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spk06: successfully integrated our 2021 deals on time and they are performing better than expected. As we mentioned on last quarter's conference call, we are conservative on development timing and the assumptions we utilize in acquiring assets, and we are seeing more production on our assets than anticipated, especially on the Veritas properties. Number three, our diversified model continues to shine. For the quarter, Permian volumes made up approximately 20% of our production volumes with only about two months of Veritas contribution. I would like to reiterate that we want a low leverage diversified capital allocation model, and we're delivering that in spades. Our leverage in this quarter is at a run rate of about 1.1 times, well ahead of schedule, and we believe we're on a path to less than one times in 2022. When this management team came on board four years ago, one of the major goals was to improve and deleverage NOG's balance sheet. We believe that goal has been accomplished and is permanently in the rearview mirror, which will allow further shareholder returns, as I'll discuss next. Number four, shareholder returns. During Q1, we delivered over 40% of our free cash flow back to shareholders in the form of dividends and preferred buybacks, a record percentage, and a record in terms of absolute returns. Even with the strong shareholder returns, we still ended the quarter with less debt than we had forecasted. We also increased and accelerated our dividend plan, which included another 36% increase to the quarterly dividend. Throughout this year, our goal is to keep all options open to deliver more shareholder returns and improve our discounted absolute and relative valuation. As we have previously discussed, we believe we have a premium business model that will continue to provide great returns to our shareholders. As noted in our release, management is recommending another 32% dividend increase next quarter that would take the annual dividend to $1 per annum. The board has also approved a buyback plan for our senior notes, as well as increasing the authorizations for preferred and common stock repurchases. Number five, the future. We are seeing robust organic activity on both our Permian and Williston properties as we approach mid-year. We hope and expect to see development towards the high end of our 48 to 52 well count this year, which should boost exit volumes for 2022 and set us up for significant production and free cash flow growth in 2023. As I mentioned last quarter, we see inclining volumes on our assets throughout this year. Recent severe storms in North Dakota will be a minor blip in April, and while it will flatten out Q2 growth, the trajectory for 2022 is actually materially improving, with accelerating growth throughout 2022. This has allowed us to increase our full-year production guidance. Additionally, ground game activity is booming, and we expect our free cash flow to significantly outperform our prior expectations. Small-scale ground game competition has picked up, but we are getting significant traction in larger-scale wellboard development projects that may be too large for our competitors to handle. If successful, we'll update you as always. Number six, bolt-ons. Legendary World War II General Omar Bradley was famous for saying that amateurs talk strategy, but professionals talk logistics. To that point, we have not done M&A as part of just some pie-in-the-sky strategic thinking. We have done it to definitively increase returns to our shareholders as the results speak to today. The strategic benefits are a residual benefit of smart financial decisions. The number of bolt-on properties coming to market has accelerated dramatically since we last reported, and we're evaluating a robust pipeline. As always, we're evaluating top quality accretive prospects in our core areas. As one would expect, with commodity prices higher and upside convexity for the buyer more limited, we will be cautious in our underwriting approach. Furthermore, you can expect our hedging strategy upon success will be geared towards locking in the majority of the PDP value. I am optimistic we can close on meaningful value-added M&A this year. As I've mentioned previously, we do not expect these acquisitions to require Northern to access the public common equity markets given our current leverage levels. As is typical, I will remind you this is not a cheesy tagline. We take it seriously when we say we are a company run by investors for investors, and I want to thank each and every one of you for taking the time to listen to us today. I'd now like to turn the call over to Adam and Chad to provide more details on operations and financials. Adam?
