Q3 2024 Crescent Energy Co Earnings Call

Greetings and welcome to the Crescent Energy third quarter 2024 Constance call

Speaker Change: At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require your operator's assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reid Gallagher, Investor Relations. Thank you. You may begin.

Reid Gallagher: Good morning and thank you for joining Crescent's third quarter 2024 conference call. Prepared remarks today will come from our CEO David Rockecharlie and CFO Brandi Kendall.

Reid Gallagher: Our CAO, Todd Falk, and our EVP of Investments, Clay Rind, will also be available during Q&A. Today's call may contain projections and other forward-looking statements within the meaning of the federal securities laws.

Reid Gallagher: These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict, our business strategies, and other factors that may cause actual results to differ from those expressed or implied in these statements and our other disclosures.

Speaker Change: We have no obligation to update any forward-looking statements after today's call.

Speaker Change: In addition, today's discussion may include disclosure regarding non-GAAP financial measures. For reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-Q and earnings press release available under the investor section on our website. With that, I will turn it over to David.

David Rockecharlie: Good morning and thank you for joining us. Yesterday, Crescent posted another solid quarter of financial and operating results.

David Rockecharlie: Before we get into the details, I want to begin with a few key points I hope you take away from this call. First, our team continues to execute on our proven and consistent strategy of growing profitably through acquisitions and driving operational efficiencies.

Speaker Change: Because of that, we have raised our outlook for the year for the third consecutive quarter, reaffirming our production guidance with more efficient capital spending and increased free cash flow.

Speaker Change: Second, our integration of the Silver Bow business is yielding significant synergies even beyond our initial expectations.

Speaker Change: We've already realized approximately $65 million of annualized synergies. We're at the low end of initial expectations within just a few months of closing. We have successfully integrated the people, the assets, and the best practices of both businesses ahead of schedule to drive incremental value.

Speaker Change: We increased our target for total synergies by more than 20% and are confident in our ability to execute from here.

Speaker Change: and finally we see significant opportunity ahead. This has been an active year for us with the Silver Bow acquisition and subsequent bolt-on to our core central Eagleford footprint. The Crescent has never been better positioned.

Speaker Change: We've delivered profitable growth of both production and cash flow through disciplined investing and operations.

Speaker Change: and we have transformed the equity positioning of our business since becoming public. I am confident in our ability to capitalize on recent success and continue executing towards our goal of becoming an investment-grade company and delivering long-term value for our shareholders.

Speaker Change: Following those quick highlights, I will now discuss the quarter in a bit more detail.

Speaker Change: We reported strong financial results this quarter with our advantaged low decline production base generating significant free cash flow and our development program outperforming expectations.

Speaker Change: We had record production of 219,000 barrels of oil equivalent per day this quarter with only two months of Silver Bow contribution included in our numbers.

Speaker Change: The strong execution by our team has allowed us to yet again improve our outlook for the remainder of the year with well performance, synergy capture, and capital efficiencies allowing us to hit our production guidance with less capital, generating incremental free cash flow for our investors.

Speaker Change: In the Eagleford, we continue to build momentum as we drive improved capital costs and increased well performance. Across our entire position, we are seeing a meaningful year-over-year uplift in well productivity on both an oil and total volume basis.

Speaker Change: This is a testament to the depth and quality of our inventory, with improving performance on our assets versus industry trends and in-basin peers that have seen a natural degradation in performance.

Speaker Change: As we've acquired assets over time, a key part of our strategy is to improve operations through our ownership, and you are seeing the direct result of this with our recent well performance.

Speaker Change: On the capital side, we're seeing incremental savings versus the first half of the year, increasing returns and free cash flow.

Speaker Change: By combining the strength and expertise of our newly integrated organization of talented people, we've been able to drive further efficiencies across our program, utilizing the latest available technology.

Speaker Change: For example, we are planning horseshoe U-shaped wells in select areas to unlock meaningful inventory where land considerations may not have allowed for traditional development.

Speaker Change: We've been able to bring SimulFract completions to the SilverBow assets, meaningfully increasing efficiency and driving down development costs.

