Q1 2024 Granite Ridge Resources Inc Earnings Call
Operator: Good morning and welcome everyone to Granite Ridge Resources' first quarter 2024 earnings conference call. Currently, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. As a reminder, this call is being recorded. I will now turn the call over to Wes Harris, Investor Relations.
Good morning, and welcome everyone to granite reach resources first quarter 'twenty 'twenty four earnings conference call. Currently all participants are in a listen only mode. A question and answer session will follow the formal presentation. If you would like to ask a question during that time Super breast star followed by the number one on your telephone keypad.
If you would like to withdraw your question. Please press star one again as a reminder, this call is being recorded I would now.
Now I'll turn the call over to Wes Harris Investor Relations.
Wes Harris: Thank you, Operator, and good morning, everyone. We appreciate your interest in Granite Ridge resources. We will begin our call with comments from Brandenburg, our president and chief executive officer, who will provide an overview of key matters for the first quarter and an outlook for 2024. We will then turn the call over to Tyler Farquharson, our chief financial officer, who will review our financial results. Luke will then return to provide some closing comments before we open the call up for questions.
Wes Harris: Thank you operator, and good morning, everyone. We appreciate your interest in granite Ridge resources.
Wes Harris: We will begin our call with comments from Brandenburg are president and Chief Executive Officer, who will provide an overview of key matters for the first quarter and an outlook for 2024, we.
Wes Harris: We will then turn the call over to Tyler Parker, Our Chief Financial Officer, who will review our financial results. Luc will then return to provide some closing comments before we open the call up for questions.
Wes Harris: Today's conference call contains certain projections and other forward-looking statements within the meaning of federal securities law. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements. We would ask that you also review the cautionary statement in our earnings release. Granite Ridge disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements.
Speaker Change: Today's conference call contains certain projections and other forward looking statements within the meaning of federal Securities laws.
Tyler Parker: These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements. We would ask that you also review the cautionary statement in our earnings release.
Tyler Parker: Granite ridge disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise accordingly, you should not place undue reliance on forward looking statements.
Wes Harris: These and other risks are described in yesterday's press release and in our filings with the Securities and Exchange Commission. This conference call also includes references to certain non-GAP financial measures. Information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in our earnings release that is posted on our website. Finally, as a reminder, this conference call is being recorded. A replay and a transcript will be made available on our website following today's call. So, with that, I'll turn the call over to Luke. Luke?
Tyler Parker: These and other risks are described in yesterday's press release, and our filings with the Securities and Exchange Commission.
Tyler Parker: This conference call also includes references to certain non-GAAP financial measures.
Tyler Parker: Information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in our earnings release that is posted on our website.
Finally, as a reminder, this conference call is being recorded.
Tyler Parker: A replay and a transcript will be made available on our website following today's call.
Luke Brandenburg: That I will turn the call over to Luke Luke.
Luke Brandenburg: Thank you, Wes, and appreciate everyone joining this call. It seems like we just did this, but I'm always glad to have an opportunity to share an update on the Granite Ridge story.
Thank you S and appreciate everyone. Joining this call. It seems like we just did this but I'm always glad to have an opportunity to share an update on the granite Ridge story.
Luke Brandenburg: The first quarter built on our track record of workman-like quarters. Nothing flashy, just continued solid execution. Today, I'd like to talk about some of our accomplishments, things to look forward to, and share a bit more about what our strategic partnership initiative looks like as we continue to bridge the gap between Operated and non-Op. I'll start with the credit side.
Luke Brandenburg: The first quarter built on our track record of Workman like quarters, nothing flashy just continued solid execution.
Luke Brandenburg: Today I'd like to talk about some of our accomplishments things to look forward to and share a bit more about what our strategic partnership initiative looks like as we continue to bridge the gap between operated and non op.
Luke Brandenburg: We announced last month that we successfully expanded our credit facility to both a $300 million borrowing base and an elected committee. The bigger story is that we were successful in fully syndicating a facility, taking it from six to 14 banks. Commitments came in nearly two times our target, and with the financial strength and capacity of our partners, we believe we can triple our credit facility within this group. However, this expansion does not change our views on leverage; we still target net debt to EBITDA of 0.5x and expect that to bounce between about a third turn and two-thirds of a turn.
Speaker Change: I'll start with the credit side, we announced last month that we successfully expanded our credit facility to both a $300 million borrowing base and elected commitment.
Bigger story is that we were successful in fully syndicating facility, taking it from 6% to 14 banks.
Speaker Change: Commitments came in nearly two times, our target and with the financial strength and capacity of our partners. We believe we can triple our credit facility within this group.
Speaker Change: Now this expansion does not change our views on leverage we still target net debt to EBITDA of zero point buybacks and expect that will bounce between about one third turn in two thirds of a <unk>.
Luke Brandenburg: To put round numbers on that, based on about $300 million of trailing EBITDA, I expect we will balance between $100 million and $200 million of net debt and average around $150 million or less. I want to extend a heartfelt thank you to our existing banking relationships for your support, and I'm excited to welcome our new banking partner. I'll now briefly touch on Vital.
Speaker Change: To put round numbers to that based on about $300 million of trailing EBITDA I expect we will balance between $100 million to $200 million of net debt and average around $150 million or less.
Speaker Change: I want to extend a heartfelt thank you to our existing banking relationships for your support and I'm excited to welcome our new banking partners.
Speaker Change: I'll now briefly hit on vital.
Luke Brandenburg: As I mentioned last quarter, we received 1.1 million shares of BTLD, about 50-50 common and preferred, when we sold certain Permian assets to Vital as part of a tag right we had on Vital's acquisition of assets from Henry Resources. This was a compelling opportunity to sell production at an operator premium, and we will look to exit this position in an orderly fashion this year and pay down debt to ultimately recycle the proceeds into development opportunities. Now, let's talk about results.
Speaker Change: As I mentioned last quarter, we received $1 1 million shares of <unk> LD about 50, 50 common or preferred when we sold certain Permian assets to vital as part of a tagged right. We had on vitals acquisition of assets from Henry resources.
Speaker Change: This was a compelling opportunity to sell production at an operator premium and we will look to exit disposition in an orderly fashion this year and pay down debt. So ultimately recycle the proceeds into development opportunities.
Now, let's talk about results.
Luke Brandenburg: Tyler will get into the details, but I'd like to hit on the results as compared to our expectations, as well as what we are looking at for the coming quarters. Production came in slightly higher than expected at 23.8 thousand barrels of oil equivalent per day. That was down 8% from last quarter's reported, compared with an expected 10% decline. Now, both of those are unadjusted for the sale to Vital. Adjusted numbers, or as Tyler likes to call them, same-store sales, are down 3% compared to an expected 5%.
