Lonestar Resources US Inc.
Q1 2018 Earnings Call Transcript

Published: 14 May 2018

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Lonestar Resources First Quarter 2018 Financial Results Conference Call. [Operator Instructions]. Please note this conference call is being recorded today, 14th of May 2018. I would now like to turn the conference call over to your host, Frank Bracken, Chief Executive Officer. Frank, please go ahead.

[Frank Bracken:]

Thank you, and thanks for joining today. On our fourth quarter call, I conveyed to you that I thought that 2018 would be a transformational year for Lonestar. And I think today's results and our forward guidance confirm that Lonestar is lifting off from the launchpad. And I want to thank all those shareholders for standing by us while we got through some pretty tough times, but I think it's onward and upward from here. I'd refer you to Slide 3 for some opening remarks. First quarter of 2018 was a strong one for Lonestar. We registered a 48% increase in production, which exceeded guidance; 103% increase in EBITDAX, which also exceeded even our guidance; and a resumption of more customary LOE. Our financial improvement is significantly accelerating. We refinanced all of our impending debt maturities and expect a significant expansion in our borrowing base in the coming weeks. Moreover, in the last 4 quarters, we reduced our debt to EBITDAX ratio from 5.4x to 3.4x, and expect that leverage ratio to drop to reach 3x or lower in the second quarter of this year. Our 2018 drilling program continued to deliver. Our Hawkeye wells are outperforming third-party projections by 16% through 90 days, while our Horned Frog registered max 30-day rates averaging 2,155 barrels a day, a record for our company. Our first three wells in Karnes County are now in flowback and the rates are encouraging, with the average of these three wells producing over 1,250 barrels a day on restricted chokes. Our momentum is definitely accelerating. We're pleased to report that April production exceeded 10,000 BOE a day for the first time in Lonestar's history, and we're guiding the 2Q production rates of between 10,000 and 10,500 barrels a day, which represents sequential growth of 32% at the midpoint. Moreover, we're guiding to adjusted EBITDAX of $27 million to $29 million, which equates to EBITDAX of $108 million to $116 million on an annualized basis. Based on the strength of our drilling program to date and the fact that the second half of the year is really just a repeat in terms of where we'll be drilling, we're raising our full year 2018 guidance for production to a range of 10,300 to 11,000 BOE a day. And commensurately, we're increasing our full year 2018 EBITDAX guidance to $110 million to $125 million, based on a $60 WTI average oil price for the year. The company has contracted and locked in most of its service costs in 2018, but based on results to date, it's extending some laterals and/or increasing profit concentrations in several of its remaining wells. This will increase budgeted capital by $5 million to a range of $100 million to $105 million. The source of this higher EBITDAX guidance for the year is a result of our outstanding performance of our 2018 program to date, more lateral length, higher WTI prices and sustained positive realizations for our Eagle Ford Shale crude oil. Looking forward, the fact that we have our services locked up for 2018 is paying dividends as we continue to bring new wells on stream, in a timely fashion, with our Karnes County wells already onstream and our newly drilled Horned Frog North West laterals looking on track for first production in June. Our accelerating operating and financial results reflect successful execution of a clear plan that will deliver value to shareholders. Those key points are, one, we'll continue to implement our value-added geo-engineer completion methods to deliver high returns and production growth from our drilling program. As we do this with repetition, we'll increase the scale of our business on a fairly fixed costs platform, which we expect to dramatically improve our margins and profitability. Three, as we prosecute the strategy, we expect continued expansion in our borrowing base and liquidity, while we're also rapidly improving our debt metrics. And lastly, and most importantly, we believe that the timely execution of this strategy will increase our net asset value and the value of Lonestar's equity, which is why we're all here. Before I dig into our well results, I'd like to quickly review our financial highlights. So please turn to Slide 4 to commence this review. In summary, our business is on the launchpad. In terms of daily production, the first quarter was only really materially impacted by our 2 wells of Hawkeye that boosted production 48% to 7,777 barrels a day. 86% of this production was crude oil and NGL, and exceeded the high end of our guidance. However, our Horned Frog wells, which were placed onstream in late March, had an appreciable impact on our April production which exceeded 10,000 BOE a day, a record for Lonestar. In terms of wellhead revenue, it rose 108% via a combination of a 48% increase in volumes and a 41% improvement in commodity pricing. I would contrast our first quarter differential of positive $1.31 per barrel over WTI to the results of other operators in Eagle Ford and other basins with high levels of activity. And also, gas prices were actually above Henry Hub. Lastly, our cash margins rose 89% to $26.60 per BOE, and I would note that we expect wholesale improvement in LOE, G&A and interest expense on a per BOE basis, as we ramp-up volumes across the year, with no appreciable increase in those