Speaker Change: We've also had great success to date working with our service providers to drive down costs alongside operating efficiencies.

Speaker Change: which combined has lowered well cost 10% relative to the first half of this year.

Speaker Change: While the capital savings on the acquired assets are encouraging, they represent only a fraction of the synergies we've already achieved from the Silverdoe transaction.

Speaker Change: When we originally announced the acquisition, we put forward what we believed were significant and ambitious synergy targets.

Speaker Change: and we've been able to deliver far ahead of schedule.

Speaker Change: With approximately $65 million of annualized uplift realized to date across capital, overhead, operating costs, and interest expense, we've already hit our original target range.

Speaker Change: As we've spent more time with the assets under our control, we believe there is more opportunity than we originally anticipated, and we have increased our expected synergy range by more than 20 percent.

Speaker Change: On the integration front, our 2023 acquisitions in the Western Eagleford have also continued to drive strong free cash flow.

Speaker Change: with a dramatic step change in well productivity versus the prior operator and approximately $70 million of annualized operational gains relative to our $850 million of combined purchase price.

Speaker Change: Through the hard work and dedication of our talented people, we've achieved all this in the first year under our operatorship by bringing industry best practices to the field, and we look forward to finding opportunities for further value across our scaled position in the Basin.

Speaker Change: In the Uintah, we continue to see strong results from our development program, which to date has remained largely focused on the proven Utland Butte formation.

Speaker Change: The Uinta is at an exciting stage of its evolution and we are pleased to see incremental public activity and recognition of the impressive resource potential and advantaged economics in the basin.

Speaker Change: We entered the basin in 2022 through a transaction at a discount to PDP value.

Speaker Change: with any development potential generating incremental returns for our investors.

Speaker Change: While we remain focused on the most proven formations with our current development program, we have begun to allocate prudent capital to incremental horizons now that other operators have spent meaningful capital to delineate and further prove the impressive potential across the play.

Speaker Change: We've also been active seeking more creative and efficient pathways to de-risk the full upside across our position, and recently entered into a small joint venture to test the easternmost extent of our acreage with no upfront capital required.

Speaker Change: While still early in our evaluation, our initial results have been encouraging, but we will continue to monitor the data, both from our wells and from offset operators, and be patient as we limit risk and capture the substantial resource upside across our assets.

Speaker Change: Our consistent ability to improve operations and generate meaningful synergies has given us further conviction on our growth through acquisition strategy, and we see a significant market opportunity ahead of us.

Speaker Change: Silverbow was the largest acquisition we have completed to date as a public company and we have followed our proven acquisition and integration playbook with great results.

Speaker Change: and since we have had another successful closing and integration with our bolt-on in the Central EcoFruit.

Speaker Change: The acquisition added incremental assets in a key operating area and represented a uniquely attractive opportunity.

Speaker Change: with low decline oil production, high return inventory, and increased operating flexibility with minerals, midstream, and substantial surface ownership.

Speaker Change: We acquired the assets at a cost of capital, more typically representative of operated working interest opportunities, but received the additional benefits of the minerals, surface, and midstream infrastructure, which we were pleased to add to our portfolio.

Speaker Change: We have a large pipeline of M&A opportunities ahead of us, but we will remain prudent in our underwriting. We screen 150 to 200 potential transactions a year and have executed 0 to 3 each year consistently.

Speaker Change: We are focused on compounding significant capital over time at attractive rates of return, and we quickly pass on opportunities that don't meet our underwriting criteria.

Speaker Change: Despite recent volatility, the market remains active and with our increased scale.

Speaker Change: Strong operating and financial performance and solid balance sheet.

Speaker Change: We are extremely well positioned for profitable growth and further value creation for our stakeholders over the remainder of 2024 and beyond.

Speaker Change: With that, I'll turn the call over to Brandi to provide more detail on the quarter.

Brandi Kendall: Thanks, David. Crescent's results for the quarter build on our impressive performance over the first half of the year, with approximately $430 million of adjusted EBITDA and approximately $160 million in leverage-free cash flow.

