If you are called upon to ask your question Andi think biologically.
Operator: Please pickup your handset.
Operator: It is not.
Operator: To your question.
Operator: Again press star one to join the queue.
Operator: And your first question comes from the line of Neal Dingmann of Truce Securities. Please go ahead. Good morning, guys. Good details. Nick, maybe get right to my first question, which is just on what I guess I would classify as maybe cycle time. It seems like your capital on the ground maybe increased, has increased a little bit, but the setup, I think as you and Adam, the guys, describe it, to me, it sounds like the future setup is better than ever.
Operator: And your first question comes from the line of Neil.
Operator: Al Zaman of choose Securities. Please go ahead.
Speaker Change: Hi, Good morning, guys. Good details Nick maybe get ready to my first question is just on what I guess I would classify as maybe cycle time, it seems like your cash.
Operator: Capital in the ground, maybe increase has increased a little bit but the setup as you would add in the geis describe it to me it sounds like the future setup is better than ever is this just a product of cycle time for some of the producers being a little bit longer or you know.
Operator: Is this just a product of cycle time for some of the producers being a little bit longer, or, you know, what's driving this? Because, again, I think your second half and 25 look as good, if not better than ever. It seems like a little bit in the fourth quarter and first quarter that there was a little more on the ground. So if you could just maybe hit on that a little bit. Yeah, I mean, look, you know.
Operator: What's driving this because again it does seem like I think your second half of 'twenty five look as good if not better than ever it seemed like a little bit in fourth quarter and first quarter that was a little more in the ground. So if you could just maybe hit on that a little bit.
Speaker Change: Yes, I mean look.
Operator: This is a little.
Nick O'Grady: This is a part, a little bit of, who we are and a little bit of how things are changing. You know, we're a returns-based organization. And obviously, as a non-operater, the timing of capital expenditures can shift the market. But as I said last quarter, and I'll say again, the total capital expenditures are the same, and to the extent it increases from one quarter to the next, it's because we're getting, you know, more activity. For getting more activity that meets our return holders, that's a good thing. What we've experienced in the last nine months is an acceleration of development. I would tell you, in the last 18 months, the average spud-to-till timing has gone from 234 days to 110 days.
Operator: A little bit of.
Nick O'Grady: What we are in a little bit of of how things are changing.
Nick O'Grady: We're a returns based organization.
Nick O'Grady: And obviously as a non operator in the timing of capital expenditures can shift markedly.
Nick O'Grady: As I as I said last quarter, and I'll say again that total capital expenditures are the same.
Nick O'Grady: And to the extent it increases from one quarter to <unk>, because we are getting.
Nick O'Grady: More activity.
Nick O'Grady: If we're getting more activity that meets our return holders. That's a good thing what are the what we've experienced in the last nine months is an acceleration of development.
Nick O'Grady: I would tell you in the last 18 months, our average spud to til timing has gone from 234 days to 110 days.
Nick O'Grady: That's a significant move, and it's hard to perfectly model. I'd say the difference between last quarter and this quarter is that this quarter's acceleration also came with more tilts, which obviously translated into significantly more production. So you got a lot more cash flow and benefit from it than last quarter. So it was a little bit less obvious last quarter, but I'd also say because we're an accrual shop, and because these accruals roll off over an extended period of time, and as these invoices are received, it's not something that's done quarter to quarter, and we don't run the business quarter to quarter, nor is the capital spent quarter to quarter; it's spent over the life of the wealth.
Nick O'Grady: That's a significant move and thats hard to perfectly model.
Nick O'Grady: I'd say the difference between last quarter and this quarters at this quarter's acceleration also came with more pills, which obviously translated into significantly more production. So you've got a lot more cash flow and benefit from it than last quarter.
Nick O'Grady: So it was a little bit less obvious last quarter, but I'd also say because we are an accrual shop and because these accruals roll off over an extended period of time and as these invoices are received.
Nick O'Grady: Not something thats done quarter to quarter, and we don't run the business quarter to quarter, nor is the capital spend quarter to quarter I spent over the life of the wells and so over a 12 month period generally the capital and the returns you can see from our standout corporate returns tends to play out and I want to be clear. This is a good thing corporate finance.
Nick O'Grady: So over a 12 month period, generally, the capital and the returns you can see from our standout corporate returns tend to play out. And I want to be clear, this is a good thing, as corporate finance would tell you, bringing capital forward is ultimately bringing net present value forward. That's capital, you know, that's corporate finance one. We just brought significant production into the highest-priced part of the Strip. And yeah, it brought up some catbacks.
Nick O'Grady: Tell you, bringing capital forward is ultimately, bringing net present value forward capital Thats corporate finance 101.
Nick O'Grady: We just brought forward significant production into the highest priced part of the strip and yet it brought forward some capex.
Nick O'Grady: It's the same capex that would have been spent later in.
Nick O'Grady: It's the same capex that would have been spent later in the year on evaporated strips, but I would argue this isn't a bad thing at all. They're great.
Nick O'Grady: In the year at a backward dated strip. So I would argue this isn't a bad thing at all.
Speaker Change: Great well said and then just quick follow up on.
Nick O'Grady: And then just a quick follow-up on capital allocation. You know, Adam mentioned just the shots on goal, and I continue to think you all have more opportunities than almost anybody.
Nick O'Grady: Capital allocation.
Nick O'Grady: Mentioned, just the shots on goal I continue to think you all have more opportunities.
Nick O'Grady: Anybody.
Nick O'Grady: How do you balance that in shareholder return given you have more prospects than I think any company out there.
Nick O'Grady: How do you balance that in, you know, shareholder return given you have more prospects than I think any company out there? Yeah, yeah, I think I don't see them as I would say the same thing we always would say, I don't think we view them as mutually exclusive. And I would also add that we look at a lot of acquisitions as things that can enhance those shareholder returns.
Nick O'Grady: Yes, yes, I mean, I think I don't see them as I'd say the same thing. We always would say is I don't think we view them as mutually exclusive and I think I would also add that we look at a lot of acquisitions is things that can enhance those shareholder returns. So most of the assets that we're looking at are generally cash flowing acquisition. So a lot of the assets that we look out we think.
Nick O'Grady: And enhance our dividends over time.
Nick O'Grady: But I would tell you that.
Nick O'Grady: Specifically.
Nick O'Grady: We would way.
Nick O'Grady: So most of the assets that we're looking at are generally, you know, cash flowing acquisitions. So a lot of the assets that we look at, we think can enhance our dividends over time. But I would tell you that, you know, specifically, you know, we would weigh a stock buyback as an example versus the potential long-term benefits of that versus an acquisition. We weigh those against each other every single day of the week, and there are times where one might look more attractive long term, but you know, we're in the like we talk about it might sound cliche, but it's not when we talk about maximizing total return And we're paid to be serious about it.
Nick O'Grady: A stock buyback as an example versus and the potential long term benefits of that versus an acquisition.
Nick O'Grady: We weigh those against each other every single day of the weekend there are times, where one might look more attractive long term.
Nick O'Grady: We talk about it might sound cliche, but its not when we talk about maximizing total return, but we really are serious about it and we're paid to be serious about it and so we have to think about.
Nick O'Grady: Over a 357 year period of those decisions that we make today and what what they are going what are the long term implications of those things and Thats how <unk>.
Nick O'Grady: <unk> for the equity.
Nick O'Grady: And what those acquisitions versus the decision to buy back stock today are going to make on that but I would tell you I think you can be answers there's room for both Adam I don't know if you want to add to that.
Nick O'Grady: And so we have to think about, you know, over a three, five, seven-year period of those decisions that we make today and what they're going to do, what are the long-term implications of those things. And that's how for equity, and what those acquisitions versus the decision to buy back stock today are going to make on that. But I would tell you, I think you can; the answer is there's room for both.
Nick O'Grady: You touched on it in your prepared comments in terms of dynamic capital allocation, we're always actively managing the portfolio reviewing what's in front of us and we're going to allocate capital accordingly.
Nick O'Grady: Question for Steve, Yes, I mean, I think even as it pertains says the stock buyback and admittedly.
Nick O'Grady: We had a relatively narrow window in the first quarter, we spent a lot of time.
Adam Dirlam: Adam, I don't know if you want to add to that. No, I mean, I think you touched on it in your prepared comments in terms of dynamic capital allocation. We're always actively managing the portfolio, reviewing what's in front of us, and we're going to allocate capital accordingly to what dislocations we see. Yeah, I mean, even as it pertains to the stock buyback, and admittedly, you know, we had a relatively narrow window in the first quarter, we spent a lot of time talking about the mechanics and just with the board of directors about, you know, how we would do it and about what the rules and regulations would be around it and what and what would be the nuances about that and how we would weigh that against potential M&A and just, But I would just say that we're not short of opportunities. Very helpful.
Nick O'Grady: The mechanics, and just where the board of directors about.
Adam Dirlam: How we would do it in about what what rules and regulations would be around it and what.
Speaker Change: What would be the nuances about that and how we would weigh that against potential M&A and just.
Speaker Change: The opportunity cost and to make sure we left room for that but I would just say this debt.
Speaker Change: We're not short of opportunities Thats for sure.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Thanks Neil.
Adam Dirlam: Okay.
Adam Dirlam: Okay.
Adam Dirlam: Your next question comes from the line of Phoenix Johnston with capital One your line is now open.
Speaker Change: Hey, guys. Thanks.
Speaker Change: So just to follow up on the Capex for the year, possibly landing in the upper half of the.
Adam Dirlam: The range, assuming oil prices and activity remains elevated Chad.
Speaker Change: Chad you sort of alluded to this.
Adam Dirlam: You sort of alluded to this in your comments, but would you think that your net well count in your production volumes for the year might also be.
Adam Dirlam: A little bit biased to the upper half of the ranges or do you think it's a little bit too early to tell just with the lag effects and whatnot.
Neal David Dingmann: Thanks, guys. Your next question comes from the line of Phillips Johnston of Capital One. Your line is now open.
