Q3 2024 Civitas Resources Inc Earnings Call
Unknown Executive: Good day and thank you for standing by.
Good day, and thank you for standing by and welcome to Civitas Resources' third quarter 'twenty 'twenty four earnings conference call and webcast all lines have been placed on mute to prevent any background noise.
Unknown Executive: Welcome to Civitas Resources' third quarter 2024 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise.
Unknown Executive: And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press star. One. Thank you. Please be advised that today's conference is being recorded and I would now like to hand the call.
Unknown Executive: Please be advised that today's conference is being recorded.
Brad Whitmarsh: And I would now like to hand the call over to Brad Whitmarsh, head of investor relations. Brad, please go ahead.
Speaker Change: Over to you Brad Whitmarsh head of Investor Relations Brad. Please go ahead.
Brad Whitmarsh: Thanks, Krista.
Brad Whitmarsh: Good morning, everyone, and thank you for joining us. Yesterday we issued our third quarter earnings release, our 10-Q, and we provided some supplemental materials for your review. These items are all available on our website.
Brad Whitmarsh: Thanks, Krista good morning, everyone and thank you for joining us.
Brad Whitmarsh: Yesterday, we issued our third quarter earnings release, our 10-Q, and we've provided some supplemental materials for your review.
Brad Whitmarsh: These items are all available on our website.
Brad Whitmarsh: I'm joined this morning by our CEO, Chris Doyle, our CFO, Marianella Foschi, and our COO, Hodge Walker. After our remarks, we will conduct a question and answer session. As always, please limit your time to one question and one follow-up so we can work through the list efficiently.
Speaker Change: I'm joined this morning by our CEO, Chris Doyle, our CFO man al So ski and our C O O Hodge Walker.
After our remarks, we will conduct a question and answer session as always please limit your time to one question and one follow up so we can work through the list sufficiently.
Brad Whitmarsh: We will make certain forward-looking statements today, and those are subject to risk and uncertainties that could cause actual results to differ materially from those projections. Please make sure and read our full disclosures regarding these statements in our most recent SEC filing. In addition, we may also refer to certain non-GAAP financial metrics. Reconciliations to the appropriate GAAP measure are also in yesterday's SEC filings and are released.
We will make certain forward looking statements today and those are subject to risks and uncertainties that could cause actual results to differ materially from those projections. Please make sure and read our full disclosures regarding these statements in our most recent SEC filings.
Speaker Change: In addition, we may also refer to certain non-GAAP financial metrics reconciliations to the appropriate GAAP measure are also in yesterdays SEC filings and our release.
Chris Doyle: With that, I'll turn the call over to Chris. Good morning, everybody. Welcome to our third quarter call. This morning, there are three key things I want to focus on. First, I'll quickly summarize third quarter results and expectations for the fourth quarter. Second, I'll share some highlights from the DJ and Permian, where we continue to enhance returns through solid operational execution and sustainable capital. And lastly, I'll comment briefly on 2025 as it's important to understand that our priorities have not changed. As with our usual practice, we'll provide our final 2025 plan and fed Over the past few months, we've continued to see significant volatility in commodity prices and the underlying macro.
With that I'll turn the call over to Chris. Thanks, Brad Good morning, everybody welcome to our third quarter call. This morning. There are three key things I want to focus on first I'll quickly summarize third quarter results and expectations for the fourth quarter.
Chris Doyle: Second I'll share some highlights from the DJ and Permian, where we continue to enhance returns through solid operational execution and sustainable capital efficiencies.
Chris Doyle: And lastly, I'll comment briefly on 2025 as it's important to understand that our priorities have not changed as with our usual practice, we'll provide our final 2025 plan in February.
Chris Doyle: Over the past few months, we continue to see significant volatility in commodity prices and the underlying macro environment. The actions we've taken as a company over the past couple of years strengthened.
Chris Doyle: The actions we've taken as a company over the past couple of years strengthen Civitas and positioned us to deliver long-term value to our shareholders at any point in the cycle. Our Permian acquisitions added depth and quality to our inventory doubling the size of the company. Unknown Executive, Marianella Foschi, Benjamin Parham, Hodge Walker, Civitas Rsrcs Our team continues to improve and add to that position, delivering sustainable capital efficiency gains, improving up new zones for development, and capturing additional inventory that expands our runway of high return opportunities, all while returning significant amounts of capital to our shareholders.
Chris Doyle: Seven Thompson positioned us to deliver long term value to our shareholders at any point in the cycle.
Chris Doyle: Our Permian acquisitions added depth and quality to our inventory doubling the size of the company.
Gail positions now in the DJ and the Permian, we have a high quality diversified portfolio of opportunities and the lowest breakeven basins in the U S and our.
Chris Doyle: <unk> team continues to improve and add to that position delivering sustainable capital efficiency gains proving up new zones for development.
Chris Doyle: Additional inventory that expands our runway of high return opportunities all while returning significant amounts of capital to our shareholders. Let me start with our third quarter results and fourth quarter expectations.
Chris Doyle: We start with our third quarter results and fourth quarter expectations. For the third quarter, we delivered solid financial results with adjusted EBITDA of $910 million, led by strong sales volumes, strong oil differentials, and strong cost. Our board's recent action to further prioritize the balance sheet and share buybacks was very timely. During the quarter, we returned $227 million to our shareholders. Based on the trailing 12-month calculation, the third-quarter variable return of capital totals $104 million. Rather than paying a variable dividend, we elected to shift 100% of our third-quarter variable return to buy-back. Completing these share repurchases in October.
Chris Doyle: For the third quarter, we delivered solid financial results with adjusted EBITDA of $910 million led by strong sales volumes strong oil differentials and strong cost control.
Chris Doyle: Our board's recent action to further prioritize the balance sheet and share buybacks is very timely during the quarter returned $227 million to our shareholders.
Chris Doyle: Based on the trailing 12 month calculation of third quarter available return of capital totaled $104 million, rather than paying a variable dividend, we elected to shift a 100% of our third quarter variable return to buybacks completing these share repurchases in October.
Chris Doyle: We see tremendous value in our equity and will continue to prioritize share repurchase. The remaining 50% of our free cash flow went to reduced debt. On an equivalent basis, third quarter volumes were slightly above expectation. Revenues benefited from strong oil realizations and solid natural gas hedging. Oil volumes were a little light in the quarter due to unexpected downtime at third-party facilities in the DJ and water take-away constraints in the Permian, but these temporary issues have now been resolved. Capital investments in the third quarter reflect facility spend pulled forward from the fourth quarter as well as accelerated drilling and completion activities.
Chris Doyle: We see tremendous value in our equity and will continue to prioritize share repurchases. The remaining 50% of our free cash flow went to reduce debt.
On an equivalent basis third quarter volumes were slightly above expectation revenues benefited benefited from strong oil realizations and solid natural gas hedging gains oil volumes were a little light in the quarter due to unexpected downtime at third party facilities in the DJ and water takeaway constraints in the Permian that these temporary issues have now been resolved.
Chris Doyle: Capital investments in the third quarter reflects facility spend pulled forward from the fourth quarter as well as et cetera, all accelerated drilling and completion activity.
Chris Doyle: Yesterday's materials we provided detailed fourth quarter guidance where you can see the lower fourth quarter capital guide. remain on track with all four-year deliverables including volumes, capex, operating costs, and most importantly free cash. On production, factoring in our divestments from earlier this year, we're above the midpoint of our original oil guidance for the year. Pre-cash flow for the quarter should increase significantly as oil volumes are expected 3% higher quarter over quarter with D.J. Basin growth more than offsetting expected declines in the Permian as we reduce activity into year eight. We've had a strong start to the final quarter of the year with October oil production averaging 165,000.
And yesterday as materials, we've provided detailed fourth quarter guidance, where you can see the lower fourth quarter capital guidance.
Chris Doyle: And on track with all full year deliverables, including volumes Capex operating costs and most importantly free cash flow.
Production factoring in our divestments from earlier this year were above the midpoint of our original oil guidance for the year.
Chris Doyle: Free cash flow for the quarter showed increased significantly as oil volumes are expected, 3% higher quarter over quarter with D. J basin growth more than offsetting expected declines in the Permian as we reduce activity into year end, we had a strong start to the final quarter of the year with October oil production, averaging 165000 barrels per day.
Chris Doyle: Let me now share a few more details from each business. In the Permian, our team has done an outstanding job establishing an operating track record focused on driving capital efficiencies and enhancing the value of our assets. On the productivity front, we've begun to deliver the expected improvement in well performance as a result of our development philosophy, which focuses on incremental well returns rather than an overall pad-level return. Our Permian well costs continue to trend lower, driven by reduced cycle times, drilling and completion design improvements, and lower oil field service costs. And we're certainly not done.
Chris Doyle: Let me now share a few more details from each business unit.
Chris Doyle: In the Permian our team has done an outstanding job, establishing an operating track record focus on driving capital efficiencies and enhancing the value of our assets on the productivity front, we've begun to deliver the expected improvement in well performance as a result of our development philosophy, which focuses on incremental well returns rather than an overall pad level returns are.
