Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2020 Comstock Resources Incorporated Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce your host for today's program, Mr. Jay Allison, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you. Thank you for introduction this morning. And again, I want to thank everybody that's taking their time to listen to the story today. I know we have a -- lot of you we know, a lot of your really good friends. They have been forever and ever and ever. So, today is an important day in our -- really in our corporate life. We're all human and we do understand the third quarter results were somewhat disappointing, quite frankly. And I can speak for me and for everybody else, the management team, we hate it. And they are disappointing for the reasons that you're aware of. I mean, they're all logical reasons. They're still disappointing, shut-ins, curtailments related to Hurricane Laura, non-op curtailments, and there's a litany of other small reasons. I think our goal this morning is to share what we see for the fourth quarter 2020, as well as 2021 and 2022, and to show you, our stakeholders, how we plan to delever our balance sheet in those years by using our strength of our peer-leading high margins and low cost we've created in the Haynesville in a period of time, quite frankly, when the outlook for natural gas is extremely bullish. Really the most bullish it has been in over 10 years. Our job in the next 45 minutes really today is to avoid any disappointments in the future and show you how our margins in the Haynesville, coupled with the right size capital program over the next years can delever the balance sheet and expand our trading multiples, so that we all are winners, all based on the commodity gas price outlook that we see today. So, thank you for trusting us. And if we have dented that trust any, please know that the…

All right. Thanks, Jay. On slide four, we summarize our financial results for the third quarter of this year. Our production for the third quarter totaled 103 Bcf of natural gas and 354,000 barrels of oil. Total production of 105 Bcfe was 4% higher than the third quarter of 2019. Our oil and gas sales, including the realized hedging gains, were $212 million, which was 15% lower than 2019 and this was all driven by the lower oil and gas prices we had in the quarter. Oil prices in the quarter averaged $33.52 per barrel and that's what the hedging gains we had in the quarter and our realized gas price, including hedging gains was a $1.95 per Mcf. Our natural gas price realization, overall, was down 14%, which offset the production growth that we had in the quarter. Adjusted EBITDAX came in at $148 million, which was about 22% lower than the third quarter of 2019 and operating cash flow of $93 million was about 35% lower. We did report a net loss of $130.9 million for the third quarter or $0.57 per share. But most of that loss is attributable to the $155.6 million unrealized loss on the mark-to-market of our hedge positions and that that is all caused by the substantial improvement to futures -- the future natural gas prices since the end of the second quarter. Our adjusted net income, excluding the unrealized mark-to-market hedging loss and then certain other unusual items, was a loss of $13.8 million or $0.06 per diluted share for the quarter. On slide five, we summarize our financial results for the first nine months of this year. Production for the first nine months totaled 349 Bcfe, including about 1.2 million barrels of oil, which is 90% higher than our production for…

Okay. Thanks Roland. Over on slide 13, this is just the -- our updated outline of our current acreage position, which has increased this quarter up to 309,000 net acres. We control the majority of the acreage with the 91% operated position, and have an average working interest in the acreage of 81%. We currently have 1,943 net future drilling locations identified on the acreage with 96% of the acreage is currently held by production. Since resuming our completion program at the very end of June, we have turned 15 additional wells to sales. This now brings our total D&C count up to 252 wells since early 2015. Now, like Roland mentioned, we have added two additional rigs since our last call, and we're now running a total of six rigs. Due to the break in the frac activity in Q2, we started out the third quarter with a total of 21 DUCs. We've since worked that down to 16 wells currently. Our go-forward DUC count should remain roughly at this level through year-end and into next year. We started off the quarter with two frac crews and we ramped up to three frac crews in early September, and we will continue to run these three frac crews through the end of the year. Based on our current six rig schedule to seven rigs next year, we anticipate running on average 2.4 frac crews in 2021. Over on slide 14, this is our latest Hayesville/Bossier itemized drilling inventory at the end of the third quarter. Our gross operated inventory currently stands at 2,401 locations with our net operated inventory at 1,763 locations. This represents a 73% average working interest on our operated inventory. Our non-operated inventory is at 1,352 gross locations with a net non-operated inventory at 180 wells, and…