Adam Dirlam: Yes. So this is Nick I mean, I think I read your note and I have to object to one of the things you said I think you.
Neal David Dingmann: Thank you misconstrued, what we were saying.
Neal David Dingmann: We're not suggesting that our capex assumes that oil prices will stay high for the rest of the year its quite the opposite what we were saying was that.
John Phillips Little Johnston: Hey guys, thanks. So just to follow up on the CapEx for the year, possibly landing in the upper half of the range, assuming oil prices and activity remain elevated. Chad, you sort of alluded to this in your comments, but would you think that your net well count and your production volume for the year might also be a little bit biased to the upper half of the ranges? Or do you think it's a little bit too early to tell? with the lag effects and, Yeah, folks, this is Nick.
Nick O'Grady: Since oil prices or increase we've seen an increase of <unk> activity on our acreage.
John Phillips Little Johnston: And that activity would translate into Capex theoretically wait later in the third and the fourth quarters of the year and our comment was that we're returns driven right. So our consent activity on those asp's is driven by oil prices and underwriting those returns and so if oil prices stay high will consented that activity and ultimately then the capex will be higher not the other.
Nick O'Grady: The way around.
Nick O'Grady: So we also noted we'd be flexible because our business model, obviously inherently is more flexible than an operated one and so to the extent that oil prices were to change obviously do we pivot quickly.
Nick O'Grady: I think I read your note. And I have to object to one of the things you said. I think you misconstrued what we were saying. You know, we're not suggesting that, you know, our CapEx assumes that oil prices will stay high for the rest of the year. It's quite the opposite.
Nick O'Grady: We're just suggesting that if things stay that has stayed as they are we wanted to guide investors investors Accordingly based on a status quo. So I would tell you that if oil prices stayed high we would probably expect to see continued elevated activity because what we noticed was that as oil prices rallied early in this year, we started to.
Nick O'Grady: What we were saying was that, since oil prices have increased, we've seen an increase in AFE activity on our acreage, and that AFE activity would translate into CapEx, theoretically, later in the third and the fourth quarters of the year. And our comment was that we're returns driven, right? So our consent activity on those AFEs is driven by oil prices and underwriting those returns. And so if oil prices stay high, we'll consent to that activity. And ultimately, then the CapEx would be higher, not the other way around. So we also know that we'd be flexible because our business model is obviously inherently more flexible than an operated one.
Nick O'Grady: See a notable pickup in activity and thats going to translate particularly that activity you see today is really going to be activity, that's going to translate into well proposals that are going to start to come online towards the end of this year and point towards 2025, and so it would be China in lines that would likely be towards the end of this year and chatter and then Doug.
Nick O'Grady: Sales into your comments in terms of the spud to til.
Nick O'Grady: And so to the extent that oil prices were to change, obviously, we would pivot quickly. We're just suggesting that if things stay that way, we wanted to guide investors accordingly based on that status quo. So I would tell you that if oil prices stayed high, we would probably expect to see continued elevated AFE activity because what we noticed was that as oil prices rallied early this year, we started to see a notable pickup in activity, and that's going to translate, particularly, that activity you see today is really going to be activity that's going to translate into well proposals that are going to start to come online towards the end of this year and point towards 2025 And that dovetails into your comments in terms of the spud-to-till timing, right?
Nick O'Grady: Right now, we're getting well proposals.
Nick O'Grady: Especially with elevated working interest and depending on who those operators are and how they are developing it whether it's a one.
Nick O'Grady: Two well development program or if it's a full cube development program, that's going to dictate till causing it or kind of.
Nick O'Grady: On that cost as we see things.
Nick O'Grady: Socialize and development progresses.
Nick O'Grady: That's where we're at right now we're not deciding to spend the money and hoping oil prices are going to stay high or saying that if oil prices stay high or likely to see that kind of activity thats, what we were suggesting.
Nick O'Grady: Okay.
Speaker Change: Appreciate the clarification there.
Speaker Change: Shifting over I guess to your views on the gas market, we've seen 25% and 26 strip prices actually creep up since you guys reported Q4.
Nick O'Grady: Despite kind of.
Nick O'Grady: Super high inventories and weak weak pump prices.
Chad Allen: I mean, right now, we're getting well proposals, you know, especially with elevated working interest, and depending on who those operators are and how they're developing it, whether it's a one-to-two well development program or if it's a full cube development program, that's going to dictate the till timing. And so you're kind of on that tusk as we see things kind of socialized and development progresse That's where we're at right now. Yeah.
Chad Allen: I saw your Nymex gas hedges for 25, and 26 are in our on our unchanged excuse me.
Speaker Change: But are you tempted to sort of layer in anymore.
Chad Allen: Activity I guess in the out years.
Chad Allen: Yes.
Chad Allen: I think it's been proven time and time again, the contango is a bearish formation.
Nick O'Grady: We're not deciding to spend the money and hoping oil prices... Stay high. We're saying that if oil prices stay high, we're likely to see that kind of activity. That's what, Okay, I appreciate the clarification there. Shifting over, I guess, to your views on the gas market, you know, we've seen 25 and 26 strip prices actually creep up since you guys reported Q4 despite, you know, kind of, Super High Inventories and Weak Prompt Prices. I saw your NYMEX gas hedges for 25 and 26 are unchanged. Excuse me, but are you tempted to sort of layer in any more?
Chad Allen: And I think we will probably act accordingly, and Matt I think.
Nick O'Grady: When we went into steep contango for 2024 last year, we began to hedge and I think youll, probably see US Act accordingly.
Speaker Change: So I think the answer is yes, I mean I think.
Nick O'Grady: Contango tends to give a perverse incentive to producers right. So it will tell them to keep producing I know youre seeing curtailments right now the curtailments are not necessarily a panacea because ultimately you're just turning something off that you can turn right back on and you keep drilling if youll notice most.
Nick O'Grady: Natural gas producers right now are not cutting capex, there actually still drilling and curtailing production, so effectively they're going to be able to turn it back on it at a moment's notice that's not healing the market in my opinion.
Nick O'Grady: activity I guess in the coming years. Yeah. Yeah, I mean, I think it's been proven time and time again that contango is a bearish formation. Right?
Nick O'Grady: And I think we will probably act accordingly. I mean, when the curve went into steep contango over 2024 last year, we began to hedge, and I think you'll probably see us act accordingly. So I think the answer is yes. I mean, I think contango tends to give a perverse incentive to producers, right? So it will tell them to keep producing.
Nick O'Grady: And so to me it does not make me feel overtly bullish on the market like the market seems to want to be.
Nick O'Grady: And <unk>.
Nick O'Grady: Backward dated market is a much healthier market.
Nick O'Grady: So what it's telling me is that.
Nick O'Grady: If you'd like we want to sell in that market look do I think gas is going to be $1 80 or $2 now that's not a sustainable price.
Nick O'Grady: And I think those high prices are likely and those are obviously very profitable levels for us and so I think we'd be very happy to sell into those.
Nick O'Grady: I know you're seeing curtailments right now, but curtailments are not necessarily a panacea because, ultimately, you're just turning something off that you can turn right back on, and you keep drilling. As you'll notice, most natural gas producers right now are not cutting capex; they're actually still drilling and curtailing production. So effectively, they're going to be able to turn it back on at a moment's notice. That's not healing the market, in my opinion.
Speaker Change: Yes, Philip so just on the hedging comment I think we have been adding some some calls call options out in those years, so look for that in the 10-Q, but.
Nick O'Grady: Yes.
Speaker Change: Okay, great. Thanks, guys I appreciate it.
Nick O'Grady: Question comes from the line of Scott Hanold of RBC.
Nick O'Grady: Go ahead.
Speaker Change: Hey, thanks.
Nick O'Grady: Look I'm going to kind of come back to the Capex conversation, we could but take a little bit different angle on it.
Nick O'Grady: And so, to me, it does not make me feel overtly bullish on the market like the market seems to want to be. And, you know, a back-related market is a much healthier market. And so what it's telling me is that you likely want to sell in that market. Look, do I think gas is going to be $1.80 or $2? No, that's not a sustainable price.
Nick O'Grady: I guess correct me, if I'm wrong, but.
Nick O'Grady: Your back half Capex, the implied quarterly run rates around 160 to 170 and could you just give us a high level view I think your production probably is going to peak somewhere in that.
Nick O'Grady: 120, plus range in the third quarter.
Nick O'Grady: But I think those high prices are likely, and those are obviously very profitable levels for us, and so I think we'd be very happy to sell. Yeah, Phillips, just on the hedging comment, I think, you know, we have been adding some call options out over the years, so look for that in the 10-Q. Okay, great. Thanks, guys. Appreciate it.
Speaker Change: And when you're fundamentally think about like what capex run rate needs to occur to kind of maintain production by by your non ops.
Nick O'Grady: Is 160 to 170 adequate or does that sort of create a little bit of a tail off in <unk>.
Nick O'Grady: Production heading into 'twenty five.
Nick O'Grady: Well our decline rate is moderating this year so.
John Phillips Little Johnston: The next question comes from the line of Scott Hanold of RBC. Please go ahead. Hey, all. Thanks.
Nick O'Grady: Our overall maintenance capital is coming down too.
Scott Michael Hanold: Alright, so I like where we're.
Scott Michael Hanold: You know, look, I'm gonna kind of come back to the CapEx conversation, if we can, but take a little bit of a different angle on it. I guess correctly if I'm wrong, but, you know, you're back half CapEx, the implied quarterly run rates around 160 to 170. And could you just give us a high-level view? I think your production probably is going to peak, you know, somewhere in that, you know, or, you know, 120 plus range in the third quarter.
Scott Michael Hanold: We're losing about what Jim five points.
Scott Michael Hanold: Decline rates throughout the year, so as the year as the year progresses, our overall maintenance capital is coming down meaningfully.
Scott Michael Hanold: So.
Scott Michael Hanold: The uncertain year question is until it's a little bit of a fuzzy number but I'd say that.