Chris Doyle: Permian well costs continue to trend lower driven by reduced cycle times drilling and completion design improvements and lower oilfield service costs.
Chris Doyle: Here in the fourth quarter, we've initiated simulfracs across our Permian program with early results in the Midland Basin highlighting a more than 30% uplift in daily fluid flow. Strong results from recent Wolf Camp D wells in the southern Midland are unlocking new resource for development as higher productivity is more than offsetting modestly higher well costs. Returns in the D are competitive with other core zones, such as the Wolf Camp A and B. We've identified approximately 120 Wolf Camp D locations in the inventory with mid $40 oil prices. In addition, our ground game in the Permian is adding high-quality inventory by capturing more than 75 gross locations.
Chris Doyle: Not done here in the fourth quarter, we've initiated sample fracs across our Permian program with early results in the Midland basin, highlighting a more than 30% uplift in daily fluid throughput.
Chris Doyle: and such to the Wolf Camp A and B, and we've identified approximately 120 Wolf Camp D locations in the inventory with mid $40 oil break-evens.
Chris Doyle: In addition, our ground game in the Permian is adding high-quality inventory by capturing more than 75 gross locations year-to-date. We've also executed a number of beneficial acreage trades and swaps to materially extend lateral links and increase working interest in near-term core developments.
Chris Doyle: We've also executed a number of beneficial acreage trades and swaps to materially extend lateral links and increase working interest in near-term core development. All of these ground game ads immediately compete for capital and we're working even more opportunities to add to the portfolio.
Chris Doyle: All of these ground game ads immediately compete for capital and we're working even more opportunities to add to the portfolio.
Chris Doyle: In the DJ Basin, our legacy asset continues to deliver outstanding results, and we've highlighted strong performance across the entirety of our acreage position and our materials. The prolific Watkins area in the southern part of our acreage comprises approximately two-thirds of our well count in the DJ this year. In this area, we recently commenced production on 13 four-mile laterals, and the results are ahead of expectations, with no per-foot degradation observed as compared to our three-mile Of note, the unrestricted deliverability of the Blue 4AH well set a Colorado record with 90-day cumulative production of 165,000 barrels. These four milers are another example of our team's ability to execute and drive returns through complex well geometries and extended reach lateral.
Chris Doyle: In the DJ Basin, our legacy asset continues to deliver outstanding results, and we've highlighted strong performance across the entirety of our acreage position and our materials.
Chris Doyle: Of note, the unrestricted deliverability of the Blue 4AH well set a Colorado record with 90-day cumulative production of 165,000 barrels of oil.
Chris Doyle: Spore milers are another example of our team's ability to execute and drive returns through complex well geometries and extended reach laterals. This demonstrated capability is helping drive additional ground game opportunities to add high quality inventory to our position.
Chris Doyle: Demonstrated capability is helping drive additional ground game opportunities to add high quality inventory to our position. As a reminder, our Watkins oil is lower API crude than our typical DJ barrel, significant contributor to our stronger realizations of late. Add to this the positive regulatory developments over the last couple quarters, including the ballot measure stand-down and the Lowry cap approval on Watkins, and we're in a great position to continue to deliver.
Chris Doyle: As a reminder, our Watkins oil is lower API crude than our typical DJ barrel, a significant contributor to our stronger realizations of late. Add to this the positive regulatory developments over the last couple quarters, including the ballot measure stand down and the Lowry cap approval on Watkins, and we're in a great position to continue to deliver in the DJ.
Chris Doyle: Before we take your questions, let me briefly talk about 2020. You said in the past our priorities have not changed. will be guided by our strategic pillars, generate significant free cash flow, enhance the balance sheet, return capital to shareholders, and lead in ESG. Production will be an outcome of the plan, not the driver, as we seek to balance each of these strategic comparatives. In 2025, we'd like to level load our capital investments through the year a bit better. Recall that we entered 2024 with very high levels of activity inherited from the three Permian acquisitions, and we've decreased activity every quarter this year.
Chris Doyle: Before we take your questions, let me briefly talk about 2025.
Chris Doyle: As we've said in the past, our priorities have not changed, and we'll be guided by our strategic pillars. Generate significant free cash flow, enhance the balance sheet, return capital to shareholders, and lead in ESG. Production will be an outcome of the plan, not the driver, as we seek to balance each of these strategic imperatives.
Chris Doyle: In 2025, we'd like to level load our capital investments through the year a bit better. Recall that we entered 2024 with very high levels of activity inherited.
Chris Doyle: Establishing a more steady state operation, a level loading activity will ultimately support sustainable capital efficiency. Given the current volatility in the forward oil strip, we will remain flexible as we plan for 2025 and will respond quickly to commodity price changes. Again, focus on protecting free cash. Regardless of where things shake out, we are focused on returns, that's returns on our investments and returns of capital to our balance sheet and to our shareholders. The closing 2024 has been an important year for Civitas. A year ago we had a demonstrated track record in the DJ and we were looking to build on that track record as we stood up a new team in the Permian.
Chris Doyle: from the three Permian acquisitions, and we've decreased activity every quarter this year. Establishing a more steady state operation, a level-loading activity, will ultimately support sustainable capital efficiencies moving forward.
Chris Doyle: Given the current volatility in the forward oil strip, we will remain flexible as we plan for 2025 and will respond quickly to commodity price changes, again, focused on protecting free cash flow levels.
Chris Doyle: Regardless of where things shake out, we are focused on returns. That's returns on our investments and returns of capital to our balance sheet and to our shareholders.
Chris Doyle: On closing, 2024 has been an important year for Civitas. A year ago, we had a demonstrated track record in the DJ and we were looking to build on that track record as we stood up a new team in the Permian.
Chris Doyle: Our job is not done, but Civitas is well-positioned as we enter 2025 with a scaled portfolio of high-quality, low-break-even assets and teams in the Rockies and the Permian that are focused on driving capital efficiency to enhance returns and deliver for our shareholders through the cycle.
Chris Doyle: Our job is not done, but Civitas is well-positioned as we enter 2025. We have a scaled portfolio of high-quality, low-breakeven assets, and teams in the Rockies and the Permian that are focused on driving capital efficiency to enhance returns and deliver for our shareholders through the cycle.
Chris Doyle: Thank you again for your interest in Civitas.
Unknown Executive: Operator, we're now ready to take questions. Thank you. We will now start the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star one. And we ask that you limit yourself to one question and one follow up.
Speaker Change: Thank you again for your interest in Incivitas. Operator, we're now ready to take questions.
Speaker Change: Thank you. We will now start the question and answer session. If you'd like to ask a question please press star 1 on your telephone keypad to raise your hand and join the queue.
Neal Dingmann: Your first question comes from the line of Neal Dingmann with Truist Securities. Please go ahead. Morning, Chris and team, nice quarter. My first question is around your future activity, specifically, you know, well, I believe, you know, you talked to investors out right now, I believe most everybody's in agreement about little need to grow overall production. I'm just wondering, you know, Chris, you'll still believe the best way going forward to create value will continue to be with a Permian versus DJ activity of maybe a rig count, I should say, three to one, you know, giving your potential continued advancement to Permian assets on one hand, but also understanding, maybe the limited value that investors seem to be giving you for your DJ.
Speaker Change: Morning Chris and team, nice quarter. My first question is around your future activity specifically you know well I believe you know you talked to investors out right now I believe most everybody's in agreement about little need to grow overall production I'm just wondering
Speaker Change: You know, Chris, you'll still believe the best way going forward to create value will continue to be with...
Speaker Change: a Permian versus DJ activity of maybe, or rig count I should say, three to one.
Speaker Change: you know, giving your potential continued advancement to permeate assets on one hand, but also understanding
Neal Dingmann: I'm just curious about how you might shape this plan going forward.
Speaker Change: Maybe the limited value that investors seem to be giving you for your DJ. I'm just curious about how you might shape this plan going forward.
Chris Doyle: Yeah, thanks, Neal. Good question. You know, as we step back, we think about how we've established this company and how we'll run this company. The basic model, as you know, is we're going to keep production broadly flat. We're going to peel out as much capital as we can get costs as low as we can and really focus in on maximizing free cash flow. A couple tweaks right as we head into 2025. 2024 was a bit of an outlier with front-end loaded capital as we brought in the three acquisitions. We've tried to get that capital down throughout the year, really focusing, again, on free cash flow for the year.
Speaker Change: Thanks, Neil. Good question. You know, as we step back, we think about how we've established this company and how we'll run this company. The basic model, as you know, is we're going to keep production broadly flat.
Speaker Change: We're going to peel out as much capital as we can, get costs as low as we can, and really focus in on maximizing free cash flow. A couple tweaks as we head into 2025. 2024 was a bit of an outlier with front-end loaded capital.
As we brought in the three acquisitions, we've
Chris Doyle: As we head into 2025, as I said in my prepared remarks, we'll level out activity, but really focus in on maintaining free cash flow. The question about three-to-one permian to DJ, we're going to let returns drive us. I think the benefit of having these positions both the DJ and Permian gives us quite a bit of flexibility. To your point, there are a couple of other considerations. I think the compromise in the DJ is really having us focused in on let's get all the permits we can ahead of the next three or four years and ensure that we have that flexibility to go between basins.
