Magnolia Oil & Gas Corporation Class A

Good morning everyone and thank you for participating in Magnolia Oil and Gas Corporation's third quarter 2024 earnings conference call. My name is Cindy 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.

Thank you, Cindy, and good morning, everyone. Welcome to Magnolia Oil and Gas's 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's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are 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 2024 earnings press release, at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stommer.

Thank you, Tom, and good morning, everyone. We appreciate you joining us today for discussion of our third quarter 2024 financial and operating results. I will provide some comments on our quarterly results, which demonstrate the continued execution of our full year 2024 plan and the consistency of our business model, as well as highlighting some of our accomplishments. look into 2025. Brian will then review our third quarter financial results in greater detail and provide some additional guidance before we take your questions. As I continually remind the financial community that Magnolia's primary goals and objectives are to be the most efficient operator of best-in-class oil and gas assets, generate the highest return on those assets while employing the least amount of capital for drilling and completing wells. We also strive to return a substantial quarter 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 where we have built a competitive advantage and leverage both our technical knowledge and experience in the basis where we operate. Acquisitions are targeted not to simply replace the oil and gas that has already been produced, but importantly to improve the opportunity set of our overall business enhance the ongoing sustainability of our high returns, and increase our dividend per share payout capacity. We look for acquisition opportunities to provide upside optionality with a lower cost of entry and that are both financially accretive and accretive to our stock. We firmly believe that our business model and strategy provide us with a durable, competitive advantage to sustain our moderate growth over time and allowing us to act as serial compounders of value for our shareholders. Looking at slide three of the investor presentation, we delivered another consistent quarter of strong financial and operational performance, which include our initiatives to lower our field-level operating costs. I want to commend our operations team, field workers, and supply chain team for their continual efforts through this year to reduce our operating costs and improve the efficiency of our capital programs. These actions have resulted in improved margins and additional free cash flow that can be used to enhance Magnolia's per share value. Total company production during the third quarter was approximately 91,000 barrels of oil equivalent per day and in line with our earlier guidance. Overall, our quarterly production was impacted by multiple unplanned third-party midstream facility outages, some of which occurred late in the period. These outages primarily affected our natural gas and NGL production by approximately 1,000 PoE per day during the quarter and were fully resolved by the end of the period. Total company oil production during the third quarter was nearly 39,000 barrels per day, which represented growth of 18% from year-ago levels, and we expect this level to remain resilient into the fourth quarter. Production in the Giddings area was 68.7 thousand barrels of oil equivalent per day during the quarter, growing 12 percent compared to the year-ago quarter, with Giddings oil production growing 24 percent on a year-over-year basis. We continue to see strong overall well performance throughout our assets, which underpins the strength in our earnings and free cash flow. As we wind down the year, we continue to expect high single-digit year-over-year total production growth for 2024, with this year's oil production now anticipated to exceed the total PoE rate of growth. We spent $103 million drilling and completing wells during the third quarter, which is well below our capital guidance of 120 million and represented just 42% of our adjusted EBITDAx of $244 million. This lower than expected level of capital spending resulted from a mix of ongoing drilling and completion efficiencies a decline in our overall well costs, and a small amount of capital which is deferred into the fourth quarter. The improvements in well costs and ongoing overall spending efficiencies have provided us with spare capacity within our capital plan, which will allow us to drill an additional four-well pad in Giddings during the fourth quarter that was not part of our originally planned 2024 capital and activity. We expect this additional pad to be a duck at year end with anticipated completion sometime in the first half of 2025. This patch should provide us with some additional operational flexibility into next year. As I said, I'm very proud of the hard work shown by our operating personnel in the field. Their continual efforts have helped us further reduce our field-level operating costs to $5.33 per BOE in the third quarter, a decline of 11% compared to this year's first quarter, and exceeding our earlier target to lower our lease operating costs by five to 10% during the second half of 2024. Realized savings over this period came from a mix of improved pricing and product substitutions for workovers, water hauling, chemicals, and replacement parts in the field. Additional savings are being seen from optimizing our contract labor needs for some of our field rental equipment through the implementation of field management software, which has reduced our cost for water hauling and will be further utilized to lower costs from other field services over time and into next year. Lower capital spending and further reductions in our lease operating costs led to improved free cash flow generation of $126 million during the third quarter. We returned $88 million of 70% of our free cash flow to shareholder and ongoing share repurchase program. Our high quality assets and capital discipline inherent in our business model provides for a low reinvestment rate and consistent free cash flow generation. Our plan is to continue to return a significant portion of this free cash flow to our shareholders through our share repurchases and growing base dividend. We also continue to look for attractive bolt-on acquisitions that utilize our knowledge and experience, have the ability to generate returns well above our cost of capital, and can work to sustain the durability of our business model. During the third quarter, we completed several small transactions in both our Giddings and Carnes operating areas, acquiring royalty, leasehold, and incremental working interest totaling $15 million. These deals increased the value of our future development locations in these areas. As we close out 2024 and look forward to next year, we plan to execute the same business model that has delivered both strong operating and financial results over the past six years. The recent initiatives we've taken this year focusing on reducing both our field level LOE and our well costs allow us to endure product price volatility and position us for success into 2025. I'll now turn the call over to Brian for further details on our third quarter financial and operating results in addition to fourth quarter guidance.

