Q2 2025 Civitas Resources Inc Earnings Call
2025 earnings conference call and webcast. My name is Morgan and I will be your operator for today's call. Please be advised that today's conference call is being recorded. I will now turn the call over to Brad whitmarsh head of investor relations, Brad, please go ahead.
Thanks Morgan. Good morning everyone and thank you for joining us.
Yesterday, we announced our second quarter 2025 results as well as an enhanced Capital return program.
We provided some supplemental materials and we filed our 10 Q.
In addition, we announced the appointment of wouter vent, kempen formerly our board chair as our interim CEO.
Hopefully you've had a chance to look through all of our materials uh which are all on the website.
This morning, our prepared remarks will come from wouter as well as Marinella aosky. Our CFO and Clay Carroll our president and coo
As always, please let me know your time to one question and one follow-up, and we can get through the office list efficiently.
Well, certainly we will make certain forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from projections.
Please read our full disclosures regarding these statements in our most recent SEC filings.
Also, we may refer to certain non-gaap Financial metrics reconciliations to the appropriate. Gap measure can be found in yesterday's earnings release and our SEC filings.
With that, I'll turn the call over to Wouter.
Thanks, Brad and good morning everyone. Thanks for joining us.
As we continue to build a world-class energy company, we must stay nimble and adaptable, and build a culture of performance, strong execution, and cost leadership.
7,000 is accomplished a lot since our formation in 2021, but there's more work to be done and as such the board made a difficult decision to part ways with Chris oil.
We thank Chris for his contributions to our company and all that he has done to bring civitas to where we are today.
I want to be clear that this is not a strategic shift for civitas. This was a board decision that we needed new leadership to deepen, our focus on execution and performance on discipline, and on cost leadership and push the company forward.
I will act as interim CEO until permanent replacement can be found and Howard Willard, who has served on our board since 2021 has been appointed Chair by the board during this period.
We enter 2025.
4. Clear priorities, as we work to build a stronger and more durable, civitas in the face of significant macro volatility.
Number 1.
Run the business to maximize free cash flow.
And build upon a leading cause structure enhanced by sustainable Capital efficiencies.
Number 2.
Deployed at free cash flow to protect and strengthen the balance sheet and we laid out a goal of achieving 4 and a half billion in net debt towards the end of the year.
Number 3, return cash to shareholders which was targeted to primarily, come through a strong base dividend with a potential for higher shareholder returns tied to hitting our debt reduction Target.
And number 4 lead in ESG and build a long-term sustainable business. As we execute on our goal to further reduce our emissions profile.
And as we look back on the first half of the year, Civitas has taken decisive action to enhance our operational execution.
Sustainably lower our costs and improve our financial position in order to maximize value for shareholders.
With a number of our goals already achieved and confidence in meeting our debt reduction targets. For the year, we are very pleased that we can now reinstate an aggressive Capital returns plan with a buyback. Authorization. That is well, over 25% of our market cap today.
Let me now hand it over to Marinella to go through this in more detail and cover this year's accomplishments.
Thanks outer.
As you mentioned, we've taken the size of actions to strengthen the company and our forward plan.
Including first as we came in the 2025, we optimize our investment levels focusing on higher free, cash flow and returns.
Second, we reduced price risk and protected our cash flow with increased hedges.
Taking advantage of multiple commodity price opportunities over the last couple months. We are now approximately 60% hedged on oil for the remainder of this year, which is about twice or no normal levels.
Next, we proactively issued $750 million in new senior notes, focusing on enhancing our liquidity and extending that maturity.
and by the end of the year, we anticipate no borrowing outstanding on our credit facility
Forth, we're on track with our previously, announced 100 million dollar cost optimization, and efficiency initiative to enhance margins and returns.
While costs are lower. In each Basin, oil differentials are improved.
And we're driving cash. Operating costs meaningfully lower.
Clay will provide more color on this effort here, shortly.
And lastly, we significantly exceeded our full year Target for non-core asset sales.
