Q2 2024 Permian Resources Corp Earnings Call
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Operator: Good morning, and welcome to today's Permian Resources conference call to discuss its second quarter 2024 earnings. Today's call is being recorded. A replay of the call will be accessible until August 21, 2024 by dialing 800-925-9354 and entering the replay access code 24995 or by visiting the company's website at www.permianres.com. At this time, I would like to turn the call over to Hays Mabry, Permian Resources' Vice President of Investor Relations, for some opening remarks. Please go ahead.
Speaker Change: Good morning and welcome to Permian Resources conference call to discuss its second quarter 2024 earnings.
Speaker Change: Today's call is being recorded. A replay of the call will be accessible until August 21, 2024 by dialing 800-925-9354 and entering the replay access code
Speaker Change: 24995, or by visiting the company's website at www.fema.gov.
Speaker Change: At this time, I would like to turn the call over to Hays Mabry, Permian Resources Vice President of Investor Relations, for some opening remarks. Please go ahead.
Hays Mabry: And thank you all for joining us on the company's second quarter earnings call. On the call today are Will Hickey and James Walter, our Chief Executive Officers, and Guy Oliphant. Andrew Office. Yesterday, August 6th.
Hays Mabry: Thank you, Brittany, and thank you all for joining us on the company's second quarter earnings call.
Speaker Change: On the call today are Will Hickey and James Walter, our Chief Executive Officers.
Speaker Change: and Guy Oliphint.
Speaker Change: Prudential officer.
Hays Mabry: We will follow the Form 8K with an earnings release reporting second quarter results for the company. We have also posted an earnings presentation on our website that we will reference during today's call. I would like to note that many of the comments during this earnings call are forward-looking statements that involve risk and uncertainties that could affect our actual results and plans. Many of these risks are beyond our control and are discussed in more detail in the risk factors in the forward-looking statement sections of our filings with the SEC, including our Form 10-Q, which is expected to be filed later this afternoon.
Speaker Change: Yesterday, August 6th.
Speaker Change: We filed a Form 8-K with an earnings release reporting second quarter results for the company.
Speaker Change: We also posted an earnings presentation to our website.
Speaker Change: that we will reference during today's call.
Speaker Change: I would like to note that many of the comments during this earnings call
Speaker Change: are forward-looking statements that involve risk and uncertainties that could affect our actual results and plans.
Speaker Change: Many of these risks are beyond our control and are discussed in more detail in the risk factors in the forward-looking statement sections of our filings with the SEC.
Speaker Change: including our Form 10-Q , which is expected to be filed later on this afternoon.
Hays Mabry: Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance, and actual results or developments may differ materially. We may also refer to non-GAAP financial measures, which helps facilitate comparisons across periods and with our peers. For any non-GAAP measure we use, a reconciliation to the nearest corresponding gap measure can be found in our earnings release or presentation, which are both available on our website. With that, I will turn the call over to Will Hickey, Co-CEO.
Speaker Change: and actual results or developments may differ materially. We may also refer to non-GAAP financial measures that help facilitate comparisons across periods and with our peers.
Speaker Change: For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation, which are both available on our website.
Speaker Change: With that, I will turn the call over to Will Hickey, Co-CEO.
Will Hickey: Permian Resources continued to deliver strong results during the second quarter, highlighted by improvement in operational efficiencies that support us raising our full-year production guidance for the second consecutive quarter, while maintaining other guidance ranges. Additionally, we announced the highly accretive BreaDraw acquisition from Oxy last week, which adds significant high-return inventory in the core of the Texas-Delaware that immediately competes for capital.
Will Hickey: Thanks, Hays.
Will Hickey: Permian Resources continued to deliver strong results during the second quarter, highlighted by improvement in operational efficiencies that support us raising our full year production guidance for the second consecutive quarter, while maintaining other guidance ranges.
Will Hickey: Additionally, we announced the highly accretive BREA draw acquisition from Oxy last week, which adds significant high return inventory in the core of the Texas-Delaware that immediately competes for capital.
Will Hickey: The PR team continues to perform at a very high level operationally while executing on a creative M&A, and we look forward to sharing some more detail on Q2 today. Moving into quarterly results, I'm pleased to announce Q2 production exceeded expectations, with oil production of 153,000 barrels of oil per day and total production of 339,000 barrels of oil equivalent per day. Our strong performance was attributable to multiple factors, including DNC efficiencies that accelerated cycle times, strong run times in the field, and consistent well performance. For example, we averaged 1,500 drilled feet per day and over 21 pumping hours per day in Q2, which are both company records for a quarter.
Will Hickey: As a result, we're raising our full-year oil guidance for the second consecutive quarter, amounting to a 4.5 thousand barrels of oil per day increase in total when compared to our initial guidance in February. Notably, 3.7 thousand barrels of oil per day of our guidance increase this year is a direct result of outperformance of our base. Given the strong DNC efficiencies, which drove a 13% cost improvement in Q2 when compared to 2023, we are also increasing our 2024 till guidance by approximately 15 wells, with no change to our CapEx guidance.
Will Hickey: Notably, 3.7 thousand barrels of oil per day of our guidance increase this year is a direct result of outperformance of our base business.
Will Hickey: Additionally, we saw particularly strong gas and NGL performance this quarter, which was driven primarily by an increase in gas processors switching to ethane recovery due to the current Permian gas market. On the cash cost side, Q2 was one of the strongest quarters we have had to date. Workover costs were significantly reduced in Q2 due to low failure rates on downhole lift equipment and a reduction in cost per failure. We continue to optimize all of our recently acquired wells, and we're able to quickly improve equipment and implement our best practices to drive efficiency. Additionally, we've expanded our water recycling efforts to minimize freshwater use while also reducing costs.
Will Hickey: As a result, Q2 LOE of $5.18 exceeded our expectations. Our relentless focus on cost controls also supported a low cash G&A of $0.85 per BOE. Strong production results, reduced cash costs, and CapEx of $516 million in the quarter resulted in adjusted operating cash flow of $849 million, or $1.10 per share, and adjusted free cash flow of $332 million, or $0.43 per share. Turning to slide 5, our all-in quarterly return of capital was $0.25 per share.
Will Hickey: As a result, Q2 LOE of $5.18 exceeded our expectations. Our relentless focus on cost controls also supported low cash G&A of $0.85 per BOE in the quarter.
Will Hickey: This was comprised of our base dividend of $0.06 per share, a variable dividend of $0.15 per share, and a repurchase of 1.8 million shares in the quarter in connection with the May secondary offer between our private equity shareholders and PR. to 15% today, with PR delivering peer-leading total shareholder returns during that period. Going forward, we expect the remaining three shareholders to be much more long-term oriented, with significantly fewer and less frequent secondary sales. With that said, I will now turn it over to you.
Will Hickey: Going forward, we expect the remaining three shareholders to be much more long-term oriented with significantly fewer and less frequent secondary sales. With that, I will now turn it over to James.
James Walter: Thanks Will. On July 29th, we announced a highly accretive $817 million acquisition of Vox. These are assets that we have been keeping an eye on for quite a long time that fit extremely well with our existing footprint. The Eddy County acreage was identified as part of our ongoing grassroots acquisition program in New Mexico. And the Berea Draw assets share approximately 20 miles of lease line with our legacy Texas position. The acquisition comes with an attractive production base and free cash flow profile, which are paired with over 200 long-lateral, high NRI locations that immediately compete for capital.
James Walter: These are assets that we have been keeping an eye on for quite a long time that fit extremely well with our existing footprint.
James Walter: The Eddy County Acreage was identified as part of our ongoing grassroots acquisition program in New Mexico, and the Berea Draw assets share approximately 20 miles of lease line with our legacy Texas position.
James Walter: The purchase price of $817 million reflects a 3.4 times EBITDA multiple and a 17% pre-cash value. The asset is further enhanced by an attractive portfolio of midstream infrastructure and surface acreage that support the long-term development of the asset. The infrastructure consists of over 100 miles of operated oil, gas, and water gathering pipelines with ample capacity to handle additional PR and third-party volume.
James Walter: The purchase price of $817 million reflects a 3.4 times EBITDA multiple and a 17% pre-cash flow yield.
James Walter: The asset is further enhanced by an attractive portfolio of midstream infrastructure and surface acreage that support the long-term development of the asset.
James Walter: The infrastructure consists of over 100 miles of operated oil, gas, and water gathering pipelines with ample capacity to handle additional PR and third-party volumes.