costs. Now please turn to Slide 5. Like our -- like any business, ours is one where our goal is to achieve low cost and generate high levels of profitability. Turning your attention to the top graph, which is first quarter LOE per BOE, which I point out excludes gathering and transmission costs for all companies. Despite the fact that Lonestar is smaller than all these very fine companies, our LOE in the first quarter was very competitive, particularly when we consider that we're among the oiliest companies in this peer group. Additionally, we expect LOE to drive -- be driven down to the middle of this pack as we ramp-up volumes across the year. Now please turn your attention to the bottom graph, which compares Lonestar's EBITDAX per BOE to this same list of companies. As you can see, Lonestar's EBITDAX per BOE of $38.55 ranks us in the top of the heap. Going to the second quarter, we expect that crude oil price advantage that we enjoy in Eagle Ford will give us a continued comparative advantage compared to producers who are beginning to experience material widening in their differentials. Now please turn to Slide 6. We believe that our drilling program is generating very high internal rates of return, while increasing production and EBITDAX, and that we expect to ultimately contribute to an improved valuation for Lonestar shares. But to maximize the valuation of our equity, we also believe that we need to continue to make material improvements to our leverage ratio. This slide gives you a very clear view into the rapid progress we're making in this regard. The top graph shows how increasing production coupled with improved prices, is driving rapid growth in our annualized EBITDAX. To be clear, we're calculating this figure by taking current quarter EBITDAX and multiplying it by 4, to reflect an annualized or run-rate basis. And I'd like to make 2 points. One, we're ramping up EBITDAX at an incredible rate, particularly if we disregard the effect of hedging. On this basis, we've increased annualized EBITDAX from $14 million in 1Q '16 through $106 million in 1Q '18. Secondly, at the midpoint of our 2018 2Q EBITDAX guidance of $27 million to $29 million, annualized EBITDAX will increase to $112 million. This would equate to annualized EBITDAX of $139 million on an unhedged basis. Our production momentum is expected to move that run rate considerably higher in the second half of the year, and EBITDAX will clearly accelerate in the third and fourth quarters of the year. The bottom graph shows our debt-to-EBITDAX ratio over the same time period. In the last 4 quarters, we've reduced our debt-to-EBITDAX ratio from 5.4x in 2Q '17 to 3.4x in the first quarter. And at the midpoint of our newly issued and increased guidance, will be reduced to 3x or less in 2Q '18, with a clear line of sight of moving that ratio into the 2s in the second half of the year. We believe that should have a positive impact on Lonestar shares. I'll now ask you to turn to Slide 7, it commence the review our 2018 drilling program, which will begin in Dallas County. As background to those of you who are new to Lonestar, our first 2018 producers are in Gonzales County on our recently acquired Hawkeye acreage. If you're new to Lonestar, we closed a significant acquisition adjacent to our Cyclone property, where we've married great drilling results with a low-cost scrappy effort to build our asset base. Lonestar acquired a set of assets out of receivership that we now refer to as Hawkeye. That name just made sense in that it's close to the other Iowa school, Cyclone. We paid $3.4 million on the courthouse steps to acquire 6,257 gross and 1,655 net acres, which is nearly contiguous to our Cyclone position. The acquisition included 2.5 million of PDP PV-10, most of which is associated with wells that Lonestar already operated at Cyclone. That meant we spent $900,000 on 1,655 net acres, which equates to a whopping $543 an acre. But we didn't waste any time here. Lonestar has completed two extended reachable wells at Hawkeye with an 87.5% working interest, that has now been onstream for more than three months. The verbiage and accompanying graph on this slide give you a good sense of, one, how Lonestar's Cyclone and Hawkeye wells have performed compared to other wells drilled by other operators in the area; and two, that we continue to make progress in terms of our improvement on recoveries and returns. Now please turn to Slide 8 for some additional details on the performance of these wells. We presented you with 3 graphs depicting the performance of all of our wells in the area at 30-, 60- and 90-day intervals. On our last call, we shared with you the 30- and 60-day results. Today, we share with you our 90-day results, which reflects ongoing outperformance. The bottom graph indicates that our Hawkeye wells registered significant improvement in 90-day rates, shown in red for the individual wells, and then 90-day rates on a per thousand foot basis for each pad shown in blue. In short, the Hawkeye wells are 28% better than our average well at Cyclone, 19% better than our best well pair and 16% better than third-party projections thus far. I'll now turn you to Slide 9. On our last call, we shared with you the very early rates on our new Horned Frog wells in LaSalle County. Lonestar completed the Horned Frog G1H and H1H, and commenced flowback operations on March 19. These wells were drilled to a total measured depth of 22,800 and 21,000 feet, respectively, and the fracture stimulated and engineered completions using diverters, with an average proppant concentration of 1,650 pounds across an average of 40 segments. To give you some sense of our technical progress, we've provided