Magnolia Oil & Gas Corporation Class A

Everyone, and thank you for participating in Magnolia Oil and Gas Corporation's second quarter 2023 earnings conference call. My name is Marlise, and I will be your moderator for today's call. At this time, all participants will be placed in a listen-only mode as our call is being recorded. I will now turn the conference over to Magnolia's management for their prepared remarks, which will be followed by a brief question and answer session. Please go ahead.

Thank you, Marlies, and good morning, everyone. Welcome to Magnolia Oil and Gas's second quarter earnings conference. in 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 second quarter 2023 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. Chris Stavros.

Thank you, Tom, and good morning, everyone. We appreciate you joining us today for a quarterly update and comments around our second quarter 2023 results. I plan to reiterate some of Magnolia's primary corporate goals and discuss some of what we've accomplished most recently and help us achieve those goals and objectives. I'll also briefly speak to our latest quarterly results, specifically around the strong execution we've had related to our cost reduction efforts. Brian will then review our second quarter financial results in more detail and provide some additional guidance before we take your questions. As we marked our fifth anniversary earlier this week as a publicly traded company, Magnolia is recognized for having established a unique organization with high quality assets and a differentiated business model for E&T companies. This is guided by the principles of low debt, high operating margins, and a focus on capital discipline. These principles provide us with an orderly framework to help achieve our overall goals. In terms of our objectives, First, Magnolia strives to be the most efficient operator of best-in-class oil and gas assets and generating the highest returns on those assets while employing the least amount of capital for drilling and completing wells. Second, the return of a substantial portion of our free cash flow to our shareholders in the form of share purchases and a secure and growing dividend. And finally, utilizing some of the excess cash generated by the business pursue bolt-on oil and gas property acquisitions that help to improve our overall business, sustain our high returns, and increase our dividend share or share payout capacity. As we cross this milestone as an organization, it is important to recognize some of our achievements toward these goals. Five years ago, Magnolia was a much smaller company with a production base weighted towards our Carnes asset with a large, relatively unknown acreage position in the Giddings field. Five years later, our teams have been instrumental in transitioning Giddings into full development and an asset that can compete with some of the best shale plays in the US in terms of growth, low reinvestment rate, and returns. The majority of Magnolia's current production now comes from Giddings, where we have learned a lot and is still in its earlier stages of development. This has enabled Magnolia's total production and reserves to each grow by more than 50% over the past five years. We achieved this growth through the efficient reinvestment of only 45% of our cumulative operating cash flow for drilling and completing wells, allowing us to generate significant free cash flow while maintaining a strong balance sheet. We utilized 23% of our cumulative operating cash flow or more than $850 million to repurchase 22% of our outstanding shares and toward continuously improving our share per share metrics. We established a secure dividend which has grown by 64% since 2021 to an annualized rate of 46 cents a share. Cumulative capital returned to our shareholders over the five years has exceeded $1 billion. We have also improved our business and added to our asset base by completing numerous bolt-on acquisitions totaling more than $460 million. The strength of our second quarter capital and operating costs, which did not appropriately reflect the decline in product prices as compared to last year. Our teams were proactive in engaging early and working cooperatively with our oilfield service partners and material suppliers to reduce costs while sustaining activity levels. That work is evident in our lower capital spending for the quarter, which was approximately 15% below our earlier guidance, in addition to our cash operating costs, which declined 18% sequentially. At current product prices, our actions should provide improved pre-tax operating margins and more free cash flow to potentially redeploy in the business during the back half of the year. With the benefit of these cost savings initiatives, we now expect our total D&C capital for 2023 to be in the range of $425 to $440 million and below our previous guidance of $440 to $460 million. This represents a 14% reduction from our initial 2023 capital spending plan. This year's capital outlays are now expected to be lower than our full year spending during 2022. The reduction in our capital spending and cash operating costs as a result of our efforts highlight Magnolia's focus on capital efficiency, generating high operating margins, and delivering strong and consistent free cash flow. We also continue to see strong wealth productivity out of our Giddings asset and where most of our D&C capital is being allocated. As a result, we're raising the 7% and 8% compared to earlier growth expectations of 5% to 7%. Again, this speaks to the high quality of our assets and matches our goal of being a low-cost and capital-efficient operator of those assets with D&C spending to only about half of our cash flow. With lower capital spending and increased production, our free cash flow generation has improved and providing us with greater flexibility. During the quarter, Magnolia generated $93 million in free cash flow, supporting our dividend and share repurchase program with approximately three-quarters of the free cash flow returned to our shareholders through these initiatives. Earlier this week, our Board of Directors increased our share repurchase authorization by 10 million shares, bringing the total current remaining authorization to just over 14 million shares and allowing us to opportunistically repurchase our stock into next year. plan to continue to repurchase at least 1% of our outstanding shares per quarter. Finally, at the end of July, we closed on a small oil and gas property acquisition in the Giddings area for approximately $40 million. This is an example of continuing to execute on our strategy of pursuing bolt-on assets and adding to our high-quality bench in and around areas that we understand well and that improve our overall business. This asset is outside of our core to significant knowledge we have gained through operating in the Giddings field. We'll continue to pursue similar type transactions that add to and complement our asset base and improve the business. I'll now turn the call over to Brian.

