Q2 2024 Northern Oil and Gas Inc Earnings Call
Operator: Greetings and welcome to the NLG Second Quarter 2024 Earnings Conference. At this time, all participants are in a listen-only mode; a question-and-answer session will follow the formal presentation. And if you have a question at that time, please press star 1 on your telephone keypad.
Speaker Change: Greetings and welcome to the NOG's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.
Speaker Change: The question and answer session will follow the formal presentation, and if you have a question at that time, please press star 1 on your telephone keypad.
Operator: As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Evelyn Infurna, Vice President, Investor Relations. You may begin. Good morning.
Evelyn Leon Infurna: As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Evelyn Infurna, Vice President, Investor Relations. Thank you. You may begin.
Evelyn Leon Infurna: Welcome to NOG's second quarter earnings conference call. Yesterday, after the market closed, we released our financial results for the second quarter. You can access our earnings release and presentation on our investor relations website at NOGinc.com, and our thank you letter will be filed with the SEC within the next few days. I'm joined this morning by our Chief Executive Officer, Nico Grady, our President, Adam Dirlam, our Chief Financial Officer, Chad Allen, and our Chief Technical Officer, Jim Evans.
Evelyn Leon Infurna: Good morning.
Evelyn Leon Infurna: Welcome to NOG's second quarter earnings conference call.
Evelyn Leon Infurna: Yesterday, after the market closed, we released our financial results for the second quarter. You can access our earnings release and presentation on our investor relations website at NOGinc.com. And our thank you will be filed with the SEC within the next few days.
Speaker Change: I'm joined this morning by our Chief Executive Officer, Nico Grady, our President, Adam Dirlam, our Chief Financial Officer, Chad Allen, and our Chief Technical Officer, Jim Evans.
Evelyn Leon Infurna: Our agenda for today's call is as follows. I will give remarks on the quarter and on our recent accomplishments. Then Adam will give you an overview of operations and business development activities, and Chad will review our financial results and provide walkthrough updates to our 2024 guidance. Before we begin, let me cover our safe harbor language.
Speaker Change: Nick will provide remarks on the quarter and on our recent accomplishments. Then Adam will give you an overview of operations and business development activities. And Chad will review our financial results and walk through updates to our 2024 guidance.
Evelyn Leon Infurna: Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of this private security litigation or format. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward-looking statements. Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these folder booking statements.
Speaker Change: These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward-looking statements.
Speaker Change: We disclaim any obligations to update these folder booking statements.
Evelyn Leon Infurna: During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and free cash flow. Reconciliations of these measures to the closest GAAP measure can be found in our earnings release. With that, I'll turn the call over to Nick. Thanks, Evelyn. Good morning, everyone.
Speaker Change: During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and free cash flow.
Nick: And thank you for your interest in our company. I'm going to change things up this order by answering five key questions. Number one.
Speaker Change: Thanks, Evelyn. Welcome and good morning, everyone, and thank you for your interest in our company.
Nick: So how's it been going? On our fourth quarter call, and several before that, I have spoken about the importance of delivering growth and profitability over time. I'd like to use that framework once again and put the results from the second quarter into context. Our second quarter adjusted EBITDA was up 31% year over year and 52% versus two years ago. Our quarterly cash flow from operations, excluding working capital, was up 33% year-over-year and about 48% versus two years ago.
Speaker Change: On our fourth quarter call, and several before that, I have spoken about the importance of delivering growth and profitability over time. I'd like to use that framework once again and put the results from the second quarter into context.
Speaker Change: Our second quarter adjusted EBITDA was up 31% year-over-year and 52% versus two years ago. Our quarterly cash flow from operations excluding working capital was up 33% year-over-year and about 48% versus two years ago.
Nick: We achieved outsized growth per share despite commodity prices that fluctuate. Oil prices were a bit higher and gas prices a bit lower than a year ago, but two years ago, oil prices were over $20 higher, and gas prices were more triple the current price.
Nick: Even more impressive is the fact that despite our growth in a volatile commodity price environment, our LQA debt ratios have stayed in check in the low 1.1 range. This range is actually lower than a year ago, so in summary, our per share metrics continue to rise throughout the cycle, supported by a low leveraged and strong balance sheet. While growth is important, returns and capital efficiency are paramount. Our return on capital this quarter was approximately 25%.
Nick: Impressive when taking into account the step-up in capitalization we experience every time we make a significant acquisition. In the last year, our return on capital employed was over 28%. That was 14% higher than the average of our 16 company peer set and, for business context, double that of the average public non-operators in our peer set.
Nick: Within our broader peer set, it shows that our business model allows for superior capital allocation. But I bring up other non-operators to show that from a managerial and asset perspective, we're also doing it better than others within our own niche. Our company continues to be focused on the same simple philosophy, finding ways to sustainably grow profits per share through the cycle and over time for our investors. We believe that is the path to driving long-term share price outperformance.
Nick: While oil and gas prices go through cycles that can and will affect our profits, again, this is our job, and we will find ways to grow the business through such times. With our assets performing well, solid organic growth in the pipeline, and recently announced acquisitions, our business is poised to grow profits and cash flow further. Number two.
Nick: So what does that mean for you? We haven't even closed on our XCL or point transactions, but based on where the business is year to date and our confidence in the outlook, we will be recommending a mid-year bump to the dividend. Additionally, we've been active in the first half repurchasing shares and have renewed our share repurchase plan. We are very discerning about when we repurchase shares and have a track record of entering the market during periods of value compression and when we believe the market has understated our growth potential.
Speaker Change: Number two so what does that mean for you we haven't even closed on our <unk>, our <unk> transactions, but based on where the businesses year to date and our confidence in the outlook, we will be recommending a midyear bump to the dividend.
Speaker Change: Additionally, we have been active in the first half repurchasing shares and have renewed our share repurchase plan.
Speaker Change: We are very discerning about when we repurchase shares and have had a track record of entering the market during periods of value compression and when we believe the market has understated our growth potential.
Nick: And hence, we've had the opportunity in the first half of 2024. We prioritize that over dividend growth in the short term, but that won't always be the case, as our increased recommendation should also show our investors. Let me be explicitly clear.
Speaker Change: And hence we have had the opportunity in the first half of 2024.
Speaker Change: We prioritize that over dividend growth in the short term, but that won't always be the case as our increased recommendation should also show our investors.
Nick: We believe there is additional capacity for growth, either in dividends or in future buyback capacity, but we are also remaining conservative and dedicated to managing leverage carefully, as we have done meticulously over the past six plus years. We will sit down with the board during our regular review in Q125 to discuss a further increase in the dividend, additional buyback capacity, and obviously ensuring that our balance sheet remains strong and is on a path to getting stronger after the outlay of the capital for the Point and FCL acquisition. Number three. What's behind the Uintas?
Speaker Change: Let me be explicitly clear we believe there is additional capacity for growth either in dividends or in future buyback capacity, but we are also remaining conservative and dedicated to managing leverage carefully as we have done meticulously over the past six plus years.
Speaker Change: We'll sit down with the board during our regular review and Q1 'twenty five to discuss our further increase to the dividend additional buyback capacity and obviously, ensuring that our balance sheet remains strong and is on a path to getting stronger after the outlay of capital for the point and <unk> acquisitions.
Speaker Change: Number three.
Speaker Change: What's behind the Uinta.
Nick: In June, we announced our largest transaction ever, the co-purchase of XCO resources' Uintah Basin assets with SM Energy. For many investors, Uintah is less well known than the Marquee Shale. In the past four years, however, it's been amongst the fastest growing oil plays in the country. I won't mince words when I say that, personally, I have never been more excited about a transaction during my tenure here at NOG. The benefits of this asset will pay huge dividends for our investors over the next decade. The facts are simple.
Speaker Change: In June we announced our largest transaction ever co purchase of SCO resources, Uinta basin assets with SM energy.
Speaker Change: For many investors the Uinta is less well known in the marquee shale place.
Speaker Change: In the past four years, however, its been amongst the fastest growing oil plays in the country.
Speaker Change: I won't mince words, when I say that personally I have never been more excited about the transaction during my tenure here at NRG.
Speaker Change: The benefits of this asset will pay huge dividends for our investors over the next decade.
Nick: You have a multi-stacked pay asset where, unlike the Permian, much of the exploration was not allocated value in our acquisition, providing upside for our investors, even if many of these benches have been proven out by other operators. When planning with SM, we put forth very conservative cost spacing and pricing assumptions. The economics of the wells are very similar and competitive with those in the Delaware Basin in terms of productivity, but with a cost structure of Midland Wells and an extremely high oil cut with high-quality crude that is exceptionally valuable.
Speaker Change: The facts are simple.
Speaker Change: Do you have a multi stacked pay asset where unlike the Permian much of the exploration was not allocated value in our acquisition, providing upside for our investors even as many of these mentioned have been proven out by other operators.
Speaker Change: When planning with SM, we put forth very conservative cost spacing and pricing assumptions.
Speaker Change: The economics of the wells are very similar and competitive with those in the Delaware basin in terms of productivity, but with the cost structure of Midland Wells and extremely high oil cut with high quality crude that is exceptionally valuable.
Speaker Change: And while the one knock on the play is the higher cost of oil takeaway.
Nick: And while the one knock on the play is the higher cost of oil takeaway, the logistical changes that have taken place over the past few years are less well known. Whereas once the oil was captured by a handful of local refiners, there is now easily expandable rail capacity to take oil away from the basins of the Gulf Coast, where the crude is in high demand. Over the longer term, we believe project by project, there will be ways to cut the transport costs further as well. Even when accounting for the higher transport costs, the economics compete favorably with anything in our portfolio.
Speaker Change: Logistical changes that have taken place over the past few years are less well known.
Speaker Change: Whereas once the oil was captive to a handful of local refiners. There is now easily expandable rail capacity to take oil away from the basin to the Gulf Coast, where the crude is in high demand.
Speaker Change: Over the longer term, we believe project by project, there will be ways to cut the transport costs further as well.
Speaker Change: Even when accounting for the higher transport costs, the economics compete favorably with anything in our portfolio and over the next several years I think our investors will come to appreciate this asset more and more and we believe it will pay dividends in the years to come both figuratively and literally.
Nick: And over the next several years, I think our investors will come to appreciate this asset more and more. And we believe it will pay dividends in the years to come, both figuratively and literally. Number four, how's the future looking?
Speaker Change: Number four how does the future looking.
Nick: We find the business in the catbird seat as we hit midyear. We have come through some of the heaviest spend periods over the past few quarters, which has required some patience from our investors. And as you see in the results today, that's converting into significant free cash flow now. Our balance sheet debt ratios are ahead of schedule, and more than half of Q2's turn in line activity will actually have more impact on Q3 volumes, so we see a very strong outlook for the base business as the year progresses, even as our capital commitments stabilize. Organic activity on our acreage has also been very healthy.
