Diamondback Energy, Inc. (FANG) Q1 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Diamondback Energy First Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] And as a reminder, this conference is being recorded.I would now like to introduce your host for today's conference, Adam Lawlis, Vice President, Investor Relations. Sir, you may begin.

Thank you, Kurt. Good morning, and welcome to Diamondback Energy's first quarter 2020 conference call. During our call today we will reference an updated investor presentation, which can be found on Diamondback’s website. Representing Diamondback today are Travis Stice, CEO; and Kaes Van't Hof, CFO.During this conference call the participants may make certain Forward-Looking Statements relating to the Company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the Company's filings with the SEC.In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.I will now turn the call over to Travis Stice.

Thank you, Adam, and welcome to Diamondback’s first quarter earnings call. Before we get started, I would like to take a minute to extend our thoughts and prayers to all of those affected by the Coronavirus pandemic. The challenges presented so far in 2020 are unprecedented for the first perseverance is evident in the decisive action we have taken to preserve our strength in this cycle.Our organization has now been now been working from home for almost two months. And I can honestly say that business has performed extraordinarily well given the circumstances. Our teams have reacted quickly to the rapidly changing landscape and adjusted our operating and capital program in almost real time to prepare Diamondback for the commodity price weaknesses we are experiencing today.Crisis have a way of revealing characters and we have witnessed this across our organization. And I'm confident that you as our stockholders and owners of the Company will be proud of how our employees have responded in supporting the communities where we live and work. We have an organization of motivated and exceptionally talented people.Turning to the first quarter. Diamondback grew oil production 3% quarter-over-quarter and unhedged oil organization averaged 99% of WCI or highest oil realization in almost two years. We returned 80 operated wells to production in the quarter as our operations machine was executing efficiently before commodity prices weakened and we immediately ceased all completion activity in March.We expected to complete less than 10% of our 2020 well count in second quarter, with the only planned completions for the purpose of [indiscernible] slow operations in the fourth quarter of 2019, and maintained continuous operations with over 20 rigs and eight completion crews running through most of the first quarter. Capital spend was 709 million or a little over 27% of our original capital budget for the year.When commodity prices dropped, we took immediate action and dropped all of our completion crews per month, and are working down our rig count as quickly as possible without paying in early termination fees in existing rig contracts.While we are running 14 rigs today, we will exit May running 10 rigs and enter the third quarter running eight down over 60% from the beginning of the year. We also plan to enter the fourth quarter running seven rigs, with the ability to reduce further into 2021. This rig count reduction combined with our current completion schedule means we will exit 2020 with over 150 ducts.This is over 100 ducts above what will be required as a standard working duct inventory for three to five completion crew program, which is our base case program exiting 2020 as we see things today.While this may be a drag on overall capital efficiency in 2020, it will give us significant flexibility and be a benefit to capital efficiency over the next couple of years, particularly in 2021 as we navigate and uncertain forward outlook.Because CapEx is a cash flow statement number, we will start to see our reduction activity benefit our cash and at the end of the second quarter and through the back half of 2020. As a rule of thumb, activity reductions today are reflected two months later in cash flow statement. While commodity price fluctuations are realized in the month in which they occur.As a result, our CapEx spend will be weighted toward the front half of 2020 with the third quarter, beginning to truly reflect the significant activity reductions that began in March and continued into the second quarter.Diamondback is curtailing gross operating production, about 10% to 15% this month, due to the uncertainty in the forward oil price contracts and the risk of low unhedged realized oil prices for the mill.With differentials in role already set heading into the month at over $10 off the WTI. The risk of WTI prices declining further outweighs the benefit of producing as much as possible into extremely low unhedged realized prices.We have hedged production for nearly 100% of expected oil production before curtailments, including basis in both protection, and therefore can monetize in the money hedges without materially impacting the fact cash flow when production is curtailed.In assessing where to curtail production, we focused on fixed and variable operating costs and underline marketing contracts, choosing to slow production where we do not need to spend significant dollars to do so.We will continue to monitor future prices as we prepare to nominate production for June and the months ahead. And should meaningful curtailments persist or accelerate, we will plan to update our investors accordingly.Looking ahead due to the volatility in commodity prices, there is significant uncertainty in our full business plan. And we are trying to stay flexible on how many completion crews we bring back to work in the second half of the year, and which month both crews get back to work. We need to see some stability in the forward curve before making this decision.In the interim, we will continue to focus on what we can control, which is our cost structure and preserve as much liquidity as possible. We ended the first quarter with 1.9 billion of liquidity and only have one term debt maturity due in the next five years, a 400 million maturity due September 2021. With our reduction in spending, current hedge protection and suspension of our buyback program, we expect to maximize liquidity and retain cash to pay down debt.Our dividends remains our primary return of capitals for our equity holders and the Board of Directors has decided to maintain the dividends based on the current board outlook. Paying our interest expense, retaining our people and paying our dividend remain our priorities through these uncertain times.To finish, Diamondback is prepared to operate in a lower for longer oil price environment and our cost structure will prove to be a differentiator through this downturn. Low interest expense, low leverage, industry leading low cash G&A, a full hedge book, strong midstream contracts and the benefit of Viper and Rattler will allow them to operate effectively through these uncertain times.With these comments now complete. Operator, please open the line for questions.