With executed agreements to divest 435 million in non-core, DJ Basin assets at a strong valuation.
Achieving a 4 times multiple on 2026 cash flow establishes. Another strong marker for our DJ assets and allows us to further high-grade our position in the basin.
The investments constitute the northernmost part of our asset base, an area with minimal near-term development plans, and it accelerates significant cash flow with proceeds targeted for debt reduction.
Production from the domestic assets is estimated to be around 10,000 barrels equivalent per day for next year.
Half of which is oil and the transactions are expected to close around the end of the third quarter.
Each of these achievements is significant standalone.
And combined they have accelerator plans for the year.
Putting our 4.5 billion year-end Target. Squarely in sight.
With confidence, in our plan, we intend to take advantage of the compelling value or Equity provides today.
Going forward and including the full year 2025, we plan to allocate 50% of our free cash flow.
After the base dividend to shareholders, buybacks on an annual basis, and the remainder to debt reduction,
For the current year, that comes to about $375 million in repurchases, inclusive of the $70 million reported this year to date.
In strong, support our board increased, our share repurchase authorization up to 750 million, which represents about 28% of our current market cap.
We intend to rapidly, take advantage with a 250 million accelerated share repurchase program which is expected to be completed within the third quarter.
Before handing it over to Clay, I will quickly summarize their strong second quarter results which were ahead of plan demonstrating the strength of our assets and the capabilities of our team.
Oil volume, screw 6%, quarter over quarter.
Cash operating expenses on a unit basis, where more than 10% lower in capital Investments when they're on the low end of the plan driven by lower, well, costs and meaningful. Gains in DNC cycle times we have shown today
These outcomes, along with strong oil realizations and hedging gains.
Led to nearly $750 million in adjusted EBITDA, and over $120 million in adjusted free cash flow for the quarter.
With an expected significant increase in our volumes along with capital and operating costs running lower.
We expect a meaningful ramp in both IBA and free cash flow in the second half of the year.
We are pleased with the recent Tax Act and the supported establishes for our industry.
This new act will ensure we have minimal cash taxes for the foreseeable future. With over 200 million in savings over the next 5 years.
Finally, we publish our annual sustainability report last week which can be found on our website.
I hope you'll take time to read through the report, which includes a review of our performance and provides an update on our sustainability initiatives.
With that. I will turn it over to Clay.
Thanks, Marinella and good morning, everyone.
Since joining civitas about 3 months ago, I have gained a better understanding of our assets and I've been impressed with both the asset quality and the technical and operating performance of our teams.
We were able to hit the ground running and deliver solid results in the second quarter. And I'm looking forward to building on this momentum and continuing to improve the results of the company moving forward.
Let me start with some second quarter, operational highlights from the permit.
Starting in the Delaware, we've been getting ready for our first significant operated activity. After using most of last year to optimize the acreage footprint for longer laterals and higher working interests in the second quarter, 50% of our wells drilled and 30% of our completions that occurred in the Permian were in the Delaware.
Right out of the gate, the team is delivering impressive efficiencies, as year-to-date drilled footage per day is around 20% higher than planned.
And our completions are averaging over 170,000 barrels of water per crew per day, reflecting strong performance from simal Frac operations.
Mexico. And while it's very early initial production rates from these 2, mi Wells are strong averaging over 1,200 barrels of oil per day.
Third quarter turning lines. Should include around 20 Delaware Basin Wells which are a key driver of significant, Parian production growth in the second half of the year.
In the Middleland. The teams have continued to deliver strong efficiencies as well, highlighted by an average daily footage drilled per, well, of more than 1,850 ft in the second quarter.
Our teams, overcame water, takeaway challenges, and we commenced production on a number of new pads across our asset.
These included our first co-development in the northern part of the asset targeting the middle Sprayberry through Wolfcamp A, and we also delivered continued Wolfcamp D success, with wells in Glascock and Reagan counties.
