Kimbell Royalty Partners, LP (KRP) Earnings Call Transcript & Summary

Greetings, and welcome to the Kimbell Royalty Partners Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black with Investor Relations. Thank you, Rick, and you may begin.

Thank you, operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the fourth quarter and year-end 2021. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the IR section of kimbellrp.com. Information recorded on this call speaks only as of today, February 24, 2022, so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call, which by their nature, are uncertain and outside of the company's control. Actual results may differ materially. Please refer to today's press release for our disclosures on forward-looking statements. These factors as well as other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA and cash available for distribution. Reconciliations to the nearest GAAP measures can be found at the end of today's earnings press release. Kimbell assumes no obligation to publicly update or revise any forward-looking statements. Now I would like to turn the call over to Bob Ravnaas, Kimbell Royalty Partners' Chairman and Chief Executive Officer. Bob?

Thank you, Rick, and good morning, everyone. We appreciate you joining us on the call this morning. With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; and Blayne Rhynsburger, our Controller. I will begin today's discussion by providing comments about the year and the quarter before turning the call over to Davis to walk you through our financials in more detail. We are very pleased with the company's performance in 2021. This year marked another very strong year of new milestones for Kimbell, including multiple records for production, revenue, adjusted EBITDA, distributable cash flow per unit and net income. We also completed a highly attractive and accretive acquisition in December, increased the company's borrowing base and elected commitment on the credit facility, increased our PDP reserves and completed the full redemption of the Series A preferred stock. In addition, perhaps most importantly, I'm very proud of the release of our detailed portfolio review in May, which identified approximately 19 years of drilling inventory at 4.5 net wells completed per year, the level at which we believe our production remains flat. Finally, we paid out $1.14 in tax-advantaged quarterly distributions in 2021 and paid down approximately $23.3 million on our credit facility by allocating 25% of cash available for distribution for debt paydown. Turning now to the fourth quarter. We achieved record oil, natural gas and natural gas liquids revenue and net income. As of December 31, 2021, Kimbell had 61 rigs actively drilling on our acreage, up from 60 rigs in the third quarter and representing 10.7% market share of all rigs drilling in the continental United States. Tailwinds continue in the global energy sector and fundamentals across the U.S. energy complex continue to improve. Inventory levels are low, rig count growth is tepid and operators continue to focus on balance sheet strength and free cash flow generation. Having said that, we do see drilling activity from private operators outpacing that of public company operators as they move more quickly to capitalize on higher commodity pricing and build scale. As of the end of the fourth quarter, private operators comprised 43% and public operators 57% of our active rig count. We were positively impacted by surging commodity prices, especially natural gas, which contributed to a record quarter and the operational momentum we experienced in the second half of 2021 as Kimbell in an excellent position entering 2022. The oil and natural gas royalty sector is particularly well positioned to benefit from the inflationary cycle that has recently accelerated in the U.S. since royalty companies participate in the upside from commodity price inflation and do not experience a significant service cost inflation currently impacting the upstream sectors. As we enter 2022, we see a bright future as we continue to act as a major consolidator in the U.S. oil and natural gas royalty sector. The asset class for mineral and royalties is enormous at over $700 billion in market size, with only a handful of public entities in the U.S. and Canada that have the financial resources, infrastructure and technical expertise to complete large-scale multi-basin acquisitions. We believe that we are still in the early innings of this consolidation and will actively seek out targets that fit within our stringent acquisition profile. Furthermore, all data points from the U.S. land rig count, which is still well below pre-pandemic levels to commentary from major E&Ps, indicate U.S. oil production will once again be roughly flat during 2022. Our current view of this new world is that production stability and flat decline rates will be the new theme of energy investing rather than the hypergrowth models of the past. With our high-quality, low PDP decline and diversified royalty portfolio, Kimbell was built for these conditions. We are very excited about the opportunities to expand in the future and deliver unitholder value for years to come. And with that, I'll now turn the call over to Davis.

