Ring Energy, Inc. (REI) Q1 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Ring Energy First Quarter 2017 Financial and Operating Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Tim Rochford. Chairman of the Board of Directors for Ring Energy. Thank you. You may begin.

Thank you, operator, and welcome all listeners to our first quarter 2017 financial and operations conference call for Ring Energy Inc. Again, my name is Tim Rochford, I am Chairman of the Board. Joining me on the call this morning is our CEO, Kelly Hoffman; our President, David Fowler; our Chief Financial Officer, Randy Broaddrick; and Danny Wilson, Executive VP and Heading of Operations. Today, we're going to cover the financials and operations for the first quarter ended March 31, 2017. We will review our results and provide some insights as to our current progress thus far in the second quarter of 2017. At the conclusion of our first quarter overview, we will ask the operator to open up for any questions that you may have. At this time, I am going to ask Randy Broaddrick, our CFO to review the financials. Randy.

Thank you, Tim. Before we begin, I would like to make reference that any forward-looking statements, which may be made during this call, are within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a complete explanation, I would refer you to our release issued Tuesday, May 9. If you do not have a copy of the release, one will be posted on the Company website at www.ringenergy.com. For the three months ended March 31, 2017, the Company had oil and gas revenues of $12.2 million and a net income of $1.3 million, as compared to revenues of $6.1 million and a net loss of $15.3 million in the first quarter of 2016. The two primary factors behind the change in net income are increased revenues and not having a ceiling test write-down in the first quarter of 2017 versus a pre-tax write-down of $21.4 million in the first quarter of 2016. At current commodity prices we do not anticipate any additional ceiling test write-down however, if prices were to decline again additional write-downs are possible. For the three months ended March 31, 2017 our oil price received was $48.69 per barrel an increase of 67% from 2016. And our gas price received was $3.25 per MCF, 65% increase from 2016. On a per BOE basis, the first quarter of 2017 price received was $45.63, an increase of 75% from the 2016 price. Production costs per BOE for the three months ended March 31, 2017 decreased to $10.08, as compared to $10.64 in 2016. Going forward, we still anticipate our production cost per BOE to be around the $12 range plus or minus. Most production taxes are based on values of oil and gas sold. So, our production tax expense is directly correlated to the commodity prices received. Our production taxes as a percentage of revenues remained relatively flat and should continue to be. Our total depreciation, depletion and amortization or DD&A including accretion of asset retirement obligation per BOE decreased for the three months ended March 31, 2017 to $13.46 per BOE as compared to $14.96 per BOE for the same period in 2016. Depletion calculated on our oil and gas properties subject to amortization constitutes the bulk of these amounts. The primary cause behind these decreases was the ceiling test write-down, during 2016 which reduced the cash flow that we have to deplete overtime. As to total amount the three months period ended March 31, 2017 increased approximately 3% from the comparable period in 2016. This increase is the result of increased production volumes partially offset by the reduced depletion rate discussed above. Our overall general and administrative expense increased $621,000 for the three months ended March 31, 2017 as compared to the same period in 2016. On a per BOE basis, this equates to an increase from $9.48 in 2016 to $10.59 in 2017. The increases in total were the result of an increase in stock-based compensation of $407,000 and some non-recurring expenses incurred during the period. On a per BOE basis these increases were partially offset by an increase in production volume. On a diluted basis, the income per share for the three months ended March 31, 2017 was $0.03 excluding the $991,000 non-cash charge per share-based compensation. This income is increased by approximately $0.02 per share for income of $0.05 per diluted share as compared to a loss per share of $0.50 as reported or a loss of $0.05 per share excluding both a pre-tax ceiling test write-down of $21.4 million and a $584,000 non-cash charge for share-based compensation in 2015. As of March 31, 2017 we had no amounts drawn on the $60 million borrowing base on our credit facility and had cash on hand of $55.1 million. For the three months ended March 31, 2017 we had positive cash flow of approximately $7.2 million or $0.14 per diluted share compared to approximately $1.25 million or $0.04 per diluted share for the same period in 2016. With that, I will turn it back over to Tim.

