Abraxas Petroleum (AXAS) Q3 2018 Earnings Conference Call Transcript

Abraxas Petroleum (AXAS)
Q3 2018 Earnings Conference Call
Nov. 8, 2018 3:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to your Q3 2018 Abraxas Petroleum Corporation earnings call. [Operator instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Steven Harris. Sir, you may begin.

Steven Harris -- Vice President and Chief Financial Officer

Thank you, Sydney. I apologize everybody for being a few minutes late. But welcome to the Abraxas Petroleum third-quarter 2018 earnings conference call. With me are Bob Watson; along with our chief accounting officer and VP of Operations, Land and Engineering, all available to answer any questions you may have after Bob's overview.

Just as a reminder, today's call is being taped, and a webcast replay will be available immediately after the conclusion of the call. I would like to recommend -- sorry, remind everyone that any statements made during this call that are not statements of historical fact are considered forward-looking statements, and actual results could vary materially from those contained in these statements. Factors that could cause our actual results to vary are described in our filings with the Securities and Exchange Commission. I would encourage everyone to review the risk factors contained in these filings and in our press releases.

With that, I'd like to turn the call over to Bob.

Bob Watson -- President and Chief Executive Officer

Thank you, Steve, and good afternoon. I hope this -- the time of this call is a little bit better for most people out there, instead of jamming everybody into the morning. I'm going to start off by just bringing you up to date on what's happening currently. In the Delaware Basin, the West Texas, our two-well Mesquite Pad in which we own a 73% interest is flowing back nicely.

It's a little over 1,800 barrels a day from the two wells, about 40 days in, so we expect the peak rates in the next 20 days. Our drilling rig is on a two-well pad we call Creosote. We owned 80% interest in those two wells. Operations are going along normally.

We expect those wells to also be completed here before the end of the month and a frac scheduled shortly after the first of the year. We actually have a frac rigging up as we speak on our Pecan 47 one-well pad, in which we own 100% interest. That frac should start pumping this weekend and we hope to have that well on production or at least starting flowback by the end of this month. The rig will then move to our two-well Hackberry Pad.

Our ownership is very high, we don't know exactly what it is yet, but hopefully it'll be close to 100% by the time we spread those wells. And then those wells will be fracked sometime early second quarter. Production operations are going smoothly. We have now finished -- our engineering group has now finished Phase 2 of our downspacing study on our Caprito 99 pad.

We still want to do a Phase 3, but after a thorough evaluation of the data that we have obtained, including microseismic and tracers and monitoring the production, we would tend to say right now that the appropriate spacing, at least in the Caprito area and the Wolfcamp zones is probably going to be 660 feet between wells. We don't see significant interference between wells that are that close and we have reasons to explain the difference between the parent and child. The good news is, the child wells are still producing above our type curve and are thus, very economic. So that becomes less and less of an issue and we'll report back to you when we finish our Phase 3 and our ultimate decision for spacing, at least in the Caprito area and the surrounding acreage that we have, where we've tested the downspacing.

In North Dakota, the winter has arrived a little earlier than normal. We did not think starting frac jobs in early October, finishing in early November would run into severe winter weather. We have. The frac on the Ravin Northeast Pad is almost finished despite being down four days earlier this week because of road closures.

We couldn't haul in oil -- frac fuel or frac sand. The good news is, the fracs are back under way. They should be finished by this weekend and then we'll immediately start prepping those wells to flowback as well as the four wells on the north-central pad that were fracked in earlier -- earlier in October, which we've left shut-in for frac protection. We also have six older wells on the Ravin Pad shut-in for frac protect.

So over the next several weeks, we're going to have 14 new wells coming online, flowing back, which all on schedule and should mean a very dramatic boost in production for the month of December. The drilling rig, our company-owned drilling rig is drilling ahead very nicely on the Lillibridge Northwest Pad. It's a four-well pad, and it's scheduled to move. When that is finished to the Jore Federal East extension pad, for our five-well pad.

The rig will continue drilling throughout the winter, but we don't expect to have any frac jobs starting up until -- in the Bakken anyway until summer weather next summer. So a few comments about our future. Yesterday, we released our 2019 budget, which has been approved by our board. It includes 12 drill and/or complete wells in the Delaware for $58 million, 13 drill and/or complete wells in the Bakken for $39 million, and $11 million for acreage and facilities.