spk01: Thanks, Nick. The first quarter finished high note as elevated activity levels across our entire position have been encouraging and the Permian is leading the way. Completions for the quarter came in above expectations as we added 10.6 net wells to production. The trend in a pull forward of activity remained a theme during the quarter with the acceleration coming from our Williston completions. The Permian assets performed up to expectations with the Veritas asset accounting for roughly 20% of the net additions during the quarter. While completions were above expectations, we also saw the base asset outperform internal production forecasts. Our private operators in both the Permian and the Williston were the main contributors to that outperformance with continued improvements to well efficiency. Our Marcellus assets have also been performing well And we have been encouraged by the shallower declines in connection with the change in well design. With roughly nine months production under our belt, our first completed set of wells are outperforming by 15%. And we expect that outperformance to increase as we gather additional production data. As we look to the second quarter, blizzards in the Williston shut in significant gross volumes during April. However, based on our areas of concentration, and our operators working diligently to bring wells back online, the net effect to NOG was not nearly as impactful. In addition, our Permian assets have helped to partially mitigate the interruption, and we expect to navigate the late winter weather effects moving through the second quarter. On the drilling side, activity levels remain strong. We saw a build in our DMC list which has us sitting with almost 50 net wells in process, up from 42.5 net wells when we entered the quarter. As anticipated, the activity levels during the winter months shifted from the Bakken to the Permian as the Permian made up 45% of our total oil wells in process compared to about a third when we finished the year. Continuing with that theme, the Permian also accounted for two-thirds of the 13.3 net well proposals that we elected to during the quarter. We've been pleasantly surprised with the number of wells being proposed on our large Permian acquisitions and also saw consistent development from our other ground game acquisitions that closed in 2021. In the Williston, as the rig count has jumped to a two year high, AFE activity has risen for the fourth consecutive quarter and elections are up over 250% versus the first quarter of last year. In totality, the acceleration of both the Williston and the Permian provided us with a 40% increase in net well elections quarter over quarter. We will continue with our barbell approach of high quality elections and opportunistic ground game acquisitions. And while there will be monthly variations, we expect our current Williston and Permian assets to grow roughly in balance over the year. We've also been keeping our close eye on inflationary pressures and I've been impressed with the operators that we actively choose to partner with. Per well costs on new proposals remain well within the range of what we are modeling, with average well costs effectively flat quarter over quarter at $7 million a copy. This has not necessarily been the case for some of the other smaller operators that we have been observing through our ground game evaluation process. Many of the deals that we have screened have shown elevated AFE costs and partnering with the right operators during this period of time has been imperative to retaining capital efficiency. On the ground game front, deal flow remains at all-time highs, and despite the commodity price volatility and variability in quality, we have remained disciplined in our approach. During the quarter, we closed 10 deals for 1.3 net wells, 326 net acres, and 73 net royalty acres. The acquisitions were fairly balanced between the Williston and the Permian during Q1. We continue to see some very compelling opportunities in both basins as we move into the second quarter. The larger M&A opportunities continue to come to market, both in formal auctions and off-market sales. No difference in the ground game deals that we evaluate. We're looking for quality assets and seeking to deal with realistic sellers. There remains a concentration of quality non-op deals in both the Permian and the Williston, and we're currently screening a number of them. Operators have also been approaching us on potential partnerships, and to the extent we can put something together that is mutually beneficial, we will remain opportunistic on that front. Discipline and creativity are essential in this environment, and we are focused on layering in quality assets only to the extent that they are accretive to the enterprise. The duty of getting done what we were able to last year with over $800 million in acquisitions is that we don't have to do anything and can let the assets we've tucked in do the work for us. With that, I'll turn it over to Chad.
spk05: Thanks, Adam. I'll start by reviewing some of our key first quarter results, which was the strongest quarter in company history. Our Q1 average daily production increased 11% sequentially over Q4, and increased 85% compared to Q1 of 2021. Our adjusted EBITDA was 256.6 million, up 46% over last quarter, and our free cash flow more than doubled to 146 million compared to last quarter. Both metrics were well ahead of Wall Street analysts and internal expectations. Our adjusted EPS was $1.58 per share in Q1, well above consensus estimates. Oil differentials were better than expected in Q1 and came in just under $4 per barrel due to strong Bakken pricing and having more barrels weighted towards the Permian, which has a sub $2 oil differential. Gas realizations continue to remain strong in Q1, but I wanted to point out as higher gas prices persist and the ratio with natural gas liquid prices tighten, we would expect our gas realizations to fall back in line with our guidance. Lease operating costs were $54.5 million in the first quarter, or $8.50 per BOE, effectively flat on a per-unit basis compared to the fourth quarter and towards the bottom end of our guidance. As I mentioned on our last call, specifically related to our firm transport commitments on our Marcellus assets, that LOE would be elevated in the second quarter as we make any required payments compared to our annual production expense guidance. Cash G&A adjusted for one-time acquisition