Magnolia Oil & Gas Corp (MGY) 2022 Q3 法說會逐字稿

Good day, and welcome to the Magnolia Oil Third Quarter 2020 Conference Call. (Operator Instructions). Please note, this event is being recorded. I would now like to turn the conference over to Brian Corales. Please go ahead.

Thank you, Marliese, and good morning, everyone. Welcome to Magnolia Oil & Gas Third Quarter Earnings Conference Call. 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 third quarter 2022 earnings press release as well as the conference call slides from the Investors section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to President and CEO, Mr. Chris Stavros.

Thanks, Brian, and good morning, and thank you for joining us today. The most recent quarter was filled with some mixed emotions. We're humbled by our continued strong financial and operating results and performance. We are all deeply saddened by the recent passing of Stephen Chazen, Magnolia's Founder and former CEO. I'm incredibly grateful for Steve's guidance and counsel, his steady leadership and importantly, his friendship. While he will be deeply missed, we expect his legacy to continue to live on through Magnolia for years to come.

Despite our loss, I am very confident that Magnolia's best days are ahead. Magnolia's original business model remains sound and the old saying here applies, if it's not broke, don't fix it. There can be a tendency for leaders in transition to feel that they must put their mark on an organization in some significant way, and even if it is unnecessary. Some of this is simply human nature. I promised myself that I would not do this. The principles of the business model that Steve established during Magnolia's founding over 4 years ago are expected to remain largely unchanged and my objective is to always do what is in the best interest of Magnolia's shareholders.

We will continue our discipline around capital spending while maintaining low levels of debt. And we expect our record of achieving moderate annual production growth while generating significant free cash flow and strong pretax margins to continue. Magnolia delivered very strong financial and operating results in the third quarter, driven by record quarterly production and pretax operating margins of 65% and despite a sequential quarterly decline in oil prices of more than $15 per barrel. Third quarter 2022 production of 81,500 BOE per day increased by 21% year-over-year and 10% sequentially and well above the high end of our earlier guidance. Stronger-than-anticipated production was seen in both our Giddings and Karnes asset areas, that was primarily the result of better-than-expected well performance, continued efficiencies primarily at Giddings and slightly higher non-op activity.

These results were achieved while spending just 30% of our adjusted EBITDAX during the quarter. Relative to consensus estimates, the third quarter represented an 8% beat for our production and roughly a 12% beat on many of the key financial metrics, including cash flow and earnings per share. Magnolia's production per share grew by 31% in the third quarter compared to the same period a year ago. We repurchased 3 million shares during the quarter, reducing our diluted share count by 8% from the same period last year and paid our regular quarterly dividend of $0.10 a share. Including share repurchases and dividends, Magnolia returned 36% of the free cash flow generated during the quarter while ending the period with nearly $700 million of cash.

We continue to gain momentum in progressing the efficiencies of Giddings. Excluding our appraisal work, the drilling feet per day of Giddings has improved by approximately 30% compared to 2020 levels and is nearly doubled when compared to 2019. Even more significant is that the total cost per stimulated foot for development wells drilled this year is 26% lower than wells drilled in 2019 despite this year's inflationary environment around materials and oilfield service costs. Our improvements are directly attributable to the efficiencies that have been captured at Giddings, including faster drilling and completion rates, drilling longer laterals and multiple pads and an improved understanding of the asset through our operating experience. Post cooperation with our vendors and our ability to establish strong partnerships has saved us about $25 million on our capital and other costs this year, helping to secure supply despite some of the industry shortages that have impacted both products and services. Said another way, the $25 million of savings amounts to about $0.5 million per well for us or about 5% to 6% of the total well cost.

While we continue to strive for the lowest cost, there is much to be said around the importance of continuously communicating with our vendors, working closely with them to plan ahead and sending a message that our strategy is to run a consistent business plan. This goes a long way in creating a healthy and secure partnership with critical vendors. I would credit both our supply chain management and operating team's efforts as they've done a terrific job around this, which importantly allows us to execute on our plan. And we believe that we can capture additional savings into next year through further initiatives. Magnolia continues to operate 2 drilling rigs with 1 completion crew and expects to maintain a similar level of activity through next year. One rig will continue to drill multi-well development pads in our Giddings area, the second rig will drill a mix of wells in both the Karnes and Giddings areas, including some appraisal wells at Giddings.

