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spk04: Good day and welcome to the Magnolia Oil third quarter 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Brian Corrales. Please go ahead.
spk06: Thank you, Marlise, and good morning, everyone. Welcome to Magnolia Oil and Gas' third quarter earnings conference call. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning 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 third 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 President and CEO, Mr. Chris Stavros.
spk08: Thanks, Brian, and good morning, and thank you for joining us today. The most recent quarter was filled with some mixed emotions. We're humbled by our continued strong financial and operating results and performance, the recent passing of Steve Chasen, Magnolia's founder and former CEO. I'm incredibly grateful for Steve's guidance and counsel, his steady leadership, and importantly, his friendship. While he will be deeply missed, we expect his legacy to continue to live on through Magnolia for years to come. Despite our loss, I am very confident that Magnolia's best days are ahead. Magnolia's original business model remains sound, and the old saying here applies, if it ain't broke, don't fix it. There can be a tendency for leaders in transition to feel that they must put their mark on an organization in some significant way, and even if it is unnecessary. Some of this is simply human nature. I promised myself that I would not do this. The principles of the business model that Steve established during Magnolia's founding over four years ago are expected to remain largely unchanged, and my objective is to always do what is in the best interest of the Magnolia shareholders. We will continue our discipline around capital spending while maintaining low levels of debt. And we expect our record of achieving moderate annual production growth while generating significant free cash flow and strong pre-tax margins to continue. Magnolia delivered very strong financial and operating results in the third quarter, driven by record quarterly production and pre-tax operating margins of 65%, and despite a sequential quarterly decline in oil prices of more than $15 per barrel. Third quarter 2022 production of 81,500 BOE per day increased by 21% year over year and 10% sequentially and well above the high end of our earlier guidance. Stronger than anticipated production was seen in both our Giddings and Carnes asset areas and was primarily the result of better than expected well performance, continued efficiencies primarily at Giddings and slightly higher non-op activity. These results were achieved while spending just 30% of our adjusted EBITDAX during the quarter. Relative to consensus estimates, the third quarter represented an 8% beat for our production and roughly a 12% beat on many of the key financial metrics, including cash flow and earnings per share. Magnolia's production per share grew by 31% in the third quarter compared to the same period a year ago. We repurchased 3 million shares during the quarter, reducing our diluted share count by 8% from the same period last year, and paid our regular quarterly dividend of 10 cents a share. Including share of purchases and dividends, Magnolia returned 36% of the free cash flow generated during the quarter, while ending the period with nearly $700 million of cash. We continue to gain momentum in progressing the efficiencies at Giddings. Excluding our appraisal work, the drilling fee per day at Giddings has improved by approximately 30% compared to 2020 levels, and has nearly doubled when compared to 2019. Even more significant is that the total cost per stimulated foot for development wells drilled this year is 26% lower than wells drilled in 2019, despite this year's inflationary environment around materials and oilfield service costs. Our improvements are directly attributable to the efficiencies that have been captured at Giddings, including faster drilling and completion rates, drilling longer laterals and multi-bowl pads, and an improved understanding of the asset through our operating experience. Close cooperation with our vendors and our ability to establish strong partnerships has saved us about $25 million on our capital and other costs this year, helping to secure supply despite some of the industry shortages that have impacted both products and services. Said another way, the $25 million of savings amounts to about a half a million dollars per well for us, or about 5% to 6% of the total well cost. While we continue to strive for the lowest costs, There is much to be said around the importance of continuously communicating with our vendors, working closely with them to plan ahead, and sending a message that our strategy is to run a consistent business plan. This goes a long way in creating a healthy and secure partnership with critical vendors. I would credit both our supply chain management and operating team's efforts, as they've done a terrific job around this, which importantly allows us to execute on our plans. And we believe that we can capture additional savings into next year through further initiatives. Magnolia continues to operate two drilling rigs with one completion crew and expects to maintain a similar level of activity through