Q3 2025 Magnolia Oil & Gas Corp Earnings Call
Speaker #3: Good morning , everyone , and thank you for participating in Magnolia Oil and Gas Corporation's Third Quarter 2025 earnings Conference call . My name is Danielle , and I will be your moderator for today's call .
Speaker #3: At this time , all participants will be in a listen only mode . As our call is being recorded , I will now turn the call over to Magnolia's management for their prepared remarks , which will be followed by a brief question and answer session .
Speaker #4: Thank you Danielle , and good morning everyone . Welcome to Magnolia Oil and Gas third quarter earnings conference call . Participating on the call today are Chris Magnolia's chairman , president and chief executive officer .
Speaker #4: And Brian Corrales , senior vice president and chief financial officer . As a reminder , today's conference call contains certain projections and other forward looking statements within the meaning of the federal securities laws .
Speaker #4: These statements are subject to subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements .
Speaker #4: Additional information on risk factors that could cause results to differ is available in the company's Annual Report on Form 10-K filed with the SEC.
Speaker #4: A full safe harbor can be found on slide two of the conference call . Slide presentation with the supplemental data on our website .
Speaker #4: You can download Magnolia's third Quarter 2025 earnings press release , as well as the conference call . Slides from the investor section of the company's website at Magnolia Oil & Gas Corp .
Speaker #4: I will now turn the call over to Mr. Christopher Stavros .
Speaker #5: Thank you , Tom , and good morning , everyone . Thanks , everyone , for joining us today for discussion of our third quarter 2020 financial and operating results .
Speaker #5: I plan to highlight our quarterly results , which represent another strong period of consistent execution for Magnolia and continues to deliver on the capital efficient we outlined during the first half of this year .
Speaker #5: And one that has provided us with more free cash flow . Brian will then review our third quarter results in greater detail and provide some additional guidance .
Speaker #5: Before we take your questions . We continually remind the financial community that Magnolia's primary goals and objectives are to be the most efficient operator of our best in class oil and gas assets to generate the highest return returns on those assets .
Speaker #5: And while employing the least amount of capital for drilling and completing wells , a substantial portion of the free cash flow . Magnolia generates is returned to investors through our secure and growing cash dividend and ongoing share repurchases , and we continue to enhance and expand our asset base through bolt on acquisitions stemming from our subsurface knowledge and experience near areas where we operate and understand well .
Speaker #5: Magnolia's latest quarter is characterized by achieving these objectives and our year to date performance demonstrates our ability to execute our business model despite the decline in product prices that we've seen recently .
Speaker #5: We operate a focused business with an emphasis on driving financial returns and do not plan to add incremental activity at current product prices .
Speaker #5: At Magnolia . Our mission is straightforward , generating consistent and sustainable free cash flow through disciplined capital allocation , pursuing on . All that said , and turning to slide three of our investor presentation .
Speaker #5: Magnolia delivered another strong quarter in our overall business continues to operate exceptionally well . We achieved a record quarterly total production rate of 100.5 thousand barrels of oil equivalent per day during the third quarter , representing year over year production growth of 11% , with total production .
Speaker #5: Saw low digit low single digit year over year growth , despite a small sequential quarterly decline due to the timing of turn in lines .
Speaker #5: While while oil production at Giddings grew by nearly 5% compared to the prior year , as we are now well into the fourth quarter , our production is off to a very strong start and we anticipate both record total production and oil production in the current period , continued strong well performance during the year is expected to provide us with full year 2025 total production growth of approximately 10% and well above our initial guidance of 5 to 7% at the start of the year .
Speaker #5: Our Giddings Well results have not only outperformed our expectations , but have exceeded levels of the last couple of years . And despite a similar drilling and activity program , the outperformance led us to defer the completion of several wells into next year , allowing for a reduction in our capital earlier this year and is expected to result in a roughly 5% savings in spending during 2025 .
Speaker #5: This had the dual benefit of improving our free cash flow during 2025 , as well as enhancing our operational flexibility as we move and look into 2026 .
Speaker #5: Our adjusted EBITDA for the third quarter was $219 million , and operating income margins were 31% . During the period . While our annualized return on capital employed was 17% .
Speaker #5: Each of these metrics was supported by solid overall production volumes . During the quarter . In addition to strong relative price realizations for both natural gas and NGL production , our disciplined approach around spending a focus on financial returns , including our efforts and initiatives to improve the efficiency of our DNC program , all contributed to limiting our capital reinvestment rate to 54% of our adjusted Ebitdax during the third quarter , our low reinvestment rate helped generate a strong level of free cash flow in the quarter of $134 million .
Speaker #5: We returned 60% of this free cash , or approximately $80 million , to our shareholders for the repurchase of more than 2.1 million Magnolia shares and the cash payment of our quarterly base dividend .
