Civitas Resources, Inc.

Good morning, everyone, and thank you for joining us. Yesterday, we announced our second quarter 2025 results, as well as an enhanced capital return program. We provided some supplemented materials, and we filed our 10-Q. In addition, we announced the appointment of Wouter van Kempen, formerly our board chair, as our interim CEO. Hopefully, you've had a chance to look through all of our materials, which are all on the website. This morning, our prepared remarks will come from Wouter, as well as Mary Nell Afosky, our CFO, and Clay Carroll, our president and COO. As always, please limit your time to one question and one follow-up, and we can get through the list efficiently. We will make certain forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from projections. Please read our full disclosures regarding these statements in our most recent SEC filings. Also, we may refer to certain non-GAAP financial metrics. Reconciliations to the appropriate GAAP measure can be found in yesterday's earnings release and our SEC filings. With that, I'll turn the call over to Wouter.

Thanks, Brad, and good morning, everyone. Thanks for joining us. As we continue to build a world-class energy company, we must stay nimble and adaptable and build a culture of performance, strong execution, and cost leadership. Civitas has accomplished a lot since its formation in 2021, but there's more work to be done. And as such, the board made a difficult decision to part ways with Chris Doyle. We thank Chris for his contributions to our company and all that he has done to bring Civitas to where we are today. I want to be clear that this is not a strategic shift for Civitas. This was a board decision that we needed new leadership to deepen our focus on execution and performance, on discipline, and on cost leadership. and push the company forward. I will act as interim CEO until permanent replacement can be found. And Howard Willard, who has served on our board since 2021, has been appointed chair by the board during this period. We enter 2025 with four clear priorities as we work to build a stronger and more durable Civitas in the face of significant macro volatility. Number one, run the business to maximize free cash flow. and built upon a leading cost structure enhanced by sustainable capital efficiencies. Number two, deploy that free cash flow to protect and strengthen the balance sheet. And we laid out a goal of achieving four and a half billion in net debt towards the end of the year. Number three, return cash to shareholders, which was targeted to primarily come through a strong base dividend with the potential for higher shareholder returns tied to hitting our debt reduction target. And number four, lead in ESG and build a long-term sustainable business as we execute on our goal to further reduce our emissions profile. As we look back on the first half of the year, Civitas has taken decisive action to enhance our operational execution, sustainably lower our cost, and improve our financial position in order to maximize value for shareholders. With a number of our goals already achieved and confidence in meeting our debt reduction targets for the year, we are very pleased that we can now reinstate an aggressive capital returns plan with a buyback authorization that is well over 25% of our market cap today. Let me now hand it over to Marianella to go through this in more detail and cover this year's accomplishments.

Thanks, Sauter. As you mentioned, we've taken decisive actions to strengthen the company and our forward plan, including first, as we came into 2025, we optimized our investment levels, focusing on higher free cash flow and returns. Second, we reduced price risk and protected our cash flow with increased hedges. Taking advantage of multiple commodity price opportunities over the last couple of months, We are now approximately 60% hedged on oil for the remainder of this year, which is about twice our normal levels. Next, we proactively issued $750 million in new senior notes with a focus to enhance our liquidity and extend debt maturities. Today, we have around 2 billion in financial liquidity. And by the end of the year, we anticipate no borrowings outstanding on our credit facility. Fourth, we're on track with our previously announced $100 million cost optimization and efficiency initiative to enhance margins and returns. Well costs are lower in each basin, oil differentials are improved, and we're driving cash operating costs meaningfully lower. Clay will provide more color on this effort here shortly. And lastly, we significantly exceeded our full-year target for non-core asset sales, with executed agreements to divest $435 million in non-core DJ basin assets at a strong valuation. Achieving a four times multiple on 2026 cash flow establishes another strong marker for our DJ assets and allows us to further hybrid our position in the basin. The divestments constitute the northernmost part of our asset base, an area with minimal near-term development plans, and it accelerates significant cash flow with proceeds targeted for debt reduction. Production from the divested assets is estimated to be around 10,000 barrels equivalent per day for next year, half of which is oil, and the transactions are expected to close around the end of the third quarter. Each of these achievements is significant standalone. And combined, we have accelerator plans for the year, putting our $4.5 billion year-end target squarely in sight. With confidence in our plan, we intend to take advantage of the compelling value our equity provides today. Going forward and including full year 2025, we plan to allocate 50% of our free cash flow after the base dividend to share buybacks on an annual basis and the remainder to debt reduction. For the current year, that comes to about $375 million in repurchases, inclusive of the 70 million repurchase year to date. In strong support, our board increased our share repurchase authorization to $750 million, which represents about 28% of our current market cap. We intend to rapidly take advantage with a $250 million accelerated share repurchase program, which is expected to be completed within the third quarter. Before handing it over to Clay, I will quickly summarize our strong second quarter results, which were ahead of plan, demonstrating the strength of our assets and the capabilities of our team. Oil volumes grew 6% quarter over quarter. Cash operating expenses on a unit basis were more than 10% lower, and capital investments were on the low in the plan, driven by lower well costs and meaningful gains in D&C cycle times we have shown today. These outcomes, along with strong oil realizations and hedging gains, led to nearly $750 million in adjusted EBITDA and over $120 million in adjusted free cash flow for the quarter. With an expected significant increase in our volumes, along with capital and operating costs running lower, we expect a meaningful ramp in both EBITDA and free cash flow in the second half of the year. We are pleased with the recent Tax Act and the support it establishes for our industry. This new act will ensure we have minimal cash taxes for the foreseeable future, with over $200 million in savings over the next five years. Finally, we published our annual sustainability report last week, which can be found on our website. I hope you'll take time to read through the report, which includes a review of our performance and provides an update on our sustainability initiative. With that, I will turn it over to Clay.

