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Brigham Minerals Inc (NYSE:MNRL)
Q3 2020 Earnings Call
Nov 6, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the bringing minerals third quarter 2020 earnings conference call. All participants will be in a listen only mode. [Operator Instructions] After today's presentation, there'll be an opportunity to ask questions.

I would now like to turn the conference over Jacob Sexton manager of finance and Investor Relations. Please go ahead.

Jacob Sexton -- Manager of Finance and Investor Relations

Thank you, operator and good morning, everyone. Welcome to the Brigham minerals third quarter 2020 earnings conference call. Joining us today are Bud Brigham founder and executive chairman, Rob Rossa, founder and chief executive officer and Blake Williams Chief Financial Officer. Before we begin, I would like to remind you that our remarks including the answers to your questions contains forward looking statements. And we refer you to our earnings release for detailed discussion of these forward looking statements and the associated risk.

In addition, during this call, we make references to certain non gap financial measures. Reconciliation to applicable gap measures can be found in our earnings release. A couple of administrative items. We have a new investor presentation titled third quarter 2020 investor presentation available for download on our website, www breggen minerals.com. recommend downloading the presentation and the event we refer to as during the conference call. Lastly, as a reminder, today's call is being webcast and accessible through the audio link on our IR website.

I would now like to turn the call over to Bud Brigham, Founder and Executive Chairman.

Bud Brigham -- Founder And Chairman

Thank you, Jerry. We appreciate everyone joining us for third quarter 2020 earnings conference call. Having memory multiple down cycles and energy. We've learned the chance to build companies that are not only positioned to survive, but also to thrive. And if you've done that is we have the opportunity to differentiate performance is amplified in the cycles. Our team from day one work to position Britain minerals in the best geologic areas with premium top tier assets and their top performing operators. We've also positioned our balance sheet subsidy and trying time such as we can one continue to return capital to our shareholders and to that then take it slowly and in a highly disciplined manner acquire minerals when much of our competition is on the sidelines. As such, we're able to compound value when costs were at the cyclical lows, while prices arising from unsustainable levels, thereby optimizing our shareholder value creation.

We've done that in prior cycles. And we're doing it today. We're now starting to see operators in the EMP space similarly positioning themselves to survive and thrive more aggressively consolidating, while also accelerating the evolution of their business models toward our model of more aggressively returning capital to shareholders. During our August call, we talked quite a bit about the chevron double energy merger and pointed to the positives of a much larger entity developing opposition. Since then, we've seen dead on on WP x conocophillips and Concho and pioneer and parsley similarly agree to combine and scale up to benefit from synergies and weather any storm. I again think this is a significant positive for burger minerals. As well four to five balance sheets will keep reading and practice active in our basins and therefore drilling our well position minerals.

Further in connection with these completed intended consolidation, an increasing number of EMP companies are moving toward a long standing return of capital to shareholders business model, or shell 3.0 as many are referring to it today. Most have indicated they plan on reinvesting roughly 75% of free cash flow into the business and therefore returning 25% of free cash flow to shareholders. Britain minerals has for the past four quarters return 100% of distributable cash flow to shareholders. And this quarter, as we've indicated all along, moved our dividend to 95% of distributable cash flow excluding least bonus. At the end of the day, we are returning capital faster without exposing our shareholders to ongoing drilling tap x based operating expense. We also lead the pack in terms of corporate governance and executive compensation pursuant to our compensation plan that has no annual cash bonus, and long term equity glance with everything tied directly to our absolute total stock return.

So we are directly aligned with all of our shareholders, with investors pushing for more alignment between management and shareholders. Many of our energy brethren are converting their compensation plans to move toward at least partially including an absolute total stock of our metric. I believe these efforts by energy company management teams are beginning to be noticed by investors and will change attitudes toward investing in energy. At the end of the day, the global economy needs the abundant, clean, reliable, and affordable energy that hundreds of thousands of hardworking Americans work to produce for us every day. I also believe with your investment in Brigham Minerals that you get proven management, premium talk to your assets, disciplined and accretive mineral acquisitions, a well-capitalized balance sheet accelerated return of capital and a compensation plan aligned with shareholders.

With that, I'll turn the call over to Rob to cover operational results.

Rob Roosa -- Chief Executive Officer

Thanks Bud. I'm extremely excited to report strong third quarter operating and financial results as well as continued highly compelling acquisition opportunities. To start strong third quarter performance allowed us to declare a $0.24 per share dividend, which represents a 71% sequential increase from the second quarter. Importantly, we're able to increase our dividend despite having taken our initial steps toward partially funding our mineral acquisitions by moving our payout ratio in the third quarter to 95% of distributable cash flow ex-lease bonus, we previously messaged moving our payout ratio on past conference calls, and in particular on our second quarter conference call in anticipate that will gradually continue to move toward a long term dividend payout ratio of 75% to 80% of distributable cash flow over the next three to six quarters. The goal of course is to utilize the retained cash flow to provide a source of funding for our ground game acquisition program. I also wanted to highlight that our dividend does not include $1.5 million of leased bonus revenue that was generated the Delaware basin during the third quarter. We have always highlighted the significant optionality in owning minerals that are perpetual in nature. In fact, we refer to it as the perpetual option on the geologic column.

