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spk09: ladies and gentlemen thank you for standing by my name is brent and i will be your operator today at this time i would like to welcome everyone to the silver bow resources fourth quarter and year-end 2022 conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you would like to ask a question at that time simply press star followed by number one on your telephone keypad If you would like to withdraw your question, again, press star 1. Thank you. It is now my pleasure to turn today's call over to Jeff Maggots with Silver Bowl Resources. Sir, please go ahead.
spk07: Thank you, Brent, and good morning, everyone. Thank you very much for joining us for our fourth quarter and full year 2022 conference call. With me on the call today are Sean Wolverton, our CEO, Steve Adam, our COO, and Chris Abundas, our CFO. Yesterday afternoon, we posted a new corporate presentation to our website and will occasionally refer to it during this call. We encourage listeners to download the latest materials. Please note that we may make references to certain non-GAAP financial measures which are reconciled to their closest GAAP measure in the earnings press release. Our discussion today may include forward-looking statements which are subject to risk and uncertainties many of which are beyond our control. These risks and uncertainties are described more fully in our documents on file with the SEC, which are also available on our website. With that, I will now turn the call over to Sean.
spk10: Thank you, Jeff, and thank you everyone for joining our call this morning. 2022 was truly an exceptional year for Silver Bow, with strong execution on our business plan. We grew production in EBITDA by double digits, established new acreage blocks providing for additional inventory, completed four accretive acquisitions, and realized a 25% increase to our share price. Furthermore, Silver Bow was named as one of Houston's top workplaces for the third year in a row. The four acquisitions we completed in 2022 added a deep bench of premium inventory across our portfolio. As of year end, Silver Bow has over a decade of high rate of return drilling locations, two-thirds of which are oil locations. Using SEC pricing, our approved reserves increased nearly 60% year-over-year to 2.2 TCFE and our approved PV10 increased to $5 billion. At recent strip pricing, we estimate our approved PV10 is just under $3 billion. As of our earnings update in November, we shifted both of our drilling rigs to Webb County to develop Austin Chalkwells in our prolific Faskin area during a $5 per MCF gas price environment. As gas prices fell at the end of the year, both of our drilling rigs were shifted to our central oil area to capture better returns associated with higher oil prices. Remaining flexible in our operations and capital allocation has been and will continue to be a defining part of our business strategy and success. As we laid out in our 2023 budget yesterday, we are targeting a two-rig drilling program this year focused entirely on oil development. In recent months, oil prices have shown relative strength compared to the gas trip. As a result, we see the highest returns this year through acceleration of our oil development. Much of our focus will be on assets we have acquired over the last 24 months. Additionally, there are several short-term factors occurring in South Texas today. First, regional supply in Webb County increased roughly 50% year-over-year or approximately a half of BCF per day in response to increased drilling and completion activity and strong wealth performance. For reference, The Webb County rig count increased from a low of two rigs in late 2020 to a high of 17 rigs in late 2022. Regional supply is now pushing up against available pipeline capacity. Second, on the demand side, Mexico exports have trended below 2022 levels. Regional demand was further impacted by outages at a key LNG export facility in a warm winter season. The net effect is a governor on growth in Webb County gas in 2023, which should improve with multiple new pipeline projects expected to come online at the end of the year. This is where Silver Bow's balanced strategy stands out. We are well positioned to optimize our drilling schedule and accelerate development of our oil assets thanks to the actions we took over the last several years. Silver Bow has previously discussed achieving a longer term 50-50 balance between oil and gas. With this year's budget, we can accelerate that timeline and we expect liquids to comprise roughly 45% of our total production by year end 2023. Our key focus areas include our central oil area, our western condensate area, and our eastern extension area. We also plan to target the Austin Chalk Formation across these oily positions, where we are seeing strong performance to date and the potential for future drilling inventory upside. Furthermore, in addition to shifting both drilling rigs to our oily assets, we have elected to duck eight Webb County chalk wells pending higher gas prices. As Chris will further detail, 90% of our gas volumes are hedged in 2023, leaving little downside exposure to gas prices. At the same time, we are 50% hedged on oil for the year, so as we ramp our oil production, we'll benefit from any uplift in the oil price curve. To wrap up my prepared remarks, I would like to note that our capital budget is one piece of a multi-year strategy which is unchanged. We have the roadmap and the levers to pull to grow production, EBITDA, and free cash flow while simultaneously expanding our inventory and strengthening our balance sheet. Our team has an established track record of delivering on our key objectives through commodity cycles. We see a robust pipeline of opportunities ahead that will continue to unlock value for all of our stakeholders. With that, I will hand the call over to Steve.