Speaker Change: Taylor will get into the details, but I'd like to hit on the results as compared to our expectations as well as what we are looking at for the coming quarters.
Speaker Change: Production came in slightly higher than expected at $23 8000 barrels of oil equivalent per day.
Speaker Change: That was down 8% from last quarter's reported compared with an expected 10% decline at both of those are unadjusted for the sale of the vital adjusted numbers gross Tyler likes to call. It same store sales are down 3% compared to an expected 5%.
Luke Brandenburg: Primary drivers for the BEAT, albeit minor, are a bit of outperformance on the oil side, offset by deferrals on the gas side. That is a theme we expect more of, as some of our operating partners have elected to defer dry gas production in this price environment, specifically in Hainesville and dry gas Eagleford. This may impact our gas production for the year, but we have opportunities in the works to reallocate that capital to oil-weighted projects expected to come online this year. We will keep you in the loop on that as the year progresses.
Speaker Change: Primary drivers for the beat albeit minor are a bit about performance on the oil side offset by deferrals on the gas side.
Speaker Change: That is a theme we expect more of some of our operating partners have elected to defer dry gas production in this price environment, specifically in the Haynesville and dry gas Eagle Ford.
Speaker Change: This may impact our gas production for the year, but we have opportunities in the works to reallocate that capital to oil weighted projects expected to come online this year.
Speaker Change: We will keep you in the loop on that as the year progresses.
Luke Brandenburg: We turned an adjusted EBITDAX of $64 million, which was a bit higher than expected, due to help from both oil prices and production. On the deal front, we closed four transactions during the quarter; all were in the Permian, and the vast majority were on the Delaware side. Total entry, including carry, was $6.8 million for two-and-a-half net locations. That equates to $2.7 million per net location, which is a bit higher than our target of closer to $2 million. But note that not all net locations are created equal in terms of both quality and development timing.
Speaker Change: We turned in an adjusted EBITDAX of $64 million, which was a bit higher than expected due to help on both oil prices and production.
Speaker Change: On the deal front, we closed four transactions during the quarter.
Speaker Change: We are in the Permian and the vast majority on the Delaware side.
Speaker Change: Total entry, including carriers was $6 $8 million for two and a half net locations.
Speaker Change: That equates to $2 7 million per net location, which is a bit higher than our target of closer to $2 million.
Speaker Change: But note not all net locations are created equal in terms of both quality and development timing.
Luke Brandenburg: All two and a half of these net locations have either been turned to sales or are in process, including a 1.4 net well pad that we are drilling through our controlled capital strategy. Additionally, we have nine deals that have either closed since quarter end or are fully agreed to and in the documentation stage, with an aggregate entry, including carries, of $20 million across 10 12 net locations. While each of these transactions is accounted for in our acquisitions guidance number, I would note that not all $20 million will hit in 2024 as some of those carry dollars will go out the door in subsequent years.
Speaker Change: All two and a half of these net locations have either been turned to sales or are in process, including a one four net well pad that we're drilling through our controlled capital strategy.
Speaker Change: Additionally, we have nine deals that have either closed since quarter end, we're fully agreed to in the documentation stage with an aggregate entry, including carries a $20 million across 10 five net locations.
Speaker Change: While each of these transactions are accounted for in our acquisitions guidance number I would note that not all $20 million will hit in 2024 as some of those carry dollars will go out the door in subsequent years.
Luke Brandenburg: On the production side, I mentioned in March that we expected to see a ramp beginning in the third quarter. However, the deferral of some dry gas production that we had expected to come online in the second quarter, which we were happy about, by the way, will likely slow down that timeline.
Speaker Change: On the production side I mentioned in March that we expected to see a ramp beginning in the third quarter the.
Speaker Change: The deferral of some dry gas production that we had expected to come online in the second quarter, which we're happy about by the way will likely slowdown that timeline.
Luke Brandenburg: We now expect production to be roughly flat for the next couple of quarters prior to a ramp in the fourth. On the CAPEX side, the second quarter should be roughly a quarter of our DNC CAPEX for the year, but it is setting up to be our largest quarter of acquisitions for the year. It can be tough to tell if a deal will close on June 30 or July 1, but based on deals closed quarter to date and those expected to close in the next two months, we are looking at about 75% of 2024 acquisition capex hitting in the second quarter. Note, this number includes both cash paid in the quarter and carry dollars that hit in the quarter.
Speaker Change: Now expect production to be roughly flat for the next couple of quarters prior to a ramp in the fourth.
Speaker Change: On the Capex side, the second quarter should be roughly a quarter of our D&C capex for the year, but it is setting up to be our largest quarter of acquisitions for the year.
Speaker Change: It can be tough to tell if the deal will close on June 30, or July one, but based on deals closed quarter to date and those expected to close in the next two months, we're looking at about 75% of 2020 for acquisition Capex hitting in the second quarter.
Speaker Change: Note. This number includes both cash paid in the quarter and carry dollars that hit in the quarter.
Luke Brandenburg: I'll wrap up by talking a little more about our strategic partnership strategy. We define a strategic partnership as more than just a deal. In other words, a partnership that gives Granite Ridge access to broader deal flow or more control over development time. Ideally, it is both, or what we call a controlled cap.
Speaker Change: I'll wrap up by talking a little more about our strategic partnership strategy.
We define a strategic partnership is more than just the deal in other words, a partnership that gives granite ridge access to broader deal flow or more control over development timing.
Speaker Change: <unk> is both or what we call controls capital with controlled capital or deal flow broadens to include operated opportunities, where we have control specifically development timing <unk>.
Luke Brandenburg: With controlled capital, our deal flow broadens to include operated opportunities where we have control, specifically development timing. Controlled capital not only represents operated inventory that we can develop with a strategic partner, but it opens the door to a broader set of asset buyers as we can sell drilling units to operators looking to add inventory. Operating inventory trades at a premium and will allow us to further build the case that Granite Ridge is undervalued from both a business and a sum of the parts value.
Speaker Change: Control capital not only represents operated inventory that we can develop with a strategic partner. It opens the door to a broader set of asset buyers as we could sell drilling units to operators looking to add inventory.
Speaker Change: Operating inventory trades at a premium and will allow us to further build the case that granite ridge is undervalued from both a business and some of the parts value.
Luke Brandenburg: To put some numbers to this, Granite Ridge controls an inventory of 40 gross or 21.9 net operated locations in the Permian. In Loving County, we plan to turn to sales a pad of 5.5 net single-mile wells early next month and a second pad of 1.4 net single-mile wells late in the third quarter. We are currently running one rig through a strategic partner and plan to pick up a second later this year. Traditional NONOP is the cornerstone of the Granite Ridge Foundation, but controlled CAPEX is where we are going.
Speaker Change: To put some numbers to this granite ridge controls inventory of 40 gross or 21 nine net operated locations in the Permian.