you both with the oil production and 3-stream production histories for our older A and B wells drilled in 2015, as shown in black, with our new G and H wells, shown in purple, which are employing our newest iteration of our geo-engineered completion techniques. The G well registered 2,243 BOE a day. The H well registered 2,067 BOE per day. And the G well marks the highest 30-day rate in the company's history, exceeding those delivered at Wildcat in June of 2017. As we have done at Wildcat very successfully, Lonestar plans to stringently choke manage these wells to optimize the liquids recovery over the life of these wells, and I think you can see that performance in that top graph. Lonestar has 100% working and 80% NRI in these wells. And thus far, we think that choke management has played a significant role in the outperformance on the oil side of the equation. Now let's turn to Slide 10. Our prior analysis is really focused on our own internal performance and improvement, but I think it's equally important to demonstrate how our new wells are performing compared to our competitors wells in the area. The data, which is all normalized on a production per thousand foot basis, shows Lonestar's wells in red and are individually labeled. You can also see that most of the vintage completions, shown in blue, had less than 1,250 pounds of proppant and performed accordingly. Another operator did drill 6 wells near our Horned Frog area in 2017, and these wells are shown in purple. We call these wells modern completions and that they appear to be geosteered correctly and well stimulated. I'd summarize the results on this slides as follows, all the completions that Lonestar has put forth are among the best and our newer vintage wells appear to be an improvement on that. And that second, Lonestar's wells are performing all the other operators' modern completions. Turning your attention to the bottom half of the page. We drilled our first 2 wells in Horned Frog North West. We drilled them, logged them and cased them on newly acquired acreage. We've used a pilot hole in the resulting logs to actually alter our target to a different member of the lower Eagle Ford that we believe has more movable oil in it. These wells have been drilled to measured depths of 17,560 feet and 17,440 feet, respectively, with estimated perforated intervals of 7,700 feet each. Lonestar plans to move the needle here this time. We -- and that we plan to initiate fracture stimulations on these wells this week. We're going to increase proppant concentrations by 20% to 2,000 pounds and are confident in the effects that, that increased proppant concentration will have on these wells. Lastly, and I think very importantly, we believe that our Horned Frog assets are still vastly underrepresented in our proved reserve base. Only 9 of our 27 locations are classified as PUD, and those are booked at 8,000 feet laterals. And we hope that the early performance of our G and H wells and our Horned Frog North West wells will ultimately result in higher assumed oil and gas recoveries on that inventory. I'd now like to slide -- turn you to Slide 11. Last week, we placed our first three producers onstream in Karnes County on leasehold that we acquired as part of our Battlecat acquisition last year. The company completed the Georg 18, 19 and 20, to an average measured depth of 15,450 feet. These wells have perforated intervals of approximately 6,300 feet, and Lonestar owns an 80% working and 61% net revenue interest in these wells. We wrapped up fracture stimulations of these wells with our dedicated frac spreads in April, with average proppant concentrations of over 2,000 pounds per foot and commenced flowback operations on May 7. We're extremely encouraged by the results of these wells to date, which are significantly tracking above third-party forecasts. With 1% of their load recovered, these 3 wells flowed on a 22/64 choke, an average of 1,121 barrels a day and 639 MCF per day or an average of 1,269 BOE per day on a 3-stream basis. We will drill 6 more wells in this area in 2018 and have a total of 35 locations in the immediate area. I'd like you now to turn to Slide 12 to wrap up my planned remarks. Our first quarter production was 7,777 BOE per day, exceeding guidance and setting a record for Lonestar. We've made considerable progress in improving our debt ratios, having dropped it to the 3.4x in the current quarter and on pace to perhaps breach 3x in the second quarter. Our 2018 drilling program is exceeding our expectations with every well generating high rates of return and roughly 12-month payouts. And as a result, production is ramping quickly, with April production exceeding 10,000 BOE for the first time in the company's history. We're confident in our second quarter guidance of 10,000 to 10,500 barrels a day and EBITDAX of $27 million to $29 million and equally confident in our increased guidance for the full year, which features 10,300 to 11,000 BOE a day and $110 million to $125 million of EBITDAX, which can be achieved at $60 oil. We have an active drilling program in areas where we've established excellence, and we expect to continue to drive production and EBITDAX higher in the second half of the year. Our dedicated drilling rigs and frac spread provide confidence that we can deliver continued growth, expanded margins and expanded borrowing base, while continuing to improve all our debt metrics. All of which is intended to increase the net asset value of the company and increase the value of Lonestar's shares. That concludes my prepared remarks. I'm now going to turn the call over to our Chairman of the Board, John Pinkerton, for some additional closing remarks.