Marianela mentioned our oil growth as a company. In the second quarter essentially, all of it came from the Midland basin.
Moving over to the DJ. It's a, similarly impressive story with efficiency gains on both the drilling and completion fronts.
Drill times on all lateral links are better than plan and of particular note, the team is delivering 4 Mile, laterals Spud to Spud in about 6 days, which is really great execution.
On the completion front, our teams are leveraging real-time AI software to optimize Frac parameters which are contributing to 5% faster cycle times year to date.
Our core Watkins area continues to deliver in our materials. We highlighted the 8, well Invicta pad which is a great success story benefiting from our land, optimization initiatives, as well as our technical advantages in developing resource through long laterals and sometimes unique wellbore geometries
Utilizing 1 of our existing surface locations. The Invicta pad includes some of the longest Wells ever drilled in Colorado, averaging 4.3 Mi and our completions covered the last 3 miles of the lateral.
Production in early days is quite strong averaging over 1100. Barrels of oil per day per well,
Drilling and completion, official efficiencies realized in each Basin are a major contributing factor to our reduced? Well cost.
Which are 7% lower in the Delaware 5% lower in the Midland and 3% lower in the DJ compared to the beginning of the year.
Along with other capital initiatives, production and midstream optimization, and corporate cost reductions, we are on track with our $100 million cost optimization initiative, and about 80% of it has been captured to date. As a reminder, $40 million of the savings are impacting 2025.
These are great wins for civitas and the teams are continuing to identify additional savings.
As it relates to the remainder of the year, we've updated our full year, volume guidance, in our materials to account for the impact of our asset, domesticates with a high turn inline count in the middle part of the Year. Second, half production is expected to grow approximately 7%.
Third quarter production is expected to be higher than the fourth mainly due to the timing of our asset Investments and we are off to a strong start in July with production in line with our third quarter guidance.
On cash operating costs. Our teams are driving in the right direction with our second half expected to average less than 10 dollars per Boe.
And on Capital expenditures, we are on track to achieve our full year outlook.
Third quarter capex is anticipated to be higher than the fourth quarter as our efficiency gains are pulling activities forward.
All in, we have strong momentum and are set up for an impressive, second half of the year.
Now, I'll turn the call back over to Voter for some closing comments. Thanks, Clay. And before going to questions, let me recap where we are today.
First, we're executing on the base business and I have a high level of confidence in our go forward plan.
Our team is delivering every day. Optimizing our resource base and driving cost out of the system. And I'm extremely grateful for the heart and safe work of our talented people.
Next, we have rapidly accelerated, our debt reduction plan.
With value-driven divestments and significant gains on our cost optimization and efficiency initiative.
This is brought forward, cash flows.
And we now have a clear line of sight to achieving our 4 and a half billion dollar, net debt, goal around the end of the year.
50 Capital allocation will deliver peer leading return of capital to our shareholders.
And the accelerated share purchase repurchase program will take advantage of the compelling value opportunity. We see in our Equity today, so thank you for your continued interest in our calm, in our company and Morgan. We're now ready to take questions.
At this time, we will conduct
In order to ask a question, please press star then the number 1 on your telephone keypad. Once again to ask a question at this time, please press star and the number 1 on your telephone keypad,
Your first question comes from Zack Purim with JP Morgan, your line is open.
Yes. Thanks for taking my questions. I first, I just wanted to ask on the the strategy, Street shift and the comfort. You have making that shift right now. I mean, if we look at the financials today, your net debt's a little bit higher than it was uh 2 quarters ago, when you initially made the strip, we needed an initially made the shift your the oil strips a little bit lower when you made the initial change. I know you've done the asset sale. But what else gives you comfort with that? The balance sheet is now right sides for the company and that that you're, you know, now have the ability to to go back in aggressively, buy that stock.
Hey Seth. Thanks for the question. So so as you know, we've always had a commitment to return Capital to shareholders. It's, it's 1 of our core pillars. We we definitely sit in a more advantaged position today because of of the recent steps we've taken including the incremental Hedges. The cost optimization program in in the deas along with the Dior that term out.
