Q2 2024 SM Energy Co Earnings Call - Q & A

August 8, 2024

Gabe Daoud: And then I guess just as a follow-up, shifting gears to the buyback and commentary around maybe more of a focus on debt reduction near term versus leaning into the buyback. I think the last several quarters, you've been around 40 to 50 million a quarter on the buyback. So what does the pace look like to close 2024 and then any additional color on the pace in 2025? Thanks, guys.

Operator: Thank you for standing by.

Operator: My name is GD, and I will be your conference operator today.

Operator: At this time, I would like to welcome everyone to the SM Energy's second quarter 2024 financial and operating results Q&A conference call.

Thank you for standing by. My name is Jeanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the SM Energy's 2nd Quarter 2024 Financial and Operating Results Q&A conference call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.

Jennifer Samuels: I would now like to turn the conference over to Jennifer Martin Samuel, the Vice President, Investor Relations and ESG Stewardship.

Wade Purcell: Yeah, this is Wade. As we've said, with the acquisition, with taking on additional leverage, we will be prioritizing free cash flow in the near term for debt reduction before we kind of get back into the pace that we were on, buying back shares. You know, I will say, though, that it's not all or nothing. During this period, prioritizing debt reduction, there are probably times, and probably will be times, where we step into the market and buy back some shares, especially on days of weakness or other times.

Jennifer Martin-Samuels: I would now like to turn the conference over to Jennifer Martin-Samuels, Vice President Investor Relations and ESG Stewardship. You may begin.

Jennifer Samuels: Thank you, Jeannie. Good morning, everyone. In today's call, we may reference the earnings release IR presentation or prepared remarks, all of which are posted on our website. Thank you for joining us to answer your questions today. We have our President and CEO, Herb Vogel, and CFO, Wade Purcell.

Jennifer Samuels: Thank you, Jeannie.

Jennifer Samuels: Good morning, everyone. In today's call, we may reference the earnings release, IR presentation, or prepared remarks, all of which are posted to our website. Thank you for joining us to answer your questions today.

Wade Purcell: We certainly still like the stock price. I mean, there's no doubt about that. We have our internal view of NAV. But that will be the priority with free cash flow, though, until we get back below kind of in that one times area, which we project being the middle of next year, depending on commodity prices, of course.

Gabe Daoud: Okay. Okay. Thanks. So this is not an all or nothing approach.

Jennifer Samuels: Thank you, Jeanne. Good morning, everyone. In today's call, we may reference the earnings release IR presentation or prepared remarks, all of which are posted to our website.

Gabe Daoud: Okay. Very helpful. Thanks a lot.

Jennifer Samuels: We have our President and CEO Herb Vogel and CFO Wade Purcell. Before we get started, I need to remind you that our discussion today may include forward-looking statements and discussion of non-GAAP measures. I direct you to the accompanying slide deck, earnings release, and risk factor section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ. Also, please say the slide deck appendix and earnings release for definitions and reconciliation of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures.

Jennifer Samuels: Thank you for joining us to answer your questions today. We have our President and CEO Herb Vogel and CFO Wade Purcell.

Jennifer Samuels: Before we get started, I need to remind you that our discussion today may include forward-looking statements and discussion of non-GAAP measures. I direct you to the accompanying slide deck, earnings release, and risk factors section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ. Also, please see the slide deck appendix and earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures. Also, look for our second quarter 10-Q that was filed this morning. And with that, I will turn it over to Herb for a brief opening commentary. Herb? Thank you, Jennifer. Good morning.

Jennifer Samuels: Before we get started, I need to remind you that our discussion today may include forward-looking statements and discussion of non-GAAP measures.

Jennifer Samuels: I direct you to the accompanying slide deck, earnings release, and risk factor section of our most recently filed 10-K.

Jennifer Samuels: which describe risks associated with forward-looking statements that could cause actual results to differ.

Jennifer Samuels: Also, please see the slide deck appendix and earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures.

Jennifer Samuels: Also, look for our second quarter 10-K that was filed this morning.

Operator: Your next question comes from the line of Zach Parham with J.P. Morgan. Please go ahead.

Herbert Vogel: And with that, it will turn it over to Herb for brief opening commentary. Herb.

Jennifer Samuels: Also, look for our second quarter 10-Q that was filed this morning. And with that, I will turn it over to Herb for brief opening commentary. Herb? Thank you, Jennifer. Good morning, and thank you for joining us. It was an outstanding quarter with a lot of great news.

Zach Parham: Thanks for taking my question. First, I just wanted to ask a little bit about the trajectory of oil volumes from here. And as we move into 2025, your implied fork, you've got rates around 115, a thousand barrels a day proforma for the Uventa deal. And that compares to the preliminary guide you gave of 100,000 barrels a day for 2025. Can you just talk a little bit about the production trajectory you expect through the year? Do you expect, you know, as you slow down activity, do you expect a pretty steep decline early in 25? And then you kind of level out. Just curious about kind of tying those two numbers together.

Herbert Vogel: Thank you, Jennifer.

Herbert Vogel: Good morning, and thank you for joining us. It was an outstanding quarter with a lot of great news. So let's go ahead and get started with the Q&A.

Operator: I'll turn it back to Jeannie to start taking her questions.

Jennifer Samuels: So let's go ahead and get started with the Q&A. I'll turn it back to Jeanne to start taking your questions.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question. We do request for today's session that you please limit yourself to one question and one follow-up.

Herb Vogel: Hey, thanks for the question, Zach. This is Herb.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. Again, press star 1 to join the queue.

Operator: that

Speaker Change: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Operator: If you would like to withdraw your question, simply press star 1 again.

Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question.

Operator: We do request for today's session that you please limit yourself to one question and one follow-up. Again, press star 1 to join the queue.

Operator: Again, press star one to join the queue.

Gabe Dowd: Your first question comes from the line of Gabe Dowd with TD Cowan. Please go ahead.

Speaker Change: Your first question comes from the line of Gabe Daoud with TD Cowen. Please go ahead.

Gabe Dowd: Thanks.

Herbert Vogel: Good morning, everyone. I appreciate the time this morning. Was hoping we could maybe learn a little bit more about the Woodford Barnett results. I guess curious about the development plan here, whether or not there are more wells in the formation that I expected to turn in line this year. What does development look like from a spacing standpoint? And then I guess what are the oil cuts expected on these wells?

Operator: Thanks Shane. Morning everyone. Appreciate the time this morning. I was hoping we can maybe learn a little bit more about the Woodford Barnett results.

Speaker Change: I guess curious about the development plan here, whether or not there are more wells in the formation that are expected to turn in line this year. What does development look like from a spacing standpoint?

Speaker Change: And then, I guess, what are the oil cuts expected on these wells?

Herbert Vogel: Yeah, thanks, Gabe, to serve. Yeah, we're excited about the Woodford, Barnett, and the Permian. It's an over-pressured play, which is great. The wells initially flow naturally and for quite a while before we put artificial lift on. They are 56 to 58% oil, and that's on a two stream basis. Imagine the gas will be quite rich. I don't know the BTU content there yet. And it's about 50 API oil in terms of the development. We're away the way from that, but we do know that we're well surrounded by offset operators. And we showed that in one of the slides that the performances as well is really excellent, and we'll be working the development plans over the coming months.

Operator: Yeah, thanks Gabe, this is Herb. Yeah, we're excited about the Woodford Barnett and the Permian. It's an overpressured play, which is great. The wells initially flowed naturally and for quite a while before we put artificial lift on.

Speaker Change: They are 56 to 58 percent oil, and that's on a two-stream basis. I imagine the gas will be quite rich. I don't know the BTU content there yet. That's about 50 API oil.

Speaker Change: In terms of the development, we're a ways away from that, but we do know that we're well surrounded by offset operators.

Speaker Change: and we showed that in one of the slides that the performance of these wells is really excellent and we'll be working the development plans over the coming months. We do not have any additional turn in lines planned for this year in Woodford-Barnett.

Herbert Vogel: We do not have any additional turn-in lines planned for this year in Woodford Barnett.

Gabe Dowd: Thank you. Thanks, sir. That's great detail. Appreciate all that.

Gabe Dowd: And then I guess just as a follow-up, shipping gears to the buyback and commentary around maybe more of a focus on debt reduction your term versus leaning into the buyback. I think less several quarters you've been around 40 to 50 million a quarter on buyback.

Speaker Change: thanks so that's great detail appreciate all that and then i guess just as a follow-up shipping gears to the

Speaker Change: Buyback and commentary around maybe more of a focus on debt reduction near term versus

Speaker Change: Leaning into the buyback, I think last several quarters you've been around 40 to 50 million a quarter on buyback. So what does the pace look like to close 2024 and then any additional color on the pace in 2025? Thanks guys.

Wade Purcell: So what does the pace look like to close 2024 and then any additional color on the pace in 25? Thanks, guys.

Wade Purcell: Yeah, this is Wade. You know, as we've said with the acquisition, with taking on an additional leverage, we will be prioritizing pre-cash flow in the near term to debt reduction before we kind of get back into the pace that we were on buying back shares. You know, I will say though that it's not an all or nothing during this period of prioritizing debt reduction. They're very well maybe times, probably will be times where we step into the market and buy back some shares, especially on days of weakness or other times. We certainly still like stock price.

Wade: Yeah, this is Wade.

Speaker Change: As we've said, with the acquisition, with taking on an additional, the leverage, we will be prioritizing free cash flow in the near term to debt reduction before we kind of get back into the pace that we were on

Speaker Change: I will say, though, that it's not an all or nothing during this period of prioritizing debt reduction. There very well may be times, probably will be times.

Speaker Change: where we step into the market and buy back some shares, especially on days of weakness or other times. We certainly still like stock price. I mean, there's no doubt about that. We have our internal view of NAV.

Wade Purcell: There's no doubt about that. We have our internal view of NAV. But that will be the priority with pre-cash flow though until we get back below, kind of in that one times area, which we project being the middle of next year depending on commodity prices. Of course.

Speaker Change: But that'll be the priority with pre-cash flow, though, until we get back below kind of in that one-times area, which we project being the middle of next year, depending on commodity prices, of course.

Gabe Dowd: Okay. Thanks.

Gabe Dowd: So it's not an all-or-nothing approach. Okay. Very helpful. Thanks a lot.

Wade Purcell: No. You bet.

Speaker Change: Okay. Okay. Thanks. So not an all or nothing approach. Okay. Very helpful. Thanks a lot. No.

