Earnings Call: Q1 2020

May 12, 2020

Greetings, and welcome to the Ring Energy twenty twenty First Quarter Financial and Operating Highlights. At this time, all participants will be in listen only mode. Any brief question and answer session will follow the formal presentation. Please note that this conference is being recorded. At this time, I'll turn the conference over to Mr. Tim Rochford, Chairman of the Board of Directors of Ring Energy. Mr. Rochford, you may begin. Thank you, operator, and welcome all listeners to our twenty twenty first quarter financial and operations conference call. Again, I'm Tim Rochford, Chairman of the Board. Joining me on the call this morning is our CEO, Kelly Hoffman our President, David Fowler Randy Brodrick, our CFO Danny Wilson, Executive VP and Head of Operations Holly Lamb, VP of Engineering and also Bill Parsons, our Investor Relations. Today, we're going to provide a quick, concise overview of the financial and operational results for the first quarter. And as we did on our year end twenty nineteen conference call, we'll spend the majority of the call identifying, discussing and summarizing the factors that directly affect the current and future operations of your company. At the conclusion of the first quarter review, we'll turn it back over to the operator for opening up questions to the listeners. Now at this time, I'm going to ask Randy Broderick, our CFO, to give us a brief overview of the activity financially in the first quarter. Randy? Thank you, Tim. Before we begin, I would like to make reference that any forward looking statements which may be made during this call are within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a complete explanation, I would refer you to our press release issued Monday, May 11. If you do not have a copy of the release, one will be posted on the company website at www.ringenergy.com. For the three months ended 03/31/2020, we had revenues of $39,600,000 net income of $43,800,000 and earnings per diluted share of $0.64 This net income included a pretax unrealized gain on hedges of 47,100,000.0 Without this unrealized gain, after the effect of income taxes, our net income would have been $7,200,000 or $0.11 per share. This unrealized gain is recorded because the value of the derivatives changed as a result of the changes in oil price. During the quarter, we had $23,900,000 in net cash flow and $16,000,000 in capital expenditures. For post CapEx positive cash flow of approximately $7,900,000 For the three months ended, we had sales of 855,603 barrels, gas sales of 795,551 Mcf for a total of 983,195 Boe. Our received prices were $45.16 per barrel of oil, dollars 1.22 per Mcf of gas for an average BOE price of $40.25 On prior conference calls, we have made comparisons of our current results with the prior year's results for the same time period. We have refrained from doing that this time in order to spend more time on current events. Those comparisons are in the news release put out yesterday. Before I turn it back to Tim, I'd like to highlight a few key points that I believe are major factors in our ability to operate in the current environment. For the first quarter twenty twenty, we had a pretax realized gain on hedges of $3,300,000 that's realized versus unrealized before. This amount was received in April for March hedges. The hedges we have in place are financial instruments and we will be paid based on the hedges we have in place versus the index price regardless of any actual production or sales. We do not have to have matching production to receive payment on the hedges. The spring redetermination on our credit facility is in process. We have provided the bank group with the normal information we generally provide, including updated reserve information. We are currently in compliance with all covenants of the credit facility. The redetermination should be completed within the next few weeks. We had an opportunity with some of our vendors to receive discounts on outstanding invoices in return for paying those invoices up to current. As such, we drew $21,500,000 on our credit facility in order to make those payments, and in return, we have saved over $2,000,000 As most of you are aware, we filed an S-three recently. This was a shelf registration. This was done because the shelf registration we had in place previously had expired. Ring has always kept a shelf registration active as we believe it is prudent to have that availability if needed. The company does not have immediate plans for use of this shelf registration. With that, I'll turn it back to Tim. All right, Randy. Thank you. I'm going to ask Kelly, our CEO, to give us a brief overview of the activity over the first quarter. Thanks, Tim. As Tim mentioned in his opening comments, we feel it's very important to minimize the time spent on the call reviewing our first quarter. And you've already heard, but there is a release describing in detail the financial and operational results for the first quarter that was put out yesterday. And as Randy mentioned earlier, if you have not seen it, a copy of that is available on our website on ringenergy.com. Now we've been experiencing now no, really everyone has been experiencing, every operator is experiencing right now is an unstable, unpredictable pricing and storage dilemma. And because of the lack of storage capacity, there's a large differential between WTI spot pricing and the actual price a buyer is willing to pay or the wellhead price. Until the markets improve and we begin to see the world economics at work again, we have