[John Pinkerton:]

Thanks, Frank. Terrific job. Yes, I want to congratulate the Lonestar team on a great quarter. While we're not very big, we have a really terrific team at Lonestar. They're really good at what they do, especially as it relates to the technical side of our business. Since the advent of the shale exploitation focus of our industry, having a top-quality technical team is a must. it was the talent quality of this -- the Lonestar technical team that convinced me to come here as Chairman. As Frank explained, obviously, first quarter was a turning point for our company. We're producing over 10,000 BOE per day. Now we can set our attention of 15,000 to 20,000 BOEs per day. The way we're going to get there is through our drilling inventory. We got 60,000 acres of really high-quality drilling inventory that our team is ready to drill. And as Frank mentioned, everything we're going to be drilling throughout this year and probably most of next year is stuff that we've owned for a while and we really understand that. So it's just -- this is just a case of continuing to do things over and over again and getting better every time we do it. At the end of the day, this is a business all about growing your EBITDAX. It all starts with your production, but there's a lot of other factors too. One is cutting our cost per BOE, Frank mentioned that as well, we're doing a terrific job there. I think the other thing that's really important particularly in the business today is we're an oil company. We've got 86% of our production for the quarter came from oil and NGLs, and we're going to continue that kind of focus. I think the other thing that's really important, and that we've all seen affect our business is differentials. And our differentials were terrific, especially on the oil side, of being over $1 above WTI. I think that's really important. The -- as you look at Lonestar, I think the balancing ball is pretty easy, it's going to be our EBITDAX, and we're going to continue to focus on driving that up. And in particular, driving it up on a per share basis. That's what's going to drive the stock price of this company. We talk a lot about well results, and everybody does. But at the end of the day, it's the consistent drilling of these wells, day over day, week over week, month over month, and driving a big EBITDAX is what really drives value in this industry. And the good news is, I think, we've got all the ingredients to do that over the next several years. So it's going to be a really exciting time here, and I'm looking forward to second quarter results that are going to be -- if you think these are good, just wait for the second quarter, they're going to be terrific. Frank, you want to turn it over to questions now?

[Frank Bracken:]

Yes. Operator, we're ready further questions. And John, thanks very much for those remarks.

[Operator:]

[Operator Instructions]. We will now take our first question from the line of Jeff Grampp with Northland Capital Markets.

[Jeffrey Grampp:]

I wanted to, first, I guess, get some updated commentary on the capital program for the year, and you mentioned before and last quarter as well about some optionality to expand the program. And I guess, last quarter, it seemed maybe it was more predicated on maybe some drill or earn type of agreements that you guys might be able to find. I was just curious, given the results you guys are having and the strip here, if just some organic growth expansion is something that maybe makes sense for you guys.

