Chaparral Energy, Inc. (CHAP) Q1 2019 Earnings Call Transcript

Chaparral Energy, Inc. (CHAP)
Q1 2019 Earnings Call
May. 09, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chaparral Energy first-quarter 2019 financial and operational results conference call. [Operator instruction] Thank you.

Patrick Graham, senior director of financial planning and corporate finance, you may begin your conference.

Patrick Graham -- Senior Director of Financial Planning and Corporate Finance

Thank you, operator. Good morning, everyone and welcome to Chaparral Energy's first-quarter 2019 conference call. Participating on the call today are Chaparral's chief executive officer, Earl Reynolds and Chief Financial Officer Scott Pittman. Before we begin, I'd like to encourage you to download our earnings release and updated company presentation which were posted yesterday, as well as our 10-Q filed this morning.

Please be aware that during the call we will discuss certain topics that contain forward-looking statements based on our beliefs, assumptions, and information currently available to our management team. Although we believe expectations reflected in such forward-looking statements are reasonable, we can give no assurance that they will prove to be correct. There are numerous factors, which could cause actual results to differ materially from what is discussed. You can read our full disclosure on forward-looking statements and the risk factors associated with our business in our most recent 10-Q.

In addition, we will also present certain non-GAAP measures, a reconciliation to which can be found in our 10-Q. With that said, I will now turn the call over to Earl. Earl?

Earl Reynolds -- Chief Executive Officer

Thank you, Patrick and good morning everyone and thank you for joining us today. I am pleased to report that Chaparral achieved strong operational success during the first quarter and continues to deliver results within or above guidance. Total company production was approximately 20,800 Boe per day, while Stack production came in approximately 15,900 Boe per day. Overall, total company production mix for the first quarter was 33% oil, 27% NGLs, 40% natural gas.

In the first quarter, we had 12 wells with first sales. However, six did not have first sales until the final week of March. Of the 12 wells, four were in Canadian County, three were in Kingfisher County and five were in Garfield County. Of those 12 wells, four were joint venture wells.

In the second quarter, we will bring on line the final three wells of our 30 well joint venture program. As you may remember, we had forecasted a slight decrease in first-quarter production during our last conference call, primarily due to the timing of new wells being brought online as part of our 11-well cube style, co-development Foraker spacing test in Canadian County, as well as lower working interest associated with joint venture wells with first sales in the quarter. In the fourth quarter of 2018, we began drilling our first full section Meramec spacing test in our Canadian County Merge position. You can turn to Slide 13 in our May investor presentation that was posted yesterday to view some of the details I will be discussing.

The 11 well Foraker cube development spacing test in Canadian County, includes a full section nine well Merge MISS or Meramec test and a partial section two well Woodford test. We finalized drilling of all the 11 wells during the first quarter and begin completion of these wells. The multi well test was drilled from three pads and with Chaparral's first cube co-development of three separate reservoir targets within our Merge acreage. And those targets are the upper Meramec, the lower Meramec and the Woodford.

This design was based upon and incorporated the extensive learnings from our successful three well Denali test, which was completed last year. The first pad had three wells, including two Meramec wells and a Woodford well, the second and third pad each had four wells for a total of seven Merrimack wells and one Woodford. Now, if you'll turn to Slide 14 of our presentation, I will cover the production results from this test. Currently, we have a 30 day initial production rates for three wells from the first pad, which began producing the last week of March and are significantly exceeding type curve, with an average 30-day IP of 1,292 Boe per day, with 42% oil.

The pads two Meramec wells have average 30-day rate of 1,569 Boe per day, with 46% oil and Woodford well has a 30-day rate of 737 Boe per day, with 35% oil. Both of these results are materially above our all type curve IP 30, as well as competitive wells that we have have been completed in close proximity of the Foraker development. Now this result clearly shows the value derived from a cube developed -- cube style co-development whose frac design has created near wellbore complexity and achieved enhanced initial oil rates. The remaining eight wells were brought online in early April.

The early production results from these wells are also very encouraging as they are in line or are exceeding the well results from the first pad. Now it is not however sufficient production data to report 30 day IP rates for these pads yet, those results will be available in the very near future. While we are very pleased with this result, we will do as we always do and finalize our frac efficiency and inter-well communication diagnosis and monitor declines before we conclude that this will be our ongoing spacing development design. In addition to the encouraging early production results, our drilling and completion teams have incorporated operational efficiencies to drive down cost and reduce cycle time.

