• Cale
    February 26, 2021
    S&P 500 on track for worst week in a month. WTI down 1.8%, nat gas down 2.4% this morning.

    Tough few weeks for Treasuries.

    Saw that strong economic data in the U.S. yesterday put more pressure on 'em. Spooked traders, causing a notable drop in the Nasdaq. 10-year hit 1.50%...highest since February 2020. Market expecting a stimulus-driven spike in inflation, apparently...but further out looks like price gains slowing.

    Correlation between the S&P 500 and 10-year over the past year has been notable...

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    Not a bond guy, but feels like the first fundamental-driven wobble now seeing a bit of piling on. Unclear if this Treasury selloff is overdone in the short-term or not...but at some point, U.S. of A. debt will get increasingly attractive in Europe and Japan, eh?

    Back closer to home, on the energy front...

    Latest on NGL prices:

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    EIA on propane inventories falling, pushing prices higher:

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    EIA on nat gas inventories, now below the 5-year average:

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    And ya know it's coming...

    Today's 'Supercycle' Sighting:

    BBG: When Does a Commodities Boom Turn Into a Supercycle?

    Can that be right now?

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    Today's Sign We're Heading Towards An Energy Crisis:

    From the G&R link Ryan posted yesterday...

    We are making a terrible mistake when it comes to future energy policies. In previous letters, we have touched upon the challenges of the so-called “energy transition.” Today, we will explain in detail the imminent harm awaiting investors and policy makers who fail to acknowledge certain realities. Every green energy proposal we have examined relies on the trifecta of wind, solar, and electric vehicles combined with various battery technologies. In recent months, a renewed “hydrogen mania” has broken out as well, which adds a fourth leg to the green energy stool. Unfortunately, based upon our extensive research, these plans, including the current hydrogen craze, are bound to at best severely disappoint and, at worst, outright fail in what they attempt to accomplish...

    Vaclav Smil, Distinguished Professor Emeritus in the Faculty of Environment at the University of Manitoba, is the best energy scholar we have ever read, in our opinion. In his Energy Transitions, he notes that historically a new energy source takes between 40–60 years to gain significant market share. The current proposals assume wind and solar will make comparable gains in only 20 years. Ambitious plans often carry ambitious budgets, and the green energy transition is no exception. Using extremely aggressive cost saving assumptions, a widespread move to renewable power is expected to cost $70 tr over 20 years, nearly $50 tr more than if we stayed on the current trajectory. Unfortunately, our research tells us this additional spending will not even come close to generating the expected reduction in global carbon. The sums involved are monumental, and much of it could fall into the category of “malinvestment” with disastrous results. The further down the current path we go, the less likely we will be able to change course later. A decade ago, a series of failed promises and bankruptcies plagued the battery industry, making it nearly impossible for subsequent ventures to find financing and move forward. We worry the same could occur on a much larger scale if tens of trillions of “green” investments are eventually written off.

    Good throughout.

    Friday assorted links

    1. CNN: U.S. carries out air strikes in Syria targeting Iranian-backed militias. Thx for the heads-up, Lance.

    2. EIA: Texas natural gas production fell by almost half during recent cold snap

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    3. Unowned $EOG forecast crude oil output this year between 434,000 and 446,000 bopd - basically flat to the 444,800 bopd rate of Q4 '20. Another good sign of discipline in the shale patch.

    4. BBG: Dot-Com Survivors Have Wisdom for the GameStop Crowd

    Montanaro liked to call Moffitt “lobsterboy” because he had joined the company after working on a lobster boat — which is where he got his first taste of investing.


    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.
  • Cale
    February 25, 2021
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    Notes from a same-day replay. Shares closed up 0.30% on a bigger down day for the broader market and sector.

    Release was here, first look was here, full preso here. Select slides below.

    Call Notes...

    CEO: Weathered storm, all key mets at or above mid-point. Raised in July and November.

    Growth capex higher than guide due to PHP pull-forward.

    PHP start-up and JV contribs = $6 annual divvy. All 4 pipes in service, GCX and PHP full, long-term.

