Q1 2025 SM Energy Co Earnings Call - Q&A
Greetings and welcome to SM Energy's first quarter 2025 financial and operating results Q&A session. At this time all participants are in a listen only mode.
Operator: Greetings and welcome to SM Energy's first quarter 2025 financial and operating results Q&A session. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference, you can press star zero on your telephone keypad. As a reminder, this conference is being recorded.
If anyone should require operator assistance during the conference you can press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Pat Lytle Senior Vice President and finance. Thank you you may begin.
Patrick Lytle: It is now my pleasure to introduce your host, Pat Lytle, Senior Vice President in Finance. Thank you. You may begin. Thank you, Chamali.
Speaker Change: Thank you Charlie good morning, everyone in today's call, we may reference the earnings release.
Operator: Good morning, everyone.
Patrick Lytle: In today's call, we may reference the earnings release, IR presentation, or prepared remarks, all of which are posted to our website. Thank you for joining us to answer your questions today.
Speaker Change: And patients are prepared remarks, all of which are posted to our website.
Beth Mcdonald: Thank you for joining us to answer your questions today on the call. This morning, we have our president and CEO of her Bogo see Oh, Beth Mcdonald and CFO Wade Pursell.
Patrick Lytle: On the call this morning, we have our President and CEO, Herb Vogel, COO, Beth McDonald, and CFO, Wade Purcell.
Patrick Lytle: Before we get started, I need to remind you that our discussion today may include forward-looking statements and discussion of non-GAAP measures. I direct you to the accompanying slide deck and earnings release and risk factors section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ. Also, please see the slide deck appendix and the earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking and non-GAAP measures.
Beth Mcdonald: Before we get started I need to remind you that our discussion today may include forward looking statements and discussion of non-GAAP measures I direct you to the accompanying slide deck in the earnings release and risk factors section of our most recently filed 10-K, which describe risks associated with forward looking statements that could cause actual results to differ.
Beth Mcdonald: Also please see the slide deck appendix in the earnings release for definitions and reconciliations of non-GAAP measures to administer eckley comparable GAAP measures and discussion of forward looking and non-GAAP measures.
Patrick Lytle: Also, our first quarter 10-Q was filed this morning.
Beth Mcdonald: Also our first quarter 10-Q was filed this morning.
Herbert Vogel: With that, I will turn it over to Herb for brief opening commentary. Herb?
Speaker Change: With that I will turn it over to her for brief opening commentary herb.
Herbert Vogel: Thanks, Pat.
Beth Mcdonald: Thanks Pat.
Herbert Vogel: Good morning, and thank you for joining us. We are really pleased with the performance across the company and particularly pleased with how well the integration has gone and the quality of our Uinta Basin assets. As a reminder, our plan for 2025 delivers 30% increase in oil production, 20% increase in total production. And that's a step change in scale for SM. And we clearly have three top tier assets.
Speaker Change: Good morning, and thank you for joining us.
Speaker Change: We are really pleased with the performance across the company and particularly pleased with how well the integration has gone and the quality of our Uinta basin assets.
Speaker Change: As a reminder, our plan for 2025 delivers 30% increase in oil production, 20% increase in total production and that's a step change in scale for SM and we clearly have three top tier assets with that I'll turn the call back over to Molly to take your questions.
Patrick Lytle: With that, I'll turn the call back over to Chamali to take your questions.
Speaker Change: Okay.
Patrick Lytle: Chamali. Thank you.
Speaker Change: Molly.
Speaker Change: Thank you we will now be conducting a question and answer session.
Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment, please, while we poll for questions.
Speaker Change: I would like to ask a question. Please press star one or your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from the line of Tim <unk> with Keybanc Capital Markets Inc. Please proceed with your question.
Timothy Rezvan: Our first question comes from the line of Tim Rezvan with KeyBank Capital Markets. Please proceed with your questions. Good morning, folks, and thank you for taking my questions.
Tim: Hey, good morning folks and thank you for taking my questions.
Timothy Rezvan: My first one, I don't know if this is for Herb or Beth, but I'm trying to get an understanding on the shape and the oil skew on 2025 production. First quarter was 53%, and you got into a little higher oil cut in the second quarter, but you didn't touch the full year kind of guide for oil. So I was curious, are there timing issues with you went to wells coming online that we should be aware of, or is this just simply you not touching most annual guidance items at this point? Just trying to understand how the year's gonna shake out.