Thanks, Chris, and good morning, everyone. I will 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 2024 before turning it over for questions. Beginning on slide four, as Chris discussed, Magnolia had an excellent third quarter. During the quarter, we generated total net income of $106 million and total adjusted net income of $100 million, or $0.51 per dilute share. Our adjusted EBITDAX for the quarter was $244 million, with total capital associated with drilling completions and associated facilities of $103 million, or just 42% of our adjusted EBITDAX. Third quarter total production volumes grew 10% year-over-year to 90.7 thousand barrels of oil equivalent per day, and our diluted share count fell by 5% year-over-year to 198.4 million shares. Our annualized return on capital employed during third quarter was 22%, showing our continued capital efficiency. Looking at the quarterly cash flow waterfall chart on slide five, we started the quarter with $276 million of cash. Cash flow from operations before changes in working capital for the third quarter was $241 million, with working capital changes and other small items impacting cash by $33 million. Total drilling completions and associated facilities capital incurred, including leasehold, was $105 million. As Chris mentioned, we closed multiple small royalty and working interest deals during the third quarter for $15 million. We paid dividends of $27 million and allocated $61 million towards share repurchases, ending the quarter with $276 million of cash. Looking at slide six, this chart illustrates the progress in reducing our total outstanding shares since we began our share repurchase program in the second half of 2019. Since that time, we have repurchased 70.7 million shares, leading to a decrease in diluted shares outstanding of approximately 23%. Magnolia's weighted average fully diluted share count declined by more than 2 million shares sequentially, averaging 198.4 million shares during the quarter. We have 3.9 million shares remaining under our current share repurchase authorization, which are specifically directed toward repurchasing Class A shares in the open market. Turning to slide seven, our dividend has grown substantially over the past few years, including a 13 percent increase announced early this year to 13 cents per share on a quarterly basis. Our next quarterly dividend is payable on December 2nd and provides an annualized dividend payout rate of 52 cents per share. Our plan for annualized dividend growth is an important part of Magnolia's investment proposition, and supported by our overall strategy of achieving moderate annual production growth, reducing our outstanding shares, and increasing the dividend payout capacity of the company. Magnolia has the benefit of a very strong balance sheet, and we ended the quarter with $276 million of cash and $400 million of senior notes, which mature in 2026. Including our third quarter ending cash balance and our undrawn $450 million revolving credit facility, Our total liquidity is $726 million. Our condensed balance sheet as of September 30 is shown on slide eight. Turning to slide nine and looking at our per unit cash costs and operating income margins. Total revenue per BOE decreased year over year due to the decline in oil prices when compared to the third quarter of 2023. Our total adjusted cash operating costs, including G&A, were $10.83 cents per BOE in the third quarter of 2024, an increase of 15 cents per BOE, or 1% compared to year-ago levels, and a decrease of 27 cents per BOE, or 2% sequentially from the second quarter of 24. The sequential decrease was primarily a function of lower LOE and production taxes. Our operating income margin for the third quarter was $15.45 per BOE, or 39% of our total revenue. Turning to guidance on slide 10, we expect our full year 2024 drilling completion associated facilities capital spending to be approximately $470 million, around the midpoint of our original guidance from February of $450 to $480 million. This includes slightly more activity than originally planned with the addition of a four-wheel pad being drilled in Giddings during the fourth quarter. We expect fourth quarter drilling completion associated facilities capital of approximately $125 million. Total production for the fourth quarter is estimated to be approximately 93,000 DOE a day, delivering high single-digit total year-over-year production growth during 24, with annual oil production growth slightly higher than DOE growth. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston, and Magnolia remains completely unhedged for all of its oil and natural gas production. The fully diluted share count for the fourth quarter of 2024 is expected to be approximately 197 million shares, which is 5% lower than fourth quarter 2023 levels. We expect our effective tax rate to be approximately 21% and our cash rate to be approximately 5% to 7% for both the fourth quarter and the total year. This is lower than our prior guidance due to a refund we received during the third quarter this year. We're now ready to take your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. 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 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Neil Dingman of Truist Securities. Go ahead, please.

