Q3 2024 Northern Oil and Gas Inc Earnings Call
The End
Speaker Change: Good morning, welcome to Energy's third quarter earnings Conference call yesterday. After the market closed we released our financial results for the third quarter you can access our earnings release and presentation on our Investor Relations website at NRG, Inc. Dot com.
We expect that our 10-Q will be filed in the next two days.
Speaker Change: I'm joined this morning by our Chief Executive Officer, Nick O'grady, Our President Adam Dirlam, Our Chief Financial Officer, Chad Allen, Our Chief Technical Officer, Jim Evans.
Speaker Change: Our agenda for today's call is as follows Nick will provide remarks on the quarter and our recent accomplishments.
Speaker Change: Adam will give you an overview of operations and business development activities and Chad will review our financial results.
Speaker Change: After our prepared remarks, the team will be available to answer any questions.
Speaker Change: Before we begin let me cover our safe Harbor language. Please be advised that our remarks today, including the answers to your questions may include forward looking statements within the meaning of the private Securities Litigation Reform Act.
Speaker Change: These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward looking statements.
Speaker Change: Those risks include among others matters that had been described in our earnings release.
Speaker Change: Well within our filings with the SEC, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q, we disclaim any obligation to update these forward looking statements.
Speaker Change: During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA.
Speaker Change: Adjusted net income and free cash flow.
Speaker Change: Reconciliations of these measures to the closest GAAP measures can be found in our earnings release.
Nick O'Grady: With that I'll turn the call over to Nick.
Speaker Change: Okay.
Nick O'Grady: Thank you everyone welcome and good morning, everyone and thank you for your interest in our company.
Nick O'Grady: As usual I'll cover the highlights of the quarter with six key points.
Speaker Change: Number one.
Nick O'Grady: For each of our labor, we've asked a lot from our investors over the past year as we went through a heavy investment cycle.
Speaker Change: Third quarter highlights the fruits of that labor.
Speaker Change: Three straight quarters of declining Capex fewer wells turned on and yet we've delivered growing oil volumes and activity, you're still spooling with a growing <unk> sealant.
Speaker Change: Even in a quarter weaker oil and gas prices, we generated record free cash flow near record adjusted EBITDA and drove volume growth in our two biggest contributing basins, the Permian and the Williston.
Speaker Change: As we noted last year free cash flow would come with patients and we're delivering on that promise any upfront investment in pull forward of activity has shown its benefits as has strong well performance the temptation for investors to focus on our capital spending at 92 day increments and draw conclusions was understandable, but often belies the long.
Speaker Change: Your term benefits of those investments this quarters results clearly reflect that as our capital efficiency shines through improves the points we made that.
Speaker Change: Number two.
Speaker Change: Balance sheet power.
Speaker Change: This is in reference to the all cash nature of our recent acquisitions, which had many investors questioning if we would issue equity or even some suggesting we were going to be challenge moving forward from a balance sheet perspective versus the clear power of our business is cash generation.
Speaker Change: Clothes point at the very end of the third quarter and as a result received little to no benefit from a cash flow perspective, and yet our net leverage ratio of net debt levels were almost unchanged quarter over quarter, while the larger SDL transaction that closed at the beginning of Q4 will have a modest impact on our borrowings in the near.
Speaker Change: Term, we maintain a number of different options and could quickly turn off the debt at any point in time.
Speaker Change: We closed on both properties and add them to our cash flow streams, we expect to steadily and organically delever over the next year or so and stay well within our stated leverage targets, even as prices have moderated.
Speaker Change: Number three growth many of you will likely ask about our 2025 plans and I will say now that we're busy running multiple scenarios in our planning group is hard at work.
Speaker Change: Actually the outcome as always is return driven first so we will evaluate our spending path based on the commodity environment. We're in.
Speaker Change: The counteracting forces that are ground game opportunities tend to increase and weaker pricing periods. So as we plan, we will have to make room for both outcomes.
Speaker Change: Suffice it to say, while we arent there yet we will prepare a low price high price and steady price scenarios for the Board's review as we exit the year.
Speaker Change: Each scenario will likely have differing balances are organic and ground game capital, which will help us determine the appropriate level of capital to budget for the coming year.
Speaker Change: It's important to distinguish the difference between our overall spending target, which Chad will talk about and the number of wells. We may plan to put the sales, which will be driven by returns the pill count will ultimately drive our production guidance, but the total spending will drive our D&C list in our ground game and thus our longer term growth profile and those are the decisions.
Speaker Change: We are hard at work on today.
Speaker Change: We remain busy evaluating opportunities of every kind from large scale acquisitions to drilling partnerships to buy down structures and co purchases, we see many avenues of growth and remain focused on prospects to take <unk> to the next level, but as always the bar is high in any of the assets were revalued.
Speaker Change: <unk> must continue to make for a better and stronger pro forma company. We have had great success of late as Adam will discuss with on the ground leasing a slight pivot from the more development heavy ground game in the past, we always try to skate to where the puck is going as I mentioned on prior calls we have historically found that our <unk>.
