Q1 2024 Vital Energy Inc Earnings Call
Good day, ladies and gentlemen, welcome to vital Energy's first quarter 2024 earnings Conference call. My name is John and I'll be your conference operator for today all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, this conference is being recorded for replay.
[laughter] purposes. It is now my pleasure to introduce Mr. Ron Hagood.
Vice President of Investor Relations for the company. Please go ahead.
Thank you and good morning.
Ronald Hagood: Joining me today are adjacent packet President and Chief Executive Officer.
Brian Zimmerman Executive Vice President and Chief Financial Officer.
Speaker Change: Hill, Senior Vice President and Chief operating officer, as well as additional members of our management team.
Speaker Change: During today's call, we'll be making forward looking statements.
Speaker Change: Statements, including those describing our beliefs goals expectations forecasts and assumptions tender.
Speaker Change: <unk> tended to be covered by the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95.
Speaker Change: Actual results may differ from these forward looking statements for a variety of reasons.
Speaker Change: Many of which are beyond our control.
Speaker Change: In addition, we will be making reference to non-GAAP financial measures.
Speaker Change: Reconciliations to GAAP financial measures are included in the press release and presentation, we issued yesterday afternoon.
Speaker Change: The press release and presentation can be accessed on our website at.
Speaker Change: Ww dot vital energy Dot com.
Speaker Change: Now I'll turn the call over to Jason Pigott, President and Chief Executive Officer.
Mikell Jason Pigott: Good morning, and thank you for joining us today.
Mikell Jason Pigott: First quarter results were solid as we achieved record production exceeded adjusted free cash flow expectations and delivered outstanding operational execution across our leasehold.
Mikell Jason Pigott: Again, demonstrating our ability to create additional value on acquired acreage.
Mikell Jason Pigott: We have integrated our 2023 acquisitions and we are working to optimize operations to lower capital reduce operational costs and enhanced productivity.
Mikell Jason Pigott: You've already recognized significant gains on our properties versus what we underwrote.
Mikell Jason Pigott: Continue to focus on creating additional value.
Mikell Jason Pigott: As a company we are highly focused on development that will both extend our inventory and reduce our breakeven.
Mikell Jason Pigott: I'd like to highlight three examples of ways that we are accomplishing this.
Mikell Jason Pigott: To start we recently completed a 20 well package of 15000 foot wells in Western Glasscock on leases that we acquired in 2019 and 2021.
Mikell Jason Pigott: Notably seven of the 20 wells targeted the Wolfcamp C and D horizons to which we did not assign value at the time of the acquisitions.
Mikell Jason Pigott: Wolfcamp C wells, our first modern test of this horizon in the area and are currently not included in our publicly stated inventory.
Mikell Jason Pigott: Actual results are very encouraging with just a couple of weeks of flow back.
Mikell Jason Pigott: The entire package was brought online ahead of schedule and is a significant contributor to our production outperformance for the quarter.
Mikell Jason Pigott: Next from our southern Delaware position, we're observing strong production results from the assets, we acquired highlighted in our investor deck. The teller wells are from the Forge acquisition, and then niedermeyer wells or from tall city.
Mikell Jason Pigott: The teller wells Vitals Energy's first horseshoe shaped wells are designed to optimize productivity and reduced breakeven costs on smaller leases.
Mikell Jason Pigott: These wells paired with our high intensity completion techniques are outperforming offsetting industry wells.
Mikell Jason Pigott: Third the success of the teller, where else gave us confidence to expand the use of this innovative design in the Midland Basin.
Mikell Jason Pigott: In Upton County, we drilled three horseshoe wells, averaging 13900 feet of lateral length instead of six short lateral wells.
Mikell Jason Pigott: This is markedly improved our capital and operational efficiencies more significantly we expect to apply this concept to 84 short lateral wells that are in our public inventory.
Mikell Jason Pigott: Saving as much as $140 million in capital and reducing the average breakeven of these combined wells by $20 per barrel.
Mikell Jason Pigott: As a company we are pursuing multiple paths to reduce breakeven and extend inventory.
Mikell Jason Pigott: We're improving productivity by extending lateral lengths pumping high intensity completions testing and proving up new horizons implementing a wide array of new technologies, acquiring new assets improving base operations and so much more.
Mikell Jason Pigott: We've increased our average well productivity by 35% since 2019, and nearly 95% of our oil production comes from assets, we acquired in the past five years.
Mikell Jason Pigott: We've been consistent in our strategy to create value by building depth and quality of inventory, while also improving our financial structure and generating free cash flow.
