Permian Resources Corporation (PR) Earnings Call Transcript & Summary

Good morning. This is John Abbott with Bank of America. I will be joined shortly with my colleague, Gregg Brody, who will be the main moderator. You see, he's having a little bit of technical difficulties. We're very fortunate this morning to be joined by CEO, Sean Smith of Centennial Development. Centennial is a small [ cab ] company with acreage in the Permian, both in New Mexico and in the Delaware part of the basin. They've been making significant progress in improving their balance sheet and also talk about potential returns of capital to shareholders. So with that, I'm going to start off with letting Sean provide some opening remarks, and then we have a prepared list of questions. And if you have any questions yourselves, please send us -- those to us electronically. Thank you very much.

Great. I appreciate that. And I look forward to Gregg joining us shortly. We all have technical difficulties in this world we live in, where Zoom calls or Webex are the way we communicate. As you and I were talking before the call, I look forward to having these in person again to make it more easily accessible for the investment community and yourself included. But with that, I'll kick off with a few opening remarks, and then we do a Q&A. But as you stated, Centennial is a Permian Basin pure play. In fact, of our 80,000 net acres, all of that is located inside the Delaware subbasin. And that's widely considered the oil basin in the United States. From a production point of view, last quarter, we produced over 33,000 barrels of oil per day. We raised production guidance for the year last quarter. So, pleased with the results there. We generated a record free cash flow in Q3 again and updated our expected free cash flow for the year that now, we plan to generate north of $200 million of free cash flow the year. So I was very pleased with all of those results. On top of that, we announced the noncore asset sale that we expect to close in Q4 of this year. When you combine that with the amount of free cash flow that we're going to generate organically, we plan to exit the year around 1.5x net debt to EBITDAX. And on top of that, fully repay our revolver in the first quarter of next year. So just overall outstanding improvement to our balance sheet, which was the primary goal of 2021 for Centennial. If you combine that with this well performance that we saw and then we continue to announce kind of quarter-over-quarter, both on the production side and the capital attrition side of the equation, it puts our company in a very strong position exiting the year and heading into next year. And then on top of that, we've got 15 years of very high-quality inventory. We've talked about it. I'm going to continue to talk about it because I think it's critical as we think about, on a go-forward basis in a world where there's shareholder return programs, those companies that have quality inventory at their fingertips to access to support shareholder return programs are going to be the ones that differentiate themselves over time. So we've got high-quality inventory. We've got a proven technical team, very impressive balance sheet, as I just kind of noted, which is a material change from where we've been in the past. And you're really looking at a company that's, I'd say, extraordinarily well positioned to continue to drive value for our shareholders, for years to come, even just on an existing position. So pleased with our results of the quarter and for the year and really how we're setting ourselves up for next year. That's basically the opening remarks, and I would love to take any questions that you guys might have. Gregg thanks for joining us.

Gregg, We can't quite hear you at the moment. You're on mute.

How is that, guys?

That's perfect.

Sorry about the theatrics here. A little technical difficulty there. Actually, taking a call in the office. Anyway, thank you for the introduction. I did hear your comments, and thank you for joining us. So what you've indicated that you intend to provide the market with greater detail around how you plan on allocating your incremental free cash flow as you approach your debt objectives. Can you just walk us through how you're thinking about your various options in terms of the ability to return value to shareholders. And then how that fits with your debt objective and then ultimately, how that may evolve over the next year or so.