Thanks, Chris, 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 of 2023 and remainder of the year before turning it over for questions. Beginning with slide three, despite lower commodity prices, Magnolia continued to execute on our business model as demonstrated by our excellent second quarter financial and operating results. As Chris detailed, Magnolia's focus is creating long-term value for our shareholders through a differentiated operating model and a balanced approach to shareholder returns. We have been successfully executing our strategy during the first five years as a public company and plan to continue our disciplined approach going forward. During the second quarter, We generated total GAAP net income of $105 million, with total adjusted net income for the quarter of $97 million, or $0.46 per diluted share. Our adjusted EBACs for the quarter was $203 million, with total capital associated with drilling, completions, and associated facilities of $86 million, well below our expectation and a testament to our team's hard work and reducing costs. Second quarter production volumes grew 10% year over year to 81.9 thousand barrels of oil equivalent per day, and 3% sequentially from the first quarter of 2023. During the second quarter, we repurchased 2.3 million shares, and our diluted share count fell by 5% year-over-year. Looking at the quarterly cash flow waterfall chart on slide 4, we started the second quarter with $667 million of cash. Cash flow from operations before changing in working capital was $204 million, with working capital changes and other small items impacting cash by $26 million. During the quarter, we allocated $49 million towards share repurchases, paid dividends of $25 million, and added $7 million of bolt-on acquisitions. We ended the quarter with $677 million of cash and above the level that we started the quarter. Looking at slide five, this chart illustrates the progress in reducing 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 57 million shares, or approximately 22%. Magnolia's weighted average fully diluted share count declined by more than 2 million shares sequentially, averaging 211.4 million shares during the second quarter. As Chris discussed, the Board recently approved a 10 million share increase to our share repurchase authorization, leaving 14.2 million shares remaining under our current repurchase authorization, which are specifically directed towards repurchasing Class A shares in the open market. Turning to slide six, our dividend has grown substantially over the past few years, including a 15% increase announced earlier this year to 11.5 cents per share on a quarterly basis. Our next quarterly dividend is payable on September 1st and provides an annualized dividend payout rate of 46 cents per share. Our plan for annualized dividend growth of at least 10% is an important part of Magnolia's investment propositions. and supported by our overall strategy of achieving moderate annual production growth and reducing our outstanding shares by at least 1% per quarter. Minolia has the benefit of a very strong balance sheet, and we ended the quarter with a net cash position of $277 million. Our $400 million of gross debt is reflected in our senior notes, which do not mature until 2026. Including our second quarter ending cash balance of $677 million, and our undrawn $450 million revolving credit facility. Our total liquidity is more than $1.1 billion. Our condensed balance sheet and liquidity as of June 30 are shown on slide seven and eight. Turning to slide nine and looking at our per unit cash cost and operating income margins. Total revenue per BOE declined by nearly 50% due to the substantial decrease in product prices compared to the second quarter of 2022. Our total adjusted cash operating costs including G&A, were $10.33 per BOE in the second quarter of 2023, a decrease of $3.71 per BOE, or 26% compared to year-ago levels. The year-over-year decrease was primarily due to lower production taxes and GP&T, lower expiration expenses, and reduced G&A. Our GD&A rate of $10.34 per BOE increased roughly 20% compared to last year as related to higher well costs resulting from Increased oilfield service, material, and labor costs. Our adjusted operating income margin for the second quarter was $16.29 for BOE, or 43% of our total revenue. The year-over-year decrease in our pre-tax operating margin was driven by the significant decrease in commodity prices. Turning to slide 10, we're happy to have recently published our third annual sustainability report detailing Magnolia's progress on ESG metrics. Key highlights from the report, such as such as a record low flaring rate, are highlighted on the slide, and the full report can be accessed on our website. Turning to guidance for the third quarter and for the remainder of 2023, we are currently operating two rigs and plan to continue this level of activity through the end of the year. One rig will continue to drill multi-well development paths in our Giddings asset. A second rig will drill a mix of wells in both Carnes and Giddings areas, including some appraisal wells in Giddings. As Chris mentioned, we are further reducing our DNC capital guidance for 2023 to between $425 to $440 million, which represents approximately a 14% reduction from our original guidance this year. Despite lower capital spending expectations, we are increasing our full year 2023 production growth guidance to between 7% to 8%, with the growth expected to come from our development program at Giddings. For the full year 2023, we expect our effective tax rate 2023. Looking at the third quarter of 2023, we expect total production volumes to be similar to the second quarter, and our DNC capital is estimated to be approximately $100 million, with some small amount of variability subject to the timing of our activity. Oil price differentials are anticipated to be a $3 per barrel discount to MEH. Our fully diluted share count from the third quarter is estimated to be approximately 210 million shares, which is 4% below year-ago levels. We're now ready to take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're 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. At this time, we will pause momentarily to assemble our roster. Our first question is coming from Neil Dingman from Truist. Neil, please go ahead.