Zach Parin: Your next question comes from the line of Zach Parin with JP Morgan. Please go ahead.

Operator: event

Speaker Change: Your next question comes from the line of Zach Parham with J.P. Morgan. Please go ahead.

Zach Parin: Thanks for taking my question.

Herbert Vogel: I'm first wanted to ask a little bit on the trajectory of oil volumes from here. And as we move into 25. You're implied for you got a trade around 115,000 barrels a day pro forma for the event to deal that compares to the preliminary guide you gave of 100,000 barrels a day for 2025. Can you just talk a little bit about the production trajectory you expect through the year. Do you expect you know as you slow down activity. Do you expect a pretty steep decline early in 25 and then you kind of level out. Just just curious on kind of time those two numbers together.

Speaker Change: Thanks for taking my question. First, I just wanted to ask a little bit on the trajectory of oil volumes from here and as we move into 2025. Your implied fork, you've got its rates around 115.

Speaker Change: thousand barrels a day pro forma for the U.S. deal. That compares to the preliminary guide you gave of a hundred thousand barrels a day for 2025.

Speaker Change: Can you just talk a little bit about the production trajectory you expect through the year? Do you expect, you know, as you slow down activity, do you expect a pretty steep decline early in 2025, and then you kind of level out? Just curious on kind of tying those two numbers together.

Herbert Vogel: Hey, thanks for the question, Zach. This is Herb.

Herb Vogel: You know, in projecting how many TILs we have, we're obviously in the early days here. It's August, and we're still in the HSR approval stage. So, we'll figure out how many completions XCL actually puts online, and that'll sort out where we are at year-end and how 2025 will play out. We're still working out a lot of scenarios, you know; it depends on what the commodity prices will be next year. And so, we're really sorting that out.

Herbert Vogel: Hey, thanks for the questions, Zach. This is her. You know, in projected and what how many T. Is we have.

Herbert Vogel: Hey, thanks for the question, Zach. This is Herb.

Herbert Vogel: We're obviously early days here. It's it's August and we're we're still in the HSR approval stage. So we'll figure out how many completions XCL actually puts online, and that will sort out where we are at year end and how 2025 will play out. We're still working a lot of scenarios on, you know, depends on what the commodity prices will be next year. And so we're really sorting that out. We don't know the details of all the rate contracts yet on the XCL side. So we're working the rig cadence, the completion cadence, but what we'll really look at is how do we get the best capital efficiency between the three assets.

Herbert Vogel: You know, in projecting how many TILs we have, we're obviously in the early days here. It's August, and we're still in the HSR approval stage, so we'll figure out how many completions XCL actually puts online, and that'll sort out where we are at year-end and how 2025 will play out. We're still working out a lot of scenarios; it depends on what the commodity prices will be next year, and so we're really sorting that out.

Herbert Vogel: You know, in projecting how many TILs we have, we're obviously early days here, it's August , and we're still in the HSR approval stage.

Herbert Vogel: So, we'll figure out how many completions XCL actually puts online, and that'll sort out where we are at year-end and how 2025 will play out.

Herbert Vogel: We're still working a lot of scenarios on, you know,

Herbert Vogel: We don't know the details of all the rig contracts yet on the XCL side, so we work on the rig cadence, the completion cadence, but what we'll really look at is how do we get the best capital efficiency between the three assets? We know the returns are similar between the three, which is a great position to be in. Now, how do we get capital efficiency as good as possible? So that's what we're working on right now, and we'll get a lot more information assuming HSR approval in late August.

Herbert Vogel: So we're really sorting that out. We don't know the...

Herb Vogel: We don't know the details of all the rig contracts yet on the XCL side, so we work in the rig cadence, the completion cadence, but what we'll really look at is how do we get the best capital efficiency between the three assets. We know the returns are similar between the three, which is a great position to be in. Now, how do we get capital efficiency as good as possible? So, that's what we're working on right now, and we'll get a lot more information, assuming HSR approval in late August.

Herbert Vogel: details of all the rig contracts yet on the XCL side. So we work in the rig cadence, the completion cadence, but what we'll really look at is how do we get the best capital efficiency between the three assets? We know the returns are similar between the three, which is a great position to be in. Now, how do we get the capital efficiency as good as possible?

Herbert Vogel: We know the returns are similar between the three, which is a great position to be in. Now how do we get the capital efficiency as good as possible.

Herbert Vogel: So that's what we're working on right now, and we'll get a lot more information, assuming HSR approval in late August.

Herbert Vogel: So that's what we're working right now, and we'll get a lot more information assuming HSR approval in late August .

Zach Parham: Thanks, Eric. My follow-up question: just wanted to ask...

Wade Purcell: I just wanted to ask on OPEX, particularly LOE. This quarter, it was 482 for BOE, that significantly below the low end of the four-year guidance range. Can you just give us any color on why LOE came in so low this quarter and maybe your expectations on how LOE trends from here?

Wade Purcell: My follow-up question, just wanted to ask about OPEX, particularly LOE. This quarter it was $4.82 per BOE. That's significantly below the low end of the four-year guidance range. Can you just give us any color on why LOE came in so low this quarter and maybe your expectations on how LOE trends from here?

Zach Parham: My follow-up question, just wanted to ask about OPEX, particularly LOE. This quarter, it was $4.82 per BOE. That's significantly below the low end of the four-year GADUCH range. Can you just give us any color on why LOE came in so low this quarter and maybe your expectations on how LOE trends from here?

Speaker Change: are my fellow up just wanted to ask on opex particularly llo this quarter of was fourhundred eighty two for booe

Speaker Change: that's significantly below the low end of the four-year guidance range.

Speaker Change: can you give us in color on why loe payments so low this quarter and maybe your expectations on on how lloe transfer here

Wade Purcell: Yeah, on the LB side, the second quarter was excellent. We obviously have seen some cost reductions in a number of areas across the board, others in labor, and we do expect a little bit of increase in third quarter with some additional electric generators as we're waiting for the utility to connect up some of our well pads, and then there's some additional water handling costs also that we'll have to cover. So I don't want to say it's an anomaly; we're going to keep driving costs down, but we do expect third quarter to be a bit higher than second quarter.

Wade Purcell: Yeah.

Herb Vogel: Yeah.

Herb Vogel: Yeah, on the LV side, the second quarter was excellent. We obviously have seen some cost reductions in a number of areas across the board other than labor. And we do expect a little bit of an increase in the third quarter with some additional electric generators as we're waiting for the utility to connect up some of our well pads. And then there are some additional water handling costs that we'll also have to cover. So I don't want to say it's an anomaly. We're going to keep driving costs down. But we do expect the third quarter to be a bit higher than the second quarter.

Wade Purcell: Yeah, on the LV side, the second quarter was excellent. We obviously have seen some cost reductions in a number of areas across the board other than labor. And we do expect a little bit of an increase in the third quarter with some additional electric generators, as we're waiting for the utility to connect up some of our well pads. And then there are some additional water handling costs, also, that we'll have to cover. So I don't want to say it's an anomaly; we're going to keep driving costs down. But we do expect third quarter to be a bit higher than second quarter.

Wade Purcell: Yeah, on the LV side, the second quarter was excellent. We obviously have seen some cost reductions in a number of areas across across the board other than labor.

Wade Purcell: And we do expect a little bit of increase in the third quarter with some additional electric generators as we're waiting for the utility to connect up some of our well pads. And then there's some additional water handling costs also that we'll have to cover.

Wade Purcell: So, I don't want to say it's an anomaly, we're going to keep driving costs down, but we do expect third quarter to be a bit higher than second quarter.

Neal Dingmann: Your next question comes from the line of Neal Dingmann with True Securities, please go ahead. Morning, nice quarter, guys. My first question is around the Eagleford activity, specifically.

Operator: Your next question comes from the line of Neal Dingmann with Truist Securities. Please go ahead.

Operator: Thanks.

Speaker Change: your next question comes from the line of neil' digman with true securities please go ahead

Neal Dingmann: Morning, nice quarter, guys. My first question is about the Eagle Ford activity. Specifically, can you discuss the sort of future Briscoe C activity? I'm just wondering, will you co-develop the middle and lower Austin Chalk going forward along with Eagle Ford, you know, now that you've had that success on the Briscoe C? I'm just wondering how you're going to sort of get after that.

Herbert Vogel: Can you discuss the sort of future Briscoe activity? I'm just wondering, will you co-develop the middle and lower Austin Chalk going forward along with Eagle Ford now that you've had that success on the Briscoe? See, I'm just wondering how you're going to get out for that. Yeah, Neal, I'll answer your question.

Neal Dingmann: morning this quarter guys my first question is around the yield for activities spe ifically can you discuss the sort of the future risiskco se activity i'm just wondering will you code developed

Neal Dingmann: the middle and lower Austin Chalk going forward along with Eagleford, you know, now that you've had that success on the Briscoe, see, I'm just wondering how you're going to sort of get after that.

Herb Vogel: Yeah, Neal, I'll answer your question. I didn't catch one word that you said there, but I'll just start and then tell me if there was another question there.

Herbert Vogel: Yeah, Neal, I'll answer your question. I didn't catch one word that you said there, but I'll just start and then tell me if there was another question there.

Herbert Vogel: I didn't catch one word that you said there, but I'll just start, and then tell me if there was another question there. But on the Eagleford, on the west side, we do anticipate co-developing the upper and the lower landing zone that we have in the Austin Chot, and staggering those. We had great results on the first place where we had fully bounded a number of wells altogether. And we're judicious. We will also tie an Eagleford wells over on that western acreage. On the eastern acreage, we probably won't be staggering wells. I'd agree just because the Austin Chot is a bit thinner over there in Gassier.

Herb Vogel: But on the Eagleford, on the west side, we do anticipate co-developing the upper and the lower landing zones that we have in the Austin Shock and staggering those. We had great results in the first place where we had fully bounded a number of wells all together. And where judicious, we will also tie in Eagleford wells over on that western acreage. On the eastern acreage, we probably won't be staggering wells to that degree just because the Austin Shock's a bit thinner over there and gassier. But it sure looks to work great on the western side to go with all three.

Herbert Vogel: Yeah, Neil, I'll answer your question. I didn't catch one word that you said there, but I'll just start and then tell me if there was another question there.

Herbert Vogel: But on the Eagleford, on the west side, we do anticipate co-developing the upper and the lower landing zones that we have in the Austin Shock and staggering those. We had great results in the first place where we had fully bounded a number of wells all together. And where judicious, we will also tie in Eagleford wells over on that western acreage. On the eastern acreage, we probably won't be staggering wells to that degree just because the Austin Shock's a bit thinner over there and gassier, but it sure looks to work great on the western side to go with all three.