spk05: Thank you, Sean. Silver Bowl is proud of our operational and safety accomplishments over the past year. They were the result of cross-functional teams working in unison to deliver some of our best results to date. First, core to the ESPO way, We exemplified our safety strong tenant by achieving a 0.09 TRIR for 2022. Additionally, our production operations team recently celebrated its sixth year anniversary with zero OSHA recordable accidents. Our team accomplished this while doubling the pace of our drilling activity to two rigs at mid-year and managing a much larger asset base after the integration of numerous acquisitions. Moving to well performance, we are excited about the results we are achieving from recent wells and the quality of rock we are developing. A key focus area for Silver Bow in 2022 was the development of the Austin Chalk Formation, primarily in Webb County. These wells continue to outperform expectations. To date, our Austin Chalk wells have achieved IP30 rates 25% higher on average compared to our historically prolific Lower Eagleford wells. Furthermore, Austin Chalk EURs normalized for lateral foot are averaging nearly 50% higher than combined upper and lower Eagleford offsets. As of year end, we had over 80 Austin Chalk locations in Webb County, and given the thickness of prospective intervals and staggered development, we see further inventory upside across our acreage. Specifically in our Dorado area, we are seeing some of the highest performing chalk gas wells in our portfolio. Towards the end of 2022, we brought several chalk wells online in our Faskin area with individual peak production above 20 mmCF per day. These wells are exhibiting lower decline rates, more akin to conventional reservoirs, when compared to Eagleford wells. Given the limitations on incremental growth in Webb County that Sean discussed, we're expecting to return to developing this area next year. Competitively speaking, Our team assembled and consolidated high return acreage positions across our liquids areas in 2022. These actions significantly increased our inventory count and economics due to optimized spacing and lateral lengths. Year over year, we increased our location count by 85% with over 15 rig years of inventory life. Of the wells we are drilling in 2023, most will come from our acquired assets. On slide 11 of our corporate presentation, we show the key focus areas of our 2023 budget and our inventory runway. We also see promising Austin chalk potential in many of these areas. Based on the initial petrophysical assessments and well results from Silver Bowl, we see additional inventory upside in the chalk formation. Moving to operations, our team continues to deliver faster cycle times, further improving capital efficiencies across all major areas. On an accrual basis, our 2022 capex of $328 million was just below the midpoint of guidance. Our full year 2022 DNC costs were within 1% of AFE, a major accomplishment considering the commercial pressures from industry-wide cost inflation. The efficiencies further increased throughout the year as we stepped up to a two-rig drilling pace and took control of operations on acquired assets mid-year. In the fourth quarter, our DNC costs were 11% below AFE. During this time, we averaged 13 stages per day with our frac crew, while exceeding 85% pumping efficiency on numerous pads. Compared to the first half of last year, this is an increase of four stages per day and efficiency gains of 10 to 20%. Although efficiencies were already high in recent years running one rig, our two-rig cadence has provided another pronounced leap in cycle times and frac utilization. In regards to our current inventory inflationary pressures, we are seeing a plateau in cost creep and believe we should see some selective cost deflation in the second half of this year. For 2023, our capital budget guidance of $450 to $475 million reflects a level loaded two rig program throughout the year and provides for 52 net wells drilled and 57 net wells completed. Half of our DNC CapEx is allocated to our central oil area, with the remainder equally split between our western condensate and eastern extension areas. Additional non-DNC CapEx is also being deployed towards various ESG improvements and related activities. Late last year, Silver Bowl published ESG metrics aligned with SASB and GRI reporting standards. and is currently working towards releasing its inaugural sustainability report in the first half of 2023. To wrap up, our first quarter production guidance of 295 to 316 MMCFE per day reflects the deferral of eight wellbores in our Webb County gas area until early 24 and ongoing dry gas curtailments at firm capacity levels. November of 22, We were running two rigs on our gas acreage, and by the end of December, we had moved both rigs to our oil acreage. As Shawn mentioned, this flexibility is core to our commercial strategy. First quarter oil production does not reflect the full benefit of a dedicated two-rig development program, given the aforementioned fourth quarter rig movements. On a full year basis, our 2023 oil production is expected to increase by 100% year over year. and our total production is expected to increase by approximately 25% at the midpoint. Our dry gas production guidance assumes we are only able to produce at contractual firm pipeline capacity levels through year end. In January, dry gas production averaged in line with these firm pipeline capacity levels. In February, we were able to sell into some interruptible capacity, and thus, averaged volumes were slightly above firm pipeline capacity. However, as mentioned, our guidance conservatively assumes we are limited to firm pipeline capacity. Near-term visibility on takeaway capacity remains opaque, and we will continue to monitor and assess as the year progresses. Steve Maniscalco, Consistent with our long term business plan we remain flexible in our development program and opportunistic and maximize maximizing returns for 2023 beyond. Steve Maniscalco, The pivot point to oil this year plays right into our multi year playbook and as a direct reflection of the strategic action silver bow has made over the past several years with that i'll turn the call over to Chris.
