Civitas Resources, Inc.

Good day and thank you for standing by. Welcome to Civitas Resources First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the star and number one again. Thank you. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brad Whitmarsh, Head of Investor Relations. Please, go ahead.

Thank you, Ellie. Good morning, everyone, and thank you for joining us. Yesterday, we issued our first quarter earnings release, our dividend release, and a buyback announcement, along with our 10Q, and we provided some supplemental materials. Hopefully, you've had a chance to review those items, which should all be available on our website. I'm joined today by our CEO, Chris Doyle, CFO, Mary Nalifoski, and COO, Hodge Walker. After our prepared remarks, we will conduct a question and answer session. As always, please limit your time to one question and one follow-up so we can work through the list efficiently. We will make certain forward-looking statements today which are subject to risks and uncertainties that could cause actual results to differ materially from our projections. Please make sure and read our full disclosures regarding these forward-looking statements in our most recent SEC filings. We also may refer to certain non-GAAP financial metrics. Reconciliation of these items to GAAP measures can be found in yesterday's release and in our SEC filings. With that, I'll turn the call over to Chris for opening comments. Thanks, Brad.

Morning, everybody, and welcome to our first quarter call. 2023 was truly a transformational year for our company. Now in 2024, this is the first quarter that all of our new businesses are put together. Our results highlight just the beginning of Civitas' bright future ahead. Today, we're benefiting from a scaled and more diverse portfolio, and our teams are finding innovative ways to drive capital efficiency. Here are a couple key takeaways. First, our Permian team and assets are performing very well. Through successful integration, we're already reducing drilling and completion cycle times and lowering cash operating costs. Now it's only one quarter, but I'm super excited about the results this team's already delivering. Next, our teams continue to optimize development of the DJ basin, and we achieved our $300 million investment target ahead of schedule. These investments are accelerating value to Civitas, peeling away assets that simply don't compete for capital. On an annual basis, the $300 million of assets would have generated approximately $70 billion of EBITDA at $75 oil. Now connecting the dots here, these non-core assets traded at a material step-up in value from where our remaining core assets currently trade. Importantly, the quality of our portfolio, our strong operational execution, and our confidence in achieving this year's targets will allow us to maintain full-year volume guidance despite selling 5,000 DOE per day. This is essentially a 1.5% increase in our sales volume guidance for the year with no cap exchange. Also during the quarter, we continued our strong shareholder return program, returning $215 million between our peer-leading dividend and share buybacks. Hopefully you saw our press release yesterday announcing another share repurchase agreement where we're buying back more than a million shares from VTOL, who's now down to under 2% of our outstanding shares. Since the beginning of last year, we've repurchased $462 million of our stock at $63.30 per share. and our total return, including dividends, is approaching $1.3 billion over that same timeframe. That's approximately 18% of our market cap returned to shareholders in a little over a year. In addition to our capital return, we paid down debt in the first quarter, reducing our revolver borrowings by $350 million. Our first quarter operational financial performance drove a significant beat on both consensus earnings and cash flow. Sales volumes for the quarter were higher than planned, averaging 336,000 barrels of oil equivalent per day, and oil was 156,000 barrels per day, or 47% total volumes. This was driven by strong well productivity along with accelerated turn-in line timing in both DJ and Permian. Cash operating costs were in the lower half of our annual guidance at 919 per VOE. LOE was the primary driver here, doubling 431 per VOE. Capital expenditures were $650 million, or approximately a third of our annual guidance. This is slightly higher than planned, but largely due to the acceleration of drilling and completion activities in the Permian, as well as certain long lead items purchased for the DJ in the first quarter. As a reminder, we'll likely spend 60% to 65% of our full-year capex in the first half of the year. As we progress through the remainder of the year, our focus remains on maximizing free cash flow, enhancing the balance sheet, and returning capital to our shareholders as we build a long-term and sustainable business. Now let me turn to some operational highlights. starting with the Permian. We'll be investing about 60% of this year's capital in the Permian. We're continuing to show that assets are better in our hands. In today's supplemental