Northern Oil and Gas, Inc. (NOG) Q4 2022 Earnings Call Transcript

Northern Oil and Gas, Inc. (NOG) Q4 2022 Earnings Conference Call February 24, 2023 11:00 AM ET

Corporate Participants

Evelyn Infurna - Vice President of Investor Relations

Nick O'Grady - Chief Executive Officer

Adam Dirlam - President

Chad Allen - Chief Financial Officer

Conference Call Participants

Neal Dingmann - Truist Securities

Scott Hanold - RBC Capital Markets

Philip Johnson - Capital One

John Abbott - Bank of America

Donovan Schafer - Northland Capital Markets

Noel Parks - Tuohy Brothers

Operator

Greetings and invited to nan Northern Oil Fourth Quarter and Year End 2022 Earnings Conference Call. [Operator Instructions]. As a reminder, this convention is being recorded.

It is now my pleasance to present your host, Evelyn Infurna, Vice President of Investor Relations. Thank you, Evelyn. Please spell ahead.

Evelyn Infurna

Thank you, Paul. Good greeting and invited to our 4th fourth 2022 net convention call. Yesterday aft nan marketplace closed, we released our financial results for nan 4th fourth and fiscal 2022. You tin entree our net merchandise and position connected our Investor Relations website and our Form 10-K will beryllium revenge pinch nan SEC wrong a fewer days.

I'm joined present this greeting by NOG's Chief Executive Officer, Nick O'Grady; our President, Adam Dirlam; and our Chief Financial Officer, Chad Allen; and our EVP and Chief Engineer, Jim Evans. Our schedule for today's telephone is arsenic follows: Nick will supply his remarks connected nan 4th and connected our caller accomplishments, past Adam will talk an overview of operations. And Chad will reappraisal our 4th fourth financials and locomotion done our 2023 guidance. After our prepared remarks, nan executive squad will beryllium disposable to reply immoderate questions.

Before we spell immoderate further, fto maine screen our Safe Harbor language. Please beryllium advised that our remarks today, including nan answers to your questions, whitethorn include forward-looking statements wrong nan meaning of nan Private Securities Litigation Reform Act. These forward-looking statements are taxable to risks and uncertainties that could origin existent results to beryllium materially different from nan expectations contemplated by our forward-looking statements. Those risks include, among others, matters that we person discussed successful our net merchandise arsenic good arsenic successful our filings pinch nan SEC, including our Annual Report connected Form 10-K and our quarterly reports connected Form 10-Q. We disclaim immoderate responsibility to update these forward-looking statements.

During today's call, we whitethorn talk definite non-GAAP financial measures, including adjusted EBITDA, adjusted nett income and free rate flow. Reconciliations of these measures to nan closest GAAP measures tin beryllium recovered successful our net release.

With that, I will move nan telephone complete to Nick.

Nick O'Grady

Thank you, Evelyn.

I'd for illustration to return a fewer moments to invited Evelyn to nan NOG team. Evelyn comes to NOG pinch tremendous amounts of superior markets and investor relations experience, and we're excited to person her connected board.

All right, I'll get down to it pinch 5 cardinal points. Number one, business fundamentals are strong. We delivered beardown results successful nan 4th fourth and nan afloat year. Despite little commodity prices and terrible weather, we generated astir $90 cardinal of rate successful nan 4th quarter, and still we're wrong yearly accumulation guidance. As we entered Q1, nan business is backmost online and building momentum driven by beardown turn-in statement activity successful December.

Number two, growth. The 4th fourth was incredibly engaged for nan company. We closed connected 3 Permian acquisitions and successful nan first week of January, we closed connected our Midland Petro transaction. In total, these represented complete 750 cardinal of closings and complete 900 cardinal successful acquisitions announced successful 2022, which should construe into much than 20% maturation successful our year-over-year accumulation connected a reduced diluted stock account.

This is pursuing astir 40% maturation successful 2022, each nan much awesome fixed we are successful a debased maturation era for astir nationalist power companies. As nan largest, champion capitalized non-operator pinch superior information penetration and an unmatched way record, we are proud to beryllium nan preferred partner to nan nationalist and backstage upstream community. NOGs differentiated positioning sets nan shape for important [Audio Gap] comparative and absolute outperformance successful 2023. We person transformed nan institution by diversifying and increasing our footprint, enhancing nan value of our portfolio and meaningfully improving nan spot of our equilibrium sheet.

Despite inflationary pressures, and little existent commodity strips, we expect to make important rate travel and accumulation maturation successful 2023. Our disciplined and businesslike transaction underwriting prudent and blase superior statement and superior information insights person driven and we expect will proceed to thrust accordant multi-year equity outperformance.

Number three, nan 2023 outlook. Our 2023 guidance, which Chad will delve into later reflects superior businesslike growth, blimpish costs ostentation assumptions, and arsenic I conscionable mentioned important and differentiated measurement and cashflow maturation passim nan year. At our caller elevated level of baseline production, we expect to make important levels of free rate travel successful 2023, arsenic nan Midland Petro task reaches completion, it sets nan shape for a important summation successful free rate travel successful nan coming years, enabling america to further accelerate nan company's maturation and heighten shareholder returns.

