Clayton Williams Energy, Inc. (NASDAQ:CWEI)
Q2 2016 Earnings Conference Call
August 03, 2016, 10:30 ET
Patti Hollums - Director, IR
Mel Riggs - President
Michael Pollard - SVP, Finance and CFO
Clayton Williams, Jr. - CEO & Chairman of the Board
Neal Dingmann - SunTrust Robinson Humphrey
Jeff Grampp - Northland Capital Markets
Vedran Vuk - Wunderlich Securities
Sean Sneeden - Oppenheimer
Bertrand Donnes - Johnson Rice
John White - ROTH Capital Partners
Welcome to the Clayton Williams Energy Second Quarter 2016 Results Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Ms. Patti Hollums, Director of Investor Relations. Ma'am, you may begin.
Thank you. Good morning and welcome to the Clayton Williams Energy second quarter 2016 results conference call. During this call, we will discuss our second quarter results, guidance and the operations update that was released this morning. This conference will be recorded and available on our website at claytonwilliams.com. Our call today will consist of a Company overview presented by Mr. Mel Riggs, President and then a financial update presented by Mr. Michael Pollard, CFO. We will then take analyst questions for as long as time permits.
Also present today, we have our CEO and Chairman, Clayton Williams, Jr. and several members of our management team. Before we begin, please be advised that our remarks and answers to your questions include statements that we believe to be forward-looking statements. All statements that relate to future results are forward-looking statements that are based on current expectations. Actual results may differ materially from those expressed or implied by these forward-looking statements because of the number of risks and uncertainties affecting our business, including those discussed in our quarterly and annual SEC filings and in the cautionary statements contained in our press release and on our website.
I will now turn the call over to Mr. Riggs. Mel?
Thanks, Patti and welcome to everyone again to our second quarter call. First thing I want to do, I want to go back in time a little bit and recap the history -- recent history of the Company. I think it is important to walk through where we were and where we're now. And I'm going to talk about the past -- quickly, the past 18 or 19 months which, frankly, feels like about 10 years for me and most of us here. But, as you know, there is no secret, we entered 2015 with a pretty challenged balance sheet, a lot of debt and no hedge position. Hedges were rolling off.
And so we hit a wall of collapsing oil price at the same time and it was a very tough year. The actions we took early on to cut overhead, to cut operating expenses in the field and eventually to also suspend capital spending pretty much to preserve liquidity we feel like paid off over time. I have to -- I want to give tribute to our employees who worked really hard under very difficult conditions to keep this Company functioning in a normal manner. They did a lot -- everybody pitched in big here. It was a team effort all the way around.
During the year, though, we did end up drilling three wells. We had to drill a well in the Western plank of our acreage in the Delaware and Reeves to hold acreage. We drilled that well and it turned out to be a -- it was a step out and it was commercial wells. We proved up acreages, an important well from that standpoint. And we drilled a couple of other wells in the Eagle Ford, but most of the year we were pretty much idle when it came to capital spending and we were exploring options for the Company.
Moving forward into first quarter of 2016, we did secure financing with Ares which did provide liquidity and gave the Company stability. We were -- I would characterize really 2015 as the hunker down period and I am going to talk about 2016 as the turnaround period. We're going to turn the company around. The Ares transaction started that process.
The financing -- well, first of all, what it did, it put cash on the balance sheet to start a drilling program again. And we put a rig to work in Reeves County in the southern Delaware during the second quarter of this year and, as you know, everybody knows, we have roughly a 65,000-acre position in that area.
And what has happened there with the wells -- with the wells we drilled previously in previous years, 30-plus horizontals in the Wolfcamp A and Wolfcamp C, plus all the activity going on around us that has continued to happen even in low price -- the product price environment, about five different targets right now have been proved up or at least are producing. So the area has gotten much -- has progressed pretty dramatically in what works and then the potential -- and there is probably potential for more benches to come.