next year. One rig will continue to drill multi-well development pads in our Giddings area. The second rig will drill a mix of wells in both the Carnes and Giddings areas, including some appraisal wells at Giddings. This level of activity should provide full with our drilling and completion capital expected to be well below 55% of our EBITDAX at current product prices. This level of production growth would represent the second consecutive year in which Magnolia's growth exceeded its business plan, reflecting the quality of our asset base and the continued efficiencies that we're seeing at Giddings. We're planning a very active operating program for the fourth quarter, which should provide us with significant momentum heading into 2023. Our largest pad in Giddings to date, an eight-well pad, is scheduled to come online during the latter part of the current quarter. This should allow our production levels to exit the year higher than our volume seen during the third quarter and with most of the benefit to be realized during the first half of 2023. Magnolia's strong financial position provides us with ample flexibility to navigate through both product price volatility and periods of economic uncertainty. Our position of strength also allows us to patiently seek attractive opportunities to allocate our capital and free cash flow in a disciplined manner to enhance the per share value of the company. We will continue to carry out our business model, which should result in moderate annual production growth and a consistent reduction of our total shares outstanding in order to fulfill our investment proposition of providing annual dividend growth of at least 10%. We plan to revisit our dividend rate early next year and after evaluating our full year 2020 financial 2022 financial results. Finally, I'm pleased to announce that Brian Corrales, Magnolia's VP of Investor Relations, has been promoted to the position of Chief Financial Officer. Brian's done an excellent job at Magnolia since 2018 in helping both manage and communicate the company's strategy, as well as shaping our message to the broad financial community and other stakeholders. Magnolia's strong focus on its shareholders and emphasis on generating improved stock market value over time make Brian uniquely qualified to serve as CFO. The selection and elevation of a qualified internal candidate to the CFO role is indicative of Magnolia's strong bench of talent within our team. I'll now turn the call back over to Brian.
spk06: Thanks, Chris. I will review some items from our third quarter and refer to the presentation slides found on our website. I'll also provide some additional guidance for both the fourth quarter and our initial view on 2023 before turning it over for questions. Beginning with slide three, which shows a summary of our third quarter, Magnolia continued to execute on our business model as demonstrated by our very strong financial and operating results. Once again, we had record production, which was supported by the absence of hedges, which in turn provided very strong product price realizations. We generated total net income for the quarter of $287 million and diluted gap earnings per share of $1.29. Our adjusted EBITDAX for the quarter was $386 million, and total capital associated with drilling, completions, and facilities was $114 million, or just 30% of our adjusted EBITDAX. Overall company production volumes grew 10% sequentially and 21% on a year-over-year basis to 81.5 thousand barrels of oil equivalent per day in the third quarter. Looking at the quarterly cash flow waterfall chart on slide four, We started the third quarter with $502 million of cash. Cash flow from operations before changes in working capital was $361 million during the period, with working capital changes and other small items benefiting cash by $31 million. Our DNC capital incurred, including land acquisitions, was $116 million. During the quarter, we repurchased 3 million shares for $61 million and ended the quarter with $690 million of cash in our balance sheet. Looking at slide five, This illustrates the progress of the reduction in our total outstanding shares since we began our repurchase program in the second half of 2019. Since that time, we have reduced our total diluted share count by 50 million shares, or 19%. After repurchasing 3 million shares during the quarter, our weighted average fully diluted share count averaged 217.8 million shares during the quarter. We currently have 9.3 million shares remaining under our repurchase authorization, which is specifically directed towards repurchasing shares in the open market. Turning to slide six, we declared our 10 cent regular quarterly dividend last week, and this will be paid on December 1st. Our plan to achieve annualized dividend growth of 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 in recast using significantly lower oil prices. Our balance sheet remains very strong, and we ended the quarter with a net cash position of approximately $300 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 third quarter ending cash balance of $690 million in our undrawn $450 million revolving credit facility, our total liquidity is greater than $1.1 billion. Our condensed balance sheet and liquidity as of September 