Synergy Resources' (SYRG) CEO Lynn Peterson on Q1 2016 Results - Earnings Call Transcript

| About: Synergy Resources (SYRG)

Synergy Resources Corporation (NYSEMKT:SYRG)

Q1 2016 Earnings Conference Call

May 16, 2016 11:00 AM ET

Executives

Jon Kruljac - VP, Capital Markets & IR

Lynn Peterson - President & CEO

James Henderson - EVP Finance & CFO

Mike Eberhard - VP, Completions

Nick Spence - VP, Drilling

Analysts

David Deckelbaum - KeyBanc Capital Markets

Brian Corales - Howard Weil

Neal Dingmann - SunTrust Robinson Humphrey

Irene Haas - Wunderlich Securities

Welles Fitzpatrick - Johnson Rice

Jeanine Wai - Citigroup

Ipsit Mohanty - GMP Securities

Brad Carpenter - Cantor Fitzgerald

Stephane Aka - Seaport Global Securities

Operator

Good morning everyone and thank you for joining us to discuss Synergy Resources recently announced pending acquisition in the Wattenberg Field and the Company’s First Quarter Results for the period ended March 31, 2016. With us today are Synergy Resources’ CEO, Lynn Peterson and CFO, James Henderson. Members of the Company’s operation team and IR team will be available to answer questions during the Q&A session.

Please be advised that our remarks today including answers to your questions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risk and uncertainties that could cause actual results to be materially different from those currently anticipated. Those include risks relating to commodity prices, competition, technology, environmental and regulatory compliance, and others described in our news release issued May 3rd and in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. Our drilling schedules, capital plans, and other factors may cause our results to differ materially.

Following the prepared remarks, we’ll open the call to your questions. I would like to remind everyone that today’s presentation will be available for replay through May 30, 2016, starting in approximately three hours. Please refer to the press release issued May 11th for dialing instructions. A replay of the audio webcast will also be available via the Company’s Investor Relations section at www.syrginfo.com.

I would now like to turn the call over to the CEO of Synergy Resources, Mr. Lynn Peterson. Thank you, Sir. Please proceed.

Lynn Peterson

Good morning, thank you and I appreciate everyone joining us on our call this morning. As I am sure most of you know, we’ve recently entered into a purchase and sales agreement to acquire approximately 33,000 net acres in what we believe is the heart of the Wattenberg Field. The acquisition is comprised largely of undeveloped acreage that is contiguous and should allow for drilling longer lateral wells that will yield improved economics.

Since I’ve joined the Company nearly a year ago has been made very apparent to our shareholders that our is to build the Company’s footprint in the basin. The first step in that growth profile was to build out a team proficient in the technical, land, governmental and accounting areas. This process has taken place over the past nine months and we now have a team that could evaluate the opportunity as well as a team that can now develop the acquired lands. As often as we have stated these goals while visiting investors I don’t believe that any of our recent steps should have come as a surprise to our shareholders.

During our correspondence with shareholders and perspective investors over the past week and a half, we have received many of the same questions surrounding this acquisition. We have set this call up to walk everyone through our process in acquiring the lands. At the end, Jimmy Henderson will touch briefly on our first quarter financial results and then we will host a limited period for Q&A session for items that we may not have discussed. We will now begin our most frequently asked questions. It may be helpful for you to refer to our corporate presentation available in the Investor Relations sections of our Web site www.syrginfo.com during this call.

The number one question, how do the opportunity to acquire the properties developed? Our team has been very focused in developing our assets in the Wattenberg Field as well as looking for opportunities to grow our footprint and consolidate our operations. The announced transaction was a culmination of these efforts as we have evaluated several opportunities which we've chosen not to consummate. Synergy initially made an uncertain stop [for two] sellers for a block of acreage that included only a portion of the land eventually acquired.

The original proposal was an area that we thought complemented our legacy position. Subsequently the seller countered with larger package of lands which included a portion of lands we initially bid and also lands that were contagious again relying for a multiple year drilling program. As at the time of our April offering we had not yet submitted our bid on the larger package and we knew that there would be competition for the assets. But we also believed that we would have a chance to get that deal or pass with some other we were looking at.

In late April the seller decided to move forward with us and the incremental size and value as a larger package necessitated the second equity offering in early May. In our initial offer we stressed to the sellers the quality of our team that we have developed at Synergy over the past months and our ability to operate effectively and safely within the municipalities. We also stressed our strong relationships within the Greeley and Weld communities as well as the governmental constituencies.