This budget is designed to generate free cash flow. And that's our goal going forward. In the Delaware, we'll have one-rig continuous program with subsequent frac's every several months. And we will continue to acquire bolt-on acreage.

We've been successful in buying out several of our nonoperated working interest partners on our existing units. That's certainly a major goal for us, we'd like to own 100% of everything we do. So the last 300-or-so acres that we acquired, that we announced has not changed our footprint any, but it's increased our ownership in our existing footprint. Up in the Bakken, we'll continue a one-rig drilling program as well as completions during the warmer weather months.

Again, I said we won't frac anymore in the Bakken until summer time, at which time, June runs around, we should have 9 wells ready to frac and bring on production shortly thereafter. It was interesting to note that QEP announced the sale of their Bakken assets this week, which confirmed, which we've known for a long time, is that our Bakken assets have considerable value and my goal is to somehow crystallize that value in our share price in the upcoming months. We expect to be producing in December, 8,000 to 9,000 barrels a day net in the Bakken, and use the metrics that QEP received in their sale of similar-type high-PDP assets, you'll come up with a number that's somewhat greater than our current market cap. So that's my goal is to try to convince people that our shares are undervalued and that the Bakken is going for free yet it has substantial value.

As far as guidance goes, we don't want to start the year until we know what our starting point is. So we're going to wait until we have these 14 Bakken wells and 1 Delaware well pretty much flowing back to where we know what the ultimate exit rate is going to be. So that probably means we'll be issuing 2019 guidance somewhere toward the middle or the -- right before Christmas in December. What we've done different this year in our internal model is try to avoid the surprises that we had this past year because of shutting-in wells for frac protection, and also for -- to account for flares -- gas that has to be flared due to the lack of the facilities.

So we've actually entered into the model and it will be represented in our guidance, shut-in time on our wells for frac protection. What we don't know and we can't predict, although we've tried to anticipate when offset operators were going to be fracking wells near us and account for that. But you never can tell when you might be surprised and have to shut-in a well because of an offset operator. I think we're getting better on the timing on our shut-ins.

We're not having to shut them in as long as we have in the past. So that will certainly help. But we also know that shutting-in wells and frac protecting is certainly the conservative way to go and it avoids very costly cleanouts on -- that an unprotected well could have. So overall, our guidance is going to be conservative and we're using our -- the type curves that are on our website.

And I might remind you that our latest corporate presentation was 8-K'd Tuesday, and it should be on our website now. And included in that presentation are all our type curves and all of our actual production as they appear associated with those type curves. And you will see that we continue to beat pretty regularly, our type curves projection. So the fact that we're beating our type curves, creates some cushion in our guidance and in our model.

And hopefully, we'll continue to do that going on through the year, which will allow us to gradually increase our guidance as time goes on. Longer term, our plan is to manage our business to generate free cash flow. Proceeds from free cash flow will initially go down to paying down debt till we get the banks happy with the level that it is and they're pretty close to that right now. And my ultimate goal would then be to start buying back shares.

It should come to nobody's surprise that there is no way we can go into the Bakken or the Delaware in the core areas and buy assets for anywhere near as cheap as our shares are trading. So an obvious use of our free cash flow, even though it could be used to accelerate our activity, is to buyback shares and take advantage of low trading price. So with that, I'll open it for questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Michael Scialla with Stifel. Your line is now open.

Michael Scialla -- Stifel Financial Corp. -- Analyst

Good morning, Bob. I guess, I didn't realize you're not ready to put out official guidance yet on the production side at least. But I guess, you've given us at least an anchor there saying you anticipate you're going to be pretty cash flow positive. Is that based on current strip price? Or some lower oil price?

Bob Watson -- President and Chief Executive Officer

It's current strip and current average differentials. We actually see those maybe improving as time goes on during '19. But we held them constant in our model anyway throughout the year. And who knows about oil prices, that's why we don't -- we don't guide to cash flow or earnings or anything like that, because want to get in the business of your business, which is prognosticating on oil prices.

Michael Scialla -- Stifel Financial Corp. -- Analyst

Right. Well, it's always fun. I guess, given that based on our numbers if we use strip right now, you're at least looking at some double-digit growth, safe to say that?

Bob Watson -- President and Chief Executive Officer

Oh, yes. I think we're very comfortable with double-digit growth going forward. The exact amount that's going to have to wait until we come out with our guidance because -- a company our size and you're putting on 14 -- actually 15 new wells this month, there's just no way to get a real comfortable handle on what those wells are going to be generating and what's your exit rates going to be until you get them actually on production.

