Earthstone Energy, Inc.

However, we're focused on the future, and we believe there are numerous opportunities to continue driving significant value from our asset base. We're focused on optimizing the development of our high-quality asset base while managing costs and reducing absolute debt. Our confidence is high that over the next several quarters, we will be able to drive value through improving capital and operational efficiencies. As we have done with all of our acquisitions, we will focus on reducing costs on these recently acquired assets where we can, even with the inflationary pressures. With the Bighorn asset literally next door to our existing assets, we see some operating synergies with personnel and systems that will help us improve our operating procedures, reduce downtime on wells, and maximize margins. Our free cash flow is strong. The initial well results on our newly acquired Delaware Basin assets are meeting or exceeding expectations, and our expanded operations are going smooth. Looking forward, I feel that we're well positioned to execute on our operational plans and generate even more substantial free cash flow. The Bighorn assets are generating large amounts of free cash, particularly given these high commodity prices. In fact, during the interim period between the effective date of January 1st and closing on April 14th, the Bighorn assets generated such significant free cash flow that after preliminary purchase price adjustments, the consideration for the acquisition was reduced by about $145 million. We've been very pleased with our integration efforts so far. We believe that one of the most integral parts of integration is execution. We have Integrated the accounting, land, and financial reporting for the Chisholm acquisition in the Delaware Basin already, and we're well along the way of doing the same for Bighorn. Continuity and consistency are keys to operational efficiency. As Steve will discuss further, we've identified a couple of areas to potentially reduce drilling days on the Delaware Basin assets. We are making sure we have the right people in the field, and we've been pleased with the smooth transition because of the personnel that have joined us. We have also added to our office staff by hiring across all disciplines, including experienced technical staff from both of the companies we acquired assets, which will allow us to keep that operational continuity, and we've been able to attract talented employees from the industry. We are now approaching three months since closing on the Delaware Basin acquisition, and we're pleased to share with you some of our early successes. Steve will highlight some of the drilling side, but on the completion side, We completed our first pad in the Delaware Basin since closing in February and brought on the two-well menace pad targeting the third bone spring harky sand in April. These two wells, which are about 7,500 foot laterals located in Lee County, New Mexico, has shown strong early production results, averaging about 1,600 BOE per day per well with about 87% oil cut over the first 24 days of production. With the current strong commodity prices, we estimate that these wells will reach payout approximately four months from first production date. After bringing on the menace pad, we brought on a second two-well pad in Lee County, targeting the third bone spring, which are now flowing back. And while early, we're very pleased with the initial results, which further supports our view of the high-quality inventory we expected as we pursued this Delaware Basin acquisition. Our capital spending for the quarter was about 16% below the midpoint of our guidance, but we do expect to see significant impacts from inflation going forward, and we are maintaining our guidance for the full year between $410 and $440 million, and you'll hear more about that. Our near-term focus continues to be on integrating these new assets and executing on our drilling plans. As free cash flow is generated, our plan for the remainder of the year is to pay down debt But as you would expect, we'll remain open to potential acquisition opportunities that could provide us with additional scale and high-quality production and inventory while still giving us the ability to maintain the strength of our balance sheet. And finally, after we get a few quarters of operating the larger business behind us, we expect to be in a better position to consider shareholder returns in 2023. but we do not expect to initiate any plans in 2022. And with that, I'll turn it over to Steve.

