Magnolia Oil & Gas Corporation Class A

Good day and welcome to the Magnolia Oil and Gas Tech on Quarter 2022 earnings release and conference call. All participants will be in a listen-only mode. Should you need assistance, please find our conference specialist by pressing the Start key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Start and 1 on a touchdown stop. To withdraw your question, please press Start and 2. Please note this event is being recorded. I would now like to turn the conference over to Brian Krause. Please go ahead.

Thank you, Maria, and good morning, everyone. Welcome to Magnolia Oil & Gas's second quarter earnings conference call. Participating on the call today are Steve Chazen, Magnolia's Chairman, President, and Chief Executive Officer, and Chris Stavros, Executive Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meeting of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full safe harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's second quarter 2022 earnings press release as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Steve Chasen.

Thank you, and good morning, and thank you for joining us today. Magnolia just completed its fourth year as a public company. Despite the continued product volatility, our business model remains unchanged. Our ongoing confidence in the business is supported by our core values and based on our strong financial and operating results and our team's numerous accomplishments. Over the last four years, we have profitably increased our production while transitioning our Giddings asset to a full development mode. We also continue to generate significant free cash flow, allowing us to opportunistically repurchase our shares. Our business model limits the spending on drilling and completing wells at 55% of our EBITDAX and is expected to provide mid-single-digit annual production growth over time. The remaining unallocated cash flows can be used for small bolt-on oil and gas property acquisitions, share repurchases, and dividends. So far this year, we have far exceeded our plan. We now expect our full-year 2022 production to grow between 12 and 14 percent, while investing less than a third of our cash flows, with the excess cash allocated to activities that should enhance our per share value of the company. Our second quarter results set records for several financial and operating metrics, including net income, operating income margins, earnings per share, and total production volumes, which exceeded our earlier guidance. We grew company total production 14% year-over-year and 3% sequentially, while spending just 31% of our EBITDAX drilling and completing wells and generating operating income margins of 68%. Production for the quarter was of 74.2 thousand barrels per day was at the high end of our guidance due to better well performance in both our Carnes and Giddings assets. Ongoing efficiency is Giddings, which led to more net wells. and some additional non-operated activity. Our record production, which is unencumbered by hedges combined with strong product price realizations, contributed to our record free cash flow approximately $251 million. We repurchased a total of 4.1 million shares, reducing our total diluted shares outstanding by 8% compared to last year's second quarter. The remaining free cash flow allowed our cash balance to build to more than half a billion dollars at the end of the second quarter. Our balanced approach to allocating our cash flow provides consistent production growth and a steady reduction in our outstanding shares. This combination is expected to result in double-digit annual dividend growth. As announced yesterday, we have transitioned our semi-annual base dividend to a quarterly base dividend with an initial rate of 10 cents per share on a quarterly basis. The new annualized payout of 40 cents a share represents a 43% increase to Magnolia's dividend compared to the 28 cents per share distribution associated with full year 2021. We believe that the increased dividend payment level is secure and sustainable with product prices at less than half their current level and expect our dividend to grow annually as we continue to execute our business plan. We plan to revisit the dividend payment rate early next year based on our full year 2022 financial results, and we will recast our results from this year using a $55 oil price environment. We continue to operate two drilling rigs across our two assets and expect to maintain this level of activity for the balance of the year. At current product prices, our capital for drilling and completing wells should be well below our 55% spending cap, resulting in significant free cash flow generation. Most of the free cash flow is expected to be allocated towards improving the per share value of the company, including our plan to repurchase at least 1% of our outstanding shares each quarter. Magnolia's investment proposition is differentiated. We believe that our moderate and consistent production growth, combined with a gradual reduction of our outstanding shares, will result in steady per share growth of the company and a growing dividend. And I'll turn the call over to Chris Stavros.