30 are shown on slide 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 total costs. Our total adjusted cash operating costs, including G&A, were $13.07 per BOE in the third quarter of 2022, an increase of $3.18 per BOE compared to year-ago levels. Almost half of this increase is due to higher production taxes, which are directly related to the increase in product prices. The modest per barrel cost increase is nominal compared to the more than $18 increase in our revenue per BOE, including our DD&A rate of about $9.20 per barrel, which is generally in line with our F&D cost. Our operating income margin for the third quarter was $41.56 per BOE, or 65% of our total revenue. Simply put, 75% of the revenue increase was captured in our operating income margins on a year-over-year basis. We expect to have an active fourth quarter with most of the wells coming online through the latter part of the quarter, including the largest pad we have operated to date at Giddings. We estimate that our fourth quarter production should be in the range of 77 to 79,000 barrels equivalent per day. DNC capital is expected to be approximately 125 to 140 million due to high number of well completions and higher anticipated non-op activity during the quarter. Given the high level of activity, we expect our production volumes to exit the year at a higher rate than seen during the third quarter, while also providing a benefit to production during the first half of 2023. Oil price differentials are anticipated to be approximately a $3 per barrel discount of gel in East Houston and closer to our historical levels after realizing tighter differentials during the previous two quarters. As a reminder, Magnolia remains completely unhedged for all its oil and natural gas production. The fully diluted share count for the fourth quarter of 2022 is expected to be approximately 216 million shares, which is 6% lower than fourth quarter 2021 levels. We expect our full year 2022 cash rate to be approximately 8%. Looking at 2023, we expect to have a similar level of operating activities this year. We plan to operate two drilling rigs and one completion crew through next year and expect our capital spending to be well below our spending cap of 55% of EBITDAX in the current commodity price environment. This level of activity is expected to generate production growth of approximately 10% for 2023 when compared to full-year 2022 levels while generating significant free cash flow. We will revisit our dividend in early 2023 after finalizing our full year 2022 financial results. And we're now ready to take your questions.
spk04: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Also, please restrict yourself to one question and one follow-up if possible. You may rejoin the queue if need be. At this time, we will pause momentarily to assemble our roster. Thank you. Our first question comes from Leo Mariano from MKM. Leo, please go ahead.
spk09: I wanted to ask quickly here on capital. You're obviously seeing a bit of a healthy increase again here in 4Q, but it sounded like maybe that was just kind of an unusually heavy activity quarter. As we look into next year, should we not assume that we should take the fourth quarter level and kind of annualize it for 23? You think it probably will end up being less than that just because it looks like fourth Q is kind of heavy.
spk08: It's a little heavier than what we've been running on average, certainly this year. I wouldn't make much of it. I mean, I think maybe said a different way, Leo, is that if you just look at our full year, 2022 capital and and probably you know say it's going to be 10 higher in 2023 that would probably get you to approximately what we're thinking right now um at least based on what we know today um and that that should more or less cover it so i think almost any way you slice it for the fourth quarter uh that that probably gets you something that that's you know for 2022 and then adding 10 on that is not unreasonable for 23.
spk09: Okay, that's helpful. And then just wanted to ask a little bit on Giddings here. Is there any update on any of the recent appraisal results that you kind of had out there? And you also kind of referred and you prepared comments to seeing some efficiencies, which have driven some of the costs down there, which I know have been somewhat offset by inflation. But can you give us a sense kind of what the well costs for lateral foot now are at Giddings?
spk08: Yeah, so on the appraisal, you know, as we've talked about many times, we've had a pretty active appraisal program this year, and, you know, we expect that to continue into 2023. It's led to our, you know, identifying several new and, frankly, promising areas and gettings, but we probably need a little bit more work in these areas in order to improve some of our understanding around it. That's about all I can say right now, but I think it certainly looks good, very promising, and perhaps sort of an extension of Giddings that could ultimately lead to other areas for development in time. The well costs, we're sort of running roughly $1,100 per lateral foot. That probably is about right.
spk10: Okay. Thanks, guys.
spk05: Sure.
spk04: Our next question comes from Neil Dingman from Truist Securities. Neil, please go ahead.