Tim: My first one I don't know if this is for Harvard Beth, but I'm trying to get an understanding on the the shape and the oil SKU on 2025 production.
Tim: First quarter was 53% and you're guiding to a little higher oil cut in the second quarter, but you didn't touch the full year kind of guide for oil. So just curious if you are there timing issues with.
Tim: You went to wells coming on line that we should be aware of or is this just simply do not.
Tim: Touching most annual guidance items at this point I'm, just trying to understand how the year's going to shake out.
Herbert Vogel: Thanks.
Speaker Change: Yeah, Tim I'll start, but I think best then dig into that one a little bit more but yeah. We we didn't see material changes to change anything for the full year plan, but she can elaborate a little bit on the on the percentage improvement in oil cut from <unk> and what that means later in the year.
Elizabeth McDonald: Yeah, Tim, I'll start but I think Beth can dig into that one a little bit more. But yeah, we didn't see material changes to change anything for the full year plan. But she can elaborate a little bit on on the percentage improvement in oil cut from 1Q to 2Q and what that means later in the year. Yeah, and so what I would say is as you look at the production rates, and as we've said the whole year, we go from one Q to two Q increasing modestly, and then you'll see a major increase in the third quarter.
Speaker Change: Yeah, and so what I would say is as you look at the production rates and as we said the whole year we go.
Speaker Change: From one two to two two increasing modestly and then you'll see a major increase in the third quarter and as far as the oil mix. You know we have a bit more you went to wells coming on but it's important to kind of take a step back and just know that every single quarter that we have variability in our oil mix, depending on what wells, we bring on so.
Elizabeth McDonald: And as far as oil mix, you know, we have a bit more you went to wells coming on, but it's important to kind of take a step back and just know that every single quarter that we have variability in that oil mix, depending on what wells we bring on. So we have large pads coming on in the Uinta. And so that is driving our oil mix a bit higher. for the year, we would stay within the guidance range that we've already put out there. Okay, okay, that's helpful. Thank you.
Speaker Change: We have large pads coming on in the winter and so that is driving our oil mix a bit higher.
Speaker Change: For the year, we went to stay within the guidance range that we've already put out there.
Speaker Change: Okay. Okay. That's helpful. Thank you and then my second one I guess I, maybe more for Wade.
Timothy Rezvan: And then my second one, I guess, maybe more for Wade, on the topic of cash returns, your path back to one times leverage is now a little steeper with oil below 60. But we see the balance sheet getting there around year end.
Speaker Change: On the topic of cash returns.
Speaker Change: Your path back to one times leverage is now a little steeper with oil below 60, but we see the balance sheet getting there around year end. So is it safe to assume repurchases are going to be off the table. This year until you get there or do you feel compelled to maybe step in and just spend the equity with where shares are yeah. Thanks, yeah. Good.
Wade Purcell: So is it safe to assume repurchases are going to be off the table this year until you get there? Or do you feel compelled to maybe step in and defend the equity with where shares are now? Thanks. Yeah, good. Good question, Tim. I think my answer would be very similar to what I would have said a quarter ago, that, you know, we certainly like the stock price. I mean, that has nothing to do with it. We are being disciplined about allocating free cash flow to getting leverage back to that one times area. And yes, prices are lower than they were a quarter ago.
Speaker Change: Good question, Tim I think my answer would be very similar to what I would've said a quarter ago that.
Speaker Change: We certainly like the stock price I mean, that's that that has nothing to do with it we are being disciplined about allocating free cash flow to getting leverage back to that one times area and yes prices are lower than they were a quarter ago, but you're right even at even at current prices.
Wade Purcell: But you're right, even at current prices. And, you know, certainly, if you assume something like 55, we generate a lot of free cash flow, plenty of cash flow to, frankly, pay off maturity. And that leverage metric kind of gets down into that really, really close to one times area. So I think you can assume that we are prioritizing debt reduction until we get there. I think that's a good assumption.
Speaker Change: Yes, certainly if you assume something like 55, we generate a lot of free cash flow plenty of cash flow to frankly pay off maturities in and that leverage metric kind of gets down into that really really close to one times area. So I think I think you can assume that we are prioritizing debt reduction until we get there I think that's a good assumption.
Speaker Change: But I wouldn't take off the table and our ability to to step in occasionally to support the stock.
Wade Purcell: But I wouldn't take off the table our ability to step in occasionally to support the stock. Okay, thank you. You bet. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: You bet.