Speaker Change: <unk> in our ground game is often inversely correlated to the strength in oil or natural gas prices. So importantly, we do believe many opportunities may arise in the event that commodity markets continue to weaken.
Speaker Change: And importantly, we've also taken notice that duration of capital is important and our ability given our long inventory runway and strong balance sheet to house longer duration potentially better longer term ROI assets has increasingly become a bigger advantage versus those who need instant gratification with <unk>.
Speaker Change: Short duration capital or companies with short term development needs more on that later.
Speaker Change: Number four costs, we entered 2024 with a plan to heavily invest in our people and systems that MLG to help support the incredible growth we've accomplished over the past several years and also to prepare energy for the next stage of growth. We wanted to ensure we could harness every advantage afforded to us from our.
Speaker Change: Data and our asset base as we continue to build our business over time.
Speaker Change: You will note however that even as we add employees, our adjusted cash G&A cost per barrel should continue to drop over time.
Speaker Change: This is a testament to the conscious and purposeful effort, we have embraced and striving for continuous improvement or kaizen.
Speaker Change: As we have added talented individuals to the energy team. We are also reducing our outside services costs meaningfully. It's one of our top priorities in terms of internal focuses and we believe it will be under an almost evergreen cycle of improvement over the life of the company.
Speaker Change: You will also notice our well costs were down considerably quarter over quarter. Some of this has happened stance and on a per lateral foot basis. It is less dramatic but we did see a notable reduction in williston normalized costs.
Speaker Change: Furthermore, with commodity prices under pressure. It suggests that pressure pumper is can only stack their equipment in whole price for so long before they need continuity of service.
Speaker Change: Our investors will focus almost entirely on the price of commodities in the short term there are savings to be found in development costs and we believe there is potential in 2025 to recapture margin if current trends continue.
Speaker Change: The weak commodity price environment may also impact other items, besides development costs like lifting costs should the current outlook weaken further.
Speaker Change: Number five shareholder returns as we execute on our acquisition strategy. We have always said that we would be mindful of the balance sheet without excluding the potential for capitalizing on opportunities to retire shares when market conditions allow we found those opportunities in the third quarter with the repurchase of just under 400000 shares and fat.
Speaker Change: We're proud to have delivered over $230 million of returns comprised of share repurchases and dividends to our shareholders year to date.
Speaker Change: It's also worth noting that through the first nine months of the year, we returned approximately 50% of our free cash flow to our investors as we previously disclosed while we bumped the dividend earlier this quarter. The board will still meet in early 2025 to determine the annual dividend policy dividend.
Speaker Change: Dividend growth is particularly important to our company as it is a testament to the fundamental underlying mission of growing per share profits and then giving our investors a growing portion of those profits over time.
Speaker Change: Number six outlook.
Speaker Change: We have now closed on both Xel endpoint and I want to thank both the SM and vital teams for trusting us as their partners.
Speaker Change: While it may seem like these joint ventures can happen easily and often there are plenty of challenges and successfully orchestrating a co purchase it has taken the right partners. Some luck and a ton of hard work you get these transactions completed with.
Speaker Change: With these assets in house, we see the potential for significant development in the near and long term more importantly in keeping with our strategy. These jv's are built to weather the storm should we see any wobble in the price environment.
Speaker Change: Goes without saying that oil prices have been volatile while many companies swore off hedging during the run up in 2022, we have maintained our hedging discipline if oil prices do continue to weaken this year, we are confident that our balance sheet and debt ratios will remain protected us compared to others that may have sworn off hedging and exposed there.
Speaker Change: <unk> sheet and potential weakness, we hedged to protect the capital we deploy on both drilling and acquisitions and doing so we ensure solid returns on capital for our investors and the ability to counter cyclically invested if commodity prices get dicey.
Speaker Change: We head into the fourth quarter, well prepared for any environment, we're very well insulated with a ramping D&C list and was the best asset base in our company's history highly diversified covering nearly 100 operators and six distinct operating areas.
Speaker Change: That concludes my prepared remarks, so I'll close out as I always do by thanking the energy engineering land BD finance and planning teams and everyone else on board, our investors and covering analysts for listening and our operators and partners for all the hard work they do in the field.
Speaker Change: As always our team is focused on delivering optimal total return and growing our per share profits for the long term.
Speaker Change: We are a company run by investors foreign investors and with that I'll turn it over to Adam.
Adam Dirlam: Thank you Nick.
Adam Dirlam: Let me begin with our operational highlights and then turn to our business development efforts.
Adam Dirlam: M&A landscape.
Adam Dirlam: During the third quarter production remained resilient over a 121000 Boe per day, despite a nearly 70% sequential reduction in sales from Q2, a certain operators deferred completions.
Adam Dirlam: The wells that were added in late Q2, along with the completions in the third quarter showed better than expected results.
Adam Dirlam: Reversing the trend in Permian weighted completions, the Williston accounted for more than two thirds of the activity. During Q3 and is a testament to <unk> core Williston position.
Adam Dirlam: Yeah.