Speaker Change: My prepared remarks, we'll level out activity, but really focus in on maintaining free cash flow.
Speaker Change: You know, the question about 3-1 Permian to DJ, we're going to let returns drive us. And I think the benefit of having these positions in both the DJ and Permian gives us quite a bit of flexibility.
Speaker Change: To your point, there are a couple of other considerations, I think the compromise and the DJ is really having us focused in on let's get all the permits we can ahead of the next three or four years and ensure that we have that flexibility to go between basins.
Chris Doyle: We're ending the year right now with three rigs in the Permian, one in the DJ, but that's not a sustainable level of activity. We'll pick that up next year, again, level load it as best we can and focus back in on free cash flow. We think, ultimately, that is the way to deliver long-term sustainable success and value for our shareholders.
Speaker Change: We're ending the year right now with three rigs in the Permian, one in the DJ, but that's not a sustainable level of activity. We'll pick that up next year, again, level load it as best we can and focus back in on free cash flow.
Speaker Change: That is the way to deliver long-term sustainable success and value for our shareholders.
Chris Doyle: I think when you add on the overall macro, we don't think it's appropriate for Civitas or others to really think about growing production into that macro until you have a better idea of what 25 looks like and beyond. Yeah, I completely agree with that second.
Speaker Change: And I think when you add on the overall macro, you know, we don't think it's appropriate for Civitas or others to really think about growing production into that macro until you have a better idea of what 25 looks like and beyond.
Neal Dingmann: And then my second question, Chris, is just for you and Nela on the shareholder return, specifically, are there drivers you believe would make sense to cause you all to change your current 50% variable return component, you know, such as if leverage gets, you know, notably below one times, or even, you know, your stock price even is further discounted, even from where it is today, or, you know, you see a highly accretive asset available. And just, you know, that's sort of one thing on what would cause you to change that component.
Speaker Change: Yeah, I completely agree with that second, and then my second question, Chris, is just for you and Ella on the shareholder return. Specifically, are there drivers you believe would make sense to cause you all to change your...
Speaker Change: current 50% variable return component, you know, such as if leverage gets, you know, notably below one times or even You know, your your stock price even is further discounted even from where it is today or you see a highly accretive
Speaker Change: asset available. I'm just you know that's sort of one thing on what would cause you to change that component and secondly what do you all view is sort of a adequate dividend yield.
Neal Dingmann: And secondly, what do you all view as sort of a adequate dividend yield?
Chris Doyle: Yeah, Neal, thanks for the question. I mean, look, I'll say that since our inception, I mean, you've followed us for a long time, our current framework has always been focused on striking that right balance among our strategic pillars. I think if you look at our formulation right now, that LTM framework allows us to do that very well, such that we're paying debt disproportionately quicker at higher prices, and then we're buying counter-cyclically at low prices. You know, we continue accelerating our balance sheet goals with the great work the team is doing.
Speaker Change: Yeah, Neal. Thanks for the question. I mean, look, I would say that since our inception, I mean, you've followed us for a long time, our current framework has always been focused on striking that right balance among our strategic pillars.
Speaker Change: I think that if you look at our formulation right now that LTM framework allows us to do that very well such that we're paying more debt, paying debt disproportionately quicker at higher prices and then we're buying counter-cyclically at low prices.
Speaker Change: You know, we continue accelerating our balance sheet goals with the great work the team is doing in terms of taking costs out of the system. You saw us complete some asset divestitures.
Unknown Executive: Assets Division earlier this year among among a lot of other initiatives. Like, like I've said in prior quarters, I mean, in certain times, we'll obviously look to prioritize.
Speaker Change: earlier this year among among a lot of other initiatives and like like I've said in prior quarters I mean in certain times we'll obviously look to prioritize the balance sheet further. I mean we have high quality assets and a low cost structure that yield a tremendous amount of
Unknown Executive: Unknown Executive, Marianella Foschi, Benjamin Parham, Hodge Walker, Johnston, Johnston, Cash Flow. And so I think at this point, like what we see in terms of how both of those.
free cash flow and so I think at this point
Unknown Executive: Enter or getting a van. I also know that we're a highly aligned management team right and in the way the way we get compensated so we'll always do what's right and in the best centers of share. And then on on your second question, I mean, look, I'll say on the on the dividend yield, we're certainly are based of it and alone as we see it is about twice our peers at this. And in terms of the total yield, we certainly meeting, but again, at the same time.
Speaker Change: We like what we see in terms of how both of those ends are getting advanced in terms of our strategic pillars. Also note that we're a highly aligned management team, right, in the way we get compensated. So we'll always do what's right and in the best interest of shareholders.
Speaker Change: And then, on your second question, I mean, look, I'll say on the dividend yield, we're certainly, our base dividend alone, as we see it, is about twice our peers at this point.
Speaker Change: And in terms of the total yield, we certainly want to be peer leading, but again, at the same time, making sure we're advancing our balance sheet goals at the pace that we want to.
Unknown Executive: for Advancing Our Balance. Great details.
Unknown Executive: Thank you both.
Zach Parham: Your next question comes from the line of Zach Parham with a JP Morgan. Please go ahead. Thanks.
[inaudible]
Great details. Thank you both.
Thanks, Dale.
Speaker Change: Your next question comes from the line of Zach Parham with JP Morgan. Please go ahead.
Chris Doyle: First, just wanted to ask a little bit more on the shareholder return program. Can you give us some thoughts on buybacks versus variable dividends at this point? You know, is it fair to assume with the stock trading where it is you continue to utilize 100% of the variable return for buybacks? And if so, would you expect the buyback pace to increase in 4Q, just given higher trailing 12 month free cash flow?
Zach Parham: Thanks. First, just wanted to ask a little bit more on the shareholder return program.
Chris Doyle: Yeah, look, we will be.
just given higher trailing 12 month free cash flow.
Chris Doyle: Price Discipline with our staff. We are pretty far from stock prices.
Yeah, look, we will be...
Price Discipline with our staff, we
Zach Parham: We always are, as we are with any asset acquisitions, how we think about it. But just to address your question very directly, we're pretty far from stock prices at which we do a variable dividend at this point. And then on your second question, yes, just from the nature of the LTM formulation of free cash flow.
Unknown Executive: And then on your second question, yes, just from the nature of the LTM formulation of Unknown Executive, Marianella Foschi, Benjamin Parham, Hodge Walker, Johnston, Johnston, Thanks for that.
Zach Parham: going up this year. Yes, we'll expect the variable return of capital to be higher and that would be allocated disproportionately to buybacks at this point.
Chris Doyle: And then just wanted to follow up. You mentioned a little bit more level loaded program. Can you talk a little bit more about that? Would you still expect to hold volumes flat year over year with a more level loaded program? And in a more level loaded program, how would you expect CapEx to trend year over year?
Speaker Change: Thanks for that. And then just wanted to follow up. You mentioned a little bit more level-loaded program. Can you talk a little bit more about that? Would you still expect to hold volumes flat year-over-year with a more level-loaded program? And in a more level-loaded program, how would you expect CapEx to trend year-over-year?
Chris Doyle: Yeah, I think, you know, as we headed into 2024, and we had a guide of 195 capital, we knew that that was not a sustainable level of capital, we were going to let, let that fall off through the year. You know, the shape of 2024 very first half weighted, you had tills really concentrated in the middle of the year. You know, that ultimately does mean production is going to start declining at the end of the year and into the first quarter before we pull up with, with till sort of mid quarter.
Speaker Change: Yeah, I think, you know, as we headed into 2024 and we had a guide of 195 capital.
Speaker Change: We knew that that was not a sustainable level of capital we were going to let
Let that fall off through the year.
Speaker Change: Um, you know, the shape of 2024 very first half weighted.
Speaker Change: You had tills really concentrated in the middle of the year.
Speaker Change: That ultimately does mean production is going to start declining at the end of the year and into the first quarter before we pull up with
Chris Doyle: Again, we'd like to have a more sustained, a more level loaded level of activity in each of the basins, just to drive additional capital efficiency. I think as we step back and think, all right, if 195 going into the year wasn't, wasn't a sustainable maintenance level of capital, what this team has done throughout the year, peeling out capital efficiency, drilling, being much more efficient with our rigs and completions, you're starting to see the tweaks on on the development come to fruition. And I think the program as we look at it in 25 is more efficient than we would have thought a year ago, which is a real positive.
of mid-quarter.
Speaker Change: Again, we'd like to have a more sustained, a more level-loaded level of activity in each of the basins just to drive additional capital efficiency. I think as we step back and think, all right, if 195 going into the year wasn't a sustainable
Speaker Change: maintenance level of capital, what this team has done throughout the year, peeling out capital efficiency, drilling, being much more efficient with our rigs and completions.
Speaker Change: You're starting to see the tweaks on the development come to fruition, and I think the program, as we look at it in 25, is more efficient than we would have thought a year ago, which is a real positive.
Chris Doyle: But it's, it's, it's likely we're, we're much closer to, to that 195 as a maintenance level than, than we were certainly 12 months ago.