Mikell Jason Pigott: I will now turn the call over to Katie for an operational update.
Katie: Thank you Jason.
Katie: First quarter production exceeded expectations, driven primarily by the outperformance of our 'twenty well package in western Glasscock and a three well package in the Delaware Basin.
Katie: Western Glasscock package with a full DSP development, consisting of 2000 15000 foot laterals targeting for horizon.
Katie: This is the largest package vital has ever developed and our team did an incredible job safely executing ahead of schedule.
Katie: Net package completions operations and three months.
Katie: I have two crews and achieved a 10% efficiency improvement over our previous development in the area.
Katie: Chris These wells began producing oil 19 days ahead of schedule.
Katie: As of mid April all wells are producing with gross oil production from the package currently meeting peak expectation by 15%.
Katie: We are particularly encouraged by the performance of the two Wolfcamp C wells drilled as productivity appraisal test.
Katie: The early results are promising.
Katie: Since our current pellet inventory does not include well can't see positive outcomes here could significantly extend our inventory life and enhance its quality leveraging organic appraisal within our existing footprint.
Katie: The first quarter marked our first complete quarter managing the three assets we acquired last November.
Katie: Assets are now fully integrated both operationally and administratively.
Katie: When acquiring properties, we unlock value by decreasing well cost and enhancing productivity compared to prior operators.
Katie: Since our initial acquisition in southern Delaware and mid year 2023, we've reduced our well costs from 12 million to $10 5 million or 10000 foot lateral by improving well design enhancing operational efficiencies and leveraging lower service costs due to increased scale.
Katie: Moreover, the productivity the two Delaware packages, we've completed as approximately 45% higher than comparable industry, while the adjacent to our acreage due to our optimized development spacing and completion design.
Katie: To complete a Delaware packages, one was acquired with a forge in mid 2023, they had drilled a two well package of partially wells in the entire unit.
Katie: Subsequently completed and brought online.
Katie: Between capital efficiency completion design and development strategy, we are lowering breakeven on our southern Delaware inventory by five to $10 a barrel.
Katie: We have successfully transferred the horse shoe all designed to our Midland position and have drilled three long lateral horseshoe wells in Upton County.
Katie: This converted what would've been $6 6500 foot laterals into three extended laterals, averaging close to 14000 feet of lateral length per well.
Katie: We are currently completing these wells and the economics are extremely compelling.
Katie: That is less capital intensive and more efficient reducing expected breakeven on a package of $45 per barrel preliminary impacts for our total inventory compared to 84 stated locations to 42 extended laterals, reducing breakeven by an average of $20 a barrel.
Katie: In addition to the inventory enhancement and capital efficiency work completed since close our integration of the producing assets is also beating plan in.
Katie: In Q1, we exceeded production expectations, averaging 124700 Boe per day, and 58500 barrels of oil per day, we delivered 20, new wells ahead of schedule and anticipate bringing online roughly 60% of our planned 2024 wells by mid year.
Katie: And it's accelerated schedule, we expect higher production rate in the first half of the year, while maintaining our full year oil guidance at 55050 9000 barrels of oil per day.
Katie: We've already identified several opportunities to improve operating costs on a new dollar position in the first quarter. We started inefficiencies in the chemical usage program carried over from the preceding operator, along with outsized water production driven by improper while design and targeting these two impacts caused higher operating costs in a limited area of our leasehold we are temporarily shutting in.
Katie: Well that are not meeting our profitability requirements, which will result in a reduction in both total and per unit LOE.
Katie: In the second quarter.
Katie: The shut in wells are forecasted to produce 400 net barrels of oil per day throughout the remainder of the year. This reduction in volume has been accounted for in our second quarter and reaffirmed annual production ranges.
Katie: Permanent solutions will be implemented that will further drive down LOE in the second half of the year, including expanding the chemical optimization program using our consolidated operating footprint to centralized surface infrastructure and treating equipment and further leveraging this shared water gathering system for new wells coming online.
Katie: We're encouraged by the speed and effectiveness with which we've been able to integrate new assets in the first quarter results speak to the strength of our acquisition strategy. We are continuing to focus on opportunities to further improve both quality and quantity of available inventory increased effectiveness of operating expenses and enhance free cash flow generation.
Katie: Now I'll turn the call over to Brian.
Brian: Thank you Katie.
Brian: First quarter, we delivered solid financial results.