Speaker Change: Thank you. Our next question comes from the line of Oliver How language T. P. H. Please proceed with your question.
Oliver Huang: Our next question comes from the line of Oliver Huang with TPH. Please proceed with your question.
Speaker Change: Good morning, Herb that's been laid and thanks for taking the questions just wanted to start out in the Uinta I'm looking at slide seven in your deck. The one showing productivity charts by various key regions no. The lower acuity or is the primary focus for you all today in the Uinta.
Oliver Huang: Good morning, Herb, Seth, and Leighton. Thanks for taking the question. I just wanted to start out in the Uintah, looking at slide seven in your deck, the one showing productivity charts by various key regions. I know the lower cube is the primary focus for you all today in the Uintah, and I imagine the data set from Enveris that's being cited there likely shows a heavy lean into the Utman Butte as the most developed pay zone within that part of the stack.
Speaker Change: I imagine the dataset from embarrassed that's being cited there likely shows a heavy lean into the you might view as the most developed pays on within that part of the stack. So my question is what is the expectation for being able to hit the underwritten assumptions for the lower acute when you are co developing with other zones like the Wasatch in the Douglas Creek, which hasn't been quite as prolific.
Oliver Huang: So my question is, what is the expectation for being able to hit the underwritten assumptions for the lower cube when you're co-developing with other zones like the Wasatch and the Douglas Creek, which haven't been quite as prolific, historically speaking, on an oil-per-foot basis?
Speaker Change: Historically speaking on an oil per foot basis.
Speaker Change: Yeah.
Speaker Change: So I would say Oliver. Thank you. Thank you for the question and you know 90% of our program is focused on the lower cube and we have a majority of that is going into the U M D and the Wasatch.
Herbert Vogel: So I would say, Oliver, thank you for the question. And 90% of our program is focused on the lower cube. And we have a majority of those going into the Utland Butte and the Wasatch, and some in the Castle Peak, right? So 90% lower cube proving up the value there. We're highly confident in the forecast that we have coming out of those zones, very competitive. The rest, 10%, is focused on the upper cube. And as you saw from Inveris, strong results there in the Douglas Creek, and we'll continue to test other intervals within the section.
Speaker Change: And some in the castle peak right, so 90% lower Q proving up the value there were highly confident in the forecast that we have coming out of those sounds very competitive the rest are 10% as it's focused on the upper cube and as you saw from embarrass strong results there isn't Douglas Creek, and we'll continue to test.
Speaker Change: Other intervals within the section.
Speaker Change: Thanks, that's helpful color and maybe for a follow up question all of the I know you all called out a few items impacting the corporate LOE guide for this year, maybe a greater mix of horizontal wells in the Uinta should help over time in addition to getting some of the costs associated.
Oliver Huang: Thanks. That's helpful, Culler.
Oliver Huang: And maybe for a follow-up, just on LOE, I know you all called out a few items impacting the Corporate LOE Guide for this year. Maybe a greater mix of horizontal wells in the UINTA should help over time, in addition to getting some of the costs associated with getting facilities and whatnot up to SM spec.
Speaker Change: With getting facilities and whatnot out there.
Speaker Change: S unstuck.
Oliver Huang: So, question is, as we think through the uplifted cost in this year's program on a corporate basis, should we view this as more one-time-in-nature type of impact, or are there some of these costs that are going to be much more sticky beyond this year, if you could walk through that?
Speaker Change: So question is as we think through the.
Speaker Change: Listed cost in this year's program on a corporate basis should we view this as more onetime in nature type of impact or there is some of these costs that are going to be much more sticky beyond this year, if you could walk through that.
Speaker Change: Yeah, I'll take that Oliver So we we see the use of the fuel gas and our change in a way that we record the costs to continue moving forward, we use the fuel gas within our operations and so we see that going forward and that's about a third of that increase you know their work over.
Elizabeth McDonald: Yeah, I'll take that Oliver.
Elizabeth McDonald: So we see the use of the fuel gas and our change in the way that we record the cost to continue moving forward. We use the fuel gas within our operations. And so we see that going forward. And that's about a third of that increase. You know, the work over activity was moved forward a little bit and we have increase in water production that came from offset activity. Some of that may continue, but we've included all of that in our adjusted full year guide.
Speaker Change: He was moved forward a little bit and we have increase in water production that came from offset activity. Some of that may continue but we've included all of that in our adjusted full year guidance.