If if you look at our business, the the goal we started with the year West, which was the 4 and a half billion, net debt Target around the other year. All that has been solidified. Inclusive of the 60% hedge. So we have for the balance of the year.
And if, if you look at it and I go for basis, that's going to only get better as we continue paying down debt. I just wanted you to hear from us that we're, we're not done here. The 4 and a half billion was the goal for this year as we continue generating free cash flow? We're going to continue deploying that to further that repayment, you know, being in the commodity industry that we are, we continue to see a strong balance sheet, as as essential to continue to execute on our strategy and we believe. Now given all those actions this year that's going to continue to to further and we will do so at a more measured Pace given the where the equity lies today
Thanks Marinella. Um, my follow-ups on 2026, and how you're thinking about the the 2026 plans post, the the strategy shift and the asset sale. Your prior messaging had been that you'd hold volumes on oil relatively flat at flattish capex. Is that still the message at this point? Just that a, a lower level of capex and production following the asset sales. And if so, any details on what that might look like, would be helpful.
So, Zach, it, it it's early, um, at as we're planning on 2026, uh, obviously commodity prices will have a big impact. But as you mentioned, uh, we had talked about holding production flat in the 150, to the 155 range, uh, at a maintenance, Capital level, with the asset Investments that that'll take us down to about a 1 145 to 150 oil range for 2026. So a lot of optimization is occurring right now as we're looking at the remainder of 2025, and how that will impact 2026, uh, but but I think the general message around uh, a maintenance Capital program and those production levels is where we're at.
Thanks for the caller.
Your next question comes from Philip Chung is open.
Thanks, good morning.
A lot a lot to cover, but did have a question for clay. Um, now now, now that you've been in the seat for a couple months was was just hoping you could share your initial impressions of of the civitas operations, uh, where things are going well, uh, any low-hanging fruit and and what areas could there be, some more medium term improvement, down the road, that will take time
Um, so I I think it starts with we've got really good assets and the operational execution around those assets.
The, the teams are.
Constantly looking for efficiency gains and, and how we're increasing pumping time and getting more barrels away on the completions every day. And and that's reducing uh, making our cycle times faster. Reducing costs on Wells getting Wells online earlier. So I think that has all been very positive and and I I expect that to continue to improve moving forward. I I think, um, on the facility front, uh, we're continuing to make progress in terms of utilizing the facilities that were in place with the past Acquisitions, uh, making appropriate adjustments to those.
So that we can um optimize our production and then as we go forward with facility designs in in particularly in the perming permanent look for ways to continue to be more efficient and lower the cost there. So, um, I'm I'm really excited about what was accomplished in the second quarter and looking forward to the go forward on the operational front
Right. And then nice to see the asset sale Target exceeded. Uh, I believe you guys had had initially looked at a range of options, so so was just hoping you could talk about how you settled on on this specific package. Uh, and can you could you revisit in the additional deves down the road?
Hey, Phillip.
look, we
Patients. As you know, we, we kicked off this process of a bit ago and and the patience was rewarded and we talked about a lot during the last call how we were open-minded and trying to figure out what the most accretive assets we could sell were. And those are, as, you know, highly dependent on on oil prices.
I, I would say in in general, these were assets that were further down the development plan for us. So there's really minimal to no near-term impact for the next couple of years, and we were very, very pleased to have checked that box in a very big way for this year.
But I would say on on anything that comes from here, you know, obviously, always entertain opportunistic offers, we were really pleased with the assets that we have in our portfolio and, and not proactively looking to sell anything additional, but it's always, we we will entertain opportunistic interest for in any pieces of our asset base.
Great, thanks.
Your next question comes from Scott Hanold with RBC Capital Markets. Your line is open.