Speaker Change: We had $211 million of capital expenditures during the quarter, better than forecast as the team continues to generate incremental savings in the field.

Speaker Change: We brought online 27 growth-operated wells in the Eagleford and 10 growth-operated wells in the Uinta, all of which are generating strong initial results.

Speaker Change: With recent commodity volatility, we are focused on maintaining both operational and financial flexibility and generating attractive returns across our development program. We optimize DNC activity on the Silverboe assets after taking over operatorship to target higher returning liquids-weighted development to take advantage of relative commodity pricing.

Speaker Change: Turning to our outlook for the remainder of 2024. As David mentioned, we have enhanced our guidance for the third time this year and improved our second half capital outlook to $425 to $455 million, a 10% improvement from the initial guidance provided at the closing of the Silver Bowl acquisition.

Speaker Change: This updated outlook reflects five months of Silver Bow contribution and highlights the strength of our business and the impressive achievements of our operating team.

Speaker Change: Our balance sheet remains strong coming out of the quarter with net leverage of 1.5 times within our publicly stated range of one to one and a half times.

Speaker Change: generating an attractive return for our investors and also accelerating debt repayment.

Speaker Change: While we are a growth through acquisition business, we bring an investor mindset to everything we do and are constantly evaluating our portfolio for potential divestitures to maximize value to our shareholders.

Speaker Change: Alongside earnings yesterday, we announced another dividend of $0.12 per share and further repurchases under our Active Buy Back program, which is now a 20% utilized year-to-date at a weighted average share price of $10.07.

Speaker Change: Together, our dividend and repurchases have equated to a peer-leading 5% annualized yield.

Speaker Change: We have dramatically transformed the equity positioning of our business since becoming public with a simplified and enhanced dividend framework and significantly increased float and trading liquidity highlighted by our recent addition to the S&P 600 Index. With that, I'll turn the call back over to David for closing remarks.

David Rockecharlie: Thank you, Brandi. Before we wrap up, I want to reiterate a few key takeaways from this quarter.

David Rockecharlie: First, our business continues to generate impressive results and significant free cash flow.

David Rockecharlie: We've improved guidance for the third consecutive time this year, achieving our stated production targets with more efficient capital spend.

David Rockecharlie: Our advantaged asset profile has consistently exceeded expectations, and our operating team continues to find more and more efficiencies to maximize cash flow for our investors from both newly acquired and legacy assets.

David Rockecharlie: Second, application of our proven integration process on the Silver Bow business has generated value beyond initial expectations. We've combined the strongest talent from both organizations to enhance operations across the business.

Speaker Change: We are ahead of schedule on Synergy Capture, achieving our initial target within just a few months of closing, and we've increased our total Synergy expectation by more than 20%.

Speaker Change: Finding ways to capture value beyond our acquisition underwriting is a demonstrated strength of our platform.

Speaker Change: and lastly we see significant opportunity ahead of us to continue on our profitable growth trajectory.

Speaker Change: We said last quarter that we are just getting started, and that remains true today. We built this business with ambitious goals, and despite our recent successes, we remain focused on operational execution, profitable growth, and long-term value creation for our shareholders.

Speaker Change: We have the unique combination of operating and investing expertise required to execute on our growth through acquisition strategy.

Speaker Change: and we will continue to do exactly what we've said we are going to do.

Speaker Change: We believe Crescent offers a uniquely compelling value proposition in our sector, and we are determined to prove it.

Speaker Change: With that, I'll open it up for Q&A. Operator?

Speaker Change: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 at this time. One moment while we pull for our first question.

Speaker Change: Our first question comes from Neil Dingman with Truist Securities. Please proceed.

Neil Dingman: Good morning, my supporters. My first question is just on your upcoming quarter regional focus and one specifically

Neil Dingman: Could you all speak to your ability, right now when you're looking at the Eagle for your ability to sort of target the liquids rich over gas development and I'm just wondering how quickly you could switch to more gas when the prices dictate?