Michael Scialla -- Stifel Financial Corp. -- Analyst

Understood. Wanted to ask too on the -- your Caprito spacing test. You said this Phase 2 confirms the 660 spacing at least so far. What will you be doing with Phase 3? And how much do you think are -- to what level do you believe that Caprito area is representative of your other acreage?

Bob Watson -- President and Chief Executive Officer

I think our gut tells us that all our acreage is going to be similar. But we don't want to stick our neck out until we've actually tested it. But I think, the information we know now from, say, the Greasewood area all the way down to the Mesquite area, which is probably about 10 miles or so, 12 miles. We're comfortable that with the spacing in that area, at least with Phase 2.

Phase 3 is going to be doing some tracer work on water that we're producing. Delaware water -- Delaware wells make a lot of water. These wells appear to be making some extraneous water, which has got our curiosity up and so we want to try to determine the source of that water and that could have a significant impact on how we developed these leases going forward. As a prime example that we have a very high confidence level that we might have fracked into a water disposal well about a mile away.

And it appears that the wells are making water that are similar to what is being disposed into that well, which is not the same as Wolfcamp water. So that could explain some of the underperformance that we've seen relative to the parent well. But the good news is, the underperformance isn't all that bad and certainly the total fluid that those wells are lifting is very satisfactory. And if we can get the normal water cut in future wells, then we're very comfortable with the 660 spacing at that point.

Michael Scialla -- Stifel Financial Corp. -- Analyst

Pretty good. Thanks, Bob. I'll get back in the queue.

Bob Watson -- President and Chief Executive Officer

You bet.

Operator

Thank you. Our following question comes from John Aschenbeck with Seaport Global Securities. Your line is now open.

John Aschenbeck -- Seaport Global Securities -- Analyst

Good afternoon, Bob and Steve. Thanks for taking the questions. And Steve, congrats on the promotion.

Steven Harris -- Vice President and Chief Financial Officer

Thank you.

John Aschenbeck -- Seaport Global Securities -- Analyst

Bob, I just -- I want to follow-up on your free cash flow outlook in 2019, and specifically, in terms of the potential for buybacks, which I thought was pretty interesting. A couple of questions here for you. One, would there be any type of limiting factor that could prevent you from buying back shares, like a bank covenant or something along those lines? And then secondly, how aggressive would you envision yourself getting with that buyback program? And then how would you look to manage that program, whether it be just matching our buybacks for free cash flow or managing to a leverage metric or perhaps something else?

Bob Watson -- President and Chief Executive Officer

We currently have a restrictive covenant in our bank agreement that precludes us from buying back equities or paying a dividend. And what I meant by making the banks happy in my statement was, we want to get them happy with the fact that we are generating free cash flow and that our leverage levels are very conservative. And hopefully they would agree to let us use part of that free cash flow to start buying back shares. As far as designing it, I would like to be as aggressive as I can.

There are limits that the SEC puts on corporate buybacks, they limit you to a percentage of the trailing 25 days dollar volume as well as you can't trade early in the morning or late in the evening, things like that. I'm not entirely comfortable with that yet, but I'm going to learn. So we'll come up with some sort of a plan, but if we're selling it between two times and three times EBITDA and properties are selling at six times to 10 times EBITDA, there's a pretty good arbitrage there. So it makes sense for us to be as aggressive as possible as long as our share price is trading so low.

John Aschenbeck -- Seaport Global Securities -- Analyst

OK, great. Completely agree as well. So yes, Just kind of looking bigger picture for my follow-up question and looking at the overall portfolio, I would love to get your thoughts on what you envision as the long-term plan in the Bakken. You have, call it, 20-plus or minus locations left there, which are obviously extremely valuable.

But in the very near future, that asset will more or less be a PDP asset. And I'm just wondering if you think that, that asset, once it is primarily PDP, whether or not it has more value in your hands or perhaps someone else's?

Bob Watson -- President and Chief Executive Officer

Well, I would say it depends on price. Obviously, I'm going to be spending a lot of time over the next several months talking with various outside financial people to see what would be best for Abraxas. There are a lot of alternatives with that assets, all of them are good, which is a nice thing to have. In the worst case, it's going to be a great cash cow, but if somebody wants to pay us full value for it, yes, certainly we would consider that.

