Q4 2024 Ring Energy Inc Earnings Call
Speaker Change: Good morning, and welcome to the Ring Energy Force Quarter in full year 2024 earnings conference call.
Speaker Change: At this time, all participants are now listening only mode. A question and answer session will follow the formal presentation.
Speaker Change: To ask a question, you may press star, then one, on a touch tone phone.
To withdraw your question, please press star, then to [inaudible]
Speaker Change: Please note, this event is being reported. I'll announce it to Nicole over to Al Petrie, Professor Relations for Ring Energy. Please go ahead.
Speaker Change: Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy.
Speaker Change: We'll begin our call with comments from Paul McKinney, a chairman of the board and CEO , who will provide an overview of key matters for the fourth quarter in full year 2024, as well as our outlook.
Speaker Change: We'll then turn the call over to Travis Thomas, Ring's Executive VP and Chief Financial Officer, we'll review our financial results. Paul will then return with some closing comments before we open the call up for questions.
Speaker Change: Also joining us on the call today, an available for the Q&A session are Alex Dias, Executive VP and Chief Operations Officer, and Shawn Young, Senior Vice President of Operations.
Speaker Change: During the Q&A session, we ask you to limit your questions to one in a follow-up. You're welcome to re-enter the queue later with additional questions. I would also note that we have hosted an updated investor corporate presentation on our website.
Speaker Change: During the course of this conference called, the company will be making far-looking statements within the meaning of federal security's laws.
Speaker Change: Investors are cautioned that far-looking statements are not guarantees of future performance, and those accurate results or developments may differ materially from those projected in the far-looking statements.
Speaker Change: Finally, the company can give no assurance that such far-looking statements will prove to be correct.
Marine Energy: Ring Energy disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events are otherwise, or accordingly you should not place undue reliance on forward-looking statements.
Marine Energy: These and other risks are described in yesterday's press release and in our fillings with the SEC.
Marine Energy: Should one or more of these risks materialize or should underlying assumptions proven correct
Marine Energy: This conference also includes references to certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable measure to the GAP or contained in yesterday's earnings release.
Marine Energy: Finally, as a reminder, this call is being recorded. I'd now like to turn a call over to Paul McKinney, a chairman and CEO .
Paul McKinney: Thanks, Al, and good morning everyone, and thank you for joining us today.
Paul McKinney: The fourth quarter, 2024, represented a strong ending to a year in which the Ring Energy team enhanced nearly every controllable metric.
Paul McKinney: Our total sales grew 8% over 2023, to our record, 19,648 births per day, and oil sales grew 6% to a record, 13,283 barrels of oil per day.
Paul McKinney: We've reduced our year-over-year all-end cash operating costs on a per-bioe basis by 2%.
Paul McKinney: We drill 13 more wells in 2024 than the prior year for slightly less capital representing the substantial increase in capital efficiency for both our horizontal and vertical wells.
Paul McKinney: For the year ended December 31, 2024, we spent $151.9 million, which included cost of drill a complete and place-on-productive 21 horizontal wells, including five in the Northwest Shelf and 16 in the Northern portion of the CBP.
and 22 Virgo Wells in the CBP.
Paul McKinney: Also included in the full-year capital spending were costs for capital workovers, infrastructure upgrades, reconplitions, facility upgrades to reduce emissions and leasing.
We pay down debt.
Paul McKinney: by $40 million and $70 million since the closing of the Founder's Acquisition in August of 2023.
Paul McKinney: We exited the year with 385 million of debt on the balance sheet and approached with 217 million of liquidity. Our performance led to generating adjusted EBIDA of $233.3 million, despite a 7% reduction in real-life prices.
Paul McKinney: Supported by our focus on Capitol Discipline, we delivered an adjusted free cash load of $43.6 million remaining cash low positive for five years, for over five years.
Paul McKinney: Turning to reserves, we grew proof reserves by 4.4 million barrels of oil equivalent, or 3% to 134.2 million barrels of oil equivalent.
Paul McKinney: A key point to note regarding our 2024 reserves was that we organically added 16 million barrels of oil equipment that more than offset the 7.2 million barrels of oil equipment.