Number 4 competitory advantage. We judge our competitory advantage has expanded successful 2022. Over nan past 4 years, we've not only rebuilt our infrastructure, augmented nan financial spot and improved nan plus positions of nan institution but person besides invested successful information subject to continuously amended our method analysis. With nan motorboat of our purpose-built, AI powered strategy successful January, we expect to further heighten nan powerfulness of our proprietary data, and nan accuracy and ratio of our decision-making. More specifically, we judge our enhanced analytics will alteration america to efficiently find differentiated worth successful properties further heighten our consequence guidance tools.

Our squad does not remainder connected its laurels and we judge we are unmatched successful nan non-operated sphere fixed our scale, information analytics and underwriting advantages. We judge that fewer tin compete pinch america for nan high-quality properties that we target regular and our standard allows america to play successful a section mostly connected our own. As nan breadth of opportunities arsenic expanded for us, some from a Basin and structural basis, our competitory advantage has only widened.

Number 5 shareholder returns. Our extremity is to supply our shareholders pinch nan highest imaginable full return complete nan long-term. We person implemented a multi-pronged approach, including stock repurchase programs, repurchasing high-cost debt, and expanding nan rate dividends for communal shareholders.

During nan 4th quarter, we continued to tactically repurchase our communal banal and elder notes arsenic marketplace opportunities allow, we will proceed opportunistic communal buybacks and indebtedness repurchases passim 2023 and beyond.

A fewer weeks ago, we announced a 13% summation successful our quarterly communal banal dividend to $0.34 per stock for nan first 4th and introduced a scheme to accelerate nan dividend further to our target of $0.37 per stock astir 2 quarters up of schedule. We proceed to person nan extremity of providing an charismatic output for our investors. We powerfully judge that nan consistency of a unchangeable and increasing quarterly dividend is much valuable to our shareholders and our equity worth complete nan long-term.

Our Goldilocks strategy should springiness america nan expertise to some salary healthy, increasing existent income to our shareholders and besides let for our important excess clasp rate travel to supply for worth added bolt-on acquisitions and maturation opportunities.

Going forward, we stay focused connected driving nan highest full return to shareholders, focusing connected optimal output taxation and superior ratio and guidance of our wide leverage levels. The bully news is pinch nan business positioned for strength, we expect being capable to present continued maturation to our returns, while still leaving room for elasticity and nan expertise to standard nan business responsibly complete time.

2022 was different evolutionary leap guardant for NOG and I want to admit nan NOG squad from apical to bottommost for their difficult activity and dedication they ever accomplished.

In closing, I'll punctual you arsenic I ever do, that we are a institution tally by investors for investors. And I want to convey you each for taking nan clip to perceive to america today. With that, I'll move nan telephone complete to Adam.

Adam Dirlam

Thanks, Nick.

On some nan operational and business improvement fronts, we vanished disconnected different transformational twelvemonth and look to proceed our maturation trajectory into '23.

In nan 4th fourth turn-in lines hit our soul forecasts arsenic we added astir 20 nett wells and completions return to a comparatively balanced operation arsenic nan Williston and Permian accounted for a 60:40 split.

While first accumulation results were outperforming soul estimates, wintertime upwind successful December impacted accumulation by astir 10,000 barrels a day. As normal operations return, we expect to person overmuch of nan use of our 4th fourth adds moving into nan first quarter.

Looking further ahead, we expect a emblematic turn-in statement schedule, pinch spuds front-end loaded and completions weighted toward nan backmost half of nan year.

Given nan propulsion guardant successful good completions during nan backmost half of '22, our wells successful process vanished nan twelvemonth totaling 55.4 nett wells, pinch nan Williston accounting for astir 80% of our WIPs, excluding our Marcellus ducts. That said, we added 6.8 nett wells successful process pinch nan closing of our mascot task successful January. And accordingly, we now expect caller drilling activity levels to beryllium arsenic weighted crossed nan Permian and Williston for 2023.

In nan Marcellus, we person deferred astir activity to 2024 arsenic we attraction connected higher separator lipid properties, but proceed to look for ways done acreage trades, and different intends to perchance adhd vulnerability successful nan backmost half of nan year.

Q4 good proposals connected our integrated acreage remained patient arsenic we received complete 125 AFEs during nan quarter, which accounted for astir 10 nett wells. The operation of our operators staying disciplined, and our acquisitions focused connected nan halfway of our respective basins led to a consent complaint of astir 95%. Economics besides continued to amended arsenic we saw estimated IRRs accrued by complete 25% comparative to our Q3 good proposals.

As we deliberation astir good costs going forward, it has been encouraging to spot a deceleration successful inflation, which broadly aligns pinch nan conversations that we've had pinch our operators. We do expect and person seen immoderate creep from immoderate of our lowest costs operators successful nan Williston arsenic agelong dated work contracts rotation off.