Herbert Vogel: On the Eagleford, on the west side, we do anticipate co-developing the

Herbert Vogel: upper and lower landing zone that we have and the austin shock and staggering those we had great results on the first place where we had fully bounded a number of wells altogether and where judicious we will also tie and eagle ford wells over on that western acreage

Herbert Vogel: On the eastern acreage, we probably won't be staggering wells to that degree, just because the offshock's a bit thinner over there and gassier. But it sure looks to work great on the western side to go with all three.

Herbert Vogel: But it sure looks to work great on the western side to go with all three.

Herbert Vogel: Well said.

Neal Dingmann: Well said, and then just to make sure on the UNTA side, now that you were able to add additional acres, is the plan to develop all those acres in sort of that same pattern that you had talked about with the original XCL acquisition, or is there any, any change now that you have that additional inventory? Yeah, great, great question.

Herbert Vogel: And then just to make sure on my question, this one is just on the the UN to side. Now that you are able to add additional acres, is the plan to develop all those acres sort of that same pattern that you had talked about with the original XCl acquisition, or is there any change in that you have that additional inventory? Yeah, great, great question. You can imagine what the state of play is currently. We will be inheriting a lot of activity underway. We'll be inheriting quite a few ducks. We'll be looking to optimize the capital.

Speaker Change: well said and then just make sure on the my question this one is just on the Uintah side now that you were able to add additional acres

Speaker Change: Is the plan to develop all those acres sort of that same pattern that you had talked about with the original XCL acquisition, or is there any change now that you have that additional inventory?

Herb Vogel: Yeah, great question. You can imagine what the state of play is currently. We will be inheriting a lot of activity underway. We'll be inheriting quite a few ducks.

Speaker Change: Yeah, great question. You can imagine what the state of play is currently. We will be inheriting a lot of activity underway. We'll be inheriting quite a few ducks.

Herb Vogel: We'll be looking to optimize capital. And then ultimately, you know, by the time we get to 2026, we'll be looking at an integrated, how do we optimize the infrastructure that's in place? How do we benefit from XCL's infrastructure for the Altamon assets? So we're looking forward to that optimization because we see that as some low-hanging fruit there to take advantage of what XCL has pre-invested in throughout their acreage. It's great to hear.

Herbert Vogel: And then ultimately, you know, by the time we get to 2026, we'll be looking at an integrated how do we optimize the infrastructure that's in place? How do we benefit from XCl's infrastructure for the Altamon assets? So we're looking forward to that optimization. Could we see that as some low hanging fruit there to take advantage of what XCl pre-invested in throughout their acreage?

Herbert Vogel: We'll be looking to optimize the capital and then ultimately, you know, by the time we get to 2026, we'll be looking at an integrated, how do we optimize the infrastructure that's in place? How do we benefit from XTL's infrastructure for the Altamon assets?

Herbert Vogel: so we're looking forward to that optimization because we we see that as some low hanging fruit there to take advageof what xl preinvested in throughout their acreage

Herbert Vogel: Great to hear.

Speaker Change: Great to hear, thank you.

Mike Scialla: Your next question comes from line of Mike Scialla with Stevens. Please go ahead.

Operator: Your next question comes from the line of Mike Scialla with Stevens. Please go ahead.

mike skee: your next question comes from mind of mike skee with stphevens please go ahead

Mike Scialla: Good morning. I wanted to follow up on the Barnett Woodford Wells. Just to clarify, those were on that Western Extension acreage should believe, correct me if I'm wrong there. And how do you get to the 20 plus 1,000 net acres perspective for that? Is that assuming all 9,100 of the Extension area plus portion of the legacy, sweetie peck? And I guess also are those zones perspective anywhere else in the Midland where you in particular in Howard County, where you have acreage?

Michael Scialla: Good morning. I wanted to follow up on the Barnett-Woodford Wells. Just to clarify, those were on that Western Extension acreage, I believe. Correct me if I'm wrong there. And how do you get to the 20 plus? thousand net acres perspective for that is that assuming all 9100 of the extension area plus a portion of the legacy sweetie pack. And I guess, also, are those zones prospective anywhere else in the Midland, where you, in particular, in Howard County, where you have acreage?

Speaker Change: i'mor want to follow up on the barnettwood forwells just clarify where those were on that western extension acreage should believe correman from ong there and

Speaker Change: How do you get to the 20 plus?

Speaker Change: thousand net acres perspective for that is that assuming all 9,100 of the extension area plus portion of the legacy Sweetie Peck

Speaker Change: And I guess also are those zones prospective anywhere else in the Midland where you, in particular in Howard County, where you have acreage?

Herbert Vogel: Great question, Mike.

Herb Vogel: Oh, great question, Mike, and I can see why there could be some confusion about that. The 20,000 acres is basically the entirety underneath Sweeteepeck. We did quite a bit of land work to secure the deep rights under our Sweeteepeck position, and then we added that 9,100 acres to the west. If you look at the Woodford-Barnett well control of offset operators, you'll see that there was a gap under Sweeteepeck, so those two wells that we just did are actually under Sweeteepeck, and that's why we have the confidence, why we said 20,000 acres, because we are surrounded by good Woodford-Barnett wells over there, and then obviously, there's a lot of vertical well control around That over-pressured nature of it and the oiliness of it really helps in getting the economy improved over time.

Herbert Vogel: A great question, Mike, and I can see why there could be some confusion about that. The 20,000 acres is basically the entirety underneath Sweeteepeck. We did some, quite a bit of land work to secure the deep rights under our Sweeteepeck position, and then we added that 9,100 acres to the west. If you look at the Woodford-Barnett well control of offset operators, you'll see that there was a gap under Sweeteepeck, so those two wells that we just did are actually under Sweeteepeck, and that's why we have the confidence, why we said 20,000 acres, because we are surrounded by good Woodford-Barnett wells over there, and then obviously, there's a lot of vertical well control around That over-pressured nature of it, and the oiliness of it, really helps in getting the economy improved over time.

Herbert Vogel: And I can see why there could be some confusion about that. The 20,000 acres basically is the entirety underneath Sweetie Peck. We did so, part of it a landwork to secure the deep rights under our sweetie peck position. And then we added that 9,100 acres to the west. If you look at the Woodford Barnett well control of offset operators, you'll see that there was a gap under Sweetie Peck. So those two wells that we just did are actually under Sweetie Peck. And that's why we have the confidence. Why we said the 20,000 acres because we are surrounded by good Woodford Barnett wells over there.

Herbert Vogel: Great question, Mike, and I can see why there could be some confusion about that. The 20,000 acres basically is the entirety underneath Sweetiepeck. We did quite a bit of land work to secure the deep rights under our Sweetiepeck position, and then we added that 9,100 acres to the west.

Herbert Vogel: If you look at the Woodford-Barnett well control of offset operators, you'll see that there was a gap under Sweetie Peck, so those two wells that we just did are actually under Sweetie Peck.

Herbert Vogel: And that's why we have the confidence, why we said the 20,000 acres, because we are surrounded by good Woodford-Barnett wells over there. And then just obviously there's a lot of vertical well control around and that enhances our ability to map the play.

Herbert Vogel: And then just with obviously there's a lot of vertical well control around, and that enhances our ability to map the play. And that's why we have the confidence.

Herbert Vogel: And obviously we'll be working over time to figure out the optimal spacing for the play. But we're, we're, we're excited that over pressured nature of it. And the oiliness of it is really helps on getting the economics improved over time too.

Herbert Vogel: and that's that's why we have the confidence and obviously we'll be working over time to figure out the optimal stacing for the play but wereexcited that overpressured nature of it and the oilliness of it is is really helps on oncting economics improved over time to

Herbert Vogel: Okay, and not really looking anywhere outside of Sweetie Peck. I would say I'm never going to speak for our geoscience team because what they come up with is pretty amazing sometimes, and we'll see. I have no doubt that we have Woodford Barnett maps. And which of the discipline we have in terms of putting capital to land if they come up with good opportunities we pursue them. But they have definitely mapped the Woodford Barnett, and I'm sure I'll be seeing stuff in the future that I don't know about yet.

Michael Scialla: Okay, and not really looking anywhere outside of Sweetie Pie. So, I would say... I'm never going to speak for our geoscience team because what they come up with is pretty amazing sometimes. But we'll see. I have no doubt that we have Woodford-Barnett maps. And if we can, with the discipline we have in terms of putting capital into land, if they come up with good opportunities, we pursue them. But they have definitely mapped the Woodford-Barnett.

Speaker Change: Okay, and not really looking anywhere outside of Sweetie Pie.

Speaker Change: i'm always goinging in moment and i would say

Speaker Change: I'm never going to speak for our geoscience team, because what they come up with is pretty amazing sometimes, and we'll see. I have no doubt that we have Woodford-Barnett maps, and if we can

Speaker Change: With the discipline we have in terms of putting capital to land, if they come up with good opportunities, we pursue them, but they have definitely mapped the Woodford Barnett and I'm sure I'll be seeing stuff in the future that I don't know about yet.

Mike Scialla: Okay, look forward to that.

Michael Scialla: And I'm sure I'll be seeing stuff in the future that I don't know about yet. Okay, look forward to that. And then I just wanted to follow up on the Altamont Energy asset. It looks like that acquisition, like you said previously, is mostly acreage. How would you characterize that? Has it been delineated, is it more exploratory in nature than the XCL properties? Just looking for a little more color there

Mike Scialla: And then I just want to follow up on the ultimate energy assets. It looks like that acquisition, like you said previously, is it's mostly acreage. How would you characterize that that has it been delineated? Is it more exploratory in nature than the XL properties? Just looking for a little more color there.

Speaker Change: Okay, look forward to that. And then I just want to follow up on the Ultima and Energy assets.

Mike: It looks like that acquisition, like you said previously, that's mostly acreage. How would you characterize that?

Speaker Change: Has it been delineated? Is it more exploratory in nature than the XEL properties? Just looking for a little more color there.

Herbert Vogel: Okay, yeah, it's a great question, Mike. There's quite a bit of vertical well control around, so we can map it quite well. The industry's learned quite a bit over what makes successfully you into wells. The southern portion of the acreage is really well delineated, and then a little bit less delayed as you go further north.