    Shin Oak and EPIC impacted by reduced drilling in Delaware. Rig count there 116 down from year ago, upside as activity increases.

    Looking for 3rd party biz, opex down by 1/3 YOY. Some cost savings still to capture. No injuries among our guys. Absences due to COVID over holidays, but none among employees.

    Focused on op efficiency and environ footprint.

    Number of projects with ESG...vapor recovery on tanks, compressed air on pneumatics, nat gas leak detection, test 2x required, less methane in blowdown. Using electric compression, too. Back-up gens for Diamond Cryo. Less flaring, light pollution being addressed near observatory, too.

    On Q4...earnings boost from PHP, offset lower G&P vols from reduced drilling. Some success on new revenue streams...processing off-spec condensate vols more in Q4, new compression outside Alpine High, load shedding at cryo plant.

    Positive momentum, vaccines coming, renewed interest in drilling and completions.

    Focus this year is capture of 3rd party volumes for G&P, including expanding biz with APA outside Alpine High. Deals to optimize underutilized assets - divestment or redeployment.

    ESG - to reduce flaring 10%, blowdowns 30%, protecting divvy while looking at refi the preferreds.

    All 4 pipes in service full year. Negligible growth capex after Q1.

    CFO: hitting deets from release, EBITDA and growth capex...

    Walking thru accounting of derivs, volumes, see release.

    Guidance (as per release): consistent with update in November. E&Ps saying capital will flex, we will adjust outlook, too. Pricing improved, activity up, but priority is op discipline and returning cap versus production growth. May impact our 3rd party biz capture in G&P, less urgency.

    JV pipe biz: conservative on util of Shin Oak and EPIC...no 3rd party biz or increase in NGLs, both would be upside (more on this later).

    Alpine High - 5 more ducs.

    Still assessing impacts of freeze last week, to update in May.

    Minimal maint capex on JV pipes, new, $5M on G&P - in guidance.

    Plenty of liquidity $800M revolver, good til '23.

    Re-fi of preferreds...multiple options, will protect divvy and balance sheet.

    Seeing add'l completions at Alpine High, upside from 3rd party.

    Going to Q&A at minute 15.

    Q1. Credit Suisse. Gas prices up, 3rd party opps improving?

    A. Very positive about it, should create some opps. Producers being careful not to get out over skiis, but positive prospects in and around Alpine High. Would come later in year, not right now, having some conversations. Encouraged by completion of 2 DUCs APA mentioned this morning...5 more later this year.

    Better year ahead of us in terms of 3rd party prospects. Found a few last year even though tough, expect to do even better this year. Price on oil, gas and assoc gas should help.

    Q2. Preferred way to refi preferreds?

    A. Too early, have some retained cash flow at midpoint of DCF guidance - assumes no asset sales...ended last yr with $25M of cash on BS, so have cash, looking at all sorts of alts but early.

    Perfect timing on crossover of MOIC and IRR is late '21 early '22 so have time but good to see cap markets and high yield opening back up and at attractive terms.

    Focus to keep manageable leverage and protect dividend.

    Q3. US Capital Advisors. 7 ducs that Apache talked about - any more? Active rigs anytime soon in Alpine High?

    A. Those 7 are ones will do in 2021, have others, will see if will go after others in future. Depends on economics. APA commented this morning that first 2 ducs performing very well, may have opp to bring in additional capital to drill more in Alpine High, will see. Positive signal.

    Q4. Two liquids pipes (so Shin Oak and EPIC) - if SO flat yoy, what does mean for util, how much could add?

    A. Kinda hard to say, not providing that. Assuming yoy flat volumes, barring any material impact from freeze off. At $60 to $65 oil, will monitor, is some upside, will continue to monitor.

    Another impact for NGL pipes is ethane rejections...gas up, C3+ up, ethane lagging a bit, will counterbalance growth from y-grade. Little rejection last year. YOY flat is appropriate for today, but will update in a few months. Could be upside to that number.

    Q5. EPIC crude term loan...timeline on getting distros from there?