[Frank Bracken:]

Yes. So we're going to let the rope out real slowly on this. What the -- the expansion of $5 million that we cited today is really just a function of deciding which laterals we're going to drill, getting some extra extended reach in some of them and then a move toward higher proppant concentrations as we continue to refine our program. So it -- that's intended to get you more deliverability, more reserves, better internal rates of return. If you look at the way we've allocated our capital for the year, we'll have spent most of it by the end of the second quarter, which does leave the opportunity for additional spending if the opportunities present themselves. And we're working on several deals right now, none of them we're ready to announce, but I think you should just take up a wait-and-see on that. If great opportunities to use our drill bit and our equipment present themselves, you could see us do that, bearing in mind that we will be highly mindful of what it does to our debt ratios. That focus of getting that number down in the 2s and keeping it there is every bit as important as the production of EBITDAX growth that we're delivering with our program.

[Jeffrey Grampp:]

Okay. Great. Understood. And then on these upcoming Horned Frog wells, you guys mentioned this oilier target that you found. Do you have a sense, I guess, of materiality of how much oiler the wells can get here relative to the last couple? And then also the higher proppant that you guys are doing there, anything you can kind of point to as far as what led you guys to do that. I know, historically, you guys have not been a fan of just more proppant equals bigger wells. You guys have tried to implement some technologies and other sorts of things. So just kind of any thoughts on that side as well.

[Frank Bracken:]

Right. So not only do we have a pilot hole that steered us to actually a different target than we have in our existing Horned Frog wells, and it is -- but the through-the-bit logs that we have looked terrific, so we're really encouraged by the productivity and the oil saturations. I would be -- boy, it would really -- I've got hopes that I don't even want to share a guess. But I think you could assume that on a per foot basis, these wells are going to be as productive as our recent Horned Frog wells, and that they have an oilier bent through them. I really don't know until we get them on. We just can't -- we would be remiss to put out something out there, but you can count on oilier. As far as profit goes, we have a new design. We're using diverters to actually extend stages to 300 feet between them. But -- and so we wanted to get a baseline of data at 1,650 pounds, that's what we pumped at the A and B. Now that we've gotten that baseline established and seen simply the impact of improved geosteering and geo-engineered completions, the rock mechanics tell us we can get more proppant away, and we think that can sustain conductivity for us. So we think that this is about the right increment for us to move, and we wouldn't be spending the money if we didn't think we are going to get more productivity out of it.

[Operator:]

Our next question comes from the line of Ron Mills with Johnson Rice.

[Ronald Mills:]

Frank, just curious on the dedicated rig and frac spread that you've lined up. Obviously, the Karnes County, those are the first ones for the frac spread. Any early report card on how they're doing up to speed, any growing pains as you -- if you could have from new crews in the new area, and what that has meant in terms of efficiencies on as you started with this dedicated services?

[Frank Bracken:]

Yes. Clearly, there are always growing pains when you put a new spread to work. In our case, that's a little more complicated because our geo-engineered completion process is very different than the slickwater jobs that everybody else is pumping these days. So there's a learning curve for them there, too. So we have, definitely, have some kinks to work out by the -- by -- as we move to the hill. We are getting exactly the number of stages done that we expected and actually got them done at a lower cost. So we're optimistic that this will accelerate as the year goes on and we hit a stride. I mean, it's like any sports team. It's about teamwork and learning everybody's roles, and our completions manager is doing a good job of getting in the field and working the playbook for us. So pretty excited about how that's working for us and just being able to completely control your own destiny in terms of execution of well timing is just such a breath of fresh air for our team.

[Ronald Mills:]

Great. And over the remainder of the year, you talked about the -- and maybe through -- even 2019, your activity of really remaining focused in and around your recent activity at Hawkeye, Horned Frog and in Karnes County. If you were to make a stab as -- I mean, most of your other acreage positions held, and so if you were going to make a stab between those, how would it look? It just, obviously, Karnes County and Hawkeye are more oily and -- relative to inventory side. I'm just trying to get a sense as to capital allocation for over the next 12 to 18 months.