Thank you. [Operator Instructions] And our first question comes from the line of Brian Singer with Goldman Sachs.

Thank you. good morning. I wanted to follow-up on the comment there towards the end with regard to the use of cash and free cash flow. You talked about the spending the buyback, you have got the $400 million debt coming due next year. In a scenario where cash builds beyond that or where your free cash flow gets you above a $400 million cushion to pay down that debt. Do you still hold cash for future debt coming due? Or do you think about either bringing back the buyback considering variable dividends or distributions? How are you thinking about free cash flow and use of cash?

Well, certainly that is multiple quarters out as we look into next year and all of those options are still available to us. In terms of - we announced the suspension of a share buyback program. But we also don't have a full - an intention at the board level to afford cash and so, we will continue to be judicious in the way that we allocate excess cash, as we highlighted primarily through the form of our dividend program.

Great, thanks. And then my follow-up is with regard to cyclical versus secular benefits from the downside goal, you talk to cost production that you see here this year. And I wondered if you could speak to what you are kind of seeing as potential cyclical versus secular impacts, either on the productivity side and learning there or on the on the cost side, what percent of the cost reductions you are achieving this year, do you think would extend if prices where to rebound?

Well, if we just look at the Delaware basin, and particularly I think over the last couple of quarters, we have taken a $100 a foot out of the DC and e-components. And those are permanent savings regardless of the cyclicality of our business. On the midland basin side, we have probably taken out 50 or 60. And again, a lot of those are also going to be made permanent.We understand that our business partners on the service side, are really in a bind, and we do know that in the future, when commodity prices begin to recover, that side of our business will have to repair their balance sheets and we will require more consideration from other operators and that is the cyclical nature of there.But we don't know when that is going to occur. We do think that the rate of change, going forward, just from a planning perspective, the rate of change is getting smaller relative to where it was the last time we went through this in 2015 and 2016.But it is still our organization's intent to find those elements that will survive past the cyclical nature and actually make them permanent in the way that we go about prosecuting our development plan.So what percent, is lot harder to predict? It is smaller today, then when you likely ask me that at 2015 and 2016. But we are still trying everyday to identify and make permanent those savings.

Great. Thank you.

Thank you. And our next question comes from a line of Derrick Whitfield with Stifel. Your line is now open.

Thanks. Good morning all.

Good morning.

Perhaps for Travis or Kaes, with regard to your 2020 outlook. I certainly appreciate the challenges of providing quarterly guidance in the current environment. Assuming the capital plan outline, is it reasonable to assume the previous exit rate guidance broadly remains in place, less relatively small timing effects associated with returning curtail production back online?

