PDC Energy, Inc.

Good day, ladies and gentlemen, and welcome to the PDC Energy Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Kyle Sork, Investor Relations. You may begin, sir.

Thank you, and good morning. On today's call, we have President and CEO Bart Brookman, Executive Vice President Lance Locke, Chief Financial Officer Scott Myers, and Senior Vice President of Operations Dave Lillo. Yesterday afternoon, we issued our press release and posted a presentation that accompanies our remarks today. We also filed our Form 10-Q. The press release and presentation are available on the Investor Relations page of our website, www.pdce.com. On today's call, we will reference both forward-looking statements and non-U.S. GAAP financial measures. The appropriate disclosures and reconciliations can be found on slide two in the appendix of that presentation. With that, I'll turn the call over to Bart Berkman.

Bart Berkman Thank you, Kyle, and hello, everyone. A tremendous quarter for the company as PDC's era of free cash flow generation and shareholder returns continues to accelerate. Throughout the call, You will see operating and financial results, which I believe are top tier for the industry and truly differentiate PDC. Fourth quarter, free cash flow of $165 million on a capital investment of $178 million. Both better than expectations. Production for the quarter, 17.4 million barrels of oil equivalent. in line with our expectations and currently we have steady state, highly efficient operations in both basins delivering strong drilling and completion results. The company's balance sheet continues to strengthen and debt reduction remains a priority. Leverage ratio quarter end 1.2 and net debt for the company of $1.3 billion. Costs for the company continue to be well-managed. Lifting costs came in at $2.43 per BOE, and for the quarter, $38 million was returned to the shareholders as we initiated the company's first dividend and continue to repurchase shares. Year-to-date, approximately $60 million has been returned to shareholders, and we anticipate the total shareholder return will exceed $180 million by year-end 2021. Now, let me cover the company's outlook through year-end 2023, a reflection of the quality of our assets and our execution capabilities. We anticipate free cash flow will target $2.5 billion on a capital spend of approximately $1.8 billion. A reinvestment rate 40 to 45 percent of our adjusted cash flow from operations, and simultaneously, we expect to drive our leverage ratio well below 1.0 and pay down our debt by approximately a billion dollars. This robust free cash flow provides an opportunity to return over a billion dollars to our shareholders through dividends and share repurchases. all while we control costs, continue to improve the efficiency in our operations, and modestly grow the production for the company. Quite a story for PDC. As I conclude my comments today, let me update you on PDC's ongoing ESG progress. Our early fall sustainability report, which I encourage all of you to read, will detail the great strides we have made in many areas. Today, I would like to hit some of the key highlights. The company has devoted considerable engineering and environmental resources towards managing our emissions, and I am proud to announce quantifiable goals through 2025 that include a 60 percent reduction in greenhouse gas emissions and a 50 percent reduction in methane intensity. Currently, PDC has also achieved a flaring percentage for the company of approximately 0.1%, which I believe is top tier for the industry. Our goal is to achieve zero routine flaring by 2025, a significant time acceleration from our prior commitments. And additionally, So important in our business today, I would like to thank all of our field operations in Texas and Colorado for their ongoing focus on safety. Both basins just celebrated three-plus years without a single lost-time injury. As we look at the ever-evolving world of ESG, I am pleased with the tremendous progress we have made and the goals we have set as a company. the environmental and emission controls, the safety and welfare of the PDC employees, and the extensive focus on our communities and charitable giving and the ongoing governance improvements for the company. With that, I'll turn this call over to Dave Lillo for an update on PDC's operations. Thanks, Bart.