Number two, what is it a bid process and why this acreage? I would say the final process was competitive but our understanding is it was a limited bid process among what appeared to be on a handful of companies. This package provided undeveloped lands for horizontal drilling that was contiguous to some of our most promising legacy acreage with a very small PDP component. It provides Synergy a multi-year drilling inventory in a geologic area we know very well.

We have been looking for acreage to locate it outside the area exhibiting the highest gas oil ratio and these lands largely fit that criteria. Although the EURs within the higher GOR area may appear larger the economic value derived from wells drilled just outside the highest GOR area contained a higher oil percentage and thus deliver stronger economics. From our geologic interpretation we believe the acquired lands present the opportunity to develop three benches in the Niobrara being the A, B and C as well as the Codell. As we evaluate these lands we anticipate that untested formations could become viable later in the development cycle of the field.

What are the benefits of the package to Synergy? We believe it includes some of the best remaining undrilled acreage in the basin. The package consolidates our operations and should create efficiencies going forward. The properties overlap some of Synergy's existing properties and that's helped to create higher working interest in the wells to be drilled. The lands are largely HPP from vertical production and should allow for orderly development and in the event of oil prices decline back in the levels seen earlier this year, we can slow our development and wait for better pricing.

Last fall we completed our four mid length Bestway wells that are located in the middle of this package and the wells have demonstrated strong 150-day production numbers. The large contiguous acreage position allows for mid, long and extended length laterals helping to improve economics compared to the standard length laterals that the Company has historically drilled. We have identified over 900 potential locations within the boundaries of the acquired lands including our legacy properties. We believe approximately 800 of these locations should provide Synergy the opportunity to drill wells that are greater than 7,000 feet in lateral length.

Now the fourth question and these are not in order necessarily, what is the Colorado political environment? We are all aware of the two primary initiatives that are being discussed as we move to the November elections. While we can only opine as to our beliefs, we do see a very strong effort by a wide base of business interests in the state including not only the oil and gas industry but a much larger base. The two recent Colorado Supreme Court decisions regarding local control seems to have resonated a positive message among a large number of Colorado citizens. We would expect these decisions to have an impact on the local control issue.

Regarding the setback initiative, the state already has some of the most rigorous industry rules and regulations of any state and union. We as an industry are very aware of our surroundings and work with local communities to provide a safe environment. While we cannot predict the outcome of the political bullets we do believe that our industry is quite well prepared to educate the public about these initiatives and there's a large number of Coloradans that support our industry.

Number five, what about the mid-stream infrastructure? The acquired leaseholders dedicated to Noble midstream under an existing contractual arrangement for oil and gas gathering as well as fresh water delivery. We believe working with Noble's midstream operations should allow for efficient development that will assist us limiting the number of trucks on the road and reduce traffic in high density areas. As it as the gathering system only we'll retain full marketing authority over the barrels we produce. The gas scenario will continue to be dedicated primarily to DCP Midstream. Again because of the contiguous acreage we believe are laying out the gathering sources methodically, we can continue to improve our economics.

Number six, why do you acreage numbers within the fairway now stand at 47,000 net acres when previously Synergy had stated that its core acreage was approximately 40,000 net acres? The refined acreage figure of 47,000 net acreages in the fairway represent our most economic acreage based upon the current commodity price environment as evaluated by our team. As oil has dropped from $100 per barrel to $40 per barrel the economics for some of the lower GOR areas have changed and this is reflected in our current presentation. As oil prices recover we would expect the commerciality of these areas to improve.

We also need to focus on drilling longer laterals in these areas which should also help improve our economics. The greater Wattenberg area is often referred to as a different core levels, but again we're trying to differentiate through differentiate acreage based upon potential returns that take into consideration the current commodity price conditions. We believe this is also further demonstrated by the relative positioning of our assets as depicted on Slide 7 of our corporate presentation.

Through the BOE preferred range that we have shown on that slide, we attempted to demonstrate the type of wells that we expect over much of our acreage. Of course there'll be variation between well bores but it is meant to give you some idea how we look at the acreage. We also tried to demonstrate in the seed map how we considered oil components of each range. As you can see from the slide, most of our acreage falls within the GOR range greater than 2,000 and less than 12,000 which should drive higher economic EURs with a higher oil component.