Adam Dirlam: While the pill count was relatively subdued in the quarter compared to our Q2 highs for the year drilling activity levels have ramped setting the table for a robust fourth quarter and moving into the new year.
Adam Dirlam: We added over 20 net wells to the DNC list during the third quarter as accelerated activity pulled forward almost 10 net wells relative to internal forecasts.
Speaker Change: We have also seen our average working interest in the Permian increase from 10% in Q2 to 17% at the end of the quarter driven by an acceleration of development with our JV partners.
Speaker Change: Activity on our organic acreage also remains elevated as we reviewed almost 200 well proposals during the third quarter.
Speaker Change: Consent rates on well proposals held above 90% both on a gross and net basis economics remained strong.
Speaker Change: Notably we have seen forecasted well costs show moderate signs of deflation as absolute and normalized cost in the Permian declined for the third quarter and the Williston declined to the lowest cost per lateral foot on the year.
Speaker Change: In addition, discussions with our operating partners indicate encouraging trends and operational efficiencies and improvements in spud to sales time lines.
Speaker Change: These trends could position us to potentially deliver wells at costs below our expectations and provide incremental capital efficiencies.
Speaker Change: Looking ahead, we expect a ramp in activity to finish the year as we clear through the DUC backlog.
Speaker Change: Adding up for a strong start to 2025.
Speaker Change: While we're not providing official guidance at this point, we expect 2025 pills to see a 40 60 weighting relative to the front and back half of the year.
Speaker Change: Drilling activity will be commodity price dependent.
Speaker Change: However, we see a measured cadence of activity throughout the year taking into account the seasonal pauses that we see in the Williston during the winter months.
Speaker Change: As such we expect to see the DNC list build through the first half and then draw down a bit in the second half of the year.
Speaker Change: We expect the 2025 capital program to be allocated roughly 60% of the Permian.
Speaker Change: 30% to the Williston, 9% to the Uinta and 1% to the Appalachian.
Speaker Change: We are encouraged by the Uinta basins early performance as evidenced by the impressive test rates from our Douglas Creek Wells in the upper cube, along with additional efficiencies as SMT mix over operator ship.
Speaker Change: Our concentrated acreage position will enable us to extend laterals, while the startup of our sand mine will save hundreds of thousands per well.
Speaker Change: Couple this with the project's capital efficiencies via completion design.
Speaker Change: And all of this underscores our strategy of partnering with high quality operators on high quality assets.
Speaker Change: Despite changes to near term completions through the transition period corporate wide production for the year should not be impacted given our diversified asset base.
Speaker Change: Moving to our M&A efforts, the third quarter showcased our ability to replace that inventory through our ground game as well as continued to consolidated top tier assets through larger M&A.
Speaker Change: During the quarter, we aggregated an additional 250 net acres through our ground game, bringing us to over 4700 net acres and six eight net wells on the year.
Speaker Change: Today, our focus has generally been in the Permian, where we have also been able to find meaningful opportunities in Appalachia as well as the Williston.
Speaker Change: Now the winter will add one more avenue for us to bolt on additional interest through our ground game as more opportunities flow in.
Speaker Change: As we have diversified across multiple basins, we're getting significantly more shots on goal and that has improved our ability to deploy capital to only the areas assets and operators that meet our strict hurdle rates for capital allocation.
Speaker Change: As certain asset classes or basins.
Speaker Change: Waves of competition, we can pivot to other opportunities to replace inventory and maintain our elevated return on capital metrics.
Speaker Change: Additionally, with the various <unk> that we have in place. We are also leveraging our operators business development efforts to pick up additional acreage in wellbore interests.
Speaker Change: Looking at the fourth quarter and with commodity prices pulling back we will remain opportunistic.
Speaker Change: With budgetary constraints from both our operators and our competition, we typically see more actionable opportunities in the fourth quarter than any other during the year and will focus on a counter cyclical approach.
Speaker Change: As I alluded to earlier the third quarter was very busy closing, both the point and Xel transactions.
Speaker Change: With both deals now behind Us, we're continuing to care and risk other high quality M&A opportunities that will enable us to build not only a bigger NRG, but also a better one.
Speaker Change: The focus remains on low breakeven resilient assets that will generate returns even in a marginal commodity price environment.
Speaker Change: The execution of our actively managed business model our scale.
Speaker Change: Balance sheet and the ability to creatively structure acquisitions has afforded us more opportunities than most.
Speaker Change: We remain active evaluating more than $6 billion in assets across all our respective basins.
Speaker Change: Structures, ranging from joint development agreements co purchases minority interest buy downs and the typical non op package for all in play.
Speaker Change: Many of the active processes or in the broader market, but as we have conversations with our operators and discuss options at a structural level, we are unearthing more and more off market opportunities specific to NRG that would not otherwise be a fit for our competition.
Speaker Change: Both consolidation divestitures from larger operators are starting to percolate as well, albeit with the mix and quality and we expect that team to continue into 2025 as operators review their various options and debt reduction targets.
