Q2 2024 Peyto Exploration & Development Corp Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the 2024 Second Quarter PayPal Financial Results Conference Call. At this time, all participants are in listen-only mode.
Okay.
Operator: 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 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: Good day, and thank you for standing by walking through the 2024 second quarter financial results Conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you wouldn't hear an automated message by senior.
Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, J.P. Lachance, President and CEO. Please go ahead.
Speaker Change: This race to withdraw your question Press Star one again, please be advised that today's conference is being recorded and like to hand, the conference over to your first speaker today J P less Johnson President and CEO. Please go ahead.
J.P. Lachance: Thanks, Marvin. Morning, folks, and thanks for joining Peyto's second quarter conference call. I'd like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory set forth in the company's news release issued yesterday. Present with me to answer your questions in the room here are Riley Frame, our VP of Engineering and Chief Operating Officer, Tavis Carlson, our VP of Finance and CFO, Lee Curran, our VP of Drilling and Completions, Todd Burd Firstly, we'd like to thank the entire Peyto team, both in the office and in the field, for their strong execution this past quarter.
Speaker Change: Thanks, Marvin and good morning.
Speaker Change: Folks and thanks for joining <unk> second quarter conference call.
Speaker Change: I'd like to remind everybody that all statements made by the company. During this call are subject to the same forward looking disclaimer and advisory set forth in the company's news release issued yesterday.
Speaker Change: At present, we are present with me to answer your questions in the room here is rally frame, our VP of engineering and Chief operating Officer, David Carlson, Our VP of finance and CFO Lee Curran, our VP of drilling and completions.
Speaker Change: Vertical VP of production and Derek Zimbra, our VP of land and business development.
Speaker Change: Firstly, we'd like to thank the entire Peyto team often the opposite in the field for their strong execution this past quarter.
J.P. Lachance: It was a strong quarter for Peyto, despite very low gas prices. In fact, the lowest we've seen since 2019 at AECO. We still managed to generate $155M of funds from operations and $51M of earnings, in large part due to our systematic hedging program, which realized $68M in gains along with our industry-leading low cash costs. And a reminder that our mechanistic hedging program is designed to de-risk and smooth out prices and give us predictable revenues so we can provide confidence to run our capital program, manage the balance sheet, and pay shareholders a dividend.
Speaker Change: And it was a strong quarter for payroll despite very low gas prices in fact, the lowest we've seen since 2019 at eco anyway.
Speaker Change: We still managed to generate $155 million of funds from operations and at $51 million of earnings in large part due to our systematic hedging program, which realized $68 million in gains along with our industry, leading low cash costs.
Speaker Change: And a reminder, that our mechanistic hedging program is designed to derisk to derisk and smooth out price and give us predictable revenues. So we can provide confidence around our capital program manage the balance sheet.
Speaker Change: NPL shareholders a dividend.
J.P. Lachance: Ideally, we'd be out of the money on our hedges, but this approach to date has accumulated over $350 million in hedge gains since we started. The other point I would like to point out about the quarter is that I think Peyto's operating margin is 62% with these low gas price screens very well as compared to our competitors, and it's a testament to how we run the business. Let's talk a bit about the drilling program. We completed another string of very long laterals in the second quarter, mostly wheelbridge across different areas in greater Sundance and in our core Brasseau area.
Speaker Change: Really with the out of the money our hedges, but this approach to date has accumulated over $350 million hedge gain since we started.
Speaker Change: And the other point I would like to point out about the quarters I think it was operating margin of 62% with these low gas price screens, very well compared to our competitors and it's a testament to how we run the business.
Speaker Change: So let's talk a bit about our drilling program. We completed another string of very long laterals in the second quarter, mostly will reach across different areas in greater Sundance in our core brazeau area.
J.P. Lachance: The average length of these wells drilled in the program was just over 2,300 meters, which I think is another record for the size of the program from a quality program perspective. We were set up on 3-well pads for the most part through Q2, during what was a typical wet season through spring breakup. And, of course, that minimizes moving equipment around and slogging through the mud.
Speaker Change: The average lateral lengths of these wells drilled in the program were just over 2300 meters, which I think is another record for the size of the program from a warranty program perspective.
Speaker Change: We were set up on three well pads for most for most for the most part through Q2 during what was typically what what's the typical wet season through spring breakup.
Speaker Change: And of course that Minimises, moving equipment around and slogging through the mud.
J.P. Lachance: Obviously, that slows down our on-stream timing, but, you know, it certainly helps to keep and even drive costs down, as we saw overall improvements in our average cost per meter on both drilling and completions operations this past quarter. We continue to be excited about the drilling results from the newly acquired Rapsol lands. We had 21 wells on stream to the end of Q2, with enough history that shows a sustained 30% increase in average well productivity as compared to the performance of recent legacy programs.
Speaker Change: Obviously, the ASP goes down our Onstream time.
Speaker Change: But it certainly helps to keep that you can drive cost down as we saw overall improvements in our average cost per meter on both drilling and completions operations this past quarter.
Speaker Change: We continue to be excited about the drilling results in the newly acquired Repsol lands.
Speaker Change: We had 21 wells on stream at the end of Q2 with enough history that showed us. This shows a sustained 30% increase of average well productivity as compared to the performance of recent legacy programs.
J.P. Lachance: These wells were drilled in Wilrich, Flair, and Nottakewin, and they were drilled over a large portion of the Repsol land base. And that's important because it gives us confidence that it isn't just one species that's outperforming, but the good results are coming over a wider area and up and down the strata. The other thing that's important here is that the costs to attain these outcomes are similar to or even slightly cheaper than what we're currently spending on our legacy labs, you know, since we're using the same well-designed to drill and complete. Cash costs for the quarter were $1.50 per MCFE, or $1.24 per MCFE excluding royalties.
Speaker Change: These wells were drilled in the wheel rich flare in the non QM and the renewal of our large portion of the Repsol land base.
Speaker Change: And that's important because it provides us confidence that isn't just one species, that's outperforming but the good results are coming over a wider area and up and down the strata.
Speaker Change: The other thing that's important here is that the cost to achieve these outcomes are similar to or even slightly cheaper than what we're currently spending on our legacy labs.
Speaker Change: Since we are using the same well designed to drill and complete them.
Speaker Change: Cash costs for the quarter were $1 50 per Mcf EUR $1 24 per Mcf, excluding royalties, we had an annual GCI adjustment to our royalties on the Repsol last this past quarter that inflated our cost by about <unk> <unk> per Mcf.
J.P. Lachance: We had an annual GCA adjustment to our royalties on the Repsol assets this past quarter that inflated our cost by about $0.05 per MCFE. Going forward, we expect our royalty rates to be around 7% to 8% on a pre-hedged sales revenue basis, or if you include the revenue from our hedge gains, our royalty rate is more like 5% to 6% since, of course, we pay royalties based on Alberta reference prices and not our hedge.