Elizabeth McDonald: And just to remind you, the first item has revenue offset again, the accounting. Awesome. Thanks for the time. Thank you.
Speaker Change: And just a reminder, the first item has revenue offsetting it.
Speaker Change: So the accounting.
Speaker Change: Yeah.
Speaker Change: Awesome, Thanks for the time.
Speaker Change: Yeah.
Speaker Change: Thank you.
Fu Fan: Our next question comes from the line of Fu Fan with Roth Capital. Please proceed with your question. Hi, good morning, guys. Thanks for taking my questions. So, I saw that you dropped two rigs in the first quarter, and you also said eventually the total rig will be six.
Speaker Change: Our next question comes from the line of Fu fan with Roth Capital. Please proceed with your question.
Speaker Change: Hey, good morning, guys. Thanks for taking my question. So I saw that you dropped tourists in the first quarter and you're also especially the total rate will be fixed. So I was wondering if you could be more specific about how nice ways to draw one more Rick.
Fu Fan: So, I was wondering if you could be more specific about timelines when to drop one more rig. Thank you.
Speaker Change: Thank you.
Speaker Change: Oh, Hey, thanks for the question we are.
Elizabeth McDonald: Boo, hey, thanks for the question. We are really not giving any guidance on what our plans are for specific rigs at this time, so you can just say we'll drop six rigs when it makes sense based on the program as we've laid it out, and really what matters is the turn in lines in terms of translating things to production, and that's really what we're still sticking to our TIL plan for the year, so no change on that part.
Speaker Change: I really not giving any guidance on what our plans are for specific rigs at this time.
Speaker Change: So you can just say well well dropped six rigs when it makes sense based on the program as we've laid it out and.
Speaker Change: Really what matters is the turn in lines in terms of translating things to production and that's that's really what we're still sticking to our CIL plan for the year. So no change on that front.
Speaker Change: Alright, thank you.
Fu Fan: Okay, thank you.
Speaker Change: Okay.
Operator: Bye. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Michael Furrow: Our next question comes from the line of Michael Furrow with Pickering Energy Partners. Please proceed with your question.
Our next question comes from the line of Michael Furrow with Pickering Energy Partners. Please proceed with your question.
Michael Furrow: Hello, and good morning, Thanks for taking my questions.
Michael Furrow: Hello and good morning. Thanks for taking my question. Last quarter, Herb, when asked about capital allocation between your assets, you mentioned that returns were really comparable across the three areas. But if prices moved, that the company would have the ability to kind of flex between regions. And at that time, you know, prices were more at 74. You know, today we're looking at with sub 60 with gas prices relatively flat.
Michael Furrow: Last quarter her when asked about capital allocation between your assets you mentioned that returns were really comparable across the three areas, but if prices move that the company would have the ability to kind of flex between regions.
Michael Furrow: And at that time, you know prices were March 17 forward today.
Michael Furrow: Today, we're looking at sub 60 with gas prices relatively flat. So my question is how's the returns between regions changed.
Michael Furrow: So my question is, have the returns between regions changed? And if so, should we expect sort of a higher allocation of capital activity towards South Texas versus the previous?
Michael Furrow: And if so should we expect sort of a higher allocation of capital activity.
Michael Furrow: So our south Texas versus the previous update.
Michael Furrow: Yeah, that's a great question Michael and.
Herbert Vogel: Yeah, that's a great question, Michael. And You know, it's really difficult to change a program that quickly. You know, the commodity markets work on, you know, intraday timelines, and our plans work on timelines quite different from that. So, with the program we've laid out, it looks quite good at strip for the year and achieving our objectives for the year. You know, realistically, if prices for oil were to drop below $50 per barrel, you'd expect most companies to really revisit their programs. And we're kind of in that situation of looking. We're really comfortable about $55 with the program we have.
You know, it's really difficult to change a program that quickly.
Michael Furrow: Commodity markets work on intra day timelines in our plans work on.
Michael Furrow: Timelines are quite different from that so with program we've laid out.
Michael Furrow: It looks quite good at strip for the year in achieving our objectives for the year.
Michael Furrow: Realistically if prices for oil were to drop below $50 per barrel you'd expect most companies to really revisit their programs.
Michael Furrow: We're kind of in a situation of looking we're really comfortable about 55 with the program. We have it delivers everything you want.