James Walter: These assets provide optionality to enhance margins or to pull forward value via asset sales at some point in the future. PR's leading cost structure and the proximity of its existing operations provide confidence that we will be able to drive attractive, incremental returns for our shareholders over the near-term, mid-term, and long-term. Turning to slide 7, we highlight that maintaining a strong balance sheet continues to be a top priority for PR, as it has been since we founded the predecessor business all the way back in 2015.
James Walter: These assets provide optionality to enhance margins or to pull forward value via asset sales at some point in the future.
James Walter: PR's leading cost structure and the proximity of our existing operations provide confidence that we will be able to drive attractive, incremental returns from our shareholders over the near-term, mid-term, and long-term.
James Walter: Turning to slide seven, we highlight that maintaining a strong balance sheet continues to be a top priority for PR, as it has been since we founded the predecessor business all the way back in 2015.
James Walter: It all starts with our world-class asset base and low-cost leadership that drives strong cash flow margins and low break-evens. Our commitment to protecting our balance sheet is demonstrated by our low leverage, long-dated maturity profile, and maximum liquidity position. Last week, we executed a $400 million equity offering and issued $1 billion of bonds to finance the Oxy acquisition, fully pay down our RBL, and pay off a 2026 bond maturity. Since April, we have now redeemed over $650 million of notes, further extending our bond duration.
James Walter: Last week we executed a $400 million equity offering and issued $1 billion of bonds to finance the Oxy acquisition, fully pay down our RBL, and pay off a 2026 bond maturity.
James Walter: Since April , we have now redeemed over $650 million of notes, further extending our bond durations.
James Walter: Also in April, we upsized our RBL's elected commitments from $2 billion to $2.5 billion, making our current RBL the largest in the industry. This provides us with approximately $2.5 billion of liquidity pro forma for the OXY closing, and the $4 billion barring base that accompanies it ensures we'll have access to this capital at lower than mid-cycle commodity prices. We have also maintained a consistent head strategy to support free cash flow generation and low leverage. We've hedged approximately 30% of expected oil production for the remainder of 2024 at $74 a barrel and have over 40,000 barrels per day hedged for 2025 at $73 a barrel.
James Walter: Also in April , we upsized our RBL's elected commitments from $2 billion to $2.5 billion, making our current RBL the largest in the industry.
James Walter: This provides us with approximately $2.5 billion of liquidity pro forma for the Oxy closing and the $4 billion barring base that accompanies it ensures we have access to this capital at lower than mid-cycle commodity prices.
James Walter: We have also maintained a consistent hedge strategy to support free cash flow generation and low leverage. We have hedged approximately 30% of expected oil production for the remainder of 2024 at $74 a barrel, and have over 40,000 barrels per day hedged for 2025 at $73 per barrel.
James Walter: In July, we received upgrades from both Moody's and S&P. We have comparable attributes to our investment grade peers and are targeting our own investment grade credit ratings in 2025. The cumulative effect of all this activity is that we have the strongest balance sheet with the most liquidity at any point since PR's formation in 2020. Since Q1 2023, we've maintained leverage of approximately one times while substantially growing the size and scale of the business through over $6 billion of highly accretive acquisitions.
James Walter: In July , we received upgrades from both Moody's and S&P.
James Walter: We have comparable attributes to our investment grade peers and are targeting our own investment grade credit ratings in 2025.
James Walter: The cumulative effect of all this activity is that we have the strongest balance sheet with the most liquidity at any point since PR's formation in 2022.
James Walter: Since Q1 2023, we have maintained leverage of approximately 1x, while substantially growing the size and scale of the business through over $6 billion of highly accretive acquisitions.
James Walter: Those transactions, combined with our strong operational execution, have allowed us to grow free cash flow per share by over 60% without increasing leverage. This now marks our 8th consecutive quarter of operational excellence as a pump company and furthers our track record as the leading operator in the Delaware Basin. We are proud of our team's continued execution, which is highlighted on slide nine by our ability to increase both turn-in lines and production guidance while maintaining all other previous guidance ranges.
James Walter: Those transactions, combined with our strong operational execution, have allowed us to grow free cash flow per share by over 60% without increasing leverage.
James Walter: This now marks our eighth consecutive quarter of operational excellence as a pump company and furthers our track record as the leading operator in the Delaware Basin.
James Walter: We are proud of our team's continued execution, which is highlighted on slide 9, by our ability to increase both turn-in lines and production guidance while maintaining all other previous guidance ranges.
James Walter: We have now increased our oil guidance by 3% this year, the majority of which comes from the continued outperformance of our base. The revised guidance outlined on slide 9 does not include the impact of the oxy-borea-draw acquisition we announced last week.
James Walter: We have now increased our oil guidance by 3% this year, the majority of which comes from the continued outperformance of our base business.
James Walter: The revised guidance outlined on slide 9 does not include the impact of the OxyBorea draw acquisition we announced last week.
James Walter: We expect that acquisition to close in late Q3 and to add approximately 15,000 BOE a day during the fourth quarter. 2024 is shaping out to be a very strong year for PR and we are excited to continue to build on our track record of strong operational performance, financial discipline, and leading shareholder. I will be concluding today's prepared remarks on slide 10, where we reemphasize our value proposition for investors. The strength of our business is underpinned by an industry-leading cost structure, low break-evens, and long-dated high-return inventory, which together have driven leading free cash flow for share growth for our investors.
James Walter: We expect that acquisition to close in late Q3 and to add approximately 15,000 BOE a day during the fourth quarter.
James Walter: 2024 is shaping out to be a very strong year for PR, and we are excited to continue to build on our track record of strong operational performance, financial discipline, and leading shareholder returns.
James Walter: I will be concluding today's prepared remarks on slide 10, where we reemphasize our value proposition for investors.
James Walter: The strength of our business is underpinned by an industry-leading cost structure, low break-evens, and long-dated high return inventory, which together have driven leading free cash flow per share growth for our investors.
James Walter: Since the company was formed in 2022, we have delivered best-in-class returns for our sector and outpaced the S&P 500 by over two times. Our performance over the last two years has been driven primarily by low-cost execution, financial discipline, and accretive transactions, rather than the material re-rating of our multi- We remain committed to doing anything and everything we can to maximize value for our shareholders going forward. Thank you for tuning in today, and we will now turn it back to the operator for a question and answer session.
James Walter: Since the company was formed in 2022, we have delivered best-in-class returns for our sector and outpaced the S&P 500 by over two times.
James Walter: Our performance over the last years has been driven primarily by low-cost execution, financial discipline, and accretive transactions, rather than the material rewriting of our multiple.
James Walter: We remain committed to doing anything and everything we can to maximize value for our shareholders going forward.
Speaker Change: Thank you for tuning in today, and we will now turn it back to the operator for question and answer session.
Operator: Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star and then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 2. We'll take our first question from Neal Dingmann with Truist Securities. Your line is now open.
Speaker Change: Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star then the number 1 on your telephone keypad.
Neal Dingmann: Morning, fellas. Nice quarter.
Speaker Change: Morning fellas, nice quarter. Guys, my first question is on your operating efficiency, specifically given your continued improved cycle times, I'm just wondering, do you all anticipate...
Speaker Change: Lowering D&C activity this year and maybe could you speak to how you're thinking about the D&C activity once the Barilla draw closes I guess I guess what I'm asking there's is the goal once that closes to the remain sort of stable Production or would you think about maybe incremental production growth?
Neal Dingmann: Guys, my first question is on your operating efficiency. Specifically, given your continued improved cycle times, I'm just wondering, do you all anticipate lowering DNC activity this year? And maybe could you speak to how you're thinking about DNC activity once the barrel draw closes? I guess what I'm asking there is, is the goal, once that closes, to remain sort of stable production? Or would you think about maybe incremental production growth?
Will Hickey: Yeah, Neal, this is Will. I'd say the plan on the stand today is to kind of maintain the rig count and frack count that we have today. So we've obviously kind of picked up the pace here a little bit, bringing what we think will be about 15 incremental wells into the year. The fortunate position we're in is that we've seen kind of a pretty material drop in well costs on a per foot basis, just given these efficiencies.
Speaker Change: The fortunate position we're in is that we've seen kind of a pretty material drop in well costs on a per foot basis, just given these efficiencies.
Will Hickey: So I think that our current plan is to kind of keep up with the activity and let those reductions in cost per well kind of keep us well within our CapEx range. And then, once we close BREA Draw, I think the current plan today is that we are going to drill a pad on BREA Draw back half of this year, call it Q4. But I think it'll be more of a substituting BREA Draw for something else that was scheduled in Q4. So think of it more as kind of a swap out than adding incremental activity. And then 25, it's really too early to tell.