All right, Randy. Thank you for the overview, we appreciate that. I'm now going to ask Kelly Hoffman, our CEO to give us a brief operational overview on our first quarter. Kelly

Thanks, Tim and welcome, everyone. In the three months ended March 31, 2017 the Company owned Central Basin platform asset drilled seven one mile lateral horizontal San Andres wells. Part of the wells are completed and put to production. In addition, the Company drilled two new saltwater disposal wells and performed extensive work expanding our oil and gas and water handling infrastructure saltwater disposal systems. On our Delaware asset property the Company drilled two new vertical wells both wells were drilled deep in that and gather information on Brushy Canyon and we talked about that many times in the past and they were very successful in getting us those data points in the way we wanted them and need them and are scheduled to be completed in the Cherry Canyon inflammation in the second quarter. Also on the Delaware property, we recomplete two existing Cherry Canyon wells, drilled one new saltwater disposal, continue to upgrading and expanding the gas and water handling systems in that asset as well. Net production in the first quarter 2017 was approximately 266,000 barrels of oil equivalent as compared to net production of 225,500 barrels of oil equivalent for the same period in 2016. That's an approximate 80% increase in net production of 240,000 for the fourth quarter of 2016 and approximate 10.8% increase. March 2017 average net daily production was approximately 30,618 barrels of oil equivalent as compared to net production of 2,370 barrels of oil equivalent in March 2016. And the average price received per BOE in the first quarter 2017 was $45.63. With that, I am going to hand it back – actually I am going to introduce you to Danny Wilson at this time. We go Danny to give us a little more color on that. Thank you, Danny.

Thank you, Kelly. As Kelly mentioned, in the first quarter we did get seven one mile horizontals drilled in our Central Basin Platform property. Five of those were put on line. The five wells that we did complete were coming in at IP rates ranging from 377 BOE per day up to and well over 800 BOE pre day was our highest well coming in at about 873 BOE per day. The average for those wells was 660 BOE per day. These rates were taken over a period of time. It takes a little while for these wells to come down. They are usually 15 to 30 days out. In some of the horizontal wells it's as much as 45 days, but that 15 to 30 days is more common for the shorter well. The results that we are seeing also compared very favorably on these one miles compared to the longer laterals that we did in 2016. If you recall those two wells or those wells were two 1.5 mile lateral, one 1.25 mile and they came in as expected. It still looks like we're looking at an average EUR or average if we were expecting was about 55 BOE per day. It looks like we're probably more in the range of about 59 plus right now, but that wells are actually forming a little better than expected. There is a range on those. We are looking at some of those. I think on the low end, we're looking at about 35 BOE per day. On the high-end, we're looking at well over 100 BOE per foot. We have more high-end wells than we do low-end. For the low-end wells, we're looking at a $45 price, not – neither on the 1.5 miles. They're looking at about $2.4 million per well. The 35 BOE per foot will yield a 90% IRR and the 55 BOE per foot we’re seen in some of the wells that’s going to be 240. On the one mile lateral, the low-end, we're seeing right now is 40 net BOE per foot, and on the high-end again over 100 based again $45 and a $2 million investment to drill those wells. We're looking now on the low-end of the 70% IRR and on the high-end is well over 500%. As Kelly mentioned, we are continuing the drilling program. We're now drilling our 13 well. Although we're not announcing any new well results, we did want to let you know that we're moving forward. We're getting the wells drilled as expected. As we say we’re drilling 13 right now that will be our 16 well overall. For the Delaware Basin, we are bringing on the two wells. As we speak, we’re drilled last quarter and in the next few days we should be moving in and spreading the two wells that we have scheduled for this quarter. So those will be coming on next quarter. On the CapEx side, we have announced in the past that we were going to spend approximately $70 million this year largely focused on the Central Basin Platform. We've scheduled 22 new horizontal San Andres wells and the six vertical wells, the reason we're doing those as a commitment well that we have drilled that are going to be able to be covered by the horizontal program. And in the Delaware Basin, we're building – we're going to drill eight wells for this year, two each quarter and we're [indiscernible], we are expecting to start the next two. We are going to be focusing here in the next probably few weeks or months on possibly revisiting that CapEx expenditure. We will probably finish those 22 two wells somewhere in the August to September range and with the results we're seeing, we don't see any reason to stop at that point, and so we're going to be revisiting an expanded digitally expanded CapEx in the next few days. One other thing I would like to point out is we're also doing significant infrastructure upgrades and expansions in both areas in the Delaware Basin, we are moving from a high pressure gas system that we've been going into we've been delivering our gas into a 900 pound sales line. We have renegotiated a contract with Anadarko. It was very favorable terms were actually going straight into their plant at a low pressure. It’s going to allow us to significantly reduce our cost in the field by releasing the compression. And in addition to that we’re getting slightly better price on that gas. The other on the CBP side, we continue to expand our oil system. We point it out in the past several times, every well that we've drilled so far with the exception of one on the horizontal side is tied into oil gathering system that we have built out ourselves has directly into the Centurion pipeline at very favorable terms. In addition of that we continue to drill disposal wells to accommodate a new drilling that we have moving forward on the horizontal program and we've gone back and started renegotiating our disposal contracts, landowners and are going to be able to significantly reduce our disposal costs moving forward which is obviously that electricity chemical our number one expenses. And then also in that area we are building a new units gas line to DCP it's going to gather all of our horizontal gas and we will be moving forward that project and hope to have it finished our year end. What that, I'm going to turn it over to David Fowler.