Thanks, Marianella, and good morning, everyone. Since joining Civitas about three months ago, I've gained a better understanding of our assets, and I've been impressed with both the asset quality and the technical and operating performance of our teams. We were able to hit the ground running and deliver solid results in the second quarter, and I'm looking forward to building on this momentum and continuing to improve the results of the company moving forward. Let me start with some second quarter operational highlights from the Permian. Starting in the Delaware, we've been getting ready for our first significant operated activity after using most of last year to optimize the acreage footprint for longer laterals and higher working interest. In the second quarter, 50% of our wells drilled and 30% of our completions that occurred in the Permian were in the Delaware. Right out of the gate, the team is delivering impressive efficiencies as year-to-date drilled footage per day is around 20% higher than planned And our completions are averaging over 170,000 barrels of water per crew per day, reflecting strong performance from Simulfrac operations. We recently commenced production on our first operated Delaware pad in New Mexico. And while it's very early, initial production rates from these two-mile wells are strong, averaging over 1,200 barrels of oil per day. Third quarter turn in lines should include around 20 Delaware basin wells which are a key driver of significant Permian production growth in the second half of the year. In the Midland, the teams have continued to deliver strong efficiencies as well, highlighted by an average daily footage drilled per well of more than 1,850 feet in the second quarter. Our teams overcame water takeaway challenges, and we commenced production on a number of new pads across our assets. These included our first co-development in the northern part of the asset, targeting the middle sprayberry through Wolf Camp A, and we also delivered continued Wolf Camp D success with wells in Glasscock and Reagan counties. Marianella mentioned our oil growth as a company in the second quarter. Essentially, all of it came from the Midland Basin. Moving over to the DJ, it's a similarly impressive story, with efficiency gains on both the drilling and completion fronts. Drill times on all lateral links are better than planned. And of particular note, the team is delivering four-mile laterals, spud to spud, in about six days, which is really great execution. On the completion front, our teams are leveraging real-time AI software to optimize frac parameters, which are contributing to 5% faster cycle times year to date. Our core Watkins area continues to deliver. In our materials, we highlighted the eight-well Invicta Pad, which is a great success story, benefiting from our land optimization initiatives as well as our technical advantages in developing resource through long laterals and sometimes unique wellbore geometries. Utilizing one of our existing surface locations, the Invicta Pad includes some of the longest wells ever drilled in Colorado, averaging 4.3 miles, and our completions covered the last three miles of the lateral. Production in early days is quite strong, averaging over 1,100 barrels of oil per day per well. Drilling and completion efficiencies realized in each basin are a major contributing factor to our reduced well costs, which are 7% lower in the Delaware, 5% lower in the Midland, and 3% lower in the DJ compared to the beginning of the year. Along with other capital initiatives, production and midstream optimization, and corporate cost reductions, we are on track with our $100 million cost optimization initiative, and about 80% of this amount is captured to date. As a reminder, $40 million of the savings are impacting 2025. These are great wins for Civitas, and the teams are continuing to identify additional savings. As it relates to the remainder of the year, we've updated our full year volume guidance in our materials to account for the impact of our asset divestitures. With a high turn in line count in the middle part of the year, second half production is expected to grow approximately 7%. Third quarter production is expected to be higher than the fourth, mainly due to the timing of our asset divestments, and we are off to a strong start in July with production in line with our third quarter guidance. On cash operating costs, our teams are driving in the right direction, with our second half expected to average less than $10 per BOE. And on capital expenditures, we are on track to achieve our full year outlook. Third quarter CapEx is anticipated to be higher than the fourth quarter as our efficiency gains are pulling activities forward. All in, we have strong momentum and are set up for an impressive second half of the year. Now I'll turn the call back over to Wouter for some closing comments.