Morning, guys. Nice quarter. Happy Halloween. My first question is on your remarkable continued Giddings growth. Specifically, I realize much of the last quarter growth was a result of that prior acquisition, but I'm just wondering, could you all discuss the continued drivers around the success of these assets that enabled you to keep the reinvestment rate so low around this?

Yeah, trick or treat, Neil. Thanks for the comments and questions. You know, look, I'll tell you, this takes a village. It's never easy. And we've been working at this for, you know, a pretty good long time now. You know, more than six years, call it seven years. We have some Fantastic, talented people, geologists, geophysicists, reservoir engineers, drilling and completion folks, all of them have been integral in getting us to where we are now. So I thank them for that. On day one, we didn't necessarily understand it, but we knew that we had a field with a lot of oil and hydrocarbons in place, and that through some time and work and practice, sort of like riding a bike, that we could figure it out. And I think we have, as shown by the progress that we've made. The point of the acquisitions that you mentioned is to expand off of our knowledge. Our knowledge is sort of the springboard and a base, but the acquisitions are sort of designed to take us beyond what we may already know and have figured out and act as sort of little tentacles or tributaries to get us even further beyond what we already know. So the benefit of, you know, a little bit to your question, the benefit of the low reinvestment rate, Giddings does have generally what we've seen anyway is a subtler decline rate than a typical shale area. Certainly a lower decline rate than what we see in Carnes. The performance of the wells has typically exceeded our expectations over time. We've drilled more than 100 Gen 3 wells in Giddings, and, you know, we're often, you know, surprised typically over time in a positive way. So we continue to do what we're doing. We learn more every day, every time we put down a well, and I think we'll continue to benefit from that knowledge and experience, and it'll take us further, not just through the field, but

provide us with other opportunities where we can utilize some of that understanding subsurface. So I hope that gives you a little color.

It does. Well said, Chris. And then my second question, just around your announced multiple unplanned third-party midstream facility outages, all the recent outages I know you talked about have been completely rectified. Are you concerned about more of these reoccurring outages? And further, would you consider spending and your capital towards future infrastructure maybe to address some of this?