Herb Vogel: Hey, yeah, it's a great question, Mike. There's quite a bit of vertical well control around, so we can map it quite well. The industry's learned quite a bit about what makes successful Uinto wells. The southern portion of the acreage is really well delineated, and then a little bit less delineated as you go further north. The technology applied is not as advanced at Altamont as it is at XCL, and I just got to say the XCL team is really excellent at what they do in terms of optimizing and driving capital efficiencies and putting smart infrastructure in place.

Herbert Vogel: Yeah, it's a great question, Mike. There's quite a bit of vertical well control around, so we can map it quite well.

Herbert Vogel: ah

Herbert Vogel: The industry's learned quite a bit over what makes successful a UN2 Wells.

Herbert Vogel: the southern portionof acreage is really well delineated

Herbert Vogel: The technology applied is not as advanced on Ultimate as it is on XL, and I just got to say the XL team is really excellent at what they do in terms of optimizing and driving capital efficiencies and putting smart infrastructure in place. And so that's why we're feel really good about Ultimat also. We'll see ultimately we put 75 locations on it for now and we'll see over time how much more we can add, and that doesn't include any deep cube or anything like that that has uptight inventory potential. Very good.

Herbert Vogel: and then a little bit less delayed as you go further north

Speaker Change: The technology applied is not as advanced on Altimum as it is on XTL and I just got to say the XTL team is really excellent at what they do in terms of optimizing and driving capital efficiencies and putting smart infrastructure in place.

Herb Vogel: And so that's why we feel really good about Altamont also. We'll see. Ultimately, we put 75 locations on it for now, and we'll see over time how much more we can add. And that doesn't include any deep cube or anything like that that has upside inventory potential.

Herbert Vogel: And so that's why we feel really good about Altamont also. We'll see, ultimately, we put 75 locations on it for now, and we'll see over time how much more we can add. And that doesn't include any deep cube or anything like that that has upside inventory potential.

Michael Scialla: Pretty good. Thanks, Herb.

Herbert Vogel: Thanks, Herb.

Herbert Vogel: You bet.

Mike: Very good. Thanks, Herb.

Timothy Rezvan: Your next question comes from the line of Timothy Rezvan with KeyBank, please. Good morning, folks, and thank you for taking my question. An area that really hasn't been discussed in the release or today is on Klondike, and I know, I think recent dialogue suggested you'd have more to say with their quarter earnings, but I know there's a lot of completion work going on.

Operator: Your next question comes from the line of Timothy Rezvan with KeyBank. Please go ahead.

Timothy Rezvan: You bet.

Speaker Change: Your next question comes from the line of Timothy Rezvan with KeyBank, please go ahead.

Herbert Vogel: Good morning, folks, and thank you for taking my question. An area that really hasn't been discussed in the release or today is Klondike. And I know recent dialogue suggested you'd have more to say with third quarter earnings. But I know there's a lot of completion work going on. So, Herb, could you maybe give a qualitative assessment of what's happening up there right now?

Timothy Rezvan: Good morning, folks, and thank you for taking my question. An area that really hasn't been discussed in the release or today is Klondike. And I know recent dialogue suggested you'd have more to say with third-quarter earnings. But I know there's a lot of completion work going on. So, Herb, could you maybe give a qualitative assessment of what's happening up there right now?

Herbert Vogel: good morning folks and thank you for taking up my question an area that really hasn't been discussed in the release or today is on kondke

Herbert Vogel: And I know, I think recent dialogue suggested you'd have more to say with third-quarter earnings. But I know there's a lot of completion work going on. So, Herb, can you maybe give like a qualitative assessment of what's happening up there right now?

Herbert Vogel: So, Herb, can you maybe give like a qualitative assessment of what's happening up there right now? Yeah, great question, Tim. You know, we had to hold something back for third quarter. So I would say that the Klondike Wells, we have them online doing well. We've got two that have been online for a while, two more that have come on just recently. We anticipate two more during the third quarter, and then there'll be a final two. So it looks like we're tracking for eight completions in the Klondike this year. I guess I'll all say is, you know, we don't give rates until we get the IP 30s.

Herb Vogel: Yeah, great question, Tim. You know, we had to hold something back for the third quarter. So I would say that the Klondike wells are online and doing well. We've got two that have been online for a while, two more that have come on just recently, we anticipate two more during the third quarter, and then there'll be a final two. So it looks like we're tracking for eight completions in Klondike this year.

Herbert Vogel: Yeah, great question, Tim. You know, we had to hold something back for the third quarter. So I would say that the Klondike wells are online and doing well. We've got two that have been online for a while, two more that have come on just recently, we anticipate two more during the third quarter, and then there'll be a final two. So it looks like we're tracking for eight completions in Klondike this year.

Herbert Vogel: yeah great question tim you know we had to hold something back for the third quarter so i would say that the cdi wells we have a online

Speaker Change: Doing well. We've got two that have been online for a while, two more that have come on just recently. We anticipate two more during the third quarter, and then there'll be a final two. So it looks like we're tracking for eight completions in Bondi this year.

Herb Vogel: I guess all I'll say is, you know, we don't give rates until we get the IP 30s. And they're still, I wouldn't call them IP 30s yet, even though some of them have been producing for a bit. So they're still ramping up, some of them are still ramping down.

Herbert Vogel: I guess all I'll say is, you know, we don't give breaks until we get the IP 30s. And they're still, I wouldn't call them IP 30s yet, even though some of them have been producing for a bit. So they're still ramping up, some of them are still ramping down.

Herbert Vogel: I guess all I'll say is, you know, we don't give rates until we get the IP30s, and they're still, I wouldn't call them IP30s yet, even though they've been, some of them have been producing for a bit, so they're still ramping, some of them are still ramping up.

Herbert Vogel: And they're still, I wouldn't call my fee 30s yet, even though they've been, some of them have been producing for a bit, so they're still ramping; some of them are still ramping up. Okay, that's fair.

Timothy Rezvan: Okay. That's fair. We'll stay tuned, I guess. And then I just wanted to follow up on Gabe's question about, you know, Sweetie Peck.

Timothy Rezvan: We'll stay tuned, I guess. And then I just wanted to follow up on a, on Gabe's question on, you know, sweetie peck. I understand it's early days and you don't have much to, too much to disclose.

Herbert Vogel: Okay, we'll stay tuned I guess. And then I just wanted to follow up on Gabe's question on, you know, Sweetie Peck. I understand it's early days and you don't have much to...

Timothy Rezvan: I understand it's early days and you don't have much to..., too much to disclose. We've heard some peers talk about oil cuts more in the 75 to 80 percent range. I mean, obviously, 50 to 60 is a good number. Can you talk about what you know about how those should trend? And if there is sort of variability across that format, any insight else?

Herbert Vogel: Too much to disclose. We've heard some peers talk about oil cuts more in the 75 to 80 percent range. I mean, obviously, 50 to 60 is a good number. Can you talk about what you know about how those should trend? And if there is sort of variability across that format, any insight else?

Herbert Vogel: We've heard some peers talk about oil cuts more in the 75s to 80% range. I mean, obviously, 50 to 60 is a good number.

Herbert Vogel: Too much to disclose. We've heard some peers talk about oil cuts more in the 75 to 80 percent range. I mean, obviously 50 to 60 is a good number. Can you talk to what you know about how those should trend and if there is sort of variability?

Herbert Vogel: Can you talk to what I know about how those should trend? And if there is sort of variability across that, that formation is any inside and helpful.

Herbert Vogel: Jim, you could be a geologist there. The, the key side is deeper, so that will be gasier, and the west side of our acreage is shallower and will be oilier. So you'll see that trending as you move west from our existing wells; you'll see them get oilier. And that's simply the depth and the thermal maturity level in the Woodford Barnett there. So you will see some variability, and so I fully expect, you know, if you look at some of our peer wealth that are just off our western flank, they will be our oil percentage.

Herb Vogel: Tim, you could be a geologist there.

Herbert Vogel: Tim, you could be a geologist there. The east side is deeper, so that will be gassier, and the west side of our acreage is shallower and will be oilier. So you'll see that trending as you move west from our existing wells. You'll see them get oilier, and that's simply the depth and the thermal maturity level of the Woodford-Barnett shale there. So you will see some variability, and so I fully expect, you know, if you look at some of our pier wells that are just off our western flank, they will have higher oil percentages.

Herb Vogel: Tim, you could be a geologist there. The east side is deeper, so that will be gassier, and the west side of our acreage is shallower and will be oilier. So you'll see that trending as you move west from our existing wells. You'll see them get oilier, and that's simply the depth and the thermal maturity level of the Woodford-Barnett shale there. So you will see some variability, and so I fully expect, you know, if you look at some of our peer wells that are just off our western flank, they will have higher oil percentages.

Herbert Vogel: across that, that formation. If there's any insight, that's helpful.

Herbert Vogel: Tim, you could be a geologist there. The east side is deeper so that will be gassier and the west side of our acreage is shallower and will be oilier.

Herbert Vogel: So you'll see that trending as you move west from our existing wells, you'll see them get oilier, and that's simply the depth and the thermal maturity level in the Woodford-Barnett there.

Herbert Vogel: So you will see some variability and so I fully expect, you know, if you look at some of our peer wealth that are just off our western flank, they will be higher oil percentage.

Herbert Vogel: Okay, thank you.

Operator: Your next question comes from the line of Oliver Huang with TPH. Please go ahead.

Tim: okay thank you

Herbert Vogel: that

Speaker Change: Your next question comes from the line of Oliver Huang with TPH. Please go ahead.

Oliver Huang: Good morning, Herb, Wade, and team StrongQuarter. And thanks for taking the questions. I just had a couple of follow-up questions.

Speaker Change: Good morning, Herb, Wade, and team StrongQuarter, and thanks for taking the questions. Just had a couple follow-ups.

Herb Vogel: Starting in South Texas, I know you all highlight the new Briscoe Sea Wells performing well. Just wondering how the initial results that you all have seen thus far on that 625 foot spaced fully bounded test impact your thinking about optimal spacing on future development in that liquids-rich area part of the play for you all? And then just kind of additionally on the Briscoe Sea Wells, notice that while you all typically drill wells going northwest to southeast, there's this one pad where the geometry of the wells is moving northeast to southwest. Any sort of observations or takeaways worth highlighting that came about from that set of wells?

Speaker Change: Starting in South Texas, I know you all highlight the new Briscoe seawells performing well.

Oliver Huang: Just wondering how did the initial results that you all seen thus far on that 625 foot space fully bounded test impact your thinking about optimal spacing on future development in that liquids rich area part of the play for you all.

