Good morning, and welcome to the Magnolia Oil fourth quarter and full year 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Brian Corales, Vice President of Investor Relations. Please go ahead.
Thank you, Andrew. Good morning everyone. Welcome to Magnolia Oil & Gas's fourth quarter and full year 2019 earnings conference call. Participating on the call today are Steve Chazen, Magnolia's Chairman, President, and Chief Executive Officer, and Christopher Stavros, Executive Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the Federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full safe harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website.
You can download Magnolia's fourth quarter and full year 2019 earnings press release, as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Steve Chazen.
Thank you. Good morning, thank you for joining us today. I will provide a summary of some of our achievements in 2019, our outlook and plan for 2020, as well as an update on our Giddings asset. Chris will review some of the details of the financials and provide some additional guidance for the year before we take your questions. We had many accomplishments as an organization during 2019, our first full calendar year as a public company. We've been in business 18 months. Despite the continued challenging environment for the energy sector, the quality of our assets and the characteristics of our business model has served us well and continues to provide us with a strong foundation. Our strategy of focusing on generating free cash flow, combined with low levels of debt, supported our strong performance last year and position us well for this year.
During 2019, we invested 60% of our cash flow to our drilling, completing wells, and unrelated production equipment, collectively, the D&C capital. This is in line with our original objective and continues as part of our ongoing strategy. As a small company, part of our plan is also to generate moderate growth, and we're able to grow our production volumes by 10% in the fourth quarter of 2019 compared to the year ago period. The free cash flow generated by the business provides us with options to allocate capital towards opportunities that are most accretive to the value of our stock. Our remaining free cash flow during 2019 was used to successfully complete multiple small oil and gas property acquisitions, further strengthening our overall asset base.
These acquisitions would include producing properties, expand our acre position in our core Karnes area by 30%, and more than replaced our inventory of wells drilled during 2019. We also allocated $79 million towards the repurchase of 7 million Magnolia shares. Importantly, 6 million of the shares we repurchased were Class B common shares, which are not included in the public float and are essentially the same as the Class A stock in terms of voting rights and economic value. Including outlays for our capital program, the acquisitions, and share purchase, we ended 2019 with $47 million more cash on hand compared to the prior year. One of our more important accomplishments over the last year was significant progress made towards further de-risking and understanding our Giddings field asset.
Our appraisal and exploration program, using our current multivariate model, along with associated science, improved our ability to predict and better target areas to drill at Giddings. We are beginning to see the results of our program to show up in our production mix. Two wells we brought online in Giddings in the later part of the third quarter produced approximately 1,700 b pd during their first 30 days online and have averaged more than 1,500 b p d during the first 120 days. During the fourth quarter, we added two wells at a combined rate of more than 1,100 b pd during their first 60 days. These wells are about 15 mi apart and are in new areas. These are essentially exploration wells. These recent new wells pushed up our fourth quarter oil production in Giddings by 24% sequentially.
We plan to allocate some incremental capital towards Giddings this year and given our improved understanding and increased confidence in the field. This additional activity will represent an early-stage development program for later this year, which will supplement our ongoing appraisal efforts. Initial plans should allow us to lower our overall well cost and capture some efficiencies that would be realized more broadly once we move to a larger scale development in the field. We continue to evaluate several small to mid-size bolt-on oil and gas property acquisition opportunities. While we were optimistic around the prospect for more bolt-on deals entering this year, the recent weakness and volatility in product prices has frozen the process. Maybe it'll thaw a little today.
In addition, the recent weakness in our share price has raised our cost of capital and lowered the amount we're willing to pay on a transaction. While we expect product prices to stabilize, we'll continue to be disciplined about our approach to M&A, keeping in mind that our objective around any transaction is to make the company better. Our strategy and business model for this year remains unchanged. Our D&C capital spending is expected to be approximately 60% of our cash flow, providing us with free cash flow while continuing to maintain low levels of debt. We anticipate shifting some of our operated capital towards Giddings as our non-operated activity in Karnes is expected to be 15%-20% higher than last year.
