Synergy Resources (SYRG) Q2 2016 Results - Earnings Call Transcript

| About: Synergy Resources (SYRG)

Synergy Resources Corp. (NYSEMKT:SYRG)

Q2 2016 Earnings Call

August 05, 2016 11:00 am ET

Executives

Lynn A. Peterson - President, Chief Executive Officer, Chairman

James P. Henderson - Chief Financial Officer & Executive VP-Finance

Michael J. Eberhard - Chief Operating Officer-Operations

Nicholas Spence - Chief Operating Officer-Development

Analysts

Brian M. Corales - Scotia Howard Weil

Gabriel J. Daoud - JPMorgan Securities LLC

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Carlos Newall - Raymond James Financial, Inc. (Broker)

David A. Deckelbaum - KeyBanc Capital Markets, Inc.

Jeanine Wai - Citigroup Global Markets, Inc. (Broker)

Pearce Hammond - Simmons Piper Jaffray

Irene Oiyin Haas - Wunderlich Securities, Inc.

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc.

David E. Beard - Coker & Palmer, Inc.

Operator

Good morning, everyone, and thank you for joining us to discuss Synergy Resources' second quarter results for the period ended June 30, 2016. With us today are Synergy Resources' CEO, Lynn Peterson; and CFO, Jimmy Henderson; COO for Completions and Operations, Mike Eberhard; and COO for Drilling and Development, Nick Spence. IR Manager John Richardson will also 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 risks and uncertainties that could cause actual results to be materially different from those currently anticipated.

Those include risks relating to commodity prices, the pending acquisition, competition, technology, environmental and regulatory compliance, and others described 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 a limited number of your questions. I'd like to remind everyone that today's presentation will be available for replay through August 31, 2016 starting in approximately three hours. Please refer to yesterday's press release 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. Sir, please proceed.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Good morning, everyone, and thank you for joining us on our call this morning. I ask that you reference our earnings news release and our filing on Form 10-Q, both of which were made available last evening for further details and full disclosure related to topics we're going to be discussing today.

The second quarter of 2016 continued to be a busy time for the company as we transitioned to where we are today. I would like to list some of the significant accomplishments that our team has completed.

First, we changed to a calendar year from the previous August 31 fiscal year-end. We've continued to strengthen the independence of our Board of Directors. We are continuing to strengthen all of our third-party service providers across the company's operations. We acquired approximately 33,000 net acres in the Wattenberg Field that brought the company top tier acreage and highly contiguous drilling opportunities. We closed on the two equity offerings for total proceeds – net proceeds of $454 million as well as an $80 million institutional debt offering.

As we reflect back on the first half of 2016, I believe we've achieved our goals. We stated to the market that we expected to maintain flat production, while working to minimize our cash flow outspend. Our production for the first six months has averaged approximately 11,300 barrels of oil equivalent per day compared to our fourth quarter December 31, 2015 production average rate of approximately 10,800 barrels of oil equivalent per day.

Now, looking ahead to the second half of 2016, we expect third quarter production on a BOE per day basis to be slightly lower quarter-over-quarter, as we expect to experience a typical decline rate for our wells, and given that no new wells are scheduled to be brought on to production during the quarter. However, as we look into the fourth quarter, wells from our Fagerberg pad should contribute to production in about mid-quarter. Mike Eberhard will touch further on this in his prepared remarks this morning.

With this in mind, we are tightening our full year average production guidance to a range of 11,000 BOE per day to 11,200 BOE per day from our previous guidance of 11,000 BOE per day to 12,000 BOE per day. At the same time, our adjusted EBITDA for the six months ended June 30, 2016 was $21 million compared to our capital expenditures for the same period of approximately $37 million. Jimmy will provide additional comments on CapEx for the balance of 2016.

Now, jumping to what seems to be the largest focus is the political situation of our industry here in Colorado. One of the largest issues faced in our industry relate to the two ballot initiatives that have been proposed Colorado and would have a significant detrimental impact on our industry. The proponents of initiative petition 75 dealing with local control and 78 dealing with 2,500 foot setbacks, must submit 98,492 signatures by 3:00 PM on August 8, 2016 in order to qualify either or both measures to appear on the ballot. It's important to remember that in order to qualify, the proponents need 98,492 validated signatures from registered voters in the State of Colorado. The Secretary of State will run a validity test to verify whether or not there are enough signatures. That generally takes at least two weeks, but the Secretary of State does have up to 30 days to make that determination.

Unfortunately, we do not have any solid information or verifiable numbers as to where the proponents are at this moment in time. In the event the required signatures are turned in, there'll be an additional 30-day period to see if the industry wishes to challenge the signature process in court. The industry has great support within its ranks, but it's also important to recognize the strong support from other industries within the State of Colorado. And we remain optimistic as to the outcome of this situation.