Brian: Cash flows from operating activities of $159 million and adjusted free cash flow of $43 million driven by higher than expected production and lower capital investments.
Brian: Lower capital in the first quarter was largely timing related and our full year guidance is unchanged at $750 million to $850 million.
Brian: Continue to be focused on further strengthening our balance sheet. We made great progress on this front in the first quarter executing two transactions in the bond market that extended maturities and redeemed higher rate debt to reduce interest expense.
Brian: In March we issued $800 million of seniors unsecured notes at an interest rate of seven 875% compared to around 10% just six months prior.
Brian: Due to strong demand for the notes. We subsequently issued another $200 million at just under seven 7%.
Brian: Utilize these proceeds of the issuance to fully redeem our $10, 125% notes due 2028 and to redeem a portion of our 975% interest notes due 2030.
Brian: It's opportunistic moves will save us $11 million annually and we now have no term maturities until 2029.
Brian: Additionally, as part of our regular semi annual Redetermination process for our RV L. Our banks increased our elected commitment to 135 billion from $1 billion to $5 billion and we added an additional bank to the facility.
Brian: Consistently use hedging to reduce commodity price volatility ensure we can deliver strong returns with our drilling program and generate cash to reduce debt and reduce our leverage ratio.
Brian: Hedging is an integral part of delivering on this commitment for the year, we are 97% hedged on our anticipated oil production at around $75 per barrel. This produces a very consistent cash flow profile insulating us from risks associated with lower prices.
Brian: Net debt to consolidated EBIT tax ratio is currently 113 times our ratio rose slightly as a result of our new debt issuance and redemption of 2028 and 2013 notes.
Brian: Due to debt issuance cost and redeeming the notes at a premium to their par value.
Brian: We have significantly improved our capital structure since mid 'twenty 2023.
Brian: Capital efficiency benefits from our successful integration of acquisitions are driving sustainable free cash flow generation.
Brian: Focused on paying down debt, reducing interest expense and targeting smart accretive acquisitions that build scale and strengthen our business.
Speaker Change: Operator, please open the line for questions.
Speaker Change: Thank you we will now begin our question and answer session. At this time, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question. Thank you press Star one again.
Speaker Change: We'll pause for a moment to compile the Q&A roster.
Speaker Change: The first question comes from the line of Neal Dingmann from <unk> Securities go ahead.
Neal David Dingmann: Good morning, guys nice quarter Jason.
Neal David Dingmann: This is my first question maybe for <unk> on slide seven.
Neal David Dingmann: On the latest presentation specifically.
Neal David Dingmann: On that slide where you talk about the optimized development.
Neal David Dingmann: You highlight the spacing and completion design.
Speaker Change: These things that have seen improved results I'm just wondering could you talk about now what.
Speaker Change: How has that changed and what is now that you considered the most effective.
Speaker Change: Type of spacing and completion, both in the Midland and Delaware versus lets say even last year.
Speaker Change: Hey, good morning, Neil This is Katie.
Katie: Pieces of this that we're pretty excited about I think the first is that we have up space compare to some of the previous development plan you can see in that productivity results that that's really well supported by the other piece of the Delaware story is that we've been able to drive down capital costs really effectively in that first six to nine months of operating so we've reduced well cost for a 10000 foot lateral by about 15% already in together.
Speaker Change: Between that and the up spacing and certainly having a rally.
Speaker Change: Wrong profitability impact on the Delaware inventory.
Speaker Change: We also are continuing to test them in our completion design in the area and I think that we will be able to see results of that across 2024 that will influence our 2025 plan as well.
Speaker Change: Promising results so far from the Delaware acreage.
Speaker Change: Now that's great to hear that.
Mikell Jason Pigott: Go ahead Jason.
Mikell Jason Pigott: So I think you all had also had Midland on your question I think for Midland. We're just part of what we're working through right. Now is just the co development we've.
Mikell Jason Pigott: <unk> talked about these new zones, both last quarter and this quarter.
Mikell Jason Pigott: You mentioned in our commentary that we have the wine rack for the Western Glasscock development Theres, a new zone in there they see that as a new test for us that wasn't underwritten. So when we think about Midland or are they working through how do we co develop these new zones that were finding with the existing inventory that we have and so that's something that work on a continue to optimize.
Mikell Jason Pigott: End of 'twenty five.
Mikell Jason Pigott: Will you baked that into the inventory at some point.
Mikell Jason Pigott: Those additional zones.
Mikell Jason Pigott: Yeah. So I mean, we've talked about some last quarter and then the <unk> zones again, they look really good but they're they have just two weeks of production.
