PHX Minerals Inc (PHX) 2022 Q3 法說會逐字稿

Hello and welcome to the PHX Minerals, Inc. third quarter earnings call. (Operator Instructions) As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Ralph D'Amico, Vice President and CFO. Please go ahead, sir.

Thank you for joining us today to discuss our 2022, third fiscal quarter results. With me on the call today for prepared remarks are Chad Stephens, President and Chief Executive Officer, and Danielle Mezo, Vice President of Engineering. After prepared remarks, we will open up the call to a Q&A session. The earnings press release that was issued yesterday is also posted on the Investor Relations website.

Before I turn the call over to Chad, I'd like to remind everyone that during today's call, including the Q&A session, we may make forward-looking statements regarding expected revenue, earnings, future plans, opportunities and other expectations of the company. These estimates and plans and other forward-looking estimates involve known and unknown risks and uncertainties that may cause actual results to be materially different from those expressed or implied on the call. These risks are detailed in our most recent annual report on Form 10-K, as such, may be amended or supplemented by subsequent quarterly reports on Form 10-Q or other reports filed with the Securities and Exchange Commission.

The statements made during the conference call are based upon information known to PHX as of the date and time of this call. PHX assumes no obligation to update the information presented in today's call.

With that, I'd like to turn the call over to Chad Stephens, PHX's Chief Executive Officer.

Thanks, Ralph, and thanks to everyone on the line for participating in PHX's 2022, third quarter conference call. We sincerely appreciate your time and continued interest in the company. PHX has a rather simple business model. It is to allocate 100% of our free operating cash flow after dividends to acquire minerals in our core areas of concentration being Haynesville, mainly Louisiana and the SCOOP and Southern Oklahoma.

This while divesting of our more mature producing non-op working interest assets [out]yield and in with the move, if you'll have it. This is basically us constant high grading of our asset base. You will note that since implementing our mineral acquisition strategy, our non-op working interest producing volumes year over year have decreased by 35%, and our royalty interest volumes have increased by 32%. Currently, royalties represent 2/3 of our volumes and over 75% of our cash flow, given higher margins from royalty relative to working interest.

We are acquiring minerals in our core areas of concentration, in areas of known excellent rock quality under active, well-capitalized operators with a clear line of sight development. This we refer to as staying out in front of the drill bit. This strategy provides us high confidence that we will realize annual growing royalty volumes over the next several years as the minerals we acquire are developed. With annual growing royalty volumes, we will see our expected EBITDA and net income grow proportionately. As we grow our net income, we will see our return on capital employed improve as well.

If you annualize this fiscal third quarter 2022, our return on capital employed is approximately 18% and will continue to improve as more of these acquired minerals are developed. In this fiscal third quarter 2022 and as of August 4, 2022, we have closed on approximately $18 million of mineral acquisitions, mainly in Haynesville and Louisiana, and fiscal year 2022 year to date, a total of $45 million. Since inception of our strategy and early fiscal year 2021, we have acquired $75 million of minerals in the Haynesville and SCOOP.

Also, as of yesterday, August 8, we announced the execution of a purchase and sale agreement to divest of the company's remaining non-op working interest assets in the Fayetteville Shale for $6 million, subject to customary closing adjustments, we're closing expected by late September. With our successful mineral acquisition program, we now have on our reserve books an inventory of approximately 2,000 undeveloped drilling locations. These locations have been identified with a thorough geologic and engineering study to determine each individual locations, productive capabilities, expected timing of development and the net value to PHX's mineral interests.

Based on recent operator rig activity over the last 12 months, we estimate approximately 200 of these locations will be drilled and converted to producing each year, and we expect that estimate is rather conservative. This represents the foundation of our growing royalty volumes, EBITDA and improving return on capital employed that I mentioned earlier. You can review our most current IR slide deck posted on our website. In that corporate presentation, you will find materials that discuss this development pace and the estimated annual EBITDA outlook of between $40 million to $50 million by the 2024 to 2025 fiscal year timeframe.

To summarize, we have and will continue to build a mineral asset portfolio that provides annual growing royalty volumes, increasing annual EBITDA and improving annual return on capital employed. This will in turn drive shareholder value.

I will now turn the call over to Danielle for her update on drilling activity.