spk11: Morning, Ellen. Chris, just definitely want to say it's certainly a bittersweet call today, but great how well the company is doing and great remarks by yourself. To answer my first question, which is also on getting a little bit on the development program, maybe a little bit broader, Um, it seems with getting most of the development activity continues to be kind of in that hotter corner of Washington County. So I was wondering if you look at the, think about the 23 development plan, will that continue to be mostly in the broader areas or will you be able to, uh, what do you think about maybe expanding that, uh, a little bit and then just wondering on pad size as well. So maybe talk about the regions and just sort of pad size.
spk08: Sure. Yeah, no, it'll be a mix. As I said in my remarks, one of the rigs will focus or be dedicated largely in that core development area. And then the second rig will do a mix of things, including ongoing appraisal work, which I think right now will be equal to in terms of activity for next year as it was this year, and maybe more so. We'll just sort of see how it goes. On the pad size, I mean, I wouldn't tell you that exactly that was a one-off, but I don't anticipate drilling on a regular basis eight-well pads. Up to now and more recently, we've been doing pads that have averaged sort of four wells, and that would be more the norm for us. Occasionally, you sort of see that three, four, five-well pad size increase. You might see one that might be larger, but more likely not.
spk11: Okay, fair enough. And then maybe turn my second question to capital allocations specifically. I always appreciated Steve's candor on the comments discussing buybacks versus divs. So Chris, I was hoping to hear how you would think about it going forward, especially, look, I think your stock has done well, but I still think it's quite discounted. So just wondering how you think about the allocation going forward.
spk08: Yeah, it's going to be a mix, Neil, as it has always. And so I don't think you're going to see significant changes. I mean, clearly we've got, you know, a good amount of cash on the balance sheet. And, you know, that's not such a terrible thing. You know, in this uncertain economic environment, you know, you're earning a little bit better interest income now, thanks to the Fed. And, you know, it probably pays for our Treasury Department. So, you know, the... The mix is probably not going to be very different. I mean, what we have, as you know, we've talked about quite regularly is, you know, we still have a relatively large private equity holder that, you know, probably plans over time to sell down and that'll continue. And what we've done is try to accommodate some of those sales by buying shares next to them or helping them in that process. And that has worked out just fine. over time, and so we also have our separate open market authorization for share of our purchases. The dividend is sort of a different comment maybe than what some people would say. I mean, our approach towards dividends is somewhat different than some of the other E&P companies, and being different is just fine, whether it's them or us. turn out that way. So I feel like I've seen this movie before and this is just another sequel in the series. This time it's called Revenge of the E&P Company Dividends Part 5. And maybe this time it'll be different. I certainly hope so. But just as a reminder, just go back to what we've said for a minute and remind you about our dividend philosophy. So the principles for us around dividends is that they need to be secure and sustainable, in other words, safe. So a dividend has to be paid out of real earnings that are generated out of the business. And we look to grow our dividend based on how we execute our plan. So this growth comes out of a combination of production growth and the reduction of our outstanding shares. So we announced a 43% increase to our annual dividend earlier this year when we moved from a semiannual payment rate to a quarterly payment rate of $0.10. I think that's pretty good. And we plan to revisit this dividend rate early next year, as we said, when we look at our full year 2022 results. So I think, again, it'll be a mix. And you remember, Steve would often speak about Mrs. Chasen's fondness for dividends. And by the way, my wife likes dividends too. So someone asked me about this recently, and I told them she also likes shoes. Maybe they're related. I don't really know. But you should expect a fairly steady annual dividend growth, you know, growth to our dividend over time. And that, again, keys off of our successful execution of the business model. And, you know, I just say, look, the objective of dividend growth is to be able to prudently grow into it and not hastily to grow out of it. So I just I'll just leave you with that. And that's probably about all I have to say about dividends for now.
spk04: no great great details i want to say hey brian congratulations well deserved thank you our next question comes from charles mead from johnson rice charles please go ahead morning uh chris and brian um chris i think this may be his question for you if you could
spk02: helped me understand the production beat, the drivers behind the production beat in 3Q with an eye at trying to, you know, say what is, you know, what's a one-time thing and what's maybe Magnolia being on a different trajectory. And I'm really thinking about, I mean, you can have well out performance, you could have, you know, outperformance versus your schedule for turn lines. And there's also maybe higher than expected non-up activity. So if that framework makes sense to you, how does it look to you in 3Q?
