Magnolia Oil & Gas Corporation Class A

Good morning everyone and thank you for participating in Magnolia Oil and Gas Corporation's third quarter 2023 earnings conference call. My name is Marlies 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 call 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, Marlise. Good morning, everyone. Welcome to Magnolia Oil and Gas' third quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's president and chief executive officer, and Brian Corrales, Senior Vice President and Chief Financial Officer. As a reminder today, 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 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.

Thanks, Jim, and good morning, everyone. We appreciate you joining us today for a discussion on our third quarter 2023 financial and operating results. We plan to briefly speak to our latest quarter, then review some of our team's accomplishments this year and consistently strong cash returns. I'll finish up by providing some broad comments around Magnolia's 2024 capital and operating plan. Brian will then review our third quarter financial and operating results in greater detail and provide some additional guidance before we take your questions. As we've previously outlined, Magnolia's primary objectives are to be the most efficient operator of best-in-class oil and gas assets and generating the highest return on those assets for drilling and completing wells. We also strive to return a substantial portion of our free cash flow to our shareholders in the form of share purchases and a secure and growing dividend. Finally, we plan to utilize some of the excess cash generated by the business to pursue attractive bolt-on oil and gas property acquisitions. The acquisitions are targeted to not simply replace the oil and gas that has already been produced, but importantly, to improve the opportunity set of our overall business enhance the sustainability of our high returns, and increase our dividend per share payout capacity. Magnolia continued to execute its business model, delivering solid operating and financial results during the third quarter and consistent with the principles that help us achieve our overall goals. Our third quarter production volumes at 82.7 thousand barrels of oil equivalent per day established a new quarterly record for the company with our Giddings asset driving overall growth both year over year and sequentially. Giddings continues to represent a greater proportion of total company production, now comprising approximately 75% of our total volumes. Our DNC capital spending of $104 million during the quarter was only 44% of our adjusted EBITDAX, leading to free cash flow generation of approximately $128 million, and our solid operating income, or EBIT, margins of 47% were indicative of our focus around reducing overall costs. Looking at slide three in the earnings presentation found on our website, our proactive efforts taken early this year toward elevated materials and oil service costs have allowed us to capture a significant reduction in total costs per well and lower our overall capital spending this year. Our original guidance and outlook called for DNC capital spending of approximately $505 million during 2023. Both our supply chain and DNC teams worked collaboratively with our materials vendors and service partners to reduce costs while maintaining continuity of supply and the consistency of high-quality crews and services. These cost reductions are expected to result in 15% lower capital spending this year or savings of $75 million compared to our original outlook. We now expect our full-year 2023 DNC capital to be approximately $430 million, which represents a 7% reduction to our 2022 capital levels, while still delivering year-over-year organic production growth of 8%. Point-to-point, our costs for drilling a similar well in Giddings are currently down about 20% compared to the end of 2022. Said another way, the cost reductions achieved this year effectively allows us to drill and complete more wells at lower cost and provides us with greater capital flexibility around our drilling program into next year. The lower well costs ultimately help to reduce our F&D costs, leading to higher operating margins and improved free cash flow. Turning to slide four, this shows Magnolia's production growth and how we've also allocated our free cash during the last three years. Over this period, Magnolia has generated more than $1.7 billion of free cash flow, returning approximately 60% of this to our shareholders through dividends and share repurchases. Magnolia has repurchased approximately 23% of its outstanding shares since the initiation of our share repurchase program. Roughly $700 million of the free cash flow generated by the business during this time accrued to the balance sheet, putting Magnolia in a net cash position. We expect to return approximately 70% of our full year 2023 estimated free cash flow to shareholders in the form of shareware purchases and dividends. A portion of the accumulated cash was used during the past year to execute on several small accretive bolt-on oil and gas property acquisitions, primarily around our Giddings asset. One example includes our most recent transaction we announced in September and which is expected to close by the end of this month. This opportunity improves our overall business by adding high-margin oil-weighted production while also enhancing the depth of development locations in both the Eagleford and Austin Chalk formations. The transaction brings our total Giddings acreage position to more than half a million net acres with a current development area of more than 150,000 net acres. We plan to fold this asset into our existing Giddings assets, which will be included as part of our 2024 development plan. This is an excellent example of our strategy to pursue small bolt-on assets, adding to our high-quality bench, and leveraging the significant knowledge we have gained through operating in the Giddings field to enhance our per share metrics and improve the overall business. As we look towards 2024, our strategy will remain largely unchanged. We're well-positioned with a strong balance sheet, a significantly improved cost structure, and a larger footprint in the Giddings field, allowing for which should continue to drive our high-return production growth. We currently plan to operate two drilling rigs and one completion crew into next year and remain fully unhedged to product prices. Lower costs for drilling and completing wells as part of this year's initiatives, which I spoke to earlier, in addition to efficiency gains, is expected to provide a moderate increase in our DNC activity in 2024 while allowing for flexibility within our program. Assuming current product prices, we expect to spend less than half of our EBITDAX for drilling and completing wells in 2024, which should deliver high single-digit year-over-year total production growth, with our total oil production expected to grow at a similar rate. Magnolia's strategy will continue to be guided by our founding principles of low debt, high operating margins, capital discipline, moderate growth, and significant free cash flow generation. Utilizing this framework allows the business to continue to achieve moderate annual growth while providing a sizable, steady, and growing return of cash to our shareholders. We believe this model will provide an increase to our per share value over time. Magnolia is expected to exit the year at a high note, both financially strong and with an improved asset base, and confident in our plan for 2024. And I'll now turn over the call to Brian to provide more details on our third quarter financial and operating results.