    A. Timeline pushed out after COVID. Can't speak too much yet, no covvie issues, 7 year term from 2019, plenty of runway and is public so can see where marked. Not too onerous, but any near term distros to equity pushed out for some time.

    Q6. Overall leverage of EPIC?

    A. Let me check if we can even speak to that, not sure how much we should speak publicly to that.

    Call done minute 26. CEO closing thoughts...enter '21 with nice momentum...no ALTM assets operate on federal lands. Need a resilient and reliable energy supply. Will generate FCF all year, will return cap to shareholders, divvy on the way next month.

    Good call, good tone. Altus was a bright spot in an ugly tape today.

    More importantly, though, becoming clearer that they're sandbagging that '21 guidance. Say that cuz they will tap 7 ducs in Alpine High this year (not in guide), both EPIC and Shin Oak bought should contribute considerably more this year that discussed so far (note the phrase in both of those slides..."forward outlook may benefit from an improved macro environment")...and current guidance still assumes PHP will start up later in Q1...but actually already started up on January 1.

    To be clear - conservative is good, from their perspective, given what they went thru prior to us getting involved...but seems like good odds we see a bump up in guidance in conjunction with Q1 report.

    And though we've seen a nice run in our shares since last fall...still a ways to go, IMHO.

    As back-of-the-envelope as possible...$190M in distributable free cash flow (high end of range) would be $11.69/share. Put a still-too-cheap FCF multiple of 10x on that (call it rough mix of low multiple on G&P assets, high on new pipes, fully subscribed for 10 years, nice rates) and ya get $117 per share. Before adding (a) third party, (b) actual full year PHP cash flows, (c) NGL uplift from Shin Oak and (d) more free cash flow from EPIC, too. Eventually. And never mind any other deals/pipes...and/or seeing Alpine High drilling perhaps fire back up at scale some day. To be sure, kinda slim chance on that last one - at least while still owned by APA - but even those chances did increase a bit further from zero given some of those comments on the call there...so not impossible, eh? I mean, just this week we landed a little go-cart on Mars, people.

    Also is now a pretty clear path here to take out those high-cost preferreds.

    And in the meantime, we get paid 54% a year to wait on our shares. While they throw off plenty of free cash...and run the biz for value accretion at their major shareholder (unowned $APA)...and little ole us, too, I suppose...meaning that cash is going directly to debt paydown, not growth.

    Een nuttin', mon!

    <end bad Bahamian accent>

    Select slides:

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    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.
  • Cale
    February 25, 2021
    Peak earnings season for Tarpon continues. Three calls yesterday, two more calls today. Notes and slides on the company threads.

    WTI flat at $63-low this morning, nat gas up 1.15% to $2.83.

    And on the geopolitical front, would note that the new U.S. Administration is expected to release a report later today pinning the 2018 killing of journalist Khashoggi on the Saudi crown prince MBS. Unclear what may follow that - if anything, from either side - but in the meantime, may be a signal that the tweets, er, considerable influence the U.S. was exerting on Saudi regarding global oil prices the last few years may soon be a thing of the past. Read into that what you may.

    Thursday assorted links:

    1. Reuters: OPEC+ considers modest boost to production from April.

    Short version of my thoughts on the March 4th OPEC meeting:

    Russia and Saudi clearly have different agendas, but I don't expect a big clash next week.

    Now...drama? Of course, will be some. I mean - it's OPEC+, whatarewetalkingabout.

    Still, my expectation is the outcome will be similar to January: they both get what they want...while they continue to stay coordinated. Specifically, odds seem highest to me that Saudi keeps its existing unilateral cut of 1M bopd for another month, and Russia gets the nod to slowly lift production a bit more.

    Sooooo....outcome will IMHO most likely be continued cooperation...with continued restraint...and controlled supply. Gotta keep that backwardation - although the longer-dated oil prices are still too low here. Even if we get a little pullback in the front month. But that's probably another post.

    And with regards to Tarpon: ideally, am putting that cash to work over the next week or two. Stay tuned.