If product prices remain weak, we have the flexibility to adjust our spending on our operated activity to accommodate our model, as our operated locations in Karnes are not going away. Our free cash flow provides us the opportunity to allocate capital towards opportunities that are most beneficial to our shareholders. I'd like to talk a little about our business plan, which hasn't really changed. Like I said earlier, we tend to spend 60% ± 5% of our EBITDA on drilling, completing wells, and associated production equipment. After interest expense, our remaining funds are for acquisitions, share repurchases, and at some point, dividends. This drilling program should be enough to grow production a total of 6,000 Boe pd over the two operating areas. As far as acquisitions, we continue to have no large scale or public M&A.
We expect some bolt-on acquisitions, most likely in the Karnes area. A significant number of Karnes areas opportunities exist, which will be available over the next couple of years. Right now, it's hard to come up with a value for either the buyer or the seller. Our debt, of course, will continue to be minimal. A little discussion about the difference between Karnes and Giddings. The Eagle Ford Austin Chalk in Karnes is well known. The wells drill quickly. They have high oil cut. Wells have peak production in the first 30 days and decline sharply over the next few months. As a result, they have high internal rates of return and has a quick payback. All of our acreage is held by production. The best time to drill is when oil prices are high, because most of the production is obtained in a short period of time.
For oil $50, that's approximately what you're going to get for it because the payback is so quick. In Giddings, we drill in the Austin Chalk. There's two sources of production in the Chalk, one from the natural fractures and one as a result of the fracking process. This leads to a larger drainage area than would be expected from just the fracking process. As a result, the wells initially produce a lot of water, both formation and frac fluid for both sets of fractures. Peak production is generally around 90 days after completion, but the decline rate is much less than a Karnes well. Pay out is somewhat longer. The total amount of hydrocarbons produced over the life of the well is significantly larger than a Karnes well. Giddings wells are most appropriate if one expects future oil price to be better than current ones.
One of our objectives with the appraisal process is to reduce the overall cost. In 2020, we expect to reduce the per well Giddings cost by about 20%. Virtually all of our acreage there is held by production. We believe we have several large contiguous areas that are likely to work well, one of which is about 70,000 acres. It is about 100 sections. With four wells per section, that implies 400 locations in this one area. More than 10 years of inventory with two rigs running. We have just completed a two-well pad in this area. It appears that both wells are each capable of producing 1,000 bopd , plus around 3 million cubic feet of gas a day. In the current situation, the non-operated activity in Karnes is picking up.
We are currently operating one well in Karnes and effectively, through non-operated activity, have another two-thirds to a full net rig. We are also not abandoning Karnes, but allocating more capital to Giddings this year to enhance our development as the Karnes location is not going anywhere. By shifting our operating rig to Giddings over a short period of time, we expect Giddings production to overtake Karnes on a BOE basis, in a little longer period, overtake Karnes on a barrel of oil basis. With increased production at Giddings, we can start building a base of lower decline production in a more efficient manner, ultimately reducing the amount of cash flow needed to keep production flat. The price for this is lower volume growth this year, as the Giddings wells come on slower than Karnes wells, but also have a much shallower production profile.
I'd like to turn the call over to Chris.
Thanks, Steve. Good morning, everyone. I plan to review some of the highlights from the fourth quarter and full year 2019 results and provide some additional guidance for 2020 before turning it over to you for questions. Looking at slide four of the presentation that's posted on our website, we reported total net income for fourth quarter 2019 of $13.6 million, or $0.05 for diluted share, and $85 million, or $0.28 per diluted share for the full year. Fourth quarter adjusted EBITDAX was $171 million, with 42% spent on drilling completions and related production equipment or D&C capital, which was lower or better than our earlier outlook. For full year 2019, we spent 60% of our adjusted EBITDAX on D&C capital, which is consistent with our business model.