Speaker Change: Just wondering, how did the initial results...

Speaker Change: that you all have seen thus far on that 625-foot spaced, fully bounded test.

Speaker Change: impact your thinking about optimal spacing on future development in that liquids-rich area. Part of the play for you all.

Oliver Huang: And then just kind of additionally on the Brisco C Wells notice that while you all typically drill wells going northwest to southeast, there's this one pad where the geometry of the wells are moving northeast to southwest. Any sort of observations or takeaways worth highlighting that came up from that said walls.

Speaker Change: And then just kind of additionally on the Briscoe seawalls, notice that

Speaker Change: While you all typically drill wells going northwest to southeast, there's this one pad where the geometry of the wells are moving northeast to southwest, any sort of observations or takeaways worth highlighting that came about from that set of wells.

Herbert Vogel: Hey, Oliver. Thanks for that question. That's actually an excellent question, and very few people have noticed that.

Herb Vogel: Hey, Oliver. Hey, thanks for that question. That's actually an excellent question, and very few people have noticed that. But let me start with the spacing. You know, we believe that we could get to that spacing and get good results with co-development, and pretty much the results confirmed what we expected, and there are quite a few wells there. We'll continue to drill at that kind of spacing where it makes sense, and obviously, the returns did not degrade like some people expected, and it kind of was in line with how we modeled it in terms of the reservoir models.

Herbert Vogel: Hey, Oliver. Hey, thanks for that question. That's actually an excellent question, and very few people have noticed that. But let me start with the spacing. You know, we believe that we could get to that spacing and get good results with co-development, and pretty much the results confirmed what we expected, and there are quite a few wells there. We'll continue to drill at that kind of spacing where it makes sense, and obviously, the returns did not degrade like some people expected, and it kind of was in line with how we modeled it in terms of the reservoir models.

Herbert Vogel: Hey, Oliver, hey, thanks for that question. That's actually an excellent question and very few people have noticed that. But let me start with the spacing.

Herbert Vogel: But let me start with the spacing. We believe that we could get to that spacing and get good results with co-development, and it pretty much the results confirmed what we expected, and there's quite a few wells there. We'll continue to track on that kind of spacing where it makes sense, and it obviously the returns did not degrade like some people expected, and it's kind of was in line with how we modeled it in terms of the reservoir models. So that is something that we will continue where it makes sense, and then Eagle Ferd will be selective depending on where there's less Eagle Ferd development currently.

Speaker Change: we believe that we could get to that spacing and get good results with code development and it pretty much the results confirmed what lywe expected and there's there' a quite a few wells there

Speaker Change: wewillll continue to track on that kind of spacing where it makes sense and obviously the returns did not degrade like some people expected and it's kind of was in line with love how we modeled it in terms of the the reservoir models

Herb Vogel: So that is something that we will continue where it makes sense, and then Eagleford will be selective depending on where there's less Eagleford development currently. The off azimuth wells that you noted are performing excellently. We were doing that to see if we could get costs down and lower the risks on some of the wells in terms of just because of the orientation there. And those have turned out excellent, better than we expected.

Herbert Vogel: So, that is something that we will continue where it makes sense, and then Eagleford will be selective, depending on where there's less Eagleford development currently. 8000 net acre drill to earn area. We have drilled three off azimuth wells over there also. So you'll be seeing the results from those also. So we see that as a way to really help capital efficiency with those off azimuth wells.

Herbert Vogel: So that is something that we will continue where it makes sense, and then Eagleford will be selective depending on where there's less Eagleford development currently.

Herbert Vogel: The off-asimuth wells that you noted are performing excellent. We were doing that to see if we could get costs down and lower the risk on some of the wells in terms of just because of the orientation there, and those have turned out excellent, better than we expected. You'll note that our first three wells over in the Tupedera area, that 8,000 net acre drill to earn area. We have drilled three off-asimuth wells over there also. You'll be seeing the results from those also. So we see that as a way to really help capital efficiency with those off-asimuth wells.

Speaker Change: The off azimuth wells that you noted are performing excellently. We were doing that to see if we could get costs down and lower the risks on some of the wells in terms of just the because of the orientation there.

Herb Vogel: You'll note that our first three wells over in the Chupadera area, that 8,000 net acre drill to earn area. We have drilled three off azimuth wells over there also, so you'll be seeing the results from those also. So we see that as a way to really help capital efficiency with those off azimuth wells.

Herbert Vogel: and those have turned out excellent better than we expected you'll note that our first three wells over in the tupider area that that

Herbert Vogel: 8,000 net acre drill to earn area. We have drilled three azimuth wells over there also. So you'll be seeing the results from those also. So we see that as a way to really help capital efficiency with those off azimuth wells.

Oliver Huang: Perfect, that's helpful color, and just a quick follow-up on Permian LOE, just kind of considering next year's preliminary outlook that you all had alongside the UNTA deck back in June.

Herb Vogel: Perfect, that's helpful, Culler. And just a quick follow-up on Permian LOE, considering next year's preliminary outlook that you all had alongside the Uintah deck back in June, anything that we should be aware of or thinking about that might be driving another leg down further to the low sixes on Permian LOE after the step down we saw this quarter?

Speaker Change: Perfect, that's helpful color. And just a quick follow-up on Permian LOE.

Speaker Change: Just kind of considering next year's preliminary outlook that you all had alongside the Uintah deck back in June , anything that we should be aware of or thinking about that might be driving another leg down further to the low sixes on Permian LOE after the step down we saw this quarter?

Herbert Vogel: Anything that we should be aware of or thinking about that might be driving another leg down further to the low sixes on Permian LOE after the step down we saw this quarter. Yeah, I don't know yet on 2025. We haven't worked up the plans on 2025. So if we get an area where there's already power supplied and it's pretty straightforward to keep the LOE down, if we're near our existing water injectors, it's going to be lower costs when we go to 33rd party water. Still really depend on specific, very specific things on where we're locating the wells in 2025.

Herb Vogel: Yeah, you know, I don't know yet where we haven't worked out the plans for 2025. So if we get in areas where there's already a power supply, then it's pretty straightforward to keep the LOE down. If we're near our existing water injectors, it's going to be lower cost than where we go to third-party water. So it'll really depend on specific, very specific things about where we're locating the wells in 2025. And I don't have that yet.

Herbert Vogel: Yeah, you know, I don't know yet about 2025. We haven't worked up the plans yet. So if we get in areas where there's already a power supply, then it's pretty straightforward to keep the LOE down. If we're near our existing water injectors, it's going to be lower cost than when we go to third-party water. So it'll really depend on specific, very specific things about where we're locating the wells in 2025.

Herbert Vogel: Yeah, you know, I don't know yet on 2025. We haven't worked up the plans on 2025.

Herbert Vogel: If we get in areas where there's already power supply, then it's pretty straightforward to keep the LOE down.

Herbert Vogel: We're near our existing water injectors. It's going to be lower cost than when we go to third-party water. So it'll really depend on...

Herbert Vogel: And I don't have that yet. The teams are working that out right now, but just rest assured we're going to be really driving capital efficiency again, and we're in a good operating environment right now with the activity reductions in the industry for both rigs and practice spreads.

Herbert Vogel: specific very specific things on where we're locating the wells in twentthousand twenty five and i don' thave that yet the teams working that up right now

Oliver Huang: The team's working that up right now. But just rest assured, we're going to be really driving capital efficiency again. And we're in a good operating environment right now with the activity reductions in the industry for both rigs and frack spread.

Herbert Vogel: And I don't have that yet. The team's working on it right now. But just rest assured, we're going to be really driving capital efficiency again, and we're in a good operating environment right now with the activity reductions in the industry for both rigs and frac spreads.

Herbert Vogel: But just rest assured, we're going to be really driving capital efficiency again, and we're in a good operating environment right now with the activity reductions in the industry for both rigs and frac spreads.

Oliver Huang: Okay, perfect. Thanks for the time.

Herbert Vogel: Okay, perfect, thanks for the time. You bet.

Herb Vogel: Okay, perfect. Thanks for the time. You bet.

Herbert Vogel: You bet.

Operator: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad.

Herbert Vogel: Okay, perfect. Thanks for the time.

Operator: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from the line of Nicholas Pope with Seaport Research Partners. Please go ahead.

Herbert Vogel: You bet.

Speaker Change: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from the line of Nicholas Pope with Seaport Research Partners. Please go ahead.

Thank you for standing by.

Nicholas Pope: Your next question comes from the line of Nicholas Pope with Seaport Research Partners. Please go ahead.

GD: My name is GD and I will be your conference operator today. At this time, I would like to welcome everyone to the SM Energy's second quarter, 2024 Financial and Operating Results Q&A conference call.

Nicholas Pope: Morning everyone. Hope we could dig a little bit more into South Texas because I mean it was a huge jump in oil production and just kind of curious with this basket of wells that you saw come online during the quarter. I mean, I do have a lot of well-controlling in South Texas. What is your ability to kind of maintain that oil percentage that we saw here in the second quarter? And in terms of how you're, I guess, selected wells and what you're going to bring in online. I guess how consistent can we expect these kind of oil percentages going forward in South Texas?

Speaker Change: Good morning, everyone.

Nicholas Pope: I hope we can dig a little bit more into south Texas because it was a huge jump in oil production and just kind of curious about this basket of wells that you saw come online during the quarter. I mean, I knew you have a lot of well control in South Texas. What is your ability to maintain that oil percentage that we saw here in the second quarter, and in terms of how you're, I guess, selecting wells and what you're going to bring in online? How can we expect these kind of oil percentages going forward?

Herbert Vogel: um

Speaker Change: I hope we could dig a little bit more into south Texas because it was a huge jump in oil production. And just kind of curious with this basket of wells that you saw come online during the quarter,

Herbert Vogel: I mean, I knew you have a lot of well control in South Texas, and we expect these kind of oil percentages going forward.

Speaker Change: I mean I know you have a lot of well control in South Texas. What is your ability to kind of maintain...

Jennifer Martin Samuel: I would now like to turn the conference over to Jennifer Martin Samuel, the Vice President Investor Relations and ESG Stewardship. You may begin. Thank you, Jeannie. Good morning, everyone. In today's call, we may reference the earnings release IR presentation or prepared remarks, all of which are posted to our website. Thank you for joining us to answer your questions today. We have our president and CEO Herb Vogel and CFO Wade Purcell. Before we get started, I need to remind you that our discussion today may include forward-looking statements and discussion of non-gap measures.