Sure. Yes. It's great to be in a position to talk about excess free cash flow and what to do with as much as we're going to generate. And I think that's just an incredible testament to the industry in general, but certainly to Centennial how we've really focused on capital efficiency and driving structural improvements to how we run our business and manage our capital, but as well as, of course, commodity prices helping that as well. And the fact that excess free cash flow, as I mentioned on the call, is greater than $200 million. And all of that currently has been focused on our balance sheet. And I think that still will be the focus on the near term go forward. As we look at next year, and we haven't provided 2022 CapEx guidance and how we think about rate cases and whatnot. But we have mentioned on previous calls that as we approach that on 1.5x leverage metric that's kind of a key threshold for at least in my opinion, to start talking about a shareholder return program. And so as I just mentioned, we expect to kind of be there at year-end, assuming things play out the way they are looking. And so at that point in time, we -- like we've already begun discussions both at the senior management level and at the board level on discussions on really, how we're going to to place our free cash flow excess [indiscernible] for next year. But would that includes a shareholder return program, I'm not going to give the details about what that looks like yet because I do think we do have a lot of options. What I can ensure everybody though, is that we are taking it very seriously, and we're going to make sure that we look at all aspects and opportunities in front of us to generate the most value for our shareholders. I'm pleased that we have a lot of those options. The first thing though is to continue to delever. As I mentioned in the opening remarks, we plan to have our revolver fully repaid in the first quarter. That's just an unbelievable event. I think that's just outstanding. It really shows that we've been focused on delevering ourselves. And then beyond that, we'll have a shareholder return program likely to occur in the not-too-distant future. So that's a use of free cash flow. Beyond that, it's -- which seems like we have line of sight on getting down towards below 1x levered is certainly what we're focused on. And I think that, that occurs by year-end of next year based on current commodity prices. So that's what we're focused on, that's what we're going to do. I think as we tend to start to build cash, you've got financial flexibility as to what to do with that relative to our senior debts. Maturity profile is great, but we have some flexibility there on how we want to manage those long-term debts as well. In fact, the 26 notes are callable today. The 27 notes are callable in April. So we have some real optionality on how we wanted to manage our free cash flow on a go-forward basis and I look forward to getting into '22 and taking advantage of the assumptions.

Do you think with the -- you mentioned it earlier in the call, the debt and you also have a small convert. Do you think the -- your total [ deployment ] that is the right size? Or do you think you could take that down further?

I think getting down below 1x is the right place to be for a company of our size. I think that's what we'll be focused on, is to getting to that level. Q3 we're at 2.1x. We plan to end this year around 1.5x. Year-end, getting below 1x in 2022. That, I think, is the appropriate level. It gives us enough flexibility, both operationally and financially to operate our business, to continue our development planning, to continue a hedge philosophy that I think makes sense and to make sure that we are supporting a shareholder return growth. So all of those things seem to fit with kind of the below 1x number.

No, I appreciate all that. You talked about running a two-rig program next year. I know you haven't committed to necessarily what you've got exactly, but if we assume what you're doing today, and that implies low double-digit growth, I think you've said. What would it take for you to accelerate drilling to maybe grow more as you think about returning value to shareholders, how do you think about that?

Right. Yes, that's a great question. Thank you for that. And I think it's an interesting concept when there was once a time where growth was what was being awarded and then we flipped from that to and now, it's a focus on shareholder returns. That is the right place to be, honestly, in that our industry is long overdue. We're focusing on that. As we have the opportunity to grow, companies like ours have that ability [indiscernible] to a growth mode again, should the macro support it. And what I mean by that is, OpEx plus, really, not just the size, need to have their barrels, at least the majority of the barrels back on the market. And then the demand still has to be there. I think we're still getting through this COVID cycle. I think there's still a pandemic that's out there that needs to be rectified a bit more before air travel opens up even more. I think with the recovery has been great, but we're not quite there yet. So there's still some work there. So as OPEC puts all their barrels back on the market and the demand still outpaces the supply side of the equation, I think that's when the markets will begin to demand and really reward those companies that are able to grow. As you mentioned, we've got a two-rig program right now, and we haven't given '22 guidance yet. But assuming we run two rigs, adding a single rig at some point down the road is a 50% increase in our our level of activity. So you can obviously materially grow the business, just with 1 additional rig. So I'm not going to make promises on timing of when that may occur in the future. But the ability for us to pivot to a growth model is pretty easy. And obviously, we've done it in the past. But for right now, we're focused on the balance sheet, and I think that's the best way to go.

Got it. And obviously, there's been a lot of changes in corporate covenants to to better align shareholder returns with management. There's -- obviously, people who are ready to focus on shareholder returns, ESG. What are you -- what steps has Centennial taken to create greater incentives for you guys there? And are there additional steps coming?