Speaker #5: Both are consistent . Share repurchase program and the secure , growing base dividend are a mainstay of Magnolia's ongoing investment proposition . Incorporating these outlays , we ended the quarter with $28 million of additional cash and with a cash balance of $280 million at quarter end , which was the highest level of the year .
Speaker #5: As I mentioned , we expect to end the year on a strong note and with record oil and gas production in the fourth quarter and with capital spending of approximately $110 million , as we did during 2024 , we continue to focus on our field level operating costs , which have reduced our lease operating expenses through capturing additional production efficiencies in such areas as water handling and fluid .
Speaker #5: Fluid management . As examples , these and other initiatives result of continuous improvements in how we plan , drill , complete and operate our wells .
Speaker #5: Additional drilling and completion efficiencies that we expect to realize will accrue to the business through additional learnings and the further delineation of our Giddings asset .
Speaker #5: We expect these efficiencies to accumulate at a measured pace and have no plan to accelerate our activity to pursue this . Looking ahead to 2026 , we remain committed to our business model , which limits our capital are the to 55% of our adjusted EBITDA , or gross cash flow , similar to 2025 .
Speaker #5: We plan to operate two drilling rigs and one completion crew next year and expect to allocate a modest amount of capital toward appraisal activities in both Giddings and the Karnes area , and to further enhance our resource opportunity set , assuming current product prices , we expect that our 2026 program would deliver mid-single digit total production growth with capital spending at similar levels to 2025 .
Speaker #5: This also allows for significant free cash flow generation and support of our investment proposition , providing a secure and growing dividend and consistent share repurchases .
Speaker #5: We remain well positioned with ample financial and operational flexibility , allowing us to adapt within a volatile product price environment . When we ask our larger shareholders why they're invested in Magnolia , a common reply is because you do what you say you're going to do .
Speaker #5: Since our founding , than seven years ago , Magnolia has consistently executed around the principles of its differentiated business model , which includes our strong balance sheet and disciplined capital spending philosophy designed to maximize free cash flow generation from our high quality assets .
Speaker #5: We remain committed to our business model and our strategy that has helped compound per share value for Magnolia shareholders . I'll now turn the call over to Brian to provide some further details on our third quarter 2020 results and some additional guidance for the fourth quarter .
Speaker #6: Thanks , Chris , and good morning , everyone . I'll review some items from our third quarter results and refer to the presentation slides found on the website .
Speaker #6: I'll also provide some additional guidance for the fourth quarter of 2025 , before turning it over for questions . Beginning on slide five , Magnolia delivered a strong quarter as we continue to execute execute our differentiated business model .
Speaker #6: During the third quarter , we generated adjusted net income of 78 million , or $0.41 per diluted share . Our adjusted EBITDA for the quarter was $219 million , with total capital associated with drilling , completions and associated facilities of representing 54% of our adjusted Ebitdax .
Speaker #6: Third quarter production volumes grew 11% year over year to 100.5 thousand barrels of oil equivalent per day , while generating free cash flow of 134 million .
Speaker #6: Looking at the quarterly cash flow waterfall chart on slide six , we started the quarter with $252 million of cash . Cash flow from operations before changing in working changes in working capital was 247 million , with working capital changes and other small items impacting cash by 5 million .
Speaker #6: We added 25 million of small bolt on acquisitions comprised of additional acreage , working interest and royalties that we discussed last quarter . During the quarter , we paid dividends of 29 million and allocated 51 million toward share repurchases .
Speaker #6: We incurred 119 million of drilling , completions , associated facilities , and leasehold and ended the quarter with 280 million of cash . Our cash position is the highest .
Speaker #6: It has been all year , despite lower oil prices and acquiring approximately 65 million of bolt on acquisitions during the year . Looking at slide seven , this chart illustrates the progress in reducing our total outstanding shares since we began our repurchase program in the second half of 2019 .
Speaker #6: Since that time , we have repurchased 79.4 million shares , leading to a change in weighted average diluted shares outstanding of 26% , net of issuances .
Speaker #6: Magnolia's weighted average diluted share count declined by approximately 2 million shares sequentially , averaging 190.3 million shares during the third quarter . We currently have 5.2 million shares remaining under our repurchase authorization , which are specifically directed toward repurchasing class A shares in the open market .
Speaker #6: Turning to slide eight . Our dividend has grown substantially over the past few years , including a 15% increase announced in early . Earlier this year to $0.15 per share on a quarterly basis , our next quarterly dividend is payable on December 1st and provides an annualized dividend payout rate of $0.60 per share .
Speaker #6: Our plan for annualized dividend growth is an important part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth , reducing our outstanding shares and increasing the dividend payout capacity of the company .
Speaker #6: Magnolia continues to have a very strong balance sheet , and we ended the quarter with $280 million of cash . Our 400 million of $400 million of senior notes does not until 2032 , including our third quarter cash balance of 280 million and our undrawn 450 million revolving credit facility .