Speaker Change: We find the business and the Cat bird feed as we hit mid year, we've come through some of the heaviest spend periods over the past few quarters, which has required some patience from our investors and as you see in our results today, that's converting into significant free cash flow now.
Speaker Change: Our balance sheet debt ratios are ahead of schedule and more than half of Q2's turn in line activity will actually have more impact on Q3 volumes. So we see a very strong outlook for the base business as the year progresses, even as our capital commitments stabilize.
Speaker Change: Organic activity on our acreage has also been very healthy and as you've seen we've had success in all facets of our business, including the ground game and significant bolt ons.
Nick: And as you've seen, we've had success in all facets of our business, including the ground game and significant bulldog. We're seeing a renaissance of sorts in the Williston with longer laterals and a notable increase in refract activity as operators are finding ways to maintain and even grow our legacy base. In 2023, we raised equity without announcing an acquisition for the first time in my tenure here at NOG, something we didn't take lightly.
Speaker Change: We're seeing a renaissance of sorts in the Williston with longer laterals and a notable increase in re frac activity as operators are finding ways to maintain and even grow in our legacy basin.
Speaker Change: In 2023, we raised equity without announcing an acquisition for the first time in my tenure here at NRG, something we didn't take lightly.
Nick: In marketing our offering, I told investors that quote we were getting ahead of the opportunities in front of us and believed it set the stage for over $1 billion worth of acquisitions on a balance sheet in just the next year. Here we are, nine months later, and we have deployed $900 million through two Delaware transactions, one Utica transaction, and our marquee went to Utica. Our balance sheet remains in great shape.
Speaker Change: In marketing our offering I told investors that we were getting ahead of the opportunities in front of us and believe it sets the stage for over $1 billion worth of acquisitions on our balance sheet in just the next year here.
Speaker Change: Here, we are nine months later, and we have deployed $900 million through two Delaware transactions, one Utica transaction and our marquee went to transaction our balance sheet.
Speaker Change: <unk> remains in great shape, and we still have capacity within our framework to do more if the right opportunity arises.
Nick: And we still have capacity within our framework to do more if the right opportunity arises. We are people that believe in doing what we say, and when we raise that capital, first of all, we believe we have the opportunity set to put it to good work. And secondly, we wanted to be in a position to deliver accretive growth to our investors on the other side. And I'm proud to say I believe we've done just that.
Speaker Change: We are people that believe in doing what we say and we when we raised that capital first of all we believe we have the opportunity to put it to good work and secondly, we wanted to be in a position to deliver accretive growth to our investors on the other side and I am proud to say I believe we've done just that.
Speaker Change: These transactions combined with our other organic projects have us poised for a year over year per share growth in 2024 and in 2025, regardless of the commodity strip something few companies can match in this space.
Nick: These transactions, combined with our other organic projects, have us poised for year over year per share growth in 2024 and in 2025, regardless of the quantity strip, something few companies can match in this space. Number five.
Speaker Change: Number five.
Nick: So what's next? In an era of substantial industry consolidation, we've been at the forefront of the trend in our niche. And what we've created in just the past few years is incredibly valuable, and not always fully appreciated by our investors. An example would be EQT's recent non-operated asset sale in Appalachia.
Speaker Change: So what's next.
Speaker Change: In an era of substantial industry consolidation, we've been at the forefront of the trend in our niche and what we've created in just the past few years is incredibly valuable and not always fully appreciated by our investors and.
Speaker Change: An example would be Eqt's recent non operated asset sale in Appalachian.
Nick: It implies a three to five times or even greater value for what we purchased in the Marcellus just a few short years ago. We're proud of what we've accomplished. We believe we've been superior capital allocators and ahead of the curve in terms of strategy. But, as I mentioned earlier this year, we also believe the best is yet to come. People then ask us, what is the end game? As a fiduciary, we don't get to answer that question. There is no end.
Speaker Change: It implies a three to five times or even greater value for what we purchased in the Marcellus just a few short years ago.
Speaker Change: We're proud of what we've accomplished we believe we've been superior capital Allocators and been ahead of the curve in terms of strategy.
Speaker Change: But as I mentioned earlier this year. We also believe the best is yet to come.
Speaker Change: People, then ask US what is the endgame.
Speaker Change: As a fiduciary we don't get to answer that question. There is no and our goal is to never stopped growing our profits and ultimately the value of the stock for you <unk>.
Nick: Our goal is to never stop growing our profits and ultimately the value of the stock for you. Maximizing value is the main goal, but that can be achieved. That's how our board motivates us, and that's how we're aligned. From a competitive landscape, we would continue to reiterate what we have said ad nauseam quarter after quarter, which is that scale begets scale, and that we stand on our own. Basic business rules apply in our line of work.
Speaker Change: Maximizing value is the main goal however that can be achieved that's how our board motivates us and that's how we're aligned from a competitive landscape. We would continue to reiterate what we have said AD nauseum quarter after quarter, which set scale begets scale and that we stand on our own base.
Speaker Change: Basic business rules apply in our line of work barriers to entry are real and those focused on small deals on small assets with small capital commitments face significant competition, but the transactions you have seen us participating in the creative complex and customized solutions are largely those where we simply stand alone.
Nick: Barriers to entry are real, and those focused on small deals, on small assets with small capital commitments face significant competition. But the transactions you have seen us participating in, the creative, complex, and customized solutions, are largely those where we simply stand alone.
Speaker Change: And those ones, where return potential is much higher long term upside with our operating partners is higher and where youll see us focus our efforts in the long term to the benefit of our stakeholders.
Nick: And those ones where return potential is much higher, where the long-term upside with our operating partners is higher, and where you'll see us focus our efforts in the long term to the benefit of our stakeholders. That concludes my prepared remarks, so I'll close out, as I always do, by thanking the NOG engineering, land, BD, finance, and planning teams, and everyone else on board, our investors and covering analysts for listening, and our operators and partners for all the hard work they do in the field. We will hit the mid year 2024 in great shape.
Speaker Change: That concludes my prepared remarks, so I'll close out as I always do by thanking energy engineering land, BD finance and planning teams and everyone else on board, our investors and covering analysts for listening and our operators and partners for all the hard work they do in the field.
Adam: And as always, our team is laser focused on delivering optimal total return. That's because we're a company run by investors for investors. With that, I'll turn it over to Adam. Thanks, Nick.
Speaker Change: We had mid year 2024 in great shape.
Speaker Change: And as always our team is laser focused on delivering optimal total return that's because we're a company run by investors for investors with that I'll turn it over to Adam.
Adam Dirlam: Thanks, Nick.
Adam: As usual, I will kick things off with a review of our operational highlights and then turn to our business development efforts and the current M&A landscape. During the second quarter, we saw production increase to over 123,000 DOE per day, driven by steady turn-in-line activity and some increased permanent Utica and Marcellus activity. We turned in 30.1 net wells, with the Permian making up more than two-thirds of the activity during the quarter.
Adam Dirlam: As usual I'll kick things off with a review of our operational highlights and then turn to our business development efforts on the current M&A landscape.
Adam Dirlam: During the second quarter, we saw production increase to over 123000.
Adam Dirlam: <unk> per day, driven by steady turn in line activity and some increased Permian Utica and Marcellus activity.
Adam Dirlam: We turned in line 31, net wells with the Permian, making up more than two thirds of the activity during the quarter.
Speaker Change: The most important comment I would make in terms of Q2 tools is that over half of them occurred in the month of June and the <unk>.
Adam: The most important comment I would make in terms of Q2 earnings is that over half of them occurred in the month of June, and the bulk of those wells were cleaning up and contributed very little to volume. They will have a much larger impact on Q3 oil and total volumes, and this bodes very well as we continue on track through the year. Thus far in 2024, we have seen steady activity, including robust organic activity, increased withdrawal proposals, and continued production momentum from our various JV projects as a significant portion of the capital redeployed in the past nine months converts into sales.
Speaker Change: Bulk of those wells were cleaning and contributed very little to volumes.
Speaker Change: It will have a much larger impact on Q3 oil and total volumes and this bodes very well as we continue on track through the year.
Speaker Change: Thus far in 2024, we have seen steady activity, including robust organic activity increased refresh proposals and continued production momentum from our various JV projects as a significant portion of the capital we've deployed in the past nine months converts.
Speaker Change: <unk> sales.
Speaker Change: Overall, we expect a relatively consistent cadence in terms of sales for the balance of 2024, though Q3 will likely be lower because of the pull forward late in Q2.
Adam: Overall, we expect a relatively consistent cadence in terms of tills for the balance of 2024, though Q3 will likely be lower because of the pull-forward late in Q2. This will not have an effect on production as many of those wells are still rampant.
Speaker Change: This will not have an effect on production as many of those wells are still ramping.
Adam: We see robust activity in Q4, both in terms of tills and additional refract AFVs in the Williston. In the second quarter, we consented to another 16.7 net wells, a 46% increase from Q1 on a net basis and a 20% increase on a gross basis, with 197 total consents. This points out that we saw a larger average working interest in Q2 as well as in proposals, almost doubling the average working interest from Q1. Economics remains strong as we consented to 94% of our oil proposals on a net basis while we continue to manage the portfolio, non-consenting those that do not meet our hurdle rate requirements.
Speaker Change: We see robust activity in Q4, both in terms of the pills and additional <unk> in the Williston.
Speaker Change: In the second quarter, where consensus to another 16, seven net wells a 46% increase from Q1 on a net basis and a 20% increase on a gross basis with 197 total concerns.
Speaker Change: This points out that we saw larger average working interest in Q2 as well proposals almost doubling the average working interest for Q1.
Speaker Change: Economics remained strong as we consented to the 94% of our well proposals on a net basis, while we continue to manage the portfolio non consenting those that do not meet our hurdle rate requirements.
Speaker Change: It's worth noting that the working interest average and our non consents as roughly half that.
Adam: It's worth noting that the working interest average in our non-consents is roughly half that of our consented average, which is a testament to our active management. We focus on purchasing more land in the best areas, and our lower working interest and low value areas tend to be the areas where we non-consent. In terms of cost.
Speaker Change: Of our consented average, which is a testament to our active management.
Speaker Change: We focus on and purchasing more land in the best areas and our lower working interest and low value areas tend to be the areas, where we non consent.
Speaker Change: In terms of costs, while we are enjoying cost reductions from prior levels on some of our major joint ventures, we're seeing stable cost portfolio wide.
Adam: While we have enjoyed cost reductions from prior levels on some of our major joint ventures, we are seeing stable costs portfolio-wide. As to any major changes to commodity prices, we are not anticipating any meaningful changes to development costs going forward. The acquisitions we completed in the past few years continue to shine, and capital efficiency is beginning to bear fruit as our free cash flow more than doubled in the quarter and should remain strong as we turn to the back half of the year.