Thanks, Clay. And before going to questions, let me recap where we are today. First, we're executing on the base business and have a high level of confidence in our go-forward plan. Our team is delivering every day, optimizing our resource base and driving costs out of the system. And I'm extremely grateful for the hard and safe work of our talented people. Next, we have rapidly accelerated our debt reduction plan. with value-driven divestments and significant gains on our cost optimization and efficiency initiative. This has brought forward cash flows, and we now have a clear line of sight to achieving our $4.5 billion net debt goal around the end of the year. And finally, we know the importance of strong and sustainable capital returns to our shareholders. Our 50-50 capital allocation will deliver peer-leading return of capital to our shareholders, And the accelerated share repurchase program will take advantage of the compelling value opportunity we see in our equity today. So thank you for your continued interest in our company. And Morgan, we're now ready to take questions.

At this time, we will conduct the Q&A session. In order to ask a question, please press star, then the number one on your telephone keypad. Once again, to ask a question at this time, please press star and the number one on your telephone keypad. Your first question comes from Zach Parham with JP Morgan. Your line is open.

Hey, guys. Thanks for taking my questions. First, I just wanted to ask on the strategy shift and the comfort you have making that shift right now. I mean, if we look at the financials today, your net debt's a little bit higher than it was. uh two quarters ago when you initially made the strip when you initially made the shift your the oil strips a little bit lower when you made the initial change i know you've done the asset sale but what else gives you comfort with that the balance sheet is now right size for the company and that that you're you know now have the ability to to go back and aggressively buy back stock hey seth thanks for the question so so as you know we've always had a

commitment to return capital to shareholders is one of our core pillars. We definitely sit in a more advantaged position today because of the recent steps we've taken, including the incremental hedges, the cost optimization program in the divestments, along with the term debt term out. If you look at our business, That the goal we started with the year was, which is the four and a half billion net debt target around the other year. All that has been solidified, inclusive of the 60% hedge that we have for the balance of the year. And if you look at it on a go forward basis, that's going to only get better as we continue paying down debt. I just wanted you to hear from us that we're not done here. The four and a half billion was the goal for this year. As we continue generating free cash flow, we're going to continue deploying that to further debt repayment. You know, being in the commodity industry that we are, we continue to see a strong balance sheet as essential to continue to execute on our strategy. And we believe now, given all those actions this year, that's going to continue to further, and we'll do so at a more measured pace, given where the equity lies today.

Thanks, Manuela. My follow-up's on 2026 and how you're thinking about the 2026 plans post the strategy shift and the asset sale. your prior messaging had been that you'd hold volumes on oil relatively flat at flattish capex. Is that still the message at this point, just that a lower level of capex and production following the asset sales? And if so, any details on what that might look like would be helpful.

So, Zach, it's early as we're planning on 2026. Obviously, commodity prices will have a big impact. But as you mentioned, We had talked about holding production flat in the 150 to the 155 range at a maintenance capital level with the asset divestments. That'll take us down to about a 145 to 150 oil range for 2026. So a lot of optimization is occurring right now as we're looking at the remainder of 2025. how that will impact 2026. But I think the general message around a maintenance capital program in those production levels is where we're at.

Thanks for the call. Your next question comes from Philip Jungworth with BMO Capital Markets. Your line is open.

Thanks. Good morning. A lot to cover, but I did have a question for Clay. Now that you've been in the seat for a couple months, I was just hoping you could share your initial impressions of the Civitas operations, where things are going well, any low-hanging fruit, and in what areas could there be some more medium-term improvement down the road that'll take time?