Speaker Change: Going forward, we expect our royalty rates to be around 7% to 8% on a pre hedged sales revenue basis or if you include the revenue from our hedge gains our royalty rate is more like 5% to 6% since of course, we pay royalties based on Alberta reference prices in our hedge book.
J.P. Lachance: Peyto continues to have the lowest cash costs in the business and a lot of ice margin. But despite the fact that we have the lowest cash costs, we still endeavor to improve. We set a goal last quarter to reduce our operating expenses by 10% per MCFE by the end of this year.
Speaker Change: Payroll continues to have the lowest cash cost in the business.
Speaker Change: Nice margins.
Speaker Change: But despite the fact that we have the lowest cash cost we still endeavor to improve week, we set a goal last quarter to reduce our operating expenses by 10% per Mcf fee by the end of this year.
J.P. Lachance: We're pleased that we are basically on target with that goal having reduced 5% in the second quarter already. Part of that gain was the redirection of gas volumes from a third-party deep cut facility where we used to extract low-value ethane as a liquid, and we moved that over to our own and operated Edson gas plant through the Central Foothills Gas Gathering System. It meant we had to give up about 2,000 barrels a day of NGL liquid by selling that back in the gas phase, but the value we realized was essentially no different.
Speaker Change: We're pleased that we are basically on target with that goal of having reduced 5% in the second quarter already.
Speaker Change: Part of that gain was a redirection of gas volumes from our third party deep cut facility, where we used to we used to extract more value of ethane is liquid.
Speaker Change: And we moved that over to our owned and operated at some gas flat through that central foothills gas gathering system.
J.P. Lachance: We were saving third-party fees and increasing plant utilization at the ethylene gas price. And I think this is a good example of the way we, you know, we look at the business, the way we run the business. It's about making money, not about POE. In the same vein, we recently shut down the sour gas sweetening site of the Edson gas plant.
Speaker Change: Given that we had to give up about 2000 barrels a day boe's a day of NGL liquid by by selling ethane back into gas base, but the value. We realized there was essentially no different than we were saving third party fees and increasingly the plant utilization at the <unk> gas plant.
Speaker Change: And I think this is a good example of the way we look at the business the way we run the business, while making money now both boe's.
Speaker Change: Along the same vein, we recently shut down the sour gas sweetening site.
Speaker Change: At the Hudson gas plant.
J.P. Lachance: Although we had some third-party income coming in from that, it wasn't enough to offset the cost to run and maintain that part of the plant. Not to mention running it impacted plant reliability, higher emissions, and slightly higher safety risks to operate sour gas, of course. We had to shut in a small amount of our apatow net production from the sour gas unit that fed that part of the plant.
Speaker Change: Although we had some third party income coming in from that it wasn't enough to offset the cost to run and maintain that part of the plan.
Speaker Change: Not to mention running it impacted plant reliability.
Speaker Change: The higher emissions and slightly higher safety risk to operate sour gas of course.
Speaker Change: We had to shut in a small amount of our update on our production from the sour gas units. It said that part of the plan.
J.P. Lachance: But those wells produce very little NGLs, and they have higher shrinkage, so the cost to operate doesn't make economic sense, especially at today's gas price. Currently, we have four rigs running across our core areas, three in Sundance and one in Brazos. Two of those Sundance rigs are on the former Repsol land.
Speaker Change: But those wells produce very little Ngls, and they have higher shrink have higher shrinkage and the sort of cost to operate to make it doesn't make economic sense, especially at today's gas prices.
Speaker Change: Currently we have four rigs running across our core areas three in San mentioned, one in Brazil are two of those Sundance rigs around the formal repsol former Repsol land.
J.P. Lachance: We have a steady diet of non-accumulant wells for the balance of the year, along with several Dunvegan, Wilbrich, and some Flair wells that are all left on the docket here for the rest of the year. We plan to drill and complete these wells, and we may or may not bring them on production, or if we do, it'll be at restricted rates depending on where gas prices are. But at the very least, we'll use this time to evaluate the gathering system impacts, to determine devolving projects, and to build productive capability for later when we expect prices to be better.
Speaker Change: We have a steady diet of non QM wells for the balance of the year, along with several big and well rich and supplier wells are all left on the docket here for the rest of the year.
Speaker Change: Land to drill and complete these wells and we may or may not bring them on production or if we do it'll be at restricted rates, depending on where gas prices are.
Speaker Change: A very least we'll use this time to evaluate the gathering system impacts to determine debottlenecking projects and build productive capability for later, when we expect prices to be better.
J.P. Lachance: We're still planning to spend around $450 million this year at the low end of our guidance, and we're targeting year-end exit at around 135,000 BOEs a day, of course, assuming prices cooperate and the improvement there as we expect. As mentioned in the release last month, we have been providing gas to the Cascade Power Plant directly through our pipeline for some time now for testing and commission purposes.
We're still planning to spend around $450 million. This year at the low end of our guidance and we're targeting year end exit around 135000, Boe's a day of course, assuming prices cooperate and the improved momentum as we expect.
Speaker Change: As mentioned in the release and previous monthly we have been providing gas to the Cascade power plant directly through our pipeline for some time now for testing and commissioning purposes. Our contracts is expected to formally kick off year on or before September one suite.
J.P. Lachance: Our contract is expected to formally kick off here on or before September 1st. In closing, I'd like to remind everyone, we remain bullish on natural gas for the near future as demand forecasts continue to rise in North America. But is it a reliable, critical fuel for industrial use, for power generation, or just to heat our homes?
Speaker Change: In closing I'd like to.
Speaker Change: Remind everyone. We remain bullish on natural gas for the near future as demand forecasts continue to rise in North American natural gas is up.
Speaker Change: Is it reliable critical field for industrial use for power generation or just to.
J.P. Lachance: The significant LNG egress is coming online in North America in the near term, and the potential for data center expansion to meet the needs of AI is also being contemplated in many places, which should be constructive for both gas prices and, of course, our power deal. In specific, with Peyto, we've protected revenues with our low-cost focus and disciplined hedging strategy. Not only for the balance of $24M, but we have lots of gas hedged into $25M and even $26M.
Speaker Change: Heat our homes significant LNG aggressive coming online in North America in the near term.
Speaker Change: The potential for data center expansion to meet the needs of AI is also being contemplated in many places.
Speaker Change: Should be constructive for both gas prices and of course, our power deal.
Speaker Change: And youll specific to payroll.
Speaker Change: We projected revenues with our low cost focus and disciplined hedging strategy not only for the balance of 24, but we have lots of gas hedged into 'twenty five 'twenty six at prices that are at or above four.
