Q2 2019 Earnings Call
Greetings.
Welcome to the Q U P resources second quarter 2019 conference call.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to your host William Kent Director of Investor Relations. Thank you you may begin.
Thank you David and good morning, everyone. Thank you for joining US security resources second quarter 2019 results conference call.
With me today are Tim Connor, President and Chief Executive Officer, Richard Doleshek, Executive Vice President and Chief Financial Officer Dr. done. So already please go to our website Threepi Rts dot com to obtain copies of our earnings release contains tables with our financial results along with the slide presentation with supporting materials.
In today's conference call, we use certain non-GAAP measures, including EBITDA, which is referred to as adjusted EBITDA in our earnings release, and our SEC filings and free cash flow.
These measures are reconciled to the most comparable GAAP measure in the earnings release, and our SEC filings.
In addition, we'll be making numerous forward looking statements, we remind everyone that our actual results could differ materially from our forward looking statements for a variety of reasons many of which are beyond our control we refer everyone to our most for robust forward looking statement disclaimer discussion of these risks facing our business in our earnings release, and our SEC filings with that I'd like to turn the call over to Tim.
Thank you will and good morning, and thank you for joining the call today I will begin the call with an update to the strategic alternatives process before providing a brief operational update and a first looking at our 2020 business plan.
As you read in our second quarter earnings release. This morning, we have concluded our comprehensive review of strategic alternatives and the board has determined the best value for shareholders is to move forward on a standalone basis.
As you are likely aware of the current market conditions have significantly impacted the ability of many counterparties to transact at the levels that would deliver appropriate value for our shareholders.
While I will primarily focus that his commentary on our performance and go forward strategy I will first share a few remarks about the review process. It so.
Upon receiving an unsolicited proposal to acquire the company in January we engaged in the review of a wide range of strategic alternatives in an effort to maximize value for shareholders.
Without getting into granular detail since we launched the strategic review process in February 2019, our board of directors numerous times and with the help of a team of experienced financial and legal advisors are viewed a range of potential transactions ultimately with today's market dynamics, coupled with the strength of our operations posted in the Permian and the Williston basins. Our board determined that the best path to create long term value for shareholders as a standalone company executing our new strategic plan.
As we evaluated opportunities it was apparent but none of the potential transactions recognize the intrinsic value of our assets and we believe that with our new strategy. We can optimize these assets to deliver long term value to our shareholders with that let's talk about the go forward strategy.
As a standalone company, we are laser focused on generating free cash flow strengthening our balance sheet and returning capital to shareholders. We are confident in our ability to deliver on those commitments as a result of the improved performance and deliverability of our high quality oil dominant asset base, a significant decrease in drilling completion and facility costs as well as the successful and sustainable reduction of corporate overhead in the first half of 2019.
Since coming on board with European January I've been keenly focused on reducing corporate overhead and the capital intensity of the business as a result of actions taken during the first quarter DNA expense dropped by $32 million in the second quarter, a decrease of 50% compared to the first quarter keeping us on track to deliver on our goal of reducing normalize expense by approximately 45% between year end 2018 and 2020.
We have implemented the majority of the planned reductions DNA expense and are confident that we'll be able to deliver our sub $3 per view, we target for 2020. Despite these significant reductions we believe that we have retained a highly talented technical business and operating team as well as the necessary systems controls processes and infrastructure to successfully execute our future plans.
Our operations teams continue to deliver continuous improvement on both cost and efficiency front.
Which is positively impacting cycle time and capital efficiency as a result of those for drilling completion and facility costs have continued to decrease and we have confidence in our ability to deliver producing wells for approximately 1.5 million less in 2000 less than in 2018 in the Permian Basin.
Our average drilling complete cost is now below $6 million per well for a 10000 foot lateral with drilling times from spud to TD, averaging less than 12 days.
Our ability to treat produced water and deliver high quality frac water at low cost represents another opportunity.
To create value for our shareholders through the generation of additional cash flow from third parties.
We are in the process of evaluating partnerships opportunities and walk with water companies to recover invested capital and leverage their water gathering expertise.
