Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales volumes exceeded the high end of guidance, with oil sales volumes up 5% higher than expected.
- Operating expenses and capital spending both came in below guidance, enhancing financial performance.
- Achieved 18th consecutive quarter of positive adjusted free cash flow, with a 48% increase from the same quarter last year.
- Successfully reduced debt by $3 million in the quarter and $33 million since the last acquisition, improving the balance sheet.
- Continued focus on high-grade drilling and operational efficiencies, leading to robust returns and effective integration of acquired assets.
Negative Points
- Experienced a slight decrease in sales volumes from the previous quarter due to operational downtime caused by a winter storm.
- Reported a 3% decrease in overall realized pricing of $54.56 per BOE from the fourth quarter.
- Faced challenges with gas takeaway capacity in older infrastructure, impacting operational flexibility.
- Encountered a loss on derivative contracts of $19 million, contrasting with a gain in the previous quarter.
- Despite lower CapEx, there are ongoing concerns about potential operational hiccups and the need for additional infrastructure investments.
Q & A Highlights
Q: Could you talk about the regional focus for the remainder of this year and into next year, specifically the focus between the multi-stack vertical play in the south and the San Andreas horizontal development?
A: (Paul McKinney, CEO) We're fortunate that the economics of both investment types are very robust. We've demonstrated strong economics in both Yoakum County and Andrews County. This quarter, the drilling results from the wells in Pennwell, part of the founders' assets, have been strong, especially with a higher percentage of oil. We're balancing our program based on infrastructure limitations, such as freshwater availability for fracking and saltwater disposal capacity. Our capital allocation aims to maximize our free cash flow generation by selecting wells with the quickest payout and highest cash-generating capacity.
Q: Can you discuss any limitations in infrastructure and takeaway, particularly in the northern and southern plays?
A: (Paul McKinney, CEO) We struggle with older infrastructure, especially in the Central Basin Platform where gas takeaway is not as predictable. The Permian Basin generally has regional takeaway issues, evident in the discounts from Henry Hub. We focus our capital spending on wells that produce a higher percentage of oil due to these challenges. Additional infrastructure expected this fall should help, but the Permian Basin tends to quickly fill any available capacity.
Q: What M&A opportunities do you see in your area, especially considering the recent acquisitions of Founders and Stronghold?
A: (Paul McKinney, CEO) We predict more assets will become available in the Central Basin Platform and the southern part of the North West Shelf due to larger transactions. Many assets in these areas may become non-strategic for new owners and could come to market. We're looking at everything from small bolt-ons to large acquisitions that could be as impactful as the Stronghold and Founders deals.
Q: Could you provide more details on the multi-stack vertical targets, especially in terms of what makes most sense to target today compared to a year ago?
A: (Paul McKinney, CEO) A year ago, we focused on areas like the Magnite area with a higher natural gas percentage. Now, we're concentrating more on the PJ Lee area in Crane County and the Pinwell area from the Founders acquisition due to better returns and higher oil percentages. These areas have shown robust returns and potential for reserve additions.
Q: Regarding CapEx, can you explain the consistency of the guide for Q2 compared to Q1, despite better performance in Q1?
A: (Marinos Baghdati, EVP of Operations) For Q2, we may add additional SWD wells and spend more on ESG infrastructure improvements. We also include contingency costs in our AFEs, and while Q1 did not see these issues, we maintain them in Q2 projections as a precaution.
Q: How much more capital can you put into the PJ Lee and Pinwell vertical results areas, considering infrastructure and inventory management constraints?
A: (Marinos Baghdati, EVP of Operations) In the PJ Lee area, we've eliminated most constraints like electrical and saltwater disposal, allowing us to accelerate well completions. In the Pinwell area, we're addressing saltwater disposal bottlenecks but currently have the capacity to drill more than three wells per quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