Speaker Change: Regardless of how we source our opportunity set we remain steadfast in our returns first approach to allocating capital.
Speaker Change: Focused on our balance sheet to withstand any commodity price environment.
Jeff: <unk> discipline to do right by all our stakeholders with that I'll turn it over to Jeff.
Jeff: Thanks, Adam.
Jeff: Our third quarter results reflected the resilience of our asset portfolio.
Jeff: Average daily production in the quarter was $121 800 Boe per day down.
Jeff: Down, 1% compared to Q2, but up 19% compared to Q3 of 2023.
Speaker Change: Oil production increased to 70900 barrels per day up.
Speaker Change: Up 2% from Q2.
Speaker Change: In setting the new MLG record for oil production.
Speaker Change: Our mascot project JV contributed meaningfully as the wells that came online at the end of June fully contributed to production in the quarter.
Speaker Change: More importantly, our base asset continues to outperform our expectations.
Speaker Change: Adjusted EBITDA in the quarter was $412 million.
Speaker Change: Lower sequentially, given lower commodity prices.
Speaker Change: Free cash flow of $177 million in the quarter was 32% higher sequentially and up 39% from the same period last year as we benefited from higher til count in Q2, coupled with strong well performance in Q3.
Speaker Change: We anticipate free cash flow to stay strong given the expectation of over 25 net wells forecasted for Q4.
Speaker Change: As well as the impact of having both <unk> and <unk> contribute to production for a full quarter.
Speaker Change: Oil differentials came in at $3 45 per barrel for the quarter.
Speaker Change: Better than our expectations as more of our production is weighted towards the Permian.
Speaker Change: Which typically has better pricing in the Williston.
Speaker Change: Permian differentials were modestly lower on a sequential quarterly basis with Williston differentials flat.
Speaker Change: Natural gas realizations were <unk>, 72% of benchmark prices for the quarter.
Speaker Change: Clearly lower.
Speaker Change: But expected due to weaker in basin pricing as a result of lower NGL price realizations.
Speaker Change: Coupled with weaker natural gas prices and negative wahaha gas for most of the quarter.
Speaker Change: With nine months of history to point to we are adjusting our full year natural gas realization guidance higher.
Speaker Change: A range of 90% to 95%, reflecting current full year expectations.
Speaker Change: Although it was 6% higher sequentially to $9 54 per Boe.
Speaker Change: Reflecting elevated saltwater disposal costs associated with newer wells and higher workover costs in the quarter related to the Permian.
Speaker Change: We do expect <unk> to decline in the fourth quarter as Xel comes into play.
Speaker Change: Production taxes were abnormally low in the third quarter at 3%.
Speaker Change: Due to an immaterial out of period adjustment related to the classification of state income tax withholding.
Speaker Change: In new Mexico that was previously recorded as production taxes.
Speaker Change: Excluding the impact of this adjustment production taxes for the third quarter would have been nine 1%.
Speaker Change: Given the Recalibration of the Mexico production taxes, along with the addition of the Uinta into the production mix.
Speaker Change: We revised our production tax guidance to a range of eight 5% to 9% to reflect our expected fourth quarter rate.
Speaker Change: On the Capex front, we invested $198 million inclusive of ground game in the quarter.
Speaker Change: Of the 198 million, 56% was allocated to Permian, 41% to the Williston and 3% to Appalachia.
Speaker Change: We continue to see capital efficiencies with improved spud to sales timing, even in the light of the lower commodity pricing.
Speaker Change: If this trend continues we may end up at the higher end of our 2025 Capex guidance range.
Speaker Change: As we anticipated earlier in the year working capital has continued to improve.
Speaker Change: Able to hold leverage flat quarter over quarter at one six times inclusive of the point acquisition.
Speaker Change: Reduced borrowings on our revolving credit facility by approximately $105 million during the quarter before drawing down to pay for the point acquisition.
Speaker Change: As of September 30, we had over $1 3 billion of liquidity comprised of $60 million of cash on hand, including the acquisition deposit for <unk> and $1 2 billion available on our revolving credit facility.
Speaker Change: We anticipate that our net debt to LTM EBITDA ratio will trend towards the higher end of our stated one to one five times range, reflecting the addition of xel to the revolver. However, given the strength of our base assets and the strong cash flow profiles of both <unk> and <unk>.
Speaker Change: We expect to be back at the lower end of our leverage range by the end of 2025 based on the current strip.
Speaker Change: And our Q3 operations update released a couple of weeks ago.
Speaker Change: Reiterated our 2020 for Capex and production guidance.
Speaker Change: In our earnings release last night, we made a few tweaks to line item guidance to reflect our expectations for the remainder of the year.
Speaker Change: While we are not providing detailed 2025 guidance at this time I will say that at this point in our budgeting cycle, we do not anticipate coming out with a budget over $1 1 billion at the high end for Capex.
Speaker Change: This concludes our prepared remarks I'd like to open the call to questions.
Speaker Change: Thank you as a reminder, if you would like to ask a question. It is star one on your telephone keypad. We ask that you. Please limit yourself to one question and one follow up then rejoin the queue if needed. Thank you.
