SandRidge Energy Inc (SD) 2018 Q3 法說會逐字稿

Good morning. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the SandRidge Energy Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Thank you.

Johna Robinson, you may begin your conference.

Thank you, and welcome, everyone, to the conference call. With me today are Bill Griffin, President and Chief Executive Officer; Mike Johnson, Chief Financial Officer; and John Suter, Chief Operating Officer.

We would like to remind you that in conjunction with our earnings release and conference call, we have posted slides on our website under the Investor Relations tab that we will be referencing during the call. Keep in mind, today's call contains forward-looking statements and assumptions, which are subject to risks and uncertainties, and actual results may differ materially from those projected in these forward-looking statements.

We will also like to reference -- we will make reference to adjusted G&A and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. Finally, you will see us file our 10-Q later this afternoon.

Now let me turn the call over to Bill.

Thank you, Johna, and good morning, everyone. I appreciate you taking time today to join us for this review of SandRidge Energy's 2018 third quarter performance results and go-forward outlook. Today's conversation will be referencing the third quarter investor presentation posted on our website earlier this morning. As Johna mentioned, joining me today are John Suter, our Chief Operating Officer, who will be discussing a number of exciting updates later in the call; along with Mike Johnson, our Chief Financial Officer, who will be speaking to our financial results.

So please turn to Slide 3. This was a significant quarter for SandRidge as we delivered tangible positive results and accelerated our forward progress, both strategically and operationally. We announced in September the conclusion of a long and thorough assessment process that highlighted the significant disconnect between the intrinsic value of the company and current market perception. The Board's decision was to move forward with the company's asset development plan, further expand efforts on efficiency and margin improvements and the pursuit of additional opportunities to create value and change market perceptions. Notwithstanding the formal conclusion of our strategic review process, the company remains committed to serious consideration of any transaction that provides meaningful relative value to the shareholders.

It was also announced that the Board has formed a committee and has commenced the search for the best long-term CEO candidate to lead this continued transition and evolution of SandRidge. I have no additional details to provide at this time as we move forward with this very important process.

Operationally, this quarter was a step-function improvement for us. We achieved an important milestone with the realized growth in production from the previous quarter. This meaningful step ended in an extended period of continual quarterly declines. This overall production increase was driven by record production levels in North Park, resulting in a quarter-on-quarter uplift of 20% -- excuse me, 27% to total company oil volumes. Increasing oil production is a critical component of the ongoing strategy to drive meaningful, relative growth in EBITDA, with an increasing mix of higher-margin oil. The end result is this growth, combined with ongoing reductions in cash costs, drove strong third quarter EBITDA of $48 million, despite being 78% hedged on liquids at an average swap price of $56 per barrel.

Our $53 million of cash flow from operating activities is up 21% from comparative third quarter 2017, and we booked positive net income of $0.33 per diluted share. These financial performance results clearly demonstrate that our improved profitability, combined with the reduction and elimination of special charges, are indicative of putting many noncore business distractions behind us, increasing our ability to focus on execution of our growth and development strategy.

Attention to execution and predictable performance has been a controllable part of our business over the past 2 years. And despite the potential to have lost focus due to a significant amount of uncertainty and change, the SandRidge team has delivered operationally. In addition to a meaningful reduction in full year cash cost guidance last quarter, I'm pleased we are able to further improve our 2018 full year outlook this quarter with an increase to total production and another small reduction to G&A.

John will speak to this later in the presentation, but Northwest STACK drilling results have increased confidence in our Meramec geological model and completion designs, to the point we've elected to accelerate the drilling of higher-interest non-DrillCo wells in targeted areas. Consequently, we have elected to retain the rig contracted to drill Mississippi Lime wells through the remainder of the year and began drilling these more impactful, high working interest Northwest STACK wells in November. Because of small timing changes associated with our Colorado program and realization of improved capital efficiencies, we've been able to make this addition with no increase in overall 2018 capital guidance, setting the stage for a very positive start to 2019 Mid-Continent production.