Speaker Change: It really depends from a pull forward perspective and in terms of the capital, but but the answer is we have not determined within the year exactly how obviously, we haven't we haven't determined where we want to go for 25 at this point in time I mean, obviously, we have had we have.
Scott Michael Hanold: And, you know, when you fundamentally think about, like, what CapEx run rate needs to occur to kind of maintain production by your non-ops, is 160 to 170 adequate? Or does that sort of create a little bit of a tail off in, you know, production heading into 25? Well, our decline rate is moderating as we head into the year, Scott, so our overall maintenance capital is coming down. Right, so we're losing about what, Jim?
Scott Michael Hanold: Long and storied history of growing so our end, we're incentivized to grow so I would think every.
Jim: I will make every assumption that we would plan to find ways and path to grow as we move towards next year.
Scott Michael Hanold: Yes.
Speaker Change: But I think the answer to your to your question is that.
Scott Michael Hanold: <unk>.
Scott Michael Hanold: We.
Scott Michael Hanold: As it as it pertains to this year from a path Jim.
Jim: Yes, I mean, I think the answer to this year is that yes effectively through.
Nick O'Grady: Five points of decline throughout the year. So, as the year progresses, our overall maintenance capital is coming down. So, the answer to your question is it's a little bit of a fuzzy number, but I'd say.
Scott Michael Hanold: Through the past our overall capital 10 10.
Nick O'Grady: <unk> stepped down throughout the year and then then in production would peak and then slightly declined in the fourth quarter.
Nick O'Grady: But not meaningfully even though the capital falls off materially.
Nick O'Grady: It really depends from a pull forward perspective and in terms of capital, but the answer is, you know, we have not determined within the year exactly how, you know, obviously, we haven't, we haven't determined where we want to go for 25 at this point in time. I mean, obviously, we have had, we have a long and storied history of growing. So we're incentivized to grow.
Speaker Change: No no I appreciate there's a lot of you know.
Nick O'Grady: Gives and takes with accruals and stuff like that and that all makes sense.
Nick O'Grady: And remember it's.
Nick O'Grady: It's not it's not a meaningful amount.
Speaker Change: Got it Okay and then.
Speaker Change: And I'm sorry go ahead.
Nick O'Grady: It's just not that meaningful.
Nick O'Grady: It's not a meaningful amount.
Nick O'Grady: Okay.
Nick O'Grady: You all had discussed in some of your prepared comments that some of the stronger production results was due to some pull pull in of activity, but also some well performance can you be a little more specific on that I mean, you. Obviously you have a couple.
Nick O'Grady: And so I would make every assumption that we would plan to find ways and paths to grow as we move towards next year. But I think the answer to your question is that, um, us, as it pertains to this year from the path of Jim. Yeah, I think the answer to this year is that, effectively, through the past, our overall capital can step down throughout the year and then production would peak and then slightly decline in the fourth quarter, but not by much. The Capitol Falls Off material.
Speaker Change: Large joint ventures with the mask on a novo can you kind of qualify or quantify what you're seeing with some of those those wells and is that what's really driving the performance or is it more broad based than that.
Nick O'Grady: Yeah, no, no, I appreciate there's a lot of you know, you know, gives and takes for the cruels and stuff like that. And that all makes sense. And remember, it's not it's not a Got it.
Nick O'Grady: Well I think it's a combination of the two as far as kind of the projects go they're all at or above expectations in terms of new.
Nick O'Grady: <unk> activity that we've been seeing.
Nick O'Grady: Okay. And then, you know, I'm sorry, go ahead. It's just, it's just not meaningful.
Nick O'Grady: Novo.
Nick O'Grady: New Mexico assets, our Utica assets are outperforming we've seen some really full of performance in the Williston as well with the likes of continental and Conoco and exposure to Slawson and marathon there are.
Scott Michael Hanold: Okay, you all discussed in some of your prepared comments that some of the stronger production results were due to, you know, some pull, pull in of activity, but also some well outperformance. Can you be a little more specific on that? I mean, you obviously have a couple of, you know, large joint ventures with Mascot and Novo. Can you kind of quantify what you're seeing with some of those wells? And is that where what's really driving the performance? Or, you know, is it more broad-based than that? I think it's a combination of the two as far as the kind of projects go.
Speaker Change: I'll kind of stick it into the core where we've got some outsized working interest.
Scott Michael Hanold: Seems to be.
Scott Michael Hanold: It's a combination.
Scott Michael Hanold: <unk> of all the above.
Speaker Change: Got it thank you.
Scott Michael Hanold: Your next question comes from the line of Charles Meade of Johnson Rice. Please go ahead.
Scott Michael Hanold: Okay.
Speaker Change: Good morning, Nick.
Speaker Change: Nick Adam and Chad I wanted to pick up perhaps right, where we just left off on the on the source of the production beat.
Adam Dirlam: They're all at or above kind of expectations in terms of the new development activity that we've been seeing from NOVA with the New Mexico assets; our Utica assets are outperforming. We've seen some meaningful performance in Williston as well with the likes of Continental and Conoco and exposure to Slauson and Marathon. And they're all kind of sticking into the core where we've got some outsized working interests. So it seems to be a combination of all the above. Got it. Thank you. Your next question comes from the line of Charles Meade of Johnson Rice. Please go ahead.
Scott Michael Hanold: I was wondering if you could.
Charles Arthur Meade: Look at it or try to answer it in this framework in late February you guys.
Charles Arthur Meade: Thought that there was going to be a slight decline.
Charles Arthur Meade: And until you came in with.
Charles Arthur Meade: 4% growth on the quarter so.
Adam Dirlam: Got.
Charles Arthur Meade: Was there a specific.
Charles Arthur Meade: I think this is.
Charles Arthur Meade: Because he already asked about the geographies I guess.
Charles Arthur Meade: What what changed.
Charles Arthur Meade: In <unk>.
Adam Dirlam: March.
Charles Arthur Meade: That led to that.
Charles Arthur Meade: Morning, Nick, Adam, and Chad, I want to pick up perhaps right where we just left off on the source of the production beat, but I wondered if you could, you know, look at it or try to answer it in this framework. In late February, you guys thought that there was going to be a slight decline. And so you came in with what, 4% growth in the quarter. Was there a specific question I think this is? I guess he had already asked about the geographies, I guess.
Charles Arthur Meade: Led to that.
Charles Arthur Meade: Result that was different from what you guys saw at the end of February.
Speaker Change: Well I think youre talking about what changed in <unk>.
Charles Arthur Meade: What we were seeing I think it's going to be a combination of what wells came online in March as well as as these wells are cleaning up in January and February you've got very limited data in terms of what youre seeing and so you've got to let it play out over an extended period of time.
Charles Arthur Meade: What changed in March that led to that, you know, that led to that? The result was different from what you guys saw at the end of February. Well, I think as you're talking about what changed in what we were seeing, I think it's going to be a combination of what wells came online in March, as well as as these wells are cleaning up in January and February. You've got very limited data in terms of what you're seeing. And so you've got to let it play out over an extended period of time. And then Jim, I don't know if you want to comment on anything else in particular, but... Yeah, Charles.
Speaker Change: And then Jim I don't know if you want to comment on anything else in particular, but.
Jim: Yes, Charles and obviously, we saw pull forward of activity as well right. So we had three extra net wells that we werent really accounting for so that added some production there to look at.
Jim: I mentioned, the Utica assets, they continue to clean up performed better than we had expected.
Jim: At that time as well as we had some new wells come online in mid February on the Novo asset that have significantly outperformed our expectations.
Jim: And that's another driver as well and then as we showed in the Williston Awesome, New Continental wells have looked really good compared to our expectations. So just kind of a combination of all those things really cannot drove Q1 performance versus what we are modeling kind of that mid to late February timeframe.
Adam Dirlam: And obviously, we saw a full forward of activity as well, right? So we had three extra net wells that we weren't really accounting for, so that added some production there, too. Like Adam mentioned, the Utica assets continue to clean up, perform better than we had expected at that time, as well as we had some new wells come online in mid February on the Novo asset that have significantly outperformed our expectations. So that's another driver as well.
Adam Dirlam: Just.
Adam Dirlam: A lag and information right I mean, we might be getting this information on a daily basis, but you need to be able to bring it in house socialize it against the model.
Adam Dirlam: And then put all the pieces together, because youre going to have pushes and pulls everywhere and then it's just going to depend on what your working interests are.
Adam Dirlam: The timing of that development and information.
James B. Evans: And then, as we showed in the Williston, new continental wells have looked really good compared to our expectations. So just kind of the combination of all those things really kind of outdrove Q1 performance versus what we were modeling, kind of that mid to late February timeframe. Yeah, frankly, just a lag in information, right? I mean, we might be getting this information on a daily basis, but you need to be able to bring it in-house, socialize it against the model, and then put all the pieces together.
James B. Evans: There are certain things to Charles from an assumption perspective like using the freeze up event in the Williston.
James B. Evans: We were very concerned not necessarily about the freeze off event in and of itself. We had a pretty good handle of that but we were pretty concerned that it was going to push particularly a lot of the completions out. So we had scheduled with the assumption that a lot of the completions will be pushed out multiple weeks and then later on in <unk>.
Adam Dirlam: Because you're going to have pushes and pulls everywhere, and then it's just going to depend on what your working interests are, the timing of that development and information. Yeah, and there are certain things to Charles, like from an assumption perspective, like using the freeze-up event in the bulls.
Adam Dirlam: February and March came to find out that a lot of that stuff had actually come right on schedule right. So then youre going back and re Jiggering that is you actually get the well status in our reports and so a lot of the a lot of the stuff, we had anticipated kind of getting delayed manav not being delayed.
Adam Dirlam: Then ultimately.
Nick O'Grady: We were very concerned, not necessarily about the freeze-off event in and of itself. We had a pretty good handle on that, but we were pretty concerned that it was going to push, particularly a lot of the completions out. So we had assumed that a lot of the completions would be pushed out by multiple weeks. And then, you know, later on in February and March came to find out that a lot of that stuff had actually come right on schedule, right?