Thanks, Steve, and good morning, everyone. I will review some items from our second quarter and refer to the presentation slides found on our website. I'll also provide some additional guidance for the third quarter and remainder of the year before turning it over for questions. Beginning with slide three, which shows a summary of our second quarter, Magnolia continued to execute on our business model as demonstrated by our very strong second quarter 2022 financial and operating results. We established quarterly records for many of our key operating financial metrics during the quarter, including production, net income, diluted earnings per share, free cash flow, and most notably operating income margins, or EBIT, of 68% during the period. These results were supported by the absence of hedges on our production, which provided very strong product price realizations, our efforts around cost containment and supply chain management, and stronger overall production growth. We generated total adjusted net income for the quarter of $294 million and diluted earnings per share of $1.32. Our adjusted EBITDAX for the quarter was $393 million, and total capital associated with drilling, completions, and bringing on new wells was $122 million, or just 31% of our EBITDAX. DNC capital was somewhat higher than our earlier guidance due to the timing of our activity and more non-operated activity than we expected, which should benefit our production during the second half of the year. Overall company production volumes grew 3% sequentially and 14% on a year-over-year basis to 74.2 thousand barrels of oil equivalent per day in the second quarter. Looking at the quarterly cash flow waterfall chart on slide four, we started the second quarter with $346 million of cash Cash flow from operations for changes of working capital was $362 million during the period, with working capital changes and other small items benefiting cash by $21 million. Our DNC capital incurred, including land acquisitions, was $123 million. During the quarter, we repurchased 4.1 million Magnolia shares for $102 million and ended the quarter with $502 million of cash on the balance sheet. or about 10% of the company's equity market value. Looking at slide five, this illustrates the progress of the reduction in our total shares outstanding since we began our repurchase program in the second half of 2019. Since that time, we've reduced our total diluted share count by nearly 47 million shares, or approximately 18%. Magnolia's weighted average fully diluted share count declined by 5 million shares sequentially averaging 222.4 million shares during the quarter. We had 12.3 million shares remaining under repurchase authorization at the end of the second quarter, which is specifically directed towards repurchasing shares in the open market. Turning to slide five, and as Steve discussed, we have transitioned our dividend payout schedule from a semiannual pace to a quarterly dividend schedule with an initially quarterly base rate of 10 cents per share. This new rate represents a 43% annualized increase from our 2021 dividend rate. Our plan for annualized dividend growth of at least 10% is expected to supplement the per share growth rate of the company and is aligned with our overall strategy of achieving moderate annual production growth and reducing our outstanding shares by at least 1% per quarter. We will revisit our dividend payment rate early next year based on our 2022 results and recast that in a $55 oil price environment. Our balance sheet remains very strong and we enter the quarter with a net cash position of more than $100 million. Our $400 million of gross debt is reflected in our senior notes, which are now callable and do not mature until 2026. Including our second quarter ending cash balance of $502 million and our undrawn $450 million revolving credit facility, our total liquidity is $952 million. Our condensed balance sheet and liquidity as of June 30th are shown on slides 7 and 8. Turning to slide 9 and looking at our per unit cash costs and operating income margins, despite the substantial increase in product prices over the past year, we have seen only a modest increase in our total costs. Our total adjusted cash operating costs, including G&A, were $14.04 per BOE in the second quarter of 2022, an increase of $2.64 per BOE compared to year-ago levels. Almost two-thirds of this increase was due to higher production taxes, which are directly related to the sharp increase in product prices over that period. The modest per barrel cost increase is nominal compared to the nearly $30 increase in our revenue per BOE. including our DD&A rate of about $8.50 per BOE, which is generally in line with our F&D costs, our operating income margin for the second quarter was $48.62 per BOE, or 68% of our total revenue, and more than double compared to year-ago levels. Simply put, 92% of the revenue increase was captured in our operating margins on a year-over-year basis. Turning to guidance for the second quarter, quarter or for the third quarter and the remainder of the year. We're currently operating two drilling rigs and plan to continue at this level of activity through the end of the year and into next year. One rig will continue to drill multi-well development pads in our Giddings asset. Second rig will drill a mix of wells in both the Carnes and Giddings areas, including some appraisal wells in Giddings. We continue to improve our operating efficiencies in the Giddings field, which should help offset some of the oilfield service inflation. As we've noted previously, this will also lead to some additional net wells during the year. Given the strong well results from both of our assets, ongoing efficiencies and improved cycle times, as well as higher non-operated activity, we are raising our expectations for our full year 2022 production growth to between 12% and 14% compared to 2021 levels. Looking at the third quarter of 2022, we expect our total production to be between 74,000 and 76,000 DOE per day, and our DNC capital is estimated to be between $105 and $115 million. Should product prices remain around current levels, we would expect our third quarter effective cash tax rate to be between 8% to 10%. As I mentioned earlier, we remain completely unhedged for both our oil and gas production, allowing us to fully capture the benefit of current high product prices. Oil price differentials are anticipated to be a $2 to $3 per barrel discount to MEH and slightly narrower than historical levels. Our fully diluted share count for the third quarter is estimated to be approximately 219 million shares, which is 7% below year-ago levels. Finally, last month, we released our 2022 sustainability report, which significantly expands on our earlier disclosures. The report provides an update on our efforts. Our teams are executing to safely and responsibly develop our oil and natural gas resources. The report can be found in the sustainability section of our website. We're now ready to take your questions.