J.P. Lachance: The prices that are at or above $4M in MCF. As I mentioned earlier, we hope prices will go even higher, but it's kind of nice to know we have that cushion in our business so we can grow modestly while we return a healthy dividend to our shareholders. Our new assets are working great. We have room to grow without large infrastructure costs to expand, so despite the current gas price environment, things are looking pretty good. So, I imagine there are some questions. I have a few coming overnight here via email, but I think we'll go to the phone first, Marvin.
Speaker Change: $4 in Mcf.
And as I mentioned earlier, we hope prices go even higher.
Speaker Change: Nice nobody had that cushioning our business so.
Speaker Change: So we can grow modestly while a return a healthy dividend to our shareholders.
Speaker Change: Our new assets are working great.
Speaker Change: Room to grow without large infrastructure cost too to.
Speaker Change: Expand so despite the current gas price environment.
Speaker Change: Pretty good.
Operator: If there are some questions, folks have queued up for some questions, we'll take those now. Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: So I imagine there are some questions you have a few come in overnight here via email, but I think we'll go to the phones first Marvin if there were some questions folks have queued up for some questions. We'll take those now.
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 Pan out towards your question. Please press star one again, please standby, while we compile the Q&A roster.
Operator: To withdraw your question, please press start one more again. Please stand by where we have compiled the Q&A roster. Our first question comes from the line of Aaron Bilkoski of TD Cowen. Your line is now open. Thanks, good morning.
Aaron Bilkoski: So my first question is, one of your deep basin producers has been seeing capital efficiency benefits as a result of using higher resolution seismic data. I guess my question is, is this something that you've been doing as well? And if not, do you see it as being an opportunity here to unlock, Sorry, Aaron, it's higher resolution seismic data. Is that what your question was? Yeah. We've always used seismic data to help guide us not only on the fluvial channel systems in the deep basin but also for structural reasons to help us understand the structural elements of the play.
Speaker Change: Our first question comes from the line of Aaron for close we have TD Cowen. Your line is now open.
Speaker Change: Thanks. Good morning. So my first question is one of your deep basin producers has been team capital efficiency benefits as a result of using high resolution seismic data I guess my question is is this something that you've been doing as well and if not do you see that being an opportunity here to a mark.
Speaker Change: Sorry, Hi, Erinn, it's high resolution seismic data is that what your question was.
Speaker Change: Yeah.
Speaker Change: We've always used a seismic data to help guide us not only on especially on the mobile channel systems entity in the deep basin, but also on <unk> for structural reasons to help us understand the structural elements elements of the plan I'm not sure that.
J.P. Lachance: I'm not sure about the high-resolution part of that equation. We've always used seismic as a tool. It's not the only tool we use. Of course, we've got lots of well control as well. We actually marry those two together to make decisions about drilling wells and to reduce risk. From our perspective, whether it's high-resolution or just typical seismic data that we use, 3D is always generally, something that we continue to employ and will aid us.
Speaker Change: I'm not sure about the high resolution part of the equation.
Speaker Change: Always use seismic as a tool it's not the only tool we use of course, we've got lots of well control as well. So we actually put marry those two together to make decisions on drilling wells to reduce risk so from our perspective.
Speaker Change: Whether it's high resolution or just typical seismic.
Aaron Bilkoski: It's not the be-all, end-all to the solution to deciding where a well is going to be drilled. Thanks, JP. Can I follow up with a slightly different question?
Speaker Change: Data that we used <unk> always.
Speaker Change: Jeremy.
Speaker Change: It's something that we continue to.
Jeremy: Employ and will aid us, but it's not the be all end also.
Jeremy: Due to the solution.
Deciding on where well it's going to be drilled for example.
Aaron Bilkoski: It seems like there is a looming rail strike that could start in the next week or so. If rail service was out for, say, a week or two, would you see that having an impact on your business in terms of frac sand availability or the ability to move liquids? Just any color you could provide would be interesting.
Speaker Change: Thanks, Jamie can follow up with a slightly different question.
Speaker Change: He is like there is a looming rail strike that could start in the next week or so if rail service was out for say a week or two do you see how do you see that having an impact on your business in terms of frac sand availability or the ability to move liquids.
Speaker Change: The color you can provide would be interesting.
J.P. Lachance: No, I don't think we see a strike, or the potential for a strike. We don't see an impact on our business. I don't think it would last very long.
Speaker Change: No I don't think we see we are aware of the strikes depending or the potential for a strike we don't see an impact on our business I don't think it with last very long and a lot of industry will be a lot of other industries that we affected one might get a little more attention for our federal government.
Speaker Change: To resolve the issues.
Speaker Change: Certainly but.
Speaker Change: No. We don't we have enough we now have enough.
Speaker Change: Products, one of the things as Ngls as a lot of Ngls move on rail.
Speaker Change: Put those into there was generally go into storage so.
J.P. Lachance: There will be a lot of other industries that are affected. One that might get a little more attention from our federal government to resolve the issue. Certainly, but no, we have enough products. One of the things is NGLs, a lot of NGLs move on rail, but we put those into storage. So, there's time to store these things. We also have storage on site for our NGL, should we give you a challenge there, but really last a long time that we'll be looking at. You know, warming up our plants and, you know, reducing propane. It's really propane that runs on rail for most of the province.
Speaker Change: There is a time there to store the things. We also have storage on site for Ngls should be a.
Speaker Change: The challenge there and it really lasts a long time that we'll be looking at.
J.P. Lachance: So I don't, we don't see an impact of a rail strike here at this time. Perfect. Thanks, Harvey.
Speaker Change: Warming up our plants.
Speaker Change: Reducing propane, it's really propane that runs on rail for the most part.
Speaker Change: So I don't we don't see an impact on our rail strike here at this time.
Speaker Change: Perfect. Thanks, guys.
Yes.
Operator: Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star 11 on your telephone. Our next question comes from the line of Chris Thompson of CIBC. Your line is now open. Hey, good morning, everyone.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Again as a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: Our next question comes from the line of Chris Thompson of CIBC. Your line is now open.
Chris Thompson: Thanks for taking my questions here. Just the first one on managing your capital and building that productive capacity. I mean, when you look back at some of your disclosures through the year thus far, it looks like you might have about nine drilled and uncompleted wells that have been added to the inventory. So, just wondering if we can talk through a bit of color on that and then, sort of, as we get closer to Q4, can you help us quantify, like, how many wells will you have sitting ready to come on production in a better price environment Hi Chris, thanks for your questions.
Chris Thompson: Hey, good morning, everyone. Thanks for taking my questions here.
Speaker Change: Just the first one on.
Speaker Change: Yes.
Speaker Change: Managing your capital.
