So we really haven’t been able to make any headway there. So I still think this main fairway that we highlight in our Investor Relations slide deck is going to be where the rig count, CapEx are going to be allocated in the spine, and the main, any sort of main volume increase is going to come from that fairway.
Operator: Our next question comes from the line of Jeff Grampp with Alliance Global Partners.
Jeff Grampp : We’ve seen some operators, I think Chesapeake was pretty noteworthy in this, talking about basically completing wells and then just kind of hanging out until price improves. Do you guys have any visibility or estimates within your asset base as to the prevalence of that within kind of your wells and process bucket?
Chad Stephens: I think, Danielle, I’ll let her speak, but she basically stated what we know to date is that, that didn’t appear on our assets that we, obviously, we’re not under EQT, but the EQT has announced their deferrals up in the Marcellus, but Chesapeake has announced some deferrals of completing new wells, but not existing production. So, and Danielle referred to that. I’ll let her kind of comment to…
Danielle Mezo: Yes. I’ll agree with Chad. We have not seen material deferrals on that side. We do see a slowdown. We don’t have a ton of wells under Chesapeake that are in that phase of development right now, where their DUC is just sitting at this point in time, at least not with the material interest. We do have wells under them at this time. We do seem to be under some of the more private operators that are still moving forward with turning their wells on. They’ve already drilled them. They’ve already completed them. And from everything that we can tell, they intend to turn them on here in the near future. So at this time, it hasn’t really been a material of the wells just sitting once completed.
Ralph D’Amico: And Jeff, it’s Ralph. One more thing. I mean, we continue to see to the extent that the wells have converted, right? I mean, we continue to see new permits filed and new rigs moving to location on our, adjacent to our acreage, even in to Haynesville. So it’s sort of an interesting dynamic where what you hear on a macro level about the play, obviously, we’re not immune to it, but it appears that the quality of our acreage is sort of showing through here, relative to what you hear about basin-wide commentary.
Jeff Grampp : And for my follow-up, on the acquisition side of things, I know you guys certainly were not expecting 2024 to be super active from an acquisition side given prices and bid-ask and everything that we’ve already talked about on the call. Looking back, do you think Q1 is kind of consistent with what you would have expected coming into the year from kind of a capital deployment perspective? Would you characterize it better, worse? Or I guess, just kind of wondering what you guys are thinking as far as a reasonable amount of acquisitions all things considered on a macro standpoint.
Ralph D’Amico: I mean, look, I mean, I think last year, if you look at last year and you look at natural gas prices, right, they had a, they dropped pretty materially. Was it about the same time? Maybe it was late February, early March, where they had a big drop, and it stayed down for some period of time, obviously not to the level of this year’s drop. But if you look at how we behaved the last year, that’s a pretty good, it’s a pretty good guide to how we’re behaving this year, right? I mean, it’s, we’re not going to chase deals for the sake of chasing deals. We’re going to be conservative. We’re going to build cash, pay down debt, improve liquidity. And when the market improves, we’ll go, we can go back into the market, and that’s the beauty of the minerals business, you can flex down or flex up with your cash flow, whether it’s on the acquisition side or debt repayment or whatever it may be, a lot faster than if you are a working interest business that has capital requirements that they don’t necessarily have the ability to either defer or do in short notice, right?
So second quarter is probably going to be the same. If you look at last year’s second quarter, it was relatively slow on the acquisition front. We build liquidity. And we go from there. And then we, last year then in September, we did a really nice acquisition in the Haynesville that are already paying dividends for us. And so if the same happens again, no guarantees, right, we got to find that deal again. That’s something that we would look at. But you can look at last year’s behavior and how we’re behaving this year and you can draw a pretty good correlation.
Operator: Our next question comes from the line of Donovan Schafer with Northland Capital Markets.
Donovan Schafer : So first, I just want to clarify when a well is, when it’s drilled and when it’s a DUC drilled and uncompleted or alternatively also when it’s drilled and also completed, but just hasn’t been turned in line and is just sort of shut in, where do those get classified? Does that get classified as in progress? And even though it’s technically completed, it doesn’t go into converted until it’s turned in line? Or how does that work from a classification standpoint?
Danielle Mezo: Yes, that would be correct. Until we truly see that this is producing and online with the first production date, that will be considered a well in progress.
Donovan Schafer : And then so talking about these DUCs, and particularly, I would say, I mean, especially I would say, the ones that have been fully completed and shut in. Is it fair to say, would you expect that dynamic would create like a more accelerated increase in production once things turn around? Because like without that, right, so even if it was just DUCs or there are no DUCs, you need the drilling crews and equipment plus the completion equipment to go through their process, which takes some measure of time. And then with DUCs, you don’t need to worry about the rig, but you still need a completion crew. So if it’s fully completed, and there’s really nothing to be waiting on, and it’s ready to just kind of turn the valve and that’s the barrier between going from in progress to converted, then does that, does it follow, I mean, like it’s my logic, does the logic hold that there could really be like a kind of step up in a more significant way?
Or are there reasons to be more cautious on that?
Chad Stephens: Donovan, the way I answer that question is going back to kind of some of the stats I was reviewing with, when Charles, his question. So the overall year-over-year from March to March ’24, the DUCs had declined by 30% to, down to about a four-month average worth of DUCs, the rate at which a DUC can be completed in terms of sales, could, all those 200 DUCs could be burned off and put to sales in four months. Will that happen? At current gas prices, we don’t know the logic or the behavior of these operators that operate these 200 DUCs that are sitting there in inventory. But to your question, the 200, we don’t know whether those are, actually, they’re categorized as DUCs, but we don’t know if they are sitting there waiting to be completed, are they, is there a frac crew sitting there on the well site about to frac the well, have they been completed and waiting to hook the, put the line up to sales, has the pipeline actually been connected to the wellhead and they’re waiting to just turn, we don’t, it’s hard for us to determine that detail of intelligence out there on the ground, so to speak.