Thanks, Chris, and good morning, everyone. I'll review some items from our third quarter results and refer to the presentation slides found on our website. I'll also provide some additional guidance for the fourth quarter of 2023 as we close out a strong year for Magnolia. Beginning with slide six, Magnolia delivered an excellent quarter as we continue to execute on our business model. During the third quarter, we generated total GAT and net income attributable to Class A common stock of $102 million. with total net income of $117.5 million, or $0.56 per diluted share. Our adjusted EBITDAX for the quarter was $239 million, with total capital associated with drilling, completions, and associated facilities of $104 million, or just 44% of our adjusted EBITDAX. Third quarter production volumes grew 1% sequentially to 82.7 thousand barrels of oil equivalent per day. During the third quarter, we repurchased 2.5 million shares and our diluted share count fell by 4% year-over-year. Looking at the quarterly cash flow waterfall chart on slide 7, we started the third quarter with $677 million of cash. Cash flow from operations before changes in working capital was $217 million, with working capital changes and other small items impacting cash by $13 million. During the quarter, we allocated $57 million towards share repurchases and paid dividends of $26 million. We added $73 million of bolt-on acquisitions, which included a $23 million deposit on the acquisition we announced in September, and we ended the quarter with $618 million of cash. Looking at slide 8, 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 59.4 million shares, or approximately 23%. Magnolia's weighted average fully diluted share count declined by more than 2 million shares sequentially, averaging 209.1 million during the third quarter. We have 11.7 million shares remaining under our current repurchase authorization, which are specifically directed towards repurchasing Class A shares in the open market. Turning to slide nine, 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 December 1st and provides an annualized dividend payout rate of 46 cents per share. We plan to reevaluate our current annual dividend rate early next year based on our 2023 financial results. Our plan for annualized dividend growth of at least 10% is an important part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth and reducing our outstanding shares by at least 1% per quarter. Magnolia has the benefit of a very strong balance sheet, and we ended the quarter with a net cash position of $218 million. Our $400 million of gross debt is reflected in our senior notes, which do not mature until 2026. Including our third quarter ending cash balance of $618 million and our undrawn $450 million revolving credit facility, our total liquidity is approximately $1.1 billion. Our condensed balance sheet and liquidity as of September 30th are shown on slides 10 and 11. Turning to slide 12 and looking at our per unit cash costs and operating income margins. Total revenue per BOE declined by approximately 36% due to the substantial decrease in product prices and especially natural gas prices when compared to the third quarter of 2022. Our total adjusted cash operating costs, including G&A, were $10.68 per BOE in the third quarter of 2023, a decrease of $2.39 per BOE or 18% compared to year-ago levels. The year-over-year decrease was primarily due to lower production taxes, GP&T, and G&A. Our operating income margin for the third quarter was $19.49 per BOE, or 47% of our total revenue. The year-over-year decrease in our pretax operating margin was driven by the significant decrease in commodity prices. Turning to guidance for the fourth quarter, we are currently operating two drilling rigs and plan to continue this level of activity through the end of the year. We expect DNC capital for 2023 to be approximately $430 million, which represents $75 million reduction or 15% from our original guidance this year. Despite lower capital spending, we are increasing our full year 2023 organic production growth guidance to 8% or 9% when including the acquired volumes. For the full year 2023, we expect our effective tax rate to be approximately 21% with most of this being deferred. Our cash tax rate is expected to be between 6% and 9% for 2023. Looking at the fourth quarter of 2023, we expect the recently announced transaction to close in November and help contribute to our fourth quarter volumes. We expect total production volumes to be approximately 85,000 MBOE a day, and our DNC capital is estimated to be approximately 100 million. Oil price differentials are anticipated to be a $3 per barrel discount to MEH. Our fully diluted share count for the fourth quarter is estimated to be approximately 207 million shares, which is 4% lower than year-ago levels. We are now ready to take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And our first question comes from Neil Dingman from SunTrust. Neil, please go ahead.