Speaker Change: A loving county, we plan to turned to sales a pad of five five net single mile Wells early next month.
Speaker Change: And our second pad of one four net single mile Wells late in the third quarter we.
Speaker Change: We are currently running one rig through a strategic partner and plan to pick up a second later this year.
Speaker Change: Traditional non op is the cornerstone of the granite Ridge Foundation, but controlled Capex is where we are going well.
Luke Brandenburg: While we now expect controlled CapEx to be upwards of 40% of our 2024 DNC, our goal is for a supermajority of our capital to be controlled in the next several years. We're bridging the gap between operated and non-operated by demonstrating that non-op does not mean non-control. With that, I'll ask Tyler to dive a bit deeper into the numbers.
Speaker Change: While we now expect controlled capex to be upwards of 40% of our 2020 for D&C. Our goal is for a super majority of our capital to be controlled in the next several years.
Speaker Change: We are bridging the gap between operated and non operated by demonstrating that non op does not mean non control.
Speaker Change: That I'll ask Tyler to dive a bit deeper into the numbers.
Tyler Farquharson: Thanks, Luke, and good morning, everyone. Average daily production for the quarter was 23.8 thousand BLE per day, up three percent compared to reported Q1 of 2023 and up nearly 11 percent after adjusting for divested assets. We expect production to be flat through the end of the third quarter before increasing in the fourth quarter and exiting 2024 at a high for the year. Our annual production guidance range of 23,250 to 25,250 BOE per day remains unchanged and represents 7% midpoint growth for the year after adjusting for divestitures.
Tyler Parker: Thanks, Luke and good morning, everyone.
Tyler Parker: Average daily production for the quarter was 23 8000 Boe per day up 3% compared to the reported Q1 of 2023 and up nearly 11% after adjusting for divested assets, we expect production to be flat through the end of the third quarter before increasing in the fourth quarter and exiting 2024 at a high for the.
Tyler Parker: Year.
Our annual production guidance range of 23250 to 25250 BOE per day remains unchanged and represents 7% midpoint growth for the year after adjusting for divestitures.
Tyler Farquharson: The oil production mix for the quarter was 45 percent, lower than our guidance expectation of 47 percent for the year, but, as Luke mentioned, should drift higher throughout the remainder of the year as some of our natural gas-focused operators defer development projects.
Tyler Parker: Oil production mix for the quarter was 45% lower than our guidance expectation of 47% for the year, but as Luc mentioned should drift higher throughout the remainder of the year as some of our natural gas focused operators deferred development projects.
Tyler Farquharson: Our adjusted EBITDA was $64.5 million, and adjusted EPS was $0.12 per diluted share for the first quarter of 2024. Adjusted EBITDA was down 8% from the prior year due to lower natural gas prices and the impact of divested assets. Per unit lease operating costs were $7.13 per BOE, and production and ad valorem taxes were 6.5% of sales for this year's first quarter, both of which were within our guidance range for the full year 2024. G&A expense, excluding non-cash stock-based compensation, was $2.76 per BOE for the quarter.
Tyler Parker: Our adjusted EBITDA was $64 5 million and adjusted EPS was <unk> 12 per diluted share for the first quarter 2024.
Adjusted EBITDA was down 8% from the prior year due to lower natural gas prices and the impact of divested assets.
Tyler Parker: Per unit lease operating costs were $7 13 per Boe.
Tyler Parker: Production and AD valorem taxes were six 5% of sales for this year's first quarter, both of which were within our guidance range for the full year of 2024.
G&A expense, excluding noncash stock based compensation was $2 76 per Boe for the quarter.
Tyler Farquharson: Our annual guidance range of 23 to 26 million dollars is unchanged. During the quarter, our operating partners completed and placed on production a total of 58 gross or 5.1 net wells, with 57% of the activity appearing in the Eagleford and 30% in the Permian Basin. In total, we continue to expect 22 to 24 net wells to be placed online during 2024, with nearly 80% of those wells being in the Permian Basin
Tyler Parker: Our annual guidance range of $23 million to $26 million is unchanged.
Tyler Parker: During the quarter, our operating partners completed and placed on production a total of 58 gross or five one net wells with 57% of the activity occurring in the Eagle Ford and 30% in the Permian Basin.
Tyler Parker: In total we continue to expect 22 to 24 net wells to be placed online during 2024 with nearly 80% of those wells being in the Permian Basin.
Tyler Farquharson: Total capital spending during the first quarter of 2024 was $65 million, including $3 million of acquisitions that closed during the first quarter. For the year, we expect our total capital expenditures to remain in our previously guided range of $265 to $285 million, including $35 million of budgeted acquisitions. We also continued our ongoing quarterly cash dividend. During the quarter, the board declared an 11 cents per share cash dividend that, on an annualized basis, represents a 6.7 percent dividend yield measured against Tuesday's closing price.
Tyler Parker: Total capital spending during the first quarter of 2024 was $65 million, including $3 million of acquisitions that closed during the first quarter.
Tyler Parker: For the year, we expect our total capital expenditures to remain in our previously guided range of $265 million to $285 million, including $35 million of budgeted acquisitions.
Tyler Parker: We also continued our ongoing quarterly cash dividend during the quarter. The board declared an <unk> 11 per share cash dividend that on an annualized basis represents a six 7% dividend yield measured against tuesday's closing price.
Tyler Farquharson: Finally, subsequent to quarter end, we successfully completed our semi-annual borrowing base redetermination, increasing both our borrowing base and elected commitments to $300 million and expanding our lender syndicate through the addition of nine new banks. Our balance sheet remains a strength, with pro forma liquidity over $180 million and leverage of 0.4X net debt to trailing EBITDA, which remains below our half-term target.
Tyler Parker: Finally, subsequent to quarter end, we successfully completed our semiannual borrowing base redetermination, increasing both our borrowing base and elected commitments to $300 million and expanding our lender syndicate through the addition of nine new banks.
Tyler Parker: Our balance sheet remains a strength with pro forma liquidity over $180 million and leverage of zero point Forex net debt to trailing EBITDA, which remains below our half turn target.
Luke Brandenburg: I will now hand it back to Luke for his closing comments. Luke. Thank you, Tyler.
Tyler Parker: I will now hand, it back to Luke for his closing comments.
Luke Brandenburg: Tyler. I'll wrap up by sharing some takeaways from our company-wide town hall that I host each quarter. This quarter's theme was that there may be temporary dislocations, but ultimately, the law of supply and demand will determine the price of GRNT. I'll start with a temporary dislocation.
Thank you Tyler.
Luke Brandenburg: I'll wrap up by sharing some takeaways from our company wide town Hall that I host each quarter. This quarter's theme was that there may be temporary dislocations, but ultimately the law of supply and demand will determine the price of GR N T.