Thanks, Robert. Good morning, everyone. We continue to operate two drilling rigs in the Midland Basin and two drilling rigs in the Northern Delaware Basin. Our first quarter average daily production was just over 35,500 VOE per day, which is up 17% from the fourth quarter of 2021. We have seen strong initial production results from the first two wells completed and brought online in the Delaware Basin since closing the Chisholm acquisition in February. We are optimistic that we will be able to improve capital efficiency on the Delaware Basin assets over time. As Robert mentioned, we have identified an area or two on the drilling side related to pre-setting surface casing that we are working to incorporate that will allow us to reduce days drilling in many circumstances. We also recently completed six wells in Upton County on our Bitterdom pad that have an average lateral length of 7,600 feet and were drilled and completed for a cost of approximately $800 a foot. While these wells are still cleaning up, early results are in line with our type curve, with initial average daily production per well of 900 BOE per day, approximately 88% oil. Let me provide an update on the operational integration of the assets acquired this year. With respect to the Delaware Basin Assets, which closed in February, operation of the new assets is running smoothly. This is in part due to bringing on bringing on field personnel that were previously operating the assets, and for the most part, executing their existing plans. As Robert mentioned, we also hired additional technical staff that are focused on production, completions, and drilling engineering, geology, and land, exclusively for the Delaware Basin asset. Despite having only closed on the Bighorn assets about three weeks ago, I can say that things are going as expected, and we do not foresee any material changes to the integration of the operation of these assets as we have retained a large majority of the field staff that have been operating these assets. Combining this with Earthstone's approach to operating nearby assets, we expect to be able to implement some improvements over time to maximize production and minimize costs. With an active drilling and completion program in both areas, we find ourselves shedding wells in and working over wells before and after fracs in areas with existing production. Although this frac prep work increases production downtime and work-over expense, it is accounted for in our guidance. With respect to the Bighorn assets, we see some additional work-over opportunities, which should enable us to reduce long-term operating expense, potentially reduce production downtime, and increase production. This activity is under review with economics and operating efficiency driving these decisions. Our capital program calls for a continuation of our full-rig program. with two rigs operating in the Midland Basin and two in the Delaware Basin. Currently, we have the Midland Basin rigs in Reagan County and Erie County, while the two Delaware Basin rigs are in Lee County and Eddy County. We are completing wells in Reagan and Erie County as well. As you can see by the first quarter capital expenditures being below guidance, the inflation pressure was not that impactful in the first quarter. However, we fully expect that over the course of the year, service costs will continue to rise. We have locked in casing deliveries for the next couple of quarters, and sand is also committed throughout the year for our two areas with a fixed price contract on the midland volume. Recapping costs, we completed a 10,000 foot lateral pad in December at $680 a foot. And as Robert pointed out, we just completed a 7,600 foot lateral pad at $800 per foot. Although hard to normalize due to the lateral length differences, you can see that the shorter laterals are less efficient and we're beginning to see the influences of cost pressures. We are focused on efficiencies in order to drive down days on location for both drilling and completion activities. Now with a much larger production base, we expect to obtain some cost savings on lease operating expenses as well. Having a much larger operation will allow for greater purchasing power on everything from vehicles to chemicals and compression. With that, I'll turn it over to Mark.