Morning guys, nice quarter. My first question is on your $40 million getting bolt on oil and gas property acquisition. Specifically, maybe Chris, is there anything we can read into this deal such as any near-term potential for you all to announce more delineated acres or how you're thinking about the existing 300,000 plus acres if you need to delineate based on what seems like you're seeing out there?

Sure. Thanks, Neil, and good morning. So I've got to be careful on what I say on this a little bit. But, you know, look, the facts are that we purchased approximately 20,000 acres in the Giddings Field area, and that came with a very small amount of production, you know, no more than a few hundred BOE a day. You know, the acreage is outside of our core development area, and it was generated, as I said, out of our appraisal program and some of the detailed and broader work we did in the field through, you know, a lot of the learnings that we picked up over the years. So this is an area that we like, and it was not a marketed deal, which is also, you know, sort of a better way for us to go about things. It's more directive. and usually leads to a better outcome. You know, look, obviously this is a very competitive industry and business, and so for competitive reasons I wouldn't want to say too much. But we may have stumbled on a potentially new area for development. You know, I think it's a little too early for us to say for sure, but, you know, we like what we see so far. So that's about all I can say about this, and, you know, hopefully more to come.

No, that's interesting. That's going to be exciting to hear. And then my second question, maybe just on the GOR specifically, can you speak, I know you kind of have an ebb and flow on what goes on on their GOR and the mix, but I'm just wondering, how should we think about that GOR mix maybe for the remainder of the year or 24? I'm just wondering if the change product where you're placing wells or, you know, with your ops or their other drivers or just, you know, how to think about this?

Yeah, you know, the answer is we don't know. And not just because of, you know, just uncertainty because I don't know. I just, you know, things tend to be lumpy quarter to quarter just in terms of the mix. And it depends on the timing of the wells coming online, the inclusion of any Carnes activity, both operated and non-op. So we'll sort of see. But, you know, some of what we've done probably we should repeat here. You know, we talked about this a lot. And you can see this in terms of where we've allocated the capital and activity over the last several years. The emphasis for us has been skewed towards Giddings more so than in Carnes. Giddings wells are generally a little gassier than Carnes wells, but that's not always the case. We've talked about this before, but as I said, it probably bears repeating. Our wells in Giddings typically produce more hydrocarbons and more oil over their life than a Carnes well. The F&D costs in Giddings are generally lower, and the full cycle returns are higher. And the decline rates of the Giddings wells are normally shallower than a Carnes well. And so we like our Carnes area. You know, better full cycle returns. This is an asset that has driven double-digit production growth in the area with a reinvestment rate of less than half of our free cash flows. So I think it's sort of evident in terms of what we've done, the outcome that is, and in the financials. And so, you know, the returns have been good. We like where this is headed. And it's still in its relatively early stages. So, you know, we'll see. We'll see. I mean, I smile to myself whenever I get this question because, you know, it wasn't very long ago, like within the last calendar year, that people wanted us to drill more gassy wells or gassier wells, and so there you go.