So initially, in this -- because of our capital restraints that we have, we plan to drill four or five wells, really just to maintain acreage, but when we started looking at the fact that well costs had dropped about 45% -- and if you factor in -- factoring in the results of efficiencies gained in drilling and the results from the drilling that was occurring, this is a play that works at sub $50 oil. So what we have done now is we contracted this rig to continue to run through the end of the year as the plan now. So our CapEx is going to increase some here and Mike will talk about the guidance here in a moment. But we want to keep that rig running.
The other thing that is really different now is we can drill one rig, 12 wells and maybe more running a smaller spudder rig out front to drill the initial vertical -- part of the vertical hole [Technical Difficulty] accelerate the pace even more. That is compared to about six wells a year we were getting done previously in our program. So we can grow production faster, but we also spend money faster, too.
So far, we have drilled four wells with this rig. We have got two completed and two are waiting on completion. The first well was the low. It was drilled on an island section in the northern part of our acreage. We were limited to one section because, again, we were surrounded by other operators. Just one section of land. So we drilled a lateral in the Upper A Wolfcamp. It is an area where we knew -- we really expected to have good results. We had another well up there that was -- a couple wells up there were good wells. And so we did increase the frac sand on this well somewhat and we have -- we reported in our press release, we have a 30-day -- a peak 30-day production from this well, averaged 1158 barrels per day. About 74% oil, 13% NGL.
So it is a good well. We expected it, but it is outperforming really the last 25 Wolfcamp As we drilled. And if you look at the average over -- of the wells -- the last 25 were drilled. The second well is the Collier 34-51 drill down. It is in the southern part of our acreage where we have a lot of acreage kind of pretty blocky. We changed some things on this well. First of all, we changed the target. We went to the Lower Wolfcamp A. We went -- we did our first -- performed our first slick water frac when we put a lot more sand, a lot more fluid on this well and we had tighter spacing of clushers and stagings. We have very preliminary information on this well production data. The well is a recent completion. But for the past seven days, again, still early in flow back. This well is making over 2100 BOE per day. So we obviously need more production history on this well, but I can say this. It is very encouraging and very encouraging for the future of our program in Reeves County.
Moving on to, again, we have plans now to drill with this rig 10 wells this year, eight Wolfcamp As and two Wolfcamp Cs. We will have seven -- we expect to have seven complete by the end of the year and three in various stages of completion. Again, we have been -- we're increasing our guidance for CapEx, but we're offsetting that somewhat by the sale of a non-opposition in Glasscock County. We're going to get about $19.5 million ultimately from that sale. Minimal impact to production, PDP. It is mostly to sell some people rights and some acreage. So, Mike, again, we will touch on the guidance.
The next step in our turnaround was to -- we felt like we needed to raise some equity. We need to pay down debt. We also need to provide more capital to drill. So we have recently announced an equity raise of $150 million with Ares. Mike will get into the details on that, but that continues to solidify the Company's balance sheet and improve where we're on our financial position.
So while the turnaround which is currently underway and we're going to continue or continue to turn this Company around, the southern Delaware has been heating up. I think everybody has been seeing some of the press releases and some of the activity. We have seeing some of the strong well-run Midland Basin companies getting active in the area. We saw Parsley increase its position primarily in Pappas County earlier. Diamondback recently announced an acquisition up in Reeves County, acquiring Lux, private equity of that company Lux's position.
So, again, these companies are starting to see value. I think a lot of us see that well costs are down. This play is delivering great results at this point. So, but most notably, in our area, we have just seen the announcement of Riverstone's acquisition of Centennial Resource Development. Their position, the Company was on the threshold of an IPO and Riverstone acquired the assets. This acreage is in close proximity or actually contiguous in some cases to our acreage. It is a very important transaction to our Company.