I'll now turn the call over to Jimmy Henderson, to discuss our 2016 second quarter results. Jimmy?

James P. Henderson - Chief Financial Officer & Executive VP-Finance

Thanks, Lynn, and thanks, everybody, for your interest in the company and continued support. During the second quarter of 2016, our production averaged 11,100 BOE per day, which is a 34% increase from the same period a year ago.

During this quarter, we completed the Vista pad, consisting of 10 standard length lateral wells. However offsetting that new production, we experienced some impact from shut in wells for offsetting operator activity and have experienced higher line pressures with the hotter summer weather. All of this combined with the sale of a package of vertical wells resulted in a slight 4% decline in production from the last quarter.

Our revenues and cash flows from operations in this quarter were helped by a 47% increase in average realized oil price as compared to price received last quarter. That said, the second quarter 2016 price is still 31% lower than the same period last year. For the quarter, we saw differentials of $10.50 per barrel deducted from NYMEX oil prices. I should point out that because we sell our production at the wellhead, this differential includes all trucking and gathering expenses in addition to the downstream transportation quality adjustments.

Since we are currently producing at or near the level of our downstream commitments, virtually all of our production is being delivered to meet those requirements. As we look forward, this situation should improve in early 2017, as we expand our completion activities, allowing us to take advantage of other favorable markets with barrels in excess of our commitments. On the cost side of the equation, we experienced an increase in operating cost with LOE expenses up compared to last quarter, while year-to-date we have seen a slight decrease as compared to the same period last year.

During this quarter, we performed remediation work to improve some well sites from earlier acquisitions. Although, this type of work is not unusual, we had a higher level than usual of activity this quarter as we've now built our staff and we can operate at a higher standard than we have in the past. Our total G&A cost on a per unit basis increased slightly by 5% from last quarter, however decreased by 10% from a year-ago period. We anticipate that our G&A has stabilized and should be fairly consistent over the next several quarters.

Lastly, our DD&A rate per BOE has remained about the same with the second quarter averaging 11.16% per BOE. This quarter, we recorded a full cost ceiling impairment expense of $144 million. As benchmark prices used in this calculation have continued to decrease, particularly for oil, this has caused a decrease in evaluation of crude reserves. Another component of the impairment was the write-down of our properties in Eastern Colorado and Nebraska to reflect current valuations.

Our capital expenditures during the quarter totaled $28 million, bringing us to $37 million year-to-date. We're maintaining our previous guidance of $130 million to $150 million for the year as we ramp up drilling activity with the second rig on the Evans pad and completion activity on the Fagerberg.

Switching gears to our balance sheet, we obviously had a very active quarter with the GC acquisition and related financing. With the closing of these transactions, we ended the quarter with about $79 million in cash and an undrawn revolver of $145 million borrowing base. We completed the redetermination in June with the bank group reaffirming that commitment. We believe we are in great shape with expected liquidity to fund our capital plans over the next few quarters at an industry-leading leverage ratio.

I'll now turn it over the call to Mike Eberhard to discuss the company's operations.

Michael J. Eberhard - Chief Operating Officer-Operations

Thank you, Jimmy. From an operations standpoint, we've continued to make great progress integrating the Greeley Crescent acquisition and developing our 2017 drilling program. At the same time, with our development staff, we've been able to spend time on ongoing evaluation of results from previously drilled wells and the geological and engineering differences throughout the basin.

To that point, we've had a chance to evaluate some previously drilled pads, particularly in the western portion of the field, where we believe wellbore orientation is more important than in other areas of the field. In this area, wells that are drilled in the direction of the created hydraulic fractures have a higher tendency to develop longitudinal fracs, resulting in reduced overall reservoir contact and less than optimal production. While we cannot always dictate the direction of our wellbores due to spacing units and land positions, we intent to rely on our specific geologic studies to guide us as we move forward.

Moving on to the completion of the 10 standard length wells on our Vista pad, as stated in our operations update last week, the Vista pad is three Niobrara A, four Niobrara Cs, and three Codell wells. Four of those wells were the 4.5 sliding sleeve liner completions and six are new 5.5 monobore perf-and-plug completions. The Nio C wells were completed with hybrid fluids and the Codell and Nio As were slickwaters.

30-day production is very encouraging with the pad production at 78,000 BOE across all formations. It is important to note that these wells are in our lower GOR acreage and production is about our type curves for that area. There is one Nio A well that's currently underperformed – under producing due to wellbore restriction.

We will be starting completions on the 14 medium-lengths well on Fagerberg Pad next week. Completions will continue through October and we expect first production from the pad in November. The Fagerberg Pad has two Nio As, five Nio Bs, three Nio Cs and four Codell wells. All wells are monobore perf-and-plug completions.