Number seven, why did we divest properties in Adams County. We were approached by some private companies about the same time we were looking at the Greeley Crescent acreage block. The divestiture provided us an opportunity to consolidate our operations in the Greeley area by focusing on the Greeley Crescent area we should be become more efficient with our people and our operations.

Number eight, what is our pro forma financial condition and liquidity? The acquisition will be funded with the recently closed equity offering, the $80 million of private placement debt commitment as well as with cash on hand primarily from the previous offering in April. Post acquisition we'll remain undrawn on our revolver and expect to have over $200 million in total liquidity. Our debt to EBITDA remains about 1 times trailing 12 months EBITDA and it may grow slightly through end 2016 and into '17 with CapEx of spend, but then decrease as the new wells are brought online and with any improvement in commodity prices.

Number nine, have we acquired all the acreage that we intend to in the immediate future? Clearly this a package that we're excited about and sets us up for the near-term. Our immediate efforts will be focused on improving our working interest within the boundaries of our acquired lands. We believe our current financial condition allows to move forward in that direction without additional funding. We don't intend to excess the capital markets in the immediate-term to acquire additional lands. With all that being said, I always state that you never have too much quality acreage and our team will always be looking for contiguous lands in the area where we can achieve our best returns. Our goal is not to have the most acreage but rather focus on having the best acreage.

Number ten, what are your CapEx plans? Our 2016 CapEx guidance remains unchanged. We're currently drilling eight of 14 mid- length wells on our Fagerberg Pad, we intend to bring a second rig in when we move to our Evans Pad in early July. Current plans have us dropping the second rig after the Evans Pad but we also have plenty of liquidity to adjust the commodity prices later this year. We expect to use the balance of the year building out an optimized drilling program for the combined assets. We intend to define the issues, get service used agreements and work through our permitting program which will take time before we can start a new program in 2017.

We also need to provide lead time to the Noble midstream team to build out their system. We are not giving official guidance our initial modeling assumes beginning in 2017 we move with two rigs adding a third rig midyear. Depending upon the mix of different lateral lengths we anticipate each rig can drill between 30 and 40 gross wells per year. The initial model then has the fourth rig at the beginning of 2018. Depending on the commodity prices assumed we anticipate our current sources of liquidity combined with growing cash flows from operation should be sufficient to fund our program through 2017.

Finally the last question is why did the sellers divested the property? Clearly we cannot speak to the sellers' intention and we encourage you to review their corporate presentation. They have states that they still own around 350,000 acres in the DJ Basin and these lands represent less than 10% of their total lands and this transaction brought by forward in an area that was not going to be drilled immediately. I also speak to Synergy and its staff and operations as we want to continue to represent the industry in a very positive manner in Colorado. I hope this has helped with some of the questions which you may have had with our transaction. We are clearly excited about the opportunity and believe that this is a win for both the buyer and the seller which is always good in my book.

I'll turn it over to Jimmy Henderson for a quick review of our Q and then we'll open it up to Q&A.

James Henderson

All right, thanks Lynn and thanks everybody for joining us this morning. During the first calendar and fiscal quarter of 2016, we can thank our accounting department for that. Our production averaged 11,510 BOE per day which is a 65% increase from the same period a year ago and a 6% increase as compared to the four month stop period ended December 31, 2015. This increase was primarily driven by the production from our Bestway and Wind pads which were completed late in 2015. We did not bring additional wells on to production in the first quarter, so experienced a gassier mix of product.

In our corporate presentation on Slide 7, you can see that the oil cut decreases as flush production comes off, and so without new wells, we tend to see more gas overall. This particularly true in the high GOR areas as where the Bestway pad is located. I’d also note that some of the production increase was due to acquired wells from our late 2015 acquisition that are also in the higher GOR areas. Looking forward we're not completing the Vista Pad, which consist of 10 standard length lateral wells and we're drilling on the Fagerberg Pad as Lynn mentioned.