Adam Dirlam: It's not just the tills themselves, having more tills themselves, but even within the quarter things being more on time and being accelerated and then you thought so youre getting the benefit of time within a quarter not just the actual additional activity on top of that.
Speaker Change: So that's all.
Speaker Change: That's all helpful incremental detail.
Nick O'Grady: Yes.
Nick O'Grady: I will tell you what they are.
Nick O'Grady: And I mentioned this in my prepared comments and we are just seeing flat out better well performance. I mean, you saw that in our June and you may not see it because obviously our Permian mix. This year is more Midland base, though is obviously, maybe a bit lower than our average last year year to date, but it's certainly better than what our internal forecast.
Nick O'Grady: So then you're going back and rejiggering that as you actually get the well status and the reports in. So a lot of the stuff we had anticipated kind of getting delayed or not being delayed. So then, ultimately, it's not just the tills themselves having more tills themselves, but even within the quarter, things being more on time and being accelerated than you thought. So you're getting the benefit of time within a quarter, not just the actual additional activity on top. So that's all helpful incremental detail.
Nick O'Grady: And so in general we've been doing a bit better than we anticipated coming out of the gates.
Speaker Change: Got it and then Nick.
Nick O'Grady: Yeah.
Speaker Change: Another question on the Capex and.
Speaker Change: Yeah, It went up.
Speaker Change: I'm sure that I am sure that and I want to get the benefit because I'm sure. You you participated in a lot of internal discussions.
Nick O'Grady: Yeah, and just I will tell you, like there, you know, and I mentioned this in my prepared comments, we are just seeing flat out better results. You may not see it because, obviously, our Permian mix this year is more Midland based, so it is obviously maybe a bit lower than our average last year, year-to-date, but it's certainly better than our internal forecast. And so, in general, we've been doing a bit better than we anticipated coming out of the pandemic.
Speaker Change: I want to make sure I understand what youre, saying and and I'm thinking about the right applications going forward I mean in <unk>, you guys had a big capex.
Nick O'Grady: When you came in a lot higher than expected pre release that we got another one here this quarter if I if I understood you correctly. The two main drivers appear to be.
Nick O'Grady: Increased cycle time or reduce.
Nick O'Grady: Reduce the cycle time, so increased pace.
Nick O'Grady: And then, Nick, another question on the CapEx, and I want to, you know, I'm sure that, and I want to get the benefit because I'm sure you participated in a lot of internal discussions, you know, and I want to make sure I understand what you're saying and have the right implications going forward. I mean, in 4Q you guys had, It came in a lot higher. I expect you to pre-release that we got another one here.
Nick O'Grady: A higher oil price, which leads to more.
Nick O'Grady: If the proposals in it.
Speaker Change: If thats if thats correct.
Nick O'Grady: What is your are those two vectors are they are they are they flat going forward.
Speaker Change: I'm not sure I follow.
Nick O'Grady: Arrow pointed I mean are we do we still if those are the two big drivers.
Nick O'Grady: You go a different direction, if you want it but the question is as we look at <unk> and <unk> are.
Nick O'Grady: Are those areas still pointed out are we going to have further decrease cycle times.
Nick O'Grady: This quarter, if I understood you correctly, the two main drivers appear to be increased cycle time or reduced cycle time, so increased pace, and a higher oil price, which leads to more AFE proposals. And if that's if that's correct, What is your, are those two vectors, are they flat going forward?
Nick O'Grady: And yes, maybe the oil price isn't going up but perhaps perhaps there's a is there a building wave of air fees or is this kind of a spurt.
Speaker Change: I had a question I got a question about 2018, when I first started here being line okay.
Nick O'Grady: Is the productivity improvement in the Bakken done as you know.
Charles Arthur Meade: I'm not sure I understand, Charles. I don't know, is the arrow pointed, I mean, are we supposed to be still if those are the two big drivers, and, you know, you can go a different direction if you want, but the question is, as we look at 2Q and 3Q, are those errors still pointed? Are we going to have further decreased cycle times? And maybe the oil price isn't going up. But perhaps, perhaps, you know, there's a, you know, is there a building wave of AFEs? Or is this kind of a spur that's going to attend?
Nick O'Grady: Well cost wells have gotten so much better and fracking has gotten so much better and then every single year, they've found ways to make wells better so.
Charles Arthur Meade: And I got the same question last year and I got the same question a year before and the answer is the industry's amazing they found ways to go faster and faster and faster and frankly.
Charles Arthur Meade: The onus is on us.
Charles Arthur Meade: We've.
Charles Arthur Meade: We have candidly struggled to keep up with the pace and we've been I mean.
Charles Arthur Meade: I don't view, it necessarily as a bad thing, but the speed at which our operators.
Nick O'Grady: I got a question. I got a question like 2018 when I first started here being like, okay, you know, It's the productivity improvement in the Bakken done, because, you know, well costs, you know, wells have gotten so much better and fracking has gotten so much better. And then every single year, they found ways to make wells better, so, and I got the same question last year and I got the same question the year before. The answer is.
Nick O'Grady: Obviously taken us by surprise to some degree but at the same time like I just.
Nick O'Grady: Don't really see this is not necessarily the total category.
Nick O'Grady: You can see it in our weighted average cost of a well we're not we're not blowing through having inflationary pressures.
Nick O'Grady: If you look at the overall capital Delta, we drilled three extra wells this quarter right. So and you saw it in the top line results right.
Nick O'Grady: Again like I don't really see a major disconnect year Delta last quarter is masked by the fact that ultimately it's really a percentage of completion thing as opposed to the additional tools, but ultimately, yes, youre seeing cycle times cannot predict if the operators are going to stop going faster I don't I don't know if I can make that prediction.
Nick O'Grady: The industry is amazing. They've found ways to go faster and faster and faster. And frankly, you know, the onus is on us. But look, we've candidly struggled to keep up with the pace, and we've been, I mean, I don't view it necessarily as a bad thing, but the speed at which our operator has gone has obviously taken us by surprise to some degree. But at the same time, like, I just, I don't really see this as necessarily the total cost of the cat, like, see it in our weighted average cost of a well. We're not blowing through, we're not having inflationary pressures.
Nick O'Grady: That would be predicting something that I don't control.
Nick O'Grady: And I would say operators are incentivized to make more and more money. So I would say there whether oil prices are going up or down I would say if oil prices go down they're going to still try to find a way to make more money. So they are going to find a way to go faster and faster and make more money. So I would say no they're going to still find ways to go faster.
Nick O'Grady: If you look at the overall capital delta, we drilled three extra wells this quarter, right? So, and you saw it in the top line results, right? So I don't, again, like I don't really see a major disconnect here.
Nick O'Grady: And it's just going to depend on the operator mix in the development.
Nick O'Grady: The working interest that we're getting in the door right you don't necessarily have that view because they might balance to it.
Nick O'Grady: The delta last quarter is masked by the fact that, ultimately, it's really a percentage of completion thing as opposed to additional. But you're ultimately you're yes, you're seeing cycle times. Can I predict if the operators are going to stop going faster? I don't I don't know if I can make that prediction, because that would be predicting something that I don't control.
Nick O'Grady: One week and then they followed up with six more and they all end up being on the same path. So those are things that we need to digest.
Nick O'Grady: Truly understand I think the <unk> activity has picked up.
Nick O'Grady: We've seen that in March and April.
Nick O'Grady: We would expect in this environment all things remaining the same that.
Nick O'Grady: Development cadence and everything else will continue but that can change on a dime.
Nick O'Grady: And I would say operators are incentivized to make more and more money. So, I'd say whether oil prices are going up or down, I'd say if oil prices go down, they're going to still try to find a way to make more money. So they're going to find a way to go faster and faster and make more money. So I would say no, they're going to still find ways to go faster. And it's just going to depend on the operator mix and the development mix and the working interest that we're getting in the door, right?
Speaker Change: Got it.
Speaker Change: Thank you for that.
Nick O'Grady: Question comes from the line of Gary Quinn.
Speaker Change: Please go ahead.
Nick O'Grady: Thanks.
Nick O'Grady: Morning, all.
Nick O'Grady: Hello.
Nick O'Grady: Regarding the larger asset packages, how would you characterize the competition you're experiencing in that market at present aside from the quality and wider bid ask spreads you saw in Q1 is that still a robust market and opportunity for you.
Speaker Change: Yes, I haven't we haven't at the larger package Derek I don't think we felt like there's a ton of.
Nick O'Grady: But we've certainly seen bankers tried to make give the illusion of competition.
Nick O'Grady: And you don't necessarily have that view with AFEs because they might ballot two AFEs, you know, one week, and then they follow it up with six more, and they all end up being on the same path.
Nick O'Grady: And a couple of cases, but we haven't really seen much competition.
Nick O'Grady: In reality.
Nick O'Grady: I think where the challenge has been more that I think there has been an issue.
Speaker Change: Thank you.
Nick O'Grady: Of late.
Nick O'Grady: Been harder for us to find assets that we really wanted to lean in on meeting like <unk>.
Adam Dirlam: So those are things that we need to digest, you know, truly understand. I think the AFE activity has picked up. We've seen that in March and April, and, you know, we would expect, in this environment, all things to remain the same, that, you know, development cadence, and everything else will continue, but that can change on a dime. Thank you for that. That question comes from the line of Derrick Whitfield of Step Up. Please go ahead. Thanks. Good morning, all.
Derrick Lee Whitfield: Where you knew the clearing price and would we really feel like they were assets that we will be willing to pay what you knew it was required to take at home I guess is where sprint.
Derrick Lee Whitfield: Framing it up a different way for you.
Derrick Lee Whitfield: We're seeing more entrants from family offices, some private equity groups.
Derrick Lee Whitfield: Some crossover from the minerals side.
Derrick Lee Whitfield: Which is obviously validating in terms of other sources recognizing the power of the business model.
Derrick Lee Whitfield: Regarding the larger asset packages, how would you characterize the competition you're experiencing in that market at present? Aside from the quality and wider bid-ask spread you saw in Q1, is that still a robust market and opportunity for you? Yeah, I mean, I haven't we haven't.