Speaker Change: that oil percentage that we we saw here in the second quarter and you know in terms of how you're i guess selected wells and whatyou're going to bring bring online i guess how consistent can we can we expect these these kind of wh percentages going forward in south texas

Herb Vogel: Yeah, Nick, thanks. This is Herb again.

Herbert Vogel: Yeah, Nick, thanks. This is Terb. Again, so on South Texas, you know, we regularly optimize, and we keep improving the performance in each area. When you look at oil percentage, that's going to depend a little bit on how much capital allocation is on the west side and how many new turn-in lines we have on the west side versus on the east side, which is, you know, higher BOE rates on the east side, but lower oil percentage. So you'll just see that move around somewhat, but the more capital we put in the west side, we'll wind up with a higher oil percentage. The more capital we put on the east side, we'll wind up with a higher gas, higher NGL percentage, and that really drives it.

Herbert Vogel: Yeah, Nick, thanks. This is Herb again. So on South Texas...

Speaker Change: You know, we regularly optimize and we keep improving the performance in each area. When you look at oil percentage, that's going to depend a little bit on how much capital allocation is on the west side and how many new turning lines we have on the west side versus on the east side, which is...

Herb Vogel: So on South Texas... You know, we regularly optimize, and we keep improving the performance in each area. When you look at oil percentage, that's going to depend a little bit on how much capital allocation is on the west side and how many new turning lines we have on the west side versus on the east side, which is higher BOE rates on the east side but lower oil percentage. So you'll just see that move around somewhat, but the more capital we put in on the west side, we'll wind up with a higher oil percentage.

Jennifer Martin Samuel: I direct you to the accompanying slide deck earnings release and risk factor section of our most recently filed 10K, which describe risk associated with forward-looking statements that could cause actual results to differ. Also, please say the slide deck appendix and earnings release for definitions and reconciliation of non-gap measures to the most directly comparable gap measures and discussion of forward-looking non-gap measures. Also, look for our second quarter, 10K, that was filed this morning.

Speaker Change: You know higher BOE rates on the east side, but lower oil percentage

Herbert Vogel: So you'll just see that move around somewhat, but the more capital we put in the west side will wind up with a higher oil percentage. The more capital we put on the east side will wind up with a higher gas, higher NGL percentage.

Herb Vogel: The more capital we put on the east side, we'll wind up with a higher gas, higher NGL percentage, and that really drives it. But overall, if you just look at it, we just keep improving the well performance, and we're really aware of where their high oil percentage is and where their higher gas percentage is, and we're really just looking at the returns. We're not worried about the oil percentage so much. We're driving the capital efficiency side of things. So that's really the way I'd sum that up.

Herbert Vogel: But overall, if you just look at it, we just keep improving the well performance, and we're really aware of where they're high oil percentage and where they're higher gas percentage, and we're really just looking at the returns. We're not worrying about the well percentage so much.

Herbert Vogel: And that really drives it. But overall, if you just look at it, we just keep improving the well performance.

Herb Vogel: And with that, it will turn it over to Herb for brief opening commentary, Herb. Thank you, Jennifer. Good morning, and thank you for joining us.

Speaker Change: and we know we're really aware of where they're high oil percentage and where they re higher gas percentage and we're really just looking at the returns we're not worried about two all percentage so much it's we're driving the capitals and efficiency side of things so that's really the way 's that up

Herb Vogel: It was an outstanding quarter with a lot of great news. So let's go ahead and get started with the Q&A.

Herbert Vogel: We're driving the capital efficiency side of things, so that's really the way I sum that up. Got to appreciate it.

GD: I'll turn it back to Jeannie to start taking her questions. Thank you.

Nicholas Pope: God, I appreciate it. The other thing, and I know there's like, you know, dig a little more that I think y'all probably want to, but in 2025, the production kind of broad range that you gave during the XCL release, that 195, got a lot of pushback on that, on that number. I'm just kind of curious as you kind of look at where things are now, what your current kind of implied guidance is with the added production and UNTA and coming in, you added this release, kind of how you're thinking about that. You know, the implied decline that you're seeing there in 2025 from that fourth-quarter rate and if there's anything, I guess maybe when we can get some more clarity on kind of what you're expecting.

GD: The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question.

Nicholas Pope: The other thing, and I know there's like, you know, dig a little more that I think you'll probably want to, but in 2025, the production kind of broad range that you all gave during the XL release, that 195, gotten a lot of pushback on that number. Just kind of curious, as you kind of look at where things are now, what your current kind of implied guidance is with the added production and you went on coming in, you added this release. Kind of how you're thinking about that, you know, the implied decline that you're seeing there in 2025 from that fourth quarter rate, and if there's anything, I guess maybe when we get some more clarity on kind of what you're expecting there for 2025.

Speaker Change: God, I appreciate it. The other thing, and I know there's like...

Speaker Change: you know dig a little more that i think you'll probably want to but in two thousand andtwenty five the production kind of broad range l gave during the x l release that one ninety five

Speaker Change: We've gotten a lot of pushback on that number. I'm just kind of curious as you kind of look at where things are now, what your current kind of implied guidance is with the...

We do request for today's session that you please limit yourself to one question and one follow-up. Again, press star one to join the queue.

Herbert Vogel: with the added production and you went to...

Speaker Change: coming in the you you added this with this release kind how you'you thinking about that

Gabe Dowd: Your first question comes from the line of Gabe Dowd with TD Cowan. Please go ahead. Thanks.

Herbert Vogel: You know, the implied decline that you're seeing there in 2025 from that fourth quarter rate and if there's anything, I guess maybe when we can get some more clarity on kind of what you're expecting.

Speaker Change: You know the implied decline that you're seeing there in 2025 from that fourth quarter rate And if there's anything I guess maybe when we get some more clarity on that kind of what you're expecting there for 2025

Good morning, everyone. I appreciate the time this morning was hoping we could maybe learn a little bit more about the Woodford Barnett results. I guess curious about the development plan here, whether or not there are more wells in the formation that I expected to turn in line this year. What does development look like from a spacing standpoint? And then I guess what are the oil cuts expected on these wells?

Herb Vogel: Yeah, Nick, it's a really fair question. You know, when it's the early days like this on a new acquisition, we're working up scenarios and really figuring out the capital efficiency that we can gain. We are somewhat limited in what we can see in terms of rig contracts and other contracts because we are in that HSR period. So, the best we can see are redacted contracts. So, we don't know how the term of the contracts will be and what will make sense.

Herbert Vogel: Yeah, Nick, it's a real fair question. You know, when it's early days like this on a new acquisition, we're working up scenarios and really figuring out the capital efficiency that we can gain. We are somewhat limited in what we can see in terms of rig contracts and other contracts because we are in that HSR period. So the best we can see are redacted contracts. So we don't know the how the term of the contracts and what will make sense. So we are working that. I will say we'll really be able to ramp up our certainty after HSR approval, assuming we get that at the end of August.

Speaker Change: Yeah, Nick, it's a real fair question. You know, when it's early days like this on a new acquisition, we're working up scenarios and really figuring out the capital efficiency that we can gain, and we are somewhat limited in what we can see in terms of rig contracts.

Speaker Change: and other contracts because we are in that hr period so with the best we can see our redacted contracts

Herb Vogel: Yeah, thanks, Gabe to serve. Yeah, we're excited about the Woodford Barnett and the Permian. It's an over pressured play, which is great. The wells initially flow naturally and for quite a while before we put artificial list on. They are 56 to 58% oil, and that's on two stream basis. Imagine the gas will be quite rich. I don't know the BTU content there yet. And it's about 50 API oil in terms of the development.

Herb Vogel: So, we are working on that. I will say we'll really be able to ramp up our certainty after HSR approval, assuming we get that at the end of August. And then we'll be baking that into our 2025 plans that we will release in February. So, we're just excited that all three assets have really similar returns. And we're just looking at how we can optimize that in terms of rig and frac spread cadence. We know that we get better capital efficiency if we can get the right mix of rig and frac spread in a given play. And maximize free cash flow. Yeah. And the objective is that we will maximize free cash flow over the next two to three years, as we always do.

Speaker Change: So we don't know the...

Speaker Change: how the term of the contracts and at what will make sense

Speaker Change: So we are working that. I will say we'll really be able to ramp up our certainty after HSR approval, assuming we get that at the end of August . And then we'll be baking that into our 2025 plans that we release in February .

Herbert Vogel: And then we'll be making that into our 2025 plans that we release in February. So we're just excited that all three assets have really similar returns. And we're just looking at how we can optimize that in terms of rig and fraction thread cadence. We know that we get better capital efficiency. We can get the right mix of rig and fraction spread in a given play. And maximum free cash flow. Yeah. And objective is we will maximize free cash flow in the next two to three years, as we always do.

Speaker Change: So, we're just excited that all three assets have really similar returns, and we're just looking at how we can optimize that.

Herb Vogel: We're away the way from that, but we do know that we're well surrounded by offset operators. And we showed that in one of the slides that the performances as well is really excellent, and we'll be working the development plans over the coming months.

Speaker Change: In terms of rig and frac spread cadence, we know that we get better capital efficiency if we can get the right mix of rig and frac spread in a given play. And maximize free cash flow. Yeah, and the objective is we will maximize free cash flow over the next two to three years, as we always do.

We do not have any additional turn in lines planned for this year in Woodford Barnett. Thank you. Thanks, sir. That's great detail. Appreciate all that.

Herbert Vogel: Alright, that's all I had. I appreciate the time.

Nicholas Pope: Alright, that's all I had. I appreciate the time.

Herbert Vogel: it

Herbert Vogel: Alright, that's all I had. I appreciate the time. Thanks.

Operator: That concludes our Q&A session.

Operator: That concludes our Q&A session. I will now turn the conference back over to Herb Vogel, President and Chief Executive Officer, for closing remarks.

Wade Purcell: And then I guess just as a follow-up shipping gears to the buyback and commentary around maybe more of a focus on debt reduction your term versus leaning into the buyback. I think less several quarters you've been around 40 to 50 million a quarter on buyback. So what does the pace look like to close 2024 and then any additional color on the pace in 25? Thanks, guys.

Herbert Vogel: I will now turn the conference back over to Herb Vogel, President and Chief Executive Officer for closing remarks.

Herbert Vogel: That concludes our Q&A session. I will now turn the conference back over to Herb Vogel, President and Chief Executive Officer, for closing remarks.