Speaker Change: Absent any major changes to commodity prices, we are not anticipating any meaningful changes to development costs going forward.
Speaker Change: The acquisitions, we completed in the past few years continued to shine.
Speaker Change: Capital inefficiency is beginning to bear fruit as our free cash flow more than doubled in the quarter and should remain strong in terms of the back half of the year.
Adam: At the same time, we continue to see strong ASE activity on our A-bridge that should keep our production stable over time. Shifting gears to business development and the M&A landscape, the second quarter highlighted another banner quarter for NOG, both on our ground game and in larger M&A. In a shift from 2-1, our ground data in the second quarter saw a marked pickup as we focused on bespoke, larger working interest. By doing so, we've been able to maintain our full-cycle hurdle rates and avoid the more commoditized, smaller-scale market with lower barriers to entry.
Speaker Change: At the same time, we continued to see strong <unk>.
Speaker Change: Activity on our acreage that should keep our production stable over time.
Speaker Change: Shifting gears to business development and the M&A landscape the second quarter highlighted another banner quarter for MLG, both on our ground game and in larger M&A.
Speaker Change: Kind of shifts from Q1 are grounded in the second quarter the market pick up as we focused on bespoke larger working interest by.
Speaker Change: By doing so we've been able to maintain our full cycle hurdle rates and avoid the more commoditized smaller scale market with lower barriers to entry.
Speaker Change: In total we spent approximately $25 million in capital on the ground.
Adam: In total, we spent approximately $25 million in capital on the ground game, just under $11 million of which was acquisition capital, acquiring 6.1 net wells and approximately 1,800 net acres. Here today, that brings us to approximately 6.7 net wells and almost 3,500 net acres in total.
Speaker Change: Just under $11 million of which was the acquisition capital.
Speaker Change: <unk> six one net wells and approximately 800 net acres.
Speaker Change: Year to date that brings us to approximately $6 seven net wells.
Speaker Change: 3500 net acres in total.
Speaker Change: During the quarter, we also signed our largest transaction ever expanding into the Uinta Basin joint acquisition of EXL resources assets with SM energy.
Adam: During the quarter, we also signed our largest transaction ever, expanding into the Uinta Basin in a joint acquisition of the XTL Resources assets with SM Energy. Similar to our approach with Novo and Forge, we partnered with SM to purchase a large-scale operated asset coupled with a long-term joint development agreement and area of mutual interest. This asset has a very long life, tremendous upside, and economics that compete with anything in our existing portfolio, and we see significant operational upside from SM's stewardship, as well as future exploration potential from the multi-stack pension.
Speaker Change: Similar to our approach with no borrowing forge, we partnered with us to purchase a large scale operated assets coupled with a long term joint development agreement.
Speaker Change: Area of mutual interest.
Speaker Change: This asset is a very long life tremendous upside on economics that compete with anything in our existing portfolio.
Speaker Change: See significant operational upside for Mercer and stewardship as.
Speaker Change: Well its future exploration potential from the multi stacked benches.
Speaker Change: Specific to SDL within our ally, we are already working on acquisition opportunities, which would create additional optionality and future upside.
Adam: Specific to XEL, within our AMI, we are already working on acquisition opportunities, which would create additional optionality and future upsides. Subsequent to the closing of the quarter, we have continued the momentum, partnering once again with our friends at Vital, agreeing to purchase the Ward County Delaware assets from Point Energy Partners for $220 million, net to NOG. Similar to XTL and our past transactions, we also have a long-term joint operating agreement in place with Vital and look forward to many years of development on the asset. As we've seen with our Forge JV, we think Vital can bring significant improvements to future performance on the point asset.
Speaker Change: Subsequent to the closing of the quarter. We have continued the momentum partnering once again with our friends at vital agreeing to purchase the Ward County, Delaware assets <unk> energy partners for $220 million.
Speaker Change: <unk>.
Speaker Change: Similar to X deal and our past transactions. We also have a long term joint operating agreement in place with vital and look forward to many years of development of the asset.
Speaker Change: As we've seen with our forged JV, we think by what can bring significant improvements to go forward performance on the point assets.
Speaker Change: Okay.
Adam: As all these transactions detail, we continue to build scale, but scale combined with a key focus on return. As Nick noted, our return on capital continues to be best in class, all the more impressive given how acquisitive we have been. It's a testament to the rigor of our acquisition underwriting, our capital allocation methodology, and the quality of the properties that we seek and ultimately acquire. The overall landscape continues to be robust, and we see another wave of defestatures coming on the back end of the large-scale M&A that has transpired over the past 18 months.
Speaker Change: As all of these transactions detail, we continue to build scale, but scale combined with a key focus on returns.
Speaker Change: As Nick noted our return on capital continues to be best in class all the more impressive given how acquisitive we have been.
Nick: It's a testament to the rigor of our acquisition underwriting our capital allocation methodology and the quality of the properties that we see ultimately acquired.
Nick: The overall landscape continues to be robust, we see another wave of divestitures.
Nick: On the backend of the large scale M&A that has transpired over the past 18 months.
Nick: Many large operators are looking to clean up their portfolios or in some cases their balance sheets.
Adam: Many large operators are looking to clean up their portfolios or, in some cases, their balance sheets, and we expect NOG may find some significant opportunities as these processes emerge. Meanwhile, some of these parties have reached out directly to us seeking out customized solutions, and we will continue to have those conversations.
Nick: And we expect <unk> fund some significant opportunities as these processes the merch.
Nick: So all of these parties have reached out directly to us seeking our customized solutions and we will continue to have those conversations.
Speaker Change: As I've described before these off market transactions can be tailor made for both parties.
Adam: As I've described before, these off-market transactions can be tailored-made for both parties and, with our growth in size and liquidity, could be as large or larger than any of our recent transactions. Simply put, the option to deploy capital on top-tier assets is in no way slowing down for NOG. Depending on the needs and the wants of the operator, the solutions could include simple non-op portfolio cleanups, joint development agreements, co-buying operated properties, minority interest carve-outs of operated positions, or any combination thereof.
Speaker Change: And with our growth in size and liquidity could be as large or larger than any of our recent transactions.
Speaker Change: Simply put the options to deploy capital on top tier of assets is in no way slowing down for NRG.
Speaker Change: Depending on the needs and the launch of the operator the solutions could include simple non op portfolio Cleanups joint development agreements co buying operated properties.
Speaker Change: In order to interest carve outs of operated positions or any combination thereof.
Adam: At NOG, we continue to demonstrate unmatched execution with win-win solutions through creativity and alignment with our current and prospective operating partners. By focusing on returns first, growth has become a natural output as we continue to compound capital for our investors and remain singularly focused on putting our stakeholders first. With that, I'll turn it over to Chad. Thanks, Adam.
Speaker Change: LNG, we continue to demonstrate unmatched execution with win win solutions through creativity and alignment with our current and perspective operating partners.
Speaker Change: By focusing on returns first.
Speaker Change: Growth has become the natural output as we continued to compound capital for our investors and remain singularly focused on putting our stakeholders.
Speaker Change: With that I'll turn it over to Chad.
Chad Allen: Thanks, Adam.
Chad: Our second quarter results did not disappoint and were one for the record book. Average daily production in the quarter was more than 123,000 VOE per day, up nearly 4,000 VOE per day compared to Q1 and up 36% compared to Q2 of 2023. Establishing a new NOG record. We continue to see outperformance on our recent Unicra acquisition, as well as our Marcellus access that helped drive the bean on production. Oil production came in at just over 69,600 barrels per day.
Chad Allen: Our second quarter results did not disappoint and we're one for the record books.
Chad Allen: Average daily production in the quarter was more than a 123000 Boe per day.
Chad Allen: Up nearly 4000 Boe per day, compared to Q1 and up 36% compared to Q2 of 2023.
Speaker Change: Obviously, the new energy record.
Chad Allen: We continue to see outperformance on our recent <unk> acquisition as well as our Marcellus assets that helped drive the beat on production.
Chad Allen: Oil production came in at just over 69600 barrels per day.
Speaker Change: Even though over half of our Q2 went well as occurred in June and contributed only modestly to our Q2 volumes, including a higher oil cut mascot project, which is still cleaning up but bodes well as we entered the third quarter.
Chad: Even though over half of our Q2 net well adds occurred in June and contributed only modestly to our Q2 volumes, including our higher oil cut mascot project, which is still cleaning up, but didn't bode as well as we entered the third quarter. Adjusted EBITDA in the quarter was $413 million, up 7% sequentially, and a record for NOG due to stronger well performance, lower costs, and better oil realization. Free cash flow of $134 million in the quarter was higher sequentially and nearly tripled from the same period last year due to the strength of our underlying assets and the pull-forward of activity in the prior quarter, which kept capital in check.
Speaker Change: Adjusted EBITDA in the quarter was $413 million up 7% sequentially and a record for MLG due to stronger well performance lower cost and better oil realizations.
Speaker Change: Free cash flow of $134 million in the quarter was higher sequentially and nearly tripled from the same period last year due to the strength of our underlying assets and the pull forward of activity in the prior quarter, which kept capital in check.
Chad: We anticipate free cash flow to continue to stay elevated in Q3, and remain elevated for the balance of 2024, as the remainder of our kills come online and begin to contribute to production and revenue. However, oil differentials were better than our expectations at an average of $3.55 per barrel, below the lower end of our guide.
Speaker Change: We anticipate free cash flow to continue to stay elevated in Q3.
Speaker Change: And remained elevated for the balance of 2024.
Speaker Change: As the remainder of our tools come online and begin to contribute to production in revenue.
Chad Allen: Yeah.
Chad Allen: Oil differentials were better than our expectations at an average of $3 55 per barrel.
Chad Allen: Below the lower end of our guidance.
Chad: Williston differentials trended down in the second quarter as we anticipated, and Permian differentials were also improved, normalizing for winter months. We also saw better realizations from our joint development project. Natural gas utilizations are also ahead of schedule at 107% of benchmark prices for the quarter.
Chad Allen: Williston differentials trended down in the second quarter as we anticipated.
Chad Allen: In Permian differentials were also improved normalizes the winter months.
Chad Allen: We also saw better realizations from our joint development projects.
Chad Allen: Natural gas realizations were also ahead of schedule at 107% of benchmark prices for the quarter.
Chad: We're clearly ahead of our forecast. These are better than anticipated natural gas prices in Q2, and higher NGL price realizations. This was partially offset by weaker Appalachian differentials and negative Waha gas for most of the quarter. Overall, for the year, however, we believe differentials will trend towards our revised guidance range, especially now that gas has returned to lower levels. LOE was down 7% sequentially to $8.99 per BOE, reflected the continued shift of our production to the Permian, which carries a lower LOE compared to the Williston.
Chad Allen: Materially ahead of our forecast.
Chad Allen: Due to better than anticipated natural gas prices in Q2 and.