Earlier this week, we announced a couple of transactions that I feel very representative of what to expect from SandRidge going forward. And I'll be talking to Slide 4. This is our ability to improve profitability, identify and create incremental value and generate new opportunities and efficiencies.

First was the divestment of legacy Central Basin Platform properties and equity interest in the Permian Trust, which simplifies the company in its operational structure, improves profitability margins and meaningfully reduces future abandonment obligations by 32%. This divestment has a meaningful impact on our operational efficiency as we retain no responsibilities for administration of the trust after transition. We have also eliminated almost 1,500 wells with the direct lifting costs of $30.50 per barrel equivalent. These properties provided essentially no upside or growth potential as lease restrictions and trust limitation significantly constrained additional development beyond the existing wellbores.

Second, we announced the acquisition and consolidation of a joint partner's interest in a number -- a large number of existing SandRidge Mid-Continent wells, acreage and water gathering and disposal system for an attractive price of $25.1 million. This transaction adds low-risk, incremental proved producing reserves and income. The price represents a significant discount to the NPV-10 of the proved producing reserves, and based on September production, adds 3,775 net barrels equivalent per day and $1.5 million per month of operating income to SandRidge.

Pro forma for these 2 transactions, the company has increased current net production by 2,615 barrels equivalent per day, reduced lease operating expenses by $0.67 per barrel equivalent and incrementally increased the NPV-10 of proved reserves by $38 million, based on the November 1, 2018 effective date and the NYMEX forward closing product prices as of October 26, 2018.

As mentioned in our previous release, we essentially funded this accretive Mid-Continent acquisition with the redeployment of declining and stranded cash realized from the $14.5 million in proceeds from the sale of the Central Basin Platform properties and the $10.5 million second quarter divestment of the unfinished Parkside Building in Oklahoma City.

As a follow-up comment regarding real estate, there's been understandable shareholder interest expressed in our go-forward plans for the remaining SandRidge-owned real estate in Oklahoma City. For some period of time, the Board has explored the potential value of this property, and we have solicited and received some indications of interest. After a thorough analysis, we have determined the best alternative is to realize -- the best alternative to realize meaningful incremental value is to convert the building to multi-tenant occupancy and immediately initiate efforts to market the available space to third parties.

Please turn to Slide 5. We are all extremely disappointed with the performance of our stock. While there are several reasons the current enterprise value is out of sync with asset value, I'm confident that the true value of the company will be reflected in the stock price as we continue showing strong results. What we can control is delivering consistent, predictable growth and capital discipline. While we're on the cusp of reversing decline and delivering annual organic growth, we continue to focus on a number of other items.

First is continuing to pay attention to improvement of base cash flow. The fact remains that a significant amount of cash is generated by the increasingly gassy and declining Miss Lime production stream. Continued cash cost and efficiency improvements are imperative, along with intelligent capital investment and a laser focus on risk returns. Our priority must be to increase the relative mix of oil as a percentage of our overall revenue stream. Capital efficiency and associated EBITDA growth will be the result of these collective efforts.

With these priorities, we're in the process of finalizing our 2019 budget and updating longer-range development plans. We're pleased that a large majority of Colorado voters rejected a ballot initiative this week that would have severely restricted energy development in the state. As a result, the company's objectives for the North Park Basin remain unchanged. Preliminary plans for 2019 are to continue the current program with a focus on proving up additional sections internal to our current core area, along with expansion of this area to the south. While we're excited about the possibility that our gas to liquids pilot could provide a viable solution to managing the associated produced gas, a primary objective is to have the long-term permanent produced gas solution identified in 2019. This will pave the way to major oil production growth in future years.

As a follow-up comment regarding produced gas, I would like to add there has been some expressed external concern that production growth might be constrained because there is no oil pipeline from the basin. We're currently transporting oil by truck and have already successfully managed peak daily rates in excess of 6,000 barrels. We're confident that trucking is scalable and capable of managing additional growth and oil volumes.