Speaker Change: I think that our current plan is to kind of...
Speaker Change: Keep up with the activity and let those reductions in cost per well kind of keep us well within our capex range. And then as once we close BREA draw, I think the...
Speaker Change: Current plan today is we are going to drill a pad on BREA draw back half of this year, call it Q4, but I think it'll be more kind of substituting BREA draw for something else that was scheduled in Q4, so think of it more as
Speaker Change: And then 25, it's really too early to tell. I think that one thing is very clear is that the kind of capital efficiency of our business with kind of lower cash costs.
Will Hickey: I think that one thing's very clear is that the kind of capital efficiency of our business with the kind of lower cash costs, Flatwell Productivity, and Reduced CapEx, the widget is as good as it's ever been. But that's against a backdrop of commodity prices that have obviously kind of taken a step change, or at least a... a little bit of a change in the last week or two, so we'll see how all those play out over the coming months and quarters and then make the decision on what makes sense for the business in 2025.
Speaker Change: Flatwell Productivity, and Reduce CapEx, the widget is as good as it's ever been. But that's against a backdrop of commodity prices that's obviously kind of taken a step change or at least a...
Speaker Change: A little bit of a change in the last week or two, so we'll see how all those play out over the coming kind of months and quarters and then make the decision on what makes sense for the business in 2025.
Neal Dingmann: Yeah, I think the market likes to hear that, Will. Thanks.
Speaker Change: Yeah, I think the market likes to hear that, Will. Thanks. And then my second question is on the Royalty Acres.
Speaker Change: Specifically, you all now have a material position, I think in the deck it shows around 85,000.
Speaker Change: Can we assume much of the upcoming targeted activity will be, you know, on those acres, or on those mineral acres, or is there, I guess, maybe ask another thing there, is there any reason to consider monetizing some of these minerals given how high prices are for minerals these days?
Neal Dingmann: And then my second question is on the royalty acres. Specifically, you all now have a material position, I think, on the deck that shows around $85,000. Can we assume much of the upcoming targeted activity will be, you know, on those acres or on those mineral acres? Or is there, I guess, maybe ask another thing there? Is there any reason to consider monetizing some of these minerals given how high prices are for minerals these days?
Speaker Change: Yeah, no, that's a great question, Neal. I appreciate you pointing that out. I think that's kind of an important part of our business. I'd say, look, as we're thinking about where to send rigs, we're always focused on allocating capital to our highest rate of return.
Speaker Change: Projects in Highest Rate of Return Areas, and I think you hit the nail on the head that
Speaker Change: That royalty portfolio is a big part of that. I think we can't understate enough how important that is to overall driving economics and capital efficiency. I think an 80 percent NRI compared to a 75 percent is a real step change in returns and capital efficiency.
Will Hickey: Yeah, no, that's a great question. I appreciate you pointing that out. I think that's kind of an important part of our business. I'd say, look, as we're thinking about where to send rigs, we're always focused on allocating capital to our highest rate of return projects and highest rate of return areas. And I think you hit the nail on the head that that royalty portfolio is a big part of that. You know, I think we can't understate enough how important that is to overall driving economics and capital efficiency.
Speaker Change: I do think, though, given kind of how impactful that could be to the business and the kind of rates of return that we see on projects, I don't see us doing anything to monetize that position today, especially on the operated footprint. It's just kind of too important to our overall...
Speaker Change: Thank you all.
Neal Dingmann: Great details. Thank you all.
Will Hickey: You know, I think an 80% NRI compared to a 75% is a real step change in returns and capital efficiency. I do think, though, given kind of how impactful that could be to the business and the kind of rates of return that we see on projects, I don't see us doing anything to monetize that position today, especially on the operated footprint. It's just kind of too important to our overall system in our longer-term returns. So I think we love it. And we're really glad to have it in our portfolio; no immediate plans to monetize it. Great.
Scott Hanold: Thanks, Neal. Thank you. We'll take our next question from Scott Hanold with RBC Capital Markets. Your line is open.
Speaker Change: Thanks Neal. Thanks Neal. Thank you. We'll take our next question from Scott Hanold with RBC Capital Markets. Your line is open.
Scott Hanold: Thanks, good morning all. Hey, just back to sort of activity pace and Borrelia's jaw. Look, it seems like, you know, obviously you're having some good operational efficiency, good well performance. Do you think even, you know, loading in Borrelia's jaw into the mix, and again, I know you're not going to give 20-25 guidance, but do you generally think your current pace of activity without adding any activity and lumping in Borrelia's jaw, I mean, is that at, you know, are we at a maintenance pace at least right now with current activity, even adding those assets?
Scott Hanold: Thanks, good morning all. Hey, just back to sort of activity pace and BarillaJaw, you know, look, it seems like, you know, obviously you're having some good operational efficiency, good well performance. Do you think even, you know, loading in BarillaJaw into the mix,
Scott Hanold: And again, I know you're not going to give 20-25 guidance, but do you generally think your current pace of activity without adding any activity and lumping in Borrelia jaw, I mean...
Speaker Change: Is that at, you know, are we at a maintenance pace at least right now with current activity even adding those assets?
Will Hickey: Yeah, I think kind of just given the fact that we've increased the number of wells per rig per year. We can drill pretty meaningfully over the last two or three quarters.
Speaker Change: Yeah, I think kind of just given the...
Speaker Change: You know we've increased the number of wells per rig per year We can drill pretty meaningfully over the last two or three quarters and that increase I think
Will Hickey: And that increase, I think, definitely has us, under the current rig count, we can, it would be more than a maintenance case pro forma for berea drawback. I don't think it's a lot more, it's probably a couple percent growth, something like that, you know, very close to a maintenance case, but we are in a great position as we kind of look at what the right rig count and what the right frack fleet count will be in 2025. Being able to do more with less gives us a lot of flexibility.
Speaker Change: definitely has us under the current rig count we can, it would be more than a maintenance case.
Speaker Change: Proforma for Berea Draw. I don't think it's a lot more, it's probably a couple percent growth, something like that, you know, very close to a maintenance case, but we are in a great position that as we kind of look at what's the right rig count and what's the right frack fleet count in 2025, that
Will Hickey: If we want a kind of small amount of growth, we can maintain the current rig count. And if we want to dial up the growth engine, obviously, we'd probably go grab a little bit more equipment. But the answer to your question is yes, it's more than maintenance.
Will Hickey: Okay, okay, great to hear. And then just sticking on just the general M&A kind of landscape and, you know, look, you guys have been successfully able to integrate assets quickly, you know, cut costs. So, you know, obviously, you have been, you know, you know, been very, very good at that. And I couldn't help but notice you talked a couple times in your prepared comments about having amongst the most liquidity since, you know, the combination of, you know, Colgate and Centennial.
Speaker Change: Okay, okay, great to hear. And then just sticking on just general M&A kind of landscape and...
Speaker Change: You know, look, you guys have been successfully able to integrate assets quickly, you know, cut cost. So, you know, obviously, you know, have been, you know, you know, been very, very good at that. And I couldn't help but notice you talked a couple times in your prepared comments about, you know, having amongst the most liquidity, you know, since, you know, the combination of.
Will Hickey: So, you know, look, you know, what do you see on the M&A front right now? And what is your, you know, appetite to do things from a small bolt-on case versus, you know, larger acquisitions at this point? Yeah, no, that's a great point.
Speaker Change: Colgate, and Centennial. So, you know, look, you know, what do you see on the M&A front right now and what is your, you know, appetite to do things from a small bolt-on case versus, you know, larger acquisitions at this point?
Will Hickey: Yeah, that's a great point. I do think I'll point out the references to liquidity. I would say we're more focused on the kind of strength and consistency of our business and up cycles and down cycles than probably anything related to M&A. You know, I think the most important part of the balance sheet is not that it allows us to do these strategic acquisitions; it's that it protects our business and protects our ability to create value in down cycles. So I think that was the main point we were trying to make in those prepared remarks.
Speaker Change: Yeah, no, that's a great point. I do think I'll point out the references to liquidity. I would say we're more focused on
Speaker Change: The kind of strength and consistency of our business in up cycles and down cycles, and probably...
Speaker Change: Anything related to M&A, you know, I think the most important part of the balance sheet is not that it allows us to go do these strategic acquisitions, it's that it protects our business and protects our ability to create value.