Derrick Lee Whitfield: That's largely limited to smaller funds and so where I think youre seeing maybe a little bit more of an elevation in competition is on the smaller ground game side.
Derrick Lee Whitfield: We're just we're playing a different sand boxes.
Derrick Lee Whitfield: Starting to talk about asset packages that are north of $150 million in terms of funds that are being raised.
Nick O'Grady: It's a larger package, Derrick. I don't think we felt like there was a ton of competition. I mean, we've certainly seen bankers try to give the illusion of competition in a couple cases, but we haven't really seen much competition. In reality, I think where the challenge has been more that I think there's been, I think, of late. It's been harder for us to find assets that we've really wanted to lean in on, meaning, where you knew the clearing price and did we really feel like they were assets that we would be willing to pay what you knew it was required to take them home? I guess that's where I'm framing it up a different way for you. We're certainly seeing more entrance from family offices, some private equity groups, and some crossover from the minerals And so where I think you're seeing maybe a little bit more of an elevation in competition is on the smaller ground game side.
Nick O'Grady: Being able to handle potential concentration those types of things.
Nick O'Grady: And so I think.
Nick O'Grady: What we're seeing in that regard is generally stayed status quo.
Nick O'Grady: That can also change, but based on kind of what we're seeing in the feedback that we're getting I don't see a material material change on the large yes.
Nick O'Grady: So I would say where we see.
Nick O'Grady: We definitely seen buyers of PDP centric assets.
Nick O'Grady: That's we're very happy to see that because that's just not where we're generally focused.
Nick O'Grady: I mean from time to time, I think we see some groups that raise capital and deploy it in a meaningful way or is one group that we saw it ended up paying north of 75% of where we were coming out at and we're happy to let them have it and frankly, they shut their one and only bullet and we haven't heard from him again so.
Adam Dirlam: We're just, we're playing in different sandboxes when you're starting to talk about asset packages that are north of $150 million in terms of funds that are being raised and being able to handle potential concentration, those types of things. And so I think what we're seeing in that regard is generally the status quo. Obviously, that can also change, but based on kind of what we're seeing and feedback that we're getting, I don't see a material change on a large scale.
Adam Dirlam: They can digest that for hours as long as they need to and then if they want to sell it.
Adam Dirlam: And maybe at that point, we're taking another look at it.
Adam Dirlam: Not at those prices yes.
Adam Dirlam: I would just tell you. This I don't think theres been an asset that we've covered it yet.
Adam Dirlam: That we really felt was.
Nick O'Grady: I'd say where we see people, you know, we've definitely seen buyers of PDP-centric assets, and that's, we're very happy. That's just not where we're generally at.
Nick O'Grady: Very attractive to us that we haven't.
Nick O'Grady: Felt that we were.
Nick O'Grady: Outmatch for.
Nick O'Grady: When we've really.
Nick O'Grady: Yeah, I mean, from time to time, I think we see some groups that raise capital deployed in a meaningful way. There was, you know, one group that we saw that ended up paying north of 75% of where we were coming out at. And we're happy to let them have it. And frankly, they shot their one and only bullet, and we haven't heard from them again.
Nick O'Grady: Quality that you've seen us execute on but it was really had to stretch.
Nick O'Grady: Stretch here.
Nick O'Grady: Go out of our comfort zone, four and I think that that's a testament to where we are in the marketplace.
Nick O'Grady: Terrific.
Speaker Change: As my follow up.
Nick O'Grady: Think about Permian macro.
Nick O'Grady: Regarding the pipeline outages and tighter egress conditions that are expected until Matterhorn comes on in Q3.
Adam Dirlam: So, they can digest that for as long as they need to, and then if they want to sell it, then maybe at that point, it's worth taking another look at it, but not at those prices. I mean, I would just tell you this. I don't think there's been an asset that we've coveted yet, that we really felt was very attractive to us that we haven't, felt that we were, Outmatched for, you know, when we've really, you know, of the quality that you've seen us execute on, where we've really had to stretch or, you know, go out of our comfort zone for, and I think that that's a testament to And as my follow up, I am really thinking about Permian macros.
Adam Dirlam: You guys are expecting industry to adjust turn in line activity to match supply growth with <unk> group.
Speaker Change: Yeah, Yeah yeah.
Speaker Change: Absolutely seeing.
Adam Dirlam: Especially for some of the smaller operators that are going to have to.
Adam Dirlam: They are having to navigate around it I mean, I think we're blessed with the fact that most of our operators in the Permian.
Adam Dirlam: Bigger operators with more integrated midstream systems, and better access points, but even they have to navigate around these issues to Eric and so it's not a small issue and I don't want to sugarcoat it.
Adam Dirlam: And you can see that I think we curves for better for worse than I would like to say, we were geniuses, but we basically have almost zero.
Derrick Lee Whitfield: Regarding the pipeline outages and tidal egress conditions that are expected until Matterhorn comes on in Q3, are you guys expecting the industry to adjust turn-in-line activity to match supply growth with egress growth? Yeah, yeah, I mean, you're definitely seeing, especially for some of the smaller operators, they're going to have to, they're having to navigate around it. I mean, I think we're blessed with the fact that most of our operators in the Permian are, you know, bigger operators with more integrated midstream systems and better access points, but even they have to navigate around these issues, Derrick, and so it's not a small issue, and I don't want to sugarcoat it.
Derrick Lee Whitfield: Exposure this year.
Speaker Change: Financially speaking at least how we effectively hedged all of it away.
Derrick Lee Whitfield: I'd Love to say, we did it completely on.
Derrick Lee Whitfield: On purpose, but we just really where we were a little bit concerned coming into the year and I think we just had a heavy hand on it what we were hedging and partly because we are so acquisitive last year.
Derrick Lee Whitfield: But I think that it's going to take some time I missed some of it is.
Derrick Lee Whitfield: Briefly highlight some of it is it's been made worse by maintenance, but I don't think its necessarily going to get magically better. This year. So next.
Derrick Lee Whitfield: And, you know, you can see that I think we, for better or for worse, and I would like to say we were geniuses, but we basically have almost zero waha exposure this year, you know, financially speaking, at least. We effectively hedged all of it away, and I'd love to say we did it completely, you know, on purpose, but we just really were a little bit concerned coming into the year, and I think we just had a heavy hand on it when we were hedging it, partly because we were so acquisitive last year. But I think that it's going to take some time to make some of it. Rightly highlight some of it is that it's been made worse by maintenance, but I don't think it's necessarily going to get, you know, magically better this year. So I will try next year.
Derrick Lee Whitfield: Next year I don't think it's I think it's still going to be.
Derrick Lee Whitfield: A wide issue for some time I think it's going to take a couple of years, so you're going to need more and more to be built out.
Derrick Lee Whitfield: So I do think it's going to limit some growth, particularly in the Delaware for the next year or so.
Speaker Change: Makes sense very helpful.
Derrick Lee Whitfield: Your next question comes from the line of Daniel.
Derrick Lee Whitfield: Thanks, Schafer of Northland Capital. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking the questions.
Speaker Change: So I'm going to ask about I don't know we've already had.
Derrick Lee Whitfield: A couple of people ask about the better than expected well performance.
Derrick Lee Whitfield: So that's why it's beating a dead horse, but I kind of wanted to.
Speaker Change: Wanted to get really so the core of it so.
Nick O'Grady: I don't think it's I think it's still going to be a widespread issue for some time. I think it's going to take a couple of years, and you're going to need more and more to be built out. So I do think it's going to limit some growth, particularly in Delaware for the next year or so. Makes sense, very helpful. Your next question comes from the line of Donovan Schafer of Northland Capital. Please go ahead.
Donovan Due Schafer: In defense of like to what extent should we should we care so.
Nick O'Grady:
Donovan Due Schafer: Was this and if we just talk let's forget about the wells being pulled forward or whatever if we're just talking about on like a well on wealth for given while the performance of that well versus your own expectations.
Donovan Due Schafer: Hey guys, thanks for taking the questions. So I'm going to ask about, and I know we've already had a couple of people ask about the better than expected performance. Um, so this might feel like beating a dead horse, but I kind of want to get really to the core of it.
Donovan Due Schafer: If we just focus on that.
Donovan Due Schafer: And you said I think Nik, you said flat out and better well performance.
Donovan Due Schafer: Who gets the credit for that is it just a chance phenomenon and it just you just theres a statistical distribution and it just happens to be that.
Donovan Due Schafer: So, um, in the sense of, like, to what extent should we care? So, um. You know, was this, and if we just talk, let's forget about the wells being pulled forward or whatever, if we're just talking about, like, a well on well on for a given well, the performance of that well versus your own expectations. If we just focus on that. You know, and you said, I think, you know, Nick, you said flat out better well performance. Who gets sort of the credit for that? Is it just a chance phenomenon?
Donovan Due Schafer: The roles of the dice or we're better at this time around or was it can you identify changes in sort of well design or do you feel like this supports strength with particular operators or is it alternatively liking it.
Donovan Due Schafer: A matter of conservative underwriting like another way to put it is should this be seen as an achievement of some kind somehow tied to acumen agency.
Nick O'Grady: And it just has, you know, you just have a statistical distribution, and it just happens to be that, you know, the roles of the dice were, were better at this time around? Or was it, you know, can you identify changes in sort of well design? Or do you feel like this? supports the strength of particular operators?
Donovan Due Schafer: Or is this just a matter of chance and if it's some sort of like achievement, who who gets that credit is it a reflection of your business model is that a reflection of your operators.
Speaker Change: Yes that would be really great.
Nick O'Grady: I mean, I think I would certainly want to give credit to the operators for their great performance.
Nick O'Grady: Or is it, alternatively, like in a, you know, a matter of conservative underwriting like that? Another way to put it is, should this be seen as an achievement of some kind, somehow tied to, you know, like human agency? Or is this just a matter of chance?
Speaker Change: Certainly they do all the hard work and I don't want it.