spk04: Thanks Steve. In my comments this morning, I will highlight our fourth quarter and full year financial results, as well as our operating costs, hedging program, and capital structure. Fourth quarter oil and gas sales were $199 million, excluding derivatives, with natural gas representing 66% of production and 50% of sales. During the quarter, our realized oil price was 99% of NYMEX WTI, Our realized gas price was 84% of NYMEX Henry Hub, and our realized NGL price was 29% of NYMEX WTI. As shown on slide 22 of the corporate presentation, we have historically realized close to NYMEX benchmarks. During the fourth quarter, our realized gas price was impacted by widening basis differentials and is lower than our historical range compared to Henry Hub. This has been caused by the loosening of regional supply and demand, the impact of which could extend until additional pipeline projects come into service toward the end of 2023. Furthermore, risk management is a key aspect of our business, and we are proactive in adding basis to further supplement our hedging strategy. For 2023, we have secured gas basis hedges on over 150 MMCF per day to mitigate further risk. Our realized hedging loss on derivative contracts was $34 million for the fourth quarter, and $212 million for the full year. Based on the midpoint of our guidance and our hedge book as of February 24th, Silver Bow has 73% of total estimated production volumes hedged for 2023. Broken down by commodity, the company has 89% of natural gas production hedged, 51% of oil hedged, and 46% of NGLs hedged for 2023. Assuming our production guidance is held flat in 2024, our total production is approximately 40% hedged. The hedged amounts are a combination of swaps and collars. A detailed summary of our derivative contracts is contained in our presentation and Form 10-K filing, which we expect to file later today. Specific to our gas hedges in 2023, as we are 90% hedged, our revenue is very insulated to any downward movement from the current strip. While commodity prices have been volatile in the last several years, we remain judicious in locking in favorable returns on our capital investments. Turning to cost and expenses. Fourth quarter LOE was 63 cents. Transportation and processing costs were 35 cents, and production taxes were 5.8% of sales, or 40 cents per MCFE. Adding our LOE, TMP, and production taxes together, our total production expenses were $1.38 per MCFE. Cash G&A, which excludes stock compensation, was $5.4 million for the fourth quarter, which was slightly higher than our guidance range due to professional fees. For 2023, we are guiding for cash G&A of $17.5 million at the midpoint, a 7% increase from 2022. Notably, our cash G&A is lower year over year, inclusive of our recent acquisitions. This will drive meaningful G&A reduction on a per-unit basis. We consider our lean cost structure to be a competitive advantage, which allows us to sustain profitability during periods of volatile commodity prices. Additionally, we expect to continue identifying synergies within our cost structure as we accelerate our liquids development across our recently acquired assets. Adjusted EBITDA for the fourth quarter was $119 million, exclusive of pro forma contributions from acquisitions. As reconciled in our earnings materials, we generated $2 million of free cash flow in the fourth quarter and $22 million of free cash flow for the year. Consistent with prior years, whichever amount of free cash flow that was not reinvested in the drill bit was used to pay down debt. While we ended the year at a leverage ratio of 1.35 times, we remain on track to achieve a leverage ratio below 1 times. As previously mentioned, we closed four accretive acquisitions in 2022 in line with our disciplined M&A strategy and added additional acreage through leasing activity. Total consideration for property acquisitions was $593 million. This reflects a combination of stock and cash used for the acquisitions and transaction-related fees. valued at the time of close, and net of purchase price adjustments. Cash consideration for these deals after giving effect to purchase price adjustments totaled approximately $370 million. CapEx on an accrual basis totaled $103 million for the quarter and $328 million for the full year, excluding payments for acquisitions. Our 2023 CapEx guidance of $450 to $475 million which Steve detailed in his comments, is based on a steady two-rig drilling pace throughout the year. Year-end approved reserves using SEC pricing were 2.2 TCFB, 77% of which were natural gas and 43% of which were approved developed producing. Our approved PV10 was $5 billion and our PDP PV10 was $2.6 billion, an increase of 173% and 150% respectively. Turning to our balance sheet, we executed several initiatives in 2022, which allowed us to upsize and extend our credit facility maturity, increase liquidity, and self-fund acquisitions. In June, we initiated a wild-card redetermination in conjunction with the Sundance acquisition. With the full support of our bank group, we increased our borrowing base from $460 million to $775 million. and extended the maturity date of our credit facility by two years out to 2026. Related bank fees for the upsize and extension were approximately $7 million, which we do not back out from our free cash flow calculation. Our year-end total debt was $692 million and liquidity was $234 million. Silver Bow, in accordance with our credit facility, includes contributions from closed acquisitions for the entirety of the LTM adjusted EBITDA period used for the for the leverage ratio calculation. Full year 2022, the contributions from acquired properties totaled approximately $118 million, bringing our LTM adjusted EBITDA for leverage ratio to $511 million and our year-end leverage ratio to 1.35 times. It is worth highlighting that we remained relatively leverage neutral while funding $370 million of cash acquisition costs. At year-end 2022, We were in full compliance with their financial covenant and had sufficient headroom to execute our business strategy. And with that, I will turn it over to Sean to wrap up our prepared remarks. Thanks, Chris.