costs related to our Veritas acquisition was 86 cents per BOE. Capital spending for the first quarter was 85.6 million, excluding non-budgeted corporate acquisitions, which was below street expectations despite a pull forward in completion activity and additional ground game opportunities in Q1. Our Williston Basin spending made up 60% of the total capital expenditures for the quarter. The Permian made up 35%. The Marcellus made up 4%, and other items made up the remainder. The balance sheet is in great shape. We've paid off nearly $85 million on the revolver after closing the Veritas acquisition in late January. We currently have approximately $361 million drawn on the revolver, leaving approximately $390 million in availability. Given the cash flow we expect to generate, we forecast our revolver to be undrawn in Q1 of next year. although that could certainly move depending on commodity prices, how we use our free cash flow, and other factors. As we finalize our spring redetermination, our current asset base would support a substantially higher borrowing base should we desire more liquidity. On the hedging front, we've opportunistically added volumes north of $80 since our last report, mostly to fill our targets in 2023 and 2024 and to top off volumes from our Veritas acquisition. We continue to target hedging 60% to 65% of production on a rolling 18-month basis with select longer-dated hedging tied to corporate acquisitions. With respect to updated 2022 guidance, our production guidance is up 1,000 BLE per day to a range of 71,000 to 76,000 BLE per day. We expect our production to ramp as we move through the year and exit close to the higher end of our range. We will see some slowing of growth at the beginning of Q2 due to severe storms in North Dakota, but expect a strong catch up as we enter the third quarter. As a reminder, Q1 is typically our slowest quarter, so in terms of the cadence of our capital spend, we expect them to be more weighted towards the last three quarters of the year. As I mentioned earlier, oil differentials are better than expected, so we're updating our guidance to $5.25 to $6. This outlook should generate more than $425 million in free cash flow after our preferred stock dividend and would result in modestly increased production volumes and consistent growth in our common stock dividend. As Nick mentioned, the steady volume ramp we expect throughout 2022 also bodes well for a strong setup for 2023. With that, I'll turn the call back over to the operator for Q&A.
spk11: Thank you. And I'll be conducting your question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. One moment, please. Our next question is coming from Neil Digman from Truist Securities. Your line is now live.
spk07: Yes, do you all hear me fine? Morning, Neil. Morning. First question is on strategy, guys. Good details so far, Nick. I like the layout. Specifically, you know, I'd call you all now the leaders in the small cap clubhouse when it comes to shareholder returns. So, Nick, for you or the team, I'm just wondering – Do you all believe going forward that larger shareholder payouts are key for you and other small caps or do you prefer to build scale or what is the optimal plan?
spk06: Morning, Neil. I think there's solid logic to both M&A and obviously shareholder returns. M&A is important and we believe NOG is the natural consolidator NOG benefits from continuing to scale in the public markets. We see huge synergies from getting larger to our cost structure, our cost of capital, diversification, as today's results speak to make for a better non-op portfolio. So to sum that up, the analysis that we do internally still shows that M&A creates the most long-term value creation, at least financially. We can grow our per share profits with few limits given the marketplace and opportunities out there. It's impossible to manage the stock price day to day, but we can control and grow our business and profitability and let the market do its magic. But I'd say the current plan is an all of the above strategy, take in securities, grow and improve profits. That being said, I was a fundamental securities investor for 15 years. So I'm not going to mince my words here. I think we are terribly undervalued today, even if the strip gapped down $25. That means that repurchasing our own securities and other forms of returns are as competitive as ever with any use of capital. We're generating massive free cash flow. We've got significant authorizations in place for potential common preferred bond repurchases. Making sure the market values us appropriately is part of my job. And while there's only so much you can do, I do take it really seriously. So if this market situation sticks around, we certainly don't intend to stand around and shrug our shoulders.
spk07: No, it's great to hear. I love that you'll use that buyback as a potential backstop. I completely agree. And then my second sort of ties in what you were just talking about, and it was really on capital markets. you know, you all, as you mentioned, certainly closed some timely acquisitions last year. But it's interesting. I think part of the underperformance, I think to start the year was concerned about maybe potentially additional equity coming around, maybe further deals. So I'm just wondering, would, you know, we estimate you all right now, I mean, or you should have an ironclad balance sheet, I believe by the towards year end. So given that, How would you think about further financings or how would you consider when you look at further deals now that you're going to certainly be in a materially different financial shape here in the coming months?
spk06: I would say based on historic valuations that we're paying when we acquire properties, if we were to be successful, I think we could do upwards of $900 million in cash acquisitions without having any material impact to our overall credit metrics. And I would say our board of directors, you know, to be clear, our profits are up about 80% since the fall and our stock is roughly in the same place. So that means our valuation is compressed. And I would say our board has very, I would say, not to mince words here, but I don't think the board is terribly excited about issuing comment equity if the market's not going to value its property and we just frankly don't need to.
spk07: Great to hear. Thanks, guys.
spk11: Thank you. Next question is coming from Scott Hennelt from RBC Capital Markets. Your line is now live.