The average capital cost per well for our Foraker test is tracking below the average AFE estimates of approximately $4.4 million. These efficiency gains also allowed the three wells from the first pad of our 11 well Foraker test to be brought online a full week ahead of schedule. And all 11 wells from this spacing test, a full two weeks ahead of schedule. I am extremely excited about these early results and very, very proud of the team and their execution on this project, as we were able to deliver these wells to first sales ahead of schedule, while keeping our average capital cost per well below our AFE estimates.

As you know both of these are key ingredients to achieving great returns. Looking at the broad array of wells we have drilled the past two years, we had some very strong results, as well as some results that did not meet our expectations. Through our development process, we have learned a tremendous amount about our acreage, well placement, well spacing, drilling and completion techniques in parent/child influence. As we've discussed in the past, we approach every single technical challenge with a systematic continuous learning mentality and we apply those learnings from every well we drill or participate in to ensure we maximize future well productivity.

Since we emerge from Chapter 11 in March of '17 and through the first quarter of '19, we brought online a total of 71 wells in the Meramec and Osage and the 30-day IP rates of those wells have exceeded our type curve expectations, with an average 30-day IP rate of 739 Boe per day, with 48% oil and 73% liquids. For the second quarter of 2019, we expect total company production to be between 26,000 Boe per day and 27.500 Boe per day, which marks an increase of approximately 28% at the midpoint of our second-quarter guidance compared to the first-quarter actual production. In the Stack, we expect second-quarter production to be between 21.5000 Boe per day and 23,000 Boe per day, which is an increase of approximately 40% at the midpoint of our guidance as compared to the first-quarter actual Stack production. The exceptional early results from the Foraker spacing test coupled with additional new wells we plan to bring online gives us confidence we will again meet or exceed our annual production guidance.

As we look toward the second quarter and beyond, we will look forward to providing more information about the Foraker and other operating spacing tests currently in process across our acreage position. In addition, we expect to see considerable decrease in per unit operating costs through the remainder of 2019 and we are reiterating our total capital guidance range for the year of $275 million to $300 million. As we discussed in our last call, we entered the year with four rigs and as expected transition to three rigs in early April. While we will continue to monitor market conditions and be prudent with our development plan to maintain our strong financial position, our current plan is to operate three rigs for the remainder of 2019.

With the planned reduction from four rigs to three rigs and the completion of the 11-well Foraker cube development spacing test, we expect our capital spend to decrease in the second half of '19. The majority of the remaining budget will be allocated to Canadian and Kingfisher counties, with a significant portion focused in Canadian County where we continue to see outstanding results. Looking at our drilling and completion operational execution. We have more than 50% of our 2019 cost structure locked in.

And are confident we will be able to lower our average well costs through proactive procurement measures and increased efficiencies as our operations team continues to produce differentiated results. Examples of this in both our drilling and completion operations can be seen on Slide 17 in our presentation. Through relentless focus on driving down cost and increase in efficiencies, our drilling team has realized more than 10% increase in footage drill per day during the past year and our completions team has nearly doubled stages completed per day from an average of approximately four in early '18 to an average of nearly eight stages per day in the first quarter. These efficiencies allow us to drill and complete wells faster, drive down cost and reduce cycle times, which will all positively impact well economics.

Now you have heard me say over and over again, generating strong returns with our reinvested cash flow is a top, top priority for the Chaparral team. We are proud of our first-quarter accomplishment and look forward to carrying this strong momentum into the rest of 2019. We're excited about the early results from our Foraker cube style, co-development spacing test and are forecasting a strong production increase in the second quarter. With the corresponding production increase, we're expecting lower cost per Boe as we move through 2019 and our drilling and completion efficiencies continue to drive down our per-well costs.

We remain focused on operational execution and look to create long term buy for our shareholders. With that, I'll turn the call over to Scott to discuss our first-quarter financial results. Scott?

Scott Pittman -- Chief Financial Officer

Thank you Earl and good morning, everyone. Chaparral reported a net loss of $103.5 million, or $2.28 per diluted share for the first quarter. First quarter was impacted by $51.5 million non-cash charge in the fair value of hedge derivative instruments and a $49.7 million non-cash ceiling test impairment charge, primarily due to a decrease in prices used to estimate reserves. Our adjusted EBITDA for the quarter was $28.3 million which was down 18% compared to the fourth quarter, primarily due to lower pricing and lower production.