We expect to provide some clarity on this in our next update call.
We expect to further reduce overhead and operating costs moving forward by leveraging the continuous improvement mindset.
That the organization has adopted.
Given the reduction in June a improvements in capital efficiency, and our improving well India shoe performance. We now have a clear line of sight to a runway of free cash flow generation going forward.
Ill now turn my comments to our operations in the quarter and a brief look into 2020.
I'm pleased to report that operational performance during the second quarter in all categories was in line with or better than guidance.
Oil and condensate production in the Permian basin increased by 12% quarter over quarter.
Permian gas sales were also higher than forecast due to the addition of midstream facilities, primarily compression, which improved our ability to capture natural gas from the wells have reduced the need to flare GDP remains confident that the textile development is the best method to develop our acreage in the Midland Basin.
While the MP industry continues to debate the best development approach, we believe that our results confirm that this methodology as the most effective and efficient way to develop or acreage when implemented using proper spacing assumptions and completion techniques that the issues completed in 2019 drilled on our go forward spacing assumptions are currently producing on or above their predictive production profile, enabling us to stay slightly ahead of our volume plan.
We have released the third rig in the Permian and plan to move forward with a two rig program into 2020.
Our future development plan initially developed the issues in the de risks areas of County line in 2020 before returning the Mustang Springs in 2021, we expect to complete between 60 and 65 wells in 2020. The two rig program will allow us to grow oil production between 2019 and 2020 by approximately 8%.
Our plan developed approximately 6% of our inventory in 2020 and delivers a compound annual growth rate over five years of greater than 5%.
Under this plan the Permian generates cash flow moving forward above $50 oil price. Although current market conditions are not supported the plan retains flexibility to grow the Permian by up to approximately 15% per annum with a four rig program.
Finally on the Permian, we are very encouraged by the results of recent off offset operator activity around the Robinson ranch acreage and we look forward to developing this area in the future.
Now onto the Wilson.
Our Williston basin assets continues to provide cash flow during the quarter. Despite the anticipated decline production, we expect the forecasted quarter to quarter production decline will be reversed when the seven new Vegas wells are put on production early in the fourth quarter.
Drilling activity in the biggest bed is now finished and we will begin completing these wells in early August .
As we have continued to evaluate the performance of our re fracs in the Williston, we have changed our philosophy regarding drilling infill wells on South Antelope.
We now believe that refracking existing wells as the most economical way to develop the remaining reserves on south Antelope.
While the combination of new wells and re Fracs on our acreage on the Fort Berthold Indian Reservation is the best way to proceed there we have identified approximately 100 remaining drilling locations, primarily in Fort Berthold and more than 100 high quality product candidates split evenly between south Antelope and Fort Berthold, all delivering strong economic returns down to a $50 oil price.
It is also important to note that there is significant upside to this inventory count depending on from a low commodity price environment.
We're excited to execute a balanced re frac and drilling development program.
Over the next several years and we expect the Williston and to continue to be a strong cash flow generating asset for the next 10 plus years. The Williston Basin 2020 development plan will allow us to maintain flat annual production compared to 2019, we anticipate being able to.
Maintaining relatively flat production for the next seven years with an addition, with an annual capital budget of approximately $135 million to $165 million per annum.
With that high level overview of recent performance and our four plans I will turn the call over to Richard to discuss our financial performance.
Thank you, Tim and good morning, everyone.
I'll quickly give you some color on the second quarter results, a better update our 2019 guidance add some additional thoughts around 2020 plans before we open up the call for today.
In the second quarter of 2019, we generated $166.5 million of adjusted EBITDA.
Higher adjusted EBITDA is compared to the first quarter is reflective of among other things lower DNA expense, although we transportation taxes and higher fuel level prices, which were up $3.69 per Boe compared to the first quarter.
For the second quarter, we reported net income of $49 million driving net income was $55 million unrealized gain position with our commodity derivatives portfolio.
At the end of the second quarter, the derivatives portfolio, the net liability of $1 million compared to a net liability.
