Q4 2024 Civitas Resources Inc Earnings Call
I will be your operator for today's call all lines have been placed on mute to prevent any background noise. After today's presentation. There will be an opportunity to ask questions to ask questions. You May press star one on your Touchtone phone and to withdraw your question. Please press star one again.
Good day and thank you for standing by welcome to the city Tosh resources fourth quarter 2024 earnings Conference call and webcast. My name is <unk> and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions.
Please be advised that today's conference call is being recorded I will now turn the call to Brad.
Brad: Our Investor Relations. Please go ahead.
Brad: Thanks, operator, good morning, everyone and thank you for joining us.
To ask questions you May press star one on your Touchtone phone and you wait though your question. Please press star one again.
Brad: Yesterday, we released our fourth quarter and full year 2024 results provided in our 2025 outlook and issued supplemental slides for your review. In addition, our 10-K was filed yesterday and all of these items are available on our website.
Please be advised that today's conference call is being recorded I will now turn the call to Brad the head of Investor Relations. Please go ahead.
Chris Doyle: This morning, I'm joined by our CEO, Chris Doyle, and our CFO <unk> <unk>.
Thanks, operator, good morning, everyone and thank you for joining us.
Speaker Change: <unk> and other members of management after our prepared remarks, which will come from Chris and Mandela, 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.
Yesterday, we released our fourth quarter and full year 2024 results provided in our 2025 outlook and issued supplemental slides for your review. In addition, our 10-K was filed yesterday and all of these items are available on our website.
Speaker Change: We will make certain forward looking statements today, which are subject to risks and uncertainties that could cause actual results to differ materially from projections. Please make sure and read our full disclosures regarding these statements in our most recent SEC filings.
Speaker Change: This morning, I'm joined by our CEO, Chris Doyle, and our CFO man <unk> and other members of management after our prepared remarks, which will come from Chris and Mandela, 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.
Chris Doyle: We may also refer to certain non-GAAP financial metrics reconciliation to the appropriate GAAP measure can be found in yesterday's earnings release, and our SEC filings with that ill turn the call to Chris.
Speaker Change: We will make certain forward looking statements today, which are subject to risks and uncertainties that could cause actual results to differ materially from projections. Please make sure and read our full disclosures regarding these statements in our most recent SEC filings.
Chris Doyle: Morning, everybody and thanks for joining today's call I want to start with a quick recap of 2024 before focusing most of my time on 2025 and the actions, we're taking to strengthen the company.
Speaker Change: We may also refer to certain non-GAAP financial metrics reconciliation to the appropriate GAAP measure can be found in yesterday's earnings release, and our SEC filings with that I will turn the call to Chris.
Chris Doyle: By continuing to enhance our operating performance and portfolio, reducing our cost and prioritizing the balance sheet, we're creating more durable business and better positioning us to generate sustainable free cash flow for years to come.
Chris Doyle: Good morning, everybody. Thanks for joining today's call I'm going to start with a quick recap of 2024 before focusing most of my time on 2025 and the actions, we're taking to strengthen the company.
Chris Doyle: Quickly on 2024, it was a transformational year for the company underpinned by our high quality assets and strong operational execution. Our full year production was above plan and we beat our original guidance for capital and operating costs.
Chris Doyle: By continuing to enhance our operating performance and portfolio, reducing our costs and prioritizing the balance sheet, we're creating a more durable business and better positioning us to generate sustainable free cash flow for years to come.
Chris Doyle: Over the past year, plus we built scale positions in the Midland and Delaware basins materially strengthening and diversifying our company.
Quickly on 2024, it was a transformational year for the company underpinned by our high quality assets and strong operational execution. Our full year production was above plan and we'd be original guidance for capital and operating costs.
Chris Doyle: We brought in a proven leadership team with deep Permian routes I'm very pleased with what the team has accomplished in just one year highlighted by the following.
Chris Doyle: Midland Basin, well costs are down 15%.
Chris Doyle: Daily drilling footage is up nearly 20% daily completion throughput is up 50%. In addition, we derisk prospective horizons and added high value inventory across our acreage position and all of this has been accomplished while delivering excellent safety performance.
Chris Doyle: Over the past year, plus we built scale positions in the Midland and Delaware basins materially strengthening and diversifying our company.
Chris Doyle: We brought in a proven leadership team with deep Permian routes I'm very pleased with what the team has accomplished in just one year highlighted by the following.
Chris Doyle: Further we strengthened both our Midland and Delaware positions through ground game initiatives, including more than 50 trades swaps and new leasing and importantly, we did so with little to no cash.
Chris Doyle: Midland Basin, well costs were down 15%.
Chris Doyle: Daily drilling footage is up nearly 20% daily completion throughput is up 50%.
Chris Doyle: Yesterday, we announced a bolt on transaction in the Midland Basin, adding 19000 acres and 130 locations with this announcement and to offset the purchase price, we set a $300 million asset sales target for 2025, which is likely to come for the DJ basin effectively this is expected to accelerate value from the DJ and supportive extending our runway in the Permian.
Chris Doyle: In addition, we Derisked perspective horizons and added high value inventory across our acreage position and all of this has been accomplished while delivering excellent safety performance.
Chris Doyle: Further we strengthened both our Midland and Delaware positions through ground game initiatives, including more than 50 trades swaps and new leasing and importantly, we did so with little to no cash.
Chris Doyle: Between the ground game in bolt on we've added nearly two years of future development in our Permian business unit and extended lateral lengths and working interest across our portfolio by 5%.
Chris Doyle: Yesterday, we announced a bolt on transaction in the Midland Basin, adding 19000 acres and 130 locations with this announcement and to offset the purchase price, we set a $300 million asset sales target for 2025, which is likely to come from the DJ basin effectively this is expected to accelerate value from the DJ and support of extending our runway in the Permian.
This was done at very attractive valuations well below recent market transactions today, our Permian inventory stands at 200 development locations.
Chris Doyle: While establishing a successful track record in the Permian, We didn't lose focus is the DJ Basin also had a strong year of performance in 2024, we turned in line. The industry's first four mile laterals in Colorado. These were record setters, representing the state highest 180 day cumulative oil producers.
Chris Doyle: Between the ground game in bolt ons, we've added nearly two years of future development in our Permian business unit and extended lateral lengths and working interest across our portfolio by 5%.
Chris Doyle: This was done at very attractive valuations well below recent market transactions today, our Permian inventory stands at 200 development locations.
Chris Doyle: Armed with basin, leading operational capabilities, our team added high return development locations through a combination of ground game transactions in our core areas, including Watkins and through continual development optimization.
Chris Doyle: While establishing a successful track record in the Permian, we didn't lose focus as the DJ Basin also had a strong year of performance in 2024, we turned in line. The industry's first four mile laterals in Colorado. These were record setters, representing the state's highest 180 day cumulative oil producers.
Chris Doyle: Overall free cash flow for the year was about $1 $3 billion, and we returned more than 70% of that to our shareholders through $5 a share in dividends and the repurchase of more than 7% of our outstanding shares.
Chris Doyle: Armed with basin, leading operational capabilities, our team added high return development locations through a combination of ground game transactions in our core areas, including Watkins and through continual development optimization.
Chris Doyle: All in we had a very successful year in 2024, and <unk> is a deeper more durable business today.
Chris Doyle: Now, let's turn to 2025 and the steps, we're taking to strengthen our business.
Overall free cash flow for the year was about $1 $3 billion, and we returned more than 70% of that to our shareholders through $5 a share in dividends and the repurchase of more than 7% of our outstanding shares.
Chris Doyle: Our plan focuses on delivering the following strategic priorities first run the business to maximize free cash flow built upon our leading cost structure and enhanced by sustainable capital efficiencies.
Chris Doyle: And we had a very successful year in 2024.
Chris Doyle: Second deploy that free cash flow to protect and strengthen the balance sheet as Mary Ellen will discuss further we are prioritizing debt reduction in 2025.