We will now begin the question and answer session. To ask a question, you may press a star then one on your touchdown song. If you're using my speakerphone, please pick up your handset before pressing the case. If at any time your question has been addressed and you would like to withdraw your question, please press star then two at this time. We will pause momentarily to assemble our roster. Our first question comes from Neil Bingaman with True Securities. Please go ahead.

Morning, all. Thanks for the comments, guys. Steve, my first question is... Just wondering how much pressure you got from your wife to boost that dividend. No, seriously, my first question, Steve, is just on something you mentioned, prepared remarks. And that is, could you speak to your view? You mentioned about adding value with the dividend. And I'm just wondering how you sort of look at the dividend versus buybacks when you think about, or even versus organic or external growth, how you think about all those in context of adding value?

Okay, so we'll start with the dividend. You know, we think, we believe that the dividend is an integral part of the business and, you know, we would, you know, we plan to grow it at least 10% on this base dividend annually. So, what you'd rationally expect that in the fourth quarter we'll pay another 10 cents and then we'll revisit the rate in the first quarter, based on this year's results, recast to $55. So what that means is in a $55 environment, we would easily be able to cover the dividend. So it doesn't really cut into things. The share repurchases are opportunistic. The market is, as you may have noticed, a little volatile. And, you know, there's always opportunity to repurchase. We repurchased some shares during the last month during what would normally be a blackout period for us. A lot of people did that, I'm sure. Even some company I know well, other company. I think we continue to look at share reduction as an important part of it. It's really just saying the assets we view are worth more this way than that way. Our total distribution to our shareholders is the sum, really, of the share repurchases plus the fixed dividend. You know, if you get to the point where the dividend or the share price is not reflected, that is too high, you know, we clearly shift to a different approach. But as long as we can, you know, as long as we can say, you know, this is actually pretty cheap, We'll continue to buy in shares at an accelerated rate in this kind of environment. Building cash is interesting, but we'll probably need to up our share reduction program. We don't know anything about what Intervest is going to do. As far as acquisitions go, we're sort of picky. If you buy PDPs, pure PDPs, and you pay SEC value for it. So that's the forward curve at a 10% discount rate. If you count overhead, which almost nobody does when they talk about the purchase, and taxes, because you're going to pay tax on it, you're probably around a 6% real return. The only way you get more is if there are locations in the package that you can drill and make returns 15%, 20%, 25%. Most of the packages that have been put up for sale are virtually entirely PDPs. And the wells that they talk about are ones that wouldn't be competitive for our business. So we need wells in the packages. I don't really like buying PDPs because I think the base return is too low for us. But as far as drilling wells are concerned, the wells have to be competitive with basically Giddings Wells. And if they're not, you know, it's not something we really can do. But we do do a fair number. We sort of need the radar of very small acquisitions, $5, $6, $7, $8, $9, $10 million, maybe larger if we're lucky. And these are mineral interests or small working interests. in generally gettings in and around our stuff, and we'll continue looking for those. And there's more of them now than there's been for a while. So as far as acquisitions, we need one that's clearly accretive to us in rates of return going forward and would fit into our business model and within our skill set. We don't know anything about North Dakota or the Rockies or Maybe one of us knows something about the Permian, but probably not something we probably would do. And these orphan areas like the Eagleford and Giddings are places where we can make decent money and a lot less competition for acreage and that sort of thing. So that's how we think about it. So we view the share repurchases as a form of dividend in just a different way. If it gets to the point where it doesn't work or we can't make it work, we'll rethink the process. But right now, there seems to be plenty of volatility and plenty of opportunities to buy the shares at reasonable levels.