Revenues for the first quarter were $53.2 million, which included $32.8 million from oil, $9.2 million from NGLs, and $11.2 million from natural gas. Revenues decreased 18% in the first quarter compared to the previous quarter, driven by lower production and realized pricing. Crude oil, NGLs, and natural gas realizations were all down quarter over quarter to $53.09 per barrel, $18.07 per barrel and $2.50 per Mcf, respectively. Looking at our operating costs for the quarter both our total company LOE per Boe and Stack LOE per Boe were slightly up quarter over quarter due to lower production.

Increasing Foraker production throughout 2019 is expected to significantly drive down per Boe cost. The first quarter, our total company LOE was $6.56 per Boe and Stack LOE was $4.96. Excluding the assets we sold in 2018, we grew our first-quarter production by 20% as compared to Q1 2018. Our adjusted EBITDA increased in the first quarter of 2019 by 5% as compared to the first quarter of 2018.

Additionally, we reduced our LOE per Boe by 12% in the first quarter of '19 compared to the first quarter of '18, when excluding assets we sold in 2018. For the first quarter, our net G&A expense was $8.3 million or $4.44 per Boe. This was a reduction of 12% on quarter over quarter per Boe basis. When adjusted for non-cash compensation and departure, our net cash G&A expense per Boe during the first quarter was $3.44.

Shifting to capex, we invested $76.8 million in oil and gas capital expenditures in the first quarter. Of that, we invested $65.9 million on Stack drilling and completion activity, $2.6 million on acquisitions, $3.2 million on capital work over and $5.2 million on corporate allocations consisting of capitalized G&A, capitalized interest, and asset retirement obligations. Of the $65.9 million of Stack D&C, $3.1 million was non-operated, $3.2 million was joint venture capex primarily driven by inflation with another $5.4 million associated with additional working interest acquired in several joint venture wells. We operated four drilling rigs during the first quarter of 2019 before decreasing as planned to three rigs in early April.

We expect our capex to decrease in the second half of 2019 as compared to the first half as we are planning to remain at three operated rigs for the remainder of 2019. With respect to hedges, a full breakout of our current hedge position is available in 10-Q filed this morning and the investor presentation posted to our website yesterday. I am pleased to announce that our $325 million dollar borrowing base was reaffirmed at our spring redetermination, which we closed last week. As of the end of the first quarter, we had approximately $11 million in cash and cash equivalents and $30 million drawn under our revolving credit facility.

As of May 7th, we had approximately $42 million in cash and cash equivalents and $85 million drawn under our facility. Our balance sheet remain strong with no significant debt maturities, due until 2022. As we look at the remainder of 2019, our guidance for the full-year production, operating, and capital guidance remains unchanged. We remain focused on operational execution and financial discipline with a strong growth profile and disciplined cost control efforts.

Our differentiated Stack and Merge acreage, coupled with our low cost operation has positioned us to profitably grow and unlock potential of our economic assets as we strive to deliver value to our shareholders now and into the future. With that, I will turn the call back over to Earl.

Earl Reynolds -- Chief Executive Officer

Thanks, Scott. In closing, as you've heard this morning we are very excited about our operational progress. The outstanding results we're seeing and the solid financial foundation we built. We believe we have clearly differentiated ourselves as we continue to deliver strong operational results, which have enabled us to consistently meet or beat our quarterly guidance.

We're extremely excited about the early results of our 11-well cube styled co-development Foraker spacing test. And we are continuously applying our learnings to optimize long term full section development across our attractive Stack and Merge acreage. We remain confident in our operations team and the strong culture of learning, science and technology, which sets our drilling and completion execution apart from our peers. As you know it's very important that we meet or if possible exceed our expectations we have set for ourselves.

We are excited about our future and believe with the continued operational intent and excellence, we will further demonstrate Chaparral's tremendous value potential. With that, operator we we're happy to take questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Jason Wangler with Imperial Capital.

Jason Wangler -- Imperial Capital -- Analyst

I wanted to just ask I mean obviously the second-quarter guidance is up pretty significantly and basically is at the full-year guidance. Could you maybe give some color as how you think kind of the third and fourth quarters look if -- if the guidance you put out hits, just kind of how we should think about the back half of the year in terms of production?