In the Mid-Continent, industry activity in the Miss Lime has increased. With this new activity comes the ability to monitor results and the potential to drill additional wells. We expect to increase both operated and nonoperated activity in the Miss Lime next year. As previously mentioned, we also expect to begin drilling full working interest wells in the Northwest STACK as our DrillCo-funded joint venture enters the latter part of the current program. All of this should provide a positive boost to the relative production performance of the Mid-Continent relative to the past couple of years.

SandRidge has a tremendous platform for profitable growth. Our balance sheet provides us the ability to consider more meaningful, transformational mergers and acquisitions as well as to be opportunistic with smaller targets. While we are confident in our plans to generate organic asset value growth, we also believe that the upcoming year will provide good strategic fit acquisition opportunities within the Mid-Continent.

Additionally, the company will also evaluate and consider more transformative opportunities across a broad area that provide the scale and capability to accelerate meaningful value realization to the shareholders.

I will now turn it over to Mike to expand on our financial performance.

Thank you, Bill, and good morning to everybody on the call. We are very encouraged by our third quarter results and are anxious to move forward with a singular focus on a successful development and growth plan. During a quarter, when considerable effort and attention was given to the company's review of strategic alternatives, our third quarter results reflect significant progress toward our efforts to meet or exceed our 2018 guidance expectations.

As shown on Slide 6 of our investor presentation and elsewhere in our earnings release, we posted third quarter net income of $12 million, EBITDA of $48 million and cash flow from operations of $53 million. With third quarter capital expenditures of roughly $43 million, we are demonstrating our financial discipline by operating within our cash flow and are continuing to reduce LOE and G&A cash cost per BOE. As Bill mentioned, our margin uplift this quarter was driven largely from our increased North Park Basin oil production. Equally important is the reversal of a string of quarterly production declines, a trend we expect to continue to see in 2019 and thereafter. This strong performance was generated in spite of the fact that we had a significant portion of our third quarter liquids production hedged at roughly $55 a barrel, leading to a net realized hedging loss of $12 million during the quarter.

Looking ahead, this week's announcement of our divestiture of legacy assets in the Central Basin Platform and the acquisition of additional working interest in the majority of our Mid-Continent properties are small but meaningful steps to simplify our portfolio, improve profitability, enhance value and allow us more time to focus on our core operations and development strategy.

The majority of the value in our Central Basin Platform properties was monetized in 2011 when we formed and simultaneously conveyed a significant override in these properties to the SandRidge Permian Trust, which resulted in SandRidge being responsible for 100% of the operating costs but only receiving 34% of the associated revenues. This transaction will eliminate more than 1/3 of our well count, which collectively averaged only 1 barrel of oil equivalent per day and are contributing only marginally to our profitability.

Our simultaneous acquisition of additional working interest in most of our Mid-Continent properties at an attractive valuation is an effective way to redeploy these sales proceeds into a bolt-on acquisition that won't require any additional staffing. Again, neither of these transactions are particularly significant in size, but they signal a proactive approach to maximizing our returns on invested capital.

We've updated our remaining 2018 guidance to reflect the impact of these transactions as well as other encouraging cost-reduction trends and production improvements. We've increased the midpoint of our 2018 production guidance by 6%, although we've left LOE unchanged due in part to the fact that we are replacing low-volume, high-cost barrels in the Central Basin Platform with incremental Mid-Continent production with lower lifting cost per BOE. We've also lowered our guidance for adjusted G&A for the second consecutive period in a row.

Shifting to the balance sheet. Our liquidity remains strong. As of November 2, following the closing of our 2 previously mentioned transactions, we had $20 million in cash, and we continue to be undrawn on our credit facility. Our credit facility's borrowing base, the value of which was established based on an April 1, 2019 effective date, was reduced to $350 million during the fall redetermination, and this was due to a variety of factors, including the addition of Mid-Continent development capital to our reserve report in the second quarter associated with future artificial lift costs, the roll-off of derivatives through April 1 of next year and the natural decline in PDP reserves through the effective date. We remain committed to maintaining acceptable debt metrics as we grow the company, and we expect to have adequate liquidity necessary to execute our development and growth plans in 2019 and beyond.