Yes. Derek, thank you. That is fair, I think we are sticking to that exit rate guidance, pending, getting back to work in the back half of the year. I think if first of all curtailed volumes seem to come back before we start completing new wells, and if curtailed volumes come back, and then we start completing wells, late in the summer or into the fall, then that number is certainly achievable.[Audio Gap] continue to be curtailed or delay our return back to work and lock update the market, as we have, four times in the last month and a half, and give you the latest data that we are seeing.

Thanks very helpful and you guys have been quite responsive in the environment. So certainly appreciate that as well. With my second question, focusing on the voluntary curtailments that you discussed for May, are there any marketing limitations or technical considerations that would limit your ability to compare volumes beyond that 10% to 15% level?

No. We are still very far away from any marketing commitments being triggers. We produced a little over 250,000 gross barrels of oil a day in the first quarter. And our true take or pay commitments are about 125,000 barrels a day today. So we are still pretty far away from triggering anything of those. And, the secondary thought behind the cash operating costs was where we are curtailing in the marketing contracts associated with the barrels that we are curtailing.

Thanks guys. Very well done in this challenging environment.

Thank you.

Thank you. And our next question comes from the line of Gail Nicholson with Stephens. Your line is now open.

Good morning everybody. Just looking at work over. In a normal environments, do you know what percent of LOE workover comprise? And then how should we think about workover activity going forward? And do you have any thoughts if making an adjustment to workover to have an effect on future wells productivity?

Yes. So Gail, typically we are round 20, 25 workover hits on a daily basis, just doing routine maintenance and part of this curtailments effects that we are going through right now is that we reduced that number to less than 10, maybe on some days, even less than five. So as wells fail or have problems we are electing, at least in the month of May now to go out and repair them.As long as we don't have those types of failed wells shut-in for a very long period of time, you know months, I'm not worried about having to go back in and remediate those wells. Yet, there will be a cost, but that cost will be pushed out several months in that scenario, but the productivity shouldn't be impacted. And as we are talking about multiple, multiple months. But that is where we are thinking about it now.

Okay, great. And then I really appreciate Slide 9 the color regarding the Midland based contracts. But I'm just curious if you could talk about just how those pieces change regarding an MEH and a Brent contract on Slide 9?

Yes Gail, so, we wanted to show the slide to show investors how we are thinking about curtailing volumes. And while we are supposed to put flat price throughout the month, the role and the differentials had already been fixed going into May. I will say its contract dependent, so, all we speak for Diamondback contracts, but, majority of our Brent based contracts have a Brent role components, so it is a Brent role because it is been in less contained [indiscernible] WTI will be a significantly smaller number.

Okay. Great. Thank you.

Thank you Gail.

Thank you. And our next question comes from a line of Neal Dingmann with SunTrust. Your line is now opened.

Well hope you all been well. My first question centers on really you three stream production growth and specifically how your view in the timing and rate of growth for each of the three streams to ramp after your D&C is suspended, and the production is curtailed or maybe if I would ask another way, how do you view certain I know you got to guide out there but how do you view the near-term future oil versus natural gas growth?

Yes Neal. No question with the production stream declining overall, oil going to decline faster than your BOEs and I think we framed our oil production base decline in the mid-30s with our BOE base decline in the low-30s percentages.So, I'm hopeful that if we do get back to work, we are going to try to combat that decline, some high or oil percentage Midland basin activity. But given the uncertainty today, I think overall, those numbers that we have out there on base decline are still valid.

Yes. That is great details. And then just my second question really focuses on cost. You know Travis for you in case you'll continue to be certainly the cost leaders in the group, when you speak to kind of 850 as cash cost, and I think what Midland well cost down, I think what is 700 or 600 per foot. I'm just wondering, you touched on this a little bit earlier. Is there room to squeeze even more out of that or how do you all view just sort of these margins going forward given like a how well you are cost already down to?