Earl Reynolds -- Chief Executive Officer

Yeah, Jason thank you for that question. I knew that was going to be the first question of the bunch here. Obviously, look I tell you we've got -- got some -- we have well to bring online in Q2 a full quarter of our Foraker test obviously was driving that really nice increase. Really, really happy as I said several times throughout the call with those results.

We're looking at -- we look really hard about what our full-year guidance and as I said in my call, my word, prepared words that we feel -- we feel real strong we'll be at our -- within our guidance or above at the top end. And I think that's the case right now. So for the back half, I mean, I know the math, I'd look at the math just like you have, it sure suggests that based upon Q2 we're going to see we'll be pushing our guidance and right now guys, I mean the way I look at it Jason we think about this is -- we just finished Q1, we need to see the full section what the -- what the overall results of our Foraker test. We've got several more tests to put online, before we start pushing the guidance above that.

Right now we're going to stick with our guidance as we stated and I think that feels like we've done it consistently, we want to make sure we meet our expectations and that's kind of how we're seeing it right now. So, you look at it, whether starting a year off or just over 20 -- just under 21,000 Boe a day and a big jump into Q2. Clearly the math would suggest you're going to have to be at that number mid-year, so our original guidance you're gonna have to kind of be flattish to little bit up from there.

Jason Wangler -- Imperial Capital -- Analyst

Sure. And I appreciate that. And then as far as the -- you know the spacing test you know obviously the couple of wells you announced look pretty solid. And you've mentioned that the remaining wells that you had some early indications it look pretty good.

As you look for the rest of the year as well, I think you've talked previously about a couple of more spacing tests, but just curious kind of what your thoughts are on the development and specifically in the spacing test as the rest of the year goes on.

Earl Reynolds -- Chief Executive Officer

Yeah. We've got several more tests to put on line. You know you'll see us do some more work, we're bringing -- we brought a spacing test on in Kingfisher County in Q2 you'll see us talk about that really soon. We've got several more tests in Canadian County, we'll be bringing online kind of in Q2 and the rest of the year, Q2, sorry, the rest of the year.

So you're going to see us be brill active. I mean, I think the key thing I wanted you guys to understand is that we take this thing in a systematic approach. I mean the Foraker is just the next step from our Denali test, right. So the Denali was our first test, we incorporate learnings from that and we've now executed very, very well on our Foraker test and I couldn't be more pleased with what we're seeing.

So you'll see us continue to do that and every time we drill a spacing test, we learn something and we incorporate those learnings into the next one, but as it relates to specifics, you know you're going to see quite a bit of activity in Canadian County for the rest of the year with spacing test, you'll see us test different spacing designs. And then as you go -- as you look in Kingfisher County we have a couple more test between now and end of year as well, you'll hear us talk about it here very soon.

Operator

Your next question comes from the line of John White with Roth capital.

John White -- ROTH Capital Partners -- Analyst

As mentioned second quarter production guidance looks good. You said you've got some more to do it for record. And you've provided capex break down by County. Can you be a little bit more specific on which areas are going to get drilled in during the remainder of the year? And I'm looking at Slide 12, looking at Jest, is there more work to do at Jester and Hennessey?

Earl Reynolds -- Chief Executive Officer

Yeah, we've got -- Jester was put online specifically, John in Q2 and so we'll -- we'll be talking about that in our Q2 call. And then the Hennessey test was put online late, late-- late last year -- late, sorry late Q1 and we'll be talking about that as well. We're also doing another Hennessy test, we call it a come and go concept, where we'll actually go and will drill for wells and put them online and then we'll come back and drill two more, trying to reduce cycle time. So that's all coming -- coming -- yet to come.

As far as percentage capital, I think we said 40% -- 60% in Canadian County, I believe guys did that right, and 20 in Garfield and 20 in Kingfisher. Yeah, I think that's probably a decent proxy for the rest of the -- rest of year allocation. You might see a little bit more of that weighted toward Canadian County, but generally speaking those are good numbers.

John White -- ROTH Capital Partners -- Analyst

OK. So our bump in second quarter's -- late 1Q results from Hennessey and then 2Q completions at Jester.

Earl Reynolds -- Chief Executive Officer

Yeah. Jester and Hennessey, all those together, but you know really what you're seeing is Foraker literally came online the last week of first quarter. And I mean you know 11 wells with really strong results is really, really driving that Q2 in a big way. That plus, what you just said the other spacing tests as well, John.