Neil Dingman: Hey Neil, it's Clay. Yeah, certainly one of the benefits of the Silver Bowl acquisition was

Speaker Change: continuing to have optionality from a commodity mix perspective.

Speaker Change: And given the market environment today, you've seen our development be focused on the more liquids-weighted portfolio. I'd say we have plenty of flexibility to think through optionality around the portfolio as we see changes in commodity prices. You heard in the prepared remarks, Brandi.

Speaker Change: highlight a focus on flexibility for us. And given the acreage footprint we've created with largely held by production leases, you know, we think we have a ton of flexibility and a key focus for us.

Speaker Change: Thank you.

Speaker Change: Thank you. Thank you.

Speaker Change: No, that makes sense. And then just a second question on your capital efficiency, specifically notable upside that you're seeing from SimulFract's and other, you know, type of improvements. I'm just wondering, what inning would you all consider sort of your current overall development plan now that you've added?

Speaker Change: you know, the Silverbell and other acreage. And I'm just wondering, is there still some low-hanging fruit in the near term to benefit returns?

Speaker Change: getting the benefit for the integration. I think we've got plenty more to do, but we're pretty pleased with where we are. We have made a lot of progress.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you all.

Speaker Change: The next question comes from Tim Reswin with KeyBank Capital. Please proceed.

Tim Reswin: Good morning, folks, and thank you for taking my questions. I'd like to start on the You went to JV, you summarized and prepared comments in the presentation. I wonder if you could share any more specificity on maybe

Tim Reswin: Is this, you know, testing the eastern extent of known zones? Are there delineations of other areas? You know, maybe the duration of this JV and maybe, you know, kind of what the amount of wells that's been established that'll be drilled, you know, any context you can fill in would be helpful. Thank you.

Tim Reswin: Thank you. Thank you.

Tim Reswin: Hey Tim, it's Clay. Yeah, so I think you have it. Testing the Eastern Extension, we think it's, you know, important as we think about our capital allocation framework. We're not, we're trying to allocate capital to places that we feel very confident it returns.

Tim Reswin: But we also recognize the resource potential in the U.S. and are excited about it. So we've been focused on the ability to kind of bring.

Tim Reswin: for that opportunity set while allocating capital consistent with how we our framework. And so this JV I think is a great example of that of kind of

Speaker Change: bringing capital forward to allow us to accelerate delineation, you know, the focus is small near term, uh, three wells, but focused on second secondary intervals and that eastern extension. But we do think there's further opportunity to use kind of our

Speaker Change: capital allocation framework with our creativity to bring forward opportunities around further delineation on a resource position that we are excited about.

Speaker Change: Okay.

I appreciate that and then I guess it could that be expanded it's the three wells leads to promising results or just sort of just a one time?

Speaker Change: I think there's definitely further opportunity to bring capital and delineation forward to the extent we're excited about it.

Speaker Change: Thank you.

Speaker Change: Okay, I appreciate that and then as my follow-up, not sure this is for David or Brandi You know, you did mention some asset sales this year. Are there any formal processes?

Speaker Change: processes in place or do you have some sort of minimum threshold that you'd like to get to or are you just sort of letting the market know you're open to getting calls from buyers? Just curious the thoughts on that.

Speaker Change: Hey Tim, it's Clay again. I think all of the above. Certainly we receive inbounds around the portfolio and we're a willing taker of those inbounds and thinking through whether the market's putting value on assets at a level above where we can

Speaker Change: We can value them or create value, go forward. At the same time, we're always kind of thinking through the portfolio and where we may see an opportunity to, whether that's market an asset or reach out to logical counterparties where they could kind of bring a value forward to us.

Speaker Change: So I think it's a kind of across-the-board approach.

Speaker Change: nothing I would highlight.

Speaker Change: today outside of that we've kind of continued to have a methodical approach around it where we've seen the ability to kind of monetize things and and we certainly have a volatile market today, but I'd expect to see us continue to have that methodical approach to managing the portfolio.

Speaker Change: Thank you for the comments.

Speaker Change: Good morning, David, Brandi, and team. Congrats on a solid quarter, and thanks for taking my questions.