As product prices declined, we stayed disciplined around our spending, reducing our D&C capital to 45% of our adjusted EBITDAX during the second half of 2019. Total production for the company averaged 68,3 00 Boe pd during the fourth quarter, a 10% increase compared to last year, and with oil production representing 52% of our total volumes. We increased our net acreage position in the Karnes area by more than 30% during 2019, adding nearly 5,200 net acres through bolt-on acquisitions. As shown on slide five, our cash flow from operations before changes in working capital for the fourth quarter of 2019 was $163 million. Our total D&C cash outlays for oil and gas properties was $70 million during the period, or approximately 43% of our cash flow from operations before changes in working capital.
Like every quarter since the company's inception, we generated free cash flow during the fourth quarter, generating $93 million of free cash after capital during the period. We repurchased 6 million Class B common shares of Magnolia stock in the fourth quarter for $69 million, ending the quarter and the year with $183 million of cash on the balance sheet. Slide six shows a summary of the company's total share count since Magnolia's inception, including the breakdown between Class A and B common shares. We repurchased a total of 7 million shares, including 6 million Class B and 1 million Class A shares through year-end 2019. The shares repurchased have roughly offset the 7.3 million shares we've issued for acquisitions. We also completed the exchange for all our outstanding public warrants, which added 9.2 million Class A shares to the public float and simplified our capital structure.
As Steve mentioned, both the Class A and Class B common shares are essentially identical in terms of their voting rights and economic value. However, since the Class B shares are not publicly traded, the repurchase of these shares did not diminish the public float. There was a total of 253.1 million shares outstanding at the end of 2019. Our long-term debt remained unchanged, ending the year at approximately $390 million, and our net debt as a percent of total equity is approximately 8% as part of our ongoing policy of maintaining low leverage. Summary balance sheet as of December 31, 2019, is shown on slide seven. If you look at slide eight, our total fourth quarter 2019 cash operating costs, including G&A, was $9.80 per BOE, a 10% decrease from the prior year period. We expect our per-unit cash operating costs, including G&A, to be similar in 2020.
I do want to highlight the improvement in our drilling completion and capital efficiencies at Karnes during 2019. Our drilling days have declined about 15% from 2018, and pumping hours per day have increased 10% compared to last year. These improvements resulted in a 13% year-over-year decline in the cost per stimulated foot. In Giddings, we are expecting total well costs to decline about 20% compared to last year's levels as we move towards development drilling later in the year. As shown on slide nine, our proved developed reserve additions during 2019 were 35 million barrels of oil equivalent, an increase of 13% compared to prior year levels, and we replaced 142% of last year's production. Our total D&C capital and proved property acquisition costs last year were $523 million, providing a proved developed F&D cost of around $15 per BOE.
This F&D cost is representative of our full cycle cost of development and should be closer to the DD&A rate that runs through our income statement over time. We limit our PUD bookings to a one-year development plan for the wells we expect to drill and complete this year. Turning to guidance for 2020, we expect to spend approximately 60% of our adjusted EBITDAX for D&C capital. This core characteristic for our business model remains unchanged. While our current plan anticipates drilling and completing a similar number of wells in 2020 as compared to last year, improved efficiencies of our drilling program, combined with lower oil field service costs, should reduce our overall well cost by about 10% compared to last year. We estimate that this year's capital and activity program would result in total year-over-year growth of approximately 5%, including growth in Giddings Oil production of more than 20%.
Based on the pace of our capital spending and estimated non-operated activity, we expect the shape or pattern of this year's quarterly production profile to be comparable to 2019, with higher spending and activity levels seen in the earlier part of the year, followed by increased production during the second and third quarters. As Steve mentioned, based on our increased confidence and strong results in Giddings, we plan to move our operated rig in Karnes to the Giddings field later this year to begin an early-stage development program. The additional Giddings activity is expected to be evident in our production volumes through this year. We also expect to lower our overall well cost in Giddings and capture additional efficiencies through our experience that would be recognized more broadly through a larger-scale development of the field over time.