Thanks, Bob, and good morning, everyone. We are very pleased to report record performance during both the year and the fourth quarter. In addition, today, we are also providing our full year 2022 guidance. Beginning with the fourth quarter, total revenues were a record $55.7 million and net income was a record $30.7 million. Net income attributable to common units was also a record at $20 million or $0.46 per common unit. Based on sustained positive trends and cash flows in the quarter, we announced a cash distribution of $0.37. As we have done in previous quarters, the company will utilize 25% of its Q4 cash available for distribution to pay down a portion of the credit facility. Since May 2020, excluding the expected upcoming paydown from the remaining 25% of Q4 2021 projected cash available for distribution, Kimbell has paid down approximately $44.5 million of outstanding borrowings under its secured revolving credit facility by allocating a portion of its cash available for distribution for debt paydown, and we expect this capital allocation strategy to continue. For the fourth quarter of 2021, the company's oil, natural gas and natural gas liquids revenues were $52.2 million, up 9.7% sequentially from Q3. This primarily reflected higher fourth quarter average realized prices of $74.79 per barrel of oil, $4.19 per Mcf of natural gas and $38.31 per barrel of NGLs, for a combined per BOE pricing of $39.11. Fourth quarter 2021 average daily production was 14,479 BOE per day on a 6:1 basis, which consisted of 456 BOE per day related to prior period production recognized during the quarter and 14,023 BOE per day of run rate production. The prior period production recognized this quarter was primarily due to new wells outperforming estimates. The fourth quarter run rate daily production includes 25 days of production from the $57 million acquisition closed on December 7, 2021. Including a full Q4 2021 impact of acquired production, which the company was entitled to receive, run rate production was 14,521 BOE per day, again on a 6:1 basis. We had 61 active rigs at the end of the fourth quarter, led by the Permian and Haynesville Basins, which was up from 60 rigs at the end of Q3. Our Continental U.S. rig count represents 10.7% of total market share for rig drilling and the Lower 48. As of December 31, Kimbell's major properties had 794 gross and 2.25 net drilled but uncompleted wells as well as 670 gross and 2.48 net permits on its acreage. This data does not include our minor properties, which we estimate could add an additional 20% to the DUC and permit inventory. On the expense side, general and administrative expenses were $6.7 million in the quarter, $4.3 million of which was cash G&A or $3.33 per BOE. Unit-based compensation in the fourth quarter of 2021, which is a noncash G&A expense, was $2.4 million or $1.89 per BOE. Fourth quarter consolidated adjusted EBITDA was $32.8 million compared to $33 million in the prior quarter. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. Commenting further on our balance sheet and liquidity, on December 7, 2021, the borrowing base and aggregate commitments on our secured revolving credit facility were increased from $265 million to $275 million in connection with our fall redetermination. As of December 31, 2021, Kimbell had approximately $217.1 million in debt outstanding under its secured revolving credit facility, had net debt to fourth quarter 2021 and trailing 12-month consolidated adjusted EBITDA of approximately 1.7x and was in compliance with all financial covenants under its secured revolving credit facility. Kimbell had approximately $57.9 million in undrawn capacity under its secured revolving credit facility. We are also pleased to have redeemed all remaining Series A cumulative convertible preferred units outstanding during the quarter, further simplifying the capital structure and reducing our cost of capital. Today, we are providing full year 2022 guidance, which includes production guidance that, at its midpoint, reflects roughly flat daily production relative to our fourth quarter 2021 daily production, including a full quarter of the acquired production. We believe that most operators will focus their 2022 budget on resting declines, with a goal of flat to low single-digit production growth in 2022. We do not expect Kimbell to pay a material amount of federal income taxes for 2021 through 2027. And also important, we expect that substantially all cash distributions paid to common unitholders from 2022 to 2025 will be free of dividend income taxes and instead be considered a return of capital. We are unaware of any oil and gas company that has given this level of detail with their tax guidance and believe it provides a highly compelling competitive advantage in terms of generating superior after-tax returns to our unitholders. We believe that Kimbell offers a compelling investment opportunity, a robust distribution yield and continued opportunities for growth. Kimbell's current asset base as well as global energy sector tailwinds across the broader U.S. energy sector continued to give us confidence in our ability to generate strong operational results and cash distributions for unitholders for many years to come. As Bob said, we believe this energy up-cycle will last longer than previous cycles, and forecasted modest increases in investments by U.S. operators expected in 2022 will only serve to replace the significant depletion in DUCs rather than lead to much in the way of new production growth in the continental United States next year. Kimbell, unlike many others in this sector, was built for this environment and will significantly benefit from commodity price inflation without significant downside risk of service cost inflation, which is truly unique to our model. Kimbell will continue with our goal and focus of generating long-term value and cash generation with transparency to investors for many years to come. Lastly, as I'm sure all of you saw earlier this month, the Kimbell-sponsored SPAC, Kimbell Tiger Acquisition Corporation successfully priced its initial public offering on the New York Stock Exchange, raising approximately $230 million. Kimbell Tiger intends to search for a target company in the energy and natural resources industry in North America. The company is led by Zach Lunn, who has extensive operating experience in the E&P sector, including both conventional and unconventional reservoirs. With that, operator, we are now ready for questions.

