Q1 2024 HighPeak Energy Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the HighPeak Energy 2024 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Steven Tholen, CFO. Please go ahead.
Good day, and thank you for standing by and welcome to the high peak energy 'twenty 'twenty four first quarter earnings call.
Operator: At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Operator: To ask a question during the session you will need to press star one on your telephone.
Operator: Then here an automated message advising that your hand is raised.
Operator: Draw. Your question. Please press Star one one again please.
Operator: Please be advised that today's conference is being recorded.
Operator: But now like to hand, the conference over to your first speaker today, Steven Dolan CFO. Please go ahead.
Steven W. Tholen: Good morning, everyone, and welcome to HighPeak Energy's first quarter 2024 earnings call. Representing HighPeak today are Cameron and CEO Jack Hightower, President Michael Hollis, and I'm Steven Tholen, the Chief Financial Officer.
Steven W. Tholen: Good morning, everyone.
Steven W. Tholen: On the high peak Energy's first quarter 2024 earnings call.
Steven W. Tholen: Representing high peak today, our chairman and CEO Jack Hightower.
Steven W. Tholen: Michael Hollis and I'm, Stephen Nolan Chief Financial Officer.
Steven W. Tholen: During today's call, we will make reference to our May investor presentation and our first quarter earnings release, which can be found on HighPeak's website. Today's call participants may make certain forward-looking statements relating to the company's financial condition, results of operations, expectations, plans, goals, assumptions, and future performance. Please refer to the cautionary information regarding forward-looking statements and related risks in the company's SEC filings, including the fact that actual results may differ materially from our expectations due to a variety of reasons, many of which are beyond our control.
Steven W. Tholen: During today's call, we will make reference to our May investor presentation at our first quarter earnings release, which can be found on high peaks website.
Steven W. Tholen: Today's call participants may make certain forward looking statements relating to the company's financial condition.
Steven W. Tholen: Thoughts of operations expectations plans goals assumptions and future performance.
Steven W. Tholen: Please refer to the cautionary information regarding forward looking statements.
Steven W. Tholen: The risks and the company's SEC filings, including the fact that actual results may differ materially from our expectations due to a variety of reasons many of which are beyond our control.
Steven W. Tholen: We will refer to certain non-GAAP financial measures on today's call. So please see the reconciliations in the earnings release and in our May Investor presentation.
Steven W. Tholen: We will refer to certain non-GAAP financial measures on today's call, so please see the reconciliations in the earnings release and in our May investor presentation. I will now turn the call over to our chairman and CEO, Jack Hightower.
Jack D. Hightower: I will now turn the call over to our chairman and CEO, Jack Hi, Tyler.
Jack D. Hightower: Thank you, Steve. And good morning, ladies and gentlemen, and thank you for joining us today.
Jack D. Hightower: Thank you, Steve and good morning, ladies and gentlemen, and thank you for joining US today My prepared remarks will begin on slide four of our May investor presentation.
Jack D. Hightower: My prepared remarks will begin on slide four of our May investor presentation. I'm very excited to report we had a great start to the year; results were in line or exceeded our expectations. We continue to stay committed to our 2024 core values, which, if you recall, include maintaining disciplined operations, strengthening our balance sheet, and maximizing shareholder value. We're going to continue staying within our capital budget expenditures and not getting out over our skeet.
Jack D. Hightower: I am very excited to report that we had a great start to the year results were in line or exceeded our expectations. We continued to stay committed to our 2024 core values.
Jack D. Hightower: Which if you recall include maintaining disciplined operations strengthening our balance sheet and maximizing shareholder value.
Jack D. Hightower: We're going to continue staying within our capital budget expenditures and not getting out over our skis operationally you heard me say last quarter that running a two rig development program.
Jack D. Hightower: Operationally, you heard me say last quarter that running a two rig development program would allow our operations team to aggressively focus on reducing capital costs, optimizing daily operations, and driving down operating expenses. The operations team absolutely delivered on these goals.
Jack D. Hightower: Our operations team to aggressively focus on reducing capital cost.
Jack D. Hightower: Optimize daily operations and drive down operating expenses.
Jack D. Hightower: The operations team absolutely delivered on these goals.
Jack D. Hightower: Financially, we generated positive free cash flow from operations for the third consecutive quarter. We're prioritizing debt reduction in the utilization of that free cash flow, while also steadily increasing capital returns to shareholders. In addition, we continued our pursuit of increasing shareholder value through raising our dividend, implementing our share buyback program, and continuing to organically add high-value, liquids-rich inventory to our portfolio and ultimately maximizing shareholder value through our strategic alternatives process. Now turning to slide five on the operations front, we had a great first quarter.
Jack D. Hightower: I actually we generated positive free cash flow from operations for the third consecutive quarter and were prioritizing debt reduction and the utilization of that free cash flow.
Jack D. Hightower: Also steadily increasing capital returns to shareholders.
Jack D. Hightower: In addition, we continued our pursuit of increasing shareholder value through raising our dividend.
Jack D. Hightower: <unk> our share buyback program.
Jack D. Hightower: Continuing to organically add high value liquids rich inventory to our portfolio and ultimately maximizing shareholder value through our strategic alternatives process now.
Jack D. Hightower: Now turning to slide five on the operations front.
Jack D. Hightower: We had a great first quarter.
Jack D. Hightower: We held our average production levels flat compared to the fourth quarter at roughly 50,000 barrels a day. We made huge strides in continuing to lower our operating expenses, as evidenced by the 16% decrease in LOE or BOE from last quarter down to $6.30. And I want to take this opportunity to congratulate and thank our operations team for all their hard work as we are starting to realize significant progress and savings in this area.
Jack D. Hightower: We held our average production levels flat compared to the fourth quarter at roughly 50000 barrels a day, we made huge strides in continuing to lower our operating expenses as evidenced by the 16% decrease in LOE.
Jack D. Hightower: Bowie from last quarter down to $6 30.
Jack D. Hightower: And I want to take this opportunity to congratulate and thank our operations team for all their hard work as we are starting to realize significant progress and savings in this area.
Jack D. Hightower: The reduction in LOE costs further improved our already peer-leading Ebenx margin. Our operational success led to generating first quarter EBITDAX in line with our fourth quarter, which on a run rate approaches a billion dollars. We increased our free cash flow by 42% compared to the last quarter, and we've now generated positive free cash flow of over $150 million in the last three quarters. We utilized free cash generated in the first quarter to reduce long-term debt by $30 million.
Jack D. Hightower: The reduction in LOE costs further improved our already peer leading EBITDAX margins.
Jack D. Hightower: Our operational success led to generating first quarter EBITDAX in line with our fourth quarter, which on a run rate of approaches $1 billion.
Jack D. Hightower: We increased our free cash flow by 42% compared to the last quarter and we've now generated positive free cash flow of over $150 million in the last three quarters.