All these transactions point now, once again, when you look at back at this, that we have done the right thing. We have held on to this asset through a downturn -- a severe downturn. One of the worst most of us have seen in our careers, going back to the 1980s. Clayton has obviously seen them even worse than this, probably, but this rivals anything from the 1980s and that is kind of what we expected and that is why we function the way we have. But these transactions point out the value, the substantial value that we have to unlock in this 65,000-acre position of stack pays over in southern Delaware in Reeves.
It is based on current economics. It is the highest rate of return asset in the Company and we're going to be extremely focused on improving our operations on this asset and we think we're already taking those steps. The slick water frac may be a step in that direction. And we're going to -- and we plan to continue development here. And we're going to utilize all the resources necessary to get the capital and the people -- whenever we need to unlock this value -- what we think is really a world-class asset.
With that, I'm going to turn it over to Mike.
Thank you, Mel and let me point out before I start with some of these results, that the turnaround that Mel is talking about has not yet begun as the second quarter of 2016. We haven't seen those results yet. So keep that in mind. We reported a net loss of $73.8 million for the quarter, $6.06 per share. But on an adjusted net loss basis which is a non-GAAP income statement measure, we reported $34.3 million of net loss.
The pretax, non-cash items that are considered in the calculation of that adjusted net loss, were primarily $37.9 million. That is a pretax change in value of warrants. We have to account for the warrants that were issued in March as liabilities and mark them to market using a Black-Scholes method. We had $13 million in change in fair value on their commodity derivatives. That was also a charge and then an $8.9 million charge for changes in our estimated future compensation expense under our APO incentive plans. We preserved liquidity in the period that Mel was talking about in 2015. We stopped drilling, preserved liquidity and worked through some difficult times in, but the impact of that was that it has reduced our production significantly in the second quarter of 2016.
We had 13.6 million BOE per day. That is about 3000 BOE per day lower than the 2015 quarter. 84% of our production in the second quarter of 2016 was oil and NGLs. 16% was gas. Our average prices, as you recall, the first quarter of 2016 was commodity prices were at a 12-year low at that time. They rebounded fairly significantly in the second quarter of 2016, but they were still about 27% on average lower than the second quarter of 2015. We realized $40.51 per barrel of oil, $1.87 per Mcf of gas and $14.09 per barrel of NGL. And, of course, the impact of an 18% drop in production and a 27% drop in average price was very challenging on our EBITDA. EBITDA decreased $23.1 million which is down about 63% from the $36.5 million that we reported in 2015. Our cash flow, though -- and this is cash flow before changes in working capital -- is just above the breakeven mark at the $1.3 million positive cash flow and -- but that is compared to $23.6 million in the second quarter of 2015.
On the balance sheet side, long term debt which the numbers I am going to give you exclude the unamortized discount and issue cost, consisted of $363.3 million of the second lien term loan that is due 2021 and then $600 million of unsecured senior notes due 2019. Nothing is drawn on the -- our $100 million RBL facility at this point. For 2016, we elect -- for the second quarter of 2016, I'm sorry -- we elected to pay our interest on the second lien term loan in kind at $13.3 million of interest and repaid it in kind by granting -- you know, giving additional principal instead of cash. Under that facility, we have a quarterly election that we can make for the first two years. We can either pay cash interest at 12.5% or pay in kind at 15%.
We have elected in addition to the second quarter of 2016, we have also pre-elected for the third quarter of 2016 to pay that interest in kind as well. We currently -- at June 30, we had $255.7 million of liquidity and that is down about $27 million from the liquidity we had at March 31. Most of that is due to the fact that we pay semiannually on interest -- semiannually on our bonds and those payments are due on April 1 and October 1 of each year. But subsequent to June 30, as Mel mentioned, we have taken some very important steps to strengthen our balance sheet, reduce our leverage and really position our Company for growth. We agreed to raise $150 million of equity by issuing 5,051,000 shares of common stock through affiliates of Ares Management.