$65 million at the end of the first quarter.
In addition, we reported an $18 million gain on sale primarily related to the Haynesville Cotton Valley.
We continue to enter into commodity derivative contracts during the second quarter as of June 30 contracts, excluding basis swaps totaling 14.6 million barrels of oil, which covers about 67% and forecast in 2019 oil production and up 31% in the forecast in 2012 well production.
With regard to our balance sheet at the end of the quarter total assets were $5.5 billion shareholder equity was about $2.7 billion and total debt was approximately $2.1 billion of which all of which was our senior notes, we had nothing outstanding under our revolving credit facility and had $97 million with cash in the quarter.
Excluding client cash we have the ability to incur about $550 million of additional indebtedness at the end of the second quarter.
In terms of 2019 guidance there are several updates.
With regard to overall production guidance for the year based on better recent well results in improved gas recoveries in the Permian basin in the first half of the year.
We are increasing our overall production guidance to a range of 29.9 to 31 million barrels of oil equivalent a 4% increase at the midpoint of our previous guidance.
We are increasing oil guidance for the full year to a range of 21% to 21.5 million barrels an increase of 200000 barrels at the midpoint.
Despite the divestiture of several non core assets in the Williston basin.
That were forecasted to contribute approximately 150000 barrels.
For the last seven months of 2019.
We are increasing our guidance for natural gas line for 2019 to range of 28 to 30 Bcf a 9% increase at the midpoint of our previous guidance, which reflects our improved natural gas capture rates in the Permian basin.
Finally, our guidance for NGL volumes for 2019 is increased to 4.25 to 4.5 million barrels and 11% increase at the midpoint from previous guidance.
The teams significant strides in cost reductions and improved efficiencies position us to lower our 2019 capital guidance by $50 million at the midpoint.
In addition, we are lowering our 2019 June guidance by $5 billion at the midpoint.
There is additional detail about our guidance in our earnings release.
As Tim mentioned.
Our oil before the expected tax refund of $37 million.
At $55 oil our free cash flow yield is expected to be around 10% based on a $5 share price.
Our ability to generate free cash flow enables us to improve our balance sheet and complimentary capital shareholders. We're extremely pleased to announce the reinstatement of the quarterly dividend at two cents per share, which represents a dividend yield of 1.6% based on a $5 share price.
In addition, we expect to fund the $52 million of senior notes that mature in March 2020, with cash in the balance sheet.
Clearly the extent of free cash flow generated will be dependent on the price of oil, but even with the dividend payment and our senior notes ripping next year.
We have sufficiently decreased our cost structure, such that we expected cash flow positive in 2020 at a $50 oil price, allowing us to further strengthen our balance sheet.
I will now turn the call back to Tim to provide a brief summary before opening up the call for questions. Thanks. Richard in summary, we are committed to delivering a low cost highly competitive investment opportunity. There are high return development program in the Permian basin and the execution of a selective drilling in Refrac program in the Williston Basin.
We believe that the combination of our high quality assets with the strength of our operations teams will allow us to deliver on this commitment our concerted efforts to reduce corporate overhead and field level expenses of soundly positioned the business to deliver free cash flow with a competitive yield to our investors and return capital to shareholders through our dividend program and the repayment of debt.
Our team has delivered outstanding performance during the past six months, while we have been reviewing the strategic alternatives and I want to thank each of them for their patients and commitment as we work through this process I mean, Suzy assets have a bright future ahead and look forward to sharing our ongoing progress on the execution of our new strategy and results in the months ahead, I'll now turn it over for questions.
Thank you.
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Our first question is from Gabe Daoud with Cowen and company.
Hi, Good morning, Tim Good morning, everyone.
Maybe curious on the.
The dividend then.
Kind of how you balance that with leverage and then also just a longer term plan through 2020 and.
Hey, you know what the commodity still being kind of volatile I guess, maybe just discuss a little bit about your comfort level on reinstating a dividend and then.
How you balance that with the plan through 2021.
Hey, David It's Richard I think I think the dividend.