Herbert Vogel: It delivers everything we want. Pullbacks in activity take quite a bit of thought and are tied to our procurement contracts. I don't know if that answers the question for you, but we don't see a change at this time at all. It would be, need to be a more dramatic change in commodity prices for us to consider doing something different, but we do have plans made as for contingency on what we do later in the year were something to change.
Michael Furrow: Pullbacks and activity take quite a bit of thought.
Michael Furrow: And are tied to our procurement contracts I don't know if that answers the question for you but.
Michael Furrow: We don't see a change at this time at all would be need to be a more dramatic change in the prices for us to consider doing something different but we do have plans made as for contingency on what we do later in the year were something to change.
Michael Furrow: No that answered my question that's understood.
Michael Furrow: Now, that answers my question. That's understood. It's not so easy to just drop a rig and pick one up as quickly as we'd like.
Speaker Change: It's not so easy to just drop a rig and pick one up in as quickly as we'd like.
Speaker Change: So for my follow up just wanted to ask a quick question on the Un's out now that the company has had more time to kind of look into the acquire assets how are they looking versus the original expectations and is there anything that the company is learning.
Michael Furrow: For my follow-up, I just want to ask a quick question on the UNTEP. Now that the company's had more time to kind of look into the acquired assets, how are they looking versus, you know, the original expectations? And is there anything that the company is learning that would alter the drilling or completion designs that you guys get to have in 2026 versus the prior operators?
Speaker Change: Alter the drilling or completion designs that you guys get to half in 2026 versus the prior operator's desire.
Michael Furrow: Yeah, I will just say Michael on I'm really pleased with the assets.
Herbert Vogel: Yeah, I will just say, Michael, I'm really pleased with the assets. It's definitely exceeded our expectations. And we're really pleased with the XCL team and what they did setting us up with quite a bit of investment in infrastructure that we're really getting the benefits of now.
Michael Furrow: It's definitely exceeded our expectations and we're really pleased with the <unk> team and what they did setting us up with quite a bit.
Michael Furrow: Investment in infrastructure that we're really.
Michael Furrow: Getting the benefits up now, but I'll turn it over to Beth because she can she can dig into the details more about specifically what we liked so much yeah.
Elizabeth McDonald: But I'll turn it over to Beth because she can she can dig into the details more about specifically what we like so much. Yeah, I would say just to start and kind of piggyback off of what Herb said, the innovation of our drilling completion and operations team has really been phenomenal, and we continue to just beat a lot of the records that we set previously. And so we're just overjoyed with the fact that we're able to drive capital efficiency there even more than we thought going into it. Now, as far as the synergies and the great things that SM brings to this asset, it's really associated with the geoscience and reservoir engineering teams that continue to look at the well performance.
Speaker Change: Yeah, I would say just a start and kind of piggy back off of what Herb said the innovation of our drilling completion and operations team has really been phenomenal and we continue to just be a lot of the records that we set previously and so we're just we're just overjoyed with the fact that we're able to drive capital efficiency, there even more than we thought.
Speaker Change: Going into it now as far as the synergies and the great thing is that S. M brings to this asset it's really associated with the Geoscience and reservoir engineering teams that continue to look at the well performance and as I mentioned in the prepared remarks, we are not popping are turning in line the new S. M designed.
Elizabeth McDonald: And as I mentioned in the prepared remarks, we are not popping or turning in line the new SM design pad until 2026. And so all of the information that we're gaining through 2025, we're putting into that design to make it optimal and create the highest returns and free cash flow. So I think across the board, we're seeing outstanding results in our Uinta Basin.
Speaker Change: Pad until 'twenty 'twenty, six and so all of the information that we're gaining through 2020 five we're putting into that designed to make it optimal and create the highest returns and free cash flow. So I think across the board, we're seeing outstanding results in our Uinta basin.
Speaker Change: Thank you that's helpful.
Operator: Thank you, that's helpful. Thank you. Thanks, Michael.
Aaron: Thank you Aaron.
Speaker Change: Thank you. Our next question comes from the line of Michael's Elia with Stephens. Please proceed with your question.
Michael Scialla: Our next question comes from the line of... Michael Scialla with Stevens, please proceed with your question. And Michael, is your line on mute? Sorry about that. Good morning, everybody.
Speaker Change: And Michael is your line on mute.
Michael Elia: Sorry about that.
Speaker Change: Everybody wanted to see if you could.