slides, we provide a number of helpful comparisons that highlight this exact point. On the drilling side, we've increased average footage drilled per day by nearly 30% from prior operators, and according to third-party data, we drilled more footage per day per rig than any other operator in the Permian during the first quarter of the year. A particular note, we recently drilled a three-mile lateral in the Midland Basin in under 10 days by the rig release. We've also had similar achievements on the completion side. Our teams have increased daily fluid throughput by 20%. Accordingly, cycle times are coming down as are DNC costs. So far, we've captured approximately 5% cost reduction on a per-foot basis, and there's much more to come. We're also finding ways to lower cash operating costs. On the first quarter LOE, we were more than $1 below expectations driven by ongoing field level synergies primarily labor-related and the optimization of chemicals program, particularly in the Delaware. In March, we commenced production on a large number of new Delaware wells. Early production performance is in line with expectations. Production from these wells, along with additional tills through the summer, should drive oil growth in the Permian through the year. The first wells fully drilled and completed by Civitas are anticipated to commence production in the third quarter. We continue to find ways to optimize our portfolio through asset trades, acreage swaps, and small farm ends acquisitions. Our ground game is added valuable inventory, extended laterals, and increased working interest in near-term development. As a result of this success, we've now lowered our 2024 expected Permian well count by about 10, while still completing the same lateral footage as our lateral lengths have increased by more than 10%. Now switching to the DJ, the highly prolific Watkins area comprises about 70% of our 2024 DJ investments. We continue to be encouraged by performance, and you can see on our slides how production continues to track well versus our recently uplifted tide curve. During the first quarter, we completed 13 four-mile laterals in Watkins. These are the longest wells ever drilled and completed in the basin. These wells allow us to access additional resource while reducing surface impact, and we're looking forward to production results in the second half of the year. We have 320 remaining development locations in Watkins, the majority of which are covered by comprehensive area plans. The Box Elder Cap is approved and represents much of our 2024 and 2025 planned activity, and we're working on the Lowry Cap approval, which we expect to happen later this summer. Also, during the first quarter, we drilled our first U-turn wells in the DJ. It's another accomplishment in our strategy to maximize returns and resource development with longer laterals. Briefly on the Colorado regulatory front, I want to thank the governor and the legislature for their work to reach a compromise that will withdraw the competing ballot measures and in-process bills regarding oil and gas development. While the new compromise bills are not yet finalized, they're aligned with our emissions reduction commitments, and they raise important funds for low-carbon transportation options for all Coloradans. Importantly for producers, it provides certainty that the government will oppose any future ballot measure and any legislative attempt that would upend this certainty, at least through the 2027 legislative session. This is a win-win for all parties, including our shareholders, as it removes risk of near-term regulatory changes in the state into 2028. Wrapping up, our first quarter performance reflects the benefits of a high-quality portfolio and the team's ongoing ability to make the most out of our asset base. We're encouraged by the early efficiency gains and strong results we're seeing in the Permian, and the DJ Basin continues to perform exceptionally well. Civitas has all of the key ingredients to deliver long-term shareholder value. High quality assets, inventory depth, a strong balance sheet, significant free cash flow, and a track record of returning cash to owners through cycle. Thank you for your interest in Civitas. Operator, we're now happy to take questions.

We are now opening the floor for question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Neil Dingman from Curious Securities. Your line is now open.

Morning, Chris and team, and congrats on a nice quarter. My first question is really on the notable upside you all already seen on the PERMI and specifically what I'd like to ask of Chris. is for you or Hodge, just on the wealth productivity in the play, it appears to be advancing very quickly. I'm just wondering, are there a few items? I know we've had a number of companies now with earnings this week talk about the wealth productivity and what's driving that. What's most impressive with yours is just the short amount of time. And so maybe you could talk about the type of drilling or completion, what we're seeing there and maybe future DNC upside the remainder of the year.

So, thanks for the question, Neal.