Yes. I think I answered it a little bit on the previous question about the rate of change and cost is certainly a lot smaller now than it was in 2015 and 2016 when we went through the cycle. Look, there is two ways to work on that. There is things like I emphasized that we can make permanent those things move on forever. And that is, loading completely as well as faster, it get the TD faster, those are all elements of making permanent cost savings.Whether our business partners on the service side, continue to offer concessions, beyond this point, there is probably going to be some, but we do feel like the majority of those have been offered up in the month of April and in May as the industry has recalibrated quicker than anything we have ever seen. Kaes Van’t Hof: Again I think if you dig into the cash cost fees, we are going to try to keep LOE flattish, productions coming down so that is going to hurt LOE a little bit, G&A is still going to stay best-in-class and the other pieces of cash cost some on the tax piece given percent of revenue, continues to go down, that should come down a little bit. But we are fighting for pennies and nickels here.

And you know Neal, we have got a lot of information in our deck, what we are talking about cost, and improvements quarter-over-quarter and I think it is important to recognize that one of the reasons that we try to answer the questions with as much detail as we can and that why as Kaes pointed that we have updated the market four times in the last month and a half.It is because when times were uncertain and our investors that own the company, have questions, transparency is more important than ever. So, even though we might have had a free pass full of guidance, it is just not part of our culture of transparency.We are going to tell you everything we can within the rules of financial disclosure, so that you can make the best investment decisions that you can and the only way that we can do that is to be very, very transparent.And so whether it is in a background, or prepared remarks or in the Q&A that transparency is needed for tenants of dial back energy, and we tend to follow that through these uncertain times and into the future.

Now I appreciate all the details Travis. That certainly helps. Thanks, guys.

You bet. Thanks Neal.

Thank you. And our next question comes from the line of Scott Gruber with Citigroup. Your line is now open.

Yes. Good morning.

Good morning, Scott.

So before the downturn, there was the expectation that your well productivity on average would improved over the course of 2020, as HBP drilling fell even further and you shifted rigs, probably focusing obviously on best well economics, which includes not only productivity but also obviously well costs and minerals position and infrastructure needs. So can you provide some color on the productivity trend, on a go forward basis from here should it improve, as previously expected and any color an order of magnitude?

Well, there is two ways in well productivity is, if you complete in the same well, one month versus next is that productivity improved in the current month versus the prior months. And there is also a way that productivity looks better on the macro sense, because you are shifting the mix of projects that you are doing.And so most of what we were focusing on in our earlier communication was highlighting the shift from the Delaware Basin more towards the Midland Basin where we had mineral ownerships within our sub Viper and then also not having to spend any, or limited infrastructure dollars.So, we are still going to see that effect through the course of this year as our program migrates more into the Midland Basin side. And as I've answered now a couple of times, I still think there is room to see changes that we are making due to doing things better than we have done in the past, and those are the things that that live on as the ones who make current.

Got it. I appreciate the color. That is it for me. I will turn it back. Thank you.

And let me just add, when you think about where the service sector is, I certainly don't intend to be a spokesperson for the service sector. I don't understand their finances like they do. And so, really whether or not they continue to reduce costs, and it is to the benefit, at least near-term to down with that shareholders.Those are really questions that are best asked and answered on that side. What I'm leaning into our organization for is how can we do things better every day, regardless of the cyclical nature of what our business partners on the service side is.

Appreciate the color

Thank you. And our next question comes from the line of Scott Hanold with RBC Capital Markets. Your line is now open.

Yes, thanks. Thanks for all the colors so far. On the duct, the pretty interesting comment that you guys would be carrying in, 100 ducts into 2021. Can you give a sense of, was that an intentional process through 2020 given the cost structure coming down enough? Was it somewhat where your rig contracts were and just didn’t want to complete the wells or you just wanted some, dry powder of wells to reactivate when you could. So, can you give us a sense of, how you balance that activity and decisions through this year?

Yes, it is really Scott a combination of all three of those. I mean, we definitely had rig contracts and every dollar counts and while those rigs counts wind out this year, we didn't want to pay early termination fees. But also when you think about 2021, and carrying in a large number of ducts, we are really covered off on both the bull case and the bear case.In the bull case, we will have a bunch of really high quality ducts that we can bring on to production quickly in 2021 if we get paid for the commodity we produce. On the bear case, if it gets bad, then we probably won't drill many - if any wells at all in 2021 and whatever via maintenance that we feel like we can get paid for we can do that just by completing these extremely high rate of return on a cost forward basis.