Thanks, Chad, and good morning to everyone participating on the call. During the third quarter, third-party operators active on our minerals converted 96 gross or 0.25 net wells to producing compared to 108 gross or 0.48 net wells converted to PDP in the second quarter, with the majority of the new wells located in the SCOOP and Haynesville plays. Additionally, our inventory of gross wells in progress was 155 gross or 0.79 net wells at the end of the third [walk] quarter compared to 134 gross or 0.6 net wells as reported in our prior earnings call. The majority of these wells are also located in the SCOOP and Haynesville plays.

The sustained high conversion rates of wells to PDP quarter over quarter are a direct result of successfully executing on our mineral acquisition strategy, paired with the elevated commodity prices and overall industry activity. Additionally, we continue to replace all the net wells converted to producing with new wells in progress. This continued replenishment of drilling inventory measured by [risk] is what will drive our increasing royalty volumes and free cash flow in the coming quarters.

In addition to well inventory, we regularly monitor third party operator rig activity in our focus areas. We have there 25 rigs present on PHX Minerals and 96 rigs active within 2.5 miles of our ownership as of June 30, compared to 18 rigs on PHX Minerals and 86 rigs within 2.5 miles that we reported in the second quarter. The heightened activity present on and near our acreage is encouraging and indicates that we will continue to see a strong WIP inventory as well they're converted to PDP. Now I'll turn the call back to Ralph to discuss financials.

Thanks, Danielle, and thanks to everyone for being on the call today. For our fiscal third quarter ended June 30, 2022. Total hydrocarbon production volumes decreased 1% from the prior sequential quarter to 2.43 BCFE. This was comprised of a 3% increase in royalty volumes primarily attributable to newly drilled uncompleted wells in the Haynesville and SCOOP plays and a 9% decline in our working interest volumes, primarily attributable to wells being temporarily shut-in in the Eagle Ford Shale play in order to workover an adjacent set of wells. The operator in the Eagle Ford has indicated to us that these wells are projected to be back online in the next three months.

Royalty volumes or another quarterly record of 1.59 BCFE or 66% of total production volumes. Natural gas represented 78% of our total hydrocarbon stream. As I have indicated in the last two earnings calls, we anticipate year over year royalty volumes for fiscal '22 to be approximately 35% higher than fiscal 2021. We also believe the fiscal 2023 will show similar growth compared to fiscal 2022.

Natural gas, oil and NGL sales revenues increased 32% on a sequential quarter basis to a total of $19.5 million. Royalty sales accounted for 64% of total sales. We anticipate this percentage of total corporate sales to continue increasing in the coming quarters as our acquired minerals are developed and our legacy mature non-operated working interest volumes decline or are monetized.

Average realized prices, excluding the effect of hedging received for natural gas, oil and NGLs in the quarter were up 34% on an MCFE basis from the prior sequential quarter to $8.5, driven by higher oil and natural gas prices and slightly offset by lower volumes.

Realized hedge losses for the quarter were $7 million. For the quarter, approximately 63% of our natural gas, 72% of our oil and 0% of our NGL production volumes were hedged at average prices of $3.16 and $44.25, respectively. The majority of these hedged volumes were layered in during COVID in mid to late 2020. The remaining contracts entered into during that time, continue to have less impact every quarter and will completely roll off by February 2023. In future quarters, you will see higher realized pricing as we took advantage of the improved macro environment over the last six plus months and added new hedge contracts at much better pricing levels.

Unrealized mark-to-market gains totaled $3.3 million during the quarter. The mark-to-market adjustments represent changes in the valuation of hedge contracts caused by the differences in June 30, 2022, oil and gas prices relative to the strip price. As hedge contracts settle in the future, we will receive revenues for the prevailing price in that period, which will offset the value of these mark-to-mark hedge settlements.

The company's LOE decreased 3% to $900,000 on an absolute basis but increased 6% to $1.08 per MCFE based on working interest volumes only. We expect to continue to see this metric fluctuate as we divest our remaining working interest assets, but they are also a less significant portion of the business as we grow our royalty volumes.

Total transportation gathering and marketing decreased 4% on an absolute basis to $1.43 million or $0.59 per MCFE on a sequential quarter basis as we continue to see a larger share of our overall production shifts to lower-cost basins such as the Haynesville.

Production taxes increased 33% on a sequential quarter basis due to higher realized commodity prices. Our production tax rate remained flat from the prior sequential quarter. Cash G&A was flat at $2.3 million compared to the prior sequential quarter. Adjusted EBITDA was $7.2 million in our 2022 fiscal third quarter as compared to $5.8 million in the 2022 fiscal second quarter.