Speaker Change: and Down Cycles. So I think that was the main point we were trying to make in those prepared remarks. I do think the M&A question is a good one.
Will Hickey: I do think the M&A question is a good one. Look, I'd say we have the same attitude toward M&A that we have had, you know, since our founding. I think we will continue to look at and evaluate things that we can do to make our business better and drive long-term value creation for shareholders. You know, I think we've said it a lot, but we've got an awesome base business with a really attractive inventory and reinvestment opportunity set.
Speaker Change: Look, I'd say we have the same attitude towards M&A we have had, you know, since our founding. You know, I think we will continue to look at and evaluate things that we can do to make our business better and drive
Speaker Change: Long-term value creation for shareholders. You know, I think we've said it a lot, but we've got an awesome base business
Speaker Change: with a really attractive inventory and reinvestment opportunity set, so anything we do...
Will Hickey: So anything we do actually has to make our business better, and the bar is really high. You know, I think we'll continue to evaluate anything and everything that's out there. You know, I think we've got a great track record of demonstrating our ability to do creative M&A really at every scale. But, you know, I think for us, we are probably more focused today on the smaller opportunities. I think we've seen that the ground game continues to be the highest rate of return opportunity set for Permian Resources and where we spend a lot of time and effort.
Speaker Change: actually has to make our business better and the bar is really high.
Speaker Change: You know, I think we'll continue to evaluate anything and everything that's out there. You know, I think we've got...
Speaker Change: A great track record of demonstrating our ability to do our creative M&A, really at every scale. You know, I think for us...
Speaker Change: Probably more focused today on the smaller opportunities. I think we've seen that ground game continues to be
Speaker Change: The highest rate of return opportunity set for Permian Resources and where we spend a lot of time and effort. But, you know, nothing big coming down the pipeline as we see it. But as opportunities come along, I think it's a safe bet to assume that we will be evaluating them and we'll make the right decision for shareholders.
Will Hickey: But, you know, nothing big coming down the pipeline as we see it. But as opportunities come along, I think it's a safe bet to assume that we will be evaluating them, and we'll make the right decision for shareholders.
Speaker Change: Thanks for the color.
John Freeman: Thank you. We'll take our next question from John Freeman with Raymond James. Your line is open.
Speaker Change: Thank you. We'll take our next question from John Freeman with Raymond James. Your line is open.
Will Hickey: Good morning, nice quarter. The first topic, I know that, you know, last quarter, you felt it, you basically kind of closed the gap on the DNC basis on the legacy earthstone relative to PR, but there was still a gap there on the LOE side between kind of legacy earthstone and PR, stuff like, you know, SWD disposal agreements, recycling, etc. And I'm just kind of curious how long that process takes before you feel that gap is closed? Just try to get a sense of how much more running room we have on the LOE improvement side.
John Freeman: Good morning, nice quarter. The first topic, I know that you know last quarter y'all felt it
Speaker Change: He basically kind of closed the gap on a DMC basis on the legacy earthstone relative to PR.
Speaker Change: There was still a gap there on the LOE side between kind of legacy or some of the PR or stuff like that.
Speaker Change: I'm just kind of curious, how long does that process take before you feel that gap is closed? Just try to get a sense of how much more running room we have on the Yellow Wheat Improvement side.
Will Hickey: I think the gaps closed on the LOE side would be the short answer. A little color behind it, you know, we... Q2 was an extremely strong quarter from an LOE side on both legacy Earthstone assets but also on legacy PR, just kind of. We had a really good quarter from a, I mentioned some of the prepared remarks, but from just a overall workover cost perspective, our failure rates in Q2 were as good as we've ever seen.
Speaker Change: I think the gaps closed on the LOE side would be the short answer. A little color behind it, you know, we
Speaker Change: Q2 was an extremely strong quarter from an LOE side on both legacy Earthstone assets but also on legacy PR.
Speaker Change: We had a really good quarter from a, I mentioned some of the prepared remarks, but from just an overall work over cost perspective, like our failure rates in Q2 were as good as we've ever seen.
Will Hickey: And then, even kind of to add to that, our cost per failure is down. So we've been having to work on fewer wells, and when we do, it's been cheaper. And then also, Q2 is a really good weather quarter. Just like typically, if you think about Q2, it's hot, and your chemical usage goes up, failure rate goes up, et cetera. And this was more of a mild
Speaker Change: And then even, kind of to add to that, our cost per failure is down, so we've been, you know, having to work over less wells, and when we do, it's been cheaper.
Speaker Change: And then also Q2 is a really good weather quarter, just like typically if you think about Q2, it's hot and your chemical usage goes up, failure rate goes up, etc. And this was more of a mild summer, and so kind of to answer a different question, but I think the same is, like, my expectation is...
John Freeman: And so, kind of answered a different question, but I think the same as my expectation is that LOE going forward looks more like legacy PR than some kind of PR plus Earthstone because integration is done. But I do think the 518 that we put out in Q2 is probably not the right run rate going forward. The run rate is probably closer to, say, the bottom half of our 550 to $6 guidance range.
Speaker Change: LOE go forward looks more like legacy PR than some kind of PR plus Earthstone because integration is done but I do think the 518 that we put it out in Q2 is
Speaker Change: is probably not the right run rate go forward, the run rate is probably closer to say the bottom half of our $5.50 to $6.00 guidance range.
Will Hickey: Perfect, thanks. And then just my follow-up question, and just from a high-level basis, I'm not trying to give any necessary details on the 25 plan, but if this year, you know, 25% of y'all's budget was non-DNC, and obviously y'all remained really active on the M&A side, so this is probably a little bit of a moving target, but just directionally, would we assume that that percentage of non-DNC starts to move closer to maybe the historical run rate of like 15% or because you've been so active on the M&A side, does it kind of stay at the current kind of percentage as it was this year?
Speaker Change: Perfect, thanks. And then just my follow-up question.
Speaker Change: And just from a high-level basis, I'm not trying to get any necessary details on 25 plan.
Speaker Change: Yes, if this year, you know, 25% of y'all's budget was...
Speaker Change: was non-DNC.
Speaker Change: And obviously y'all remain really active on the M&A side, so this is probably a little bit of a moving target.
Speaker Change: Directionally, would we assume that that...
Speaker Change: Percentage of non-DNC starts to move closer to maybe the historical run rate of like 15% or because you've been so active on the M&A side, does it kind of stay at the current kind of percentage as it was this year?
John Freeman: It's all kind of deal and what we're integrating dependent, as you mentioned. I do think that integrating Earthstone was kind of a step change or quite a bit incremental to the non-DNC piece relative to what we're used to, so it'll come down from the 25% we saw in 24. I don't quite exactly know what Brea draw brings in. That's not a huge needle mover, so I don't expect that. That's not going to fully offset that from where we are normally, but maybe that's a little bit so. That's kind of a, I'm not going to give a specific answer, but it will be less than 25% and closer to where we were historically.
Speaker Change: It's all kind of deal and what we're integrating dependent as you mentioned I do think that integrating Earthstone was kind of a step change or quite a bit incremental to the non-DNC piece relative to what we're used to so it'll come down
Speaker Change: from the 25% we saw in 24. I don't quite exactly know what BreaDraw brings in. That's not a huge needle mover, so I don't expect that. That's not going to fully offset that from where we are normally, but maybe that's a little bit.
Speaker Change: I'm not going to give a specific answer, but it will be less than 25% and closer to where we were historically.
John Freeman: Great, thanks. Well done.
Speaker Change: Great, thanks, well done.
Zach Parham: Thank you. We'll take our next question from Zach Parham with J.P. Morgan. Your line is open.
John Freeman: Thanks John.
Speaker Change: Thank you. We'll take our next question from Zach Parham with J.P. Morgan. Your line is open.
Zach Parham: Hey guys, thanks for taking my question. I wanted to ask about well cost. You were at $830 per foot this quarter versus the guy that underwrote your full-year guidance at $860 per foot. Can you just talk about how you think well cost will trend in the second half of the year and maybe address the potential to drive down well cost further?
Zach Parham: Hey guys, thanks for taking my question. I wanted to ask on well cost, you were at $830 per foot this quarter versus the guy that underwrote your...
Zach Parham: Your full year guidance is $860 per foot. Can you just talk about how you think well cost will trend in the second half of the year and maybe address the potential to drive down well cost further?