Chris Doyle: <unk> is a deeper more durable business today.
Chris Doyle: Now, let's turn to 2025 and the steps, we're taking to strengthen our business.
Chris Doyle: Our plan focuses on delivering the following strategic priorities first run the business to maximize free cash flow built upon our leading cost structure and enhanced by sustainable capital efficiencies.
Chris Doyle: And third return cash to shareholders.
Chris Doyle: Nominally come from a strong base dividend this year and finally lead in ESG and building long term sustainable business as we execute on our target to further reduce our emissions.
Speaker Change: Second deploy that free cash flow to protect and strengthen the balance sheet as Mary Ellen will discuss further we are prioritizing debt reduction in 2025.
Chris Doyle: In 2025% level loading our capital investments compared to 2024 with a Frontloaded program led to low til counts at the end of the year.
Speaker Change: Third return cash to shareholders predominantly come from a strong base dividend this year and finally lead in ESG and building long term sustainable business as we execute on our target to further reduce our emissions in.
Chris Doyle: While level loading impact near term production this was more than offset by the long term benefits and operating and capital efficiencies.
Chris Doyle: Activity levels flat in 2025 will deliver full year oil production of $150 to 150000 barrels of oil per day after level loading and.
Speaker Change: In 2025% level loading our capital investments compared to 2024 with a Frontloaded program led to low til counts at the end of the year.
Chris Doyle: And we will invest one eight to $1 9 billion split relatively evenly between the Permian and DJ basins. This.
Speaker Change: While level loading impacts near term production this was more than offset by the long term benefits and operating and capital efficiencies.
Chris Doyle: This is approximately 5% lower than last year, reflecting the well cost savings our teams have delivered.
Speaker Change: Keeping activity levels flat in 2025 will deliver full year oil production of 150 to 150000 barrels of oil per day after level loading.
Chris Doyle: Notably our reinvestment rate in 2025 is consistent with 2024, despite <unk> strip pricing being $5 lower year over year.
Speaker Change: We'll invest one eight to $1 9 billion split relatively evenly between the Permian and DJ basins.
Chris Doyle: As expected our first quarter production will be low point for 2025, 80% of the sequential drop is related to natural declines in the DJ Basin. Following peak production in the fourth quarter.
This is approximately 5% lower than last year, reflecting the well cost savings our teams have delivered.
Chris Doyle: This was driven by a low til count exiting 2024 and in the first quarter of 2025 as well as severe winter weather and unplanned third party processing downtime.
Speaker Change: Notably our reinvestment rate in 2025 is consistent with 2024, despite WTO strip pricing.
Speaker Change: Dollars lower year over year.
Chris Doyle: We expect to grow meaningfully through the middle part of the year as new tools come online.
Speaker Change: As expected our first quarter production will be low point for 2025, 80% of the sequential drop is related to natural declines in the DJ Basin. Following peak production in the fourth quarter.
Chris Doyle: Specific to the 2025 plan I want to mention a few other items of note.
Chris Doyle: Within our Permian program, we're increasing our allocation of capital to the Delaware Basin today, we have four rigs running in the Permian two of which are in the Delaware and a third coming shortly.
Speaker Change: This was driven by a low til count exiting 2024, and the first quarter of 2025 as well as severe winter weather and unplanned third party processing downtime.
Chris Doyle: Nearly all of our completions in the Permian basin will be Sama frac, leveraging the advancements our team delivered last year, improving fluid throughput by 50% versus the start of the year.
Speaker Change: We expect to grow meaningfully through the middle part of the year as new tools come online.
Speaker Change: Specific to the 2025 plan I want to mention a few other items of note.
Speaker Change: Within our Permian program, we're increasing our allocation of capital to the Delaware Basin today, we have four rigs running in the Permian two of which are in the Delaware and a third coming shortly.
And in the DJ Basin, we have two rigs running today and we'll continue to push the limits with longer laterals, we're moving more of our production facilities to Tankless operations and our teams are operating the most efficient lowest emission rigs and completion crews in the basin.
Speaker Change: Nearly all of our completions in the Permian basin will be similar frac leveraging the advancements our team delivered last year, improving fluid throughput by 50% versus the start of the year.
Chris Doyle: Our 2025 plan delivers approximately $1 $1 billion of free cash flow at $70 <unk>, a free cash flow yield of over 20%.
Speaker Change: And in the DJ Basin, we have two rigs running today and we'll continue to push the limits with longer laterals, we're moving more of our production facilities to Tankless operations and our teams are operating the most efficient lowest emission rigs and completion crews in the basin.
Chris Doyle: Maintaining a culture of performance and cost leadership is critical to building a durable sustainable enterprise to further enhance our business, we're streamlining our organizational structure with a 10% reduction in workforce throughout various levels of the company. These.
Speaker Change: Our 2025 plan delivers approximately $1 $1 billion of free cash flow at $70 Wty, our free cash flow yield of over 20%.
Chris Doyle: These are tough decisions, we're committed to staying low cost driving efficiencies and enhancing margins across all areas of the business.
Speaker Change: Maintaining a culture of performance and cost leadership is critical to building a durable sustainable enterprise to further enhance our business, we're streamlining our organizational structure with a 10% reduction in workforce throughout various levels of the company.
Speaker Change: Now I'll turn it over to Mary Ellen to discuss the steps, we're taking to accelerate our balance sheet goals.
Mary Ellen: Thanks, Craig.
Mary Ellen: A long term winners in this business will be the companies with a strong balance sheet and a cost structure at the low end of the cost curve yes.
Speaker Change: These are tough decisions, we're committed to staying low cost driving efficiencies and enhancing margins across all areas of the business.
Mary Ellen: Yesterday, we took meaningful steps to prioritize and protect these two items, including rolling out any free cash flow location strategy.
Mary Ellen: Our strategy is underpinned by 2025 net debt target of $4 5 billion, which represents an 800 million reduction to year end 2024, our performance with a bolt on transaction.
Speaker Change: Now I'll turn it over to Mary Ellen to discuss the steps, we're taking to accelerate our balance sheet goals. Thanks Brett.
Speaker Change: Our long term winners in this business will be the companies with a strong balance sheet and a cost structure at the low end of the cost curve yes.
Mary Ellen: Is that reduction will further benefit our cost structure decreasing associated interest expense by approximately $60 million on an annualized basis or 5% increase to our run rate free cash flow.
Speaker Change: Yesterday, we took meaningful steps to prioritize and protect these two items, including rolling out any free cash flow location strategy.
Speaker Change: Our strategy is underpinned by 2025 net debt target of $4 5 billion, which represents an 800 million reduction to year end 2024, our performance with a bolt on transaction.
Mary Ellen: This reallocation of excess cash will allow us to reach one times leverage in late 2026.
Mary Ellen: Our long term leverage target is unchanged at seven five times EBITDA at mid cycle prices.
Speaker Change: Is that reduction will further benefit our cost structure decreasing associated interest expense by approximately $60 million on an annualized basis or 5% increase to our run rate free cash flow.
Mary Ellen: While accelerating leverage reduction we remain committed to our base dividend of $2 per share annually.
Mary Ellen: As compared to our prior framework any additional return of capital to shareholders will be opportunistic and consistent with our near and long term balance sheet goals.
This reallocation of excess cash will allow us to reach one times leverage in late 2026.
Speaker Change: Our long term leverage target is unchanged at seven five times EBITDA at mid cycle prices.
Mary Ellen: I'd be remiss not to touch on our philosophy on risk management, which further protects free cash flow.
Speaker Change: While accelerating leverage reduction we remain committed to our base dividend of $2 per share annually as.
Mary Ellen: We continue to execute our systematic oil hedge strategy and we are approximately 40% hedged on net oil volume for 2025.
Speaker Change: As compared to our prior framework any additional return of capital to shareholders will be opportunistic and consistent with our near and long term balance sheet goals.