Paul McKinney: of Productions, the 1.2 million BUE from sales of non-core assets, and 3.2 million
B.O.E. in Resort Reductions due to lower SEC prices.
Paul McKinney: Approved Reserves, PV10 was approximately 1.5 billion at year end of 2024, included in that total was approximately 1.1 billion at PV10 for 192.6 million barrels of all equipment approved
Paul McKinney: The primary contributors to our success in 2024 are directly related to the benefits of our strong whole and Founder's Acquisitions in 2022 and 2030.
Paul McKinney: These acquisitions have exceeded our expectations in many regards, further established our strategic foothold with the Central Basin platform and significantly increased our undeveloped inventory of highly economic drilling locations.
Paul McKinney: As we have previously stated, we continue to look for similar acquisitions that can help us replicate the success of those two transactions. We believe that proposed limerock transaction does that.
Paul McKinney: As previously released, the purchase price of $100 million is comprised of 80 million of cash and up to 7.4 million shares of Ring Common Stock at closing.
Paul McKinney: and an additional ten-man dollar deferred cash payment due nine months after closing.
Paul McKinney: The transaction has an effective date of October 1, 2024, and is expected to close by the end of the first quarter of 2025.
Paul McKinney: In short, Lybrox CBP acreage is in Andrews, County, Texas, where the majority directly offsets Ring's core chapter lake operations and the remaining acreage to the South is respected for multiple horizontal targets and exposes Ring to active new plays.
Paul McKinney: The acquisition ideally suits Ring's focus on consolidating and producing assets in core counties on the CVP, defined by shallow declines, high margin production, and undeveloped inventory that immediately competes for capital.
Paul McKinney: Additionally, and as previously disclosed, these assets add significant near-term opportunities for field-level synergies and cost savings.
Paul McKinney: Driving the top line, we anticipate an average annual sales midpoint of 21,000 barrels of all per day, and 13,900 barrels of all per day.
A 7% and 5% increase respectively [inaudible]
Paul McKinney: and an annual capitol spending midpoint of 154 million essentially flat with the prior year and a midpoint of approximately 49 total well drilled completed and placed online.
Paul McKinney: In summary, our 2025 plans will follow a very similar playbook from the past. We will remain focused on maximizing free cash flow generation.
Paul McKinney: We will maintain a different capital spending program that maintains or slightly grows our production and liquidity.
Paul McKinney: and allocate the bounds of our cash flow to paying down debt.
Paul McKinney: Along with other comments concerning our fourth quarter and full year financial results, so with that I will turn it over to Travis. Travis?
Travis Thomas: Thanks, Paul, and good morning, everyone. We are pleased with our overall outcome for the fourth quarter. In addition to the results that met our overall guidance, the fourth quarter capped off another successful year for ring.
Travis Thomas: Similar to past calls, I will take a few minutes to cover some additional color detailing the most significant sequential quarterly results. Let's start with production.
Travis Thomas: During the fourth quarter, we sold 19,658 DOE per day compared to 20,108 DOE per day in the third quarter, a slight decrease of 2%.
Travis Thomas: A portion of the decrease was attributable to the third party gas plant being shut down due to a fire impacting our sales volumes
Travis Thomas: Our fourth quarter total sales volumes were above the midpoint of our guidance range and contributed to a record full year of 2024 sales of 19,648 BOE per day. The year benefited from a full year of production from our Founders acquisition which closed in August of 2023.
Travis Thomas: As Paul discussed, also materially contributing to our record full-year 2024 sales volumes was another successful drilling campaign across our asset base, which continued focus on our highest rate of return inventory.
Travis Thomas: Turning to the fourth quarter, 2024 pricing are overall realized price decline 4% to $46.14 per BOE from $48.24 per BOE in the third quarter. Driving the overall sequential decline was at 7% lower realized pricing for oil in the fourth quarter of 2024
Travis Thomas: Our fourth quarter average crude oil price differential from 9x WTI futures pricing was a negative $1.42 per barrel versus a negative 56 cents per barrel for the third quarter.
Travis Thomas: This was mostly due to the Argus WTI WTS, the decrease by 36 cents per barrel, offset by the Argus CMA rule, the decrease by 44 cents per barrel, on average for the third quarter.