    2. Rig counts:

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    3. Oil as an inflation hedge:

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    4. Charlie Munger doesn’t know what’s worse: Tesla at $1 trillion or bitcoin at $50,000

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    And is 97 too old to be a TikTok star??



    More in a bit on the private boards.

    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.
  • Cale
    February 24, 2021
    WTI up 1.25% to $62.44. Nat gas off 0.80% to $2.86.

    Peak-earnings-call week for Tarpon continues.

    In the meantime, WSJ with a good primer related to some recent discussion on here:

    Why Higher Rates Are Hammering Big Tech

    Rising long-term Treasury yields ultimately might not pose much of a problem for most stocks. But the bout of indigestion that higher yields are already giving to some of the past year’s biggest winners—shares of companies including Amazon.com, Apple, Tesla and Microsoft — could prove more lasting.

    Some of that is because these companies’ steep valuations make them vulnerable to rising yields. But it also stems from how, even as the Covid-19 pandemic wreaked havoc, those stocks did so well.

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    Wednesday Assorted Links:

    1. BBG: Whispers of $100 Oil Return as Crude Shakes Off Covid’s Clasp

    While oil’s dizzying collapse is still fresh for many traders, rumblings are starting to emerge that by the end of next year prices could once again top $100 a barrel.

    2. BBG: Socar Trading Head Expects Oil to Hit $80 a Barrel This Year.

    I mean, I've never heard of 'Socar Trading,' either - but they're really confirming my priors here, so I'm all for it. And in my own defense - I have been to Baku, which maybe makes this link legit...?

    Oil prices will hit $80 a barrel this year as demand comes roaring back and producers won’t be able to immediately respond with sufficient supply, Socar Trading SA said, joining a chorus of bullish calls on the market.

    Hayal Ahmadzada, Socar’s chief trading officer, said the glut of excess oil stocks that built up in 2020 in response to the pandemic will be fully drawn down by the summer. At the same time, soaring prices for steel used in pipes, wells and fittings as well as the high cost of capital for producers will crimp a meaningful supply response by an already hobbled industry even as demand returns.

    “I will not be surprised if we see $80 a barrel in summer or before year-end and above $100 a barrel in the next 18 to 24 months,” Ahmadzada said in an interview from Baku, Azerbaijan.

    3. Platts: Global oil demand likely to rebound to pre-COVID levels by end-2021: analysts

    4. Energy Intel: Shale Giants Hold the Line Despite $60 Oil

    Benchmark US crude prices have jumped more than 25% since the start of the year. But the return of $60 oil isn't tempting the country's largest shale producers to loosen the purse strings.

    Management teams have used their recent earnings conference calls to repeatedly assure investors they will remain steadfast in prioritizing capital discipline over growth, with many maintaining guidance put forward when oil was stuck in the $40s.

    "If commodity prices surprise to the upside, we will remain disciplined and won't chase growth. If the recent commodity price strength persists, we will not raise our capital spending … we will simply generate even more free cash flow," said Marathon Oil CEO Lee Tillman, capturing the sentiment echoed by others.

    5. Today's "supercycle" sighting:

    A New Commodities Supercycle Is Looming

    Kinda derivative, but I'll allow it.

    6. And here you go @Ryan Y:

    Will ARK Invest Blow Up?. Not endorsing that kinda fate, you understand...

    Three more Q4 calls this morning, more on today's Company News thread.

    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.
  • Cale
    February 23, 2021
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    Notes on $FANG Q4 Call

    Release was here, my initial thoughts on their quarter were here, and the full slide deck is here. Select slides included below.

    Notes below from a same-day replay, shares up 0.5% here a few hours after live call.

    Couple of earlier positive sellside comments can be found on this thread.

    Call Notes:

    CEO: benefits of strategy to move to most productive areas in Q2 paying off in cap efficiency and early well performance. Well costs and cash opex near all-time lows. Avg completed lat length > $14K feet, record. Will translate to returns for shareholders.