John White -- ROTH Capital Partners -- Analyst

OK. And one more, could you elaborate on the "come and go" concept?

Earl Reynolds -- Chief Executive Officer

Yeah. It's -- really the whole idea here John is, clearly when you are thinking about value creation in these developments one way to do is what we do with for Foraker, right? We wouldn't drill 11 wells, we used one-time three rigs to drill those wells, you know really, really excellent cycle time and you're talking a 130 days roughly from spud to first sales, but you had concentration of capital in one area so that's -- that's one way to do it. The other way to do it is, you drill a few wells, frac it, get the proper pressures in the ground put it online and come back later, fairly soon after the wells are put online and drill some more wells, and you can just continue with that process. And so the concept there is that reduces cycle time.

The whole goal here of course is to increase -- get production and get increased cash flow without having a delay in your cash flow timing. So the come and go just gives you a way to do that. And so once you get that -- once you approve that then you can actually come in and just drill section after section and it will reduce cycle time rather than just putting all in one section and drilling all your wells in one time. The issue you have with come and go is you have -- you are going to drill wells and potentially be fracking wells when you're drilling and that's something we don't really want to do.

Because it has operational risk and so it's just the concept the guys have come up -- my teams come up with, I'm really excited about it. The whole model of course is to reduce cycle time and get results quickly and ultimately try to achieve the same concept as you could get from a co-development cube test, which is what we did with Foraker.

Operator

Your next question comes from the line of Derrick Whitfield with Stifel.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Regarding the Foraker pilot, the well results and method seem very positive. Looking beyond the results, could you speak to any learnings from the pilot regarding spacing or well design?

Earl Reynolds -- Chief Executive Officer

Great question, Derrick. Happy to do that as best I can. I mean, clearly we're give or take 40 days into that first test, the first pad and we know approximately 30 days into second in the Midland in the western pad. You know we're still seeing some incline in production and some of that too.

So we're not quite ready to talk about the other two parts -- other two pads, but we'll be talking about those very soon. But look I think the learnings are you know we're just getting the data back. I mean the things you do, Derrick is you -- like I say, you know basically diagnostics from your spacing work and so you'll get pressure data, you'll get tracer data, all that stuff is coming in, the teams are analyzing it as we speak, but generally speaking you know what we saw was really, really good frac efficiency from the early work, which is what we would expect for this kind of thing and which manifest itself with extremely high near wellbore complexity and we saw some initial high oil rates and so very encouraging that's why you see it materially above our type curve. But we've got -- we have work to do it is really a little early for me to say I've got x,y, z learnings.

We did some a little bit of a unique situation there, we actually looked at a portion of the section we did, a little tighter spacing and then the other part of the section we did not quite as tighter spacing. So we'll be able to compare those two spacing designs. As you recall, we also drilled two Woodford wells, right. So we want to see how those Woodford wells react and are we seeing communication between the Woodford and the Miss.

Right now the indications are we're not, but we need to work through that and as I told you guys in the past is how we think about it. You know we just take a systematic approach to learning here, we'll look through we'll assess it and we'll incorporate those learnings into the next phase, into the next test. And so little early for me to give you a lot of specifics, but overall all I can tell you is extremely pleased with what we're seeing right now and encouraged about what we're seeing and then we'll be applying those -- all those learnings we have with our next several test.

John White -- ROTH Capital Partners -- Analyst

Very helpful. Earl, perhaps specifically on that Woodford well on the East pad. That results noticeably better than the last Woodford well that you guys drilled. Was there anything unique about the design of this well that you guys incorporated from past learnings?

Earl Reynolds -- Chief Executive Officer

I'm glad you asked me that as well. You know, as I said in my opening comments, we got some great results, we also had some results that meet expectations as we've come out of Chapter 11. And again, those are examples of how a company that's focused on execution and delivering results should. When you find something didn't work, why didn't you -- do a deep dive as to what happened and reassess this.

So yeah, our few -- first few Woodford well didn't work for us fundamentally and I have been real clear on that point. So the team went back we actually shut down activity, kind of early last year on Woodford and say let's go reassess it. We were able to assess a combination of two things, one our frac design, as well as our landing zone. So we redesigned both of those, team came back with a recommendation we looked at it hard and assessed it and said let's try it again on Foraker and look our results have been very, very exciting in what we're seeing.