Thank you, Dan and also Roland thank you. If everybody would go to Slide 17, I'll go over this slide and turn it over to Ron for some guidance. So I'd like to direct you to Slide 17 where we summarize our outlook for the rest of this year and our initial thoughts on next year. For the first half of this year, we've remained primarily focused on free cash flow generation and managing the company through the low oil and natural gas price environment we've been in. While natural gas prices remain relatively low through October due to elevated levels of gas and storage, the outlook for natural gas has improved substantially for late 2020 and 2021 driven by expectations for significant declines in natural gas supply due to a continued reduction in natural gas directed drilling and completion activity, and less associated gas production from related activity in oil basins resulting from the collapse of oil prices. Starting in the third quarter, we went back to work and resumed completion operations with three frac crews in order to work through the backlog of DUCs that Dan had talked about. And we've added two additional drilling rigs to generate production growth late this year, and more importantly, in 2021 to coincide with improved natural gas prices. We also recently made the decision to accelerate well completions originally planned in 2021. We're keeping a third frac crew working in the fourth quarter, which moves about $30 million to our 2020 budget from 2021 in order to complete seven wells three months earlier. The rationale is that we can produce the gas related to these wells earlier in 2021 in the higher gas price months. The strength that we lean on this year is our industry-leading low-cost structure and well economics. With all our focus on reducing activity and delaying startup of the new wells, we expect to have about a 2% pro forma production growth this year. Next year, we expect a balanced growth of probably 6% to 8%, while generating substantial free cash flow that we'll use to pay down our debt and reduce our financial leverage. We've hedged almost half of our production over the remainder of 2020 and 64% of our 2021 production, and have strong financial liquidity of $928 million following our recent bond offering. So with that now, I'll turn it over to Ron to provide some specific guidance for the rest of the year. Ron?

Thanks Jay. On slide 18, we provide financial guidance for the fourth quarter of 2020 and our initial guidance for 2021. This guidance reflects the impact of the timing of our drilling completion schedule as well as the shut-ins discussed earlier in this call. For the fourth quarter, we anticipate spending $150 million to $170 million on our drilling and completion activities, which will result in 2020 total spending being $450 million to $500 million. That's higher than we discussed in the second quarter call, due to laterals getting longer, some additional workover activity, some non-operated activity and some minor leasing costs. Fourth quarter 2020 production is expected to average 1.15 Bcfe to 1.25 Bcfe per day. And our 2020 production is expected to average at the low end of our prior guidance of 1.25 Bcf to 1.30 Bcf a day, despite the impact of the shut ins and hurricane impacts previously discussed. Looking ahead to the next year, we're providing initial CapEx guidance of $525 million to $575 million and production guidance of 1.325 Bcf to 1.425 Bcf a day, which anticipates the addition of the seventh rig by the middle part of next year. LOE is expected to average $0.21 to $0.25, gathering in transportation costs are expected average $0.23 to $0.27. The production and ad valorem taxes are expected to average $0.08 to $0.10. Our DD&A rate is expected to be $0.90 to $1.00, and the cash G&A is expected to be in the $0.05 to $0.07 range on a unit basis. For the rest of the call, we'll just -- we'll turn it over for questions and answers.

Certainly. [Operator Instructions] Our first question comes from the line of Derrick Whitfield from Stifel. Your question, please.

Thanks and good morning, all.

Good morning.

All right. With regard to the 2021 outlook, would it be fair to assume you'll see minimal production from the seventh rig you're adding in 2021 and the real impact will be felt in 2022 where that activity increase could sustain growth in that, call it 6% to 8% range?