Yeah, thanks. Uh, if I could start with, um, the CEO change and and more specifically, um, what, what are you all looking for in the next CEO? Like what, what kind of attributes are, are you looking for in an individual? And, um, you know, there's just a lot going on right now. Do you generally have a a time frame at which you hope to, to have that wrapped up?
Yeah, um sculpt, this is Walter. Nice to meet you. And why don't, why don't I take this 1 and, you know, obviously you can't talk in great detail around. What is it? That we are exactly looking for. What are the time frames at the same time there, there is an indication uh in in in the filings that we've done around how long I expect to be here. So we we hope to be doing this in in the next 6 months or so. Um, what are we, what are we looking for? I think you're you're looking for a person who can who can set strategy a person that can, you know, allocate capital on the right way that can build a great culture that can continue to push the company forward. And I want to make sure that what I said earlier, uh, you know
Very appreciative of what Chris has done to get the company to where we are today. Uh but we think there's a shift needed on what we're going to do here forward. Um and again that's not a strategic shift. It is really focused on. How do we execute better? How do we get better performance? Uh how do we get more cost leadership and in the end? Um how do we get to share price up every every day? We look at that 4 pm, we get a report card and we don't like where the report card is today. And there's a lot of opportunity there.
At this point, every CEO that will come in will make changes, there's no doubt about that. And that's that, that's all good. But this is not about a A to Z strategy overhaul. So, this is not about, hey, let's bring someone in. Who is going to sit with the board and decide that what we have done today needs to be done completely different. That is absolutely not why this is uh this is not about making a massive strategy shift.
Okay, that's clear. Thanks for that. And then, you know, let Let's uh, go back to um, you know, um, you know, sort of Zach's question on on, you know, the strategy ship with stock BuyBacks and and, and look, I, I I'm gonna pose the question to you. Why why not push debt down further, right? I mean, what we've seen, you know, I've been doing this almost 30 years is that?
High debt in in EMP companies especially smid cap, bmps is is tough, especially given the uncertainty of, and volatility of commodity prices. I know you've locked in some stuff this year, but look, you got to look for the longer term and why not just keep willing that that down the like as low as you can get. Um, and the stock price will fix itself versus, you know, trying to force the stock, you know, price issued today, why not take it? Um, you know, wouldn't that be, you know, more of a debt reduction today because wouldn't that be a longer term, you know, benefit to you?
Hey Scott, this is Marinella altar by saying that we did everything we set ourselves to do this year in terms of the goals on balance sheet. Right. So we
Termed out debt. We got the asset investments done. We increased hedges.
You know, as you think about just the continued that repayment, you know, we having Clarity on 4 and a half was the first and foremost goal that we that we had. And we reiterated that many many times or last 6 months
Past that we continue to believe that we need to maintain a strong capital structure, right to your point, just we're going to weather cycles and we're going to whether local commodity prices again.
No, I think the way we see our businesses, we, we're going to continue progressing. Those balance sheet goals. I think we still believe that we need to continue paying down debt and it's not just the absolute amount of debt if there's so much more to it as well, there's there's a composition of the debt and your maturity stack. There's a cost structure, there's how hedge their you. And so we're certainly trying to not only continue paying down debt but just be risking all those other balance sheet components, you know, we as as we move forward past the end of the year or we expect to be around 4 and a half, we still believe that companies of of our size and and industries that leverage below, 1 time since is ideal longer term.
And and like I said, past the year end, we're going to balance the the distribution of that between between equity and debt with our strong free cash flow.
Okay. Thanks. I mean appreciate those comments and, and I, I get your point on on comfort and hitting your goals. I, I just, you know, would um, you know, kind of suggests. It's it's, it's probably better to pay down debt. Even further just get more aggressive there today, but I'll leave it there. Thanks.
Your next question comes from Lloyd. Burn with Jeffrey's, your line is open.
Line is open.
You may have your line on mute sir. Sorry.