to be prepared for this continued uncertainty. And before I turn it over to Hollie and Danny to give you a little more color on several of these items, there's a couple of things I want to point out. First of let me address the Delaware sale, which as many of you know, we previously announced that we had entered into a PSA in April and the buyer has now started required due diligence. We're continuing forward with the answering questions and field visits and things of all that nature as they come up. Closing is still estimated to be in June and we plan to use the proceeds to reduce our outstanding debt once we close the transaction. Also worth mentioning is that we continue to cut costs. You heard Randy mention that reduction in invoices, things of that nature, but we've gone over and above that. Besides us already being a very low cost operational company in general, we've continued to reduce G and A, we've continued to reduce LOE and especially our CapEx across the company and we'll continue to cut those costs as we are able and as needed going forward. And with that, I'd like to ask Danny, our Executive Vice President of Operations and Hollier, our VP of Engineering, to walk you through the steps that we're currently taking that we believe are necessary to ensure our ability to not only weather this storm, but to come out a stronger company in the end. Danny? All right. Thank you, Kelly. I appreciate it. Let me start out with just a real quick recap of our first quarter operations. For the quarter, we spent, as Randy mentioned, about $16,000,000 in CapEx. During that time, we drilled four wells and performed nine rod conversions. The drilling consisted of two one mile and two one point five mile wells on the Northwest Shelf. The average IP on these new wells was over 600 BOE per day. And although our total production for the quarter was down slightly from Q4, we were able to finish with a higher exit rate of 11,474 net BOE per day in March versus 11,270 BOE in December. And this is with only drilling four wells in the quarter. A little bit of lumpiness there is just caused by timing, nothing else. Using our new frac procedure and our refined drilling and completion techniques, we started using at the beginning of the fourth quarter. Our new wells continue to exceed our type curve and our expectations. In a few minutes, I'm going to address our current operations and our future plans. But for now, I'm going to turn it over to our Vice President of Reservoir Engineering, Holly Lamb, to address a few issues. Hi. This is Holly Lamb. I am touching base on an article that was published late last week and reinforcing how we look at our reserves. The article made a first assumption that all St. Andrews wells are the same everywhere in the Permian Basin. There's a great variation in St. Andrews depositional environments across the Permian Basin. And amongst the individual basins and platforms that are subgroups within the Permian Basin. These different environments result in different rocks with different reservoir characterizations such as pay thickness, permeability and porosity to name a few. Our lateral lengths of our wells that we have completed to date vary from nineteen twenty nine feet to 7,088 feet. Our type curve is 5,080, which is an effective one mile lateral. We derive our St. Andrews horizontals from two independent geologic areas with different depositional environments having very different pay thicknesses that range from 500 feet to 100 feet. They contain multiple spacing options, multiple benches, and we have completed them with various techniques. How do you make the assumption that all wells are equal? Only 6% of our wells IP on the first day of the month based on what we've done thus far. Using public data, one would only observe the highest recorded month, which means 94% of the time, a thirty day IP drive from public sources would be wrong. Therefore, their assumptions are correct 6% of the time. Assuming their math is correct 6% of the time, we can then focus on type curves, which are not solely a function of historical data. They also include what geological region they reside in, the pay thickness, landing zone, how we evaluate the landing zone, percentage of lateral end zone, the length of completion, type of completion and how we bring on our initial production. As far as their assumptions on the reserve report, there are many assumptions that go into a reserve report, except where we are, we have the data so that the assumptions are very calculated. They include LOE differentials, working interest, net revenue interest, non operated properties, PUD timing, PDMP cases, recompletion opportunities and many others. Our reserves are independently reviewed by a third party engineering company that is very well known. Colleague Gillespie and Associates began serving the oil and gas industry over fifty years ago and has continued an uninterrupted business throughout the decades and today delivers professional, ethical, reliable engineering and geological services for the petroleum industry. They have major clients such as Concho, GE Financial, Wells Fargo, UBS, Morgan Stanley and ConocoPhillips, but they have hundreds of both public and private clients. Our reserves are also reviewed twice a year by our syndicated bank groups, which all have in house engineering departments. All data that is entered into our database is independently examined by internal and external auditors. As Danny mentioned, as of the six wells we IP ed in 2020, all of them were Northwest Shelf wells, and they had a range