Magnolia Oil & Gas Corp Q4 FY2023 Earnings Call

Good morning, everyone, and thank you for participating in Magnolia Oil & Gas Corporation's Fourth Quarter 2023 Earnings Conference Call. My name is Andrea, and I will be your moderator for today's call. At this time, all participants will be placed in a listen-only mode as our call is being recorded. I will now turn the call over to Magnolia's management for their prepared remarks, which will be followed by a brief question-and-answer session. Please go ahead.

Thank you, Andrea, and good morning, everyone. Welcome to Magnolia Oil & Gas’s fourth quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's President and Chief Executive Officer, and Brian Corales, Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the Federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on risk factors that could cause results to differ is available in the Company's Annual Report on form 10-K filed with the SEC. A full safe harbor can be found on Slide 2 of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's fourth quarter 2023 earnings press release as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Thank you, Tom, and good morning, everyone. We appreciate you joining us today for a discussion of our fourth quarter and full year 2023 financial and operating results. I plan to briefly speak to our results, which closed out a strong year for Magnolia and during which we took several actions to improve our overall business. I will also discuss our business model and our core principles in the context of some of last year's accomplishments and note how Magnolia stacks up compared to many other EMP companies on several key financial metrics. Lastly, I will provide an update on Magnolia's 2024 capital and operating plan, which follows the same principles on which the company was founded nearly six years ago. Brian will then review our fourth quarter and full year financial results in greater detail, along with some additional first quarter guidance before we take your questions. Starting on Slide 3 of the Investor Presentation and looking at some of the highlights. Magnolia ended 2023 on a high note with fourth quarter production volumes of 85,400 barrels of oil equivalent per day, bringing full year 2023 production to 82,300 BOE per day. This represented year-over-year production growth of 16% for the fourth quarter and full year 2023 volume growth of more than 9%. Production at our Giddings asset grew 55% compared to the prior year fourth quarter, reaching 63,000 BOE per day, which included oil production growth of 59%. Giddings production represented approximately 71% of overall Magnolia volumes last year, and the Giddings area continues to see operating efficiency improvements in the field, such as fewer drilling days per well and realizing significant gains in stimulation stages per day. D&C Capital totaled $91 million for the quarter and $422 million for the year, representing 47% of adjusted EBITDAX for the year and leading to free cash flow generation of $413 million, or roughly 10% of our current enterprise value. We returned 74% of this free cash flow to shareholders through our dividend and share repurchase programs, with the remaining allocated to our balance sheet, which helps support attractive bolt-on oil and gas property acquisitions geared toward improving the overall business. Turning to Slide 4, Magnolia's business model remains unique since it was devised in 2018 with the objective of creating a highly investable, attractive EMP business that is enduring and focused on generating absolute per share value over the long term. As we have often expressed, Magnolia's primary objectives are to be the most efficient operator of best-in-class oil and gas assets, generating the highest returns on those assets while employing the least amount of capital for drilling and completing wells. Our high-quality asset base allows for a low reinvestment rate while still providing moderate growth for the business over time. This results in significant free cash flow generation and we strive to return a significant portion of this to our shareholders in the form of share repurchases and a safe, sustainable, and growing dividend. Some of the excess cash may accrue to the balance sheet, helping us to opportunistically pursue attractive bolt-on oil and gas property acquisitions that improve the business, which helps to sustain our returns and enhance the dividend per share payout capacity. We continue to adhere to our core principles and believe this