So my thoughts could be on the decisions, as you look into that bull case, like what are the really the triggers that made you think about that bull case and also just really quickly what do those ducts, how much of an impact on the 2021 maintenance capital did those ducts have?

Well, we have never tried to predict oil price and what a bull case looks like in 2021, I'm not even saying that that is necessarily going to occur, what we are trying to do is rather than predict, we are trying to cover off both extremes, what likely outcomes could be next year. In terms of the duct impact on maintenance CapEx? Kaes Van’t Hof: Yes. Scott, we came out with a number. About a month ago, saying could to keep exit rate production flat year-over-year in 2021about 25% less capital than 2020. I think that number still stands. And that probably assumes, you are drawing down 40 or 50 ducts.I think our base case today, if you had to get access in somewhere in the range of three to five completion crews. And the rule of thumb that we have is, 10 working ducts for each completion crew, so we are going to have about 100 extra ducts at year-end 2021, to have options with.

Yes. And just to be more specific, I wasn’t asked I guess in particular, what you all think about the bull case of next year? Just what price signal like what price does it have to be to start thinking about getting a little bit more active and dipping into those ducts?

Well assuming where we are today, right, the first thing we would have to do is your brain deferred production back on and then to talk about increased activities, again, there is a lot of factors that went into that, but you have got to have prices in the high 20s, or low 30s. Before we kind of signal going back to working in an aggressive, or even in a non-aggressive way. But again, we are going to take all of these things into consideration before we come out in a market on what our activity plans are back half of this year or in the next year as well.

Okay. Fair enough. Thank you.

Thank you. And our next question comes from a line of David Deckelbaum with Cowen. Your line is now open.

Good morning guys, thanks for the time today.

You bet, David.

I was just hoping maybe you could shed a little bit more color on the theoretical 21 maintenance program. How many wells have that division you are being able to or needing to turn in line to hold the current exit guide flat in 2021? Kaes Van’t Hof: Probably about 150, David. Plus or minus 10 or 15 wells on each side of that, just based on the wells we are drilling today and what just completed and the work we are going to be pretty heavy in Midland basin probably 70/30 Midland basin or 75/25 Midland basin in areas where we have high mineral interest and very little capital required on the infrastructure side.

Appreciate that. And then I guess I just wanted to get back to the curtailments. One, could you update us this on I know you kind of hedged your comments and said, if we need to do something in June, then obviously guidance changes. What are your thoughts on June right now? How do you see the market shaping up and balancing? I know these curtailments are economically driven. Price signals have improved the bit for June. What are you seeing, we are just excited in the basin side? And how do you see the shaping up with granted, we are several weeks away, but how is it looking currently?

Well, you know looking a little better for June to be honest. If the dips in the well, being significantly, you want to well side significantly less negative on the dip side, being Midland trading at a premium recently for WTI and on top of that WTL trading at a premium to WTI.So I never thought $22 would be exciting, but here we are, looking at our cash cost for June and I think as we sit today, we have nominations due in two weeks. As we sit today it certainly looks better for the June month from a contract perspective than it did in May.

Yes, cheers for 2022. If I could just have one quick one, just thinking about the logistics of the curtail volumes that you have now, I guess about 2,500% wells in Midlands, another 500 plus in the Delaware, what percentage overall of those wells are being curtailed right now? Or I guess how many wells can you say are being curtailed? Kaes Van’t Hof: Yes, just about 500 total, and I would say over two-thirds of those are in the Delaware. And so what we really focused on, and we really focused on the term curtail, because we are not shutting these wells in and having spend dollars to shut well in. We are trying to limit the cash outflow and really, just curtail producing wealth to a lower level than where they were in April and March.

Thanks for the color guys.

You bet. Thanks.