Thank you, Daniel, appreciate that. I'm going to give you just a quick overview on the land side. Implementing our horizontal drilling program last year. We have focused our attention on identifying and securing leases on Central Basin Platform in our horizontal target footprint. We had a successful quarter of leasing with an addition of 10,100 gross and well over 3,500 net acres, bring in our first quarter ending total for the Central Basin Platform the 63,682 gross, 36,219 acres of net – and of total 53,000 and just over 500 gross acres and 32,600 net acres is within our horizontal footprint. Two weeks after the end of the first quarter we made a significant announcement that we acquired an additional 33,917 gross, 33,237 net undeveloped acres also within our horizontal footprint. In Northern Gaines County for an approximate purchase price of $16.6 million or about $500 per acre. The leases are 100% working interest and 75% NRI and it's important to note that this was already a target area for us and it's our land department had been actually leasing in that area for over two years. As a result more than 50% of the 33,000 acres but contiguous store existing Gaines County footprint and doubled our growth horizontal footprint. In the past 12 months our land department has expanded our growth footprint from 16,000 acres to over 87,000 and our net horizontal footprint from 8,000 acres, 53,600 and that's up from 26,000 net at the end of Q4. With this acreage addition we now have an inventory of over 825 gross and 600 net potential horizontal occasion and that's based on six horizontal per section. But this drilling inventory it allows us the ability to stay very busy for a decade even if we decide to accelerate the drilling program by adding an additional rig. With the inclusion of our Delaware Basin acreage at 20,794 acres, 20,490 net this brings up Permian Basin total to 118,000 just over 118,000 gross and very close to 90,000 net acres. We're not finished yet and Orlando farmer continues to kind of fits in the housekeeping. We continue to seek leases and acquisition opportunities complementing or existing Central Basin Platform and Delaware assets. Where the focus effort of increasing our net position on the platform. It's become kind of our ending tag line but I think as we’ve shown we remain ready, willing and able to react quickly and aggressively to acquisition opportunities in our target area. And at this I will turn it over to Tim Rochford for closing remarks.

Okay, David. Thank you. Good job guys. Listen, we'll get started with the Q&A here in a moment. This will officially conclude the Company's portion of the 2017 first quarter financial and operational review. I’ll turn it now back over to Melissa and Melissa we're going to open this up to our listeners for any questions they may have.

Thank you. [Operator Instructions] Our first question comes from the line of Neal Dingmann with SunTrust Robinson Humphrey. Please proceed with your question.