We will be doing the same frac design testing – we'll be doing some frac design testing, but we'll be primarily sticking with the similar design philosophy that was used on the Vista pad. (13:39) treatments on the Nio B and Nio C and slickwater on the Nio A and Codell wells. It is not our intent to build the DUC inventory, but rather we expect to move on and complete wells, as soon as practical, after drilling is completed and facilities are built. We're always considering commodity prices. Since multiple wells are drilled on each pad and completions are dependent on the drilling rig being a safe distance away from completions, there will be times when we have a natural inventory wells waiting on completion.

Drilling is underway on the Evans location, where we intend to drill 11 wells from each of the two pads. The first rig started on the East pad, and have reached TD on the initial well this week. The second rig is currently drilling the first well on the West pad. These are our first multiple-pad wells, where we have been able preset casing on all 22 wells. This should reduce our cycle time by one day to 1.5 days per well.

The West pad has nine extended length laterals of approximately 12,000 feet, while the remaining 13 wells are all approximately 9,500 feet. We are completing initial facility work on the pad, which should allow us to bring these wells into production more efficiently than previous operations. Many of the operational techniques being used on the Evans pad were verified on the Fagerberg Pad.

It is important to note that both rigs are at market rate and without long-term commitment. Once drilling is completed on the Evans pad, we will evaluate commodity prices and maintain complete flexibility with our drilling program. Our actual well costs have continued to improve on a per lateral foot basis over the past several pads. We believe our current AFE projections are achievable as we go on to 2017. As we ramp up our development program, we are working with several key vendors to minimize potential price increases, should market demand pick up.

I will now turn the call back over to Lynn, for final results – remarks.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you both, Jimmy and Mike, as well as our entire staff that has worked diligently through this period. We're excited about what lies ahead for our company, but we're also realistic as to the current state of oil and gas commodity prices.

Here we're in August, and nearly two years down the road from the start of the deterioration of our industry. With oil currently challenging the $40 level, we intend to move slowly and judiciously over the next several months, until we can start to see a clear vision to stronger commodity prices.

We remained in the bull category with a strong conviction that commodity prices, particularly oil, will trend higher as we go into 2017 and beyond. Like all of you, we read a lot of predictions and a lot of – look at all of the inventory and rig counts. But frankly, until we see some sustainable higher prices, we do not intend to accelerate our activity level.

Some may say that since we've added second rig on our Evans pad, we're already accelerating, but this should be viewed as Synergy's attempt to accommodate homeowners in a residential area. We do not want our rigs in one area for what could seem like an endless amount of time. We take great pride in working with communities in which we operate and we try to accommodate and reduce the impact on our neighbors.

As Mike said, we're focused on 2017 and very excited about how we can grow our production. We believe that our operations at the Evans pad will be a great example of what you can expect from Synergy going forward. This pad lies in the middle of the acreage acquired through the Greeley Crescent acquisition and should demonstrate the quality of our properties.

As the drilling of the 22 wells finishes in the fourth quarter of 2016, we should be in a great position to grow production going into 2017 at a time when most quote experts expect oil prices to improve. Through our continuous meetings with shareholders, we understand that many are looking forward to 2017. Our team has spent the last few months evaluating our acquired lands and how they integrate with our legacy properties.

In conjunction with our efforts to identify future drilling spacing units, we have worked closely with Noble's Midstream group as well as DCP Midstream to ensure that we can connect wells in a timely manner and move our products via pipeline in a continuing effort to minimize the impact on communities. We are meeting with our board over the next few weeks and following that we expect to lay out our 2017 capital program and related guidance.

I remind everyone it is only the 1st of August and oil has dropped back into the low-$40s and there are a lot of uncertainties still facing our industry. We, like everybody else, are looking for clarity in the commodity markets and then we will adjust accordingly.

We have tremendous financial and operational flexibility and we can accelerate when we believe the time is right or we can maintain a lower level of operation, if deemed necessary. I know we've had analysts trying to predict our 2017 program and I would ask for your patience and we will get you our best initial 2017 guidance in the coming weeks.

Operator, we'd now like to turn this back over for a Q&A session.

Question-and-Answer Session

Operator

Thank you. The floor is now open for questions. Our first question today is coming from Brian Corales of Howard Weil. Please proceed with your question.

Brian M. Corales - Scotia Howard Weil

Good morning, guys. I have just a kind of big-picture question on the recently acquired acreage. Are you all expecting the zones to be pretty similar in terms of productivity and EUR or are you expecting one or two of those to be much greater than the other?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

I think we're pretty excited what we have here, Brian. I'm going to let Mike touch on this. But I think this is one of the things we were focused on when we acquired this acreage, that we believe all of these benches should be productive. We have enough well data from other operators as well as some of the wells we've drilled previously that give us that confidence.

Mike, would you like to add anything to that?