Speaker #6: Our total liquidity is approximately 730 million . Our condensed balance sheet as of September 30th is shown on slide nine . Looking at slide ten and looking at our per unit cash costs and operating income margins , total revenue per BOE declined approximately 12% year over year due to the decline in oil prices .
Speaker #6: Partially offset by an increase in natural gas prices . Our total adjusted cash operating costs , including G&A , were $11.36 per boe in the third quarter of 2025 , and our operating income margin for the third quarter was $10.98 per boe , or 31% of our total revenue .
Speaker #6: Turning to guidance . Fourth quarter GNC capital expenditures are expected to be approximately 110 million , which would bring the total capital for the year to about the midpoint of our previously reduced annual capital budget .
Speaker #6: This includes an estimate of non-operating capital that is similar to that of 2020. We are reiterating our full year 2025 outlook for total production growth of approximately 10% compared to our guidance at the beginning of the year of 5% to 7%.
Speaker #6: Total production for the fourth quarter is estimated to be approximately 101,000 barrels equivalent a day , and we expect that total production and oil production for the quarter to be at the highest levels of the year and new Magnolia Records , our price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston and Magnolia remains completely unhedged on all of its oil and natural gas production .
Speaker #6: The fully diluted share count for the fourth quarter of 2025 is expected to be approximately 189 million shares , which is about 4% lower than fourth quarter 2024 levels .
Speaker #6: We expect our effective tax rate to be approximately 21% , and with the passing of new legislation during the third quarter , we expect zero cash taxes for full year 2025 .
Speaker #6: We are now ready to take your questions .
Speaker #3: We will now begin the question and answer session to ask a question . You may press star , then one on your touch tone phone .
Speaker #3: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.
Speaker #3: The first question comes from Neal Dingmann from William Blair. Please go ahead.
Speaker #7: Morning , guys . Nice quarter . Nice to be back on Chris . My question for you , Brian . You continue to have these pretty amazing operational efficiencies .
Speaker #7: And I'm just wondering if that continues at the pace that we've seen driven by these Giddings wells . Could you envision I mean , again , I think about what you keep .
Speaker #7: Would you accelerate production potentially even more than 10% . Would you be able to or would you think more so about , you know , you'd even be able to cut CapEx ?
Speaker #7: I'm just wondering when you toggle those two and if you keep having the same upside , you know , where could we see those benefits lie next year ?
Speaker #5: Neil , thanks for the question . Good to have you back . Look , we can do largely anything we'd like to do or we want to do within the context of , of or framework that you mentioned .
Speaker #5: I think the point is we want to stay true to , to the business model . And it is it works for us and it works for our shareholders in terms of .
Speaker #5: Maximizing the free cash flow that we have to give back to them . So rather than . Elevating activity levels , if you will , or rushing to to get there they will get there with time and over time .
Speaker #5: And as we continue to pursue new areas and probe around , you know , the vast acreage position that we have in Giddings and also parts of Karnes and appraise more of it and bring bring more of it into the fold , we will have more of the way in realized efficiencies .
Speaker #5: I'm very confident of that . We've seen it . You know , there's a litany of things that I can tell you that there .
Speaker #5: You know , the teams are working on , that they currently see rather than I could spend , you know , 20 minutes on , on talking just about that .
Speaker #5: And we're going to talk more about it as a team . So that will happen as we as we go forward . There's there's no real reason to to rush the activity levels or rush the production volumes or reach or stretch for .
Speaker #5: Higher levels that you know could get you into a situation where you know you're forced to spend that much more as as your volumes sort of decline and get you on that sort of treadmill .
Speaker #5: So we're we sort of live within the model , you know , moderate mid-single digit growth . If the assets exceed that , which oftentimes they have over the , the the life of Magnolia , we've seen that better than expected performance , you know , we'll take it .
Speaker #5: But we're not going to overstretch or overreach on the capital or activity . Just because we'll live within the model and we'll live within our governor of of the capital .
Speaker #5: And I think in that way , everyone will be satisfied .
Speaker #7: No love that you've been able to do that . And then just lastly , when you look at M&A , you guys have been doing a fantastic job of replacing your , you know , more than replacing your inventory .
Speaker #7: When you look at just sort of whitespace in , in , you know , in your general area , is there still plenty of white space or how would you describe the .
Speaker #7: I don't know , I guess the ability just to continue to do these , these strategic bolt ons , you guys have done a nice job , as I said , replacing the inventory is there still a lot of potential to do so ?
Speaker #5: Yeah . No . Good question . There's a fair amount of white space as you called it , and there's a fair amount of smaller private operators that things that , you know , will always evaluate .
Speaker #5: It has to be the right fit . And I will say that , you know , first and foremost , it has to be the right fit for Magnolia .