Travis Thomas: Our Realized NGL Prize for the fourth quarter averaged 13% of WTI compared to 11% for the third quarter.
Travis Thomas: Oil revenue decreased by $5.8 million with a $3.8 million price variance and a $2 million production variance.
Travis Thomas: Gas and NGL revenues, on the other hand, saw a combined $2.6 million increase quarter to quarter, providing a combined total of $1.5 million to the fourth quarter, compared to a $1.2 million negative in the third.
Travis Thomas: This resulted in a fourth quarter revenue of $83.4 million compared to $89.2 million in the third quarter, a 7% decrease.
Travis Thomas: 4th quarter L.O.E. of $20.3 million was essentially flat compared to the 3rd quarter. On a unit basis, 4th quarter L.O.E. was $11.24 per B.O.E., which was within our guidance range. 3rd quarter L.O.E. was $10.98 per B.O.E.
Travis Thomas: Cash GNA, which excludes share-based compensation and transaction-related costs, was $3.51 per BLE for the fourth quarter versus $3.45 per BLE for the third quarter.
Travis Thomas: Our fourth quarter, 2024 results, included a loss on derivative contracts of $6.3 million versus a gain of $24.7 million for the third quarter, which was primarily due to lower relative price links at the end of the fourth quarter.
Travis Thomas: We recorded an income tax provision of $1.8 million during Q4, 2024 versus a provision of $10.1 million in the third quarter, which was driven by the increase in pre-tax book income.
Finally!
Travis Thomas: For Q4, reported net income at $5.7 million or $3 cents per diluted share.
Travis Thomas: Excluding the estimated after-tax impact of pre-tax items, including non-cash, unrealized gains and losses on hedges, share-based compensation expense, and transaction costs. Our fourth quarter adjusted net income was $12.3 million or $6 cents per diluted share.
Travis Thomas: This is compared to a third quarter 2024 net income of $33.9 million or 17 cents per diluted share and adjusted net income of $13.4 million or $7 cents per diluted share.
Moving to our hedge position
Travis Thomas: For 2025, we currently have approximately 2.4 million barrels of oil hedge, or approximately 48% of our estimated oil sales base on the midpoint of guidance.
Travis Thomas: We also have 2.4 BCF of natural gas hedged, or approximately 33% of our estimated natural gas sales based on the midpoint. For a quarterly breakout of our hedge positions for 2025, please see our earnings release in presentation, which includes the average price for each contract side.
Turning now to the balance sheet.
Travis Thomas: We incurred $37.6 million in cat bags in the fourth quarter, which was in line with the midpointing guidance.
Travis Thomas: We reduced DNC cat bags by 23% to $22 million in the fourth quarter from $29 million in the third We incurred costs of approximately $4.7 million for facilities upgrades which contribute to our year and year over year reduction in emissions.
Travis Thomas: Also included in our fourth quarter cap ex was over $1 million in leasing costs approximately 60% of our full year leasing which added to our reserve replacement and organic inventory growth.
Travis Thomas: As Paul discussed, we drilled 13 more wells in 2024 than the prior year for slightly less capital, representing a substantial increase in capital efficiency for both our horizontal and vertical wells.
Travis Thomas: The result was a full year, 2024, total cat-backs of $151.9 million, which was slightly lower than 2023.
Travis Thomas: At Year-In, 2024, we had 385 million drawn on our credit facility. With a borrowing base of $600 million that was reaffirmed in December , we had $215 million available net of letters of credit.
Travis Thomas: Combined with cash, we'll liquidity of $217 million and leverage ratio of 1.66 times.
Travis Thomas: During the fourth quarter of 2024, we generate $4.7 million of adjusted free cash flow and pay down $7 million in debt, resulting in debt reduction of $70 million since completing the Founders' acquisition in mid-August 2023.
Travis Thomas: For full year 2024, we paid down $40 million in debt and generated $43.6 million in adjusted free cash flow.
Travis Thomas: We will continue to utilize our free cash flow to improve our long-term financial profile through further debt repayment, which we expect will be fuel primarily through further growth in cash flow driven by our successful execution of our targeted 2025 development program.