Our revenues and cash flows from operations in the first quarter were impacted by a 42% reduction in the average realized price per BOE as compared to the year ago period and a 33% reduction to the last four months of 2015. On the cost side equation we did exhibit improvements in our operating cost with LOE expenses down 37% per BOE as compared to the year ago period and down 7% as compared to the last four months of 2015. Additionally our total G&A cost on a per unit basis decreased by 47% from your 2015 stop period including a 34% reduction in per unit cash cost. Our DD&A rate per BOE has continued to decrease with the first quarter of 2016 averaging 11.65 per BOE while this reflects some of the efficiencies in our CapEx program is primary due to the reduction in our forecast depletion pool as a result of previous year in test and permits.

Finally CapEx in the quarter totaled approximately 80 million including a $10 million acquisition of a drilling unit and related result. This low level of CapEx was due to our limited operations as we had laid down our rig in early December in 2015 and then resumed drilling with the newer purpose built rig in February of 2016. As Lynn mentioned earlier, we are maintaining our previous guidance of 130 million to 150 million of the year and expect to average out to a one rig program.

With that, operator we'd now like to turn the call over for Q&A. Thank you.

Question-and-Answer Session

Operator

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from David Deckelbaum from KeyBanc. Please go ahead.

David Deckelbaum

I was hoping I could just -- I had a question on the overall -- you guys put out a slide detecting the GOR regimes that your acreages is now I mean you've delineated sort of a new core window, roughly speaking internally are you able to give an estimate perhaps overall what the average sort of standardized EUR you would be drilling or capable of on your year overall inventory now versus what you had before, how much of maybe a percentage uplift we should expect to see just on the average for the whole portfolio?

Lynn Peterson

Yes, again David, we’d probably not go down that route yet, I think what we are trying to do is you can take lateral lengths and again when we look at 2017, well I should start as we look at the remaining 2016 we have nothing but mid and long laterals. The Evans Pad we referred to is 22 long and extended laterals, that is in the heart of the play you can apply whatever EUR per foot that you want to there. But that should give you a pretty good handle of where we're heading. And I think as we look at 2017 certainly we haven't got it laid o0ut yet, but again our preliminary work would tell us it's mostly mid, long and extended length laterals so -- and it's going to be in the heart of this play. So I think you can probably take that and develop your own EURs.

David Deckelbaum

I guess I was just also just curious in your diligence that you guys have a decent handle on what the average amount of locations you're going to have per section will be on the acquired acreage?

Lynn Peterson

Well, certainly, we have a pretty good understanding based on the work we’ve done I think if we ran this, we ran it on a more conservative number. I mean we’re drilling everything kind of on a 24 well spot at this point, but I think you can use call it 20 to 26 play as we go forward. And that is going to depend on vertical penetrations in this type of thing so.

David Deckelbaum

And just a last one for me, you touched on where leverage is now and should probably creep up a little bit there and then kind of level out and compress. But you also talked about kind of waiting for Noble midstream to build some things out on the acreage there. One, I just wanted to confirm that we shouldn’t expect to see the capital burden falling on Synergy at all for any build out that we would expect Noble midstream and I guess be picking up to build out there. And two just, I guess, either a number of rigs or capacity of what the system could handle now, if you wanted to ramp-up today, it sounds like maybe it could handle two or three rigs and you want to give them about a year lead time before adding another one, is that fair to think about?

Lynn Peterson

Yes. I think we’re wondering right now as we said we are bringing 2 into the Evans Pad, so that’s 22 wells ought to come on probably late this year or early next year, I think it will give everybody time to work through that as we get through kind of the first quarter next year, we start drilling, we’re not going to get those wells completed to kind of mid-year anyway. So it does giving them probably over a year to work on those and our teams are working together, it’s all very preliminary yet. So give us a little time, we’re getting in there.

Operator

Our next question comes from Brian Corales from Howard Weil. Please go ahead.

Brian Corales

I just want to start on the Bestway Pad it looks to be in the middle of the, your kind of new core area. Was anything done on that pad, on the completion side that was different than which you were doing previously, because those wells look significantly better than many of the other ones you have done?

Lynn Peterson

Well it is part of the location, the acreage primarily Brian, I mean that is what we really thought we, -- well we’re excited about this new package and acreage we bought because I think going forward, we expect to see a lot of this type of wells. And I got Mike Eberhard sitting in here Mike heads up our Completion effort and Mike do you want to comment on anything there?

Mike Eberhard

Just they were a little bit longer laterals and we did do diverter technique on those wells and that’s what we’re continuing to evaluate on Vista Pad we’re on now.

Lynn Peterson

Does that help Brian?