In the addition to the equity raise and a very important benefit to this equity offering is that the lenders under the term loan facility have agreed to waive certain restrictions that will enable us to use proceeds from this equity operating and other equity offerings, as well as proceeds from any specified asset sales to actually reduce leverage, reduce debt and to pay capital expenditures. Those were very, very big points in that equity raise and will give us a lot of flexibility in the future. The offering is expected to close by the end of August and it remains subject to compliance with certain regulatory matters. We also launched a tender offer in late July to buy back up to $100 million of principal amounts on our 2019 senior notes.
The tender offer will be conducted using what is called a modified Dutch auction process. Bids will -- must range between $880 and $950 per $1000 bond. That bid range includes a $30 per bond early tender premium. The tender offer is subject to the equity closing, as well as a few other requirements. And also in July, we sold our deep rights under about 2500 net acres in Glasscock County for $19.5 million of cash proceeds. We have received $14.7 million so far and expect to get most if not all of the remaining $4.8 million proceeds upon satisfaction of certain title requirements.
But, if you exclude customary transaction costs, the net impact of all of the transactions I just mentioned, if completed as planned, would have the effect of increasing our equity $150 million, reducing our debt $100 million and increasing our liquidity for general corporate purposes and capital spending by between $74.5 million and $81.5 million. Given the $256 million of liquidity we have at June 30, that would put us in the $331 million to $335 million or $336 million of liquidity range this quarter. Turning to the guidance, we announced that -- as Mel mentioned, that we were continuing the one rig program in Reeves County through the end of the year. That extension, plus improved drilling times, we can now expect to drill at least 12 wells per rig per year and possibly more with what Mel mentioned as far as [indiscernible] rigs ahead of it.
Currently plan to spend about $105.5 million on drilling completion and leasing activities in fiscal 2016. That is up about $36 million from our prior guidance. We have raised our production guidance based on the anticipated activity in results, but we mentioned that we have not really assumed any additional benefits related to the preliminary results from that Collier well that Mel mentioned in his remarks. We now estimate that production for the year 2016 will be between 13,000 and 13,900 BOE per day and that is about an increase of about 1000 barrels per day over prior estimates.
At this point, I believe we will turn it back to the operator and go into the Q&A session.
[Operator Instructions]. We will now take our next question from Neal Dingmann with SunTrust.
Say, well, just looking at the Delaware slide and you talk about having upside potential with multiple behind type targets. Can you talk about just how big this potential is?
Well, we're talking about what everybody else is talking about with -- you have got production at Terrebonne Spring. We have got two benches in the Wolfcamp A, the Upper and Lower. We have got the Wolfcamp C which we have drilled and other companies have drilled. I mean, there has been Wolfcamp B drilled. I mean, it just continues all around us. And if you want to -- I mean, it is pretty well documented in the Centennial presentation that is out there that has been filed, listing the zones that are in and showing all the activity that is occurring all around which really is in our footprint.
We will now take our next question from Jeff Grampp with Northland Capital Markets.
Just kind of wondering how you guys are thinking about going forward with the completion designs and does what you are seeing on the Collier well give you enough confidence to move forward with those types of designs, maybe see a little bit more history? Just kind of wondering how you guys are thinking about integrating some of that recent success.
We're going to integrate it into all the future wells this year we're going to drill. And, keep in mind, we're not the first company out there to do a slick water like this. We had other data from other wells that have been fracked in that manner and so we're using that technique. And it is working for other companies.
I think even Noble today has an announcement out about a big well they have way up to the north of us -- northeast of us with a big frac. So that seems to be where we're headed and we will see different tweaking going on about how much sand to pump and things like that. But it is probably going up. I mean, we haven't seen diminishing returns, obviously. No, we're not really seeing that. That just means that the sky is the limit until you hit it.
And then, just thinking about going forward development
pace, obviously, oil being a bit volatile here, continually. How do you guys think about with the one rig now, you talked about maybe adding a spudder rig to accelerate things. What are the data points or inflection points from a commodity or leverage liquidity standpoint that makes you guys maybe reconsider things to be upside or downside from a development pace standpoint?