I'll now turn it to John for his thoughts on our third quarter operational results and his outlook going forward.

Thanks, Mike. I'd like to update you on the operational results for the quarter. Let's first look at our 2018 objectives for the North Park asset on Slide 7. We utilized one rig until mid-April to drill 4 wells of the 8-well eastern spacing test and the first well of our western spacing test. All 5 wells were brought online between June and early August, while we ceased drilling to evaluate well performance.

North Park capital expenditures for the quarter were $25 million. We expect an increase in expenditures during the fourth quarter as we initiate drilling the next 5 wells of the western spacing test, as seen on Slide 8. Also, related to this project, we will gather microseismic data during frac operations. This will help determine optimal development spacing, both vertically and horizontally, within the 400- to 500-foot Niobrara column. We will also run fiber optic cable with permanent gauges on one of the wells. This installation will monitor production flow from each stage in order to optimize completion design parameters. By incorporating this, we can enhance the cluster efficiency and ultimately maximize production from future wells drilled. We will achieve our final objective for 2018 as we move into the southern edge of the play to do additional delineation within the Surprise federal unit.

Now to North Park achievements on Slide 9. Our focused efforts are impacting production, well performance and drilling efficiency. We obtained record third quarter oil production rates, averaging 4,100 barrels of oil per day. Well performance from the 8 eastern spacing test wells have cumulatively averaged 19% above type curve, producing within a 12 wells per section spacing pattern. Finally, our operational results continue to improve with our fastest XRL well, which drilled 16,582 feet measured depth in a record 10 days from spud to rig release. We also achieved our lowest-cost XRL to date at $92 a foot, a 20% improvement from the 2018 average.

Let's look at North Park production in more detail on Slide 10. We produced a record 379 MBO for the quarter. This is impressive considering several wells were shut in during September and October for repairs required from a fire at one of our facilities. Fortunately, no personnel or wells were impacted by this event. All facility repairs are complete and all wells are online. However, as a result of these events, fourth quarter oil in North Park is anticipated to be lower than Q3 production. Despite this short-term setback, oil guidance remains unchanged.

For the fourth quarter, we're projecting over 300,000 barrels of oil, still a significant increase over quarterly oil volumes in the first half of 2018. Total field production is currently averaging 5,500 to 6,000 barrels of oil per day.

On Slide 10, you'll also see production spike the first half of 2019 from year-end 2018 drilling discussed earlier. Note that any production from the 2019 program has not been included.

On Slide 11, we shift to the eastern spacing test designed on a 3-row, 12-well per section spacing pattern. As highlighted earlier, the average production of the 8 wells drilled so far is cumulatively beating the type curve by 19% with no impactful well interference to date. This is exciting news since the type curve utilizing strip pricing at October 26 and $6.2 million drilling and completion costs already generates over 100% rate of return for these projects.

Progress is being made on our gas processing facility installations. Our mechanical refrigeration unit is being installed and is expected to be in service soon after Thanksgiving. This will reduce emissions by stripping natural gas liquids out of a portion of the field gas stream.

Now moving to Slide 12. Work continues on a gas-to-liquids skid at the same site and is scheduled to be in service Q1 of 2019. The new GTL skid will take 500 Mcf per day, which is roughly 7% of our total field gas production rate and is projected to completely convert it into marketable diesel and naphtha, leaving no residual byproducts.

The process reduces emissions while providing revenue stream. The installation of the GTL is an innovative application of existing technology. Our vendor, Advantage Midstream, utilizes a patented catalyst that accomplishes processing on a smaller scale with less costs and complexity. Upon a successful outcome, additional GTL facilities could be a viable alternative to a large-scale pipeline installation. We look forward to the upcoming pilot and hope to share early results in our fourth quarter earnings call.

Back on Slide 7, looking into 2019, we plan to continue our expansion efforts on the southern side of the field with infill development between the Surprise federal unit and the Big Horn facility. Additionally, we intend to expand operations further into the Peterson Ridge federal unit on the northern side of the play. Finally, we plan to test acreage on the eastern side of this field.