Jack D. Hightower: We utilized free cash generated in the first quarter to reduce long term debt by $30 million.
Jack D. Hightower: We increased our dividend by 60%, and we implemented our share repurchase plan, whereby we acquired over 565,000 shares during the first quarter. Now I'll turn the call back over to our president, Mike Hollis, to provide an update on our first quarter operations.
Michael L. Hollis: We increased our dividend by 60%.
Michael L. Hollis: And we implement our share.
Michael L. Hollis: Implemented our share repurchase plan.
Michael L. Hollis: We acquired over 565000 shares during the first quarter.
Michael L. Hollis: Now I'll turn the call back over to our President My call is to provide an update on our first quarter operations.
Michael L. Hollis: Thanks, Jack now turn into slide six as Jack previously mentioned the team has been intensely focused on reducing cost across the board.
Michael L. Hollis: Thanks, Jack. Now turn to slide six. As Jack previously mentioned, the team has been intensely focused on reducing costs across the board. On the capital side of the equation, costs continue to trend in the right direction for HighPeak, leading to increased capital efficiency. As I mentioned last quarter, we are trending well below our guided dollar per completed lateral foot cost for the year. One additional point that I'd like to make on the capital costs front that will continue to improve as we progress in our development program are our facility calls.
Michael L. Hollis: On the capital side of the equation costs continued to trend in the right direction for IP, leading.
Michael L. Hollis: Leading to increase capital efficiency as I mentioned last quarter, we are trending well below our guided dollar per completed lateral foot cost for the year.
Michael L. Hollis: One additional point that I would like to make on the capital cost front that will continue to improve as we progress in our development program. Our facility costs are central tank battery configuration is large scalable and efficient.
Michael L. Hollis: Our central tank battery configuration is large, scalable, and efficient. And as our drilling program advances, we will be able to reduce the per well facility cost on our new well tie-in, thus reducing future total capital costs per foot. We anticipate seeing additional improvement throughout the year. But, as always, we continue to adhere to the under-promise, over-deliver philosophy.
Michael L. Hollis: And as our drilling program advances, we will be able to reduce the per well facility costs on our new well tie ins, thus, reducing future total capital cost per foot.
Michael L. Hollis: We anticipate seeing additional improvement throughout the year.
Michael L. Hollis: But as always we continue to adhere to the under promise over deliver philosophy.
Michael L. Hollis: Now turning the focus to the operations side of the equation. And I'd like to take this opportunity to put a couple numbers out there. HighPeak was able to keep our absolute dollars spent on LOE this quarter to roughly $200,000 below what we spent in Q1 of 2023, a year ago when our production was only 37,200 BOE per day. And again, we spent less in Q1 of 2024 when our production was roughly 50,000 BOEs per day.
Michael L. Hollis: Now turning to focus to the operation side of the equation.
Michael L. Hollis: And I'd like to take this opportunity to put a couple of numbers out there.
Michael L. Hollis: Hi peak was able to keep our absolute dollar spend on LOE this quarter to roughly $200000 below what we spent in Q1 of 2023, a year ago. When our production was only 37200 Boe per day.
Michael L. Hollis: And again, we spent less in Q1 of 'twenty four while our production was roughly 50000 BOE a day.
Michael L. Hollis: Some of the key drivers to accomplishing this feat are shown on the right-hand side of this slide, where you can see the field-wide build out of our world class electrical and produced water infrastructure. This system is built for the life of the field.
Michael L. Hollis: Some of the key drivers to accomplishing this fee are shown on the right hand side of this slide.
Michael L. Hollis: Where you can see the field why build out of our world class electrical and produced water infrastructure systems.
Michael L. Hollis: This system is built for the life of field.
Michael L. Hollis: The operations group has been extremely busy over the past few years constructing these systems in both FlatTop and SignalP, and the fruits of their labor are absolutely starting to show. Other areas where our operations teams continue to make positive strides include optimizing our field-wide chemical programs, exploiting that world-class infrastructure, and maximizing the production of our phase, all of which is supported by the reliability of our overhead electrical power distribution. The capital investment the company has made in this system is and will continue to pay you huge dividends as we develop our large inventory of high-value locations for decades to come, and by improving EBITDAX margins and lowering well breakeven costs.
Michael L. Hollis: The operations group has been extremely busy over the past few years constructing these systems in both flat top and signal.
Michael L. Hollis: And the fruits of their labor are absolutely starting to ship.
Michael L. Hollis: Other areas, where our operation teams continue to make positive strides.
Michael L. Hollis: Include optimizing our field wide chemical programs explore.
Michael L. Hollis: Exploiting that world class infrastructure.
Michael L. Hollis: Maximizing the production of our base all of which is supported by the reliability of our overhead electrical power distribution system.
Michael L. Hollis: The capital investment the company has made in this system is and will continue to pay you did huge dividends as we develop our large inventory of high value locations for decades to come in.
Michael L. Hollis: And by improving EBITDAX margins and lowering well breakeven costs.
Michael L. Hollis: And as you can see on these maps, the majority of our acreage is now tied into these, which means only small incremental infrastructure dollars will be needed in the future as our development program continues, thus reducing future capex. Our overhead electrical system will be further enhanced by our flat-top solar farm, which we look to commission within the next week or two. The timing of this is great, as we'll be able to take advantage of the summer West Texas sunshine to provide power to the field during daylight hours. This will greatly reduce our exposure to electrical spot prices and brownouts, which are frequent during the hot summer months in West Texas.
Michael L. Hollis: And as you can see all these maps the majority of our acreage is now tied into these systems.
Michael L. Hollis: Which means only small incremental infrastructure dollars will be needed in the future as our development program continues thus reducing future capex needs.
Michael L. Hollis: Our overhead electrical system will be further enhanced by our flat top solar farm, which we look to commission within the next week or two.
Michael L. Hollis: The timing of which is great as we will be able to take advantage of this summer west, Texas Sunshine to provide power to the field during daylight hours.
Michael L. Hollis: This will greatly reduce our exposure to electrical spot prices and brown outs, which are frequently during the hot summer months in West Texas.
Michael L. Hollis: As a reminder, our 2024 capital budget is slightly first half weighted due to entering the year with three rigs and completing the ducks we carried into this year, and our infrastructure span is also first half weighted to extend our infrastructure to our newly acquired acres. Having great rock, coupled with low-cost operations and efficient deployment of capital, leads to increased corporate efficiency and free cash flow generation, and HighPeak will be able to continue this Now turning to slide seven.
Michael L. Hollis: As a reminder, our 2024 capital budget is slightly first half weighted due to entering the year with three rigs and completing the ducks, we carried into this year.
Michael L. Hollis: And our infrastructure spend is also first half weighted to extend our infrastructure to our newly acquired acreage having.