Michael J. Eberhard - Chief Operating Officer-Operations

No. Exactly, we have all four benches and we're excited about the opportunity to develop that acreage.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Really, Brian, this comes back to what got us excited about this opportunity, and we're anxious to get into 2017 with a little better commodity prices.

Brian M. Corales - Scotia Howard Weil

Okay. And then, maybe it's just early in the development, but drilling some 7,500 foot laterals and even some 12,000 foot laterals – s this land issues or you're trying to find, I guess, the best bang for your buck?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, it's probably a little bit of both. Frankly, a lot of this is driven by our leasehold position. The Fagerberg pad accommodated the 7,600 foot laterals. When we look at our Evans pad, frankly, we've got a 160 that we're trying to HBP, and so we've got a few wells going up into the longer laterals. We feel comfortable. Nick Spence, who handles our drilling and development part of this, clearly has drilled a lot of wells in the basin. We're very comfortable with where we're at. We've got two top-of-the-line rigs. And we're prepared to move forward here.

Brian M. Corales - Scotia Howard Weil

And just I think on your presentation you all gave a, call it, $3.5 million for mid-lengths. What does the 12,000 foot lateral cost? Just roughly, I'm not going to hold you to it here, but roughly.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Yeah. We're guessing somewhere around that $5 million, plus or minus.

Brian M. Corales - Scotia Howard Weil

Okay.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

And again, we have not drilled these, Mike, so this is our first. We'll definitely come out with what our costs are at the end of the day – or Brian, sorry.

Brian M. Corales - Scotia Howard Weil

Okay. All right. Thanks, guys.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thanks, Brian.

Operator

Thank you. Our next question is coming from Gabe Daoud of JPMorgan. Please proceed with your question.

Gabriel J. Daoud - JPMorgan Securities LLC

Good morning, Lynn. Good morning, everyone. Lynn, I appreciate the comments on 2017 and being cautious and flexible with the rig ramp, but can you maybe just give us a sense of what oil price would make you feel comfortable with keeping the second rig, and then potentially adding the third at some point in the middle of the year – middle of 2017?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, again, we're not going to get into rig counts at this point. I think we'll come out with that in the coming weeks. I think we're all looking to – we'd love to get some hedges put in place, let's give a range of $40 to $60, $45-$65, those type of numbers that really secure us going forward. Generally, I think as all industry has talked to, we'd love to see oil above that $50 mark. I think it's really important for the entire state of our industry.

Gabriel J. Daoud - JPMorgan Securities LLC

Thanks. That make sense. And then I guess for the rest of 2016, and maybe is there an update on Grand Mesa and where you guys stand with the commitment on the pipe, and if you're working with Magellan in terms of the commitment or potentially extending that?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Yeah. We understand that the pipe is really on schedule, should be operational here, last part of the year. We are working very closely with NGL in our case and we should have some new information in the coming weeks in that regard. So, we feel comfortable that we're going to get a little bit of relief and we'll be able to meet our commitments.

Gabriel J. Daoud - JPMorgan Securities LLC

Got it. Excellent. Just one final one for me on 2016 CapEx, I guess the trajectory from here, I guess, year-to-date, you spent $37 million or so. I think the budget is still maybe that $150 million kind of number. I guess, how should we think about 3Q and 4Q CapEx, how that shakes up?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, I think if you look at the six months total, we're going to be drilling the 22 wells at Evans. Those wells will just start completion efforts kind of right at the end of the year. We've got the Fagerberg wells that will be completed here. We're starting those operations in the next few days here. And so, again, I think as Jimmy mentioned, we feel pretty comfortable that our guidance of $130 million, $150 million should be in the ballpark, and that includes some acreage acquisitions that we've done and some seismic acquisitions. So, Jimmy, do you want to add anything to that?

James P. Henderson - Chief Financial Officer & Executive VP-Finance

No. I think it's pretty hard to split that between the two quarters, probably a little more in the fourth quarter than the third quarter. But it's kind of hard to cut it in that fine of a line right now.

Gabriel J. Daoud - JPMorgan Securities LLC

Got it. Thanks, guys.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thanks, Gabriel.

Operator

Thank you. Our next question is coming from Mike Scialla of Stifel. Please proceed with your questions.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Hey. Good morning, guys. So, Jimmy, you mentioned some of the things that impacted the 2016 volumes. Just wondering if you could quantify any of those, I guess, shut-ins from offset, completions, the high line pressures, and the sale of some production?

James P. Henderson - Chief Financial Officer & Executive VP-Finance

No, really they're all about the – a similar effect on the quarter. None of them were largely more than the others, so – and you can almost say, a third, a third, a third between the three.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Mike, I think...

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Maybe the – I'm sorry. Go ahead, Lynn.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

I was just going to say I think the impact from offsetting operations is going to be an ongoing situation for us. Something we're really looking hard at our 2017 with our contiguous block of acreage, and try to minimize those type of things. But I would expect as – if you believe oil prices are going to go up and you think activity levels are going to increase, we're probably going to see more of that type of impact.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Yeah. And maybe can you tell me what the total impact of all of them was? Or maybe you did, I may have missed it.