Michael Scialla: I wanted to see if you could say how much oil went to the local refinery or refineries in the Uinta during the quarter and kind of the difference in transportation costs there between the two and what determines that split from quarter to quarter. Yeah, I can I can jump in on that. You know, typically, we sell about 15 to 20% of our crude into the Salt Lake City refineries, it has a lower transportation costs. And anytime that we can get the higher percentage of our oil going to Salt Lake City refineries, we will do so.
Speaker Change: See how much oil went to a local refinery or refineries in the uinta during the quarter and.
Speaker Change: Kind of a difference in transportation cost there between the two.
Speaker Change: And what determines that split from quarter to quarter.
Speaker Change: Yeah, I can I can jump in on that you know typically we sell about 15% to 20% of our crude into the Salt Lake City refineries. It has a lower transportation costs and anytime that we can get the higher percentage of our oil going to Salt Lake City refineries, we will do.
Speaker Change: So and so we continue to just try to maximize that market as much as possible and then the rest we send by rail.
Wade Purcell: And so we continue to just try to maximize that market as much as possible. And then the rest we send by rail.
Speaker Change: Is the is that just based on capacity, there's no contracts that are.
Wade Purcell: Is that just based on capacity, there's no contracts that are underwriting or underpinning how much goes to one area or the other? Yes, that's correct. We work with multiple refineries up there.
Speaker Change: Underwriting right are underpinning how much goes one or the other.
Speaker Change: Yes, that's correct.
Speaker Change: We work with multiple refineries up there yeah.
Speaker Change: And.
Michael Scialla: And looks like he's had pretty minor non-op activity in the first quarter, anticipating a little bit in the second quarter as well.
Speaker Change: It looks like he just had pretty minor non op activity in the first quarter anticipating a little bit in the second quarter as well.
Wade Purcell: I just wanted to see if you have any better visibility on the remainder of the year. there will be any material change to that 1.3 billion of CapEx that you have planned for the year. Yeah, Mike, what I would say is so far, you could expect a similar run rate in the second half of the year, as we're seeing in the first half, we don't deem that as material to our full year CAPEX program. And that's why we haven't changed guidance. Got it.
Speaker Change: I wanted to see if you have any better visibility on the remainder of the year.
Speaker Change: I think there'll be any material change to that $1 3 billion of Capex that you have planned for the year.
Speaker Change: Yeah, Mike what what I would say is so far you could expect a similar run rate in the second half of the year as we're seeing in the first half we don't deem not as material to our full year Capex program and that's why we haven't changed guidance.
Speaker Change: Got it thank you.
Operator: Thank you.
Speaker Change: Yep. Thanks.
Speaker Change: Thank you.
Zach Parham: Our next question comes from the line of Zach Parham with JP Morgan. Please proceed with your question. morning.
Speaker Change: Our next question comes from the line of Zach <unk> with J P. Morgan. Please proceed with your question.
Zach <unk>: Good morning.
Zach Parham: Could you talk a little bit more about your operational plans for the year and going into 26? You know, you've gone from nine rigs to seven rigs. You're planning to drop to six. As you see things today, would you plan to add back a rig in 2026? Or is six the run rate going forward for the pro forma company with the three s?
Speaker Change: Could you talk a little bit more about your operational plans for the year and going into 'twenty six you've gone from non rigs to seven rigs you're planning to drop to six.
Speaker Change: As you see things today would you plan to add back a rig in 2026 or is it six the run rate going forward for the pro forma company with the three assets.
Herbert Vogel: Yeah, I'll start with that one, Zach.
Speaker Change: Yeah, I'll start with that one is that you know.
Herbert Vogel: You know, I gotta say, hey, what do you think the strip will look like in November of 2025? You know, I don't know. So we've really got scenarios and plans laid out that really are tempered, call it, by the commodity prices that may show up or not later in the year and what the cost environment will be. So we really don't have a 2026 plan laid out there. We have scenarios. And as we see a pathway unfold, we'll pursue the scenario that we've lined out for that price outcome, call it. And you know how it is, it's, it's, we work on a timeline that's quite different from the daily prices in the commodity markets.
Speaker Change: I got to say Hey, what do you think the strip will look like in November of 2025.
Speaker Change: I don't know so we really got scenarios and plans laid out that really are Tim.
Speaker Change: Temporary call it by the commodity prices that may show up or not later in the year and what the cost environment will be so we really don't have a 2026 plan laid out there we have scenarios and we as we see a pathway unfold we'll pursue the.
Speaker Change: The scenario that we've lined out for that.
Speaker Change: Price outcome call it.