Thank you. And our next question comes from line of Jeff Grampp with Northland Capital Markets. Your line is now open.

God morning. I was curious how you guys - maybe a kind of philosophical question, pricing environment both on the commodity and well cost have obviously changed quite a bit over the last several months. Are you guys internally discussing maybe reevaluating, wells spacing or completion techniques as far as what an optimal design could be and with today's service costs and oil price environment?

Yes, those are certainly things that we are examining, but one thing that, I have been pleased with is that our spacing assumptions when they have been validated now for almost five years, really haven't ever changed and we have never been part of that drill wells too closely or stack and to tightly together.So, the rule of thumb has always been, the higher the oil price, the closer spaces, you could put your wells because you can capitalize on acceleration and the lower price, or is the water you should spread out, but we have been, we follow that, but we have been pleased that our spacing assumptions seem to struck the right balance now for multiple years and a lot of technical review with our reserve auditors have validated that.So we have never really tightened them up and then some instances, maybe even in Delaware, in some of the new developed zones, we might have slightly increased the well spacing, but in a general sense, we have been very conservative on how we count locations and how we develop these reservoirs.When you look at the completion side, Jeff we are always trying to do everything we can to extract the most hydrocarbons from these rocks and it was stimulated rock volume near well bores is a key. And I can tell you the scientists and engineering and geology scientists that we have, they are always, tweaking with that.So while we can look at spacing, we have to get down and completing the well. That just a constant work in progress, and this is always evolving. And that will never change, I can promise you.

Understood. And then kind of more of a housekeeping one if I may. The decks that you guys are kind of building in real time here and we have talked about it couple of times in the call already. Are those weighted to maybe certain operating areas or Midland versus Delaware focused? Kaes Van’t Hof: Yes. It is really about 70/30 Midland, Delaware and multiple rigs are moving towards Midland basin, where we have a high mineral interest and you know setting ourselves up for the most capital efficient return to work possible.

Got it? Thanks guys.

Thank you. And our next question comes from the line of Asit Sen with Bank of America. Your line is now open.

Thanks. Good morning, I have one for Kaes, one for Travis. Kaes, on counterparties and flow assurance, thanks for all the detail update in the slide deck. My question is there have been some reports on the sea borne market getting backed up. Can you talk directly about the condition of the export market perhaps into the next couple of months? And in terms of take or pay liabilities, could you update us in theory on what happens if there is a physical slow bottleneck in any of these pipes? Kaes Van’t Hof: Yes. I don't know all the details about the sea borne market, but as you know, it is more liquid than what we have seen especially in the last few weeks. So you are certainly starting to see spreads, widening barrels get on the water now, tanker rates certainly spiked a little bit, which would impact our realizations. But they have come back down a little bit here.But overall, the whole point of our marketing arrangement is to provide insurance in times of uncertainty, which we are in right now. And being able to call only four marketers and know that our barrels are going to move is something that allows us to stick a little better at night.On the take or pay fees, 125,000 barrels a day is take or pay from a sales perspective, as well as from a pipeline perspective. Should the sales piece declare force measure, which would be the only instance where those barrels don't move? Our total pipeline commitments right now and [indiscernible] is about, $20 million per pipe per year, if we didn't send one barrel down the pipe.

Thanks, Kaes. Travis on a potential restart scenario, how quickly could you restart operations? What are the price signals? And what are some of the other broader considerations would you consider before adding on regular completion crew?

Well, it should only be driven by economics, right. And so, the first thing we would do is, obviously, get our curtailed volumes back into the production equation, and then following that we will get economics about, what is the service sector is going to charge to come back to work, and then we will balance that against with our expectations are for the forward curve and make an economic decision on that, I think I alluded to some form of start in the high 20s and low 30s.But really if you flash all the way out there to what our world used to look like in growth, that is back the prices that you saw last year. So I think as we evolve as an industry into this new order. I think it is going to look a lot different than what historically we have accustomed to.

I appreciate it. Thanks Travis.