Net income for this quarter was $8.6 million compared to a loss of $4 million during the prior sequential quarter. Our total debt increased to $28.3 million as of June 30, 2022, from $24 million on March 31, 2022. This increase is associated with the previously announced mineral acquisitions with line-of-sight development in the Haynesville and SCOOP. Our debt to trailing 12-month EBITDA stands at 1.31 times. We are pleased with our leverage and liquidity metrics and believe they are on solid footing to help us execute on our growth strategy.

With that, I'd like to turn the call over to Chad for some final remarks.

Thanks, Ralph. We continue to see positive macro fundamentals in the energy space, particularly in the natural gas sector. We are confident of our ability to continue to execute on our mineral acquisition strategy. As we build on the acquisition success we have already demonstrated. This will translate into annual increasing royalty volumes, associated cash flow and improving shareholder value. I am proud of the PHX employees who have worked very hard and embraced our strategy with enthusiasm and dedication. I would also like to express my appreciation to our Board of Directors for their dedication, they provide invaluable wisdom and advice toward our success. We look forward to keeping you updated on our progress. Thanks again for joining us today.

This concludes the prepared remarks portion of the call. Operator, let's please open up the queue for questions.

(Operator Instructions) Jeffrey Campbell, Alliance Global Partners.

Good morning and congratulations on a strong quarter.

Thank you.

I noticed that PSA divest the working interests and I say, [bell of interest]. I'm just wondering, are you targeting a regional approach to other working interest divestments or was this an unusual [opportunity]?

Yes, for the most part, Jeff, these mature legacy non-op working interest assets were spread all over the place. There was only a few assets that we owned in our portfolio that were very concentrated. One was this set of assets in the Fayetteville. We sold a portion of them last year. Two, a non-op -- operator. And then this is the second set that that clears is completely out of the Fayetteville from a non-op working interest standpoint, we will retain our mineral royalty interest in the Fayetteville, but it gets rid of our non-op working [interest].

And the only other concentrated asset is the Eagle Ford. The rest is small, interest spread all over Oklahoma and Texas Panhandle.

No, I appreciate that color. Thank you.

[Referred] to the anticipated 2023 growth that, Ralph mentioned in his remarks. I'm just wondering how much of that is expected to come from currently [around] assets as opposed to perhaps future production assets to be acquired?

It's a great question. A disproportionate large amount is from assets we already own. Danielle or Ralph, you want to add color to that?

Yes. Thanks, Chad. So Jeff, if you if you remember, when we make acquisitions, we're not really buying PDP heavy assets, right? So what we tend to buy has a significant proportion of permits or wells in progress as we call them that have already been PUD or waiting on completion and then a high-quality PUD locations as well. So what ends up happening is there's usually a, let's call it, a three to nine month lag for a significant portion of the volumes from those wells to come online and for us to book them.

So if you look forward for the next 12 to 24 months, the vast majority of those volumes are going to come from acquisitions that we have completed over the last 12 months or so. So new acquisitions, I would say are probably in terms of those three future volumes, let's say 10% somewhere around there -- it's a very small percentage relative to the total.

Okay. Great, I appreciate that answer. And then finally, I thought it was interesting that you see corporate headquarters in Fort Worth is an advantage considering that the bulk of your oil growth appears to be in Oklahoma and Texas, Louisiana border? I'm not arguing the point. I just wanted to know if you could expand on your expectations based on that [couple of your] locations?

Yes, probably a couple of reasons. One, we're not necessarily looking to locate our corporate offices where our assets are. We're looking to locate our corporate offices where the deal flow and the overall activity of the industry is -- with the other guys, and companies, and small boutique outfits that are located in the Dallas-Fort Worth area that are in the mineral, deal flow.

So it's important to us. We're still relatively small and we want to grow as quickly as we can in a NAV accretive way. And so just to brand the company and put us out in the middle of the fairway to be involved and not miss out on potential deals is important to us. So we felt like it is important being located somewhere in the Dallas-Fort Worth area to be involved in that deal flow deal activity, make sure we assure ourselves the highest chance of success and executing on our strategy.

I'm from Fort Worth, I was commuting to Oklahoma City, it was a poor use of my time. And with computers and ability to work remotely, we don't really lose any efficiencies. Whether I'm located in Oklahoma City or Fort Worth. Similar with our CFO, Ralph, so he and I will be located in the [Fort] office with a couple of other support staff. The rest of the team will remain in Oklahoma City and will meet on computer screens or in-person as required, but I'm excited about being able to locate in full or can be out there in the deal flow and in the middle of the fairway to watch for deals along the way.