You know, it's very easy and what we've done is point to very notable capital efficiency gains, drill times, cycle times, turn in line cycle times. All those are hitting on all cylinders. I think what's not necessarily out there quite yet is what this team's doing in terms of how we're developing this resource. And to your point, there's additional zones of interest uphold in the Delaware We've talked about the Wolf Camp D in the Midland. The reason that we targeted entering the Permian is exactly what you pointed to. There is tremendous resource up and down the hole. We're testing those zones, some of those zones, candidly. While they're upside, we did not underwrite value for these acquisitions. We're seeing how they perform. That will inform how we allocate capital going forward. I'll say we're very excited by early results that we're seeing in many of the secondary zones, and that will have impacts on how we allocate capital going forward.

Great point. And then, Chris, since you've come in, you've done a tremendous job not only doing what you were going to say, but just on the shareholder return. And I'm just wondering now, when we look at sort of CIVI going forward, Do you still think sort of the flat growth makes the most sense now that you've got these high return permanent assets to go along with the DJ assets? Maybe just talk about what you think, what strategy you believe is still best for shareholders going forward.

Yeah, and I would point to the collective at Civitas really executing on this business model that was put in place in formation in November of 2021. We think it still makes the most sense long term. not to focus on production growth, but focus on cash flow, focus on maximizing free cash and returning that to shareholders. Now, some years that may mean a little bit of a little bit of growth, whether you saw that early in 2022 and when service costs weren't necessarily aligned with commodity prices, you saw the run up in commodities. So what did we do? We accelerated and we grew production. The flip side was true as well in 2023 where there was a mismatch and we pulled activity back. Again, this is about how do you maximize shareholder value over the long term? And I would say right now there's still a lot of flux in the system, and this is why it's a difficult question to answer for us right now as we stand up operations in the Permian. So much of that capital efficiency equation, so much of what this team can deliver and what these assets will deliver, is still yet to be determined. I think what's truly exciting for our team is, you know, there are a lot of folks that wanted to see us execute. They wanted to understand, could we integrate three new businesses in the Permian and not stumble? And look, again, it's one quarter. We're not spiking the football or anything like that, but we're super proud that this team has started out of the gate as strong as we have. I think what you'll see year over year is likely to be broadly flat production, and how do we peel out as much capital as possible? Now, I will say another hallmark of our board and the hallmark of our executive leadership team is that we are always in the lab trying to figure out how to improve our business. And if that means we grow a little bit, we'll look at that as a potential option. My gut is it's going to be broadly flat production, minimize capital.

I think that makes the most sense. Thank you. Thanks, Neil.

question comes from Tim Resvin from Keyback Capital Markets. Your line is now open.

Good morning, folks, and thank you for taking my questions. I wanted to start first, I guess, you know, the Colorado legislative news, obviously a really big deal. Can you give any more insight on the timing when we, you know, is that like how it works being sort of passed through the legislature right now? And then while we're talking about timelines, Can you give any more details on what you think for the Lowry cap and then the third cap in Colorado? Thank you.

Hey, Tim. This is Hodge. With regards to the legislation that you referenced, that legislation is moving through right now as we speak. The session ends here next week, so expectation is that we'll move through the process and get voted on here by the end of next week. As far as the application, as I think you might be aware, there's a sliding scale that's associated with pricing on oil and gas separately. That sliding scale will go into effect in 2025. One of the benefits of this discussion and this compromise is really through the work of the governor, the legislature, EMGOs, and the industry, and the governor's announcement on Monday, three companies were named and we were one of those companies, through the work that we've been doing over the last few weeks, what we've agreed to through this compromise is that the governor and the legislature have stacked hands to say that there will be no negative legislation. They'll come out against legislation and ballot initiatives. that have a negative impact on this industry, and that's through the legislative session of 2027. So, for all intents and purposes, that clears until the 2028 legislative session.

Lowry Cap.

Oh, on Lowry Cap, we're expecting Lowry Cap to be moving through this summer, and then The next one is our Arapa cap, and that'll be probably the end of this year, beginning of next year.