    Same good quote from release here re: market supply being purposefully withheld...no need to grow oil production into artificially under-supplied market. Instead, Q4 production flat, generate FCF for divvy and debt paydown. 7% bump in divvy. Capital allocation philo unchanged: hold production flat, FCF used for divvy and debt. Those two not mutually exclusive, most FCF for paydown this year.

    Q4 - FCF up 58% to > $242M

    Expect to generate $1B of FCF at $50 WTI (w/ Guidon) this year (but no QEP in there yet). Reinvestment ration sub 60%, midpoint of cap budget.

    Production guidance - assumes Q4 flat plus Guidon flat. Includes last week's freeze...all production down for 4-5 days. Back now, will make up over year.

    QEP vote on 3/16, should close soon after. New guidance and plans then. Q1 will be noisy, but will clarify in Q2+.

    Will retire '21 note later this year with cash on hand, no obs til '24, high yield in '25 also callable - will do with FCF.

    Major ESG initiative announced - deets on Scope 1, slides 13 and 14...flaring down 90% from 2019. Will spend $15M/year next four years on pneumatic controls for methane. Net zero now initiative - plan to buy offsets here. Looking for more projects that gen income eventually, credits the bridge.

    Targeting a high level of responsibility - right thing to do, and will have to compete for capital that way, too. Carbon emissions are a cost and working to become low carbon operator.

    Significant, consistent FCF generation >> returns to shareholders. Will update on plans when practicable.

    Going to Q&A at minute 10.

    Q1. JPMorgan. Pro-forma model with QEP, we see $1.4B of after-divvy FCF next 5 years...or $7B...you talked about paying off $200M debt later this year...plans longer-term for deploying excess cash?

    A. Good problem to have. Cost structure enables us to do that. Leaning into base dividend talked about at board. Problem of blessings to have that kind of FCF. Will continue to work quantum of debt down. Not going to grow production with that FCF - no fears there, that is just off the table.

    CFO noting anything maturity pre 2029 on table for paydown, set biz up with 1 turn permanent leverage, maturity over 10 yrs at $50. Front end of curve, all eligible for paydown, can also continue debt paydown too.

    Q2. Color on costs in Midland Basin guide re: Guidon?

    A. Not gonna guide to all-time low costs, at $500 to $520 per foot, service guys suffering too. Midpoint of guide 8 to 10% above well costs today, hope guys can keep and outperform. Will probably see service cost pressures rest of year.

    Q3. Dingman at Truist. Benefits of tweaking G&P assets and contracts a while back given storm last week? All done?

    A. High flaring number in 2019, due to our gas processor losing money on % of proceeds of contract, so sent us more than fair, so converted to fixed fee deal. Flaring numbers down dramatically. With NGLs and gas rallying, fixed fee same, we get benefit as operator. Not a lot of impact from storm, field ops did great.

    Q4. Post QEP...8 to 9 rigs? Color on D&C...where are optimal efficiencies? Crazy now, can you get even better?

    A. Rig efficiencies still going up...9 rigs to drill 190 wells, 75% in Midland, all over 10k feet...but efficiencies really on frac side. Cadence of 220 to 225 completions, all over 10k feet, w/ 3 simulfrac crews, 1 spot. Can see in lateral lengths, too, > 13k avg lat feet in Q4. Want to push lat length to 12-5 or 15k foot range.

    Last year, running over 20 drilling rigs, now running 7 or 8, can highgrade our rigs, and in Q2, leaned in to improve efficiencies on both sides. Made them permanent. More cashflow for shareholders.

    Q5. Stephens. Net Zero Now great...expectations of offset costs?

    A. Big piece on GHG are emissions reductions. Net Zero Now great addition but focus as per slide 13 and 14, will spend $15M a year converting batteries. Carbon credits - in process on contract, mid 7 figure number, not 8-figure, projects tied to carbon capture or sequestration.

    Not trying to buy our way into carbon neutrality. Credits just a bridge for now. Spending money on tax credits now great incentive to not spend money later.

    Q6. Color on hedging strategy?