Michael L. Hollis: Having great rock.
Michael L. Hollis: Coupled with low cost operations and efficient deployment of capital leaves the increased corporate efficiency and free cash flow generation and high Tech will be able to continue this for decades because of our extensive runway of inventory now turning to slide seven.
Michael L. Hollis: HighPeak's margins per BOE continues a commanding lead amongst our peer groups, our unhedged first quarter EBITDAX margin of $52.68 per BOE was close to 70% higher than our public peer average and over 30% higher than our closest, Adjusting our current volumes to an equivalent economic production rate to achieve the same cash flow for HighPeak based on our peer group's average cash margin, would equate to HighPeak producing 85,000 DOEs a day. We produce and generate meaningful EBITDAs no matter how you look at it. One contributing factor to increasing our margin is our focus on reducing LOE costs. As you can see on the chart on the right-hand side of the slide.
Michael L. Hollis: Ip's margins per BOE continues a commanding lead amongst our peer group.
Michael L. Hollis: Our unhedged first quarter EBITDAX margin of $52 68 per Boe.
Michael L. Hollis: Was close to 70% higher than our peer public peer average and over 30% higher than our closest peers.
Michael L. Hollis: Adjusting our current volumes to an equivalent economic production rate to achieve the same cash flow for IP based on our peer groups' average cash margins.
Michael L. Hollis: Equate to high producing 85000 Boe's a day.
Michael L. Hollis: We produce and generate meaningful EBITDAX no matter, how you look at it.
Michael L. Hollis: One contributing factor to increasing our margin is our focus on reducing LOE cost.
Michael L. Hollis: As you can see on the chart on the right hand side of this slide.
Michael L. Hollis: We have delivered four consecutive quarters of reducing LOE costs per BOE. HighPeak posted a 26% reduction quarter over quarter, which equates to roughly six million dollars less absolute dollars spent this quarter for roughly the same production we had last quarter of 4Q 2023. All of that savings is additional free cash flow now and in the future. As we always say, not all BOEs are created equal.
Michael L. Hollis: We have delivered four consecutive quarters of reducing LOE cost per Boe.
Michael L. Hollis: <unk> posted a 26% reduction quarter over quarter.
Michael L. Hollis: Which equates to roughly $6 million less absolute dollar spent this.
Michael L. Hollis: This quarter for roughly the same production, we had last quarter <unk> of 2023.
Michael L. Hollis: All of that savings is additional free cash flow now and in the future.
Michael L. Hollis: As we always say not all <unk> are created equal or high oil cut coupled with our improving cost structure will continue to drive differential margins for our shareholders.
Michael L. Hollis: Our high oil cut, coupled with our improving cost structure, will continue to drive differential margins for our shareholders. I'm always surprised and appreciative of what the operations team can deliver. They have met every stretch goal we've placed in front of them, and for such a liquids-rich BOE to have a lifting cost that competes with the best operators in the base without having the added low value gas BOEs in the denominator of the equation is a feat. We have the same GOR as our peer group.
Michael L. Hollis: I'm always surprised and appreciative of what the operations team can deliver they have met every stretch Joel we placed in front of them and.
Michael L. Hollis: And for such a liquids rich.
Michael L. Hollis: To have a lifting cost that competes with the best operators in the basin.
Michael L. Hollis: Without having the added low value gas Boe.
Michael L. Hollis: And the denominator of the equation is a feat.
Michael L. Hollis: Think how low our LOE would be here at HighPeak. It would have a four handle on the number. Again, this is first-class performance, and my hat goes off to the operations. And as natural gas and NGO prices continue to face significant headwinds, and our lifting costs continue to decrease.
Michael L. Hollis: We had the same GOR of our peer group think how lower LOE.
Michael L. Hollis: We'd be here it would have a four handle on the number.
Michael L. Hollis: Again. This is first class performance and my hat goes off to the operations team.
Michael L. Hollis: And as natural gas and NGL prices continue to face significant headwinds.
Michael L. Hollis: And our lifting costs continue to decrease in my opinion, our margins will continue to stand head and shoulders above the peer group over the next handful of years now turning to slide eight the highlight our inventory rich portfolio.
Michael L. Hollis: In my opinion, our margins will continue to stand head and shoulders above the peer group over the next handful of years. Now turning to slide 8 to highlight our inventory-rich portfolio. HighPeak entered the year with approximately 2,600 locations, with over 1,700 in what we currently consider our primary delineated zone.
Michael L. Hollis: Hiseq entered the year with approximately 2600 locations with over 1700 than what we currently consider our primary delineated zones.
Michael L. Hollis: Our current development plan is focused on our bread and butter, Wolf Camp A, and lower sprayer events, where we have close to 15 years of high-value oil-rich inventory at our current development. In addition, some of the zones that we presently classify as upside are being delineated throughout the county and directly offsetting our acreage. We remain extremely excited about these early results and are looking forward to moving some of these locations into our primary zone classification.
Michael L. Hollis: Our current development plan is focused on our bread and butter, wolfcamp, a and lower sprayberry benches, where.
Michael L. Hollis: Where we have close to 15 years of high value oil rich inventory at our current development case.
Michael L. Hollis: In addition, some of the zones that we presently classify as upside or being delineated throughout the county and directly offsetting our acreage.
Michael L. Hollis: We remain extremely excited about these early results and are looking forward to moving some of these locations into our primary zone classification.
Michael L. Hollis: I'd like to take a moment to focus on a very topical concept within our industry, and that's the notion of break-even cost at HighPeak's current cost, including D, C, E, and F. West Texas slain, that's blood, guts, and feathers all in. Our portfolio has over 1,100 locations that generate a 10% or higher IRR at $50 a barrel. In addition, we anticipate being able to move more of our sticks into the sub-50-per-barrel break-even category as we continue to drive down our costs and as our upside zones are proven out across the acreage.
Michael L. Hollis: I'd like to take a moment to focus on a very topical concept within our industry and that's the notion of breakeven cost.
Michael L. Hollis: At <unk> current cost, including D C.
Michael L. Hollis: West, Texas slang, that's blood and guts and feathers all in.
Michael L. Hollis: Our portfolio has over 1100 locations that generate a 10% or higher.
Michael L. Hollis: At $50 a barrel.
Michael L. Hollis: In addition, we anticipate being able to move more of our sticks into the sub $50 a barrel breakeven category as we continue to drive down our cost and as our upside zones are proven out across the acreage position.
Michael L. Hollis: We are extremely blessed at HighPeak to have decades' worth of oil-rich, low-cost, high-margin inventory, which we will economically convert to free cash flow for our shareholders. And with the comments now complete, I'll now turn the call back over to Jack to wrap up on slide nine. Thanks, Mike.
Michael L. Hollis: We are extremely blessed to have decades worth of oil rich low cost high margin inventory, which we will economically convert to free cash flow for our shareholders and with our comments now complete I'll now turn the call back over to Jack to wrap up on slide nine.