Is the tangible demonstration of our confidence and the ability to generate free cash flow.
And are committed to returning capital to shareholders.
No you're right the commodities all pile, we've got about 70% of our production covered for the rest of this year about 45% covered so far for next year that gives a solid foundation to generate that free cash flow. It just felt like it was the right thing to do in terms of.
Again, a tangible demonstration of our confidence and generate free cash.
We've got plenty of cash to.
Fund the maturity that's coming due in March.
And we will continue to quote organically de lever if we don't do anything on the liability management front.
Got it got it okay. Thanks Switcher Thats helpful. And then I guess with the you know the review process complete just.
I guess, how does that impact your thinking just in terms of the Permian water infrastructure assets.
If thats still like potentially represents a divestiture candidate and then also I guess just sticking to the Permian.
Yes, so the water question. The water asked a question and then also just looking to the Permian in terms of spacing. Some of those de issues that you highlighted does that represent the appropriate spacing as you think about development moving forward.
Yeah, I think I'll take the first one the last one first so the spacing I think where we're dialing in not only in the <unk>.
In.
Mustang Springs, but also over in County line and so the spacings. We represented there for now or what we believe are appropriate. Good news is somebody other sounds like the Jo mill and the Dean are showing very positive results and so.
I don't want to preclude going through a little more down spacing in some of those but went in the main bodies of the Wolfcamp a the wolfcamp b.
In the Spraberry shale I think we're getting that plus or minus about right.
On the water infrastructure, we're pretty excited about that for a fairly small company. We've got a we've got a good size infrastructure, we're processing water lower than most and so there is a big margin. There. If you can bring more more water in the system.
Got it and then turn it back down and so by Frac water clean Frac water back to back out of the market I think there's a good cash flow opportunity. So we're we're looking at the best way to leverage the assets.
So those infrastructures are selling for a pretty high premium and so we'll obviously take a look at that but we think the balance between keeping a very low elouise, keeping our frac costs down and doing all that maintains and control them there, but partnering with a company that's much more skilled at gathering water and signing up those contracts working with US we can process that we can move it.
But I think that may be ultimately what we decide to do so we're hoping that next quarter, we get all that buttoned up and we're able to give an update next quarterly update.
Okay, Great. That's super helpful. Thank you.
Tim and I will just.
I'll sneak in one more if I could just on the rig allocation in 2020. This I guess with the focus on County line is there.
Any particular reason why maybe moving away from US Thanks Springs, and then what about.
Robertson Ranch.
Acreage block is there any.
Thoughts on one development could start there.
Yeah, so on kind of in line. The only reason we're going over there as we do have some obligation drilling with our University lands were excited to get back there I mean, the Spraberry shale in County line is probably one of the best Horizons, we have to develop we can develop that a bit higher density and so were we look forward to getting back over there. We were at a really good stopping point. If you look at kind of our maps, we kind of.
Thing, we obviously were super excited about when we bought it now all.
A lot of upside operations going on in each of the horizons are showing really strong results. So we're going to be gathering all of that offset information and were anxious to get down there I mean, we've got a pretty big.
Inventory it takes a little while to get down there, but we're contemplating doing individual test wells or potential DS you tests in the future, but we're we're probably a couple of years out from being down.
Okay, great. Thanks again.
Our next question is from Neal Dingmann with Suntrust.
Hi, good morning, guys.
Say I'm just wondering can you could address you guys are doing a nice job with cost efficiencies getting closer to free cash flow. So my question would be how you address the sustainability of the free cash flow given the tank style development that you all planned the Permian.
Yeah, I mean, I think that that really does help to sustain is I mean, when you look at our.
Drilling and completion costs and speed of drilling is really nothing to do with bank. So we can get these things in place a low cost from cheaply, where we have a real advantage on the tank. So from a cost perspective was on our facility. So you know, we're we're no longer going to kinda complete so used to where we go across the road turn up or come back we're going to do this more in a tight front are solved doing instead of the issues across coming back to the other side and going across as we do that.