Travis Thomas: Our primary focus remains the same, utilizing our substantial free cash flow generation to primarily reduce debt and better position ourselves to ultimately provide a meaningful return of capital to shareholders.
Looking at our 2025 Outlook
Travis Thomas: We plan to follow the same general approach as in 2024. In addition, our guidance reflects the recently announced agreement to acquire Limerock CBPS sets and includes results from those operations after closing which is expected by March 31st.
Travis Thomas: As Paul discussed, and we had said in the past, our focus is on maintaining or slightly growing B.O.E. per day total production while continuing to grow crude oil sales. Our full year 2025 total sales guidance.
Travis Thomas: is 20 to 22,000 B.O.E. per day and 13,600 to 14,200 barrels of crude oil per day.
Travis Thomas: I would point you to yesterday's press release for quarterly guidance.
Travis Thomas: We also anticipate full-year 2025 LOE to be between $11.25 and $12.25 per BLE and between $11.75 and $12.25 per BLE for the first quarter.
Travis Thomas: All prices and estimates are based on assumed WTI oil prices of $65 to $75 per barrel and Henry Hub prices of $2 to $4 per MCF.
Travis Thomas: So, with that, I will turn it back to Paul for his closing comments. Paul?
Thank you, Travis.
Travis Thomas: Up to this point, we reviewed our fourth quarter in full year 2020 for results.
and to discuss generally our outlook and guidance of 2025.
Travis Thomas: What we haven't shared though are our thoughts associated with managing the company through the volatility we continue to experience in commodity markets.
Travis Thomas: The question that could be asked, what are our priorities and how will both priorities impact our decision making going forward? So, let's discuss what Ring is likely to do if WTI oil prices remain substantially at or below $65 a barrel.
Travis Thomas: Before going there, though, I think it is good to remind ourselves of the virtues associated with our assets. Turn to page 8 of our investor presentation. Ring Energy has the second highest margin on a dollar per barrel basis in our peer group.
Travis Thomas: This enables the company to have a relatively better ability to manage the challenges of low off prices.
Compaired.
Travis Thomas: To many of our peer group, if we don't consider the benefits or the differences in company hedging practices.
Travis Thomas: Furthermore, as shown on page 9, Ring has the second lowest production decline rate in our peer groups, which means if we want to maintain our production levels, we would require a relatively lower level of capital spending to achieve that goal.
Travis Thomas: Another thing we can discuss is our hedging practices. As you know, Ring strives to hedge 50% of our forecasted PDP production from our most recent reserve report as a method of limiting the exposures to sustained low oil and natural gas prices and to protect future cash lows supporting our debt repayment and our capital spending plans.
Having said all that...
Travis Thomas: If WTI oil prices remain at or below $65 per barrel for an extended period of time, we believe the right thing to do is to cut back on capital spending in favor of reducing debt. On page seven of our investor presentation, we show estimates.
Travis Thomas: Among other things, our projected leverage ratio at different WTI oil prices.
Travis Thomas: I am referring to the chart on the lower right of the page entitled enhancing balance sheet targeting leverage ratio less than one times. The scenarios depicted in the chart assume our capital spending levels remain the same, only the oil price assumptions were changed.
Travis Thomas: The $65 per barrel case shows that we believe our leverage ratio under those assumptions will reduce only modestly.
Travis Thomas: If we stay at $65 per barrel for a duration of that forecast.
Travis Thomas: We are more likely to reduce our capital spending to a lower level than that assumed in the $65 dollar per bill we scenario depicted there.
Travis Thomas: and we will apply more of our cashflow to pay down that.
Travis Thomas: Although the calculation is very complicated and lower capital spending levels would imply lower production revenue and EBITDA levels, we believe we would end up at a better leverage ratio by focusing on reducing absolute debt.
Another point I'd like to make is associated with our success.
Travis Thomas: and organically growing our proved reserves in 2024, and what that means regarding our future plans for growth.
Travis Thomas: and that our growth will come from a creative, balance sheet enhancing acquisition.
Travis Thomas: Building on that strategy in 2024, we began focusing on identifying and capturing opportunities for reserve and inventory growth with our cash flow and as a part of our capital program.