Yeah, well, you know, all of this is around having control. And, you know, in a perfect scenario, you'd love to have all of the control, you know, around your destiny in terms of being able to produce what you want to produce and take it to where you want to take it and, you know, from a pipeline standpoint. and facility standpoint. So, um, unfortunately, uh, Magnolia is of, of a size where, you know, we, we, we need to work with, um, some larger, um, mainstream organizations, uh, that have the specific knowledge and capability and capitalization to do this. Um, but I wouldn't exactly, you know, if I was trying to set my watch to these guys, I wouldn't exactly, um, feel overly confident around doing that. So, you know, it is what it is. And if I had some concern around predictability and, you know, reliability going forward, it might be more around power than anything else, because you just never know. And some of the issues that they faced without calling out anything specifically. Some of the issues that were faced were around power, and that could be an ongoing issue going forward. I continue to be concerned about reliability related to power, and we'll sort of see how that goes. But would we consider doing something in terms of our own capital going forward? I think in a big way, unlikely. right now, um, maybe over time, but, but I don't see it, um, in a, in a big, broad fashion that would, uh, allow us to have ultimate control of, of what we would like to do. You sort of have to take it for what it is. And, um, you know, we, we work with them best we can. And, uh, and I know they, they try, um, but you know, there's, there's weather issues, there's power issues, there's, uh, breakdowns and whatnot, which over time seems to become more of a common practice.

So I would ask that they try to go above and beyond what's been their recent history.

Makes sense. Thank you so much, Chris.

The next question comes from Phillips Johnston of Capital One. Go ahead, please.

Hey, thanks for the question. It's pretty clear the LOE optimization program is paying off. I realize you guys don't have any guidance out there for next year, but just from a directional standpoint, where do you think both unit LOE costs and unit GP&T costs will trend in 25 relative to your second half kind of exit rate? And I guess with the natural gas strip looking higher for next year, how might that impact either cost item?

Yeah, thanks for the question. You know, we've done, I think, what's been a pretty decent job in terms of, you know, reducing costs, as I said, double-digit reductions from where we had been early in the year that can have impact. You know, we're always looking to improve, and I will never say that we're done. I would say that maintaining these levels is probably fair going forward, and we'll continue to push beyond that. And we may see some additional small to modest gains before the year is done and into next year. I certainly would press for that. But you're constantly pushing back on you know, underlying field inflation as well as increasing environmental and regulatory requirements. So, like I said, we'll always look for more to improve our margins. But I think it would be great if we could at least hold these levels into 2025 and maybe see some modest improvement. But I think it puts us in a good place for, you know, should product prices, you know, weaken even further into next year. So, I think this has all been a a good exercise for us.

Okay, sounds good. And then on the $15 million worth of small deals that closed in the quarter, was there any significant production that came in the door and so went in the quarter without a close?

No, there was not. These were really incremental working interests, mineral interests, and some things of that nature, but there was really nothing around production that was any consequence.

Yeah, okay. Sounds good. Thank you.

Our next question comes from Oliver Wang of Tudor Pickering Holt. Go ahead, please.

Good morning, Chris and Brian, and thanks for taking the questions. Good morning. I wanted to start out on services, was hoping that you all might be able to speak to how you all feel about where service costs sit today relative to the oil and gas commodities from an alignment perspective. Looks like it's continuing to trend in the right direction based off what you all saw this past quarter, but really just trying to get a better sense of how you all think costs might trend moving into 2025.

Yeah, thanks, Oliver. You know, it really worked partly into, you know, the capital savings that we or the lower capital that we had in the third quarter and to some extent, provides us with a little bit of that flexibility for the fourth quarter to drill that extra pad. I would tell you that, you know, things have been softer than I would have anticipated or expected from, say, you know, a month to two months ago. And, you know, the timing was such for us as well where we were kind of falling within a period where we had some, you know, recent renegotiations with some of our key services and materials contracts that I think, you know, have allowed for some additional small incremental savings going into next year. And I'm talking, you know, mid-single-digit type savings into next year. And, again, across the board, this OCTG steel casing savings you know, pressure pumping, rigs, and the other categories as well, really. All of those are sort of averaging in the mid-single digits, you know, plus or minus, depending on which one. So, you know, we're still seeing some of that. And, you know, just on the capital going into next year, you know, we will, you know, we'll As I said, we'll be able to grow moderately into next year. I fully anticipate certainly at current commodity levels, pricing levels, and sticking within our 55% cap on cash flow in terms of capital spend, we'll be able to grow sort of mid-single digits. But it's tough for me to see our capital being higher than, or certainly not much higher if at all, than 2024 going into next year. I think we have a good amount of flexibility built in, but the way things stand right now, it's looking at sort of similar at worst for best.