Mary Ellen: As a reminder, oil accounts for approximately 80% of our unhedged revenue.
Mary Ellen: Our tactical gas hedging strategy was extremely successful in 2020 for especially in the back half of the year as Permian gas price volatility increase.
Speaker Change: I'd be remiss not to touch on our philosophy on risk management, which further protects free cash flow.
Speaker Change: We continue to execute our systematic oil hedge strategy and we are approximately 40% hedged on net oil volume for 2025.
Our Permian volumes are currently 50% hedged for 2025, and 2026, and we will continue opportunistically, adding to our gaslog.
Speaker Change: As a reminder, oil accounts for approximately 80% of our unhedged revenue.
Mary Ellen: Ultimately our commodity business best hedge is a low cost structure and our fortress balance sheet.
Speaker Change: Our tactical gas hedging strategy was extremely successful in 2020 for especially in the back half of the year as Permian gas price volatility increased.
Mary Ellen: While our hedging philosophy has served us well, maintaining our top quartile cost structure and de risking our balance sheet are more material value drivers in the long term and with that I'll turn it back over to Chris for concluding remarks.
Speaker Change: Our Permian volumes are currently 50% hedged for 2025, and 2026, and we will continue opportunistically, adding to our gaslog.
Mary Ellen: Thanks Fair enough.
Mary Ellen: Over the next three years at the 25 investment and production level Civitas will generate approximately $3 3 billion in cumulative free cash flow at $70 oil that represents.
Speaker Change: Ultimately our commodity business best hedge is a low cost structure and our fortress balance sheet.
Speaker Change: While our hedging philosophy has served us well, maintaining our top quartile cost structure and de risking our balance sheet are more material value drivers in the long term and with that I'll turn it back over to Chris for concluding remarks.
Mary Ellen: Two thirds of our current market cap and allow us to meet our leverage reduction goals. While also returning significant capital to our shareholders.
Mary Ellen: <unk> strength rests on our proven operating teams and our track record of performance the lowest breakeven oil basins in the U S. Our 2025 plan, we will advance our strategy of building a long term durable business for our shareholders. Operator, we're now ready to take questions.
Chris Doyle: Thanks Fair enough.
Chris Doyle: Over the next three years at the 25 investment and production level Civitas will generate approximately $3 3 billion in cumulative free cash flow of $70 oil that represents two thirds of our current market cap. It will allow us to meet our leverage reduction goals. While also returning significant capital to our shareholders.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session I would like to remind everyone to limit themselves from one question. One follow up on me should you have a question. Please press star one on your Touchtone phone and you will hear from your head has been right.
Chris Doyle: <unk> strength rests on our proven operating teams and our track record of performance the lowest breakeven oil basins in the U S. Our 2025 plan, we will advance our strategy of building a long term durable business for our shareholders. Operator, we're now ready to take questions.
Mary Ellen: Should you wish to withdraw please press star one again.
Chris Doyle: Okay.
Speaker Change: You're using a speaker phone please make your handset before pressing entities.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session I would like to remind everyone to limit themselves from one question. One follow up on me should you have a question.
Speaker Change: Our first question comes from the line of Gabe Daoud from BBB or <unk>. Sir. Please go ahead.
Speaker Change: Press Star one on your Touchtone phone and you will heat up Rob with your head has been right.
Speaker Change: Okay.
Speaker Change: Thanks, Good morning, everyone.
Speaker Change: Hoping we can maybe start with the decision to shift your capital allocation strategy.
Speaker Change: Should you wish to withdraw please press star one again, if you're using a speaker phone. Please make the handset before pressing any keys.
Speaker Change: I thought maybe you could for lack of a better phrase walk and chew gum and pay down debt and still buyback decent amount of stock. So maybe just a bit more color. There and you mentioned opportunistic with buybacks what does that mean and what would you need to see to step in.
Speaker Change: Our first question comes from the line of Steve <unk> from.
Speaker Change: Can you maybe with TD Cowen Sir Please go ahead.
Speaker Change: Thanks, Good morning, everyone.
Speaker Change: Chris we can maybe start with the.
Speaker Change: And to shift your capital allocation strategy.
Gabe Daoud: Sure. Thanks for the question Gabe.
Speaker Change: I thought maybe you could for lack of a better phrase walk and chew gum and pay down debt and still buyback decent amount of stock. So maybe just a bit more color. There and you know you mentioned opportunistic with buybacks what does that mean, what would you need to see to step in.
Speaker Change: <unk> thought about.
Gabe Daoud: Setting this business up for 2025.
Gabe Daoud: We had a couple of offset a number of options.
Gabe Daoud: And as we thought about the backdrop the macro that's in front of us the volatility that we've seen over the past couple of months. We know that this is the plan that's best to build a long term sustainable business for silica us.
Speaker Change: Sure. Thanks for the question Gabe.
Speaker Change: We thought about setting this business up for 2025.
Gabe Daoud: As you mentioned we have.
Gabe Daoud: Business that generates significant free cash flow $1 1 billion in 2025 given.
Speaker Change: We had a couple of obviously a number of options.
Speaker Change: And as we thought about the backdrop the macro that's in front of us the volatility that we've seen over the past couple of months. We know that this is the plan that's best to build a long term sustainable business for civitas.
Gabe Daoud: Given the volatility that we see we think the best use of that of that cash flow. After our base dividend is really to direct it to our balance sheet.
We will have a little bit of opportunity to accelerate that.
Speaker Change: As you mentioned we have.
Gabe Daoud: We mentioned the $300 million divestment target to offset the acquisition that we announced yesterday.
Speaker Change: A business that generates significant free cash flow $1 $1 billion in 2025.
Speaker Change: Given the volatility that we see we think the best use of that of that cash flow. After our base dividend is really to directly to our balance sheet.
Gabe Daoud: We're looking at other ways to potentially accelerate that delevering path and give us some more flexibility and optionality of what this is about setting the company up for long term success.
Speaker Change: We will have a little bit of opportunity to accelerate that.
Speaker Change: We mentioned the $300 million divestment target to offset the acquisition that we announced yesterday.
Speaker Change: Got it thanks, Chris that's helpful and then as a follow up obviously starting <unk>.
Speaker Change: We're looking at other ways to potentially accelerate that deleveraging path and give us some more flexibility and optionality.
Okay.
Speaker Change: Slowly and expected to ramp from here maybe.
Speaker Change: A bit more color and granularity on the ramp from here and the production trajectory and how does that potential divestiture program impact volumes.
Speaker Change: It is about setting the company up for long term success.
Speaker Change: Got it thanks, Chris that's helpful and then as a follow up obviously starting <unk>.
Speaker Change: Another way.
Speaker Change: What's the amount of production you anticipate selling with this 300 million target. Thanks, guys.
Speaker Change: Slowly and expected to ramp from here, maybe a bit more color and granularity on the ramp from here and the production trajectory and how does that potential divestiture program impact volumes.
Speaker Change: Sure.
Speaker Change: First with with first quarter oil largely as expected.
Speaker Change: Reflecting low levels of activity as we mentioned in the back half of 2024, and certainly into 'twenty five a lot of that drop as we mentioned in the D. J.
Speaker Change: I guess another way.
Speaker Change: What's the amount of production you anticipate selling with this 300 million target. Thanks, guys.
Speaker Change: We've restarted the engine, we have a pretty active <unk> plan at $50 to 60 pills, followed by another active quarter in the second quarter and you'll you'll see as we lay out on slide 12.
Speaker Change: Sure.
Speaker Change: First with with first quarter oil largely as expected.
Speaker Change: <unk> low levels of activity as we mentioned in the back half of 2024, and certainly into 'twenty five a lot of that drop as we mentioned in the DJ.
Speaker Change: Growth from the first half to the second half.
Speaker Change: With that activity.
Speaker Change: <unk>.
Speaker Change: In terms of the divestment the $300 million divestment. That's TBD, we're looking at all types of assets some assets that don't have associated production midstream.