Love all the upside. Thanks, Chris, for the details.

Our next question comes from Umang Choudhury from Goldman Sachs. Umang, please go ahead.

Sure. Hi, good morning, and thank you for taking my questions. My question? My first question was on the strong performance, which you indicate in gratings. Can you give us some color in terms of where the wells were drilled and what is driving the performance? And I'm just trying to understand if there's some read-across to your appraisal program, which you highlighted earlier.

Sure. I'm not going to tell you exactly where the wells were drilled, but, I mean, generally the wells, most of the wells have been drilled in our core development area. where the results have been very strong and continue to generate good results. The appraisal program, you know, as is evident by the acquisition that we did, you know, it's sort of unearthed some opportunities here that, you know, we can pursue and we have pursued, and frankly, we will pursue. Part of the benefit of, you know, improving our capital efficiency through cost reductions that we've seen and all the efforts around that, including our cash operating costs. This provides us with better margins, more free cash flow, as I said, and gives us some optionality with respect to doing other things in the back half of the year into next year as we have better aligned our costs with what's going on with certainly gas and NGLs, etc., So I feel pretty good about that. And we'll do a little bit of experimentation because we always try to do that if we can, if it sort of fits into the overall financial scheme and mix. And so we do that where we can because we think that it's useful, helpful to improve the business over time. And as I said, it enhances our opportunity set. So- That may sound a little generalized, but that's sort of what we've been doing.

That makes a lot of sense. Thank you. And then quick questions on operations. First on service cost environment, you talked about a 15% cost savings. You'd like to run a flexible program with more spot exposure. Given where we are from a rates perspective, our pricing perspective right now, any thoughts around locking it up for a period of time? And then one housekeeping question. I think last quarter you indicated plans to defer completions. Can you remind us where we are for those wells? Are you planning to bring them online this year or are they moved for next year?

Sure. On the cost side, we're not we're not really spot necessarily. And I don't want to get too caught up in exactly, you know, all the contract related items. But I mean, look, we, as you know, you know, steel and OCTG really doubled, I guess, into this year. And, you know, we saw that sort of peaking early in the first quarter. Pressure pumping, stimulation, you know, 50% higher drilling services up, you know, in that direction as well. So far this year, we've reduced, you know, OCTG costs by probably 30-ish percent, pressure pumping costs by a quarter. You know, I like where this is going. And frankly, I think there could be some more So to lock in right now, I'm not really sure how helpful that is to us. We'll just sort of see where things go. You know, we kind of operate from a position of strength here. We don't have a lot of financial risk, and so this will be what it'll be. But I think there's some opportunity for further reductions. you know, into the back half of the year and we'll sort of see where things land for 24. So I'm feeling pretty good.

And I think just a housekeeping question on the deferred completions. I think last quarter you had talked about differing some completions in Q2. Just trying to understand if you plan to bring those wells in the back half of the year or is that more for next year?

We haven't made that call yet. And, you know, again, I think we'll try to create increased and improved alignment between our costs and commodity prices. We'll just sort of have to see where things go. I think, you know, Umang, we said this, I think, back in the spring when we started this effort, too, that, you know, the deferrals don't really amount to much. Most of the reduction in costs have come through our own efforts as a result of concessions from our service providers, working closely together with them, aligning ourselves with them, and also our materials vendors. So this was never an effort around sort of deferrals as much as it was just to align our costs. This was sort of a little bit of deferrals or ducks, if you will, were just a consequence of pushing things out and seeing if we could create a little bit more optionality for ourselves. And if commodity prices improve, mainly, you know, gas and NGLs later into the year, into next year, you know, we'll revisit that. But again, I could count these wells on sort of one hand.

Got it. Makes sense. Thank you.

And our next question is coming from Leo Mariano from Ross. Leo, please go ahead.