spk04: Thanks, all. And, you know, like the enthusiasm, it sounds like things are going quite well there. You know, just to First, if I could delve into sort of the operating cost side of things, it seems like obviously the first quarter, your OPEX looked pretty good. And I know, Chad, you gave some color on obviously the trend being up maybe a little bit in 2Q. If you could quantify that, but then also from a bigger picture perspective, just help us think about just structurally, where does LOE cost go over time as the Permian becomes a bigger part of the equation?
spk06: Yeah, so this is Nick. I'll let Chad talk a bit on the logistics for this year. The one thing, you know, in terms of our FT commitments in the Marcellus, that's an annual thing we pay. We can't, you know, spread it out. You pay it one and done.
spk05: Yeah, that's right. The econometric kind of holds you to booking it as you receive it. When we originally booked the fair value for it, when we bought the Marcellus properties back in Q1 of 21, We had to kind of fair value with that. And then any incremental increase now, we have to kind of roll in as it comes along. You know, from a quantification standpoint, I think it's somewhere around $5 to $7 million of cost that will be coming through related to that in Q2.
spk06: Yeah. And, Scott, the reason that it's an issue this year versus, say, last year is that we we paid it at closing last year. So we incurred it and we still incurred it just in the actual capitalization of the transaction. In terms of LOE and the balance between the Permian, I think as the Permian grows, it's obviously, you know, it's a gassier play and has generally, you know, from a productivity perspective, lower operating costs, as well as it's closer to market. So as we book our GP&T costs in LOE, it tends to be lower. As Bakken production ages out, obviously LOE per unit on any well goes up over time. And so I would say our goal would be as we, you know, modestly grow our volumes and that mix shift changes over time that our LOE would stay relatively static.
spk04: Okay. And that's relatively static to say like the 850 number you guys post in the first quarter, is that sort of a good benchmark?
spk06: I would say just to be conservative within the range of our guidance. Right. I think and I think the other thing, too, is that, you know, when you think about how we book it versus, say, some other peers where we do a kind of all in one, we do have to account for the fact that liquids prices are very high. And so your processing costs are going to float with the price of overall NGOs. So it's going to be more elevated now. Obviously, you're getting that and above that in revenue. But it will, you know, that LOE will go down if prices were to meaningfully contract and it If propane prices went to $2 a gallon, it's likely to go up somewhat because you have a lot of pop contracts as part of that.
spk04: Understood. And then, Nick, you obviously, I'm going to use your words, but said the ground game is booming. Could you help give us a sense of what's going on and how big of an opportunity is that for you all? What has really spurred sort of the uptick in that opportunity?
spk06: Yeah, I mean, I think what's really changed in the dynamic is that if you go back five to seven years ago, when prices were high, operators generally would consent to all of their non-operated properties and just spend extra money. What's unique about it is that we're in a $100 world and they still want to spend money drilling their own wells and that stuff is still coming off. And so what I would describe to you is we're not, you know, what we're seeing is instead of a quarter of a net well here with some acreage or a half a net well there. We're seeing pad developments with up to 40% working interest. That could be five to seven net wells. Well, at today's prices, that could be $50 to $75 million worth of capital. And I don't want to scare anyone that we're going and spending money like crazy, but I would just say the size of the transactions as well as the small stuff, which still exists, is larger than we've seen in past trends. I don't know, Adam, you should add to that.
spk01: Yeah, I mean, the size of the transaction relative to the rate of return in terms of its competition, that's where we're going to focus our efforts on. When you've got 2% to 3% working interest that are getting shot, you've got a lot of other people, you know, trying to take bites out of that, and those are the things that we're going to let go by because it's not going to move the needle.
spk00: So when we're in a room by ourselves, there's just a couple of folks generally do a little bit better on pricing.
spk04: Yeah, so as you kind of played your full year guidance, did you kind of also account for the fact that, you know, maybe there's some more ground game, you know, a pickup of ground game activity through the course of the year? Is that potential upside to sort of the outlook at this point?
spk06: Potentially. I mean, I think we take each one in stride. I mean, I think as you know, Scott, we budget for a good portion of this within the year, every year. And so we've tried to be very careful so that when we are successful in this, it's not just additions to the capital. And I'd say we feel very confident in our capital outlook. We've been very, very cautious in terms of that. So I wouldn't make the assumption that it necessarily is incremental capital, so to speak. One thing I would say that is an interesting trend we have noticed in the past 18 months, and we had a discussion with our own board about it this week, which is that the conversion timing has been compressing, meaning that in past years, we would see six to nine month lead times from AFE to sales. And we've been seeing things compressed to sometimes less than three months. And what's good about that is it means you're not carrying on a percentage of completion those costs on your DNC list for a long time. So it tends to make your capital efficiency a bit higher because the money is coming in and going out and converting very, very quickly. So it means you don't necessarily carry as many wells in process as you might have in the past, but that your capital is highly productive and turning much quicker.