Yes, this is Roland, Derrick. And that's a good observation. I think, really, if you look at the way that shale companies, especially that how we're developing, the shale you know -- the capital that we spend today really doesn't generate production until four months to six months later, and because we always drill on pads just because it increases the drilling efficiency so much. So you have two wells to three wells kind of waiting before they come online. So -- and given that we're looking at -- so I think as we look ahead and into 2022, we wanted to create some guidance that even though it didn't add a lot of production to 2021 and probably the action we did to actually to spend additional dollars in the fourth quarter probably has a great impact on 2021. But adding an extra rig know really doesn't -- there really isn't a lot of production that gets on in time to really move the numbers. But what it does, I think, we have a -- we've set the stage for a very sustainable program into 2022 versus having a higher growth rate in 2021 and then going back to hardly any growth in 2022. So, I think that given the outlook for gas and the company is kind of exiting this period of very low gas prices and be very defensive, we wanted to set kind of a more sustainable program out there that makes sense for the overall achievement of our goals, which is to get leverage below two and use the strength, like Jay pointed out, of the very high margins that these wells can generate in this gas price environment. We do -- we're sensitive to the fact that the market doesn't like additional spending and growth. But I think, if you focus really on that we're a natural gas company and the outlook is so much stronger next year, it's not the same case as an oil company that's looking at a more uncertain commodity and not a favorable kind of future. So, I think we're -- we think is the best action for the company as to how we achieve our goals. And it also sets expectations into something that we think we can really outperform next year and also outperform in 2022, and that is not overly short-term focused on just getting the maximum results next year.

Well, again, our goal is to figure out on a quarterly basis on how we should spend our capital dollars. That's why we've looked at 2021 commodity prices. We've looked at fourth quarter 2020, and we said we should keep a frac crew busy. We should lean in to 2021. Because, again, if you look at the advantage we have, I mean we have advantage access to the demand market of the Gulf Coast. We're favorably exposed to Henry Hub, right. So when we look at that, we need to lean into that market that we have. And you see the LNG exports, I mean they're at an all-time high right now. So, we think with the weather, where it is and where commodity prices really are, where our leverage where it is, and our low cost, I mean, now Dan has given us low cost and high margins. We've got to give you an outlook for the fourth quarter as well as 2021, 2022. So we don't have any disappointing quarterly results for you again, period. That's what we're doing today. We're correcting everything.

Thanks Jay and Roland. That certainly makes sense. And as my follow-up, referencing slide six, you guys were clearly impacted by several uncontrollable events in Q3. As you look out to Q4 and then into 2021, how do you envision that shut-in metric trending over that period?

Yes, that's a good question. I mean, a large impact is always the simultaneous operations, which is happens now because we do -- you have to protect your offset production from offset frac activity, either we created or one of our neighbors creates it. So, yes, I think it's probably, realistically 5% number, pretty flat. I mean, especially as we -- if we keep a more consistent program, I think it stays more consistent and doesn't have the kind of gyrations and the unknown is there are power issues or pipeline issues that are caused by other events. And then I think what -- for the first time ever, really in this late September, October period, as a major producer in the Haynesville Basin, we for the first time withheld gas from the market because of the market struggling with the storage levels before it became comfortable with that level. And it's the same thing that the large producers did at Appalachia. And it's our responsibility to do that. And our actions allow that market to recover pretty quickly, and it also allowed us to realize -- instead of realizing a very low price for the gas, to save it and then produce it a week later at a higher price. So, I think we're also going to have to be mindful of that and controlling the flow of gas, especially the swing gas that's open and into a market. Every year, so far, there has been a sensitive period for gas as it exits the injection period and storage fills up in this October is just -- it's been that transition now that we had it last year in 2019, but not as severe and then this year too. But the good news is we -- it seems like we've made the good adjustment through it. And operators like us have responded and very proactive to keep in the -- to keep in that situation workable.

I think you won't see the impact of the private equity backed Haynesville players, but they'll have the same type shut-in issue. I think the good thing for Comstock, you noticed, we did add about 4,000 or so acres to our footprint. So, we've got 309,000 acres. We do spread our drilling program out in the north, south, east, west, both in Texas and Louisiana. And when you look at our drilling program, we kind of have a pool of information from the offset operators and we figure out when they're going to drill, when they're going to complete. And we would try to toggle all of our programs around because of our large footprint to not have quite as much exposure to these shut-ins. But again, I think, Dan will tell you that it's probably 5%, Roland will say 5%. And then that's just kind of where we are right now, even with our footprint. We'll -- we've put out our modeling, our guidance, Ron has done that, and he's kind of to stuck that type of handicap in for the future.