Speaker Change: But it's likely we're much closer to that 195 as a maintenance level than we were certainly 12 months ago.
Unknown Executive: Got it. Thanks for that, Colin.
Scott Hanold: Your next question comes from the line of Scott Hanold with RBC Capital Markets. Please go ahead. Yeah, thank you.
Got it. Thanks for that, Collins.
Speaker Change: Your next question comes from the line of Scott Hanold with RBC Capital Markets. Please go ahead.
Scott Hanold: Um, you know, I guess for my first question, just, you know, looking at the ways you, you know, optimize your activity and specifically the Midland Basin, I mean, you're you're nearing your DNC target. So two questions. One, you know, how much further below that can can you potentially push it? And can you talk about how like the progress in the Midland compares to what you've seen in the Delaware so far?
Scott Hanold: Yeah, thank you. Um, you know, I guess for my first question, just, you know, looking at the ways you've
Scott Hanold: you know, optimize your activity and specifically the Midland Basin. I mean, you're you're nearing your DNC target. So two questions. One, you know, how much further below that can you potentially push it? And can you talk
Speaker Change: about how like the progress in the Midland compares to what you've seen in the Delaware so far? Sure, you know we've said in the past, and thank you for the question Scott, we said in the past that
Chris Doyle: Sure. You know, we've said in the past, and thank you for the question, Scott, we've said in the past that, you know, most of our swings at the plate have been really focused on the on the Midland. Not surprising, we're, we're about two thirds Midland, one third, Delaware.
Speaker Change: Most of our swings at the plate have been really focused on the Midland. Not surprising, we're about two-thirds Midland, one-third Delaware.
Chris Doyle: Part of that capital allocation this year, I think we were 75-25 split between, between Midland and Delaware is really getting the Delaware position optimized, extending laterals and setting us up in 2025 and future years to allocate more capital in that direction with extended laterals. But most of the swings at the plate we've had this year have been on the Midland side. And therefore, we've been highlighting that. Yeah, I would say the team has made significant progress, you know, coming into the year at 850 a foot, consistent with previous operators getting to 740. Some of that is is a little bit on the on the service side of consumables.
Speaker Change: Part of that capital allocation this year, I think we were 75-25 split between Midland and Delaware is really getting the Delaware position optimized, extending laterals and setting us up in 2025 and future years to allocate more capital in that direction with extended laterals. But most of the swings at the plate we've had this year have been on the Midland side, and therefore we've been highlighting that.
Speaker Change: Yeah, I would say the team has made significant progress, you know, coming into the year at 850 a foot.
Speaker Change: Consistent with previous operators getting to 740 some of that is is a little bit on the on the service side of consumables
Chris Doyle: But the majority, vast majority of that is is just capital efficiency, drilling, completing wells much faster, getting wells on better on the on the back end as well. And so, you know, we're very close to your point to the target that we set up there earlier this year.
Speaker Change: But the majority, vast majority of that is just capital efficiency, drilling, completing wells much faster, getting wells better on the back end as well. And so, you know, we're very close to your point, to the target that we set out there earlier this year.
Chris Doyle: I think what's what gets me excited is, as we look towards 2025, it started this quarter, implementing Simulfrac throughout the Permian program. You know, we see that as we've seen significant throughput increases, we see that as as you know, 150,000, a well type savings and that boom automatically right there at your target cost. So, you know, we will have we will continue to drive costs out of the system. It will not just be from, you know, service costs alone, it will be from continuous improvement and, and love to see what the team has done. I think it's interesting as we look at that cost structure applied to a zone that we were we were really interested to see how it do we've highlighted the Wolf Camp D all of a sudden, Wolf Camp D is, you know, 5-10% higher on a per foot basis.
I think was what gets me excited.
Speaker Change: is as we look towards 2025. It started this quarter implementing SimulFrac throughout the Permian program.
Speaker Change: You know, we see that as, we've seen significant throughput increases, we see that as, you know, $150,000, a well-type savings, and that boom automatically right there at your target cost. So, you know, we will have, we will continue to drive costs out of the system.
Speaker Change: It will not just be from service costs alone, it will be from continuous improvement.
Speaker Change: and love to see what the team has done. I think it's interesting as we look at that cost structure applied to a zone that we were really interested to see how it would do. We've highlighted the Wolf Camp D.
Chris Doyle: So it's a little bit more expensive. But with the what we've seen, in terms of the subsurface results, all of a sudden that Wolf Camp D went from a potential, something interesting to look at to something that's going to compete for capital. And so, you know, it's it's teams that have and can establish a very strong cost structure and operating track record that are able to pull in some of those emerging zones.
Speaker Change: All of a sudden, Wolf Camp D is 5-10% higher on a per foot basis, so it's a little bit more expensive, but with what we've seen in terms of the subsurface results, all of a sudden that Wolf Camp D went from a potential, something interesting to look at, to something that's going to compete for capital. And so, you know, it's teams that have and can establish a very strong...
Speaker Change: cost structure and operating track record that that are able to pull in some of those emerging zones. So really excited what the team's been up to and excited to see how we continue to drive costs out of the system.
Chris Doyle: So really excited what the team's been up to and excited to see how we continue to drive costs.
Scott Hanold: Appreciate that content. And my follow up question is back on, you know, the 2025 outlook, you all have shown, you know, probably one of the more leading strategies of being disciplined with capital and production. Well, I guess production is, as you said, the outcome, but Let's say, and I know there's a lot of volatility out there, but look, if oil, you know, ends up being in a, I don't call it a mid 60 environment, or even low 60, you know, or maybe I'll say it this way, at what point would you feel comfortable letting oil production fall year over year?
Speaker Change: I appreciate that content. And my follow-up question is back on, you know, the 2025 outlook. You all have shown, you know, probably one of the more leading strategies of being disciplined with capital and production. Well, I guess production is, as you said, the outcome, but
Speaker Change: Let's say, and I know there's a lot of volatility out there, but look, if oil ends up being in a, I don't know, call it a mid-60s environment or even low 60s, you know, or maybe I'll say it this way, at what point would you
Scott Hanold: Is there some sort of price where decision where, you know, you're just gonna let it fade a little bit considering the macro?
Speaker Change: feel comfortable letting oil production fall year over year? Is there some sort of price where, decision where, you know, you're just going to let it fade a little bit considering the macro?
Chris Doyle: Yeah, I think I appreciate your comments, Scott. And I think that's something our management team really prides ourselves in is is, and it gets to Marianella's comment about being really aligned with shareholders is ultimately what we're what we're going to focus in on is free cash flow. And so if you get oil in the low 60s, you know, low 60s, mid 60s, we take a look at, hey, let's, let's focus in on free cash flow, let production moderate a bit. That's what we'll do. We did that back in 2023. As you might recall, not necessarily because of the commodity price, but there was a big disconnect between the service markets that were underpinned by $100 oil and you had the commodity floating down 25-30%.
Yeah, I think...
Speaker Change: I appreciate your comments Scott and I think that's something our management team really prides ourselves in is is and it gets to Marianella's comment about being really aligned with shareholders is ultimately what we're what we're going to focus in on is free cash flow and so if you get oil in the low 60s you know
Speaker Change: Low 60s, mid 60s, we take a look at, hey, let's focus in on free cash flow, let production moderate a bit. That's what we'll do. We did that back in 2023, as you might recall, not necessarily because of the commodity price, but there was a big disconnect between the service markets that were underpinned by $100 oil and you had the commodity floating down 25, 30%. So we moderated production just a little bit in that scenario. So we're going to be very flexible. Now I would say, let's say it goes the other way, because to your point, there's a lot of volatility, whether it's geopolitical or demand side, supply side.
Chris Doyle: So we moderated production just a little bit in that scenario. So we're going to be very, we're going to be very flexible. Now, I would say, let's say it goes the other way, because you're, to your point, there's a lot of volatility, whether it's geopolitical or demand side, supply side, that if it goes the other way, I don't think you're going to see this company lean in and start growing this platform. You'd see us start to de-lever much faster and return capital to our shareholders.
Unknown Executive: Good to hear.
Gabe Daoud: Thanks. Your next question comes from the line of Gabe Daoud with TD Cowan. Please go ahead.
Good to hear. Thanks.
Thanks, Scott.
Speaker Change: Your next question comes from the line of Gabe Daoud with TD Cowan. Please go ahead.
Gabe Daoud: Hey guys, this is Frankie DiGiovanna for Gabe. Just given the production profile in 24, how should we kind of think about one half 25 declines and kind of the activity required next year to keep 24 volumes flat? Yeah, so if you look at us as a as a company, our oil declines, call it high 30s on an annual basis. The way that we've we've shaped capital, again, focused on free cash flow and getting to a more sustainable level loaded program. You know, you're looking at tills, a low quarter in the fourth quarter, and then you'll see us decline into that first quarter, we'll pick back up mid quarter with with the tills.
Thank you.
Speaker Change: Hey guys, this is Frankie DiGiovanna for Gabe. Just given the production profile in 24, how should we kind of think about one half 25 declines and kind of the activity required next year to keep 24 volumes flat?
Speaker Change: Yeah, so if you look at us as a company, our oil declines, call it high 30s.
on an annual basis.