Jack D. Hightower: That's a really great operational performance during this quarter. And as Mike just talked about, we have a great asset base full of high-margin, high-oil production with decades of inventory. Over the last year, we have focused on operational and capital discipline in drilling within cash flow, which is extremely important. We are going to maintain capital. This, along with some oil price support, has led to us being able to generate over $150 million of free cash flow over the last nine months.
Jack: Thanks, Mike that's some really great operational performance during this quarter.
Jack D. Hightower: And as Mike just talked about we have a great asset base full of high margin high oil production with decades of inventory over the last year, we are focused on operational and capital discipline.
Jack D. Hightower: And drilling within cash flow.
Jack D. Hightower: <unk>, we are going to maintain capital discipline.
Jack D. Hightower: This along with some oil price support has led to us to being able to generate over $150 million of free cash flow over the last nine months. We will continue to proceed with the disciplined exploitation of our asset base to generate more free cash flow moving forward.
Jack D. Hightower: We will continue to proceed with the disciplined exploitation of our asset base to generate more free cash flow moving forward. As we do, we will use that cash flow to strengthen our balance sheet, pay down debt, and increase our liquidity. By doing all these steps, I believe it is only a matter of time before the market recognizes the value dislocation of our stock and starts to reward our shareholders with increased value.
Jack D. Hightower: As we do we will use that cash flow to strengthen our balance sheet pay down debt and increase our liquidity.
Jack D. Hightower: Through doing all of these steps I believe it is only a matter of time before the market recognizes the value dislocation of our stock and start to reward our shareholders with increased value.
Jack D. Hightower: With emphasis, I would say we're going to maintain our capital discipline in our current drilling program, but a great way to think about strategic alternatives looking to the future is to think about what our asset base could do in the hands of a company that has the financial resources to significantly increase drilling activity. These assets and our inventory, which is one of the largest inventories that can be acquired in the Permian Basin, would allow a purchaser the opportunity to increase production That's why we add so much value to so many companies that might be looking to acquire oil-rich assets. So, now I'll open up the conference call to questions from our analysts. Thank you.
Jack D. Hightower: With the emphasis I would say, we're going to maintain our capital discipline and our current drilling program.
Jack D. Hightower: But a great way to think about strategic alternatives looking to the future is to think about what our asset base could do in the hands of a company that has the financial resources to significantly increase drilling activity.
Jack D. Hightower: These assets and our inventory, which is one of the largest inventory that can be acquired in the Permian basin.
Jack D. Hightower: Would allow a purchase or the opportunity to increase production or staying within cash flow to almost double its current level and maintain that level for many years into the future.
Jack D. Hightower: That's why we add so much value to so many companies that might be looking to acquire oil rich assets.
Speaker Change: So now I'll open up the conference call to questions from our analysts.
Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by as we compile the list of questions. The first question comes from John White with Roth MKM Capital. Go ahead, John. Your line is open.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: Your question. Please press star one again please.
Operator: Please standby as we can pay off the roster.
John Marshall White: First question.
Operator: <unk>.
Operator: From John White with Roth and Cam Capital go ahead, John Your line is open.
John Marshall White: Thank you. Good morning, everyone. Congratulations on a strong quarter. To Mike, many congratulations on the progress on LOE.
John Marshall White: Thank you good morning, everyone. Congratulations on a strong quarter.
John Marshall White: Mike.
John Marshall White: Many congrats on the.
John Marshall White: Progress on.
John Marshall White: No.
John Marshall White: Okay.
John Marshall White: Thank you Joe.
John Marshall White: Would you, uh, you cite, uh...
John Marshall White: Would you.
John Marshall White: Decided.
John Marshall White: increased efficiency in your chemical program. Would you like to give us a little more detail on what exactly is going on with that program?
John Marshall White: Increased.
John Marshall White: <unk> on your chemical program, you want to give us a little more detail on what exactly is going on with that program.
Michael L. Hollis: Sure, John. And, you know, again, these moves in LOE are things that take quarters and quarters of planning. And when you look at the infrastructure that HighPeak has invested in over the last three, three and a half years, we've built out power, water, and oil.
Mike: Sure John.
John Marshall White: Again, these are moves that nello things that take quarters and quarters of planning and when you look at the infrastructure that <unk> invested in over the last three three and a half years.
Michael L. Hollis: Built out power water oil SWT.
Michael L. Hollis: recycling capability. And again, that infrastructure, the power, and the solar farm reduces our costs on both the capital side and the LOE side. So to your point, a lot of things have been done over the last kind of nine months or so on the chemical program. Again, that's more of an optimization, being able to spend the time and manpower to look at every single detail. They all add up. Most of them are incrementally small, but when you add them all together, it matters.
John: Recycle capability and again that infrastructure the power of the solar farm reduces our cost on both the capital side and the yellow side. So to your point a lot of things have been done over the last kind of nine months or so on the chemical program and again that's more of a.
Michael L. Hollis: Optimization being able to spend the time and manpower to look at every single detail. They all add up most of them are all incrementally small, but when you add them all together it matters.
Michael L. Hollis: And then being able to exploit this world-class infrastructure at a higher percentage. Again, having company-owned disposal instead of having to pay third-party disposal. And on that chemical program, a lot of the chemicals that we're mentioning here also have to do with the water treatment side.
Michael L. Hollis: And then being able to exploit this world class infrastructure at a higher percentage.
Michael L. Hollis: Again, having company owned disposal instead of having to pay third party disposal.
Michael L. Hollis: And that chemical program a lot of the chemicals that we're mentioning here also has to do with the water treatment side. So our current treatment cost on our recycled water is about half of what it was six months ago. So again the team and the guys in the field have done a great job.
Michael L. Hollis: So our current treatment cost on our recycled water is about half of what it was six months ago. So again, the team and the guys in the field have done a great job, across the board and holistically, and then even down to each individual well level, optimizing the chemical program, which also goes into the equation is the production that you have from the field. So uptime is extremely important. So again, having our own substation and our own power distribution system servicing our field and only us allows us a lot more uptime.
Michael L. Hollis: Across the board and Holistically, and then even down to each individual well level optimizing the chemical program, which also.
Michael L. Hollis: It goes into the equation is the production that you have from the field. So uptime is extremely important so again, having our own substation in our own power distribution system servicing our field and only us.
Michael L. Hollis: Allows us a lot more uptime, so again reduces the workover expenses needed that would go into low.
Michael L. Hollis: So again, it reduces the workover expenses needed that would go into LOE, as well as being able to have the uptime and increase production. So again, it's a very long-winded answer, I know, but there's a whole lot of pieces to this puzzle that fit together.
Michael L. Hollis: As well as being able to have the uptime and increase production.