Speaker Change: We've restarted the engine.
Speaker Change: We have a pretty active <unk> plan at $50 to 60 pills, followed by another active quarter in the second quarter and you'll you'll see as we lay out on slide 12.
Speaker Change: Midstream assets, some water infrastructure assets in the Permian or not significant but looking at first.
Speaker Change: Growth from the first half to the second half.
Speaker Change: With that activity.
Speaker Change: First and foremost assets it could be more valuable in others' hands.
Speaker Change: Yes.
Speaker Change: In terms of the.
Speaker Change: Certainly if we see the right value we will.
Speaker Change: The divestment of the $300 million divestments, that's TBD, we're looking at all types of assets some assets that don't have associated production midstream.
Speaker Change: Would look to potentially accelerate some value from from operating assets and producing assets.
Speaker Change: But thats certainly TBD at this point.
Speaker Change: Midstream assets, some water infrastructure assets in the Permian or not significant but looking at first.
Chris Doyle: Understood. Thanks, Chris.
Speaker Change: Okay.
Speaker Change: First and foremost assets it could be more valuable in others' hands.
Speaker Change: Thank you. Our next question comes from the line of Zach Param from JP Morgan. Please go ahead.
Certainly if we see the right value we will.
Speaker Change: Would look to potentially accelerate some value from from operating assets and producing assets.
Speaker Change: Hey, Thanks for taking my question.
Speaker Change: First with the bolt on deal that you did in the Midland can you just talk about where those acquired locations fit into your development plan are those assets you will be getting to work on later this year or are they more longer dated locations, maybe just talk about how that fits into the portfolio.
Speaker Change: But thats certainly TBD at this point.
Chris Doyle: Understood. Thanks, Chris.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line of Zach Param from JP Morgan. Please go ahead.
Speaker Change: Sure as we as we dug into that opportunity.
Zach Param: Hey, Thanks for taking my question.
Zach Param: First with the bolt on deal that you did in the Midland can you just talk about where those acquired locations fit into your development plan are those assets you will be getting to work on later this year or are they more longer dated locations, maybe just talk about how that fits into the portfolio.
Speaker Change: Certainly we see we see value.
Speaker Change: Adjacent to our operations.
Speaker Change: We did not underwrite sticks and across that entire acreage position.
Speaker Change: We see that activity really starting up later this year and.
Zach Param: Sure as we as we dug into that opportunity.
Speaker Change: But more so in 2026.
Zach Param: Certainly we see we see value.
Speaker Change: That the.
Speaker Change: Wolfcamp, a wolfcamp B Wolfcamp D primary development.
Zach Param: Adjacent to our operations.
We did not underwrite.
Speaker Change: We will yield good returns that will compete for capital with that likely doesn't set up until late this year and internet.
Zach Param: Dixon across that entire acreage position.
Zach Param: We see that activity really starting up later this year and.
Chris Doyle: Thanks, Chris.
Zach Param: But more so in 2026.
Speaker Change: And then my follow up is just in May.
Zach Param: The.
Speaker Change: Maybe following up on <unk> question on capital allocation I know the focus is now on debt reduction, but how do you think about further M&A.
Zach Param: Wolfcamp, a wolfcamp B Wolfcamp D primary development well.
We will yield good returns that will compete for capital with that likely doesn't set up until late this year and internet.
Versus potentially shifting back to a higher level of cash return.
Speaker Change: It sounds like Youre going to you talked about reaching a one turn leverage target in late 2006, so it sounds like youre going to continue paying down debt versus.
Zach Param: Thanks, Chris.
Zach Param: And then my follow up is just.
Speaker Change: Maybe following up on gauge question on capital allocation I know the focus is now on debt reduction, but how do you think about further M&A.
Speaker Change: Returning cash just kind of maybe how do you think about things over the longer term M&A versus cash return versus debt reduction.
Speaker Change: Versus potentially shifting back to a higher level of cash return.
Speaker Change: Hey, guys. Thanks for the question. So look first and foremost our top priority is our net debt target 2025, net debt target of $4 5 billion.
Speaker Change: Sounds like Youre going to you talked about reaching a one turn leverage target in late 2006, so it sounds like youre going to continue paying down debt versus.
Speaker Change: To get there we've talked about how the majority of our free cash flow. After the B seven this year can be allocated to debt reduction.
Speaker Change: Returning cash just kind of maybe how do you think about things over the longer term M&A versus cash return versus debt reduction.
Speaker Change: Anything we do in excess of that will.
Speaker Change: Hey, guys. Thanks for the question, So look first and foremost our top priority is.
Speaker Change: We will be opportunistic and will not be formulaic.
Speaker Change: And obviously, we have our a rating near term either that one times leverage.
Speaker Change: Our net debt target 2025, net debt target of $4 5 billion to.
Speaker Change: Over and above that you've seen us balance.
Speaker Change: To get there we talked about how the majority of our free cash flow. After the may seven industrial can be allocated to debt reduction.
Speaker Change: Our allocation between buybacks and acquisitions very well every acquisition. We've done has been a very attractive price is certainly a $1 per state relative to some of the recent transactions announced there and at the same time. We've also had a very successful buyback approach, we bought 7% of our shares last year, that's going to underpin.
Speaker Change: Anything we do in excess of that will.
Speaker Change: We will be opportunistic and will not be formulaic.
Speaker Change: We have our a rating near term either that one times leverage.
Speaker Change: Over and above that.
Speaker Change: <unk> seen us balanced.
Speaker Change: One 8% operating cash flow increased 25 of our 2024. So certainly we've been very successful on both fronts that will continue being opportunistic about how we balance that between between those two to the benefit of that long term value.
Speaker Change: Our our allocation between buybacks and acquisitions very well you know every acquisition. We've done has been a very attractive prices certainly on a dollar per state relative to some of that recent transactions announced there and at the same time. We've also had a very successful buyback approach, we bought 7% of our shares last year, that's going to underpin on.
Speaker Change: Great. Thanks for taking my questions.
8% operating cash flow increased 2025 of our 2024. So certainly we've been very successful on both fronts and we will continue being opportunistic about how we balance that between between those two to the benefit of that long term value.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Josh Silverstein from UBS. Sir. Please go ahead.
Josh Silverstein: Yeah. Thanks, Good morning, guys, maybe just on the same point.
Josh Silverstein: You hit your $800 million net no debt, Greg sorry, net debt reduction target for this year do you shift back to that 50% plus return of free cash flow to shareholders is that something that you.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Josh Silverstein from UBS. Sir. Please go ahead.
Josh Silverstein: You get two or if gas prices are a bit higher oil prices are a bit higher either accelerated deleveraging a bit more.
Josh Silverstein: Yeah. Thanks, Good morning, guys, maybe just on the same point as you hit your $800 million net no debt sorry to have debt reduction target for this year do you shift back to that 50% plus return of free cash flow to shareholders is that something that.
Josh Silverstein: It's more of a latter we will certainly look to accelerate our balance sheet cause further Johnson and like I said earlier, we'll be opportunistic or anything in excess of that but our top priority again is hitting that four and a half Bob with an eye to long times late next year.
Josh Silverstein: You get two or if gas prices are a bit higher oil prices are a bit higher EBIT accelerated deleveraging a bit more.
Got it thanks.
Josh Silverstein: And then maybe just on the inventory front.
Josh Silverstein: <unk> been talking about inventory in the Wolfcamp D, particularly in the Midland side.
Josh Silverstein: It's more of a latter we will certainly look to accelerate our balance sheet cause further Johnson and like I said earlier, we'll be opportunistic of anything in excess of that but our top priority again is hitting that four and a half with an eye to one times late next year.
Josh Silverstein: Where does that then now and is that in the 1200 location count.
Josh Silverstein: Yes, Thanks, Josh It is in the 200 location count.
Josh Silverstein: We had about 10% of our program last year.