is a sound formula for creating long-term shareholder value. I'd like to spend a moment reviewing how this model has helped us achieve our goals over the past several years and as our operating program has shifted more to our Giddings asset. Slide 5 shows that Magnolia has had one of the lowest capital reinvestment rates compared to most other EMP companies while achieving a superior compound annual rate of growth in terms of production per share over the past three years. This is a powerful combination allowing us to maximize our free cash flow generation. Turning to Slide 6, our corporate level returns or return on capital employed continue to be some of the best in the upstream energy sector, highlighting our strategy of disciplined capital spending, including last year's success in reducing our well costs and the beneficial impact of our ongoing share repurchases. Our cost reduction efforts in 2023 helped further support these returns as we were able to meaningfully grow our production per share with capital that was 17% less than what we had expected at the beginning of the year and 8% below full-year 2022 levels. Two key elements of our business model are maintaining our low leverage and generating high operating margins. Slides 7 and 8 demonstrate that Magnolia is best-in-class when coupling one of the lowest leverage profiles in the industry with some of the highest operating margins. This is compared to EMP companies of similar size to Magnolia as well as much larger companies and is a testament to our underlying asset quality and the characteristics of our overall strategy and philosophy. Turning to our 2024 guidance shown on Slide 9. We expect this year's plan to deliver similarly strong results at current product prices. Magnolia's capital and operating plan is expected to deliver high single-digit percentage growth this year, or approximately 7% to 9% on both oil and BOE basis with a capital budget estimated in the range of $450 million to $480 million. This would result in a spending level below 55% of our EBITDAX for 2024, assuming current strip pricing for products. Total production for the first quarter is estimated to be approximately 84,000 to 85,000 BOE per day, which includes production of facilities downtime caused by severe winter weather conditions during a portion of mid-January. Despite the transitory weather impact last month, our production is fully recovered and is running normally, and we are confident in our full-year plan and guidance of high single-digit production growth for the year. We expect first quarter D&C capital expenditures to be approximately $130 million and anticipate this to be the highest quarterly rate of spending for the year. Most of the full year 2024 production growth is expected to come from our development program in our Giddings area and is the main driver and will receive approximately 80% of our overall capital and include some activity on our recently acquired assets. We plan to operate two drilling rigs and one completion crew during 2024 and expect to maintain this level of activity throughout the year. While this activity level is similar to last year's operating plan, lower well costs combined with improved operating efficiencies allow for more net wells to be drilled, completed, and turned in line, helping to support Magnolia's overall high-margin growth. Most of the development activity will consist of multi-well development pads in Giddings, with a smaller amount of development planned in the Karnes area, in addition to some appraisal wells. For this year's development activity in Giddings, we currently expect to drill multi-well pads with somewhat longer lateral lengths of approximately 8,500 feet. We continue to run a focused business and in an industry where operational execution and financial discipline are essential. The actions we took last year to reduce our well costs helped to significantly reduce our capital, improve our operating margins, and generate additional free cash flow. Together with the acquisitions completed last year, these accomplishments have strengthened our position into 2024 and we expect high single-digit growth, high margin, and high-margin total company production growth with our oil volumes growing at similar rates. We have a strong five-year history of demonstrated operating and financial results and expect our business model to enhance per share value over time. I'll now turn the call over to Brian to provide more details on our fourth quarter 2023 financial and operating results.