spk10: Silver Bow continues to execute on its growth strategy and is positioned for significant value creation going forward. We project continued double-digit growth over the next several years as we march forward towards a half a billion cubic feet equivalent per day of production. In the near term, a key catalyst for our stakeholders is our ramp in oil production. Our relentless focus on our employees' well-being and safety is paramount to our culture, as is our engagement with the community and our environment. We look forward to sharing more of our insights towards safety and clean operations with the release of our inaugural sustainability report in the first half of this year. On a final note, the Eagleford has seen a flurry of M&A activity over the last 12 months. In our view, this is a strong signal by the market it is being driven by several factors. One, the Eagleford is one of the best understood and well-defined shale plays. which translates to consistency and execution in development. Second, acreage ownership across the basin remains fragmented, with dozens of private operators running small-scale drilling programs, which creates accretive consolidation opportunities. Third, the proximity of the Eagleford to industrial demand centers, international exports, and Gulf Coast LNG combined with existing midstream infrastructure capacity, results in higher realized pricing compared to other U.S. gas basins. Silver Bow has been a key consolidator within the Eagleford and Austin Chalk, and recent announcements by other large operators point to a strong buyer's market for M&A. I want to thank all our stakeholders for their continued support. We look forward to providing further updates on our next call. And with that, I will turn the call back to the operator for questions.
spk09: At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your first question is from Neil Dingman with Securities. Your line is open.
spk08: Morning, guys. Thanks for the time. Sean, my question for you and the team, I understand you guys laid out a nice map as far as You know, the two rigs are going to be going more after oil. I guess my question on the plan and kind of looking at, what is it, slide 14 or 15? I guess it's slide 15. How much the plan looks like, are you going to do more, is it more developmental activity in the front half and then the second half would be more delineation or maybe just give me a little bit more color? I mean, or will it be kind of a mix throughout the year? I know there's certainly some exciting opportunities in Lower Eagleford and Chag. So I'm just wondering when you, when I think about those two rigs, you know, is one going to be more pure developmental and the other is more delineation or how should we think about those for the year? Yeah.
spk10: Hey, good morning, Neil. And thanks for the question. As we think about where we're drilling, uh, in 23, it's across three areas. Uh, really the, the Western condensate and central oil area are two areas where we've drilled extensively, uh, over the last several years. So feel very comfortable that our drilling in those areas is more along the lines of a development type risk profile. The third area where we're drilling is in our eastern extension area, and that's an area where we built a just under 15,000 acre block over a couple acquisitions, one in 21 and one in 22. We've been patient in drilling up there waiting to put those two deals together. We're really excited to be out there and drilling. It's in a very proven area. Many of the top operators offset us, but we're going to drill both Austin Chalk and Eagleford on that position. And so we've got a rig on that area right now as we speak. And so to your question, yeah, I see this area as a little bit more of a step out and proving up area for us in the first half of the year. But with early success, our plan is to actually park a rig there going forward. So we have high confidence in the area, but, you know, as always, we want to be patient in our development pace. And so that's probably the one area that has a little more of a step-out bent to it.
spk08: Is there a threshold you need to return back to web? I mean, is it, you know, $3, $4? I mean, is there a number or – You know, the plan pretty much this year will still stay in that liquids area.
spk10: Yeah, no, we always are looking at returns and thinking about, you know, our views on commodity prices. We always go through a very systematic approach. First, it's always around operational execution. Hey, does it make sense from a timing of service availability where our rigs currently sit? and then obviously the takeaway capacity. So that'll kind of be the first check. And then it's do the returns compete with our oil inventory. Really a rule of thumb for us is when oil to gas is about a 15 to 1 ratio, our returns are very similar between gas and oil. If it's above 15 and where it currently sits more in that 20 to 25 range, we will drill oil every day. If it's below 15, we'd actually, like we did late last year, move both rigs into the gas area. So it's really, from our financial view, we'll drill the best returns. And that ratio is kind of a loose guideline for us and maybe a signal to the market when we might shift to gas versus just a flat gas price as a signal.