Luke Brandenburg: I'll start with a temporary dislocation.
Luke Brandenburg: I believe GRNT is in a period of temporary dislocation due to demand destruction or sustained decline in demand in response to limited supply. In our case, this demand destruction is due to our tightly held shareholder base. We chat with investment firms on a regular basis that seem to buy what we are selling, as demonstrated by their willingness to continue to share their time and follow the story, but our trading volume is not quite enough to meet their investment mandate. There are plenty of green shoots to point to, but the fact is that time will solve this.
Luke Brandenburg: I believe <unk> is in a period of temporary dislocation due to demand destruction or a sustained decline in demand in response to limited supply in our case. This demand destruction is due to our tightly held shareholder base wechat.
Luke Brandenburg: We chat with investment firms on a regular basis that seem to buy what we're selling as demonstrated by their willingness to continue to share their time and followed the story.
Our trading volume is not quite enough to meet their investment mandate.
Luke Brandenburg: There are plenty of green shoots to point to but the fact is that time will solve this we must stay patient and continue to focus on the E. R earnings and let the market worry about the P or price.
Luke Brandenburg: We must stay patient and continue to focus on the E, or earnings, and let the market worry about the P, or price. As a management team, we are a bit limited in what we can do on the supply side, absent issuing shares as part of an acquisition. We do not control the supply of GRNT shares.
Luke Brandenburg: As a management team we are a bit limited in what we can do on the supply side.
Luke Brandenburg: Absent issuing shares as part of an acquisition, we do not control the supply of <unk> shares practically issuing shares as unlikely as it would be tough to find an accretive stock given where we currently trade.
Luke Brandenburg: Practically, issuing shares is unlikely, as it would be tough to find an accretive stock deal given where we currently trade. But there is a lot we can do on the demand front, primarily in two ways. The first step is finding more folks to help us tell the Granite Ridge story. Thanks to Steve and Chris at Evercore for picking up coverage, and to all the folks that invite us to their conferences and host us for non-deal roadshows. A list of all our upcoming events can be found in our earnings release.
Luke Brandenburg: There is a lot we can do on the demand front, primarily in two ways.
Luke Brandenburg: First is finding more folks to help us tell the granite Ridge story, thanks to Steve and Chris at Evercore for picking up coverage and all the folks that invite us of their conferences and hostess for non deal road shows a list of all of our upcoming events can be found in our earnings release.
Luke Brandenburg: The second is doing the research and pounding the pavement to find investors that we solve a problem for today. As we transition our shareholder base and demonstrate that what we are building is different, repeatable, and resilient, I believe that Granite Ridge will re-rate and drive value for investors that put their trust in it. But today, there's a particular group of investors that I think we immediately solve a problem for, and that is generalists that benchmark to the Russell 2000.
The second is doing the research and pounding the pavement defined investors that we solve a problem for it today.
Luke Brandenburg: As we transition our shareholder base and demonstrate that what we are building is different repeatable and resilient I believe that granite ridge will re rate and drive value for investors that put their trust in us but today. There is a particular group of investors, but I think we immediately solve a problem for and as generalists that benchmark for the Russell 2000.
Luke Brandenburg: The Russell 2000 is now 7.4% energy and has generally been trending up in the past several years. The nav-driven valuation of small-cap energy can be tough for the generalist investor. Take the recent back-and-forth with Silverboe and Kimridge. If nothing else, this goes to show that it is difficult to ascribe current value to long-term oil and gas assets.
Luke Brandenburg: The Russell 2000 is now seven 4% energy and has generally been trending up in the past several years.
Luke Brandenburg: NAV driven valuation of small cap energy can be tough for the generalist investor.
Luke Brandenburg: Take the recent back and forth with silver going Kim Rich if nothing else. This goes to show that it is difficult to ascribe current value to long term oil and gas assets. Additionally.
Luke Brandenburg: Additionally, with the current reconstitution, according to RBC, several highly traded Russell 2000 energy names may migrate from the Russell 2000 up to the Russell 1000, including Permian Resources, Matador, and Civitas. Granite Ridge can be a part of the reallocation solution by providing the purest asset-level exposure to near-term development in a diversified vehicle with low leverage and a current yield of over six and a half percent. We are undervalued now, but one day, we won't be.
Luke Brandenburg: Additionally, with the current reconstitution. According to RBC several highly traded Russell 2000 energy names may migrate from the Russell 2000 up to the Russell 1000, including Permian resources Matador in Civitas.
Luke Brandenburg: Ridge can be a part of the reallocation solution by providing the purest asset level exposure to near term development and a diversified vehicle with low leverage and a current yield of over six 5%.
Luke Brandenburg: We are undervalued now, but one day, we won't be.
Luke Brandenburg: It likely won't be a transformative event that causes Granite Ridge to re-raise. Instead, it will be a series of mini-catalysts, the transitioning of the shareholder base, increasing trading volume, additional investors showing up on ownership reports, continued workmanlike quarters of consistent performance, more and better information on strategic partnerships, and our controlled CAPEX strategy. We believe it will happen, and I invite you to be a part of the Granite Ridge story that the great folks across our organization are working hard to write. Please do not hesitate to reach out, and I hope to see many of you over the next several months. And with that, we're happy to answer any questions folks may have on today's call. Operator?
Luke Brandenburg: It likely won't be a transformative event that causes granite ridge to re rate it will be a series of many catalysts transitioning of the shareholder base, increasing trading volume additional investors showing up on ownership reports continued workman like quarters of consistent performance more and better information on.
Luke Brandenburg: Our partnerships and our controls Capex strategy, we believe it will happen and I invite you to be a part of the granite Ridge story.
Great folks across our organization are working hard to write please do not hesitate to reach out and I hope to see many of you over the next several months.
Luke Brandenburg: And with that we're happy to answer any questions folks may have on today's call operator.
Operator: Thank you. We will now begin our question and answer session. At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We'll pause for a moment to compile the Q&A list. Thank you. The first question comes from the line of Phillip Johnson from Capital One. Please go ahead.
Speaker Change: Thank you we will now begin our question and answer session. At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question simply press Star one again.
Speaker Change: In a moment to compile the Q&A roster. Thank you.
Speaker Change: The first question comes from the line of Phillips Johnston from capital One East go ahead.
Phillip Johnson: Hey guys, thanks. I wanted to ask you about your oil mix. Tyler, I think you mentioned the 45% mix for the quarters below your guidance for the year. I realize you've got some deferred gas projects going forward that are going to improve that, but can you maybe walk us through some of the drivers that are going to affect your absolute oil production? In, I guess, Q4, a little bit higher than that 45% max.
Hey, guys. Thanks.
Phillip Johnson: Wanted to ask about your oil mix Tyler I think you mentioned the 45% mix for the quarter is below your guidance for the year.