of IP of four thirty eight BOE to as high as eight thirteen BOE per day, with an average of five fifty eight BOE per day. The four wells that we completed in Q1 twenty twenty had an average IP over 600 BOE per day. Our type curve is 400 BOE per day. This year, we have exceeded our type curve on every single well that we have drilled. We have stated on various occasions that our IPs are statistical and that there are going to be better and worse areas. But what I think our 2020 drilling has demonstrated is that we've hit the sweet spot in the Northwest Shelf, and we're excited about getting back to drilling when the market is ready. Danny, with that, I'll hand it back to you. All right. Thank you, Holly. I want to add just a few points of emphasis on what Holly has to say. First, it's extremely difficult to adequately perform a reserve evaluation based on publicly available information only. There's just too many assumptions that have to be made. Every year we have a small army of professionals whether it's third party engineers, engineers at our banking syndicate, the bankers themselves, our independent third party auditors and our internal auditors that review our information every year, twice a year. These people have full access to our production, reservoir, geological, land and financial information and they've reaffirmed our reserves twice per year every year since we have been in business. And the third point I'd like to make is much like someone who claims that something isn't about the money, we always know it's about the money. It has been my experience that when somebody claims that they don't have an agenda as is the case with this recent article, we always know that there is an agenda. And with that, I'll move on to our current and future operations. Beginning in mid April at the request of our purchaser, Phillips sixty six, we began curtailing production on the Northwest Shelf from a little over 7,000 barrels a day down to 6,000 barrels a day. They, like every other purchaser, were concerned at the time about having adequate storage, but also wanted to keep enough oil flowing to meet their needs at their Borger refinery. Based on the crash in oil prices we saw at the April, we proactively took further steps to lower production outside of the Delaware to near zero by the twenty sixth of the month. Starting about a week ago, we began turning on some of the wells at a reduced rate with the goal of producing enough oil to show production on every well in the CBP and Northwest Shelf during the month of May. Currently, are producing at about 15% to 20% of normal production capacity exclusive of the Delaware. We are accomplishing this by turning on a few wells at a time, letting them produce long enough to show production and then shutting them in and turning on another set of wells. In April, when we started shutting down the wells, we went through a process of pickling the wells with chemical which included corrosion inhibitor, paraffin control and scale inhibitor. This was done in an effort to ensure that we have the least amount of trouble when we restart the wells. This process will be followed again each time the well is shut in until prices recover enough to bring the wells back on full time. As for holding the leases under our existing wells, we feel that we are being proactive in satisfying our lease obligations with our current strategy by showing significant production from each well each month and then selling the oil when it makes sense. On our undrilled acreage, we're exercising options where we can and negotiating with the mineral owners for extensions on the remaining acreage. And so far this has been working out quite well. When the time comes to bring production back to full speed, we feel this can be accomplished over a ten day to two week period. Our rod pump wells can be turned on at full capacity with no problems, But the ESPs must be restarted slowly and then sped up over a number of days until they can reach full capacity again. As for our pricing required to bring production back on, just like everybody else, we're monitoring prices and differentials daily. We believe it makes the most sense to turn the wells back on to full time production. Once we see sustained pricing in the low to mid $20 per barrel range. And that's at the wellhead inclusive of all differentials and transportation costs. And I just want to remind everybody that's not a one day event, that is an average across a month. We get paid on a monthly average. So we say that we need to see sustained pricing near $20 because we don't want to get caught in a W shape type pricing scenario where once prices get back to a point everybody feels comfortable turning their wells back on, that everything comes back on to full production, not just us, but everybody else. And all of a sudden we're back into a storage capacity issue again. So we want to see that pricing sustained over a period of time before we're willing to bring our wells back on full time. Our purchasers are anxious for us to come back online as soon as possible. I have daily and constant communication with our buyers. The purchasers are being very creative with the ideas to give us some guarantee of price stability. We've had several discussions with purchasers that ask what price do we need to be at and they're looking at the possibility if we can reach that point at some time during the month, they will go out and secure pricing that will allow us to have stable prices for a period of time whether it's a month or two months, whatever case may be. But in all