Certainly. So I think it starts with we've got really good assets, and the operational execution around those assets has continued to improve. I think 2Q was another example of that where we saw the well cost reductions. The teams are constantly looking for efficiency gains and how we're increasing pumping time and getting more barrels away on the completions every day. And that's reducing making our cycle times faster, reducing costs on wells, getting wells online earlier. So I think that has all been very positive, and I expect that to continue to improve moving forward. I think on the facility front, we're continuing to make progress in terms of utilizing the facilities that were in place with the past acquisitions. making appropriate adjustments to those so that we can optimize our production. And then as we go forward with facility designs, particularly in the Permian, look for ways to continue to be more efficient and lower the cost there. So I'm really excited about what was accomplished in the second quarter and looking forward to the go forward on the operational front.

Right, and then nice to see the asset sale target exceeded. I believe you guys had initially looked at a range of options, so was just hoping you could talk about how you settled on this specific package, and could you revisit any additional divestitures down the road?

Hey, Philip. Look, we were patient. As you know, we kicked off this process a bit ago, and the patience was rewarded. We talked about during the last call how we were open-minded in trying to figure out what the most accretive assets we could sell were, and those are, as you know, highly dependent on oil prices. I would say, in general, these were assets that were further down the development plan for us, so just really minimal to no near-term impact for the next couple of years, and we were very, very pleased to have checked that box in a very big way for this year. I would say on anything that comes from here, you know, we'll obviously always entertain opportunistic offers. We were really pleased with the assets that we have in our portfolio and not proactively looking to sell anything additional. But as always, we will entertain opportunistic interest for any piece of our asset base.

Great. Thanks. Your next question comes from Scott Hanold with RBC Capital Markets. Your line is open.

Yeah, thanks. If I could start with the CEO change and more specifically, what are you all looking for in the next CEO? Like what kind of attributes are you looking for in an individual? And, you know, there's just a lot going on right now. Do you generally have a time frame at which you hope to have that wrapped up?

Yeah, it's called this is Walter. Nice to meet you and why don't I take this one? And yeah, obviously can talk in great detail around what is it that we're exactly looking for? What are the time frames at the same time there? There is an indication in filings that we've done around how long I expect to be here, so we hope to be doing this in the next six months or so. What are we looking for? I think you're looking for a person who can set strategy, a person that can allocate capital in the right way, that can build a great culture, that can continue to push the company forward. And I want to make sure that what I said earlier, very appreciative of what Chris has done to get the company to where we are today. But we think there's a shift needed on what we're going to do here forward. And again, that's not a strategic shift. It is really focused on how do we execute better? How do we get better performance? How do we get more cost leadership? And in the end, how do we get the share price up? Every day we look at 4 p.m., we get a report card, and we don't like where the report card is today. And there's a lot of opportunity there.

Yeah, yeah. And I guess more my point is, is like, do you guys have the strategy in place that you want? And so you're finding a want to find a CEO that's going to fit that strategy? Or is Civitas an open slate where look, we're looking for the best CEO. And if he's got a different path for us, you know, we're going to take that like, which option are you looking for? Are you looking for somebody to come in and make changes? Or somebody more that's going to fit the culture and the strategy you have kind of laid out at this point?

Every CEO that will come in will make changes. There's no doubt about that. And that's all good. But this is not about a A to Z strategy overhaul. So this is not about, hey, let's bring someone in who is going to sit with the board and decide that what we have done to date needs to be done completely different. That is absolutely not where this is. This is not about making a massive strategy shift.

Okay, that's clear. Thanks for that. And then, you know, let's go back to, you know, sort of Zach's question on, you know, the strategy shift with stock buybacks. And look, I'm going to pose a question to you. Why not push debt down further, right? I mean, what we've seen, you know, I've been doing this almost 30 years is that high debt in E&P companies, especially smid cap E&Ps is tough, especially given the uncertainty of volatility of commodity prices. I know you've locked in some stuff this year, but look, you got to look for the longer term and why not just keep whittling that debt down, like as low as you can get. And the stock price will fix itself versus, you know, trying to force the stock, you know, price issue today. Why not take it, you know, wouldn't that be, you know, more of a debt reduction today? Because wouldn't that be a longer term, you know, benefit to you?