Realize you got some deferred gas projects going forward that are going to improve that but can you maybe.
Phillip Johnson: Yes, there is some of the drivers that are going to move your absolute oil production.
Phillip Johnson: And I guess Q4.
Phillip Johnson: A little bit higher than that 45% mix.
Luke Brandenburg: Hey, good morning, Phillip. Thanks for joining us. Thanks for the question.
Hey, good morning, Bill Thanks for joining thanks for the question.
Luke Brandenburg: A couple of pieces I mentioned; we're seeing some deferrals on the gas side. I think that'll help accelerate the oil mix increasing a little quicker than we thought. On the last call, I mentioned that just across the year, we'd start out in the mid-40s and slowly work our way up. If these gas deferrals, some of this is more of a conversation, but we're having operators saying, hey, we may duck some wells, we may defer some drilling instead of drilling eight wells.
A couple of pieces I mentioned, we are seeing.
Speaker Change: On the gas side, I think that will help accelerate the oil mix increasingly quicker than we thought on the last call I mentioned that just.
Speaker Change: Cross the year, we'd start out in the mid Forty's and slowly working our way out if these gas deferrals. Some of this is more conversation, but we're having operators, saying hey, Doug some wells, we may defer some drilling instead of drilling eight wells, we will drill four we actually have an operator in the Permian Thats, just simply curtailing gas production in Reeves County.
Luke Brandenburg: We'll drill four. We actually have an operator in the Permian that's just simply curtailing gas production in Reeves County due to terrible wallhop pricing. If that continues, I think you'll see that oil percentage creep up. You may even break 50 percent as we get later in the year. We anticipate that in the next several years, it'll be upwards of 50 percent, but we just expect it to creep from, call it, 45 to 50 or so, a steady pace across the next three quarters.
Speaker Change: Due to turbo Wahhab pricing. So as that continues I think youll see that oil percentage creep up you may even break 50% as we get later in the year, we anticipate.
Speaker Change: Several years it'll be upwards of 50%, but we just expect to accrete from call. It 45 to 50 or so.
Speaker Change: Steady across the next three quarters.
Phillip Johnson: Okay, sounds good, and then I guess your Q1 oil realization was a nice premium to NIMAX. Can you maybe talk about what sort of drove that? How we should sort of think about that relationship going forward.
Okay. It sounds good and then I guess your Q1 oil realization was a nice premium to Nymex can.
Speaker Change: Can you maybe talk about what sort of drove that in <unk>.
Speaker Change: How we should sort of think about.
That.
Speaker Change: Relationship going forward.
Tyler Farquharson: Yeah, sure, Phillips and Tyler. You know, we have some lumpiness in our differentials if you look back historically over the last handful of quarters. And I think you're seeing some lumpiness again in the first quarter. We did have a small out-of-period adjustment in the first quarter that drove it a little higher, but moving forward, I still think, on average, over time, you should expect to see minus two dollars to benchmark prices. Okay, great.
Speaker Change: Yes, sure Philips in Tyler.
Philips: We have some lumpiness in our differentials if you look back.
Philips: Historically over the last handful of quarters.
Philips: I think youre seeing some lumpiness again in the first quarter, we did have a small out of period adjustment in.
Philips: In the first quarter that drove it a little higher but moving forward I still think on average over time, you should expect to see minus $2 to the benchmark price.
Phillip Johnson: Okay, great. Sounds good, guys. Thank you. Thank you, folks.
Speaker Change: Okay, Great sounds great guys. Thank you.
Speaker Change: Thank you both.
Michael Scialla: The next question comes from the line of Michael Scialla from Stephens. Please go ahead.
Speaker Change: The next question comes from the line of Michael Sheila from Stephens. Please go ahead.
Michael Scialla: Good morning, guys.
Michael Scialla: I wanted to see if I could get some more detail on the 5.5 TILs that you're looking at with the partnership. I think, Luke, you said those were coming online in the second quarter. Have any of those been completed yet? And I guess what needs to happen to bring those online.
Michael Scialla: I wanted to see if I can get some more detail on the.
Michael Scialla: Of the five five.
Michael Scialla: Sales that Youre looking at what the partnership I think Luke you said those are coming online in the second quarter have any of those been completed yet.
Speaker Change: Guess what.
Speaker Change: Needs to happen to bring those online.
Luke Brandenburg: Yeah, morning, Mike. Thanks for the call and thanks for the question.
Luke Brandenburg: Good morning, Mike Thanks for the call and thanks for the question. So that is $5 five net single mile Wells, there in loving County, and so they actually are completed.
Luke Brandenburg: So that is 5.5 net single-mile welds there in Loving County. So they're actually completed, have the Christmas trees on, and they're ready to go. Actually, I just got a picture two days ago of everything fully ready to turn them on. We're really just waiting for the pipe. So the expected turn-on sale date is June 1st. I would love it for it to be earlier, but that's really what we're targeting right now.
Luke Brandenburg: The Christmas tree is all and they are ready to go actually has got a picture two days ago, if everything fully ready to turn them on we're really just waiting on pipe.
Luke Brandenburg: The expected turn to sale date is June burst.
Luke Brandenburg: I love it for it to be earlier, but that's really what we're targeting right now again, it's just more timing issues everything on the operation side is done and frankly it was done in tremendous fashion, we came in 14% under ASC on the drilling eight 5% on the completion side.
Luke Brandenburg: Again, it's just more piping issues; everything on the operation side is done, and frankly, it was done in tremendous fashion. We came in 14 percent under AFV on the drilling side, and 8.5 percent under on the completion side. Just a data point, the drilling was really more driven by just drilling quickly, not necessarily by material price decreases. The completion side was pretty similar. We've just got great crews out there, and they've really done a tremendous job.
Luke Brandenburg: Just a data point the drilling was really more driven by drilling quickly not necessarily by material price decreases.
Luke Brandenburg: Completion side was pretty similar we've just got great crews out there and they've really done a tremendous job.
Michael Scialla: Sounds good. You mentioned the partnership CapEx. Now you're thinking 40%. I think you were talking in the 30s, maybe 35% earlier, and you see that going higher. Can you talk about where that may go next year and beyond?
Luke Brandenburg: That sounds good.
You mentioned the partnership Capex now Youre thinking 40% I think you were talking in the 30% maybe 35% earlier.
Speaker Change: And you see that go on hire can you talk about where that May go next year and beyond.
Luke Brandenburg: Yeah, that's a good question. So, what we've talked about right now, Mike, is we had two rigs we were actually running earlier this year. We laid down 1 rig and have another group that we're kind of trading it back and forth with. There's a good chance we pick up another rig later this year. That's the plan. And what I'd say is the 2nd rig for us is really more opportunistic. What it's allowing us to do is to hit some of these short fuse opportunities.