Chad Allen: And higher NGL price realizations.
Chad Allen: This was partially offset by weaker Appalachian differentials and negative while oil and gas for most of the quarter.
Chad Allen: Overall for the year however.
Chad Allen: We believe differentials will trend towards our revised guidance range, especially another gasses returned to lower levels.
Chad Allen: Although it was down 7% sequentially to $8 99 per Boe.
Chad Allen: Reflected the continued shift of our production to the Permian, which carries a lower <unk> compared to the Williston.
Chad: And we also benefited from the easing of weather-related shut-ins from the prior quarter. As we previously discussed, we anticipate LOE per BOE to gradually decline as production ramps up from our joint development project. Additionally, our recently announced acquisitions will add more production with materially lower LOE. These assets are resilient and low cost.
Chad Allen: We also benefited from the easing of weather related shut ins from the prior quarter.
Chad Allen: As we previously discussed we anticipate LOE per Boe.
Chad Allen: Gradually decline as production ramps from our joint development projects.
Chad Allen: Additionally, our recently announced acquisitions will add more production with materially lower LOE.
Chad Allen: These assets are resilient and low cost and the <unk> asset also brings very high oil cuts.
Chad: And the XEL asset also brings very high oil costs. Production taxes were 8.7%, slightly below our guidance at gas production ramp-up in all basins, as gas typically carries a lower production tax rate. We anticipate production taxes to trend even lower after the addition of XTL as the winter comes with a lower tax rate. On the CapEx front, we invested $237 million, inclusive of ground game and a quarter. Of the $237 million, 59% was allocated to Permian.
Chad Allen: Production taxes were eight 7% slightly below our guidance as gas production ramp in all basins.
Speaker Change: That is gas typically carries a lower production tax rate.
Speaker Change: We anticipate production taxes to trend even lower after the addition of mcl as the winter it comes with a lower tax rate.
Speaker Change: On the Capex front, we invested $237 million inclusive of ground game in the quarter.
Speaker Change: Of the 237 million, 59% was allocated to the Permian.
Chad: 37% to the Williston and 4% to Appalachian. We continue to experience a pull-forward of organic activity driven by the strength in oil prices. However, given the level of completion in our DMC list, the higher tail count on Q2 did not have a material impact on total capex for the quarter. But that said, if the strength in oil prices is persistent... CAPEX may trend towards the higher end of our revised guidance range for the year.
Speaker Change: <unk>, 37% of the Williston and 4% Appalachian.
Speaker Change: We continue to experience a pull forward of organic activity driven by the strength in oil prices. However, given the level of completion and our D&C list.
Speaker Change: The higher silicon in Q2 did not have a material impact on total capex for the quarter.
Speaker Change: But that's.
Speaker Change: With the strength in oil prices persists.
Speaker Change: Capex may trend towards the higher end of our revised guidance range for the year.
Chad: Some of this capital would be driven potentially by 2025 turn-in lines that could be accelerated into 2024 and by additional AFB activity for 2025 turn-in lines we anticipate in the back half of the year. This will obviously be dependent on the commodity price environment. Materially weaker oil prices will, of course, slow operator activity.
Speaker Change: Some of this capital will be driven potentially by 2025 turn in lines that could be accelerated into 2024 and.
Speaker Change: And by additional FDA activity for 2025 turn in lines, we anticipate in the back half of the year.
Speaker Change: This will obviously be dependent on commodity price environment materially weaker oil prices where of course slow operator activity.
Speaker Change: With that said.
Speaker Change: If we did see higher capex and will be accompanied by higher production as our D&C list is actively converting to tills and spuds and drawing down our working capital.
Chad: If we did see higher capex, it would be accompanied by higher production as our DNC list is actively converting to tills and spuds and drawing down our working capital, specifically on the Wharton Capital Front, for the Impact of Derivatives. We have seen an improvement of approximately $65 million year-to-date. As a result of the improvement in working capital, we reduced our borrowings on our Walden Credit Facility by $65 million during the quarter.
Speaker Change: Specifically on the working capital front, excluding the impact of derivatives.
Speaker Change: We have seen an improvement of approximately $65 million year to date.
Speaker Change: As a result of the improvement in working capital, we reduced our borrowings on our revolving credit facility by $65 million during the quarter.
Chad: As of June 30th, we had over $1.3 billion of liquidity comprised of $33 billion of cash on hand, including the deposit for XCL, and $1.3 billion available on our Evolving Credit Facility. That quarter-end net debt to LQA EBITDA was 1.1 times.
Speaker Change: As of June 30, we had over $1 3 billion of liquidity comprised of $33 billion of cash on hand, including the deposit.
Speaker Change: <unk>.
Speaker Change: At $1 3 billion available on our revolving credit facility.
Speaker Change: At quarter end net debt to LTM EBITDA was one one times.
Chad: We expect the ratio to tick up modestly upon the closing of our recently announced transactions and put the train down throughout 2025 solidly to our stated target, as Nick discussed earlier. We actively repurchase shares in the first half of the year. Year-to-date, we have repurchased over 1.4 million shares or approximately 55 million of our common equity at an average price of $37.99.
Speaker Change: We expect the ratio to tick up modestly upon the closing of our recently announced transactions.
Speaker Change: But shrink down throughout 2025 solidly to our stated target.
Speaker Change: As Nick discussed earlier.
Nick: We actively repurchased shares in the first half of the year.
Nick: Year to date, we repurchased over one 4 million shares or approximately $55 million of our common equity at an average price of $37 99.
Nick: We are committed to allocating capital to share repurchases or there is a mark divergence between our absolute and relative performance.
Chad: We are committed to allocating capital to share repurchases where there is a marked divergence between our absolute and relative performance. However, given we are funding our announced acquisitions with Revolver, who will be mindful of getting leverage back to our stated target. Given the outperformance of our wells year-to-date and the anticipated closings of our pending acquisitions, I'd like to address our adjustments to guidance. Note this guidance assumes an October 1st close on both acquisitions, and the actual closing dates could change, so this guidance is somewhat preliminary in nature.
Nick: Given we are funding our announced acquisitions with our revolver.
Nick: We will be mindful of getting leverage back to our stated target.
Nick: Given the outperformance of our wells year to date and the anticipated closings of our pending acquisitions I'd like to address our adjustments to guidance.
Nick: Note. This guidance assumes that October 1st Bulls for both acquisitions and the actual closing dates could change. So this guidance is somewhat preliminary in nature.
Nick: We will give an update on our third quarter call if anything changes materially during the closing processes.
Chad: We will give an update on our third quarter call if anything changes materially during the closing processes. We are raising total production guidance by 4% at the midpoint to a range of 120,000 to 124,000 BOE per day.
Nick: We are raising total production guidance by 4% at the midpoint to a range of 120000 to 124000 Boe per day.
Chad: Obviously, we only get around one quarter of the benefit from our new deals, so this reflects some of the outperformance we've seen here today, particularly on gas production. We have also increased guidance on oil production at the midpoint by 4% to a range of 73,000 to 76,000 barrels per day, reflecting the higher oil cut of Uinta and Point relative to our corporate average. Our turning line guidance moves up to a range of 93 to 98 net wells, with response going into a range of 73 to 78 net wells. With respect to unit costs... Given the unique nature of Biointa, we are lowering LOE by 3% at the midpoint of the range of $9.15 to $9.40 per BOE.
Nick: Obviously, we only get around one quarter benefit from our new deals. So this reflects some of the outperformance we've seen year to date, particularly on gas production.
Nick: We have also increased guidance on oil production at the midpoint by 4% to a range of 73000 to 76000 barrels per day.
Speaker Change: Reflecting the higher oil cut over the winter and point relative to our corporate average.
Speaker Change: Our turn in line guidance moves up to a range of 93 to 98 net wells.
Speaker Change: Spuds going into a range of 73 to 78 net wells.
Speaker Change: With respect to unit costs given.
Speaker Change: Given the unique nature of the Uinta, where LOE and <unk> by 3% at the midpoint of the range.
Speaker Change: Of $9 15 to $9 40 per beauty.
Speaker Change: Production taxes should also trend lower to a range of 9% to nine 5%.
Chad: Production taxes should also trend lower to a range of 9% to 9.5%. And we are raising the high end of our oil differential to $4.85 per BOE to reflect higher transportation costs in the winter. And we're increasing our gas realizations to a range of 87.5% to 92.5% to reflect better NGL and natural gas prices. With respect to DNA, we're cutting the range to $16.50 to $17.50 per BOE. The Rural Cash and Non-Cash Units, Purdue, should both decline, demonstrating the benefits of increased scale and the inherent operating leverage of our unique business model.
Speaker Change: And we are raising the high end of our oil differential to $4 85 per Boe to reflect higher transportation costs in the winter.
Speaker Change: We are increasing our gas realizations to a range of 87, 5%.
Speaker Change: To 92, 5% to reflect better NGL and natural gas pricing.
Speaker Change: With respect to DNA, we are tightening the range to $16 50 to $17 50 per Boe.
Speaker Change: Our overall cash and noncash G&A per view.
Speaker Change: So we both declined demonstrated the benefits of increased scale and the inherent operating leverage of our unique business model.
Operator: That concludes our prepared remarks. I'd like to open the call to questions. Thank you. If you have a question, please press star 1 on your telephone keypad. To withdraw your question, simply press star 1 again.
Speaker Change: That concludes our prepared remarks.
Speaker Change: Like to open the call up to questions.
Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.
Operator: In the interest of time, please limit yourself to one question and rejoin the queue if necessary. Your first question comes from the line of Neal Dingmann with Truist Securities. Your line is open.
Speaker Change: Interest of time, please limit yourself to one question and rejoin the queue if necessary.
Speaker Change: Your first question comes from the line of Neal Dingmann with <unk> Securities. Your line is open.
Neal David Dingmann: Morning guys, nice quarter in Outlook. Nick, my first question, maybe for you, Adam, is just on deal parameters specifically. I'm just wondering maybe how things have changed now, you know, with these larger deals. Could you talk about how your requirements, when you think about sort of payback periods, HUD values, you know, undrilled location values, all that sort of thing, how that sort of shakes out today versus maybe a year or two ago? And you know, I don't think anything's really changed. I mean, I think in general over the last three years.
Neal David Dingmann: Good morning, guys nice quarter and outlook. Nick My first question, maybe for you or all of it is just on.
Neal David Dingmann: The deal parameters, specifically I'm, just wondering maybe how things have changed now.
Speaker Change: Larger deals could you talked about.
Speaker Change: How youre requirements, when we think about sort of payback period put value on.
Speaker Change: On drilled location value all of that sort of thing how that sort of shakes out today versus maybe a year or two ago.
Speaker Change: I don't think anything's really changed I mean, I think in general over the last.
Speaker Change: Three years.