Brian Corales

Yes you know that’s helpful. And just…

Lynn Peterson

Remember, location of acreage is everything here.

Brian Corales

Right, okay well that is hopefully a good sign for things to come. And then just one more on the leverage side, at least I will say from our numbers when you get up to ’17, you’re a little bit over one-times kind of debt-to-EBITDA. Is there maybe for Jimmy, is there a debt metric you are trying to stay within or what would be consider too high for you all?

James Henderson

I think, it’s pretty consistent with what we’ve talked about previously that we kind of a self imposed cap of two times debt-to-EBITDA. We don’t remodel this out not the development that we described we don’t hit that, we see depending on what assumptions you use kind of in there cap out 1.5 to 2 times and then decline from there and so well within our self imposed limitation for this environment that we’re in.

Brian Corales

Okay. And one more if I could. Could we just assume that especially 2017 when you’re putting rigs back to work or another rig to work, it’s all going to be in this kind of core acreage this 47,000 acres?

Lynn Peterson

You didn’t let us answer if you could ask another question here Brian. Yes, I mean again we’re just going through this right now and this is a block of acreage that we’re going to be working the next several years. So I think that’s a fair assumption.

Operator

Our next question comes from Neal Dingmann from SunTrust. Please go ahead.

Neal Dingmann

Say Lynn just quick comments on the infrastructure and looking at that Slide 10 it certainly, I think was that one of the appeals to this it certainly sounds like, there was a lot of infrastructure around that area that plus this nice plan that you all have for early ’17 mid-17 and ’18 now with this sort of new area type and infrastructure wise. Are you confident that you’ll have more than enough to sort of for that growth?

Lynn Peterson

Yes, again the quality of the acreage what enticed our company. And then we believe that as we developed faster and work side as Noble midstream as part of our team here. We think they will be with us through this process and we have a capital of make it happen. So as far as DCP bidden area, we certainly will continue to work with them, we’ve got access to both Grand Mesa and White Cliffs Pipeline. So I think the acreage as well positioned, but again it’s from a geologic standpoint we’re chasing this.

Neal Dingmann

And one with noble, will that be a long, will you do eventually do a longer term deal with that or how will you sort of partner with them?

Lynn Peterson

Let’s get the transaction closed first and then we will move that next step.

Operator

Our next question comes from Irene Haas from Wunderlich. Please go ahead.

Irene Haas

Yes. So you’re talking about putting two or three rigs to work now that your acreage footprint is pretty concentrated any feelings as to sort of generally in which neighbourhood you might start will it be kind of calescent to other -- kind of phase one area that Noble is working on? And then if I may ask one more question is that now that you got a really nice footprint anything else look good to you in the basin that you might have ambition of acquiring?

Lynn Peterson

Well, number one Irene all of our rig count is contingent upon oil prices and we’ll see where it goes remaining of 2016 and 2017. Whether we think this whole block of acreage is high quality acreage and I’m too concerned where we put our rigs in the immediate future. I think it’s the long-term game we're playing here. So we’ll lay this out as we go forward to everybody. I think we answered your last question as part of the Q&A clearly we’re always looking for quality acreage and if we find some we will try to figure out how to make them happen. So you never have a good enough of the good stuff and so I think we’ve demonstrated that in the past.

Irene Haas

So they’re in your opinion there is still stuff that could be interesting if the right kind of situation appears?

Lynn Peterson

This is why we’re in business for.

Operator

Our next question comes from Welles Fitzpatrick with Johnson Rice. Please go ahead.

Welles Fitzpatrick

You guys talked to the ability to develop mids and long laterals in the press release and it seems like the majority of the new acreage. But does mashing up the old and the new acreage create opportunities on top of that, do you have maybe a rough kind of percentage of acreage, the total acreage that might be applicable to long laterals at this point?

Lynn Peterson

Well again we try to merge all both legacy and acquired lands quickly together here to come up and that was kind of that 800 out of 900 potential locations that were conducive to kind of mid or long or extended length laterals. So that would include both legacy and the acquired lands.

Welles Fitzpatrick

Okay. That’s perfect. And then just one more if I could. It seems like everything went well on the Wind Pad, can you talk to using the mono bore when you guys start ramping again?

Lynn Peterson

Well, again I got Nick Spence in here, Nick heads up our drilling we’re moving forward with it, it is the state of the art here in the basin. Nick do you want to expand on anything here?