Okay. I think right now, with one rig running and a spudder, we can drill wells -- I mean, we can add a lots of wells quickly. So, we can grow production with one rig. Obviously, this oil price environment is very troubling. It is acting a lot like oil at the end of July last year. I mean, we're having -- it is a seasonal thing, too. There is a lot of factors going on. We hope to have seen better oil prices, but we know this play with costs where there are works below $50. We would like to see higher in the $40s and I think we will just try to keep one rig going. Again, we don't want to provide guidance yet, right now, for 2017 until we get a little further along here.
Yes. Totally understandable on that, Mel. But can you kind of talk maybe big picture understanding that it wouldn't be official guidance, but kind of what a one rig program in the Delaware would cost you in 2017, if that were the program you elected to run--?
Yes. Just assuming you are drilling wells, maybe 6500 foot wells, that is $1 million, 1000 feet and [indiscernible] a dozen wells, 15 wells and you can see it is somewhere around $90 million to $100 million, something like that.
Ron, do you have any thoughts on that? That gets quite a few wells drilled and I think that would -- I think our production is going to -- I mean, based on where we were with our production down, we're ramping back up, we can have growth. There is a point in time in the future we get better oil prices, some much better macro environment that you would want to run more rigs to grow the production, but one thing we're doing with our rig program, we're holding our acres. We're not letting acreage slip away out there.
And if I could just sneak in one high-level strategy one. You guys alluded to a lot of M&A in the basin. Clearly, that is some pretty high acres multiples, especially relative to where you guys are kind of trading at based on current share pricing. When you guys look at those data points, how do you guys think about looking to close that valuation gap between yourselves and this nearby M&A? Is it addressing the leverage? Is it growth or what are kind of some of the things that you guys look at internally?
Well, I think we have to address the leverage. The valuation thing, what it does for me, it makes us very determined to get there because we see the potential is sitting there. We have got it. We control it. It is in our hands. It is in our destiny to make it happen and we're going to do whatever we have got to do. But we have got to work on the debt. That is clear. We have other assets in the Company that we're going to have to at some point in time rationalize and decide what are we going to do here.
We can raise other capital by selling assets and it is becoming more clear -- and it has really cleared up over the last 12 month that our Delaware position -- it is in the core of the southern Delaware. Everything is happening around us and you look at the map and you get all these bigger public companies in there now and I think that we have got to put our energy there -- our capital and energy into that area. But it is worth it because the prize is really big.
We will now take our next question from Vedran Vuk with Wunderlich Securities.
Just had a question on looking further out to maybe towards the end of 2017 and going off of some of your comments on rationalizing some other assets. If you have to come up with some more cash towards the end of 2017 or early 2018, would you look to perhaps selling the Eagle Ford or maybe monetizing the midstream or just wanted to get your feelings also on additional equity under the right share price? Would you be willing to raise more equity just to shore up the balance sheet maybe if you needed to do so a year and a half from now?
I think right now, we don't -- like I said, we're going to get capital. We're going to figure it out. I don't think we want to telegraph anything -- any of our moves right now. We're going to watch this market. Obviously, oil prices now need to be -- we need to be cautious here. Not in any rush. We want to get the share price much higher. We think that we're vastly undervalued compared to other companies out there. You can just tell by looking at the acreage. So anything we do, we want to play into that and we're just not prepared to telegraph into the future right now 2017, 2018 or anything like that. That's really --.
Are all of those possibilities on the table? Is there anything that you would absolutely not do out of possible rationalizations or equity?
No, you never say never. I was just -- I mean, you can't. I think we said keep all those options open. I can tell you this. Compared to where we were last year and earlier this year, we're sitting in a heck of a lot better position. And it is clear now, we have seen -- we didn't see the big transactions in the Delaware, the big M&A things happening, the high valuations. We believed it would come.