spk08: Yeah, no, that's a fair question. Look, it was – they didn't have us back there turning the knobs on production to sort of change the outcome necessarily. So just to let you know, I mean, it wasn't anything – very different than what we had planned for, really. I think at the end of the day, the wells turned out to perform better in both areas, as we said, better performance, clearly. We did have a little bit more non-op. And some of those efficiencies that we talked about very early in this year continue to sort of come through in the way of just longer laterals and leading to you know, essentially more net wells for us. And so there was some of that. I wouldn't attribute it to something that I would call one-off. You know, the assets are just performing better than we thought. And it may not always be that way, but it's certainly, you know, turning out to be that way or has turned out to be that way. Maybe a different way to say this is if we could – this wouldn't be as noticeable or as visible – to you if we, you know, if we reported once a year. But we, you know, we report quarterly. So what can I say? I mean, we're trying to, the outcome that we're suggesting for the fourth quarter is sort of our risk assessment of how we anticipate things are going to go, combined with, you know, sort of the timing, as we suggested, the timing of the wells coming online, the mix of non-op, and just the planned activities. So it's our best guess at what we think is likely at this stage.
spk02: That's helpful, Chris. And it's also perhaps maybe a good segue to my second question. There's an operator just to the north of you guys who is looking to sell. And that hasn't been part of your strategy of Magnolia, but, but on the other hand, you guys have had more success with, you know, efficient and repeatable success in this Giddings or, you know, Eastern Eagle for whatever you want to call it. You've had more success than anyone else. And so it seems to me that that asset would be more valuable in your hands than, than anyone else's. So can you give us a sense of, of, you know, what it would take for you guys to, to, participate in a sales process there?
spk08: Yeah, well, look, I mean, we're going to continue to look at opportunities that provide us with upside optionality in terms of future high-quality drilling locations that compete with our existing position. Now, someone once told me that the goal of any acquisition is to make the company better, not worse. This same very wise person also told me that if you can't come up with at least four bullet points that clearly spell out and explain why you're doing something, then it's probably not a good idea. So, you know, you shouldn't anticipate, or if you did anticipate us doing, you know, large M&A, you'd probably be disappointed. So we're going to continue to pursue opportunities that are truly more smaller, bolt-on transactions that make sense for us and that are sort of attractive and add to value, create it to value over time. So, you know, we're going to be real particular about this.
spk02: Got it. Thank you. And that mysterious soothsayer is missed on this end of the line as well. Thank you, guys.
spk08: Thanks.
spk04: Our next question will come from Umang Sudari from Goldman Sachs. Umang, please go ahead.
spk01: Hi, good morning, and thank you for taking my questions. Most of my questions have been asked, so hopefully two quick ones from me. First, I appreciate your comments on the dividend growth. I wanted to revisit your thoughts around special dividend, given your net cash position of $300 million at the end of 3Q. especially if we don't see any further sell-down from Envest.
spk08: Yeah, look, Umang, thanks for the question. I mean, a special dividend probably, I've sort of talked a lot about dividends, but a special dividend probably wouldn't be my first choice. My plan and hope would be to find a better use for the money that would actually, you know, help to benefit our share price. as opposed to simply giving back all the money through dividends. But never say never. And so we'll just have to see how things play out. But like I said, it would not be my first choice.
spk01: Gotcha. And then to follow up, would there be any other opportunities which you would look for with that net cash balance sheet, like anything which can further enhance the business, like you said, bolt-on transactions? before on the call, and then can you remind me as well, where are you on the lateral length and gatings and if there's any opportunity to further enhance it next year?
spk08: Yeah, I think, look, you know, the asset landscape, you know, in areas where we are, in and around where we are, you know, current conditions seem fairly, I guess the word is And that's to say that there's certainly a lot of things out there for sale, but we're going to be real particular. And as I said, we always look at opportunities. You could describe us as professional tire kickers. But again, the best way to think about it is we'll continue to look and execute on truly smaller bolt-on, true bolt-on transactions, oil and gas property acquisitions. that we believe are accretive to value. So that's the way I think about it. I'm sorry, your question on Giddings?