Sorry on mute. That's only taking me 3 years to get this right. Um,
Uh, nice to meet you, Rooter and Clay. Uh, welcome. Let me uh, start, I guess. Let me start with Marion now that
How are you thinking about or or would or maybe how do you think about the dividends? Um,
At these levels. I mean,
It seems high and maybe taking this opportunity to um reduce that and buy back stock or or pay down dividend and then I'd like to go back to Clay afterwards and just talk about some of the opportunities he sees and the timing on reducing costs.
Halo. Thanks for the question on the dividend. I mean, look, just consistently what we said on prior calls, we.
always been committed to that base dividend. Uh, we believe it's important that our investors can count on that return.
Quarter over over a quarter and and through the cycle.
First time, um you know, there's really no no changes that are on the table in that regard.
Lord, did you have a follow-up to play?
Yeah, Clay. Just how about, um,
Timing where you see the most opportunity. Um, I feel like the DJ, you've lagged a little bit, some of the peers is how quickly can you uh, take assets cost down there. Like
Give me some timeline on on Improvement.
Sure. Uh, so we, we
Talked about the cost initiative and and continuing to lower costs improve performance uh at this call 3 months ago. And so I think a lot of progress has been made where we've got 80% captured on the the hundred million dollar run rate in 2026 and and feeling good about the $40 million in 2025 after a 3-month period. Uh, and and we've got a, a longer list of items that are still in that are in the works but that we don't consider them captured yet. And and it's a cross all categories. I mean, we we've got things on the on the capex side, uh, around both Drilling and completions, uh, design changes that there's a component of uh service cost reduction in their
uh,
Local Sands is bringing more prop and providers into the mix, which is creating competition. On the Eloise side, things around compression optimization.
Getting getting more power to our locations and reducing generator costs. Uh, and then on the Midstream and, and marketing front, uh, what what I'd say on the DJ is we're we're drilling the longest laterals in that Basin. Uh, we've got some examples in the materials today are are well cost that that we're talking about are down around 650 a foot uh, to where I I think we're really competitive and and the teams are continuing to look for more and more ways to, to keep bringing those costs down and, and getting creative to go, add more inventory. Uh, to, to the current asset with some of the things we can do around these drilling geometries like like we showed on this Invicta pad,
Great. Thank you guys.
Lord.
once again, in order to ask a question, during the Q&A period, please press star then the number 1 on your telephone keypad,
Your next question comes from Leo marani with Roth Capital. Your line is open.
Yeah. Hi. I wanted to see if we can
K on on.
The recent uh well results. You guys obviously kind of highlighted uh the the wolf Camp D continues to look good. Can you provide a little bit more color around your wolf Camp, d results? And are you generally co-developing that, uh, um, in in the Midland Basin as well.
Sure. Uh we're like we like what we're seeing on the on the wolf Camp D and and continuing to um,
Look for ways to to keep extending the the the limits around that bench. Uh it it seems like we're getting earlier oil cuts on on the wolf Camp D producers, which is also a good thing. Um,
We, we're continuing to look at all the, uh, the benches across the play, like, I talked about, in my, in my comments and continuing to see encouraging results. We're we're customizing completion designs.
By the the different benches as, as we continue to get more production histories there, and doing some things on the on the G&G side to continue to gain technical information that will help us understand how we're most effectively treating the fracks on the completion side and getting getting the most out of these Wells. So the expectation would be that would continue moving forward and we'll we'll continue to provide updates there. As I, as I mentioned we have a lot of completions in the Delaware in 3Q and and so more information to come there, as we move forward.
Could you maybe just talk a little bit clay about? Uh, how you kind of see the, the inventory and the different buckets?
You know, DJ versus Delaware versus Midland, where do you kind of see longer and and sort of stronger inventory, uh, at this point based on your kind of own assessment of the asset base?
Sure. So so we we we talk about the overall inventory being 2,000 locations 1,200 in the puran 800 in the DJ uh from a overall return standpoint. Right now. The puran is a little better returns which which is why the capital allocation is what it is.
As we keep making improvements, as we keep lowering costs in both basins.