And that opens up the whole story for the Woodford down in our acreage and so combination of landing zone, Derrick, as well as the spacing and, sorry landing zone and our frac design is really what drove that. And so we did alter our frac design somewhat, quite a bit actually from what it was historically, and that we believe that completely attributed to why we got such good results here.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

And last one for me, regarding the gains that you made in efficiency as you outlined on Page 17, could you offer some color on how much lower you could drive completed well cost if you assume best composite times for both drilling and completion operations?

Earl Reynolds -- Chief Executive Officer

Yeah. I think a piece of it, the drilling side you know it's a challenge to say you'll get materially better in drilling I mean I always challenge Jim and his team on that question every day. You've got -- we've got our days down to spud to TD I mean we've seen as low as nine days Jim has taken a design that we used in Canadian County and now is plying that same design in Kingfisher County, we're seeing some really early results. Modified mud designs to reflect what we consider to be a more efficient mud and very lower -- a much lower cost.

Those pieces are kind of been incorporated, you know I don't know that I see a ton of increase on the drilling side. I say that, but you know things are all always get full, but when you get into an area you just get better and better and better, especially in pad drilling context. So besides, I don't know I see a lot there, but I think talking about completions, I mean, look the team has done a phenomenal job there. I mean, you saw it's kind of four wells, four stages per day and now we're up to eight.

I mean I would say we hit some technical limits of what we can do on several days in several wells where we actually fracked materially higher than that. To say you can sustain that and improve it, I mean, I think there is probably some opportunities there. We look at every single thing you can imagine to try to improve efficiency all the way from across the location to ensure that everybody is working efficiently and well across everything and clearly safely. So I think there's probably some upside there on completions in terms of overall efficiency, we've incorporated obviously the in basin sand where we're using all 100.

100 was 100 mesh. All those costs have been -- will be dialed in. So we expect the cost savings that we hope to achieve, we plan to achieve this year is going to come primarily on the completion side on the back half of the year. That will be our expectations.

So you know our well cost on the Meramec wells or give or take $4.2 million I believe is what we said for the Foraker, we can see that. I mean I have a goal for these guys to push that cost down below four. I think we can possibly do that, but it's going to come principally on the completion side more than likely.

Operator

And our last question comes from the line of Ron Mills with Johnson Rice.

Ron Mills -- Johnson Rice -- Analyst

Earl, question. Given the early success in the Foraker, particularly in the Meramec, I know it's still early on those first three wells and we're waiting on the other eight, but you know how do you think or could that make you revisit kind of capital allocation over the course of this year? You are already going to be focused in Canadian and Kingfisher Counties, but you know in a continued success case, can you see yourself shifting even more capital down to Canadian and/or Kingfisher? And if so, you know how do your drilling require -- your drilling requirements allow that up in -- given up in Garfield?

Earl Reynolds -- Chief Executive Officer

Yeah. Great question. And clearly the result of Foraker get us really excited. I mean you know what I'm going to tell you is consistent what I've told you over the years.

I kind of repeat myself, but I think it's important that we are consistent. You know we're going to take a methodical approach by clearly the results we've seen here in our Foraker tests are super exciting for us, right. So but same token, you know we need to make sure, we incorporate our learnings into the next phase. So when I reflect on capital allocation, generally speaking we will continue to -- as our original plan which was kind of the -- kind of the 60, 2020.

But as I mentioned I think in a previous call you wouldn't be -- I wouldn't be surprised to see us put a little bit more capital into Canadian this year above where we originally thought. But I'm not saying all of it going there right. Because why am I saying that, because what we're seeing is some really good stuff in Kingfisher as well and some and so as you know we've had some good results in Garfield. So combination of all that, but generally speaking because of the results we've seen you could expect us to put a little higher percentage in Canadian, but you know Ron, we're going to walk through this thing as we always done as I've told you.

Taking our -- assessing all the information, understanding it, and then implementing those learnings into the next capital decision we make.

Ron Mills -- Johnson Rice -- Analyst

And then as you think about Canadian County and particularly -- between the Meramec and the Woodford. Can you just provide a little color in terms of well control in the area across your position there where you where it sounds like more of your spacing tests will probably be conducted. Do you believe that there's kind of an effective frac barrier between the Meramec and the Woodford across your position or you know any reason to think there may be some variability there?