Josh Silverstein: Got it thanks.
Josh Silverstein: And then maybe just on the inventory front the past few quarters, you've been talking about inventory in the Wolfcamp D, particularly in the Midland side.
Josh Silverstein: Really delineating the Wolfcamp D.
Josh Silverstein: North South East West excited about the results that we've seen just as excited with the capital performance of the team delivered.
Josh Silverstein: Where does that then now and is that in the 1200 location count.
Josh Silverstein: Where are you seeing about 10% higher capital for 15% more productive wells and so.
Josh Silverstein: Yes, Thanks, Josh It is in the 200 location count.
Speaker Change: We had about 10% of our program last year.
Josh Silverstein: What we're seeing is the D will compete for capital our stepping up R&D development. This year, probably about 20% of our Permian program and so excited to see with additional swings at the plate. If we can tighten those capital costs, even further and continue to repeat the strong well performance, but data certainly in there.
Josh Silverstein: Really delineating the Wolfcamp D nor.
Josh Silverstein: North South East West and excited about the results that we've seen just as excited with the capital performance of the team delivered.
Josh Silverstein: Where are you seeing about 10% higher capital for 15% more productive wells and so.
Josh Silverstein: What we're seeing is the D. We will compete for capital our stepping up R&D development. This year, probably about 20% of our Permian program and so excited to see with additional swing displayed if we can tighten those capital costs, even further and continue to repeat the strong well performance, but via certainly in there.
Josh Silverstein: Wouldn't say, it's our our primary target like the Wolfcamp, a wolfcamp b on the Midland side, and Wolfcamp, a third bone on Delaware, but it certainly.
Josh Silverstein: So very exciting for us and happy to allocate some capital towards that in 2025.
Josh Silverstein: Great. Thanks, guys.
Josh Silverstein: Wouldn't say, it's our our primary target like the Wolfcamp, a wolfcamp b on the Midland side, and Wolfcamp, a third bone on Delaware, but it's certainly.
Speaker Change: Our next question comes from the line of Neal Dingmann from <unk> Suisse Securities. Sir. Please go ahead.
Very exciting for us and happy to allocate some capital towards that in 2025.
Speaker Change: Hey, Thanks for the time good morning, Chris My first question, maybe for you or Tim just a little bit like you just talked about on the Midland side. My question is more on the Delaware side.
Speaker Change: Alright, thanks, guys.
Speaker Change: It seems like Youre, just now sort of getting after that based on what youre seeing now after permitting and doing some things there are the opportunities there.
Speaker Change: Our next question comes from the line of Neal Dingmann from Suez Securities. Sir. Please go ahead.
Speaker Change: I would say is the opportunity set as good now as ever you've seen when you were initially looking at it or maybe just talk about how you see that side and what type of activity we could expect.
Neal Dingmann: Hey, Thanks for the time good morning, Chris My first question, maybe for you or Tim just a little bit like you just talked about on the Midland side. My question is more on the Delaware side.
Neal Dingmann: It seems like Youre, just now sort of getting after that based on what Youre seeing now after re permitted and doing some things there are the opportunities. There I guess I would say is the opportunity set as good now as ever you've seen when you were initially looking at or maybe just talk about how you see that side and what type of activity.
Speaker Change: Maybe the latter part of this year and going into next year and the bill.
Speaker Change: Sure. Thanks, Thanks for the question Neil.
Speaker Change: As we thought about allocating capital between Midland and Delaware, We really wanted to shift to the higher return Delaware inventory, but we saw real opportunity to further optimize development previous operator was was willing to drill shorter laterals.
Neal Dingmann: You can expect.
Neal Dingmann: Maybe the latter part of this year going into next year the Dell.
Speaker Change: We had a team that got in there and say hey, we could we could take a one mile well and turn it into two and greatly increased capital efficiency and increase the returns of that program that was going to take some time right not only for the ground game to work itself through the system, but but also then to re permit now thats behind us.
Neil: Sure. Thanks, Thanks for the question Neil.
Neil: We thought about allocating capital between Midland and Delaware, We really wanted to shift to the higher return Delaware inventory, but we saw real opportunity to further optimize development previous operator was was willing to drill shorter laterals.
Neil: We had a team that got in there and said Hey, we could we could take a one mile well and turn it into it too.
Speaker Change: <unk> done a great job building up that position and optimizing.
Speaker Change: The opportunity over there and so we're allocating more capital to the Delaware, which is which is fantastic to see.
Neil: And greatly increased capital efficiency and increase the returns of that program was going to take some time right not only for the ground game to work itself through the system, but but also then to re permit now thats behind US. The team has done a great job building up that position and optimizing.
Speaker Change: As of year last year, we had about 20% of our tools that come out of the Delaware. This year about 40% of our activity is going to be pointed there. So we're leaning in there and as you know.
Speaker Change: Lea County is that's where the two rigs are currently we're really excited about the opportunities there and look forward to getting those wells online but.
Neil: The opportunity over there and so we're allocating more capital to the Delaware, which is which is fantastic to see.
Neil: As of year last year, we had about 20% of our tools come out of the Delaware. This year about 40% of our activity is going to be pointed there. So we're leaning in there and as you know.
Kudos to the team to take the time to do the right things go through the steps to further enhance.
Speaker Change: The returns in and we're ready to deploy capital over there. So excited what we're seeing.
Neil: Lea County is that's where the two rigs are currently we're really excited about the opportunities there and look forward to getting those wells online, but kudos to the team to take the time to do the right things go through the steps to further enhance.
Speaker Change: Got it and then just lastly.
Speaker Change: Just a little minor third party issue I'm, just wondering when it comes to sort of midstream infrastructure all of that.
Speaker Change: We all feel pretty good now where you sit on.
Speaker Change: You're very pretty nicely you Havent had really rich I think issues. It seems like over the DJ side recently I'm just wondering now when you look at both sides you feel pretty good.
Neil: The returns in and we're ready to deploy capital over there. So excited what we're seeing.
Neil: Got it and then just lastly.
Speaker Change: About infrastructure going forward.
Neil: Just a little minor third party issue I'm, just wondering when it comes to sort of midstream infrastructure all of that.
Speaker Change: Yes.
Speaker Change: Unfortunately has a third party issue in the first quarter alongside whether it probably a couple thousand barrels of impact to the DJ. So we certainly hit it but the team did.
Neil: We all feel pretty good now where you sit on.
Neil: Net.
Speaker Change: Nicely you Havent had really Richard I think issues. It seems like DJ side recently I'm just wondering now when you look at both sides you feel pretty good.
Really good job of finding multiple outlets and minimizing the impact of the third party processor issue and we worked around it but we were down for about.
Neil: About infrastructure going forward.
Neil: Yes.
Neil: Unfortunately, we have the third party issue in the first quarter alongside whether it'd probably a couple of thousand barrels of impact to the DJ. So we certainly hit it but the team did a really good job of finding multiple outlets and minimizing the impact of the third party processor issue and we worked around.
Speaker Change: For six weeks and so.
Speaker Change: We feel good with where we are as you know in the Permian Permian as much of a water and gas business with oil as a secondary product there and so.
Speaker Change: Teams out front ahead of <unk>.
Speaker Change: All our skills and getting our water place and feel good about our ability to execute and deliver our 25 plan.
Neil: But we were down for about <unk>.
Neil: For six weeks and so.
We feel good with where we are as you know in the Permian Permian as much of a water and gas business with oil as a secondary product there and so.
Speaker Change: Great details thanks, Chris.
Speaker Change: Thanks Neil.
Speaker Change: Again should you have a question.
Speaker Change: Press Star followed by the number one.
Neil: Teams out front ahead of <unk>.
Speaker Change: Our next question comes from the line of.
Neil: All our skills and getting our water place and feel good about our ability to execute and deliver our 25 plan.
Speaker Change: Todd Hanold from RBC capital markets. Sir Please go ahead.
Speaker Change: Yes, Thank you all.