Speaker Change: And building that productive capacity I mean, when you look.
Speaker Change: Some of your disclosure through through the year, thus far.
Speaker Change: And it looks like you might have about nine drilled and uncompleted wells that have been added to the inventory. So just wondering if you can talk to you a bit of color on that and then sort of as we get into closer to Q4.
Speaker Change: Can you help us quantify like how many wells will you have sitting ready to to come on production.
Speaker Change: In a better price environment.
J.P. Lachance: As far as managing the inventory, we have about 10 ducks right now. As far as how we manage those, I mentioned that we likely will bring them on at least at some rate. I don't see us having a large number of ducks.
Speaker Change: Hi, Chris Thanks for your questions as.
Speaker Change: As far as managing.
The inventory we have about 10 docs right now to answer your question and as far as how we manage those I mentioned that we might we likely will bring them.
Speaker Change: At some rate so.
Speaker Change: I don't see us, having a large amount of oxy there'll be more of that.
Speaker Change: We have other chokes some wells back a week shutting some other production.
J.P. Lachance: It'll be more that we have either choked some wells back, or we've shut in some other production that's probably less economical. In fact, I think we have some production right now that goes to a third party. It goes to third parties where we have a higher cost structure.
Speaker Change: That's probably less economically back I think we have some production right now it goes to a third party about <unk> eight times it goes to third parties.
Speaker Change: You have a higher cost structure so.
J.P. Lachance: It's really more about managing the existing production. The new wedge of production that comes on will likely be choked and or shut in, depending. We want to do some testing here while we've got a chance. Backout is always an issue for us because we've got a lot of legacy production that is accustomed to certain pressures in the system. We're always sensitive to seeing how wells respond to that. Wells will come on and come off. It's hard to point to a number like what that value is, but like I said, we expect to still exit this year at $135M. That's despite the fact
Speaker Change: Those are the things and so it's really more about managing the existing production the new wedge of production that comes on it will likely be choppy and we're shutting depending we want to do some testing here, while we got a chance right.
Speaker Change: And so we will do that to test the gathering backbone is always an issue for us because we've got a lot of legacy production that is a bitch weighted to certain pressures in the system. So we're always sensitive to.
Speaker Change: To see how the how.
Speaker Change: Wells respond to that and this is giving us an opportunity to get some wells will come on and come off.
Speaker Change: And so it's productive capability, we're going to build.
Speaker Change: It's hard to give us it's hard to point to a number like what is that value, but like I said, we expect to we will still exit this year at 135 in spite the fact.
J.P. Lachance: Sorry, 135,000 by the end of the year. That's despite the fact that we've actually taken out roughly 2,000 barrels plus some gas from the sour unit out of our base decline, right? Right. Okay. Yeah.
Speaker Change: Sorry.
Speaker Change: 35000 by the end of the year. That's despite the fact that we've actually taken out roughly 2000 barrels plus some gas from the salary units out of our base decline rate.
Chris Thompson: And then I guess just thinking about the shape of that profile, you've previously talked about maintaining relatively flat production through Q3. Just wondering if that's still the intention and, you know, and therefore we sort of. [inaudible] I'm new to volumes of somewhere between 50 and maybe.
Speaker Change: Right, Okay, and then I guess, just thinking about the shape of that profile you.
Speaker Change: Previously talked about maintaining.
Speaker Change: A relatively flat production through Q3.
Speaker Change: Just wondering if thats.
Speaker Change: Still the intention.
Speaker Change: And therefore, we sort of okay.
Speaker Change: New volume sort of somewhere between 50, and maybe <unk> million dollars.
Unknown Attendee: Unknown Attendee, Travis Wood, Laique Arif, Riley Frame, Tavis Carlson, Aaron Bilkoski, Yeah, so we said we were keeping production flat, and we're keeping production flat to basically minimize any exposure to the ACO slash Empress market. I always say we don't have ACO exposure. We don't we have it's mostly we can sell it at Empress market is really not has not this kind of is basically selling the same prices ACO. So we're not there's no value in that.
Speaker Change: Matt in line, so any any guidance around or around that would be helpful.
Unknown Attendee: So really, how we're managing production right now is at a state where we're going to continue to deliver obviously our hedge volumes and then anything about that. That is going to go to our diverse diversified locations, which is another 150 million if you include cascading at 160 million, so in total, sorry there. And so when you add that all of the, you know that's where we get sort of one 22 level or a current mix of gas and liquids.
Speaker Change: Yes, so what we said we were keeping production flat and we're keeping production flat to basically minimizing exposure to <unk>.
Speaker Change: So the April slash Empress market I always say, we don't have equal exposure, we don't have it.
Speaker Change: But we can tell a lot of interest, but the inference market is really not.
Speaker Change: It's not just going to basically selling the same prices vehicles. So we're not there's no value in that so really what how we are managing production right now is in a state where.
Speaker Change: We're going to continue to.
Speaker Change: Deliver obviously are hedged volumes and then anything above that is going to go to our diverse diversified locations, which is another $150 million.
J.P. Lachance: So we'll retain that roughly that level until we see prices improving, which right now is not happening. If you look at the strip, there's quite a difference between October and November. We expect those prices will, you know, will obviously come in, but there's a dollar difference. And ACO right now when you look from October to November. So October does, you know, turn out to just be a dollar. They move for the production we have up to November. Whatever it takes, right? Okay, got it. Yeah, I guess it's there, um... You know, in terms of- Historically, Peyto has always guided an exit rate. If pricing remained weak, I mean, is there?
Speaker Change: Cascade in that 160, <unk> ISO and total story, there and so when you add it all up that's where we get sort of 122 level, our current mix of gas and liquids. So we'll maintain that roughly that level.
Speaker Change: Until we see prices improve not right now if you look at the strip is quite a difference between October and November we expect those prices will largely come in but there is a dollar difference at April right. Now when you look from October to November. So October it does turn out to just be a dollar.
Speaker Change: And then we will defer that.
Speaker Change: <unk> ramp up to November whenever it takes right.
Speaker Change: Okay got it yeah, I guess is there.
Speaker Change: In terms of.
Speaker Change: Historically paid it was always guided an exit rate.
If pricing remained weak I mean is there.
J.P. Lachance: Is there a time when you'd look to update the market in terms of how you're thinking about those exit volumes? Yeah, of course. I think we will be next time we'll be on the call here if we know about it. I'll be in a likely a good time to do that if things were to fall apart as we are, so we'll go use writing. Okay, okay, and then. Just a bit of a different question here. What's the respect for cash taxes?
Speaker Change: Is there a time, where you'd look to updating the market in terms of how youre thinking about how you're thinking about those.
Speaker Change: Those exit volumes, yes.