Travis Thomas: We intend to increase our focus on organically growing our reserves and undeveloped inventory over time and by doing so we are adding another component to our growth strategy, another way to win so to speak.
Travis Thomas: and not rely solely on acquisitions for reserve and undeveloped inventory growth.
Travis Thomas: We believe the benefits of adding organic growth to our growth strategy are compelling.
Travis Thomas: Another point refers to the question, why did Ring use stock as part of a total consideration in the pending Lyme Rock transaction?
Travis Thomas: There are a couple reasons, the primary one being our balance sheet. By using a small amount of equity, we anticipate having a stronger balance sheet and corresponding leverage ratio
Travis Thomas: Another benefit is related to the confidence Lyme Rock has in our ability to create value. As you may know, Lyme Rock is a premier oil field operator and the parent company provides growth capital for energy.
for the energy industry.
Travis Thomas: The last subject I would like to address before turn this call over to the operator to answer questions is our low stock price.
Our stock price has been this low since 2021.
Travis Thomas: Since that time, we have increased our reserves and production for share, lower to leverage ratio, and our larger and more resilient company than we were then. The value proposition established with our current stock price is compelling, and in my opinion, represents a very opportunistic investment opportunity.
Speaker Change: and with that, we will turn this call over to the Operator for questions. Operator?
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question you may press a star then one on your test tone phone.
Speaker Change: If you are using a speaker phone, please pick up your headset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star, then to At this time he will pause momentarily to assemble our roster
[inaudible]
Burt Dons: And the first question will come from Burke, Don's with Truist. Please go ahead.
Hey, good morning team.
Good morning, Bert.
Speaker Change: I saw your note on the new guide that it does not assume any synergies or cost reductions in it from the recent acquisition. I was just wondering if maybe you could talk us through low hanging fruit on the savings you might be able to find on the combined assets.
Speaker Change: and then maybe how quickly do you expect to kind of fold in those those 40 new locations that you just added to the portfolio?
Speaker Change: Yeah, very good. I'm going to allow a couple of other people to join me answering this question because it's a very good one and so our operations are literally right next door.
Speaker Change: And the operations are very, very similar to what we're currently doing. One of the areas that we've identified that we believe represents an opportunity is
Speaker Change: and it relates back to one of the primary causes or costs in our operating costs and that's basically handling water.
Speaker Change: They have a saltwater disposal system over there and I believe they have 12 saltwater disposal wells. It is underutilized, especially compared to our system if you recall in the past birth.
Speaker Change: We have had to manage our drilling program so that we don't produce too much water, more water than our saltwater disposal system could handle. This provides opportunities there to not only combine the systems, but also reduce operating the resulting operating costs.
Sean: and so if you don't mind, I'll just turn it over to Shawn. Shawn, we just visited the assets for the first time this last week.
Sean: and so what did you discover while you were over there, Shawn?
Sean: Yeah, I think there's definitely some opportunities for synergies. Beyond just the water infrastructure, we have an extensive oil infrastructure there as well.
Sean: and also just taking advantage of our personnel, our office that is currently right there. So there's some synergies there as well. Also just
Sean: Point to kind of our track record, right? If you look back at the the fog acquisition, the lifting caution.
Sean: and cost structure here is somewhat similar, and we've been able to reduce, you know, our lifting costs in that fog acquisition by by over 22%.
Sean: So while there's not anything in the forecast that basically outlines kind of those synergies, they're definitely there and we expect to capitalize on them.
Speaker Change: Yeah, the challenge we had birds, we really didn't want to get out over our skis and predict something before we had an opportunity to actually see what those potential savings would be at first hand.
Speaker Change: but, you know, again, pointing out what Shawn identified. We have a track record doing this and we're very confident. It could even result in just changing the pump arouse and reducing the number of people just to operate the wells. There's all kinds of opportunities there. And so we just didn't want to get over our skis and so we wanted to make sure that we just continue to use in our forecast, the operating costs, track record that Lyme Rock had, but we do believe that the combined benefit of both areas. And so we're going to have a track record. We're going to have a track record. We're going to have a track record.
