Garrett King

Inquired about the company's capital allocation framework for deciding between production growth and share repurchases, their general hedging strategy, and their current stance on M&A versus organic growth.

Answer

The company's capital allocation is a fluid decision based on returns from drilling, the stock's perceived undervaluation (which favors buybacks), and debt management. Their hedging strategy uses costless collars to protect the downside while retaining upside, covering 50-75% of near-term production as required by their lender. While the primary focus is on organic growth, they remain open to all strategic opportunities, including accretive M&A.

Garrett King of Truffle Hound Capital questioned the capital allocation strategy between production growth and share repurchases, the company's hedging policy, and its current stance on M&A versus organic growth.

Answer

Executive Wolf E. Regener stated his personal view, pending Board approval, is to allocate funds to share buybacks due to the stock's perceived undervaluation, while also drilling wells and managing debt. He confirmed the decision involves comparing the NPV of drilling projects against the valuation gap of the stock. On hedging, Regener explained they use costless collars to protect the downside while allowing for upside participation, a strategy partly driven by bank requirements. CFO Gary W. Johnson added that the bank requires hedging on approximately 50-75% of production for the first year, depending on debt utilization. Regener concluded that while the focus is on organic growth, the company remains open to all M&A possibilities.