Yeah, thanks. I just wanted to follow up a little bit on Karn's activity here. I mean, kind of looking at production, you know, Karn has fallen, you know, for the last, you know, couple quarters. Just wanted to kind of get your thoughts on how do you expect that to kind of trend, you know, the rest of the year and, It seems like that's really maybe what's driven, you know, the oil cut reduction here between 1Q and 2Q was that, you know, Carnes was down. A fair bit of eatings was up substantially, so that obviously is, you know, a different mix, you know, in the vastness. So maybe just can you talk about kind of directionality on Carnes and just trying to get a sense, you know, you don't have a very large acreage position there. It's obviously pretty mature there in the Eagle Ford, just, Can you give us a sense of kind of how much, you know, inventory you think you might have left there? Is it kind of a handful of years, or where do you stand on Carnes?

Yeah, we have things that we can drill. And, you know, as I said, you know, because of timing, scheduling, planning, permitting, other factors, you know, we haven't done a lot of that this year. The other thing is that there's, you know, there hasn't really been much or any real non-op activity that's shown up so that's certainly a portion of it i i expect that given the generally higher rate of decline in carns that it will continue to see a little bit of that but it again it may be lumpy um there there may be some activity that you know we're we're morphing in or or blending in into the back half of the year there may be some more into next year we'll sort of see um you know we'll see how it goes but You know, we have things that we can do there. We've just, you know, skewed our focus, as I said, more so to Giddings because over time the returns are higher. So that's been the plan.

Okay. That's helpful. And then just on Giddings, obviously you made an acquisition here in July. You also kind of made one in the fourth quarter of which, correct me if I'm wrong, was also more kind of in and around getting some of these appraisal areas. I know you don't want to give away specific well locations, which totally makes sense, still competitive business, but can you maybe give us a sense of how many appraisal wells have you drilled? I know you've been appraising outside of the core area for the last couple years, and you have 10 wells in, 15 wells in, I mean, any sense you can give us? I mean, have you kind of tested, you know, a fair bit of stuff outside the core, and as a result, these two deals are sort of the culmination of that?

Yeah, I mean, look, we've tested, we've drilled a handful of appraisal wells. You know, there's a lot of work that goes into it prior to, you know, drilling these appraisal wells. We're not just sort of... you know, sort of wandering around the field necessarily. These are very, you know, very well studied and there's a lot of work, subsurface work and other work that goes into it prior to that. So we, and we have some sense of what we believe may be the outcome, but sometimes we're surprised. Well, and sometimes we're, you know, surprised in the other direction. And, you know, what we, what we've done is, uh, directly to your point, you know, led us to the, uh, smallish acquisition that we did back in the, in the fourth quarter that we closed that I, I'm very, you know, that, that's an area that, that our, um, subsurface team and, um, tech folks like a lot, um, you know, and will turn out to be, I think very good. Um, you know, this area said, um, is also very interesting. And this may be the start of something. So we'll see. And I think there could be other things. And the 400,000 sort of net acres for us is kind of pretty vast. And as you trot around, you may find other things to find on the fringes that you'd like to fill in over time. And that's, you know, sort of what we've been doing.

Yep. Okay. That's helpful. And then just on the cost side here, your LOE was down like a dollar a barrel here, you know, in the second quarter. Obviously, it sounds like there's been a big company focus to reduce costs, both capital and and operating can you kind of give us a little better sense of you know was maybe a lot of this just you know less workovers or was a big chunk of this actually ability to kind of you know reduce some of those costs whether it's chemicals electricity labor you know etc just trying to get a sense of where we think kind of loe op costs are going to go in the second half of the year trying to figure out how much of these savings are kind of recurring here yeah i mean certainly the

there was some lower work over activity that helped us along that way. It was, you know, certainly less than half of the benefit. The majority of the savings, I believe, are sustainable moving forward. You know, the work over stuff can vary a little quarter to quarter depending on the movement product prices, but the majority of it, you know, service costs, you know, to your point around, uh, chemicals and, and other things, a litany of things. Uh, so, you know, the labor component is a little bit sticky as you, you probably heard from others, uh, all that is true. Um, you know, but, but I, I think things are generally, um, You know, I would expect it to be sustainable through the year, it feels to me.

Okay, thank you.

Sure. And our next question comes from Oliver Huang from TPH and Company. Oliver, please go ahead.

Good morning, Chris, Brian, and team. Just had a question on the CapEx side. When kind of looking at the budget for the rest of the year, it seems to imply about $100 million, give or take, per quarter. Just trying to understand if there's anything within that number, whether higher non-op, higher working interest in operated wells, increased activity levels, or faster cycle times relative to the Q2 print run rate.