cases, they're extremely anxious for us to get back to production. As for drilling, we feel like our prices need to be sustained in the mid-thirty range, again inclusive of all differentials and transportation costs. At this level, our economics, particularly in the Northwest Shelf become attractive with our internal rate of returns in the 70 plus range and our discounted ROIs of approximately 2.5:one. As Randy mentioned and it's in the press release, we have amended our CapEx for the year. As you've seen, we've reduced it to $25,000,000 to $27,000,000 with roughly $16,000,000 of that being spent in the first quarter. The range of spending is to account for the unknown timing of returning wells to full production and doesn't account for any drilling for the remainder of the year. This lower budget emphasizes our focus on maintaining free cash flow while still being able to form the critical task needed to maintain the integrity of our operations. Even though we are producing at a significantly lower rate, there is still work to be done. We plan to continue our program of converting wells from ESPs to rod pumps as needed. Typically, this will be done when a well when and if a well fails. And we will also continue rightsizing our ESPs when it's appropriate. We're seeing tremendous progress in lowering our equipment failure rates as we go through this process and thereby lowering our LOE and future capital needs. And with that, I'm going to turn it over to our President, David Fowler. Thank you, Danny. Over the past several weeks, I've had a number of conversations with Midland operators representing both independent and private equity backed management teams to just gauge what percentage of their production volumes had shut in or curtailed. Two private equity backed management teams I spoke with both had exceptional hedge books and really only had minimal production cuts. One had a shut in of approximately 20% and the other one was about 5%. Now the majority of the independent producers I spoke with reported shutting in 100% of their production. All remarked that selling a barrel of oil for a single digit oil price was just simply giving it away and most of those were unhedged of course. The independents that were still producing, but on a limited basis had a few leases with extraordinarily low lifting cost and were able to continue to pump those wells profitably. There may be some exceptions, but the independents who shut in all of their production did so voluntarily due to oil price and weren't necessarily curtailed by their purchasers. An interesting insight from an operator that I hold in high regard shared that the rapid pace of shut ins across the Permian Basin and other basins have been so significant that it has caught some oil purchasers long on their nominations and that they're now coming up short on barrels. As a result, they're reaching back to producers with a stronger wellhead oil price to get more barrels to flow their way. Based upon my limited conversations, it seems to indicate that the magnitude of the shut curtailments by independent operators across The U. S. Be substantial and may mirror the 1,000,000 to 1,500,000 barrels reported by public companies to date. If oil prices at the wellhead stay sub-twenty dollars a barrel, shut ins will probably continue through May and June and it may prove out that the 2.5 to 3,000,000 barrels a day that has in fact been shut in or curtailed across The U. S. Could have a positive impact on the speed at which the market rebalances. Of course, time will tell. On the M and A landscape, we anticipate deal flow to be robust between now and year end and as companies seek to consolidate with peers that have leasehold positions in similar geologic plays. The motivation or purpose is to create a stronger, better financially positioned E and Ps, so when the energy supply demand picture improves, they'll be far better off. Though we stay attentive to what's going on in the market in our core areas, our primary focus remains staying on strong financial footing so that we can successfully navigate the volatility in today's market. And Tim, I'll turn it back to you. All right, David. Thank you. I'm just going to make a couple of comments before we turn it over to the operator. So I think it's important to point out that as cofounder of Ring Energy and Chairman of the Board, I personally want to thank all of our management team, all the support personnel for the tremendous job that's been done in this very unparalleled time. I've been in this business forty plus years and I've been through a number of cycles both good and bad. This management team has worked around the clock, examining every aspect of operations, all for one reason, to posture Ring Energy not only to survive, but to excel. We will focus going forward, we will focus our attention on the two excellent assets at hand, Northwest Shelf, Central Basin Platform. Both of these assets have years of drilling and development opportunity. I am confident in our ability to become one of the post virus, post war or price war success stories. So with that, I'll turn it over to Rob, our operator. And Rob, you go ahead and open it up for questions that we might have for our listeners. Thank you. We'll now be conducting the question and answer Our first question is from the line of Neal Dingmann with SunTrust Robinson. Please proceed with your question. Good morning, all nice details. Kelly, looking to my first question is really on your financials. I just want to make sure I'm clear. If you all could I think I heard this