As you mentioned, there's a lot to be excited about this quarter. First and foremost is our ability to operate safely in each of our assets. We put a tremendous amount of effort and emphasis on training and really instilling a culture that prioritizes safety throughout our organization. So kudos to everybody for these achievements. In terms of operations for the quarter, we invested approximately $180 million and saw some solid sequential production growth compared to the first quarter. As we highlighted in the press release, capital was a bit below our initial expectations as around 15 million of non-op activity shifted from the second quarter to late in the third quarter. That said, production still came in ahead of expectations both in terms of total and oil due to the strong performance in Wattenberg wells and slight acceleration of our Delaware basin turn in lines. In Wattenberg, we spud and turned in line just over 20 wells. We had some changes to our operation schedule that led us to focus on larger pads and larger laterals compared to the first quarter and resulted in quite a bit fewer turn in lines. The heading Into the back half of the year, there are actually more SRLs and MRLs on the schedule. So expect the turn in lines per quarter to be doubled, if not more, than the second quarter level. In Delaware, we turned in line our entire program for the quarter, thanks to the efficiency gains on the drilling and completion side we've been realizing year to date. We released our completion crew for the year but remain active with one drilling rig, and the team is excited to get back at it early in 2022. Moving to the next slide, as Bart covered, the consistency with our messages in the past couple months. We've started to see some cost inflation related to higher commodity prices that we expect to start trickling into our AFEs for the rest of the year. In Wattenberg, we're expecting well costs to increase approximately 10% to around $4 million for an XRL. It's no secret to anyone on this call that steel, service costs, and diesel are much more expensive than they were six months ago. And while these don't make up a huge portion of our AFE, the magnitude of the cost increase is pretty substantial. The commodity prices, where we are, we also return some cost concessions provided to us back in the middle of COVID. The good news is the wells that we expect to turn in wine the remainder of the year were drilled and cased around a year ago at lower pricing. So what you're seeing now is a blend of past and current costs. As I mentioned in Delaware, our completion activity is done for the year. So much of the cost pressure is really irrelevant until we go back out to bid this fall. More importantly, we've managed to continue increasing our drilling and completion efficiencies and are now averaging XRLs of approximately 7.5 million 5% below budgeted costs of $7.9 million per well. On the drilling side, we're really seeing the benefit of our relationship with H&P Drilling, changing to a rotary steerable technology, and modifying our wellbore construction, all of which have helped improve our spud to rig release times by approximately 25% to 30% compared to last year. In terms of completion, The main driver of cost savings is switching to a dual-fuel blend utilizing 50 percent natural gas and 50 percent diesel, and utilizing reduced water during our fracking. Switching gears, we provide a high-level update to our permit progress on slide nine. Just last week, our SPINI OGDP passed through to completeness determination stage with the state and has a commission board hearing date currently scheduled for October 6th. Given that everybody is in unchartered water and working through a new process, we're pleased with the state's ability to give us, get us through the completion period, completeness period, and on the docket in such a timely fashion. It has been great. has been a great team effort on both PDC and COGCC side. As far as the Kenosha OGDP and Gwinella cap, the team continues to work to make good strides in turning yellow boxes green. Our goal for submittal for the Kenosha application will be late in the third quarter and the Gwinella application around the end of year timeframe. As a reminder, To prove, the Spinney, Kenosha, and Gwinella represent over 500 future drilling locations in Weld County. With our current permit count and duct backlog, this would cover our turn-in lines through 2027. With that, I will turn it over to Scott Myers.

Thanks, Dave. As always, my comments will include GAAP, non-GAAP, and forward-looking statements, so I'd encourage you see our reconciliations found in the appendix. Thus far, we've given several components of our updated guidance. But on slide 11, you can find it all in one place, as well as some quarterly commentary. Most importantly, we are expected to generate more than $800 million in cash flow this year, compared to prior guidance of $600 million. We've obviously benefited from an improved pricing backdrop with a 33% increase in expected free cash flow compared to a 5% increase at the midpoint of our capital investment range. To reiterate, the increase in projected capital to the top half of the previous range is simply due to cost inflation as we're sticking with our operating cadence. The table on the right-hand side of the slide clearly shows significant improvements to our free cash flow margin free cash flow yields. Importantly, you can also see our increases to our projected debt reduction and shareholder returns this year. In terms of debt, we now expect to reach $1 billion, our target, by year end, which means we will have reduced our total debt by approximately $600 million in 2021. We also expect our trailing 12-month leverage ratio less than one times by the end of next quarter. As far as shareholder returns, we began the year targeting $120 million, increased it to $150 million in May, and are again increasing it this time to more than $180 million. Approximately $36 million of these returns should come from our quarterly-based dividends. meaning we project more than 145 million of share repurchases this year. Finally, in terms of production, changes to our completion schedule and on-off program have resulted in us narrowing our guidance range to 195,000 BOE per day and 64,000 to 66,000 barrels of oil per day. We still project strong sequential growth in the third quarter, and strong Q4 over Q4 growth of approximately 15%, which positions us well heading into 22. Realistically, production continues to be an output for PDC. Our focus on generating free cash flow, paying down our debt, and shareholder returns. Moving to the balance sheet on slide 12, you can see we reduced our net debt by approximately 50 million in the second quarter. and now have a cash balance over $100 million as we prepare for the settlement of our converts next month. In order to reach our $1 billion debt target, we'll obviously have to pay down a bit more debt than just the converts. Look for PDC to consider various other management liability tactics in the third and fourth quarter. In the quarter, we returned just under $40 million of capital to shareholders through the payment of our first quarterly $0.12 per share dividend We were purchased approximately 660,000 shares. Again, given the pace at which we're paying down debt, the inflection point for our shareholder return initiatives is quickly approaching. We're excited about the opportunity to drastically increase the pace of our share buyback program and hopefully increase our base dividend in the near future. Most of this is evident on slide 13 when you look at our multi-year outlook. We're now projecting a three-year cumulative after-tax free cash flow of approximately $2.5 billion. This represents nearly two times our current debt balance, or almost half of our enterprise value. Incidentally, it's a $600 million increase, or more than 30% compared to our prior outlook, while cumulative CapEx has increased only $100 million. We're also increasing our cumulative debt reduction and shareholder return targets for the three years, each being more than $1 billion. For debt, our prior commitment was 850. For shareholder return targets, it increased from 650. It's very important to note that through June 30th this year, we've had total shareholder returns of approximately 60 million. This means to hit our billion-dollar number, through 2023 over the next 30 months, we expect to average at least $30 million of shareholder returns per month over that time period. Again, we hope to achieve this through an accelerated share buyback program, both in our quarterly dividends, with a willingness to consider other forms in future years. I want to close the call with one last thank you to our team. It's been a tremendous start to the year, and it's an exciting time to be a PDC employee and shareholder. With that, I'll turn the call over for Q&A.