Will Hickey: Yeah, so I look, I think that the way we got to 830 is almost 100% efficiency driven. So you know, mostly on the rig side, just drilling more feet per day. We average 1500 feet per day during Q2, which, Given the majority of the cost of the rig price on a per day basis, all that accretes straight to our bottom line. I think that's sticky.
Speaker Change: Yeah, so look, I think that the way we got to 830 is almost 100% efficiency-driven.
Speaker Change: Mostly on the rig side, just drilling more feet per day. We average 1,500 feet per day during Q2, which, you know,
Speaker Change: Given the majority of the cost on the rig price on a per day basis all that accretes like straight to our bottom line.
Will Hickey: Like, I think that is the new run rate. 1500 feet per day, call it 830 feet a foot. That is kind of where we are outside of a lot of inflation or deflation on the service cost side. I think there's still small amounts of efficiencies to go get the Delaware Basin is still kind of in the early innings relative to other onshore US basins, and so we'll keep getting better. But it's hard to predict when you're going to get a step change like we had from Q1 to Q2.
Speaker Change: I think that's sticky. Like, I think that is the new run rate. 1500 feet per day, call it 830 a foot, is kind of where we are outside of a lot of inflation or deflation on the service cost side.
Speaker Change: I think there's still small amounts of efficiencies to go get. The Delaware Basin is still kind of in early innings relative to other onshore U.S. basins, and so we'll keep getting better, but it's hard to predict when you're going to get a step change like we had from Q1 to Q2.
Will Hickey: And then where I think the rest of the opportunity lies is, as we're seeing across the industry, as all of us continue to drill more feet per day, drill more wells per year with fewer rigs, like at some point, we should see a little bit of recession, I would hope on the service cost side. So I don't know exactly how it plays out.
Speaker Change: And then where I think the rest of the opportunity lies is, as we're seeing across the industry, is all of us continue to drill more feet per day, drill more wells per year with less rigs. Like, at some point...
Speaker Change: We should see a little bit of recessions, I would hope, on the service cost side. So, I don't know exactly how it plays out, but I'd say $8.30 is the new norm as it stands today, and there's probably...
Will Hickey: But I'd say 830 is the new norm as it stands today, and there's probably more likelihood to see it go down from here than up in the coming quarters. At least that's kind of how we're thinking.
Speaker Change: More likelihood to see it go down from here than up in the coming quarters. At least that's kind of how we're thinking about it internally.
Zach Parham: And just to follow up, I wanted to ask about kind of the volume guide from here, particularly on the NGL and gas side. You know, I think you had higher NGL volumes this quarter due to more ethane extraction and weak gas prices. Do you expect that to reverse at all in the back half of the year? Just trying to get a sense of how total volumes will trend from here? Yeah, I mean, I think that's kind of the biggest change.
Speaker Change: Thanks and just a follow-up I wanted to ask on kind of the volume guide from here particularly on
Speaker Change: The NGL and gas side, I think you had higher NGL volumes this quarter due to more ethane extraction and weak gas pricing. Do you expect that to reverse at all in the back half of the year? Just trying to get a sense of how total volumes will trend from here.
Will Hickey: Yeah, I mean, kind of the biggest change as you've seen for PR and really across the basin is an increase in ethane recovery this quarter. Given the poor gas prices in the basin, you know, I think if future markets play out, and I think our expectation internally as well is that gas prices should recover as you approach the end of the year. I do think there'll be kind of a reversion to more normal trends on kinds of gas, NGLs, and percent oil.
Speaker Change: Yeah, I mean, I think kind of the biggest change as you've seen for PR and really across the basin is an increase in ethane recovery this quarter, given poor in-basin gas prices. You know, I think if future markets...
Speaker Change: I think our expectation internally as well is that gas price should recover as you approach the end of the year. I do think there will be a reversion to more normal trends on gas, NGLs, and percent oil.
James Walter: Thanks, James.
Kevin MacCurdy: Thank you. We'll take our next question from Kevin MacCurdy with Pickering Energy Partners. Your line is open.
Speaker Change: Thank you. We'll take our next question from Kevin MacCurdy with Pickering Energy Partners. Your line is open.
Kevin MacCurdy: Hey, good morning, team. Um, I wanted to ask maybe maybe overlooked in the recent acquisition was the 2000 acres that you added in Eddy County. I was hoping you could shine a little more light on how those acres became part of the oxy deal and why that particular area was attractive to you.
Kevin MacCurdy: Hey, good morning team. I wanted to ask, maybe overlooked in the recent acquisition was the 2,000 acres that you added in Eddy County. I was hoping you could shine a little more light on how those acres became part of the Oxy deal and why that particular area was attractive to you.
Will Hickey: That's a great question. You know, I think this all really goes back to our robust grassroots activity and efforts that we've been pursuing on the New Mexico and Texas sides of the basin. Our team is actually constantly out there knocking on doors, running TIDAL, trying to unearth opportunity sets that aren't available to the public realm at this point. And I'd say as part of that, we identified several thousand acres which you see here or a part of it here that Oxy owned that we thought made a ton of sense for what and the Eddie County part of the base, not a good long-term strategic fit or as good of a fit for Oxy.
Speaker Change: That's a great question. You know, I think this all really goes back to our...
Speaker Change: Robust grassroots activity and efforts that we've been pursuing in the in the New Mexico and Texas sides of the basin Our team is actually constantly out there knocking on doors running title trying to unearth
Speaker Change: Opportunity Sets that kind of aren't available to the public realm at this point, and I'd say as part of that, we'd identified several thousand acres, which you see here, or a part of it here, that OxyOwned, that we thought made a ton of sense for what
Speaker Change: and in the Eddy County part of the base
Speaker Change: not a good long-term strategic fit or as good of a fit for Oxy. So as we were having discussions around the Brea
Will Hickey: So as we were having discussions around, we were able to propose a potential win-win for both us and Oxy, which is including those acres in this deal. So that's how it came about. I think we've got a great relationship with the Oxy team. They've been really good to work with over the years. And, you know, as long as we can find win-wins for both us and Oxy, we tend to do them. And that's exactly what happened here.
Speaker Change: We were able to propose a potential win-win for both us and Oxy, which is including those acres in this deal. So, that's how it came about. I think we've got a great relationship with the Oxy team. They've been really good to work with over the years. And, you know, as we can find win-wins for both us and Oxy, we tend to do them. And that's exactly what happened here.
Kevin MacCurdy: Great. Thank you for that answer.
Speaker Change: Great, thank you for that answer. And as a follow-up, last quarter you mentioned that you expected your CapEx budget to increase by $50 million in conjunction with the bolt-on acquisition that I believe was supposed to close in 2Q.
Kevin MacCurdy: And as a follow-up, last quarter, you mentioned that you expected your CapEx budget to increase by $50 million in conjunction with the bolt-on acquisition that I believe was supposed to close in 2Q. This quarter, you reiterated your original guidance. I think that reads to me as lower CapEx than what we were expecting last quarter. I just wanted to clarify, is that extra activity still included in your plan, and does that make up part of the 15 additional turnarounds?
Speaker Change: This quarter you reiterated your original guidance. You know, I think that reads to me as lower capex than, you know, what we were expecting last quarter. I just wanted to clarify, is that extra activity still included in your plan? And does that make up part of the 15 additional turnarounds?
Will Hickey: Yes, the answer is yes to a lot of what you say... The activity still is in the plan. We are actively drilling and completing on that Eddy County bolt-on asset, and that is included in the incremental 15 tills. What we've seen in the last quarter is that our dollar-per-foot reduction in real-time is chipping away at what was going to be a $50 million add to the $2 billion midpoint on our budget. So we're still well within our $1.9 to $2.1 capex range.
Speaker Change: Yes, the answer is yes to a lot of what you...
Speaker Change: The activity still is in the plan. We are actively drilling and completing on that Eddy County bolt-on asset and that is included in the incremental 15 tills.
Will Hickey: I think the math is right. We were at $2.0, we went to $2.05, and now we are slowly chipping away at getting closer to $2.0. And I think kind of what you see us saying here is that what we're seeing real-time, the reductions on a dollar-per-foot basis are kind of making us feel very comfortable that we will kind of continue to drive that down. I don't think we'll get back under-$2 or even to $2 billion, but kind of close enough and well within the range to leave it where it is.
Speaker Change: We're still well within our kind of 1.9 to 2.1 capex range. I think the math is right. We were at 2, we went to 2.05, and now we are slowly chipping away back closer to 2 and
Speaker Change: I think kind of what you see us saying here is that what we're seeing real time, the reductions on a dollar per foot basis are kind of making us feel very comfortable that we will kind of continue to drive that down. I don't think we'll get back sub 2 or even to 2 billion, but kind of close enough and well within the range to leave it where it is.