spk01: On Giddings, it's just on the lacquer length. Where are you today, and is there any opportunity to further enhance it next year?
spk08: Yeah, I mean, it really depends sort of by unit, by area where we are. I mean, we've made quite a bit of... improvement on lateral lengths over, you know, certainly over the last several years. I want to say it's sort of been like increasing 1,000 feet almost per year. And on a percentage basis, I would tell you, you know, there's probably a little bit more there, but I think the bigger changes have been already seen, certainly on a percentage basis.
spk01: That's really helpful. Thank you.
spk04: Our next question comes from Tim Resvin from KeyBank Capital Markets. Tim, please go ahead.
spk10: Hi, good morning, everybody, and congratulations on the promotions. I wanted to ask a little bit on disclosures that you provide on Giddings. If you go back to 2018, Magnolia was generally a stock that traded cheap to peers because of uncertainty on the assets. And now you could argue the stock trades at a pretty healthy premium as you've de-risked that area. And so I guess, you know, Chris, in your new role as CEO, how do you think about the disclosure you're providing to investors? And how do you think about kind of defending the premium multiple, you know, with this kind of big sandbox in Giddings that you have?
spk08: Yeah, Tim, I mean, the valuation is going to be the valuation. There's probably... The market's going to decide on that on its own, frankly, but our job is to try to put up the results and make the most out of the asset that we can, and our operating teams have done just an exceptional job, I think. When we first acquired Giddings, it was sort of one of those assets that there was an amount of risk around, and we viewed it as something that you know, had a lot of optionality to it. And it was producing, oh, about 10,000 equivalent a day. And now, you know, Giddings is more than quadrupled. So in a, you know, a fairly short period of time. So I think that, you know, part of that record stands on its own. It was also far and away gassier. And, you know, the wells that we've drilled and completed, that oil percentage up as well. That's not to say that there aren't plenty of more gas-prone areas throughout our acreage, which there are. Early days, I think we wanted to put up and talk about some more specific data around well results. I'm not really sure, outside of the type of growth that we've put up, how necessary that really is at that stage. I would think that Some of this speaks for itself. And so, you know, I'm not really sure what more there is to say about it. I suppose we certainly could. I just don't know what the benefit will be.
spk10: Okay. Yeah, I guess I was just getting at with the successful delineation. You know, you've really proved up portions of this area. But, you know, Steve was hesitant to give too much granularity. But, you know, do you think there's a point where you can give some more color to the investment community on kind of what you've de-risked and how you think about core inventory, you know, in the area.
spk08: I'm not, I'm not overly excited about more granularity that, that to me, that's never, you know, are usually not led to a great outcome because there's, you know, an endless number of ways that can be sliced and diced. And, and so anyway, I mean, I think that with time, you know, there'll be more to say about our delineation program or delineation
spk10: over time that you'll see we're just we're just not there yet okay that's that's fair I appreciate that and if I could just switch topics on to repurchases I saw you all were fairly aggressive in the third quarter you know as shares you know sold off you've committed it looks like about a million shares per quarter you have about nine million left in your program you know shares are up sharply quarter to date you're within three dollars of an all-time high are those repurchases sort of set in stone at that $1 million per level? Or how do you think about the value? You know, I know people run internal NAS, but how do you think about that for the future?
spk08: Yeah, it's, you know, our commitment, if you will, is sort of 1% per quarter, 1% of the shares outstanding. And I think we've largely met that every period in one way or another, either by buying Enervest share or shares from Enervest or in the open been more than the 1%. You got to keep in mind, too, that we have a better idea of what's going on than you all out there. And so we have maybe a different perception or understanding of value or what Magnolia and what the Magnolia assets are capable of doing over time. So The market's assessment of what's going on in our assessment may be, you know, two different things. And so as we continue to sort of move on here, you know, it's interesting, you know, the share price is going to move up or down on obviously the market and product prices, et cetera. But, you know, I look at running that particular program as opportunistic, and there's plenty of opportunities given the volatility, as you know, to be involved in the market or not. But, you know, we'll continue to sort of run it that way.