Okay. Well, that makes perfect sense. Thanks for the answers. Thanks, (inaudible) for the answers as well.

Derrick Whitfield, Stifel.

Good morning, all, and congrats on your recent [AND] progress.

Thanks, Derrick.

With my first question, I wanted to focus on your near term WIPs. Can you comment on any sizable low packages you're expecting over the next six months? It certainly appears from the presentation you have some higher average NRI. It's coming up in the [Angel]. Any comments you can share will be greatly appreciated.

Yes. I'm going to let Ralph or Danielle comment on that.

Yes, let me let me take a crack and Dannielle chime in, but I think this is just the nature -- if you look at this quarter, you saw production growth in each of the prior two quarters that was substantially higher than this quarter. And that's because we had some very high NRI pads or sets of wells that were brought online in each of the prior two quarters in the Haynesville. This quarter, it was more of an average NRI in terms of the gross wells that came online. We do have several additional well pads also in the Haynesville where the wells are being drilled and completed as we speak, right? So they should be on within the next three months.

And there's always a lag in terms of when we can book that revenue. But I would suspect that over the -- either in the current quarter or the next quarter, you'll see some of these higher NRI pads coming online. And in future quarters, that's just the nature of the mineral business, right? Depending on which particular well comes online and how much of an interest we have, you see a little bit of that quarter-to-quarter volatility in terms of production growth. But if you look at it on a rolling 12-month basis, we're right on target with what I said in each of the last two quarters, which was that 35% year over year royalty volume growth.

Yeah, (technical difficulty) Ralph, we have for acquisition strategy -- we've done focused quite a bit on highly concentrated acres. We -- like, larger concentrations in the sections that we get to a really good NRI on some of those near-term wells and our focus on WIPs and permit. So we get that near-term line of sight development.

Terrific. And as a follow-up to Jeff's question earlier, could you speak to your confidence in the royalty growth outlook, as noted on page 20 of your presentation in your expected top-line production views for both royalty and working interest volumes adjusted for recent working interest [sells]?

Yes, I'm going to let Ralph answer the second part of that question. The first part, we continue to see real robust deal flow. The deal activity out there is we're excited about. We got more deals than we can say grace over, more deals than we can afford. We're still pretty small, but we're going to continue to pedal as hard as we can to find the right deals at the right price and continue to grow the company. But we're excited about the opportunity set before us.

Ralph, you want to talk about the top line growth he was asking about?

Sure. So pro forma -- so, as Chad talked about in his comments in this quarter, about 66% of our volumes and 75% of our operating cash flow came from minerals. Pro forma this divestiture in the Fayetteville. These wells probably account for I would say roughly 10% of the volumes, but only 3% of the cash flow. And we're replacing that cash flow with the proceeds from the sale with other minerals that we have in the pipeline that we're acquiring, right?

So if you try -- if you pro forma all of that in what I expect to see is roughly, call it close to 75% of volumes coming from royalties and, north of 80%, 85% of operating cash flow. So net of all expenses proportionately allocated to working interest and royalties coming from royalty volumes. So we're getting pretty close to -- if you remember, about a year or two ago, Chad stated that within let's say, three years, we should be a well north of 90% of our operating cash flow coming from royalty volumes. I think we're right on target to meet that -- the prediction that he made almost two years ago at this point. So the business plan in our opinion, is working very well.

And I think to -- [perhaps] Ralph, to add to that, I think one of the questions Derrick was asking is the estimated volume projections that Ralph is talking about is pro forma for the Fayetteville sale?

Correct. Yeah. What's on page 20 includes the nets out, the volumes of Fayetteville that we are -- that are currently under PSA to be divested, that's right.

Yeah.

Terrific. And as one final follow-up for you guys, I'm wondering if you touch on your recent stock performance and your share purchases as well. While PHX has experienced some performance in the recent upcycle. I know you guys expect more. Given your valuation, what are the one or two items you're targeting this year to drive relative performance?