It took time. It is happening now and I think it is only going to get better. And you get all of these companies in there doing -- spending money and doing work and it just makes it better for all of us. And so we just want to keep riding this wave that we're on and do the best we can and try to work the debt down and operate -- and do the best we can with drilling and completing wells.
We will now take our next question from Sean Sneeden with Oppenheimer.
Maybe I will the last question in a different light. But if we were to kind of get a ramp in oil prices back to the $50 or so context, where does that kind of incremental dollar of CapEx go? Would it be more towards adding a second rig in the Delaware or would you guys think about adding [indiscernible] to the Eagle Ford or how are you guys kind of thinking about that?
Well, we looked at it and the Eagle Ford, really, is [indiscernible] higher prices. And so we're not drilling in the Eagle Ford at $50 a barrel. So, obviously, I think where we're, we're going to have to choose between trying to reduce debt. It is going to be a balance between paying down debt and increasing CapEx and that is what -- we will walk a fine line down that path to do that. And that is the decision we make at the time.
I would point out that the last well in Reeves County offers a lot of things for us to look forward to. It had good flow rates. We have other locations, so we will continue to focus on areas that are most profitable and the day is very clearly -- the horizontal drilling in Reeves county and also there is a lot of things to do and a bright future.
Yes. Good point. It is the highest rate of return asset right now in this commodity environment.
Sure. I think that makes sense and certainly I think the last two wells you guys have in the release are pretty impressive. I guess maybe just two quick ones on the balance sheet. I certainly appreciate the Dutch tender on the unsecured bonds there, but I guess given that you are roughly $0.90 on the dollar type of price that you are potentially paying, it looks like you are not particularly deleveraging per se.
When you think about deleveraging the balance sheet, other than some organic growth that I think you guys have outlined today, what other options are you guys really thinking about? And, in particular, what I am wondering is some of your peers have shown a propensity to do some debt for equity type of transactions. Is that something that would ever be on the table for you guys or is that just not an attractive option?
Well, first of all, on the leverage, granted, we're not capturing a lot of discount on these -- on the offer that we're making. We really view this as -- we want to reduce leverage and we will. We will reduce up to $100 million of debt. That is 1/6 of our total issue which is significant for a first step. And, granted, we're not [Technical Difficulty] as much of a discount as we had originally thought, but it is still very meaningful reduction and we view this offering as really a way to offer a liquidity event for some of the holders who may want to exit these bonds and move into something else. So it is a liquidity event the way we look at it, but it helps us as well. As far as the other debt and other issues, we're just -- I don't know.
It is really not on the table right now --.
No, not on the table to do any kind of an equity exchange. Again, like Mel said, never say never, but that certainly isn't something we're considering right now. The bonds are trading close to par. They have become fully callable at par on April 1 in 2017 and I think that will be kind of our primary strategy.
Okay. And so the thought process would be, as you kind of continue to grow production within the Permian and hopefully continue to deliver the balance sheet, you would be at some point down the line here able to organically refinance that paper maybe --.
Yes. And we believe that the results we're seeing organic growth here out of this is more -- very much more possible and we just do need oil prices to cooperate at some point. And they have been slow to respond, but we think they will.
This is Clayton Williams. We have been through some bumps created by that period of $30 oil that lasted almost two years some time back. We survived that. We have been able to preserve our core assets and particularly in Reeves County, we have had some very, very encouraging reserves. So we have got a lot of work to do there. We have got the people. We have got the energy to go forward and now we have some production history. And one thing that you must be able to have six months of production history to feel comfortable as you commit more resources -- I'm talking about Reeves County.
Now we have had some of that production history. We're encouraged, so we can focus more intensely on these bigger wells we have drilled. And so we're very upbeat about Reeves County. The oil area is kind of hanging on in the Giddings and Eagle Ford, but the broadest thing we have is big wells we have made in Reeves County.
No, I think that makes a lot of sense. And maybe just one last one, if you don't mind. I guess with a little over $300 million of pro forma liquidity, what would you need to see in order to not pick the second liens going forward? What would you need to see in order to pay cash for those bonds or term loan?