Speaker Change: Now all being won, we'll see some cost reductions. Now go into the second part of your question about the undeveloped inventory
Speaker Change: Again, the playbook is going to be similar to what we did with founders. The first thing we want to do is get our arms around the operations, get those wells and operations integrated into our company.
Speaker Change: and then start the process of drilling. So right now we anticipate drilling some of the first live rock opportunities in the second half of the year. Alex, is there more you'd want to share there? Yes, definitely.
Speaker Change: Hi, Bert Zalix. Just a few things talking about the inventory, much like we did at Ring over the last few years. Disproportionately, the CBP horizontal assets have been taking a lot of our capital to...
Drilling, very good performing horizontal wells.
Speaker Change: Mainly due to the cost structures dropped a lot there. And so we're going to do the very same things on the limerock assets, right? We've found a better way to grow the wealth, stay more in zone, optimize the frack.
Burt Dons: and so in our cost structures dropped about 15 to 20% over the last couple of years. So our new cost structure with a more improved completion and better landing zone should lead to really good inventory that will compete for capital today. So yeah, that goes back to some other things we've talked in the past, Bert, you know, technologies our friends.
Burt Dons: I had the early parts, early stages of developing this in Andrews for as long as I'll play both in Yokeham County and Andrews County in gangs primarily though in Andrews and Yokeham.
Burt Dons: Technology has continued to roll on. We've learned how to develop higher recoveries.
Speaker Change: from the same walls and the same lateral lengths. And so, yeah, technology is a friend. I think we answered your question, Bert.
Bert: I think you should and I think you're doing the right thing, keep the guidance conservative and give yourself a chance to beat it there. And then on my second question, just on the M&A front.
Bert: You continue to fold in creative bolt-ons. I just want to get an update on maybe how you think about the volatility that we're seeing.
Bert: Does this maybe slow that down or do you think it's the other way maybe third party operators or maybe looking to sell some of their assets and their balance sheets and maybe you'll be the beneficiary of that.
Bert: and just the other side of that as well are, you sold about six million in those high-cost, non-core wells, is there anything left at the company on that front?
Bert: Yeah, currently our inventory we don't have more really to sell, but with every acquisition, you know, they're...
Bert: Because no portfolio that you acquire will be a perfect set of assets and so some of those assets will fall into the bucket of non-core or an area that are well types that we, if you have undeveloped opportunities they may not compete.
Bert: and not every economic opportunity even in the live rock acquisition is equally economic.
Bert: So, if you look at some of the opportunities in the south, we've identified some of those, the Barnad and the Devoning Opportunities. Those are economic and they work especially at higher oil prices, but they're not as economically attractive as the Senators' horizontal opportunities that we have offsetting our Shafter Lake operations.
Okay, and so-
Bert: You know, that's kind of where we are there. I don't think anybody else has anything else I want to chime in.
Speaker Change: Oh, just follow up on the on the first part, just you know, they're more line rocks out there or do you think the volatility in the market kind of affects your ability to find more more?
Speaker Change: Alive Rocks. Thanks for the reminder. The volatility is a challenge, but it's also complicated. The volatility tends to bring buyers and sellers' expectations closer together, so you're more likely to get a transaction done.
Speaker Change: Strike from the balance sheet so we can enter the marketplace again. And so I'm not going to tell you that we're not going to do a deal because there's all kinds of creative ways to structure deals.
Speaker Change: But in a lower price environment, right after completing a transaction like we're hoping to do with this pending transaction, our bounce sheet won't be in strong enough for us to want to go out there.
Speaker Change: and keep going. So again, there will be a time period for us where we're going to concentrate on restoring the balance sheet so we can get out there and get active when the next opportunity has come out.
Speaker Change: Let me add to that, actually we have a new slide bird, slide 14.
Speaker Change: Think about founders when we did in 2023, right? So we took this a little bit to integrate it and optimize it, and you can see all the metrics there, but we cleaned up the balance sheet, strengthened it up to be able to do another deal, so it's the same concept here.
That's perfect. Thanks for the update, guys.
Hey, you're welcome, Bart.
The next question will come from Noel Parks with two wee brothers. Please go ahead.