spk04: Understood. Thanks for that.
spk11: Thank you. Our next question is coming from John Freeman from Raymond James. Your line is now live.
spk09: Good morning, guys. John. When I look at, you know, y'all are close to achieving the target of being below that one times leverage. And given that the preferred stock is your most expensive cost of capital, would it maybe make some sense to shift more of that incremental free cash flow toward accelerating the repurchase of the preferreds relative to paying off the revolver by 1Q23, just given how much cheaper that cost of capital is?
spk06: Yeah, I mean, I think let's go through all three securities just so you can understand our logic clearly. I'd say they all have their merits in their own way. And I think given how much free cash flow we're generating, I don't think we have to choose just one. We've obviously attacked the preferred first because, as you point out correctly, it is the most expensive cost of capital. And we're monitoring and weighing all of them against each other. But they have different considerations, you know, the As I mentioned, the corporate finance modeling will tell you, you know, the preferred is definitively our most expensive. It's deeply in the money now. And that's certainly why we chose it first. But then with respect to our bonds, you know, if the Fed actions mean that we can retire debt we just issued at about 107% of par for less than we owe, that in and of itself has value. And with a common stock, you know, that's, basically our number one focus when it comes to making sure the market's valuing us appropriately, and you can't ignore that either. Obviously, the preferred does have some impact because it is in the money and effectively common stock at this point. So bonds have the impact of saving interest and reducing risk and potentially actually some accretion in the sense that you can retire the loan for less than you owe. The preferred has the most mechanical impact to our returns, and the float reduction from common stock may help our stock trade properly and as well boost returns. So I think all options are on the table here and now, but I think we'll be very logical about how we approach this and measured and careful.
spk09: Okay. No, I appreciate the thought process. And then on the CapEx front, as y'all rightly pointed out, I mean, y'all are literally the only small cap I can think of during earnings that was able to maintain the the CapEx budget, and I guess what I'm trying to think about is, well, I guess first, like on the ASEs that you're getting today, are you not seeing those move meaningfully higher from 1Q levels? I'm just trying to get a sense of the confidence y'all got in being able to maintain that budget because it is pretty remarkable what you've done so far.
spk06: Yeah, well, I made Bloomberg Intelligence retract an article they wrote last year because they said small cap companies will be facing cost inflation. Well, we're a small cap company, but we have large cap operators. So the reality is that the largest and best capitalized and most active operators are the ones that we are focused on from a capital efficiency perspective. Not to mention the fact that if you recall last year, many operators, as they were getting the synergies of lower cost wells, were lowering those costs. We did not. We kept ours consistent and flat because, One of the things an operator, operator A may be seeing inflation, operator B may not. We see it all. And so in some ways, you know, I read a piece of an earnings review that said we might not have the same visibility that operators do. I soundly reject that. We actually have better visibility because we see everybody's costs. So we saw smaller capitalized companies with significant increases potentially
spk01: early last fall um john the other way i'd frame it up if you look at our dnc list as just a percentage of you know private smid cap large operators and look at it from a wilson or fermion standpoint obviously eqt is operating 100 of our marcellus asset but you've got large cap operators operating 47 The other 47% is private, concentrated to true private. And so our exposure to SMID cap operators is roughly 6%. Gotcha.
spk09: Well, I would say that you've clearly done a good job choosing your partners because we've had a number of large cap companies that have blown through their budget this early season as well. So you've clearly done a good job choosing your partners. But great quarter, and I appreciate all the thoughts.
spk06: Yeah, I mean, John, I feel like a broken record, you know, because I tell everyone this over and over, but we are more conservative than our own operators in many cases on performance, timing, and costs. It doesn't mean we won't be wrong from time to time. It doesn't mean we won't choose to spend less or more from time to time. But it does mean we're pretty careful, and over the long term, we're pretty accurate.
spk09: Appreciate it, guys.
spk11: Thank you. Next question is coming from Charles Mead from Johnson and Rice. Your line is now live.
spk08: Nick, I have to say that Omar Bradley quote, you had to reach pretty deep in the back for that one.
spk06: I got it from my mom, actually.