Thanks, Chris, and good morning, everyone. I'll review some items from our fourth quarter and full year results and refer to the presentation found on our website. I’ll also provide some additional guidance for the first quarter of 2024 and the remainder of the year before turning it over for questions. Magnolia closed out 2023 on a high note as we continue to execute on our business model. During the fourth quarter, we generated a total net income attributable to Class A common stock of $98 million, with total adjusted net income of $108 million or $0.52 per diluted share. Our adjusted EBITDAX for the quarter was $240 million, with total capital associated with drilling, completions and associated facilities of $91 million or just 38% of our adjusted EBITDAX and below our guidance. For the full year, adjusted EBITDAX was $899 million, with D&C capital representing 47% of EBITDAX. Fourth quarter production volumes grew 16% year-over-year to 85,400 barrels of oil equivalent per day. For the full year, production volumes grew 9% to 82,300 barrels of oil equivalent per day. During the year, we repurchased a total of 9.6 million shares, and our diluted share count fell by 5% year-over-year. Looking at the annual cash flow waterfall chart on Slide 11. We started the year with $675 million of cash. Cash flow from operations before changes in working capital was $872 million, with working capital changes and other small items impacting cash by $59 million. During the year, we paid dividends of $102 million and allocated $205 million towards share repurchases. We added $355 million of bolt-on acquisitions, primarily in Giddings, and spent $425 million on D&C and facilities capital, and we ended the year with $401 million of cash. Looking at Slide 12, this chart illustrates the progress in reducing our total shares since we began our repurchase program in the second half of 2019. Since that time, we have repurchased 61.9 million shares leading to a change in diluted shares outstanding of over 20% net of issuances. This is one of the largest decreases in the upstream energy space, with the majority of the companies increasing their diluted shares outstanding over the past five years. Magnolia's weighted average fully diluted share count declined by more than 2 million shares sequentially, averaging 206.5 million shares during the fourth quarter. We have 9.2 million shares remaining under our current share repurchase authorization which are specifically directed toward repurchasing Class A shares in the open market. Turning to Slide 13, our dividend has grown substantially over the past few years, including a 13% increase announced earlier this year to $0.13 per share on a quarterly basis. Our next quarterly dividend is payable on March 1 and provides an annualized dividend payout rate of $0.52 per share. Our plan for annualized dividend growth is an important part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth, reducing our outstanding shares, and increasing the dividend per share payout capacity of the company. Magnolia has the benefit of a very strong balance sheet, and we ended the quarter with zero net debt and $401 million of cash on the balance sheet. Our $400 million of principal debt is reflected in our senior notes, which do not mature until 2026. Including our fourth quarter ending cash balance of $401 million and our undrawn $450 million revolving credit facility, our total liquidity is approximately $850 million. Our condensed balance sheet as of December 31 is shown on Slide 14. Turning to Slide 15, and looking at our per unit cash costs and operating income margins, total revenue per BOE declined due to the substantial decrease in product prices and especially natural gas prices when compared to the fourth quarter of 2022. Our total adjusted cash and operating costs, including G&A, were $10.55 per BOE in the fourth quarter of 2023, a decrease of $1.60 per BOE, or 13% compared to year-ago levels. The year-over-year decrease was primarily due to lower production taxes in GP&T. Our operating income margin for the fourth quarter was $17.56 per BOE or 43% of our total revenue. The year-over-year decrease in pre-tax operating margins was driven by the significant decrease in commodity prices. On Slide 16, Magnolia had a very successful organic drilling program during last year. The total proved developed reserves at year-end 2023 were 135 million barrels of oil equivalent. Excluding acquisitions, sales, and price-related revisions, the company added 44 million barrels of oil equivalent of proved developed reserves during the year. Total drilling completion capital was $422 million in 2023, resulting in organic proved developed F&D costs of $9.60 per BOE and reflective of our drilling program. Our organic proved developed F&D costs declined by approximately 40% compared to last year as a result of our well cost reduction efforts and strong well results. Turning to guidance. We expect our 2024 D&C capital spending to be in the range of $450 million to $480 million, which includes an estimate of non-operated capital that is about the same as 2023 levels. We expect first-quarter D&C capital expenditures to be approximately $130 million and expect this to be the highest quarterly rate of spending for the year. Total production for the first quarter is estimated to be approximately 84,000 to 85,000 barrels of oil equivalent per day, which incorporates the impact of production and facilities downtime caused by severe winter weather conditions in January. Despite this impact, our production has fully recovered and we are maintaining our guidance for high single-digit production growth in 2024. Most of this growth is expected to come from our development program in our Giddings area. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston or MEH, and Magnolia remains completely unhedged for all of its oil and natural gas production. The fully diluted share count for the first quarter of 2024 is expected to be approximately 205 million shares, which is 4% lower than first quarter 2023 levels. We expect our effective tax rate to be approximately 21%, with most of this being deferred. Our cash tax rate is expected to be between 6% and 9% for 2024. We are now ready to take your questions.