Yes, it's a good question. I do think it's critical that we are aligned with our shareholders. And I think the industry, in general, has been good in that they're providing more visibility on what those are and making sure that their objectives are aligned with the shareholders. We've gone through a several-step program, and there's always more to do. But first and foremost, I do think the most thing to do, and we have certainly done this is to have a shareholder outreach program. Last year, we had a rigorous effort to reach out to our top 30 shareholders, which control 60% of our outstanding shares. We did so in the hopes of having active conversations to make sure that we were aligned with their investment interest. And I think that was a successful opportunity to have conversations with both the investors and then senior management, and I'm glad that we do that. I think that's something that should be an ongoing process, and we continue to do so as we go into the next year and then in future years as well. On top of that, I think we have shown in our proxy a much more qualitative measurement of our compensation metrics, which will then allow the shareholders to look at how management is compensated relative to what they think are the proper ways to run a business. And I think for us, it was working on the balance sheet. It is a cash return on divestments, it's efficiencies of capital employed. So all of those things are drivers. On the top of that, adding in some ESG goals that align to shareholders is important as well. We've published all that. I'm glad that we've kind of moved away from more of a quantitative view-- I'm sorry, qualitative view to quantitative view and that you can really measure ourselves and make sure that we are aligned with the shareholders' interest. I think those will continue to be important. And I'm glad that -- I'm proud that we've been able to publish those as well.

I'm going to pass it over to John, just 1 question on that. What would be the incentives for you to grow? Is that something that's still in your incentive system? Or has it -- there's just been so much focus on reducing debt. How's it work for you today?

Right. I appreciate that. Growth, traditionally, has been a target for E&P companies, right? There's a production growth or EBITDA growth kind of metric that they hold themselves to. That's currently not in our 2021 metrics. Obviously, we haven't provided 2022 goals and objectives. I don't think that you will find that in there as an external goal. I think that a two-rig program for us, though, interestingly enough, is a small growth platform for us. And I think that's the right way to manage our business. But that's more of an output than an input. Two-rigs is what we're currently running. And even if we were to hold those two-rigs study that still provides, as you mentioned, low double-digit growth. So there's a growth component built in, in what we're already doing. And that's really built out of the efficiencies that our operations group is continuing to see as well as well performance. And then in Q1 of 2021, there was Winter Storm Uri and that held back some production in '21 as well. So you put all those things together, we are going to have some low double-digit growth next year, although that may not be part of the goals that we put out. It's just an output from running two-rigs.

I'll pass it to John, who is going to focus more on the operations a bit.

Sean, I'm not going to ask you about growth and would ask you about [indiscernible]. I would ask you about maintenance CapEx. So you're expected to grow through 2022. So if you sort of think beyond that horizon, sort of over a multiyear horizon, you think about putting wells on and trying to hold product oil flat over that time horizon. And your decline rate will naturally decline over time, how do you see long-term maintenance CapEx sort of shaking out to see that?

Yes. I think it's an interesting question, John. We think about, "maintenance," in that -- It's -- as I was just previously stating, an output from a two-rig program generates growth next year. That same two-rig program would have single-digit growth in the following year. So because our base production is at an acceptable level, adding those -- and we continue to see efficiencies and drill quicker, so our cycle time continues to go down. We could put more wells online than we did at any of the previous years. All of that continues to have some product of growth. And so I think a true maintenance program is not something I am focused on from a capital or a production point of view. Maintenance for me is a two-rig program. That's an inefficient way of spending capital. If we were to start and stop relative to those rigs or to build up DUCs, I don't think that's the most efficient use of capital. Maintaining a two-rig program, that's how I'm going to use the word maintenance, is what we're focused on. And the output of that is low double-digit growth next year, as you've just pointed out, but also likely single-digit growth for the next several years beyond that, if we were to stay at a two-rig maintenance program.

So sticking with like, portfolio efficiencies and you're going to grow next year due to your efficiencies. Are there more opportunities, Sean, at this point for improvements on the surface or subsurface at this point in time? you see that.