Nick Spence

Yes, unless we see anything geologically or density wise that might prohibit us we plan on using the mono bore technology moving forward exclusively. We’ve had good success with it to-date, and plan on having good success in the future.

Operator

Our next question comes from Jeanine Wai from Citi. Please go ahead.

Jeanine Wai

And just my question was on 2017 and I was wondering if you could provide just a little bit more detail in terms of how far up on the revolver are you willing to draw? And then also kind of the role of hedges, I thought maybe before you had a target of becoming 50% at least 50% hedged kind of exiting this year for 2017 and given where you are right now in the hedges is if you hit your target does that provide some upside to your drill plan in 2017?

Lynn Peterson

I'll let Jimmy take a shot at that if you want to?

James Henderson

Sure. Yes, I think well for hedging I think you’re right that we did have a target of being 50% hedged as we get closer to the beginning of the year. We're seeing prices now that are attractive both in outright swaps and collars and you will see us layering on hedges as we go through the year really to protect that base program that we described in this call. As Lynn has stated several times the rig cadence is completely dependent upon commodity price environment and if we’re able to see upside to what we’ve modelled then we’ll adjust that program accordingly and same thing to the downside. As far as the revolver we’d like to have plenty of dry powder available and like to use the revolver sort of to take advantage of those opportunities and use it as swing financing and so we try to keep it a fair amount available on the revolvers as we move through the year.

Jeanine Wai

Okay. But you don’t have a limit to tell us you won’t go above 75% drawn or 50% drawn?

James Henderson

No, and that is depended upon the environment that we're in so it’s hard to drill out just a set target and if we do an acquisition or something comes along that makes sense then we would move towards those higher limits but we're going to keep it available for such deals.

Jeanine Wai

Okay. And then lastly, can you give us a sense of what your percent oil cut may move to next year given that you’re looking to go after properties that are a little more higher than GOR area?

Lynn Peterson

I'd say it's a little early to go there yet Jeanine I think let us forget our drilling schedule and again I think it’s going to be kind of like we laid out I think you are going to see initial oil cut probably in the 60 to 65, 70 range and then it'll drop out four times and I think our reserve kind of sneak to about 45 to 55 at the end of the day so other by ranges, does anybody have additional color here. Everybody shaking their heads so no I think that’s probably fair.

Operator

Our next question comes from Ipsit Mohanty from GMP Securities. Please go ahead.

Ipsit Mohanty

So just a quick question on say, on oil rigs and you all think about your portfolio, I am just curious how quickly you can put a rig into the newly acquired acreage in the context of sitting closer to higher populated townships and the permitting issues involved?

Lynn Peterson

Well, again we’re moving probably at the end of June and early July onto our Evans Pad which is right in the heart of this whole acquired acreage. So I think we are there already. As we get our permits lined up, we’ll move forward accordingly. So I mean we’ve been working our legacy acreage so nothing really changes it just happened so we have a lot more of it now so that’s the work side of that.

Ipsit Mohanty

And then quickly switching I also noticed that the Fagerberg sort of all just lightened there and you’ve moved into plug and perf I also heard the mention of diverters on the Bestway. And so just your thoughts on as you move from sliding sleeves to plug and perf which is easier to use to access frac or Bioverts any of these concepts better?

Lynn Peterson

I am going to turn that over to Mike Eberhard since he brought the issue up.

Mike Eberhard

With the mono bore technology plug and perf is the most applicable methodology, so that’s what we’re looking at as far as application in the process that’s independent of the completion technique we can do it with either.

Ipsit Mohanty

Okay. And one last what’s been your learning if any I know you’ve all been busy with this deal. But what is the many learnings from the underperformance last quarter on the Kiehn and Cannon pads? I heard you mention about orientation and that could be an issue in certain areas of your acreage. So any color you can provide on that?

Lynn Peterson

I think you got to be careful of the underperformance word I think when you look at wells in the striving areas they’re not necessarily underperforming those. I think if you look at our kind of our GOR slide you will start to just see that some of the legacy acreage is sitting in areas that we shouldn’t expect that the wells that we’re making today in the Greeley Crescent area. So, again it all comes back where it’s location of acreage and we’re going to continue to work on the geologic picture here, Tom Birmingham joined our team back in November, 35 years of experience in the basin. Clearly going forward we’re going to work hard on the geophysical side of this. So, I think we’re fine and again we’ll always well that have outperformed or underperformed wells that are offsetting, and that’s the nature of our industry. But I’d just be a little careful going to that part real quick.