[Operator Instructions] And our first question comes from the line of John Freeman with Raymond James.

The first question I had was now we've got the leverage ratio with a 1 handle on it and just given the obviously, a favorable commodity environment we've got this year where that ratio is going to come screaming lower over the next 12 months. I know that for '22, you'll maintain that 75% payout ratio. Do you think kind of longer term, is that the right payout ratio? Or do you think of it as somehow tied to that leverage ratio as that goes lower, say, sub 1x or whatever that, that payout ratio starts to go up? Or should you just assume 75% is the right number?

John, thanks for that question. This is probably the topic that we discuss at the Board level more than anything else. I think you're right that for the duration of this year, we're going to maintain 75%. I think you're spot on in pointing out that the ratio is just going to continue to accelerate downward as we have a greater amount of cash flow, and therefore, 25% of that cash flow is just going to create an additional incremental drop in leverage over time. I think that a couple of years ago, maybe 5 to 10 years ago, if you had asked us what an appropriate leverage level would be for a royalty business, we would have said anything less than 2x debt to EBITDA that used to be kind of the general rule of thumb for the upstream E&P businesses. So certainly, for a mineral company without CapEx obligations, less than 2x seems perfectly reasonable. I think as we look at the environment, as we look at the best-in-class governance on E&P companies, I think that's changed now to be probably less than 1x. So I don't think we're too far away from that happening. And then once that does happen, once we get close to that 1x point, I think that becomes a really important point of discussion even more so than it is today at the Board level. And I'd just say that no decisions have been made but everything is on the table. And I could see us increasing payout ratio. I could see us not increasing payout ratio and trying to get that all the way down to 0. That might be a little bit too conservative. So I'd just say that's vague at this point, but we're certainly aware of the importance of that issue and certainly solicit investor feedback as to the best course of action and their preference.

I appreciate that. The other thing I was looking at, I know in this quarter, once again, had a prior period of production that got recognized again due to the wells outperforming estimates. But I was looking at the last couple of years of releases, and it looks like you've now had about 3 quarters in a row where you've had this upward revision on the prior period recognitions after going about a year with obviously having that went back to look like. Before 2Q '21, the last time for that was like 2Q of '20. And so I guess I'm just trying to understand, is there something that you all are doing that's better capturing that data? Is there something about the mix of where the production is coming from in certain fields? Or am I just reading too much into this, which wouldn't be the first time I've done that?

No, no, no. Great insight per usual. And I'll turn it over to Blayne Rhynsburger, our accountant in a moment. My sense would be that we've added some substantial high interest units through acquisitions over the last couple of years. We had muted natural gas drilling in particular, in the Haynesville, an area where we do have very nice high NRIs prior to, I would say, probably the last 18 months, drilling there really hasn't been particularly robust. As that is starting to kick in, we've had -- we're going to have a little bit more, I would say, in the way of quarterly fluctuations in production. So I wouldn't be surprised to see us go up a couple percent a quarter and then maybe down 0.5% or 1% the next quarter because of just natural decline setting in on those high interest wells. So I think part of it is a little bit of a production mix as we've grown and added unconventional assets. I think that's part of it. Blayne, do you have any other additional -- I don't think it's a change in the methodology, but Blayne -- well, first of all, I'll just point out, we've obviously been conservative, right, because we've been making upward revisions over time. So I think that's a good thing. But Blayne, any thoughts that you'd like to add to that discussion?

Yes. Yes, John, that's a good question. I knew this was going to come up. I mean, we've invested -- I'd say the first part of your question to comment on Q4, specifically, we had 4 EOG wells in Lea County, New Mexico that we got paid on this quarter with production dating back to 2020. And that's been a theme that we've seen in the last couple of quarters, like you pointed out. And really, I would say the reason that's happened, like you mentioned in the last few quarters, we have invested land resources on the personnel side where their sole responsibility is to find operators who have us unnecessarily spent. And so really, we invested in that a couple of years ago and it's paid off every quarter since then, and I think you'll continue to see that going forward. On top of what Davis has mentioned, we're also conservative in our revenue accruals. But I would say the main reason for that is that we've hired personnel to go get us out of suspense where we shouldn't be.