I think there's both, honestly. I am continuing to challenge and our operations team continues to rise to the occasion. We're looking for both of those opportunities. I think at the surface, larger pad sizes and then combining facilities, there's some opportunity there from a capital efficiency point of view. Subsurface, longer laterals are something we continue to focus on, and that adds value as well. And then we are always looking for opportunities to tweak our design whether that's 4-hole size or bit design or downhole motors, there are absolutely opportunities that we've already identified that we think could drive continued efficiency that we haven't fully realized in our noncurrent program. So I think it's both. I think there is still some opportunity to improve efficiencies, reduce cycle time and be better at what we do every day, and that's honestly the operations team challenge. I think we've continued to improve that quarter after quarter. And I think there's still some meat on the bone there that we can drive additional efficiencies out of both surface and subsurface.

And I just want to touch on inventory. So under your two-rig program, you think based off 2021 sort of wells being turned online, we have about 15 years of inventory evenly split between New Mexico and the Del. So that's a $45 WTI. So my question really is, sort of when we sort of look at that inventory, how do we think about the average lateral length between the North -- between New Mexico and the Southern Del, how do we think about the progression of lateral lengths over a multiyear horizon? And what is your ability to continue to extend lateral length through trades?

Yes. Perfect. Appreciate that. It is, as we said, at $45 oil, as you pointed out, right, which is materially lower than where we stand today at around $80. We have 15-plus years of what we're calling economic inventory. So that's good returns even at $45 oil. So just an outstanding position to build upon and to develop over the next many years. From a lateral length perspective, this year, we are estimating that we'll average approximately 8,800 feet. So that's a good place to be. If you look back a few years, we averaged about 7,500 feet. So we've continued to build upon in our current position, increasing our viral lengths over time. That's really a shout out to our land team, adding additional bolt-on positions to our existing position. For the long term, I think in that 8,500 to 9,000 foot range is a good place to think about our business. That being said, we've increased pretty substantially year-over-year lateral links in the past. And so the challenge will be to continue to do so. Longer laterals are more efficient than the shorter laterals. So I think we're doing a good job of increasing our lateral length. On top of that, not only are we adding length, we're adding working interest. So we recently upped our working interest from 2021 guidance from 85% to 90%. So not only are we getting longer, we're also getting higher additional working interest and our wildly successful wells. I would mention that I say wildly successful because all of the wells that we brought on in the third quarter, both in Texas and New Mexico, evenly split, if you will, to your point, from an inventory perspective. But the wells we brought on in the third quarter are all going to pay out in a 6- to 12-month time frame. So just very outstanding returns on the investment we're putting in both states.

Appreciate. I have one more question here, and then I'm going to turn it back to Gregg. So just given this rise in commodity prices, is there anything that you would potentially try doing in this price environment? I mean, granted your focus is on reducing debt and getting that point that you could turn capital to shareholders. But is there anything in this pricing environment that you might try differently that you would not typically try? And then secondarily, is there any way that you might approach your operations differently in terms of development, just given the rise, the commodity price. Maybe an additional well, maybe tighter spacing. So those 2 questions, and we can pass it back to Gregg.

Sure. Yes, I appreciate that, John. I think it's prudent for us to think about our balance sheet still. So higher commodity prices allow us to produce more free cash flow. And so the use of that free cash flow that wasn't previously existed is to really focus on a shareholder return program. So I think that's different for us than what was -- what we were previously working on, which is really just balance sheet repair. I think going above and beyond that now is the next step of future free cash flow. And I look forward to discussing that further in quarters to come. But I think that's one of the main differences on how we're managing our business, is a redistribution of that cash. And then ultimately, managing our long-term liabilities as well. So I think we've got some really interesting options in front of us that present themselves now that we are in a higher commodity price environment. And not just on the crude, as you mentioned, are there other areas or other things that we would do, development different. We've got some lower GOR areas and some higher GOR areas, and they were all working outstanding right now. As we've all seen crude prices are up, but so are our dry gas and NGL prices. So we're seeing a really nice benefit of these commodity prices across the board. And we haven't pivoted or changed our model based on short-term price lines. I don't think that's the right way to manage our business. That being said, we will be developing some of our higher GOR areas as we go into next year. But that was already a bit of the plan going into this higher price commodity environment. So I don't think you'll see a major shift on how we're going to allocate capital. I think we're going to take advantage as we see prudent for the long-term development of our assets. I think from a spacing point of view, I think we've always been in a place where we are comfortable managing, balancing both rate of return as well as the ultimate NAV of any given section. And so I think there's not a major shift from an upspacing or downspacing perspective that you would see out of us. I feel like we have a very balanced approach, and obviously, you mentioned our 15 years of inventory is plenty to tackle for the next many years. So I feel good about what we're doing. No major shifts relative to [indiscernible] price perspective.