And then that would be a huge source of buyback money, if that were to be the case. But there are other avenues that we might pursue. The whole goal is to try to convince investors that the value is there, and so thus, my comments on trying to figure out a way to crystallize that value and I have not decided which way is best yet. But we'll try to be as transparent as we can in that process.

We certainly don't want to jeopardize the operations or put expectations out of reach or anything like that. But we're certainly going to be working on it.

John Aschenbeck -- Seaport Global Securities -- Analyst

OK. Great. That's great color. I appreciate it.

That's it for me, Bob. Thanks for the time.

Bob Watson -- President and Chief Executive Officer

Thanks, John.

Steven Harris -- Vice President and Chief Financial Officer

Thanks, John.

Operator

Thank you. Our next question comes from Ron Mills with Johnson Rice. Your line is now open.

Ron Mills -- Johnson Rice & Company L.L.C. -- Analyst

Good afternoon, Bob. Just one on the free cash flow just to beat the dead horse. When you talk about generating levels of free cash flow, in terms of order of magnitude, are you talking about kind of free cash flow yield of 5% to 10%? Or is it even higher than that?

Bob Watson -- President and Chief Executive Officer

Well, you tell me where oil prices are going to be, and I'll tell you.

Ron Mills -- Johnson Rice & Company L.L.C. -- Analyst

Well, just assuming strip.

Bob Watson -- President and Chief Executive Officer

At strip, it's in the lower magnitude. But if we get back up into the $70 range, it becomes a bigger and bigger magnitude. And we can see good double-digit growth in generating free cash flow. I'd like to be in a position to say to the banks, I'll paydown debt with half and buy shares with half.

It's very early in the stage. But I think it's important for people to know that, that is one of our objectives and the fact that we recognize our shares are trading so cheaply, is generating a level of frustration on our part and one way to solve that is to take things in our own hand and that would be buying back our own shares.

Ron Mills -- Johnson Rice & Company L.L.C. -- Analyst

OK, great. And just to also piggyback on John's last question. In terms of -- given where you are in the development of the Bakken, as you evaluate these alternatives, part of that's probably also evaluating the time. Do you think the time is best when you still have a little bit of meat left on the bone in terms of development to go? Or is it best once you just get closer to a PDP harvesting standpoint?

Bob Watson -- President and Chief Executive Officer

Well, I think that would depend on the market that you're looking at. There are people out there, that are strictly PDP buyers and they won't give anything for the development. And yet there are people that want high level of PDP, but a little bit of meat left on the bone. So I think we'll start evaluating all our options now.

And it could be, we decide that we're better off developing this property fully and then doing something with the PDP asset, or it could be, we do something now and let somebody else have the additional locations, which happen to be great rock and very high working interest. So they're very valuable assets, those remaining locations.

Ron Mills -- Johnson Rice & Company L.L.C. -- Analyst

OK. Now to my question. In the Permian, the 10,000-acre position that you have, you've done a great job of -- through swaps and acquiring interest of getting to that point. How much more from a swap standpoint, or how much more incremental interest you think you can add to your existing footprint? And what are your thoughts on critical mass there, especially given some of the larger operators that surround you?

Bob Watson -- President and Chief Executive Officer

Well, ultimately, this is a big company play, majors and big independence. But I think there's still some room to add value before that happens. Whether we can add a significant amount of additional acreage in our area which we've identified as some of the best rock in the Delaware and there's another bank out there that's done a recent paper that says this is the best rock in the Delaware. And we just happen to be there, that's good.

But it's well recognized by others that it's good rock. So it's getting harder and harder to get deals done. We have a very good relationship with university lands and that might help us in the future. There are some companies that might have issues holding wells or holding leases with marginal wells and they need to get wells are drilled in a hurry and they're not capable of moving that fast themselves.

So there might be an opportunity for us to do something along those lines. And I see that as a potential source of a bigger chunks of acreage, but nowhere near what we already have. I think that's beyond the realm of anybody's imagination that we could do that. But when you look at our inventory now, at least part of our acreage on a 660 spacing, it's 30- to 40-year two-rig program.

We haven't modeled it out that far to see how far we could go on two rigs and still increase production double-digits and generate free cash flow, but that's going to be something we endeavor to do. But I guess, my question is, how much more inventory do you need than that? So we'll be doing a lot of studying and head scratching and we're certainly looking for opportunities. Dirk Schwartz, our VP of Business Development digs around and comes up with all sorts of weird things that seem like they work and they do work and we're able to get them done. So it takes a Dirk-type guy to be able to do that.