But we don’t think that if all four months were done in one month, that all 200 DUCs were, maybe the supply would go up for a couple of months, but the decline would probably burn off a lot of that instantaneous production. And again, I’d just say that as a normal rate of converting the DUCs to producing in 2025, we see a 2 to 2.5 BCF increase from the Haynesville as gas prices improve. So that speaks to what we think will happen with these DUCs in normal rig rate of 35 to 40 rigs.
Donovan Schafer : And then turning to the SpringBoard III and kind of activities in that area on your acreage. Can you just remind us what the production mix is there versus the corporate average? I know, philosophically and strategically, you guys are concentrated on natural gas, but all is equal, oil prices and NGLs potentially are, would be beneficial in some ways. So is there something, is there a movement in that direction at all? Or are these, or could you try gas?
Danielle Mezo: So for the SpringBoard, the mix is fairly even between oil, NGLs, and gas, 1/3, 1/3, 1/3 roughly.
Ralph D’Amico: Yes. Keep in mind that there are some operators that, in the SpringBoard and also in other parts of the Anadarko Basin that when they pay their mineral holders for NGLs, they don’t actually, they pay on a rich gas content, right? So you may get, so if it’s 1,400 BTU gas, you’re going to, on your check stub, you’re going to see zero NGLs, but you’re going to see the gas volumes multiplied by whatever the price is, x1.4 versus x1, right? So you see a mixture of the, not just the volumes, but in some cases, right, the way you report it is, you don’t count the NGL volumes which account better pricing on the gas because of the way that these operators pay you, which is common and as to, they treat everybody the same, right? So it’s not nuanced to us. They treat every mineral holder the same way.
Donovan Schafer : And you, yes, you’re saying it has to do with the way it’s treated sort of from a, I don’t know, accounting or billing, invoicing, billing, whatever type situation, but not, it’s not reflective of are there or are they not doing NGL extraction. Like they may be doing NGL extraction, but they’re just not transmitting the information that way. It’s instead [indiscernible] into that scale, right? Okay. So then my last question, if I can just get one more in, was just we talked a lot about the LNG capacity and other infrastructure changes taking place that should be bullish for natural gas. I guess, but there’s not a lot, it doesn’t come up too much questions about NGL like infrastructure. And so I’m just kind of curious with, when natural gas prices are so low or is equal and then particularly if oil prices are doing all right, then that can motivate more NGL extraction or ethane rejection or not doing ethane rejection.
And so is there, are there any developments there or new plants coming, NGL plants or anything coming online that could have a meaningful material impact of any kind? Just trying to figure out if there’s a potentially positive, but like a blind spot there?
Chad Stephens: Well, so the Haynesville is dry gas, so there’s no NGL liquids coming out of that basin. There is plenty of capacity in the Mid-Continent in the STACK and the SCOOP to process the natural gas that’s coming online, new production that’s coming online that has wet gas that needs processing before turning to sales. The main driver for the NGLs in the next two to three to four years is going to be the Permian Basin. And you see Enterprise, Energy Transfer, several other smaller private equity groups that are building, especially the Delaware Basin, really rich gas out there, they’re building NGLs out there. But, and so we don’t, I don’t actually know what the forecasted NGL barrel, the Y-grade NGL barrel that’s forecasted to come out of the basin over the next two to three years.
We don’t really watch that as closely. But there is a, from a macro perspective, there’s going to be a huge call on U.S. supply of NGLs, especially propane and ethane in the near future between now and say, ’27 or ’28 of maybe 500,000 barrels a day needed for new demand, global demand. So I think there’s probably some upside in terms of pricing once the new supply comes on and feeds this global demand. That’s our view on NGLs.
Donovan Schafer : So just to make sure I’m kind of understanding correctly. My putting together the kind of different data points here is that there could be potentially some increase in like the NGL mix that would come from, say, the SpringBoard III contribution, but not something to do with like additional processing capacity or anything along those lines that would impact you guys in terms of the mix of NGLs? And then what you could see based on, Chad, you comments just now would be more just potentially pricing benefit from the kind of more macro dynamic. Is that right?
Chad Stephens: Yes. If I understand your question, when you say NGL mix, just quickly, the purity products coming off the NGL barrel are ethane, propane, two types of butane and some pentane, which is gasoline. And between ethane and propane, that represents 75% to 80% of a typical barrel. Ethane is sold each month based on the dynamic between the cents per gallon price of ethane as compared to leaving the ethane in the gas stream and selling it as Btus in the, for gas price, dollar per MMBtu. So the number of barrels of ethane can change in any given month based on that dynamic between the ethane price and leaving it in the gas treatment and selling it as a Btu. Propane, they have to take the propane out to make the gas meet pipeline quality specs.
So will the overall NGL barrel out of the SCOOP increase probably, but not, I don’t think in any scenario will it become dramatically a problem or an issue or oversaturated or oversupplied versus what will be coming out of the Permian Basin.
Operator: Thank you. And we have reached the end of the question-and-answer session. I’ll now turn the call back over to Chad Stephens for closing remarks.
Chad Stephens: Again, I’d like to thank our employees and shareholders for their continued support. I’d also like to note that Ralph and I will continue to expand our investor marketing activities over the coming weeks and months. Specifically, we will be participating in the Stifel Cross Sector Insight Conference that will be hosted in Boston on June 4th and 5th. If you would be interested in meeting at one of these events or at any time, please don’t hesitate to reach out to myself, Ralph, or the folks at FNK IR. We look forward to hosting our next call in early August to discuss our second quarter 2024 results. Have a nice day.
Operator: And this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
