Doug Leggate: Dan, I wonder if I could just pickup on the cash tax common slide deck, its obviously been a moving piece for you guys given the AMT but can you, if I look at slide 18, can you give us an idea what that free cash flow delta would look like at different decks on when you expect to transition to cash tax to full cash tax.
Dane Whitehead: Yes, maybe not quantify that as specifically but let me just tell you what’s happening. So we have in a non-AMT world sufficient tax attributes not to taxable U.S. Federal Income tax taxable until late 2025, when this new rule of inflation reduction act in the AMT that came in with it impose being a 15% alternative minimum tax if you are not paying taxes if you meet certain criteria the primary criteria is your 3 year average pre-tax book income was a $1 billion or more. In 2023, we are below that $1 billion threshold, in 2024 we expect to be above that. There was a big loss, here a pandemic loss in the current three year average number that would roll off when we get to 2024. So we expect we are going to be AMT taxable at a 15% rate starting in 2024 and we expect that should continue at that rate for about a decade.
In the background the conventional NOLs and tax attributes will be conferred to AMT credits and so we will end up sort of capping our tax rate to 15% in the U.S. for that period of time. At 15% it will only to U.S. income, we pay a 25% rate [indiscernible] and that generates its own foreign tax credit so it won’t get doubled [ph] by the AMT tax rate as well. Hopefully that you can apply that kind of math to any price outcome you are looking at and quantify it.
Doug Leggate: I know it’s a complicated issue. Dane, thanks for running through that. I guess my follow-up lead is we haven’t really heard a lot about REX [ph] recently I wonder if you could just give us your updated thoughts on thinking on portfolio development and maybe sit along side how you see the M&A landscape [indiscernible].
Dane Whitehead: Yes, well let me start and then I may ask support from Pat as well. Now the portfolio development side we really look at this kind of as a multi-element approach when we talk about resource replenishment, inventory replenishment. On one end of the spectrum you have large acquisition like the Ensign acquisition which as you say was a tremendous win for our shareholder. I think the other avenue that we have are smaller bolt-ons and trades and I think Mike actually mentioned that some of the trade work in the Permian is giving us some access to some more extended laterals and then you have I would say our internal kind of self-help which is can be some of the redevelopment activities but also the REX program as well and so we look across all those dimensions we talk about resourced replenishment and how do we continue to build a resource base since we are an extractive industry we have to stay on top of that.
But maybe I will let Pat talk a little bit about our program particularly maybe focused on the Texas Delaware program and how that’s now kind of progressed from what we would have originally called a REX program now more into developmental program.
Patrick Wagner: As we said our primary project within REX has been this Texas Delaware Oil Play and we have now fully integrated that into our Permian asset team. So its no longer as REX and we talked a little bit last quarter, we brought on a four well pad this year taking down — well that pad has performed exactly as we expected it to. We will drill another pad in 2024 — coming up that we will bring online in 2024. We are committed to now a developmental approach that is 4×4, four in the NERAMAC and four in the Woodford 10,000 foot lateral length that’s kind of our developmental plan to be going forward. The good news in this recent pad as well as is we are still not seeing any communication between the NERAMAC and the Woodford so we can definitely co-develop those two zones.
Our real work now is to try drive our D&C cost down as low as possible. I have got a lot of experience in Oklahoma and these two formations that we are trying to replicate here in this project so we will just continue to mature this project as part of the kind of the development portfolio now moving forward.
Michael Henderson: I was just going to say I think its — we really are now focused on this Woodford and NERAMAC play really looking at how do we get up the learning curve to get D&C cost down as low as practical. So it really has moved more into a development project they have to compete for capital allocation and that’s exactly what we want to see is that output from the REX program is moving that stuff and to development mode. I did want to come back to your question to just around M&A though real quickly. I think you mentioned of course the very successful Ensign acquisition, if anything I would say that actually raised the bar for us from an M&A perspective and we are not going to compromise obviously on our criteria along those lines.
We would be making sure that something is absolutely accretive from a financial metric standpoint, it would have to be accretive from our return of capital standpoint. It would have to be accretive to our overall sustainability meaning inventory kind of resourced like accretive. They got to be industrial logic there meaning it needs to be in one of the basins where we have high executive confidence and then finally we wouldn’t want to do anything that would damage the financial flexibility in the balance sheet that we worked so hard to establish. That’s a very tough filter and I will tell you today as we look into the market we just don’t see anything today that really hits all of that criteria and that’s what we saw in Ensign, it really did check all of the boxes and that’s why I think that’s been such a successful addition to our portfolio.
Doug Leggate: Pardon me with a clarification question Lee, what the Permian oil play included in your inventory, what would you say the inventory life is now in the Permian now? I will leave it there. Thank you.
Lee Tillman: We probably say based on Pat, kind of doing a nominal 4×4 spacing recognizing obviously that there is some variability across the play but its generally a continuous 55,000 acre position. So we are thinking several 100 locations right now and we will get more specific on that as we get up that learning curve on D&C and to really integrate it into the rest of our enterprise level inventory.
Operator: The next question comes from Matt Portillo of TPH. Please go ahead.
Matt Portillo: Just a follow up around the shift in the tilt [ph] count for the year. We noticed that the Oklahoma assets are slight down shift in your expected in the JV. I was curious if that was operationally driven or if just given the low commodity prices some of those wells are sliding in 2024 and more broadly speaking how do you think about the return profile in Oklahoma relative to the rest of the portfolio?
Patrick Wagner: This is Pat. Just a little bit on the JV in Oklahoma, that’s a very targeted program and we are getting close to finishing that up. It’s just really been focused around lease retention there using somebody else’s capital trying to maintain our lease program. Just some other strategic advantage including keeping that active through work [ph] in there.
Lee Tillman: No, I don’t think there’s anything. I mean I think we guided 15 to 20 wells there earlier, Matt. I think I just think we’re going to be at the whole end of the range. I don’t think there’s anything to read through into that.
Matthew Portillo: Perfect. And then maybe just a follow-up on JVs across your asset base. I know you have a couple at this point that are for lease retention purposes, given the strengthening crude market and what could be a better environment for gas and NGLs as we head into 2025, how is the company’s aptitude or kind of appetite at the moment for incremental JVs versus retaining those inventory locations and developing those on your own going forward.
Patrick Wagner: This is Pat again. I think what our approach on JVs to date is to keep them very small and targeted to achieve certain strategic objectives. We’re not doing large multiyear operated programs. We’re just trying to satisfy lease commitments or protect operatorship, things like that. So we’ll continue to view them through that lens. And as you see an opportunity you got people go ahead and do very small ones. Most of the inventory that we consume in these JVs is not our top-tier inventory to keep that, and we will go ahead and drill that. But if there’s lesser quality inventory that doesn’t compete for capital in the current next few years, and we need to execute on it to retain a lease, then we’ll bring in a JV partner to help us see that.
Operator: The next question comes from Paul Cheng of Scotiabank.