Operator

Our next question comes from Brad Carpenter from Cantor Fitzgerald. Please go ahead.

Brad Carpenter

First one real quick one from me, sorry if I missed this in the prepared remarks, but could you remind us when to expect the Fagerberg to be turned to sales? And I think I caught the Evans Pad expectations for that late 2016 or early 2017, do I have that correct?

Lynn Peterson

Yes, yes we’re just drilling the -- I believe we’re on the eight of 14 wells on the Fagerberg, so we got the rest of May and a big part of June still to go there. So, and we will move accordingly, we’ll see what oil prices are we don’t have any requirements that we have to complete within certain timeframe. So we try to take in consideration a lot of items. So, as far as Evans Pad, yes, I mean again we’re moving the rigs on there in July, it's going to take us a better part of the third and into the fourth quarter to drill them all, we’ll move towards completion again as we see and we’re not going to be able to complete all those wells at one time. We’re going to have to do a little bit systematically to support all infrastructure up there so I think that probably lays that pretty clear.

Brad Carpenter

Lynn you were building up the Synergy team heading into this acquisition. Do you feel that your team is right sized now to post closing let’s say with a three rig run rate or do you feel like you would need to add headcount in able to support those operations?

Lynn Peterson

I think we got a great team put together and all of our management is in place. I don’t see that really changing at all. I think support staff will continue to grow as we move forward and we’ll clearly need more field level people and we’ve done a great job of adding in the field as well. So I am very comfortable where we’re at, and this doesn’t require us to jump quickly and ramp-up our rig count overnight, we can do it over a period of time. So I think the team is very, very well comfortable where we’re at and excited, so…

Operator

Our next question comes from Stephane Aka with Seaport Global Securities. Please go ahead.

Stephane Aka

I was just -- just a couple of quick ones for me. One is wondering if you could maybe speak to how much more room you think to -- you have to continue to push well costs lower going forward?

Lynn Peterson

I think it is time we got to be a little bit careful on that and I think our drilling efficiencies are here to stay, I mean we have often tried to stay I think as oil prices, when they recover, I think there's going to be some upward pressure probably come back to our industry, so I think we have got to be aware of it. I think our service providers have worked very well with our team to drive down cost I don’t think we can expect that to continue necessarily, clearly if oil stays where it is I think we can hold these costs kind of where we are at today. Mike, Nick do you guys have any difference of opinion there?

James Henderson

Sounds good.

Lynn Peterson

All right, and I think that's probably fair.

Stephane Aka

And then maybe one on differentials just in the basin in general where kind of at today and where do you see them going, maybe for the rest of the year?

Lynn Peterson

I'd say it's gotten pretty tight in the basin, if you have barrels above your existing commitments you're probably seeing better differentials than we've seen some time in the past, so I'm not going to get too specific about what we're seeing on the marketing side, but I think for us at these -- at production levels, we are probably still going to see kind of $9 to $10 since we fulfil our commitments going to Cushing anything that we would produce above our commitments, will be within that but it's really pretty volatile right now, and it's gotten pretty tight in the basin.

James Henderson

And I think that's one of the things excited about the package, does not come with volume dedication, the barrels we develop here, will be incremental and we should get in a different position as we go through '17.

Operator

Thank you. I'd now like to turn the floor back over to Mr. Peterson for any closing remarks.

Lynn Peterson

Thank you. We'll continue to answer the remaining questions through direct correspondence to our company, I know Jon Kruljac has and we'll continue to make himself available to our shareholders, we'll continue to be on the road as we move forward. If this transaction closes in the next few weeks, we will transform the Company and have created a unique acreage position that provides multiple years of drilling and largely allows for the drilling of longer laterals that will continue to help the world economics. We recognize that we've issued a large amount of equity this year, but believe the stock will start to represent the quality of assets that we've created. I speak for the entire Synergy team as we thank you for your interest and support of our Company. We value the feedback we receive from our shareholders so please don't hesitate to contact us. We would now wish everybody a great day and conclude this call. Thank you.

Operator

This concludes our teleconference. Thank you for participation. You may disconnect your lines at this time.

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