And Lowry cap, we've got a schedule in June hearing, so we're feeling good about that. I think the only thing I'd round out, you know, is the sliding scale at current price, about 60 cents a barrel of oil, about one and a half pennies for gas, if you apply that to our production stream. over the entire Civitas production series, about 25 cents of BOE. And how we made more than that, peeled more than that out of LOE in the first quarter. Now, we're not happy about paying additional taxes, but we are happy about building a coalition that shows the importance of this industry in this state and removing regulatory uncertainty for the foreseeable future. And as Hodge mentioned, as we work the Lowry through the process, we roll a RAPA cap Through the process, we have a real line of sight to developing one of the great resources in the DJ over the next three or four years without that overhang. So we're excited and happy to work together with the governor, legislators, and NGOs to get this done.

Okay, that's great, Paula. Thank you for that. And then as my follow-up, I wanted to shift gears a little bit. I know you all have been out meeting with investors more this year. There's a growing debate out there about your differentiated, you know, dividend outlook. Obviously, repurchases have been in favor. And I know for you all, it's a little more complex issue because it is a sort of meaningful part of the comp structure that's been put in place. So, Chris, I don't know if you could put your director hat on and address this or if Marianella, you have some views, but Just kind of curious what you're hearing from investors on repurchases versus this differentiated dividend and maybe how the board is sort of thinking about this going forward now that you've, you know, you're digesting these acquisitions. Thank you.

Yeah, I'll kick this off and then maybe see if Mary Ellen wants to smooth out the edges. You know, this is an executive team that's very well aligned with shareholders. And so this is a debate that we have internally to say nothing of what we hear from investors. At Formation, we felt like it was important that the commitment to getting cash back to shareholders was real. And I think what I'm really proud about is as a company, since November 2021, we've really lived up to that commitment. Now, the really interesting thing, in my view, is because of the strength of the assets, the cash flow generating power of these assets, we've been able to really deploy in all of the above strategy. And so we've been able to hit the dividends at the same time, deliver on buybacks and in tandem return a significant portion of our value back to shareholders just over the past couple years. It's something I would say we consider as a capital allocation decision. And so It's something that the board debates. Management will continue to debate it. To this point, we've had the strength to be able to do all of the above, but it is something that we evaluate.

Tim, I would add that, as you know, we've been in the conference circuit a lot over the last 45, 60 days or so. I'd say the feedback from the buy side in general has just been the flexibility in our capital plan. How do you think about committing to returning a certain percentage of our cash you know, just in dividends versus thinking about a more flexible framework. I would argue that based on our balance sheet, based on the strength of our cash flow and based on the caliber of our asset base, we do retain that flexibility, right, and do a lot of everything. Consistent with the comments we made last quarter, I think it's important to remember that, you know, we continue to return cash through the cycle. We definitely want to position our company to do that over the long term. And if you look at what we've done today, we have an extremely strong track record of doing that, as good as anybody's. Going forward, you can expect us to continue to execute on that. We like our all-VIVA philosophy. We believe the strategy has served us well. And on the buyback front, you've seen us do a lot of that, certainly our last couple of quarters and even more so our last 15 months. We'll continue being opportunistic and counter-cyclical. One thing you know very well is this industry is full of examples of companies that buy back their equity at the wrong time. Some of the frameworks out there that are just leverage-based, that just by definition, because your leverage would be low in a higher commodity prices and that's where your stock would be high as well, you just get yourself in trouble with buying at the wrong time. From our perspective, we have a $330 million authorization outstanding. We're extremely in the money in terms of the weighted average price we've repurchased those shares at. And we will continue being opportunistic. We're going to be patient, and there will likely be some lumpiness in how we deploy the remaining authorization as a result.

I appreciate the comments. Thank you.

Our next question comes from Bill Janela from Missouri. Your line is now open.

Yep, thank you. Good morning, Chris. I wanted to ask one more on the Colorado fee proposal. I know you've been very involved in the in the process here, so I'm curious if you could give us a sense of where that bill stands in terms of legislative support. If you're seeing any opposition to it coming in from anywhere and how likely you think it is to be passed when that vote happens next week, I would think that removes a pretty big headwind for your. Doc, certainly people next three and a half years.