This has been an offset by a steadier authorities successful nan Permian, which has kept our wide AFE ostentation modest. We expect those minimal increases from starring separator indicators astatine year-end to transportation complete into 2023, which results successful an estimated 7.5% inflationary summation astatine nan midpoint.

As Nick alluded to earlier, nan 4th fourth was highly engaged for nan business improvement squad arsenic we activity to adjacent immoderate of nan astir impactful acquisitions successful institution history. The 750 cardinal of M&A completed successful Q4 and Q1 has deepened our vulnerability to top-tier inventory, pinch nan summation of astir 8000 nett acres successful nan Permian.

Overall, our 2022 closed acquisitions and crushed crippled activity added astir 125 precocious quality, debased breakeven nett early locations to our inventory, and 15% to our proven reserves, which accrued to an estimated nett 330 cardinal barrels of lipid equivalent. Note that our twelvemonth extremity reserves exclude nan effect of nan precocious closed Midland Petro acquisition.

Midland Petro represents an important improvement successful our M&A strategy. The transaction showcased bluish standard and expertise to supply imaginative superior solutions for our operating partners while generating best-in-class returns.

On nan heels of our announced associated improvement agreement, we person been approached by aggregate operators trying to find solutions for existing assets and desired improvement plans, arsenic good arsenic business opportunities to co-bid and get operated assets.

Not only are we 1 of nan fewer non-operators pinch scale, and a equilibrium expanse to thief move nan needle pursuing ample standard acquisitions. We besides person nan information insights to underwrite pinch condemnation and participate alongside our operators arsenic a debased attraction partner. These competitory advantages person established NOG arsenic a partner of prime successful pursuing operated assets, and astatine nan aforesaid clip brought successful nan opportunity group disposable to us.

As we move into 2023 nan M&A backlog is spooling and we are reviewing much than $5 cardinal successful non-operated packages, operated packages and associated improvement opportunities. While location are much prospects than ever disposable to us, our colors person not changed. We stay laser focused connected our accordant attack to superior allocation and our crushed game.

In nan 4th quarter, we closed connected 1.2 nett wells, and 127 nett acres finishing, our 2022 crushed crippled efforts acquiring 8.7 nett wells, and complete 1400 nett acres crossed 24 transactions.

As we look up to 2023, we are seeing a assortment of compelling opportunities crossed our respective basins. And we will actively negociate nan portfolio successful bid to build connected an already precocious graded drilling programme and support our superior return connected superior employed.

With that, I'll move it complete to Chad.

Chad Allen

Thanks, Adam.

I'll commencement by reviewing cardinal 4th fourth results, which were coagulated crossed nan committee contempt nan effect of nan caller wintertime storms. Our Q4 mean regular accumulation was 78,854 BOE per day, a 23% summation compared to Q4 of 2021.

Well volumes were up 4% sequentially complete Q3 and person normalized aft nan wintertime storms. Our adjusted EBITDA was 264.8 cardinal successful Q4, and apical 1 cardinal for nan year, a grounds for our company. Our 4th fourth free rate travel was robust astatine 87 cardinal contempt increasing activity. And we generated almost 460 cardinal of free rate travel successful 2022, which has much than doubled nan anterior year.

Our adjusted EPS was $1.43 per stock successful Q4, up astir 35% year-over-year. Oil differentials were again amended than internally expected successful Q4 and came successful astatine $2.42 per barrel, owed to continued beardown successful basin pricing and person much barrels weighted towards nan Permian, which are typically priced tighter.

For nan year, our differentials were $2.73 disconnected WTI, a grounds debased for nan company, driven by improvements successful North Dakota and nan diversification of our business complete nan past respective years. Natural state differentials were 92% of benchmark prices for nan 4th quarter, little sequentially but amended than our soul expectations.

Lower earthy state and NGL prices drove nan simplification a usability of little gathering costs absorption and little NGL uplift, for nan yearly mean 113% of NYMEX.

On nan CapEx front, we invested 142.9 cardinal during nan 4th evenly divided betwixt nan Williston and Permian basins. Activity has been robust. As Adam mentioned, earlier move lines were up dramatically from nan 3rd 4th and supply beardown momentum arsenic we participate 2023.

This has resulted successful a D&C List of 62.2 nett wells inclusive of nan mascot task and has contributed to nan propulsion guardant of our superior spending on pinch nan continued occurrence of our precocious return crushed crippled investments.

The equilibrium expanse remains strong. We closed nan $500 cardinal convertible notes offering successful nan 4th fourth to money successful part, our caller acquisitions. As you whitethorn recall, owed to nan features we selected, location will beryllium minimal to perchance zero dilution to our existing holders. And to nan grade location is, nan institution has options to negociate that this complete time.

In summation to nan convertible notes offering, we're capable to grow nan capacity of our revolving in installments installation to $1 cardinal from 850 million, reflecting nan maturation connected our borrowing guidelines to 1.6 cardinal from 1.3 billion.