Speaker #5: It has to at its essence , actually improve the business , improve the company , improve our ability to fit into the model and extend what we have been able to do over the last , you know , however many years .
Speaker #5: So if we can find something that fits that way or looks like us , we will do that , or we will certainly consider it if if it , you know , presents the proper fit , there may be some things like that .
Speaker #5: Not a day goes by where I don't get an email or a phone call from a banker . You know , they're they're transactional .
Speaker #5: So they love to reach out . But you know , they they may not like us very much because I the answer is more likely no than yes .
Speaker #5: So we haven't found many of those things . But , you know , we continue to try and chip away and , and these are just over time additive to our business .
Speaker #5: A lot of it are certainly some of it has come through the appraisal program that we've had over the years where we learn about a certain area , we like it .
Speaker #5: We we tend to figure it out , and then we look for more of it in the way of filling it that white in that white space , if it can be had .
Speaker #5: So we'll continue to do some of those things.
Speaker #7: Well said . Thank you again . Nice quarter .
Speaker #5: Thanks .
Speaker #3: The next question comes from Tim Robinson from KeyBanc Capital Markets . Please go ahead .
Speaker #8: Hey , good morning folks . Thank you for taking my question . I want to start , Chris , you mentioned in your prepared comments and in that that last response appraisal work going on at Karnes , you know , there's a market perception that Karnes is sort of on its last legs .
Speaker #8: It's one of the earlier shale plays . So can you talk about what you're referring to with the appraisal activity there ? Is that non-op is it operated ?
Speaker #8: Is it Austin Chalk or something else ? Just curious . Any color you can provide ?
Speaker #5: Well , I wouldn't right ? Write Karnes off just yet . Certainly . You know , good rock is is good and tends to have a long life .
Speaker #5: So that is good rock . And some of the best area in Karnes . You know , we're continuing to look at that .
Speaker #5: And see what else we can do . You know what iteration of it that we're on . And you know , fortunately , I think I still think it's relatively early for us .
Speaker #5: So there may be more to be had there . And we'll continue to probe around . I'm not going to I'm not going to say exactly what we're going to do , but exactly what we're planning on doing .
Speaker #5: But there will be some things that we will test , you know , that that may have some upside or provide some extended life , if you will , to to Karnes , that would not surprise me in the least .
Speaker #5: The question is , is always when you do these appraisal things , you know , what are the economics look like ? There's no no unlikelihood that we're not going to find producing quantities of of oil and gas .
Speaker #5: That's certain . You know for sure . The question is , can we do it economically and provide a good amount of duration around it ?
Speaker #5: I think there's a , you know , a reasonable chance around that . So I'm not certainly not going to write it off .
Certain, you know, for sure. The question is, can we do it economically? Um, and provide, uh, a good amount of duration around it. Um, I think there's a, you know, a reasonable chance around that. So I I'm not certainly not going to write it off. And again, I would say the same thing with Giddings, although Giddings is, you know, a lot bigger just in terms of its Footprints. And um, we're we're quite active there too. And we have some things planned as well.
so I I, I think
I, I'm optimistic.
You know, has been interesting and now, you know, there's Folks at least in sort of up to your your acreage line. Um, you know, I'd be shocked. I think if, if you did some, you know, appraisal drill in there. But um, is there discussion at the board level about trying to understand. If, if you think you have that resource and do you have the Deep rights?
Thank you.
Um, that that's a bit further, a field. And and the area that you're, you know, referring to um, compared to where we are.
Um, we we currently don't have um, an area.
Up and around, where you're talking about.
there are other areas within getting that, um, have
Um, extensive amounts of of natural, gas exposure. Um, we've talked about that, um, at at the organizational level throughout. And, you know, again, as, as I mentioned earlier, it it's more about to some extent economics as a as opposed to
Um quantities of producible. Hydrocarbons uh we know it's there. It's just can we figure out a way to make it more economic?
Okay, thank you.
Thanks.
The next question comes from Carlos, Escalante from Wolfe research. Please go ahead.
Yeah, thank you. Hey guys, thank you for taking my questions. Um,
I like to go back real quick to your discussion on appraisal on your appraisal program. So if
Just taking on the early. Look at how you intend to manage your appraisal program in 2026. Um, particularly in the event of any weakness. I, I wonder how you would intend to to manage that and what are the levers that you could pull? Because at your current adjusted, tbex cap on capex. Uh, we certainly think that implies, at least in our view that you won't touch your growth Capital until perhaps anywhere close to 50 Barrel $50, uh, per barrel. WTI. So, I wonder if you can frame the appraisal program in the context of of those levers, um, and again, in the event of a sustained or weakness. Thank you.