[Frank Bracken:]

Well, we drilled -- we ended up drilling 4 at Hawkeye -- I'm sorry, four at Horned Frog, four in Cyclone and the rest in our Gonzales, Karnes, Battlecat acreage. I think, generally speaking, we're financial beef. Everything's held for all intents and purposes. So we're letting returns dictate where -- how we allocate capital. And we've got deep inventories in each of these areas, most notably in Horned Frog and Cyclone and Hawkeye. Only about 1/3 of our drilling locations are booked as proved, so there's incremental impetus for us to focus -- continued focus on those properties, to continue to move what is raw acreage that I don't think that's valued in the market to something that we can book, get a third-party report on and continue to drive PV-10 in the company. So generally speaking, you'll see us continue to operate in these areas where we've executed. The one thing I'd kind of throw out there as the wildcard is that don't underestimate the power of having contractual access to equipment. Many of our smaller peers do not. And that, in and of itself, creates opportunities for us. And they can't necessarily tell you where those are going to be, but to the extent they are in areas where we've got core competency, we'll -- we can wheel that direction. But literally, we're -- we have no HBP consideration. It's just -- it's returns-driven model right now.

[Ronald Mills:]

Great. And then, I think, this is kind of where you maybe just touched on this. But you continue to pursue bolt-ons and tuck-ins, and even just organically seeing in and around your current areas or trying to pick smaller pieces of bigger companies positions, how is that process going? I know you've alluded in prior press releases about being able to potentially have added acreage there, and how does that play into the area or area of larger opportunities?

[Frank Bracken:]

Yes. We'll keep adding little cookies to the bakery here. And we keep -- those are hard to control in terms of timing, but there's a good -- there's visibility on the backlog there and we'll continue to bring those in. And as far as cakes go, we're working hard on them. I think that the industry continues to be a net seller. We just got to be very returns-focused and opportunistic. And frankly, we've really needed to put some execution behind us and get our house in order before we start looking externally at larger opportunities. But I think we're approaching the point where we can take that more seriously and be a little more aggressive about how we go about it. So I would tell you, I have -- if I had anything to report that was material, I would. It's a lot of hard work and a lot of persistence that usually allows us to pull these off. And it's clearly our objective to do both, to add some cookies and add some cake this year.

[John Pinkerton:]

Yes. This is John. Ron, I think that Frank's right. I think that we -- for the -- really, for the first half of this year, our motto has been really focused on the drilling program and just to make sure we execute 110%. And -- because that's -- at the end of the day, that's the most important thing. But we'll continue to -- and we picked up some leases, and we'll continue to work on the bite-sized pieces, as Frank likes to talk to them about. But at the end of the day, you've got this huge play. There were a gazillion wells drilled and high oil prices in a bad service environment in terms of the capabilities, so there's lots of opportunities in and around. I think the key for it is to figure out how you can buy stuff and really make a lot of money off of it. And again, it comes back to the quality of your technical team. Figuring out is the reason why those wells acted the way they did because you're in bad rock or is it the quality of the drilling that was done? You actually had good rock, but bad technical expertise when you drill them -- when those wells were drilled originally. So I think it gets back to the quality of our technical team and being able to figure out the treasure map there. And as Frank mentioned, we've got -- there's enormous number of opportunities just -- it's picking the ones that we can really add -- that really add per share value as opposed to just adding stuff that's -- though it's bulk, it really didn't create value. But there's a lot going on. As you guys know, everybody knows, there are several extraordinarily large packages in the Eagle Ford for sale currently. And we think as those things get bought up, then there's going to be -- there'll be pieces and parts to all those that will come to the market as well, and we're actually talking to different people about different stuff. And so pretty exciting time in the basin, and I think we're really well positioned to get our fair share.

[Operator:]

Our next question comes from the line of Mike Kelly with Seaport Global Securities.

[Michael Kelly:]

It's clear solid progress is being made by you guys on the ops front, and I've got kind of like a 3-pronged general question on that front. You gave a lot of great detail, but I'd love to hear just kind of one. What do you think has been the biggest driver of kind of these improved results? Two, what are you most surprised with, what do you see kind of maybe year-to-date? And then three, what are you most excited about on the ops front going forward?