    A. Real important to deliver FCF profile. Commodities rallied since last spring, wide 2 way collars, protect divvy, not limit upside. Will continue to build book with wide collars. Will be patient. Important to guarantee returns and distributions.

    On earlier question - we have a social and environ license to operate. Surprised how little cost is required to do the right thing re: methane and tank batteries. Hope other co's find same outcome. Real dollars not to drill bit, but not as bad as we thought.

    Q7. Agree, a 2-3 well diversion every year. Congrats and think more companies should do that.

    A. Thank you, yeah, stings a little bit but right thing to do.

    Q8. Cowen. Lateral lengths...13k in Q4 but budgeted 10K this year - should lat length tick up next few years?

    A. New assets fit hand in glove so can push lateral lengths for biggest operating area next few years. 10k is floor, rigs outside still, so could get up 10% possibly, will see.

    Q9. On growth versus returning capital - seems sustainable at mid $30s to $40, now higher...anything change? Design at field level?

    A. No, can't pay attention to weekly oil prices changes, reservoir performance key all the time. Nobody every blames you for drilling wells that are too good.

    Q10. RBC. Commend for sticking to plan but lot of potential for oil supercycle MAGIC WORDS RIGHT THERE COUNT 'EM...what is plan in 2022? Limit to growth, what is acceptable? Color if stronger for longer?

    A. Would be a good problem to have, hopefully on our way, but don't want to put a very complicated biz into a box in terms of growth rate. If US shale called upon to grow, would not be double digits, or zero, but is an oil price where FCF grows more if you grow slightly. We have done that work, still a ways away. Not time to talk about growth, but if was, would be sub double digits, mid single.

    Can see tea leaves talking about super cycle PREACH BROTHER but not where we are today...would have to see a fundie shift. Not scared of growth...when drives incremental sharedholder returns, part of our decision making...but not good business for us right now.

    Q11. Color on current production rates? At 170 to 175 on legacy, outperformed in Jan, so above now...? Color on QEP too?

    A. Very pleased with op performance. Looking to keep prod and capex guide simple...we did outperform baseline last yet, fine. Nothing changed in terms of keeping newco flat thru '21. FANG plus 10 months Guidon minus storm impact (so no QEP).

    Q12. What about QEP?

    A. They will report soon, will update market, but can't give guidance on a deal shareholders need to vote on.

    Q13. Citigroup. On base dividend - one peer said comfy at 10% of operating cash flow at their strip...how do you think about?

    A. Good goal there, ours lower at $50 and at strip today. Target more consistent divvy growth over longer period of time more our focus, plus increase size of EV with FCF. This increase came a little early, but did same last year when pretty dark. Not off the table that we could revisit divvy multiple times a year from where we are.

    Q14. Budget split (Midland 75%, rest to Delaware) now...will stay at that mix next few years? How would growth change that? More flex in Delaware?

    A. Large block in Martin County can put a lot of work into. After QEP, Midland mix up, hope stays 75 to 85% lateral footage next 3-5 years - little lower % of total capital but high percent of net lateral footage for long time.

    Q15. Stifel. Thx for taking leadership position in ESG. If invest in CCS, would do in conjunction with EOR?

    A. Can't commit, but credits we have bought would give us time to study and partners here or at Rattler. Hot topic of wind and solar also in fold. Cos with large balance sheets will lead energy transition and are also O&G companies.

    No specific EOR projects underway, lot of oil left in ground still and we know EOR part of our industry's future. Following a few guys very closely. Be nice if EOR and sequestration had overlap, barely getting started.

    Q16. Color on clean maintenance capital including QEP?

    A. Kind of what we gave, QEP has numbers out, okay to look at those. We will close in March, so on costs, midpoint of our guide 8 to 10% above current well costs, so could chop that much off if same and get good maintenance capex number.

    Q17. TPH. On M&A and A&D...know may be early, but how does landscape look a bit further out - and then in sector more broadly?

    A. On A&D, follow closely, lot capital going to PDP-type transactions so good for us on QEP Williston assets...hot market there. Small stuff in Permian, fully developed, doesn't get capital though.