And we're very fortunate that he's here and doing that. So he'll continue to add little pieces here and there and any one deal might not make a whole lot of difference, but collectively they make a big difference.

Ron Mills -- Johnson Rice & Company L.L.C. -- Analyst

OK. And then the last one, the -- you talked about commentary about longer laterals, and at some point, you've reached the point of diminishing returns with another couple of months of data there. Can you just provide us an update on your latest thoughts on lateral length given it may not seem that longer is always better?

Bob Watson -- President and Chief Executive Officer

Well, I'll tell you what. The guy that authored that study is sitting right next to me, and so I'm going to let him address that question.

Pete Bommer -- Vice President, Engineering -- Analyst

Thanks, Bob. It's Pete Bommer, VP of Engineering. And yes, we work the data pretty hard, as hard as we could. We studied 450 wells out there in our vicinity and whereas it's obvious that longer laterals clearly make more oil in total, on a per foot basis they do not.

However, there is a cost savings with drilling on a per foot basis for longer laterals. But in our study, based on our economic parameters, the rate of returns diminished with the lateral length. With perhaps an optimization point in the midrange somewhere, maybe 7,000, 7,500 feet. But in all of our studies, the longer lateral group, 10,000 feet or longer, all yielded diminishing rate of returns.

So we haven't seen anything recently that changes that finding. But it certainly will be worth reviewing from time to time.

Bob Watson -- President and Chief Executive Officer

Thank you, Pete. Did that answer your question, Ron?

Ron Mills -- Johnson Rice & Company L.L.C. -- Analyst

Absolutely. Thank you very much.

Bob Watson -- President and Chief Executive Officer

You bet.

Operator

Thank you. The following question comes from Dennis Fong with Canaccord. Your line is now open.

Dennis Fong -- Canaccord Genuity Inc. -- Analyst

Hi, good afternoon and thanks for taking my question.

Bob Watson -- President and Chief Executive Officer

Hi, Dennis.

Dennis Fong -- Canaccord Genuity Inc. -- Analyst

I got a couple here. Just kind of following a little bit of filler vein of thought. You kind of mentioned in a scenario where you can actually purchase back shares, the bank covenant is kind of loosen to allow you to do that. How do you balance essentially share repurchase versus potentially acquiring more lands within the context of the Delaware? Obviously, both kind of are accretive to net asset value, not necessarily to account on cash flow basis, but I just want to kind of understand that.

And then, just out of curiosity with respect to relative leverage metric, well, If I think about our next year, I would call it, debt-to-cash flow. At what level do you feel comfortable paying down debt versus repaying or repurchasing shares? And kind of what's your mindset around there?

No, that's fair. You kind of mentioned the farm-in items there and then kind of the farm-in/earn-in with the drilling of a well. How does that potentially balance in your mind versus buying back shares?

Bob Watson -- President and Chief Executive Officer

I would say that in our area, if we can do that, we would probably do that rather than buyback shares. We don't have any of those deals in hand yet. We would hope to continue to work on them. And certainly, if we can work on one, then that would probably take a higher priority because the acreage is such high-quality acreage.

It would take a higher priority than a share buyback.

Dennis Fong -- Canaccord Genuity Inc. -- Analyst

OK, perfect. And then just one quick item on operations. So now that you have a little bit of operation -- or operational data on the Upper Bone Springs. How many of your upcoming 12 wells in the 2019 budget incorporate wells into the Upper Bone Springs? And how are you kind of seeing that, we'll call it a layer within the context of the Delaware on a go-forward basis on your line position?

Pete Bommer -- Vice President, Engineering -- Analyst

Well, those 101's are Bone Springs.

Steven Harris -- Vice President and Chief Financial Officer

The 101's.

Bob Watson -- President and Chief Executive Officer

So the 101's are Bone Spring's? OK. So I got one, two -- that's a Greasewood two-well pad, that doesn't have a number.

Steven Harris -- Vice President and Chief Financial Officer

That's being worked on right now. We're seeing a lot of...