Speaker Change: Your first question comes from them from the line of Neal Dingmann with Truth Securities. Your line is open.
Neal Dingmann: Good morning turbine blades and nice quarter Nick.
Neal Dingmann: I was going to ask for detailed 25 guide, but I'll refrain from for now.
Neal Dingmann: My first question is on really on what I'd call your operational and financial protection selling either.
Neal Dingmann: Speak about in the prepared remarks, and obviously the license there is a lot of potential for volatility now both maybe lower near term and rent and potentially after that I am just wondering Nick I'm just wondering if this happens.
Neal Dingmann: Could you talk a little bit about how you can pivot both organically and the ground games and I guess, what Im wondering is would that shift in your organic activity just come from largely your operators, reducing capital or is there more to this.
Neal Dingmann: Yes, I mean, I think based on experience and that this is the best part of our business model of Aneel.
Neal Dingmann: Which is not really we're not burdened by.
Neal Dingmann: Existing infrastructure right. It's just money so what we've observed during periods of volatility in the past.
Speaker Change: I'll begin to be a little bit faster than the operators. So using 2020 as an example.
Speaker Change: A big downward move in price.
Speaker Change: We acted very swiftly.
Speaker Change: But then ultimately created a lot of opportunities and about two thirds of our capital really shifted to the ground during 2020.
Speaker Change: And then organic activity started to build a 2020 came to a close and oil prices.
Speaker Change: <unk>.
Speaker Change: But that grounding capital Aussie became highly productive is it actually converted to sales in 2021 and created a huge windfall for us.
Speaker Change: And so that's kind of how you can convert those dollars that are counter cyclical success.
Speaker Change: I would say this that.
Speaker Change: <unk> I think we'll remain flexible and I think that Thats why really.
Speaker Change: In terms of where we are in the cycle right. Now that's why we continue to hedge why we tend to be very protective but the flexibility that our model really provides is very different from <unk>.
Speaker Change: Most operators and Thats one of the best price level.
Speaker Change: Yes.
Speaker Change: Could you ground game as well.
Speaker Change: As far as the flexibility you would have around it.
Speaker Change: That's right that's right yes.
Speaker Change: Even as it pertains to the ground game ultimately youre going to see.
Speaker Change: If prices really unwind youre going to see deferral of activity and so that plays into a part of.
Speaker Change: What types of ground game activity, you're going to participate in whether it be longer dated type stuff right. So whether it be long dated acreage.
Speaker Change: Acquisitions or development, that's going to be times towards <unk>.
Speaker Change: Further farther period out yes.
Speaker Change: As Adam I think the other thing I would add is that the strip is naturally going to lead you to various operators as well as basins right youre going to be looking at what those breakeven Saar, we're running sensitivities on a real time basis understanding what the impact is the total full cycle return as we're deploying that capital.
Speaker Change: Depending on how big the asset is then the hedging conversation would also.
Speaker Change: Come into play, but those are the types of things that we're looking at.
Speaker Change: No doubt.
Speaker Change: Again soon.
Speaker Change: Types of opportunities in allocating capital.
Speaker Change: Great Great point out of it and then just secondly, maybe for Chad just wondering second is on sort of broad capital return question, specifically, Nick I think I'm asking you. What you asked about this before has anything changed.
Speaker Change: These days versus I don't know a year or so ago when before all these deals how you all think about allocating a dollar to your organic rate.
Speaker Change: Organic activity or reinvestment versus ground game versus debt repayment versus dividend versus stock repurchases.
Nick O'Grady: I'll answer the first part Jed feel free to fill in I don't think so Neal I think everything we are truly mechanical and return driven.
Speaker Change: I think we really think about this in terms of optimal total return kneeland so in general.
Speaker Change: And the ground have higher risk, but always almost always have a higher return and so obviously organic dollars go the farthest.
Speaker Change: Followed probably by ground game, and then ultimately acquisitions.
Speaker Change: Share repurchases are obviously.
Speaker Change: Generate also additional returns at a lower risk.
Speaker Change: And then dividends, obviously provide a different type of return for our investors.
Speaker Change: This year, obviously, we pivoted some of our shareholder returns to buybacks and then as we go in to meet with the board at the end of the year I think.
Speaker Change: One of the things we have to think about as you deliver that return well buybacks.
Speaker Change: And provide a permanent type of efficiency dividends provide a different type of value to investors and we will have to weigh those decisions as we go and analyze that to support of what type of long term value that creates.
Speaker Change: Because they are different and we've weighed them differently at points in time, and that's really a board level decision, but we'll take it in stride.
Speaker Change: The only thing.
Speaker Change: But along with Nick's comments is just given that we have.
Speaker Change: We flex the balance sheet, a little bit here with both these acquisitions. So I think in the near term, we'll be mindful of probably debt reduction over over some of the other things, but Nick mentioned everything's on the table, we evaluate it all as one so.
Speaker Change: Thank you as a reminder, we ask.