right. Just want to make sure that truly that you all when you look at your total overhead that that in fact could be covered with just the financial hedges going forward this year. If you could talk a little bit about that, it's kind of part of that question, would maybe just give some color on I would lump that in there kind of survival plans in these lower prices, if you could just lump sort of cost with these hedges in there? Sure, Neal. Thank you, Neal. Look, good question. Let me just answer that quickly and then hand it over to Randy and he'll give a little more color on it. The short answer to that is yes. Yes, our hedges will cover our overhead going forward. But Randy, do want to add a little more color on to that? Sure. Yes. At sub-thirty prices, the hedging does provide enough cash flow to cover our overhead, G and A, interest expense and so forth. Obviously, as discussed at $30 prices unless the differential is out of line, we would be bringing production back on. Then at lower WTI prices, hedges actually would generate even more income. So as Kelly said, short answer, yes, the hedges would provide enough cash flow to cover our overhead. Very good. And just one follow-up on the ops, if I could maybe turn it over to Danny. Just it's been over a year now since you guys have been active in the shelf. And I'm just wondering how do you think about the latest curves in that play now versus I'm looking I think it's Slide 11, if I recall, today's slides or prior curves. And maybe if you could just give some thoughts on again, know you don't have new curves out, just Danny, any color you could give around that? Thanks. Yes. No, I appreciate that, Neil. Now look, we the curve that you're looking at on the Slide 11, which is our type curve for the Northwest Shelf, that's one that we came up with when we were doing Wishbone acquisition and that was our work that we did looking at the wells that they had drilled and then using that as a model going forward. And we knew it was very conservative. We came in and after visiting with some of the other operators in the area, particularly with our friends over at Stewart Energy, we came up with a very different type of frac than we've been doing on the Central Basin Platform. We also came up with some different types of techniques for completing the wells and even bringing them on production at slower rates to avoid things like the scale issues that plagued some of the early operators on the Northwest Shelf. And by doing that, we've seen exceptional results out there. We've contemplated over when will we be willing to update this curve. As I mentioned in my talking points that we really only started this new procedure early in the fourth quarter. And even though we know it's successful, there's no doubt about it and that we're exceeding the type curves. We'd like to have a little bit more history on it before we update that curve. And not to mention that, that curve also takes into account what we think we're going to encounter as we move out into some of the lesser drilled areas. So it's kind of a balance. We know we have some really good wells. We feel like from our study that we have some good areas outside of the areas that have been the focus so far. But we just kind of want to leave that out there for the current time even though we feel like we're going to exceed that easily over time. Very good. Thank you. Our next question comes from the line of John White with Roth Capital. Please proceed. Good morning and thanks for all the detail. Danny touched on this, but I was wondering if you could give a little bit more explanation. You differentiated between rod pumps and ESPs with the rod wells on rod pumps being very easy to restart and ESPs needing to move a little slower. Can you give us some more detail on the ESP? You bet, John. That's a great question. And that's why it takes a little longer to ramp up than some think you can just you would think you could just go out and turn on a switch and everything just comes right back to normal. Again, the rod pumps, those are very easy just to turn on. They'll come on with no issues and go right back to full capacity or 100% of production. In fact, we've seen that just in the last week when we've started up our wells. We started out by turning on the rod pumps because they were the easiest. And I mean our production popped right In fact, it exceeded what we thought we were going to do. I think we're getting a little bit of flush there. But the ESPs are a little bit different. Obviously, they're downhole. And you can't just say I'm going get a little bit technical here. But we adjust the speed of the pumps by adjusting the electric current going down to them in hertz. And so let's say we start out a well and the manufacturer will recommend a starting speed and maybe that's 55 hertz just as a generic number. And then over time, what we'll do is we'll monitor the fluid level. We'll see what's happening assuming that the well is still maintaining good fluid levels maybe every day. Again, the manufacturer will recommend that you don't go ramping too quickly, but we can run up maybe another one or two hertz. We'll monitor the fluid level if it's still in good shape, but we'll go up another one or two hertz. So that and that's why I'm saying you kind of you have to kind of ramp into those because you don't want to turn it on full speed, pull all your production down and then all of sudden you've got pump that's not moving at the right amount of fluid. You've got gas interference now coming through. And that's what ruins those