Yeah, thanks for the question, Carlos. Look, the appraisal program.
has been you know quite beneficial to Magnolia in terms of our resource and capabilities over time and expanding the footprint and getting so
I I'd be somewhat reluctant to uh take a uh machete to to that program and just uh cut it, cut it off.
uh,
Too harshly. Um, you know, you need to do what you need to do, and some mix of oil and gas prices. But, um, in the current outlook or in the current sort of price dynamics that we're seeing, um, there is still room for a reasonable amount of that type of activity, and we will continue with that. Um, you know, look,
I say this internally all the time.
Few ways to to find resource and and you decline every day. Uh, just like all our peers
Uh, you either, you know, buy it, or you find it and...
you know, we continue to look for ways to supplement our existing resource and the appraisal program
for us up to now is worked out exceptionally well and
You know, particularly in Giddings.
Um, we've tested some new Concepts we've uh, tested some of the boundaries, there's almost always really not almost, but really always going to be producible amounts again of oil and gas.
When we drill the question is, can we um make the economics of a particular area work well for us that fit into our Matrix of of returns or and and a competitive for other you know, for competitive for Capital. So we'll continue to do that. It's an important element of of what we do and uh you know, we we'll we'll continue to examine different.
Parts of it and and try to hygrade the program if you will.
Wonderful, thank you. Appreciate that, Chris and then on my follow-up. Um, I I think that you certainly to to us at least from our Vantage Point, 1 of the many sell points that Magnolia has is, you know, annualization is um, its ability to capitalize on natural, gas realizations, compared to a lot of your oil levered peers. Um, just we just had a, a, a very interesting quarter in. WoW, for example. So just wondering
You are today and considering all the reshuffling that you see in the just in the backyard of where you are, uh, with Gulf Coast LNG growing and growing. If there are any kind of initiatives that you have for sustained your organizational level, um, that may be aimed to further improve that and and we further gain that edge that we have over some of your oil lever, Pierce.
Well, thanks for the commercial message, I really appreciate it on the natural gas realizations. I, I would agree with you that we've we've been able to, uh,
benefit from, from some strong realizations on a year-over-year basis, and into most of the 25,
Uh, the answer is, you know, I don't, I don't exactly know. I mean, there are a lot of complicated factors.
Um, we have taken actions based on some impressions or opinions that we had heard, say, a year ago, and done some things to perhaps consider edging based on or even consider.
Options such as that.
Uh, we probably would have been wrong.
um, the
Impact of what you've seen up to now, um, you know, coming out of the Parian, you know, with, with the and and in some of the, the associated gas producing areas as we move more gas to, to waha Etc, um, hasn't seemed to influence it yet. I, I, I don't know if it will, but I
I would have, you know, others said that it would have and they were wrong and there's a lot of other variables and factors that may, you know, offset that. So I I'm not I'm not necessarily willing to lean in and and make something fully deterministic on somebody's
View. Uh, because there are just so many moving parts.
Wonderful, thank you, Chris.
Thanks.
The next question comes from Charles Meade from Johnson Rice. Please go ahead.
Good morning, Chris Brian and, and the rest of the Magnolia team there. Uh, Chris. Yeah, I I'd like to go back to you the, um, to the, uh, A and D marketing, and that's the question there. Um, can you can you, uh, offer your view? Have you seen anything, uh, different on, uh, on the packages that you look at around, getting to either either in the, the quality of of what is available? What's being brought forward? Or the ask that you're seeing relative to to the value?
Are you referring to South Texas or getting specifically or just South Texas and inclusive of, you know, the entire trend.
I was asking more specifically about getting but I but I'd be curious to hear whatever you want to share on on the whole kind of ecovert. Awesome, awesome talk Trend if if you care to yeah well well let's start with getting getting is
you know, it it's
fairly in terms of, you know, the, the, the bigger package is a bigger concentrated assets. It's, um, it's fairly concentrated it, you know, there's us in a large private player, uh, without naming names.
Um, and then there's probably a smattering scattered positions of a variety of private players. There are very few, if any
Sizable, um, or even smaller.
Uh, packages and getting that are operated by public companies.
Um, just to to set that straight.
um,
you know, in this environment um, what
what may happen is that bigger packages may be, you know, sort of holdouts for Lyft to to fight another day or Lyft to see a better day if you will on
product prices oil prices before. Um,
you know, considering a sale
um,
and and smaller things.
may be more reasonable as far as
You know, connectivity and alignment between a buyer and a seller is important because the seller may run out of patience or money or whatever. Those are small things, and they may ultimately pop up somewhere else at the end of the day.
So that, that smaller things may be more easy to move. Uh, I can't guarantee that, but but certainly a better chance at that than a, a larger thing as as prices come down because the, the bid in the apps just widen apart, uh, between the players.
South Texas. I would tell you that
look, everything's getting generally. Gassier goes are rising.
um,
and the quality is,
You know.
Waning.
Uh, there are pockets of things here and there, but I would characterize it as generally, over time, gassier.
Generally over time um somewhat scattered and maybe less synergistic opportunities.