Speaker Change: Yes of course I think we are next time will be on the call here in November it will be a likely target.
Speaker Change: <unk>.
Speaker Change: Scribing.
Speaker Change: Okay, Okay and then.
And just a bit of a different question here with respect to cash taxes.
Speaker Change: It looked like sort of your cash tax rate for Q2.
Speaker Change: Versus pre tax cash flow was quite light versus Q1.
Speaker Change: Just wondering how youre thinking about that average tax rate through through the rest of the year.
Chris Thompson: It looks like your cash tax rate for Q2 is going to be 2. Transcripts provided by Transcription Outsourcing, LLC. Hey, Chris. It's Tavis Carlson here.
Speaker Change: Hey, Chris It's Tavis Carlson.
Tavis Carlson: So we manage the current tax provision based on a year-to-date standpoint. So with the soft prices that we've seen in Q2 and the outlook for Q3, we've lowered our kind of taxable expectations for the full year. So if you look at year-to-date, we're about 10% on before tax cash flow. So that's probably the best kind of range to go at.
Speaker Change: So we manage the current tax provision based on our year to date standpoint.
Speaker Change: So with the soft prices that we've seen in Q2 and the outlook for Q3, we've lowered our taxable expectation for the full year. So if you look at year to date, we're about 10% on before tax cash flow. So that's probably the best.
Speaker Change: And arrange to go out.
Tavis Carlson: Looking forward to the rest of you now. Okay. That's helpful. Thanks, Tavis, JP, and I'll hand it back. Thank you.
Speaker Change: Looking forward progressing.
Speaker Change: Okay.
Speaker Change: That's helpful. Thanks.
Speaker Change: Thanks, Tavis J P and I will hand it back.
Operator: I'm showing no further questions at this time. I'd now like to turn it back to J.P. Lachance for a closer remark. There are a couple of questions that have come in about looking for a little more color on that Wilrich program that we mentioned in the press release that we drilled recently through the quarter. Maybe I'll get Riley to elaborate on the Wilrich results we drilled, particularly on the Repsol lands in the quarter.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to <unk> for closing remarks.
Speaker Change: Yeah. Okay couple of questions that have come in about just about no more.
Looking for a little more color on that will reach program that we mentioned in the press release that we drilled recently through the quarter. So you don't get rally to elaborate on the well results we drilled.
Speaker Change: Particularly on the Repsol lands in the quarter rally gentlemen, sure, yes, So I think.
Operator: I think some of the results we've been getting from the Repsol lands and the Wilrich are worth highlighting a bit, particularly the Sundance-Wilrich program really stands out. Over the years, we've developed the Wilrich and Sundance pretty extensively, but with these new lands, we're actually seeing some of the best results that we've actually ever achieved. We've talked about in the past how we're able to apply all the stuff that we've learned over the years, horizontal drilling, to these new lands. What we're seeing is this is a good example of applying modern wellbore design to some really premium reservoirs.
Speaker Change: Some of the results we've been getting from the Repsol land as well Richard are worth highlighting.
Speaker Change: Particularly the Sundance program really stands out.
Speaker Change: So over the years, we've developed the <unk> pretty extensively but.
Speaker Change: With these new and we're actually seeing some of the best results that we've actually ever achieved we've talked about in the past how.
Speaker Change: We're able to apply all the stuff that we've learned over the years horizontal drilling to these new lands and what we're seeing is this is a good example of applying modern Wellbore design, it's really premium reservoir in the early time results for these wells are coming in at nearly two times. The average one my result from from just several years ago, So really seeing some.
J.P. Lachance: The early-time results for these wells are coming in at nearly 2X the average 1-mile result from just several years ago, so we're really seeing some great results. The other nice thing here is that we've got a lot of inventory in this particular place, so we're really expecting to be able to continue to lean on this and drive some really great results for this core area. I have one other question here about the sweetening project.
Speaker Change: Great results in the other nice thing is we've got a lot of inventory in this particular play so.
Speaker Change: We're really expecting to be able to continue to lean on this and drive some really great results right in this core area. So.
J.P. Lachance: Maybe Todd, you could elaborate a little bit more on what are the impacts of this, maybe from the perspective of operating costs and maybe even production, a little bit of what you see from us. So, in fact, obviously, this is moving the needle toward the 10% reduction by the end of the year, and this is part of that project's non-encoded in Q2. So this is a Q3 initiative that you guys have made. We did it a little early because prices were bad and we had some, you know; it didn't make sense to continue to operate that facility.
Ranya: Okay. Thanks Ranya pillar.
Speaker Change: And I have one other question here about the Sweetening project, maybe Todd you could elaborate a little bit more on what are the impacts of this may be from our perspective, the operating cost production a little bit what you see forward from us.
J.P. Lachance: So we did accelerate it. It's maybe saving a little bit on the turnaround. So maybe you can elaborate a little bit more on this whole sweeping thing.
From an impact obviously this is this is moving the needle towards the 10% reduction.
Speaker Change: By the end of the year and this is part of that project is not included in our Q2. So this is a key three initiatives that you guys did a little early because prices were.
Speaker Change: Were bad and we had some does it make sense to continue to operate that facility. So we get accelerated its maybe savings a little bit on the turnaround. So maybe you can elaborate more on this what we think.
Speaker Change: Yes, sure so as far as the production impact it was just under 500 Boe that was.
Todd Burdick: Yeah, sure. So as far as the production impact is concerned, it was just under 1500 BOE that was shut in, the majority of that coming from the Alpine unit and then some from some well-sourced up north in the area we called Burland.
Speaker Change: Shut in.
Majority of that coming from the up in units and then some from <unk>.
Speaker Change: Well service.
Speaker Change: Up north.
Speaker Change: In the area, we call Maryland.
Speaker Change: So as far as a reduction in operating costs, where we're estimating on a.
Speaker Change: Full year, it's probably 5% reductions.
Todd Burdick: So as far as a reduction in operating costs, we're estimating on a full year. It's probably a 5% reduction. And that would equate to about three cents per MCF fee, safer, we're modeling for 2025. So some of that will manifest in Q3 and Q4. Obviously, there are some capital costs and operating costs to shut down the aiming plant, the aiming process, the sulfur process, that sort of
Speaker Change: Yes.
Okay.
Speaker Change: That would equate to about <unk> <unk> per Mcf.
Speaker Change: Safer we're modeling for 2025, so some of that will manifest in Q3 and Q4.
Obviously, there are some some capital costs and operating costs two to shutdown the plant.
Speaker Change: The amey process, the sulfur process that sort of thing there's work to be done on <unk> assets that gets sweetened.