spk10: Thank you.
spk04: Our next question will come from Jeff Jay from Daniel Energy Partners. Jeff, please go ahead.
spk05: Hey, guys. Real quick, not a pedestrian question, but thinking about The sequential increase in CapEx for Q4, what's the magnitude of the non-op in there? And is some of that driven by the Giddings 8-well pad completions?
spk06: So, just like the cap, it's more wells being completed. And, yes, the higher spend in 4Q is largely due to an 8-well pad completion, as well as some non-op, more so than we had originally thought. So it's really both, but yes, the eight wells is, you know, a huge impact to that.
spk05: Gotcha. And so I guess I'm just sort of looking at, you know, I mean, obviously you guys are sort of going back to the original question about sort of 2023 capital sort of saying like, you know, I guess a 10% run rate from here. It just looks like there's probably an extra is kind of punished million then or so in the fourth quarter. And I was just sort of wondering how that sort of, you know, And I'm guessing then that really it's just going to be sort of lumpier if you get sort of bigger pads in the months.
spk06: 100% correct. And so just looking at one quarter in time does not, you know, correlate to the average of next year. This was one of our most active quarters, you know, in 2022. And that's why capital is a little bit higher than other quarters.
spk08: Yeah, I would not take, Jeff, I would not take any one particular period or quarter. I mean, that's part of the You know, the deal when you're running, you know, two rigs and one completion crew, it's going to be lumpy. And certainly when you throw in the mix an 8-well pad, you know, things tend to stand out. So I wouldn't say that this is necessarily indicative of an average quarter.
spk05: Excellent. Thanks, guys. I appreciate it.
spk11: Maurice?
spk06: Marlise? Anybody else?
spk04: Hi. If you would like to pose a question, please press star then one. Our next question comes from Paul Diamond from Citi. Please, go ahead, Paul.
spk03: Good morning, all. Thank you for taking my call. I want to take a step back a bit from the more of a macro perspective. You guys have laid out... a pretty stable kind of cadence to your drilling program next year with the two wells split between Giddings and Carnes. Is there anything on the horizon, or I guess at what point on the horizon would you guys start to reevaluate that? Is that a pricing mechanism, or is that pretty much set in stone for the next 12 to 18 months?
spk07: When you say reevaluate, you're talking about our activity, our pace of activity?
spk03: Yeah, just the shift in where you decide to drill or the cadence of it or the pace. Is there anything that you have to get on the horizon that requires any modifications to that?
spk08: Yeah, no, Paul, I don't think they're going to change markedly with respect to that. I mean, you know, you look at it sort of, again, 35,000 feet, however you want to say it, and you say, okay, we're going to grow, you know, sort of 15% this year and, you you know, 10% next year, that's in excess of our business model. And, you know, so again, the outcome here has been pretty good, and we anticipate, expect it to continue to be that way. And so I don't see a need to necessarily shift the plan, the pace of activity right now at all in this environment.
spk03: Okay, understood. And then just a quick follow-up with – Just as more of a holistic ethos, how comfortable are you guys with your current cash balance? Is it something you have no problem holding that closer to a billion if it goes to the next quarter? Or is there a point where you guys started not wanting to deploy that in a more expeditious manner?
spk08: Well, the goal is to always try to deploy it effectively. as best we can in order to drive value and returns over time. And we'll do that. But again, we just want to be patient and opportunistic. And, you know, certainly there's quite a bit of uncertainty right now going into next year with regard to the economy. We don't know. That's not to say that, you know, holding this amount of cash is the best thing to do. But we'll just continue to evaluate opportunities and be patient and prudent around it As they come up, as I said, we're active tire kickers on opportunities, but these are more likely to be smaller than would be necessary out of the use of our cash. So if that gives you any color.
spk03: Understood. Thanks for the clarity.
spk04: This concludes our question and answer session as well as this conference. Thank you very much for attending today's presentation. You may now
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