Now, thorough details, Steve, and then one thought I could – I haven't heard you talk in a while or maybe give your suggestions on when you look now at that Giddings, you've had a lot now of successful wells. Would you say, you know, how much are you able to quantify beyond the original 70,000, how much you've got sort of high confidence in delineated already? Are you able to talk about that?

Well, you know, what we have is, And, you know, we just don't think of it actually the same way that, you know, somebody might think of that in the Permian. We look at how long a period, a forecast period, we can forecast and actually pick the locations and they be the same rough quality as the ones that we're currently drilling. And, you know, I think in Giddings we have around a five-year forecast. So we have about five years running two rigs of drilling activity and getting with the same sort of results we're getting now. So that's really my way of looking at it, rather than looking at acreage, because I'm not really in the real estate business, at least not deliberately. And so that's the way we look at it, and that's a lot of locations. And they may not be... maybe five or six here, and we're going to drill a pad in the fourth quarter in Giddings with an eight-well pad. So we're starting it now. It'll run through the third quarter to the fourth quarter. Sometime it'll go on. So the scale of the business is growing. We're adding some infrastructure to take away some more of the costs out of the structure. So it's going to be a bigger business three years from now than it is today. And so we're pretty optimistic about it. As far as this acreage stuff, it's in some ways misleading to give you a bigger number because you'll divide by something and get a number that's probably not reflective of reality. But if you think about it as five years of inventory, and maybe more, but certainly five years of inventory based on what we know now on a two-rig program, that gives you an idea sort of how much we've got. So I think for five years we're pretty safe, and it will continue to grow. The two rigs will continue to exceed the decline, overcome the decline. So what we have will grow in production every year. So, you know, we're pretty safe, I think, on this, you know, mid-single digit growth. You know, again, if we could find something that another acquisition of reasonable size, reasonable being not large, size that fit into our business model and we could extend it, we would do that and then add a rig to go with it. But, you know, right now we're pretty full up on what we need to do.

Thanks, Steve. Appreciate the time. Sure.

Our next question comes from Leo Mariani with MKM Partners. Please go ahead.

Yeah. Hey, guys. I was hoping to hear a little bit more about some of the progress on the step-out wells here in 2022 and really just trying to get a sense if Y'all are starting to maybe kind of, you know, increase, you know, some of the sweet spots. I know you originally had this 70,000-acre sweet spot there in Giddings, but then you talked about kind of another 25,000 acres that was kind of looking, you know, more prospective that could kind of move into that sweet spot category. Just wanted to get a sense of the recent drilling results here in 2022 and some of the progress there.

You know, basically, you know, there's two things we've been working on. One is spacing. We never really had any good idea what's spacing. And so we found the spacing for the oil rig areas to be a little narrower than we had been drilling, closer together. So there's more locations. And in the gassier areas, about what we were doing was OK because the gas flows better. So we've been doing a lot of that. As far as the areas are concerned, We continue to add to inventory. As I answered the last question, I don't think it's misleading to give you an acreage number because you'll divide by something and get a number of locations. I think the way you should look at it is that we got five years with two rigs running full-time in Giddings. That's the inventory of the wells that look just like the ones we're currently drilling. And, you know, going on the extension program has been very successful. And so, you know, I don't, you know, we continue to keep a five-year inventory of high-quality wells that work in much lower oil price environments than today. So, you know, these wells have very short paybacks and are, you know, are doing very well. Some of the extensions were better than others, but all of them were economic wells.

Okay. And I guess just in terms of recent well costs at Giddings, I know you guys used to throw out a number of around $6 million or so to get one of these wells down. I know there's been some inflation. Would you guys be able to update us on kind of a rough well cost? And could you also provide a little bit more details on some of the infrastructure projects you talked about at Giddings? Is that more 22 or kind of more, you know, some years beyond 23 or 24? Yeah.

Chris? Yeah, it's, Leo, it's been running about 1,000 per lateral foot in terms of the drilling cost. Now, you know, we've picked up The length of our laterals is obviously sort of risen through the year and over the last year or two, so we're doing a lot more on that. Follow on on what you were asking before. We've picked up a lot of momentum in terms of our drilling results through operating efficiencies and other things, which Steve mentioned has added a lot of new wells, so the The well performance or the production, you can sort of see it in the volumes that we've had through the year. It's pretty indicative of the momentum we've picked up just in terms of some of the efficiencies. It's effectively added new wells, and so we've gotten a lot better at this.