Hey, Scott, this is Raina. I'll start by saying that we did everything we set ourselves to do this year in terms of the goals on balance sheet, right? So we termed out debt, we got the asset investments done, we increased hedges. As you think about just the continued debt repayment, having clarity on four and a half was the first and foremost goal that we had. And we reiterated that many, many times for the last six months. Past that, we continue to believe that we need to maintain a strong capital structure, right to your point. We're going to weather cycles and we're going to weather low commodity prices again. No, I think the way we see our business is we're going to continue progressing those balance sheet goals. I think we still believe that we need to continue paying down debt. And it's not just the absolute amount of debt. There's so much more to it as well. There's the composition of the debt and your maturity facts. there's a cost structure, there's how hedged are you, and so we're certainly trying to not only continue paying down debt, but just de-risking all those other balance sheet components. As we move forward past the end of this year, where we expect to be around four and a half, we still believe that companies of our size and industries that leverage below one time is ideal longer term. And like I said, past the year end, we're going to balance the distribution of that between equity and debt with our strong free cash flows.

Okay, thanks. I mean, appreciate those comments. And I get your point on comfort and hitting your goals. I just, you know, would, you know, kind of suggest it's probably better to pay down debt even further, just get more aggressive there today. But I'll leave it there. Thanks.

Thank you.

Your next question comes from Lloyd Byrne with Jefferies. Your line is open. Lloyd, are you there? Mr. Byrne, your line is open. You may have your line on mute, sir.

Hey. Sorry. Sorry. I'm on mute. It's only taken me three years to get this right. Nice to meet you, Wooder and Clay. Welcome. Let me start, I guess, let me start with Marianela. How are you thinking about, or Wooder maybe, how are you thinking about the dividend at these levels? I mean, it seems high and maybe taking this opportunity to reduce that and buy back stock or pay down dividend. I'd like to go back to Clay afterwards and just talk about some of the opportunities he sees and the timing on reducing costs.

Hey, Lloyd, thanks for the question. On the dividend, I mean, look, just consistently what we said on prior calls, we've always been committed to that base dividend. We believe it's important that our investors can count on that return quarter over quarter and through the cycle. You know, I will also note that you know, with this accelerated repurchase program, you know, we're buying 10% of our market cap. That will inherently save about $20 to $25 million in dividends on a go-forward basis, and that's just with the repurchases we're doing the balance of this year. So we remain committed and like our fixed dividend, and I think at this time, you know, there's really no changes that are on the table in that regard.

Lloyd, did you have a follow-up to Clay?

Yeah, Clay, just how about timing where you see the most opportunity? I feel like the DJ, you've lagged a little bit. Some of the peers is how quickly can you take assets costs down there? Give me some timeline on improvement.

Sure. So we, we, talked about the cost initiative and continuing to lower costs, improve performance at this call three months ago. And so I think a lot of progress has been made where we've got 80% captured on the $100 million run rate in 2026 and feeling good about the $40 million in 2025 after a three-month period. And we've got a longer list of items that are still in the works, but that we don't consider them captured yet. And it's across all categories. I mean, we've got things on the CAPEX side around both drilling and completions, design changes. There's a component of service cost reduction in there. local sands, bringing more prop and providers into the mix, which is creating competition. On the LOE side, things around compression optimization, getting more power to our locations and reducing generator costs. And then on the midstream and marketing front, what I'd say on the DJ is we're drilling the longest laterals in that basin. We've got some examples in the materials today. Our well costs that we're talking about are down around $650 a foot to where I think we're really competitive, and the teams are continuing to look for more and more ways to keep bringing those costs down and getting creative to go add more inventory to to the current asset with some of the things we can do around these drilling geometries like we showed on this Invicta pad.

Great.

Thank you, guys.

See you, Lloyd.

Once again, in order to ask a question during the Q&A period, please press star then the number 1 on your telephone keypad. Your next question comes from Leo Mariani with Roth Capital. Your line is open.

Yeah, I wanted to see if we could get a little bit more detail on some of the recent well results. You guys obviously kind of highlighted the Wolf Camp D continues to look good. Can you provide a little bit more color around your Wolf Camp D results, and are you generally co-developing that in the Midland Basin as well?