Morning, all. Good quarter. Chris, my first question is just on your 24 expectations. Specifically, you all suggest that the 24 operating plan will be, you know, again, assuming the prices are about the same, will be similar to this year. So, as such, I'm just wondering, could you speak to the potential for the BOE and BO production growth, assuming kind of a similar type of plan, maybe just in generalities between those two?

Yeah, thanks, Niels. Sure. The BOEs, yeah, I expect the plan to be, you know, broadly similar. As I said, we'll go into the year running two rigs, operating two rigs and the completion crew. And, you know, I expect that that'll go fine. Not going to be, you know, you shouldn't look for magnitude shifts in terms of activity or capital or whatnot. These are more sort of around the edges, but you know, as you've seen, we've done a lot in terms or some things in terms of acquisitions. And as I pointed out, you know, we'll fold some of that into the activity next year purposefully, not only to sort of see how it's going to go, which we have a lot of confidence around to begin with, but also to see how much more of it we want to continue to fold in with time. But I'm quite optimistic that, you know, We've done some things here, and based on our plan as well, that largely arrest any issues around the oil production, if that's been an issue. But I fully expect the oil production to sort of... climb at a similar rate as we talked about relative to our overall BOE growth. So if we said sort of high single digits on total BOE volume growth, I would expect to see something similar for production too.

Great details, Chris. And just a quick second question. I was curious if you all can maintain your industry-leading reinvestment rate going forward. Obviously, it's very notable. which all continue to be able to spend well under 50%. And just wonder, maybe you could just talk a little bit about that going forward, given how well it continues to be.

I think we can. I mean, I think part of the trick around this, I mean, you know, part of it is to not necessarily get overly aggressive with the money or the spending or the growth over time or you know, weigh yourself down necessarily with large PDP ads vis-a-vis acquisitions. So, you know, our focus is to actually try to do things that enhances the capability of the organization and the business over time. So the type of reinvestment that you've seen us sort of kick out over the last several years, I don't see why that should be meaningfully different here, you know, going forward. I still anticipate us, you know, providing or creating a ceiling around our capital and reinvestment rate of the 55%, and we can grow sort of moderately within that. So I sort of see the same outcome.

Well, it's great to hear. Thanks, Chris.

Thanks.

Our next question comes from . Umang, you may go ahead.

Hi, thank you. Good morning. Thank you for taking my questions. First, I wanted to get your thoughts around the recent acquired assets and how that compares with your legacy core. And then on my second question, now that you've doubled your development area and gatings, How should we think about your longer-term growth rates beyond the next five years, and how should we think about your plans around double-digit dividend growth? Can you sustain that for a longer period of time?

Yeah, so around the acquisition, as I mentioned, we expect to close the transaction by the end of the month. The acquired assets included around 48,000 net acres. It came with 5,000 equivalent a day of production approximately. That was about 70% oil. And as I mentioned, we plan to fold that into the Giddings program and drill some wells on the acreage that will be interspersed throughout the year. And so, you know, we expect to get a lot out of it. And, you know, it was something that we viewed as quite attractive. where it is exactly, you know, and what is it, it's sort of, you know, a little different than what we've been doing exactly in Giddings in terms of the bit of an oilier nature to it. But, you know, broadly, it's not, I would think about it as, you know, the Giddings field because it is in the Giddings field and, And so there's a lot of similarities to it. So I don't expect to see anything in terms of our approach to it that are very, very different in terms of what we've been doing. I just think that it has the capability to enhance the outcome with more liquids volumes that could be a little bit better margin than what we've been seeing with gas prices certainly as weak as they've been.