Todd Burdick: There's work to be done on the CFGGSS that gets sweetened, and we'll be able to take some ESDs offline that actually caused quite a bit of grief last winter when it got cold, so it'll be nice to have some reliability on that. So, yes, we would expect to see kind of in the back half of the year given that, you know, the plant came down. The sour side came down in, sort of early July; we will start to see some, some operating cost reduction, for sure, that will, you know, help to get us to that 10% target.
Speaker Change: That will be able to take some.
Speaker Change: Semi ftes offline that actually caused us quite a bit of grief last winter.
Speaker Change: When it got call it will be nice to have some reliability.
Todd Burdick: It gives us good visibility that will, we're pretty confident that, you know, obviously, you've got safety costs, carbon tax will manifest itself the best next year, and high maintenance costs on some of that stuff that's not running anymore.
Speaker Change: So yes, we would expect to see kind of in the back half of the year given that.
Speaker Change: That came down on the sour side came down and.
Speaker Change: Sort of early July.
Speaker Change: We'll start to see some.
Speaker Change: Some operating cost reduction for sure that will.
Speaker Change: <unk>.
Speaker Change: Get us to that 10% target.
Speaker Change: It gives us good visibility that will work.
Speaker Change: Confident that obviously.
Speaker Change: You've got safety cost carbon tax will manifest next year, but.
Speaker Change: And high maintenance costs.
Speaker Change: Not running anymore.
Todd Burdick: Pretty confident that we'll see that'll be a good part of the reduction. Sounds great. Okay, I'm just going to turn it back to the operator here for another prompt or question. Again, as a reminder, to ask a question, you need to press star 1-1 on your telephone. I'm showing all further questions at this time, and I'd like to turn it back to J.P. LaShaunt for closing remarks. Okay, thanks everyone for tuning in.
Speaker Change: I'm pretty confident that we will see that will be a good part of the reduction.
Okay, I'm, just going to turn it back to the operator here further questions.
Speaker Change: Questions.
Speaker Change: Again as a reminder to ask a question you need to press star one what are your telephone.
Speaker Change: I'm showing no further questions at this time I would now like to turn it back to J P less than <unk> for closing remarks.
Todd Burdick: I realize it's vacation time, so some of you folks may not even be in the office these days, but I appreciate it, or you're at the cottage somewhere. So, thanks for tuning in live, and we'll talk to you again next quarter. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Okay. Thanks.
J P: Everyone for tuning in and I realize its vacation time. So some of you folks may not be even in the office. These days, but I appreciate it reopened the cottage somewhere so thanks for tuning in live.
Speaker Change: We'll talk to you again next quarter.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
[music].
Good day, and thank you for standing by.
Unknown Attendee: Welcome to the 2024 second quarter, Peyto's Financial Results, Carlson's call. At this time, all participants are listening only mode.
Unknown Attendee: At this speaker's presentation, there will be a question and answer session. To ask the question during the session, you'll need to press start 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, you press start 1-1 again.
Unknown Attendee: Please be advised that today's conference has been recorded.
Unknown Attendee: On the hand of the conference, over to your first speaker today, J.P.
J.P. Leshawns: Leshawns, President CEO, please go ahead. Thanks, Marvin. Morning, folks, and thanks for joining Peyto's second quarter conference call. I'd like to remind everybody that all statements made by the company during this call are subject to the same old disclaimer advisory set forth in the company's news release issue yesterday.
J.P. Leshawns: President, with me in to answer your questions in the room here is Rally Frame, our VP of Engineering and Chief Operating Officer, Tavis Carlson, our VP of Finance, CFO, Lee Curran, our VP of Drilling & Completions, Todd Birdick, our VP of Production, and Derek Zember, our VP of Land and Business Development. Firstly, we'd like to thank the entire Peyto team, both in the office and in the field for their strong execution this past quarter.
J.P. Leshawns: And it was a strong quarter for Peyto despite very low gas prices. In fact, the lowest we've seen since 2019 at ACO anyway. We still managed to generate $155 million of funds from operations and $51 million of earnings. In large part due to our systematic hedging program, which realized 68 million in gains along with our industry leading low cash costs. And a reminder that our mechanistic hedging program is designed to de-risk and smooth out prices and give us predictable revenues so we can provide confidence around our capital program, manage the balance sheet, and pay a shareholder's dividend.
J.P. Leshawns: Ideally, we'd be out of the money on our hedges, but this approach today has accumulated over $350 million in hedge gains since we started. And at the other point I would like to point out about the quarter is that I think Peyto's operating margin is 62% with these low gas price screens very well as compared to our competitors. It's a testament to how we run the business.
J.P. Leshawns: So let's talk a bit about drilling program. We completed another string of very long laterals in the second quarter, mostly Wilberidge across different areas and greater segments in our core brazo area. The average lateral lengths of these wells drilled in the program were just over 2,300 meters, which I think is another record for the size of the program from a quarterly program perspective. We were set up on three well pads for the most part through Q2 during what was typically what was a typical wet season to spring break up.
J.P. Leshawns: And of course, that minimizes moving equipment around and slogging through the mud. Obviously, that slows down our on-stream timing, but it certainly helps to keep and even drive costs down as we saw overall improvements in our average cost per meter on both drilling and completion operations this past quarter. We continue to be excited about the drilling results and the newly acquired rep saw lands. We had 21 wells on stream to the end of Q2 with an up history that shows us sustained 30% increase of average well productivity as compared to the performance of recent legacy programs.
J.P. Leshawns: These wells were drilled in the will rich, the flair, the not-acquien, and the reveal over a large portion of the rep saw land base. And that's important because it provides this competence that isn't just one species that's outperforming, but the good results are coming over a wider area and up and down the strata. The other thing that's important here is that the cost to attain these outcomes are similar to or even slightly cheaper than what we're currently spending on our legacy lands.
J.P. Leshawns: You know, since we're using the same well-designed to drilling complete them. Cash costs for the quarter were $1.50 per MCFee, or $1.24 per MCFee, excluding royalties. We had an annual GCA adjustment to our royalties on the rep saw last this past quarter that inflated our cost by about $0.5 per MCFee. Going forward, we expect our royalty rates to be around 78% on a pre- hedged sales revenue basis, or if you include the revenue from our hedge game, our royalty rate is more like 5% to 6% since, of course, we pay royalties based on our reference prices, and not our hedge book.
J.P. Leshawns: The bill continues to have a lowest cash cost in the business, and one of ice margins. But despite the fact that we have a lowest cash cost, we still endeavor to improve. We set a goal last quarter to reduce our operating expenses by 10% per MCFee by the end of this year. We're pleased that we are basically on target with that goal, having reduced 5% in the second quarter already. Part of that game was the redirection of gas volumes from a third-party deep cut facility, where we used to extract both value-ethane as liquid.