Mikell Jason Pigott: The first test with this kind of new higher intensity designs, though in there, but very very promising in those seasons are one of the contributors contributors to our outperformance of that western Glasscock package.
Mikell Jason Pigott: Okay, and then just lastly on capital allocation, Jason for you or Brian will we show in our estimates that the free cash flow continues to ramp very nicely, especially second half this year.
Mikell Jason Pigott: Almost entire focus continues to be definitely payment or.
Mikell Jason Pigott: Could you talk about it and are there acquisitions, you're already seeing that you would try to slip in there maybe what.
Mikell Jason Pigott: With thoughts do with that with the capital.
Mikell Jason Pigott: Sure. This is Brian I would say absent any acquisition opportunities that will definitely go towards debt pay down.
Brian: On the M&A front, it's been a slow first half of the year, but there are numerous packages come in from our operators consolidation operators et cetera in the back half of the year. So we've got our eyes is looking at that stuff and we'll be we'll be focused on it.
Brian: That will be somewhat dependent upon what packages come out how we how we see those fitting into our portfolio and whether or not there. They are accretive to our business, but we're definitely looking at those things, but in the absence of any of that will be continuing to pay down debt.
Speaker Change: Thank you.
Speaker Change: We're trying to hunt.
Speaker Change: Sorry, Neil what we're trying to highlight what this quarter is the.
Speaker Change: The impact of the acquisitions, we've done in the past and what Theyre doing for US now where Andy and team are getting more out of these wells.
Speaker Change: New completion techniques, we're reducing capital cost.
Speaker Change: We're finding new zones, and so we still think that that is a great use of capital for us when we find the deal that it works and fits in our portfolio and expect to see several things kind of come on the market. The next few months.
Speaker Change: Look forward to that guys. Thank you.
Speaker Change: Thanks.
Speaker Change: The next question comes from the line of Zack <unk> from Jpmorgan. Please go ahead.
Zack: Thanks for taking my questions first could you talk a little bit more about the opportunity set on the Horseshoe wells you talked about the breakeven on those wells being reduced at $20 per barrel.
Zack: Going forward, how do you think about those wells slotting in to your future inventory plans, our future development plans for those get moved forward just trying to think about.
Zack: How we should think about you developing those going in the future.
Zack: Yes. Thanks for the question this is Scott.
Scott: So I think ultimately we think about this.
Scott: Turn wells as another tool in our toolbox that allows us to strategically unlock acreage that perhaps wasn't available to us before.
Scott: In this case you can see that development could have been six 6000 foot laterals, which ultimately is not the most capital efficient way to develop our ability to drill these as almost 14000 foot laterals with this this horseshoe shaped design.
Scott: Really drive a ton of capital efficiency into the program and as you mentioned the breakeven is dropping by $20 a barrel is really incredible.
Scott: The team is looking at where do we deploy this opportunity or this tool in our toolbox going forward, we already have wells towards the back end of this year and early next year that were that were planning on drilling at horseshoe laterals in the Delaware basin. So it's something that we're going to put to work right away.
Scott: I would like to we have got these wells that we have improved the economics on them, we don't talk about well that arent in our inventory that this technology will now move or have the ability to move into our inventory in the future. So it's both a win for reducing.
Scott: Costs are break evens on wells in our inventory and then creating new inventory that we haven't counted before.
Speaker Change: Thanks, Jason.
Speaker Change: Jason maybe following up on some of your earlier comments you talked about the early success of those Wolfcamp D Wells and I know it's early on.
Mikell Jason Pigott: But if the Wolfcamp C does prove to be successful on that glasscock pad whats the potential impact to inventory and maybe could you remind us.
Mikell Jason Pigott: How much inventory you have already booked in the Wolfcamp D and the.
Scott: The spacing that you've assumed for that inventory versus what you drilled on this latest glasscock pad.
Scott: Zach This is Karl again, so to your answer on the Wolfcamp C. We think it could unlock up to 70 locations over there and our western Glasscock acreage. So it's obviously a big add for us.
Speaker Change: Like Jason said, we're very encouraged by what we see so far but we're only just a few weeks into our flowback period.
Speaker Change: On the Wolfcamp D. We did book our locations there are five wells per section, which is what we drilled this 20 low package.
Karl: The results so far again had been encouraging its early on these wells both the Wolfcamp C and D had a lot of pressure during the drill out and in fact, our free float.