On occasion, you'll find a private player who's done a good job.
But uh, true to form, many private Equity player back players will.
uh, press on the accelerator to, uh,
Push activity and volumes in order to.
create more cash and even do, uh,
Try to sell an asset that typically doesn't work very well for a public buyer, uh, to acquire somebody else's decline rate while they run through the better part of their inventory. So, that's sort of how I would just characterize things. Generally
Got it. Thank you for that. And then um uh a question about your your um your I guess your flexibility around your activity levels when when I look at you know you guys have been really steady at at 2 rigs. Uh 1 1 fracc Fleet um but at least from from the outside looking in it looks like if you were to have a drop from there you know you're kind of you're kind of sitting right above the the you know the minimum efficient threshold of keeping 1. Frac crew pretty much continuously busy. So is that something that you guys you know think about and and uh is that something that you've um I mean do you agree that that it would be the case that you lose some efficiency if you had if you had to cut activity in response to lower commodity prices and and how would you manage that?
Not really, I'm not all that worried about it. We have very strong relationships with the crews and equipment that we use.
I don't see our activity pulling back dramatically, you know, in this environment, if at all, um, we we could certainly adapt, um, and, and do some things, uh, which I, I from an efficiency standpoint. Um, I'm, I'm not all that worried about it, we, we've entered into, you know, some contracts that that give us
quite a bit of flexibility to take advantage of some
softness and pricing that we've seen recently. But at the same time,
Um not so long as to you know take us out of play um and considering things that um you know if things should worsen in the in the market uh to take advantage of that later on. So I'm not I'm not very worried about it.
Great, thanks for the caller.
Thanks.
The next question comes from Payton Dorne from UBS.
Hey, good morning, Chris and team. Um I know earlier you gave the indications on the 2026 budget, but I just wonder if you have any details to share on how the plan, theoretically, might be shaped and I asked just because you've highlighted those 6 wall deferrals and maybe targeting completions to benefit from higher winter gas prices. So we just infer from that that maybe the spending is going to be a bit more weighted to the first half or first quarter of 26. Thank you.
Yeah, thanks for the question. I I would say generally and this is probably not maybe very different from any in the in the industry. Um it the spending levels will probably be a little bit more skewed to the earlier part of the year.
um, to which will include some some test areas and also
um,
you know, just because we we have uh, a little bit more line of sight on on pricing sooner.
um,
And and we'll pull forward some some activity and volumes into the, you know, first half first quarter of the year. So if I had to skew at that way, uh I would say it'll be a a a subtle heavier um amount of activity and capital and the and the early part of the year. Um, but I not a dramatic.
Uh difference say from 1 Q to or the back half, I mean, it it on a percentage basis, it wouldn't look that way. It'll be more subtle
All right, great. Thanks for getting me on.
Thank you.
Johnston from Capital 1.
Hey, thanks for the time. Um, first question is on oil volumes Chris. I think your comments on the second quarter. Call suggested that
Oil production should grow in, 26, at a rate that's a little bit below, uh, below. Uh, the mid single digit Target for total Boe production, is that still a good way to think about next year, which I think we've sort of put you somewhere in the 40 to 41,000 a day range, give or take
Yeah, that's that's sort of what I would what I would think. I mean like I said the the fourth quarter is off to a very strong start.
I anticipate, you know, sort of record volumes poised, but also oil.
In the fourth quarter. Um, if I had to frame it,
I would say, you know, clearly the, the, the record was earlier in the second quarter, so we did 40,000 a day of oil. So if I had to guess, you sort of be at,
40 to, you know, 40 to 41 is is a fair number. Um,
I would expect, you know, lower single digit, oil growth uh year on year. Full year 26 over a full year 25. Call it 2 to 3%.
Okay, perfect. And then for modeling purposes, if we assume you sort of Romaine at this current to rig program throughout next year, would that still imply somewhere around 55 gross Wells. Um, next year, or is the annual run rate. Continued to sort of creep up some with the efficiencies
Yeah, I think plus or minus that's that's about right. Um I there's not a dramatic shift or change in the the number of of uh actual gross Wells.
Okay, great. Thanks Chris.
Thank you.
The next question comes from Zack Parham from JP Morgan. Please go ahead.
Hey, thanks for taking my question. Um, sure, you exited the quarter with the most cash on the balance sheet you've had since Q1 2024. Obviously, that's a great problem to have, but how do you think about the use of that cash? You know, if you continue to build cash, would you consider potentially increasing your buyback case?
Well, the goal is the goal is not.
Only to generate free cash. It's
It's ultimately, you know, to your point, really find a way to put it back into the business or utilize it to generate more returns over time.