Speaker Change:
Speaker Change: Hi visits it's when you work on a timeline that is quite different from the daily price.
Speaker Change: Commodity markets. So we have to kind of sort out what is a short term phenomenon versus a trend in terms of what at least on commodity prices and costs.
Herbert Vogel: So we have to kind of sort out what is a short term phenomenon versus a trend in terms of what it leads to in commodity prices and costs. So that's how we set things up, that we don't have a specific plan for 2026, but we have multiple scenarios and we model the company. And that's why we can say, hey, we stick with this plan at current strip, you know, it looks good down to 55. And then below that, we'd start looking at, do we change anything? How long would that last? That's really how we how we look at it.
Speaker Change: So that's that's how we've set things up that we don't have a specific plan for 2020 six but we have multiple scenarios and we modeled the company and Thats why we can say hey, we stick with this plan at current strip. It looks good down to 55, and then below that we'd start looking at do we change anything how long would that last.
Speaker Change: That's really how we how we look at it and what happens to cost yeah, what happens to cost and waste on quite a bit of modeling the company and even more adverse environments and we feel very comfortable from a balance sheet perspective, a way do you want to add anything on that now you said it well.
Wade Purcell: What happens to cost? Yeah, what happens to cost? And Wade's done quite a bit of modeling the company in even more adverse environments. And we feel very comfortable from a balance sheet perspective.
Wade Purcell: Wade, do you want to add anything on that? No, you said it well. I mean, I think I mentioned it earlier. At $55 flat. I mean, you see us generating lots of free cash flow, paying the dividend, paying off maturities. a leverage metric in an area that we're very comfortable in. So if you're wondering about hedging, that's kind of influenced our hedging decisions a little bit. You'll see us do a lot of $55 floors on costless collars just to protect that level because that's a very positive level for us, if I could say it that way.
Speaker Change: I mentioned it earlier it at 50 to $55 flat I mean, you you see us generating.
Speaker Change: Lots of free cash flow paying the dividend paying off maturities.
Speaker Change: Our leverage our leverage metric in an area that we're that we're very comfortable in so.
Speaker Change: If you're wondering about hedging weight, that's kind of.
Speaker Change: Influenced our hedging decisions, a little bit where you'll see us do a lot of $55 floors on costless collars.
Speaker Change: To protect that level, because that's a very.
Speaker Change: Positive level for us, but I can say it that way.
Speaker Change: Thanks for that color just a follow up I think you you've messaged in the past you could generate single digit growth that kind of flat capex year over year is it fair to say if you were to go to a maintenance program, our capex would be down year over year based on cost that we're seeing now obviously you could have service.
Zach Parham: Thanks for that color.
Zach Parham: Just to follow up, I think you've messaged in the past, you could generate single digit growth that kind of flat capex year over year.
Zach Parham: Is it fair to say if you were going to go to a maintenance program, capex would be down year over year, based on costs that we're seeing now, obviously, you know, you could have service cost depletion as well. Yeah, Zach, that is a big wild card. We don't know exactly how things will go on costs for 26. I mean, things are looking pretty good. Tariffs are really only influencing a small percentage of our cost. And under scenarios that are a little bit more adverse price-wise, it's pretty close to flattish. Obviously, there's quarter-to-quarter variation depending on when credit lines are coming on.
Speaker Change: Cost deflation as well.
Speaker Change: Yeah that is that that is a big wildcard, we don't know exactly how things will go on cost for 26, I mean things are looking pretty good that tariffs are really only influencing a small percentage of our of our cost and you know under scenarios that are a little bit more adverse price wise its pretty close to flattish you know obviously there is quarter to quarter.
Speaker Change: Variation, depending on when certain lines or are coming on but.
Zach Parham: But I think that answers what you're looking at. If you're just looking at year-over-year dollars going from nine to six this year and being at, you know, six-ish next year, obviously, the cost would be overall lower. And with those six rigs, you could you could hold flat next year. Is that fair? Yeah, it depends a little bit on the mix, you know, and and where you are on BO versus BOE. So you know, if we drill in more on the South Texas side, because the gas and NGL prices being better, then obviously, it's easier to be above flattish.
Speaker Change: I think that answers or you do it.
Speaker Change: Just looking at year over year dollars going from nine to six this year and being at six ish next year, obviously, the cost would be overall lower yes, Sir yeah.
Speaker Change: And with those six rigs you could you could hold flat next year is that fair.