First quarter D&C capital is expected to be around 85% of our adjusted EBITDAX at current product prices and our heaviest level of spending during the year. We currently estimate that our non-operated capital and activity in Karnes to increase by 15%-20% versus 2019 levels. Despite this higher rate of capital, we expect to generate free cash flow in the current quarter and throughout the year as our spending gradually declines. As noted in the press release, we estimate our total production in the first quarter to be around 65 Mboepd , as most of the wells turned in line are expected to occur in the latter part of the quarter. Oil production is expected to be approximately 52% of our total volumes for the period.
If we're faced with a continued weak product price environment, we have the flexibility to adjust our activity levels to keep our spending around 60% of our adjusted EBITDAX. To wrap up, I point you to slide 10, summarizing our cash flows for 2019, where we generated $658 million of cash flow from operations before changes in working capital. Our cash outlays included D&C capital for organic drilling program of $435 million, $86 million of cash for acquiring small bolt-on oil and gas properties, and $79 million towards the repurchase of Magnolia common stock. We had $47 million more cash on the balance sheet at the end of 2019 than at the start of the year, and we did not incur any additional debt. Like last year, we expect to generate free cash flow every quarter in 2020.
Our D&C capital is expected to be approximately 60% of our adjusted EBITDAX, and we plan to shift some of our development spending to Giddings from Karnes later in the year. Although the M&A environment remains volatile, as Steve mentioned, our continued focus is to generate free cash flow, providing us with options to further enhance our business and the value of our stock. We're now ready to take your questions.
We will now begin the question- and -answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Neal Dingmann of SunTrust. Please go ahead.
Morning, Steve. My first question is on Giddings. You all mentioned moving the second rig to Giddings to focus on development activity in the play. I'm just wondering, in your prepared remarks, you gave some detail on a few sections. Could you provide further details, you or Chris, on what gives you the increased confidence to begin that development process there?
It's pretty straightforward. We have a model for locating the wells. The model is delivering actually better results than the model predicted. We have a certain part of it to which we have a very high degree of confidence. A lot of the activity that you see around is designed to extend that. There's part of it that's fairly predictable. That's where this well will go. We're just completing a two-well pad in this area. The wells are 1,000-barrel-a-day wells. That's oil. We've got 3 million, 4 million a day of gas. It's pretty easy to see. You understand this is not a seismic shift. Talking about one rig, basically half a rig on a year basis. This is a $30 million-$40 million shift. It's really driven by the high degree of non-op drilling by people around us in Karnes.
Karnes will be important, and we still see a lot of acquisition opportunities in Karnes over the next few years. I think we have to get to the point where we know the pad drilling will work. The wells have fairly predictable ultimate recoverable reserves. We know we can bring the cost down materially in this environment. There's no reason not to do it. Again, we're driven principally, we start out with the 60%. We're only going to spend 60%. We're not going to spend 100%. If we wanted, we could make any production growth we wanted just by doing all Karnes wells. Problem is that the wells have a sharp decline. What we're trying to do is build a base of production that doesn't decline as much, so this is easier to manage.
Karnes is wonderful, but it's actually more wonderful when oil is $60 or $70 because you know oil comes back so quick that you know what you're going to get. When oil prices are lower, you cut back and try to build a base for the future. Not very complicated, but I think the shift is pretty small in the total. The only issue it has is that because the Giddings wells don't pop up by huge numbers in the first week, it takes 90 days, really, for them to settle down. It'll slow the growth rate. As the year progresses, and it'll be going to next year, the growth rate will start to show up because you'll have this base building. I don't think there's a lot of question about this size program and how well it'll do.
We continue to be surprised at the extent of areas that we didn't think would be so good and are working out okay. They're not proven or whatever yet. At this point, I think we'd be remiss in not expanding the program, but we are determined not to significantly exceed the 60%. If we exceed the 60%, it's because of a forecasting failure on our part. The price of oil goes down and that's all. We can't stop the drilling. That's what drives our business. Our business is not driven on volume growth. It's based on financial strength.
No, I agree with the shift, and hopefully, the market better realizes the value you have in Giddings.