James P. Henderson - Chief Financial Officer & Executive VP-Finance

Mike, we're kind of comparing to first quarter, trying to think about holding it flat to that. So, you're talking about a pretty – overall, pretty minimal variance from our expectation. So, not big numbers anyway you look at it.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Got you. Okay. And then, looking at the Evans pads, those 22 wells you're going to be completing between, I guess, November and May of next year. How do those coming online? Is it all 22 at once or do you bring them on in stages?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

I wish we could, but we might blow the whole system out. But yeah. Well, I think – or Mike can jump on this too, but we've kind of laid it out to go six wells at a time, going back and forth across the pad. So I guess, we've had three pads or three groups of six wells, and then the remaining four. And I think really we've got to think of completions kind of in the December through May timeframe. Drilling should be finished, I think, as we kind of look into the first part of November time we get moved out, so this – so it takes a while. But it's really a significant pad obviously for us. And Mike and his team has spent a lot of time trying to think how we can complete these wells to minimize the impact of pressures. Mike, do you want to add anything there?

Michael J. Eberhard - Chief Operating Officer-Operations

No. Exactly. Our plan is just to – rather than completing an entire pad at a time, we'll do half on one, move over to the other, do half and come back, and that way we'll be able to bring them on in four tranches rather than one big one.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

And when would the first tranche most likely come on line?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Yeah. Let's call it the 1st of the year.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Got it. Okay. And then, last one for me. Mike, you'd mentioned you're talking with some of our service companies right now about maybe some longer-term commitments. Can you say which services you're looking at, at this point? And I realize it's very dependent upon where oil prices go, but just conceptually what you're thinking about or locking in potentially longer term?

Michael J. Eberhard - Chief Operating Officer-Operations

Now, we just go through our top-10 spends and we are trying to work with those vendors.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Okay. Would rigs be included in potentially something you'd want to lock in at this point or could you, if you wanted to?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Yeah. Mike, we've discussed this, and Nick's sitting here too, but we're kind of between and betwixt right now. We don't want to get too aggressive. We don't think prices are going to jump tomorrow. So, I think we've got a little time to work through that. We've got two great rigs in place, precision drilling rigs. We're very pleased with those and we have been in discussion with them, but we haven't finalized anything. I don't know, Nick, if you want to add comments to that?

Nicholas Spence - Chief Operating Officer-Development

No. That's right in line there. Right now, there's surplus rigs, obviously, in the basin. We've got two good ones. And as market improves and demand starts to come up a little bit, we'll look to further these conversations for 2017. But right now, we're comfortable with where we're at and the flexibility we have.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Mike, we maintain the relationship with all the completion teams out here across the board, and we feel like we're in good shape, we're pleased where we're at.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Sounds good. Thanks, guys.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you, Mike.

Operator

Thank you. Our next question is coming from Carlos Newall of Raymond James. Please proceed with your question.

Carlos Newall - Raymond James Financial, Inc. (Broker)

Good morning, guys.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Good morning, Carlos.

Carlos Newall - Raymond James Financial, Inc. (Broker)

First question's on the Evans pad. It looks to us like the Evans East was drilled and TD very quickly, particularly as these are long laterals. Could you comment on average drill times achieved during the process?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

I guess, Carlos, where we're at, Nick's all puffed up because you gave him little kudos for his drilling. But I think this is the first well. Let us get through these. We've got some challenges as we get some of the outer wells drilled here. So, we don't hang our head on one-time drill for one well. I'd like to just ask a little bit of time here to get our job done. But there is no doubt. I think our team is doing a great job advancing. Eliminating the extra string of casing has been big to us. I think having a surface casing preset has been a good issue. First time, we've really been able to do that. So, I think we're checking the boxes here. Let us get a few wells down and we'll be glad to share those times with you.

Carlos Newall - Raymond James Financial, Inc. (Broker)

Great. Fair enough. Thank you. One quick follow-up. You guys are sitting on the solid asset base with several years of drilling inventory. Are you still actively looking for acquisition targets or is the plan right now to focus on developing existing acreage?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Carlos, we wouldn't have jobs if we didn't continue to look at opportunities. So, we're always looking how we can improve our asset base here and how – even within our block of acreage, we're looking to improve our working interest in each of these GSUs (31:19). So, it's across the board and the team is working very diligently in that regard, and certainly open to opportunities.

Carlos Newall - Raymond James Financial, Inc. (Broker)

Great. Thank you.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you.

Operator

Thank you. Our next question is coming from David Deckelbaum of KeyBanc. Please proceed with your question.

David A. Deckelbaum - KeyBanc Capital Markets, Inc.