Speaker Change: Just wanted to start out on maintenance capex, any sort of color that you're able to kind of provide with respect to where maintenance type of capex levels might now sit when contemplating the cost reductions that are flowing through the back half the year outlook pro forma for silver bow.

Speaker Change: Hey Oliver, it's Brandi. So I'll start just with respect to

Speaker Change: We don't expect to provide formal 25 guidance until February alongside Q4 earnings, but at a high level.

Speaker Change: We view pro-forma maintenance levels for the business post the Silver Bowl.

Speaker Change: Transaction is still that $240,000 to $250,000 barrels of oil equivalent per day on that plus or minus $1 billion of capital.

Speaker Change: So, yes, I would say we're excited about the operational efficiencies that we've seen to date, our ability to continue to drive down.

Speaker Change: D&C costs, and would expect to factor that into our formal 2025 plan, but no change at a high level to the soft guide that I've previously shared.

Speaker Change: For more information, visit www.FEMA.gov

Speaker Change: Perfect.

Speaker Change: and maybe just on a follow-up to the Uintah, was hoping that you all might be able to provide some color on how initial results...

Speaker Change: on the Utland-Butte Seas. I've tracked relative to expectations given this historically the dominant program and also when we're kind of thinking about

Speaker Change: Primary versus Secondary Zones, given the mix that we've seen year-to-date in that 75-25 ballpark. Is this considered a fairly optimal mix for cap-to-allocation in the Basin when we're kind of thinking about the next year or two?

Speaker Change: Thank you.

Speaker Change: I think it is.

Speaker Change: The right way to think about it for Crescent's business plan. So as you know, we're

Speaker Change: much more focused on maintaining low-decline capital efficiency, strong free cash flow than we haven't been.

Speaker Change: chasing any exploration or significant production growth as a strategy. So I think it's fairly standard and to be expected from us that we're going to be highly concentrated on the proven areas where we've got

Speaker Change: you know a lot of inventory when you look across both the Uinta and the Eagleford but at the same time we think we hold tremendous resource potential so we are watching we are investing some of our own capital and then we also try to find capital efficient ways to do that so that that's maybe the

Speaker Change: simplest way to kind of highlight what you're seeing is just continued execution of what I would call a different and disciplined business strategy from us.

Speaker Change: Perfect. Thanks for the time.

Speaker Change: The next question comes from Michael Schiala with Stevens. Please proceed.

Michael Schiala: Morning, everybody.

Michael Schiala: David, you mentioned the large pipeline of M&A opportunities in front of you.

Michael Schiala: I just want to get an idea of when you're looking at future acquisitions, how you're thinking about oil markets versus gas markets longer term. Does that change your view on where you've been focusing in the Eagleford, or do you continue to focus on the wet gas and oil windows versus the tri-gas areas?

Clay Rind: Hey Michael, it's Clay.

Speaker Change: Blessin' I think.

Speaker Change: We're as you've seen us through the course of this year, you know, I think we're willing to invest across both oil and gas

Speaker Change: But I think for us it's all about what the opportunity set is, you know, we do have a robust pipeline I think the bar is very high today

Speaker Change: We're excited about the execution on the acquisitions we completed.

Speaker Change: and the integration. So we think there's a lot ahead of us, but the bar is high. You know, I just say, if you look at the broader A&D markets...

Speaker Change: There's just been more transactions in oil than in gas.

Speaker Change: with the Contango and the Curve has been a harder place for the market to transact. So I think you'll see us look at.

Speaker Change: both commodities across the Eagleford, but I do think

Speaker Change: realistically just given where the markets are you'd probably expect there to be more transactions in oil as a broad market and we'll just see where the opportunities lie for us and our ability to execute.

Speaker Change: Sounds good, and I wanted to ask about the the Central Eagle Ford acquisition you did recently. Any obvious changes you expect to make drilling or completion-wise design there?

Speaker Change: I guess what kind of savings do you expect, maybe relative to what you're seeing with the Silver Bow assets, and any thoughts on the development plans there for the remainder of the year? Is that a 2025?