Thank you, Steve, and good morning, everyone. As usual, I'm going to take this time to provide some additional details on some meaningful metrics and several key highlights. As you know, you can find a detailed breakdown of our results in our earnings release and in our 10-Q. I would also say that you can find additional information on our recent debt and equity financings in our April 14th press release. Well, we've had a lot going on since the beginning of the year related to our balance sheet, so I'll start with an update as of quarter end, and then I'll give you a more current update as well. As of March 31st, 2022, we had a borrowing base on our revolving credit facility of $825 million. With borrowings of $624 million at quarter end, we had approximately 201 million undrawn capacity on our revolver. In April, we completed a $550 million notes offering and a 280 million dollar pipe offering, and we used these proceeds in part to close on the Bighorn acquisition in mid-April, and also to pay the $70 million of deferred cash consideration from the Chisholm acquisition, which closed earlier in the year. Also in conjunction with the closing of Bighorn in mid-April, the bar based on our credit facility was increased from the $825 million level at quarter end to $1.325 billion in conjunction with the closing of Bighorn. And we elected to reduce the commitments on the revolver from the $825 million at quarter end down to $800 million. So beginning with our quarter end debt and cash balance, but adjusting for all this activity in April, here's what it would have looked like on that basis. We would have had total outstanding debt of approximately $1.013 billion, which would have been comprised of $550 million of senior unsecured notes and $463 million of debt outstanding under our credit facility, leaving $337 million of undrawn availability on the $800 million of total commitments on the credit facility. Given all the recent activity, I think it's also important to break down our outstanding share count. As you'll see in our 10Q, we had approximately 113.4 million total common shares outstanding as of April 28th, which includes both our Class A common and Class B common shares. This does not include the impact of the expected conversion of the $280 million of convertible preferred equity that was issued in the pipe in April. Upon the expected conversion of these shares into Class A common stock, our total common share count will increase by 25.2 million shares bringing our total outstanding common share count to $138.6 million. Now going back to the results for the quarter. Our first quarter EBITDAX of $123 million was a 44% increase quarter per quarter, which was largely attributable to the incremental production from about half a quarter of the Delaware Basin assets and also from higher commodity prices. We also generated $36 million of free cash flow in the first quarter, which marks our eighth consecutive quarter of positive free cash flow. With the first quarter only including Delaware Basin assets for about half the quarter and not including the Bighorn assets at all, we're excited about realizing much higher production and cash flow in the second quarter than what we saw in the first quarter, which will include the Delaware Basin assets for the full quarter and the Bighorn assets for about 83% of the quarter. We expect to have very significant amounts of free cash flow for the balance of 2022, which is earmarked for repayment of debt under our credit facility. From a leverage standpoint, we're really in a better position today than where we expected to be in early January when we announced the Bighorn acquisition. The combination of a significantly larger downward adjustment in the purchase price of the Bighorn acquisition, as Robert mentioned, and then just generally higher EBITX levels in the first quarter and expected going forward really have improved our position and outlook. As you might recall, we originally were targeting getting down to 1.0 times debt to EBITX by the end of the year on an annualized fourth quarter basis. And if you look at what we did in the first quarter, and of course this is before Bitcoin closed and has the result of Chisholm in it, we were actually right around 1.0 times debt to EBITX in the first quarter. When you take our quarter in balances on the debt side, plus Earthstone's EBITX for the quarter and adjust to add the Chisholm EBITX from the period for the first part of the quarter before we own the assets. So that really puts us in a much better position than we anticipated. And from this 1.0 times leverage that we are at on the first quarter adjusted on that basis, we expect to continue to tick down lower throughout the year and finish the year well below the 1.0 times debt to EBITDAX on a fourth quarter annualized basis. Looking at the first quarter relative to our guidance, we were largely around the middle of our guidance for all guided metrics except for CAPEX. which, as already mentioned, was about 16 percent below the midpoint of our guidance. From a production standpoint, we produced an average of 35,500 BOE per day in the first quarter, and that was comprised of 44 percent oil, 29 percent natural gas, and 26 percent natural gas liquids. To reiterate what we mentioned last quarter, we expect to produce approximately 70,000 to 74,000 BOE per day, with about a 41 percent oil component in the second quarter, which again factors in a full quarter of the Delaware Basin assets we acquired in February and about 75 days of the Bighorn assets, which we acquired in mid-April. Further, for the second half of the year, we expect production to be somewhere between 76,000 and 80,000 BOE per day, with the oil component, again, being about 41%. And this, of course, includes the full contribution from both the Delaware Basin assets and from the Bighorn assets. So, on a full-year basis, no changes to our guidance on production, but the buildup results in production somewhere between 64,250 and 67,750 BOE per day, and it's comprised of about 41% oil, 33% natural gas, and 26% natural gas liquids. Total cash G&A for the first quarter came in right about where we expected and was at $6.5 million compared to $6.3 million in the fourth quarter. Of course, we added more volumes in the first quarter compared to the fourth quarter of last year. So on a per BOE basis, our cash G&A went down by about $0.22 per BOE quarter over quarter from $2.25 in the fourth quarter to $2.03 in the first quarter. And we still expect full year 2022 cash G&A to be between the $31 million and $34 million range we put out earlier this year. And that would be about $1.35 cents per BOE based on the midpoints of both our production and G&A guidance. Moving over to LOE, in the first quarter we recorded LOE per BOE of $6.77. As we got it last quarter, we expect LOE per BOE to be elevated compared to the original LOE per BOE prior to closing on these two acquisitions. And we're maintaining our full year guidance for LOE of $7.25 to $7.75. We are monitoring both inflationary pressures and potential need for some higher workover activity on the recently acquired assets. But at the same time, we're hopeful that some of the operational synergies we think we can achieve will offset that a bit. And we're excited about that as we've now just gotten our hands on both sets of assets here in the past 30 to 90 days, respectively. Turning over to the capital expenditure side, we did spend $82 million in the first quarter, which was about 16% below the midpoint of our guidance of $95 million to $100 million. And this was largely driven by the impact of the timing of inflation. And really what happened is there was less realized inflation in the first quarter than what we expect to see going forward. And I would say in hindsight, we probably baked in too much inflationary cushion in the first quarter. At the same time, we do absolutely expect to see more significant impacts from the second quarter going forward. On that basis, we're maintaining our guidance of $410 to $400 million for the full year, and I would say that we'd probably lean towards the high end of that. Obviously, none of us can perfectly predict how inflation plays out for the end of the year, but we're certainly expecting more pressure throughout the year. On the hedging front, we're not really all that different from where we were when we reported our 2021 results in March, which is right about 55% to 60% hedge for the remainder of the year with a mix of swaps and callers. With that, I will turn it back over to Robert for closing comments.