Properly allocated. Um, we'll just have to see how things um,
move out, you know, or or transpire into the
Late into the year and it's next year as far as um you know the the the business and I I don't we're not going to we're not going to sort of amp up activity if you will um to to you know, reach for more volumes necessarily. That's not the point. The point is to uh look for pockets of, you know, maybe.
Underperformance or disruptions in the equity. And if we had the opportunity to buy more shares, sure we'll do that.
um or if we had the and the shares that we were purchased actually conveniently work in our favor and and with the model in terms of providing us with a little bit of uh Advantage um on the base dividend,
So, it just means we can grow the per share amount of the dividend a little bit more, as a result of buying the shares and have less cash. Outlay that way. So it does provide us with a lot of flexibility Zach. And, um,
You know, I I think we'll just sort of wait and see and take a lot of things into consideration on. All those aspects of cash returns to shareholders and, uh, and even ultimately into, you know, looking at some bolt-on opportunities. Um, if they, if they come along and if we can find something that's attractive and the and the right fit for the business,
Thanks Chris uh and then my follow-up just wanted to ask on Opex. You you got into 520 for Boe for LOE and 4 q. Can you just give some color on how you expect that the trend in the 2026? I know you've done a lot of work this year to to try to bring that down.
yeah, I think, as I mentioned in my my comments, I I think that there are some things that, you know, we're looking at in terms of, um,
you know, saltwater disposal uh,
Managing chemicals, um, you know, fluid management generally.
we we've had a lot of small wins and improvements in several areas and I think some of that will stay with us but in particular, you know, as you know
Workovers continue to represent the largest variability in the field-level operating costs from quarter to quarter, but we're doing some good work. I think on.
um,
surface facility, expenses and other things in terms of moving around, um, both oil and gas.
Um, and I think that should generally help us. So I said, 5 to 1 20 for the fourth quarter.
Um, I a seasonally, you know, you start to you. You pick up a little bit in the year seasonally into the first quarter, but
once you get through that, um, I I think you can come
down a little bit from from the TW 520 level. Um, and into next year, I believe at at at sort of current commodity prices,
Thanks.
Thank, thank you.
The next question comes from Tim Moore from Clear Street. Please go ahead.
Thanks and congrats on a great free cash flow and execution. Um, one of the questions I have for you, Chris, or maybe even Brian, is how should we think about the Gathering, Transportation, and Processing expense going forward as a percentage of revenue? You know, I know you commented earlier this year about, you know, maybe upticking a bit. You know, oil prices came down, which doesn't help, but are there any kind of drivers you can speak to that maybe get a little bit of utilization benefit for it, maybe next year, if the current commodity prices hold up?
Its.
Thank you, referring to is not really a percent of Revenue generally. I'm sorry, it's not a, um,
It it, when you look at it should be relatively as long as commodity prices are somewhat stable. It should be relatively stable. If you see increases in gas and NGL pricing, you could see that cost go higher and on the flip side, if if commodity prices gas and ngls go lower, you may see some savings there.
That that that's helpful. Um, and then just to follow up, you know, I know Chris Erie gave some comment on, uh, you know, some of the improved efficiencies with water disposal fluid handling, you know, some of the chemicals. Uh, I was just wondering, you know,
Thank you for working on getting, you know, very well. Um, and getting some efficiencies. Um, are there any other kind of, you know, surface repairs or low-hanging fruit there? Um, what do you think is mostly done, and you know, seventh inning?
There's always going to be, there's always going to be some some things that we've continued to look at.
In terms of Process Management and doing things better. So I, it's it's it's really never over. You're always turning over, uh, rocks and looking for for other things to to create more more and more efficiencies over time whether it's with, uh, Personnel, uh, Cruise.
um,
Moving things. Uh, it's a business of of moving things, in many ways. And so, um, moving and managing, uh, equipment, moving and managing, uh, your products.
Uh, so there's always things to pursue beyond just what I mentioned.
Great. Thanks, Chris. And Brian. All my other questions were already answered. Thank you.
The next question comes.
Hey, thanks for getting my question. So my first question is that about the uh, heating expansions? So in the last quarter, we uh know that we expand by 40,000 Acres, so I'm just like wondering. Like if any new wells were drilled in the areas,
And, uh, I was like, if not, like, do you expect any known, uh, expansion or any new world in the future in that area?
Thank you.
Yeah, if you thanks for the question. If you're referring to some of the wells that we've drilled earlier this year, and, and even late last year, and a new area that, that provided us with quite a bit of the outperformance that we experienced.
The answer is, yes. We we do plan to go back there. Uh, they're, they're those Wells are continued to perform quite good. Um, and continue to outperform with time. Uh, we we will plan to go back there, uh, next year and, uh, over time in the future, there's there's more to go after there and I expect it to be folded into the program, uh, partly into next year and and Beyond
Uh, about the ecobot production. So I saw that the production from Eagleport Lake was a bit up this quarter. So I was wondering if, like, there were any wells drilled in the waters. If so, like, what was the performance of the wells?