Speaker Change: for the development opportunity.

Speaker Change: Hey, uh, um...

Speaker Change: Actually that asset was unique for us. We highlighted in the prepared remarks, but the ability to kind of acquire an asset in Eagleford that we thought was development ready, but also had a low decline production base, I think that was

Speaker Change: driven by the historical nature of the operator who had been a kind of prudent developer of the asset.

Speaker Change: Certainly, I think you're going to see us execute on the same types of DNC.

Speaker Change: savings that we're seeing across the broader business. So being able to bring what we think is really kind of leading DNC execution to that asset is a huge benefit to us. We also think the asset is well set up, just offset our existing Central Eagleford acreage for near-term development. So I would expect to see us kind of

Speaker Change: developed that asset, portions of that asset in 2025 and beyond. So really excited about that Tuck In acquisition.

Speaker Change: and Emily Newport. Thank you. Thank you.

Speaker Change: Very good. Thank you.

Speaker Change: The next question comes from John Freeman with Raymond James. Please proceed.

John Freeman: Good morning, nice quarter.

John Freeman: The first topic, you know, you have obviously done a great job of accelerating, you know, the synergy capture and driving the efficiency gains. The other aspect,

John Freeman: You know, y'all have historically done a really well on is the well out performance, you know, post acquisitions. And I'm just I know it's still relatively early since you got in your hands on the Sorbo assets. But if there's any anything that you're seeing from the way that Sorbo is completing the well that y'all have identified that would

John Freeman: provide opportunities like y'all have seen in some of your prior acquisitions, you know, profit intensity, wealth spacing, just anything that's kind of jumped out at y'all as potential opportunities to improve wealth performance.

John Freeman: Yeah, hey John, it's David. Great question. I'd say that we

John Freeman: intentionally been very strong about how pleased we are with the integration.

Speaker Change: opportunities around Synergies. That is an area where we would expect the overall portfolio to benefit from things that they were doing versus we were doing. I think the great thing though is I wouldn't highlight this as the number one area where there was any significant performance. Actually both companies

Speaker Change: had a history of making acquisitions and improving the outcome, so I think we will be better together, but we're certainly able to talk about

Speaker Change: the immediate synergies around D&C costs and implementation and longer term

Speaker Change: We've said this on prior calls, we would expect to get the benefit of improved

Speaker Change: performance on new drilling and then secondarily improved performance on production optimization. Together the two companies have a huge production base now that overlaps pretty well and I think as we're continuing to optimize we just have more to apply it over and generate significantly more value.

Speaker Change: Got it. And then my follow-up, I believe Legacy Crescent was doing about 50% SimulFrax and obviously Silverbowl wasn't doing any. I know that y'all aren't, you know, finalized on 2025 plans, but just...

Speaker Change: Kind of like rough numbers, is there like a reasonable target that you all would sort of think for a percentage of combined company activity in the Eagle for that would be SimulFrax next year?

Speaker Change: development exercise. So we're working through all those types of things now but we clearly see

Speaker Change: from SimulFract, so I think what you can assume is we'll, you know, continue wanting to drive that percentage higher, but as of now, we're still in what I would call planning and flexibility phase looking forward into next year.

Speaker Change: Got it. Thanks, David.

Speaker Change: The next question comes from Arun Jayaram with J.P. Morgan. Please proceed.

Arun Jayaram: Yeah, good morning. Your 3Q cost structure kind of came in below the low end of your...

Arun Jayaram: $13 to $14 per BOE second half outlook. Any puts and takes on the cost structure going forward because it was you know almost 50 cents below the low end of the of the range?

Speaker Change: Hey Aruna, it's Brandi. So we're really pleased with the performance today as you noted.

Speaker Change: 1257 below the low end of the guidance range that we published alongside the announcement. I would say a couple things just from an outperformance perspective, a clear example, so we've optimized our chemical program across a number of assets.

Speaker Change: We've been able to accelerate some synergies with respect to the silver bow acquisition we've optimized.

Speaker Change: the field both from an organizational and a route.