Perfect. That's super helpful, Culler. And maybe just for a second question on your land position, I know the legacy position had been in the high 90s, percent from a HBP perspective, when considering some of the bigger packages over the last year, both in April and that core Giddings area, and even the one up north that closed late last year, is there anything that we should be aware of in terms of just required drilling or lease obligations and how that might impact near-term capital allocation decisions?

No, it's very similar to what it had been. There's nothing meaningful that would have changed in terms of

creating additional obligations necessarily at all, really, not from those deals.

Okay, perfect. Thanks for the time. You're welcome.

The next question comes from Carlos Escalante of Wolf Research. Go ahead, please.

Carlos, are you on mute? um yes i'm here now i'm asking on behalf of carlos um thank you for taking my call um so the question is even though you pulled um early the four well pad it looks like the capital uptake is minimal not a material deviation from your rateable quarterly dnc spend so in that sense how much of the dnc costs are accounted for is it only drilling is it both um Otherwise, is the incremental capital just a proxy for your continued capital efficiency improvements? Thank you.

Yeah, I don't know about it being a proxy for anything on a continual basis. It can fluctuate from quarter to quarter just depending on the timing of activity, but we did include in our forecast for the fourth quarter, we did include

drilling costs for for that that pad that we will drill which i would tell you would be approximately 10 to 15 million dollars roughly so that's all incorporated into that okay perfect and my next question was regarding the loe target reduction um on top of what's the right go forward number and if you can add color how you got there because in our view depending on what it is it can be a moving goal post instead of a fixed number.

Well, as I said, I expect that, you know, there may be some, you know, modest fluctuation. The direct LOE is a lot of what we're working on, but there's a lot of components within there. So you've got work over costs and work overs that, depending on work over activity and what may be needed from time to time, period to period, that may create some small, modest fluctuation quarter to quarter. There's not a ton of control over that. Sometimes you just need to do what you need to do. But I would tell you that in almost every respect, in every bucket of costs, we've made positive inroads in terms of reducing those things, particularly around direct LOE. and field management software implementation. So I think there's more to be had, more to be picked up. But again, there's always things that you're pushing back on, as I mentioned, some regulatory matters, environmental items, things of that nature, and some general field inflation. But I do believe that where we were in the third quarter is at least as good a proxy for going forward, and I do believe we can do better than that. So going into next year, you know, 525 to 535 sort of feels pretty good to me.

Perfect. Thank you very much. Appreciate your answers. You're welcome.

The next question comes from Noah Hungness of Bank of America. Go ahead, please.

Morning, guys. I wanted to ask first just on the general M&A market and kind of how you see the opportunity set both at Giddings and in the broader Eagleford trend. Is it currently more of these small $5 million to $15 million bolt-on acquisitions, or are there larger opportunities in the hundreds of million dollars as well?

I would tell you it's all of the above, and I certainly hope so. Because, you know, we look at a lot of things. And, you know, a lot of this, or certainly some of it, and the smaller items, oftentimes are driven by our land group that, you know, has a, what I would call more like a ground game and looks at opportunities driven by sometimes our existing areas or things that are adjacent to where we've been, where we operate or where we're drilling. So some of that is just small pickups to improve the value of things that we'll be drilling going forward. There are other – larger asset packages that are certainly out there um some that are being run through a process some that you know we may uh look to drive ourselves if if possible uh but no the there there are you know certainly a number of opportunities that we continue to look at uh of varying quality and what i would tell you is that you know we we've we've got a very good quality hand And so, um, I, I, I look at it from, from a sense of, I've got the deck in front of me and I want to pick up cards that positively add to my hand. Um, if that's the way that, that I can kind of describe it. So you always want to try to improve the business, not, not make it more difficult or complex for yourself. So we're, you know, it's a, it's a high bar. Um, But we kick a lot of tires, and I think there's quite a few opportunities out there.