We will now begin the question-and-answer session. Our first question comes from Neal Dingmann of Truist. Please go ahead.

Good morning, Chris and team. And guys, another nice print and guide. My first question is on Giddings, specifically. Can you all talk about the recent Giddings acquisitions and how these assets are looking? Definitely realizing it’s early days? And then maybe, Chris, anything we should be thinking about on the development plan specifically there?

Yeah, thanks. Good morning. Giddings is one of those fields, old fields, that sort of keeps getting better. My level of confidence now versus, say, five or six years ago is quite a bit better. A lot of that is born out of the results and certainly what we've learned and what we've been able to do with the field. The subsurface, as I said, is one of those fields that has gone through different phases of its life over the last several decades, and we happened to get involved just prior to it undergoing this latest phase in utilizing modern frac techniques and design. So where this is headed is we've got a sizable position, more than half a million acres, and we've done some recent acquisitions, and I think that's improved our position and will help us learn some more. There's some gassier areas of Giddings, and there are some oilier areas, but I think the proof is in the pudding in terms of the results we've achieved. When we picked it up with the original acquisition, the field was producing maybe 10,000 a day, equivalent or so. As I said, it's producing more than 60,000 a day now, and that will continue to grow. The quality returns we've seen in the business are a function of the outcomes from Giddings. So where does it go? Frankly, I think there's more for us to pursue here. Some of them will be a little smaller, some might be a bit larger, similar to what we did in the fourth quarter of last year. We will just have to see. I can't tell you that we'll go after everything, but we'll go after some things and we're starting to integrate the assets we recently acquired. Early days look good. This particular asset happens to be a bit oilier. The wells that we plan to drill are shallower, several thousand feet shallower, and oilier with the economics broadly quite similar to Giddings as a whole. I remain optimistic about our prospects going forward for the fields and what it means for Magnolia.

Yeah, I definitely love the footprint there. And maybe following up a little bit with Giddings. Noticeable as you pointed out, the operating margins are certainly notable. And I'm just wondering when you look at the expanded Giddings results, will that potentially lead to even lower reinvestment rates? Because it's notable how good your reinvestment rate is, as you highlighted the operating margin. I'm just wondering based on maybe a higher Giddings plan, could we see potential increases in this?

Yes, that's a tough one. I think the results are pretty good over a three-year to five-year type period. If you want to say it's almost through a cycle, I don't think it's going to be meaningfully different. There might be some things around the edges as we learn more, but I think the outcome is not going to be meaningfully different, which I will take any day of the week.

The next question comes from Leo Mariani of MKM Partners. Please go ahead.

Hi, guys. I was hoping you could provide maybe a little bit more color on the increased activity in 2024. I think in the press release you guys alluded to the fact that there will be more wells this year. Is there any way to quantify that? Is it kind of five or six wells? And just any detail around the splits here? Is it primarily more of a development drilling program? You did mention there would be some appraisals. Is it a fairly similar appraisal split versus last year? I guess there's going to be some drilling on the newly acquired assets from the fourth quarter. Do you also consider that kind of appraisal drilling, and is it just a handful of wells? Any color on the complexion of the program this year versus last would be helpful.

Yeah, thanks, Leo. I think you repeated some of what I've said and answered your own question in some ways. Anyway, yeah, we will probably drill maybe a little more than half a dozen additional wells this year versus last year net wells. Most of that is some of the new assets that will be integrated into the plan. Some is just the ongoing development in Giddings. Keep in mind that the average lateral length is a little longer in this year's program compared to last year. I would tell you also that the working interest in the wells is also a little bit higher. As far as appraisal, no, I wouldn't consider the drilling on the new assets as appraisal in Giddings. But there may be, depending on product prices, some appraisal drilling in Giddings just to learn a bit more about other areas. We'll see how that goes. By and large, that’s some of the color I would tell you. The Karnes program will be fairly similar to what it had been, not really very different generally.

Okay, that's helpful. And then do you have any color you might provide on a few of the big-picture expense items? I think perhaps the new oily asset has a little kind of higher cost. Any kind of range at all you can kind of throw out there if LOEs are going to continue to tick up a little bit and maybe DD&A and maybe G&A has not really changed. Is there anything you can have high level on some of those key cost items?

Yeah, sure. The new assets, especially the latter acquisition we did in Giddings, considering that it is oilier in nature, there is a little bit more in the way of LOE, as would be common or typical, as we are also sort of bringing it up to Magnolia standards, if you will. We are owners of the assets where the prior folks might have been viewed as more renters. There are things we need to do to bring it up to our standards. However, I will tell you that my view is that we are going to focus more on LOE broadly through the year to try to get that down a bit. As we transition with the new asset into the first quarter, you might see a little bump in LOE, but not very meaningful. My hope is that we can manage it so we could see some decline later into the year.