Well, we're really focused more on maintaining liquidity as opposed to worrying about the extra 2.5 points on the peak interest. We make that determination every quarter, so that is to be --.
Yes, it will depending upon where oil --.
All right. Back around to what we have been talking about, we have a lot of broad assets. We're focused particularly on Reeves County. It is a major asset and it is the most profitable and we're focused on performance. We had a few problems with the learning curve there last year. We think we have overcome those. So we have got a bright future, a lot of work to do and we're focused on Reeves County.
I think Clayton likes Reeves County.
We will now take our next question from Bertrand Donnes with Johnson Rice.
I think I heard Clayton hinting he wants to talk about the Collier well a little bit more. My first question -- and forgive me if I have missed it -- but did Shell give the oil cut on that 70% rate?
I think it is pretty similar to what we have up in our -- 74%. It is like our well up to the -- most of our -- in our area, that completion -- in the Wolfcamp A, that is what we got. It is pretty -- it is heavy on the oil side and we're very heavy on the liquids side.
And then, did you, by any chance, have the stage count on the two wells handy?
The stages? We got that information. --.
On the low, we were 24 stages. That was the high hybrid job. It was in Upper A. And then when we moved to the Lower A on the Collier, we had 32 stages and a lot more clusters. We went to about 250 clusters on the Collier well.
And then, just one more follow-up. You kind of hinted on it about the completions using the slick water going forward, but were you also implying that you are going to stick to more longer laterals for the remaining A completions or that -- --?
Yes. It depends on -- yes, we just filled a well that was roughly length -- the lateral length -- how far do we go on that? 7500. Yes, it depends on the land situation and how much room we have. And we're seeing companies drilling wells up to 10,000 feet and making wells. There has been a mix in results there so far. And so we're comfortable. We're comfortable with 7500 feet and we can get those -- get our frac put away and we haven't tried with the slick water frac, but that is coming.
Yes. Basically, the future drilling is going to range from 5000-foot to 7500-foot laterals.
And then, my last one is, could you maybe talk about where they are going to be located North and South and possibly whether they are going to be in the third quarter or fourth quarter? And that is all I have got.
Yes, it is just a continual program with a rig running, but these wells are going to be all around our acreage. There is no -- very little what I would call development where we're drilling an offset well. This is drilling in areas all around our acreage on mainly acreage that has a short timeframe -- time horizon on it. But we feel pretty good. We feel like we have built enough wells across our acreage now. It is 100 square miles if you look at the whole thing and we feel pretty good about it. So these wells will be scattered around.
And then, do you have a timing for -- or is it just continuously completed--
Yes. I'm sorry. The rig runs continually.
We will now take our next question from John White with ROTH.
You talked a little bit about lease expiration. How many of the 10 well -- planned 10 wells are being used to get acreage HBP?
Well, basically all of them are. I mean, some of the expirations -- we're getting ahead of the schedule. We originally thought we could drill four or five wells and hold it all for this year, but we're jumping ahead. We're holding things. We just feel like we have got a good flow going here with this rig. It is running well. The drilling speed is quick. And we want to -- and we're seeing production growth and we just want to keep going. And we will hold acreage. But all this is holding acreage, so. All the current activity.
And what drilling rig are you using?
We're using a company [indiscernible].
That is a Clayton Williams rig?
No, it is not. It is a third-party reg. We contracted -- it had done -- pretty much worked the Delaware Basin in the past several years. Been a very active rig over there. So, we have got very experienced crew. It is a good rig. So we're really happy with the way it is going.
And I am showing no further questions at this time. I would now like to turn the call back over to Mr. Mel Riggs for any closing remarks.
Okay. Well we appreciate everybody dialing in. We look forward to reporting in the third quarter. Hopefully, we will have good -- even better results and on our water fracs and I hope everybody has a great day. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
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