Speaker Change: Great details thanks, Chris.
Speaker Change: My first question is just on effectively the reset of the outlook in 2025 and beyond.
Neil: Thanks Neil.
Speaker Change: Again should you have a question.
Speaker Change: Any press star followed by the number one.
Speaker Change: Could you talk through.
Speaker Change: Our next question comes from the line of Scott Hanold from RBC capital markets. Sir. Please go ahead.
Speaker Change: The process of making the decisions you all did obviously, making some hard decisions here, but like what were some of the other options and obviously.
Yes, Thank you all.
Speaker Change: My first question is just on effectively the reset of the outlook in 2025 and beyond.
Speaker Change: Your past here you are taking is one option did you look at others.
Speaker Change: Larger M&A divestitures as was discussed in some market reports could you just talk about like some of the options you looked at in the decision and thought process and into the.
Speaker Change: Can you talk through.
The process of making the decisions you all did obviously, making some hard decisions here, but like what were some of the other options and obviously.
Speaker Change: 2025 plus plan.
Speaker Change: Yeah. Thanks for the question Scott.
Speaker Change: Your path here you are taking is one option did you look at others like larger M&A divestitures as was discussed in some market reports can you just talk about like some of the options you looked at in the decision and thought process and into the <unk>.
Speaker Change: First as we thought about setting 2025 up we had a couple of different paths just with the business as is as we've talked about in the past.
Speaker Change: The level of activity in 2024 was not a maintenance level to support 160000 barrels of oil a day.
Speaker Change: 2025 plus plan.
Yes, thanks for the question Scott.
Speaker Change: In addition to that it was very front loaded, which which really stopped the engine towards the end of the year and so one option that we had was to increase activity and maintain a 160000 barrels of oil a day.
Speaker Change: First as we thought about setting 2025, we had a couple of different paths just with the business as is as we've talked about in the past the level of activity in 2024 was not a maintenance level to support 160000 barrels of oil a day.
Speaker Change: As we looked at the and consider that the vol.
Speaker Change: The volatility in the macro that we're seeing currently we didn't think it was the right thing to.
Speaker Change: In addition to that it was very front loaded, which which really stopped the engine towards the end of the year and so one option that we had was to increase activity and maintain a 160000 barrels of oil a day.
Speaker Change: Double down and invest a couple of hundred more million dollars due to maintain 160000 barrels of oil a day. We believe the best thing for the business long term was to reset to the $1 50 to 155 fuel our capital.
Speaker Change: As we looked at and considered the vol.
Volatility in the macro that we're seeing currently we didn't think it was the right thing too.
Speaker Change: And hit that maintenance level of one eight to one nine.
Speaker Change: In terms of.
Speaker Change: <unk> doubled down invest a couple of hundred more million dollars due to maintain a 160000 barrels of oil a day. We believe the best thing for the business long term was to reset to the $1 50 to 155 fuel our capital.
Speaker Change: Question around the larger M&A.
Speaker Change: We won't comment specifically on any rumors out there.
Certainly, but I will say that this is a team that is focused on long term create long term sustainable business.
Speaker Change: And and hit that maintenance level of one eight to $1 nine.
Speaker Change: That generates significant value for our shareholders.
Speaker Change: In terms of <unk>.
And around the <unk>.
Speaker Change: If there are opportunities to accelerate some of that value and that's any asset not not just D. J R. Just Permian if there is an opportunity to accelerate value for our shareholders. We will certainly take it very seriously.
Speaker Change: Larger M&A.
Speaker Change: Paths will comment specifically on any rumors out there.
Speaker Change: Certainly, but I will say that this is a team that is focused on long term create a long term sustainable business.
Speaker Change: I will say well.
Speaker Change: As evidenced by the $300 million divestment target, we are out there looking for ways to identify assets that could be more valuable in others' hands.
Speaker Change: That generates significant value for our shareholders.
Speaker Change: If there are opportunities to accelerate some of that value and thats any asset not not just DJ or just Permian. If there is an opportunity to accelerate value for our shareholders. We will certainly take it very seriously.
Speaker Change: Use that to offset what we thought was really attractive bolt on in the Midland Basin and really a rotation.
Speaker Change: It takes and the runway into the Permian and so.
Speaker Change: I will say as evidenced by the $300 million divestment target. We are out there looking for ways to identify assets that could be more valuable in others' hands.
Scott: More to come on that front Scott, but.
Speaker Change: A lot of a lot of work and a lot of <unk>.
Speaker Change: Diligence to go into laying out. This plan is the best path for this company long term.
Speaker Change: Use that to offset what we thought was really attractive bolt on in the Midland Basin and really a rotation.
Speaker Change: Yes, maybe to play a little bit of some of the the latter comments there I mean.
Speaker Change: It takes and the runway into the Permian and so I think more to come on that front, Scott, but a lot of a lot of work and a lot of.
Speaker Change: Honestly potentially divestitures seem like they are going to be targeting some more so in the DJ and you've obviously bolted onto the Permian So.
Speaker Change: Diligence to go into laying out this payment plan is the best path for this company long term.
Speaker Change: As you look at your.
Speaker Change: Your inventory runway of 12 100 Permian locations.
Speaker Change: Yes, maybe to play a little bit of some of those until the latter comments there I mean.
Speaker Change: A couple of questions here, one how do you comfortable you feel with your inventory duration of what you would view as core wells and do you see yourselves, becoming more of a Permian company overtime.
Speaker Change: Obviously potentially divestitures seem like they are going to be targeting some more so in the DJ and you've obviously bolted onto the Permian So.
Speaker Change: As you as you look at.
Yes, I'd like to say we're a.
Speaker Change: Your inventory runway of 12 100 Permian locations.
Returns company and whether we get those returns from the DJ or the Permian.
Speaker Change: A couple of questions here, one how do you comfortable you feel with your inventory duration of what you would view as core wells and do you see yourselves, becoming more of a Permian company over time.
Speaker Change: <unk>.
Speaker Change: We will go after we see the opportunity in the Permian and really to scale our business, we saw the opportunity to scale, our business and diversify it.
Speaker Change: In terms of the 200 locations.
Speaker Change: And sitting about eight or nine years of of stay flat inventory.
Speaker Change: Yes, I'd like to say, we're a returns company and whether we get those returns from the DJ or the Permian.
Speaker Change: We've talked about wanting to extend that again, given the macro where it is I feel very comfortable with where we are and our ability to really focus.
Speaker Change: Yes.
Speaker Change: What will what we'll go after we see the opportunity in the Permian and really to scale our business, we saw the opportunity to scale, our business and diversify it.
Speaker Change: Refocus in Sydney.
Speaker Change: In terms of the 200 locations.
Speaker Change: Excess free cash to our balance sheet without the need to really participate in what have been extremely.
Speaker Change: Sitting about eight or nine years of of stay flat inventory.
Speaker Change: We've talked about wanting to extend that again, given the macro where it is I feel very comfortable with where we are and our ability to really focus.
Speaker Change: Competitive.
Speaker Change: Asset transactions there in the Permian and the DJ is interesting not just through ground game, but re looking at.
Speaker Change: Refocus in Sydney.
Speaker Change: Excess free cash to our balance sheet.
Speaker Change: A brand new or continually improving capital operating structure and what the team has been able to do to expand tears out more than replacing inventory that we sold in that we drilled in the year I think it was.
Speaker Change: Without the need to really participate in what have been extremely.
Speaker Change: Competitive.
Speaker Change: Asset transactions.
Speaker Change: In the Permian.
Speaker Change: In the DJ is interesting not just through ground game, but really looking at.
Speaker Change: A great achievement for the team, but we're sitting there with a plus years of stay flat inventory as well now as we get further down the dispatch curve is the capital efficiency of those last couple of years. The same as the next five no probably not but we do have a team that is demonstrating the.