Herbert Vogel: Okay, thank you, Jeannie, and thank you all for joining us. I do have one area that we got some questions on that did not come up today, and they're about to take away in the unit of basin for Vogel oil and natural gas. And the question really is, is it sufficient in terms of takeaway, and can we grow production? And we believe that was a great question because there are perceptions about takeaway or complications related to rail that are actually quite outdated now. Until mid 2021, a taxi crude production was limited, like in the 80,000 barrel of day range for the industry, and was all delivered to Salt Lake City refineries.

Herbert Vogel: Hey, thank you, Jeanne, and thank you all for joining us. I do have one area that we've got some questions on that did not come up today, and they're about the takeaway in the Unita Basin for both oil and natural gas. Until mid-2021, waxy crude production was limited to the 80,000 barrels a day range for the industry and was all delivered to Salt Lake City refineries. The sharp rise since mid-2021 is due to growth in interest from Gulf Coast refineries in incorporating waxy crude into cruise ships, favorable oil prices, and gains in production efficiency. And that's been expanded to include Cushing and Wyoming refineries.

Herb Vogel: Hey, thank you, Jeanne, and thank you all for joining us. I do have one area that we've got some questions on that did not come up today, and they're about the takeaway in the Unita Basin for both oil and natural gas. And the question is, really, is it sufficient in terms of takeaway, and can we grow production? And we believe that was a great question because there are perceptions about takeaway or complications related to rail that are actually quite outdated now.

Herbert Vogel: Thank you, Jeanne, and thank you all for joining us. I do have one area that we got some questions on that did not come up today, and they're about the takeaway in the Unita Basin for both oil and natural gas.

Yeah, this is Wade. You know, as we've said with the acquisition with taking on an additional leverage we will be prioritizing pre-cash flow in the near term to debt reduction before we kind of get back into the pace that we were on buying back shares. You know, I will say though that it's not an all or nothing during this period of prioritizing debt reduction. They're very well maybe times, probably will be times where we step into the market and buy back some shares, especially on days of weakness or other times.

Speaker Change: and the question that really is it sufficient in terms of takeaway and can we grow production and we believe that was a great question because there perceptions about takeaway the or complications related to rail that are re actually quite outdated now

Herb Vogel: Until mid-2021, waxy crude production was limited in the 80,000-barrel-a-day range for the industry and was all delivered to Salt Lake City refineries. The sharp rise since mid-2021 is due to growth in interest from Gulf Coast refineries, incorporating waxy crude into cruise flights, favorable oil prices, and gains in production efficiency. And that has increased to include Cushing and Wyoming refineries. There are no rail constraints for current production or for expanding production.

Herbert Vogel: Until mid-2021, waxy crude production was limited, like in the 80,000 barrel a day range for the industry, and was all delivered to Salt Lake City refineries.

Herbert Vogel: The sharp rise since mid 2021 is due to growth and interest from Gulf Coast refineries in incorporating waxed crude into their crude slates, favorable oil prices, and gains in production efficiency. And that's increased to include Cushing and Wyoming refineries. There are no rail constraints for current production or for expanding production. The railways are generally underutilized in the region because there's less coal being moved, as most of you know. While only a portion of the oil goes to Salt Lake City, there's a number of outlets by rail, including Wyoming, Gulf Coast, and Cushing. And the oil in insulated cars, not easy cars.

Herbert Vogel: The sharp rise since mid-2021 is due to growth in interest from Gulf Coast refineries in incorporating waxy crude into their cruise fleets, favorable oil prices and gains in production efficiency, and that's increased to include Cushing and Wyoming refineries.

We certainly still like stock price. There's no doubt about that. We have our internal view of NAV. But that will be the priority with pre-cash flow though until we get back below kind of in that one times area which we which we project being the middle of next year depending on commodity prices. Of course. Okay. Thanks. So it's not an all or nothing approach. Okay. Very helpful. Thanks a lot. No. You bet.

Herb Vogel: The railways are generally underutilized in the region because, as most of you know, less coal is being moved. While only a portion of the oil goes to Salt Lake City, there's a number of outlets by rail, including Wyoming, the Gulf Coast, and Cushing. And the oil's in insulated cars, not heated cars.

Speaker Change: there are no real constraints for current production or for expanding production the railways are generally underutilized in the region because there's less cold being moved as as most of you know

Herbert Vogel: While only a portion of the oil goes to Salt Lake City, there's a number of outlets by rail, including Wyoming, Gulf Coast, and Cushing. And the oil's in insulated cars, not heated cars.

Zach Parin: Your next question comes from the line of Zach Parin with JP Morgan. Please go ahead. Thanks for taking my question.

Herbert Vogel: So, in regards to gas, there have been constraints, but these are being alleviated. Pipeline expansion was completed last month by Mountain West, capable of moving in the additional 80 million cubic feet a day. And Kinder Morgan recently announced that they're proceeding with the pipeline project to relieve constraints in the basin. Their fight will carry up to 150 million cubic feet a day from the basin to a processing plant and will be in service in mid 2025.

Herb Vogel: So in regards to gas, there have been constraints, but these are being alleviated. A pipeline expansion was completed last month by Mountain West, capable of moving an additional 80 million cubic feet a day. And Kinder Morgan recently announced that they're proceeding with a pipeline project to relieve constraints in the basin. Their pipe will carry up to 150 million cubic feet of crude oil a day from the basin to a processing plant and will be in service in mid-2025. So, with that, thank you for joining us, and we look forward to seeing a number of you at upcoming events.

I'm first wanted to ask a little bit on the trajectory of oil volumes from here. And as we move into 25. You're implied for you got a trade around 115,000 barrels a day pro forma for the event to deal that compares to the preliminary guide you gave of 100,000 barrels a day for 2025. Can you just talk a little bit about the production trajectory you expect through the year. Do you expect you know as you slow down activity. Do you expect a pretty steep decline early in 25 and then you kind of level out. Just just curious on kind of time those two numbers together.

Speaker Change: So, in regards to gas, there have been constraints.

Speaker Change: But these are being alleviated. Pipeline expansion was completed last month by Mountain West.

Herb Vogel: Hey, thanks for the questions, Zach.

Herbert Vogel: Capable of moving an additional 80 million cubic feet a day. And Kinder Morgan recently announced that they're proceeding with a pipeline project to relieve constraints in the basin. Their pipe will carry up to 150 million cubic feet a day from the basin to a processing plant and will be in service in mid-2025.

Herbert Vogel: So, with that, thank you for joining us, and we look forward to seeing a number of you at upcoming events.

Herbert Vogel: so with that thank you for joining us and we look forward to see a number of you upcoming events

Operator: This does conclude today's call. You may now disconnect.

Speaker Change: This does conclude today's call. You may now disconnect.

This is her. You know, in projected and what how many T. Is we have. We're obviously early days here. It's it's August and we're we're still in the HSR approval stage. So we'll figure out how many completions XCL actually puts online and that will sort out where we are at year end and how 2025 will play out. We're still working a lot of scenarios on, you know, depends on what the commodity prices will be next year.

And so we're really sorting that out. We don't know the details of all the rate contracts yet on the XCL side. So we're working the rig cadence, the completion cadence, but what we'll really look at is how do we get the best capital efficiency between the three assets. We know the returns are similar between the three, which is a great position to be in. Now how do we get the capital efficiency as good as possible. So that's what we're working right now and we'll get a lot more information assuming HSR approval in late August.

Wade Purcell: I just wanted to ask on OPEX, particularly LOE, this quarter, it was 482 for BOE that significantly below the low end of the four-year guidance range. Can you just give us any color on why LOE came in so low this quarter and maybe your expectations on how LOE trends from here?

Yeah, on the LB side, the second quarter was excellent. We obviously have seen some cost reductions in a number of areas across the board, others in labor, and we do expect a little bit of increase in third quarter with some additional electric generators as we're waiting for the utility to connect up some of our well pads, and then there's some additional water handling costs also that we'll have to cover. So I don't want to say it's an anomaly, we're going to keep driving costs down, but we do expect third quarter to be a bit higher than second quarter.

Thanks.

Neal Dingmann: Your next question comes from the line of Neal Dingmann with true securities, please go ahead. Morning, nice quarter guys. My first question is around the Eagleford activity, specifically. Can you discuss the sort of future briscoe activity I'm just wondering, will you co-develop the middle and lower Austin Chot going forward along with Eagleford now that you've had that success on the briscoe? See, I'm just wondering how you're going to get out for that.

Yeah, Neal, I'll answer your question.

Herb Vogel: I didn't catch one word that you said there, but I'll just start and then tell me if there was another question there. But on the Eagleford, on the west side, we do anticipate co-developing the upper and the lower landing zone that we have in the Austin Chot, and staggering those we had great results on the first place where we had fully bounded a number of wells altogether. And we're judicious. We will also tie an Eagleford wells over on that western acreage.

Herb Vogel: On the eastern acreage, we probably won't be staggering wells. I'd agree just because the Austin Chot is a bit thinner over there in Gassier. But it sure looks to work great on the western side to go with all three.

Well said.

Herb Vogel: And then just to make sure on my question, this one is just on the the UN to side, now that you are able to add additional acres, is the plan to develop all those acres sort of that same pattern that you had talked about with the original XCl acquisition or is there any change in that you have that additional inventory? Yeah, great, great question. You can imagine what the state of play is currently.

Herb Vogel: We will be inheriting a lot of activity underway. We'll be inheriting quite a few ducks. We'll be looking to optimize the capital. And then ultimately, you know, by the time we get to 2026, we'll be looking at an integrated how do we optimize the infrastructure that's in place? How do we benefit from XCl's infrastructure for the Altamon assets? So we're looking forward to that optimization. Could we see that as some low hanging fruit there to take advantage of what XCl pre-invested in throughout their acreage? Great to hear.

Thank you.

Mike Scialla: Your next question comes from line of Mike Scialla with Stevens. Please go ahead.

Good morning. I wanted to follow up on the Barnett Woodford Wells. Just to clarify, those were on that Western Extension acreage should believe, correct me if I'm wrong there. And how do you get to the 20 plus 1,000 net acres perspective for that? Is that assuming all 9,100 of the Extension area plus portion of the legacy, sweetie peck? And I guess also are those zones perspective anywhere else in the Midland where you in particular in Howard County, where you have acreage?

Herb Vogel: Great question, Mike. And I can see why there could be some confusion about that. The 20,000 acres basically is the entirety underneath sweetie peck. We did so, part of it a landwork to secure the deep rights under our sweetie peck position. And then we added that 9,100 acres to the west. If you look at the Woodford Barnett well control of offset operators, you'll see that there was a gap under sweetie peck.