As a reminder, at this time, if you would like to ask a question, please press star, then the number one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Downey of Citigroup.

Good morning. Thanks for taking my questions. Maybe for Bart or Scott, I wanted to ask on shareholder returns. You're now aiming, as you mentioned, for a billion plus dollars of total shareholder return through 2023, 180 of that, 180 million of that plus this year. Scott, you mentioned the implied 30 million plus pace per month there, almost triple your shareholder return pace from 2Q21. As that shareholder return pace starts kicking into higher gear once you hit debt targets later this year, how are you thinking about the best split between repurchases and dividends over the medium term?

Yeah, that's a great question. Yes, to start out, you're right. We still are going to want to hit that billion-dollar target before you really see us pivot. But again, once we hit that pivot, you're going to see the debt paydowns come down quite a bit. Still paying down debt, but at a much slower pace. And you're going to see the inflection there of the return of capital to shareholders. We're still a big believer right now that we are undervalued on the share buyback. So I would say you're going to see both. growth in our dividend, but I think the more substantial portion is going to be the growth in our shareholder or share buyback program. We know that we talk about it. We talk about the politics of Colorado. When we get these permits approved, we think it's going to be a lift on the stock. Until that time, we think buyback shares is a really good option for PDC.

Great. Then maybe one on the operations front. On well cost and capital guidance, you mentioned a roughly 10% increase due to cost inflation and walked through some of the drivers there. Dave, you mentioned some of the drilling and completion efficiency opportunities. What are you baking in in terms of future efficiency potential in that well cost expectation, and do you anticipate being able to offset any of that 10%?

You know, we're doing extremely well in our Delaware drilling and completions right now We're utilizing newer technology with rotary steerables, leveraging our new relationship with H&P Drilling. We continue to lower costs there, and that's going to offset our cost increases that we see in Delaware. On the Wattenberg side, we continue to be very effective with our drilling and completions. We're averaging four days for an XRL in Wattenberg, and we continue to have improvements every day. So we're hoping that our efficiencies will continue to move in the right directions and try to offset some of these cost increases that we're seeing right now.

Brian, this question, let me just add a little flavor. We're extremely proud of our Wattenberg team. This last five, seven years, if you go back and look, the advancements we've made in pushing our efficiencies to four-day type spud-to-spud drill times and some days, you know, 20 to 24 stages per day. And then you couple that efficiency and that optimization of our development program with the pandemic situation. the concessions that came out that gave us the ability through our efficiencies and tremendous pricing by a lot of the vendors to announce a $3.6 million XRL. I know there's been some comments about the 10% and maybe we're an outlier, but we didn't feel it was appropriate to not let the market know that we are so efficient and we continue to try to find ways to optimize that. But the right thing to do was to let you guys know, hey, we're coming off the pandemic, we're having some asks, and our efficiencies are so dialed in, it's hard to squeeze more and more out of it. So I think we absolutely did the right thing here. And again, we're exceptionally proud of the team and the efficiencies they have achieved. in the Wattenberg field and the Delaware and some of the things going on there that Dave called out.