J.P. Leshawns: Then we moved that over to our own and operated ends and gas plant through the central foothills gas gathering system. Then we had to give up about 2,000 barrels a day of NGL liquid by selling that ethane back in the gas space. But the value we realized was essentially no different, and we were saving third-party fees, and increasing the plant utilization at the ends and gas plant. And I think this is a good example of the way we look at the business, the way we run the business. It's about making money, about beer weeks.
J.P. Leshawns: Along the same vein, we recently shut down the sour gas sweetening site of the Edson gas plant. Although we had some third-party income coming in from that, it wasn't enough to offset the cost to run and maintain that part of the plant. We're not to mention running these impacted plant reliability, higher emissions, and slightly higher safety risks to operate sour gas, of course. We had to shut in a small amount of our ophthalene production from the sour gas unit that fed that part of the plant. But those wells produce very little NGLs and they have higher shrinkage, and so the cost to operate doesn't make economic sense, especially at today's gas crisis.
J.P. Leshawns: Currently, we have four rigs running across our four areas, three in Sundance and one in Brazil. Two of those Sundance rigs are on the formal reps all land. We have a steady diet of non-cune wells for the balance of the year, along with several d'unvagan, Wilberts, and some flare wells. They're all left on the docket here for the rest of the year. We plan to drill and complete these wells, and we may or may not bring them on production, or if we do, it'll be at restricted rates, depending on where gas prices are.
J.P. Leshawns: But at the very least, we'll use this time to evaluate the gathering system impacts to determine devolving projects and build productive capability for later when we expect prices to be better. We're still planning to spend around $450 million this year at the low end of our guidance, and we're targeting year end exit around $135,000 views a day. Of course, assuming prices cooperate and the improvement there as we expect.
J.P. Leshawns: As mentioned in the release in previous monthly, we have been providing gas to the Cascade Power Plant directly through our pipeline for some time now for testing and commissioning purposes. Our contract is expected to formally kick off here on or before September 1st, so soon.
J.P. Leshawns: In closing, I'd like to remind everyone we remain bullish on natural gas for the near future as demand forecasts continue to rise in North America and natural gas is a reliable critical field for industrial use, for power generation or to heat our homes. Significant LNG address is coming online in North America in the near term, and you know, in a potential for data center expansion to meet the needs of AI is also being contemplated in many places that should be constructed for both gas prices and, of course, our power deal.
J.P. Leshawns: And you know, specifically to pay the bill, we've protected revenues with our low cost focus and discipline hedging for strategy. Not only for the balance of 24, but we have lots of gas hits from to 25, even 26, the prices that are at or above $4 an MCF. As I mentioned earlier, we hope prices will even higher, but it's kind of nice to know we have that question in our business, so we can grow modestly while we return a healthy dividend to our shareholders. New assets are working great. We have room to grow without large infrastructure costs to expand. So despite the current gas price environment, things will look pretty good.
J.P. Leshawns: So I imagine there's some questions. I have a few coming overnight here via email, but I think we'll go to the phones first, Marvin. If there's some questions, folks have queued up for some questions. We'll take those now. Thank you.
Unknown Attendee: At this time, we'll conduct the question answer session. As a minor to ask a question, you need to press start one one or telephone and wait for your name to be announced. To withdraw your question, please press start one one again. Please stand by where we compiled the Q&A roster.
Aaron Pregoski: Our first question comes from the line of Aaron Pregoski of TD Cowan. Your line is now open. Thanks. Good morning. So my first question is, one of your deep faith in producers has been seeing capital efficiency benefits as a result of using higher resolution seismic data. I guess my question is, is it something that you've been doing as well? And if not, do you see the being opportunity here to unlock? Sorry, I heard it's a higher resolution seismic data.
Aaron Pregoski: Is that what your question was? Yeah. We've always used seismic data to help guide us not only on, you know, especially on the fluvial channel systems and at the end of the deep basin, but also on structural reasons to help us understand structural elements elements of the plan. I'm not sure that I'm not sure about the high resolution part of that equation that we've always used seismic as a tool. It's not the only tool we use.
Aaron Pregoski: Of course, we've got lots of well control as well. So we actually put married those two together to make decisions on drilling wells to reduce risk. So from our perspective, you know, whether it's high resolution or just typical seismic data that we use 3D, always generally, is something that we continue to employ. And we'll sort of aid us, but it's not the be all end all to the solution to, you know, making deciding where a well is going to be drilled for. Thanks, David.
Unknown Attendee: I'll open the slightly different question.
Unknown Attendee: It seems like there is a looming rail strike that could start in the next week or so. If a real service was out for say a week or two, do you see that having an impact on your business in terms of frax and availability or the ability to move liquids just any color you could provide would be interesting. No, I don't think we see we were aware of the strike depending on the potential for a strike.
Unknown Attendee: We don't see an impact on our business. I don't think it would last very long. A lot of industry will be a lot of other industries that we affected, one that might get a little more attention from our federal government to ours to resolve the issue. Certainly, but no, we have enough products. One of the things is NGL is a lot of NGLs move on rail, but we put those into. There was generally going to storage and so there's time there to store these things.
Unknown Attendee: We also have storage on site for our NGL. NGL should be a challenge in there and it really lasts a long time that we would be looking at warming up our plants and reducing propane. It's really propane that runs on rail for the most part of the province, so I don't we don't see an impact on a rail strike here at this time.
Unknown Attendee: Perfect, thank you. Thank you, one moment for our next question.
Unknown Attendee: Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone.
Chris Thompson: Our next question comes online for Chris Thompson of CIBC. Your line is now open. Hey, good morning, everyone. Thanks for taking my questions here. Just the first one on managing your capital and building that productive capacity. I mean, when you look back at some of your disclosure through the year thus far, it looked like you might have about nine drilled and uncompleted wells have been added to the inventory. Just wondering if we can talk through a bit of color on that and then sort of as we get into closer to Q4, can you help us quantify how many wells will you have sitting ready to come on production in a better price environment?
Chris Thompson: Yeah, hi, Chris. Thanks for your questions. As far as managing the inventory, we have about 10 docs right now to answer your question. And as far as how we manage those, I mentioned that we likely will bring them on at least at some rate, so I don't see it having a large amount of docs. It'll be more that we have we have other tropes and wells back and we've shut in some other production.
Chris Thompson: That's probably less economic. In fact, I think we have some production right now. It goes to a third priority about 500 views a day. It goes to third parties where we hire higher cost structures. So, you know, those are the things. And so it's really more about managing the existing production, the new wedge of production that comes on will likely be choked. And we're shut in depending. We want to do some testing here while we got the chance, right.