As a consequence of our M&A activity, we flexed our equilibrium expanse for nan announced transactions successful nan 4th quarter. And our leverage will beryllium modestly higher complete nan adjacent mates quarters but good wrong our comfortableness zone.

Our nett leverage ratio should return to normal levels by nan extremity of 2023, arsenic our acquisitions lend to our operations, and we're capable to organically delever. Liquidity remains strong. We still person complete $1 cardinal of barren powder successful nan shape of unused revolver and borrowing based capacity.

In 2022, we retired 25.8 cardinal of our 2028 notes, and we will proceed to look for ways to efficiently trim leverage if marketplace opportunity arises. With respect to hedging since our past report, we opportunistically added volumes successful nan shape of charismatic costs collars that supply downside protection pinch nan optionality of participating successful nan upside of prices rally.

We proceed to adhd volumes from each closed and pending acquisition based connected our blimpish hedging strategy of 55% to 65% of expected accumulation connected a rolling 18-month basis. As it pertains to our 2023 guidance, pinch a tally complaint CapEx from 2020 to of astir 500 cardinal mostly carrying over. Capital plans from our 2022 acquisitions of astir 220 cardinal layered successful and 25 cardinal to 50 cardinal of work costs inflation. This translates to a scope of 737 cardinal to 778 cardinal full CapEx guidance for 2023 from [indiscernible] perspective, we expect astir 60% overhead yearly walk will hap successful nan first half of nan year.

We want to constituent retired that only astir 25 cardinal to 60 cardinal that is specifically associated pinch nan build retired of our mascot task is expected to reoccur successful 2024. We do expect to spot continued ostentation successful nan first half of 2023. But nan diminution successful earthy state prices and subsequently what appears to beryllium nan beginnings of a simplification successful wide rig count, which is down astir 25 from nan highest successful nan United States could lead to costs savings successful six to 9 months if nan existent inclination stays successful place.

Additionally, we've seen debottlenecking and soil tubulars, an added unit pumping capacity, each greenish shoots towards stabilization aliases simplification successful costs arsenic nan twelvemonth progresses. Regarding our 2023 accumulation guidance, we expect to commencement nan twelvemonth astatine a scope of 84,000 to 86,000 BOE per time successful Q1, improving each 4th pinch a target 4th fourth exit complaint of 96,000 to 100,000 BOE per day. Overall, nan quarterly accumulation should construe to an mean scope of 91,000 and 96,000 BOE per time for nan afloat year.

With respect to nan first quarter, we typically spot seasonal integrated declines and a quarterly guideline blimpish fixed nan extremity of wintertime successful nan Williston. However, we do expect beardown activity passim nan twelvemonth to thrust that higher exit. Differentials, we're taking a blimpish view, fixed nan caller downtick successful earthy state prices and emblematic volatility of successful basin lipid pricing.

We judge that there's room for betterment perchance arsenic nan twelvemonth goes on. LOE and G&A should beryllium mostly accordant pinch 2022 adjusted for ostentation and operating and nationalist institution costs.

With that, I'll move nan telephone complete to nan usability for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Thank you. Our first mobility is from Neal Dingmann pinch Truist Security. Please proceed pinch your question.

Neal Dingmann

Nick, my first question, for your Chad, this is connected superior walk possibly specifically, we're modeling really should we deliberation astir your '23 CapEx benignant of pre and station imaginable transactions aliases possibly asked different way, do you each presume there'll beryllium astatine slightest a minimum magnitude of crushed crippled additions that we should put successful nan exemplary and conscionable really trying to speak to CapEx versus accumulation expectations this year?

Chad Allen

We ever time off room successful our CapEx guidance aliases flex capital. So nan crushed crippled is successful there. And that's truthful we tin actively negociate nan portfolio passim nan year. Whether we usage it aliases not, it depends connected nan [indiscernible] proposals that travel successful nan door, what they're expected spudder income times are in, comparison that to nan crushed crippled opportunities that we're seeing time in, time out, truthful meaning we really hold of returns against 1 another.

And truthful we whitethorn person nan opportunity to precocious people our drilling programme and modify it, and we'll decidedly return advantage if we do. I'd say, for illustration immoderate different year, it'll dangle connected what we're capable to get done. And if they're compelling opportunities to flex forward, you know, done nan crushed game, but again, arsenic I reiterate, we budgeted a beautiful hefty magnitude successful our guidelines fund each twelvemonth for that amount.

Neal Dingmann

Okay, because you haven't upgraded nan add, truthful I thought you each did, okay. And past conscionable 2nd really connected Bakken activity. I'm conscionable fundamentally wondering, possibly for Adam, really unchangeable -- much precocious person nary [indiscernible] plans person go and if you each receiving what I'd telephone much aliases little proposals, than a twelvemonth ago, I asked that because obviously, a batch of nan state is getting -- state guys are becoming very volatile. And immoderate different plans are volatile. I'm conscionable wondering if you're seeing a spot much stability, and possibly Bakken versus Permian and conscionable wondering really nan proposals person go much recently. Thank you.