Hi, good morning. Just a couple. You know, um,
One, well, just could you just talk a bit about
Speaker Change: Inventory Quality, and your footprint, and what close bolt-ons, like Shafter Lake do for you. I'm making sort of from a
Speaker Change: Just a location standpoint, I don't know if there's lateral length implications, but we could be here about that.
Okay, I'll give you a stab at that, Noel. I think you're touching on subjects it.
We hear frequently from investors and shareholders.
Speaker Change: And so as you know, we have had the benefit of
Speaker Change: of undeveloped locations that had superior economic, especially when you compare to many of the plays that other people are pursuing in the broader Permian Basin. Our St. Agress horizontal locations have competed very handsomely against some of the Devonian or the Delaware and Midland Basin wells at Shell, wells that people are doing. And so
Speaker Change: That's part of as a key component of our growth strategy. And you've heard me say this in the past, Noel, we would love to have that 15 or 20-year inventory of undeveloped locations that have similar economics, but the fact remains we just don't have that and so that's why we're
Speaker Change: Kenley focused on making these acquisitions that meet specific criteria that along come with it, undeveloped opportunities that compete in our portfolio.
Speaker Change: One of the things that we've talked about and is a change that has occurred over the last little over a year now, we have been focusing on organically identifying and capturing these opportunities so we don't also have to do that with acquisitions.
Speaker Change: and so by identifying and capturing future growth opportunities organically, we're using our cash flow in our, in our, um,
Speaker Change: in our annual budget, so to speak, to capture them. And although that additional capital could otherwise have gone to paying down debt, it is the most attractive way, and at least costly way, and the opportunity presents itself as having the best economics.
Speaker Change: going forward in terms of growing the inventory and catching opportunities for sustained growth.
Speaker Change: Let me add to that. No, I'd like to address a little bit of your inventory quality question. We actually put in a new slide on the page 25 of the slide deck.
Speaker Change: And that just shows year-over-year what our inventory looks like both on the horizontal basis and a vertical basis. So if you look at that year-over-year, we're still drilling really good horizontal weld, but for a reduced cost structure.
11% on horizontals.
Speaker Change: And then on the vertical fence, we actually increased substantially on well performance. That's mostly due to the founders acquisition because when we did that, the founders acquisition brought in good and even better inventory yet we still reduced our vertical costs on a per stage basis by like 3%.
Speaker Change: So the inventory quality is still there and actually we have really good break even so in these lower Ulf prices we have more optionality and flexibility.
Yeah, our break-even is compared very favorably to our beer group. We have...
Speaker Change: A great inventory. Is it a 15 or 20 year inventory? No, but that's part of the strategy. That's part of what we're doing. We're out there looking for additional opportunities. We like to sacrifice some platforms in the southern part of the shelf because that's the playground we've been playing in for a long time. We know that playground.
Speaker Change: Conventional reservoirs that have been historically overlooked by other operators and they are still being overlooked.
Speaker Change: and so to the extent that we can continue to pursue them and continue to build that inventory.
Speaker Change: I believe that we have a great opportunity ahead of us right here in the very playground that we've been playing and and who knows I can there could be a day in the in the future where we actually expand beyond our current playground we'll see today answer your question Noel.
Sure did. And, you know, in the deal slides, um...
Noel: I thought you had a mention of Devonian potential, and that sounds familiar to me.
Noel: But I won't read a little bit about Barnett potential in your neck of the woods, I guess that's...
Noel: sort of in the boundary between the Central Basin Platform and the Midland Basin. So that was a new topic for me.
Noel: Yeah, this is an area that's been developing. If you were to take a little bit of time to understand or study wood is actually going on on the eastern side of the center base of platform, the Barnett play is a very successful play that several companies are still spending my trying to acquire acreage in it.
and so it does present it.
Noel: really nice optionality, especially if we ever get back to an environment where you're above $75 wall. And so above $75 wall these things are very attractive and some of the other things that are very interesting if you were to study the play that the operating costs for most of these Barnett wells.
Noel: are really, really low. So you have really, really high cast generating capacity. And so that's part of why we're so excited about that play. Now at $65 a month, I don't believe we'd be able to allocate counsel to those opportunities.