This level of activity should provide full year 2023 production growth of approximately 10%, with our drilling and completion capital expected to be well below 55% of our EBITDAX at current product prices. This level of production growth would represent the second consecutive year in which Magnolia's growth exceeded its business plan, reflecting the quality of our asset base and the continued efficiencies that we're seeing at Giddings. We are planning a very active operating program for the fourth quarter, which should provide us with significant momentum heading into 2023. Our largest pad in Giddings to date on 8-well pad is scheduled to come online during the latter part of the current quarter. This should allow our production levels to exit the year higher than our volumes seen during the third quarter and with most of the benefits to be realized during the first half of 2023.

Magnolia's strong financial position provides us with ample flexibility to navigate through both product price volatility and periods of economic uncertainty. Our position of strength also allows us to patiently seek attractive opportunities to allocate our capital and free cash flow in a disciplined manner to enhance the per share value of the company. We will continue to carry out our business model, which should result in moderate annual production growth and a consistent reduction of our total shares outstanding in order to fulfill our investment proposition of providing annual dividend growth of at least 10%.

We plan to revisit our dividend rate early next year and after evaluating our full year, 2022 financial results. Finally, I'm pleased to announce that Brian Corales, Magnolia's VP of Investor Relations, has been promoted to the position of Chief Financial Officer. Brian has done an excellent job at Magnolia since 2018 in helping both manage and communicate the company's strategy as well as shaping our message to the broad financial community and other stakeholders. Magnolia's strong focus on its shareholders and emphasis on generating improved stock market value over time, make Brian uniquely qualified to serve as CFO. The selection and elevation of a qualified internal candidate to the CFO role is indicative of Magnolia's strong bench of talent within our team. I'll now turn the call back over to Brian.

Thanks, Chris. I will review some items from our third quarter and refer to the presentation slides found on our website. I also provide some additional guidance for both the fourth quarter and our initial view on 2023 before turning it over for questions. Beginning with Slide 3, which shows a summary of our third quarter, Magnolia continued to execute on our business model, as demonstrated by our very strong financial and operating results. Once again, we had record production, which was supported by the absence of hedges, which in turn provided very strong product price realizations. We generated total net income for the quarter of $287 million and diluted GAAP earnings per share of $1.29.

Our adjusted EBITDAX for the quarter was $386 million, and total capital associated with drilling, completions and facilities was $114 million or just 30% of our adjusted EBITDAX. Overall company production volumes grew 10% sequentially and 21% on a year-over-year basis to 81,500 barrels of oil equivalent per day in the third quarter. Looking at the quarterly cash flow waterfall chart on Slide 4, we started the third quarter with $502 million of cash. Cash flow from operations before changes in working capital was $361 million during the period with working capital changes and other small items benefiting cash by $31 million.

Our D&C capital incurred, including land acquisitions, was $116 million. During the quarter, we repurchased 3 million shares for $61 million and ended the quarter with $690 million of cash on our balance sheet. Looking at Slide 5, this illustrates the progress of the reduction in our total outstanding shares since we began our repurchase program in the second half of 2019. Since that time, we have reduced our total diluted share count by 50 million shares or 19%. After repurchasing 3 million shares during the quarter, our weighted average fully diluted share count averaged 217.8 million shares during the quarter.

We currently have 9.3 million shares remaining under our repurchase authorization, which is specifically directed towards repurchasing shares in the open market. Turning to Slide 6, we declared our $0.10 regular quarterly dividend last week, and this will be paid on December 1st. Our plan to achieve annualized dividend growth of 10% is expected to supplement the per share growth rate of the company is aligned with our overall strategy of achieving moderate annual production growth and reducing our outstanding shares by at least 1% per quarter. We will revisit our dividend payment rate early next year based on our 2022 results and recast using significantly lower oil prices.

Our balance sheet remains very strong, and we ended the quarter with a net cash position of approximately $300 million. Our $400 million of gross debt is reflected in our senior notes, which are now callable and do not mature until 2026 including our third quarter ending cash balance of $690 million and our undrawn $450 million revolving credit facility, our total liquidity is greater than $1.1 billion. Our condensed balance sheet and liquidity as of September 30th are shown on Slide 7 and 8. Turning to Slide 9 and looking at our per unit cash costs and operating income margins, despite the substantial increase in product prices over the past year, we have seen only a modest increase in total cost.