Hey, guys. [Indiscernible] stepping in for Neal Dingmann here. First question did you guys mentioned in the 22 horizontal wells to be done August, September timeframe I guess what price to make you guys you know either slow down or speed up thoughts around that in the cadence there?

Well, that is a good question and by the way please give our best to Neil, but we're happy to able to sit in this morning. We've talked about that and then just appreciate we've talked about a number of things surrounding that that kind of key 22 number there's no question that we're going to we're going to reach that point somewhere in late August, early September. And as Randy touched on earlier there's no reason at this point that we can see why we're not going to March on and continue rest of the year with that rig. Although that officially will be addressed probably here within the number of weeks as we revise our initial CapEx program. But to the part of the question that relates to what would slow you down or what would speed you up. Slowing down, look we can be out there busy making a great internal rate of return and return on investment at $40 oil and less than $40 oil. So I don't see any slowing down in the near future. I guess the real question maybe is that as it relates to acceleration and I'm sure that's on the minds of a number of listeners this morning is that something we would consider and what price would it take to do that. Yes it is something we are considering, it's something we're talking about almost on a daily basis and we're watching closely, we would like to see the commodity price firm up a bit, but if in fact we get a good feeling on that and like to say we've got a few more weeks or before we make that determination, but we are certainly considering it. And I hope that answers your question.

Great color. And I guess the follow-up, any updates on potential for Brushy Canyon well maybe later on in 2017 and you get it down the test on those vertical wells, just any updates around that?

Sure. Danny, why don’t you take that first.

You bet. [Indiscernible] we would run a very extensive sweet of a large, picking on the last two wells that we drilled out there. So far all the results were seen back from core lag and from our logging suite look very positive. We have discussed the potential of going out and drilling the horizontal well this year. The question is going to be allocation of assets, it's always our bet to don’t do that those acreage is all HPP in that particular area. We have no pressure from a leasing standpoint or any other drilling commitment standpoint to go do that. Although, all the results do seeing very favorable at this time. Another concept we're looking at is potentially even at Cherry Canyon or horizontal at some point. So we have several options there. It’s a best use of our asset those continued drilling 500, 600 barrel a day wells in the Central Basin Platform. That's just a discussion we will have internally here in the next few weeks or months.

Great. Thank you so much guys.

Thank you.

Thank you. Our next question comes from the line of Jason Wangler with Wunderlich Securities. Please proceed with your question.

Good morning, guys.

Good morning.

I was just curious as you know our 13 wells this year and 16 wells into the horizontal program, can you talk about how expensive you're getting as you step out on these wells kind of where you're moving and what you see as you look for the remainder of this year kind of the plans as you develop this asset.

Good question. Kelly, Danny you guys wanted to…

Sure. Jason many people don't realize, but I can point that out. It's a great question that – couple of the larger wells that we drilled are some two and a half plus miles away from the original batch that we drilled in the fourth quarter of last year. And they are to the east so to speak, so as you say in the center of the page you have the first three wells we drilled and you got two and a half miles to east which leaves a lot of drilling in between to drill two tremendous wells over there. If you would go back to that original batch of well and you were go to southwest some sixty to eight miles is another great well that we've drilled and now that you're moving north some three to four miles. So I'd say at this point in time we're opening up quite a large footprint as we speak.

That's really helpful. And obviously you talked about the big acquisitions from an acreage perspective month or so go. I’m sure you're still kind of getting your arms around that, but when do you think you'll see something or we should see something in that area, would that be this year or maybe a little bit further down the line?

I'm going to say that we've had a lot of internal discussions about – our process here is taking our signature if you will which is our test well concept that we move into every area with an advancement horizontal, so we have a lot of internal discussion on the best timing for being able to go up there and do that, don't be surprised if you see something maybe this year, but certainly next year will be up there working on that test well side and we've got a little bit of time here before we have to put down a horizontal. We are excited about that, it’s very favorable terms for us as it relates to our project, but I think our approach there would be to get up there and do some test wells. We already have a lot of data points that we're very, very comfortable with and we feel like we know what to expect, we’ll go ahead and follow the plan.