That's great, yes. I appreciate all that guys I'm very happy to see the market finally [indiscernible] rewarding your stock these last few weeks. So hopefully, that continues.

Grateful to you, John. Thanks for the question.

Our next question comes from the line of Derrick Whitfield with Stifel.

Over the last few months, we've seen a few larger deals announced in the mineral space and including the one you guys closed late last year. How would you characterize the current competitive landscape at present for both smaller and larger A&D opportunities? And where do you see the greatest opportunity for KRP?

Great question. I guess I'll start out by saying that M&A, not just from us, I think you'll hear this from our peers, has been really difficult from the public standpoint. I think all of us as a sector are undervalued. And obviously, that dictates the amount at which we can pay some of these private folks to sell us their assets. So last year, you're right. We did have some "larger transactions." I think there are probably 3 large ones, including ourselves from our peers and by large, been over, let's call it, $50 million in size. So I think, frankly, I think last year was disappointing on the M&A front. I think we and our peers all hope to be doing more in the way of acquisitions. But the challenge, Derrick, I mean, as you're keenly aware, mastering the numbers here, we're trading at, what, 13%, 14%, 15% free cash flow yield, depending on what the stock price does. And so -- and that's not too far off from where some of our other peers are trading, too. So when you're trading at 7x free cash flow yield on a fully distributed basis or wherever we are day-to-day, obviously, that puts a pretty low multiple on the cash flow that we can pay for the private operators or the private buyers. So that's really been the challenge. It's just the cost of capital has been higher than we do. I think over time, the reality is that the bar to go public as a mineral company just continues to get higher and higher. So a lot of these portfolios in the, let's call it, $500 million to $550 million -- sorry, $500 million to $750 million range, I think they are going to have to look for exits that involve merging into one of the public entities. I think that they're going to have to take a substantial amount of stock in order to get that deal done. I don't think any -- I don't think ourselves or any of our peers would like to even, if we could, issue stock in that amount for cash. So I think it's going to be -- a lot of this is going to be finding the right partners on the private side that are willing to accept stock as currency. We've been fortunate that we've been able to do that successfully in the past. We have a big Haymaker deal we did years ago, that was about half stock. We had a great partnership and we continue to have a great partnership with that management team and their sponsors. We did a deal with EnCap and Phillips, it was 100% -- it's a 100% stock. We did a deal with NGP that had a substantial stock portion. So I think that trend will continue. And think the biggest opportunity set is the larger acquisitions. I think anything over $50 million becomes more challenging for private equity portfolio companies to pull the trigger on. And that isn't to say that there's exceptions to that. There's certainly very deep-pocketed private mineral buyers. But I think once you start getting to the higher dollar amounts, there's just fewer and fewer people that are capable of kind of biting off those chunks. So there are some deals in the marketplace right now that we're looking at. I just think the bar is high to get something done. We're not -- we don't need to do any deals. We are in a great spot right now. I mean, I think we want to continue to grow. We want to get the company bigger. We want to realize economies of scale and increase float and liquidity and do accretive M&A, but we're not going to go and do something that's stupid. So I'd say that it's challenging to successfully pull things off, but I think that if something does happen, it's going to be on the larger end as opposed to the smaller. I think that you still see a lot of competition in the smaller deals, particularly in the Permian.

Got it. That makes complete sense. And for my follow-up, referencing Slide 13, you guys have historically performed well with your rig count market share statistics, and certainly, that's a testament to your asset quality. While Q4 remained strong, is there anything you're seeing in the data that would explain the slight dip in Q4? And do you have a view on maybe the areas where you're outperforming past market share measures and where you're potentially underperforming?