Speaker Change: The way that we've shaped capital, again, focused on free cash flow and getting to a more sustainable, level-loaded program.
Speaker Change: You'll see us decline into that first quarter. We'll pick back up mid-quarter with with the tills
Gabe Daoud: And and activity will pick up as well. And so our level load for 25 is going to be a little bit more activity than what we see in the fourth quarter. But you are going to see us drop down a little bit before coming out of that into the back half of the first quarter. Okay, great. Thanks for that.
Speaker Change: and activity will pick up as well and so our level load for 25 is going to be a little bit more activity than what we see in the fourth quarter but you are going to see us drop down a little bit before coming out of that into the back half of the first quarter and second quarter.
Chris Doyle: And then how are you thinking about M&A moving forward? Yeah, I think, you know, I would say As we made the moves when we did, where we did, it was extremely important that we came in with scale. We have that scale now. It was important that we really focus on asset quality and to augment and enhance what we had. We're still believers in adding inventory, adding duration. We believe scale is really important. I think I said on the last call, and it's even more true today, I think of all the companies out there where We believe the equity value just does not match the underlying asset quality and the operating team.
Speaker Change: Okay, great. Thanks for that. And then, how are you thinking about just M&A moving forward?
Yeah, I think, you know, I would say...
Speaker Change: and enhance what we had. We're still believers in adding inventory, adding duration. We believe scale is really important. I think I said on the last call, and it's even more true today, I think of all the companies out there where
Speaker Change: We believe the equity value just does not match the underlying asset quality and the operating team. Our hurdle to do something with our equity is very, very high.
Chris Doyle: Our hurdle to do something with our equity is very, very high. And so while we'll look at transactions and to an earlier question, you know, if there's something that really gets our attention, we'll take a look at it for sure. But what you see in this team is do is with where the asset markets are related to where our equity is currently trading, what we're focused on is little bolt-on ground games to replace drilled inventory and wait for that to moderate a little bit. And that allows us to generate more free cash and take that to the balance sheet and take it to our shareholders.
Speaker Change: And to an earlier question, you know, if there's something that really gets our attention, we'll take a look at it for sure. But what you see in this team do is, with where the asset markets are related to where our equity is currently trading, what we're focused on is little bolt-on ground games.
Speaker Change: to replace drilled inventory and wait for that to moderate a little bit. And that allows us to generate more free cash.
Chris Doyle: And so as long as we're trading is so disconnected to what we see as an underlying value, disconnected to the asset markets, and disconnected to the equity markets, I think it's going to be really tough for us to lean in and get too excited on this.
Speaker Change: and take that to the balance sheet and take it to our shareholders. And so as long as we're trading is so disconnected to what we see as an underlying value, disconnected to the asset markets and disconnected to the equity markets,
Speaker Change: I think it's going to be really tough for us to lean in and get too excited on the M&A front.
Gabe Daoud: Great. Thanks, guys.
Leo Mariani: Your next question comes from the line of Leo Mariani with Ross. Please go ahead. Hey guys, wanted to kind of approach the maintenance question a little bit differently here. So, just kind of wanted to get a sense of kind of what you think roughly maintenance activity is. Is that two DJ basin rigs, you know, four Permian rigs, just trying to get a little bit more color around that. And then obviously, you mentioned briefly that you're going to start tilling more wells, you know, kind of mid first quarter. So, you know, you got some pretty low capex guidance in 4Q.
Great, thanks guys.
Speaker Change: Your next question comes from the line of Leo Mariani with Ross. Please go ahead.
Leo Mariani: Hey guys, wanted to kind of approach the maintenance question a little bit differently here, so just kind of wanted to get a sense of kind of what you think roughly maintenance activity is, is that
Leo Mariani: Two DJ Basin rigs, you know, four Permian rigs, just trying to get a little bit more color around that and then obviously you did you mentioned briefly that you're going to start
Leo Mariani: Tilley-Morwell's, you know, kind of mid-first quarter. So, you know, you got some pretty low CapEx guidance in 4Q. Should we expect that literally some new activity shows up kind of right around January 1 for the company? Just trying to get a sense of how you're thinking about it. Yeah, thanks, Leo.
Leo Mariani: Should we expect that literally some new activity shows up kind of right around January 1 for the company? Just trying to get a sense of how you're thinking about it.
Chris Doyle: Yeah, thanks, Leo. Yeah, first on the low fourth quarter capex, that's really a byproduct of pulling forward some of that capital into the third quarter. A lot of that was facility related a little bit on the DNC side. But that resulted in a low 4Q guide.
Speaker Change: Yeah, first on the low fourth quarter capex, that's really a byproduct of pulling forward some of that capital into the third quarter. A lot of that was facility related, a little bit on the DNC side, but that resulted in a low 4Q guide. We know that's not a sustainable level.
Chris Doyle: We know that's not a sustainable level of activity. On the maintenance level, I think what's really interesting for us as we in the DJ really go extended reach in the Permian, we're extending laterals. We're also really becoming much more efficient with the rigs that we have. That maintenance level of activity and rigs is moving around and we're becoming much, much more efficient. I tell you that, you know, two rigs and a DJ, four in the Permian. We will continue to look at scenarios where you lean in a little bit heavier on the DJ or a little bit lighter.
of activity.
Speaker Change: On the maintenance level, I think what's really interesting for us as we, in the DJ, really go extended reach.
Speaker Change: In the Permian we're extending laterals. We're also really becoming much more efficient with the rigs that we have.
Speaker Change: That maintenance level of activity and rigs is moving around, and we're becoming much, much more efficient.
Speaker Change: I tell you that, you know, two rigs and a DJ-4 in the Permian, we will continue to look at scenarios where you lean in a little bit heavier on the DJ or a little bit lighter in the Permian with the inventory that we've got, you know, being in that.
Chris Doyle: And in the Permian with the inventory that we've got, you know, being in that four or five or six rig range. Those are all the scenarios we're looking at in 2025. And again, we're gonna be guided by free cash flow and would love to get to that level load for the year. But I'd say you're not far off on on how you started.
Speaker Change: you know, four, five, or six rig range. Those are all the scenarios we're looking at in 2025. And again, we're going to be guided by free cash flow and would love to get to that level load for the year. But I'd say you're not far off on how you started to frame it.
Leo Mariani: Okay, appreciate that. And I just wanted to follow up a little bit on the Wolf Camp D. So, you know, look, I think that a lot of other operators in the Midland have kind of classified the D as maybe a little bit, you know, less important and having economics that weren't quite as good as the A and B out there.
Speaker Change: Okay, appreciate that. And I just wanted to follow up a little bit on the Wolf Camp D.
Speaker Change: So, you know, look, I think that a lot of other operators in the Midland have...
Speaker Change: of classified, the D is maybe a little bit, you know, less important and having economics that weren't quite as good as the A and B out there. So maybe just provide a little bit more color as to why you guys think that it's more competitive in your portfolio. And it sounds like the returns could be.
Chris Doyle: So maybe just provide a little bit more color as to why you guys think that it's more competitive in your portfolio. And it sounds like the returns could be similar or better if I'm kind of reading the information here right that you provided. Yeah, Leo, I tell you, we, we would have been, we were one of those operators saying the same thing, you know, the way we thought about Wolf Camp D was, hey, this could be pretty interesting. You know, it's not a zone that you've got to co-develop with the A's and the B's. And so we had it out there as a potential.
Speaker Change: Similar or better if I'm kind of reading the information here right that you provided
Speaker Change: Yeah, Leo, I tell you, we would have been, we were one of those operators saying the same thing. You know, the way we thought about Wolf Camp D was, hey, this could be pretty interesting.
Speaker Change: You know, it's not a zone that you've got to co-develop with the A's and the B's, and so we had it out there as a potential. What's changed, in our view, is, you know, 16 wells in.
Chris Doyle: What's, what's changed in our view is, you know, 16 wells in is, all right, capital is a little bit lower than what we thought team executed very well. And so you're seeing a little bit, you know, 5 to 10% higher on capital, that was, that was better than we were anticipating. And then the real eye opener was as we were turning these on and having them really compete, compared to the A and B. And so we knew that that in order for the data to All the top 10 teams that were picked to compete for capital, that you'd have to make up for that additional CapEx.
Speaker Change: is alright, capital is a little bit lower than what we thought team executed very well. And so you're seeing a little bit, you know, five to 10% higher on capital that was
That was better than we were anticipating.
Speaker Change: And then the real eye-opener was as we were turning these on and having them really compete compared to the A and B. And so we knew that in order for the data to
Speaker Change: to compete for capital that you'd have to make up for that additional CapEx.
Chris Doyle: We just didn't think it was going to be there and we were very surprised by it.
Chris Doyle: So look, we're not going all in on the D by any stretch, but we had about 10% of our 2024 spend allocated to the D. It will compete for capital. It's probably going to be in that 20-30% of the program going forward.
Speaker Change: We just didn't think it was going to be there, and we were very surprised by it. So, look, we're not going all in on the D by any stretch, but we had about 10% of our 2024 spend allocated to the D.