Speaker Change: Yes, that's a good question. So what we've talked about right now Mike is we had two rigs are actually running earlier this year.
Speaker Change: We lay down one rig or have another group that we're kind of trading it back and forth with Theres a good chance we'd pick up another rig later this year, that's the plan and what I'd say is the second rig for US is really more opportunistic what's allowing us to do is hit some of these short fuse opportunities frankly.
Luke Brandenburg: Frankly, the one that we're bringing on in the late 3rd quarter, early 4th quarter, the 1.4 net well pad, that was a neat deal where there was a large independent who had an expiry coming up, and they weren't going to be able to hit it. So, we were able to say, look, we'll pick up another rig. We were able to get it from an operator, a hot rig, and a crew that we knew. In fact, I think they were using the same drilling consultant who was able to pick it up to hit that unit.
The one that we're bringing on.
Speaker Change: Late third quarter early fourth quarter. The one four net well pad that was the new deal where there was a large independent who had expert Kevin when they were going to be able to hit it. So we were able to do that.
Speaker Change: We'll pick up another rig.
Speaker Change: We were able to get it from an operator hot rig crew that renew in fact I think they are using the same drilling consultant.
Speaker Change: Pick it up to hit that unit so.
Luke Brandenburg: I wouldn't assume two rigs running full-time, but I would assume one-and-a-half-ish rigs next year. And so I'd expect that you'd see a relatively similar number, maybe a bit higher, call it. 125, 130 would be my guess right now.
Speaker Change: I Wouldnt assume two rigs running full time.
Speaker Change: But I would assume one five ish rigs next year, and so I would expect that you'd see.
Speaker Change: Relatively similar number.
Speaker Change: Maybe a bit higher call it.
Speaker Change: Mid <unk>.
Speaker Change: 125, 30 would be my guess right now.
Michael Scialla: Gotcha, and then last one for me, I guess, given that partnership activity is probably going to dictate, to a large extent, your capital spend, it sounds like the second quarter is going to be the high watermark for the year. And does that come down in the second half? And I guess any, any, you know, haven't given formal guidance on the second quarter, but something in the 80 million for development, CapEx for the second quarter kind of in the ballpark. That sounds a little bit high to me right out of the gate.
Speaker Change: Got you and then last one for me I guess given that.
Speaker Change: The partnership activity is probably going to dictate.
Speaker Change: To a large extent your capital spend.
Speaker Change: It sounds like second quarter is going to be the high watermark for the year and does that come down.
Second half I guess any any.
Speaker Change: You haven't given formal guidance on second quarter, but.
Speaker Change: Something in the 80 million for development Capex for same quarter kind of in the ballpark.
Luke Brandenburg: That sounds a little bit high to me right out of the gate, largely because we don't have that second rig running the whole second quarter. It's generally down most of the second quarter. We'll pick it up in the third. So I expect something pretty similar to what you're seeing this first quarter, maybe slightly less.
Speaker Change: That sounds a little bit high to me right out of the gate largely because we don't have that second rig running the whole second quarter. It's generally down most of the second quarter will pick it up in the third so I'd expect something.
Speaker Change: Similar to what Youre seeing in this first quarter, maybe slightly less.
Speaker Change: Got it okay.
Speaker Change: Thanks, so much.
Speaker Change: You got it thanks, Mike.
Jeff Robertson: The next question comes from the line of Jeff Robertson from Watertower Research. Please go ahead.
Speaker Change: The next question comes from the line of Jeff Robertson from Water Tower Research. Please go ahead.
Jeff Robertson: Thanks, Good morning, Luke.
Jeff Robertson: Luke, on the controlled capital efforts. Are you looking at opportunities both to put together organic deals that Granite Ridge assembles and takes to an operator and look at operators who might be looking for a partner, where essentially Granite Ridge comes in and works as a capital provider?
Jeff Robertson: Luke on the controlled capital.
Jeff Robertson: Efforts.
Jeff Robertson: Are you looking at opportunities both to put together organic deals that granite ridge assembles and takes to an operator and look at operators who might be looking like a partner.
Speaker Change: We're essentially granite ridge comes in.
Speaker Change: It works as a capital provider.
Luke Brandenburg: Yeah, great question, Jeff. Thanks for the call.
Speaker Change: Yes, great question Geoff Thanks for the call.
Speaker Change: The answer is yes to both and so we really look at it from a few pieces one.
Luke Brandenburg: The answer is yes to both. And so, we really look at it from a few different angles. One, you know, with the controlled capital via strategic partnership, they're the ones generating the opportunities, and really, we're the capital provider for that. Another piece is, you know, we've put together units, just boots on the ground. And one thing that we did, we did this last year, and we are actually finishing up documents for another unit this year where we scurried into an area, we saw EOG putting together a position, and so we scurried in there and started picking up leases.
Speaker Change: But the controlled capital strategic partnership, they're the ones generating the opportunities.
Speaker Change: And really where that capital provider for that another pieces put together unit.
Just boots on the ground.
Speaker Change: And one thing that we did.
Did this last year and we actually are finishing up documents or another unit. This year, where we scurried into an area, we saw putting together position and so it's great and theyre start picking up leases. We're the only ones that had the idea. There was another group that was doing a similar thing and so we took the two of US we had enough critical mass.
Luke Brandenburg: We weren't the only ones that had the idea. There was another non-profit group that was doing a similar thing. And so, between the two of us, we had enough critical mass to get a drillable unit. And so, what we did is combined forces went out and ran an RFP process, if you will, to talk to several different operators and said, hey, we'd like to see these zones drilled, and here's the date that we'd like to get them drilled by. You know, what would it take to get you to come in here and do that?
Speaker Change: To get a drilling unit and so what we did is combined forces went out and ran an RFP process. If you will to talk to several different operators and said hey, we'd like to see these zones drilled and here's the date that we'd like to get them drilled by.
Speaker Change: What would it take to get you to come in here and do that and so that was a really need opportunity work.
Luke Brandenburg: And so, that was a really neat opportunity with that broader production component than our typical opportunity. And so we've generally shied away from them because, as we've said in the past, we're not very good buyers of production because we just end up way off the mark from a valuation perspective. We just see more downside to upside when we buy production. So we tend to be more conservative, which I appreciate.
Speaker Change: Call it that broader control capital budget, because we did set the drilling plan. We did set the drilling time line and we were able to garner greater so we're doing that as well one thing that we're not really doing right now not to say that we wouldn't.
Speaker Change: But is coming in and just being a capital source alongside an operator looking to stretch their dollar we could do that I think it's an interesting strategy, but we haven't really done that to date.
Speaker Change: Most of the opportunities that we've seen along those lines have heavier production component than our typical opportunity.
Speaker Change: So we have generally shied away from them because we've said in the past we're just.