No, that makes a ton of sense. And then I guess the next one is just on your thought process around choosing to pull your activity forward with the continued D&C efficiency gains you all have seen. why are you choosing to pull activity forward versus maybe take the CapEx savings? And then also, if we move into 25 and we run into a similar issue in fourth quarter of 25, would you also think about pulling activity forward then as well?

Well, I think a little bit is around, you know, maybe our view in terms of how things are evolving with product prices as you go into next year, it still feels somewhat soft. Um, and my view around, you know, pulling it forward, providing ourselves with a little bit more operational flexibility, optionality seems like a good idea, um, given the, maybe a little bit more uncertainty on product prices. So, uh, my view is why not? Um, We're not short of money. And, you know, this is, you know, we're talking about $10, $15 million. So, I mean, banking it as opposed to creating more optionality, flexibility in our program seems to me to be the better course of action decision.

So, I'll take it.

Great to hear, guys. Thank you so much.

Thanks.

The next question comes from Neil Mehta of Goldman Sachs. Go ahead, please.

Yeah, good morning, Chris. Good morning, team. Just one tactical question was strategic. The tactical one, it looked like there was some midstream interruptions in the quarter that you called out. It sounds like those have largely been resolved, but do you feel good about those challenges going forward and you have confidence that you kind of worked through it?

Yeah, I feel good. I mean, I... responded a little bit earlier to it. I feel good about where we are. I mean, everything's been resolved and, you know, we're all good to go. And these things do happen from time to time. And it's, you know, you work with your, you know, third-party midstream providers as best you can. And, you know, they've, I think, done a reasonable job around responding to, you know, issues. But as I said, there's certainly sometimes, you know, things that occur on the power side or unplanned, unforeseen circumstances where these facilities can be exposed to issues. Anyway, they're fine. Everything's fine now, and so I think we're good to go.

Good. Good. All right. Very good. The second one, Chris, just the philosophy around hedging. As you know, you're almost completely unhedged for your oil and gas production. And, you know, just step back and talk about why you think that is the right philosophy and what would it take for you ever to be more aggressive in terms of managing the risk and hedging forward. So just thinking about your philosophy on hedging.

You know, the point or the way you mentioned it about being almost completely unhedged. No, we are unhedged, not almost unhedged. We are totally unhedged. Look, you know, my philosophy around it is this is sort of like, you know, fire insurance, and that's always how we've thought about it. And, you know... It's like trying to predict a fire about your need for the insurance in the first place. And these are risks, inherent risks in the business. And we don't take a lot of financial risk. We don't have a lot of debt. And so there's a cost to the hedge. Just like you pay a premium for insurance, there's a cost to the hedge. And I think it complicates the business. I think it's something that we don't need. And my view is that when I think about how folks who own us in terms of the investors, shareholders who own us, they wanted that exposure to the commodity with the understanding that they could also sleep at night and that we won't have any issues on the financial side given our low leverage. So I think this allows for full exposure to commodity prices on the upside

protection on the downside given our low levels of debt. So I think it's an optimal position or situation to be in, and that's sort of the philosophy.

Yeah, yeah. Thanks, Chris. That's very helpful. Thanks.

Our next question comes from Tim Resvan of KeyBank Capital Markets. Go ahead, please.

Good morning, folks. Thank you for taking my question. I'd like to follow up on the prior question. Obviously, you don't need to have traditional hedges given the balance sheet strength, but I think the decision to hedge basis is really sort of independent of the balance sheet, given a lot of the dynamics going on right now. We talked to your team recently, and we heard that you're not concerned by basis blown out at Houston Ship Channel. Some of your public peers have a different view We've seen Ship Channel and Katy basis out about 20 cents for the next couple years. So if you could talk about, Chris, about why you're comfortable not doing basis swaps. Do you feel like there's overblown fears about what Matterhorn's gonna do to the Gulf Coast area? We'd love your comments on that, thank you.