Appreciate that, Sean. Back to you there, Gregg. Gregg, you're on mute.

Have a few questions here from the crowd. I'm going to work into some of the other questions that we have coming here. So just -- you mentioned the -- your inventory life. As you think about maybe adding another rig, I know you haven't committed to that, how do you think about shortening the life of your inventory by adding a rig? And how comfortable you are doing that? And what would you -- does that also suggest that there's additional M&A that you need to do to, just to your inventory life if you were adding another rig?

I think that really goes towards an M&A kind of question. And I think, our position is that or my position is that I would like to be bigger, but not bigger just to be bigger. I want to be bigger and better. Meaning that, anything that we add on is going to be accretive to our financial metrics. Our unit costs, our cash flow per share, those are some critical things, but it also has to be able to compete for capital against our existing inventory. If we were to add another rig, yes, that reduces inventory life, but it would still mean that we have well over a decade of inventory even with an additional. So I feel very comfortable that that's a good place to be that we're not forced into making an acquisition just to build inventory even at an accelerated [ riggings ]. That being said, we're going to continue to look for those opportunities. And if we can find something there, the price spread makes sense such that it's accretive to our financial metrics and it competes for capital, then we'll act on that. If that opportunity doesn't present itself in the near term, we are absolutely following operating and generating value on existing system. I think there's a ton of value there to garner just on our existing position alone.

Okay. And that leads to the question that -- so you obviously have a very large shareholder with Riverstone. How does -- how do you foresee their long-term involvement with the company and their potential assets? And how does that dovetail into M&A, whether they need to get bigger, so they get smaller or to sell the company?

Sure. And there has -- they've been very supportive, I would say, of our position. And I can't speculate as to when they're going to exit. We don't have those conversations, and it's on them to manage their portfolio. What I can say is they continue to be supportive on all aspects of our business. So not to speculate again on what their plans are, what I'm going to do is continue to push the value of the company for all of our shareholders. And they got all the term when the right time is to add or not to our position. I think we've got a really interesting investment opportunity still, even at these prices. On a go-forward basis, I think there's a lot of value to garner that is not currently recognized and I look forward to presenting that to the entire investment community, including our share. But it will be free [indiscernible] and people can make the choices as they see fit.

There's obviously been a lot of consolidation within the Permian and the Delaware Basin and obviously, some fairly big news last week as well with Continental entering the Delaware basin. What's your sense of the opportunity to expand within the Delaware? What does that look like? Is there much opportunity to do so? What does Continental's entrance mean for you, as they probably are a little bit more focused on that, then they pioneer and make sure -- your thoughts there would be interesting.

Sure. First of all, I think it's a testament to the attractiveness of the Delaware Basin. And a company like Continental pays the price that they did to enter the basin to get a very -- I would say, a good sizable position. Then that, again, just reaffirms what I said in my opening remarks, that it's the Premier Basin in United States. This is where you want to be. It's where the most opportunity is, we've got a most [ hydrocarbon ] column in the United States to develop. And so there's still opportunity within the basin to grow. There are still operators to work with, to expand our position. And I do think there are some opportunities there. What I'm not going to do, though, is extend the company from a balance sheet perspective to put us at risk in order just to get bigger. That doesn't make sense to me. As you saw with Continental paying in cash and also saw the same kind of thing. So it makes sense to add where you can, but not over extent. We've all been down that path before. We are not going to put ourselves in that position again. So we'll continue to look at opportunities. I do think there are some out there. We're going to be in the process and lots of things, but we are going to only put forward the number that we think makes sense on areas that we think could be accretive to our shareholder expense. That is my #1 goal is to do that. If we were short on inventory I'd be pushing harder, but we're not. We have plenty of inventory at highly strong rates of return on all of our capital to put into the ground. So I feel good about where we are. And so it will be an interesting balance going forward if we need to have the ask side of that equation to work with the bid side of the equation for us to make sense on the go.