Steve referenced the eight-well pad that will be coming on later in the year or late in the year. So there's a lot to be said for that.

Okay, and then just any details around infrastructure?

And, yeah, we've added some infrastructure to maybe about $20 million of the capital was spent on infrastructure. We had originally planned that. I mean, you know, the deviation on both the production, frankly, and the capital is this non-op stuff because, you know, it's not predictable infrastructure. We can't predict if they're going to drill a well. We can't predict when. And we can't predict when they turn it on because they have their own reasons for turning it on. But it's picked up materially in the back half of the year. Somebody woke up and said, oil's $100. Maybe we should drill some oil wells. But that's really a lot of our inability to predict both capital and at least Now, you know, we're not short of money on the capital. So, you know, I view the money as very well spent, an extra $20 million of capital. It's just going to give us more production next year. So, you know, production next year should be quite strong, again, based on where we are now.

Okay, that's helpful. And I guess maybe just to follow up a little bit on the infrastructure, I mean, you know, is that kind of a rough number where it's relatively small, call it $20 million a year for the next couple years? Just trying to get a sense if you look forward, do you see any more significant infrastructure needs?

No, you won't see that, I don't think. I think this was a one-time opportunity to lower our costs, basically to haul less oil by truck.

Okay. Thanks, guys.

Our next question comes from Yanmeng Chaudhary with Goldman Sachs. Please go ahead.

Thank you and good morning. My first very thorough answer on creating value for the organization and on capital returns. I wanted to do a quick follow-up there. So let's envision a scenario where oil prices remain at 100 and gas prices remain above 4. In that scenario, if you have a 10 cent dividend, you plan to recast it at 55 oil and $275 gas, if the share repurchases don't come through more than the current pace of deployment, is the plan then to build cash on the balance sheet for a future day, or will you look to kind of make the investors hold through a one-time special dividend at the end of the year?

We expect to be able to retire the shares at a higher level than the 1%. I mean, we've actually been sort of twice that. So, you know, you go through these noisy periods in the market. You know, the market acts sort of oddly. You know, you can buy a lot of shares. I think what's happening is, you know, somebody's shorting the shares and selling them to us. But I don't know where they're getting the shares from. But we continue to buy the shares, and we expect to continue without regard to what Intervest does. We shouldn't have any trouble, you know, spending all the money, most of the money. As far as a special dividend goes, you know, that's the point. We're not going to build cash on the balance sheet. The only reason we have it up so high is an expectation that we'll be able to acquire some shares from Intervest over time. Generally, our cash balance, a couple hundred million dollars would be plenty. We can survive easily in any environment. As far as the dividend is concerned, we have a bias on the dividend to pay more dividends as was pointed out by the first speaker. My wife doesn't look at the stock price. I don't have to mark the market, but she does count the dividends. So this will be a good year for her dividend program.

That's great. Awesome.

I think if you try to forecast forward to some other environment where you can't buy the shares, I don't know exactly what we would do. in that environment, because you'd have to, you know, the question simply is, is the $100 oil and $4 gas sustainable, or is it going to be some other number? But, you know, I think as the sort of progresses, you're going to find, we're going to find some small, I mean $25, $30, $40 million acquisitions to build the business. You know as we get closer to a hundred thousand a day in production so I you know that we're in Giddings not not off somewhere, but But you know there's a fair number of sort of family ownership out there. That's been sort of sticky and You know we may be able to do some of that to use some of the money, but but generally speaking It's just hard to forecast what you would do in a very different environment But right now, I think reducing the share count is a valuable thing for the people who want to stay in the stock.

Makes a lot of sense. And I appreciate that comment. I guess just following up on getting some spacing, can you remind us where you were before on a spacing and where are you heading right now in the oily part of the acreage? I mean, one could argue that you probably have more than five years of inventory in the code, acknowledging that your planning process just takes five years into account right now.