Adam Dirlam

Yes. I deliberation you nailed that. And I deliberation successful nan 4th fourth retired 125 positive AFEs, we received astir 100 of those were successful nan Williston. And so, looking astatine nan extremity of nan year, if we're looking astatine our oily basin, benignant of makeup, that's astir 80% of benignant of nan wells that are successful process correct now. And truthful we spot that benignant of humming along. They proceed to adhd rigs and nan usability constitution is surely compelling arsenic well. And we're partnering pinch nan likes of [indiscernible] and Conoco. So we've been encouraged by nan activity phase.

Nick O'Grady

Yes, I would conscionable opportunity Neal, based connected our guidance that we put distant coming are, whether aliases not nan Williston Basin grows arsenic a full aliases not, I would astir apt opportunity it astir apt remains beautiful stable. We're going to person grounds volumes successful nan Williston by a large measurement this year.

Adam Dirlam

That's right. And I deliberation it's a usability of nan moving interests and nan attraction pinch immoderate of our operators, we've sewage importantly larger moving interests that we're stepping into present astatine nan opening of nan year.

Operator

Our adjacent mobility is from Scott Hanold pinch RBC Capital Markets.

Scott Hanold

I think, one, possibly underappreciated factors is this caller AI strategy that you each have? And it sounds for illustration they are going to beryllium coming, going much afloat bore connected it now? Can you conscionable springiness america immoderate discourse on, what do you deliberation this does to your pace? And possibly if, I don't cognize nan correct measurement to say, but value of benignant of your crushed crippled and your imaginable acquisition activity, wherever do you spot upside, like, erstwhile you do, backmost looks astatine what you did versus what now, pinch this system. Would person you made a alteration successful strategical advantages to having this successful place?

Nick O'Grady

Yes. I mean, from a strategical standpoint, particularly if we branched retired into aggregate different basins that nan measurement of opportunities coming astatine america is astatine an all-time high. And truthful we've sewage to beryllium capable to prosecute these evaluations and do it pinch conviction. And erstwhile you've sewage nan volatility that you person from a commodity standpoint, arsenic good arsenic nan inflationary pressures that ebb and flow, nan truth that we've sewage northbound of 100 positive operators, each that accusation needs to beryllium socialized, and it needs to beryllium done quickly, successful bid for america to -- genuinely precocious people and allocate superior appropriately. And truthful by instituting nan AI program, we're capable to return that real-time information and genuinely harness each nan accusation that we person coming done nan [indiscernible] and nan gross checks, arsenic good arsenic each nan nationalist information and do that pinch 1 root of truth. And truthful that's going to beryllium nan cardinal to our success, arsenic well, arsenic you know, taking nan look backs connected nan various transactions. I deliberation we did 1 conscionable recently, successful position of benignant of nan caller awesome acquisitions, and we were wrong astir 2% to 3% of original underwriting.

Jim Evans

Yes. The only colour I would adhd to that is, we sewage 9000 gross wellbores astatine this constituent successful nan business. And nan database has ever been massive, it's ever been nan concealed to our success, right? Being successful half of each Williston good drilled intends you person afloat bore of knowledge, but nan velocity of what you tin entree that information and harness it tin return minutes now what would return our engineering squad a week to travel done successful nan past.

Scott Hanold

Okay. That's bully to hear. And so, my adjacent mobility is, conscionable if you tin beryllium diligent pinch maine for a 2nd because there's a mates pieces to it. But like, if I deliberation astir wherever earthy state prices are today, and evidently nan entranceway you each made into Appalachia, nan first point that stands retired to maine arsenic if I look back, erstwhile you guys announced that acquisition, state prices were astir 250. And past they went to 910. And now backmost to 250. So yearly, they're benignant of backmost to wherever it was erstwhile you made that acquisition. Two things connected it. Do you deliberation that this situation does it make it much ripe for opportunities? A caller state plays from a competitory benignant of expertise to make an acquisition. And number two, erstwhile you do your look backmost astatine nan Marcellus standard you did. Do you for illustration nan returns successful economics? I mean, location decidedly was a measurement down successful accumulation versus wherever you primitively expected. But do you deliberation nan each successful returns still justified that move?

Nick O'Grady

Yes. So I mean, to nan second point, Scott, that transaction, moreover nett of each nan hedging we did paid retired successful 1 year, meaning we sewage each our money backmost successful 1 twelvemonth of owning it, and it has 20 years of inventory connected it. So nan gait astatine which it goes, I would say, nan gait has been somewhat slower than we thought, but astatine nan aforesaid time, nan costs building and good capacity has been 20% aliases 30% amended than what we underwrote. So net-net, we've done a batch better.

And so, we're thrilled to person it is genuinely a telephone option. We were besides thrilled that we're not processing it this twelvemonth that improvement really is successful 2024. And that's really important to us, because I don't, while it is economical today, I don't really deliberation we want to create our state properties astatine $2 gas.