Kevin MacCurdy: Thank you, and congratulations on a great quarter.
Speaker Change: Thank you and congratulations on a great quarter.
Leo Mariani: Thank you. We'll take our next question from Leo Mariani with Roth. Your line is open.
Speaker Change: Thank you.
Speaker Change: Thank you. We'll take our next question from Leo Mariani with Roth. Your line is open.
Leo Mariani: Hey, just wanted to ask a little bit about the Berea Draw acquisition. Obviously, you guys are picking up some infrastructure with that deal. Just kind of, you know, curious if that's something you guys might look to monetize in the near future. And then, just secondarily, on the acquisition, it seemed like a very attractive deal, you know, from an economic perspective, just kind of a very low price versus other deals that we've seen in the Permian. Was this, you know, kind of a fully marketed, you know, sort of auction deal? And, you know, what do you guys attribute to kind of getting a good price on it?
Leo Mariani: Hey, just wanted to ask a little bit about the Berea Draw acquisition. Obviously, you guys are picking up some infrastructure on that deal. Just kind of, you know, curious if that's something you guys might look to.
Speaker Change: to monetize in the near future, and then just secondarily on the acquisition, it seemed like a very attractive deal, you know, from an economic perspective, just kind of very low price versus other deals that we've seen, you know, in the Permian.
Speaker Change: Was this, you know, kind of a fully marketed, you know, sort of auction deal and, you know, what do you guys attribute to kind of getting the good price on the asset here?
Will Hickey: Yeah, sure. I'll answer your first question.
Speaker Change: Yeah, sure. I'll answer your first question. I do think we've got to get this deal closed and get our hands around.
Will Hickey: I do think we got to get this deal closed and get our hands around kind of more details on the actual midstream infrastructure before we commit to doing anything there. But I think in acquisitions like this in the past, we have seen more value creation for shareholders to kind of divest midstream assets. That's not our core business. That's not where we're focused on spending capital. So I think there is probably a good chance that at some point in the future, we will divest at least a part of the midstream system. But again, that's not imminent by any means. And then back to Maria Draw.
Speaker Change: Kind of more details on the actual midstream infrastructure, I think, before...
Speaker Change: We commit to doing anything there, but I think in acquisitions like this in the past, we have seen more value creation for shareholders.
Speaker Change: to kind of divest midstream assets. That's not our core business. That's not where we're focused on spending capital. So I think probably a good chance at some point in the future, we divest at least a part of the midstream system. But again, that's not imminent by any means.
Will Hickey: So yeah, just to be blunt, the Texas part was part of a broadly marketed, and I think, very well-run process. The New Mexico piece was not. The New Mexico piece was a proprietary deal that, like I mentioned in the prior answer, that we found that we thought could be a win-win for both us and our counterparty here. But I think... More than anything else, we attribute our success on deals like this to our peer-leading cost structure, our lower in-basin LOE, our, you know, I think peer-leading DNC, and the offsetting footprint and the synergy that came with this deal, I think is what allows us to win these deals, not anything else.
Speaker Change: And then back to Maria Draw, so yeah, just to be blunt, the Texas part was part of a broadly marketed, I think very well run, you know, process.
Speaker Change: The New Mexico piece was not. The New Mexico piece was a proprietary deal that, like I mentioned in the prior answer, that we found that we thought could be a win-win for both us and our counterparty here.
Speaker Change: More than anything else, we attribute our success on deals like this to our peer-leading cost structure, our lower in-basin LOE, our, you know, I think, peer-leading DNC, and the offsetting footprint and the synergy that came with this deal, I think, is what allows us to win these deals, not anything else.
Leo Mariani: Okay, appreciate that. And then, just with respect to production, obviously, you guys picked up on the oil guide a little bit. I guess that doesn't include the Brea Draw production, but I guess it includes some small volumes from the bullpond you closed in the second quarter. That being said, I know you guys had previously kind of said that you expected oil production to maybe slide a little bit in the second half, and then with the acquisition, it was gonna be a little bit more flattish in the second half.
Speaker Change: Okay. I appreciate that. And then just with respect to production, obviously you guys ticked up the oil guide a little bit. I guess that doesn't include the Brea Draw production, but I guess it includes some small volumes from the bullpond you closed in the second quarter.
Speaker Change: You expected oil production to maybe slide a little bit in the second half, and then with the acquisition it was going to be...
Leo Mariani: You know, looking at the guide, it looks like it actually might be up small in the second half on oil. Just kind of wanted to verify, obviously there's somewhat of a range on the guidance, but is it fair to say it's probably up small from two Q levels on oil for the rest of the year? Yeah, I mean, I think of a production profile.
Will Hickey: Yeah, I mean, I think the kind of production profile for the rest of the year is pretty flat from here, flat to the first half. You know, I'd say that on a standalone basis. If you were to factor in oxy and Q4, you'd obviously see some growth in Q4, but I think that kind of flat profile from here is the right way to approach it. Okay, thanks. Thank you. We'll take our next question.
Speaker Change: Yeah, I mean, I think kind of production profile for the rest of the year is pretty flat from here, flat to the first half. You know, I'd say that's on a standalone basis. If you were to factor in oxy and Q4, you'd obviously see some growth in Q4, but I think that kind of flat profile from here is the right.
Speaker Change: Okay, thanks.
Leo Mariani: Thank you. We'll take our next question from Gabe Duran with TD Cowell. Your line is open. Thank you. Hey guys, Gabe Daoud here. Thanks for the time.
Speaker Change: Thank you. We'll take our next question from Gabe Duran with...
Gabe Daoud: Yeah, I mean, I think, you know, the Midland Basin was a different one for us. I think, as we've said time and again, our focus and the kind of core part of our business has always been and continues to be the Delaware Basin. That's where our development is focused. That's where our strategic M&A activity has been focused on and will continue to be focused on. But I do think, you know, we're continuing to understand that asset better.
Speaker Change: It was a different one for us. I think, as we've said time and again, our focus and the kind of core part of our business has always been and continues to be the Delaware Basin. That's where our development is focused. That's where our strategic M&A activity has been focused and will continue to be focused.
Gabe Daoud: I'd say our performance on the asset, both cost structure and productivity, continues to improve this year. And we're still trying to get our hands fully around that basin and kind of what it means in the portfolio. You know, I think we like having it today. We like the cash flow profile that it brings. You know, I think at some point it may make sense to do something strategic with the Midland, but I think probably not anytime soon and probably not in this commodity price environment.
Speaker Change: We're still trying to get our hands fully around that base and kind of what it means in the portfolio. You know, I think we like having it today. We like the cash flow profile that it brings. You know, I think at some point it may make sense to do something strategic with the Midland, but I think probably not anytime soon and probably not in this commodity price environment.
Will Hickey: Thank you. We'll take our next question from Paul Diamond with Citi. Your line is open.
Speaker Change: Thank you. We'll take our next question from Paul Diamond with Citi. Your line is open.
Paul Diamond: Good morning, all. Thanks for taking the call. Just a quick one. So given the ongoing volatility in WAHA pricing, and the kind of expectation in the market that that's going to decongest to some degree in the 25 and beyond, I just want to get your understanding of how you all see that playing out and also how that would impact your hedging strategy, especially around basis.
Paul Diamond: Good morning, all. Thanks for taking the call. Just a quick one. So given the ongoing volatility in wild-hot pricing, kind of an expectation in the market that that's going to decongest to some degree into 2025 and beyond, I just wanted to get your understanding of how you all see that.
Speaker Change: playing out and also how that would impact your hedging strategies or hedging strategy, especially around basis.
Will Hickey: Yeah, sure. I think we expect, like everybody does, that the marketing gets better from the lows of Q2. I think additional pipeline capacity coming online kind of back after this year should and will help that. You know, I do think continued volatility is probably the case for WAHA going forward.
Speaker Change: Yeah, sure. I mean, I think we expect, like I think everybody does, that the market will get better from the lows of Q2. I think additional...
Speaker Change: Pipeline Capacity coming online kind of back after this year.
Speaker Change: Should and will help that. You know, I do think continued volatility is probably...
Speaker Change: The case, you know, for WAHA going forward, I'd say as we look and think about our gas hedging strategy, I think BASIS is an absolutely critical part of that and intend to hedge BASIS alongside HUB.