Thank you. And our next question comes from a lot of Charles Meade with Johnson Rice. Your line is now open.

Good morning, Travis, you and your whole team.

Thank you, Charles.

Travis, you have anticipated? I guess my question in your response to your earlier one, I get the point that you guys are prepared for longer scenario, but also it seems from the outside looking in that you guys are more prepared, more on your front foot for a V-shaped recovery. In other words, you are better positioned than other in the industry to go back to work hard in the back half of the year. Is that inaccurate do you think and how would you elaborate on that?

Yes, well first, we are certainly not in the prediction of what recovery is going to look like V-shape or U-shape or whatever. But what we are trying to do is demonstrate flexibility to our investors that whether it is lower, longer, we are prepared for that with our financial strength, or whether the market signals that it is time to go back to work, we are also prepared for that.But again, back to my transparency comment, in these uncertain times, whichever scenario plays out, you can count on us, stepping forward and letting our investors know exactly what we are thinking about the business and the strategic rationale behind the decisions that we make.

Got it. And then may be following up a little bit on that, actually I guess if you are not completing wells right now, but you guys are still going to run a concision crew for part of the quarter and I know you said that is for lease retention or lease obligations consideration.I'm curious I imagine there have been other options you evaluated about going back to the mineral owners and maybe offering up a rental or some other thing. Are there other considerations that are going on that are leading up to compete in 15 or 20 wells or so in 2Q rather than do some of those other lease obligation options? Kaes Van’t Hof: Yes, Charles you know a lot of those wells probably already in progress, heading into the quarter so you can’t have that discussion in a mid completion. We are working with our mineral owners and we happen pretty easy to work with through this given where we are flat price is.So if we can push out whatever we can, whenever we can. We are trying to do that, it is hard to 1,280 acre units, get in touch with 40 mineral owners in a month. But, we have been working diligently to extend leases and extend completion dates.

Yes. Charles, just to add to that the complexity is, unless you are actually inside, it is hard to communicate but I will say it, our land organizations and our land professionals, they are engaged, almost, they engaged every day and feels like a nice light to work on lease terms to avoid, having a drill or completed well and when we are not getting paid for the commodity.So, as Kaes indicated, a lot of our mineral owners understand the business and are trying to make, concessions. But also it is very difficult at times to get everyone on the same page and all it takes is one person to say no, and then your hand is forced. So, really proud of our land organization and the work they are doing says to get us to the point where we are only running one completion through honor minimum obligations this quarter.

Thank you for the detail.

Thanks Charles

Thank you. And our next question comes from the line of Richard Tullis with Capital One Securities. Your line is now open.

Thanks. Good morning everyone. Travis, generally how much runway do you have as far as well inventory to continue on the current path where you are drilling the areas with higher NRI and lower infrastructure needs? Kaes Van’t Hof: Yes, Richard, I think we try to be as open as possible and show what our gross from that inventory is on Slide 13 and Slide 14 in deck and we update that every year. And I think one of the benefits of slowing down is you are not burning through as much inventory that quickly.So I think without needing to complete 150, 160 wells keep our production flat 75% of in the Midland basin, you got a pretty long runway of high quality employee, to survive a lower for longer environment.

We have got over 12,000 gross locations still in front of us, Richard and which is slowdown in activity or stoppage in activity, exactly as Kaes said, we are actually extending our inventory runway as a result of completing those wells and adding the license.

Okay. Thank you. And secondly, you know any plans to resume testing of the limelight acreage in the second half of the year or does that just need to wait for substantially higher oil prices? Kaes Van’t Hof: Yes, probably the way we are having discussions with the mineral owners right now on extending our delaying our next payer.

Okay. That is all from me. Thank you.

Thank you Tullis.

Thank you. And our next question comes from the line of Jason Wangler with Imperial Capital. Your line is now open.

Hey, good morning. Just had one, and obviously something we have talked a lot about in the past, but it is probably weird now. But as far as you have got plenty of inventory, certainly, but you are in a much better position than so many others around you, as you think about this playing out, and maybe some point getting more impressive. Are you seeing anything that is maybe interesting from the M&A side or maybe how do you just kind of see that playing out as we kind of go forward in this environment?