Karl: <unk> outpacing start for a number of weeks before we ultimately put them on ESP. So strong bottom hole pressure strong results. So far we're encouraged with what we see.
Speaker Change: Thanks really appreciate the color.
Speaker Change: Thanks Zack.
Karl: The next question comes from the line of Derrick Whitfield from Stifel. Please go ahead.
Derrick Lee Whitfield: Good morning, all and congrats on a strong quarter and operational update.
Derrick Lee Whitfield: Thanks, Joe.
Derrick Lee Whitfield: Leaning in on the 20, well package in Western Glasscock could you speak to the actions that led to this faster than expected oil cut and how you've accounted for the production response in your Q2 guide. It is clearly in selecting higher as shown on page six but expected to rollover as the chart indicates.
Derrick Lee Whitfield: Yes.
Speaker Change: Good morning, Derik, I think Theres, a couple of pieces here to hit on the first.
Western Glasscock: Strong execution by the team across all phases of the largest package that we developed at vital and really excited by the team's ability to deliver at or faster than planned cycle time. We started drilling on this package midyear last year. We were completing really Q4 of last year and across all of the team the handover between disciplines was better than planned.
Western Glasscock: We're able to get the wells online earlier, and then relate to.
Western Glasscock: I'll speak to Kyle's point earlier really good performance on the CND helped support cutting oil before plans. So it was a couple of pieces about day, one being sooner than planned and then getting the oil type sooner as well that supported the Q1 outperformance.
Western Glasscock: In terms of how that influences our full year.
Western Glasscock: We are not re forecasting yet this package until the wildstar turnover, it's really just too soon there is enough with the CMV test that we want to get better better data support before we start to build that and I think that the key part is it has accelerated volume from later in the year and so we now expect the first half of the year to be a heavier weighting from.
Western Glasscock: Volume standpoint on our daily.
Western Glasscock: Terrific and Katie perhaps staying with you just on the higher LOE expenses could you elaborate on your near and medium term objectives that you would like to implement to lower drives.
Western Glasscock: E.
Western Glasscock: Lower.
Speaker Change: You bet.
Katie: Although in Q1, I think is a reflection of that team getting these assets integrated and really quickly trying to understand where theres. Some operating cost efficiencies achieved so far were tackling and making progress on in Q2 is around chemical costs and around saltwater disposal costs in the Delaware. So.
Katie: Small subset of wells that have effectively flat-water production with declining oil as an increasing water cut over time does seem to have turned over early in Q1 in favor has some opportunity for us to shut in and make sure that we're only producing profitable while those came from one of the assets that we bought late last year and.
Katie: Drill across some linear men's in the area I think we've got good subsurface control that that would not be our development plan, but is now from our producing wells that have been that we're managing on the alloy side for chemicals, I think I'm really encouraged by the opportunity that we have in front of us. This year. The way that these assets were previously operated there really wasn't.
Katie: Production I know, that's sort of a critical part of the value proposition. So.
Katie: Any color on that now that you have a full quarter under your belt.
Katie: We're continuing to evolve are based optimization tools in the Midlands. So I think there's been a great expansion of that into southern Madeleine is we've picked up the driftwood and some of the Henry acreage that has really been focused on E. S. P wells and we're starting to transition not over to the Delaware at this stage <unk>.
Katie: Wood frame it as we've completed a lot of the technical.
Katie: Technical expertise and sort of support from the Midland team they've expanded over into the Delaware, they're leading a lot of our Delaware operations and so I think we're taking advantage of a lot of the knowledge and the technical ability from our group we are not yet in a spot that we've fully deployed any of the hardware that would support some of the machine learning and AI total.
Katie: That we've talked about before that'll really take most of 24 to be able to effectively complete across the Delaware five so I think there's quite a bit of opportunity stolen I leveraging our based optimizations. Okay.
Speaker Change: Okay, that's great that's great.
Speaker Change: And then just.
Speaker Change: Follow up some Midland basin peers.
Speaker Change: Oh for the last couple of years I've been reporting really strong Jean results, you've seen them in in Martin County, and farther North where <unk> is that something that's on your on your radar as you look to kind of fully develop the rest of your Midland inventory just kind of curious what are your thoughts on that on that interview. Thank you.
Speaker Change: This is kind of with him. So the dean has been a great animal Forest open our Howard County acreage as we developed up there essentially a dean said between the lowest flavor and that will give the and so there were times, where we would target the dean explosively and other times, where we would we would essentially hit the boundaries between the dean and that will.