Speaker Change: A brand new or continually improving capital operating structure and what the team has been able to do to expand tears out more than replacing inventory that we sold in that we drilled in the year I think it was.
Speaker Change: A great achievement for the team, but we're sitting there with eight plus years of a staple AD inventory as well now as we get further down the dispatch curve is the capital efficiency of those last couple of years. The same as the next five no probably not but we do have a team that is demonstrating the ability.
Speaker Change: <unk> ability to drive additional efficiencies to take returns whether it's extending laterals.
Speaker Change: We're optimizing completion.
Speaker Change: Designed to take lower returns and improve those with time and so we feel very comfortable that this is a plan that that is sustainable that will deliver sustainable free cash flow and allow us to achieve all of our balance sheet goals and at the same time return significant capital to our shareholders.
Speaker Change: 80 to drive additional efficiencies to take returns, whether it's extending laterals.
Speaker Change: We're optimizing completion.
Speaker Change: Designed to take lower returns and improve those with time and so feel very comfortable that this is a plan that that is sustainable that will deliver sustainable free cash flow and allow us to achieve all of our balance sheet goals and at the same time return significant capital to our shareholders.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line Leo Mariani from Roth Capital. Please go ahead.
Speaker Change: Yes, I wanted to follow up a little bit about some of your comments around M&A.
Clearly you talk a little about divestitures, but just curious you mentioned very competitive Permian market, but in kind of a perfect world is there a pretty healthy appetite for the company to try to add inventory in the Permian through M&A.
Speaker Change: Our next question comes from the line Leo Mariani from Roth Capital Sir. Please go ahead.
Speaker Change: Yes.
Leo Mariani: Yes, I wanted to follow up a little bit about some of your comments around M&A.
Speaker Change: Yes, I would say our number one goal for 2025 is hitting that net debt target at the end of the year, the four and five.
Leo Mariani: Clearly you talked a little about divestitures, but just curious you mentioned very competitive Permian markets, but in kind of a perfect world is there a pretty healthy appetite for the company to try to add inventory in the Permian through M&A.
Speaker Change: As we're doing with the the bolt on in Midland <unk>.
Speaker Change: <unk> out predominantly D J.
Speaker Change: Developed assets to fund that.
Speaker Change: Sure.
Leo Mariani: Yes, I would say our number one goal for 2025 is hitting that net debt target at the end of the year in the four five.
Speaker Change: We will see if there are similar opportunities to do that but our number one focus.
Speaker Change: Given the inventory duration that we currently have in given the macro.
As we're doing with the the bolt on and Midland rotating out of predominantly DJ.
Speaker Change: That we see is really taken that excess cash to the balance sheet first and foremost and we'll continue to look for ways to accelerate our de levering.
Leo Mariani: Developed assets to fund that.
Leo Mariani: We will see if there are similar opportunities to do that but our number one focus.
Speaker Change: To accelerate our returns for our shareholders, but our number one focus this year is is that $4 5 billion.
Leo Mariani: Given the inventory duration that we currently have in given the macro.
Speaker Change: Net debt target.
Speaker Change: Okay, and then just jumping over to the low side.
Leo Mariani: That we see is really taken that excess cash to the balance sheet first and foremost and we'll continue to look for ways to accelerate our de levering.
Speaker Change: Low obviously went up here in <unk>, just trying to get a sense with <unk>.
Part of it is driven by the Permian or did you also see.
Leo Mariani: To accelerate our returns for our shareholders, but our number one focus this year is is that $4 5 billion net.
Speaker Change: Healthy increases in the D J.
Speaker Change: You always see.
Speaker Change: In the DJ and the Permian with winter low jump up a little bit the <unk> really was led by higher than expected in the Permian <unk> projects, a little more active workover plan.
Leo Mariani: Net debt target.
Leo Mariani: Okay, and then just jumping over to the low side.
Leo Mariani: Low <unk>.
Leo Mariani: Went up here in <unk>, just trying to get a sense with a lot of it is driven by the Permian earnings Youll also see.
Speaker Change: And we will see that continue into the first quarter before it moderates back, but we take this very seriously and this is our cost structure as we think about cash G&A and cash flow.
Leo Mariani: The increases in the DJ.
Leo Mariani: You always see.
Leo Mariani: In the DJ and the Permian with winter low jump up a little bit. The <unk> really was was led by higher than expected in the Permian winners Asian projects, a little more active Workover plan.
Speaker Change: As a differentiator for any company in a commodity business.
Speaker Change: Some of the hard decisions that we made recently to.
Speaker Change: To reaffirm and reestablish and sustain that low cost.
Leo Mariani: And we will see that continue into the first quarter before it moderates back, but we take this very seriously and this is our cost structure as we think about cash G&A and cash flow.
Speaker Change: And so.
Speaker Change: Specific to your question on <unk>, It was really winter related.
Speaker Change: And workover activity, but the team is working through that and will get us back into <unk>.
Leo Mariani: Thats a differentiator for any company in a commodity business. That's why we made some of the hard decisions that we made recently.
Speaker Change: Top quartile cost structure, we're very comfortable.
Leo Mariani: To reaffirm and reestablished and sustain that low cost financing.
Speaker Change: What's that.
Speaker Change: Yes.
Speaker Change: Essentially all of the increase quarter over quarter was driven by Permian like Chris discussed Rocky start Vijay with actually flat quarter over quarter.
Leo Mariani: Specific to your question on <unk>, It was really winter related.
Speaker Change: As we see as we look out.
Leo Mariani: <unk> and Workover activity, but the team is working through that and we will get us back into <unk>.
Speaker Change: We have a cash flow.
Speaker Change: Target, that's probably going to be somewhere in between Q3 and Q4.
Top quartile cost structure, we're very comfortable.
Leo Mariani: With that.
Speaker Change: Discuss quite a bit of one time items in the fourth quarter that will be it won't be recurring but all in high nines on ebay.
Speaker Change: So essentially all of the increase quarter over quarter was driven by Permian like Chris discussed Rockies DJ was actually flat quarter over quarter I think as we see as we look out.
Speaker Change: Basis, which we believe is a peer leading.
Speaker Change: <unk>.
Speaker Change: We have a cash flow target, that's probably going to be somewhere in between Q3 and Q4.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of John Baugh.
Speaker Change: Hi, Chris discussed quite a bit of one time items in the fourth quarter that will be won't be recurring but.
Speaker Change: From Wolfe research.
Speaker Change: Hey, good morning, and thank you very much for taking our question.
All in timelines on a <unk> basis, which we believe is a peer leading outflow for our asset base.
Speaker Change: So what's the focus here on free cash flow maximizing that.
Speaker Change: Thanks.
Speaker Change: Speak a little bit about the trajectory of how you see future cash taxes over the next three year period of time and when do you see yourself paying sort of the alternative minimum tax which were latest thoughts on capital.
Speaker Change: Thanks Bill.
Speaker Change: Our next question comes from the line of John <unk> from Wolfe Research.
Speaker Change: Hey, good morning, and thank you very much for taking our questions.
Speaker Change: Thanks, Sean So this year cash tax guidance $10 million to $30 million, it's going to be fairly flat into 2026, maybe a little bit higher closer to the high end of that range next year.
Speaker Change: So what's the focus here on free cash flow maximizing that.
Speaker Change: Speak a little bit about the trajectory of how you see future cash taxes over the next three year period of time and when do you see yourself, playing sort of the alternative minimum tax which related thoughts on cash.
Speaker Change: Our A&P, we don't head A&P until around $80 a barrel.
Speaker Change: Nothing additional to model our <unk> team.
Speaker Change: Thanks, Sean So this year, our cash tax guidance $10 million to $30 million, it's going to be fairly flat into 2026 may be a little bit higher closer to the high end of this year's range next year as far A&P, we don't had A&P until around $80 a barrel. So there's nothing additional.
Speaker Change: Okay.
Speaker Change: Appreciate it and then Chris I mean, the focus right now is on deleveraging the balance sheet, you know youre looking at the commodity environment.