Yeah, thank you. Thanks, Bill, for the question. And really, it's a tip of the cap to Hodge and his team. We've been involved over the past few weeks. It was critical. And the governor, I will say, did a good job making sure that both sides of the aisle within legislature, the NGOs and industry, were together and ready to stack hands on we can go forward with this. And so we believe that it will work through the system, that that coalition was developed over the past few weeks with an agreement that works for all. I think importantly, and our industry brings in a lot of tax revenue for the state into individuals, and a lot of our dollars go into hitting local communities in a very, very positive way. I think what this tax does, and and the governor was very clear that it starts to build a coalition at the state level. And when you fast forward to the legislative session of 2028 as the state will be looking to balance its budget, now all of a sudden an extremely important industry within the state in terms of jobs and tax revenue also has this additional fee. And I think we'll strengthen a coalition. Will there be noise four years from now? But this, I think, will go a long way to really strengthening the ties between the state of Colorado and the great industry that we're blessed to work in.

Very helpful. Thank you. Thanks, Bill.

Question comes from Oliver Huang from TPH. Your line is now open.

Good morning, all, and thanks for taking the questions. On the op side, it seems like the efficiencies have come in a bit faster than y'all would have envisioned, which looks to be pretty much across the board, which is good to see. Just wanted to kind of see if there's anything else that we should be keeping on a radar for that could drive further efficiency gains in the near term and any initial takeaways on kind of getting the venture side up to the same speed of the Hibernia assets, just kind of given how y'all had the keys to that one for a few extra months. I assume it'll just be a bit more expedient if you're not already there, but just any comments there would be helpful.

Yep, we're there. You know, we had TSAs for the – covered all three of the transactions. We exited the TSA with Spencer late last month, and so this is real-time news, but these assets are all in our hands. I think to your point, we saw some real encouraging results Towards the end of the year as we're pulling our budget together, we rolled in some of those efficiency gains into the 24 plan. But to your point, we did not anticipate nor did we assume that this team would hit the ground running. And again, I want to reiterate, this is only one quarter in. But the DNA of this team that we pulled together in the Permian is so much like the team that we have in the DJ. Super hyper-competitive. We want to lead. industry in both basins that we're operating in. And I'm just so proud to be a part of a team that has been able to knock down those results as quickly as they have. I think as we go forward and into the next quarter and a couple quarters, as we continue to gain confidence in our ability to extend laterals and drive cycle times down If the first quarter is any representation of what we're going to see in the next three quarters, we're going to have some decisions to make on do we want to redeploy some capital to the drill bit and potentially increase going into 2025? Do we want to extend inventory through our ground game? Or do we want to get that cash back to shareholders? I think it's going to be a fun discussion to have because any of those three options is a win for our shareholders. And we're just super excited to see what this team continues to deliver.

Awesome. That's helpful. And maybe a follow-up just on the asset sales. Good to see the completion of that mid-year target on the divestiture front. Are you all pretty much done on this front for the time being? Are there other assets that kind of remain within the portfolio, which you might look to kind of prune to bring some more value forward?

Yeah, I think, you know, with this executive team and the broader team, I don't know that I'd say we're ever truly done. I think we are always looking for ways to optimize shareholder value and how to optimize our portfolio. And sometimes that will mean assets are more valuable in others' hands. It was important for us when we announced the first two transactions to say, look, we're essentially about to double the size of the portfolio. Let's make a commitment to ourselves and to our shareholders that we're going to take a hard look at what is core and what is non-core and commit to hitting $300 million by mid-year. To be able to do that ahead of schedule and honestly at a value for non-core assets that I would have taken the under, on a year ago is, again, a testament of a very capable, very strong team. So I'd say we will continue and always look at ways to optimize our overall portfolio. But I will say that we're happy with what we've achieved and excited to get this behind us.