Great. Thank you. I’ll turn it back.

Thank you. Our next question comes from the line of Jeff Grampp of Northland Capital Markets. Please proceed with your question.

Good morning, guys. Just maybe looking for maybe a little bit of tensor big picture thoughts on where CapEx could go and you guys are still reviewing a finalizing it. But I guess just kind of ballpark and your current pace seems like maybe you guys could get into the low 30s for number four horizontal wells if you just kept the program going. Is that that a fair way to think about it a baseline or could you guys maybe look at potentially getting more aggressive than just keeping the current pace going this year?

Jeff that's an excellent question and let's going to think a front of bit here, so if we were to expand or extend that beyond the 22, which all indications are as we talk about that that will take place. I think from a practical standpoint you're looking at and Danny, you correct me if I'm wrong. But we're probably looking at adding another eight to 10 wells as a result of that with a single rig, if we’re just using round numbers that could add as much as another $20 million to $25 million to the CapEx. On the other hand, the stars are align and there's good reason to consider accelerating and adding the second rig, whether it's mid-year or the later of part of the year. You can pretty much do the math on that, a second rig if we were to have a second rig and for the full second half of the year, you're probably talking about the capabilities of drilling about 12 to 15 wells somewhere in that neighborhood, not suggesting for a moment that we're going to definitely do that, but as we've talked about earlier in the call today that something we're seriously considering. So if we were to get aggressive and do something like that, you could be talking about a minimum of somewhere between a $25 million and $50 million gain on the CapEx expenditure.

Okay, very helpful. Appreciate that. And on the cost side, look like LOE came in lower where we are expecting thing, can you maybe talk about what we should expect on the OpEx side of things and also take into account and it sound like Dan you referenced maybe some potential downside further if you guys get in a high pressure system that growing on?

Yes, good point. Danny?

Yes, in addition to the high pressure, we would be releasing some compression out in the Delaware Basin. But I think the single biggest thing that we’re probably looking at saving some on is our water disposal costs. We are just as an example, when we started out in that area, our costs that we were paying the landowners was roughly $0.25 per barrel and then of course we had our op cost on top of that which was about another $0.08 or $0.09. We have since gone out and renegotiated several of those contracts and we have contracts now as well as $0.03, which would be a significant savings. We've got a [indiscernible]. The other thing we’re look at doing as buying some acreage out and drilling wells on our own acreage, which would bring that cost down to zero. We would have is the op cost of about op costs was about $0.08 and $0.09 a barrel. So I think that's where we're going to see our biggest cost saving. We're constantly always watching or chemical cost, and electric cost, negotiating those contracts, but I think the biggest area you're going to see is the reduction in compression in the Delaware and then [laid out] the disposal saving.

Okay, great. And I can sneak one more and I know you guys don't like to provide quarterly guidance on the production front or anything, but can you guys us a sense for maybe how productions trended more recently relative to that March number you guys – 3,600 net BOE today?

Well, you're right about that Jeff. We do not give formal guidance, but maybe Danny can shed a little light on that.

That all I can tell you is that we're very happy with the bright that we're seeing right now. So everything is very positive.

Okay, fair enough.

Thank you, Jeff.

Thank you. Our next question comes from the line of John White with Roth Capital Partners. Please proceed with your question.

Good morning guys. Thanks for taking my call and Danny, it sounds like you’re getting good practice on the guidance questions, so congratulations. Yes, that's right. So two wells per quarter on the Delaware properties, are those all going to be Cherry Canyon?

Yes.

Okay. Well listen I know it's covered an awful lot of ground and that's the only question I have left, everything else has been covered, so thanks for let me on.

Thank you. Our next question comes from the line of Richard Tullis with Capital One Securities. Please proceed with your question.

Thanks. Good morning, everyone. Looking at I guess Kelly now that 2016 wells Central Basin Platform horizontal to be on line for several months now however the longer-term production rate looking towards decline you've seen thus far it's wells is it kind of matching the original type thinking going into the well.