Gotcha. That's helpful. And then for my second question, any color you can provide in terms of how we should think about the longer-term growth rates, given you believe these assets are very compatible to your core, legacy core, and then you also have doubled your development area in gating. So how should we think about the longer-term growth rates beyond the next five years, thinking about it from a high-level perspective?

Yeah, well, my high level, I wouldn't go out there and say, because it's not really been part of our business plan to sort of seek out, you know, double-digit growth, as I sort of answered the question previous. You know, our goal is not to grow that much faster and work ourselves out of the growth that much quicker. You know, I think our asset base is capable of delivering the plan of that moderate, mid-single-digit growth. over a long period of time that, you know, I consider it sort of 5% to 8% per year. You know, we have this ceiling on our capital. So, you know, we try to be disciplined around that and spend up to what we consider a reasonable amount to achieve those levels of growth. But could we do more? The answer is yes. Do I think it's the best and right thing to necessarily do more over the long term? Probably not. I just think that, you know, this is more than sufficient and a balanced way, a balanced approach to not only grow at a reasonable rate, generate a lot of free cash flow, and return a good portion of that to our shareholders, which is what they want, while providing us with optionality and a little bit of extra cash, if you will, to seek out other opportunities vis-a-vis small M&A to improve the business over time.

That makes a lot of sense. Thank you.

Our next question comes from Charles Mead from Johnson Rights. Charles, please go ahead.

Thank you. Good morning, Chris, Brian, and the rest of the Magnolia team there. Chris, I wanted to ask maybe what I think is a simple question. Since you haven't told us really what your M&A, since you haven't given us details on these two recent acquisitions, is it a fair inference that you guys still think there's more work to do on the acquisition front around Giddings?

The answer is yes. The short answer is yes. You know, my expanded response to this question is, You know, look, there's – and what we've seen, there's lots of different types of – or several different types of upstream M&A in oil and gas or approaches towards M&A that companies can participate in. You know, the type of M&A that Magnolia engages in, which is, you know, usually of the smaller variety focused on assets where we – look to improve the business by extending or expanding our competitive advantage in an area that we know. And you could describe this type as a situation where the buyer may know more than the seller, not the other way around. This type of M&A also has the benefit of limiting your risk. And then there's the type of M&A that's more transformational, and companies that engage in this type of M&A believe that They have either run out of time or, you know, that they're in a corner or that they need to do something big and bold in order to change or fix things. But the management or the boards of the companies have maybe been convinced by, you know, investment bankers that this is the best thing to do. This can obviously be riskier. you either need to time the commodity price right or somehow acquire a lot of upside of the asset that wasn't factored into the purchase price. So basically buying optionality for free or at a very low cost. And I think to some extent that's what the acquirers recently with the large acquisitions feel they've done. And that's fine. And then there's, you know, M&A that might seek out some sort of diversification, meaning I've either run out of stuff to do where I currently operate or simply want to get bigger, or the best way to do this is by moving it to a different area that hopefully is less expensive in terms of the entry cost. You know, the risk here is that hopefully your skills are transferable to this new area and that it's compatible with, you know, your workforce and they can figure out how to do it. As I said, Magnolia prefers to engage in the smaller bolt-on variety of M&A, and mainly because we're currently not in a situation that requires us to pursue the other big and bolder types of M&A. So I believe we currently have a competitive advantage in Giddings, and we seek ways through this smaller M&A to expand that advantage. So that's sort of my longer-winded version of the response to the question.

Well, thank you for not just giving a one-word answer to my simple question. And then my follow-up, I think, is maybe take another run at the mix question that you got earlier. Absent this most recent acquisition, which is a little earlier, you guys had been actually getting a little – you know, slowly getting the oil percentage was ticking down and, uh, natural gas and really, really more NGLs was, was ticking up. Um, if, if that, if, if you're going to hold, if you're going to grow each of those product product categories, uh, you know, more or less equally in 24, does that mean that you guys are shifting or looking to shift activity towards more oily areas? And, and, and does that, you know, to what extent, if that's true, does that, Is that a reflection of this oilier asset that you're bringing into the portfolio?