Nick O'Grady: I don't want to not give credit where credit's due.
Nick O'Grady: But to our engineering team.
Speaker Change: We work really hard.
Nick O'Grady: Set of standard and underwrite Accordingly, and then try to meet and beat those expectations and so I think that.
Nick O'Grady: And if it's some sort of achievement, you know, who gets that credit? Is it a reflection of your business model? Is it a reflection of your operators? Yeah, that would be really great.
Nick O'Grady: We try to under and then obviously for you guys to under promise and over deliver and it's not it's.
Nick O'Grady: It's not totally to low ball or anything like that but you really do this is a risky business right. It is a risky business and wells and I think it is.
James B. Evans: I mean, I think I would certainly want to give credit to the operators for their great performance. And I certainly think they do all the hard work, and I don't want to not give credit where credit's due. But on our engineering team, you know, we work really hard to set a standard and underwrite accordingly and then try to meet and beat those expectations. And so I think that, you know, we try to under promise and over deliver. And it's not to it's not to be lowball or anything like that. But, you know, you really do.
James B. Evans: Oil and gas business is filled with optimism right and I always joke that.
James B. Evans: And as a non operator, you really need to be pessimistic because.
James B. Evans: Because there are you find out that many operators.
James B. Evans: They make a change in well design and they say see better Ips and they carry it forward and think everything's going to be better or they do a reef. One re frac is good and I think I'll refresh going to be better and it turns out that its locational rate and so we try really hard to be.
James B. Evans: It takes a skeptical lens and <unk>.
Nick O'Grady: This is a risky business, right? And Wells, and I think it is the oil and gas business is filled with optimists. Right? And I always joke that as a non-operators, you really need to be pessimistic because you find out that many operators, you know, they make a change in well design, and they say they see better IPs, and they carry it forward and think everything's going to be better. Or they do a reef. One refract is good enough.
James B. Evans: Be conservative about this and I think that's why generally our reserves have been conservative and we tend to do well so I want to give a lot of credit to our team that we.
Nick O'Grady: We tend to see better.
Nick O'Grady: Better results or not but it also it comes down to our philosophy and I talk about this in my prepared comments of assets <unk>, which is that you cant engineered bad assets, which is that you can try to pay.
Nick O'Grady: Pay a high discount rates were really bad assets, but at the end of the day those assets aren't going to be resilient.
James B. Evans: And I think all refracts are going to be better. And it turns out that it's locational. Right. And so we try really hard to take a skeptical lens and be conservative about this. And I think that's why, generally, our reserves have been conservative. I want to give a lot of credit to our team because we tend to see better, you know, better results than not. But it also, you know, it comes down to a philosophy, and I talked about this in my prepared comments, asset snobbery, which is that you can't engineer bad assets, which is that you can try to pay, you know, a high discount rate for really bad assets.
James B. Evans: It goes when I when I was a stock analyst back in the day I would always rather pay.
James B. Evans: A premium for a really good management team and a really good company.
James B. Evans: Pay a low price for a really bad stock because the chances where overtime that bad stock or that cheap stock something bad was going to happen because it was a bad company and it was not going to be resilient and it goes the same thing for oil and gas assets, which is that you buy really high quality reservoirs and really high quality operators and chances are they're going to do.
James B. Evans: Good things with them and I think that Thats, what our team really focuses on here, which is that you focus on the best operators in the better areas and you tend to be pleasantly surprised I guarantee you want to add to that.
James B. Evans: But at the end of the day, those assets aren't going to be resilient. You know, when I was a stock analyst back in the day, I would always rather pay a premium for a really good management team and a really good company than, you know, pay a low price for a really bad stock because the chances were, over time, that bad stock or that cheap stock, something bad was going to happen.
James B. Evans: Yes, I think the other thing to think about too is that operators are always trying to innovate and be more efficient. So it's not just about getting more <unk>.
James B. Evans: Or more reserves out of it they're also trying to optimize their artificial lift.
James B. Evans: Operations, So that's constantly changing and we're constantly updating our type curves based on what the operators are doing and so some of it is they are just getting oil out faster right, it's not necessarily that they're going to get more EUR over the life of it they've just found a way to get more out more efficiently through the first 12 months to 18 months, which which is a big driver of.
Nick O'Grady: [inaudible] focus on the best operators in the best areas, and you tend to, surprise. Yeah, I think the other thing to think about too is that operators are always trying to innovate and be more efficient. So it's not just about getting more EOR, more reserves out of it; they're also trying to optimize their artificial lift operation. So that's constantly changing. And we're constantly updating our type curse based on what the operators are doing.
Nick O'Grady: PV in IRR, which is what we want and so we're constantly taking that into account and like Nick said.
Nick O'Grady: We want to make sure that more often than not that the wells outperformers versus underperformed. So that's just part of our culture here of how we look at things and we do constantly look backs on performance, how well they're doing versus what we originally underwrote and over the last three four years, we have been less than 5% off in terms of that so so we feel.
James B. Evans: So some of it is that they're just getting oil out faster, right? It's not necessarily that they're going to get more EOR over the life of it. They just found a way to get more out more efficiently through the first 12 to 18 months, which is a big driver of NPV and IRR, which is what we want. And so we're constantly taking that into account. And like Nick said, we wanna make sure that more often than not, the wells outperform versus underperform. And so that's just part of our culture here of how we look at things.
James B. Evans: We're very confident about our underwriting here. This is just kind of a pleasant surprise by some of our operators and really good areas and they found a way to just do better than what we had expected.
Speaker Change: Okay, great. Thank you that's very helpful.
Speaker Change: And then as a follow up so Nick in your prepared remarks, you called out and I thought I thought this was kind of a good.
James B. Evans: Thing to call out in kind of a good insight.
James B. Evans: The potential for increased volatility.
James B. Evans: And we do constant look-backs on performance, how well they are doing versus what we originally underwrote. And over the last three, four years, we've been less than 5% off in terms of that. So we feel very confident about our underwriting here.
James B. Evans: You were talking about with respect to your own positioning as a company and the importance of financial flexibility because volatility.
James B. Evans: It gives you a different levers or things to polar opens up opportunities.
Donovan Due Schafer: This is just kind of a pleasant surprise by some of our operators in really good areas, and they found a way to just do better than we expected. Okay, great. Thank you. That was very helpful.
Speaker Change: But I'm curious kind of just specifically because I think you were saying.
Speaker Change: With such low gas prices and also you might I think maybe you mentioned is just that it's an election year, maybe there's just other just sort of the geopolitical dynamics, but it does seem like a setup.
Nick O'Grady: And then as a follow-up. So, Nick, in your prepared remarks, you called out, and I thought this was kind of a good thing to call out and kind of a good insight, the potential for increased volatility. And, you know, what you're talking about with respect to your own positioning as a company and the importance of a kind of financial flexibility because volatility, you know, it gives you different levers or things to pull on or opens up opportunities.
Nick O'Grady: We could see more volatility between now and November December.
Speaker Change: So I'm curious what are you specifically talking about like in terms of thinking about what might happen with your own.
Nick O'Grady: With the volatility of stock. Unlike other securities you could potentially bring in or are you talking more broadly like.
Nick O'Grady: <unk> prices as well and the potential for any type of wild swings around anything like that.
Speaker Change: I wanted to be clear because I thought that was the.
Nick O'Grady: But I'm curious, kind of just specifically, because I think you were saying, you know, well, with such low gas prices, and also, you might, I think maybe you mentioned just that it's an election year, or maybe it's just other, just sort of the geopolitical dynamics or whatever. But it, it does seem like a setup that we could see more volatility, you know, between now and November or December. And so I'm curious, were you specifically talking about, like, in terms of thinking about what might happen with your own, you know, with the volatility of stocks and other securities you could potentially bring in?
Speaker Change: Good point, but I'm, just curious with your thinking or you're talking.
Nick O'Grady: What things are the volatility you're talking about price of commodities stocks bonds all of it.
Speaker Change: Yes, I mean, I think look I think.
Nick O'Grady: I mean, I think volatility means volatility I think that.
Nick O'Grady: If you look at our track record over the last few couple of years, we bought our bonds, we bought our stock.
Nick O'Grady: We have bought assets right now we buy gas assets, we bought oil assets.
Nick O'Grady: We've done a lot of.
Nick O'Grady: I would say weird things during periods.
Nick O'Grady: Yes.
Nick O'Grady: We spent $200 million buying distressed assets during 2020.
Nick O'Grady: Or are you talking more broadly, like, commodity prices as well, and the potential for any type of wild swings around anything like that? Like, like, just, I want to be clear, because I thought that was a good point. But I'm just curious what you're thinking. Are you talking about what, what, what things are the volatility you're talking about price, commodities, stocks, bonds, all of it?
Nick O'Grady: Right.
Speaker Change: 90% of our capital.
Nick O'Grady: Our organic capital basically went to zero during 2020, and so I think.
Nick O'Grady: During the period, you want to be in a position to be able to act.
Nick O'Grady: Extreme events happen now obviously, you had an extreme point in natural gas spot pricing I'm not sure you're in an extreme point in terms of the strip or in terms of asset pricing or you haven't seen.
Nick O'Grady: Yeah, I mean, I think I look, I think, I mean, I think volatility means volatility. I think that if you look at our track record over the last few couple of years, we've bought bonds, we've bought stock. We have bought assets, right? We've bought gas assets, we've bought oil assets. We did a lot of them. I would say weird things during periods of, you know, we buy. We spent $200 million buying distressed assets during, [inaudible] 90% of our capital, you know, our organic capital basically went to zero during 2020. Right. And so I think during these times, there are periods you want to be in a position you know to be able to act.
Nick O'Grady: Distress, certainly in gap and gas for the assets themselves necessarily yet.
Nick O'Grady: But I think.
Nick O'Grady: The overall market to the extent, we see a change in the interest rate cycle or things like that we could definitely see things happen.
Nick O'Grady: And so I think we have to see what happens with the overall economy, yes. It is an election year and.