Sure. We like what we're seeing on the Wolf Camp B and continuing to – look for ways to keep extending the limits around that bench. It seems like we're getting earlier oil cuts on the Wolf Camp D producers, which is also a good thing. We're continuing to look at all the benches across the play, like I talked about in my comments, and continuing to see encouraging results. We're customizing completion designs by the different benches as we continue to get more production histories there and doing some things on the G&G side to continue to gain technical information that will help us understand how we're most effectively treating the fracks on the completion side and getting getting the most out of these wells so the expectation would be that would continue moving forward and we'll continue to provide updates there as i as i mentioned we have a lot of completions in the delaware in 3q and and so more information to come there as we move forward okay

And then just kind of sticking on the operational side, obviously you're relatively new to the company. Could you maybe just talk a little bit, Clay, about how you kind of see the inventory and the different buckets, you know, DJ versus Delaware versus Midland? Where do you kind of see longer and sort of stronger inventory at this point based on your kind of own assessment of the asset base?

Sure. Sure. So we talk about the overall inventory being 2,000 locations, 1,200 in the Permian, 800 in the DJ. From an overall return standpoint, right now the Permian is a little better returns, which is why the capital allocation is what it is. As we keep making improvements, as we keep lowering costs in both basins, We expect for that to, at a minimum, offset any productivity degradation over time, if not improve well performance with different approaches on the drilling and on the completion side. We're really excited about the Delaware, and it's really, really early results there, but more are going to come as we move forward. We have low break evens in our program, but we need to continue to enhance the resource to reserves progression and keep lowering costs and improving performance. And as I mentioned on the previous answer, we're continuing to add more on the G&G space around getting as much technical information as we can around the acreage that we have, both in extending limits in both of these areas, but also looking at secondary objectives that are present shallower and deeper in both of these areas that can keep replacing the inventory and progressing it forward and elevating the quality as we move forward. OK, thank you.

Your next question comes from John Abbott with Wolf Research. Your line is open.

Hey, good morning, and thank you for taking our questions. My first question here is for you, Clay. I mean, we've spoken a lot about the opportunity in terms of costs and where you see that. And then when we were just sort of thinking about, you know, not to change the strategy, but what the firm is looking forward in terms of strategy, in terms of consistency. I guess my question is, when you sort of look at, you have assets in the Northern Dell, you have assets in the Midland Basin, you have assets in the DJ. While you can execute on lowering costs, how do you think about the ability to sort of coordinate and provide a more level and consistent program that's, you know, benefits that provides that sort of consistent performance that you guys may be sort of looking at? What's the ability to coordinate these assets while at the same time reducing costs and hitting your targets?

Sure. So, definitely, we need to continue to get more and more benefit from a multi-basin set of assets and how that can optimize the performance at the total company level and think about that from a capital allocation standpoint, from a timing of completions, how we can level load, how that helps from a supply chain standpoint when we're thinking about the broad services that we have across both basins. A lot of that is already happening, but I think there's room to keep improving in that space. And from a consistency standpoint, I think we're very much aligned and we have to be able to effectively forecast different parameters, production, results as we move forward and understand that We're going to have things that surprise us along the way, but that we're set up to overcome those and deliver on performance month over month, quarter over quarter. And that's the ongoing push that's occurring right now.

Appreciate it. And my next question is just more of a bookkeeping question on the $4.5 billion debt target by the end of this year. You know, and in terms of achieving that, how much of that is working capital and, you know, changes in working capital? And how do we sort of think about those working capital changes? And do we sort of have to think about those working capital changes next year as well? That's kind of my, that's my follow-up question.

Hey, John, I think, thanks for the question. On a working capital basis, as you know, during the second quarter, we had our usual payment of the Colorado Appalachian taxes in April. That cost us to tighten working capital by roughly about $150 million for the second quarter. We will get some of that naturally back in the second half. But the way to think about it, both for the full year and then long term on an annual basis, we should be pretty flat at around low $800 million of free cash flow deficit. So again, naturally, we'll get some of that back in the second half for that specific draw. but that should be natural and as expected and consistent with past years.

Appreciate it. Thank you very much for taking our questions.

Thank you.

Your next question comes from Oliver Wang with TPH. Your line is open.

Good morning, all, and thanks for taking the questions. Maybe for Clay, just as we're thinking about activity levels for the year and how companies want to avoid the start and stop loss of efficiencies. You all demonstrated some incremental efficiencies with the faster cycle times and well cost reduction. So just trying to get a sense for how are you all thinking about the faster cycle times potentially pushing things towards the upper end of your budgeted range for both CapEx and TILs, given that's something that happened last year?