Yes, Richard, we I think we addressed this maybe in our operation report so this may be redundant which is fine, but we're seeing a regional - put out there was a 55 barrels world equivalent four per lateral foot and we actually are above that and we were running an average of about 59. So I would say production is now on the because we hope it is actually better than we hoped. And so we're excited about that and I think that and we're not going to change that curve for now, but I like the idea of staying above that no question.

Okay. That's helpful. Thank you. And as you have gotten not put together a pretty large position now in the Central Basin Platform with this latest acquisition. For presents you know a lot of drilling opportunity going forward any thoughts to you know at some point possibly just concentrating on the Central Basin Platform and it may be monetized the position in a Delaware?

Well, Richard, that’s a good question. Let me take that this is Tim. How are you Richard?

Fine. How is it going to Tim?

Good. Nice to here from you. I'll tell you what it's nice to have booking, the quality of bookings the assets that we have here. As Danny mentioned earlier getting the biggest bang for our dollar certainly is on that platform right now. But I can tell you that if we were in the absence of drilling horizontally on that platform we'd be all over the Delaware. The Delaware brings great pro-rata returns, return on investments and it’s an asset that has no obligation terms of pressure and I think Danny also mentioned this earlier as relates to the lease exploration et cetera. So we've got as much as 20,000 acres there that are held by production and we can kind of move in her own pace. So that’s something like that along the way is doubtful I can tell you that as far as Kansas is concerned which is rarely discussed on these calls or any of our notes. Kansas is something that you're going to see the best our position there. We’re loaded up as you say kind of sort of set there on the platform, we've got [indiscernible] over. And I think as David commented earlier with his notes. Even if with an acceleration program we've got plenty to do there for the next decade and so filling in with the housekeeping and bringing that gross number closer to net number or net number closer to the gross number I should say is something we're going to continue to pursue. We will continue to do Bolton where there is opportunity to do so that makes sense. And in terms of the Delaware where there's an opportunity there to grow that footprint comfortably will look to do that as well. But looking at any other area which to now add two the asset base is not going to be happening we're going to be focusing in on what we have there own those two bookings.

And kudos to the evident in the land team there were pulling together that large acquisition and really attractive. Cost per acre could give a little background on how the process came together and does it include all the depth on that acreage.

Sure. Guys want to do that.

Hey, Richard, this is Kelly. We started the best way to describe it is we were fortunate enough to have someone very close to his internally here that got us a meeting with some higher ups who haven't and we went over there and made a face to face meeting in October of last year and it became apparent very quickly in those discussions and fair amount it took the six months the knock it down so there weren't that easy discussions you would expect in some cases, but of course what they have can be very beneficial, but bottom line is that they felt like execution was the most important factor for them. And execution risk with us as we have proven to many is not a factor and so that became very important with revenue so we were able to go see a very favorable terms and that's how we got $500. There were many people in their bidding against us and many people that were above us quite a ways. But then owns 25% in the minerals and they want to protect those minerals in the value that was far reaching over any additional bonus money no question about it.

Thank you. And then just lastly AFEs for the current wells that are being drilled or proposed to those come in pretty close to what you were seeing at the start of the year.

Richard, this is Danny. Yes, the answer is short answer is yes. We are still very comfortable with $2 million or the one mile and the $2.4 for the amount I have those numbers are still solid.

Okay. That’s all for me. Thanks very much.

Thanks, Richard.

Thank you. Our next comes from the line of Mike Kelly with Seaport Global Securities. Please proceed with your question.

Hi, guys, good morning.

Good morning.

First off congrats on all the [indiscernible] the drilling of leasing fronts year-to-date has been really exciting to watch. On the leasing front David suggested that maybe you're not gone for the A&D work right now there's still some opportunities there. Just open you characterized that A&D opportunity set and how you're still your appetite to be aggressive on that front? Thanks.

You bet. David?