spk08: World War II buff or something. I have to say the metaphor is maybe a bit lost on me, but still, I was impressed with the obscurity of it. But Let me ask a real question about your quarterly production cadence. And here's I think what I heard Adam say is that you can have a slight incline in 2Q. And what I'm curious about is 2Q is going to have a full contribution from Veritas. And so was that comment just about kind of a pro forma production or is that kind of on a On a pro-forma basis, are you actually declining a bit in the extra month of Veritas is what's bringing you back up?
spk06: Yeah, I mean, listen, you know, the storms in North Dakota were no joke. And there was, you know, for parts of April, there were a significant portion. I think Adam did mention this. We materially outperformed the aggregate just by where we're located. But it will have an impact sort of flattening it out and kind of offsetting it a bit. But If you think about it this way, all that oil is getting stored in the local tanks and then it's going to come to sales in May once those things come off. So within the quarter, we may be proven wrong and it winds up being a blip. But, you know, it did have an impact on April and slows it out. But you're just basically stealing from Peter to pay Paul. So on an annualized basis, it only winds up increasing the production, you know, sort of either later in 2Q or in 3Q.
spk08: Okay, that's helpful. And then maybe picking up on this inflation question, I think Adam already addressed a bit. Because you guys do get to peek behind a lot of curtains, I'm just curious what insight you could share with us, not only across different plays, but you've already talked about different operators. Are you seeing different pressures in different parts of the country, or are you seeing different kind of pressures, whether it's on tubulars or completions or something like that from one sort of operator to another? And what, if anything, does that kind of suggest to you about how 23 is going to play out?
spk01: Yeah, in terms of, you know, the certain basins, you're certainly seeing a difference between the Bakken and the Permian. And, you know, the larger Bakken operators that we're exposed to as well as the privates are doing A lot better. You have a function of a steady state rigs, long-term contracts. If people are going back to the well, service providers are going to try to recut those contracts. Our operators in North Dakota are certainly staying conservative in that regard, albeit at two-year highs. In the Permian, it's a function of what kind of rig program you're running. There's handful of operators, you know, smaller onesie-twosie guys that are running one to two rigs, and they're the ones that we're seeing, you know, struggle the most. You know, you've got frat crews that are potentially not showing up, sand that's not showing up, those types of things, and so that's where we're actively, you know, getting in front of the larger privates as well as, you know, the larger publics in that regard in order to mitigate things. And then as far as kind of 23 is shaping up. I don't know how much, you know, capacity there is to add rigs at this stage in the game in terms of, you know, availability. And so in terms of moving things forward, I think it's going to be steady state and it's just going to depend on rig contracts, how long those are, when those roll off and effectively the price of oil.
spk06: Yeah. And I would say, you know, there's lots of sand in the world and it's not that hard to make a steel pipe. So I think those shortages will be Relatively shortly lived, I would anticipate by 2023 those capacity issues, those are more easily solvable than the physical number of rigs or the people that work on them. So I think those are shorter term bottlenecks, if that makes sense.
spk08: Yeah, that does. But just to clarify, Adam, and your comments, Nick, about, you know, adding rigs, you're talking about for the industry and the aggregate, if I understand. Correct.
spk00: Correct.
spk08: Correct. Thank you, guys.
spk06: Yeah. I mean... Charles, just one thing to think about as an op, you know, if we wanted to double our output next year, it doesn't. We don't add any net rigs. We don't add any net production. It's simply working interest in existing production. So we don't have the same types of issues about ramping up or down that an operator does.
spk11: Thank you. Thank you. Next question is coming from Phillips Johnson from Capital One. Your line is now live.
spk03: Hey guys, thanks. Nick, you mentioned inclining volumes in each quarter for the remainder of the year. I just wanted, I guess, an update on the net wealth schedule. I think the original plan was around five to six or so in Q1 and sort of jump into 18 in Q2 and then sort of roughly 13 or so in each quarter in the back half of the year to kind of round out the 50 total. I think Q1 was closer to 10 and a half and then, you know, we've obviously got some weather here in Q2. So, wondering how that cadence might have changed.
spk06: Yeah, so I think that, you know, from an inclining volumes perspective, I think I would expect sort of, you know, a flattening of the overall production in Q2. You know, we'll have to see just as the field's coming back to life. But, you know, there's a chance of modest growth. But I do think from a completions perspective, you'll see a modest uptick, you know, flat up in the second and third quarter. And I think in the fourth quarter, you're going to see a pretty substantial uptick in the number of completions we have. So, you know, I would say, you know, 10 to 12 wells a year for the middle quarters of the year, and I would say probably 15 plus in the fourth quarter. that's helpful.
spk01: Yeah, I mean, obviously, there's things that move around for months and months, and depending on when we're adding those wells, you know, earlier or later in the quarter, that's obviously going to drive things, too.