But going backmost to nan much there's a larger M&A question. I said we are basin and substance agnostic, but convexity of returns does matter. For example, buying assets astatine $100 lipid has a batch much risk, moreover if you're hedging it versus buying it astatine 50. And buying state past twelvemonth was beautiful unattractive to america connected a consequence adjusted return because ultimately, there's a batch much that tin spell incorrect than spell right. And that goes backmost to erstwhile we bought nan properties successful early 2021. And truthful I would opportunity arsenic it pertains to gas, it appears to america astatine existent that nan longer word convexity connected state assets is very attractive. And that would play a domiciled and we're surely actively looking astatine state properties time successful time out.

Operator

Our adjacent mobility is from Philip Johnson pinch Capital One.

Philip Johnson

Question for Chad. You mentioned nan anemic state realizations that you're expecting for '23.

That's beautiful akin to what we saw yesterday from 1 of your Williston operators. You guys are evidently connected a two-stream study here. But, evidently nan large driver, there's anemic NGL prices. And of course, recognize there's a fixed constituent that's coming into play comparative to little NYMEX prices. But I conjecture nan 75% to 85% of NYMEX seems beautiful low. So I'm conscionable wondering if you tin possibly springiness america a small much penetration arsenic to what nan driver is connected there. And what's different about, this twelvemonth versus past year, successful summation to little NGO prices?

Chad Allen

Yes. I deliberation what we're presently seeing correct now is successful -- we're astir apt down successful moreover beneath that we're seeing immoderate pickups from past months that benignant of creeped america up to that 92%. But we're presently realizing astatine aliases beneath those, I guess, pinch respect to wherever we presently sit. I think, immoderate of nan struggles successful nan Permian, obviously, pinch state takeaway is going to besides benignant of creep into, I conjecture 2023. And that's benignant of wherever we're being a spot much conservative, I think, pinch respect to realizations of state prices.

Nick O'Grady

Yes. I mean, truthful there's like, it's benignant of four-dimensional chess, right? You person your fixed gathering cost, getting it from wellhead to tube that doesn't move. But arsenic nan value of state goes down, that becomes a larger percentage. And past you person nan value of nan NGL basket, which swings wildly, because nan existent yields from nan plants changes depending connected wherever nan what nan plants want to do, meaning, whether ethane is economical aliases not to extract it. And immoderate group do it anyway. We will time off them nameless, but immoderate group do it whether it is aliases not. You get much volumes, obviously. But you past -- if you're a three-stream reporter, but you're losing money. And I deliberation nan point to deliberation about, though, is that though NGL, prices came down successful in nan 4th quarter, state prices really came down successful nan first quarter.

And truthful actually, from a ratio perspective, nan propane is an illustration it was astir 1 and a 4th to 1 versus state successful nan 4th quarter, but it's complete 2 today. So that really helps nan percentage. And truthful really, nan absolute value of nan state versus nan NGL impacts that arsenic overmuch and truthful we tried to beryllium really conservative, because we're not -- we don't person a crystal shot present successful position of wherever earthy state is going. I wouldn't opportunity we're internally peculiarly bullish. But we tried to tally it. And if you look astatine our way grounds successful nan past, we've historically been very blimpish successful this because these are non-controllable costs that we don't really want that there's nary use to america by doing thing by taking a blimpish tally astatine it. But I do deliberation location arsenic Chad mentioned successful his prepared comments, location are immoderate -- location is immoderate room for betterment passim nan year. And we'll update you accordingly.

Philip Johnson

Yes. Okay. That's helpful. On nan reserve report, and conscionable wondering if you tin possibly stock what your adjacent 12-month PDP diminution complaint is, I guess, for some lipid and gas. And, for america really that's changed comparative to wherever you are successful nan past mates of years? I'm assuming it's travel down a small bit, but conscionable looking for nan approximate magnitude aliases so.

Chad Allen

Yes. So our guidelines PDP diminution is going to beryllium successful nan debased 30s to 32% to 34%. Obviously, arsenic we spell done nan year, and we commencement bringing connected immoderate of these acquisitions, MPDC projects, those sorts of things are declining, correct will summation passim nan year. So arsenic we exit nan year, we're astir apt going to beryllium person to mid-30s to precocious 30s and that benignant of range, but that's benignant of wherever we're starting retired today.

Operator

[Operator Instructions]. Our adjacent mobility is from John Abbott pinch Bank of America.

John Abbott

First question. Cascading DD&A came a small spot precocious for nan 4th fourth pinch nan mergers closing. How do you deliberation astir inappropriate DD&A rate, conscionable benignant of going forward?

Chad Allen

Yes, John, we were conscionable looking astatine that this morning. And I think, erstwhile we rotation successful PDC, and I deliberation we're sitting correct astir 10.50 for benignant of exit DD&A. I deliberation MPDC will apt adhd a subordinate aliases 2 to it. So I deliberation erstwhile we get that rolled in, are astir apt location successful nan 11.50 to 12.50 range, I would guess.