spk08: No, I'd like to hear that. And two more, if I could, just on hedging. You know, you guys continue to be in a better financial spot. Just thoughts on, you know, the future curve is still quite good for gas. Are you looking out to 24, even 25, to put more gas hedges on?
spk10: Yeah, yeah, no. Yeah, definitely as we think about 23 and concerns on 23's volatility on gas, we feel very good about being essentially totally insulated to lower prices, but still exposed to uh to if gas prices move higher because we have a lot of collars so right now the strips below our our floors on our collars so we are asymmetrically exposed to the upside longer term and we kind of like to think about our reserve report uh from 2020 to if you look at the 22 fbc prices you know being very high six dollars ninety dollar oil but more specific to six dollars in the you know 75% of our reserves being gas, it demonstrates really the underlying value of Silver Bowl with a value of close to $5 billion. So as we think about upside, we're very bullish on oil long term, that being end of 24 into 25, or excuse me, very bullish on gas in that period. So to your question, will we be hedging out? It's in contango, but we think there's more upside. And so similar to what we've done this year, we made a call on oil and have left ourselves some exposure to oil. Probably we'll look to continue to bolster 24 hedging on gas, but we'll stay open on 25 plus just because we're very bullish on gas starting in 25.
spk08: Okay. And sorry, Monopolis, just one last one. Just on M&A, I know you guys are always looking for creative deals, but is there opportunities just for little bolt-ons or just some, some trades as you continue to do that. I'm wondering how active you are on that these days.
spk10: Yeah, no, a good question. And you know, I think we've seen a flurry of larger scale deals in the Eagleford over the last six months. Uh, we were an early mover more on probably some smaller scale deals and feel like that still is a niche for us. And what we've seen in, you know, we kind of have a longer term view and really worked the map hard. But as our footprint has grown, the opportunity set to do more bolt-on deals, do JVs to drill longer laterals, to do small offsetting acquisitions, that opportunity sets just continue to grow just with a larger footprint. So that's really where our focus is in the near term, and we think it adds a ton of value, kind of being strategic from an industrial logic standpoint to build on the position that we already have.
spk08: Yeah, I certainly would agree. Thank you all.
spk10: Hey, thanks, Neil.
spk09: Appreciate the questions. Your next question is from the line of Charles Mead with Johnson Rice. Your line is open.
spk01: Sean, good morning to you and the whole Silver Road team there. Hey, good morning, Charles. I wanted to push a little bit more on some of the same topics that Neil was asking about. The 15-to-1 ratio you cited was – is really a helpful, I guess, coordinate, but to elaborate a little bit more around that. So we're looking at a strip of oil, which is called 75. So that would suggest that at $5 Henry Hub, you know, your oil assets would be about the same, you know, equally attractive as your natural gas assets. But does that mean that we shouldn't expect you to tilt back to natural gas until five or does it mean that that some of your best natural gas stuff maybe starts to work back into the picture at yeah i don't know 354 bucks how should we uh how should we think about that you know how the how the curve is going to look in that in that regard yeah no no uh appreciate the the follow-up on it um yeah the 15 to 1 is kind of
spk10: you know, probably lose 13 to 17, the returns become pretty similar. So in a, you know, four and 60, $65 environment, we'd have one rig running in gas, one rig running in oil. And that's our current kind of view. Once you get into mid 24 going into mid 25 with the contango and the gas curve and, the oil curve being backward dated. So that's kind of how we're modeling things out. One rig in both areas by mid-24. And then, you know, if our view on gas plays out in 25, probably might anticipate two rigs running in the gas window in 25. But what's great is we have an inventory that we can go either way. And what we've always said and love about the Eagleford and we demonstrated it at the end of 22, is we can turn on a dime. I mean, within two weeks, we were pulling rigs out and into oil. And, you know, a lot of our peers just can't do that, right? They're in only gas and, unfortunately, continue to drill into a low price curve, which isn't helpful to pricing dynamics. But we think our strategy of being able to shift is really demonstrating itself here.
spk01: Got it. And, yeah, it's certainly an advantage to be able to do that. I'm going to push a little bit further on natural gas activity. So you guys have these eight ducks in Webb County, and it makes all the sense in the world that you'd wait to complete those given the contango in the natural gas curve. But right now, I guess what I'm asking, is it a fair inference that you're going to wait for something close to $4, like a $4 12-month average to complete those? Because they're not in your $23 range. they're not in your 23 capex plan as far as I understand it. And, you know, that's called, you know, like a 350 kind of look as we look forward. So should we be thinking about like $375 or $4 for you guys to go back and finish the work there and turn them on?