Appreciate the call. Thanks, everyone.

Your next question comes from the line of Michael Sayala of Stiefel.

Hi, good morning, guys. Dave, you talked about moving your OGDP and CAP projects forward in the COGCC, kind of moving through uncharted water here. Just maybe high-level thoughts on the whole permitting process. Have any permits been granted this year? And I guess, you know, what gives you the confidence that you're going to get across the finish line on these projects going forward?

You know, I think we've made tremendous progress. Right now, our team's currently working on two OGDPs, the SPINNY being one of them that, you know, has a board hearing scheduled for October 6th. The other one where we're working through, and on my slide that I have, you know, working to change those yellow boxes green, as I mentioned. We've adopted you know, the new policies and regulations and the new processes that the Oil and Gas Commission wants us to go forward with, with these longer-term and more extensive development plans. The team's been working very, very close with the COGCC, and I feel we're making really, really good progress moving towards getting these to approval. I believe that the progress we're making is right along the timeframe that we need based on the current duck count and the current permit count that we have out there. So right now it's not worrying us at all and continue to work with the COGCC very closely and making sure that these development plans and all the applications and the processes that we need to go through are done effectively the first time so that they can move through the process as it was kind of outlined for us.

Got it. Okay. And is it fair to say, I guess, that the permitting process has slowed down for the industry as a whole? Is it just a function of COGCC asking for these larger projects rather than granting one-off permits as they have in the past?

Yeah, I think so. You know, the spinney is an eight-well package with one facility, and that's the one we started from. We're learning through the process, and we're getting better at it. The next one that we'll be submitting will be a 70-well package with three different facility sites. And we'll take the learnings from the very first one and apply them to the second one so that we can move through the process quicker. And then we can apply all that to our cap, which is our Gwinella cap, which is made up of over 450 wells. So very pleased with the team, the results, and the progress we've made so far.

Very good. And you talked about, both you, Dave, and Bart talked about the – The inflation in Wattenberg, some of your competitors, actually most of them seem to believe they can offset inflation with efficiencies. You guys seem to be acknowledging that well costs are going higher, and I guess the law of small numbers works against you when you get down to four days of drilling and 20-plus stages in a day. Pretty hard to squeeze out more, as Bart said. I guess as you think about, so you acknowledge 10% inflation in the second half here. As you think about 22, I would anticipate that number would go higher given that, you know, some of the benefits that you saw in the early part of this year. Is that fair to you?

You know, right now we kind of have, Old costs and new costs coming together where we spud most of the wells will be turned in line in the second half of the quarter about a year ago, so we took advantage of drilling those and casing them last year so we got the lower prices. Along with that, with our procurement process, we've pretty much tied up all the production equipment as far as steel cost increase. We've tied that up until the end of the year, so we're taking advantage of that. What we're seeing next year we're thinking it's going to be in the $4 million range to drill a well, and that's from the start to the end. We will know a lot more after we go through our formal bidding process, and we pretty much kick that off in the fourth quarter. We don't like to get too far ahead of that or start it too early because then you don't get pricing that you can rely on. So in the fourth quarter, we'll really understand our costs a little better. But like Bart said, we wanted to make sure that everybody was aware. And I don't think it's just to us. I think everybody in our industry is starting to see these concessions come off that were given during COVID and the steel and the cement and the frack activity and everything picking up just a little bit. But we'll know more in the fourth quarter, and it's really based off of commodity prices and activity levels in each individual basins on how those costs are going to come out.

And, Dave, just to add a little bit of color, when you look at 22 and 23 in our price release, we have updated that guidance range to 6 to 650, just so everybody's aware of it, and that's where we get to the $1.8 billion for the three-year cumulative investment. Okay. And we believe that the cost increases that they have is already factored into that guidance.

That's good to hear. Last one for me. Bart, there's been a lot of consolidation in your neighborhood here. Just thoughts on M&A activity, and are you feeling any pressure to do anything on the M&A front, given the activity you've seen in the D.J. Basin?