Yeah, I'll try on this one, but as you can imagine and understand, it's obviously complicated. You know, I think we're pretty confident around, you know, Ship Channel in that, look, it's the second best hub, I guess, to sell our gas after Henry Hub. And as you said, it's about 20 cents. You know, so the additional volume coming to the Katy area on Matterhorn is probably at this point priced into the curve. And it's best, you know, we think. And our understanding of this is not, you know, better than necessarily anyone else's by any means. You know, there's, I guess, Permian is not two and a half million BCF or BCF a day long gas. And we don't see an immediate flood of gas. you know, coming on to Matterhorn from, like, it's sort of like a dam breaking. You know, so the initial flows that happened in early October, I think it's about $250 million a day. You know, that's only one interconnect completed. There'll be some additional interconnects that get – and more and more gas will be able to find a home into the other interconnected pipeline storage facilities. But as it ramps, this will likely take some time, and I think there's other factors that will probably benefit from the Plaquemines LNG facility coming on in a commercial service, and that will pull some gas that's coming south from the northeast away from you know, our market, the Texas market, and maybe provide some offset to Matterhorn. So whether or not this is all one-for-one offset, I just don't know. So there's just a lot of moving parts around this that I think could potentially offset impacts from the Matterhorn line. But what I would say is trying to hedge basis here is challenging and probably would amount more speculation on our part, which is something that just we're not going to do.

Okay. That's a good answer. I appreciate that context. And then just, I want to circle back on your prepared comments on oil. Chris, just want to make sure we understand what you're saying. You talked about oil exceeding BOE growth. That's pretty clear. You said you expect oil to remain resilient into the fourth quarter. Should we take that to mean like the current low 40s oil skew is something you think is sustainable? I'm just trying to understand what that means. Thank you.

Yeah, I think what it means for the fourth quarter is that the oil volumes we anticipate will be about flat going into the fourth quarter. Now, maybe it'll be a little bit better. I just don't know yet. But my guess is that It'll be about flattish from where we were third quarter on the volume side, and the overall BOEs obviously will be up a little bit, but generally that should hold us in and around a similar percentage, if you will.

Okay. I appreciate that. Thank you.

Sure. The next question comes from Sean Mitchell of Daniel Energy Partners. Go ahead, please.

Good morning, guys. Thanks for squeezing me in here. You talked a little bit about it earlier, Chris. You guys have been very consistent in kind of finding these bolt-on opportunities, and you kind of referred to we like to, you know, make a good hand. Is it getting harder? I mean, you've been doing this for a while. I'm just thinking are the bolt-ons going to get harder to make a hand in kind of 25 and beyond, or do you still feel pretty good about it?

Um, no, I don't, I don't, I don't think it's harder. I, I just think you have to be, you know, you have to have some level of patience around it and you can't just, you know, lunge at every opportunity. Like I said, we kick a lot of tires and there's a lot of things, a lot of smaller private folks out there are opportunities that sometimes you just have to think out of the box and, and try to create through your understanding of what you have and relationships that you have in and around areas that you operate. So I think it's – you may have to be more thoughtful about it, but I'd be – yeah, I think there's going to continue to be opportunities out there.

Okay. And then maybe one follow-up. You mentioned in the earlier comments on – the midstream facilities and power potentially being a problem if you saw something in the future. Are you thinking more in terms of power generation or transmission when you think about potential problems for power?

You know, sometimes when I think about it, it's probably all of the above, and I wouldn't tell you it's necessarily just in our neck of the woods at all. It's, um, it's, uh, you know, it's a lower 48 issue and, you know, there's, there's increasing demands on obviously, uh, around, uh, pull on power and, and that'll only grow. And so, um, you know, you just have to understand that, uh, you know, the grid and power capabilities and generation are susceptible just like anything else. And, you know, we've seen it related to weather issues to some extent, partly that. But as demand and pull on facilities grows, that makes things tighter over time and only potentially more problematic. And I'm not speaking for us Specifically, I just think this is a growing issue that folks need to consider.

Yeah, I agree with you. Thank you.

Sure.

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