    Lot of production in hands of 10-12 companies in US, bodes well re: growth but more to do.

    A&D harder to do when prices up but very comfy with our inventory and runway.

    Q18. Color on mix after deals?

    A. 100 to 200 bips of oil mix after - boes outperform cuz flaring down. Midland oilier, but not a huge swing.

    Q19. Goldman. Perspective on what seeing others doing re: capital discipline?

    A. From macro, still undersupplied on rigs to keep Permian flat. Not enough to offset production declines have seen thru lack of investment last 12 months. If oil and gas companies haven't got discipline now after covid, probably never will. Will be a time in future where we get a signal for growth, after Iran...but hypergrowth is in the past.

    As low cost producer, going to drive highest returns to our shareholders.

    Q20. On sequestration and clean energy - do you have competency in house, would invest...?

    A. We don't have those here...that is a trap, we're not experts on that. Main thing is to produce barrels at highest cash margin at lowest cost and now lowest carbon footprint. Would participate alongside whatever carbon capture tech may me.

    Q21. CapOne. More interested in carbon capture than sequestration...?

    A. Too early, goal to get emissions down as much as possible. Getting into other biz is a 3/5/7 year discussion. Getting ours down, how to offset for now - smartly. We are an oil and gas producer going to be doing it a long time. Pressure only going one way, taking bull by the horns. Trying to be very specific.

    Focus not on buying or way to carbon neutrality, focused on reducing emissions now, hope others look at doing more on methane, too.

    Q22. Scotia. Color on return to shareholders? Criteria and priority?

    A. Variable divvy or buyback worth discussing when debt at 1x at $45 to $50 so will talk about at that point. What is best return after base divvies and debt down is good question but targeting debt back down to $5.5B first.

    Q23. Keybanc. Purchasing carbon offsets...that an annual number, for 3 to 7 years, color?

    A. Depends on how many tons of CO2 we omit...cost down as number does. Bet carbon offset credits increase in price, so depends. Not a material expense, priority is to get emissions down.

    Q24. M&A after get to target debt levels? Consolidate more in Permian?

    A. Comfy now, will monitor landscape as always do, but very comfy on inventory life.

    Q25. Johnson Rice. Refresh on options for QEP debt - 22s and 23s, how does play in?

    A. Three notes outstanding, probably tendered and refi'd, lower interest rate. Will depend on response to tender. Our 25 notes also a chess piece. Want to take advantage of rates...paydown gross debt, lower interest rate, longer avg term to maturity.

    Q26. Continuing to pick your spot, then?

    A. Yeah, do need to work on covvies and reporting reqs, so will copy an existing path for handling those notes,

    Q27. Assets in SE Martin - how prominent in plans?

    A. Will add one net rig for Guidon, 12-13 well pad, QEP may move rigs 2-3 more, active there next 5-8 years.

    Q28. Barclays. Net Zero and ESG...other options to buy offsets? Not Cali, can you participate in all credit markets?

    A. Yes, and focused on U.S. credits. Projects one based in TX, one in WY, that's our start, will build good relationship with partners, invest directly at some point. Goal to make sure what we do invest in is tied to what we produce.

    Q29. On income generating projects...potential carve-out down the road?

    A. Getting way ahead or ourselves, but think we've proven pretty smart about spinoffs. Head might explode if thought about another one right now. Aware of those multiples, but not why we're doing this.

    Gonna focus on what we're really good at, will stay there, drive down emissions intensity.

    Call over minute 62. CEO final closing remarks...unprecedented weather in Permian...no power, frozen water...our field ops guys working 20 hours a day to get gas delivered to power gen plants - not for FANG, but cuz those plants were sitting idle - cuz did not have fuel. Answered the call, heroic, won't be forgotten, so thank you.

    Bottom line:

    Simply put, FANG is just extremely well run...and has excellent assets. Call underscored that, again. All about discipline - which shows up as free cash flow going towards debt pay-down and dividend. And now leading from out front, again, on ESG. Glad we're on the team...and even more glad we joined at that cost basis from last spring.

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