You know, not necessarily, Charles. I wouldn't read it that way exactly. I mean, you know, some of what's happened with us in oil, as we've talked about before, I've mentioned this several times already, is that there's been a shift purposefully in activity and capital away from Carnes and Giddings because the well results in Giddings are better and the full cycle returns in Giddings are better. And so that's how we prefer to allocate the money. And so we occasionally do go back to Carnes or we'll see some non-op activity in Carnes that might, you know, bump up our oil volumes for a little bit. But broadly, the effort on our part from an operating basis level has been to, you know, spend more of the money proportionally on Giddings. And you've seen that. So that's been really what's occurred. What's going to occur here, I mean, yes, the asset, the acquisition does bring in a little bit more oil injected into the business immediately. And the drilling plant will provide us with a little bit more oil. But the goal for us is to drill the best wells. And the goal for any good operator is to drill the best wells. at the lowest cost and at the highest return. So I think broadly our program is going to continue to focus on that. It'll be a mix of some oil, some natural gas, and timing this on the commodity necessarily is sort of a bit of a fool's errand. So I'm not going to sort of play that game. We look to drill, consistently look to drill the best wells.

Got it. Thank you.

Thanks. Our next question comes from Zach Parham from J.P. Morgan. Zach, you may proceed.

Yes, thanks for taking my question. In the release, you mentioned strong well productivity and getting as a driver of higher volume guidance. You know, just looking at the state data, which, you know, has its own issues, but, you know, it seems like oil productivity, particularly oil productivity, has trended lower year over year in Giddings and is now in burst prior years as well. Can you just give us your thoughts on how oil productivity and Giddings will trend going forward?

I don't expect it to change very much. I mean, one way or the other, materially. compared to what we've done this year. It could be a little bit better, but I don't think it'll be very different or worse going forward. I don't anticipate that. You know, there may have been some nuances or one-offs in our program this year that drove some of that, but I would think it would be similar, if not a bit better, into next year and going forward.

Got it. Thanks for that. And then I had one follow-up on OpEx, LOE specifically. It was down for the second consecutive quarter and it's down over a dollar per BOE versus 1Q. You know, any color on how LOE should trend in 4Q into 2024?

Yeah. Look, I think at current product prices, it should be sort of similar. There's a workover element to it that would vary, you know, if oil prices rise further relative to where they've been here very recently, that could make a difference. But, you know, this is sort of a relentless effort on our part to continue to, you know, push costs lower. I think this is sort of a good place for us to be generally. Again, there might be an occasional sort of lumpiness, but generally I see sort of things similar at the current product price area that we're in.

Got it. Thanks for the color. Sure.

Thanks.

And now we have – I'm sorry. Now we have a question from Oliver Wong from Tudor Pickering Holt. Oliver, please go ahead.

Good morning, Chris, Brian, and team, and thanks for taking my questions. As we kind of look into next year, beyond some, I guess, activity on the new acreage, anything that we should be keeping an eye on that might be different from what we've seen the last couple of years, whether it's with respect to well design or spacing tweaks, Any increased step-out or appraisal projects that we might want to keep an eye out for?

Not much. I mean, you know, the development program at Giddings, we're continuing with that. That's delivered a lot of good growth for the company, and we're producing in excess of 60,000 BOE per day now at Giddings. It's very capital efficient. It provides a lot of free cash flow. You know, we've developed a very thorough understanding of the asset. This larger 150,000-acre development area continues to be the focus for now. And, you know, I think we sort of cited the smaller development area, and I think people got aboard with it. So, you know, it's bigger now. And I believe it will get bigger still over time through some appraisal efforts that we have that will extend into next year. And, you know, that program has already produced very positive results, and we have a large expanse to sort of go over with time, and we'll continue to get at it. In terms of, you know, completion changes or nuances around that, Not a whole lot, really. I mean, we continue to learn more, and what I hope is that there may be some upside to some of the new areas that we'll tackle into 2024, and we'll learn an additional or get some additional data to focus on. So maybe that provides us with some upside in terms of learning and how to approach things.

Okay. That's helpful, Culler. And maybe just kind of switching over to the Eagleford, I know activity levels there have been a bit tough to pin down, but any sort of updates with respect to how we should be thinking about the non-op side of things on that asset? And I know last call you all previously spoke towards a flattish half of the quarter, but just kind of given the lumpy nature of a half rate, give or take program, how should we be thinking about the volume trajectory out of that asset for next year? Is there any reason for us to kind of not expect this asset to continue declining given the current capital allocation split and drawn capital from Giddings in the near term, with respect to any sort of MVCs or anything else like that?