Speaker Change: It yourself to one question and one follow up your next question comes from Scott Hanold with RBC. Your line is open.
Scott Hanold: Yes. Thanks I appreciate the fact that you.
Scott Hanold: You all are going to wait until early next year to provide some more details on the budget, but Nicky.
Scott Hanold: Made the point.
Speaker Change: Regarding you don't even need to take.
Speaker Change: Quarters to evaluate capital spending and production trends given the business model and the way things are accrued.
Speaker Change: Do you see things building in the fourth quarter.
Speaker Change: And potentially into early next year could you kind of frame up like how are you guys are set up into <unk> and into <unk> as far as like that production trajectory as well as capital.
Speaker Change: Yes, I mean, the way I would just describe it.
Speaker Change: Scott is that there is a number of kind of turned in lines you know call. It in the 90 ish range, which is sort of the sustaining number of turn in lines right.
Speaker Change: The amount of capital we spend around that can vary wildly wildly right, so, especially as we talk about the accruals. So.
Speaker Change: The DNC list.
Speaker Change: And thinking about that as the number of wells in process, whether we.
Speaker Change: Draw down our existing D&C list and sort of eat through that backlog or we build it as we build growth for the following year as well as.
Speaker Change: Acquire inventory throughout the year can have a big difference. So you can drill and complete 90 wells throughout the year and actually spend less than our equivalent capital Asia still spend a substantively larger amount of money.
Speaker Change: And it really depends on the environment and year end.
Speaker Change: I'd also add that we are truly return driven and so if oil prices are $50. Ultimately is 90 wells the right number and if oil prices are at $85, maybe 90 <unk>.
Speaker Change: And so I think really what we wanted to figure out is we want to take the time to go through both the projects that we have in hand organically inorganically and as we look through it and both make the right decision in terms of the actual number of wells, we want to turn online and then on top of that all of the projects and things we want to build towards the future year as well as the AD hoc.
Speaker Change: <unk> spending we wanted we want to tuck in there.
Speaker Change: And that really drives that number and that is why we tried to take the amount as much time as we gain.
Speaker Change: Okay Alright.
Speaker Change: It's the DNC list.
Speaker Change: So glad to be the nature and the makeup of the DNC list right, what's the overall well productivity, what's the stage completions as we exit the year, what does that look like and then what is organic asset.
Speaker Change: The quality of the well proposals on that and then dovetailing into what.
Speaker Change: We've been talking about with Neil in prior comments on the ground game.
Speaker Change: The pullback.
Speaker Change: Commodity pricing then you are typically going to see.
Speaker Change: Operators were treating for the core and drilling some of our best stuff and lowest breakeven and so what does that mean in terms of.
Speaker Change: Organic activity levels in the ground game as well.
Speaker Change: Okay understood and.
Speaker Change: Just ask for one point of clarification.
Speaker Change: It might add.
Speaker Change: Ed.
Speaker Change: Good question, but does that mean <unk> Q.
Speaker Change: <unk> is going to be relatively flat you think kind of what you looked at fourth quarter is kind of the fault that but.
Speaker Change: I would say historically almost every quarter we've ever existed we see a minor downtick in Q1 from Q4 and Thats just seasonality in the Williston Scott. So it's usually down a couple percent I think almost every year we've ever been here.
Speaker Change: Okay miracles.
Speaker Change: Miracles of weather, but as long as as well as that becomes a substantive part of our production that usually has some seasonality to it but it's not meaningful but it's almost always that Jason as Adam mentioned in his comments, we do anticipate just given the nature of our big joint ventures that we will be building. The DNC list in the first half of the year and Thats just based on what we have in hand today and so.
Speaker Change: That will have some effect on it but I don't think it's going to be dramatic.
Speaker Change: Got it okay.
Speaker Change: I was looking for and then my follow up is I noticed in your corporate presentation. When you broke out the commodity by basin that a little bit of oil popped up this quarter for the first time in Appalachia could you give us a little bit of color on what that is from in and just give us a sense. It sounds like youre looking at some more kind of ground game opportunities popping.
Speaker Change: In Appalachia, just give a little bit of color around that.
Speaker Change: Unimpressive notice, yes, we have obviously been expanding in the Utica and we have tapped into the oil window there.
Speaker Change: Continued to have success on the ground as I mentioned, we've had in my prepared comments and additive we had really good success in ground leasing.
Speaker Change: As one of the areas in which we have been successful I think we will continue to be so adamant.
Speaker Change: I mean, I think we did announce some of our large ish transaction in Q1, and the Utica This year and built on that right.
Speaker Change: Press releases this advertisement in order to bring in those opportunities and so we're going to.
Speaker Change: The Utica no different than any other basin walk before you run and so we're starting to get some of that traction in order to keep that momentum.
Speaker Change: The next question is from Charles Meade with Johnson Rice. Your line is open.
Charles Meade: Yes, good morning, Nick Adam and Chad in the whole energy team there Nick you've covered a lot of ground on on.
Charles Meade: The capex trends here and I'm, sorry, if I'm belaboring this point, but if I look at I look at your.