That's a good question. I'll turn that over to my team on the latter question. I'd say on Q4, look, we never like to have a quarter where you have a little bit of a drop in production. The reality is we're a royalty business. And so like in Q3, for example, that was the best quarter we've ever had. Production was outstanding. We kind of beat across the board with great results. So I think Q4 was setting up for a tough sequential quarter-over-quarter comparison. And again, you're going to see some lumpiness with big wells coming on, and that's going to screen production higher for that quarter and then it's going to go lower. We do have line of sight on some high interest wells that we, knock on wood, hope. We start to get some data and some cash flow on here in the near term. I wouldn't say there's any major theme that's dictating anything other than to say that we're seeing operators maintain more discipline across the board, focusing more on keeping production rates flat to growing very slightly. But is there anybody, Matt or Blayne, if you any want to jump in

Yes. So basically, going back to Q1 '20 and you see that on Slide 13, the rig count market share is ranged between roughly, call it, 11% or 12% every quarter. In Q4, it was 10.7% and in Q3, it was 11.7% so get sort of this 11% to 12% market share. The rig count as at year-end was 570. As of today, the rig count is 630, it's up 60 rigs. Today, we would expect to maintain that market share of 11% to 12% into Q1, and therefore, rig count should go up based on the rig count going up. In terms of any reading into it further, the nice thing about our rig count is that we have 57% public, 43% private operators on it. And the private operators have been the most aggressive, drilling continuously through -- even during the pandemic. We have private operators that are drilling that oil is trading at 30 because they are having to drill to build scale, they're having to drill the whole leases. And so having more privates is actually -- especially private equity-backed, which we have has been nice in terms of the stability on the rig count. So we expect it to, all these be equal, to grow over time the rig count, and we would like the mix of public and private as well.

It's a great point. You guys actually might have the highest in the mineral space on the private side as well. But very helpful, guys, and thanks for your time.

Our next question comes from the line of Chris Baker with Credit Suisse.

Most of my questions have been answered, but I just want to ask on M&A maybe in a bit of a different way. Any color around gas versus oil-focused opportunities just in terms of the opportunities that you see in front of you today?

Sure. I'll start by just kind of reiterating which I know you know, but for the benefit of everybody else listening, just kind of reiterating our philosophy on gas versus oil. So we are agnostic to commodity. We've always been that way since we started the business back in 1998. What we look for is quality and value. So if we can get a natural gas deal down in the Haynesville and deliver a higher return to our investors, we'd rather do that and get an oilier deal in the Permian or the Eagle Ford just to emphasize liquids. So we're always looking for what's the most efficient way that we can deploy capital. I think as we look at the opportunity set today, I don't know if I'd say that we're starting to see more opportunities one way or the other. Rand or Matt or Bob, I might ask for y'alls input, but I'm not seeing -- as I look at kind of our pipeline of acquisitions that we're actively evaluating, I'd say it's a pretty mixed group. I'd say -- I guess I'd say over the last 18 months, we've seen a little bit more activity in the Haynesville understandably as natural gas prices have come up from such depressed levels over time. Anything that anybody else would add? It's a pretty fair split between the commodities overall and I'd say actionability as well.

Yes, yes. And I'd say also, we're seeing, fortunately, more multi-basin packages, which are sort of our specialty that we can underwrite multi-basins and more complex trends. So that's good to see.

Sorry, I didn't mean to talk over you. This is Bob. I'd just like to add to that, it kind of goes without saying but we haven't said it yet on this phone call, that we still continue to see tremendous amount of deal flow, both large and small deals. So we're -- on the pipeline, we're currently evaluating probably 15 to 20 deals. And that is kind of true all through the year. So it kind of shows how we -- how selective we are. We announced 1 large deal last year but we're constantly looking at deals, evaluating deals and are in the market.

That's great color. And just as a follow-up, great to see the continued progress on the Kimbell Tiger front. How should we think about the broader strategic implications for Kimbell as a whole?