Yeah, I think a lot of it is timing, Oliver, and I think, you know, we, as I said, you know, as things get better aligned between the costs and our desire to generate returns and improve our efficiency as a result of the actions we've taken, we may sneak in some additional things. We'll sort of see how it's going. We may have baked in some other items, whether it's an appraisal well or whatever. that may be in there. So we'll see. On a run rate basis, you know, I don't think that level that we talked about, $100 million roughly or so, is reasonable, I think, for the time being. I think that's about how the business is right now. So we'll see.

Okay, that makes sense. And for a second question, just on the topic of LOE, when we're kind of thinking about that lower print for Q2 being driven by lower work overs and service cost flow through that you all kind of highlighted. How much of a factor is the increased Giddings contribution to driving that lower? In other words, should we be thinking about the LOE cost structure being lower on the Giddings side relative to Carnes as it becomes a more significant contributor with each subsequent quarter?

Well, we continue to focus on this in a relentless in terms of trying to drive down the costs. As I said, there's labor things and contract workers that can tend to be a little bit sticky. Generally, on a BOE run rate basis, as we add volumes, things should look similar, if not hopefully better. sees through the field as well. So we'll continue to work at this. And I think certainly Giddings should be a positive contributor over time.

Awesome. Appreciate the color.

We now have a question from Zach Parham from JP Morgan. Zach, please go ahead.

Hey, guys. Just one question. Following up on Oliver's question on CapEx, you know, you've got to do the 100 million run rate for the second half. You know, any thoughts on what that looks like as you go into 24 if you're still running the two-rig program? Is that 100 million run rate kind of a good number to use as a placeholder for now?

Yeah, you know, clearly it feels a little early for 24, but I know you guys love to ask these things at this stage of the year. So, yeah, Yeah, I think it's reasonable. I mean, I think it's a reasonable way to look at it for the moment. You know, if pressed, you know, we won't deviate from our objectives, which means we'll be disciplined and efficient around the spending. And, you know, this will yield and provide mid-single-digit growth. But if I had to be pressed on an amount for capital, you know, and based on our current pace of activity and, you know, where product prices are around now, I think, you know, if I had to be pressed on a number, I think 400 to 425 feels like a reasonable range at the moment going into next year.

Got it. That's a very helpful color. That's all I had, guys. Thanks a lot. Okay, thanks.

And at this time, our last question comes from Tim Riven from KeyBank. Tim, you may go ahead.

Thanks, everybody, for taking my questions. First, I want to ask on the repurchase program, the average share price was down pretty sharply for you and all your peers in the second quarter. The number of shares repurchased, though, was down, and you still generated a lot of free cash flow. Just trying to understand how sort of formulaic is your program and how tactical is it? Because I thought you might have picked away some more shares when they were selling off.

Yeah, I mean, it is tactical. I mean, we don't sort of deliver the program to any particular broker per se. It's just sort of how we feel on any given day. We look for opportunities to be you know, to be a little bit more aggressive or not around the share of purchase. We sort of have our own self-imposed, not rigid, but, you know, 1%, at least 1% of the outstanding per quarter. I like to use that as a bit of a bogey. But, you know, we could do more, you know, Well, Tim, I mean, maybe somebody was on vacation like me or something like that and didn't get at it as aggressively as I wanted to. But, you know, we'll look at how the shares perform on a relative and absolute basis. And, you know, I like to think about it as the way an investor or shareholder would think about, you know, buying a stock or owning a stock.

Okay. Okay. Fair enough. I appreciate the comments. And then I just wanted to circle up and, you know, ask another question sort of related to Giddings disclosures. I appreciated the context on the $40 million bolt-on, and you said you didn't want to talk a lot about this potential new development area. You know, but to be frank, you haven't talked a lot about your old development areas and your current development areas. And as we take a bigger picture view, you know, of the stock this year, it's been a little bit of an underperformer. Short interest has been creeping up. And, you know, valuations are now starting to look rich relative to kind of mid-cap peers. This is at a time when it's hard for the energy sector to kind of, you know, get mindshare with investors. So given that setup, you know, do you still – you know, is it at some point you feel like you need to kind of pull back the curtain a little bit because there are a lot of questions from investors on sort of the depth and quality of your acreage and giddings and sort of what, you know, your true development area looks like? So any context would be kind of appreciated. Thank you.