And we didn't focus on it much, Derrick, in our conversation earlier like we normally do. But we do have initiatives going on in 2021 that we're going to be able to really get less and less gas sold at Perryville, which is -- that's more vulnerable to, especially for gas coming out of basin like it did in disrupting that basis. So, we've always had a goal of removing ourselves from that market. And I think next year, there's several initiatives. The big one, obviously, is Acadian line opening up. But we also have -- we've also been working with our midstream partners to give us some other ways to bypass Perryville and get -- and move gas more to the Gulf or at least have the flexibility to respond to that.

That's great. Extremely helpful. Thanks for your time, guys.

Yes. Thank you.

Thank you. Our next question comes from the line of Dun McIntosh from Johnson Rice. Your question, please.

Good morning, Jay. Thanks for...

Good morning.

-- provide so far. I had a question. I understand the pickup in activity and that attacking leverage can be a little easier from the EBITDA side sometimes. So how -- under this new program, where do you see leverage over 2021 and 2022 and targeting that, we've talked about two and a half times at the end of next year, but getting down at under that two times. Does this get you there faster?

Yes, it does. Roland gave you some numbers I think, but we will delever faster and it's all because of the market demand and the prices we get at Henry Hub. Now we do delever. When we had all of our one-on-one conference calls, we said the only reason we would add a rig or complete wells earlier is if it allowed us to delever quicker. That's the reason you do. So, Roland do you have a number?

Sure. I think we gave very close to getting down to our two times, but as we finish up 2022 with this plan, and I think by investing a little bit into 2021, it actually allows us to hit that goal there versus just being shy of it if we lap 2022 just have kind of under -- have a more of a flat production profile. Again, we're -- it's been erratic for the company, obviously, go from -- growing 34% back in 2019 to 2% this year is probably what is going to end up in with all the -- and then back to more sustainable levels, the 6% to 8%. And if we're really targeting to try to get to more of 5% growth, that -- to balance some growth, to improve EBITDAX, to get that leverage ratio down faster. At the same time, though, also reduce the overall level of debt and keep a lot of free cash flow as a big target. And the strip today gives us that opportunity to achieve all of that, you know, with this program in this two-year period.

And then that gives us a growth in 2022, maybe 5%. So what our goal today, again, is to reset the program for the fourth quarter 2020, and 2021, 2022. That's exactly our goal. So that was a great question. It is all about de-levering with where we are and the locations we have and the profits that we make.

All right, thank you. And then for my follow-up on the-- you mentioned in the call, maybe move into a little bigger profit. Where -- what are kind of drivers behind that decision. Is that more of an EUR base or is that more to bring volumes on faster at the front of the curve to kind of try to capture this higher price environment that we look like we're heading into?

Yes, it is Dan. So yes, you hit on it there at that first point. I mean it's all EUR-driven, which basically is hand-in-hand our performance. You know, when we come back earlier this year, when we went down to these smaller jobs, we were in the lower gas prices and we did anticipate maybe a 5% reduction in EUR, which we ran the numbers. That made sense to basically test that size. We're seeing in EURs more or like maybe 8% to 10% smaller for -- and this is really for the well -- maybe that are over in that state line area, the Greenwood, Waskom area. And so when you run it at the higher gas prices, I mean, it's clearly, you know, you need to pump the bigger jobs, which also means you're pumping more water. It's just matter of the economics. I mean, the wells deliver a better PV 10 value when you do that at the higher gas prices.