That optionality plays out over time through incremental zone development, incremental wells, better technology applied during drilling and completion operations and the ability to lease our minerals again, if they become open. That perpetual optionality played out in the third quarter, and it's a real testament to the quality of our asset when an operator chose to partner with precious liquidity during challenging times because the rock we acquired provides superior long-term rates of return to the lessee. We retained the $1.5 million in lease bonus, to again provide a source of funding for our third quarter ground game acquisition program. Moving to our ground game mineral acquisitions, during the third quarter, we closed $16.2 million of acquisitions, deploying that capital almost exclusively to the Permian Basin, and almost entirely to the Delaware Basin, and further almost entirely to Loving County, which we've always viewed as encompassing some of the very best rock in the United States.

A point I do want to make when you think about the cash retained by moving to a 95% distribution ratio and retaining the lease bonus, we're able to fund approximately 14% of our third quarter mineral acquisitions via both of these sources of capital, which we believe is a tremendous long term value creation opportunity for shareholders. Looking ahead, we continue to see strength in our ground game deal flow in the fourth quarter, and have approximately $17 million in deals either closed as far during the quarter, or pending in earn the middle of our title verification process. Note that we constantly evaluate a variety of capital allocation options in their effects on our capital structure, and wants to make it clear that our mineral acquisition opportunities currently represent the highest return of our capital allocation options. As the environment changes, we will continue to evaluate our capital allocation options that were clearly proving the value of our mineral acquisition capital we're deploying are creating substantial value right now and believe that deploying capital during the trough is optimal for shareholders.

Turning to a review of our operating results, our third quarter production volumes were up 5% sequentially, through roughly 9,300 barrels of oil equivalent per day. We saw very nice conversions during the third quarter in the DJ, Wilson, and Midland basins that contributed to our production growth. Although most operators were currently favoring the Permian Basin with their capital allocation, I do want to point out that our assets outside the Permian continue to see these strong conversions, which again is a key indicator as to quality. Additionally, in the Spute the Wilson Basins, we benefited from the resumption and previously shut in or curtailed volumes, or diversified portfolio of the highest quality minerals once again proved its value. Despite a reduced number of frack spreads. During the third quarter, we converted 1.2 net dumps or 27% of our net duck inventory available at the end of the second quarter. Conversions were led by Crestone peak in the DJ, continental in the Wilson and Apache and Parsley in the Midland Basin.

These companies are all an extremely different situations that all have to convert DUCs to maintain production. It's important to remember that while we don't have operational control operators cannot survive without converting DUC and we stand to benefit from the coming resurgence and conversions. Our DUC inventory continues to be converted at an extremely rapid clip, again, illustrating the hype quality nature of our assets. Our DUC inventory at the end of the third quarter was 3.8 net DUCs, with 74% were position in the Permian Basin. Further, the majority of our net DUCs are operated by ExxonMobil, Continental Resources, Chevron, PDC, and Shell. The DUC balance declined mainly due to extremely strong DUC conversions in the DJ and Williston basins. I would note that our Permian Basin DUCs remain flat from the start to the end of the third quarter, remaining at approximately 2.8 net locations.

In the second quarter, I indicated that roughly one-third of our DUCs in inventory at the end of the quarter have been treated or fraced and were thus waiting to be turned in line to production. We are similarly situated here at the end of the third quarter with approximately 30% of our DUCs in inventory at the end of the quarter, having been treated or fraced and thus, again, waiting to be turned in line to production. The vast majority of these treated DUCs from the Delaware and Midland basins and we therefore believe they will be impactful to production over the next two quarters. Our permit inventory also remained strong, with 4.3 net permits in inventory at the end of the third quarter. Approximately 50% of our permits are in the DJ Basin, and 40% of our permits are in the Permian Basin. Our team delivered strong third quarter results, but the COVID-19 pandemic has unfortunately continued to dampen crude oil demand and as a result E&P operators are being cautious. We believe our DUCs being turned in line should results in production volumes for the fourth quarter 2020 and first quarter 2021 averaging in excess of 9,000 barrels of oil equivalent per day. Looking ahead to 2021, if operators are moving toward maintenance mode capital, there will have to be upward adjustments to those operators Lower-48 rigs and frac fleets for those operators to keep production flat.

If and when those rig and frac fleet additions happen, we anticipate being a major beneficiary to those increased activity levels. Given the uncertain backdrop, we are attempting to provide as much guidance as possible, given data available to us. When the environment hopefully normalizes next year, we plan to provide updated full year 2021 guidance in late February of 2021 with our year end conference call and an update for the second half of 2021 in early August of 2021 associated with our second quarter conference call. In closing, while many energy companies are challenged, we are very fortunately surviving and now thriving as a result of the positioning Bud mentioned. And we're actively on the hunt for accretive core mineral acquisition opportunities.

I'll now turn the call over to Blake, so he can summarize for you our financial performance. Blake?