We, we expect for for that to, at, at a minimum offset, any, um, productivity
Degradation over time. If not improved well performance with different approaches on the drilling and on the completion side, uh, we we're really excited about the Delaware and the the it's really really early results there. But more are going to come as we move forward. Uh, we have low low break, evens in our program, but we need to continue to
Enhance the the resource to reserves progression and, uh, keep lowering costs and improving performance. And as I mentioned on the previous answer, we're, we're continuing to
Add more on the G&G space around getting as much. Technical technical information as we can around the acreage that we have both in extending limits in both of these areas. But also looking at secondary objection objectives that are present
shallower and deeper in both of these areas that can keep replacing the inventory and progressing it forward, and elevating the quality as we move forward.
Okay, thank you.
Your next question comes from John Abbott with wolf research. Your line is open.
Hey, good morning, and thank you for taking our questions. My question, my first question here, my first question here is for you clay. I mean, we spoke in a lot about
the, the opportunity in terms of rate costs and where you see that and
then when we were just sort of thinking about, you know, you know, the not to change the strategy but what the firm is looking forward, in terms of strategy, in terms of consistency,
I guess my question is, when you sort of look at you have Assets, in the northern Del, we have Assets in the, the Midland Basin you have acids in the DJ.
While you can execute on lowering costs, how do you think about the ability to sort of coordinate and provide a more level and consistent program?
That, you know, benefits is that it provides that sort of consistent performance that you guys. Maybe sort of looking at what's the ability to coordinate these assets while at the same time, reducing costs, I mean, and hitting your targets.
Sure. So definitely we we we need to continue to um, get more and more benefits from a multi-bin set of assets and how that can optimize the performance at the total company level and
Think about that from a capital allocation standpoint from a um timing of completions uh whether how we can level load, how that helps from a supply chain standpoint. When we're thinking about the the broad services that we have across both basins, a lot of that is already happening, but I think there's room to keep improving in.
In that space and from a consistency standpoint, I think.
We're very much aligned, and we have to, uh, be able to effectively forecast.
Different parameters, production results, as we move forward and understand that we're going to have things that surprised us along the way, but that were set up to overcome those and deliver on performance month over month, quarter over quarter. And that that's the the ongoing uh, push that's occurring right now.
how you know, and in terms of achieving that, how much of that is working capital and
You know and changes in working capital and how do we sort of think about the working capital changes and do we sort of have to think about those working capital changes next year as well. That's kind of my that's my follow-up question. Hey John I think
Thanks for the question. You on a working capital basis as, you know, during the second quarter, we had our usual payment of of the Colorado apparent taxes in April that cost us to tighten working capital by roughly about 150 million. For the second quarter, we will get some of that naturally backed in the second half but the way to think about it both for the full year and then and then long term on an annual basis like we should be
Pretty flat at around low, 800 million. So free cash flow deficits. So Again Naturally we we'll get some of that back in in the second half for that specific draw but that's that should be natural and as expected and and consistent with with past years.
Appreciate it. Thank you very much for taking your questions. John, thank you.
Your next question comes from Oliver Wang with TPH. Your line is open.
Good morning all and thanks for taking the questions.
Um, maybe for a clay just as we're thinking about activity levels for the year and how companies want to avoid the start and stop loss of efficiencies. You all demonstrated some incremental, efficiencies with the faster cycle times and well, cost reduction. So just trying to get a sense for, how are you all thinking about the faster cycle times potentially pushing things towards the upper end of your budgeted range for both, uh, capex and tills. Uh, getting that to something that happened last year.
yeah, we're we're very much focused on balancing that the the
Faster cycle times are lowering costs, but it is pulling activities forward. As we keep looking to optimize the remainder of 2025 and 2026,
We're we're looking at that we're looking at where our Capital levels are at. We're looking at the cost savings initiative.
That we have in place and, and balancing all of those things.
to try to, um,
have a more level loaded approach as as we move through the year and into next year.
Okay, perfect.