Speaker Change: The Dean of the lowest Gregory we know the dean with a huge contributor to the outperformance we saw on the tower kind of assets. So we took a full advantage of it where it was available to us.
Speaker Change: And then have you seen in other parts of the base. It on other acquisitions that we that we purchase we are always looking for upside zones that we can test and praise an AD inventory too we've demonstrated that in Howard County in Western Glasscock in Southampton and on the Delaware, It's part of our acquisition and value locking model.
Speaker Change: Okay. Thank you.
Speaker Change: The next question comes from the line of Henman Chang from Wells Fargo. Please go ahead.
Henman Chang: Thanks for taking my questions I want to follow up on the development of the Horseshoe wells and a potential upside to inventory and lowering your breakevens are there any specific areas or putting things producing zooms into me one day soon or that'll work based on that could disproportionately benefit from it. Thank you.
Speaker Change: And we look at the the opportunities that across the assets, we probably see a two thirds waiting to the <unk> just in terms of our footprint and having a a greater opportunity said because of the size of our footprint on the liberal side, but what we're really excited about is that we have now demonstrated that this opportunity can be done on the Delaware side and the <unk>.
Speaker Change: <unk> sighed with really unlocks the opportunity for us across our portfolio.
Speaker Change: Yeah, I don't think it's so much based and waited as your acreage footprint waited and disciplined where whereas a zone.
Speaker Change: Oh wells trapped because we got development on either side, but that that could be again, an opportunity for says we're looking to do both arms and things like that as we're kind of testing this technology and testing longer laterals compared to a lot of our peers.
Speaker Change: Thank you could you provide some colors on your outlook for gas price you furniture I was in the second half of 2024.
Speaker Change: Yes, Sir that from a gas price standpoint, we're definitely looking at a strengthening specifically in the basin.
Speaker Change: Uhm are expecting some additional capacity with the Matterhorn Express pipeline to come online later in the year in the third quarter, that's going to add another two and a half P. C. As a day of capacity to the basin.
Speaker Change: The last few months has been hampered with not only type capacity, but on and off maintenance on the existing brownfield and greenfield projects that have already been put into place later or earlier last year and so I'm getting through this period of time until the Matterhorn Express pipeline comes on line is gonna be tight, but we are expecting arrive.
Speaker Change: <unk> as soon as the next quarter.
Speaker Change: <unk>.
Speaker Change: Okay.
J: The next question comes from the line chopped J from Daniel's energy marketers. Please go ahead.
J: Hi, guys. My question is really about the cadence of Capex and share it looks like it changed a bit.
Daniel: From your expectations last quarter, obviously, you spent less than Utah Q1.
Daniel: Uhm, yeah. It looks like Capex is gonna crash, and Q2 and I'm just wondering.
Daniel: What's that answers are you pulling some things for us it is purely a function of sort of increased efficiencies you guys <unk>.
Speaker Change: Good morning.
Speaker Change: I appreciate it and find that I think there's some good visual to help support those but I. Appreciate your point about Q2, so a lot of the movement that we're seeing in the first half of the year is timing related small movement between Q1 and Q2, but over the first half. We we plan to stay flat. It's lost reflect on a capital a reduction in Q1 and modest movement into Q2, and then as you'll notice in a second.
Speaker Change: A year, we have some opportunity to continue to moderate capital spend with a spot for you in the fourth quarter will use that to to ensure that we're hitting our follow your plan.
Speaker Change: Okay, Great and then around the Horseshoe Wells I was just wondering I guess my understanding is the real savings is sort of having the needs for vertical casing are there other savings associated with these wells.
Speaker Change: I'm not aware of.
Speaker Change: Yeah, I think you're thinking about it correctly, it's all the things associated with the wellhead pad the vertical portion of the well esp's when the wells get one production effectively it's cutting those costs those costs in half and so your ability to spend more time drilling productive rock in the lateral and spending your.
Speaker Change: There as opposed to spinning dollars to get to that point, that's where the real true true savings comes from.
Speaker Change: Excellent that's all for me thanks, guys.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of fall Diamond from City. Please go ahead.
Paul Michael Diamond: Good morning, and thanks for taking my call just a quick moment statement Horseshoe wells can you talk a bit about decline rates for withdrawal took the standard wells.
Paul Michael Diamond: That the branch.
Paul Michael Diamond: Sure. It's these verses.