Speaker Change: It will compete for capital. It's probably going to be in that 20-30% of the program going forward. And so, again, I think if you go back to the call when we entered the Permian, one of the things we...
Chris Doyle: And so I think if you go back to the call when we entered the permian, We and all other operators in the firm we love is this is an oil province that continues to highlight these emerging zones and the D is just the next one that's starting to compete for capital and there are others.
Speaker Change: We and all other operators in the firm in love is this is a an oil province that continues to highlight These emerging zones and the D is just the next one that that's starting to compete for capital and there are others out there
Tim Rezvan: Okay, thanks. Your next question comes from the line of Tim Rezvan with KeyBank Capital Markets. Please go ahead. Morning folks, and thank you for taking my question. I don't know if this is more for Chris or Hodge, but, you know, looking at your operating areas, you know, the most de-risked one where you have built a, you know, steady backlog of permits and where you're getting real value for your natural gas is in Colorado, you know, with well results looking much stronger. And, you know, as you look after the Governor Polis' 10-year end, you know, 2029, there's some uncertainty.
Okay, thanks.
Q&A
Speaker Change: Your next question comes from the line of Tim Rosvin with KeyBank Capital Markets. Please go ahead.
Speaker Change: Morning folks and thank you for taking my question. I don't know if this is more for Chris or Hodge, but you know looking at your operating areas, you know the most de-risked one where you have built a, you know, steady backlog of permits and where you're getting real value for your natural gas is in Colorado.
Speaker Change: You know, with well results looking much stronger, and, you know, as you look after the Governor Polis' 10-year end, you know, 2029, there's some uncertainty.
Chris Doyle: You know, I know you're focused on maximizing pre-cash flow, but from a pragmatic point of view, why not pull that value forward and allocate kind of more capital there, especially with the natural gas challenges in Oaxaca? Yeah, I think thank you for the question, Tim. And yeah, that's exactly the exercise and the debate that we're having internally. And, and I think the the benefit of having good, strong returns in the DJ gives us the opportunity if we wanted to lean in a little bit on on allocating capital to walk in. to our greater position, the DJ, we have that.
Speaker Change: You know, I know you're focused on maximizing free cash flow, but from a pragmatic point of view, why not pull that value forward and allocate kind of more capital there, especially with the natural gas challenges in Oaxaca?
Speaker Change: Yeah, I think thank you for the question Tim and yeah, that's exactly the exercise and the debate that we're having internally and
Chris Doyle: The team's been focused since the compromise last year, or this year, earlier this year, of really underpinning a more active program to give us the flexibility in order to allocate a little bit more there. To your point, we're ultimately going to be focused on what is the most efficient use of capital in 2020. We're going to be focusing on what is the most efficient use of capital in 2020. And if we can get close to that with more DJ activity than less, to your point, there is very clear markers on the value of our Permian position and less so on the DJ.
Speaker Change: The team's been focused since the compromise last year, or this year, earlier this year, of really underpinning a more active program to give us the flexibility in order to allocate a little bit more there.
Speaker Change: To your point, we're ultimately going to be focused on what is the most efficient use of capital in 2025.
Speaker Change: And if we can get close to that with more DJ activity than less
Speaker Change: To your point, there is very clear markers on the value of our Permian position.
Chris Doyle: And so one of those extra considerations would be, hey, if we can allocate a little bit more to the DJ and have as efficient a program or nearly efficient a program, that's something that we'd lean in on.
Speaker Change: and less so on the DJ. And so one of those extra considerations would be, hey, if we can allocate a little bit more to the DJ and have as efficient a program or nearly efficient a program.
Marianella Foschi: So I tell you that work's ongoing right now, and we'll have the final plan here. Kevin, I'll also add on your point on NatGaF, is um... Yes, we're certainly getting stronger gas real estations in the Rockies. But, you know, even then, gas is only in the rock.
Speaker Change: That's something that we'd lean in on, and so I tell you that work's ongoing right now, and we'll have the final plan here in February.
Speaker Change: Yes, we're certainly getting stronger gas realizations in the Rockies versus zero or negative in some cases in the Permian, but even then, gas is only, in the Rockies, it's only 6-7% of our total revenue anyway, so oil is always what's going to drive our economics.
Marianella Foschi: Oil is always what's going to drive our business. Okay, that makes sense, Marianella, and it's a good segue. My follow up was was intended for you. You know, you've been active kind of protecting basis in West Texas. Looks like you have about 130M a day swapped through 2026 and the outlook looks pretty bleak through that time. Is that a good amount? Are you still looking to get get more protection? Just sort of curious. What you can do or what you're trying to do on the margin there. Thank you. Yeah, for sure. You look, we were always trying to improve our realizations and certainly not a big fan of paying for for transport to take our gas away.
Mayor Nowak: Okay, that makes sense, Mayor Nowak, and it's a good segue. My follow-up was intended.
Speaker Change: For you, you know, you've been active kind of protecting basis in West Texas. Looks like you have about $130 million a day swapped, you know, through 2026 and the outlook looks pretty bleak through that time. Is that a good amount? Are you still looking to get more protection? Just sort of curious what you can do or what you're trying to do on the margin there. Thank you.
Speaker Change: Yeah, for sure. You know, we were always trying to improve our realizations and certainly not a big fan of paying for transport to take our gas away. You know, I think at this point we as we were looking out early this year into 2025 and 2026
Marianella Foschi: You know, I think at this point, we, as we were looking out early this year into twenty five and twenty six. We decided to take that opportunity. hedging or risk off, if you will, in the spring. Thank you all for joining us for the second half of this year, and that's been insanely successful. I mean, the Q3 realizations alone. $29 million so they improved their net box. Company-wide, gas company-wide. So obviously that that's going to translate into increased. Well, I'm not sure it will be that amount. We'll see where. 2526, we looked at just the capacity.
Speaker Change: We decided to take that opportunistic hedging or risk-off, if you will, in the spring.
Speaker Change: We essentially hedged half of the of the Permian gas balance of this year, or second half of this year, and that's been insanely successful, right? I mean the Q3 realizations alone were
29 million so they improved our netbox.
Speaker Change: company-wide, gas company-wide, about 50, 60 cents. So obviously that's gonna translate into increased realizations into Q4 as well. Not sure it will be that amount. We'll see where WAHA ends the quarter in the year here. In 25, 26, we looked at just
Marianella Foschi: online. There's just not much in 25. quite a bit in 26. And seems like a lot of those are late 26. seven VCF a day.
Speaker Change: The capacities that are coming online, there's just not much in twenty five. I mean, there's going to be quite a bit in twenty six and seems like a lot of those are late twenty six. Call it in the.
Unknown Executive: I think Austin and probably others were or have been a little disappointed as at the Unknown Executive, Marianella Foschi, Benjamin Parham, Hodge Walker, Kevin MacCurdy, Leo Mariani, Noel Parks, Leo Mariani, Neal Dingmann, Scott Hanold, Johnston, Thomas Walker, William Janela, Unknown Executive, Marianella Foschi, Benjamin Parham, Hodge Walker, Civitas Rsrcs or so and so just looking at all those pieces we we aggressively to your points and we decided to add on those I think at this point, I'm going to go ahead and close out the meeting.
Speaker Change: seven VCF a day range of additional capacity. I think us and probably others were or have been a little disappointed as at the uplift we've seen so far from Matterhorn really. It hasn't been much maybe about a dollar.
Speaker Change: 50 or so. And so just looking at all those pieces, we aggressively, to your point, Tim, we decided to add on those positions, you know, for 25 and 26. I think at this point,
Marianella Foschi: Thank you. We're not particularly inclined to add a lot more. I mean, we certainly. Additional Supply Domain Dynamics and the base. I would say that because they're a little bit longer term out and because of our flexible that it gets, again, like I said earlier, gas is not a big driver, but to the extent that we can adjust. perhaps earlier area. or the DJ, for example. like to do that. that that's an option for us. So I think at this Not particularly inclined to increase it much from 50, but to the extent that we get a good window or some good tailwind.
Speaker Change: We're not particularly inclined to add a lot more. I mean, we certainly are keeping a close pulse on.
you know, the additional supply domain dynamics in the basin.
Speaker Change: I would say that because they're a little bit longer term out and because of our flexible business plan, you know, to the extent that it gets, again, like I said earlier, gas is not a big driver, but to the extent that we can adjust activity to perhaps earlier areas or.
Speaker Change: you know, or the DJ, for example, if we would like to do that, that that's an option for us. So, I think at this point.
Speaker Change: not particularly inclined to increase it much from 50 but to the extent that we get a good window or some good tailwinds in the market that we see a good opportunity to continue adding we certainly would consider that.
Unknown Executive: I appreciate all the callers, folks. Thank you.
Oliver Hwang: Your next question comes from the line of Oliver Hwang with TPH, please go ahead. Good morning all and thanks for taking the questions. Just wanted to kind of focus on the further optimization of development in Midland. Certainly good to see the 15% uplift you all have highlighted in your slides on your first round of iterations on this upspaced higher intensity completions. But just trying to think through from here what the main levers that you all could potentially look at further tweaking on the horizon in the near term over the next 6 to 12 months from a productivity perspective.