Sure. Mike, it's kind of been touched on already and I'll just maybe give a little bit more insight. We have quite a good position there on the platform, but we have some areas that we are filling in. There is some bolt-on opportunities are going to be available to us and we're pursuing some of those. We continue which has been kind of interesting over the last six months. How much more now is coming to us as far as opportunities? And I think the reason why we're kind of seen as the consolidator. In most cases I think we get a first look on anything that goes on the market. And we are of course very cautious and picky about what areas that we're wanting to play, but you're going to see it continue to add on. Our major focus is going to be on filling in some gaps that we've got like we said earlier there are some housekeeping to do, but our focus is going to be increasing on those net positions.

Okay, great. And then follow-up for me, I think the number one investor question we get on you guys is just asking us to explain the geologic consistency across your now expanded footprint. I think you're probably better suited to answer that question or may, so just hoping you could characterize that, the ranges you’ve given in the rate of return obviously phenomenal. How wide range do you think that will be across the whole footprint? Thank you.

You bet. Danny?

You bet. Mike – and Kelly touched on this briefly earlier to that. We tend to have identified I guess a series of characteristics that we like to see in a particular area before we go active in that area as far as leasing or looking for acquisition potential. The areas that we are in we specifically chose for that reason. I think you'll see some variability there are obviously when you start looking at a footprint that large in covering the business and we're covering roughly more than half counties now. There's going to be some variation. But as far as the rock characteristics, we're seeing we're very comfortable with that. We haven't seen anything today that worries us or bothers us, so I think we're very comfortable in the areas that we're going after.

Got it. Thank you very much guys. Good day.

Thanks Mike.

Thank you. Our next question comes from the line Ben Wyatt with Stephens Inc. Please proceed with your question.

Hey. Good morning, guys. Appreciate the color you guys provided on what CapEx could potentially look like. But if I kind of do the math it sounds like you're kind of 10 to 12 days to drill a well now. I'm just curious if you guys as you drilled more of these wells or start to see some downward pressure on those drill days and maybe kind of what expectations per drill days could look like over the next six to 12 months?

Good question. Danny can you provide some color on that?

You bet. Now we're definitely getting a little smarter about how we're doing these things, we're learning our way through this. One thing we've started out, when we started the program was started on a footage contract which at that point the drillers are kind of calling the shots on that. We're there obviously supervising, but we are now moving into a phase where we're going to be going on day work and we will be steering the ship from now on. And I think as we do that you're going to see these days drop down some, how much? I don't know. But we've already learned some things which are cutting half day, day off here and there. So I think we'll get a little experience and I would too depends on the length of the well, of course mile and a half take several more days than the miles, but we are doing a better job and I think it's only going to get better.

Good stuff and appreciate that. And I guess my follow-up, I'm sorry if you guys have addressed this in the past and I’ve just missed it, but on these horizontal Central Basin Platform wells. How long do these wells kind of flow naturally and then what would kind of be the artificial lift of the choice? I’ll stop there. Thanks.

Danny.

Yes. These wells in our area don’t particularly flow very long. We see sometimes up to two weeks, some may not flow at all. But then we're going in with submersible pump right off the bat. The first couple wells we started out with some smaller pump moved that to some larger pump and now we're looking at potential going even larger, so which obviously the quicker you get your load back, the more volume you move in to better the wells potentials are going to be.

Thank you. Our next question comes from the line of Blaise Angelico with Iberia Capital Partners. Please proceed with your question.

Hey. Good morning, everyone. Most of my questions have been asked so far and we appreciate all the updates and information. I know we're in early days of the horizontal program and you talk about six well dissections. Do you have any plan to test tighter spacing at some point in the next 12 to 24 months?

Danny you go ahead and elaborate on that, but I don't think we've had that discussion yet, have we?

We haven't had that discussion. Now we’ll say we're working very closely with our vendor, particularly our frackers and [indiscernible] which we've announced several time. We are doing completion studies with them right now, looking their drainage radius and that that study to incomplete. But right now we still feel very comfortable with six. Eight is a potential, but we won't know till we finish this study.

Gotcha, thanks. Appreciate the time guys and look forward you’re seeing doing.