Michael L. Hollis: So again, it's a very long winded answer I know, but there's a whole lot of pieces to this puzzle that come together, we've been working on them for a couple of years and they are finally, all being able to be utilized maximized so into the future. We see these kind of calls being able to be.
Michael L. Hollis: We've been working on them for a couple years, and they're finally all being able to be utilized and maximized. So into the future, we see these kinds of calls being able to be achieved as we go through the next several years being able to be at these levels. Now we have other things that we're always working on. Of course, the solar farm is going to reduce our power costs as we go forward, and that will energize here in about a week.
Michael L. Hollis: Achieved as we go through the next several years being able to be at these levels now we have other things that we're always working on of course, a solar farm is going to reduce our power costs as we go forward and that energizes here at about a week.
Michael L. Hollis: So we're always trying to tweak, but I think now as you look going forward, it's going to be smaller changes as we go forward. I wouldn't expect a dollar change anymore going forward. There are not enough things we can pick up out there, but I would take this opportunity because I think it is important for people to understand what these operation guys have done. As I kind of mentioned in the prepared remarks, our BOEs are different, right?
Michael L. Hollis: As we're always trying to tweak, but I think now as you look going forward, it's going to be smaller changes as we go forward I Wouldnt expect the dollar changing any more going forward theres not theres not enough things, we can pick up out there.
Michael L. Hollis: But I would take this opportunity because I think this is important for people to understand what these operations guys have done.
Michael L. Hollis: We make very little gas, and we make almost all of it from oil. I think 1% of our revenue is from gas. However, it's all holistically important, but when you look at HighPeak at $6.30 LOE compared to our public peer group all across the Permian Basin, we screen pretty competitively with everyone except for, you know, the few large companies that have a little bit lower cost overall. However, when you look at our BOE basis, we don't have 50% gas, and gas being of very low value today, when you look at an LOE metric, it is in that denominator that divides by your cost.
Michael L. Hollis: <unk> mentioned in the prepared remarks.
Michael L. Hollis: Those are different right, we make very little gas and we make almost all oil I think 1% of our revenue is from the gas stream. However, if all holistically important but when you look at high peak at $6 <unk> low compared to our public peer group all across the.
Michael L. Hollis: Permian Basin, we screened pretty competitively with everyone except for the few large companies that have a little bit lower cost. Overall. However, when you look at our BOE basis, we don't have 50% gas and gas being very low value today, when you look at it.
Michael L. Hollis: <unk> metric it is in that denominator that divided by your cost so again to compare our absolute cost to anyone else's, especially on a <unk>.
Michael L. Hollis: So again, to compare our absolute cost to anyone else's, especially on EBITDA generation from those BOEs, this is world-class performance, and these guys need to hear that, and we absolutely appreciate everything they've done. Thanks for that extra detail. I appreciate it. And on the possibility of going to a three drilling rig program.
Michael L. Hollis: EBITDA generation from those.
Michael L. Hollis: This is world class performance and these guys need need to hear that and we absolutely appreciate everything they've done.
Michael L. Hollis: Thanks for that extra detail I appreciate it and on.
Michael L. Hollis: On the possibility of going to three drilling rig program.
John Marshall White: Do you need to see crude prices stabilize in the high 80s or low 90s? Is that a fair way to think about it?
Michael L. Hollis: Do you you need to see.
John Marshall White: Crude prices stabilize in that high <unk> low <unk> is that.
John Marshall White: Fair way to think about it.
Jack D. Hightower: John, actually, it is a function of crude price, but it's also a function of capital discipline and knowing exactly how much free cash flow we're going to have to try to reduce our total debt and going forward with that thought process in mind. For example, with a half a rig increase instead of one rig, each drilling rig we add adds about 6,000 barrels a day to our production number. So if we wanted to maintain 53,000 barrels a day, we would add half a rig.
John: John actually.
John Marshall White: It is a function of crude price, but it's also a function of the capital discipline in knowing exactly how much free cash flow, we're going to have to <unk>.
Jack D. Hightower: <unk> reduced our total debt and going forward with that thought process in mind for.
Jack D. Hightower: For example.
Jack D. Hightower: With a half a rig increase instead of a one rig each drilling rig we add adds about 6000 barrels a day to our production number. So if we wanted to maintain 53000 barrels a day, we would add a half a rig we wanted to maintain 56000.
Jack D. Hightower: If we wanted to maintain 56,000 barrels a day, we would add a rig to get to three rigs. If oil prices allowed us to go up, and that's exactly what you said, if we had an increase in oil prices, we might could even get to four rigs, and that would increase our production, effectively by another 12,000 barrels a day. So in my last statement, I mentioned what another company could do. They could literally go to eight rigs, increase production up to 100,000 barrels a day, and do so for years and years into the future.
Jack D. Hightower: Barrels a day, we would add a rig to get to three rigs.
Jack D. Hightower: Oil prices allowed us to go up and Thats exactly what you said, if we have an increase in oil price, we might could even get to four rigs and that would increase our production.
Jack D. Hightower: Actively up another 12000 barrels a day so in my last statement I mentioned, what another company could do that.
Jack D. Hightower: They literally could go to eight rigs increased production up to 100000 barrels a day and do so for years and years into the future, but we are going to maintain the discipline and it's not a function of just does it reach that price level quickly.
Jack D. Hightower: But we are gonna maintain the discipline, and it's not a function of just whether it reaches that price level quickly, but does it reach it where we can look at it and know that it's gonna maintain a higher price level into the future, which allows us to plan for more activity.
Jack D. Hightower: Does it reach it where we can look at it and know that it's going to maintain a higher price level into the future, which allows us to plan for more activity.
Michael L. Hollis: You know, John, I think a real simple way to think about this is that we will absolutely be slow on the gas to increase activity. In other words, we want to see and have enough free cash generated so that if we do pick up activity, it's all done out of that free cash flow bank.
John: John I think.
John: Real simple.
Michael L. Hollis: Way to think about this we will absolutely be slow on the gas to increase activity in other words, we want to see and have enough free cash generated so that if we did pick up activity. It's all done out of that free cash flow bank.
Michael L. Hollis: But we will absolutely be fast on the break if things pull away from us. We have the ability, and again, with this acreage position, we don't need a lot of rigs running to hold this acreage position together. We can do it with just one rig. So again, slow on the gas, fast on the break.
Michael L. Hollis: But we will absolutely be fast on the break if things pull away from us we have the ability and again with this acreage position, we don't need a lot of rigs running to hold this acreage position together, we can do it with just one rig so again slow on the gas fast on the brake.
John Marshall White: Okay, emphasizing the capital discipline approach and thanks for the additional color on that. I'll turn it back to the operator. Thank you.
Michael L. Hollis: Okay.
Michael L. Hollis: Sizing the capital discipline approach and.