Yeah, we're very much focused on balancing that. The faster cycle times are lowering costs, but it is pulling activities forward. And so as we keep looking to optimize the remainder of 2025 and 2026, we're looking at that. We're looking at where our capital levels are at. We're looking at the cost savings initiative. that we have in place and balancing all of those things to try to have a more level-loaded approach as we move through the year and into next year.

Okay, perfect. And just for a follow-up, maybe just on the debt side once more, I know 50% of the post-based free cash flows going towards the balance sheet. And you made a comment earlier on not being done with debt reduction. Is there a long-term target goal that you'll have in mind for the next leg when thinking about it from a total absolute net debt perspective versus just wanting to move towards one times?

Yeah, absolutely, Oller. Thanks for the question. So if you look at our free cash flow at mid-cycle prices, We should be paying down debt at roughly a rate of 400M dollars. On a given basis, taking our 25 capital program and production as a proxy. You know, certainly we, we will have internal goals for ourselves, right? You know, we certainly want to balance the capital location the right way. And like I said earlier, it's not only about making progress towards that. One time, because it's also about just holistically risking the business via that maturity profile, hedges, cost structure. You know, so certainly continue to pay down debt in a very material way during the near term, along with the risking the capital structure.

Sounds good. Thanks for the time.

Your next question comes from Noel Parks with Tuohy Brothers. Your line is open.

Hi, good morning. Just had a couple of things I wanted to run by you. In particular, I was thinking about, and it was mentioned in the slides on Invicta, and just that that was an example of progress with land optimization. And I just wondered, could you talk about maybe where things stand in those sorts of initiatives They, of course, tend to go on a little bit below the radar and, you know, continue going with swaps and bolt-on exchanges and so forth. Is that a significant part of what you can accomplish efficiency-wise going forward, or is most of that already kind of baked in at this point?

Sure, I know. We're definitely – continuing in the ground game, the trades, the swaps arena in both basins. And we have examples regularly of how that keeps enhancing the working interest, enhancing the economics of the different wells in our program. The Invicta one is really an interesting one that you mentioned because the step outs where we use an existing surface location and have to steer around existing wellbores to get to tier one acreage that had you not had that expertise, had you not done those trades, that would have been stranded tier one acreage in the play and were able to go access it. So the same thing is happening in the Permian in both Delaware and in Midland. I think most operators all understand the win-win that can occur between two operators by swapping out of op, non-op interest and better positioning their programs. So it's been an active part of our program and it will continue to be one moving forward.

Terrific. You also talked a good bit today about cycle time reductions and the efficiency that's already brought and what you anticipate you can still accomplish there. So I'm just wondering, in each of the basins at this point, are the sorts of incremental changes you're making more proprietary ideas or methods, or are they more along the lines of sort of choosing from the many various things that your vendors maybe have experience with and just you're trying to select which of those are going to be the most effective. So just, you know, their perspective across customers versus sort of your own proprietary knowledge at this point.

I'd say it's a mix, and we welcome it all to keep improving efficiency and improving well performance and lowering costs. We've got service providers that we work with that have some proprietary products that enable us to improve cycle times. We mentioned some of that in our presentation materials. We have innovation that continues to come from our teams around how can we move quicker from one well to the next from a MOAB standpoint and reduce cycle time there. We do things that our teams have come up with around cementing where the rig has already moved to the next location and then we're coming and doing the final cement job on the production casing there to make the cycle times faster as we keep going to the next well and the next well. I think that is a necessity as we move forward, that we continue to innovate. Our teams work together to find ways to keep improving performance, and not only on the cost and efficiency side, but on the well-performance side, and doing that by customizing completion designs, using data analytics around what are the completion characteristic recipes that produce the best wells in different areas of the field and that our service providers keep coming up with ideas that also benefit us. So I think it will continue and it'll be all of the above.

Great. Thanks a lot.

This concludes the Q&A session. I will now turn the call back over to Brad Whitmarsh for closing remarks.

Yeah, thanks, everyone, for joining us early in the morning. Appreciate the opportunity to catch up on our great results and where we're headed as a company. Look forward to seeing you on the circuit here in a few weeks. And if you've got a chance or have some follow-up questions, don't hesitate to reach out to me. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you for joining. Have a wonderful rest of your day.