Thanks, Lynn and Jimmy. Thanks for taking my questions. A lot's been asked, and I know we can't really talk very much about 2017. But considering the recent Noble acquisition, for the acreage that lies sort of out of what you demarcate as the core, should we think about that as sort of longer-lived inventory, the higher oil price? Or do you have any intentions to kind of core up a little bit more and bring in some proceeds to keep the balance sheet clean?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

We're going to continue to look at all these types of situations. I will tell you, the 2017 and probably the 2018 is focused entirely on our Greeley Crescent area. All of our wells will be drilled in that particular block of acreage, maybe an outlier here or there, but nothing significant. Do we monetize anything down the road? I think we'll just see where we go. We're pretty pleased where we're at. We don't have HBP issues. So, we don't have anything that's going to expire significantly for us. So, I like where we're at and just anxious for a little higher oil prices.

David A. Deckelbaum - KeyBanc Capital Markets, Inc.

I hear you. Jimmy, just a little bit of housekeeping, just on cost for the rest of the year. I know, 2Q lifting costs, there was some of the impact from remediation. How should we think about that playing out the rest of the year, or was that more of like a one-time item in the second quarter?

James P. Henderson - Chief Financial Officer & Executive VP-Finance

Yeah. Dave, some of it was one-time sort of a pickup in activity in the summer months versus what you saw over the winter. I think we've always kind of said that we expect LOE to be in that $5 range and we saw closer to $4 in the first quarter. So on average, we're kind of getting back. I think excluding these kind of remediation activities, and I think that still holds. So, we might bake in just a little bit more for going for remediation activities, but it's going to be sort of hitting us as our activities come and go. So, I know it's hard it's hard to pin down exactly kind of a rate, but I think we're still kind of in that $5 dollar range. And as we work on our 2017 plan, we're going to define that a little better. So, we'll update you as we work on our plans for these kind of activities going into the next year.

David A. Deckelbaum - KeyBanc Capital Markets, Inc.

Perfect. And if I could just ask one more, Lynn, I'm not sure if your team has looked into this, but the last time – I know a lot of us are holding our breath for Monday's signature deadline. But in 2014, when some of these initiatives were introduced under kind of different guidelines, I think a lot of operating companies felt that there might be some ways to prolong drilling efforts even if something were to pass through permits being grandfathered and things of that nature. To your knowledge, has your team looked at any of – if, in a worst case scenario, this does end up getting some support, would the industry be able to continue drilling on permits that had already been issued or things like that?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, Dave, we've been very involved in this whole process. We've contributed money to the situation. Our team I think has looked at almost every possibility out there. I think it's probably too premature to get into it at this point. Let's let the process play out next week. We'll adjust accordingly. I think even the period between August and November, I mean we've got – if they get the signatures, we've got our work cut out for us. So, maybe what we should do in that regard, we'll continue to share our thoughts of that, probably more privately than on a call like this. But we're working and we're looking at every possibility out there.

David A. Deckelbaum - KeyBanc Capital Markets, Inc.

I can appreciate that. Thanks for the color, guys.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thanks, David.

Operator

Thank you. Our next question is coming from Jeanine Wai of Citigroup.

Jeanine Wai - Citigroup Global Markets, Inc. (Broker)

Hi. Good morning, everyone.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Hi. Good morning

Michael J. Eberhard - Chief Operating Officer-Operations

Hey, Jeanine.

Jeanine Wai - Citigroup Global Markets, Inc. (Broker)

Just going back to the prepared remarks, you indicated that there is enough liquidity to fund the program – I think you said over the next few quarters. So, it looks like on the revolver you're completely undrawn right now as of June 30. And then, just wondering how high on the revolver are you willing to draw next year, either on a sustained basis or kind of on a shorter-term basis, recognizing that you do have large upfront commitments on drilling the pad before you do the stage completion.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

I will let Jimmy comment, but let me make a point. We are going to come out with our 2017 information here in the coming weeks. We will lay this out. I think we'll continue to be pretty careful of our balance sheet. I think, we've all lived the last two years and we're very aware of where we need to maintain this. Our real question is commodity prices and where we go. And I love that we have the flexibility. As I said also in the prepared remarks, that we can accelerate or we can maintain. So, I don't think we're going to answer your question directly, but I'll let Jimmy throw some color on that if he'd like.

James P. Henderson - Chief Financial Officer & Executive VP-Finance

No, I think that's all correct, and we want to maintain that financial flexibility. And so, that means keeping our revolver somewhere around 50% on a sustained basis or less. When we talk about our liquidity over the next few quarters, we certainly think we're in great shape for the remainder of this year, looking through the next year, depending on our activity level and expected growth in that revolver. I mean, obviously bringing in these pads, the Evans pads and Fagerberg late in this year, we should see some pretty dramatic changes in our borrowing base. And so, that gives us comfort as we look forward to our planning for next year.