Speaker Change: Yeah. So if you look at that slide seven one thing that we wanted to make sure and highlight here is that the teller. The teller wells are horseshoe wells drilled in a very similar pattern to what we drove the Allison wells on the Midland based on side you can see from the the production burst time profile on the bottom right that those wells are for.
Speaker Change: Forming very well relative to industry benchmarks in the area. So that's just one example of how these wells can perform.
Speaker Change: When we look at the the opportunities that let me think about our design.
Speaker Change: You have always taken a more conservative spacing as we come into these assets, we space a little bit wider than the industry peers have in the past and we think that that is a big driver of are outperforming and are well results in the area. We would take the same approach with these new terms and they are spaced in our wider spacing pattern. So.
Speaker Change: Ultimately, we do not anticipate seeing any kind of degradation or differential performance. That's negative as a result of the horseshoe we think of them as being as efficient at draining the reservoir is a straight long lateral would be the benefit really comes from the saved capital that you get by not drilling six wells and only drawing three a dark blue.
Speaker Change: Understood and just just a quick follow up on kind of a quarter of capital spending there's some optionality with for just how does that it would drive that that's going to be I mean versus.
Speaker Change: What drives had burst in Paris set up into you know 25, I know, it's a bit early to talk about that but.
Speaker Change: Does that more of a function of what you want to see this year or is it more of a functional kind of setting up your next.
Speaker Change: This is really an opportunity for us to continue to occupy development throughout the year. So we're really excited about the work so far in the Delaware Bay, where we will see capital efficiencies throughout 24 that can help support maintaining that spot crew later in the year, we're really using.
Speaker Change: Make sure that we stay where we want to be on total span in 24, and moderating not with getting into 25 in a sustainable way.
Speaker Change: Understood.
Speaker Change: Next question comes from the line of Craig Brody from Bank of America. Please go ahead.
Gregg William Brody: Hey, guys I appreciate all the details on this horseshoe of obviously different ones really interested in it.
Gregg William Brody: You gave.
Gregg William Brody: Split of how much opportunity there is for two.
Gregg William Brody: Sorta Leverages technology based on mainland versus Delaware.
Speaker Change: She might have number how many wells.
Speaker Change: Because convert.
Speaker Change: That are that are <unk>.
Speaker Change: Missouri and inventory and out of inventory.
Speaker Change: Yeah. So you can see on slide eight on the bottom bullet we talk about within our our previously public stated inventory 84 of those wells.
Speaker Change: Have this opportunity so effectively becomes 42.
Speaker Change: It is a reduction in the in the counted inventory, but adjacent said in his comment $140 million a capital saved for.
Speaker Change: For effectively recovering the same resource that you would have with those 84 wells.
Speaker Change: The other thing to think about and will and will update this when we when we come up with our updated inventory counts is that there are now well that because of increased capital efficiency will be pulled into our public inventory that previously weren't there making up for the effectively lost 42 laterals that we're talking about so we view this as a as a positive.
Speaker Change: All around it hydrated our inventory it improves breakevens by quite a dramatic amount and ultimately our inventory council estate flat or even go up as a result.
Speaker Change: Is that where the two thirds, one third Midland where it came from a publisher to think about it.
Speaker Change: Total 84.
Speaker Change: Yeah. So the two thirds one third is really is talking about where are the opportunities that.
Speaker Change: Is and and is Jason and I said earlier, it's really a function of how big is your footprint in how many opportunities are there based upon.
Speaker Change: The way, our acreages laid out and that instead of 84 to 42 is reflective of that two thirds, one third split that we talked about.
Speaker Change: Got it.
Speaker Change: I guess the question is why not do this with some of your current inventory.
Speaker Change: [noise] fraternity to go along or what does it once the physical limit that you think.
Speaker Change: That you have done on vacation application performance.
Speaker Change: So so to date, we drilled wells 15000, even even just above the industry is continuing to extend lateral links. That's obviously one of the largest drivers of capital efficiency. That's available. We're certainly thinking about that open to that possibility. These wells that we drilled on the Allison package.
Speaker Change: We're near 15000 feet themselves. So we will continue to push a lateral links to the optimum limit drive and capital efficiency.
Speaker Change: And capital efficiency and getting all that we cannot as well.
Speaker Change: Do you think there's a time, where we can actually see you drill to take care of 2000 put laterals and tried to do a U turn there.
Speaker Change: <unk>.
Speaker Change: If the team is always thinking about creative opportunities to to do something like that there have been situations, where we've been locked in a bind with a with a lamb position, where we consider those types of creative opportunities, but it's just something that we have to evaluate on a case by case basis and that's the state I mean, you need to consider the risk.