Speaker Change: We're not very good buyers of production because we end up.
Way off the Mark from a valuation perspective, we just see more downside than upside buying production. So we tend to be more conservative which I appreciate.
Luke Brandenburg: Can you characterize how receptive some of the operators are to the terms and conditions and the type of capital that you all bring to bear in the partnership concept?
Speaker Change: Can you characterize how receptive some of the operators are too.
Speaker Change: The terms and conditions and the type of capital that you all bring to bear in these.
Speaker Change: Ship concept.
Luke Brandenburg: Yeah, that's a great question because it's one that we're really proud of. We came up with a bit of a new mousetrap with this controlled CapEx strategy, and I think it's very appealing to the right partners. Really, what it looks like is we're taking the approach that we're bringing the majority of the capital to the table, so we're going to control the asset, but you, our partner, you're going to control your company.
Speaker Change: Yes, that's a great question because it's one that we're really proud of and we came up with a bit of a new mouse trap on this controlled capex strategy and I think it is very appealing to the right partners really what it looks like.
Speaker Change: We're taking the approach that we are bringing the majority of the capital to the table. So we're going to control the asset.
Luke Brandenburg: And so it really is more of a partnership just at the asset level, where we have control, but they fully manage their company. They own their assets outright. We don't determine if and when they sell. That's up to them. They really do like that.
Speaker Change: <unk>, our partner you're going to control your company and so it really is more of a partnership just at the asset level to where we have control, but they fully manage their company at bay on their assets outright.
Speaker Change: We don't determine if and when they sell thats up to them. They really do like that another component I think thats very attractive as most of these deals are really a unit by unit.
Luke Brandenburg: Another component I think that's very attractive is that most of these deals are really a unit by unit deal. We have an overall structure that we use, but they're on a unit by unit basis. And so what that means is it gives the opportunity for the operating company, the folks that are out there sourcing the deals, to earn incentives on a unit by unit basis, which is particularly helpful given this price environment where you've just seen private equity-backed exits extend.
Speaker Change: Deal, we have an overall structure that we use but theyre on a unit by unit and so what that means is it gives the opportunity for.
Speaker Change: For the operating company the folks that are out there sourcing deals.
Earned incentives on a unit by unit basis, which is particularly helpful. Given this price environment, where you have just seen.
Speaker Change: Private equity backed exits extend.
Luke Brandenburg: The two to four-year deal is now five to seven. But when you have a unit by unit carry, it really allows operators the opportunity to start realizing the fruits of their labor sooner, continue to incentivize the team, and then, frankly, continue to reinvest because that's what they're doing. We're seeing partners that are really putting material dollars back into the business because they believe in it, and they want to grow it.
Speaker Change: Two to four year deal is now 5% to seven.
Speaker Change: But when you have a unit by unit carry it really allows operators opportunity to start realizing the fruits of their labor sooner and continue to incentivize the team and then frankly continue to reinvest because thats. What they are down we're seeing partners that are really putting material dollars back into the business because they believe in it and they want to grow it.
Jeff Robertson: Last question on the controlled capital business model. The Permian accounts for almost 50% of Granite Ridge's first quarter, 24th production. When you think about the different regions that you operate in, do you see greater opportunity in some regions versus others for these types of structures? Yeah, we absolutely do.
Speaker Change: Last question on the controls capital.
Speaker Change: <unk> business model.
The Permian accounts for.
Speaker Change: Almost 50% of granite Ridge is first quarter 'twenty full production. When you think about the different regions that you operate or do you see greater opportunity in some regions versus others for these types of structures.
Luke Brandenburg: Yeah, we absolutely do. And so what we talk about at the highest level, what this is, it's representing investments where we are taking more concentration. And we feel comfortable taking that higher concentration because we're mitigating that by one control, but also by higher expected returns. But what that means is that if you're taking more concentrated investment risk, we want to be very sure that we're in areas that have, I'd say, the highest probability of success or, said another way, the lowest variability.
Speaker Change: Yes.
Speaker Change: Absolutely do and so what we talked about at the highest level. What this is it's representing investments where we are taking more concentration.
Speaker Change: And we feel comfortable taking that higher concentration because we are mitigating that by one control but also.
Speaker Change: Higher expected returns, but what that means is if youre, taking more concentrated investment risk.
Want to be very sure that we are in areas that have the highest probability of success or said another way the lowest variability and so other areas that I think are attractive.
Luke Brandenburg: And so other areas that I think are attractive are places like Eagleford and Bakken, where in the right areas you have quite consistent results and just much less variability. I think that's a big piece of the strategy. It doesn't mean that we wouldn't go other places, but those are two basins that, again, are really known for their consistency and lots of development, such that you've got a lot of data points around you to feel good about what you're underwriting. So I would think about basins that have low variability, that have plenty of development, and just being able to de-risk the subsurface as much as possible.
Speaker Change: Places like the Eagle Ford places like the Bakken where.
Areas, yet quite consistent results and just much less variability I think thats a big piece of the strategy doesn't mean that we wouldn't go other places, but those are two basins that are again are really known for their consistency and lots of development.
Speaker Change: Such that you've got a lot of data points around you to feel good about what you are underwriting. So I would think about basins that have low variability plenty of development in just being able to derisk the subsurface as much as possible.
Speaker Change: Thank you.
Speaker Change: Thank you I appreciate it.
Michael Scialla: The next question comes from the line of Michael Scialla from Stephens. Please go ahead.
Speaker Change: The next question comes from the line of Michael <unk> from Stephens. Please go ahead.
Speaker Change: Okay.
Michael Scialla: I just want to follow up on the inventory, Luke, you said in the partnership, I think you said 29 net locations at the moment. Are all those in Delaware and most of those in Loving County? I guess just looking for a little bit more color on what that inventory looks like.
Michael: I just wanted to follow up on the inventory Luke said and the partnership with <unk>. You said 2009 net locations at the moment are all of those in the Delaware.
Michael: And most of those in loving County, I guess, just looking for a little bit more color on that.
Michael: It looks like.
Luke Brandenburg: Hey, good question. I may have been talking too quickly.
Speaker Change: Hey, good question I'm had been talking too quickly. So its 40 gross or 21 nine net locations that we control most of it is in the Delaware, but I'd say not all of it we have some other opportunities we're working on in the Midland, but the vast majority is in the Delaware and of that the vast majority is in loving County.
Luke Brandenburg: So, it's 40 gross or 21.9 net locations that we control. Most of it is in the Delaware, but I'd say not all of it. We have some other opportunities we're working on in the Midland, but the vast majority is in the Delaware. And of that, the vast majority is in Lubbock County. We have a couple of deals in Reeves. We have a deal that we're working on in Ward.