Thanks, Mark. You know, today's higher commodity prices combined with our acquisition of accretive and well-located assets that generate meaningfully high cash margin production has significantly strengthened our free cash flow profile. As we look ahead to the rest of 2022, and as you have heard from us, we remain focused on continuing to integrate these assets, executing our operating plans, and generating high levels of free cash flow, which we expect to use to pay down debt. As Mark mentioned, we believe we're on track to significantly reduce our credit facility debt balances by the end of the year and stay well below our one-time debt to EBITDAX target. Strong cash flow and a strong balance sheet helps to support our more robust drilling program compared to the past as we focus on demonstrating our ability to optimize our larger asset base. And we are very optimistic that this will be a record-setting year for Earthstone. Over the last year and a half, we've acquired a complementary mix of assets that have dramatically increased current production as well as provided exciting new drilling opportunities. We have both enhanced our acreage position adjacent to our legacy assets in the Midland Basin, as well as expanded into the Delaware Basin. We feel really well positioned to execute a successful drilling program as we have demonstrated recently, and we believe that our high-quality asset base, exceptional operations team, and consistent track record of operational excellence will allow us to optimize our future free cash flow generation. Now with that, operator, we'll be glad to take a few questions. Thank you.

At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question comes from Charles Mead with Johnson Rice. Please proceed with your question.

Good morning, Robert and team. This is Austin filling in for Charles.

Hey, good morning, Austin.

Now that Chisholm and Bighorn acquisitions are complete, is Earthstone still in the A&D market or is 2022 more of a year of execution and debt reduction? And as a follow-up, how is the current state of the A&D market?

I don't think they're mutually exclusive. I think we as a team, both management and staff, can continue to look for opportunities that make sense. We can be a little bit more picky on what we're looking for, perhaps. And at the same time, we are, as you've heard, very focused on executing on our plans for this year. So We'll continue to look at opportunities in the market. There's a pipeline full of opportunities, as you could guess. At $100 Oil, there's lots of people lining up to sell. It's just, you know, is there going to be a bid-ask spread between where the buyers and what kind of price deck they want to use versus what the sellers want to get paid at? So I think that's what's going to impact the A&D market this year, or at least in the near term.

Thank you for the color. And I understand that in the near term, you plan to run a two-rig program in Delaware. But after a couple quarters of execution, could we see an additional rig in the 2023 program?

Yeah, we're doing a lot of planning right now. And as you're aware, it does take a lot of pre-planning, more so in the Delaware where you have federal acreage and you need to have long lead time for permitting. but we're going through that exercise now to try and figure out what we could do, if it makes sense, to increase our activities on the New Mexico side. The economics being strong, like we see right now, we'd love to have more activity out there, but we're going to walk before we run and make sure that Steve and our guys are executing as well as we can before we decide we're going to jump into another rig out there.

I appreciate it. That's all from me.

Your next question comes from John White with Roth Capital. Please proceed with your question.

Good morning, guys, and many congratulations on all that you've gotten done over the past 12 months. Thanks, John. So, again, on the Delaware, your first couple of wells look really good, and you provided us with some additional color on the payback. But it is a new basin, and it's New Mexico, not Texas. Are you seeing anything or experiencing anything now that it's your property that maybe you didn't anticipate before you closed on it?

Not really. I mean, there's always a few surprises, both positive and negative. There's some low-hanging fruit that I think the operations team will be able to create some good efficiencies and improve the cost structure. I mean, it's tough in an inflationary environment, but at the same time, I think there's some things we can do, both on the production and the drilling side. And then it's just a matter of getting your arms around what the prior operator was doing and what we need to change and dealing with the local situation, which is federal permitting and new landowners and different purchasers and things like that. So there's nothing that surprised us negatively. We've just got to continue to execute and find ways to drive down the cost structure if we can.

Okay, well, I'm sure you'll execute very well. That's what you guys do. So thanks for that additional detail, and I'll pass it along.

Your next question comes from Sabash Chandra with Benchmark. Please proceed with your question.

Okay, thanks. So it looks like you're layering in hedges there in the Waha project. basis hedges and thinking about, you know, how 22 and then probably more so, you know, 23 progresses. How do you think about additional opportunities to, you know, protect your flow assurance out there and your netbacks and what the market might look like, you know, at the moment?