Nick O'Grady: Typically you can see changes in policy and other things that could potentially happen.
Nick O'Grady: And so I think we just always want to be in a position to act and I always use that term dynamic and I think it's because we want to have the flexibility to.
Nick O'Grady: [inaudible] asset pricing, or you haven't seen, you know, distress or a gap in gas for the assets themselves necessarily. But I think the overall market, to the extent we see a change in the interest rate cycle or things like that, we could definitely see things happen. And so I think, you know, we have to see what happens with the overall economy. Yeah, it is an election year, and typically, you can see changes in policy and other things that could potentially happen.
Nick O'Grady: To make changes to those decisions and Thats why <unk>.
Nick O'Grady: Having a business.
Nick O'Grady: Walk softly and carry a big step to get to have that cash flow to be able to make those dynamic decisions and make changes.
Nick O'Grady: Weaker.
Nick O'Grady: <unk> been able to buy our bonds in the low 90% now they traded well north of par rate has the ability to make good decisions when the market gives them to you.
Nick O'Grady: And so I think we just always want to be in a position to act, and I always use that term dynamic, and I think it's because we want to have the flexibility to make changes to those decisions.
Speaker Change: Okay very helpful. Thank you guys.
Nick O'Grady: Okay.
Nick O'Grady: Your next question comes from the line of light Fair enough Jefferies. Please go ahead.
Speaker Change: Hey, guys.
Nick O'Grady: And that's why having a business, you know, walk softly and carry a big stick, right? To have that cash flow to be able to make those dynamic decisions and make changes. We've been able to buy our bonds in the low 90s. Now they trade, you know, well north of par, right? You have the ability to make good decisions when the market gets, Okay, very helpful. Thank you guys. Your next question comes from the line of Lloyd Byrne of Jeffries. Please go ahead. Hey guys, thanks for all the info.
Speaker Change: Thanks for all the info.
Lloyd Byrne: Let me comment about the Capex differently. It seems like Theres a lot of concern, but if I look at the capex versus the pills.
Lloyd Byrne: It feels like the <unk> or either in line or coming down and maybe you can comment on that and that also.
Lloyd Byrne: You talked about a little bit of deflation at mascot Novo and so maybe you can just comment on that as well.
Nick O'Grady: Yes, Hey, Lloyd this is Alan but you made some comments in my prepared remarks that we're definitely seeing it.
Lloyd Byrne: Let me come about the CapEx differently. It seems like there's a lot of concern, but if I look at the CapEx versus the tills, it feels like the AFEs are either in line or coming down. And maybe you can comment on that. And then also, you talked about a little bit of a deflation at Mascot Novo, and so maybe you can just comment on that. Yeah, Lloyd, this is Adam.
Lloyd Byrne: Across the board both from an absolute.
Lloyd Byrne: Normalized on a lateral foot basis.
Adam Dirlam: <unk>, certainly seen that with our mascot assets as well as our novo assets.
Adam Dirlam: That's both a function of what we're seeing in terms of.
Lloyd Byrne: Drilling.
Adam Dirlam: As well as just spud.
Adam Dirlam: Spud to til timing as well.
Adam Dirlam: I made some comments in my prepared remarks that we're definitely seeing it, you know, across the board, both from an absolute and, you know, normalized on a lateral foot basis. And we've certainly seen that with our mascot assets, as well as our Novo assets. And I think that's both a function of what we're seeing in terms of, you know, drilling, as well as just kind of spud to till timing as well. I think, you know, some of the tangibles, casing, those types of things are still pretty sticky.
Adam Dirlam: So on the tangibles chasing those sorts of things are still pretty sticky.
Adam Dirlam: But operators are doing a pretty good job of being able to kind of.
Adam Dirlam: Around the edges.
Adam Dirlam: You see that persisting.
Speaker Change: Okay. Thanks, and then.
Adam Dirlam: Nick just to remind us.
Adam Dirlam: Free cash flow going forward.
Adam Dirlam: Debt targets.
Adam Dirlam: Yes, we still we still target around one times.
Adam Dirlam: I think we were about $1 one last quarter, we're about just over one two this quarter and Thats just a function that we closed our northern Delaware acquisitions. So we did that.
Adam Dirlam: But operators are doing a pretty good job of being able to kind of pick away around the edges and see that persistent. Okay, thanks. And then, Nick, just remind us, more free cash flow coming forward, debt targets. Yeah, I mean, we still target around one time. And, you know, I think we were about 1.1 last quarter; we're about just over one this quarter. And that's just a function that we closed on our Northern Delaware acquisition that we should see, you know, absent any, you know, material change.
Adam Dirlam: We should see absent any material change and again, we're already close to may here.
Nick O'Grady: A material step down this quarter again absent some unforeseen changes in commodity prices over the next couple of months.
Nick O'Grady: But just given the fact that Capex is scheduled to step down somewhat so we should see a material step down on the revolver balances in the second quarter.
Speaker Change: So awesome alright.
Adam Dirlam: And again, we're already, you know, close to May here, a material step down this quarter, again, absent some, you know, unforeseen change in commodity prices over the next couple. But just given the fact that Chavex is scheduled to step down some, so we should see a material step down in the revolver balances in the second quarter. So awesome.
Adam Dirlam: We should be right on the trend within the.
Adam Dirlam: Yes.
Speaker Change: Thank you guys.
Adam Dirlam: Yes.
Adam Dirlam: Your next question comes from the line of Paul <unk> of Citi. Please go ahead.
Speaker Change: Thank you good morning, Thanks for taking my call just a quick one on the M&A.
Adam Dirlam: <unk>.
Adam Dirlam: Purchase cadence so you had a pretty good clip in Q1.
Adam Dirlam: Are you seeing the same type of opportunity given current.
Adam Dirlam: Current pricing levels and as you look forward through with respect to be relatively volatile period in the market.
Nick O'Grady: We should be right back on the trend. Thank you, guys. Your next question comes from the line of Paul Diamond of Citi. Please go ahead. Thank you. Good morning.
Paul Michael Diamond: Yes, there is certainly no shortage of opportunities I think it's always about balancing that risk SKU right. It's just about.
Paul Michael Diamond: Thanks for taking my call. Just a quick one on the M&A or purchase cadence. So you had a pretty good clip in Q1.
Nick O'Grady: Thanks.
Paul Michael Diamond: I would just tell you I think the higher that.
Paul Michael Diamond: The lower the price goes I think our risk appetite increases I think the higher the price of oil of those probably the more wary, we're going to become so you have sort of I'd say from a 65% to $85 range is probably a better rates than above those I'd say below $70 I think youre going to.
Nick O'Grady: Are you seeing the same type of opportunity given current pricing levels and as you look forward through what's expected to be a relatively volatile period in the market? Yeah, I mean, there's certainly no shortage of opportunities. I think it's always about balancing the risk, you're right. It's just about, you know, I think, I would just tell you, I think the higher the, the lower the price goes, I think our risk appetite increases. I think the higher the price of oil goes, probably the more wary we're going to become.
Nick O'Grady: Find that.
Nick O'Grady: Sellers are probably going to dry up because theyre going to feel that they.
Nick O'Grady: They are not getting good value for their assets.
Nick O'Grady: But I think that in that range thats sort of a good enough environment from a pricing perspective.
Nick O'Grady: So you have sort of a, I'd say from a 65 to $85 range, which is probably a better range than above those, I'd say, below $70. I think you're going to find that sellers are probably going to dry up because they're going to feel that they're not getting good value for their assets.
Nick O'Grady: I think that.
Nick O'Grady: We're in a relatively decent market I think that again.
Nick O'Grady: Beginning of the year is always kind of a tricky if you look at our pattern generally.
Nick O'Grady: We've done less M&A in the first half of any year.
Nick O'Grady: But I think that, you know, in that range, that's sort of a good enough environment from a pricing perspective. I think that we're in a relatively decent market. I think that, again, the beginning of the year is always kind of tricky. If you look at our pattern, generally, we've done less M&A in the first half of any year historically, for whatever reason. It's just, if you go back historically, very little stuff, calendar going back the entirety of my time. So it tends to be something that happens towards the middle or the back half of the year, so stay tuned.
Nick O'Grady: Or at least speaking for whatever reason.
Nick O'Grady: It's just if you go back historically speaking.
Nick O'Grady: Very little stuff.
Nick O'Grady: The calendar going back my entirety.
Speaker Change: I'm here.
Nick O'Grady: So it tends to be something that happens towards the middle or the back half of the year. So stay tuned but I do think they were not short opportunities I can tell you that much out of it.
Nick O'Grady: Add to that.
Nick O'Grady: No I mean, I think thats in there.
Nick O'Grady: And I think it's a function of.
Nick O'Grady: Thanks.
Nick O'Grady: Organizations, bringing these packages to market.
Adam Dirlam: But I do think that we're not short of opportunities, I can tell you that much, Adam. No, I mean, I think, you know, that I think it's a function of, you know, banks and, you know, organizations bringing these packages to market and, you know, what the lead time is on a lot of that stuff. You've got the smaller competition kind of coming in with a bullish view on oil pricing, which creates some volatility in terms of the ground game. What I'd say, I mean, even just looking at some of our April activities, we've been making some pretty strong headway in that regard, being able to pick things up across all three of our respective basins.
Nick O'Grady: What's the lead time is on a lot of that stuff.
Speaker Change: Got it.
Adam Dirlam: The smaller competition kind of coming in with a bullish view on oil pricing, which create some volatility in terms of the ground game, what I would say, maybe even just looking at some of our April activity, we've been making.
Adam Dirlam: Some pretty strong headway in that regard being able to pick things up across all three of our expected.
Adam Dirlam: And then the next point, it's really just going to be a balance of what that quality looks like.
Adam Dirlam: All of our expectations.
Adam Dirlam: Expectations can be wildly different, especially in a volatile commodity.
Adam Dirlam: Environment and so for bouncing along at.
Adam Dirlam: Relatively static pricing for an extended period of time that generally levels, such expectations and narrows that bid ask spread.