Yes. Jason, this is all about demonstrating our financial strength and getting to the other side of the recovery. When we are there, when the market signal is there, I think a question has more validity, but right now you know it is doing, what we are doing, which is maximizing cash flow and preserving liquidity.

Fair enough. I appreciate it. Thank you.

You bet.

Thank you. And our last question comes from the line of Michael Hall with Heikkinen Energy. You line is now open.

Thanks, good morning. I appreciate the time, a lot have been addressed. But, one that is kind of been touched on a little bit but wanted to follow-up on is just in the context of signaling or what sort of price signals are required to get back to kind of quarter-on-quarter gross or move beyond that maintenance capital program in 2021? Number one, what might those prices theoretically look like, it sounds like maybe last year's type of level, but just wanted to confirm that? And then number two, maybe more philosophically like, how are you thinking about the combination of frozen payout from on a longer term basis, is the growth side of that combination, structurally lower than it was a year ago, let's say after what we have just been through, or is it really not affected and it will really just be a function of what prices and returns look like whenever that time comes?

I think our industry is evolving perhaps as a more rapid pace than it ever had. And if we were making changes at the end of last year, as an industry, with a slower growth and a greater return model. And then I've got take in the hyper-speed in March to this year.So, this new oil order as we looked ahead, as we are going to have what feels like, at least today, it is going to feel like a lot lower growth in a more prescriptive way of returning, investments or returning, returns to our investors.And I think it is still going to evolve in the course of this year, but certainly under what is a strip looks like it is going to definitely be a lot lower growth profile. But we want to make sure we maintain a dividend and resume - when you maximize our cash flow, when appropriate the market signals, you have purely growth there - all those t the same at time.

Okay. I mean is it fair to say in a 40 to 50 range all else equal today knowing that all else equal a hard assumption to make but that that is just maybe round about the level that would signal getting back to a quarter-on-quarter growth profile?

Yes. It is more than just the just an oil price. I think I said earlier that if you look at some of the prices that we got in 2019, that certainly signal that you can get more aggressive on the growth, but I think we have got to be pretty careful and being super scripted on what exact price signals may look like before you get back to growth. Again, just want to make sure we maintain our dividends, maximize our cash flow and when it is time to grow, now back we will have few leading growth along with the dividend and maximize cash flow.

Understood, appreciate the color.

Just to finish that part, I kind of went on a little earlier about transparency and I think it is important, again to emphasize here, we are trying to communicate as transparent as we can the way that we see the future, and you can count on us as the future gets clear, we are going to update the market.Like you said, we have done it four times in the last five weeks. And we are going to continue to be communicative and we are going to continue to demonstrate one of the hallmarks of our corporate culture which is transparency, and we will let you know as these things evolve.

Thank you. And this does conclude today's question-and-answer session. I would now like to turn the call back to Travis Stice for closing remarks.

Sure, thank you. Listen to before I close this morning, I wanted to share with you guys a final thought. We have all had what feels like an unreasonable amount of time to reflect over the last couple of months as we have worked remotely or sheltered in place. And when I'm not doing that, and looking back into over 35 years I've had in the industry, there is been several significant events that have stood out. The challenger spaceship disaster in 1986, the financial crisis of 2007 and 2008, of course, 9/11, and now we are involve in a worldwide pandemic caused by the Coronavirus.But when I look back at those historical events that that I participated in, during those times, there were really two defining attributes that I felt were demonstrated. The first is, is really the resiliency of the American people. Even in the face of human tragedy and financial tragedy, we found a way to move forward.And the second attribute and I think it is important in today's environment is hope, hope that we will get through this and hope that our situation will get better. And so as we get this country back to work, let's count on that resiliency once again. Let's also remind each other the importance of hope. Hope for ourselves, for our kids and our grandkids that tomorrow will be better.Thank you for participating in today's call. Please reach out if you have any questions.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.