Speaker Change: Thanks for the additional color on that I will turn it back to the operator.
Speaker Change: Thank you.
Operator: Thank you. One moment while we prepare the next question. Our next question comes from Jeff Robertson with Water Tower Research. Go ahead, Jeff. Your line is open.
Speaker Change: Thank you one moment, while we prepare the next question.
Operator: Our next question question comes from Jeff Robertson with water Tower Research go ahead, Jeff Your line is open.
Jeffrey Woolf Robertson: Thank you, Mike. You spoke a lot about infrastructure and central tank battery facilities and the SWD. My question is, at the current pace of a two-rig program, is that really aimed at maximizing the value of those assets and the capacity that you have rather than trying to stretch it with additional activity?
Jeffrey Woolf Robertson: Thank you Mike you spoke a lot about infrastructure in central tank battery facilities and the USW D.
Jeffrey Woolf Robertson: At the current pace of a two rig program is that really.
Jeffrey Woolf Robertson: Aimed at maximizing.
Speaker Change: The value of those assets and the capacity that you have rather than.
Jeffrey Woolf Robertson: Trying to.
Jeffrey Woolf Robertson: Stretch it with additional activity.
Michael L. Hollis: Yeah, so, Jeff, great question. You know, kind of the way I always try to portray our infrastructure, we built the infrastructure for life in the field, not so much for the activity that HighPeak is running today. Obviously, at two rigs and one frack crew, the infrastructure is absolutely adequate for forever. Now, in someone else's hands, if activity were to increase up to six, eight rigs, our infrastructure is built to be able to handle that.
Mike: Yeah, So Jeff Great question.
Michael L. Hollis: Kind of the way I always try to portray our infrastructure.
Michael L. Hollis: We've built the infrastructure for life of field not so much for the activity that high peak is running today, obviously at two rigs and one frac crew. The infrastructure is absolutely adequate for forever now in someone else's hands If act.
Michael L. Hollis: <unk> order to increase up to six eight rigs our infrastructure is built to be able to handle that our company owned the SW. These again are built for life of field at an accelerated pace of development. So everything is sized for that so obviously today, we've got 100%.
Michael L. Hollis: Our company-owned SWDs, again, are built for life of the field at an accelerated pace of development, so everything is sized for that. So, obviously, today we've got 100% utilization and very efficient running of the system today, but also, if someone were to increase that activity, this infrastructure is built to accommodate that.
Michael L. Hollis: Utilization very efficient running of the system today, but also as someone were to increase that activity. This infrastructure is built to accommodate that.
Michael L. Hollis: spoke with respect to inventory about testing some of the upside zones around your acreage. Can you provide any more color on what's going on with other operators nearby?
Michael L. Hollis: You spoke with respect to inventory about testing some of the upside zones around your acreage can you provide any more color.
Michael L. Hollis: What's going on with other operators nearby.
Michael L. Hollis: You know, the great thing is we love to explore with other people's dollars. That's a great way to gain confidence in your inventory. Probably the most exciting one that we have currently is the middle sprayberry that's getting developed, I mean, literally right west of our acreage position. The wells look great, very economical; they're a little cheaper to drill than even our lower sprayberry wells and look very similar to the kind of Wolf Camp A production.
Speaker Change: You bet and the Great thing is we love to explore with other People's dollars. That's that's a great way to gain confidence in your inventory.
Michael L. Hollis: The most exciting one that we have currently is the middle Sprayberry Thats getting developed I mean literally right west of our acreage position. The wells look great very economic they're a little cheaper to drill than even our lower sprayberry wells.
Michael L. Hollis: And look very similar to the kind of Wolfcamp a production. So when you look at that if you can do it a little cheaper and get as good. A result, then the breakeven cost or even lower than our Wolfcamp A's which are.
Michael L. Hollis: So when you look at that, if you can do it a little cheaper and get as good a result, then the break-even costs are even lower than our Wolf Camp A's, which are, you know, down into the $40 range.
Michael L. Hollis: And through the $40 range breakeven. So again, we're extremely excited about that I would think sometime in the near future. It would be reasonable to expect to see IP test some of those zones on our acreage.
Michael L. Hollis: So again, we're extremely excited about that. I would think sometime in the near future, it would be reasonable to expect to see HighPeak test some of those zones on our acreage. You know, and we're having great results on our base production again going back to things we're seeing that the operations group is able to do with more focus, and, of course, we've grown that team, and the experience has grown, but down in Signal Peak, another kind of enticing performance is, believe it or not, in our Wolf Camp C, which is over a year old.
Michael L. Hollis: And we're having great results on our base production again going back to things. We are seeing that the operations groups are able to do with more focused and of course, we've we've grown that team and the experience has grown but down in signal peak another.
Michael L. Hollis: Kind of enticing performances.
Michael L. Hollis: We had it on gas lift, and we were having some trouble with the compressor. The well looked like it was going to be a pretty good well, somewhere in the half million barrel peak or barrels of oil recovery. We changed the lift mechanism and optimized the well production, and, you know, we more than doubled the production a year later after the wells had already produced almost 100,000 barrels.
Michael L. Hollis: Believe it or not in a wolfcamp C. Well that is over a year ago, we had it on gas lift and you were having some trouble with the <unk>.
Michael L. Hollis: Compressor on the well the well look like it was going to be a pretty good well you know somewhere in the 5 million barrel <unk> barrels of oil recovery.
Michael L. Hollis: We changed the lift mechanism and optimize the well production.
Michael L. Hollis: We've more than doubled the production a year later after the wells already produced.
Michael L. Hollis: Almost 100000 barrels we came in and change the lift mechanism and more than double production. So that's going to be another zone of interest.
Michael L. Hollis: We came in and changed the lift mechanism and more than doubled production. So that's going to be another zone of interest to watch and look forward to. And of course, we have several locations in Wolf Camp C down in Signal P. And if it looks like this well that we went to and optimized, if we can do that in the future, you have, again, several hundred locations that will break even well under $50 a barrel. So again, a lot of exciting things going on.
Michael L. Hollis: The watch and look forward to it and of course, we have several hundred locations in that Wolfcamp C that in signal peak and if it looks like this well that we win optimize if we can do that in the future you have again several hundred locations that will breakeven well under $50 a barrel.
Michael L. Hollis: So again, a lot of exciting things going on.
Jeffrey Woolf Robertson: Jack, you talked about returning cash to shareholders in the context of shareholder value. You obviously have the current dividend and the new repurchase program, but does accelerating repayments under the term loan have a place in your philosophy? I know you have a $30 million per quarter amortization on that on the term loan, but is there a scenario where you'd consider accelerating that?
Michael L. Hollis: Jack you talked about returning cash to shareholders in the context of shareholder value.
Jeffrey Woolf Robertson: Obviously, you have the current dividend and the new repurchase program, but.