Is it fair to say, sure, be very focused on value, which I hear. Maybe your thoughts on premium type deals or no premium? Are you open to the idea of paying a premium?

I think it's a -- Yes, it's an interesting question, John. Yes, that we used to be in a world years ago where premium was expected. A 30-plus percent, 40% premium to existing asset valuations was expected. And part of that was because inventory, people were on inventory grab perspective. And that has waned a bit. Obviously, and now there's kind of this no or low no premium world where it's really about cash flow build and managing that. I do think there is a time in the not-too-distant future where quality inventory is going to be in demand. I guess is that does bake in some level of premium relative to this mono premium world that we've been in for the past kind of 2 years or so. So I do think a slight premium world is likely to start to rear its head here in the coming -- probably 6 to 12 months. I wouldn't be surprised. But it probably won't go back to the world where it's a 30%, 40% kind of premium. That's my...

It's definitely more demand. And that's generally -- that's what tends to lead to premiums, right, as you pointed out. So I have a question here that's in line with something I wanted to ask you. So obviously, you've been -- you went from a way to reduce the need to hedge. Curious how you're thinking about your hedging strategy as you get closer to your debt targets. Your leverage targets.

Just a bit on that first part of the question, but I think I understand what you're at. From a hedging perspective, I think it made sense for us, just a fiduciary point of view to make sure that we were delevering the company. And so you layer on certain amount of hedges to protect the company from the dollar side but also to protect the free cash flow that allows you to delever the business. We put in a fairly substantial amount of hedges in '21. Opportunistically, I would say as we built upon them over the course of the year that allowed us to get to a place where we are going to generate more than $200 million of free cash flow. As we look forward, as we published in -- we have hedges for next year, although I think we've been a bit slower to add them, which I think has been great because commodity prices have continued to improve. And so we've been very opportunistic on adding them at what I think is a very constructive level. If you look at the way they set up on a quarterly basis, we're certainly more heavily ways to the front half of the year and less hedged as we get to the back half of next year. And that really is in direct correlation to our leverage. As we continue to delever in the back half of '22, I think we need less exposure to protecting free cash flow, which then also provides more upside to our shareholders and the ability for us to generate additional free cash flow without limiting the potential. And also having some minor amount of hedges protect the cash flow, protects our operating levels, protect having two rigs running, should you have a wild fluctuation in commodity prices. So I think we're very well positioned. I think if you compare our hedge book to pretty much any of the peers out there, I think you'll find us to be in a very favorable position. And I really -- a credit to our hedging team that meets nearly on a weekly basis. And I think you'll continue to see us be active in that market. But as I said, as we continue to delever less aggressive than we have.

Do you have a quantified number, the way to think about it, maybe in '23 where you're not hedged yet or how to think about what...

We don't have targets there. But again, protecting a level of cash flow that protects our operations as well as our overhead costs is a decent way of thinking about the business without giving specific percentages.

Yes. So we might have the inflation conversation, which is the -- definitely the most popular one out of this quarter, I think. Can you -- you haven't expressed as much concerned about inflation in some of your peers. But I'm curious what you're seeing out there. There's a specific question from the crowd about your 2 [ drilling ] rigs, how much of that's locked up for next year? And maybe give us a sense of how you're thinking about next year and how you can offset any inflation.

I don't know that I'm not concerned about inflation next year, but inflation is an output of a world where commodity prices are higher, right? And so yes, it is something to be concerned about, but that also means that commodity prices are high and that free cash flow offsets the inflationary pressures that we'll see. So I think it's not a bad thing to have some inflation. And on top of that, service companies need to have some inflation in order to bring personnel back into the field. There was an exodus of personnel during an onset of COVID and as capital budgets were constrained, we need those people back in place. In order to get them back in place, they need to have higher wages. So it's not that I am not concerned about it. I think some inflation is needed in order to make sure we have quality personnel to work within the field. How we're addressing that is, a, through efficiencies, as I mentioned earlier on, I think there's still some opportunity there to reduce cycle time, which helps offset some of that inflation. And on top of that, though, where we can preorder things like tubulars, as you mentioned, or facilities or tank batteries or things like that, we are doing so, and we are locking in some prices to preorder some of those things. We have a yard where we where we have an inventory. So we try to build an inventory where we can to offset some of that inflation. We don't have it all locked in for the year. I don't think that, obviously, makes a lot of sense to have that much inventory sitting in a yard, but we do have some of them locked in. And on top of that, from a sand and from the completion side of things, sand is probably your #1 expense or certainly way out there. And we do have a long-term sand contract that guarantees both delivery and [indiscernible]. So, those few things allow us to offset some of the bigger inflationary numbers, I think, that people are afraid of. And that's where I think what we've said is kind of in the 10% to 15% range. I think that still makes sense with the efficiencies that we're seeing and some of the things that we've been able to procure and have in arrear.