Yeah. to answer the last part, no, we're not feeling any pressure. We're focused on execution right now. We obviously are always keeping our eyes open if the right opportunity came along. I think as we think about additional scale, obviously that's something tactically we would like, but I think the goal, as I've stated many times, is we look at different projects. We want to make sure we're focused on not just getting bigger as a company, but getting better as a company. So Mike, and Lance is on here, I can ask him to add a little flavor to this, but right now the company's focus is on our execution, the free cash flow that Myers laid out to you guys. We're happy with the way things are going in both basins. The balance sheet is If we were to give anything into consideration, our commitment to our investors is the balance sheet is always a priority, and we're looking for projects, like I said, that would improve the company and be accretive on an inventory basis and be accretive on financial terms. Lance, are you out there? I think you're connected.

My good question, I think the only thing I'd just add to this is, all of us with the free cash flow business model, we're targeting sort of that you know, three-ish percent compounded annual growth rate as a company. And with that, you know, we continue to, you know, if you will, stretch, you know, the inventory life, you know, that we have in both basins. And the other thing I'd add to that is, you know, our teams continue to look for, you know, especially, you know, focus here in the Wattenberg downspacing opportunities and, you know, kind of picking that right spacing at these prices that we see and project going forward. can deliver additional inventory on our existing acreage base. So that'll continue. The other thing we'll always do as well is just continue to work on the, you know, with trades. Those are very, you know, efficient for both parties and then kind of joining acres together to grow longer laterals. That's something we'll continue to do over time as well.

Sounds good. Thank you, guys.

Thank you.

Your next question comes from the line of Yumeng Chowdhury of Goldman Sachs.

Thank you for my questions. My first question is on a free cash flow allocation plans between debt reduction and shareholder returns. Given a strong balance sheet and, like you mentioned, you believe your shares are undervalued, I wanted to get your thoughts on deploying more cash towards share repurchase or dividends versus paying down debt below the $1 billion which you're targeting for this year?

Yeah, I think it's a fair question. I think ultimately for the company, getting our debt balance right to give us more flexibility for if there's a reversal of the current commodity price is still my number one goal for the company. The SRC transaction we did was fantastic, but at the same time when the pandemic hit, I would love to have been able to buy back more shares, and I just couldn't because my debt burden was too high. As you heard, we've already raised the target again this year. We're going to have a very active share buyback program. And I think getting our overall interest down is just really, really important so we can be super successful and thrive in any commodity price environment. So look for more returns, but look for us to get that debt to a billion dollars first before you really see us put it into the next gear.

Got it. Really helpful. I guess my next question is on hedging. Given your reinvestment rate is expected to be very low for the next three years and your balance sheet is expected to be strong, I wanted to get your thoughts on what level of oil and gas production do you plan to hedge going forward?

Yeah, and again, I can give it to you from commodity, but we always start with cash flows. That's our number one thing. I'm here to protect the cash flows of the company. So overall, how our thought process is migrating slightly is you're going to probably see less hedges in any one individual year because we can protect a little bit less cash flow with our debt coming down. And at the same time, we're hedging out a little bit further than we have because we do have that dividend that we're protecting. So I would say from a volume perspective, look to be more on hedge than we've been in the past. but maybe a little bit longer out duration. And when you see this $2.5 billion number, when we lock in a little bit, some of these small wedges and hedges, we just do a little bit at a time. we're able to lock in and we're locking in that $2.5 billion to a degree on some of these prices. So look for us to continue the program, but an overall slightly lower level than you've seen us in the past. You will not see us go to 60% or 7% with our debt level the way it is now that we have done several times in the past when we had higher levels of debt.

Great. Thank you so much.

Your next question comes from the line of Arun Jaram of JP Morgan.

Yeah, good morning, gentlemen. I was wondering if you could kind of help us with how you think the sequential progression of volumes could trend in kind of 3Q and 4Q. I know that maybe some non-op pads got shifted a little bit in terms of timing, but maybe you could help us by-siders out there who've been asking us kind of questions on that 3Q, 4Q trajectory.

Yeah, I think in the press release, we tried to outline some of this, but we see a nice step up again in the third quarter. I think from an overall production standpoint, that 5% to 10% range, oil is going to be higher, and that's due to our Delaware turn-in line schedule. Even though we did turn in all the wells, as Dave has said, I think our last turn-in was June 27th, June 28th, right towards the end of the month. Most of the wells, if you took the average, were on for about 30 days. So having that Delaware, Delaware being our oiler, and obviously the beginning part of the well is going to help boost that production. So you can look for our oil growth to be quarter over quarter, more to that 15% to 20% range. And then a little change from what we said in the second quarter with some of the schedules and the moving, and we had to move some of our shorter laterals, it's going to cause our fourth quarter to now go up. compared to what we were expecting prior. And you'll see some modest growth from third quarter to fourth quarter as well. And I think we put in a release about, what, 15% Q4 over Q4 of the yearly. So we feel pretty good about those. We feel really good about those numbers. When we go through this, the stair step you're going to see in the third quarter, really going to help generate a lot of free cash flow. And so for Lookus to print well over $200 million next quarter.