Adam Dirlam: And then to Nick's point, it's really just going to be a balance of what that quality looks like, and seller expectations, and expectations can be wildly different, especially in a volatile commodity environment. And so for bouncing along at, you know, relatively static pricing for an extended period of time, that generally level sets expectations and narrows that bid-ask spread. But if you have a material step up or material step down in the short term, that's going to, understood. Thanks for the clarity.
Adam Dirlam: Have a material step up or a material step down in the short term that's going to slide nine.
Speaker Change: Understood. Thanks for the clarity and just a quick follow up you've talked.
Adam Dirlam: Pretty good length about productivity improvements on the oil side are you did you prefer what is your perspective to sit on the Nat gas side of it and it's a much smaller perspective for much smaller piece.
Paul Michael Diamond: And just a quick follow up. We've talked pretty much at length about the productivity improvements on the oil side. Are you, I mean, did you prefer what is your perspective on the net gas side of it? It's a much smaller perspective or much smaller piece.
Speaker Change: Going forward should we expect to see the kind.
Paul Michael Diamond: Kind of a similar cadence in your view.
Speaker Change: Yes, I mean, I would just say like our.
Speaker Change: I'd just tell you from my perspective, and I'm not an engineer here, but.
Paul Michael Diamond: Our our Marcellus assets have outperformed really from the get go they have outperformed our internal modeling literally every quarter since we've owned them.
Nick O'Grady: But going forward, should we expect to see the kind of a similar cadence in your view? Yeah, I mean, I would just say like our I mean, I just tell you from my perspective, and I'm not an engineer here, but our Marcellus assets have outperformed really from the get go. They have outperformed our internal modeling literally every quarter since we've owned them. Basically, I think there's not a month, Jim, tell me I'm wrong, but they have done an excellent job.
Nick O'Grady: Literally I think there is not a month time to Jim tell me I'm wrong, but they have done an excellent job and I think we've had a little bit less development than we had initially modeled but.
Nick O'Grady: The decline rates have been shallower they've just consistently outperformed no wonder if gas is $1 80, alright, because they just simply don't decline.
James B. Evans: I mean, I think we've had a little bit less development than we initially modeled, but decline rates have been shallower. They've just consistently outperformed. I mean, no wonder gas is $1.80, right? Because they just simply don't decline.
Speaker Change: Add to that yes, that's right.
James B. Evans: They completely change the design of these wells from when we originally bought the assets at wider spacing and completion design change the flow back methodology.
James B. Evans: So this will just continue to hang in much better than we had expected.
James B. Evans: And obviously there is not a ton of activity that's been happening out there and so kind of our modeling is still kind of based on an old methodology and we continue to update that as we go and we see more but yes.
James B. Evans: Yeah, that's right. You know, EQT completely changed the design of these wells from when we originally bought the asset. They widened the spacing, changed the completion design, and changed the pullback methodology.
James B. Evans: Yes, like I said that the Marcellus stuff just continues to outperform in.
James B. Evans: The Utica beat in the first quarter as well those wells continue to clean up better than we had expected so that was a nice.
James B. Evans: So these wells just continue to hold in much better than we had expected. And obviously, there's not a ton of activity that's been happening out there. And so, you know, our modeling is still kind of based on old methodology.
James B. Evans: Outperformance there as well.
James B. Evans: Well, it's not huge for us.
James B. Evans: If you've actually model out.
James B. Evans: Our Appalachia asset and just how much cash flow. It has generated for us over the life of its ownership. It has been an amazing investment for us.
James B. Evans: And we continue to update that as we go and we see more. But yeah, like Nick said, the Marcello stuff just continues to outperform. And, you know, the Utica beat in the first quarter as well, those wells continue to clean up better than we had expected. So that was a nice outperformance there as well.
James B. Evans: Pay it out.
James B. Evans: Paid out in less than a year and then just continues to for very little capital investment continues even with low gas prices to generate significant.
James B. Evans: Cash flow for us it's been a great investment.
Nick O'Grady: Yeah, and I mean, well, it's not huge for us. If you actually model out our Appalachian asset and just how much cash flow it has generated for us over the life of its ownership, it has been an amazing investment for us. You know, it is paid out, you know, paid out in less than a year, and then just continue, very little capital investment continues even with low gas prices to generate cash flow for us. It's been great.
Speaker Change: Understood. Thanks for the clarity.
Nick O'Grady: Your next question comes from the line of Noah.
Nick O'Grady: <unk> projects. Please go ahead.
Speaker Change: Hi, Good morning, just had a couple.
Speaker Change: I was wondering.
Nick O'Grady: Do you have any sense of maybe where incremental.
Nick O'Grady: Rental service cost trends are heading in your basins.
Paul Michael Diamond: Okay. Your next question comes from the line of Noel Parks of Two Wheat Brothers. Please go ahead. Hi, good morning. I just had a couple.
Noel Augustus Parks: I feel like so far in earnings season, we've been getting sort of a mixed mixed picture depending on location and type of service. So any thoughts you have would be great.
Noel Augustus Parks: I was wondering, do you have any sense of maybe where incremental service cost trends are heading in your base? I feel like so far in the earnings season, we've been getting sort of a mixed picture, just depending on location and type of service. Any thoughts? Yeah, that would be great. I would say no to the very modest deflation we've seen here today, but I would imagine, you know, as oil prices have increased, I would guess that's a flattening.
Noel Augustus Parks: I would say no very modest deflation, we've seen year to date, but I would imagine as oil prices have increased I would guess that's a flattening trend.
Speaker Change: Okay, Great fair enough.
Noel Augustus Parks: <unk>.
Noel Augustus Parks: I was just wondering.
Noel Augustus Parks: You did mentioned what we've all seen with.
Noel Augustus Parks: Gas from the Permian and so forth and.
Nick O'Grady: Great, fair enough. I was just wondering, you did mention what we've all seen with Gas in the Permian and so forth. And I believe over time you've discussed that you are pretty vigilant about the state of infrastructure when you're looking at potential deals out there and look to steer clear of areas where you have any questions or doubts. I'm just wondering, are you getting deals brought to you that fall into that category these days?
Speaker Change: We've over.
Nick O'Grady: Overtime, you discussed that you are pretty vigilant about the theme of infrastructure when youre looking at potential deals out there and.
Nick O'Grady: Look to steer clear of areas, where you have any questions or doubts I'm. Just wondering are you are you.
Speaker Change: Getting deals brought to you that fall into that category means Dave.
Nick O'Grady: Yeah, I mean, I think a lot of the, you know, specifically a lot of assets in parts of Delaware, you have to be very wary around, particularly as you get, you know, parts of New Mexico and other parts where they might be clingy, they may not have access. You know, might not have access to Mitch.
Speaker Change: Yes, yes, I mean, I think a lot of the spin.
Nick O'Grady: Specifically a lot of assets.
Nick O'Grady: In parts of the Delaware you have to be very wary around particularly as you get.
Nick O'Grady: And parts of new Mexico, and other parts, where they might be <unk>. They may not have access to.
Nick O'Grady: Yes, it might not have access to midstream systems, and you have to understand that going into it you need to know who.
Nick O'Grady: You have to understand that going into it, you need to know who your operator is. And so, absolutely, I mean, all of that goes into the equation. You need to know who your operator is. Do they have, you know, firm access? Are they interruptible? Can they be kicked off the system?
Nick O'Grady: Your operator is so absolutely all of that goes into the equation.
Nick O'Grady: You know who your operators do they have.
Nick O'Grady: No firm access are they interruptible can maybe kicked off the system all access.
Nick O'Grady: Why.
Nick O'Grady: You hear us talk a lot about this but.
Nick O'Grady: All that stuff. You know, that's why. 10. You hear us talk a lot about this, but knowing who your operator is, knowing what kind of, you know, midstream access they're going to have is critical. I think, you know, as an issue overall, I think it's something that, you know, it's the Permian Basin, so it will, over time, get solved. But I think it's going to be chronic for some time. In the end, it's a minor economic annoyance, meaning it doesn't really destroy the overall economics of the wells. It's just something that we can model and still make the wells profitable, but it certainly doesn't help.
Nick O'Grady: Knowing who your operator is knowing.
Nick O'Grady: What kind of.
Nick O'Grady: Midstream access theyre going to have is critical.
Nick O'Grady: Thanks.
Nick O'Grady: As an issue overall I think it's something that.
Nick O'Grady: The Permian basin so.
Nick O'Grady: It will over time get solved, but I think it's going to be chronic for some time.
Nick O'Grady: In the end, it's a minor.
Nick O'Grady: Economic annoyance, meaning it doesn't really.
Nick O'Grady: Destroy overall.
Nick O'Grady: And just destroy the economics of the wells. It just something that we can model in and still make the wells economic but it certainly doesn't help that's right you just need to make sure that you're modeling yes.
Nick O'Grady: Cost as well as the development timing stand alone.
Noel Augustus Parks: That's right. You just need to make sure that you're modeling it. Yeah, right. From the cost as well as the development time.
Noel Augustus Parks: We were trying to buy something in alpine high or something like that it might be a different equation, but thats helpful.
Nick O'Grady: If I were, if we were trying to buy something in Alpine High or something like that, it might be a different equation. Great, thanks a lot. That concludes our Q&A session. I will now turn the conference back over to Nick O'Grady for closing remarks. Thank you all for joining us today. We appreciate your continued support and look forward to touching base with you in the coming weeks. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Nick O'Grady: Great. Thanks, a lot.
Nick O'Grady: Yeah.
Nick O'Grady: That concludes our Q&A session I will now turn the conference back over to Nick O'grady for his closing remarks.
Nick O'Grady: Thank you all for joining US today. We appreciate your continued support and look forward to touching base with you in the coming weeks.
Nick O'Grady: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Nick O'Grady: [music].
Nick O'Grady: Yes.
Nick O'Grady: [music].
Nick O'Grady: Yes.
Nick O'Grady: Yes.
Nick O'Grady: [music].
Nick O'Grady: Okay.
Nick O'Grady: Okay.