Speaker Change: But as you sort of sit down and think about your inventory.
Speaker Change: Let's say the commodity environment improves.
Speaker Change: The model <unk> to AAM team.
Speaker Change: And you are.
Speaker Change: And what is your willingness to actually grow at that period of time, having lowered your oil guide at this period of time you only have so many years production what would you do would you add a rig how do you think about growth. If there were if there was a change in the commodity and price environment.
Speaker Change: Appreciate it and then Chris I mean, the focus right now is on deleveraging the balance sheet, you know youre looking at the commodity environment.
Speaker Change: But as you sort of sit down and think about your inventory, let's say the commodity environment improves.
Speaker Change: And you are.
Speaker Change: Thanks for the question John if the macro completely flips and its very bullish towards the end of this year or into next.
Speaker Change: What is your willingness to actually grow at that period of time, having lowered your oil guide at this period of time you only have so many years production what would you do would you add a rig how do you think about growth.
Speaker Change: We will be responsive.
Speaker Change: To that macro environment, we like this plan as we roll it forward the ability to to generate sustainable free cash and take that to the balance sheet.
Speaker Change: If there was a change in the commodity and price environment.
Speaker Change: Yes.
Speaker Change: Thanks for the question John.
Speaker Change: Macro completely flips and its very bullish towards the end of this year or into next.
Speaker Change: If we saw.
Speaker Change: The solidifying of the commodity price instead of backward aging into their <unk>.
Speaker Change: We will be responsive.
Speaker Change: To that macro environment, we like this plan as we roll it forward the ability to to generate sustainable free cash and take that to the balance sheet if.
Speaker Change: Some some more solid foundation, you could see us potentially lean in a little bit on activity, but only if we are well advanced of our of our balance sheet targets for the year and for longer term and so this is a team that will continually look at ways to further optimize the way we allocate capital.
Speaker Change: If we saw.
Speaker Change: The solidifying of the commodity price instead of backwards into the sixties.
Speaker Change: Some more solid foundation, you could see us potentially lean in a little bit on activity, but only if we are well advanced of our of our balance sheet targets for the year and for longer term. So this is a team that we will continually look at ways to further optimize the way we allocate capital.
Speaker Change: And as things shift like that we will be responsive and not overreact, but certainly responsive to to the macro.
Speaker Change: Given the success that both the DJ and the Permian teams have had over the past year really replacing extending inventory, we have the option to lean in a little bit.
Speaker Change: And as things shift like that we will be responsive and not overreact, but certainly response up to to the macro and given the success that both the DJ and the Permian teams have.
Speaker Change: All eyes right now focused on on that $4 $5 billion a year end target.
Speaker Change: I appreciate it thank you very much for taking our questions.
Speaker Change: John.
Speaker Change: <unk> had over the past year really replacing extending inventory, we have the option to lean in a little bit.
Speaker Change: Our last question comes from the line of Noel Parks from Tuohy Brothers. Please go ahead.
Speaker Change: All eyes right now focused on on that $4 $5 billion year end target.
Noel Parks: Hi, good morning.
Speaker Change: Yeah.
Speaker Change: You did touch a bit earlier on.
Speaker Change: Appreciate it thank you very much for taking our questions.
Speaker Change: Central for increased oil volatility and.
Speaker Change: Thanks, John.
Speaker Change: I think you mentioned that.
Speaker Change: Our last question comes from the line of Noel Parks from Tuohy Brothers. Please go ahead.
Speaker Change: In a way being conservative with activity in Capex and started the first line of defense against I can say.
Speaker Change: But do you have a general view on oil volatility over the next few years, I mean, leaving total black Swan events or site.
Noel Parks: Hi, good morning.
Speaker Change: You did touch a bit earlier on the potential for increased oil volatility and I think you mentioned that.
Speaker Change: Can you sort of anticipate increasing volatility or volatility.
Speaker Change: In a way being conservative with activity and Capex are the first line of defense against against that but do you have a general view on oil volatility over the next few years.
Speaker Change: Maybe sort of settling down over the next few years.
Speaker Change: Yes, I think first I would say what we've seen is pretty significant volatility right oil.
Speaker Change: Total black Swan events side.
Speaker Change: 80 Bucks a month ago now its backward dated into the sixties.
Speaker Change: Do you sort of anticipate increasing volatility or volatility.
Speaker Change: We will see if that continues right and we're not going to sit here and.
Speaker Change: Maybe sort of settling down over the next few years.
Speaker Change: Prognosticated, which way that will go but I will say the first line of defense.
Speaker Change: Yes, I think.
Speaker Change: First I would say what we've seen is pretty significant volatility right oil was 80 Bucks a month ago now is back related into the sixties.
Speaker Change: Before even activity levels and taking a more conservative approach to capital allocation as is affirming in establishing a low cost structure.
Speaker Change: We will see if that continues right and we're not going to sit here and.
Speaker Change: It's something we spend a lot of time on.
Speaker Change: And again looking at some of the difficult decisions, we've made really to solidify that peer leading cost structure to offset as the first defense.
Speaker Change: Prognosticated, which way that will go but I will say the first line of defense.
Speaker Change: Before even activity levels and taking a more conservative approach to capital allocation as is affirming in establishing a low cost structure.
Speaker Change: Against that volatility.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Again, it's something we spend a lot of time on.
Speaker Change: Jeff.
Speaker Change: Probably something on the.
Speaker Change: And again looking at some of the difficult decisions, we've made really to solidify that peer leading cost structure to offset as the first defense.
Speaker Change: On the guidance some of the sensitivities as shown on the slide.
Speaker Change: Since the free cash flow has so much upward sensitive.
Speaker Change: So I just wanted to double check.
Speaker Change: Against that volatility.
Speaker Change: The $1 1 billion I think it is a free cash flow.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Estimate at $70.
Speaker Change: Jeff.
Speaker Change: That would not.
Speaker Change: Verify something on the.
Speaker Change: The guidance some of the sensitivities as shown on the slide.
Speaker Change: $550 million in delayed compensation.
Speaker Change: Since the free cash flow is so much upward sensitivity with commodity pricing I just wanted to double check.
Speaker Change: For events since that was last.
Speaker Change: Last year, if I have that right.
Is that right Thats correct Thats, just clean clean fleet free cash flow now the $475 million deferred acquisition with Baxter that was already paid and now it's just paying down debt. We had at the end of the year.
Speaker Change: $1 1 billion I think it is a free cash flow.
Speaker Change: Estimate at $70.
Speaker Change: That would not.
Speaker Change: $550 million in delayed compensation theyre paying for events since that was constant currency last year, if I have that right.
Speaker Change: It doesn't impact our bumper and once the cash one anyway.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Okay.
Speaker Change: Is that right Thats correct Thats, just clean clean fleet free cash flow now the $475 million deferred acquisition with venture that was already paid and now it's just paying down debt. We had at the end of the year.
Speaker Change: Yeah.
Brad: Thank you that concludes our Q&A session I will now turn the call back to Brad for closing remarks.
Brad: Really appreciate everyone for joining us today for the Q&A session.
Speaker Change: It has an impact of one one free cash one anyway.
Speaker Change: And I are certainly around the next several days for additional follow up follow up we look forward to seeing you on the conference circuit here over the next couple of weeks and we hope you have a great day.
Speaker Change: Great. Thanks, a lot.
Speaker Change: So.
Thank you that concludes our Q&A session I will now turn the call back to Brad for closing remarks.
Speaker Change: That concludes our conference call. Thank you for joining today and you may now disconnect.
Speaker Change: Really appreciate everyone for joining us today for the Q&A session EMEA and I are certainly around the next several days for additional follow up follow up we look forward to seeing you on the conference circuit here over the next couple of weeks and we hope you have a great day.
Speaker Change: That concludes our conference call. Thank you for joining today and you may now disconnect.
Speaker Change: Okay.
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