spk06: Yeah, and we've been consistently surprised, as you would imagine, at $100 oil, people are highly motivated to get their wells to sales, so it's probably the third straight quarter where we've seen some pull forward, and so, you know, that definitely will play a factor into it, but I don't materially change those maybe one or two on the margin.
spk03: Okay. And just on a CapEx front, would that sort of trend the same level to where Q4 is probably going to be the peak or so?
spk06: Yeah, that's right. That's right. I mean, I would think, you know, we should see, you know, in aggregate a handful more completions each quarter this year. So we should see some step up in the CapEx. Obviously, we spent less than a quarter of our CapEx this quarter. But I don't think it's going to be massive. And remember, we're a percentage of completion, right? So it's really about the wells in process. So if you look at our CapEx this year, it's not X wells completed times the cost of those wells, right? Our DNC list went up by six and a half wells this quarter. So we're carrying the cost of all those wells in process. So just because the fourth quarter is where all our completions are, some of that CapEx is going to be born in the second and the third quarters.
spk03: Okay, and then wanted to check to see what level the preferreds are trading at these days. I think the last update I had was mid-March or so when they were about 136.
spk06: Yeah, I mean, I think today's prices is going to be somewhere between – it really depends on what your delta ratio is, right? So they're deeply in the money, but you could make the argument they're 85 delta or they're 100 delta, right? But you're talking about like 135 to 150. But what you really think about is the exchange ratio, which is about 2260 and change. So that's the number of share, right? So it's that. And then the simple math on a preferred is add like four years of coupon. And that'll kind of get you pretty close to the spot price.
spk03: All right. Makes sense. Thanks, man.
spk11: Thank you. Next question is coming from Noel Parks from 2E Brothers. Your line is now live.
spk10: Hi, good morning.
spk00: Good morning, Noel.
spk10: You know, I did just want to check in with you on one thing. You were talking about the ground game and the market activity in general. And I just wondered, what are your thoughts on assets finding their way into the best hands. I think of the peak of private equity coming into the sector, and I imagine that sort of scrambled things a bit in terms of just owners holding onto assets longer than they might have been just because they didn't want to take the loss. So I just wonder, are we somewhat back to a normal market that you know, where activity and pricing are roughly proportional to, you know, to market conditions, to fundamentals?
spk06: Let's see here. I think that $100 oil confounds people to some degree. I think that There's a lot on the market for sale. There's a lot of variability. I think on the very small-scale stuff, there's always competition, but I think there's probably more today. And that's a function that people are making more money than they assumed they would, and they're trying to reinvest some of those dollars. You get a few kind of Johnny-come-latelys, and people want to chase that. Frankly, we're like a matador. We're happy to let the bull run by when that happens. In 2018, we saw a little mini version of this when oil spiked up to about $70. People love taking risks when the price is up and they're feeling flush. But we maintain our discipline and we're still getting plenty done. I think on the big scale stuff, maybe there's a bit more competition than a few years ago as people have raised a few dollars here and there. But I still think we manage the risk and concentration where others can't. Everyone understands that risk plays a bigger role when prices are elevated. I think sellers are frustrated because they want to get every last dollar out based on the current strip. And, you know, I would just say at $100 oil, the hold case always looks great. But in the end, I think sellers need to be realistic when you're in this type of environment, which is that, you know, I think that's the challenge in this market, which is that if you've held an asset, and you needed to sell it and monetize it, you might say, oh, why would I even do that at today's market pricing? And the answer is because this is a cyclical business and there's a lot of risk and you can't take that for granted.
spk10: Right, right. And I think you've been pretty clear on it, but just to double check, as you noted, you're primarily in assets that have larger operators But, you know, we've been hearing just a lot of pressures from a lot of sort of disparate directions depending on sort of the operator, their activity level, where they are, of course. So it's sounding like they're not seeing any issues as far as completion pace by operators. They're not sort of getting in trouble with sand hauling or, you know, I don't know, equipment issues or anything like that.
spk06: There are always cost overruns. There are always problems. The real question is how do you underwrite it? How do you budget it? We have an entire planning group that spends all their time. And as I'll say ad nauseum, we spend a lot of time to try to under-promise and over-deliver even internally, not just what we talk to our investors about. So we are absolutely seeing cost pressures. We're absolutely seeing delays. And we're seeing, as Adam mentioned, frack crews not showing up. But the best part about our business is when your average working interest is less than 10%. No one thing means all that much. And if you model it correctly and you have engineers and planning people that are very careful about that, you're generally more pleasantly surprised than disappointed.