Nick: You know, we have raised our hurdle rates materially, you know, just, you know, I would say, as the cost of capital rose. Generally, our hurdle rates, and that's been some, done since call it 2020. But otherwise, I think we generally look for a balanced portfolio, which is that we want to look for, at a package level, self-funding assets where we can, but we will look for, you know, there are specific things where, if it is an asset which is in development, that can be okay, too. I don't know, Adam, if you want to comment on that.
Speaker Change: We have raised our hurdle rates materially.
Speaker Change: I would say.
Speaker Change: At the cost of capital Rose.
Speaker Change: Generally increased our hurdle rates and that's been something we've consistently done since call. It 2020.
Speaker Change: But otherwise I think we generally look for a balanced portfolio, which is that.
Speaker Change: Yes.
Speaker Change: We want.
Speaker Change: We look forward at a package levels self funding assets, where we can but we will look for.
Speaker Change: Sure.
Speaker Change: There are specific things, where if it is an asset which is in development that can be okay to I don't want to comment yes, I think it also dovetails into the governance straight in the assets specifics in that regard and so if there is ways that we can get comfortable with the underwriting.
Adam: Yeah, I think it also dovetails into the governance, right, and the asset specifics in that regard, and so if there's ways that we can get comfortable with the underwriting with, you know, kind of the go-forward governance in order to maintain alignment and get that transparency, that's all going to come into play. Not only with the quantitative, but the qualitative, you know, review. Yes, and I think, you know, one of the questions we've gotten from our investors is just, you know, the difference between sort of the co-purchase of assets with operators versus a traditional non-operated asset and how you win.
Speaker Change: The go forward governance in order to maintain alignment and get that transparency, that's all going to come into play with the quantitative but qualitative.
Speaker Change: Yes, and I think one of the questions. We've gotten from our investors is just that.
Speaker Change: The difference between sort of the co purchase of assets with operators versus a traditional non operated asset and how you win and I think that's it.
Adam: There are different paradigms to earning supernormal returns, right, versus how you underwrite, which is that on an un-operated asset, how you win is ultimately that the undeveloped asset is you try to pay as little as possible on that undeveloped asset and ultimately be surprised by the future development, right? Which is that the PUD value and what you're paying for, ultimately you get future development costs at a discount, right? And that's the benefit of buying non-operated assets at that discount, and what we've observed on the co-purchase of those assets is that we've seen huge synergies from the vitals and from the Permian resources, where as they've taken possession of these assets, they've become much superior operators, and they've cut costs and drilled better wells, and so we've seen huge upside in performance on those assets Yeah, well said.
Speaker Change: There are different paradigms to earning supernormal returns right versus how you underwrite which is that on a non operated asset how you win is ultimately.
Speaker Change: That we the undeveloped asset as you try to pay as little as possible on that undeveloped piece and ultimately be surprised by the future development right, which is that.
Speaker Change: That value and what you're paying for ultimately get.
Speaker Change: Future development costs at a discount right.
Speaker Change: The benefit of buying non operated assets at that discount.
Speaker Change: What we've observed on the culprits of those assets is that we've seen a huge synergies from.
Speaker Change: From the vitals in from the Permian resources in which they've taken possession of these assets they've become much superior operators.
Speaker Change: Cut costs and drill better wells and so we've seen huge upside and performance on those assets that they've been able to do better and so we've seen increases in returns in a different way. So it's different ways to create the same types of upside.
Nick: And then my second question, just on capital allocation specifically, you all maintain an active ground game, to say the least, and while continuing to, you know, even recently boosting the dividend and talking about shareholdings return again, I'm just wondering, can you talk about, I know they're not exclusive, but maybe just talk about how those two sort of play together. Yeah, I mean, in terms of the ground game, I mean, I think it ebbs and flows, obviously, there is a seasonality to it. I would expect, as we get towards the end of the year, it tends to get a bit busier. I would imagine we see a bit of a pick-up, you know, it may start to get active towards the end of the third quarter, potentially, as budgets start And our ground game has evolved somewhat, which has become a bit more bespoke and generally more concentrated in the last few years, in terms of how it has happened.
Speaker Change: Well said and then my second just on capital allocation specifically.
Speaker Change: We'll maintain it at that.
Speaker Change: The game to say the least while continuing to.
Speaker Change: Recently boosting the dividend.
Speaker Change: Talking about shareholder return again I'm just wondering can you talk about I know, they're not exclusive but maybe just talk about how those two sort of play together.
Speaker Change: Yes, I mean, I think in terms of the ground game I mean, I think it ebbs and flows obviously there is a seasonality to it I would expect.
Speaker Change: As we get towards the end of the year it tends to get a bit busier I would imagine we see a bit of a.
Speaker Change: It may start to get active towards the end of the third quarter potentially.
Speaker Change: As budgets start to get tighter.
Speaker Change: And our ground game has evolved somewhat what she does become a bit more.
Speaker Change: Spoke and more generally more concentrated in the last two years.
Nick: It's been a little bit chunkier in terms of the interests. But ultimately, in terms of shareholder returns, I don't think we view them as mutually exclusive, Neal. And I think, you know, as we mentioned in our prepared remarks, I think, you know, I think we'll sit down with the board at the beginning of the year.
Speaker Change: In terms of how it has happened it's been a little bit chunkier in terms of the interests.
Speaker Change: But ultimately in terms of shareholder returns that I don't think we view them as mutually exclusive Neil and I think.
Speaker Change: As we mentioned in our prepared remarks, I think I think we will sit down with the board at the end of the year and we really do believe that the business has the capacity for additional shareholder returns, particularly on the dividend side.
Nick: We really do believe that the business has the capacity for additional shareholder returns, particularly on the dividend side. Neal, the only other thing I'd add on the ground game is that it's also going to depend on kind of what the organic asset is pulling, right? So we're looking at that on a monthly basis and understanding exactly what the working interests are coming in at. And that'll also dictate, you know, whether or not we're leaning in on any particular opportunities on the ground game, one way or another. Your next question comes from the line of John Freeman with Raymond. Dear Linus, Good morning, guys.
Speaker Change: The only other thing I would add on the ground game is that it's also going to depend on kind of what the organic asset is falling right. So we're looking at that on a monthly basis and understanding exactly what were working interests.
Speaker Change: They are coming in.
Speaker Change: And that will also dictate.
Speaker Change: Whether or not we're leaning in on any particular opportunities on the ground game, one way or another.
Speaker Change: Your next question comes from the line of John Freeman with Raymond James Your line is open.
John Christopher Freeman: Good morning, guys.
John Christopher Freeman: All right. The first question I had is that XCL recently closed on the Ultimat acquisition. Just can you give any color on how that potentially impacts the original, you know, XCL purchase price, kind of any pro forma, you know, estimates, things like that. Yeah, so that you're correct, John. So the FTC granted approval to XEL to acquire Altamont.
Speaker Change: Alright, good morning, John.
John Christopher Freeman: First question I had I solve it.
Speaker Change: <unk> recently closed on the on the Altamont acquisition, just can you provide any color on how that potentially impacts from the original.
Kevin: <unk> purchase price, Kevin any pro forma.
Speaker Change: Things like that.
Nick: And as part of that, that is within the AMI for SM and us. And so we will have the option to purchase those assets. What I can tell you is that we are currently doing our analysis and review of those assets, and what I will say is we're very encouraged by what we see. And obviously, if we choose to exercise that option, respectively, it would be, you know, 80-20.
Speaker Change: Yes.
Speaker Change: So youre correct, Jon so the SEC granted approval to X to SCL to acquire Altamont and as part of that.
Speaker Change: That is within the Ami for.
Speaker Change: For SM and us and so we will have the option to purchase those assets.
Speaker Change: What I can tell you is that we are under we are.
Speaker Change: Currently doing our analysis and review of those assets.
Speaker Change: What what I will say is we're very encouraged.
Speaker Change: But by what we see.
Speaker Change: And obviously if.
Speaker Change: If we choose to exercise that option, respectively. Obviously, it would be 80 20.
Nick: It would be a material add-on in terms of acreage to our position, but very immaterial in terms of capital. Yeah, and there's a number of, you know, BSUs that are directly offsetting the position, and that's kind of where the focus is. Got it. And then my follow-up question: when we think about the timing of those pills coming out, over half of them come in June and then specifically the mouse got well, that are taking a while to clean up. You know, now that we're basically through July, I'm just trying to get a sense on how the mice got well, are they fully cleaned up?
Speaker Change: It would be a material add in terms of acreage to our position, but very immaterial in terms of capital and Theres a number of.
Speaker Change: Skus that are directly offsetting the position.
Speaker Change: And thats kind of where the focuses.
Speaker Change: Got it.
Speaker Change: My follow up question.
Speaker Change: When we think about that.
Klein Jean: The timing on those tails coming on over half of them Klein Jean again.
Speaker Change: But typically on the mouse got wells that are taken a lot of cleanup.
Speaker Change: Or basically through July I'm, just trying to get a sense on the mouse got wells.
Speaker Change: Hey, like fully cleaned up are we still going through that process I'm, just trying to get a sense of whether youre going to get the full <unk> benefit from those mascot wells already kind of drag a little bit more into the quarter.
John Christopher Freeman: Are we still going through that process? I'm just trying to get a sense of whether you're going to get the full 3Q benefit from those mascot oils or if it's going to drag a little bit more into the quarter. Um, well, I mean, you put 10 million, 10 million barrels of water into the ground, right?
Speaker Change: Well I mean, you put $10 million 10 million barrels of water into the ground right. So it takes several months in a cube development to take it so.
Nick: So it takes several months for a cube development to take hold. So, you know, I would imagine by the end of the third quarter, you're going to be pretty, Jim, tell me I'm wrong, but probably by the end of the third quarter, they'll be pretty much fully functional. So you'll get, I would imagine by the end of August or September, they'll be at full capacity.
Speaker Change: I would imagine by the end of the third quarter Youre going to be pretty I mean, Jim tell me I'm wrong, but probably by the end of the third quarter there'll be pretty much fully going so youll get I would imagine bye bye.
James B. Evans: By the end of August or September there'll be at full capacity, but.
Nick: But, you know, it takes what it takes; you're pumping out, call it, 30,000 barrels a day of water out of them. So it's going to take some time, but everything's going according to plan. You're not going to get all that water out, John, but it's, in a cube development like this where you're doing all the zones.
James B. Evans: It takes what it takes you are pumping out call. It like 30000 barrels a day of water out of them. So it's going to take some time, but everything has gone according to plan.
James B. Evans: Youre not going to get all that water out John but it just.
James B. Evans: And acute development like this where youre doing all the zones.
James B. Evans: It's a massive project right. So everything is going about as expected.
John Christopher Freeman: It's a massive project, right? So everything's going to pop. Your next question comes from the line of Scott Hanold with our. Your line is open. Hey, thanks.