Free cash flow next quarter. Great, great. And then just on the buyback, you guys mentioned that, you know, you could maybe step up the pace of the buyback. I know you have a 10B5 plan, but what kind of latitude do you have to kind of supplement the buyback with the stock kind of coming off a little bit? Just thoughts on that. I know as you kind of look at both dealing with some debt reduction as well as returning cash via the buyback.

We like to have that program in place so that every day we don't have to only worry about open windows. We just go in and follow the plan. Look for a steady state. There are some opportunities when windows are open to potentially get a few more shares. We may or may not use that tool. Where I'm sitting at today, I'm very confident that we'll be able to hit that total return of over $180 million at this point. with the debt reduction, and my guess is we'll be able to do a little bit more. So, yeah, we think there's some opportunities here, so we're going to keep executing the plan and keep buying the shares back.

Great. I'll turn it over. Thanks.

Thank you.

Your next question comes from the line of Bertrand Downs of Truist.

Morning, guys. I'm probably beating a dead horse here. But on the three-year outlook, you know, the free cash flow percent of your market cap really sticks out. And I'm probably conjecturing here a little bit, but I have to assume that it's become because some investors just maybe don't think it's going to come back in share repurchases or something like that. Can you maybe talk about the balance? After you get debt to $1 billion, is it repurchases as a plug, or if a good asset comes along, would you kind of replace it? Or does an asset, if you purchase an asset, you also need to maintain that same level of repurchases? And then kind of maybe on the other side of that is how sticky is the repurchase preference? If dividends become what, you know, everybody starts looking at, do you switch over? Or is it kind of an internal NAV, you know, repurchase opportunity provides the highest return?

Yeah, a lot of questions there, and let me start out. Again, when Bart says we want not only a bigger company, but it has to be a better company, that would encompass being able to do deals and still be able to execute on these various plans. Paying down a billion dollar debt, That's very reasonable. Now, we could have a situation where we do an acquisition that we add some debt, but that's still going to be then a focus to continue paying it down. Again, share repurchases. We agree with you. We think our stock's a little undervalued. Obviously, we've talked already on the call about the permit status. We really think we're going to re-rate when that does, so the share buyback's very attractive to us right now. As far as the variable dividend and things, I know there's other companies that have done it. We're going to sit here. We're going to study it. And if over the next year or two, when we re-rate, when we get the permits, as David said, then at that time, we might consider if that's what the market's rewarding. Right now, I think it's just too early to tell. I understand why people are doing what they're doing, but we're in a little bit of a different situation with the permit issue that we think that buying shares back is the right answer for our company. So we have a lot of faith in the program. We have a lot of faith in our numbers. Our teams are doing an excellent job delivering value for PDC every day. So I feel very confident in the three-year outlook.

Absolutely. That makes sense. And then really the only follow-up is on the inflation topic. Some of the other companies are kind of talking, is there some wiggle room where maybe you can lock in a longer-term contract or a larger order with your vendors in the fourth quarter bid cycle, or is that not available, or is it just not worth it because you prefer to have the flexibility so that you can kind of adjust to market cycles?

So just giving a little color around that, like on our drilling rig in Delaware, we just locked in a one-year contract with them, basically at the same cost that we were at this last year, with a few incentives for them to work with us and drill faster. So we're pretty confident in that. It's going to stay really consistent. Our bidding process... You know, it's one of the top-notch processes that I've seen working for several companies. We go out to, I think there was probably 43 vendors with 43 different types of topics that we bid, and we try to lock in for best pricing, getting three quotes for each type of topics. So I think we're just going to have to see how the commodity prices play out and I think the activity level, and I think that's going to have a big influence on what we can lock in for next year and what's going to have to be a variable type cost from commodity prices. So we'll just have to see as we kick off our formal bidding process here in the fourth quarter.

That's perfect. Thanks, guys.

At this time, I would now like to turn the call over to Mr. Bart Brookman for closing remarks.

Yeah, thank you, Alicia. I'll make it short. Thank you, everyone. Great quarter. More to come. And as always, thank you for the ongoing support.

This concludes today's conference call. You may now disconnect.