Sure, Chris. So I'll go into more detail. We can finally talk about this more, given that we've priced the stack. So the mandate is broad. The goal is to find a cash flow generative business at a valuation that's very attractive, so a real company that generates real cash flows. And obviously, to the extent we're successful in destacking, there's -- as you're aware, Chris, on how stacks work, there's a very nice windfall for KRP unitholders in the event that we're able to successfully do that. So that's kind of on what it means directly for our investors. What it means, perhaps even more importantly, from a strategic level is what we'd really love to do is find a wonderful asset or a set of assets that are operated in nature to form a relationship with an operating business, whereby we can have, for the first time, developmental line of sight. So there are a lot of wonderful things, many, many wonderful things about the mineral business that apply to not only ourselves with all of our peers, obviously. One of the biggest risks to the mineral model, obviously, is lack of developmental control. So to the extent that we could form a relationship with a sister company or an operator that we destack with, whereby we could buy either minerals alongside them or carve out an override from high net revenue interest properties, and I'll remind you that we love conventional assets, right? We love the predictability of the cash flows. One benefit of conventional assets is that typically those leases were struck at much lower royalty rates. So it's not uncommon to see 87.5% nets or higher and some of these really wonderful fields that have been producing effectively the same number of -- same amount of hydrocarbons today as they were when I was born. So the ability to -- it opens up a whole new strategic direction for Kimbell, which could be national in scale, which is let's buy override alongside an operator if we can joint bid things, we should be able to achieve a more competitive cost of capital because, obviously, we, as a mineral company, could do an equity raise and a lower cost of capital than an operator can. And so if we could share that net revenue stream in such a way that doesn't integrate the drilling economics that allows us to grow and expand and oh, by the way, have line of sight out of the development of the asset. That would just be just the holy grail outcome for the company. So that's what we're excited about. It's going to be challenging. The lease-backing environment is always very hard. So I just want to set the expectation there. But we're working as hard as we possibly can on that front, and it could be pretty exciting for all of us if we're successful.

And our next question comes from the line of TJ Schultz with RBC.

Maybe just a follow-up on the Tiger deal. So I mean, do you have to pause M&A or potential M&A activity right now at Kimbell Royalty until you kind of figure out?

No, no, no. So very important, so nothing changes at Kimbell. It is exactly same. It's very important to us. We wouldn't have done this if we didn't find a manager who has a management team that he's identified once we find an asset to run that business. So no, day jobs, the exact same, allocation of duties, the exact same. Not a distraction whatsoever. Really, just given the fact that we're looking at 15 to 20 deals at any given time, and some of our peers, by the way, that's how mineral businesses work. This is just another one of those potential acquisitions that we're looking at. So, no, we want to continue the Kimbell machine, the same as it's been since we -- since we founded the business 20 years ago. This is just a pretty exciting kind of strategic direction that we're allocating resources that we brought on for that purpose specifically.

Okay. No, that makes sense. Then the production guidance, I appreciate that. Maybe if you could just expand on drivers that would push you to the low end or high end of that range at a management of commodity and activity-driven. So would you say at these commodity prices, maybe you're biased a bit to the higher end? And then just confirming there's no view on future acquisitions built into that guidance?

I'll turn it over to Matt after I make just a couple of quick comments. No, acquisitions are never built into our guidance. We've always tried to be very conservative with our guidance, and that's for 2 reasons: one, we'd like to set expectations and then meet or exceed them, obviously, as opposed to setting a high bar and then failing to meet it. I would say that as a royalty business, it's even more important to be conservative, right, because we don't have developmental control over the asset. So it can sometimes be -- you can have acreage in the best part of Midland County and oil prices could be $100. And for whatever reason, the operator on that acreage doesn't want to increase drilling activity. And so you're at -- you're obviously at the behest of the operator. I'd say that in this environment, you're still seeing operators stick to, and I think for good reason, stick to plans to maintain that fiscal discipline, it will be interesting to see what happens. And I'm sure this is something you think about all the time, TJ, but it'll be interesting to see what happens in this higher-priced oil environment. Are they really going to stick to maintenance CapEx? Or are they going to ramp it up? I'd say that overall, though, our goal is just to be conservative with our guidance. We're never trying to put anything out there that's heroic. I would not be surprised if we exceeded it. And I'm actually happy to see that almost all of our peers do the same in terms of setting conservative guidance. So Matt, I'll turn it over to you for any additional thoughts.

No, no, I agree with all that. I mean, on the low end, it is obvious, but I mean, you have a big correction in commodity prices or another flare from COVID, that could probably be in play. And on the high end, we're still in the backwardated curve right now, the spot price of $97 sort of plays out throughout the year right now, we're looking at oil dropping to $84 later in the year. Still very, very good. But if the prices stay where they are now throughout the year, the rig count will continue to grow and you'd expect maybe on the high end there. And also the Haynesville has been, with gas prices where they are, we have some very high sort of net revenue interest wells in the Haynesville, that could also be a big area for us on the upside. So as Davis said, we're being conservative with this guidance. We feel good about it for the year.

And there are no further questions at this time. And I would like to turn the floor back over to management for closing remarks.

We thank you all for joining us this morning and look forward to speaking with you again when we report first quarter results. This completes today's call.

And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. And you may disconnect your lines, and have a wonderful day. Thank you.