[Frank Bracken:]

Well, I'm going to be really boring here, Michael. The importance of what we do is that it is -- there is not a secret ingredient that's making things taste better. It is the attention to every detail. And those details in combination, they're really driving our results. And what's -- what I think is so outstanding about our team is the things that you have to do at Hawkeye to be successful are very, very different than the things you need to be successful at Karnes and again, completely different at Horned Frog. And it's this geo-engineered completion technique that we continue to evolve that pays attention to every detail, that's really striving for perfection in everything you can do to a well. The way you steer it, the rock you're in, the way you set your perforations, the way you stimulate it and every bit is important. The way we manage the choke through early production. So I wish I could tell you it was one thing, it's really just the culmination of a process that we started two years ago in our Schlumberger JV. And I think we just -- we really hit stride. The one thing I will say is, I think, one of the things we've been really focused on as a company is continuing to improve the average rock quality in the company. And these are the first wells that we drilled on the Battlecat asset. And short laterals, but really powerful productivity. And I think that's emblematic of what we're trying to do as a company. We're trying to become a better company with a higher-quality resource base. And so, I think, we're achieving that. So I wish I had a secret sauce for you, but it's really a lot of hard work and attention to all the details. So will you come back to point two for me, so I'd remember?

[Michael Kelly:]

Yes. I think you touched on some of them, but just what you've been mosts surprised with? And then three was what are you most excited about going forward?

[Frank Bracken:]

Yes. Boy, I wish I could say I was surprised with the results we're generating, but I'm not. I knew we could do it. And I knew that if we finally -- well, I guess, maybe I could say this, we have access to services. And this is really the first time in the company's history that we're allowing the staff to build and plan the program and execute without any financial encumbrances and just focus on making good wells. So I am a little -- I am pleasantly surprised by how well that's going. I mean, we're just -- we're executing perfection and delivering ahead of schedule, and with some really stringent cost control. So that -- I guess, it's just -- it's not a big surprise, but it sure is pleasant to see. Sure it's fun to come in the office when everything is going so well. And then, lastly -- and so second half, I don't believe that continuing to deliver well results is going to be a challenge. I mean, we told everybody at the beginning of the year, look, we believe in the returns we can deliver. We're going to -- we've proven ourselves in these areas and we're just going to rinse, wash, repeat. I mean, we're gonna just -- we're going to keep doing this. What I'm really excited about in the second half of the year is trying to -- is working hard to find something that continues to scale the company. I think that's our only weakness. And I think, actually, we have a huge value-creating machine in the way we drill and complete these geo-engineered processes. And in my mind, I think, John really shares this, is that we need more raw material to push through the factory, because that's really where we're making our shareholders money. So we're going to work really hard in the last 6.5 months of the year to acquire more raw material in the play that generate -- that can help us generate these kinds of results on a bigger scale.

[Michael Kelly:]

Great. Appreciate that. And kind of taking the opposite side of generating -- gaining new raw material, the Eastern Eagle Ford, you put in the press release that you're reviewing your options here, and I would just kind of love -- any more color you could give here. Talk about the use of proceeds which, I think, you just answered. But if we stuck with the baking analogy here, I'm kind of curious if this is a wedding cake-type of sale where you play the Toll House cookies versus free samples that you give at the counter. How should we think about it?

[Frank Bracken:]

Well, I think it's safe to say that there are a number of players over there who are very active and continuously acquisitive. So if we're honest with ourselves, I don't think this is an area that we can grow infinitely. I think everybody who is there is dealing with fairly newly acquired assets, and so there's going to be intensity to that. But some of these guys got loaves of bread, and some of them bought Keebler cookies, and ours is a chocolate eclair. We drove the best well in the county, in the history of the county in the Eagle Ford. And so we may try to punctuate that with proving it up a little more. But I think in the end of the day, our shareholders will be best served long term by us finding the right time to perhaps redeploy the capital associated with those assets back into the guts of what we're doing. And I can't speak with any position as to timing, but we're -- we have a partner there. And they're a good partner and we want to be a good partner. And we're in kind of, I'd call it, deep evaluation of what it is we want to do there and how to get that, when the time comes, how to get the most money out of it for our shareholders.

[Operator:]

We have no further questions in the queue. Please continue with your presentation or closing remarks.

[John Pinkerton:]

Well, on behalf of everybody at Lonestar who's really worked hard to keep the stock price moving by drilling and completing great wells, I want to thank you all for listening today. And for those of you who stood by us, I want to convey my appreciation. It's getting ready to be a lot more fun than it's been, and I hope you guys will hang on for the ride. Thanks.

[Operator:]

Ladies and gentlemen, this concludes the Lonestar Resources First Quarter 2018 Financial Results Conference Call. Thank you for joining us today. You may now disconnect your lines. Have a great day, everyone.