Okay, that's helpful. And I guess just anything on any of the other costs, is it G&A per barrel still pretty flat? I don't know if there's any impact on GP&T from the new asset either, is that pretty ratably flat?

Not really. GP&T, actually, I think we're doing a pretty good job there, and we'll see how that goes. I'll just say we're doing a good job around that. G&A, not going to change very much, frankly, at all, not meaningfully on a per barrel basis.

Yep. Okay. Thanks, guys.

Okay, thanks.

The next question comes from Charles Meade of Johnson Rice. Please go ahead.

Good morning, Chris and Brian and the rest of Magnolia team there. Chris, I’m at risk of frustrating you. I'm going to ask one more question about your activity on those recently acquired assets.

That's all right. You wouldn’t be the first one.

Well, maybe I'll be the best. Presumably, I think you indicated that you guys had a slightly different view of that asset, or maybe you thought you had a differential insight on that asset. So I'm curious if you could tell us what further activity you have. Maybe you just kind of characterize the number of wells that you're going to drill, the number of wells you're going to drill on that newly acquired asset. If there's any aspect of your well design that's going to test those differentiated ideas, what kind of timeline for any kind of results or updates there?

Yeah. Thanks, Charles. It's a little early to be too granular-specific around how we are going to drill the well or wells. There will be a handful of wells drilled later this year where results can be assessed through some of the data sets over time. We may make some modest changes going forward, but we are not at the point where these will probably be more single wells at this stage. We closed on the deal about three months ago, so we're still integrating it and developing it.

Okay. Well, thanks for that added detail. And then a second question. This is about A&D and the Eagle Ford more broadly. How would you characterize the opportunity set for Magnolia? How much of your attention are you spending on looking at opportunities right around Giddings? How much is directed to the larger Eagle Ford?

It’s a fair question. Percentage of my time is pretty meaningful because there are a lot of things out there. Much of this is born out of our experiences and knowledge, and as we gain further understanding of the wells that we drill and directionally what excites us. At the end of the day, we are trying to build a mosaic around the asset and fill in some of the blanks to improve the business based on some of the quality areas we see. We won't go after everything. It's not like I say, well, I’d like to own all the acreage everywhere. There are areas that look interesting and will help us and the business, where I can see it enhancing the runway and providing more sustainability over time. So I think the opportunity set is reasonably good.

All right. Thanks for that.

The next question comes from Oliver Huang of TPH & Co. Please go ahead.

Good morning, Chris and Brian, and thanks for taking my questions. Just wanted to hit on the 2024 outlook really quick. I think you all did a great job last year in being able to exceed initial expectations. CapEx 17% lower for nearly inline production volumes. I know last year was probably a unique year, just kind of given the misalignment to start the year on service costs. But as we kind of look forward into 2024, what are some of the key levers or upside catalysts that you all foresee or are most excited about that could drive better than expected capital efficiency? Any sort of color on what drives the lower and higher ends of the CapEx guidance range would be helpful as well.

Thanks, Oliver. I don't know how much of a disconnect there was, but we got after this early, and I credit our teams both on the supply chain side and in operations, drilling, completions, and working with everyone to make it happen. It took a lot of work talking with the vendors and creating a partnership, and we did benefit from some of the weakness in large gassier fields to the northeast of us where activity was slowing, and we saw some benefit from that proximity. It took a lot of work. In terms of what's left, we’ve locked in our costs certainly for the first half of the year, so I'm very comfortable with where things are headed in the first half of the year in terms of our outlook. For the second half of the year, it doesn't seem to me that activity is going to soar away higher. In fact, we expect to see things flat to a little bit lower or softer, considering where gas prices are. It's just not all that pleasant. It may provide us with some wiggle room for the back half of the year, but generally, things feel pretty good. We did a terrific job around efficiencies last year, especially on the completion side and on stages per day. I hope to see improvements on the drilling side as well, but we’ll see. I hope that gives you a bit of color.