Jeffrey Woolf Robertson: Does.
Jeffrey Woolf Robertson: Accelerating.
Jeffrey Woolf Robertson: Repayments under the term loan.
Jeffrey Woolf Robertson: Have a place in your and your philosophy I know you have a $30 million per quarter amortization on that on that.
Jeffrey Woolf Robertson: On the term loan but.
Jeffrey Woolf Robertson: Is there a scenario where you would consider accelerating that.
Jack D. Hightower: Well, we have automatically within the term line, without having any prepayment penalties, the ability to have a cash sweep, so to speak. It's formula-driven, but it can go down faster than just $30 million a quarter or $120 million annually. And that's dependent on how much free cash flow we have, and also on where oil and gas prices are. But we do have the ability, and after 15 months... we have the ability to pay down larger amounts or refinance that without any May co-penalty.
Jack: Well, we have automatically within the term loan without having any prepayment penalties.
Jack D. Hightower: Billety to have a cash sweep so to speak it's formula driven.
Jack D. Hightower: It can go down faster than just the $30 million a quarter or a $120 million annually.
Jack D. Hightower: And that's dependent on how much free cash flow, we have and also on where oil and gas prices are but we do have an ability in after 15 months, we have the ability to.
Jack D. Hightower: Pay down larger amounts or refinance that without any make whole penalties.
Jack D. Hightower: So we are going to be very disciplined in looking into the future. And, of course, it'll depend on the timing of the strategic alternatives discussion, but we do have the ability, and we will look to pay down debt. Keep in mind that just from a macro perspective, and I don't want this to be misunderstood at all by any shareholders, because our primary discipline is going to be to pay down debt. But at the end of the day, as oil prices stay higher, our return on investment relative to debt is very much better spent and invested in terms of drilling a well.
Jack D. Hightower: So we are going to be very disciplined in looking into the future.
Jack D. Hightower: It will depend on the timing of the strategic alternatives discussions, but we do have the ability and we will look to pay down debt keep in mind that just from a macro perspective and I don't want this to be misunderstood at all by any shareholders because our primary.
Jack D. Hightower: Discipline is going to be to pay down debt, but at the end of the day.
Jack D. Hightower: As oil prices stay higher our return on investment relative to that.
Jack D. Hightower: Is very much better spent and invested in terms of drilling a well. These wells are returning over $20 million.
Jack D. Hightower: These wells are returning over 20 million dollars on a net asset value basis after payout, and that's happening in a year's time. So we grew the company very quickly when we went from two rigs to up to six rigs, and our production went up almost 35 to 50 percent doing that. But now we feel like we've reached a high enough level that any potential buyer or merger partner could be happy with and understand with what we've done they can easily double our production. So we don't need to do that right now. We're just going to keep paying down the debt, and we do have the ability to pay down more debt as you ask that question.
Jack D. Hightower: On a net asset value basis, after payout and thats happening in a year's period. So we grew the company very quickly when we went from two rigs to up to six rigs.
Jack D. Hightower: And Thats, our production went up almost 35%, 50% doing that but now we feel like we've reached a high enough level that any potential buyer or a merger partner could be happy with and understand with what we've done.
Jack D. Hightower: They can easily double our production. So we don't need to do that right now, we're just going to maintain paying down the debt and and we do have the ability to pay down more debt as you asked that question.
Jeffrey Woolf Robertson: And it sounds like the term loan gives HighPeak or anybody else the flexibility to pay down or refinance without any type of penalties, right? Correct.
Jack D. Hightower: It sounds like the term loan gives high peak or anybody else the flexibility too.
Jeffrey Woolf Robertson: Pay down or refinance without any without any type of penalties right.
Jack D. Hightower: Correct. There are penalties upwards of 15 months, but after that, there are no penalties. Thank you.
Jeffrey Woolf Robertson: Correct after there's penalties.
Jack D. Hightower: So 15 months, but after that there's no penalties.
Speaker Change: Thank you.
Speaker Change: Okay. Thank.
Operator: Thank you. One moment while we prepare the next question. The last question comes from Nick Pope with Seaport Research. Go ahead, Nick. Your line is open.
Speaker Change: Thank you one.
Speaker Change: One moment, while we prepare the next question.
Operator: Okay.
Operator: Last question comes from Nick Pope with Seaport Research go ahead, Nick Your line is open.
Nicholas Paul Pope: Good morning, everyone. On the LOE, I know we spent a lot of time on it, but it was a great number, the... The CapEx component that you kind of allocated towards infrastructure and other that 50 to 60 million, I know a lot of that kind of over the past couple years has been big support for driving that LOE down. Curious kind of what you guys think about a normalized number, where we are kind of in that build-out and kind of as you project forward into 25, 26, 27, 28, 29, 30 years from now, what do you guys think about that? What that infra and other component, that wedge of the CAPEX, might look like on that
Nicholas Paul Pope: Good morning, everyone.
Nicholas Paul Pope: Good morning.
Nicholas Paul Pope: On the low end.
Nicholas Paul Pope: We spent a lot of time on it.
Nicholas Paul Pope: So it was a great number.
Nicholas Paul Pope: The capex component that you kind of allocated towards infrastructure and other that $50 million to $60 million I know a lot of that kind of over the past couple of years has been a.
Nicholas Paul Pope: A big support for driving that all the way down.
Nicholas Paul Pope: Curious kind of what you all think about a normalized number where we are kind of in that build out and kind of as you project forward into 'twenty five 'twenty six what what that infra and other component that wedge of the Capex might look like on kind of that normalized basis.
Michael L. Hollis: You bet, Nick. So, you know, as you can kind of see with our guide this year, kind of in that 50 to 60 million dollar range, you know, as I kind of showed on the maps in the presentation, the life of field build-out is almost complete in the entire north, you know, in Flat Top and Signal Peak. So, the 50 million dollars this year will build out that backbone in every one of those areas.
Speaker Change: You bet Nick so.
Nicholas Paul Pope: As you can kind of see with our guide this year kind of that $50 million to $60 million range.
Michael L. Hollis: You kind of showed on the maps in the presentation. The life of field Buildout is almost complete in the entire north and flat top and signal peak. So the $50 million. This year builds out that backbone in every one of those areas so going forward.
Michael L. Hollis: So, going forward, kind of a good go-forward price would be somewhere 20 million or less, and that's just tying in any new batteries to the infrastructure that's currently there, that's sized accordingly for life and field. We talk about CapEx as well, and CapEx does get helped a lot by this infrastructure. Remember, we're running our rigs off of high-line power as opposed to utilizing diesel. Our cost to recycle our produced fluid, of which we use almost a hundred percent of our simulation needs now, with fully recycled produced water, and we can get that produced water at less than half the cost of utilizing fresh water or Santa Rosa water in the area, again reducing our capital cost.