So 10% to 15% assumes the procurement. Okay. And just -- there's a very specific question here, is how much of your tubulars have you actually procured? Is there a ballpark for what percentage you would need that you could identify?

Without giving certain percentages, obviously, we're always in negotiations with vendors and we're always talking to various folks about procuring things. So without getting percentages, I would say that we feel comfortable with our forward-looking rig program that we're not going to see lack from a logistics point of view or a material rise in prices above and beyond at least the near term with our current rigs go. That's about as prescripted. That's [indiscernible].

Just -- if I could ask is, can you just remind us of your cash tax situation?

Sure. Yes. From a cash tax perspective, we don't anticipate paying cash taxes for many years to come, and that's based on NOLs in the past. And so I think we're in a very comfortable position there for several years to come.

And coming back to your -- competition out of inflation, efficiency gains is one way to address that, as you pointed out. Are you seeing anything on the technology side that's helpful, that can be significant and -- that helping your efficiency -- to gain more efficiencies?

We do. We've been trialing some things, both internally and as well as having conversations with various service companies, whether that's [ Budd ] Motors or [ bit ] design, [ bit ] sizes, how we are -- the size of our holes. And so I think there are still some interesting things that are going on there that could potentially drive some more efficiency in the field. And our team has constantly been either working with internally or externally, various folks to continue to push the limits. I think we have a very technical oriented operation teams that are continually looking for those next things that can save. Maybe we were saving dollars one day and now we're saving quarters today because we've hit the lowest hanging fruit. But there continue to be improvements operationally that we will implement if we see that, that is going to continue to drive the business going forward.

And I think this is our last question, as more questions come in. Obviously, ESG has been a big push with the markets and also energy. When you look at the E side of things, how would you create yourself? And where do you think the opportunity is to improve?

Sure, yes. And I think it's great that the whole industry has kind of moved towards this movement. I think it was long overdue. And certain companies were already doing good. And then there are others that needed to make major improvements. I would say we fall into the category of we're doing a good job, and we're always looking to do a better job. We -- last year, I think we had a 4% flaring if we're going to talk about clearing. In our most recent quarter, we were at 1.3%. Flaring is obviously one of the biggest drivers of greenhouse gas emissions. And so that's certainly a focus point for us as well as the industry. And I think we've made some tremendous improvements there from a place, honestly, that was in a good spot to start with. So, pleased with the progress that we have made there. And I think ultimately, 0 is the number we'd like to get to. But -- so that's what we're focused on. So there will be some additional capital needs. I think the whole industry will put in place to continue to work that down. But I think it's the right place to focus on at least some of your capital to make sure that, again, we are aligned with the shareholder movement that is demanding more of the fossil fuel industry. We think it's probably rightfully so. We're also planning on putting in a little bit more infrastructure here and there to make sure that some things that are not in our control, we have the ability to pivot such that, if a midstream provider were to go into a maintenance mode, and where in the past, you may have to flare for a few hours of a day because of a maintenance situation, now we are working with those midstream providers to allow us to pivot towards other pipelines such that we can move our gas to different areas, different markets to make sure that we don't even flare for the minimal amount of time. So I think it's the right thing for us to focus on, and we're going to make some continued improvements on a year-over-year basis.

We're about the 45-minute mark -- the 40-minute mark. I think we got all of questions answered. Sean, I really appreciate you participating in our conference. Hopefully, next year, it is in person. On behalf of John and myself, I really appreciate it. Operator, we can leave the call.

Great. Thanks, Gregg, John. Appreciate it.

Thank you.