Charles Meade: Your <unk> guide and look at what you've done this year.
Charles Meade: Just want to make sure I'm understanding what it looks like on your end.
Charles Meade: Maybe this goes back to Chad's comments.
Charles Meade: Are we looking at about 30 tools.
Charles Meade: Sure for <unk>, which would be about even with what the <unk> number was an all other things being equal which of course there are never never are but does that suggest you.
Speaker Change: <unk> capex should be about the same as <unk>.
Speaker Change: I would say 25 plus.
Charles Meade: Charles So it could be as high as there is obviously as a non op at the timing can vary, but let's say confident in 'twenty five plus.
Charles Meade: <unk> was certainly an active mongst, obviously, we'll see what November and December or yes.
Speaker Change: Okay got it and then I wonder.
Speaker Change: Fair comment.
Speaker Change: This is about the Uinta basin.
Speaker Change: You mentioned this Doug Douglas Creek Wells.
Speaker Change: The operator talked about those last week.
Speaker Change: Maybe you could you could share anything I know, it's still early days, but what have you guys seen as you've as you've been getting all the data and and.
Speaker Change: What is it.
Speaker Change: Does it change anything on what role on.
Speaker Change: Youre thinking of what role that you went to could play in the in the 25 plan.
Speaker Change: I mean, I think look.
Speaker Change: The transition of operator ship is really just beginning Charles So it's really early days I think what I would tell you is that.
Speaker Change: SM, obviously, they're just they talked about how they are changing some staff and extending laterals, that's really them taking the range of the plans that we had really underwritten sandwiches that we really wanted to go with our own spacing plan in our own longer laterals, and it's nice to see them going and doing that that will change it up some so I would say the only.
Speaker Change: I would say is it's an affirmation of what we wanted to do.
Speaker Change: Outside of that I think in terms of the Douglas Creek seeing some positive results in the upper cube as we go into full development is always a good thing to see.
Speaker Change: But I think what I'd also say is almost every single joint venture that we have.
Speaker Change: Been a part of is that there is.
Speaker Change: You did.
Speaker Change: The early days are always the part that you always watched with bated breath, right, which as you see a period, where a new operators taking over.
Speaker Change: Get their sea legs over a few months and then really what you've seen in the kind of six months post operator ship transition, we've seen real acceleration of development in huge gains and we're hopeful to see that we've seen that on <unk> as the operators are just really taken a range once they've had kind of full ownership.
Speaker Change: And we're not quite there yet obviously.
Speaker Change: Barely taken possession.
Speaker Change: Less than a month here.
Speaker Change: Early days, but certainly encourage you look at the oil cut in the Douglas Creek, and then shifting your focus.
Speaker Change: Cost efficiency initiatives, everybody is going to be laser focused on the sand mine is going to help with that my prepared remarks alluded to share. It in a couple of few hundred thousand dollars well costs, there and then Nicholas.
Speaker Change: Lateral length all of those types of things are going into our we can optimize overall operations and generate additional returns on top of what was even under.
Speaker Change: The next question is from Phillips Johnston with capital one your line is open.
Phillips Johnston: Hey, Thanks for the question just to follow up on Charles <unk> question, there on the <unk> so it sounds like.
Speaker Change: The six well.
Phillips Johnston: The six wells that are being delayed it sounds like that's not going to have any material impact to your fourth quarter production trajectory.
Speaker Change: The way to think about it.
Speaker Change: That's right that's right.
Phillips Johnston: I think that.
Phillips Johnston: This highlights.
Phillips Johnston: Versification across our business.
Speaker Change: No.
Speaker Change: Where you might stumble in one place youre going to make that they are taking a look at October results in some of the fires within the Williston.
Speaker Change: The production uplift that we saw there in the Permian, making up for that.
Speaker Change: We're certainly encouraged we've talked about X yields didn't necessarily talk about point I think we're certainly encouraged about some of the early well results that we're seeing on the new channels I think those are outperforming call it 30% than what was originally underwritten.
Speaker Change: Some of the new wells that those guys are bringing online so we're.
Speaker Change: We're excited about that prospect.
Speaker Change: Given the overall asset base youre not going to see that type of reaction on a corporate wide level.
Speaker Change: Certain things gets away.
Speaker Change: Okay.
Speaker Change: Sounds good and then just.
Speaker Change: The production guidance for the year, obviously implies a pretty big ramp here in the fourth quarter, obviously, you've got the two larger acquisitions, but looking at the midpoint. It implies around 87000, a day or so on oil you.
Speaker Change: Are you guys comfortable with that implied midpoint or would you expect things sort of shake out in the bottom half of the range for the year.
Speaker Change: I think it's really going to depend on timing.
Speaker Change: So obviously you have a huge number of pills.
Speaker Change: Yeah.
Speaker Change: I hesitate to pipe, but we have so many pills as always.
Speaker Change: It really is going to depend on how quickly they come on and is it not that is the one the one bad part which is that we don't control. So it is achievable to the extent that we see.