Earl Reynolds -- Chief Executive Officer

You are very insightful as always, I would tell you that -- look I mean, I always -- I have a couple things I say to my team all the time it's always, always, always, about the geology. And I would tell you that absolutely it is geologic specific. So when I think about it, you know we some of my peers have talked about you know we're basically having communication between the Woodford and the Miss section, you know in our area of drilling and the way we matched it we don't see that as a major issue at all. I do believe that it does change as you go across Merge, there is no doubt about it, why is that? A certain a zone the frac buried kind of goes away.

So we match it that way and we understand it where we see we'll have a higher chance of having communication. Does that mean you can't develop it? No, it doesn't actually. Well, it means you have to develop it in a systematic way, which you -- the co-development concept, if you had a situation like that. The other thing I'll tell you is a little bit different is that you know we have -- we think three distinct targets in our acreage in the Merge.

That's not the same across all the acreage as you go in different directions. And specifically to the south you may only have as low as one target in the Merge right. So we have three distinct targets and we've mapped it accordingly and so we've have a sense of that as well. So what I'm telling you and the key point is the way we approach this Ron is we have 3D seismic across all of our acreage.

We do a very detailed Earth model that incorporates we believe drives and helps us understand the stratigraphy, we use that for targeting. And so we use that as our starting point for everything. And so based upon that and we've also taken some core we've got a good sense of what the rock looks like and what doesn't work and what does work and we use the Earth model and then we just basically use our frac design to ensure on the basis of the Earth model to ensure we get near wellbore complexity. And now we're seeing what's with the Foraker as we achieved exactly that.

The achieved style co-development of the upper and lower Meramec, as well as the Woodford has achieved materially higher oil rates than we estimated from our type curve. And so, we'll keep doing that as we apply those learnings throughout the area, but clearly the geology does change. We think we've got a good sense of that and we know we're going to continue to exploit those points.

Ron Mills -- Johnson Rice -- Analyst

OK. Great. And one last one then, and this may have been addressed since I jumped on a little bit late. The production -- sequential growth here in the second quarter is obviously quite impressive.

The full-year guidance is unchanged at this point, but you know especially given the results at Foraker that you know it looks from the outside that kind of your annual -- your annual outlook appears conservative, which clearly flows through not just to production, but cash or EBITDA generation, am I on the right track there?

Earl Reynolds -- Chief Executive Officer

Ron, I would tell you that, again we've worked -- we talk to each other several times and I know I'd say that we debated this over and over again. My sense of it is going out and increasing guidance in Q1 is probably the last thing you want to in spite of the fact all indications point that maybe should have done that. I don't think -- I think that only gets prudent. It's not the way we run it -- run this company.

I would say that generally speaking our results have been -- are going to show and demonstrate what we've been able to accomplish and I think we'll address our shareholders and you as an analyst over the course of the next several months or for sure in Q2 call when we have a lot more confidence we can deliver that. But at the end of the day, yeah I know what the math looks like I've done the math and surely it sure indicates that what -- what I'm telling you is Q2 looks really, really strong, very strong. And right now we're going to stick with our guidance for the full year, but recognizing that I think the way I said it was at the upper end -- upper end of our guidance was probably the most likely from this as we currently understand it today. Ron, we've got to get a full several months of production on Foraker tests, we've got more tests all those things are aspects of why we think it's important and while it is important, we are one of the only companies I believe has been able to live with our quarterly guidance quarter over quarter and meet those or exceed them.

And I want you as an analyst and my shareholders to have confidence we continue to do what we say we can do.

Operator

And we have no further questions at this time. I'll now turn the call back to the presenters for closing remarks.

Earl Reynolds -- Chief Executive Officer

OK. Thank you for joining the call today. We believe -- I want to tell you guys we believe we have a great team. We'd have differentiated assets and differentiate ourselves and we continue to deliver strong results.

Scott and I, look forward to speaking to you and meeting you in the near future and hope to see many of you at our upcoming conferences. Thank you.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Patrick Graham -- Senior Director of Financial Planning and Corporate Finance

Earl Reynolds -- Chief Executive Officer

Scott Pittman -- Chief Financial Officer

Jason Wangler -- Imperial Capital -- Analyst

John White -- ROTH Capital Partners -- Analyst

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Ron Mills -- Johnson Rice -- Analyst

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