Well, we also have cash on our books. Since the company doesn't sell stock, then it might buy some. From our perspective, while it's unpleasant maybe for a shareholder, frankly, I'd rather buy the stock at $9 than buy it at $25.
Well, right. Steve, you really just funneled that right into my second question. Your comment just on production growth, it seems your production growth has been a little bit flat here the last couple of quarters. I know there's been some comments out there. I think that's what some investors have been commenting, maybe what's been hitting the stock. You started to talk about this a little bit. Could you give your thoughts on how you and Chris view just looking at production growth versus maybe free cash flow or other metrics that you all might use?
Yes. Production growth is an outcome of the cash flow discipline. It's not the goal. The goal is to use the money as efficiently as possible to generate as much value as possible. Value is in reserves and cash flow, current cash flow. We could make the growth any number you want. If we ran 85% through the whole year, we'd probably grow 15%. We're not going to do that. It takes about, near as I can figure, 50% of cash flow to keep us flat. Anything above that will make us grow some. We could drill more Karnes wells and make whatever number somebody wanted. That's not the business model we told investors we're doing. The locations don't go away for us. We don't have any debt, so we don't have any debt coverage issues that some people have.
We're not trying to make sure our revolver stays steady. We're not going to trip any covenants. Other people have different issues, and they want growth. The world oil demand is going to grow, let's say, less than 1% this year. People want the production to grow 20%, and they wonder why oil prices are not so attractive. It's not the Saudis. You've got to live within your cash flow, and when oil prices are low, you have lower activity. When oil prices are high, you drill more, and that's the way the industry should react. Certainly, the gas industry ought to react that way. Anyway, probably more than you wanted to hear.
No, I appreciate all the details. Thanks so much.
Thanks.
The next question comes from Jeff Grampp of Northland Capital Management. Please go ahead.
Morning, guys. Appreciate all the thorough thoughts here. Steve, was wondering, big picture, you mentioned how the shift to Giddings and allocating more capital and growing that base sounds like provides a better, stable production base for you guys to build off of going forward. You also mentioned that the 50% cash flow maintenance level mode. Was just wondering, does this all part of a bigger plan, longer term, to set up the dividend story for you guys? To the extent you feel comfortable putting out any timeline for when you think the business matures to that level. Was just wondering, is that part of the strategy, or is it really just more straightforward?
Having money is always good. It's always good to have money because it has flexibility. I generally believe in dividends as a way of providing management with discipline. If management's undisciplined, they'll do stupid things with the money, like pay themselves $5 million a year. I think we'll get to the dividends over time. I do think that this year, there'll be some bolt-on acquisition opportunities in Karnes as people get over the roller coaster ride they've been on. We'd be able to add and get our total production up some. Some will come from drilling, and some will come from bolt-ons. I don't like debt. I think as a practical matter, I think this year will be a busy year for us.
Once we get to a more stable base and a little larger, so I can spread more overhead over a stable base, I think that's the time to be talking about dividends. We're not going to be able to compete with Exxon for dividends or for The Accidental Linoleum Corporation or whatever for dividends. You're just not going to be able to compete with that sort of situation. We got to compete on a total value basis. I think there's no question about our commitment to free cash and not wasting the money. Maybe with some of the others, the dividend just proves that they now have religion, but I don't know what the religion is.
Understood. I appreciate those comments. For my follow-up, just going back to Giddings here, was just wondering the more medium-term plan. The second rig comes in. Is the idea that that is there for the foreseeable future, and to the extent you mentioned if the front end of the curve bumps up, Karnes becomes more attractive. Is that the catalyst to.
That's the catalyst. I think we'll create more value with the rig in Giddings right now. If non-op goes down or the price of oil goes up, we'll have more cash anyway. I would expect we'd put the rig back into Karnes. I would think a year from now, we'll probably have the rig back in Karnes, would be my guess, if everything works okay. We still might have two rigs in Giddings. My hope is to run two rigs in Giddings, one in Karnes, and then one shadow rig, essentially, from the non-op. That's where we'd like to be. Right now, that doesn't tie with the 60%. When we get to the front. Go ahead.