Speaker Change: Yeah, it depends a little bit on the mix you now and where you are on.
Speaker Change: Oh, it's a versus B O E.
Speaker Change: So you know if we drill in more on the South Texas side, because of the gas and NGL prices being better than obviously, it's easier to be about flattish.
Zach Parham: If you drill more heavily into the oil, you'd be at the lower end, just because of the nature of BOE versus BO. It's in the flattish area, but it's in flattish area.
Speaker Change: You drill more heavily into the oil you'd be at the lower end.
Speaker Change: Because of the nature of Boe's from shouldn't be Oh, it's in the flattish area, but some flattish area.
Speaker Change: Okay. Thanks, our next right.
Zach Parham: Okay.
Herbert Vogel: Thanks, Herb.
Wade Purcell: Thanks, Wade. You bet.
Speaker Change: You bet. Thanks Pat.
Operator: Thanks, Zach.
Speaker Change: Thank you. Our next question comes from the line of Gabe Daoud with TD Cowen. Please proceed with your question.
Gabe Daoud: Our next question comes from the line of Gabe Daoud with TD Cowen.
Gabe Daoud: Please proceed with your question. Hey, thanks. Good morning, everyone. I appreciate the time.
Gabe Daoud: Hey, Thanks, Good morning, everyone. I appreciate the time I was hoping maybe to just start with a clarification on the trajectory.
Elizabeth McDonald: I was hoping maybe we could just start with a clarification on the trajectory for the second half of this year. Did you say earlier that 3Q should show, I guess it'll show sequential growth, but is 3Q growth more than the type of growth that we will see or that you're guided to in 2Q? Is that fair? Yes, that's fair. Okay, okay, thanks, Beth.
Gabe Daoud: For the second half of this year did you say earlier that <unk> should show I guess, it'll show sequential growth, but its three Q grows more than the type of growth that we will see or that you guided to in <unk> is that fair.
Gabe Daoud: Yes, that's fair.
Speaker Change: Okay. Okay. Thanks, Beth and then maybe just as a follow up if we could.
Wade Purcell: And then maybe this is a follow-up, if we could maybe get a one-on-one type explanation around how you went to production slash sales is booked from a revenue standpoint, and just given the lag between when the barrels get transported versus your revenue recognition, will there always be a mismatch between sales volumes and production at the wellhead? And should we expect a true-up at some point to make you whole on that? Or will there always just simply be a little bit of a... discrepancy between those two.
Speaker Change: Maybe get a 101 type explanation around how you went a production slot.
Speaker Change: Flash sales is because this book from a revenue standpoint, and just given the lag between when the barrels get transported.
Speaker Change: Versus your revenue recognition will there always be a.
Speaker Change: A mismatch between sales volumes and production at the wellhead and should we expect a true up at some point too to make you whole on that or will there always just simply be a little bit of a.
Speaker Change: Uh huh.
Speaker Change: The discrepancy between those two.
Wade Purcell: Yeah, this is Wade. I wouldn't I would not call it a true up. There will be there will be slight lags, you know, just depending on a cutoff at the date, for the reasons that you articulated. So there will always be some lag there. And some, you know, small difference there going forward, is the way I would say it.
Speaker Change: Yeah. It does.
Wade: This is Wade I wouldn't I would not call. It a true up there there will be there will be a slight lags.
Wade: You know just depending on a cut off at the date for the reasons that you articulated so there'll always be some lag there and some you know small difference there going forward is the way I would say it.
Speaker Change: Okay. Okay. Thanks, thanks, everyone.
Operator: Okay.
Operator: Thanks, everybody. Thanks, everyone. Thank you.
Speaker Change: Sure Okay. Thanks kit.
Wade: Thank you.
Speaker Change: And we have reached the end of the question and answer session I would like to turn the floor back to Herb Vogel for closing remarks.
Herbert Vogel: And we have reached the end of the question and answer session.
Operator: I would like to turn the floor back to Herb Vogel for closing remarks. Thanks, Jamali. And thank you all for joining us today. We look forward to seeing a number of you at upcoming events. Have a good day.
Speaker Change: Thanks, Jerome Alley, and thank you all for joining US today, we look forward to seeing a number of you at upcoming events have a good day.
Speaker Change: Thank you and this does conclude today's call. We thank you for your participation you may disconnect your lines at this time.
Thank you, and this does conclude today's call. We thank you for your participation. You may disconnect your lines at this time.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.