Our total adjusted cash operating costs, including G&A, were $13.07 per BOE in the third quarter of 2022, an increase of $3.18 per BOE compared to year ago levels. Almost half of this increase is due to higher production taxes, which are directly related to the increase in product prices. The modest per barrel cost increase is nominal compared to the more than $18 increase in our revenue per BOE, including our DD&A rate of about $9.20 per barrel, which is generally in line with our F&D cost. Our operating income margin for the third quarter was $41.56 per BOE or 65% of our total revenue. Simply put, 75% of the revenue increase was captured in our operating income margins on a year-over-year basis. We expect to have an active fourth quarter with most of the wells coming online toward the latter part of the quarter, including the largest pad we have operated to date at Giddings.

We estimate that our fourth quarter production should be in the range of 77,000 to 79,000 barrels equivalent per day. D&C capital is expected to be approximately $125 million to $140 million due to a high number of well completions and higher anticipated non-op activity during the quarter. Given the high level of activity, we expect our production volumes to exit the year at a higher rate than seen during the third quarter, while also providing a benefit to production during the first half of 2023. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan-East Houston and closer to our historical levels after realizing tighter differentials during the previous 2 quarters.

As a reminder, Magnolia remains completely unhedged for all its oil and natural gas production. The fully diluted share count for the fourth quarter of 2022 is expected to be approximately 216 million shares, which is 6% lower than fourth quarter 2021 levels. We expect our full year 2022 cash rate to be approximately 8%. Looking at 2023, we expect to have a similar level of operating activities this year. We plan to operate two drilling rigs and one completion crew through next year and expect our capital spending to be well below our spending cap of 55% of EBITDAX in the current commodity price environment. This level of activity is expected to generate production growth of approximately 10% for 2023 when compared to full year 2022 levels while generating significant free cash flow. We will revisit our dividend in early 2023 after finalizing our full year 2022 financial results, and we're now ready to take your questions.

(Operator Instructions). Our first question comes from Leo Mariani from MKM.

I wanted to ask quickly here on capital. You're obviously seeing a bit of a healthy increase again here in 4Q, but it sounded like maybe that was just kind of an unusually heavy activity quarter. As we look into next year, should we not assume that we should take the fourth quarter level and kind of annualize it for '23? Do you think it probably will end up being less than that just because it looks like 4Q is on heavy.

It's a little heavier than what we've been running on average. Certainly, this year, I wouldn't make much of it. I mean I think maybe said a different way, Leo, is that if you just look at our full year 2022 capital and probably say it's going to be 10% higher in 2023 that would probably get you to approximately what we're thinking right now, at least based on what we know today, and that should more or less cover it. So, I think almost any way you slice it for the fourth quarter, that probably gets you something that's for 2022 and then adding 10% on that is not unreasonable for '23.

I just wanted to ask a little bit on Giddings here. Is there any update on any of the recent appraisal results that you kind of had out there and you also kind of referred to your prepared comments to seeing some efficiencies, which have driven some of the costs down there, which I know have been somewhat offset by inflation. Can you give us a sense kind of what the well cost per lateral foot now at Giddings?

Yes. On the appraisal, as we've talked about many times, we've had a pretty active appraisal program this year, and we expect that to continue into 2023. It's led to our identifying several new and frankly promising areas in Giddings, but we probably need a little bit more work in these areas and in order to improve some of our understanding around it. That's about all I can say right now, but I think it certainly looks good, very promising and perhaps sort of an extension of Giddings that could ultimately lead to other areas for development in time. The well costs, we're sort of running roughly $1,100 per lateral foot that probably is about right.

Our next question comes from Neal Dingmann from Truist Securities.

Chris, I just definitely want to say it's certainly a bitter sweet call today, but great how well the company is doing, great remarks by yourself. My first question, which is also I'm getting a little bit on the development program, maybe a little bit broader. It seems with getting most of the development activity continues to be kind of in that (inaudible) in Washington County. So I was wondering, if you look at, think about the '23 development plan, will that continue to be mostly in the broader areas? Or will you think about maybe expanding that a little bit and then just wondering on pad size as well. So maybe talk about the regions and just sort of pad size.

Sure. It will be a mix. As I said in my remarks, one of the rigs will focus or be dedicated largely in that core development area and then the second rig will do a mix of things, including ongoing appraisal work, which I think right now will be equal to in terms of activity for next year as it was this year and maybe more so, we'll just sort of see how it goes. On the pad size, I mean, I wouldn't tell you that exactly that was a one-off, but I don't anticipate drilling on a regular basis, 8-well pads up to now and more recently, we've been doing pads that have averaged sort of 4 wells, and that would be more the norm for us, occasionally, you sort of see that 3, 4, 5 well pad size. You might see one that might be larger, but more likely not.