Bob Watson -- President and Chief Executive Officer

I better go back to my -- we're going to be testing all three of those zones on those 12 wells and we'll probably drill in another Wolfcamp B. And possibly if the upper third Bone Springs zone that we're testing on the steep continues to perform like it is, we're going to add that to the mix too. So it's a good position to be in when you have that many targets that are pretty much equivalent. You can't go wrong by picking one over the other.

Dennis Fong -- Canaccord Genuity Inc. -- Analyst

OK. Perfect. Thanks.

Bob Watson -- President and Chief Executive Officer

Thank you, Dennis.

Operator

Thank you. Our following question comes from Noel Parks with Coker Palmer Institute. Your line is now open.

Noel Parks -- Coker and Palmer Investment Securities, Inc. -- Analyst

Hey, good afternoon.

Bob Watson -- President and Chief Executive Officer

Hi, Noel.

Noel Parks -- Coker and Palmer Investment Securities, Inc. -- Analyst

So as you keep making progress in drilling and the folks nearby do to. I'm just starting to think about the options for co-development of multiple zones and I imagine that's still a ways into the future, but do you have any preliminary thoughts on what that might look like on your acreage?

Bob Watson -- President and Chief Executive Officer

You mean multiple zones in the same well bore?

Noel Parks -- Coker and Palmer Investment Securities, Inc. -- Analyst

Right.

Bob Watson -- President and Chief Executive Officer

Yes. I think we have the technology to do that now. It's risky and it's very expensive. So we're going to let the big guys keep experimenting with that and using their money to figure out a better way to do it.

We'll stay up with what's going on. But right now, it's -- that's a big, big company science project and that just doesn't fit what we need to do. But it certainly could happen in the future. I'm not writing it off.

But things have to be improved from a risk standpoint and an economic standpoint before we attempt it.

Noel Parks -- Coker and Palmer Investment Securities, Inc. -- Analyst

Gotcha. And overall in the industry, it seems that there is this assumption that the bulk of the takeaway issues in the Delaware will -- if not be solved, that the industry will start to turn the corner by mid-2019 or late 2019. I was just wondering if that was something you agreed with as far as what was likely to happen? And also looking further out, if we get to a point of consistently cheaper transportation out of the basin, does that sort of redraw the economic map of either where you are or where you might consider venturing into? I know if you don't want to do anything fringy, but in between fringy and the best rock there is, could transportation cost redraw that map any for you?

Bob Watson -- President and Chief Executive Officer

I guess it could. I don't foresee it happening in the next year or so. I happen to think that the transportation issue is going to get better as time goes on. And probably get better than the market is reflecting right now.

And if you look and see what the mid push differential has done just in the month of October, it's gone from a peak of about $17 down to single digits in 1 month, which is kind of offset the decrease in oil prices if you think about it. $17 differential at $70, is net $53 and an $8 differential at $61 is net $53. So it's not a major item and I think there was more concern with actual takeaway capacity. People having to shut wells in.

That has not happened to us. I have not heard of it happening to anybody. And you hear a little news, just like -- I heard today that Plains' Sunrise project is -- they found another market for 150,000 barrels or so. So it's gone from 220 a day to almost 400 a day.

Little things like that add up and that's certainly going to help that takeaway issue considerably to this affect that takeaway is impacted, that it's going to reduce that differential as well.

Noel Parks -- Coker and Palmer Investment Securities, Inc. -- Analyst

Great. That's all for me. Thanks.

Bob Watson -- President and Chief Executive Officer

Thanks, Noel.

Operator

Thank you. [Operator instructions] Our next question comes from Ray Deacon from Energy Advisors. Your line is open.

Ray Deacon -- Energy Advisors -- Analyst

Yes. Hey, good afternoon, Bob. Just wondering if -- I was wondering, your average lateral you're saying next year will be 4,500, it'll stay the same, or will you try a couple of 7,500 footers?

Bob Watson -- President and Chief Executive Officer

In all probability, our -- they're going to be around 4,800, all of them that we have planned. We do have an opportunity to drill some longer laterals. We might get into doing some of that toward the end of the year. But our current budget as we announced yesterday just entails 4,800-foot laterals each.

Ray Deacon -- Energy Advisors -- Analyst

Got it, got it. And I know you mentioned that in terms of share buybacks, you were constrained on cash flows. But if you were to dispose just some noncore assets, like the mineral acreage or royalty or the rig or something, would you have the same constraints there?