Thank you. Our next question comes from line of Norman Hale with Stifel. Please proceed with your question.

Good morning. First let me just say, you guys are doing just a tremendous job. The every time you come out with a quarterly result you show an improvement, obviously the management team is terrific, you guys are working hard and the results are showing here your efforts. So let me just see right up front that I very much appreciate your hard work and the quality of the result obviously does speak for themselves? Beyond that if you guys initiating kind of a hedging program on either your gas or oil production?

No, we have not. That's not to say that we're not open to it. In fact not just that long ago when the commodity was closer to that mid 50 range, 55, 50 trying to get a 56, we were looking at that very closely and so I guess the best way to answer that is no we're not hedged, are we open minded to do that absolutely and when we see from our prices again you'll probably see us exploring that.

Okay. And if the price you did from up and if you guys are able to hedge it a very favorable price, would that have an impact – a positive impact in terms of your CapEx discussion?

We have an impact as it related to obviously yes and particularly as it related to any acceleration.

Okay. Okay, I hope you see that.

We do too.

Playing devil's advocate if the crude oil prices went south from here, but what price does it really become problematic for the company?

Danny, we obviously through our studies a little over a year-ago researched this and it was based on cost that we're seeing at that time and I know there has been a big movement in costs since then I believe should not that noticeable and I think we were probably in that mid 30 range, we get still pull off a pretty decent rate of return is this your feelings still the same.

Yes, it is. I think to one thing we could look at that point is that prices were adopted that point of vendor cost would start heading down three. So we were even at our current cost were comparable into the mid 30. Okay, guys that’s all I’ve got. Thank you very much.

Thank you, Norm.

Thank you. [Operator Instructions] Our next question comes from the line of [indiscernible]. Please proceed with your question.

Good afternoon gentlemen, and thanks for all the color. My question are really related probably here to M&A went you talk about adding Delaware, you talking relatively small amounts 2,000 to 5,000 acres, which you consider lower Strata other than Brushy Canyon?

So everything that we've focused on David in the Delaware has been on the top side of the Brushy. So down to the Brushy if you will and that's been our efforts to continue and I know that we have ongoing conversations and ongoing if you will different levels of the progress that we're making with the opportunity we expand that footprint. I wouldn’t want to go into much more detail than that, but yes there is a combination of possibly some bolt on and then maybe in the possibility of that size of a bit bigger footprint in terms of the amount that we acquire. But as it relates to part of your question, deeper horizons that's not something we've been targeting.

That appreciate the color there and then just turning to the Kansas asset, do you have any production there and have there been some other comparable transaction that to try to but it guesstimate of the value they could we you know Kansas.

Kansas, yes, we do have production. There's not a lot I think it's 25 barrels a day something like that as you may or may not remember we had a joint venture partner that joined us a couple years, 2.5 years ago and part of that joint venture arrangement was they were putting up the drilling dollars. So we had acquired the leases. We have basically a simple that over a period of time with the expenditure that we really asked them to meet that expenditure in a ongoing drilling program and they came along and we drilled a number of wells. We had some relatively decent success. We entered into a seismic shoot, but to be honest with you we were becoming so focused on the platform and then Course Delaware came along that that all of a sudden Western Kansas just became less and less exciting for us. And it's a decent play we have no future plans in terms of development. I’ll be very candid with you. We've had leases that have expired there. We started in the neighborhood of 15, 16, 1,000 acres I think we're down to around 12,000 or 13,000 acres some of that sell by production and some of it still have a good length of time remaining on those base leases. But we have some interested parties that we're visiting with now and with the possibility of monetizing and improving that off.

Good, appreciate all the color. Congratulations on all the progress you've made. Thank you.

Thanks Dave. End of Q&A

Thank you. Mr. Rochford, there are no further questions at the time. I’ll turn the floor back to you for any final remarks.

Okay, well thank you Melissa and thank you everybody for taking the time this morning. We know there are a number of calls going on today and we would appreciate your support and we look forward to the next time we're able to report a more updated news. Have a good day.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.