In our Mid-Continent asset, on Slide 13, we average 2 rigs, with capital expenditures totaling $16 million to develop both Meramec and Mississippi Lime targets. Total production from the Mid-Con was 2.6 million barrels equivalent, 19% oil, with per unit lease operating expenses just over $6 per BOE. Our objectives for 2018 in the Northwest STACK were to utilize the Drilling Participation Agreement to delineate and hold our acreage while developing optimal drilling and completion techniques. The first tranche under the agreement is currently scheduled to end in Q2 of 2019. For our Mississippi Lime assets, we maintain our base production with cost-effective operations while evaluating inventory for selective high-return drilling.

Now focusing on the Northwest STACK on Slide 14. Production for the quarter totaled 221 MBoe, 39% oil, and capital expenditures totaled $7 million. We've brought 4 Meramec wells to sales, which averaged to 30-day IP of 549 BOE per day, 61% oil. The most recent well, the Kopper 1-5H, produced a 30-day IP of 863 BOE per day, 61% oil. This was a delineation well along the western edge of Major County. The well's outperformance is tied to successful targeting of improved reservoir with local natural fracturing.

Also, during the quarter, the company drilled 3 wells under the Drilling Participation Agreement. To date, with net capital of only $5 million, the company has already drilled 13 of 16 planned Drilling Participation Agreement funded wells. The wells successfully delineated portions of the play outside of our Southwest Major core area into Northern Major, Southeast Woodward and Northeast Dewey counties.

In addition to testing our acreage, we improved our operational efficiency and well selection capabilities. The last 3 wells were drilled at an average of 17 days, a 10% improvement over the prior quarter.

We've redeployed capital to drill 3 higher-interest core Northwest STACK wells in the fourth quarter as a result of North Park completion timing shifting to early 2019. These wells offset some of our highest-performing wells in the play, the Medill 1-27H, which produced a 30-day IP of 925 BOE per day, 77% oil; and the Campbell 1-26H, which delivered a 30-day IP of 902 barrels of oil equivalent per day, 81% oil. The 3 wells are expected to go to sales late in the first quarter of 2019.

On Slide 15, production in the Mississippi Lime totaled 2.4 million barrels of oil equivalent, 17% oil, and capital expenditures were approximately $9 million during the quarter. As noted on the inset map, there is increased industry activity in the Mississippian play. As mentioned last quarter, we added 4 Mississippian wells to our 2018 program near existing highly productive areas. Subsequent to the quarter, all wells have been completed, with results expected in the fourth quarter.

Back on Slide 13, as mentioned before, our 2019 Mid-Continent development program will finalize the first tranche commitment under the Drilling Participation Agreement. We also plan to expand our highly -- our high-interest Northwest STACK development with applied learnings from our 2018 program. Finally, we will continue to evaluate our Mississippian inventory in order to select high-graded targets and near existing production and infrastructure.

In closing, I would like to thank the team for their continued commitment to safe and efficient operations. Our efforts have increased production guidance without increasing capital spend, lowered per unit operating costs, all while making meaningful improvements to performance metrics.

I'll turn it back to Bill for closing remarks.

Thanks, John. In summary, we remain confident in our ability to transform the company. This was a positive quarter that clearly demonstrates the current and the future potential of SandRidge. We continue to listen and strive to be responsive to our shareholders, and this organization remains focused on continuous improvement and solid operational performance while working in parallel to generate and realize new growth opportunities. Our commitment remains unchanged, to create value for the shareholders. It's important not to lose sight of the opportunity that presents itself at SandRidge.

First and foremost is that we have an incredible platform for growth. This provides tremendous optionality as we assess a multitude of options moving forward. Second, unlocking this incremental value is within our control and our capacity. We have a mature HBP Miss Lime asset generating significant cash flow to fund development of a meaningful inventory of future wells in the North Park Basin and elsewhere in the Mid-Continent. While we grow operating income and oil as a percentage of our product mix in these areas, we expect to extend Miss Lime cash flow generation through continued expense reductions and targeted capital investments.