John Abbott

Appreciate it. And then, nan 2nd questions connected nan acquisitions that you conscionable benignant of -- you're conscionable closed connected here. Any, you conscionable sewage them successful nan door? Any pleasant surprises? Any changes successful activity levels versus what you primitively assumed?

Nick O'Grady

Yes. I mean, I deliberation possibly a fewer anecdotes to commencement first, like, a mini anecdote for illustration our first Midland acquisition that we closed successful October performing exceptionally well. And we really conscionable did this look backmost this morning, and successful aggregate, we are up of schedule and nan assets are performing really well. As a non-operator, you conscionable person to opportunity for illustration anything, this will alteration and pivot, depending connected nan environment. But we underwrite conservatively and attraction connected bully geology. And truthful they should beryllium comparatively resilient.

And truthful ultimately, while drilling schedules move astir present and there, I don't deliberation we expect immoderate awesome surprises successful 2023.

Operator

Our adjacent mobility is from Donovan Schafer pinch Northland Capital Markets.

Donovan Schafer

The first 1 I want to inquire is, I cognize it is decidedly measurement excessively early to get circumstantial astatine each connected guidance aliases immoderate type of an outlook for 2024. Obviously, but I'm conscionable wondering if you tin talk astir this astatine a overmuch higher level, conscionable broadly successful position of fixed nan precocious level of M&A activity, that you've had including this 4th and nan preceding 4 quarters? Is location immoderate benignant of successful embedded maturation successful that that you would expect to construe into 2024 successful position of nan cadence. Did you spot rigs moving done that acreage? Yes, I know, possibly we presume -- if we presume thing for illustration an $80 lipid price, roughly, conscionable erstwhile you're looking astatine each that acquisition activity that you did, and you benignant of clasp things constant? Do you spot that arsenic thing starring to incremental maturation successful 24 complete 23? Or would maturation successful 24 complete 23 request immoderate further benignant of proactive activity connected your guys' part?

Nick O'Grady

Yes. I mean, I deliberation nan simplest measurement to opportunity this and assuming, obviously, keeping costs changeless for a 2nd Donovan, if we spent nan aforesaid levels of activity this twelvemonth that we -- adjacent year, we would surely spot growth. We do item this successful our net presentation, but nan effective rotation disconnected of immoderate of that MPDC activity, and we what we effort to item is, obviously, nan guidance is for 91,000 and 96,000 barrels a day, you're evidently going to transcend that astatine immoderate constituent arsenic that task completes. And arsenic Jim pointed retired earlier, your diminution complaint is going to beryllium a small spot higher arsenic you benignant of scope that zenith. But you request astir [70] [ph] to that wells a twelvemonth to benignant of clasp supra 90,000 barrels a time flat, nationalist wrote a small spot from that guidelines complete time. And truthful you're talking astir $600 cardinal to $700 cardinal of benignant of sustaining superior underneath that those levels. But obviously, our guidance is much for illustration 750-ish this year. So if you proceed to astatine those levels, you're going to grow, I will say, erstwhile you talk astir 1 twelvemonth to 1 twelvemonth that nan cadence of that spending really matters, too, right? So because you're going to transportation guardant those barrels into a year. So not each dollars are equal, but that should beryllium immoderate bully goalposts for you.

Donovan Schafer

Okay, great. Yes, that's very helpful. And then, if I could get different -- for 2nd question, I cognize that it mightiness look a small spot for illustration a spot of an oddball question. And erstwhile you astir apt haven't gotten successful a while, but I americium funny to cognize if you would ever see taking non-op positions extracurricular of these U.S. shale plays. There are still immoderate accepted onshore opportunities successful there. And then, you person things for illustration Gulf of Mexico aliases Canada aliases moving location international. And I cognize you don't -- surely wouldn't fresh into a halfway competency, aliases you person this existent differentiated knowledge base. But of course, building yet to commencement location to build that knowledge. And truthful I'm conscionable funny if you deliberation astir stepping retired into immoderate of these different areas, doing a small for illustration a mini grade of dabbling to build that knowledge base. I'm conscionable funny to cognize conscionable really you deliberation astir that.

Nick O'Grady

Well, I will agree, that is an oddball question. But nan reply is, I don't deliberation so. I mean, I deliberation we've seen a fistful of Canadian opportunities connected our way, and they've ne'er made it past nan email inbox. I think, we return awesome pride, and we return this really earnestly astir having method knowledge. We spent complete 2 years successful nan Permian earlier we bought 60 acres, right? And truthful if you're going to do something, you request to do it well, and I deliberation that, we've seen this one, we've been shopped accepted opportunities successful nan United States which is wrong this country. And those are conscionable simply, our method squad is focused elsewhere. And truthful we want to attraction connected what we're bully at. So I'd opportunity that's a comparatively debased probability result for us.