Yeah, no, I appreciate the question. I don't feel the need to pull back the curtain. You know, I feel like this kind of direction is almost inducing us to say something weird, like, you know, you can't handle the truth or something. No, the truth is and the facts are that It's borne out or manifested in the outcome of, you know, the growth that we've seen, the returns that we've seen, the free cash flow. You know, so all that has worked out very well in Giddings. And as I said, we have a large corral of wells that, you know, highly economic wells that we can continue to drill and we will. You know, on the acquisition, again, A $40 million acquisition, this sort of barely moves the needle in terms of the money. And, you know, my hope, frankly, is that, you know, we can do more of these things because I'm always looking, we're always looking for opportunities to further enhance, you know, the footprint in Giddings and improve the quality and sustainability of the asset base. this is nowhere, nothing near anything most other companies, many other companies have done in terms of larger scale acquisitions, while at the same time having been very upfront or more so upfront in terms of pulling back the curtain on what they have talked about having in terms of runway or economic inventory or whatever you want to say. And so, you know, this is sort of... Look, no one's really pushed other folks as far as why would you have done billions of dollars of deals when, you know, you claim you got, you know, a pathway to, you know, the next decade or whatever. So I'm perfectly comfortable with what we've done and how we've set it and how we framed it. I think I'd be giving away too much information. competitive information if I said much more on the acquisition and some other things. So I don't know if that helps you, but my job really is to improve the value of the business every day and with everything we do. And so if the valuation is better, Um, that means we're, we're, we're doing the right thing and the outcome is born out in that, uh, premium.

Thanks, Chris. I appreciate the color situation. And just to close the loop though, I mean, after these sort of bolt on pieces, is that you're going to continue to be opportunistic and in that, you know, 20 to a hundred million dollars size, we could expect them. you know, more to come down the pike as you can shake off acreage, you know, from peers or privates?

Well, you know, you mentioned an interesting point about around the underperformance and, you know, I look at this too. It doesn't, you know, I understand the valuation and all and I get that. You know, we have quite a bit of cash on the balance sheet and I don't say that to say, well, we're going to use the cash tomorrow to do something large or out of place. You know, you won't find us doing that. It's just not – I don't think it's in our DNA. But, you know, this is not – this shouldn't be perceived as a rainy day fund. The cash is designed and was built up in a period of much higher product prices, and I refer to it as the winnings. And you don't want to squander the winnings. You just want to allocate it appropriately to generate higher returns. While it might be interesting to look at, you know, six, $700 million of cash on the balance sheet, it's interesting, but that's it. It doesn't do anything much for you unless you start to deploy it in a way that can generate better returns. So it's frankly a bit capital inefficient. And I know that's not lost on you and the audience. And so my goal would be to try to find something that we could do with it that's better than just polishing it on the balance sheet. So, you know, that's the plan. I'd like to find some other opportunities that make sense for us and fit within our skill set and that we can manage and operate and that improve the business. And that's the plan.

Okay. Thanks, Chris. I appreciate all the answers.

Okay, thanks.

Pardon me. We are going to take a question from Paul Diamond from Citigroup. Paul, please go ahead.

Hi, good morning. Thanks for taking my call. Just a quick one for me. Regarding your situationary view, I guess I'm How do you benchmark that? What should we think about as the narrative that you guys saw coming earlier this year really playing out? Is there a bug you guys have in mind or is it more just comparing the cost side to the aggregate pricing side?

Well, we look at benchmarks for OCTG items, for steel prices, for rig activity, and we try to gauge ourselves based on how we're doing relative to market pricing, et cetera. So we look at this pretty often and pretty carefully and pretty diligently. So we believe we're capturing a lot of what we're able to capture and maybe more so sooner than what others have done. And I think that speaks to the first mover actions that we took much earlier this year. And I think we'll continue to see a bit more in the back half of the year. And we'll see where that takes us for 2024. But I think we've done a decent job sort of benchmarking ourselves on larger scale market items and materials.

Understood. Thanks for the clarity. I'll be right back.

And the conference has now concluded. We all thank you for attending today's presentation. You may now disconnect. Have a good day.