Speaker Change: perspective. So again, really happy with what we've been able to pull forward from an operating cost

Speaker Change: standpoint, go forward, I'd guide you to, you know, where we printed Q3 to kind of 14, sorry,

Speaker Change: Q3 to $13 per POE. There's some of the cost.

Speaker Change: in our cost structure that are indexed to oil and gas prices. So we'll bounce around a little bit quarter to quarter, but think that's a good range.

Speaker Change: Okay, that's helpful. I was wondering if you could help us, just for our modeling, provide a bridge to...

Speaker Change: Your thoughts on fourth quarter oil volumes, just given a full quarter from Silverboe and the impact from the central Eagleford position. I think you printed 86,000 barrels a day in 3Q. I was wondering if you could help us think about what that could look like in 4Q.

Speaker Change: Oil Cut standpoint on Q3, 39% of our production was oil. I think it will be in a similar zip code.

Speaker Change: We also reaffirm production guidance, so if you just take the midpoint of that range, you're in the kind of low to mid 250s.

Speaker Change: Everett?

Speaker Change: That's what I go with from a model standpoint. And just 39 percent of that is a good number for 4Q? Yeah, that's right. Okay. Thanks a lot, Brandi.

Speaker Change: Next question comes from John Abbott with Wolf Research. Please proceed.

John Abbott: Good morning and thank you for taking our questions.

John Abbott: First question is really sort of a strategy question.

John Abbott: So you've increased size and scale to acquisitions. You've significantly increased your scale in the Eagleford.

John Abbott: You've talked about a potential pipeline of other opportunities in front of you.

John Abbott: How do you think about future acquisitions and maintaining your underlying decline rate?

John Abbott: I mean, in the past, you've had brought in conventional assets.

Speaker Change: But are those still important as you sort of increase size and scale?

John Abbott: do acquisitions, and then your underlying client, right?

John Abbott: Yeah, hey Johnny, it's David and great question. And as a reminder, which you hit on, we do believe we have a strong skill set in both conventional and unconventional.

Speaker Change: definitely has been a history of the company. What I would say though is overall we focus on decline rate no matter the asset and as I mentioned earlier in the call and

Speaker Change: on prior calls, we do just have a different approach to the business than others. And so, for example,

Speaker Change: If you look back at

Speaker Change: The history of acquisitions, including Silver Bow, some have been acquisitions of assets that were already low decline, whether they were the Eagleford acquisition we made last year in the western side or prior conventional assets a few years ago. We also

Speaker Change: make acquisitions of assets that are on much higher decline and and what we do is work to bring that into our business plan and style of operating. So the Silverboe business plan prior to the acquisition was more of a growth oriented

Speaker Change: business, higher production growth, higher reinvestment rate, lower free cash flow, and therefore higher decline rate.

Speaker Change: So, long story short, we would expect to bring those assets into our business plan and the overall business will still be contained.

Speaker Change: a lower decline rate that will settle out to over the next, you know, call it six to 12 months. So I think that's a fundamental strategy, whether we're buying

Speaker Change: high decline or low decline to make sure that the company's attributes and portfolio decline rate stays in our targeted zip code.

Speaker Change: And then a quick follow-up from me. It was already just mentioned earlier about the optionality between

Speaker Change: could be going between gas and oil in the Eagleford. So I guess the question right there, David, is when you sort of think about that gas optionality.

Speaker Change: Is it a price? Is it an oil to gas ratio?

Speaker Change: How do you think about when you when you possibly might add additional activity towards the dry gas acreage in Webb County? What would you have to see? As I say, is it a price or is it an oil and gas ratio? How do you think about that?

Speaker Change: Yeah, so fundamentally everything, as you know, at this company is driven on returns on capital. So, you know, we need to see two times our money or better and the ability to get our capital back in an appropriate time frame in acquisitions. That's five years or less and even shorter. So I would just say it's all capital

Speaker Change: return driven. But as you know, there are a number of different level levers that have to be

Speaker Change: work in the right way to make that happen. So in a low gas price environment, no matter how good you are, it's unlikely that you'll generate the return you want. So you're not allocating capital there. In a higher price environment, that can create that opportunity, but there also can be inflation or other things going on. So we feel really good when we look across

Speaker Change: efficiently that we're able to respond to both price signals but also capital input costs and well-performance to make that happen. But long story short, return on capital is the driver.