spk10: Yeah, that's kind of in that ballpark that we've had in the back of our minds. And we also look at operationally, If a window, if we see gas prices starting to get more stable late in the year, and a window opening up on our frack spread that primarily serves the two rigs, but sometimes it's so efficient that windows present themselves, we might slide down and kick those two pads out, which would really juice our volumes end of year. And maybe we see a strong winter next year, a pickup you know, in the LNG exports as Freeport comes back online, and hopefully more response from gas players as a whole to dial back on supply. So we're going to be nimble, but I think $354 and earliest probably would be late in the year that we would do something.
spk01: That's helpful, Sean. I've got a few more questions, but I'll let someone else hop in the queue.
spk10: Great, Charles. Thank you.
spk09: Your next question is from Donovan Schaffer with Northland Capital Markets. Your line is open.
spk03: Hey, guys. Thanks for taking the questions. I have the first one I want to ask. I thought it was interesting, the idea about taking the 2022 pricing reserve report as sort of the data point for what what things could look like in uh you know 2024 or 2025 pricing environment but my question would be you know if we kind of go through that thought experiment um what other kinds of adjustments maybe would there need to be you know it gives us a useful data point for for pricing but clearly you know based on guidance your expectations you know you have um growth and production growth in 2023. There could be some changes in production mix versus, you know, oil versus gas. So just curious what the big things are we maybe would need to adjust for or account for if we did take something like this as a, you know, as a rough approximation for what kind of valuation could be appropriate in the 2024, 2025 timeframe.
spk10: Yeah, no, great question. Our reserve report at year end, as we were starting to already pivot towards more oil, does reflect the activity that's lined out in 23. But that report then shifts back to a 50-50 split on capital. So one rig in oil and one rig in gas starting in 24. So it's more back to our traditional mix of capital allocation. Now, where's their upside? It still would be driven by price, but it would be probably in 24 as a lot of people are forecasting potential strong moves in gas north of 5, 6, and probably oil coming down a little bit. That reserve report could have even more upside if we convert it to two rigs of gas going into a higher gas price curve. So, again, as we've thought through it, we feel the stock's very undervalued in that it's very just near-term looking by investors. We're really trying to help investors understand that the upside potential here is higher gas prices, which just a pretty consistent view across a lot of forecasters that it's only 24 months out. And we really, to your point, feel like 22 reserve report demonstrates the underlying value of the company quite well.
spk03: Okay, that's helpful. And then kind of related, and I don't know if there's potential upside or whether there's potential upside here, but kind of getting at the question of decline rates. So what is your current corporate average or blended decline rates with sort of if you hit the pause button and weren't doing any more drilling? I know that can be sensitive to wells that have recently come online, but also, like you guys said in the prepared remarks, some of the awesome chalk wells are starting out with lower than expected decline rates. I mean, the production level itself is great, but they're declining actually slower. So when you're getting a more mature kind of base over time, so just kind of curious of where that puts us. uh a kind of current decline rate and maybe where that would be in like a 2024 and if uh that's if that's reflected you know if it's a trend towards the lower decline rate at all you know if that's reflected in the reserve report or not yeah yeah the the reserve report reflects you know our best estimates our reserve engineers best estimates as well as our auditor on what wells are declining off at but in general uh
spk10: We're seeing, coming out of 22 into 23, about a 30% decline on our base PDP assets. That will remain a little flat over 23 because we have curtailment occurring down in our high-rate gas areas, and we've been choking back some of our large Austin Chalkwells, which, to your point, exhibit a different decline rate than the Eagleford We're seeing initial declines out of the Austin Chalk in that 55 to 65 range, where Eagleford's more 75 to 85 range. So, yeah, that shift to Austin Chalk, we're seeing some benefits to that on the base decline. Now, counter to that, going from one rig to two rigs in 22 and then maintaining that two rigs, We are shifting more of our production to more recent wells. So as more of our production comes from newer wells, we'll be fighting an increasing decline rate. So probably seeing more of a move up in decline over the next year or two, but that's being driven by the large capital program.