Speaker Change: Your next question comes from the line of Scott Hanold with RBC. Your line is open.
Scott Michael Hanold: Hey, thanks.
Scott Michael Hanold: You know, I have a question on M&A. You know, obviously, you guys have done a number of deals here over the last few years, and it sounds like there's still some pretty decent visibility. You've got Ultimanta, the things in Uintah.
Scott Michael Hanold: A question on M&A obviously.
Scott Michael Hanold: You guys have done a number of deals here over the last few years.
Speaker Change: It sounds like Theres still some pretty decent visibility you've got ultimate or the things in the Uinta can you give us a sense of how you think about the balance sheet I know I think it was Nick or Chad mentioned some of the stuff you.
Scott Michael Hanold: Can you give us a sense of, you know, how you think about the balance sheet? I think Nick or Chad mentioned some of the stuff you, you know, felt you pre-funded coming into, you know, earlier this year, but can you think about, as you think about moving forward in the balance sheet, any incremental transactions? How do you look at funding?
Speaker Change: Phil you pre funded coming into.
Speaker Change: Earlier this year, but can you think about like as you think about moving forward.
Speaker Change: The balance sheet any incremental transactions, how do you look at funding and where do you kind of like to see that balance sheet leverage.
Nick: And where do you kind of like to see that balance sheet leveraged on a go forward basis? Yeah, I mean, Scott, certainly within our framework, we have the capacity currently to do a significant amount more before we would bust out of our kind of self-described framework, which is really kind of a one and a half times. I mean, I think we could go slightly over that for a period of time if we were comfortable.
Speaker Change: On a go forward basis.
Nick: Sure. Would we like to do that? No.
Phil: Yes, I mean, Scott certainly within our framework, we have the capacity currently to do a significant amount more before we would bust out of our kind of self described framework, which is really kind of a one five times I mean, I think if we go slightly over that for a period of time, if we were comfortable sure.
Phil: I'd like to do that no.
Speaker Change: But I think.
Nick: But I think, you know, from a liquidity perspective, you could always bond out that capital. I don't think we feel compelled to do that at all, just given the cash generation of the business at the moment. But I think, look, the fact of the matter is, with M&A, the timing is very unpredictable unless something was to come in the immediacy. You know, if we roll the clock forward nine months from now, as the business generates cash flow, quite frankly, we'll be able to handle more M&A on the balance sheet without worrying about these types of things, right?
Speaker Change: From a liquidity perspective.
Speaker Change: You could always bond out that capital if we really needed to I don't think we feel compelled to do that at all just given the cash generation of the business.
Speaker Change: Alright.
Speaker Change: But I think look.
Speaker Change: Yes.
Speaker Change: Fact of the matter is with M&A timing is very unpredictable so.
Speaker Change: Unless something was to come in the immediacy, if we roll the clock for nine months from now as.
Speaker Change: As the business generates cash flow quite.
Speaker Change: Quite frankly.
Speaker Change: We will be able to handle more M&A on balance sheet without worrying about these types of things right. Because ultimately it's all it's more a function of timing than anything else right. I don't know if I can say it any differently than that meaning like the.
Nick: Because ultimately, it's all more a function of timing than anything else, right? I don't know if I could say it any differently than that, meaning like, the way we model this out within a few quarters, we'll write back the target. And so, therefore, I don't really unless M&A becomes so substantial that you'd really have to capitalize it in some other way. So it really is more about the acute moment in time than it is about the absolute level. Once again, ladies and gentlemen, we ask that you please limit yourself to one question.
Speaker Change: The way we model this out within a few quarters or write back to target and so therefore, I don't really unless M&A becomes so substantial.
Speaker Change: That you'd really have to capitalize it in some other way.
Speaker Change: So it really it's more about.
Speaker Change: The acute moment in time than it is absolute leverage.
Speaker Change: Once again, where it makes sense.
Speaker Change: My apologies.
Speaker Change: Got it thanks again, ladies and gentlemen, we ask that you. Please limit yourself to one question.
Operator: Your next question comes from the line of Donovan Schafer with Northland Capital Markets. Hey guys, thanks for taking the questions. So first, I just want to dig into the OUINTA play a little bit. I'm not as familiar with that one in the more current shale revolution type context, but I know that from a more historical standpoint.
Speaker Change: Your next question comes from the line of Donovan Schafer with Northern Northland Capital markets. Your line is open.
Donovan Due Schafer: Hey, guys. Thanks for taking the questions. So first I just wanted to dig into the <unk>.
Speaker Change: To play.
Donovan Due Schafer: Play a little bit I'm, not as familiar with that one and the morally shale revolutions that context.
Speaker Change: From a more historical standpoint, so the different benches and things being developed or is it more or is it really like a true sort of shale play or is it kind of a statistical play where as long as you're picking up holes in the ground you can feel good about the returns for us.
Donovan Due Schafer: So the different benches and things being developed there, is it more of, is it really like a true Shale play, or is it kind of a statistical play where you know as long as you pick enough holes in the ground, is it going to be something more conventional but having an opportunity to exploit it with horizontal drilling, fracking, and so forth. Any clarification that would be helpful. Yeah, hey Donovan, this is Jim.
Donovan Due Schafer: Going into something more conventional.
Donovan Due Schafer: Having an opportunity to exploit it with horizontal drilling and fracking and so forth.
Speaker Change: Any clarification there would be helpful.
Speaker Change: Yeah, Hey, Dan This is Jim.
Jim: Yeah, I would attribute it to a shale play, very similar to the Permian, where you've got, you know, 4000 feet of all these stacked zones. But we do see that there is true separation. If you look at the oil that comes out of the different benches, they are different colors, different grades. So you can tell that they are true standalone different zones. All of them have been proven from a vertical standpoint; it's just recently that they have switched to horizontal.
James B. Evans: Attribute it similar to <unk>.
James B. Evans: <unk> very similar to the Permian.
Speaker Change: Got it.
James B. Evans: All of these stacked zones when we do see that there is true separation. If you look at the oil that comes out of the different benches. They are different colors different.
Dan: Great. So you can tell that they are true standalone different zones.
James B. Evans: All of them have been proven from a vertical standpoint has just recently that they switched to a horizontal.
Jim: The main target is what they call the lower cube. That's the primary Eulen Butte, upper Wasatch that has been targeted most recently. They're now starting to target the upper cube, which is going to be your Garden Gulch and Douglas Creek. That's a little bit earlier in the stages, but those are the primary zones that are being targeted. You've also got deeper zones as well that are kind of early stages proven vertically, but not yet horizontally; we're giving no value to that. But that's kind of what we're seeing here from a geologic standpoint. Your next question comes from the line of Charles Meade with Johnson Rice. Your line is open. Good morning to the whole energy team out there.
James B. Evans: The main targeted what they call the lower Q, that's the primary Hewlett viewed upper.
James B. Evans: Upper Wasatch that had been targeted most recently they are now starting to target the upper queue, which is going to be your garden Gulch Douglas Creek, that's a little bit earlier in the stages, but.
James B. Evans: Those are the primary zones that are being targeted you've also got deeper zones as well that are kind of early stages proven vertically, but not yet horizontally, we're giving no value to that but thats kind of what we're seeing here from.
James B. Evans: A geologic standpoint.
Speaker Change: Your next question comes from the line of Charles Meade with Johnson Rice. Your line is open.
Charles Arthur Meade: I want to actually pick up on where you just left off with that discussion of the Uinta. As I've tried to come up to speed on the play, you know, some of the big players there, let's just say that they may be emphasizing other parts of their portfolio, but it looks like XCL and SM have been the most, have given the most disclosure, or maybe the most, aggressive in identifying the upside.
Charles Arthur Meade: Good morning, the whole energy team there I wanted to actually pick up on where you just left off with that discussion of the Uinta.
Charles Arthur Meade: As I've tried to come up to speed on the play some of the big players there.
Speaker Change: Let's just say that there may be emphasizing other.
Charles Arthur Meade: Parts of their portfolio, but it looks like ex CEO and.
Charles Arthur Meade: S M have been the most have given the most disclosure.
Charles Arthur Meade: Maybe the most.
Charles Arthur Meade: So my impression is that most of the development has been in Utland Butte. And I'm wondering if you could, you know, kind of say if that's your plan going forward for the next, you know, 12 months, if that's what you're going to target, and what any timeline is to... target some of these other horizons with horizontal wells that have been historically proven productive in vertical wells. Yeah, so the plan is primarily focused on the lower and upper cubes. It's going to be a mix of both.
Charles Arthur Meade: Aggressive in identifying the upside so my impression is most of the development has been in that youth in Butte.
Speaker Change: And I'm wondering if you could.
Speaker Change: Got it.
Speaker Change: Say, if that's your plan going forward for the next.
Speaker Change: 12 months, if that's what you're going to target.
Speaker Change: And what any timeline is too.
Speaker Change: To target some of these other horizons with with with horizontal.
Speaker Change: Wells that have been.
Speaker Change: Historically proven productive in vertical wells.
Speaker Change: Yes, so the plan is primarily.
Jim: We're not just drilling the Eutland Butte and Wasatch; we're mixing in the Douglas Creek as well. So we plan to co-develop the upper and lower cubes together. The deeper stuff is farther down the road.
Speaker Change: Primarily focus on the lower and upper queue, it's going to be a mix of both where not just drilling the <unk> Butte and Wasatch, where we're mixing in the Douglas Creek.
Speaker Change: As well so we plan to co develop the upper and lower keep together the deeper stuff is farther down the road.
Jim: We'll develop that as we kind of see, you know, how these first couple of cubes turn out, and then we'll go from there. Your next question comes from the line of Phillips Johnston with Capital One. Your line is open.
Speaker Change: We'll develop that as we kind of see.
Speaker Change: How these first couple of cubes turn out and then we'll go from there.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Phillips Johnston with capital One your line is open.
John Phillips Little Johnston: Hey, Thanks for taking the question wanted to ask you about your implied natural gas production guidance for the back half of the year.
John Phillips Little Johnston: Hey, thanks for taking the question. I wanted to ask you about your implied natural gas production guidance for the back half of the year. It sort of suggests that volumes will decline by more than 15% from the second quarter. You know, I know, you had some EQT wells that led to some pretty strong growth in Q2, but it seems like the decline for the rest of the year is pretty steep, I guess, especially considering you've got some incremental gas in the door from these two activities. Yeah, that's what's right, Philip.
Speaker Change: Suggest that volumes will decline by more than 15% from the second quarter.
Speaker Change #102: I know I know you had some EQT wells that led to some pretty strong growth in Q2, but.
Speaker Change: It seems like the decline for the rest of the year is pretty steep I guess, especially considering you've got some incremental guests in the door from these two acquisitions.