Yes, I think it's a good question, too because we intentionally, you know, we set the bookings -- we look at companies that use 5,000, 6,000, 7,000 pounds of proppant, we didn't think that that would be what we need to do. We dropped down to the lower booking of this 2,400 2,500, 2,600 pounds and water, like Dan said. And so we've kind of test at the bottom at a low gas price, then you should do that because you do save precious dollars right up front. But when you have a gas price 293, 310, 320 and you look to be PV value and you look at how quick these wells pay out. And the increased volume and it's easier to say, you know, the right thing to do is to spend a little bit more money. We're still in that 1,000 to 1,050 for completed foot to have a much better performance, which drives our leverage. So, it's our job to tell you that, too. We didn't try to hide that. We should probably go back up there because we did test it and we know what we need to do. Great question.

All right. Thank you.

Thank you. Our next question comes from the line of Umang Choudhary from Goldman Sachs. Your question, please.

Hi, good morning. You mentioned that gas prices are driving a decision to EBITDA to meet your leverage goals. Can you philosophically talk to what would drive a shift to lower activity and spending in favor of more free cash flow? Is that a gas price point at which you would reduce activity? And how has that price point evolved, given recent reductions to well cost?

Well, I think that it is definitely gas prices that are a factor that -- and how we look at the whole picture. And obviously, gas prices are not what the futures market is anticipating for 2021 and they underperform that. We would definitely reassess our spending because I think that free cash flow goal, we're going to maintain it. And so I think that is definitely a big factor. And I think we think we've gotten overall -- as the market seems to be fairly comfortable that at least in 2021, the stage is set for this $3 kind of area gas price. And we'll certainly reassess adding a rig by midyear next year, if it's not at that level anymore. So, we're not -- we're not at all locked in to one strategy, but we wanted to present more of a balanced program that didn't just focus on 2021 and absolutely maximum of 2021, which the six-week program really can do. But that comes at the expense of 2022. And you stop making the progress toward your leverage goals in 2022, if you don't make any investment for it. So, that was the goal day.

And again the beauty is we don't have any palm transportation obligations that cause us to drill. We don't have any minimum volume commitments that cause us to drill. 96% of our acreage is held by production. So our CapEx budget is just driven internally by what we need to do to improve our balance sheet and pay down our debt.

But we'll be very reactive to the change in environment. So, as we were this year, playing defense in the first half of this year, we can be very reactive because we don't have long-term obligations that drive us to have to drill any wells at all.

Yes, the other thing people forget, I mean, our denominator is the consistency of our wells. I mean we have 30 years of inventory at this rate. I mean we got -- usually people worry about the quality of your locations, nobody ever asked us about that. So we've taken that off the table. They just say, how can you de-lever? I mean, how can you de-lever? And you know where we are? We're the only pure Haynesville sized company this size. We say, again, our advantage is this access to the Gulf Coast. And we do have great gas prices. So, let's use our strength. We can't act like another company in another basement. We've got to act like -- we are in our basin. And that's why we've got to tell you, we're going to reset the whole program for the fourth quarter of this year and in 2021, 2022. We also tell you that whatever we need to do, we need to shut in swing gas because prices are low. You're now saying that we've done that. We demonstrate that we will do that again. If we need to go back to lower profit, prices are lower. We'll do that. We need to go back to higher profit and we'll do that. Again, our goal is to be very transparent with you as a partner as we create even a greater company.

Thank you for the color. That's really helpful. Thank you.

Yes, so thank you for the time and the question.

Thank you. [Operator Instructions] Our next question comes from the line of Kevin Cunane from Citi. Your question, please.

Hey, good morning. Just a quick one on 2021 expectations. Obviously, as you -- a few others increased growth next year, in light of higher prices. What are you looking at as far as non-op spending for the year? And, you know, are you seeing any of those private equity backed companies kind of gearing up for higher production growth next year as well?