Speaker Change: Appreciate it. Thank you very much for taking our questions.

Speaker Change: The next question comes from Michael Furrow with Pickering Energy. Please proceed.

Michael Furrow: Good morning. Thanks for taking my questions and congratulations on closing the Silverboat deal.

Michael Furrow: Look, I appreciate all the detail on the improved drilling speeds and completion deficiencies that are translating to lower DNC costs.

Michael Furrow: I noticed that the company's moved from running three to four rigs in the Eagleford down to three. So is this an output of improved cycle times, you know, allowing for the same number of turning lines, but with fewer rigs? Or should we view this as more of a structural activity change?

Speaker Change: Yeah, a great question and another chance just to highlight both performance but also business plan. So if you look back at the history

Speaker Change: of the acquisitions we've made with higher decline rates. The prior operators typically had more rates running than we have, so there's no change as a result of anything specific to this acquisition, but it's just a general trend with us. We're lower capital intensive.

Speaker Change: operators.

Speaker Change: But I'd also say that we're gaining two things. We are, I'll call it, faster and more efficient drilling than the typical peers we would acquire, and that is the case here.

Speaker Change: And secondly, we've got really important and meaningful acreage overlap that also allowed us.

Speaker Change: to be more effective as a combined company, I'll call it, to deliver similar types of activity with less equipment and less moves required around the basin. So, combination of both business plan and operating performance making that happen, but I'd say consistent with how we've looked at all of our prior acquisitions as well.

Speaker Change: Thank you.

Speaker Change: Great, that's helpful.

Speaker Change: So I'd like to ask about the $7 million of share buybacks in the quarter. Small amount, but a little bit of a surprise given the near-term priority for debt reduction. So I was wondering if you could talk a little bit about sort of what goes into that decision to opportunistically repurchase shares and how the company balances that decision with debt reduction.

Speaker Change: Hey Michael, good question. It's Brandi. So I would say no change fundamentally with respect to our capital allocation priorities being the balance sheet.

Speaker Change: I would say we like having the buyback as a tool to buy the stock when it's disconnected from intrinsic value. We've bought back, as you mentioned, $7 million in this quarter at $12.68.

Speaker Change: To date, we've bought back $30 million at $10.07 million, so again, it's a nice tool for us to have, but again, it will be relatively smaller for the time being, again, just given our cap allocation priorities.

Speaker Change: All right, thank you very much. I'll turn it back.

Speaker Change: Thank you.

Speaker Change: The next question comes from Tariq Hamid with J.P. Morgan. Please proceed.

Speaker Change: Hi, good morning. This is Nevin on for TARC. Just a quick question on how you think about capital allocation between the Eagleford and the Uinta in the current environment.

Speaker Change: Yeah, I think you've seen where we've been focused. Clearly, as you've heard on the call, you've heard both sides, right? We're very excited about what we've been able to execute on in Eagleford. We're seeing the benefits of scale and the synergies we've been able to create with the acquisition activity we've had there over the last...

Speaker Change: a couple years. We remain excited about the UNTA and the resource potential. I think we'll be prudent in terms of how we operate there, how we kind of allocate capital and use other tools to continue to alineate that position. So I think kind of more of the same for us from a capital allocation perspective, no real change versus what you've seen over the last year.

Speaker Change: For more information, visit www.FEMA.gov

Speaker Change: Got it. Thank you.

Speaker Change: Thank you. At this time, I would like to turn the floor back to Mr. David Rockecharlie for closing comments.

David Rockecharlie: Great, thanks again. I'd like to just say thank you to the all the great employees we have that have been doing a fantastic job on integration and delivering great results and thanks to the investors as well who continue to trust us and engage. So we look forward to keep it in touch and we'll talk to you next quarter.

Speaker Change: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.