Michael L. Hollis: Or kind of a good go forward.
Michael L. Hollis: Price would be somewhere $20 million or less and thats, just tying in any new batteries to the infrastructure Thats currently there that size accordingly for life of field.
Michael L. Hollis: We talk about Capex as well in Capex does get helped a lot by this infrastructure. We remember we're running our rigs off of high line power.
Michael L. Hollis: As opposed to utilizing diesel.
Michael L. Hollis: Our cost to recycle our produced fluid of which we use almost 100% of our stimulation needs now with fully recycled produced water and we can get that produced water at less than half the cost of utilizing freshwater our Santa Rosa.
Michael L. Hollis: And the area again, reducing our capital cost and then obviously we've talked a lot on this call about how the infrastructure helps on the low side.
Michael L. Hollis: And then, you know, obviously, we talked a lot on this call about how the infrastructure helps on the yellow east side, and I think it's important to point out, you know, we're moving into the summer months. We're going to have 10 megawatts of power coming from the solar farm that will augment our already hedged portion that we're getting from the grid. So, those two things working in combination, where if you look back last year, you would see a little spike in our electrical spend over the summer because you always have a little bit riding on spot prices, and spot prices in the summer can move dramatically, up from $40, $50 kind of power up to several hundred dollars on average per megawatt and, at times, exceeding $5,000 a megawatt.
Michael L. Hollis: I think it's important to point out we're moving into the summer months, we're going to have 10 megawatts of power coming from the solar farm.
Michael L. Hollis: That will augment our already hedged portion that we're getting from the grid. So those two things working in combination.
Michael L. Hollis: If you look back last year, you would see a little spike in our electrical spend over the summer because you always have a little bit riding what spot and spot prices in the summer can move dramatically up from $40 $50 kind of power up to several hundred dollars on average per megawatt.
Michael L. Hollis: Now we will not have any of our power needs in that spot, and we will actually be able to sell some power back to the grid at those higher prices. So it's going to be a revenue-generating asset for us, so again, we're really excited about what's going to come. So to your other question about how to think about LOE in the future, obviously, when we did the guide back in November of last year, we referred to what we were achieving.
Michael L. Hollis: And at times exceeding $5000 a megawatt now we will not have any of our power needs on that spot and we will actually be able to sell some power back to the grid at those higher prices.
Michael L. Hollis: So it's going to be revenue generating.
Michael L. Hollis: Asset for us. So again, we're really excited about what's going to come so to your other question about how to think about low into the future. Obviously when we did the guide back in November of last year, we guided to what we were achieving we knew some of these things were.
Michael L. Hollis: We knew some of these things were coming into place, but timing's always, you know, a week here, a month there. So looking forward, it's probably most likely that a second quarter earnings announcement will be a reduction in overall LOE for the quarter. I think it would be reasonable to expect that to come. From a modeling standpoint, I would probably look at the current kind of, you know, $650 to $7 all in with work over per BOE is a good number for the rest of the year. And I think if you do that, you'll be pretty close.
Michael L. Hollis: Coming into place, but timing is always.
Michael L. Hollis: A week here a month there.
Michael L. Hollis: Looking forward kind of.
Michael L. Hollis: Most likely.
Michael L. Hollis: Second quarter earnings announcement will be a reduction in overall LOE for the quarter I think would be reasonable to expect that to come from.
Michael L. Hollis: From a modeling standpoint, I would probably look at current kind of.
Michael L. Hollis: $650 to $7 all in with Workover per BOE is a good number for the rest of the rest of the year and I think if you do that you're going to be pretty close.
Nicholas Paul Pope: Yeah, that's very, very helpful and detailed. Kind of tack on to that a little bit, natural gas volumes for the quarter saw a nice uptick. I know that's a little bit more third-party, the processing and the movement of the gas. Maybe you could talk a little bit about going forward. I mean, do you all expect that gas offtake and gas processing is pretty much caught up with where you would need them to be in the near future right now?
Michael L. Hollis: Okay.
Speaker Change: Very very helpful and detail.
Nicholas Paul Pope: Kind of tack onto that a little bit.
Nicholas Paul Pope: Natural gas volumes for the quarter saw a nice uptick.
Nicholas Paul Pope: Sure.
Nicholas Paul Pope: I know, that's a little bit more third party of the processing and the movement of the gas maybe you could talk just a.
Nicholas Paul Pope: A little bit about.
Nicholas Paul Pope: Going forward I mean, do you all expect that gas offtake gas processing is pretty much caught up with where you would need it to be in the near to near future right now.
Michael L. Hollis: You bet, Nick. And I, you know, to kind of clarify that question maybe a little bit, you know, over the last couple quarters, our percent oil has come down maybe a percentage or so, but again, if you look at our Reserve report that's in the presentation, and that's for the economic life of all of the wells that we add on by the end of 2023. And the economic life of these wells is 78 percent oil. Today, we're running, you know, 80.
Speaker Change: You bet Nick.
Michael L. Hollis: To kind of clarify that question may be a little bit over the last couple of quarters. Our percent oil has come down maybe a percentage or so.
Michael L. Hollis: But again, if you look at our.
Michael L. Hollis: Reserve report Thats in the presentation and Thats for the economic life of all of the wells that we add on by the end of 2023 and the economic life of these wells are 78% oil today, we're running.
Michael L. Hollis: So if you look into the future, obviously, we're going to try to maximize the selling of any gas that we produce. And it's a very rich gas. So on a gas and liquids combination, we're somewhere in the six to seven dollars per MCF. So we are highly incentivized to get all of that gas into the pipeline and sold. But if you're looking forward to see what may change, you know, over the next kind of 10 year period, might you go from 80% to 79% over 10 years?
Michael L. Hollis: So as you look into the future, obviously, we're going to try to maximize the selling of any gas that we produce and it's very rich gas. So on gas and liquids combination were somewhere in the 6% to $7. An mcf. So we are highly incentivized to get all of that gas into the pipeline and sold.
Michael L. Hollis: But if youre looking forward to see what may change over the next 10 year period.
Michael L. Hollis: Yes. And then over the next 10, will it level off at about 78? I think that's a very reasonable expectation. So we will stay extremely liquids rich and oily. Again, that's what drives our economics, drives our margins, and helps with our breakeven costs. Got it. It's all very.
Michael L. Hollis: You go from 80% to 79% over 10 years, Yes, and then over the next 10 will it level off at about that 78.
Michael L. Hollis: I think thats, a very reasonable expectation. So we will stay extremely liquids rich and oily again thats what drives our economics drives our margins and helps with our breakeven cost.
Nicholas Paul Pope: It's all very helpful. I appreciate it, Mike. Thanks, team.
Speaker Change: Got it very helpful. I appreciate it Mike.
Speaker Change: Thanks, Tim.
Speaker Change: Thank you.
Operator: Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you and I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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