Chad: So it's it's really a function that our planned EQT development really came on. We had some deferred production from Q1 that came back in Q2, plus our EQT wells for the year were completed, as well as some other Marcellus wells, and our Utica project came online in 2Q. So that was as flush as it would be.
Speaker Change #109: Yes, that's right.
Speaker Change: So.
Speaker Change: It's really a function that are our planned EQT development really came on we had some just some deferred production from Q1 that came back on in Q2, plus or EQT wells for the year were completed.
Speaker Change: As well as some other Marcellus wells and our Union and our Utica project came online in <unk>. So allow us as flushes will be so that will be that really peaked out in Q2. So obviously, that's over 100 million a day of our production, which will be in decline, obviously, you'll get the benefit of the other assets.
Chad: So that will be the base that really peaked out in Q2. So obviously, that's over 100 million a day of our production, which will be in decline. Obviously, you'll get the benefit of the other assets. And so you will have growth in the other base.
Speaker Change: And so what you will have growth in the other basins.
Chad: But that will really be the peak of gas production for the year, so that is the driver, so that's correct. So our Appalachian production tends to go in waves, so it tends to be, especially on our Marsalis asset, where the development tends to be in the spring every year, and so there'll be another wave of development next year around the spring, so you'll have another surge next spring, but we're sort of done for the year. Your next question comes from the line of Paul Diamond with Citi. Your line is open. Good morning; thanks for taking the time. Just a quick one on the kind of timing and cadence.
Speaker Change: But that will that will really be the peak of the gas production for the year. So that is the drive so that is that's correct. So.
Speaker Change: Our Appalachian production tends to go in waves, so it tends to be especially on our Marcellus asset where the development tends to be in the spring every year and so there'll be another wave of development next year around the spring. So you'll have another surge next spring, but we're sort of done for the year.
Speaker Change #100: Your next question comes from the line of Paul Diamond with Citi. Your line is open.
Paul Michael Diamond: The last few quarters have seen, you know, kind of a pull forward of activity. I know you talked about a possibility that that could continue to occur in the latter half of this year, potentially pulling some 25% of activity forward. I just wanted to know if you could talk about kind of if you see that as more of a permanent compression or just a function of current market dynamics, or I guess, how should we be thinking about that going forward? Yeah, Paul. I mean, I think we're a little gun shy. And so I think that's kind of where our heads are right now. I think, you know, I guess what the term is, once bitten, twice shy.
Paul Michael Diamond: Hi, good morning, Thanks for taking the time, just a quick one on kind of timing and changing so last few quarters have seen kind of a pull forward of activity I know you talked about a possibility of that going to continue to occur.
Chad: And so I think, you know, as we've kind of pointed people to the sort of up, you know, kind of post the midpoint of our guidance, it's with the assumption that we'll see, based on the AFE activity we've seen year to date, that we'll continue to see robust AFE activity and the possibility of continued pull forwards. Now, those pull forwards don't always work, and that's why we really do want to see why we keep that band there, but that's correct. It could, but I do think, you know, if we see, you know, high seventies and low eighties, it is more likely to happen than not because that's the trend we've been seeing for the last 18.
Operator: Your next question comes from the line of Noah Hungness with Via Basic. Your line is: Morning, all.
Speaker Change: Later half of this year and potentially pulling some 25 activity forward.
Speaker Change: Wondering if you could talk about.
Speaker Change: Kind of efficacy.
Speaker Change: More of a permanent compression or just a function of current market dynamics or I guess, how should we be thinking about that going forward.
Speaker Change: Yes, Paul I mean, I think we're a little gun shy and so I think that's kind of where our heads are right now I think.
Paul: I guess, what's the term once bitten twice shy and so I think.
Speaker Change #105: As we've kind of pointed people to the sort of kind of post the mid point of our guidance with the assumption that we will see based on the FDA activity. We've seen year to date that will continue to see robust activity and the possibility of continued pull force now those pull forwards don't always.
Speaker Change: Accounts for additional accruals, but they can.
Speaker Change: And so the concept was that we would see potentially in the fourth quarter a combination of both pull forward of tills and potentially 25 activity being pulled forward and so thats kind of where our heads are now it's not a given per se and so thats why the band is slightly wider but.
Speaker Change: But we have seen that and it will be price dependent. So obviously, if we were to see commodity prices take a nosedive, it's unlikely that that would happen and thats why we really do want to see.
Speaker Change: Why do we keep that band there, but thats correct.
Speaker Change #110: I do think.
Speaker Change: If we see high <unk> and low <unk> it is more likely to happen or not because that's the trend we've been seeing for the last 18 months.
Noel Augustus Parks: Your next question comes from the line of Noah <unk> with Bofa Securities. Your line is open.
Noah: Good morning, all.
Noah Hungness: I just wanted to ask on the ones that you're seeing today and really how you guys compare the refracts and neutrals. Yeah, I mean, I think it's been notable. I think we view refracts as locational, right, which is that not all refracts are good. And it's important to understand that they are significant in cost, right, they can be 60 or 70% of the cost of a new well. But we have seen, I'll pick up specifically on Williston in the last few years, you know, historically, we have literally just budgeted them in our work over budget.
Noah: Just wanted to ask on the re frac opportunities that youre seeing today, and really whats driving that increase there and how you guys compare the re fracs to maybe new neutrals in a similar place in the basin.
Speaker Change: Yes, I mean, I think it's been notable.
Speaker Change: <unk>.
Speaker Change: We view.
Speaker Change: Re fracs.
Speaker Change #137: As locational right, which is that not all refracts are good.
Speaker Change: And it's important to understand that which is that.
Speaker Change #108: They are significant and costs that can be $60 or 70% of the cost of a new well.
Speaker Change: But we have seen.
Speaker Change: Pick up specifically in the Williston in the last few years you know historically, we have literally just budgeted.
Speaker Change: Our workover budget and as our analysts have been asking us why our workover budget kept going up we realized that we had to start to break it out because it is productive capital.
Noah Hungness: And, you know, as our analysts have been asking us why our work over budget kept going up, we realized that we had to start to break it out because it is productive capital. Yeah, I can jump in here.
James B. Evans: But I'll, let Jim talk a little bit more about it yes, Joe Jon here I've got the stats in front of our year to date, we've received roughly around 30 gross refract proposals.
Nick: I've got the stats in front of us. I mean, year to date, we've received roughly around 30 gross refract proposals. And, you know, the bulk of that work is going to be done in the third and the fourth quarters. It's also going to depend on whether or not it's an offensive or a defensive frack, meaning a defensive frack is coupled with new drills. So they're refracking legacy wells while they're drilling the new drills. And then you've also got kind of an offensive refrack.
James B. Evans: The bulk of that work is going to be done in the third and the fourth quarters.
James B. Evans: It's also going to depend on whether or not it's an offensive or defensive frac.
James B. Evans: Defensive Frac is coupled alongside new drills, and so they're re fracking legacy wells, while they're really.
James B. Evans: The new drills and then you've also got kind of an offensive re fracs.
Jim: And that's going to be effectively going into, you know, pretty much a fully developed legacy unit and then refracking it. That's going to depend on the depletion as well as, you know, the completion methodology. And so it's very intensive in terms of what our technical team is underwriting. The REFRAC proposals that we've received in Williston have been kind of through Grayson, Mill, and now ultimately Devin, and you've seen, you know, some of their commentary there. So I think we're relatively encouraged, and they continue to kind of tweak and refine things. Your next question comes from the line of Noel Parks with the Tui Brothers. Your line is open. Hi, good morning.
Speaker Change: And that's going to be effectively going into.
Speaker Change: Pretty much a fully developed legacy unit and then re fracking those thats going to depend on the depletion as well as the completion methodology and so it's very intensive in terms of what our technical team is underwriting, but I would say that.
Noah: Probably two thirds of.
Noah: The re frac proposals that we received in the Williston.
Devin: Then kind of through the mill and now ultimately Devin and you've seen some of their commentary there. So I think we're relatively encouraged.
Noah: And they continue to kind of.
Noah: We can refine things.
Noah: Yeah.
Speaker Change #117: Your next question comes from the line of Noel Parks with Tuohy Brothers. Your line is open.
Noel Augustus Parks: Hi, good morning.
Noel Augustus Parks: You know, I'm just looking at the announcement you just had with Vital and I'm just curious, in the M&A landscape of what you've seen, the potential deals coming to you and so forth, I'm just wondering about your thoughts on sort of a prolific, but still gassier, part of Delaware, you know, somewhere further south. Just wondering how much you're seeing out there in the market and whether you're, you know, kind of what your appetite is in that part of the play, all things being equal.
Speaker Change: Just looking at the.
Speaker Change #119: This announcement, you just had with with vital and.
Noel Augustus Parks: Additionally, our position in the Permian.
Speaker Change #104: I'm just curious.
Speaker Change #112: M&A landscape of what you are seeing.
Speaker Change #112: Potential deals coming to you and so forth.
Speaker Change #116: Wondering about your thoughts on sort of the.
Speaker Change #104: Prolific but still gasior.
Noel Augustus Parks: Parts of the Delaware somewhat further south.
Noel Augustus Parks: Just wondering how much you are seeing out there in the market and whether you're kind of what your appetite is.
Noel Augustus Parks: Pilot plan, all things being equal.
Noel Augustus Parks: Yeah, I mean, as you go south into Delaware, the geology, it doesn't mean it's all bad, but the geology becomes very complex, right? You have a lot of faulting, specifically in Reese County. And as you get into Baker, it's a very challenging geology.
Noel Augustus Parks: Yes.
Speaker Change #126: As you go south in the Delaware that it doesn't mean, it's all bad but the geology becomes very complex right do you have a lot of faulting.
Noel Augustus Parks: Specifically in Reeves County.
Speaker Change #114: And as you get into a very job, it's a very challenging geology. So there are people, who know how to do it its operator by operator and so it can be done.
Nick: So there are people who know how to do it. It's operator by operator. And so it can be done. But I would say it is definitely something you wouldn't go with, as you would say, not with a hammer, but with a scalpel.
Speaker Change #114: But I would say it is definitely something you would you wouldn't go with <unk>.
Speaker Change #120: You could say now with a hammer, but with a scalpel.
Nick: And so I think it's not something that's out of the question. It's just something that requires more of a fine-toothed comb. You know, certainly it's, you know, it's a different paradigm, but what I would tell you is that we're focused on quality, but I would also tell you that, you know, inventory in general in the country is changing, and some people would tell you that they're looking for the next wave of inventory. And that is something, you know, that we have to adapt to in the world, which is that, ultimately, we have to recognize in the United States that sticks are becoming more and more scarce.
Noel Augustus Parks: And <unk>.
Noel Augustus Parks: So I think its not something Thats. Obviously, a question that is just something that requires a more of a fine tooth comb.
Noel Augustus Parks: Certainly.
Speaker Change #103: A different paradigm, but.
Speaker Change #103: What I would tell you that where we.