I'll also add that for us, like Chris said, our focus is to create shareholder value, there's an opportunity to do that. A lot of the non-core, just further back in the schedule of stranded acreage, we could use that to sell it, like we did. We can also use it to trade it, and Chris alluded to the ground game. I will say that that is an incredibly huge opportunity for us to create value, and I'll give you an example. Some of the trades we recently did, in the Permian specifically, we traded into net um more acreage that allowed us to extend laterals and you saw about a 10 gross flow decline in the in the in account for this year but that was for a for an extending lateral length from two miles to 2.2 that trade just to put in perspective that was four million eoes of proof reserves that we got for zero cost and so if we can do that for no cash i mean imagine what we could do with with some cash which this is all within part of our budget but Just wanted to underpin that because it's something that we don't spend a lot of time necessarily talking about, but it's creating a lot of value just behind the scenes, if you will.

Makes sense. That's great to hear. Thanks for the time, Des.

My next question comes from Steven McCurdy from Pickering Energy Partners. Your line is now open.

Yeah, hi. It's actually Kevin McCurdy. Yeah, I would agree. You got a pretty healthy price on those asset sales. In fact, it looks like you sold those assets at a higher valuation than where your stock is currently trading. But my question is on efficiencies. You brought online more wells than we anticipated, specifically in the DJ base. And you talked about balancing growth and free cash flow. But I guess at what point does it make more operational sense to keep activity steady? which could be an acceleration of your capital plan, and is that a decision that's driven by cost or commodity price?

Yeah, thanks, Gavin, for the question. I think you're hitting on a key part of how you ultimately drive capital efficiency. And if you're yo-yoing activity, sometimes that can be difficult. We did accelerate activity in both basins actually because it was a more efficient use of capital. And so it created a little bit of lumpiness and pulled some capital into the first quarter. In many respects, the level set activity across both basins I will lead to the most efficiency gains. I think in the Permian, the issue that we have right now is you have a team that is rapidly changing the equation by peeling out days on the drilling side and completion side. All good things, but it is leading to a little bit of lumpiness. I would say that we look at this on a continual basis and whether that is we're going to level load and keep things flat and just see if we can run harder that way or if we add in a little bit of lumpiness, whatever is the best, most efficient way to generate cash flow and get that back to shareholders is what we're going to do.

Great. That's the only question for me. Thank you. Thanks, Kevin.

It comes from Leo Mariani from Roth MKM.

Your line is now open.

I wanted to follow up a little bit on the regulatory environment here. Obviously, good to see that there's a compromise between NGOs, the legislature, the governor, and industry here. But just wanted to kind of clarify a couple things. So I know there was a bill going around that essentially would put some kind of summer stipulations on, you know, sort of largely on frack activity. And just wanted to verify that that's going to be, you know, going away as a result. Maybe it already has. I don't know if it passed any committees. And then just With respect to ballot initiatives, I'm not an expert in Colorado civics or anything like that, but presumably there could still be groups that could put forward a ballot initiative, I think, under the the current kind of rules, uh, you know, the state, certainly, I guess the governor can oppose it publicly and legislature can oppose it publicly, but isn't it just a matter of having kind of enough signatures at the end of the day, uh, and kind of getting that approved, uh, by the right agencies in the state where there still could be anti-oil and gas, you know, ballot initiatives just wanted to get some more color on that.

Hey, Leo, this is Hodge. Thanks for the question. Uh, with regards to, uh, the, the one, um, legislation piece that was out there that had the potential for the pause during the summer. That is a part of this compromise and will be pulled down as a part of this broader compromise. So that is in motion as we move through this legislative session. A good question on the ballot initiatives and to your point, from the position people can bring forward ballot initiatives. Part of what we've agreed to with this broader discussion, not only with the governor and the legislature, but also with the NGOs, is that we are going to stand down the ballot initiative efforts, meaning them bringing forward ballot initiatives against the actions of this industry, and quite honestly, the industry putting some countermeasures out there. So that is a part of the broader agreement. To the same point, having the governor come out and say that he's against these types of ballot initiatives gives even more strength behind this compromising agreement.