Jeanine Wai - Citigroup Global Markets, Inc. (Broker)

Okay. Great. Thank you very much.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you.

Operator

Thank you. Our next question is coming from Pearce Hammond of Simmons Piper Jaffray. Please proceed with your question.

Pearce Hammond - Simmons Piper Jaffray

Good morning. And Lynn, can you share with us your latest thoughts on hedging?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Yeah. We need higher oil prices to put some good hedges on. This is something we've been working on. We had a little opportunity, I guess, it may have been a month or so ago, to layer some hedges on. Like I said, in a costless collar, I think, it was in the range of 40 to 60. That is where we'd like to get to. Obviously, we're not there today. Again, we're watching it. We're also putting a few hedges on from a gas standpoint. Maybe Jimmy is really the better person to answer that question.

James P. Henderson - Chief Financial Officer & Executive VP-Finance

Yeah. Pearce, so we've got an updated schedule in our 10-Q that I'll let you refer to, but we did add on a couple of gas hedges just focused on CIG, kind of like the pricing that we see there, bit less volatile, so a little easier to lock in some of that, or using collars again on the gas side, give us some exposure to some level of upside as we move to next year. In general, I'd say, we're trying to get somewhere around 50% hedged as we go through the remainder of the year, and that's going to be a combination of collars and probably some fixed price, if prices start to move in our direction. But we're trying to be very patient about it. Like Lynn said in his prepared remarks, everybody reads the same thing, so we're trying to be very methodical about how we layer these on through the year and have exposure to some upside, but also protect as much of the downside as we can.

Pearce Hammond - Simmons Piper Jaffray

Great. Thank you. And then on the monobore technology, what are the advantages you see from employing that and do you think you'll widely adopt that?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Yeah. I'll let Nick Spence jump on that one.

Nicholas Spence - Chief Operating Officer-Development

Yeah, primarily, operationally, we eliminate one casing string, so just the time involved with placing a string and cementing it and the cost of that string. So operationally, we'll cut a day off, probably, on a well on average. It gives us some better opportunities on the completion side with the bigger production string. So, as far as pump rates and what the completions folks can get in the hole, it helps them off from that standpoint. And then yes, we look to using it pretty much exclusively unless the geology in the area dictates that we will need an intermediate string. So, we're very pleased with our results so far and we look forward to more to come.

Pearce Hammond - Simmons Piper Jaffray

Thank you. And then just one last one for me. Lynn, are you looking to divest some additional non-core acreage from the company?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, again, I think we divested some acreage down in the Adams County really to bring all of our focus up to the Weld County area. We have some acreage in Nebraska, a little bit in Eastern Colorado. The markets are really not there for those type of assets right now, but we'll continue to look, see if there's opportunities in that regard. I think, generally speaking, with our acquisition we closed here in June, I think we've really brought ourselves a very contiguous block of acreage and we have a little bit of that lying here and there. But generally speaking, a very, very significant portion of our acreage is all one block. So, we really like where we're at today.

Pearce Hammond - Simmons Piper Jaffray

Excellent. Thank you very much.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you.

Operator

Thank you. Our next question is coming from Irene Haas of Wunderlich Securities. Please proceed with your question.

Irene Oiyin Haas - Wunderlich Securities, Inc.

Yeah. I have a question on the any update on the Weideman pad. Then secondarily, with your current staffing level, when you do ramp up, how many rigs can you ideally support?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, Irene, regarding Weideman, that's off the table at this point. I'm really not going to go into because of legal ramifications. I hope you appreciate that. As far as our staffing, I think we've really put an excellent team together here. As far as number of rigs we could handle, I think it's very – we can move upwards significantly here. Clearly, we'd probably add some support staff and field personnel, in particular. We've spent a lot of time, I think the last six months, really trying to bring some more support to the field level. We're opening an Greeley office. We're excited about that. So, I think we're really starting to see these guys bring some great benefits to the company. So, I'm delighted where we're at. I think we've got a great group of people put together and we're prepared to move forward.

Irene Oiyin Haas - Wunderlich Securities, Inc.

So, can I take this as in terms of your core technical engineers in-house, you're probably okay not really adding more field-level support or things with that nature to really ramp up?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

You can take that to the bank.

Irene Oiyin Haas - Wunderlich Securities, Inc.

Okay. Great. Thanks.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you, Irene.

Operator

Thank you. Our next question is coming from Neal Dingmann of SunTrust Robinson Humphrey. Please proceed with your question.

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc.