Chris Thompson: And so we'll do that to check to test the gap. You know, back out is always an issue for us because we've got a lot of legacy production is it is a situated to certain pressures in the system. So we're always sensitive to to to see how how wells respond to that and this is giving us an opportunity to do that. So wells will come on and come off. And so this productive capability we're going to build.
Chris Thompson: You know, it's hard to give us it's harder point to a number like what is that value, but you know, like I said, we expect to we will still exit this year at 135. And that's despite the fact, sorry, 135,000, but in the year that's despite the fact that we've actually taken out, you know, roughly 2000 barrels plus some gas from the sour unit out of our base decline, right. Right. Okay.
Chris Thompson: Yeah. And then I guess just thinking about the shape of that profile, you've previously talked about maintaining, you know, relatively a lot of production through Q3. Just wondering if that's, that's still the intention and, you know, and, and therefore we sort of knew that volumes are somewhere between 50 and maybe even million. So any, any guidance around or that would be helpful. Yeah. So we said we were keeping production flat and we're keeping production flat to basically minimize any exposure to, to the echo slash Empress market.
Chris Thompson: I always say we don't have echo exposure. We don't have, it's mostly, we can sell out an Empress but the Empress market is really not, has not this kind of is basically something the same price is a go. So we're not there's no value in that. So really what how we're managing production right now is that at a state where we're going to continue to deliver obviously our hedge volumes and then anything about that is going to go to our diverse diversified locations, which is another 150 million.
Chris Thompson: If you include Cascade and that 160 million, so in total sorry there. And so when you add that all of the, you know, that's where we get sort of one 22 level or current mix of gas and liquids. So we'll maintain that roughly that level until we see prices improve and that right now if you look at the strip, there's quite a difference between October and November, we expect those prices will, you know, will obviously come in but there's a dollar difference a day go right now.
Chris Thompson: When you look from October November, so October does, you know, turn out to just be a dollar, you know, they move the production wrap up to November, whatever it takes, right. Okay, got it. Yeah, I guess is there, you know, in terms of historically paid was always guided an exit rate. If pricing remained weak, I mean, is there, is there a time where you'd look to updating the market in terms of how you're thinking about how you're thinking about those exit volumes.
Chris Thompson: Yeah, of course, I think we are next time we'll be on the call here, if we don't remember it, I'll be like we're trying to do that if things were to fall apart as we're, so we'll be describing. Okay, okay, and then just a bit of a different question here with respect to cash taxes. It looked like sorry, your cash tax rate for Q2 versus pre-tax cash flow was quite light versus Q1. Just wondering how you're thinking about that average tax rate through the rest of the year.
Tavis Carlson: Hey, Griffiths, Travis Carlson here. So we managed the current tax provision based on a year-to-date standpoint. So with the soft prices that we've seen in Q2 and the outlook for Q3, we've lowered our kind of taxable expectations for the full year. So if you look at a year-to-date, we're about 10% on before tax cash flow, so that's probably the best and a range to go at. Looking forward to the rest of the year.
Unknown Attendee: Okay, that's helpful. Thanks, Travis, JP, and I'll hand it back. Thank you.
Unknown Attendee: I'm showing all further questions at this time.
J.P. Leshawns: I'll not turn it back to JP Lichens for close remarks. Yeah, okay, I think there were just a couple questions to have come in about just a little more, looking for a little more color on that Will Ridge program that we mentioned in the press release that we drilled recently through the quarter. So you don't get Riley to elaborate on the Will Ridge results. We drilled particularly on the reps all lands in the quarter.
J.P. Leshawns: Riley, do you want to? Sure, yeah. So I think some of the results we've been getting from the reps all lands with Will Ridge are worth highlighting a bit. Particularly the Sundance Will Ridge program really stands out. You know, so over the years, we've developed the Will Ridge and Sundance pretty extensively, but with these new lands, we're actually seeing some of the best results that we've actually ever achieved. We've talked about in the past how we're able to apply all the stuff that we've learned over the years, horizontal drilling to these new lands, and what we're seeing is this is a good example of applying modern well-board design to some really premium reservoir and the early time results for these wells are coming in at nearly two times the average one mile result from just several years ago.
J.P. Leshawns: So really seeing some great results. And the other nice thing here is we've got a lot of inventory in this particular place. So, you know, we're really expecting to be able to continue to lean on this and drive some really great results through it and pay those core areas. So. Okay, thanks for early. Yeah, good color.
Todd Burdick: And I have one other question here about the sweetening project. Maybe Todd, you could elaborate a little bit more on what, what are the impacts of this? Maybe from a perspective of operating costs and maybe production a little bit of what you see from a product. So an impact. Obviously, this is this is moving the needle toward the 10% reduction, you know, by the end of the year. And this is part of that project's non-encoder direct Q2.
Todd Burdick: So this is on Q3 initiative that you guys have, we did a little early because prices were we're bad and we had some, you know, it didn't make sense to continue to operate that facility. At least we did accelerate it. It's maybe savings a little bit on the turn around. So maybe you can elaborate was it more or less whole sweetening what we've done. Yeah, sure. So as far as the production impact, it was just under 1500 B.O.E, that was shut in.
Todd Burdick: Majority of that coming from the Alpine unit and then some from some well sort of up north in the in the area we call Berlin. So as far as a reduction in operating costs, we're estimating on a full year. It's probably 5% reduction. And that would equate to about three cents per MCF fee safer. We're modeling for 2025. So some of that will manifest in Q3 and Q4. Obviously, there's some some capital costs and operating costs to to shut down the aiming plant.
Todd Burdick: The aiming process, the sulfur process, that sort of thing. There's work to be done on the CFGGS and that gets sweetened. We'll have to we'll be able to take some some ESDs offline that actually caused that's quite a bit of grief last winter. What it got cold, so it'll be nice to have some reliability on that. So yes, we would expect to see kind of in the back half of the year given that, you know, the plant came down.
Todd Burdick: The sour side came down in sort of early July that will start to see some some operating costs reduction for sure that will, you know, help to get us to that 10% target. It gives us good visibility that will we're pretty confident that, you know, obviously, you've got safety costs. Carbon tax will manifest next year, but and high maintenance costs on some of that stuff that's not running anymore. So, it's pretty confident that we'll see if that'll be a good part of the reduction.
Todd Burdick: That sounds great. Okay, I'm just going to turn it back to the operator here for another round of questions. Again, as a reminder to ask the question, you need to press star one or one on your telephone. I'm showing you all further questions at this time.
J.P. Leshawns: I would now like to turn it back to J.P.
J.P. Leshawns: Let's ask for closer remarks. Okay, thanks, thanks everyone for tuning in. I realize it's vacation time. So some of you folks may not be even in the office these days, but I appreciate it or you're off the cottage somewhere. So thanks for tuning in live and we'll talk to you again next quarter. Thank you for your participation in today's conference.
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