Will Hickey: I'd say as we look and think about our gas hedging strategy, I think basis is an absolutely critical part of that, and I intend to hedge basis alongside hub going forward. I think another big part of that is, look, we sold about 30% of our gas this quarter in the Houston markets. And I think an important strategic initiative for us and our midstream team is going to be how can we sell more gas in other markets and kind of diversify beyond WAHA over time.
Speaker Change: I think another big part of that is, look, we sold about 30% of our gas this quarter in the Houston markets, and I think
Speaker Change: The important strategic initiative for us and our midstream team is going to be how can we sell more gas at...
Speaker Change: Other markets can kind of diversify beyond OAHA over time, and that's a long game. I think it takes time for contracts to roll, new pipelines to get built, et cetera, to really play that out. But I think the goal ultimately is to sell more than 30% of our gas at Houston Ship Channel, and that's going to continue to be a priority for us.
Will Hickey: And that's a long game. You know, I think it takes time for contracts to roll, new pipelines to get built, etc., to really play that out. But I think the goal ultimately is to sell more than 30% of our gas at Houston Ship Channel. And that's going to continue to be a priority for us.
Paul Diamond: Got it, understood. And then just a quick follow-up talking about the ground game. I know with a kind of a flurry of activity as of late across the space, bid ask spreads have been pretty volatile. Just wanted to get your take on kind of where they sit now and how you see them going for the rest of the year.
Will Hickey: You know, I think I mentioned this earlier, but I think with our extremely low cost structure and cost advantage, we're still able to find small opportunities that make a lot of sense for us. I think that, that said, there is a really robust kind of market for non-op and kind of similar smaller deals out there.
Speaker Change: a really robust kind of market for non op and and kind of similar smaller deals out there. So we have found, we're not always able to be competitive. But I think, you know, we remain really disciplined, we bid things to prices that we like. And because of our cost structure, I'd say we've been fortunate, we're still able to get things done even in even in this market.
Paul Diamond: So we have found that we're not always able to be competitive. But I think, you know, we remain really disciplined; we bid things at prices that we like. And because of our cost structure, I'd say we've been fortunate; we're still able to get things done even in this market.
Noah Hungens: I understand. I appreciate the clarity. I'll leave it there.
Noah Hungens: Thank you. We'll take our next question from Noah Hungens with Bank of America. Your line is open.
Speaker Change: Thank you. We'll take our next question up from Noah Hungins with Bank of America. Your line is open.
Noah Hungens: Morning all, I wanted to ask about your guys' cost structure, I mean, and inventory. Your cost structure has continued to improve. I mean, DC&E is down 13% from last year. What does this do to your inventory? Is there any inventory that's been high-graded or de-risked or moves into the money? And then, what impact does it have on your performance?
Noah Hungins: Morning, all. I wanted to ask on your guys' cost structure, I mean, and inventory, your cost structure has continued to improve. I mean, DC&E is down 13% from last year. What does this do to your inventory? Is there any inventory that's been high-graded or de-risked or moved into the money? And then, what impact does it have on your all's break-even?
Will Hickey: Oh, look, on the inventory side, I think it... Our inventory is the way we classify and think about inventory. It already is kind of in the money, so to speak. I think what this really does, as we continue to drive down LOE and drive down capex, is it just kind of maybe brings it from marginally in the money to deeper into the money. So it absolutely shifts the whole curve in our direction at a flat commodity price; just reduce capex and reduce cash costs is always going to do that.
Speaker Change: Look, on the inventory side, I think it...
Speaker Change: Our inventory is, the way we classify and think about inventory, it already is kind of in the money, so to speak. I think what this really does, as we continue to drive down LOE and drive down CapEx, is it just kind of...
Speaker Change: Maybe brings it from marginally in the money to deeper into the money. So it absolutely shifts the whole curve in our direction at a flat commodity price. Just reduce capex and reduce cash costs is always going to do that.
Speaker Change: I don't think this is like a material change that we took.
Speaker Change: The Economics are so strong today that it's not taking something from uneconomic to economic, it's taking it from...
Will Hickey: But I don't think this is like a material change that we took three or four years that were out of the money and brought them back into the money just because that's not how we think about inventory to start with. The economy is so strong today that it's not taking something from an un-economic to economic; it's taking it from economic or very economic to more economic. It's a good problem to have.
Speaker Change: Economic or very economic to more economic it's a it's a good problem to have and you know I think I do think it's important though that as you think about secondary zones which we're not really actively targeting today that that that will have a bigger impact on some of the secondary zones versus the more primary zones we're developing today.
Will Hickey: And, you know, I think it's important, though, that as you think about secondary zones, which we're not really actively targeting today, that that will have a bigger impact on some of the secondary zones versus the more primary zones we're developing today.
Speaker Change: And on breakeven, you know, we're at kind of mid to high 40s through the base dividend for 25 at a maintenance program. You know, we have really attractive capital efficiency and low breakevens, kind of given the productivity of the inventory James and Will were talking about and our cost structure.
Noah Hungens: Gotcha, really, really appreciate that color. And then my next question is about BarillaDraw. You guys, when you take over the asset, how should we kind of think about your own development philosophy versus maybe how Oxy was developing it either on prop unloading, or spacing or anything like that?
Speaker Change: Gotcha. Really, really appreciate that color. And then my next question is on Barilla Draw. You guys, when you take over the asset, how should we kind of think about your all's development philosophy versus maybe how Oxy was developing it either on prop and loading or spacing or anything like that?
Will Hickey: Honestly, I don't think it's that materially different in how they developed the Third Bone Spring Sand Wolf Camp A, Wolf Camp B historically, or really Third Bone Spring Sand Wolf Camp A historically. The rest would be in southern Delaware, kind of 2,500 pounds per foot of prop and call it. 10 Wells between those those benches is about. Solved at this point.
Speaker Change: Honestly, I don't think it's that materially different on how they developed the Third Bone Spring Sand Wolf Camp A, Wolf Camp B historically, or really Third Bone Spring Sand Wolf Camp A historically.
Speaker Change: The rest would be in the southern Delaware, kind of 2,500 pounds per foot of propent.
Speaker Change: Call it ten wells between those those benches is about
Will Hickey: We may add or just subtract a well here or there, do a little bit on stage spacing, but nothing crazy. I think the bigger change you'll see is we'll start to loop in co-development of Wolf Camp B and some of the shallow shales, second bone shale, and third bone shale into that development. We've had success kind of to the east and just to the north of this asset in developing those shale fields.
Speaker Change: solved at this point. We may add or just subtract a well here or there do a little bit on stage spacing but nothing crazy.
Speaker Change: I think the bigger change you'll see is we'll start to loop in co-development of the Wolf Camp B and some of the shallow shales, second bone shale, third bone shale, into that development. We've had success.
Speaker Change: kind of on...
Speaker Change: just to the east and just to the north of this asset in developing those shales so
Will Hickey: So we'll just kind of, I'd say, optimize resource recovery and kind of PV per GSU as we think about looping in some of those other zones. But it won't be a material step change. I think the biggest step change will be that it'll be done under our cost structure from an LOE perspective, from a CapEx perspective, etc.
Speaker Change: We'll just kind of, I'd say, optimize resource recovery and kind of PV per GSU as we think about looping in some of those other zones. But it won't be a material step change. I think the biggest step change will be it'll be done under our cost structure from an LE perspective, from a CapEx perspective, et cetera.
Noah Hungens: Sounds good, guys. Thanks so much. Thank you. And as a reminder, that is star and one. If you would like to ask a question, we'll take our next question from Jeff Jay with Daniel Energy Partners. Your line is now open. Hey, guys, we'll
Speaker Change: Sounds good, you guys. Thanks so much for the call.
Jeff Jay: Thank you. And as a reminder, that is star and one. If you would like to ask a question, we'll take our next question from Jeff Jay with Daniel Energy Partners. Your line is now open.
Speaker Change: Thank you and as a reminder that is star and one if you would like to ask a question. We'll take our next question from Geoff Jay with Daniel Energy Partners. Your line is now open.
Geoff Jay: Hey guys. Will, I just want to circle back to what I think I heard you say on efficiency gains, that there was a big step change between Q2 and Q1. Because I think if I remember right, you said in Q1 that on a legacy PR basis, that efficiency gains have been about single digit percentage points.
Speaker Change #101: What kind of changed in Q2? Can you help us understand exactly the significance of the gains you've seen in Q2 and kind of what would you do differently?