Yes, Sebastian, SmartCare. I'll try to address that one. From the standpoint of the financial hedges, we actually put all those Waha hedges in 23 and 24 on the week or two after we announced Bighorn. And we had sort of seen that coming. Would have loved to have announced Bighorn two weeks prior and been able to put those hedges on two weeks before because they did really start moving upward in terms of the swap rates and futures contracts on the Waha kind of in mid to late January. That's sort of the financial piece of it, and that's just sort of roughly half of our gas hedged based on kind of what this year looks like. That gives us some financial protection. From the standpoint of flow assurance, we're very focused on that. We've never, as I think you know, really been one to go buy a bunch of firm transport. For us, we are exploring that, and I think we mentioned that in March and continue to explore that, but we're also coordinating with our main gas processors At the end of the day, you know, we're going to do everything we can within reason to make sure we have flow assurance, and there's multiple different ways to sort of tackle that, and I assure you we're focused on that, and we don't have all the solutions right this moment, but we are working on that and feel good about the ability to do that.

Yeah, so, Mark, I guess to put it another way, you know, are there opportunities and or did you take opportunities to further hedge the basis there?

No, I mean, all the WHAA hedges we have in place in 23 and 24 were put in, I mean, definitely in February, maybe some even in late January, and we've not added to that since then.

Yeah, so curious, you know, sort of why not? Have they become unfavorable, or do you feel pretty comfortable at this point?

I mean, sort of, yeah, I guess our philosophy on hedging, would it be great to completely take that risk out? Yes. And, you know, we obviously felt there was more risk there than we did on underlying Henry Hub or WTI because we hedged more basis there. I mean, we're trying to get a chunk of it covered, not completely get it done. And I'm not saying we might not add more hedges. I'd say generally speaking, the hedges we put in place on the Waha looked, you know, pretty good in the money for 23 and maybe a little out of the money in 24, and that's just a function of how the markets responded as we've heard about different pipes adding compression or, in a case or two, you know, working on plans to potentially build a new pipe. We're monitoring that, I mean, if not daily, weekly, and it's something that we want to be relatively well-protected, But we're also not going to go hedge 100% of it. Okay, got it.

And then, you know, the double wear results, could you sort of put that in context of, you know, what maybe prior results had been in that particular interval?

Subhash, this is Robert. This is the first time that either Chisholm or us completed Harkin Wells. So it's not a new interval. Other operators are completing them, and we're really pleased with the results, and they're probably a little ahead of our type curve. But, you know, it's something we identified, and along with the Chisholm team, that we should go tackle these two wells in this zone.

Okay, got it. Okay. And then finally, could you just kind of review sort of the lockups, the status of lockups out there, and you know, if there's any sort of, you know, imminent lockups that expire?

The Chisholm guy, the Chisholm acquisitions group is still locked up, except small shareholders like management, some of the management folks who got shares, and that will expire generally in June. The Bighorn shares are locked up, I think, for 60 days and then 120 days, I'm going off memory. So we've got a couple months in the first round and then a couple more months after that before the other remaining shares come out of the lockup.

But to add to that, Subhash, those shares aren't registered yet. So even the shares that are out of lockup on Chisholm aren't trading yet. And until the registration statement gets filed and gets effective, even though they're not locked up, they practically can't sell them.

Oh, I got you. Okay. Thanks, guys.

Your next question comes from Jeffrey Campbell with Alliance Global Partners. Please proceed with your question.

Thank you. First, I believe your high-yield debt's not callable for two years, so I just thought I'd ask, And you've talked about reducing the revolver debt. Just longer term, what's your plan regarding balancing higher coupon unsecured debt versus lower coupon secured debt in the credit facility?

Maybe let me hit the first part of that, and Robert might kind of add on to longer term. You know, one, obviously today is a static point in time, just like April 14th was when we closed on Bighorn and did the pipe and the bond. I mean, it looks like we're going to pay down the bond large majority of what's on the revolver balance by year end if we do nothing else this year. And really, you're probably looking at sort of the static case. So we're running four rigs over the course of this year and four, maybe five next year. And there is a bunch of free cash flow. And we should get to a point where we're building cash because, to your point, the high yield bonds aren't callable for at least a couple of years. We think that having a chunk of the high yield in place takes away some of the risk of sort of bank capacity being reduced over time. And that was one of the big drivers of doing the bond in the first place. So we'd have a mix of termed out fixed rate debt versus the revolving floating rate debt that can change in capacity. And honestly, from a go-forward basis, setting aside what do we do with the cash if we start building cash, we think we're in a really good spot as we look at acquisitions to be able to more easily finance acquisitions. So that's a positive for us, and part of what gives us that ability is the fact that we just don't have that much drawn on the revolver relative to what the borrowing base or even the electric commitments are. Robert, do you want to pick up on maybe more strategic uses of cash?