And just for, uh, follow-up.
Uh, maybe just on the debt side. Once more, I know 50% of the post base free cash flow is going towards the balance sheet and you made a comment earlier on not being done with debt reduction is there a long-term Target goal that you all have in mind for the next leg? When thinking about it from a total absolute net debt perspective versus just wanting wanting to move towards 1 times.
Yeah, absolutely. All right, thanks for the question. So, if you look at our free cash flow at mid cycle prices, we should be paying down debt at at roughly a rate of 400 million dollars on a given basis just taking our, our 25 Capital program and and production profiles as a proxy. You know, certainly we we will have internal goals for for ourselves, right. You know, we certainly want to balance the capital location the right way. And and like I said earlier it's, it's not only about making progress towards that 1 time because it's also about just holistically to re be risking the business, just buy a or that maturity profile Hedges cost structure.
You know, we will certainly continue to pay down debt in a very material way during the near term, along with managing the capital structure.
Sounds good. Thanks for the time.
Your next question comes from Noel parks with Tui Brothers. Your line is open.
Hi, good morning.
um,
Sure. I know, uh, we're we're definitely, uh,
continuing in the, the ground game, the trades, the swaps arena in both basins and, and we have examples,
Regularly of how that.
Keeps enhancing the the working interest enhancing the, the the economics of the the different wells in our program. The the Invicta 1 is is really a an interesting 1 that you mentioned be because the step outs where we we use an existing surface location and
have to steer around existing well doors to get to Tier 1 acreage. That had you not had that expertise, had you not done those trades.
That would have been stranded Tier 1 acreage in the play and were able to go access it. And so the same thing's happening in the Parian in in both Delaware and in Midland. Uh I think most operators all understand the win-win that can occur. But between 2 operators by swapping out of op non-op interest and better positioning their programs. So it's been an active part of our program and it will continue to be 1 moving forward.
A terrific. And, um,
It also talked to a good bit today about cycle time reductions, and um, the efficiency that's already brought and and what you anticipate you can you can still accomplish there. Um, so I'm just wondering in each of the bases at. This point is, um, are the sorts of incremental changes? You're making more proprietary ideas or methods, or are they more along the lines of sort of choosing from the, the many various things that that your vendors, um, maybe have experience with and just you're trying to select, which of those are are going to be the most effective. Uh, so just, you know, their perspective, across customers versus through your own, your own proprietary knowledge at this point,
Yeah, I'd say it's a mix and and we welcome it all to to keep improving efficiency and and improving well performance and lowering costs. We we've got service providers that we work with that. Have some proprietary products that enable us to improve. Cycle times. We we mentioned some of that in, in our presentation materials
We have Innovation that continues to come from our teams around. How can we
Move quicker from from 1, well, to the next from a, from a mob standpoint and reduce cycle time there, uh, we, we, we do things that our teams have come up with around, uh, cementing, where where the rig has already moved to the next location. And that's then we're coming in and doing the final cement job, on the production, casing there to
Make the the cycle times faster, as we keep going to the next well in the next well. So I think that is a necessity as we move forward, that we continue to innovate our teams work together to find ways to keep improving performance. And not only on the cost and efficiency side but on the well performance side and doing that by customizing completion designs using data analytics around. What are the completion? Uh, characteristic recipes that produce the best wells in different areas of the field and that our service providers. Keep keep coming up with ideas that that also benefit us. So I I think it will continue and it'll be all of the above.
Great. Thanks a lot.
This concludes the Q&A session. I will now turn the call back over to Brad whitmarsh for closing remarks.
Yeah. Thanks everyone for joining us early in the morning. Appreciate the opportunity to catch up on our great results.
And um where we're headed as a company. Look forward to seeing you on the on the circuit here in a few weeks. And if you've got a chance or have some follow-up questions, don't hesitate to reach out to me. Thank you.
Ladies and gentlemen, that concludes today's call. Thank you for joining have a wonderful rest of your day.