Adam Dirlam

Yes. I conjecture to framework it up a small spot differently. In position of nan M&A landscape, I deliberation nan astir absorbing opportunities that we're seeing presently are wrong nan basins that we're already in. And that's not to opportunity that we're not canvassing different basins wrong nan little 48. Because we look astatine nan Eagle Ford, we look astatine nan Haynesville, we've looked astatine nan DJ, we've looked successful different basins successful that regard, but I deliberation moreover stepping retired into immoderate of those basins, you're going to person to person a hurdle complaint that's going to request to beryllium compelling successful bid for america to dedicate important resources to that. And truthful I deliberation we'll proceed to support our receptor to nan crushed and return a look astatine these different basins from a shale standpoint, but moreover then, it's going to person to beryllium a higher bar.

Donovan Schafer

Okay. Thank you. That's very helpful. Just a bully touch constituent for me, benignant of driving that constituent home, truthful convey you. Good to know. And that's it for me. Thanks, guys.

Operator

Our adjacent mobility is from Noel Parks pinch Tuohy Brothers.

Noel Parks

Start pinch mates of things, was absorbing to perceive you opportunity that nan longer-term outlook is making you spot state assets arsenic very charismatic pinch this pullback and you're surely looking astatine those properties. So I'm conscionable wondering, arsenic you do your information process, really do you benignant of weight nan rumor of getting much concentrated and saying gassy assets incrementally versus infrastructure uncertainty? How do you benignant of fresh that into your model?

Nick O'Grady

I mean, I deliberation it each goes successful there. I mean, nan number 1 we don't -- we surely don't prime immoderate esoteric state value that we deliberation it should spell to, to underwrite these things. You person to underwrite them by based connected nan world you're surviving successful now, and past accent that further. I'd opportunity that infrastructure is really important. Just utilizing nan example, erstwhile we underwrote our Appalachian properties. We surely ne'er exemplary successful growth, conscionable fixed nan infrastructure constraints wrong that base. And then, we ran beautiful punitive differential analysis, erstwhile we went done that. I'd opportunity basins that were not in, usage nan Haynesville arsenic an illustration where, we've observed, arsenic it's grown materially, successful nan past fewer years, that infrastructure has gotten really tight. We besides did nan aforesaid point erstwhile we were looking successful nan Permian, recognizing nan aforesaid thing. And truthful our soul study facet successful sometimes differentiated views connected those things. We've suffered done infrastructure constraints and each basin we run in. And nan cardinal point is to understand what short-term and what's semipermanent and what's going to person a meaningful effect connected nan existent worth of nan properties.

Noel Parks

Got you. Fair enough. And conscionable wondering, apologies if you've touched connected this before. Are you --on nan way to possibly going non-consent connected much of what gets refers to you successful for example, Appalachia aliases different places weight a small spot gassier.

Chad Allen

Yes. I mean, successful Appalachia, nan bully news is that we person a multi-year programme pinch [indiscernible]. And it's much happenstance than a usability of nan state environment, but location are nary completions this year. So there'll beryllium minimal CapEx, we whitethorn expend immoderate drilling CapEx arsenic we hole for nan 24 scheme astatine nan extremity of nan year, but not a ton.

Nick O'Grady

Yes, it's overmuch longer word planning. I deliberation we're going to spot nan non-consent lever getting pulled aliases not getting pulled is going to really dangle connected ostentation and really that interacts pinch commodity prices. And past obviously, depending connected who nan operators are, because astatine nan extremity of nan day, we're an IRR, driven shop, right? And truthful if you person a spread down and commodity pricing, but ostentation stays stickies, and there's going to beryllium things that, whitethorn aliases whitethorn not meet our hurdle rate.

The bully news is that astir operators deliberation comparatively disciplined successful position of sticking to nan core. And truthful I deliberation you've sewage immoderate buffer successful that regard, versus a batch of nan subject experiments that we've seen successful cycles past.

Chad Allen

Yes. And conscionable to elaborate connected that, Noel, like, arsenic an example. We came into nan Permian later wherever nan delineation has been mostly made. And truthful we don't person a ton of acres successful areas that are non-core, we're going to beryllium really taxable to immoderate of those things to my advice, arsenic you spot now. And nan Williston good because we person a ample bequest position, we ain a batch of non-core properties to [indiscernible]. They're conscionable not being developed. And truthful it allows nan operators successful immoderate ways are doing nan activity for us.

Operator

Thank you. Ladies and gentlemen, we person reached nan extremity of our question-and-answer session. I'd now for illustration to move nan telephone backmost to Nick O'Grady, CEO for closing remarks. Over to you sir.

Nick O'Grady

Thanks, everyone, for joining america today. We'll activity really difficult to execute connected nan 2023 scheme and we'll spot you connected nan adjacent quarter.

Operator

Thank you. To entree nan integer replay, please dial 877-660-6853 aliases 201-612-7415 and participate entree codification 13736011. I repetition 13736011. Ladies and gentlemen, this concludes today's conference. You whitethorn disconnect your lines astatine this clip and convey you for your participation.