spk03: Sure. Sure. Okay. And then just one last question. um for the eight ducks uh ducks that you added in webb county could you tell us um what the the capital spending was you know to drill those and then what incremental capex would be needed to complete them i'm just what i'm asking because i'm trying to get it to the sensor the idea of um you know i i call this embedded growth in some other context but it's the idea of like where you you've already spent the money so the capex and uh impact and cash flow and other stuff has already been there but we're not going to really see any benefit from that um you know until 2024 or 2025 so just how much of that capital has been laid out already that won't need to be incurred later and then what would be required later
spk10: Yeah, no, you know, we're seeing wells down in Faskin area that are low back in late 2021. We had pushed them down below 5 million. More recently, that's all in, drilling complete. More recently, that's pushed upwards of seven and a half. So, you know, drilling makes up probably 40, 35, 40% of the spend. So across those eight wells, total investment would be close to $60 million, $65 million. We've already probably sunk about $25 to $30 million in those wells. So definitely that's a little bit of a stranded capital for us right now. But again, we think economics and the contango on the gas curve just makes sense to to kind of hold ground on those. But going forward, we've got another $35 million, $40 million to spend to bring that all online, and we can bring it on quickly, being that they're drilled.
spk03: Okay, great. Well, thanks again for taking the questions, and I'll pass it on. Thanks, Donovan.
spk09: Your next question is from the line of Noel Parks with Tuohy Brothers. Your line is open.
spk06: Hi, good morning. Hey, good morning, Noel. I just had a couple things. I was wondering, with the shift towards the oilier areas in your holdings, between sort of the budget you were envisioning when you were probably going to be leaving gas here and the current budget,
spk10: any significant delta in the infrastructure or facility spending that you're looking at now that you're going to be back in the oilier areas um so you know versus the original gas of your budget um no probably as a whole um you know both when we were thinking one rig gas one rig oil um our overall capex to go to two is the same but our percentage of what we spend on facilities and land always runs in that 10 to 12% range, regardless if it's two rigs oil, two rigs gas, or a split. So pretty consistent, 90% of the spend goes to D&C. Of that 10 broken between facilities and land, it's probably two-thirds facilities, one-third land. And then we always reserve the right that if there's opportunistic leasing to do, we'll maybe put more dollars to work on land.
spk06: Sure. Sure. Right. And, um, just, just wondering, um, with your now, um, hang on to those ducks instead of completing them right away. Let me just talk a little bit about, um, the, the frack pace you're, you're looking at and, um, I was just wondering, in making the changes you made to the plan, any issues with frat crew access operating in a different end of the play?
spk10: Nick, why don't I let Steve address that?
spk05: Sure. Thanks, Sean. Good question, Noel. Let me kind of give a little bit of backdrop for it. You know, in the middle of last year, we were only one rig, and so we had kind of a lot of gaps in our frac schedule. But since the middle of last year, we haven't been able to fully level load a frac rig, or frac crew and spread, but we've been in a position to run, on average, around 80%, 85% of the load. And we've been able to find comfortable fills for those gaps because we have a schedule that looks pretty far out. So in the timing of all that, we've been able to come back pretty fast on anything that's either an opportunity or as it's scheduled. So, for instance, our frack schedule follows pretty much in cadence with our drilling rigs. As you know, historically, we're not really a duct company. So as it relates to these ducts that we do have already in our portfolio, we have flexibility and we have gap opportunity by which to take our frack spread to that. So availability right now hasn't been a concern. In terms of the efficiency, right now our frack spread is the premier frack spread in the entire Eagleford, and it's the number four frack spread in all of America, short of three opportunities in the DJ Basin, which are a much different environment and not even as risk-oriented as what we do in the Eagleford. So very fortunate there from a frack efficiency point of view with respect to the crew that we've been able to use for some time now and continue to plan to use. And then products related to that, the frac facility, as we look at all the components to it, horsepower, sand, and chemical, we've been able to work with our provider and also hold the line on certain items as it relates to unit cost for that. And then second, Larry, for sand and some of the other needs in terms of our water facility needs for that, we've also been able to hold the cost. And therefore, that way, we've been able to offset some of those inflationary pressures that we talked about earlier. and being able to now hold within, you know, 1% of AFE and then also at midpoint of CapEx. So we feel comfortable in being able to go with that forward, especially with the backdrop of some of the lower decline issues we're seeing in inflation.
spk06: Great. Thanks a lot. And just one last one for me. When you're talking about with the Ducks, you do have some capital that's in the ground that – if you were just completing straight ahead, you'd get that return sooner. So it just got me thinking about liquidity. And of course, you have some flexibility on the credit line. But I'm just sort of thinking maybe for the rest of this year, and a little bit of crystal ball stuff I'm asking, but if you decided you were going to do a transaction or maybe gas responded more quickly and you decided you were going to I don't know, go a little bit more aggressive on activity. All things being equal, would you see yourself, if you decide to do some debt financing, more gravitating towards the credit line, like a variable rate type debt? Or would you be thinking more looking at the debt markets about, nah, we want fixed rate, kind of the devil we know. So I know it's kind of a very amorphous question, but just curious about your thoughts on that.