spk01: I'm looking at the last six quarters and our weighted average AFBs and consents are coming in at seven. When we're looking at our budget for the year, especially going into this one,
spk00: we're looking at, you know, call it a $7 to $8 million in order to account for those types of things.
spk10: Got it. Thanks a lot. We appreciate the description of, again, sort of just reminders about the planning process internally. Thanks.
spk11: Thank you. Next question is coming from Nicholas Pope from Seaport Research. Your line is now live.
spk07: Nicholas.
spk11: Perhaps your phone is on mute, Nicholas. please pick up your handset or take your phone off mute. Nicholas, if you could hear me, I can now hear you. If not, please press star one again to reenter the queue. Our next question is coming from John Abbott from Bank of America. Your line is now live.
spk02: Good morning, and thank you for taking my questions. I do apologize that some of these topics may have been covered. I was a little late getting on the phone. My question, Nick, here is first on deal activity, which I'm sure there's been a lot of questions already asked, but how are you thinking about deal activity sort of over a multi-year horizon? Is there a point where you slow down? I mean, what's your sort of latest thought over on this organic activity over a multi-year horizon?
spk06: I think that in my prepared comments I gave my sort of professionals talk logistics, I think we're opportunistic, which means that, you know, This isn't some strategy of, you know, we need to get bigger or we need to keep buying or we need to do all those things. We take each opportunity as it comes in the door. And if it makes sense and we can do it at the prices that we feel generate the returns we want, we'll do it. And that ebbs and flows, frankly. And I think the risk profile of that ebbs and flows, I think the risk within the market today is significantly higher than it was in 2021. You know, you're – We did that in a mid-cycle period of time. Obviously, we're now enjoying the fruits of that at $100 oil. But obviously, the risk, depending on your viewpoint, I know oil could go to $150 and it could also go back to $50. And I think that convexity is really important, especially to our board as we look through those. So the pipeline is as big as it's ever been. We go through, you know, last year was a bit of an anomaly in the sense that we had four successful transactions, I can tell you. All four of those, there were specific reasons why we were able to get to be successful. We had one that needed money to make an acquisition, another one that needed money for CapEx, another one that was exiting the business entirely. There's always a reason that really helps things happen, whereas typically our batting average is very, very low. And so I think if we can find transactions that meaningfully add value and returns and actual numbers. I mean, I don't, I can't say enough. Look at our results. It has been proven on every per share statistic, even as we tap the capital markets, that these transactions have added meaningful value. That being said, you know, we can't control seller appetites and what their desires are. And so we plot along with the way we do things. And sometimes we're successful and sometimes we're not. But in terms of slowing down or going, it's our job to find ways to grow. That is why we are a public company. That's why we're capitalists. It is our job to grow and find ways to make a better company. And if we can do so, great. If not, we're really happy with the business as it stands today. We don't need to do anything. But I think we'd be doing a disservice to our stockholders if we didn't at least look.
spk02: Appreciate it. And you are out there looking to – potentially repurchase their shares and I mean you figure stock is undervalued and but when you sort of look at relative performance for your the shares and you've gone through and you've made these large acquisitions and you know they've been done at prices and they've improved your size outside of like buyback stuff I mean what else do you think might be done and just sort of improve shareholder relative performance I mean you're having a nice green day today but what else do you think could be done?
spk06: I mean, I'm incredibly proud of how we've transformed and built this business. The quarter's results, like I said, are another validation of that. I really think we've done all the right things from a business perspective, and our acquisitions in the last year, you know, have taken us to new heights. At the same time, making sure the market values us appropriately is part of my job, and I take that very seriously based on how the market is undervaluing us and As a professional securities investor for a long time, I think I have some credence in my beliefs here. We may just need to capitalize on that and look to generate returns on our own securities. If this market situation sticks around, we certainly don't intend to stand idly by. We're generating massive free cash flow, and we've got significant authorizations for every single security that we have outstanding. So if necessary, we've got all the options on the table and cash is king. We have the big stick. So put simply, we care a lot about our stock price. We have an incredible business model that is still, in my view, misunderstood and underestimated. And we'll try hard to make those who believe in us proud. We have tons of upside, you know, from in-basin pricing to overall moves in oil. And as I've been saying ad nauseum for four years, asymmetry, you know, works in our favor. So when prices are high, you know, everything that we're doing comes on faster and produces more.
spk02: Really appreciate the cutlery, Nick, and thank you for taking our questions.
spk11: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
spk06: Thank you all for joining us. We'll see you on the next one.
spk11: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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