We were able to use the facility elledge, we've developed on a previously issues. Let me come back just below it. So one of our biggest use recently, we had up to 57 wells were able to access a single deal or deals you facility.
So I think that's in a very efficient way to do that so I think the tanks all actually helps us maintain that efficiency you keep the cost down and we've done a lot in the last seven months I think there's more to come the teams are motivated we everybody understands the need to deliver the cash and so I think the tanks. All this enables us to carry forward I think Richard as you as a follow up if you go back to Tim's comment about the well cost of $6 million in the Permian. That's that's round numbers about a million and a half cheaper than we're drilling before if you think about 60 wells a million dollars cheaper thats $90 million of incremental free cash right there.
And with that the GDP reduction that's round numbers $70 million that begins to tell you how sustainable that free cash flow is so we're very confident.
Free cash flow is as we said in my remarks already down to $50 a barrel.
It's through a combination of what we've done with regard to the drill bit as well as what we don't the organizational structure. So from a sustainability standpoint, we feel very very good about.
Just not flashing opinion.
No helpful guys and then just lastly on a follow up on the box I know you've got plan with the the one rig in the seven wells just wanted to sort of dressed to depletion that that you have there you know in the past you've mentioned I forget the number was three or four what you kind of thought was an optimal level to really attack that area. I'm. Just wondering now that with the plan finished any new thoughts or color you could just talk about attacking the Bakken. Thanks, so much.
Yeah, I think we have a little bit we've got good detail on the in the pack, but we've started the Bakken hard.
And we looked at we just kinda looked out over the next five years and so that's what matters. Most for now we have quite a large inventory they can develop it at higher prices, but if you think about a 50 to $55 price. We've got a really solid inventory of about 100 Refracs on 100 drill wells were drilled wells are primarily in Fort Berthold and then the re fracs are split evenly between south Antelope four berthold they sound like the South Antelope Refracs that we completed in 2018 or continue to deliver very well the economics are strong.
The latest ones, we did with the best technology haven't happened because of kind of eight to 10 Bucks and so we're going to do a probably a bit more early on disproportional share of refracs versus drilled wells and they carry that on at about plus or minus $150 million year. We can maintain production flat the base decline on the Wilson is about 30% per annum and that's a pretty typical decline and were able to maintain through work over activity in such that the decline.
All of that activity I'm talking about the refracs and occasional wells or enough of a upside wedge to keep that production flat for a long time and the final thing I'd say is that's a very cash flow positive.
Asset and we can maintain a cash flow positive very easily for the next 10 years, we believe.
Great. Thanks, so much guys.
Our next question is from Kashy Harrison with Simmons energy.
Hi, good morning, and thank you for taking my questions.
So the first one from me.
What should we how what are you going to use the incremental free cash flow in excess of the dividend to do in 2020.
So I'll start off and then turn it over Richard I mean, we are we do have a $50 million debt maturity coming due that will be paid off and then obviously, we have additional debt maturity coming the following year. So I'll turn to Richard to kind of build that yeah. Kashi is it's going to be the combination of HM.
Managing the balance sheet.
The the.
The debit in total with its not increase on quarterly basis is a annual basis is about $20 million and mentioned that $50 million maturity said 70 million right. There the 120.
The room at the manual we'll figure out what to do with it with regard to the balance sheet.
We're or other.
Well, just putting a little bit more money into the Permian water business to get it to where we want to be completed monetization. So it's you know it's earmarked for a variety of things.
But our intent is not to increase activity I mean, we've we have spent a lot of time over the last six months.
Looking at the activity levels and quite frankly, when we talked in April I thought we were going to have to have a higher volume 60, a lower price to deliver this kind of cash flow with all the significant reductions we can now deliver Apis and so you think about only working off for the next few years, five or 6% of our inventory for here that gives you a long life, you're not pressed against the wall inventory and you're delivering a very positive cash flow. So I'd say stability is key were going to do smart things, we'll be opportunistic, but we really are focused on this level of activity two rigs in the Permian.
Fracking periodically drilling periodically in the Williston and that's the only way we can have confidence of delivering.
