Neal Dingmann: And then, Paul, maybe for your, just question on going forward, I have got. Looks like if prices remain stable and, look, your operations continue to be as efficient as we think, looks like free cash flow could continue to ramp quite nicely, you have mentioned prepared remarks. I know, debt is always priority, maybe just talk about how you think about debt versus more accretive deals versus maybe shareholder return?
Paul McKinney: Very good and this is the classic question that we get all the time. I get shareholders to send us emails with their opinions and all this. And so, yes, just in general, debt is not our friend. Our interest expense is considerably higher than our G&A expense. And so, during times of high interest rates like we’re experiencing it behooves any company to reduce their debt. So, that’s the reason why we’re focused on it. So, now with respect to taking on more debt, we would be willing to take on more debt through an acquisition of some kind, but it still has to be balance sheet improving. So, in other words, the ratio of the collateral backing up that debt has to improve versus the debt. And we have to buy these properties if we’re going to pursue them in an accretive manner.
And so, yes, I am willing to take on more debt, but it will reduce the leverage ratio and actually strengthen the balance sheet by doing so if we were to occur or pursue something in that regard. Travis, is there more you want to say?
Travis Thomas: No, just taking it a step further, but not too far, getting into the shareholder return. Look, we’re always looking at the cost of capital on that as well. And the question does often come up, would you guys consider any sort of share buybacks or when are dividends coming. And those are things we look at where is our dollar best spent? Is it for paying down debt? Is it share buybacks? Is it dividends? And those are just things we’re constantly looking at and evaluating, and given the right opportunities, I think anything is really on the table. But for now, I think it’s still a focus on debt. Go ahead, Paul.
Paul McKinney: And just a little bit more, when you if we were to do a stock buyback today, that would take proceeds away from paying down debt. So, essentially, you’re adding debt to pay buy stock back. And don’t forget, you don’t get additional real barrels of production. So, if you use those funds or proceeds to accretively buy assets, you get the production and cash flow to help pay that down. So, we’re all about acquisitions, but our focus on acquisitions up to now has been clearly, that the result of that would be totally accretive on as many metrics as you can. You strengthen your leverage ratio. But at the same time, the future cash flow from those assets has to accelerate our ability to pay down debt and we’ve been successful and being able to do that.
As you see, our ability to pay down debt has increased over time, and we believe it’s going to continue, and of course, that’s also dependent on energy prices. But from the overall health of the Company being remaining focused on these debt adjusted per share metrics is the only way you’re ever going to dig your way out and grow the Company profitably for your shareholder.
Neal Dingmann: Paul, I think you and Travis hit the nail on the head. I think it’s cost of capital and it’s going to be great. You’ve got to have a ramp in the amount of free cash flow to decide what to do with it. So thanks, guys.
Operator: [Operator Instructions] Our next question will come from Noel Parks with Tuohy. Please go ahead.
Noel Parks: So, we seem to be entering one of these stages where we sort of have increased macro uncertainty, geopolitical side also have added some new wildcards recently. And I think that the Company is generally having been pretty proactive in down cycles as far as just getting more judicious with rig activity. And I’m just thinking with your horizontal inventory and also the vertical inventory now. Are there different prices, if say we did have a pullback in the next year, just where it might be easier to keep vertical activity going and shift capital there instead of some of the horizontals? Or is the differential we get to return just not enough to really make a difference?
Paul McKinney: Yes. I mean, if you look back in our history in the last 12 months, you can see that, when prices were lower earlier this year and exiting last year, we actually did curtail some of our capital spending program. As I alluded to earlier, our budget plans are with the mindset that oil prices will remain between $65 and $85. You fall below $65, and even as you approach $65, we will tighten up the capital spending requirements. We’ll only focus on those that have the absolute best returns. And so, we do have a mix. We do have some vertical wells that compete with our horizontal wells. Typically, in the past, our best returning investments were the horizontal wells, especially those in the Northwest Shelf. But now with the Founders, some of those vertical wells will compete handsomely with that.
And so rest assured, we will focus in a low price environment. We will continue to be active, but we will focus on those highest return aspects because our strategy going forward until our debt is down to well below a leverage ratio of one. We’re going to be focused on maximizing the free cash flow generation from those investments. So, that’s just the way it’ll go. Did I answer your question, Noel?
Noel Parks: Absolutely and just my other one is. Service cost environment certainly sounds encouraging as far as the year-over-year changes in services materials. And I was just thinking about, again with sort of if we have more volatility in the system of prices. Do you have a sense that, in your regions that, with the other operators, is everyone’s activity level fairly stable right now? Or would you say it’s either trending higher or lower, one direction or the other these days?
Paul McKinney: And I talked to quite a few CEOs. I think all of us are of a very similar mindset right now. We’re very disciplined in our capital spend. Everyone is focused on real returns to the shareholders. So, If it wasn’t for our debt and perhaps our size and scale, we would be delivering some kind of a real return, either through a stock buyback or through dividends or something. But everybody is focused on disciplined capital spending. That’s the reason why even though we’re at historically, on the higher end of energy prices. You’re not seeing the rig rates increase because everybody is focused on discipline. And I don’t know of another CEO that will tell you anything different than what I’m telling you. They’re focusing their capital on the highest rate of return opportunities they have, and they’re focused on real returns to their shareholders.
And you can’t go wild with your capital spending in that kind of environment. So everybody is disciplined, and this is also part of the reason why we’re seeing a pullback in some of the costs and the availability of many of the services that we depend on for drilling and completing our wells. It’s good that natural gas prices fell in Europe, which allowed a lot of the steel manufacturers to go back to making steel, which reduce the demand for the steel here in other areas. And so, yes, I think that the discipline is the primary cause for now the pullback that we’ve seen or the slight pullback in some of the costs associated with drilling and completing our wells.