Yes, we don't see -- we have very limited touch points with other companies, the non-op part of our portfolio has always been fairly small. And basically that we really like to do acreage trades to try to even make it smaller. And I think that we actually finished some really good acreage trades that you saw kind of come through the location numbers and acreage numbers this quarter with GeoSouthern and Indigo that -- you know really improved our overall lateral lengths overall and reduced our non-up potential activity in the future. And also actually gave us more locations in our very, very best, you know, lowest transportation cost area. So, it was really a big win and I'm sure that we also met their goals and things they were trying to accomplish. And so we still see non-op as a very -- not a big part of our budget. And frankly, if a non-op project doesn't meet our high expectations, you know, we've now got good partners that want to buy those interest and so we're very tuned on saying, hey, if we can't generate a really good return from non-op, we'll sell down the wellbore to people that are invested in that. So, I think we probably always have budgeted -- I mean, Ron, you might say we have potentially $35 million to $40 million of non-op activity that we kind of always expect to have.

That's about right. But it is typically average kind of in that six 6% to 8% of the total budget.

But we're very proactive at -- trying to disarm that before it becomes a big number. Because nobody wants -- just never like being in non-op properties generally.

Right. Understood. That's it for me. Thank you for the time.

Thank you. Our next question comes in a line of Phillips Johnston from Capital One. Your question please.

Hey guys, thank you. I also wanted to ask about the 2021 program. I think it was only a month or two ago you guys were talking about running six rigs throughout next year and growing only by 3% to 5% for about $450 million in CapEx. Now, it sounds like you're talking about adding a seventh rig in the second quarter, spending closer to $550 million and growing by 6% to 8%. Sounds like that the change in tack mainly relates to just the stronger gas prices that you're seeing on the strip and obviously that helps your leverage ratio, if the strip plays out. But, of course, that's only if the strip sort of holds true or if you actually hedge the strip. So, I guess my question is, why chase those higher prices that you're seeing with higher activity? Why not just let the higher prices flow straight to the bottom-line in terms of additional free cash flow? And if you like the prices and actually want to grow by that amount, why not just hedge the majority of your production for both 2021 and 2022?

Well, I think it's because I think for 2021, I think your suggestion would be a way to optimize it. But we think that's very short-term thinking. And if you're focused on 2022, I think the -- people will become more focused on it as we get in the middle of 2021. That underinvestment really means no growth in production in 2022. And so I think that we're really making an additional investment really for 2022. And we can defer it if we -- if the prices are weaker, we won't add the seventh rig. We're not committing to it and we're -- in advance at all. But is to present you a more balanced program in 2021 that's sustainable versus a program than 2021, that's absolutely just maxed out to produce short-term results, because before you know it, you'll be in 2022 and then all of a sudden they'll be like, well you're no longer making any progress toward deleveraging because you haven't made enough investments. So--

We thought we would level it out. Again, that's accelerating a little bit of CapEx in the fourth quarter to level out the beginning of 2020, 2021, and be really consistent when prices are high. Right now we have 64% hedged in 2021 and then propel you over into 2022 with 5% production growth. And at the same time, we do think that we balance two things. We balance the growth properly and then we've de-levered quicker at the same time. So it's not that we have to make a big correction sometime in the latter part of 2021 to change what we're doing in 2022 because, you know, if you don't spend a decent amount of money drilling, your production will drop off, any of these shell companies, whether they're Appalachian or oil, it doesn't matter. You do have to have a decent amount of spending. And where we're located, it tells us that we need to balance this budget today and reset it today, Philip, and you've been very nice in your writings about what you expect us to do. And again we don't want to disappoint anybody and we want to make sure everybody knows why we're laying this out and knowing we can change it. We need to change it, we can change it, process go a little higher, we change it, if they go lower, we change it. But we think this is the right way for the next two years and two months.

Yes, the free cash flow is not being sacrificed, I mean, given these -- the prices that we see, you know, we are still going to have very substantial free cash flow. At the same time, have a right investment. So, then you look up and say what, 2022 looks pretty good, too. It's not like this is a one year wonder. And I think that's the opportunity. But like we -- as we answer the question before, we're looking at prices every day both -- we're looking at the NYMEX prices and the future Stryper, you can't hedge. And then also, you know the cash prices and, you know, we will be very, very active to that and not end up accelerating capital expenditures and declining price environment, that's something we definitely want to do.