My second question, the capital allocation, specifically, I always appreciate Steve's candor on the comments discussing buybacks versus divs. So Chris, I was hoping to hear how you would think about it going forward, especially, I think your stock has done well, but I still think it's quite discounted. So just wondering how you think about the allocation going forward.

Yes, it's going to be a mix, Neal, as it has always. So I don't think you're going to see significant changes. I mean, clearly, we've got a good amount of cash on the balance sheet, and that's not such a terrible thing in this uncertain economic environment. You're earning a little bit better, interest rates come down, thanks to the Fed and that probably pays for our treasury department. The mix is probably not going to be very different. I mean what we have, as you know, when we talked about quite regularly, we still have a relatively large private equity holder that probably plans over time to sell down, and that will continue, but we've done is try to accommodate some of those sales by buying shares next to them or helping them in that process. And that has worked out just fine over time and so we also have our separate open market authorization for share repurchases.

The dividend is sort of a different comment maybe than what some people would say. I mean our approach towards dividends is somewhat different than some of the other E&P companies and being different is just fine, whether it's them or us. In some ways, I feel like this is a sequel to a movie where you're hoping that the sequel is at least as good as the original, but usually, it doesn't turn out that way. So I feel like I've seen this movie before and this is just another sequel in the series, this time it's called Revenge E&P company dividends Part 5. And maybe this time it will be different, I certainly hope so. But just as a reminder, you just go back to what we've said for a minute and remind you about our dividend philosophy. So, the principles for us around dividends is that they need to be secure and sustainable in other words, safe. So a dividend has to be paid out of real earnings that are generated out of the business, so we look to grow our dividend based on how we execute our plan.

So this growth comes out of a combination of production growth and the reduction of our outstanding shares. We announced a 43% increase to our annual dividend earlier this year when we moved from a semiannual payment rate to a quarterly payment rate of $0.10. I think that's pretty good and we plan to revisit this dividend rate early next year, as we said, when we look at our full year 2022 results. So, I think, again, it will be a mix. And you remember, Steve would often speak about Mrs. Jason's fondness for dividends and by the way, my wife likes dividends too. So someone asked me about this recently, and I told them she also like shoes. Maybe they're related, I don't really know. But you should expect a fairly steady annual growth to our dividend over time and that, again, keys off of our successful execution of the business model. And I'd just say, look the objective of dividend growth is to be able to prudently grow into it and not hastily to grow out of it. So, I will just leave you with that, and that's probably about all I have about dividends for now.

Our next question comes from Charles Meade from Johnson Rice.

Chris, I think it maybe this question for you. If you could help me understand the production, the drivers behind the production beat in 3Q with an eye and trying to say what's a onetime thing and what's maybe Magnolia be on a different trajectory, and I'm really thinking about, you can have well outperformance versus your schedule for turn lines, and there's also maybe higher-than-expected non-op activity. So if that framework makes sense to you, how does it look to you in 3Q?

That's a fair question. Look, they didn't have us back there, turning the knobs on production to sort of change the outcome necessarily. So just to let you know, I mean, it wasn't anything very different than what we had planned for, really. I think at the end of the day, the wells turned out to perform better in both areas, as we said, better performance, clearly. We did have a little bit more non-op and some of those efficiencies that we talked about very early in this year continued to sort of come through in the way of just longer laterals and it is leading to essentially more net wells for us. And so there was some of that. I wouldn't attribute it to something that I would call one-off. The assets are just performing better than we thought and it may not always be that way, but it's certainly turning out to be that way or has turned out to me that way, maybe a different way to say this if we could. This wouldn't be as noticeable or as visible to you if we report it once a year, but we report quarterly. I mean we're trying to the outcome that we're suggesting for the fourth quarter is sort of our risk assessment of how we anticipate things are going to go, combined with the sort of the timing, as we suggested, the timing of the wells coming online, the mix of non-op and just the planned activity. So it's our best guess at what we think is likely at this stage.

It also perhaps maybe a good segue to my second question. There's an operator just the north of you guys who is looking to sell and that hasn't been part of your strategy at Magnolia, but on the other hand, you guys have had more success with efficient and repeatable success in this Giddings or Eastern Eagle Ford, whatever you want to call it, you've had more success than anyone else. So, it seems to me that, that asset would be more valuable in your hands than anyone else's. So can you give us a sense of what would take for you guys to participate in a sales process there?