spk10: Yeah. No, just like we think about drilling capital, right, and getting the best returns on our drilling capital, same as we look at debt and credit. So always try to assess, hey, what's the best cost of capital that we can get, but keep risk mitigated. I would tell you our view would probably lean more towards fixed so that we know what that is and where it's going forward. You know, right now our debt, with that said, is variable and it's moved up on us. So, you know, both the revolver and our second lien have a variable component to it. So we've experienced that and think that, hey, if we found a fixed rate that works for us and we could term out some of that variable debt, that's something we would do. Gotcha.
spk06: Okay. Thanks so much.
spk09: Great. Thank you. Your next question is from the line of Tim Resvan with KeyBank Capital Market. Your line is open.
spk00: Hey, good morning, everyone. This is Slade on for Tim today. Just a couple of questions. For one, I was wondering if you could talk specifically about the cost deflation you're seeing with the rigs. And are you seeing anything similar on the pressure pumping side?
spk10: Yeah, maybe I'll let Steve kind of briefly touch on that. High-level offset the stage that we are seeing cost pressures peak and now are even starting to see a little relief, so encouragement on that front.
spk05: Thank you, Sean. Yes, we are in a situation right now where the market on the rigs in the Eagleford, and I'll just stay specific to that, At least on the gas side there's rigs that are coming down. And on the oil side there's even some rigs that are kind of either changing shape or coming down. That said, the market price is such that we're seeing softening on the rig contracting side for rigs, both in the near term and also some conversation in the longer term. That said, it's even further supported by the backdrop of term on contracts. So we're seeing shorter term on contracts and, in some cases, pad to pad with quality equipment. So that's kind of the near-term outlook on rigs, and we're kind of expecting that deflation to continue into the second half of this year, and then we'll see where 24 takes us. On the frack spread side, we're seeing a lot of those costs just basically plateau and level out. with some softening in certain areas, especially, say, for example, on things like water transfer and support and service and to some degree on sand. Sand has been kind of bimodal with a higher and a lower cost structure. We're entering into that lower mode right now as we see some of these volumes tick down in the aggregate Eagleford area.
spk00: Got it. That's very helpful. And then for my follow-up, maybe just a bit bigger picture, I believe y'all have highlighted kind of a longer-term 50-50 gas to liquids mix for your portfolio. I was wondering maybe just kind of a timeline on that. Do you expect that to be over the next two years, two to three years, or is that kind of maybe a bit longer-term view, 2025, 2026, that comes with this LNG build-out?
spk10: You know, as we look at getting to the end of this year, we're starting to approach the 50-50 mix. As we stay with that one rig, let's assume 24 is one gas, one oil. We'll probably stay in and around that 45 to 55 split year over year. Where we would see it start to move away from that and maybe go more gas heavy is if we shifted, allocated the capital to two gas rigs. We're getting to that 50-50 mix almost this year, and it'll stay that way, assuming a one-rig oil, one-rig gas scenario.
spk00: Great. Thanks for the time.
spk10: Yeah, thanks for the question, Slade. I appreciate it.
spk09: Your next question is from the line of Charles Mead with Johnson Rice. Your line is open.
spk01: Hey, guys. So forgive me if I missed this, but... Thinking about your PDP-PV10 at the strip, it looks to me, based on some of the coordinates you gave us, it's probably around 1.4, 1.5. I don't know if you gave us that number or if that number is in the right ballpark.
spk10: Yeah, I'd hate to speak to it in that we're looking at that quite often, and the strip's always moving, so I don't have a firm number off the top of my head. We're looking here. Yeah, what we provided was that SEC pricing. So, yeah, we don't have that in front of us.
spk01: Okay. But I think you did mention, Sean, the total PV10 was, I think you said, just under $3,000? It was right at $3,000.
spk10: And, you know, so that's kind of not a bad inference, right, that maybe you could get into it that at year-end we were 45. The year-end value of $5 billion reflected just under 45% PDP. So as a guide, I would say, you know, take that and apply it.
spk01: That's where I was going. Thank you, Sean.
spk10: That's it. Okay. Appreciate it, Charles. Bye. Thank you.
spk09: There are no firsts. Questions at this time, I will now turn the call back over to the company for closing remarks.
spk10: Again, I appreciate everyone's interest in the company, appreciate the questions, and we look forward to our next call and sharing an update in the second quarter. Appreciate it. Thank you.
spk09: Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.
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