Speaker Change #103: We're focused on quality, but I would also tell you that.
Speaker Change #103: Inventory in general in the country is changing and some people would tell you that theyre looking for the next wave of inventory and that is something that we have to.
Speaker Change #103: Adapt in the world, which is that ultimately we have to recognize in the United States that sticks are becoming more and more scarce and so this may be what is the new paradigm in a few years and so will evolve as the market does dovetailing off of that and I think it's evident.
Nick: And so this may be what the new paradigm is in a few years. And so we'll evolve as the market does. But I'm dovetailing off of that.
Adam: And I think it's evident in terms of what we've seen in Williston with operators refining completion techniques and stepping out. And, you know, if we're focused on rate of return, we need to continue to monitor the dynamics and the changes there. We've obviously looked in Southern Delaware before, and there have been a number of opportunities that haven't necessarily fit the bill.
Speaker Change #103: In terms of what we've seen in the Williston.
Speaker Change #124: Operators to refining.
Speaker Change #103: And stepping up.
Noel Augustus Parks: If were focused on rate of return we need to.
Noel Augustus Parks: To monitor the dynamics and the changes there, we've obviously looked southern Delaware before.
Noel Augustus Parks: That's been a number of opportunities that haven't necessarily fit the bill.
Adam: But as, you know, operations change hands, that, you know, using forages as an example, we've seen a 13% reduction in well costs, and we've seen, you know, early performance on, you know, underwritten type curves that have exceeded by roughly 20%, right? And so if we start, you know, rolling those types of changes into acreage that otherwise wouldn't necessarily pass our griddle rates, then maybe that So that's why we're continuing to do our look backs, both with our operating partners, as well as the folks that were participating on a heads up basis.
Noel Augustus Parks: But as <unk>.
Noel Augustus Parks: Operations change hands using order just as an example, we've seen a 13% reduction in well costs and we've seen that.
Noel Augustus Parks: Early performance.
Noel Augustus Parks: Underwritten the type curves that are exceeded by roughly 20% right and so if we start rolling those types of changes into acreage that otherwise didn't necessarily pass our hurdle rates then maybe that changes in the future. So that's why we're continuing to do are look backs, both with our operator partners as well as the folks that were participating.
Speaker Change #132: On a heads up basis.
Adam: And if those things continue to change and we've got conviction in that, then that's something that we'll honor. Your next question is a follow-up from Charles Meade with Johnson Rice. Your line is open. Thanks for letting me back in the queue there.
Noel Augustus Parks: If those things continue to change and we've got conviction in that and Thats something that will honor.
Noel Augustus Parks: Your next question is a follow up from Charles Meade with Johnson Rice. Your line is open.
Charles Arthur Meade: Thanks for letting me back in the queue there.
Charles Arthur Meade: Nick, I wanted to ask a question about these co-purchase deals, the dynamics, and the motivations of your partners. When I think about what they would... look for or the advantages they get from partnering with you. I think about, well, first off, they can kind of get the size of the deal where they want it. But truthfully, if you're taking it 20 percent, which isn't maybe that big a delta, I think that I don't imagine that you're bringing a lower cost of capital or significantly lower cost of capital. Um, and I think that perhaps from the operator's point of view, they're reducing their LOE a bit by...
Noel Augustus Parks: Nick I wanted to ask a question about the <unk>.
Speaker Change #113: These co purchase deals the dynamics and the motivations of your of your.
Speaker Change #115: Your partners, but when I think about.
Speaker Change #140: They would look for are the advantages they get from partnering with you I think about well first of all I think you kind of get the size of the deal where they want it but truthfully if youre, taking a 20%.
Noel Augustus Parks: Cut that's not maybe it's that big a delta I think that I don't imagine that youre, bringing on lower cost of capital or significantly lower cost of capital to the deal.
Noel Augustus Parks: And I think.
Noel Augustus Parks: That perhaps from the operator's point of view.
Speaker Change #134: Do you see there a.
Noel Augustus Parks: A bit by.
Nick: Charging you some overhead, but what are the, what do you think, you know, when you sit down with these guys, what is the? They can't charge us over that. What do you bring to the table for them? Say it again. They can't charge us overhead, not but they cannot okay? I mean, you pay. No, we pay that, typical, we pay LOE straight. It's just it's an undivided, But the answer is, you hit at the same thing, which is that.
Speaker Change #122: Charge you used some overhead but what are the what do you think when you sit down with these guys look at what is the net.
Speaker Change #142: They can't charges, what do you bring to the table for them.
Noel Augustus Parks: So again.
Noel Augustus Parks: They can't charges overhead.
Noel Augustus Parks: But cannot okay.
Speaker Change #129: I mean, you pay.
Speaker Change #130: No we paid debt tip.
Noel Augustus Parks: Typical.
Noel Augustus Parks: We pay a low straight.
Noel Augustus Parks: It's just it's an undivided interest.
Noel Augustus Parks: But.
Noel Augustus Parks: The answer is yes.
Speaker Change #111: You hit it the same thing what you said.
Speaker Change #111: Yes.
Speaker Change #111: Okay.
Nick: If it's the cost of capital. It's very simple, which is that if you're a company and you are looking, I mean, I can't answer the motivations for every company, so I mean, you're asking me to answer somebody else's question. What I would tell you is that we're an oil and gas company, right? At the end of the day, we are certainly a financial owner in many ways, but we're not. So our cost of capital, in some ways, is higher, right? But if you're a private equity firm, your main goal is to own it for five years and then flip it, right? And they require a lot of maintenance.
Speaker Change #107: If its cost of capital.
Speaker Change #107: It is very simple which is that.
Speaker Change #127: If you're a company and you are looking I mean, I can't answer the motivations for every company. So youre asking me to answer somebody else's question, but.
Speaker Change #107: What I would tell you is that we're an oil and gas company right at the end of the day, we are certainly a financial owner and in many ways, but we're not.
Speaker Change #107: A financial entity or a permanent owner of the assets right. We're not we're not turning it into a security so our cost of capital in some ways it's higher.
Speaker Change #107: But.
Speaker Change #128: If you are a.
Speaker Change #123: Private equity firms you are main goal is to own it for five years, and then slip it right.
Speaker Change #123: And you require a lot of maintenance and so your cost of capital might be lower than ours, but then at the end of the day, it's heads or tails I win because I needed to be a security and then I need you to buy me out at the end and I need you to manage it and do all these things.
Nick: And so your cost of capital might be lower than ours. But then, at the end of the day, heads or tails, I win, because I need to be the security, and then I need you to buy me out at the end. And I need you to manage it and do all these things, and then turn it around.
Nick: Whereas for us, we're a true oil and gas concern. So from the operator's perspective, we're a great, quote, silent partner because we understand, and we can underwrite alongside them. We have our own engineering team. We literally can sit down with them, and we do our own underwriting, right? Number one, our technical team has become a great sounding board because they can sit there and say, they know that we agree with them when we go through this process, when we're going to purchase these things, so that we know we all agree.
Speaker Change #123: And then turn it around whereas for us where to oil and gas concerns from so from the operator's perspective, or a great quote silent partner because.
Speaker Change #145: We understand and we can underwrite alongside them, we have our own engineering team, we literally can sit down with them and we do our own underwriting right number one our technical team become a great sounding board because they can sit there and say they know that we agree with them when they go through this process, we're going to purchase these things.
Speaker Change #145: But and so that we know we all agree but number two for those partners they can understand that.
Nick: But number two, for those partners, they can understand that when they're going to size these transactions, they're not stretching themselves financially, right? But if they take on more debt or they take on another financial partner, they have to deal with that party at some point, whereas we own it forever, right? And they don't have to worry about what we're going to do with the other end or buying us out. Or if something goes wrong in the case of a security in which that person says they have to be paid or that, you know, a VPP where, in a VPP, I'm not sure you're aware, but if the volumes disappoint, you have to give them more volumes, right? So no matter what happens, you pay the man, right?
Speaker Change #123: Theyre going to size of these transactions they are not stretching themselves financially right and but if they take on more debt or they take on another financial partner they have to deal with that party at some point, whereas we own it forever and they don't have to worry about what we're going to do at the other end or buying us out or if something goes wrong in the case of a security and <unk>.
Speaker Change #125: That person said they have to be paid or that.
Speaker Change #101: VP, where <unk> im not sure Youre aware, but if the volumes disappoint you have to give them more volumes right. So no matter what happens you pay the man right and so.
Speaker Change #101: Ultimately, we wind up being a much better partner, where we take risk alongside an undivided interest means we share in the benefits and if things go wrong.
Speaker Change #141: Your next question is a follow up from Phillips Phillips Johnston with capital one your line is open.
John Phillips Little Johnston: And so ultimately, we wind up being a much better partner where we take risks alongside an undivided interest means we share in the benefits and if things go wrong. Your next question is a follow-up from Phillips Johnston with Capital One. Your line is open. Hey, thanks for the follow up. It's early to talk about 25. I know, but just from a directional standpoint, it looks like consensus capex next year is around 975, which is pretty similar to this year. Just wondering if you guys would potentially envision a higher spend next year, considering your implied capital efficiency for this year's program is helped by about 20 more net tills than what you have plans for net spud.
John Phillips Little Johnston: Yeah, Phillips, it's a little early. But I would just say this, like, you know, looking at the consensus so far, we haven't seen anything we really object to. But again, I don't want to, it's too early to truly opine on it. But so far, we haven't seen anything that is terribly scary, question and answer session.
John Phillips Little Johnston: Hey, thanks for the follow up.
Speaker Change #133: It's early to talk 25, I know, but just from a directional standpoint.
Speaker Change #144: It looks like consensus Capex next year is around $9 75, which is pretty similar to this year just.
Speaker Change #143: I'm wondering if you guys would potentially envision a higher spend next year.
Speaker Change #118: Considering Europe.
Speaker Change #135: Implied capital efficiency for this year's program.
Speaker Change #146: By about 20 more net sales than what you have plans.
Speaker Change #118: Net spuds.
Speaker Change #118: Yes.
Speaker Change #136: Little early but I would just say this.
Speaker Change #138: Looking at consensus so far we haven't seen anything we've really object to but again I don't want.
Speaker Change #118: It's too early to truly opine on it but so far we haven't seen anything that is terribly scared us.
Speaker Change #118: This concludes the question and answer session I'll turn the call to Nick O'grady for closing remarks.
Operator: I'll turn the call over to Nicco Grady for closing. Thank you for joining us today. We appreciate your continued support and look forward to touching base with you in the coming weeks. This concludes today's conference call. We thank you for joining us. You may now disconnect.
Nick O'Grady: Thank you for joining us today. We appreciate your continued support and look forward to touching base with you in the coming weeks.
Speaker Change #131: This concludes today's conference call. We thank you for joining you may now disconnect.
Speaker Change #131: Okay.