The idea would be with, I guess, some growth from Giddings, coupled with maybe a couple of dollars on the oil price, that can allow you to.
That's right.
More capital into Karnes without breaking the model.
That's right.
Got it.
We can't break the model. You could always fool yourself into spending more money.
Got it. Heard you crystal clear.
That's the history of the industry.
I hear you, Steve. Thanks for the time, I appreciate it.
Thanks.
The next question comes from Leo Mariani, excuse me, of KeyBanc. Please go ahead.
Hey, guys, just a question on free cash flow. Obviously, you guys talked about some potential M&A later this year. I guess you really didn't do any deals in 4Q. It doesn't sound like anything's happening in the short term. Sounds like the dividend's way off. We obviously had the buyback that you did in 4Q, which seemed one-off on the Class Bs. Just wanted to get a sense, is that something we could see in the future, is potentially purchasing chunks of some of those Class Bs from time to time, in the absence of M&A here in 2020?
I sure hope so. Again, I don't control that process. I'd like to, but I don't control the process. It's controlled by EnerVest, and I've no idea what their plans are.
Okay. Understood.
I've got a pretty high degree of confidence in the bolt-ons this year. I wouldn't take my comments to it as all that definitive. You've got a number of people that are out there that tried to sell last year that couldn't sell. They thought they might have a window when the oil price went up for a couple of hours. Prices come down, they get deflated. In the end, they're better off. There's never been a bad time in the last decade to sell your oil assets, small oil assets.
Yep. No, that makes sense for sure. I guess, just wanted to touch on some of the non-op activity in the Karnes area. I guess you guys were saying, hey, it's up 15%-20% this year. I guess with that being said, certainly you got production lower, it sounds like, in the first quarter. A lot of those wells may be coming on later. Just wanted to get a sense, do you guys have good visibility on some of the timing of that production coming on in the Karnes area, just given the whole lot of new wells this year?
We got pretty good timing. Don't forget, we have AFEs from them, and a lot of those wells have been drilled. There's completion crews on them. What it looks like, big picture is, it was slow in the beginning of this first quarter, the production, and then it's picked up sharply as the wells that were DUCs at the end of the year have been completed. It's back-end loaded, and of course, you got half the quarter gone already. As we go into the second quarter, production should be up nicely.
Okay. No, that's helpful for sure. I guess you guys also said that there were two recent wells, I guess, in the Giddings area, that I guess weren't part of some of the prepared press release comments.
Correct
that maybe just recently fracked. I guess those sounded particularly strong. I know you guys said you've generally been surprised to the upside by the predictive model you guys are using. Just anything unique about those two new wells or anything? Is it sort of in a new area, or?
They're actually in the area that we have a high degree of confidence in, and we did it off a pad. The fact that the wells are the same, obviously went in different directions, but the wells are the same gives us confidence that the model is not producing a variable result, but actually a real result.
Well, that's helpful, and I guess that also gives you confidence on the well cost reductions on the 20% as well?
That's right.
Okay, great.
I would hope for more than 20%, to be honest. They only let me set 20%.
Okay, great. Thanks a lot. I appreciate it.
Thanks.
The next question comes from Don McIntosh of Johnson Rice. Please go ahead.
Morning, Steve. Just wanted to clarify on the two new Giddings wells that Leo was just asking about. Are those two different than earlier in the call when you were referencing how you found that y'all had an area, like a 70,000 contiguous acre block, that it was more of a step out and that you were highly confident in? Are those the same two wells you're talking about in both instances?
No.
The acreage block is a part that we have a high degree of confidence in. These two new wells off the pad in that block. The other wells are way off the block. All the other wells we've talked about are nowhere near the block.
Okay. That's what I thought. Just wanted to clear up on that. On the third quarter, you talked about bringing on three new wells at Giddings for the fourth quarter.
Yeah.
Obviously, you came in with the two. Just wondering what pushed that third one out. CapEx came in a little lower as well there, so helped you on that end.