Very consistent cash flow football.
Great and then maybe 222 quick ones for Richard.
How should we think about maintenance capex to hold your your Q4 oil rate flat into into 2020, and how should we think about the oil price at which your program is cash flow neutral in 2020 and 2021.
Yeah, Gosh I don't have the exact number we're still cash flow positive at $50 a barrel and of course some of that's supported by the <unk> program.
If I had to ballpark it I'd say, we're probably be cash flow neutral.
In the high Fortys I think probably 45 were were not cash flow neutral in 2020.
We don't have any derivative position on for 2021, yet I'm will.
No wait for that sort of recover before start putting those derivatives on so that's that's kind of the I think the.
So a quick guests at the at the cash flow neutrality price.
First part of your question was what coffee sorry.
Then the maintenance capex to hold the Q4 right.
Yeah. So maybe just so we anticipated remarks, we talked about the Bakken the bucket is going to generate about 8 million barrels of oil this year Keith block in flat at 8 million barrels eight to 9 million barrels is a 130 ish million dollar range flattened the Permian is probably 300.
The $350 million, so that incremental capital that we're spending for infrastructure et cetera.
Only grows the Permian by about 10%. So I think if you.
Put the look at our capital program Bird.
Next year, there's probably $100 million to $150 million, that's growth driven versus the remaining matters you see sort of keep production flat.
You know there one thing I'd build on on the derivative position is typically.
You know we would end the year about 50% covered we're already at 46% and the average prices 50 85. So we feel good about the position. We're in now we think a lot of other opportunities.
Hopefully before year end and certainly into next year to build that up to closer to 70 plus percent. So we feel good about what we've done to secure our ability to carry on through this year and carry all the way into in through 2020.
Got it okay. If I could just sneak one more quick one and could you could you remind us or could you let tell us what the the cash flows associated with the Permian water infrastructure assets were during the second quarter.
Yeah coffee, we you know we don't we don't break it out.
And.
You know, it's all a intercompany so.
It wouldn't be reflected as if we had if you're charging ourselves a dollar a barrel hurdles if you barrel for water. So.
We don't we don't give the number and maybe any good its internal so.
It's not going back and believe we use we did give you the number if I told you it was $10 million of quote EBIT da CPE.
You know I think it gives you that gives you the wrong idea that Oh, thats only worth $100 million at a 10 times multiple because we're we're handling ourselves so.
You know as we get closer to trying to do something with that if we decide to do something with that.
Clearly will who will give more visibility as to what that system would do.
If it were a standalone third party system.
All right. Thank you.
Once again, if you have a question. Please press star one on your telephone keypad.
Our next question is from Tim Rezvan with Oppenheimer and company.
Is that sort of roughly how you're thinking about kind of that that maintenance production level going forward for the Wilson.
Yeah, that's exactly right I think you got your numbers just about exactly right and I think with the we the what we quoted on her script is a 135 to 165, depending on the year and depending how much infrastructure has put in years, where you're doing primarily refracs leveraging the infrastructure is going to be closer to 135 years, where yet but.
Facility infrastructure associated with the drilling the new wells that would be a little higher but overall net net over the next seven years, we feel confident with that level of activity. We keep the numbers flat about what you quoted.
Okay. Okay.
Thank you for that and then I was hoping to get more clarity on comments you gaming.
Your prepared remarks on the Midland Basin.
Did you say that.
8% oil growth in 2020 from the Permian would come from developing 6% of your inventory was that the comments you gave.
Yes, so in 2020 in County line. When you look at the 60 65 wells, we'll drill that develops about 6% of our remaining inventory.
And we get about an 8% year on year growth.
Okay. So just to extrapolate that then you're looking at about a thousand locations is what you believe in your inventory.
Well I guess you might do that so if you go 60 to 65 that gives you a thousand to 1100.
We're in that area code I mean, obviously when we look at the other zones like the beam is giving us extraordinarily good results right now like the Jo Mill, we're looking all the offset activity around the Rovs are ranch, a number will continue to change with time.