pumps. I will say ESPs do not like to be turned on and off. They like to be run at a very constant speed all the time. But we feel like with the procedure that we have in place of starting slow, pickling and the big part of this too is pickling the wells as we shut them down. So we're loading them with corrosion inhibitor, we're loading them with paraffin inhibitors, we're using scale inhibitors. So that as they're shut down, we don't have a bunch of well, it's basically crap. Junk. Junk falling back onto the pump. And that's when you have problems is if you have a lot of, let's say, sand or scale or something, even iron, they'll come down. Over time, it settles out of the fluid and it'll come and sit down on top of those pumps. And then when you try to restart them, you have that junk in the hole. And that can twist a shaft very quickly. And so you just have to be a little bit more careful with it. But I think starting at the slow rates, pickling the wells ahead of time will eliminate the vast majority of those issues. Our next question comes from the line of Richard Tullis with Capital One. Please proceed with your question. Thank you. Good morning, everyone. Maybe a question for Danny. If you could recap again, the shut ins for April and what you expect for May between curtailments and shut ins. Danny, please? Yes, you bet. Now as I mentioned, when we went into into April at our highest rate that we had for coming out of Q1 at almost 11,500 net BOE a day, Phillips called probably maybe towards the end of the first week of April. And as I mentioned, they were like everybody else. We were seeing all these reports about storage filling up and everybody was getting very concerned. And they asked us if we would slow down a little bit on the Northwest Shelf. We discussed that internally and we decided since Phillips is a very important purchaser for us. And let me just throw this out there. In the meantime, not only are they the purchaser on the Northwest Shelf, but now they are purchaser on the Central Basin Platform. They asked us to slow that down, which we did and they were very grateful for that. And then when we had the day there around the twentieth, '20 or so of the month when that price went minus $35 And we saw what that was going to do to the average pricing for April. We had a lot of discussions internally and we decided our best move at that time was to go ahead and just shut the production down. And we did that across the Northwest Shelf in the Central Basin Platform. We did leave the Delaware running because we were in the middle of our the work we're doing with due diligence and with potential purchaser in the Delaware. So we did leave that going but we did shut down the rest of the production. Moving into May, our goal was to show enough production on each well that we could have show significant production on those wells. We also at the April sold everything we could sell, left our storage as empty as we could. And so we have a lot of internal storage right now in our system. So what we did, we're bringing wells back on beginning about a week ago, producing them for three to four to five days and then shutting them back down, putting that oil in storage and then we're restarting other wells in the area. So I think we at least anticipate through May that we will see this will be the procedure. So we're producing about 10% to 15% of capacity in the Central Basin Platform on the Northwest Shelf. We'll see where the pricing for June, what it looks like. And we'll see the big thing, the pricing is not even as important as the differentials. When you get the WTI, WTS differential, you get the CMA role, you get all those components that go into the pricing. Those all settle around the twenty fifth of the month. And so we'll have the price set for June, at least futures prices for June will be set around the twentieth. The differentials will be set around the twenty fifth. And so at that point, I think we'll have a better idea of what June looks like. I will say the differential just give you an example of where we're at today. Today's price when I looked earlier was around $26 but the differentials for May are about $12 for us. So that only puts us at about a $14 price, which isn't enough for us to bring everything back on. We are seeing the differential shrink in June and then even moving farther out, we're seeing them getting even lesser and lesser as we're moving out. So I don't know when we'll get back to full production, but it is getting better. Holly has commented. And our average differential over before this turbulent time had been about $2 So the $12 that Danny just quoted was by far the most we've seen in the differential since kind of late 'eighteen. Late 'eighteen. Yeah. Richard, this is I want to make a comment in addition to what Danny was saying just for clarification. Where Danny was talking about Phillips asking for curtailment early on, and that was important, and we cooperated with that in an effort to help and sustain that relationship there. As time has gone on, though, storage is not the issue for us at this point in time, so we're voluntarily doing this as a result of price. That's more important to us right now. Whereas if we wanted to ramp up today, storage is available for us. We could increase our capacity. Wouldn't you agree with that, Danny? Yes. Yes. In fact, Phillips, like I say, I have constant communication with them and they would love for us to come back up to a higher production level. That's very helpful. Thanks to all of you. And just lastly for me, you saw substantial