Yeah, I think Mark hit it right. I mean, our focus is going to be paying down the debt, and then after the revolver's paid off, what do we do with that cash and definitely look for more opportunities. to spend that cash through acquisitions. You know, maybe we increase our capital plan a little bit next year, but it's still going to be, you know, significant free cash flow. But first order would be to try and find more opportunities to grow our business. And then, you know, we'll see what happens towards the end of this year and other opportunities and consider some kind of shareholder return program in 2023. Okay, great.

Another good caller. I appreciate it. I thought it was interesting to see drilling in Eddy County. This occurred, maybe I was mistaken, but it occurred earlier than I would have expected. Just wondered, could you add some color on your activities there and perhaps how the assets there or the select assets there are competing with places like Tracker and Reagan County and other parts of your portfolio?

Yeah, good question and good observation. You know, we're drilling a couple wells now on our bigger block in Eddy County. We've got a couple other wells planned for later in the year. And we'll probably stay on track just because of the difficulty of changing your plans midstream when you've got federal permit timelines you've got to deal with. So they're good economics. And we wanted to go test out our ability to go execute on those areas. Some historical wells had been under-completed, we'll call it, you know, lower intensity fracks. We've got the infrastructure there. So, you know, that cost is sort of already embedded in it. So we're going to go test this out, see what kind of results we get. Maybe we come back with a more fulsome program next year. Who knows? You know, it does make a little bit more gas in certain areas in Eddy County. So that's good while gas prices are seven or eight bucks. Similar to Erie and County, we like the economics there. It's a little cheaper drilling. Both in Erie and in Eddy, they're similar compared to other places in their two respective basins where they're a little bit cheaper. And it drives some economics that are favorable. So with gas prices where they are, we're on track with our five well pad in Erie and County. Hopefully we can get those on quickly and we'll see what kind of results we get before we decide whether we're going to expand our program in either of those two places.

Okay, and then my last question is regarding additional acquisitions, would more exposure to Delaware Basin be a priority due to the additional personnel that you've hired and improving operations that you're seeing?

We're definitely focused at looking at deals in the Delaware Basin, but we're also still looking at stuff in the Midland Basin. Some of it is driven by opportunities and seller, buyer either agreeing on a price deck to use or a disagreement and you're too far apart and you're not going to get a deal done. It's opportunity driven in both places and we definitely want to increase our footprint on the New Mexico side and thus why we have increased our So, you know, I'm not going to rule out either one of them, though.

Okay, that's fair. Thanks very much. I appreciate it.

Your next question comes from Neil Digman with Truist. Please proceed with your question.

Morning, guys.

Thanks for all the details.

Robert, for your remark, my question is on shareholder return. Yours is a little unique. given, you know, you look forward and one, you've got a ton of free cashflow coming to, you know, your shares, at least based on our estimates look to be a notable discount, uh, to most of your peers out there, especially, you know, some of the, a bit, a bit larger ones. Um, and then three though, we obviously have a unique situation when it comes to float and with the lockup that was mentioning. So, you know, given all those things that are coming, um, You know, how do you all think about that? Because I guess where I'm going with that is, you know, is it just purely, you know, I don't think there's a need at this point to do gives. I don't think investors want that. So I'm just wondering, and your debt is going to be at a fantastic level very soon. So if you take those two things off, is it truly looking at shareholder return, if it makes sense, and where the value of those are versus where you're seeing deals? And then if so, on that shareholder return, you would just work with those larger investors? I'm just wondering how you think about that because, again, you guys are in a bit of a unique situation there.

Yeah, and again, Neil, I don't think they're exclusive decisions. I think you could have a shareholder return plan as well as continuing to look at M&A opportunities. And there's ways, as long as you have things that are flexible in your return plans, program, there's ways to do both. Until we get a couple quarters behind us and sit down towards the end of the year and see what the future looks like, we're going to be flexible in the way we think about it. You hit it. We've increased our float tremendously over the last year and we love that. That was our goal for the past several years and it's helped by buying deals where some of the selling parties either were locked up or weren't locked up and they've sold some shares and it's helped create some additional float. We hope to continue that in the future as well. There's a lot on the table and there's nothing that we've made any decisions on just yet.