We have demonstrated capabilities and competencies that are aligned with the asset base. Additionally, we continue to take meaningful steps toward restructuring the company's cost structure and positioning the organization to efficiently and effectively execute our development program.

SandRidge is undervalued relative to most standard industry evaluation metrics. While this is partially attributable to some individuals' perceptions of our various operating areas, we believe these views are misguided and remain dedicated to changing those impressions through the delivery of tangible results. I'm confident that continued success through the drill bit, further reductions in cash costs and demonstrated profitable growth in production and EBITDA will be the catalysts for this change. We remain focused on execution, returns, margin improvements and value creation for the enterprise.

I appreciate your time today, and we'll now turn it back to the operator for questions.

(Operator Instructions) And your first question comes from the line of David Beard with Coker & Palmer.

As it relates to some of the assumptions behind your liquidation value, did they contemplate the North Park Niobrara production guidance that you've had in there and contemplate a successful defeat of the ballot initiative? And if not, would that change the implied value of the North Park assets?

The devaluations and the way we've approached this has been consistently that Proposition 1-12 would be defeated. We certainly had contingency plans to the alternative. But no, that development plan has remained unchanged.

Okay. And just back here on the bigger question we get. With the stock at $10 and liquidation at $12 or $13, do you revisit that? Or is revisiting that plan not stock price dependent?

Could you elaborate a little bit on that question when you say revisit the plan? Could you explain what you...

I mean, look, it's a question we get. With the stock at $10 and if you can sell it at $13, why wouldn't -- why don't you? Or why don't you revisit this? And back to my question in that number, did you contemplate North -- did investors or buyers of North Park contemplate those production numbers and contemplate Proposition 1-12 being defeated? Because if they didn't, the value seems it would have been lower, now maybe the value should be higher.

It's difficult for me to speak to what potential interested parties considered when they made their proposals and looked at our North Park asset. I can say that the uncertainty surrounding that proposition certainly had an impact. I think the continuing concern about a solution on the takeaway situation certainly had an impact. But the bottom line is the indications of interest that we received were just completely disconnected from the value, even on a PDP basis.

Right, right. Understood. How about the process to revisit that? As I said, if the stock was at $20, you might not, but with the stock trading below those values, is it there thoughts to just revisit that process?

We are constantly looking at all the options. So yes, the option to revisit is certainly there. One additional follow-up on the North Park piece, I think what you saw in the third quarter was being realized. We talked to that last quarter that we were seeing some really tremendous wells coming out of our Eastern pilot that was substantiated with the volumes and even the EBITDA. So it's a little bit of overcoming some of the inherent skepticism of a relatively new basin and a new area. But the results are compelling.

Yes. Look, I see that, too, as well that they are. That's where it seems to be driving value higher. And I'm just probing a little bit more how to unlock that, though. Appreciate the time.

Yes. I share your thoughts there. It's frustrating, but we delivered a quarter with almost $50 million of EBITDA. And when you relate that to our current market capitalization, there's a disconnect. And I firmly believe that multiple quarters of delivering this type of performance will eliminate that skepticism, and it'll be reflected in our stock price.

Yes, I've seen that with other stocks, too, as well.

(Operator Instructions) And your next question comes from the line of Bill Dezellem with Tieton Capital.

I have a group of questions, if I may. First of all, just on the last line of questioning. Were any offers contingent upon Proposition 12 failing? And -- well, let's start there, and then I'll continue on.

Well, I'm not going to talk in any detail about specific offers. But I can only say that it was a factor in the interest or even some conversations with some interested parties that may not have made offers. It was a difficult point in time to be making significant capital investment decisions and commitments with that uncertainty.

And then you were mentioning that there's just a disconnect between the offers that you received and the value of the business. Why do you think that is? What do you believe were the main drivers leading to that disconnect?