reduction in cash G and A quarter over quarter in the first quarter. Randy, is that a or Kelly, is that a pretty good run rate going forward? Should we kind of look for similar type numbers as we move forward? I think it is. Yes. Think what we saw in the first quarter is a good run rate for what we'll see for the rest of the year. Okay. Thanks a bunch. That's all for me. Our next question is from the line of Noel Parks with Coker and Palmer. Please proceed with your question. Hey, morning. Good morning, Noel. All right. Just a few questions. You kind of touched on my first one a second ago. So modeling out for the rest of the year, does it seem like sort of that $12 differential range is about as bad as we should assume it gets? Or do you think worst case could even be a little uglier? That's a great question. Danny, I know we've spent a lot of time crunching those numbers. What's your sense of that, Danny? There's a lot of things that go into that. Let me start out by saying that. And a lot of that is getting the economy restarted. But once that thing once it gets going but the market is usually pretty smart about a lot of this stuff. And what we're seeing as we look out into the future and I don't have those tables in front of me right now, but I think April was our low point. I do think that was the case. And I think we'll see things improving through now through the end of the year. So Danny, just to be clear for Nolan, the other listeners, so by the twenty fifth of this month, we'll know what that differential is going to be fixed at for June's production, correct? That's correct. Okay, great. And about the rod pump conversions, and I'm sorry if you took on this earlier and I just missed it. About where do you stand relative to your overall inventory of those conversions? Roughly what share of those that you plan to do are already done and how many still lie ahead? Yes. So we've probably done about a quarter now of our wells. And again, it's a matter of when the wells reach the fluid production, when production drops down to a point where it makes sense. And again, what we typically do is we'll wait for the ESP to fail and then we'll come in and do the rod conversion. We have really and I said this and at some point we may even put some slides in the presentation about this. But we've lowered our failure rate from over what we call one time per year per well. So going back in historically before we started doing the rod conversions, a well would typically fail somewhere around six to nine months on a consistent basis. And what we've done now is we've lowered that down to a point where on average we're averaging a little over almost two years between failures. Now that there's a lot that goes into that, but that's just an example of what we've been able to do by following this program. And again, it also goes back so that lowers the failure rate, means we're pulling fewer wells. But it also we're lowering we're tremendously lowering future pulling costs. Typically, we'll spend $150,000 to $170,000 pulling an ESP and replacing it about we've been averaging about $30,000 a job on the rods when they go down. So tremendous savings for us in future LOE. And we see the same kind of response even by when we start out with very large ESPs in these wells because we're moving a lot of fluid initially. And then over a period of time as the fluid level comes down, if that larger pump fails, but not quite ready to put on rod pump, we'll run-in a smaller ESP that's much more efficient at those levels. And that all of this plays into the best I mean, it's a tremendous improvement in our failure rate. Great. Thanks. And I just wanted to double check the charts you have in the slide deck that show the IRR at different price decks for both the shelf and platform. Those numbers, I'm trying to remember, are those also adhering to your original type curves or have those been informed a little bit more by kind of the reality, the upside from the reality of what you've seen in the field? So we've had gone through several iterations on the type curve on the CBP and one iteration on the Northwest Shelf. And the type curve that you're seeing in the corporate presentation, as Danny previously discussed, the rod conversions are very accretive. They make us a lot of money. We spend a little bit, but in the long run, it's much better for us. So both cases contemplate a rod conversion at three sixty five days from peak production rates. And we kind of got to that number by looking historically across both basins and projecting where we're getting to that sweet spot of fluid level or fluid movement that we can convert from that larger volume ESP to the smaller volume rod. Okay, great. And just my last one. I was listening to another smaller company with a single basin focus that also has good hedge coverage. And they happen to remark last week that they have been getting more inbound calls from folks looking to offer financing according to various terms than they can ever recall happening in this current environment. So I was just curious what you're hearing as far as just folks who would like to find a way to give you money? That's a good question. Yeah, that is definitely a good question, Nolan. And comparing to the other company, I would say that absolutely we have probably seen more density in inquiries and over a two month period than we any other two month period prior to that. Not only for the inquiries that relates to possible financings available and different sorts, not just your traditional conventional banking, but outside