Noel: But the bottom line is, acquisitions like this provides optionality in the future, especially
Speaker Change: and just so is there a learning curve that conceivably sort of just lower that threshold of what you'd need to make our next work at, you know, slightly, slightly better price.
Speaker Change: Yeah, I think you already know the answer to that question. Yes, there's always a learning curve. And again, technology is your friend. We have learned that technology and climbing the learning curve associated with the experiences and figure out the best ways.
Speaker Change: to drill and complete the wells is the key to taking what used to be Tier I acreage or Tier II acreage returns to Tier I acreage economics.
Speaker Change: and so, yes, there is a learning curve, but, again, in a stage, like you find us today in where we will be after we close the pending acquisition with Lyme Rock.
Speaker Change: Our balance sheet and our current price environment right now, it'll be very challenging for us to want to allocate capital to a development program where we know that we'd have to climb that learning curve. We would want to do that in a higher price environment.
Thank you. Bye.
Got it, thanks a lot.
Speaker Change: Again, if you have a question, please press star then one. Your next question will come from Jeff Robertson with Water Tower Research. Please go ahead.
Jeff Robertson: Thanks, good morning. Paul, just follow up on the organic growth concept. Can you talk about what Ring
Jeff Robertson: G&G to identify additional organic growth opportunities on the existing footprint, whether it's new zones or applying a different technology to an existing zone.
Jeff Robertson: Yeah, very, that's a good question actually, and so we are evaluating, the very first step that you do is to evaluate all the potential zones under your existing acreage.
Jeff Robertson: And as you map those various different zones, you tend to map beyond your acreage. And so we're also looking at acreage near and close to where we currently operate. That's the easiest, simplest, least expensive way to explain.
by and capture, you know, economic opportunities.
and so...
Jeff Robertson: We're starting there. On our existing acreage, we are very much aware of development opportunities both vertically and also horizontally.
Jeff Robertson: and what's kind of interesting is the horizontal opportunities in areas that have traditionally been for us in a way vertical development areas.
Jeff Robertson: and so we drilled a couple of wells this last year. We have one of those horizontal wells that remain a duck over the year. We're going to be completing that here this year.
Jeff Robertson: that duck as well as we study the completion methods and again the potential learning curve associated with that.
Jeff Robertson: But several other offsetting operators have been very successful pursuing these plays and that's part of the reason why we are now in a study mode, so to speak, to decide how we want to allocate our capital to the least.
Jeff Robertson: Risky or the least risk-adjusted path forward to maximize recathlete generation, but yeah, we aren't very excited about that. There are quite a few opportunities.
Jeff Robertson: in the southern part of our acreage, so in Crane County, also in Nectar County.
Jeff Robertson: where we can, where we have been historically developing things vertically, but right now we believe there's an opportunity to test and try horizontal technology to improve the capital efficiency and increase the...
Jeff Robertson: The net present value, so to speak, of each location, reduce the number of locations that are required. So your surface footprints are a lot lower. You have fewer facilities, so you also have fewer admissions. There are a lot easier to manage. It's just overall a much more efficient way to pursue in our future growth.
Speaker Change: and then on the balance sheet, Paul, or maybe Travis, can you talk about whether or not the Lyme Rock assets will have a material impact on?
Jeff Robertson: The RBL, when you fold those in and I guess spring re-determination.
Yeah, so, um,
Jeff Robertson: We typically have a spring re-determination. Right now we have the room and liquidity on our balance sheet to close this transaction and we plan to do that.
Jeff Robertson: However, we do believe that with the added assets, we probably could deserve a higher bond base, that's something that the banks will have to decide after we...
Speaker Change: You know, provide all the information and all that. So I don't want to get out over my seas and predicting that. Travis, is there a point you'd like to make in that? There's just very bankable assets with the client rate. So we think that the banks will really like them. It's also very, it's PDP heavy. We've got some upside, a lot of upside, but the banks are going to like the PDP aspect of it as well.
So, we'll wait for the spring-rate determination. Thank you very much.
Alright.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Paul McKinney for any closing remarks.
Paul McKinney: On behalf of the management team and board of directors, I want to once again thank everyone for your interest and for joining today's call. We appreciate your continued support and we look forward to keeping everyone a prize for progress. Have a great day.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.