Yeah, I would expect it to continue to taper down based on the activity, but probably at a lesser rate. than what we've seen. I mean, I think there was a more substantial dip in the non-op activity. And I'm not suggesting that that's going to change or increase necessarily. All I'm saying is that as a result of some of the lesser activity, the rate of decline has sort of tapered into probably into next year and recently. So I, you know, it's just not much going on there on a non-op level. So a tapering, but at a lower rate.

Okay, thanks for the time, Chris. Thanks.

And we have a question from Paul Diamond from Citi. Paul, please go ahead.

Thank you, and good morning, all, and I appreciate you taking my call. Just a quick one. I'm looking forward to the 24. I guess what shift of magnitude and fundamentals would it require to really shift that 24 operating plan? Something similar to the move we saw earlier this year, or is it something more substantial?

I'm not quite sure what you're asking. Are you saying, how does our 24 plan, how is that different from 23?

No, I guess more how is, what would you see in the market to really shift off of that plan?

Yeah, no, I understand. I mean, if you're suggesting something more similar to what we saw in 2022 with much higher product prices, we didn't. I mean, we may have spent a little bit more, been a little bit more active, but generally not. We don't sort of tailor the plan specifically around believing that oil prices or gas prices are going to sort of run much higher. You know, we sort of go into the year with a generally a set plan and, you know, should things be a whole lot better in terms of pricing, the money sort of accrues just like it did in 2022. I wouldn't expect to sort of follow along there and just use all the money to drill more and grow at much higher rates. So if that's what you're asking, the answer is really no.

And, Paul, in 2022, we spent about a third of our money, a third of our EBITDA to put in perspective.

Understood. Appreciate it. And then just one more quick one on more on deflationary bent. I know earlier this year you guys talked about how cost and expenses were well above what you thought was an appropriate price. I guess just want to get your idea of how close you think we are now or in coming quarters to that more, I guess, decent run rate level for the long term.

Yeah, look, our teams have done a great job around that, and I'm real pleased that we got at it early this year because we wouldn't have seen the realized benefits that we have. We saved a bunch of money, and we also positioned ourselves very good in the back half of the year, and it gives us a lot of flexibility and more certainty going into next year. So, you know, sort of 20%, as I said, point to point, I think is pretty good. You know, my sense around this is that, you know, for gas, it's going to be sort of a very weather-driven event here in terms of pricing. And it feels, and this is just me talking, it feels like like the rig count and just some of the commentary around activity feels like it's bottoming and so if that's if that's correct you may have seen um most of the improvements or lower costs that you'll likely see i say most of it will we see a little bit more perhaps if the economy softens into next year there could be you know some some additional savings that work their way in, but I'm not necessarily counting on that. I'm just counting on what I know right now. What I know is that, you know, we have some things locked in for a portion of 24 that makes me feel pretty good.

Understood. Thanks for your clarity.

Okay, thanks. And we'll take a question now from Sean Mitchell from Simmons. Sean? Please go ahead.

Hi. Thanks for taking the question. I just wanted to, and this is kind of back to the question that was just asked. You guys talked last quarter about OCTG being down almost 30%. It seemed like you guys were feeling really good about where you were from a service cost perspective, and obviously the costs are rolling through. Given the rent count has taken another pretty substantial leg lower here sequentially relative to where we were the last time we talked to you on the call, I assume you're feeling better about your position. Is there any one particular area that you're seeing kind of more pricing sensitivity than others? I mean, OCTG was a great example on the last call. I'm just wondering if there's anything you can point to on this call.

Yeah, thanks, Sean. I guess I would say steel for now. Steel prices have been still working in our favor. Again, as I said just previously, it's hard to really say how this might change just in terms of the impact of steel inventory, steel productivity, steel production. outcome at Mills, Steel Imports, et cetera, hard for me to really say, but it still feels pretty good as we exit this year and start to move into 2024. Much of this is going to be centered around, you know, the global economic picture and what we see around the world, which, you know, some people would tell you not all that great right now. On the other hand, there might be some people that could feel differently. But right now, I think there's softness there.

Got it. Thanks, guys. Appreciate it.

Okay. Thanks.

And this concludes our question and answer session and this conference. We thank you very much for attending today's presentation, and you may now disconnect.