Nick O’Grady: Phil, this is Nick. I think I read your note, and I have to object to one of the things you said I think you misconstrued what we were saying. We’re not suggesting that our CapEx assumes that oil prices will stay high for the rest of the year. It’s quite the opposite. What we were saying was that since oil prices have increased, we’ve seen an increase of AFE activity on our acreage and that AFE activity would translate into CapEx theoretically at later in the third and the fourth quarters of the year. And our comment was that we’re returns driven, right? So our consent activity on those AFEs is driven by oil prices and underwriting those returns. And so if oil prices stay high, we’ll consent to that activity and ultimately then the CapEx would be higher, not the other way around.
So we also know to be flexible because our business model, obviously inherently is more flexible than an operated on. And so to the extent that oil prices were to change, obviously, we pivot quickly. We’re just suggesting that if things stayed as they are, we wanted to guide investors accordingly based on our status quo. So I would tell you that if oil prices stayed high, we would probably expect to see continued elevated AFE activity because what we noticed was that as oil prices rallied early in this year, we started to see a notable pickup in activity, and that’s going to translate particularly. That activity you see today is really going to be activity that’s going to translate into well proposals that are going to start to come online towards the end of this year and point towards 2025.
And so it would be turning lines that would likely be towards the end of this year in chatter.
Jim Evans: And that dovetails into your comments in terms of the spud I mean right now, we’re getting well proposals, especially with elevated working interest and depending on who those operators are and how they’re developing it, whether it’s a one to two well development program or if it’s a full cube development program, and that’s going to dictate building and so kind of on that trust as we see things socialized and development progresses, that’s where we’re at right now.
Nick O’Grady: We’re not deciding to spend the money and hoping oil prices are going to stay high. We’re saying that if oil prices stay high, we’re likely to see that kind of activity. That’s what we were suggesting.
Phillips Johnston: Okay. I appreciate the clarification there. Shifting over, I guess, to your views on the gas market. We’ve seen ’25 and ’26 strip prices actually creep up since you guys reported Q4 despite super high inventories and weak pump prices. I saw your NYMEX gas hedges for ’25, ’26 are unchanged, excuse me. But are you tempted to sort of layer in any more activity in the out years?
Nick O’Grady: Yes. I mean, I think it’s been proven time and time again that contango is a bearish formation, right? And I think we will probably act accordingly. And I think when the curve wanted to see contango over 2024 last year, we began to hedge and I think you’ll probably see us act accordingly. So, I think the answer is yes. I mean I think contango tends to give a perverse incentive to producers, right? So it will tell them to keep producing. I know you’re seeing curtailments right now, but curtailments are not necessarily a panacea because ultimately, you just turn something off that you can turn right back on and you keep drilling like if you’ll notice most natural gas producers right now are not cutting CapEx. They’re actually still drilling and curtailing production.
So effectively, they’re going to be able to turn it back on at a moment’s notice that’s not feeling the market in my opinion. And so to me, it does not make me feel overly bullish on the market like the market seems to want to be. And a backward-dated market is a much healthier market. And so what it’s telling me is that you likely want to sell in that market. I think gas is going to be $1.80 or $2, that’s not a sustainable price. Those high prices are likely and those are obviously very profitable levels for us. And so I think we’d be very happy to sell into those levels.
Adam Dirlam: Yes. Philips, just on the hedging comment, I think we have been adding some call options out in those years. So flip that in the 10-Q. But yes.
Phillips Johnston: Okay, great. Thanks, guys. Appreciate it.
Operator: Question comes from the line of Scott Hanold of RBC. Please go ahead.
Scott Hanold: Hi, all. Thanks. Look, I’m going to kind of come back to the CapEx conversation, if we could, but take a little bit different angle on it. I guess, correct me if I’m wrong, but your back half CapEx, the implied quarterly run rate is around $160 million to $170 million. And could you just give us a high-level view, I think your production probably is going to peak somewhere in that 120-plus range in the third quarter. And when you fundamentally think about like what CapEx run rate needs to occur to maintain production by your non-ops, is $160 million to $170 million adequate? Or does that sort of create a little bit of a tail off in production heading into the ’25?
Nick O’Grady: Well, our decline rate is moderating as we had our overall maintenance capital is coming down to, right? So like we’re losing about what? Jim, five points of decline rate five points of decline rates throughout the year. So as the year progresses, our overall maintenance capital is coming down mainly. So the answer to your question is it’s a little bit of a fuzzy number, but I’d say that it really depends from a pull-forward perspective in terms of the capital. But the answer is we have not determined within the year exactly how — obviously, we haven’t determined where we want to go for ’25 at this point in time. I mean, obviously, we have a long and story history of growing. And we’re incentivized to grow. So I would make every assumption that we would plan to find ways and paths to grow as we move towards next year.