Well, we're going to continue to look at opportunities that provide us with upside optionality in terms of future high-quality drilling locations that compete with our existing position. Someone once told me that the goal of any acquisition is to make the company better, not worse. This same very wise person also told me that if you can't come up with at least 4 bullet points that clearly spell out and explain why you're doing something and it's probably not a good idea. So you shouldn't anticipate or if you did anticipate us doing large M&A, you'd probably be disappointed. So we're going to continue to pursue opportunities that are truly more smaller bolt-on transactions that make sense for us and that are sort of attractive and add to value accretive to value over time. So we're going to be real particular about this.

Our next question will come from Umang Choudhary from Goldman Sachs.

Most of my questions have been asked. Hopefully, two quick ones from me. First, I appreciate your comments on the dividend growth. I wanted to revisit your thoughts around a special dividend given your net cash position of $300 million at the end of 3Q, especially if we don't see any further sell-down from investors?

Umang, thanks for the question. I mean a special dividend probably I've sort of talked a lot about dividends, but a special dividend probably wouldn't be my first choice. My plan and hope would be to find a better use for the money that would actually help to benefit our share price and as opposed to simply giving back all the money through dividends. But, never say never, and so we'll just have to see how things play out. Like I said, it would not be my first choice.

Got you and then to follow up, would there be any other opportunities which you would look for with that net cash balance sheet, like anything which can further enhance the business, like you said, bolt-on transactions before the call, and then can you remind me as well, where are you on the lateral length in Giddings and if there is any opportunity to further enhance it next year?

Yes. I think, the asset landscape in areas where we are,in and around where we are, current conditions seem fairly, I guess the word is ripe and that's to say that there's certainly a lot of things out there for sale, but we're going to be real particular, and as I said, we always look at opportunities. You could describe as professional tire kickers. But again, the best way to think about it is we'll continue to look and execute on truly smaller bolt-on, true bolt-on transactions, oil and gas property acquisitions that we believe are accretive to value. So that's the way I think about it. I'm sorry, your question on Giddings.

On Giddings, it's just on the lateral length, where are you today and is there any opportunity to further enhance it next year?

Yes. it really depends sort of by unit, by area where we are. I mean, we've made quite a bit of improvement on lateral lengths certainly over the last several years, I want to say, it's sort of been like increasing 1,000 feet almost per year. And on a percentage basis, I would tell you, there's probably a little bit more there, but I think the bigger changes have been already seen, certainly on a percentage basis.

Our next question comes from Tim Rezvan from KeyBanc Capital Markets Inc.

Congratulations on the promotions. I wanted to ask a little bit on disclosures that you provide on Giddings. If you go back to 2018, Magnolia was generally a stock that traded cheap to peers because of uncertainty on the asset and now you could argue the stock trades at a pretty healthy premium that you reach that area. So I guess, Chris, in your new role as CEO, how do you think about the disclosure you're providing to investors and how do you think about kind of defending the premium multiple with this kind of big sandbox in Giddings that you have.

Yes, I mean the valuation is going to be the valuation. There's probably the market is going to decide on that on its own, frankly. But our job is to try to put up the results and make the most out of the asset that we can and our operating teams have done just an exceptional job, I think. When we first acquired Giddings, it was sort of one of those assets that there was an amount of risk around, and we viewed it as something that had a lot of optionality to it. And it was producing about 10,000 equivalent a day, and now Giddings is more than quadrupled in a fairly short period of time.

So, I think that part of that record stands on its own. It was also far and away gasier, and the wells that we've drilled and completed have tended to be more oily. So we brought that oil percentage up as well. That's not to say that there aren't plenty of more gas prone areas throughout our acreage, which there are. Early days, I think we wanted to put up and talk about some more specific data around well results. I'm not really sure outside of what the type of growth that we've put up, how necessary that really is that stage. I would think that some of this speaks for itself. So, I'm not really sure what more there is to say about it. I suppose we certainly could. I just don't know what the benefit would be.

Okay. Yes. I guess I was just getting at with the successful delineation. You've really proved up portions of this area, but Steve was hesitant to give too much granularity. Do you think there's a point where you can give some more color to the investment community on kind of what you've derisked and how you think about core inventory in the area.

I'm not overly excited about more granularity. To me, that's usually not led to a great outcome because there's an endless number of ways that can be sliced and diced. Anyway, I think that with time, there'll be more to say about our delineation program or delineation around areas that we're still appraising. So I think there'll be more information and more to talk about over time that you'll see, we're just not there yet.