Yes, I mean -- I guess the concern is, it was only less than 30 days ago. We're shutting and buying because of low spot price is right. And then we're talking about adding an additional rig next year. So, I guess my follow-up would be -- would you look to hedge more 2022 volumes before you added that seventh rig?

Definitely.

Absolutely.

And that's you know by the time we add it, that their hedge positions need to be more established for 2022.

Our hedge positions, we want to be between 50% and 70% and maybe 60% to 70%.

For the 12 months.

Absolutely.

We're not be going into on a hedge basis. So, we'll continue to deliver on hedges and the timeframe that we continue -- that we promise, which is at 12 -- basically 12 months, but 12 to 18 months. So, yeah, and if we -- we have to be able to establish those to support that rig. If not, it won't happen.

Yes, for the leverage we have. I mean, we have to hedge. We should do that. So, yes, that's a commitment to you.

Okay, that makes sense. And then maybe just also -- if I could just -- I guess there's been some obviously some large corporate mergers announced in the last 90 days or so. Just wanted to get your latest thoughts on this potential consolidation in the Haynesville?

Well, our goal is -- we hopefully today, we reset the program and our execution will be happy meeting. I think that if we continue to execute, I think the stock price will perform. I think that you're going to have some stranded Haynesville producers that will need to do something. Hopefully what we've done, what we've set our self in the middle of kind of the square where to go to exit, you got to at least talk to us or look at us and we can evaluate if there's an opportunity for us to grow and have our market cap and more size. But at the same time, continue to deliver and to continue to have our high margins. And if we can't do that, we're not interested in any of those opportunities. I think we've been smart enough to say yes on the Covey Parks parts of the world and some others. And we we're not going to lose that edge that we have because that edge is everything, but we're not going to lose it. And yet, we're not going to go sit in the corner and look at opportunities to expand that if in fact those make of the equity owners stronger and the bond holders stronger and our bank stronger. So, we're going to keep shopping all the time and we'll keep executing.

Sounds good. Thanks, guys, appreciate it.

Yes sir.

Thank you. Our next question comes from the line of Kashy Harrison from Simmons Energy. Your question, please.

Hi, good morning and thank you for taking my questions. So, just one or two quick ones for me. So I was wondering if you could give us a refresher on how to think about, you know, corporate base declines. I'm assuming since you pretty much shut down activity over the last few months, you have, you know, improved visibility onto what that corporate decline looks like. And then maybe how we should think about that expectation, your corporate decline expectations over the next several years?

Well, what we've messaged in the past that the corporate decline rate's about 40% -- 30% to 40%. If we look out over course of the next year, it's around that 40% level in -- then it'll improve kind of by 5% to 10% in the second year and then continue to flatten out as we have more of the established production base in -- at a lower decline. So, that in terms of the first 12 months, kind of that plus or minus 40% going down to -- I guess 25% to 30%. And then and then kind of flattening out there.

Got it. That was it for me. Thank you.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jay Allison for any further remarks.

Yes. Again, everybody that stayed the whole hour on the call, I mean, we're -- you can't imagine how thankful we are that you spent that hour with us. And again, our goal is to reset the program for the fourth quarter of this year and then in 2021, 2022 to give you something that we think we can really beat. And we want to adjust this CapEx structure to maximize our advantaged access to this demand market that we have in the Gulf Coast. That's a great advantage we have. It's a material geological advantage we have. We just have some great exposure to Henry Hub process right now. We want to use that. If we need to change this budget, it'll be pulled back. But it's real and it's reset and it's good. And again, we thank you for being a partner with us. And I think the brighter days are ahead of us. Our rearview mirror is pretty small and the windshield is really big and gas prices look really good. And you've got a really good team here committed. And we take if there's a good day or bad day, we take whatever the day is, and we're accountable to you. So, thank you, thank you. We'll give you our best.

Thank you ladies and gentlemen for your participant in today's conference. This does conclude the program, you may now disconnect. Good day.