Yes. So I say it often, Derrick, you don't talked about up in [Boston]. All CEOs feel like the company is undervalued but when you just look at the facts, we're trading at probably half point on a total enterprise value debt to total enterprise value basis. We're trading at about half of what a multiple of what our peer group is. Maybe 3.5 times to what peer groups, maybe what Ralph, 6, 6.5 times. So what we are clearly coming up from behind and is probably more our size -- overall size and float the amount of shares traded each day and the value of those shares were trading about maybe $1.5 million worth of stock a day.

But I think overall, given the quality of the assets that we've acquired and not knowing what we know about the overall natural gas macro, what the active operators in the Haynesville are going to be doing. We have some pretty decent information about our Springboard, three asset in the SCOOP and what's going to be going on there over the next couple of years. Just I'm really excited about the royalty volumes and net income that they're going to be generated from those assets.

And that's why I bought some more recently just kind of more out of frustration, and I think I just don't understand why the market then watch us a little bit more closely, but we're just going to continue to pedal hard. We think we're trading well undervalue based on what our peer group's trading foreign is. As we show our return on capital employed, what that number is and it will speak to the high quality of the assets we're acquiring.

And if we do deliver on that return on capital employed, we should at some point, get multiple expansion of some sort. I don't know whether it gets us to four or five times or -- but that's speaks to the stock price. Ralph, do you want to add to that?

No, I echo your sentiment. I mean, I think to anybody that's heard, Chad and I, on these earnings calls over the last two years, that we've done exactly what we said we were going to do. I think the business plan is being executed well, we're happy with where the company is growing. The stock price is a mystery to us. We don't get it.

But look, we see value there. And both of us just, almost every quarter, keep buying stock. So I think that says a lot about how we feel about it, right? We keep putting -- we keep buying more shares, right? So to me that means that there's more upside.

That's terrific. Well, thanks for your time, guys.

Thanks, Derrick.

Thanks, Derrick.

Donovan Schafer, Northland Capital Markets.

Hi, guys. Thanks for taking my call. I wanted to ask you about the sort of the official audited reserves [for it] that I think, you'll be closing out your fiscal year this next quarter. So you'll be coming out with your updated reserves report probably a couple of months after that kind of during like fourth quarter for sort of calendar quarter.

And so my first question is, if historically would you guys having kind of an off cycle reserves reporting kind of timing? Do you get -- have you historically seen much kind of investor reaction -- I mean, of course, you don't want to necessarily be saying, oh, our stock price will do this, or we'll do that. But sometimes the stock price will tend to vary, of course, with commodity prices over the course of the year. But that doesn't always line up exactly with where things end up kind of landing at the end of the year with reserves.

And this kind of this true up, where the auditors [step] down says, well, some of these wells may be economics for an extra couple of years based on this pricing and then, of course, as the PV-10 value and the standardized measure and all of that. And so then finally, those actual sort of official numbers come out. Have you seen historically where there's some disconnect there and so there's more of an investor reaction to those official numbers versus again, the sort of wiggles up and wiggles down over the preceding 12 months.

In another way, sort of, just asking is that the type of thing that has been a catalyst in anyway, historically either to the upside or the downside.

Don that's a good question. And I know Danielle, since our fiscal year ends this coming September 30, so just six, seven weeks from now. She has already started the year-end process. Over the last two years since I've been doing this, this will be my third, I guess, I've never seen when we release our year-end reserve report, I've never seen any sort of material reaction in the market where our stock price moves up or down because of any sort of fluctuation in our reserve book.

I do believe when you look at our IR slide deck, slide 6 shows our reserve value based on SEC, strip and kind of a [time of scop] $100/$6 price as well and kind of what the share price is. But I think that your reserve book more or less supports multiple of cash flow type values. And I think that's what, these days, most energy stocks, whether upstream E&P or mineral companies trade more on a multiple of cash flow and kind of enterprise value than they do on a reserve book, but I think the reserve book [don't support] that.

Okay. Well, that makes a lot of sense. I think --. Sorry, go ahead someone else was going to --

Yeah, I was going to say Donovan.

The other challenge for PHX. and this is actually true of all mineral companies, right, is if you look at the SEC reserves and SEC PUD, you need to know that it's going to be drilled within the next five years. Well, no mineral company out there has the ability to predict that because they are not the operator, right?

Right.

Would you end up [seeing] is -- and this is particularly true for us, is that we have a significant amount of drilling locations. For example, in the springboard three that -- I'll bet you the vast majority of them are PUDs on the operators' books, right? But for us, when you look at that corporate presentation, we have to classify it as a probable. And the reason there is as a mineral company -- again, this is true of all mineral companies -- we don't have any insight in terms of any former [wind site] that we can tell the SEC this well will be drilled within this period of time to meet their five-year guidelines.