Yeah, that's definitely helpful. Just a quick follow-up on a comment you made earlier about potentially higher working interest in wells this year. Is there any way to quantify the magnitude of that shift? Really just trying to get a sense of how the net lateral footage might have increased on a year-over-year basis?

We can get back to you and answer that more specifically.

Sounds good. Thanks for the time, guys.

Okay. Thank you.

The next question comes from Ati Modak of Goldman Sachs. Please go ahead.

Hi. Good morning, team. Thank you for taking the questions. I guess you mentioned there's still a lot of opportunity in acquisitions in the Giddings area. Just wondering if these are largely smaller acreages or are there entities that are relatively large as well. What is the level of interest that those players have to try and replicate what you are doing versus handing the asset over to you? Does that mean you would be more active in M&A this year versus last?

I don't know what the other operators are looking to do or willing to do, frankly, if they're looking to replicate our plan. I wouldn't think this year will be necessarily more active than what we saw in 2023. Our plan is to digest and integrate some of what we've done last year, which was a heavier year for us in acquisitions. There is some digestion and integration that needs to occur. I think if there are opportunities, they'll tend to be a bit smaller but may pack a punch, helping to fill in the mosaic of what we've been trying to accomplish in recent history. It's not my sense right now that it will be larger.

Got it. And then any expectations for well productivity in '24 versus prior years? If you can talk about oil per foot basis, how should we think about the trends this year?

That's been talked about quite a bit, to be honest. It’s an evolution of the program in Giddings over time. Early days, the population set of wells was smaller, obviously, and much more focused within a limited area. As that's broadened out, there may have been some movement around the productivity, but frankly, not in a major way. I think this year's program and results should yield similar results to what you saw in '23. I don't see any major change, frankly.

Got it. Thank you for taking the questions. I will turn it over.

Okay, thanks.

The next question comes from Nicholas Pope of Seaport Research. Please go ahead.

Good morning, everyone.

Hi, Nick.

A quick question on the reserves details that you provided in the presentation. The price-related revisions, just wanted to make sure, is there anything specific there, or is that kind of balanced across the two assets? Is it just the tail of some of those PDP reserves coming off? Just trying to ensure I understand that $15 million kind of hit.

Yeah. When you roll forward from last year, which had significantly higher pricing, you do lose reserves. The year-over-year change in the SEC required pricing was relatively significant, both oil and gas.

So it's across both assets.

It's both assets. But remember, I think we're at 75% plus of our production is Giddings. So it's probably proportionate.

And on the Giddings acquisition, can you be a little more specific about the timing of the close?

It was right around mid-November.

Yeah. Okay. That's all I had. Thanks.

Okay. Thanks.

The next question comes from Geoff Jay of Daniel Energy Partners. Please go ahead.

Hey, guys. I was just kind of curious, you talk about the efficiency gains, particularly on the completion side. Can you help me understand how significant that increase is? Have you looked around and benchmarked that against your peers, and do you think there's further efficiencies to come this year?

We're looking into that now. I mean we are going through that process as we look to the latter portion and trying to think ahead into the back half of the year on our equipment and crews. I don't know how much I can add on that specific item for you, Geoff. I just don't know.

If I may add one thing, Chris talked about it a little, we did a really, really good job on stages per day on the completion side. One of the focuses for this year is to improve more of those efficiencies on the drilling side.

Right. Got it. I guess when I saw in the press release that the cost of Giddings, well costs were down about 20%, my curiosity was piqued about sort of how that might break down between efficiency gains and pricing. Can you help me understand the interplay there?

Well, a lot of it was steel OCTG, but there were also meaningful steps in stem and frac. So there are meaningful benefits there as well.

The next question comes from Zach Parham of JPMorgan. Please go ahead.

Yes, thanks for taking my question. I guess first could you quantify where your leading edge D&C costs are in Giddings? Maybe give us some color on how much cheaper you expect the wells to be on the newly acquired shallower acreage?

Yeah, the wells now are running about $1,100 a foot, I would say. That's about 20% lower than a year ago. For the longer laterals that we'll drill this year, that’s maybe $9 million roughly per well. The well costs for the newer stuff, they’re shallower, quite a bit shallower, 3,000-4,000 feet shallower. But you don't get the efficiencies of pad development too. So, that's sort of what I know right now.