of that. In addition to that, there's been a number of inquiries as it relates to folks that are interested in doing something along the lines of participating somehow or some way with the company. Whether that's to join in as a side by side idea or whether it's to join in as a joint venture. There's a lot of variety of ideas that have been kicking around more so than what we've ever seen before. Great. Thanks a lot. Thank you, Noel. Thank you. The next question is from the line of Dun McIntosh with Johnson Rice. Good morning. Regards to this year's budget, you all were out pretty early dropping all D and C activity in early April and took your CapEx budget down to $32,000,000 Last night, sounds like you all shaved another $5,000,000 or so off of that. What's the driver there? Are you still going to obviously, you're still focused on the pump conversions as you've been discussing, but are maybe a few less of those than you were thinking about or more favorable service terms? Any color there would be appreciated. Danny? Yes. No, Don. What we've done is we've gone back and studied what we can see historically as our failure rate. And we've cut back just to the bare minimum. So we're not proactively doing the rod conversions like we were last year and even in Q1 where once a well did reach the point where it made sense to put it on the rod conversion, we went ahead and did the job. What we're looking at now is with the lower production rates, we think that the failure rates could be even a little bit lower, we're hoping. But even if they're not, these are kind of it's just kind of a bare bones maintenance, not even maintenance isn't the proper word. It's as a well that goes off and is a candidate for rod conversions, we'll go ahead and do it, but we're not going to proactively go out and do those jobs. And so I think that's what you're seeing is when we first contemplated the 30,000,000 to $32,000,000 we were going to continue by doing nine to 10 rod conversions a quarter. And now we're just going to do them on an as needed basis based on our projections and that's the difference. And I think Danny's team has done an excellent job negotiating lower service costs in this And down so I think part of that change in budget is seeing the new environment we're working in. All right, great. Thanks. And then sorry if I missed this, but recognizing that the borrowing base determination is still ongoing, any correlation there between the timing of that and the closing of the Delaware sale? And then do you any other assets in the portfolio that you all could think about potentially monetizing, not so much reserves as more along the line I'm thinking more along the lines of midstream or SWD assets, particularly up on the shelf where you've got a pretty robust portfolio there? Thanks. Yes, well that's a mouthful, but they're all very good questions. There's no doubt that as was mentioned earlier with Randy's comments, his remarks that we are in the middle of redetermination now. We anticipate probably another two or three weeks before we're going to be actually having a sit down or the equivalent of a sit down with the banking group. As also mentioned, all of that material, all the information that we typically provide for them during these cycles has been sent over. And so we're looking forward to crossing that bridge and seeing what results we have there. There's no doubt that the Delaware sale will contribute to the, you know, the payment of 30 some million dollars, know, just less than 10% down on the revolver is gonna go a long ways. It'll I wouldn't call it impactful, but it'll be important. So we are counting on that. And so in addition to that, I think that as it relates to our going forward and what we can put forth in terms of being in compliance, we feel pretty comfortable with. All right, great. Thanks very much. You bet. Our next question is from the line of John White with Roth Capital. Please proceed with your question. Yes, can you hear me okay? Mr. Roth, Mr. White Hello. Yes. Can you hear me okay? Mr. White, your line is open for questions. Hi. Really appreciate all the details that you provided on the shut in procedures and also Mr. Fowler's comments on other companies' shut in policies. If it was stated, I missed it, but what was production during April? John, we have not filed April production yet. So that's not publicly available, but We did curtail near the end of the month, but the rest of the month, we were on track where we were in March. You mentioned shutting in about 100% of starting April 23. So that's a good Yes. So John, if you kind of look I guess the best estimate would be maybe if you looked at March and you probably, yeah, probably maybe knock three or four or five days off that number on average. That may get you close. I don't know. I haven't done that calculation, but that would be my guess. Okay. Really appreciate it. Thank you. Thank you, John. Thank you. There are no additional questions at this time. I'll hand the floor back to management for closing remarks. Okay. Thank you, operator. Well, listen, once again, we appreciate everyone. The ongoing support, is appreciated as well. And we know you're busy, so we're gonna sign off. And if you do have follow-up questions which you may or may not have, feel free to reach out and put those calls through and we'll make sure that there's people that are available to respond to them. And once again, thank you for your time. This concludes today's conference call. You may disconnect your lines at this time and we thank you for your participation.