Herb Vogel: So those two wells that we just did are actually under sweetie peck. And that's why we have the confidence. Why we said the 20,000 acres because we are surrounded by good Woodford Barnett wells over there. And then just with obviously there's a lot of vertical well control around and that enhances our ability to map the play.

And that's why we have the confidence. And obviously we'll be working over time to figure out the optimal spacing for the play. But we're we're we're excited that over pressured nature of it. And the oiliness of it is is really helps on on getting the economics improved over time too.

Okay, and not really looking anywhere outside of sweetie peck. I would say I'm I'm never going to speak for our geoscience team because what they come up with is pretty amazing sometimes and we'll see I have no doubt that we have Woodford Barnett maps. And which of the discipline we have in terms of putting capital to land if they come up with good opportunities we pursue them. But they they have definitely mapped the Woodford Barnett and I'm sure I'll be seeing stuff in the future that I don't know about yet. Okay, look forward to that.

Herb Vogel: And then I just want to follow up on the ultimate energy assets. It looks like that acquisition like you said previously is it's mostly acreage. How would you characterize that that is that has it been delineated?

Is it more exploratory in nature than the XL properties just looking for a little more color there? Okay, yeah, it's a great question Mike. There's quite a bit of vertical well control around so we can map it quite well. The industry's learned quite a bit over what makes successfully you into wells. The southern portion of the acreage is really well delineated and then a little bit less delayed as you go further north.

The technology applied is not as advanced on ultimate as it is on XL and I just got to say the XL team is really excellent at what they do in terms of optimizing and driving capital efficiencies and putting smart infrastructure in place. And so that's why we're we're feel really good about Ultimat also. We'll see ultimately we put 75 locations on it for now and we'll see over time how much more we can add and that doesn't include any deep cube or anything like that that has uptight inventory potential. Very good. Thanks, Herb. You bet.

Timothy Rezvan: Your next question comes from the line of Timothy Rezvan with Keybank, please. Good morning, folks, and thank you for taking my question. An area that really hasn't been discussed in the release or today is on Klondike, and I know, I think recent dialogue suggested you'd have more to say with their quarter earnings, but I know there's a lot of completion work going on.

So, Herb, can you maybe give like a qualitative assessment of what's happening up there right now? Yeah, great question, Tim. You know, we had to hold something back for third quarter. So I would say that the Klondike Wells, we have them online doing well. We've got two that have been online for a while, two more that have come on just recently. We anticipate two more during the third quarter, and then there'll be a final two.

So it looks like we're tracking for eight completions in the Klondike this year. I guess I'll all say is, you know, we don't give rates until we get the IP 30s. And they're still, I wouldn't call my fee 30s yet, even though they've been, some of them have been producing for a bit, so they're still ramping, some of them are still ramping up. Okay, that's fair.

Timothy Rezvan: We'll stay tuned, I guess.

And then I just wanted to follow up on a, on Gabe's question on, you know, sweetie peck, I understand it's early days and you don't have much to, too much to disclose. We've heard some peers talk about oil cuts more in the 75s to, to 80% range. I mean, obviously 50 to 60 is a good number. Can you talk to what you know about how those should trend? And if there is sort of variability across that, that formation is any inside and helpful.

Jim, you could be a geologist there. The, the key side is deeper, so that will be gasier and the west side of our acreage is shallower and will be oilier. So you'll see that trending as you move west from our existing wells, you'll see them get oilier. And that's simply the depth and the thermal maturity level in the Woodford Barnett there. So you will see some variability and so I fully expect, you know, if you look at some of our peer wealth that are just off our western flank, they will be our oil percentage. Okay, thank you.

Oliver Huang: You're next question comes from the line of Oliver Huang with TPH. Please go ahead. Good morning, Herb. Wade and team. Strong quarter. And thanks for taking the questions. Just had a couple of follow ups. Starting in South Texas, I know you all highlight the new Brisco C Wells performing well. Just wondering how did the initial results that you all seen thus far on that 625 foot space fully bounded test impact you're thinking about optimal spacing on future development in that liquids rich area part of the play for you all.

Oliver Huang: And then just kind of additionally on the Brisco C Wells notice that while you all typically drill wells going northwest to southeast, there's this one pad where the geometry of the wells are moving northeast to southwest any sort of observations or takeaways worth highlighting that came up from that said walls.

Hey, Oliver. Thanks for that question. That's actually an excellent question and very few people have noticed that. But let me start with the spacing. We believe that we could get to that spacing and get good results with co-development and it pretty much the results confirmed what we expected and there's quite a few wells there. We'll continue to track on that kind of spacing where it makes sense and it obviously the returns did not degrade like some people expected and it's kind of was in line with how we modeled it in terms of the reservoir models.

So that is something that we will continue where it makes sense and then Eagle Ferd will be selective depending on where there's less Eagle Ferd development currently. The off-asimuth wells that you noted are performing excellent. We were doing that to see if we could get costs down and lower the risk on some of the wells in terms of just because of the orientation there and those have turned out excellent, better than we expected.

You'll note that our first three wells over in the Tupedera area, that 8,000 net acre drill to earn area. We have drilled three off-asimuth wells over there also. You'll be seeing the results from those also. So we see that as a way to really help capital efficiency with those off-asimuth wells.

Wade Purcell: Perfect, that's helpful color and just a quick follow-up on Permian LOE, just kind of considering next year's preliminary outlook that you all had alongside the UNTA deck back in June. Anything that we should be aware of or thinking about that might be driving another leg down further to the low sixes on Permian LOE after the step down we saw this quarter.

Yeah, I don't know yet on 2025. We haven't worked up the plans on 2025. So if we get an area where there's already power supplied and it's pretty straightforward to keep the LOE down, if we're near our existing water injectors, it's going to be lower costs when we go to 33rd party water. Still really depend on specific, very specific things on where we're locating the wells in 2025.

And I don't have that yet. The teams are working that out right now, but just rest assured we're going to be really driving capital efficiency again and we're in a good operating environment right now with the activity reductions in the industry for both rigs and practice spreads.

Okay, perfect, thanks for the time. You bet.

GD: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad.

Nicholas Pope: Your next question comes from the line of Nicholas Pope with seaport research partners. Please go ahead. Morning everyone. Hope we could dig a little bit more into into South Texas because I mean it was it was a huge jump in oil production and just kind of curious with this basket of wells that you saw come online during the quarter. I mean, I do have a lot of well-controlling in South Texas. What is your ability to kind of maintain that oil percentage that we saw here in the second quarter?

Nicholas Pope: And in terms of how you're, I guess, selected wells and what you're going to bring in online. I guess how consistent can we expect these kind of oil percentages going forward in South Texas? Yeah, Nick, thanks, this is Terb. Again, so on South Texas, you know, we regularly optimize and we keep improving the performance in each area. When you look at oil percentage, that's going to depend a little bit on how much capital allocation is on the west side and how many new turn-in lines we have on the west side versus on the east side, which is, you know, higher BOE rates on the east side, but lower oil percentage.

Nicholas Pope: So you'll just see that move around somewhat, but the more capital we put in the west side, we'll wind up with a higher oil percentage, the more capital we put on the east side, we'll wind up with a higher gas, higher NGL percentage, and that really drives it. But overall, if you just look at it, we just keep improving the well performance and we're really aware of where they're high oil percentage and where they're higher gas percentage and we're really just looking at the returns. We're not worrying about the well percentage so much.

We're driving the capital efficiency side of things, so that's really the way I sum that up. Got to appreciate it. The other thing, and I know there's like, you know, dig a little more that I think you'll probably want to, but in 2025, the production kind of broad range that you all gave during the XL release, that 195, gotten a lot of pushback on that number. Just kind of curious, as you kind of look at where things are now, what your current kind of implied guidance is with the added production and you went on coming in, you added this release.

Kind of how you're thinking about that, you know, the implied decline that you're seeing there in 2025 from that fourth quarter rate, and if there's anything, I guess maybe when we get some more clarity on kind of what you're expecting there for 2025. Yeah, Nick, it's a real fair question. You know, when it's early days like this on a new acquisition, we're working up scenarios and really figuring out the capital efficiency that we can gain.

We are somewhat limited in what we can see in terms of rig contracts and other contracts because we are in that HSR period. So the best we can see are redacted contracts. So we don't know the how the term of the contracts and what will make sense. So we are working that. I will say we'll really be able to ramp up our certainty after HSR approval, assuming we get that at the end of August.

And then we'll be making that into our 2025 plans that we release in February. So we're just excited that all three assets have really similar returns. And we're just looking at how we can optimize that in terms of rig and fraction thread cadence. We know that we get better capital efficiency. We can get the right mix of rig and and fraction spread in a given play. And maximum free cash flow. Yeah. And objective is we will maximize free cash flow in the next two to three years as we always do.

Herb Vogel: That concludes our Q&A session.

I will now turn the conference back over to Herb Vogel, President and Chief Executive Officer for Closing remarks. Okay, thank you, Jeannie, and thank you all for joining us. I do have one area that we got some questions on that did not come up today, and they're about to take away in the unit of basin for Vogel Oil and natural gas. And the question really is it sufficient in terms of takeaway and can we grow production?

And we believe that was a great question because there are perceptions about takeaway or complications related to rail that are actually quite outdated now. Until mid 2021, a taxi crude production was limited like in the 80,000 barrel of day range for the industry and was all delivered to Salt Lake City refineries. The sharp rise since mid 2021 is due to growth and interest from Gulf Coast refineries in incorporating waxed crude into their crude slates, favorable oil prices and gains in production efficiency.

And that's increased to include cushing and Wyoming refineries. There are no rail constraints for current production or for expanding production. The railways are generally underutilized in the region because there's less coal being moved as most of you know. While only a portion of the oil goes to Salt Lake City, there's a number of outlets by rail including Wyoming, Gulf Coast and Cushing. And the oil in insulated cars, not easy cars. So in regards to gas, there have been constraints, but these are being alleviated.

Pipeline expansion was completed last month by Mountain West, capable of moving in the additional 80 million cubic feet a day. And Kinder Morgan recently announced that they're proceeding with the pipeline project to relieve constraints in the basin. Their fight will carry up to 150 million cubic feet a day from the basin to a processing plant and will be in service in mid 2025.

Herb Vogel: So with that, thank you for joining us and we look forward to seeing a number of you at upcoming events. This does conclude today's call. You may now disconnect.

Q2 2024 SM Energy Co Earnings Call - Q & A

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