I appreciate all the college folks. Thank you.
Speaker Change: Your next question comes from the line of Oliver Hwang with TPH. Please go ahead.
Good morning, all, and thanks for taking the questions.
Speaker Change: Just wanted to kind of focus on the further optimization of development in Midland, certainly good to see.
Speaker Change: the 15% uplift you all have highlighted in your slides on your first round of iterations on this upspaced higher intensity completions, but just trying to think through from here what the main levers that you all could potentially look at further tweaking on the horizon in the near term over the next six to twelve months from a productivity perspective.
Chris Doyle: Thanks, Oliver. To address your question, I'd point you to a couple things. One, whether it's upspacing or... really focused in, as I said, on my How, what is that return on that sixth well? And so that what that ultimately does is it leads us to be a little bit more conservative, peel out a well or so, and really drive a better cash on cash return. as a program. And so that work will continue. It's very bespoke to each DSU. Every one is a little bit different. I think as we look forward, we're always leaning in on the subsurface to understand are we targeting wells appropriately?
You know, spacing off existing wells, uh, are, are...
Speaker Change: team is really focused in, as I said in my remarks, on incremental returns. And just to put a fine point on that, let's say you've got a six well per section development. We're not looking at, hey, what are the return average for those six wells? We're looking at, what is the sixth well?
Speaker Change: How, what is that return on that sixth well? And so that, what that ultimately does is it, it leads us to be a little bit more conservative.
Speaker Change: Peel out a well or so and really drive a better cash on cash return as a program. And so that work will continue. It's very bespoke to each DSU. Everyone is a little bit different.
Chris Doyle: Are we staying in zone as best as we can? Are there further optimizations on completions?
Chris Doyle: And that's really just the DNA of a company that is focused on continuous improvement and focused in on returns. I think when you couple that with an operating... that is looking to deliver the best wellbore as quickly and safely as possible. What you see is a very quick from Civitas, a very quick decision into, you know, I would say not top quartile yet, but a clear line of sight to get there. And then from here, you'll just continue to see whether it's Simulfrac or other opportunities just to peel out time, cost, waste out of the system.
Speaker Change: Are there further optimizations on completions? And that's really just the DNA of a company that is focused on
continuous improvement and focused in on returns.
a very quick from Persimitops, a very quick dissension into
Speaker Change: You know, I would say not top quartile yet, but clear line of sight to get there.
Speaker Change: And then from here, you'll just continue to see whether it's simulfrac.
Unknown Executive: If we got the team focused in on the right things, you'll see that quarter over quarter. And so it's going to be a ton of small little things that will continue to deliver a better, more capital efficient. Thanks, that's helpful, Culler.
Speaker Change: or other opportunities just to peel out time, cost, waste out of the system. If we got the team focused in on the right things, you'll see that quarter over quarter. And so it's going to be a ton of small little things that will continue to deliver a better, more capital efficient result.
Unknown Executive: And maybe just a quick follow up.
Unknown Executive: Is there another leg down that you all have line of sight to and kind of thinking about Q4 2025?
A quick follow-up.
Speaker Change: Is there another leg down that you all have line of sight to when kind of thinking about Q4 2025?
Unknown Executive: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. Yeah, the 195 is where we started in 24. From there to now, we've seen some deflation in consumables, tubulars. etc. Obviously, I would say on the service side, the rig side, we've seen, you know, some deflation from where we were late 23 to now, probably a little bit more on the rig side than we have on the on the frack side. We're also upgrading some of our frack fleets, whether it's going to E-fleets, a little more efficient operation there.
service costs when you're
Speaker Change: just and anything to kind of be aware of in terms of just the recontracting negotiations that are kind of going on and when you're kind of referencing the 1.95 billion ballpark number for maintenance, how much year-over-year deflation does that kind of assume?
Speaker Change: Yeah, the 195 is where we started in 24, from there to now, we've seen some deflation in consumables, tubulars, etc., obviously. I would say on the service side, the rig side, we've seen...
Speaker Change: You know, some deflation from where we were late 23 to now, probably a little bit more on the rig side than we have on the on the frack side. We're also upgrading some of our frack fleets, whether it's going to E-fleets.
Unknown Executive: But I would say consumables were the big driver from 24 to now. As we look forward, the same volatility that we see is the volatility that service companies see, right? And they're trying to figure out where's the market going, I think. We're not going to be a. I don't know that you'll see us take a massive step down year over year. We try not to take long commitments. We try to be as close to market as possible.
Speaker Change: a little more efficient operation there. But I would say consumables were the big driver from 24 to now. As we look forward, the same volatility...
Speaker Change: that we see is the volatility of the service companies see, right? And they're trying to figure out where's the market going. I think we're not going to be a...
Speaker Change: I don't know that you'll see us take a massive step down. Year over year, we try not to take long commitments. We try to be as close to market as possible.
Unknown Executive: Thanks everyone. out but like I said I think both sides of the coin are trying to Perfect.
Speaker Change: and I think it's early to think. I think we need to be responsive to the macro and I think it's early to think. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Speaker Change: A year ahead, you know, where service costs because we don't know how that macro and how the overall volatility sort of works out. But like I said, I think both sides of the coin are trying to figure that out.
John Abbott: Thanks for the time. Your next question comes from the line of John Abbott with Wolf Research. Please go ahead. Hey, appreciate taking our questions here. And I also appreciate the color and thought about 2025. We see commodity prices here lower. We had a bit of a discussion last night, but you know, commodity prices is sort of are lower than you sort of think about allocation.
Perfect, thanks for the time.
Thanks, Oliver.
Speaker Change: Your next question comes from the line of John Abbott with Wolf Research. Please go ahead.
Speaker Change: Hey, I appreciate taking our questions here, and I also appreciate the color and thought about 2025 we see commodity prices here lower We had a bit of a discussion last night But you know commodity prices is sort of are lower and you sort of think about allocation
Chris Doyle: Unknown Speaker There are benefits to maintaining operations in each of your areas because you do have economic positions there and you have built this momentum. So sort of thinking about that, how much activity do you see as necessary, like in the DJ or the Midland or the Dell? to maintain efficiencies if we sort of see lower commodity prices. Yeah, thanks, John. Thanks for the question. You know, you're exactly right. I think I'm excited about the operating momentum that we've continued in the DJ and that we've really established throughout the year in the in the Permian.
operations in each of your areas because you do have
Speaker Change: economic positions there and you have built this momentum. So you sort of thinking about that, how much activities do you see as necessary like in the DJ or the Midland or the Dell?
Speaker Change: to maintain efficiencies if we sort of see lower commodity prices.
Speaker Change: Thanks, John. Thanks for the question. You're exactly right. I'm excited about the operating momentum that we've continued in the DJ and that we've really established throughout the year in the Permian.
Chris Doyle: You know, we've been as Far Down as a rig in the DJ, and that allows us to maintain the cruise, maintain that momentum, and then we'll scale up or back as needed. I think that's a pretty minimal level that would be, you know, gap down and commodity price type activity level, but that allows us to keep the momentum there on the DJ side. On the Permian side, you know, we're sitting...
You know, we've been as
Speaker Change: far down as a rig in the DJ, and that allows us to maintain the cruise, maintain that momentum, and then we'll scale up or back as needed. I think that's a pretty minimal level that would be, you know, gap down and commodity price type activity level, but that allows us to keep the momentum there on the DJ side. On the permanent side, you know, we're sitting, it's
Chris Doyle: How do we how do we marry those rigs with with frack crews? Because that's the other the other piece here. And the you know, the level of three rigs or so is probably not a bad maintenance level. It's why you've seen us kind of go down to that in the fourth quarter. But to your point, we'd love to keep a base load to keep up the momentum and scale up when the market. is signaling that we should.
Speaker Change: How do we marry those rigs with frack crews, because that's the other piece here.
Chris Doyle: I think the last thing I would say, John, this was this is so critical as we looked to how we wanted to expand this company and scale this company and diversify. We had to go in and get low break-even assets, and it's for times such as you describe, if commodity prices weaken further, that, hey, we can deploy capital, maintain a level load of operating momentum, and still generate significant returns and generate significant free cash flow for our shareholders. So all of that will go into, you know, how responsive, how flexible we want to be as we see how the macro sort of settles out over the next couple of years.
Speaker Change: is signaling that we should. I think the last thing I would say, John, and this was so critical as we looked to how we wanted to expand this company and scale this company and diversify the company is
We had to go in and get low break-even assets.
Speaker Change: And it's for times such as you describe, if commodity prices weaken further, that hey, we can deploy capital, maintain a level load of operating momentum, and still generate
Speaker Change: Significant Returns and Generate Significant Free Cash Flow for our Shareholders. So all of that will go into, you know, how responsive, how flexible we want to be as we see how the macro sort of settles out over the coming months plus.
John Abbott: The topic's already been brought up about the variable dividend, but just sort of want to approach it slightly a different way. So the focus here right now is on buybacks, just given where the shares are. When you sort of think about signaling to the market, I mean, there are plans out there where companies switch between variable and buyback.
Speaker Change: The topic's already been brought up about the variable dividend, but just sort of want to approach it slightly a different way.