Okay, I appreciate that. And I guess just on well costs in the permit, I just want to make sure I understood the comments correctly. I think you guys said that you're down about 5% year-to-date on D&C costs per foot. Obviously, that's Great progress here in one quarter. I just wanted to verify, is that mostly just kind of related to efficiency gains? I don't know if there's any OFS changes in that number. And it sounds like you have a lot of momentum there. So, you know, that 5% reduction, it sounds like that can get a lot better, you know, during the year. Just want to get a sense of where that might go in the second half.

Yeah, Leo, this is Hodge again. To your point, 5% down, This is one quarter. We're very excited about where we are. I think we're seeing efficiencies faster than where we thought we would be at this time. But at the same time, we're doing a few high fives, but we're not spiking the ball. There's continuous work to be done here. We've got a team that is focused on and has a foundational DNA of continuous improvement. They're challenging themselves on how to do things safer, better, faster every single day. Most of the cost savings we're seeing here are attributed to operational and equipment that we're using. We've changed out some rigs and we've added horsepower on our completions so that we can increase our ability to do work and do it in a timely manner, and we're shortening our cycle times associated with that. We are seeing some reductions in pipe costs, but the majority of the savings we're seeing here are around processes and equipment that we're using. Excited to see where this team's going to go. We will continue to focus on continuous improvement, and we'll see how this progresses over the course of the year.

Leo, the only thing I can say is we haven't rolled those savings all the way through our 24 plan and don't know where we will be a quarter, two quarters, three quarters from now. And I think that is going to provide a tremendous amount of flexibility in terms of how we can redeploy that capital. I think there is a lot of noise in the system. We're being conservative, rightfully conservative, because it's early to Hodge's point, but super excited about what this team is already delivering and more excited to see what we can talk about next quarter and the following quarter from now.

Yeah, no, I appreciate all that color. I know it can be hard to quantify the future, but definitely sounds like you're confident those costs will be lower in the second half.

Thanks, Leo.

Our next question comes from Phillips Johnston from Capital One. Your line is now open.

Hey, guys. Thank you. Most questions were asked and answered, but I'll just leave it with two quick housekeeping questions. First, do you guys have any material infrastructure needs over the next 12, 18 months? And then secondly, NGO realizations were stronger than I would have expected in Q1 at about 30% of TI or so. That's towards the high end of your annual guidance range. I realize the range is unchanged, but can you maybe talk about the dynamics there and what your expectations are for the rest of the year?

Sure, fellas. I'll address your first question and let me know if that's not where you're trying to get at in terms of infrastructure and gas takeaway, Permian-wise specifically. So everything that we think we need to spend is in our budget, right? I would say from a Permian takeaway perspective, We have two very supportive, strong partners, and those partners have their budget for what they believe they need for infrastructure for this year. I will say to underpin that over the last couple of quarters, we've seen planned and unplanned maintenance and some of the plans down there, and we really haven't seen any impact on flow. Obviously, we felt the pricing impact on Baja widening, but no constraints itself. Um, this, this just speaks to the strength of who you partner with, right? You know, target enterprise again, just the two largest proper over gas. They, they really provide a lot of flow assurance in that regard. Just because both entities. Just need their, their wide grade for their black complexes and export dogs downstream. And so from our, from our, from our perspective, after these three acquisitions, we just have very limited exposure. Some of the. smaller processors that, to your point, a lot of times just pass on some of those infrastructure budgets to their producers. And then on your second question on the NGL realization, that did strength quite a bit from Q4. A lot of that is related to the fact that if you think about the propane seasonality in Q1 that we saw, which is about 30 to 40% of our product mix, a lot of that is what drove those higher NGL realizations relative to Q4.

Okay, perfect. Thanks so much.

Thanks, Paul.

We don't have any questions as of the moment. I'd now like to hand back over to Brad Whitmarsh for final remarks.

Yeah, thank you. Appreciate everybody joining us today for the Civitas call. We continue to look forward to sharing our continued progress on upcoming calls, and certainly we'll see you all at the conference circuit here in the second quarter. Hope you have a great rest of the day and a safe weekend.

Thank you, everyone, for attending today's call. We hope you have a wonderful weekend. You may now all disconnect to the sessions.