Speaker Change: Things come on extremely quickly if not obviously I think the range, we're very comfortable with I think the question will be one of timing.
Speaker Change: And so that is really the driver.
Speaker Change: And so that from a geo perspective.
Speaker Change: Just a question of the averaging within the quarter.
Speaker Change: The next question is from Paul Diamond with Citi. Your line is open.
Paul Diamond: Hi, Good morning, Thanks for taking my call just a quick one you guys talked about.
Paul Diamond: You've seen some more kind of bespoke opportunities youre seeing is youre going to expand beyond the crowd gain traditional non up so I wanted to dig in a little bit more there or do you use bilateral negotiations with existing partners or do something a bit more specific.
Speaker Change: Yes, I would say that the bilateral are kind of off market.
Speaker Change: Opportunities that we're seeing are largely with discussions with our operators understand exactly.
Speaker Change: What they're trying to get out of a particular transaction and then depending on.
Paul Diamond: What they're trying to solve for that is where we can start bringing up different structural conversations and so whether that's a joint development program, whether thats the minority interest buy down whether there.
Paul Diamond: Looking to grow.
Paul Diamond: Essentially doing some sort of co purchase those types of things those are generally your off market types of conversations if it's typical.
Paul Diamond: Typical non op package.
Paul Diamond: So that's generally going to get put to market.
Paul Diamond: It isn't that you should probably be question, what someone's paying for it but.
Paul Diamond: I think of it as vanilla and regular way.
Paul Diamond: Then you are generally going to see.
Paul Diamond: Marketed process, if it gets more involved and you've got more.
Paul Diamond: Bells, and whistles or levers that you need to pull thats, where I think we can be more constructive going to off market type of conversation.
Speaker Change: Understood. Thanks, and just one quick follow up you guys have talked about this quarter and a few prior about kind of increasing activity cadence 10 wells pull forward this quarter.
Paul Diamond: How do you think about that in the longer term is that more compression or is that just timing. This year, how should we think about it.
Paul Diamond: If that trend continues.
Speaker Change: I think we've adjusted Paul to the concept that overall overall speed of development has increased and I think we've made adjustments accordingly.
Paul Diamond: I think given the change in commodity prices, where we are now I think it's less likely that we're going to be surprised going forward. If anything I think you'll start to see some pausing of development just because we've seen lower prices.
Paul Diamond: Some especially on small private side, you should see deferrals here Theyre, just as people wait for slightly better price environments and so.
Paul Diamond: It's less likely that we're going to see true acceleration.
Paul Diamond: Kind of beyond our measure, but I think is that we have seen ultimately to save money.
Paul Diamond: Feet of development has been the biggest driver over the last two years.
Paul Diamond: And so it's just been completing wells faster drilling wells faster the cutting shaving days has been the driver and we've had to adjust accordingly, Adam I don't know if you want to add.
Paul Diamond: Albert.
Speaker Change: Your final question comes from the line of Noah <unk> with Bank of America. Your line is open.
Noah: Good morning, Nick and team.
Noah: I was hoping you guys could expand total bid on maybe some of the well deferrals or if you had any insights on to maybe what the criteria is some of these operators are looking for and if it is just lower commodity prices do you think at some point if commodity prices stabilize at a lower level than they would turn those wells in line.
Speaker Change: But to your latter point, we've seen exactly that happened over time, we've seen we've seen producers not to name names, but we've seen a handful of producers of times pause.
Speaker Change: Wells only to then turn them on when commodity prices didn't fill back up over time, hopefully, hoping that prices would go up or what have you and then ultimately just turn them on.
Speaker Change: And so that is that's typical especially some of the small privates yes.
Speaker Change: The private operators are generally a bit more sensitive to it.
Speaker Change: Brexit and the hedge book.
Speaker Change: Whether or not there.
Paul Diamond: No hedges no debt.
Paul Diamond: We will certainly assess those types of decisions, but like the M&A market and volatility you've got a bid ask spread but as things kind of settle out and that certain people generally get movement.
Paul Diamond: It makes sense and then.
Speaker Change: Just as my last question can you guys talk about.
Speaker Change: How your decline rate has evolved this year and maybe where it will end up being and where do you think it'll be as an exit rate for 2004.
Speaker Change: Yeah, No we came into the year kind of in the high Thirty's.
Speaker Change: A lot of activity towards the back half of the year and some of the new acquisitions being pretty steep declines as we've gone through the year, obviously, it's moderated a bit.
Speaker Change: Exit the year kind of in the mid <unk>.
Speaker Change: Yes.
Paul Diamond: Novo in.
Paul Diamond: Other assets have kind of moderated from from their peaks I think kind of in the low to mid <unk> is kind of our go forward run rate. We would expect obviously if there is if theres less large acquisitions, but with high declines while we will continue to moderate throughout the year, but that's kind of where we sit today.
Speaker Change: This concludes the question and answer session I'll turn the call to Nick O'grady for closing remarks.
Nick O'Grady: Thanks, all for joining us today, and we look forward to meeting with you in the near future and thanks for your interest in our company.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].