So it ends up being booked from SEC standpoint as a probable, we look at those as high-quality PUDs. And if you look at even this year, there's been a significant number of probable reserves that never even made it as a proved undeveloped onto our books. They went straight to PDP because there were PUDs on the operator's books. They get drilled, they get put on production and we start getting paid.

So to us, those probables, from a technical engineering and geology standpoint, they meet all the qualifications or the requirements for being approved and developed a resource. We just don't have the insight to be able to show the SEC that they will be drilled within five years. So there's a bit of a disconnect and that's something else that when you look at the SEC year-end reserves, that's something that you really have to look carefully at all mineral companies and us included -- to be able to see where do you shake out relative to the prior quarter because of that little nuance.

Sure. Okay. And then -- so and I also appreciate Chad's comments about valuation and cash flow -- the reserves sort of undergirding that. But [well] and so I guess for my own shortcomings, I suppose -- I may be overly -- yeah, there's the old saying to a hammer, everything looks like a nail. And as someone who used to be a reserves, a reservoir engineer doing some of these tests to forecast, I can't help it. Kind of -- maybe I give them more attention than they deserve, but so in the spirit of that, I am just curious -- because you have had -- got some more recent couple of acquisitions, you have the recent divestiture, there may have been some additional acquisitions or divestitures over the trailing nine months or so that I may not be remembering.

And so those are going to have some changes and it could even be maybe with the PDP versus PUD dynamic. I mean, maybe that could even be an optically misleading decline in reserves or something, hypothetically if they say [they'll] had more reserves you could book, but then you're selling that to move into acreage where you're ahead of the bit, but you can't book those reserves.

So I'm curious, are there things heading into that where -- even though there hasn't been a material stock price response for people like myself looking at those results -- is there anything you see there on the face of the -- I would think the standardized measure and all that would increase quite significantly because of the pricing.

But the number of barrels and cubic feet of gas -- I could see it in decreasing significantly because of extended type curves. But sometimes you've got so many kind of fragmented wells and reserve engineers are sometimes hesitant to do that. So just curious if you can kind of talk to if you have any idea of what to expect when that happens? If we'll see the real volume numbers, go up or if it's more just going to be the economic value and there's kind of puts and takes on the acquisitions and divestitures.

Yes. So from the top -- and if we can have Danielle add some color to it. But if you'll recall, when I took over as full-time CEO in January of 20, we changed our stat strategy to be a mineral only company. And at that point, we completely wrote off all of our PUD and probable drilling locations that were associated with a non-op working interest. We wrote them off because we were no longer going to be participating in the drilling of wells.

So from that point forward, all of our PUDs that were, wells that were in progress being drilled in that year and the other --. When you look at our reserve book, our probables and possibles are all associated with value we've created since 2020 with all these new drilling locations we've acquired in buying these minerals. So you look at our probables, as Ralph said, those are PUDs on operators' books, but we don't know when they're going to be developed. So we just call them probables.

So as we -- as the probables are developed, they convert to PDPs, but we're buying more and piling on more into the probable. So my guess is overall, we've spent $45 million this year on buying new minerals? My guess is -- and I I'll let Danielle correct me if I'm wrong. There should be an increase in reserves because of all the minerals that we've acquired and we're booking from those purchases.

Danielle, is that an accurate statement?

Yes. And particularly when you take into account our probes, which as Ralph said, there is on a technical merit are as good as our PUDs. The only differences is PUDs are wells in progress or permits at this point. And I will say, as we divested these lower value working interest well, and we make these highly concentrated mineral acquisitions, we're really exchanging [well] then, reserves that are lower in value per MCFE. So much higher quality, much higher value assets. As Chad said, out with the old and in with the new. Just a higher quality asset base overall.

[To help us] sell Fayetteville. All we are selling in the Fayetteville is old non-op working interest PDP reserves, that's it.

Okay. Okay. That's really helpful. That is good to know, just again from kind of recalibrating my own perspective. So awesome, thank you.

Thank you so much, guys. Very helpful.

Sure.

I'll leave it with that.

Okay, thanks.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Yeah, we are really excited about the opportunity set before us. We appreciate your interest and look forward to keeping you up-to-date on our activity. Thanks, and we'll talk to you next quarter. Have a good day.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.