I guess what I'm getting at is, obviously they're not exclusive, but If looking at your share value, your shares are trading at, I don't know, pick a number, PV10, PV15, and you see deals out there that are whatever, PV8 to PV10, wouldn't it make sense just to strictly focus on share returns versus further deals if your shares are certainly cheaper than what deals out in the market are?

Yeah, I mean, I get that, but we're also trying to continue the scale building process, right? And maybe as we continue to get bigger, the multiple expands if you look at it from a different aspect, and the multiple expands and we gain that. So, you know, maybe we have to take a step backwards to be able to take two steps forward. We've done that the past 16 months. We could have argued all along the first deal we did at $4 to the selling group, you know, was quite dilutive when you think about, you know, a $14 stock today. So I don't really worry about that. Let us see what the opportunity is. Let's see how it fits into our development growth, and then we'll figure out, you know, whether that makes sense or not.

No, great point. It should do that to the multiples, certainly. And then just lastly on OFS in place and logistics, I'm wondering – It doesn't seem to be seeing that you're having much issues or you're, you know, not any more than anybody else. I'm just wondering, is that largely due to the new increased scale and size? Is that helping kind of on a go forward? And then, you know, how do you get comfort that, you know, going forward with the rigs that you're running now, the front crews that you're running, you'll continue to have an adequate amount of, you know, casing, tubulars, etc.? ?

Well, some of it's been pre-bought, we'll call it. Like we've ordered pipe for the next six months or thereabouts. And we've worked with vendors for a really long time. And that relationship building process, Steve, has developed over years, not just in the last three years. And these vendors have been very supportive of our growth, and we've been supportive of their growth needs. And together, we're trying to make this work. And You know, there are a lot of problems. I mean, I heard a whole slew of them from Steve this morning. But we've been able to navigate around those, and we've got great relationships with our vendors, and that does create a difference when the vendors want to come work for us.

Got to agree. Oh, nice job. Thank you.

Your next question comes from Jeff Robertson with Water Tower Research. Please proceed with your question.

Thanks. Good morning. Robert or Steve, can you talk about the permit situation in the Delaware Basin? If I recall correctly, you had a couple of years worth of permits to support a two-week program when you acquired Chisholm. I'm just wondering, now that you've owned the assets for a couple of months, where you are as far as stretching that inventory out, and how long does it take to get a permit right now? You want to answer it?

Well, I think we're still in the 10 months to a year to get a permit. I think we're well positioned with our permits to keep the two-rig program moving along. But somebody asked the question earlier about surprises and operating, and we really haven't seen a lot of surprises in operating when it comes to drilling and completing a well. But the planning side is a challenge. So if we change that plan, and we're looking at that for next year, we've got to ramp up our permitting, you know, schedule a little bit. But it's not going to keep us from doing what we want to do.

Robert, on a high level around corporate strategy, the Bighorn assets bring a lot of free cash flow. Chisholm assets bring a lot of inventory in the Delaware Basin. So I think you all talk about having roughly a 13-year inventory or current rig pace. With the amount of deleveraging you can do in the free cash flow outlook for 2023, how do you think about the asset base and acquisitions as far as ones that add cash flow like Bighorn, or since you can generate a lot of cash flow, do you need ones with more inventory to develop and maybe be able to expand a drilling program like Chisholm Assets provides?

Yeah, I think we like things that are opportunities that provide both of that, you know, some good strong cash flow but inventory. And if you can find them in two different deals and you kind of do them about the same time or close to it like we did with Chisholm and Bighorn, that's a, man, that's a double win or whatever you want to call it, you know, a home run. And we continue to look for opportunities. We're not going to be as focused on a pure PDP deal. unless there's some bolt-on reason to do it, right? It's sitting right next door, and we know we can operate it for half of what the existing operator has it for, you know, and we can see some large upside there. But, you know, our ability to be a little bit pickier on what we spend our time on is aided by the size of the business we have today. So hopefully that gets you your answer.

That's helpful. Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. Robert Anderson for closing remarks.

Thanks, everybody. We appreciate your time. I know it's a busy day, but we'll talk to you next quarter. And in the interim, if you have questions, you know how to get a hold of us. Thanks a lot.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.