We need to drill one first before we can provide a more accurate answer. However, since it is shallower, it should be a bit cheaper on a per foot basis.

Got it. Thanks for that color. I guess also wanted to ask on natural gas. Gas differentials have widened out a bit versus both Henry Hub and Ship Channel over the last couple of quarters. We've also heard some concerns on Ship Channel widening further given increasing Permian volumes flowing into the Gulf. Can you just give us your thoughts on how you expect gas differentials to trend in '24 and going forward?

Yeah. To be honest, all our gas goes to Ship Channel. We are a price taker. I still think it's the second best hub outside of Henry Hub for gas delivery. We're closer to market than the Permian, and we have all the infrastructure we need. Is gas in general challenged? Yes.

Zach, it's going to be interesting to see how this evolves in the market. You've probably seen some of the comments from some independent producers, the gassier producers here, maybe reducing their activity a bit. Operators will respond to the economics. It will be interesting to see that response and to the extent that things are pulled in, may over time bring things into better balance. So we'll see.

The next question comes from Tim Rezvan of KeyBanc Capital Markets. Please go ahead.

Good morning, guys. Thanks for squeezing me in. I'd like to start on repurchases first. Just trying to understand if we sort of back into a repurchase amount based on your 1Q shares outstanding kind of information, it suggests maybe a little lower than that $50 million-ish range that you've run. Do you think about it as not wanting to have a free cash flow deficit in the quarter? Just trying to understand, you've been pretty methodical with the repurchases. Is anything changing, or is it just because of heavy first quarter CapEx that maybe you're pulling back a bit?

Well, we are not forecasting the share repurchases really. If I recall, we bought in 2.5 million shares exactly in the fourth quarter, and I think that was about the same as the third quarter. So sequentially, the amount of shares repurchased was the same. The dollar amount might have been a little different because the shares might have been bought in a little more cheaply. I view the share repurchase program as ongoing and opportunistic. There might be shares that become available in the market, and if that happens, we could certainly lean in. If I feel there's a disconnect in terms of perceived value, we could lean in. The share repurchase and the dividend are sort of symbiotic. The more shares I buy in, the more it supports our dividend payout per share capacity. That's how I think about it.

Okay. If you do the math on that 205 million for the first quarter, it seemed a little light. That's why I was just trying to understand if there's something there, and I guess there's not. So thanks, Chris. I appreciate that. As my follow-up, I thought it was interesting you said you should have a similar oil cut going through 2024. If we look at the Giddings asset in general, you've seen oil cuts, call it kind of mid-30s. Is your confidence that you have enough well control in Giddings that you're confident of the oil views you're going to be getting from the 2024 program? Is that what sort of gives you confidence in sort of that oil cut staying where it is?

Yeah, no, Tim. I’m confident in this year's program on the oil volumes. I think we ran in the 41%, 42% mix of oil for the fourth quarter right in that range. If I had to take a view, I think it’ll be somewhat similar throughout the year. The oil volumes will grow year-on-year for each quarter, and they’ll grow at a similar rate to the overall BOE volume. I'm confident with that. That's what the program is designed to deliver, and it’s just a matter of well control and confidence in Giddings. Yes, that's how I feel.

Okay. Thank you.

The next question comes from Paul Diamond of Citi. Please go ahead.

Thank you. Good morning. Thanks for taking my call. Just one quick one for you. As you guys think about Giddings going forward, as far as the total addressable acreage and kind of your progress to that, what do you see as the right size level you want to be at? Is that something we should think about as a single-year effort or is that more of a multi-year goal?

I see this evolving over the years. I don't see it all occurring at once or in a shorter term. The amount of learning we've picked up and experience has informed our approach over the last five or six years. So we are still in a large position where we'll continue to learn through our activity, and as a result, we could and likely will pursue some other small opportunities that make sense.

Understood. And do you think those smaller opportunities are more kind of blocking out existing acreage? Or are there more flung areas that you guys are really interested in exploring?

Mainly the former, filling in.

Understood. I'll leave it there. Thanks for your time.

Okay. Thank you.

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now disconnect.