Speaker Change: So the focus here right now is on buybacks, just given where the shares are.
Speaker Change: When you sort of think about signaling to the market, I mean, there are plans out there where companies switch between variable and buybacks.
John Abbott: Does it make sense ever to go back to a variable dividend as you're sort of making a statement about where your stock is at? Or do you just continue to, at this point in time, just get where your shares are? Do you continue to focus on the buyback and just manage to fix dividends?
Speaker Change: Does it make sense ever to go back to a variable, the dividend, as you're sort of making a statement about where your stock is at?
Speaker Change: or do you just continue to, at this point in time, just get where your shares are? Do you continue to focus on the buyback and just manage the fixed dividend? So does the variable dividend have a place going forward?
Unknown Executive: So does the variable dividend have a place going forward?
Chris Doyle: Guys, good question, John. You know, I would start with our commitment to returning capital to our shareholders. And in the past, that had a variable component to it.
Chris Doyle: As we look forward, I'm hopeful three months from now, six months from now, we are on this call and we're debating that very question. We're a long way away from having that debate, however, just given what we're seeing. Our asset base and how the team is is executing. You know, all of that balance also with with protecting our balance sheet.
Speaker Change: that had a variable component to it. As we look forward, I'm hopeful three months from now, six months from now, we are on this call, we're debating that very question. We're a long way away from having that debate, however, just given what we're seeing from our asset base and how the team is executing.
Chris Doyle: Keeping Leverage in a Managed I think you raised an interesting question. I would tell you that we are committed to getting capital back to our shareholders in any form. The decision that the board made last quarter really set us up to protect the balance sheet, live up to that commitment, and really take advantage of capital. highly undervalued.
Speaker Change: you know all of that balance also with with protecting our balance sheet and
Speaker Change: I think you raised an interesting question, I would tell you that we are committed to getting capital back to our shareholders in any form. The decision that the board made last quarter really set us up to
Speaker Change: to protect the balance sheet, live up to that commitment, and really take advantage of what we believe is a highly undervalued equity.
Unknown Executive: Thank you very much for taking our questions.
Noel Parks: Your next question comes from the line of Noel Parks with Two Wee Brothers. Please go ahead. Hi, good morning. You know, I've been thinking about inventory and further technical advancements, how that can potentially open up more inventory on existing holdings. And it seems like we're in a time where basins are seeing more divergence of what's going on operator by operator in a basin as opposed to those times when, you know, everybody's pushing higher sand content or, you know, or spacing is all going one way. And so, as you think about looking at acquisitions out there, does seeing, and yourselves, you know, going after the Wolf D when other people had kind of that budget, does that divergence make you, say, pickier about acquisitions?
Thank you very much for taking our questions. Thanks, John.
Speaker Change: Your next question comes from the line of Noel Parks with Two Wee Brothers.
Speaker Change: Hi, good morning. You know, I've been thinking about inventory and further technical advancements, how that can potentially open up more inventory on existing holdings.
and it seems like we're in a time where
Speaker Change: Basins are seeing more divergence of what's going on operator by operator in a basin as opposed to those times when, you know, everybody's pushing higher sand content or spacing is all going one way.
And so as you think about...
looking at acquisitions out there.
Speaker Change: Does that divergence make you, say, pickier about acquisitions or in contrast does it make you a little bit more adventurous in terms of, you know, how you might look at something that's interesting and maybe how you value the upside, the unbooked upside potential?
Noel Parks: Or in contrast, does it make you a little bit more adventurous in terms of, you know, how you might look at something that's interesting and maybe how you value the upside, the unbooked upside potential?
Chris Doyle: Yeah, thanks for the question, Noel. I think it makes us more informed. as we look at acquisitions. And I think the position that we're in today that we weren't a year ago, is we had to underwrite the transactions that we made based on previous operators performance. And we looked at, hey, if we're able to get our feet under us, if we're able to build that operating momentum, if we're able to optimize completions and development, this is what could be. Now, interestingly, you've got an operating team that is delivering good capital efficiency that we have a view on how we're optimizing development, not just in the A and B, but with some of the emerging...
Speaker Change: Yeah, thanks for the question, Noel. I think it makes us more informed as we look at acquisitions, and I think the position that we're in today that we weren't a year ago.
is we had to underwrite the transactions that we made.
based on.
Speaker Change: previous operators performance and and we looked at hey if we're able to get our feet under us if we're able to to build that operating momentum if we're able to optimize completions and development
This is what could be.
Speaker Change: Now, interestingly, you've got an operating team that is delivering good capital efficiency that we have a view on how we're optimizing development, not just in the A and B, but with some of the emerging zones.
Chris Doyle: and you have a subsurface. Coupled with that technical, the operating team that really understands the assets and what this team can deliver with much more clarity today than a year ago. And so as we look at opportunities, whether it's small ground game or acquisitions, it's from a place of having that track record built up, which is a great place to be. We will be much more informed of what this team is able to deliver and therefore have a better view of how valuable those assets or those sticks could be in the hands of Civitas.
and you have a subsurface team.
coupled with that technical, the operating team.
Speaker Change: that really understands the assets and what this team can deliver with much more clarity today than a year ago. And so as we look at opportunities, whether it's small ground game or acquisitions, it's from a place of having that track record built up.
Speaker Change: which is a great place to be. We will be much more informed of what this team is able to deliver and therefore have a better view of how valuable those assets are.
Chris Doyle: It's exciting a year in to be where we are, but I would leave you with one thought and We're going to be disciplined in everything that we do. We will ultimately be a top quartile operator that will give us advantage. Access will be better in our hands. We're not where we need to be yet, but we're getting and in all things, we're very much aligned with shareholders and we'll do the right thing for long.
Speaker Change: those sticks could be in the hands of Civitas. It's exciting a year in to be where we are but I would I would leave you with one thought and that is we're going to be disciplined in everything that we do.
Speaker Change: We will ultimately be a top quartile operator, that will give us advantages to the assets will be better in our hands. We're not where we need to be yet, but we're getting there. And in all things, we're very much aligned with shareholders and we'll do the right thing for long-term shareholder value.
Unknown Executive: Great, thanks. And, you know, you mentioned Matterhorn and the uplift there so far, I have heard some operators express the, the opinion that when, when maintenance wraps up on some of the the other pipelines, and sort of what the ripple effects was that would look like, that there's still reason to believe that there there could be some pretty significant improvement in basis. Appearing from Matterhorn that just hasn't manifested yet.
Speaker Change: Great thanks and you know you mentioned Matterhorn and the uplift there so far I have heard some operators express the the opinion that
Speaker Change: When maintenance wraps up on some of the other pipelines and sort of what the ripple effects would look like.
Speaker Change: that there's still reason to believe that there could be some pretty significant improvement in basis.
Chris Doyle: Are you sort of in that camp or do you see it a little differently? Hey, no, I would say that I mean, look, from what we're seeing, there's about a BCF and a half blowing through Matterhorn, that's a two and a half BCF pipe, I, I would imagine, and I have Unknown Executive, Marianella Foschi, Benjamin Parham, Hodge Walker, Johnston, William Janela, Unknown Executive, Marianella Foschi, Benjamin Parham, Hodge Walker, Civitas Rsrcs about a month ago, I would imagine flows elsewhere going down. that much gas waiting for So yes, certainly some of the items you're bringing up.
Speaker Change: I would say that, I mean, look, from what we're seeing, there's about.
of BCF and a half.
Speaker Change: flowing through Matterhorn. That's a two and a half BCF pipe. I would imagine, and I haven't seen the detailed flows of the other pipes, but I would imagine, this is all very recent, right? Matterhorn came out about a month ago. I would imagine flows elsewhere going down because there really just wasn't
Speaker Change: That much gas waiting for home. So yes, certainly some of the items you're bringing up on maintenance
Unknown Executive: are correct. We certainly haven't seen them yet.
Unknown Executive: So we're cautiously optimistic. As we said earlier, we hedged away. well into late 2020 through the end. So we're cautiously optimistic, frankly, not not seeing it. Great.
Speaker Change: are correct. We certainly haven't seen them yet, so we're cautiously optimistic. Like we said earlier, we hedged away at 50%.
Speaker Change: well into late 2026, through the end of 2026. So we're cautiously optimistic, frankly not seeing it just yet.
Unknown Executive: Thanks a lot.
Brad Whitmarsh: And that concludes our question and answer session, and I will now turn the conference back over to Brad Whitmarsh for closing comments. Thanks, Krista, and everybody for joining us today. We'll be around this afternoon and into next week, so if you have any follow-up questions, certainly don't hesitate to reach out.
Great, thanks a lot.
Thanks, Bill.
Speaker Change: And that concludes our question and answer session and I will now turn the conference back over to Brad Whitmarsh for closing comments. Thanks Krista and everybody for joining us today.
Brad Whitmarsh: We'll be around this afternoon and into next week, so if you have any follow-up questions, certainly don't hesitate to reach out. We hope you have a great weekend, and please be safe.
Brad Whitmarsh: We hope you have a great weekend, and please be safe.
Unknown Executive: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Unknown Executive: Thank you for watching.