Speaker Change: Have a couple of deals in Reeves, we have a deal that we're working on award and so are recovering the broader Delaware basin and frankly the driver of that is this one partner particular, there Midland base they've been there a long time, they know everybody and just have a tremendous reputation in Midland and so they're getting access to some unique deal flow.
Luke Brandenburg: And so, we're covering the broader Delaware Basin. And frankly, the driver of that is this is one partner in particular, their Midland Basin. They've been there a long time.
Luke Brandenburg: They know everybody and just have a tremendous reputation in Midland. And so, they're getting access to some unique deal flow, which we're excited about. But the Delaware is just far less consolidated than the Midland. If you go to the Midland Basin and you look around, it's just much harder to find undrilled units. And frankly, anything that is undrilled, there's generally a story to it.
Speaker Change: Which we're excited about but the Delaware is just far less consolidated in the Midlands you got in the Midland Basin and you look around that's just much harder to find on drilling units and frankly anything that is undrawn. There's generally a story to it so it's a little bit more difficult and as a result, more and more deal flow out of the Delaware relative to them.
Luke Brandenburg: So, it's a little bit more difficult. And as a result, just more and more deals flow out of Delaware relative to the Midland. That's not intentional.
Luke Brandenburg: We'd love to continue to put capital to work in the Midland Basin as well. Again, just a quantity of deal flow versus hit rate. We're just seeing a lot higher quality, excuse me, higher quantity in Delaware.
Speaker Change: Midland.
Speaker Change: Unintentional.
Speaker Change: We'd love to continue to put capital to work in the Midland Basin as well again just to.
Speaker Change: Quantity of deal flow versus hit rate, we're just seeing a lot higher quality excuse me higher quantity in the Delaware.
Michael Scialla: And are most of those that are in Delaware the one mile type, similar to what you just drilled?
Speaker Change: And are most of those.
Speaker Change: That are in the Delaware are they the one mile type of the ones similar to what you just drew.
Luke Brandenburg: You know, it's a mix, and so these couple that we've talked about are one mile, but we have some wells that are over 10,000 feet. They're going to be, you know, one and a quarter, one and a half, excuse me, two and a quarter, two and a half.
It's a mix and so these couple that we've talked about our one mile.
Speaker Change: But we have some wells that are over 10000, if theyre going to be.
Speaker Change: Quarter one five.
Speaker Change: Two in quarter, two and a half. So we are looking at some extended laterals as well, but I would tell yet again everybody's got drilling info or in various these days and they can look to find the white spot on the map with theirs.
Michael Scialla: So, we are looking at some extended laterals as well, but I would tell you, again, everybody's got drilling in Bow or Enveris these days, and they can look and find the white spot on the map if there's a white space. 10,000 foot unit, everybody's looking at it. It's the stuff that's got a little bit of hair where you can get scrappy and block and trade. And so I think our average well in that is probably somewhere around 7,000 feet. And so you do have maybe a slightly shorter one mile versus two mile, but there's a good number of extended vitals in there as well.
Speaker Change: White space, a 10000 foot unit.
Speaker Change: He is looking at it.
Speaker Change: The stuff, that's got a little bit of hair, where you can get scrapped in block trade and so I think our average.
Speaker Change: Well in that is probably somewhere around 7000 feet and so you do have maybe.
Speaker Change: More one mile versus two mile, but theres a good number of extended laterals in there as well.
Luke Brandenburg: Could you characterize the zones you're talking about? Are they the primary targets, you know, Camp A, in Bow Spring? Or are they more of a secondary targets? Is that the reason that you had the opportunity to get in there and [inaudible]
Speaker Change: And could you characterize the zones, you're talking about these kind of the primary wolfcamp a.
Speaker Change: Those spring or are they more kind of secondary targets is that the reason that the.
Speaker Change: The opportunity to get in there.
Speaker Change: The capture.
Michael Scialla: Yeah, it bounces around a lot. So some of it's your primary zones, and, in fact, if I were to say, you know, what the majority of the targets are, the majority of the targets that we're going to drill anyway are in the primary zones, and that's where we have..., just a lot of synergies from a cost perspective. We're able to leverage the facilities. In some cases, we've talked about turning over operations once the wells are online, which is great.
Speaker Change: Yes, it bounces around a lot. So some it's your primary zones and in fact, if I were to say, what's the majority of the targets. The majority of the targets that we're going to drill any ways or in the primary zones and that's where we are.
Speaker Change: Allocated value.
Speaker Change: But you do have some secondary opportunities as well, we have an opportunity with a large operator, where.
Speaker Change: They went in and dated bonds.
Bone spring Wolfcamp, a and fast forward a few years. The BMC are now actively developed around them.
Speaker Change: But they had not been drilled yet and so we were able to barnett on them and drill those locations. The neat thing about that is what we're drilling beneath the existing wells.
Speaker Change: A lot of synergies from a cost perspective, we are able to leverage the facilities.
Speaker Change: Someplace the cases, we've talked about turning over operations. Once the wells are online which are great. These folks are really good at what they do on the operation side and so we don't have to spend the time energy and effort managing wells, but if I look at the majority of the inventory.
Michael Scialla: You know, these folks are really good at what they do on the operation side. And so we don't have to spend the time, energy, or effort managing wells. But if I look at the majority of the inventory, it's sponge springs, X, Y, and A, but there is a decent number in the B as well and some C.
Luke Brandenburg: Thanks for that detail. Just one last one.
Speaker Change: Bone Springs, XY, ne, but there is a decent number in the <unk> as well in subsea.
Michael Scialla: It looked like your share count went down about 2 million from the prior quarter, your Duluth share count. I know your buyback expired at the end of the year, but I didn't see anything on repurchases. Is that just some technical difference in the way that shares were counted during the quarter or something else going on there?
Speaker Change: Thanks for the detail and just one last one.
Speaker Change: Your share count went down about $2 million from the prior quarter diluted share count I know your buyback expired at the end of the year.
Speaker Change: See anything on repurchases is that just some clinical difference in the way the shares for Canada during the quarter or something else going on there.
Luke Brandenburg: It might be the quarterly average, you're right, with the share repurchase ended at $1231.23, so it could be just average. However, share counts between the fourth quarter and the first quarter suggest that that could have gone down by two.
Speaker Change: It might be the quarterly average youre right.
Speaker Change: Share repurchase.
Speaker Change: Ended at $12 31.
'twenty three so it could be just average.
Speaker Change: Share counts between the fourth quarter in the first quarter that could have gone down by $2 million.
Michael Scialla: Okay, I got it. Thanks guys.
Speaker Change: Okay got it.
Speaker Change: Thanks, guys I appreciate it.
Michael Scialla: Absolutely. Thanks for the question.
Speaker Change: Absolutely thanks for the questions.
Operator: There are no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: There are no further questions at this time. This concludes today's conference call. Thank you for your participation you may now disconnect.
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