But really we're feeling good and that kind of that kind of area.
Okay. Thank you for that and then just if I could sneak one last one in just to hit on the dividend again.
I just wonder if you could talk about kind of is there a tactical element to this to defend.
The equity given its been under pressure.
And the reason I ask is that you see interest expense for for the company is almost $4.50 would be are we.
And if we annualize first half 19, EBITDA, we see kind of leverage are you know around three and a half times. So can you talk about why you felt the need to do this now as opposed to when you're in a little more of a stronger position.
Yes got it Tim I think it's I think it's a combination of all those things you just mentioned that it is tactical I think it is a tangible.
Planning horizon.
And then how we manage the 50 million that's due next year, the 400 million Thats due.
In 2021 is it we're just balancing how our de leveraging that with regard with.
Comparison to how.
But when you have the cash I think if you.
I think the first half of the year is challenging to $119 million EBITDA in the first quarter was burdened with over $60 million of DNA as result of restructuring.
Costs, if you if you analyze annualize the second quarter or.
More importantly, the second half of the year.
Our leverage is pointed well south of three times, we forecast it to be.
By the time, we get to let's call it.
Middle midpoint of 2020.
On to be.
Plus or minus two times.
And the goal to be down in the one half times and we'll be opportunistic about how we manage that de leveraging but certainly the free cash flow.
On generation of the company and what we can do that money relative to the 19 or $20 million of dividends.
It seemed like a good balance.
Okay. Thank you.
Our next question is from many Zhang with credit Suisse.
Good morning.
I have a quick question on on 2020 seems to me that Capex is roughly flattish next year, while youre youre doing a higher level of activity just by couple of wells in the Permian and also a much higher frac.
Also.
Activity in the Bakken.
Is there incremental cost savings that's being assumed in that 2020 Fourq outlook. That's not in 2019, just trying to understand what's being captured and what's not.
Yes. So if you look at the the deck, we talk about where we can save money on drilling completions and facility costs. We're bringing this we've been bringing those costs down all year, what we projected forward and there's kind of a mid year 19 board.
So the activity at the beginning of this year was a higher dollar amount. We ran a down we continue to bring that down into a run rate that we feel we're pretty close to about $1.5 million to $1.7 million per well delivered an excellent includes all facility costs lifting cost drilling and completions and so yes. When you do that math and you run that through and you also look at what we're trying to do is leverage existing facilities and lower the capital intensity all of that is coming together to lower the intensity per well, so I think you're right.
We could we could certainly help the offline with some of the more detail biopharma.
Got it but generally fair to say.
It's reflecting.
Your current.
Cost structure in both price absolutely.
Okay, and then a follow up on the on the debt is it fair to assume that the base case is put the $450 million maturity on the revolver.
Over the next two years.
And then could you remind me does the current revolver reflects sale of Haynesville.
Yes, the $550 million incremental debt capacity under the covenants does pro forma out the contribution of the haynesville assets as well as the the PV nine contribution to the Haynesville asset so the revolver the incremental debt capacity that we that we quote is is pro forma for everything that we sold in the last trailing 12 months.
The 450 of debt maturities $52 million next year and 397 in 2020.
We do not.
Anticipate putting all that were even half of that on the revolver.
If we were just to let those mature as they are forecasted to mature this schedule to mature.
Just because of the cash balance that we expect to have.
The combination of the $75 million tax refund that we're forecasting the fourth quarter.
As well as the free cash flow that's generated by the operations next year the combination of of cash available to us from operating activities and other sources.
We're projecting that we're absolutely not going to put the bulk of that $400 million.
On the revolver, which matures.
Great.
Thanks for that.
We have reached the end of the question and answer session I will now turn the call over to Tim cut for closing remarks.
Thank you very much and thanks for joining the call today, we're excited about the competitive position, we have today and the substantial opportunities ahead of US we look forward to continuing the dialogue with all of you in the coming days and weeks.
Have a good day, thank you very much for joining.
This concludes today's conference you may disconnect your lines at this time.
Thank you for your participation.