Good morning, Lynn, Jimmy. Say, Lynn just a question, when you look, obviously you're doing some of those huge pads, if I look at either like – I don't know, maybe like the Vista pad with 10 or maybe even the Fagerberg, is the most efficient, is that to bring a couple of rigs and knock those out – I mean, I guess, my question is both from the rig side and then from the completion side, do you bring a couple of rigs like you're doing and then when you're completed, is it a zipper frac or what's the kind of – maybe just talk about the best way to drill and complete those that you think is most efficient on those large pads?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, again, I think, one of things you've always got to keep in mind is where we're drilling these wells. We are in the municipal area right now and we try to look at this as what would we like in front of our homes. And so, I think bringing two rigs in, in case of the Evans, is the only thing to do. We'll be in there for a few months and we're going to be out of there. As Mike kind of described in his prepared remarks, how we're going to go back, complete these wells. We're trying to look at interference, do we have shut-in offsetting wells, those types of things, and we're trying to take all that into consideration. Do you guys want to get in a little bit how we go about completing?

Michael J. Eberhard - Chief Operating Officer-Operations

Yeah. I think, to your point, it's – as part of our development program, we definitely are taking a look at how can we minimize our impact on the surrounding community and if locations warrant it, where we can't put two rigs, we may look at that. On the completion side, it does make it more difficult, because we have to get water to those locations so that we can put it down hole. So, that's the limit. But we do take that, as one of our first considerations in our development program and we do plan on using with the plug-and-perf completions, monobores, zipper completion. So, we will be going back and forth between wells.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

We've actually got that process down. So, it's not much slower than the sleeves were at that time.

Michael J. Eberhard - Chief Operating Officer-Operations

Right.

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc.

Interesting. Okay. And then, Lynn, you might have said this, just on that Williams and Kawata pad that you already have, what's the pipeline of status on those or was that because they're so far off you're not worrying about that yet?

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Well, we worry about everything, but the Williams Pad is actually pretty close to our existing pipeline, that we hooked some other well or some other pads over in that area. So, I'm not too worried about that. The other one is probably a little more remote from existing pipelines. But again, we've got time to get all that in place. So, we're really making a push to get all of our wells tied in via pipeline. We think it's important to get the trucks off the road, reduce the truck traffic and dust and everything else goes along with it. You can tell we put a great deal of emphasis in we're working with the communities that we're growing in. We think it's extremely important and we want to be thought of as premiere operators here in this push that we're making.

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc.

Very good. Thanks for all the comments, Lynn.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you.

Operator

Thank you. Our next question is coming from David Beard of Coker Palmer. Please proceed with your question.

David E. Beard - Coker & Palmer, Inc.

Good morning, everybody. Most of my questions have been asked. So, I was wondering just if you could give me a little detail on the ceiling test write-down, was it related to vertical assets or perhaps doing the acquisition or any color you could give there would be helpful? Thanks.

James P. Henderson - Chief Financial Officer & Executive VP-Finance

Yeah. David, this is Jimmy Henderson. So, we've put a little more explanation in the 10-Q, so you might have a look at that. But in general, it's continuing deterioration of pricing. As I think everybody knows, we're required to use a 12-month look-back, so we're now just kind of working through that period after about a year ago when we had increase in prices and then it came down again. So, we're kind of into that low oil price regime that we're doing evaluation on. Can't really break that down between what's attributable to vertical versus horizontal. It's just a kind of the forecast accounting, it's as compared to all of our capitalized cost. So, it's difficult to do that. But in general, in our reserves, we've kept pretty conservative booking, especially given this price environment that we're in. And so, with the increase for the acquisition and this price environment kind of small offsetting components there. But in general it's just another quarter, lower prices than in the previous quarter.

David E. Beard - Coker & Palmer, Inc.

Okay. Thank you. Appreciate the time.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thanks.

Operator

Thank you. This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Peterson for his closing remarks.

Lynn A. Peterson - President, Chief Executive Officer, Chairman

Thank you. I'll speak for the entire Synergy team as we thank everyone for their interest and support of our company. I'd also like to give a little special call out to John Richardson, who recently joined us as Manager of Investor Relations. John comes to us most recently from the buy side as some of you know. And his entire career and really upbringing has been close to the energy industry. John brings a refreshing voice to our company and I can speak for our entire staff to welcome him on board.

The last nearly two years have been a challenge to our industry, needless to say, and clearly we're not out of the woods yet. All of us in Synergy appreciate the opportunity that lies ahead of us and we're excited about the growth potential of our assets. We can now control commodity prices. However, with our existing contiguous acreage block, we believe we can drill more efficient wells. And through working in conjunction with our third-party midstream groups, we should be able to improve takeaway and we'll be good neighbors to our communities.

We also like to reiterate that this is a growth story and opportunity going forward into the next few years. We value the feedback we receive from our shareholders, so please don't hesitate to contact us. And looking at our September conference schedule, I believe I'm safe in saying that there will be a good chance we'll see all of you in the near future.

We would like to thank all of you once again and wish you a great day and we'll be back in touch. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.

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