Well, there's a number of them, and I would take you back to the press release that -- where we discussed the conclusion of the strategic process. With regard to the Miss Lime, it's an out-of-favor asset in general. The market perception is such. There's some overhang there that just limits the number of interested parties in an asset like that. It is significant in size, so the current market and with regard to being a buyer-sellers market certainly had an impact. There's not as many cash buyers out there looking for something like the Miss Lime.

The Northwest STACK, it's an evolving area. There's -- as we've talked about previously, there's variability across the play. And there's, frankly, quite a few different companies, both public and private equity backed, who are out there. And a number of different attempts have been made and some successfully to market those positions. But with that uncertainty, what we've seen, and it was reflected in the indications of interest we received is -- on the Northwest STACK, the current market is mostly focused on PDP with minimal willingness to pay for the undeveloped upside.

You can look at the types of wells that John showed, the Medill area being a perfect example of -- there are wells with compelling value to be drilled in the Northwest STACK. And to essentially give those away was just something that the company was unwilling to do.

North Park, it -- all the reasons we just previously discussed. But again, there's -- with the uncertainty on what you do with the produced gas, and we're working well with all the regulatory agencies, they've been very supportive, and we're moving forward on a number of different solutions to the produced gas question out there. But until that's firmly resolved, I think there's always going to be a discount put on, on the value of the North Park until there's a clear path forward and a clear associated cost of that. I would add, this gas-to-liquids pilot that we'll be implementing is a very interesting option. I mean, we're going to -- I think, in the first quarter, know a lot more about the viability of that as a possible supplement and ultimately maybe even eliminate the need for a pipeline out of the basin.

Great. And then let me shift this, if I may, to the Mississippian Lime assets. Why was it that the seller was willing to sell those assets? Just talk about that transaction, if you would, please?

This was a legacy joint venture position that was entered into during the early stages of the development. It was a minority interest, and the seller was just in a position that they needed to exit out of a nonoperated, fairly significant position. The other motivating factors behind their decision to do that, I really can't say other than I can certainly understand. You're sitting there holding a declining asset and their drivers were at the time, and we took advantage of it to pick up that position.

Do you see additional opportunities like that, Bill?

I think on a smaller scale, I think it's certainly possible. Someone might ask, why would you buy incremental Miss Lime assets after you just went through the process? And I would say, to buy new Miss Lime assets, meaning new wellbores and new areas and incremental operational requirements, we'll be more thoughtful. These types of acquisitions that are essentially just increasing interest in wells we already operate, it takes exactly the same amount of effort and costs to operate these wells today as they did before we did the deal. So we're always interested in rolling up additional interest. We like the compelling price that we were able to do that. And I think if we are able to repeat that, we would do it again. And I'm not saying that we wouldn't even consider incremental new Miss Lime properties, but it's going to be at a compelling NPV value.

And then I have 2 North Park questions, and then I'll jump off. First of all, relative to the wells coming in above expectations, would you please discuss kind of what you believe is behind that? And then secondarily, the decline rates that you're anticipating in the first couple of years on those assets.

I'll turn that over to John. He deserves a lot of the credit for the performance out there and what geotechnical and operations teams were -- have been able to accomplish. So John, you want to answer that?

Yes. I think the eastern spacing test, again, that we've had such fabulous results in, there are a number of things. Two of the better wells that were drilled there were in the -- drilled in the B and C benches of that Niobrara column, and we really have not explored the B much. We've only had a few wells that have targeted that, and we are seeing some of our very best results from it. We plan to drill additional wells, both in Q4 and in '19, in these B and C benches to see if we get similar results.

The other thing is that as we drill a number of wells at one time, of which there I think were 6 of these wells were stimulated at the same time back-to-back, it really is more effective fracturing when you can do zipper fracs and take advantage of the pressure rate opportunities. And so I think it's the combination of B and C reservoir as well as stimulating at one time.

And as there are no further questions in the queue, I'll turn the call back over to the presenters.

Thank you again for joining today's call, and we look forward to providing additional updates in the near future. I appreciate your interest, and please don't hesitate to reach out with any further questions. Thank you.

This concludes today's conference call. You may now disconnect.