Well, you know, we have more than five years probably for sure, but five years we can lay out. We don't pay much attention to whether it's an oil area or a gas area. We think it's all about money. And so what we find is we're drilling some gassier wells and some oilier wells. And it really isn't, you know, it's almost strategy free. It's sort of how much money can we make and how easily can we deploy it into some area. So we may drill more gas wells, but it really isn't shifting based on product price. It's really shifting based on what we can do quickly or what we can organize and how we can bring the land position together. So I think right now, by sheer chance, we're sort of splitting between the oily areas and the gassy areas. But it could shift to more oily or more gassy just Again, not necessarily driven by product price. If the price of natural gas falls to $0.50 or $2, we probably have a different view. But with a $4 or better number, pretty unlikely that we'll pass on any gas locations. We'll continue to be active in that. But the oil area also is good. It's just a little more complicated on the island, that's all.

That makes a lot of sense. Thank you.

Our next question comes from Austin Alcorn with Johnson Rice. Please go ahead.

Good morning, Steve and team. Thank you for taking my questions.

Sure.

With CapEx of $122 million in the quarter and a midpoint of $110 for the 3Q guide, going forward, should we think of about a $110 to $120 million quarterly run rate guidance range?

Our ability to forecast the non-op activity is shown to be non-existent. So you can use a number like that if you'd like, and you're probably just as accurate as we are. Because, you know, we just can't. We just can't. We just can't. It's not a lot of money. It's just a lot of noise. And so we've adjusted for the inflation. We don't see any more inflation than we outlook last quarter. We're drilling more net wells or dissipating in more net wells. We'll get more net production than, you know, production in $100 oil or $90 oil. is pretty attractive. And so, you know, you get your money back certainly in six months. So, you know, I don't see why we would cut back on that activity just to make some imaginary number that somebody has. We've got a lot of money. You know, money is not our problem.

I appreciate the color. And as a follow-up, would it still be hard to get a new rig? Last quarter you said it would be, but the industry seems to be adding – A rig every week? Has anything changed?

You know, right now we would, you know, we have two rigs running. If we wanted to add another rig, it might take six months to add a rig. So, you know, we don't have any plans to do that. There's no real need to do it right now. But if there were, it would take us about six months to add a rig. At some point in the future, we'll have to add a third rig, but certainly not imminently.

That's all from me. Thank you for the time.

Thanks.

Our next question comes from Nicholas Pope with Seaport Research. Please go ahead.

Good morning, everyone. Good morning. You guys gave a fair amount of detail on Gideon's inventory. And as you kind of shift back to Carnes, how do you think about the inventory and the runway that you have in that asset right now? I mean, I know it's very blocked up with operators. Is there opportunity to expand on that side of the Eagleford for you guys?

You know, frankly, not a lot. You know, some operated and, you know, more of it in the non-op area. So, you know, and sometimes the wells aren't competitive with the Giddings wells. So, you know, we stay away from them. The Giddings wells are basically more, give better returns for us. So, you know, we could go into a mode for a year or so where we just relied on the non-op and take the rig, you know, basically, you know, for both rigs for a whole year in Giddings and probably do better than fooling around going to, you know, drilling some wells in Carnes. There's always some more in Carnes, you know, it's a gift that keeps giving. So, yeah. But, you know, right now the wells simply, you know, aren't competitive with what we can do in Giddings, and we'll probably stay with that sort of plan for a while.

Would there be any interest in expanding outside of that concentrated area or just not think it's competitive in other parts of Eagleford, even in nearby?

Well, you know, the question is how do you do that? You know, there's a number of fairly large areas stuff out there, private equity and that sort of thing out there. But, you know, the drilling locations, well, you know, you buy the PDPs and you get bigger, I guess. But the drilling locations tend not, you know, tend to be not competitive with how else we would spend the money basically in Giddings. So we wouldn't drill the locations that these promoters... put out there. So, you know, I think it's, you know, there might be some small deals, but, you know, it's certainly not a focus for the company at this point because, you know, it's just too expensive. You know, you basically got to buy PDPs and, you know, I don't think you make a return of more than 7% or 8% on a PDP acquisition. which is not something that's real exciting to us. We can cook the books a little bit to generate some free cash. It looks like a lot more free cash because we're depleting this asset. But as a business matter, it doesn't make a lot of sense to me.

Got it.

I appreciate the comments. That's all I had. Thanks.

Thank you.

This concludes our question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.