Okay. That's fair. I appreciate that. And if I could just switch topics on to repurchases. I saw you all were fairly aggressive in the third quarter as shares sold off. You've committed. it looks like about 1 million shares per quarter. You have about $9 million left in your program. Shares were up sharply quarter-to-date, you're within $3 of an all-time high. Are those repurchases sort of set in stone at that $1 million per level? Or how do you think about the value. I know people run internal NAV, but how do you think about that for the future?

Our commitment, if you will, is sort of 1% per quarter, 1% of the shares outstanding, and I think we've largely met that every period in one way or another, either by buying EnerVest shares or shares from (inaudible) in the open market, typically, it's been more than the 1%. You got to keep in mind, too, that we have a better idea of what's going on than you all out there, and so we have maybe a different perception or understanding of value or what Magnolia and what the Magnolia assets are capable of doing over time.

So the market's assessment of what's going on in our assessment, maybe two different things. As we continue to sort of move on here, it's interesting the share price is going to move up or down on obviously the market and product prices, et cetera. But I look at running that particular program as opportunistic, and there's plenty of opportunities given the volatility, as you know, to be involved in the market or not. But we'll continue to sort of run in that way.

Our next question will come from Geoff Jay from Daniel Energy Partners.

Real quick (inaudible) question, but speaking about the sequential increase in CapEx for Q4, what's the magnitude of the non-op in there and some of that driven by the Giddings 8-pad completions.

It's more wells being completed and yes, the higher spend in 4Q is largely due to an 8-well pad completion and as well as some non-op more so than we had originally thought. So it's really both, but yes, the 8-well is a huge impact to that.

So I guess, I'm just sort of looking that, I mean, obviously, I am sort of going back to the original question about 2023 capital sort of seeing like, I guess, a 10% run rate from here. It just looks like there's probably an extra, kind of (inaudible) or so in the fourth quarter. I was just wondering how that sort of unpoped. I'm guessing that really, it's just going to be sort of lumpier if you get sort of bigger pads.

100% correct. Just looking at one quarter in time does not correlate to the average of next year. This was our, one of our most active quarters in 2022, and that's why capital is a little bit higher than other quarters.

Geoff, I would not take any one particular period or quarter. I mean that's part of the deal when you're running 2 rigs and 1 completion crew, it's going to be lumpy and certainly, when you throw in the mix an 8-well pad, things tend to stand out. So, I wouldn't say that this is necessarily indicative of an average quarter.

(Operator Instructions). our next question comes from Paul Diamond from Citi.

I want to step back a bit from the more of a macro perspective. You guys have laid out a pretty stable kind of cadence to your trailing program next year with the 2 wells, split between getting to the cards. Is there anything on the horizon or I guess at what point on the horizon would you guys start to reevaluate that? Is that a pricing mechanism or is that pretty much set in stone for the next 12 to 18 months?

When you say reevaluate what you're talking about or activity or pace of activity.

Yes, just a shift in where you decide to drill or the cadence of it at a pace. Is there anything that you kind horizon that is part of the modification to that?

No, Paul, I don't think they're going to change markedly with respect to that. I mean, you look at it sort of again, 35,000 feet, however you want to say it, and you say, okay, we're going to grow sort of 15% this year and 10% next year. That's in excess of our business model. So again, the outcome here has been pretty good, and we anticipate expected to continue to be that way. So I don't see a need to necessarily shift the plan, the pace of activity right now at all in this environment.

Okay. Understood. And then just a quick follow-up. With just as more of a holistic like Ethos, how comfortable are you guys with your current cash balance? Is it something you have no problem like holding that closer to $1 billion if it goes through the next quarter or at what point or is there a point where you guys start not wanting to deploy that to any more per expeditious manner?

Well, the goal is to always try to deploy it as best we can in order to drive value and returns over time, and we'll do that. But again, we just want to be patient and opportunistic, and certainly, there's quite a bit of uncertainty right now going into next year with regard to the economy, we don't know. That's not to say that holding this amount of cash is the best thing to do, but we'll just continue to evaluate opportunities and be patient and prudent around it as they come up. As I said, we're active tire kickers on opportunities, but these are more likely to be smaller than would be necessary out of the use of our cash. So if that gives you any color.

This concludes our question-and-answer session as well as this conference. Thank you very much for attending today's presentation. You may now disconnect.