Speaker Change: Two and then that much capital being invested in any one well, but I guess this is our our first shot at it. So I think that's going to be lots of opportunities in the in the future and the team again quickly took a technology from an acquired asset in Delaware Basin and immediately moved it to the new assets and.
Speaker Change: Midland Basin, so again.
Speaker Change: It's great execution. They did this on their first try so I'm really proud of the team, but there's like they were trying to highlight today, there's just lots of potential for us in the future as we take technology and take it from one act was acquired asset to another and just really kind of build this one vital energy culture, that's embracing technology and trying to do take the best technique.
Speaker Change: From all the acquisitions and drive ultimately to corporate performance.
Speaker Change: So just as I look at the data that you have here you have two wells from the from the Teller unit and.
Speaker Change: It looks like 200.
Speaker Change: 40 days of data.
Speaker Change: <unk>, you're saying for the for the Midland you'll have similar performance how.
Speaker Change: How much data do you have there in terms of in terms of time and maybe just contextually like.
Speaker Change: How much other data is there is around the industry that you're that gives you the confidence that <unk>.
Speaker Change: Throughout.
Speaker Change: Revenue drill.
Speaker Change: On the on the business side, we have successfully drilled and submitted those wells and we are in the middle of our completion operations and everything is going.
Speaker Change: Well going according to plan in terms of industry data were aware of the 43 wells, including these that have used this this horseshoe shape and we have not seen any kind of production degradation associated with with with a shake with that well with that type of we'll plan.
Speaker Change: Got it.
Speaker Change: I appreciate that one last question for you usually get asked about M&A.
Speaker Change: Obviously horseshoe also has been dominant today.
Speaker Change: And what's <unk>.
Speaker Change: <unk>, what's your sexual what's out there.
Speaker Change: The opportunities.
Speaker Change: Which is a kind of today.
Speaker Change: I think there's still a pretty good pipeline of opportunities that we see some of them have data rooms out there. Some we expect the calm I think there are several but you know.
Speaker Change: Result of these large corporate deals.
Speaker Change: We could see some assets hit the market from other public companies, which will be new and haven't been a lot of those here recently versus just private so that are selling so C. A good pipeline for us it's still something that we're very interested in us you're against we tried the highlights with these quarterly results.
Speaker Change: We've been really good at being able to drive outcast find new zones.
Speaker Change: Implement new technology on acquired assets. Please Alison wells were things that we acquired from the Henry team. So we immediately took again a technique from one to one acquired company and took it to assets acquired.
Speaker Change: From another one so I think there's lots of opportunity there what we've done a really great job I think of is just squeezing more out of these assets front. One after we've acquired them and so we still think that's an important part of our a portfolio, but we.
Speaker Change: We're trying also to build inventory organically in case some of these acquisitions don't go in our favour or were not successful this year, we're extending or inventory through technology and finding new zones and so we'll we'll we'll have a great year, whether we do acquisitions or not but it's still something so important to us as a company.
Speaker Change: Thanks for all the time horizon I appreciate all the color.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Brian Feeling from capital One Securities. Please go ahead.
Bryan J. Lemmerman: Good morning, everyone. Thanks for taking my question just one more on M&A, while we're while we're at it here.
Bryan J. Lemmerman: As you look at future possibilities should we think about your current trading multiples free cash flow yields as metrics that any future deals would have to be accretive on for you to.
Bryan J. Lemmerman: The actor those guidelines are yeah, how do you think about that in terms of deals that you go after.
Speaker Change: Great question, Yes, I think.
Speaker Change: With the transactions, we accomplished last year, we got.
Bryan J. Lemmerman: Got the balance sheet, where we want it and I think going forward, you'll see any transaction that we do we will need to be accretive to shareholders on virtually every metric and sometimes it's hard to catch every single one of them, but that that will be our focus is to make sure that the acquisitions. This year.
Bryan J. Lemmerman: Are treated to all metrics or shareholders and or protective of the balance sheet going forward. So we believe we can we can do that through all the all the tools we've used in the past or acquisitions and that is the focus.
Speaker Change: Perfect. Thank you very much that's very helpful.
Speaker Change: Thank you.
Speaker Change: There are no further questions advocate. This time this concludes or Q&A session I would like to turn the call over Bakhtaran hatred for brief closing remarks.
Bakhtaran: Thank you for joining us. This morning, we appreciate your interest and vital energy and this concludes today's call.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Bakhtaran: [music].