Jeff Jay: So if we're thinking about just efficiencies in time and cost, which is what we've seen from Q1 to Q2, I'd say the majority of the change on the CAPEX side is going to be on the drilling side. And we're now, you know, call it 15% faster than we were in 23. And that is, you know, you got some of that from Q4 of last year into Q1, but the majority of that came from Q1 to Q2. How we got there, I mean, it's never an easy answer.
Will Hickey: So, if we're thinking about just efficiency as time and cost, which is what we've seen from Q1 to Q2, I'd say the majority of the change on the CAPEX side is going to be on the drilling side.
Speaker Change #102: And we're now, you know, call it 15% faster than we were in 23. And that is, you know, you got some of that from Q4 of last year into Q1, but the majority of that came from Q1 to Q2.
Will Hickey: It's always the, you know, add up of a bunch of little things. I'd say the majority of the time we're saving is in the curve and lateral, and it's a combination of two things. One, we have a really, really good kind of working relationship between our geo team and our drilling team to make sure they are in constant communication, putting the laterals in the right place to enhance both productivity and also make sure we're in the rock that drills the fastest.
Speaker Change #102: How we got there, I mean, it's never an easy answer, it's always the add-up of a bunch of little things. I'd say the majority of the time we're saving is in the curve and lateral, and it's a combination of two things. One,
Speaker Change #102: We have a really, really good kind of working relationship between our geo team and our drilling team on making sure they are in constant communication, putting the laterals in the right place to enhance both productivity, but also make sure we're in the rock that drills the fastest.
Will Hickey: And then second, we're always kind of tweaking and optimizing BHAs, whether that be, you know, motors, bits, et cetera. And, you know, the combination of all those tweaks kind of, you continue to see month over month and quarter over quarter improvement, but there are times when you hit breakthroughs and big step changes, and that's what happened with Q1.
Speaker Change #102: We're always kind of tweaking and optimizing BHAs, whether that be, you know, motors, bits, etc. And, you know, the combination of all those tweaks, kind of, you continue to see month-over-month and quarter-over-quarter improvement, but there are times when you hit breakthroughs and big step changes, and that's what, that's what happened from Q1 to Q2.
Jeff Jay: Excellent. That's a good color. Thank you.
Speaker Change #103: Excellent, that's good color. Thank you.
John Abbott: Thank you. We'll take our next question from John Abbott with Wolf Research. Your line is open.
Speaker Change #103: Hey, you bet.
Speaker Change #105: Thank you. We'll take our next question from John Abbott with Wolf Research. Your line is open.
John Abbott: Hey, good morning, and thank you for taking our questions. Just a couple of quick ones from me.
John Abbott: Hey, good morning and thank you for taking our questions. Just a couple of quick ones from me.
John Abbott: So you did add your 2025 hedges. It looks like you started to add to 2026 on the oil side. Do you do more? Do you add more from here? How are you thinking about hedging at this point, just given the back way that it's stripped?
John Abbott: So you did add your 2025 hedges, and it looks like you've started to add to 2026 on the oil side. Do you do more? Do you add more from here? How are you thinking about hedging at this point, just given a back-weighted strip?
Will Hickey: Yeah, that's a good question. I think it's worth noting for the group that we placed these hedges, kind of all these new ones we referenced today, about a month ago, maybe a little over that when, you know, the spot price was in the 80s. And it was a more favorable hedging environment. You know, I think our hedging strategy is continuing to be number one, protect the balance sheet, and do everything we can to ensure we can kind of thrive in a future commodity down cycle.
Speaker Change #107: Yeah, that's a good question. I mean, I think it's worth noting for the group that we placed these hedges, kind of all these new ones we referenced today.
Speaker Change #108: about a month ago maybe a little over that when you know spot price was in the 80s and it was a more
Speaker Change #108: favorable hedging environment. You know, I think of our hedging strategy as continuing to be
Speaker Change #108: Number one, protect the balance sheet and do everything we can to ensure we can kind of thrive in a future commodity down cycle. I think we feel really good that the balance sheet is where it needs to be today.
Will Hickey: I think we feel really good that the balance sheet is where it needs to be today. I think if you see additional hedging, especially in those kind of out years, it's probably just going to be opportunistically if we see a meaningful change in the commodities market to the positive, I think you'd see us probably layer on marginally more hedges in 2026. But it's kind of nothing immediate at current prices.
Speaker Change #108: I think if you see additional hedging, especially in those kind of out years, it's probably just going to be opportunistically. If we see a meaningful change in the commodities market to the positive, I think you'd see us probably layer on marginally more hedges in 2026. But it's kind of nothing immediate at current pricing.
John Abbott: Appreciate it. And there's also been a lot of previous questions on M&A here. I mean, just given the volatility we've seen over the last couple of days here, what's your impression on getting a deal, actually getting a deal done in this environment? Is it more difficult?
Speaker Change #108: There's also been also a lot of previous questions on M&A here. I mean just given the volatility we've seen over the last couple of days here.
Speaker Change #108: That's it.
Will Hickey: Can you get deals done? I mean, you mentioned that this is not necessarily the optimal commodity environment to potentially do something with the midland assets. How are you thinking about that in this period of time, just given the commodity environment?
Speaker Change #109: What's your impression about getting a deal actually getting a deal done in this environment? Is it more difficult? Can you get deals done? I mean you mentioned that this is not necessarily the optimal commodity environment to Potentially do something with the mid with the Midland assets How are you thinking about that at this period of time just given the commodity environment?
John Abbott: Yeah, I mean, I think about kind of two different questions there, but I think, you know, you're right. This kind of volatility, especially what we've seen kind of from Friday to today, Wednesday, makes it a lot harder to get deals done. I think that volatility and pricing are always going to drive bid-ask spreads higher and kind of push buyers and sellers apart. But, you know, I think, look, we feel good about the timing of our last deal, getting that to the finish line.
Speaker Change #110: I think that volatility and pricing always is going to drive bid-ask spreads higher and kind of push buyers and sellers apart. But, you know, I think, look, we feel good about the timing of our last deal, getting that to the finish line. We, you know, aren't actively engaged in anything of material scale today and really focused on getting this oxy deal closed and continuing to execute as our two biggest priorities.
John Abbott: We, you know, aren't actively engaged in anything of material scale today and are really focused on getting this oxy deal closed and continuing to execute as our two biggest priorities. So we're not losing a lot of sleep over it today.
John Abbott: I think as regards the Midland Basin, that's just a, you know, a larger percentage of the revenue and free cash flow from that asset come from gas and NGLs, and NGL pricing remained okay. However, gas pricing in the Midland Basin has obviously been suppressed for quite a while now. And I think that that really has potential for a step change in free cash flow generation and just a modestly better gas price environment. So I'd say that's what we're looking for or referencing there is really just the kind of improvement in interbasin gas pricing.
Speaker Change #111: I'm not losing a lot of sleep over it today. I think with as pertains to the Midland Basin, that's just a larger percentage of the revenue and free cash flow from that asset come from gas and NGLs and NGL pricings remained okay. The gas pricing in the Basin has obviously been
Speaker Change #111: Suppressed for quite a while now, and I think that that really has potential for a step change in free cash flow generation and just modestly better gas price environment, so I'd say that's what we're looking for or referencing there is really just the kind of improvement in inter-basin gas pricing.
John Abbott: I appreciate it. Thank you very much for fitting us in.
Speaker Change #112: Appreciate it, thank you very much for fitting us in.
James Walter: Thank you. We have no further questions on the line at this time. I will turn the program back over to James Walter for any closing remarks.
Speaker Change #113: Thank you. We have no further questions on the line at this time. I will turn the program back over to James Walter for any closing remarks.
James Walter: All right, thank you. Well, having gotten off to a great start for 2024, our primary goal remains the same, to maximize its shareholder value over the long term. And to do that, we plan to continue to build on our track record of delivering consistent results with the lowest cost structure in the Delaware Basin. Thanks to everyone for joining the call today and for following the Permian Resources story. Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day. What do you think the world needs?
James Walter: Alright, thank you. Well, having gotten off to a great start for 2024, our primary goal remains the same, to maximize its shareholder value over the long term. And to do that, we plan to continue to build on our track record of delivering consistent results with the lowest cost structure in the Delaware Basin.
James Walter: Thanks to everyone for joining the call today and for following the Permian Resources story.
Operator: Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.
Speaker Change #114: Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.
Speaker Change #115: received his doctorate in Hospitality Surgical Science from the University of Minnesota Medical Union in the University of North Carolina at check out and pinch history of hospitals and its hospitals.
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