Bob Watson -- President and Chief Executive Officer

If they're pledged to the bank line, we would. I don't know if mineral's pledged. So yes, there are some assets like that, that we could possibly divest and use the proceeds without a bank agreement to buyback shares.

Ray Deacon -- Energy Advisors -- Analyst

Got it. And I guess just a one last one for Steve. If you are to approach like an Apollo or somebody like that, where do you think your cost to debt would be for kind of more permanent debt financing?

Steven Harris -- Vice President and Chief Financial Officer

That's a loaded question. I mean, it obviously wouldn't be what it appears that harvesting times our size would be. But we've explored and are currently exploring a few alternatives on that side. And yes, I think it's safe to say that that's low to mid-double-digits for a company of our size.

Ray Deacon -- Energy Advisors -- Analyst

OK. Gotcha, gotcha. All right. Great.

Hey, thank you very much.

Steven Harris -- Vice President and Chief Financial Officer

Thanks, Ray.

Bob Watson -- President and Chief Executive Officer

Thanks, Ray.

Operator

Thank you so much. Our following question comes from John Brewer with BLBB Advisors. Your line is open.

John Brewer -- Blb & B Advisors, LLC -- Analyst

Hi, Bob.

Bob Watson -- President and Chief Executive Officer

Hi, John. How are you doing?

John Brewer -- Blb & B Advisors, LLC -- Analyst

Pretty good. I haven't talked to you quite a while. I just have one question today. In my retirement, I spend most of my time doing research and one of the things that I came across really in the last week was an article about lithium.

And the United States a year before have had rather almost no lithium production. Certainly, not anything likely -- like the great triangle down on Chile and that part of the world. But there's been a development utilizing the water from oil wells. Somebody has done some testing and found out that, that water is loaded with lithium and that there is a beginning to be -- in fact, they suggest in this article that there's is enough lithium in the waters coming from wells throughout the United States to more than supply the total needs of the United States, in electric cars, et, etc., etc.

Is that something that you folks have come across? Or is it just too new for that?

Bob Watson -- President and Chief Executive Officer

I'll tell you what, John, you've tickled our curiosity. We're going to certainly look at our water analysis and see what we got because we make a load of water, and if we could strip out lithium -- lithium's a salt, so it'll...

John Brewer -- Blb & B Advisors, LLC -- Analyst

Well, we're talking specifically about the Permian Basin, which, of course, is enormous. But that area was -- testing from that area was such that it was very economically feasible to take that water and extract lithium from it. So I guess, I thought I would mention it, certainly you might be interested in if you weren't already aware of it.

Bob Watson -- President and Chief Executive Officer

Well, I guarantee you, we'll look into it now, and I appreciate the comment because none of us around this table had heard that. But it's certainly possible. So we'll look into it.

John Brewer -- Blb & B Advisors, LLC -- Analyst

All right. Hope you guys are all well down there and [Inaudible] for you.

Bob Watson -- President and Chief Executive Officer

Well, I appreciate it, John, and thanks for letting the [Inaudible] this week. He was -- he's always a good addition.

John Brewer -- Blb & B Advisors, LLC -- Analyst

Yes, great to talk with you.

Bob Watson -- President and Chief Executive Officer

All right. Thanks, John. You take care.

John Brewer -- Blb & B Advisors, LLC -- Analyst

You too. Bye.

Operator

Thank you. I am showing no further questions at this time. I would now like to turn the call back to Steven Harris for any closing remarks.

Steven Harris -- Vice President and Chief Financial Officer

Thank you, Sydney. Look, we appreciate everybody's participation on the call today. As I mentioned at the start, a webcast replay will be available on our website and a transcript will be posted in about 24 hours. So thanks, everybody, and have a good day.

Operator

[Operator signoff]

Duration: 42 minutes

Call Participants:

Steven Harris -- Vice President and Chief Financial Officer

Bob Watson -- President and Chief Executive Officer

Michael Scialla -- Stifel Financial Corp. -- Analyst

John Aschenbeck -- Seaport Global Securities -- Analyst

Ron Mills -- Johnson Rice & Company L.L.C. -- Analyst

Pete Bommer -- Vice President, Engineering -- Analyst

Dennis Fong -- Canaccord Genuity Inc. -- Analyst

Noel Parks -- Coker and Palmer Investment Securities, Inc. -- Analyst

Ray Deacon -- Energy Advisors -- Analyst

John Brewer -- Blb & B Advisors, LLC -- Analyst

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