I, I assume you're talking about.
the, the corns area.
The year.
And again, we have 1 completion crew. So you will see some
In terms of cars production. So I think you can probably assume that if if there was an increase, there was probably a little bit of activity, whether operated or not operated.
All right. Thank you.
The next question comes from Noah hungus.
From Bank of America, please go ahead.
Morning. Um, for my first question here, Chris, I was wondering how how are you seeing Service pricing right now. And how do you see that and do you think it's aligned with kind of where the, where the curve is for oil prices?
Thanks for the question. Noah. Uh yeah. Look I mean
Things have come down throughout the better part of 2025.
Um, conditions are still relatively soft.
But I think the rate of change has has lessened here recently.
Um, for us.
And and and probably for the, for the sector, for the industry for us. I mean, I would I would tell you
We're obviously going to see some things on the octg side. Steal. That's, um, tariff related that will will have some, underlying, um, upside pressure.
Um, most if not all of that really probably all of that will be offset by um the softness that we're seeing and the improvements that we're seeing now a combination of some of our own efficiencies, but also, some of the savings that we're getting out of, um, contractual arrangements and working with our vendors. So there still is some softness. But I would tell you that for the moment in this range of product prices, uh, things have seemed to have found a bit of a, a leveling out, if you will. Uh, that's not to say that, you know, that couldn't, uh, change. If you know, product prices, uh, were to turn South, uh, late this year or, or
Into next year but typically what? What's underpinning some of that.
is you know, the industry sort of prepping itself for
More activity.
It's early into the new year and so some of that is seasonal if that were to dissipate or as it dissipates into 26, you could see some further round of softness perhaps but we'll we'll see. We'll it remains to be seen.
That's really helpful and then for my second question, um, could you, I know you're I know you have the uh, 6 deferred completions, that it will be carrying 26. But could you maybe talk about how many ducks that you're carrying into the new year? And then also how many ducks you think you'll be exiting at 2026 with?
We generally know, we don't really carry plan duck like ducks. Um, you know, that's why I guess we we talked about the deferral of some of these earlier this year, um, but outside of kind of work in process. Well, as we don't really plan to, you know, we don't usually carry Ducks. We're not, we're not purposefully carrying Ducks. I mean it's really more, it'll end up being more of a timing issue than anything else.
Yeah, so would it be fair to assume you're carrying the 6 deferred completions into 2026? But then you'd be exiting with basically zero deferred completions with the current plan.
Right outside of Wells that are kind of in process, correct? Okay.
The next question comes from Greta.
Jeffy. From Goldman Sachs, please go ahead.
Turn in line timing changes.
Yeah, I mean, you know, our, our program is not, it's not a static program, it's a dynamic program we and we have
As I mentioned in my remarks and in response to the questions, I mean, we have a lot of.
Both financial and operational flexibility, especially, you know, considering some of those deferrals that have snaked through the system into 20 in 2025. As I said, that's really provided us with a bit of a, a cushion, if you will into 2026. That's a, a sizable benefit. Um, look, if we continue to see some good performance,
the object, you know, as we exit the year and going into 26, that, that could provide us with further cushioning and
The ability for additional flexibility, to respond to, you know, odd movements and product prices if that were to occur. But overriding that we do have, you know, sort of the, the business model governor of, you know, our spending which sort of limits us to the 55%, we try to stay true to form to that, and keep to that, that plan, because that does keep us honest and, and, uh, straight and arrow. But, um,
You know, I like I said, we have a lot of flexibility in the program to maneuver around product prices. I'm I'm very comfortable with
How the business is running right now and where we sit. Uh, so you know there's, um, there's lots of.
Uh, capabilities that that we've built in to that process. So I I, you know, you can look at the sensitivities for oil and gas prices and model it out as to, you know, what the downside upside is, if you will. But, I mean, it, it generally right now at current prices. I'm not, I'm not concerned about where we are.
Great, thank you and then just for the follow-up. As you highlighted in your update, your Magnolia is 2. Rig 1 Crew program. Over the past years, has supported about 50% production growth over that period of time. I was just curious. Can you speak a bit about how much of that growth, you view, as attributable to improved, rig and crew cycle time efficiencies versus Acquisitions and versus what a performance improvements potentially over the past few years.
Yeah, we've not acquired very much in the way of production over the seven years we've been operating. I mean, most of it, you know.
It's been maybe 1 1 or 2 transactions. That provided us with any, you know, measurable amount of volumes that we can speak to. But most of it has been done organically. So we we probably produced over the on a on a compounded basis, Maybe
8% sort of.
Compound annual growth for the business.
Uh, by and large, most of that has come from organic, uh, drilling completion. So, of the business, we haven't folded in a lot of PDP ads.
That we that I can speak to.
Great. Thank you.
This concludes our question-and-answer session, and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.