It just got delayed. It's, I think, on now, sort of.
Okay, great. Then for a quick follow-up, on the cost side, LOE and transportation came in ahead of what we were looking for, and just wondering if, the $3.66, $3.70, is that something that we can look at going forward? What are the drivers there on LOE with, as Giddings starts to become a bigger part of the program?
Yeah, the LOE and the GP&T should be fairly consistent going forward. I don't.
The Giddings area, a lot of Giddings oil is trucked.
Right.
As the production builds up, we're trying to figure out ways to reduce the trucking. We may do something to fix that because we think the volumes are going to be large enough that we need to do something more permanent than putting it on a truck.
Okay, great. Thanks. That's it from me.
Thanks.
The next question comes from Kashy Harrison of Simmons Energy. Please go ahead.
Good morning, Steve, Chris, Brian. Steve, in your prepared remarks, you talked about the 400 locations with the 1,000 b pd at the 90-day mark, 3 million cubic feet of gas. Really appreciate the color there. If I recall, you've also talked about Giddings having 1,000 locations conservatively, in prior presentations. When you think about those remaining 600 locations that you've conservatively highlighted, how would we think about an average oil rate to go along with the 600?
I don't know. The 70,000 was sort of an example of one area. We got several more areas. In some of those areas, we only have one or two wells. In this larger block, we've got more. I don't really know. It's just hard to do it. With two rigs, it will take the rest of my natural life, maybe yours, to drill it up. Our interest is basically to define it and then figure out what the program to develop it will be. That's going to take us a while. I think the only point of the 400 locations was to say, we got 10 years of activity as a minimum with two rigs, maybe more.
You should view it as, I don't know when we'll do some exploration to square it up. Some of those areas may be better than this block, by the way. We just are not in a position to forecast beyond this because it's plenty for now.
Got it. You also talked about reducing the well cost by 20% or even more in 2020. Can you give us a sense of CapEx per well or CapEx per rig in the Giddings Field today? Based on what you know about the characteristics of the field, do you think it's possible that those costs could eventually come down to costs around the Karnes Area?
The wells, to this point, we've taken cores and a lot of science fair sort of stuff to gather data, so we understand what we're doing. As we drop that, the wells should be in the $7 million range. The formation is deeper here than in Karnes, because we have so much acreage, we're drilling 6,000-foot laterals at this point, because we're not really restricted by acreage. We may drill longer laterals at some point. It's a more complicated drilling because of the field. I think around seven right now, and I would hope at some point we'd be down in the five and a half to six. I think that's a little ways away.
Got it. No, that's also very helpful. Finally, I know you've talked about having a high confidence on bolt-ons for 2020. We've heard of assets outside the Permian, sounds like they may be going for PDP, PV-15s, or maybe even PV-20s these days. Just wondering what you're seeing on valuations in general in the Eagle Ford and the A&D space.
Yeah. The problem is we make a bid, we win, but they don't sell because they want more. The fundamental issue is that we're willing to pay a reasonable price for the PDPs, and we're not willing to pay very much for locations. They want money for the locations because two years ago, some guy told them the locations were $5 million each or something. A lot of these are private equity people that have marked to market their assets on some basis that I don't quite comprehend. They're not prepared at this point to take a loss. At some point they'll take the hit. For right now, they don't really want to take a loss. I'm not really concerned. There's not a lot of buyers for this sort of asset.
The only value really is for somebody who can integrate the assets and spread your overhead. These companies may make eight, nine, $10,000 a day, they got overhead of $30 million or $40 million. We can make that all go away. That's the only value. Somebody couldn't buy it and run this asset and then make any money with that kind of overhead. Our principal objective is not just more locations, that would be nice, but also to spread overhead. That's a real value add that we have compared to somebody else who wants to start all over again.
That makes sense. Very helpful. Thank you.
Thanks.
This concludes the Q&A session and the Magnolia Oil & Gas fourth quarter and full year 2019 results conference call. Thank you for attending today's presentation.
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