Blake Williams -- Chief Financial Officer

Thank you, Rob. As Robert already alluded to, the majority of our shut in volumes returned and operators are beginning to cautiously restart activity. Our daily production for the quarter was roughly 9,300 barrels of oil equivalent per day, up 5% sequentially and up 19% from the same period last year. Product mix increased to 73% liquids with the oil recovering for 53%, with a resumption of shut-in volumes, though lower than our expected run rate of 55%, due to stronger than expected growth from our gassier areas and the DJ and SCOOP. Oil cut should trend back toward our normalized run rate of closer to 55% over the coming quarters, as Permian Basin DUCs convert to PDP. Our portfolio generated royalty revenue of $21.6 million for the quarter, up 72% sequentially from the better production volumes and a 62% improvement in realized pricing. Lease bonus of $1.5 million significantly exceeded expectations.

As Rob mentioned, we have elected to retain this cash to reinvest in the business in the third quarter, through partially funding our ground game acquisitions as we continue to source accreted opportunities. We do not expect significant additional lease bonus for the remainder of the year. However, our portfolio continues to create positive surprises, as we are always looking to optimize the capital generation from our assets. Net loss for the quarter was $13 million, including an impairment to oil and gas properties of $18.9 million. Adjusted EBITDA for the quarter was $16.8 million and adjusted EBITDA excluding lease bonus was $15.3 million. Adjusted EBITDA was up a 184% as a result of a 5% increase to volumes and 62% increase to realize pricing. A much larger increase to EBITDA showcases the uniquely high margins only possible in a minerals business. Realized pricing for the quarter came in at $25.16 per Boe, up 62% from the second quarter. By commodity type realized pricing was $36.34 per barrel of oil, $2.2 per Mcf and $12.84 per barrel of NGL.

On costs, gathering, transportation and marketing expenses were $1.7 million, or $1.99 per Boe, and in line with the second quarter. Severance and ad valorem taxes were $1.4 million, or 6.5% of mineral and royalty revenue, and back closer to our first quarter levels. G&A expense before share-based compensation was $3.2 million. G&A includes approximately $0.3 million of non-recurring expenses associated with our September secondary offering. Excluding these costs brings G&A to $2.9 million. During the first quarter, we laid out a plan to reduce cash G&A by 15%. And I am pleased to report back, that we have achieved this goal and in fact, exceeded our initial goal. We expect fourth quarter to be at least in line with our initial $3.2 million run rate. As a result of our resilient business model, we declared a dividend of $0.24 cents per share Class A common stock up 71% from the second quarter. This dividend represents a 95% payout ratio on our discretionary cash flow, excluding lease bonus. The $0.24 dividend is payable on December 7 to shareholders of Brigham as of November 30. Finally, moving for a balance sheet, which is very important during these times. We continue to have an industry leading liquidity position. We exited the quarter with $8.2 million of cash and $5 billion drawn on our revolving credit facility, leaving us in a net cash position with $138 million of liquidity.

Further as a result of our fall redetermination, which is expected to be finalized at the end of November, our administrative agents has given us a recommendation of the reaffirmation of our borrowing base at $135 million. Initially they indicated an increase with several changes to the terms of our credit agreements. However, we elected to maintain our current borrowing base amounts and along with this the flexibility and lower interest rate outlined in our existing agreements. Capital structure remains important in our highly cyclical industry. And we will remain mindful of that as we deploy capital to acquisitions by ensuring we limit our net debt to adjusted EBITDA ratio to less than one and a half to two times.

I will now turn the call back over to Rob to wrap things up.

Rob Roosa -- Chief Executive Officer

Thanks, Blake. We appreciate you joining our third quarter 2020 call. To wrap it up, I would like to reiterate Blake's comments about the Brigham Minerals business model, aka shell 30. Investors want energy exposure from companies with clean balance sheets and a demonstrated commitment to return capital to shareholders and Brigham Minerals checks both of those boxes. We believe that as investors return to the energy space, Brigham Minerals represents an extremely compelling investment opportunity, and will be one of the most efficient ways to own exposure to the recovery.

Operator, I'll now turn the call back over to you to begin the question-and-answer portion of a conference call.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brian Singer with Goldman Sachs & Company. Please go ahead.

Brian Singer -- Goldman Sachs & Company. -- Analyst

Good morning.

Rob Roosa -- Chief Executive Officer

Good morning, Brian. How are you doing?

Brian Singer -- Goldman Sachs & Company. -- Analyst

Great. Thank you. I wanted to follow-up on the comments with regards to all the consolidation that we're seeing. You highlighted that you view that as a positive, and I wondered if you could dig a little bit more into your level of confidence in the volumetric implications there. You have a couple of companies that would have been part of consolidation that arguably had strong balance sheets and would have potentially done quite fine on a stand-alone basis. What's giving you the confidence that the combined companies that from the consolidation that we've been seeing that the activity levels will be at or better than what they would have been on a stand-alone basis?

Rob Roosa -- Chief Executive Officer

So Brian to me is the key factor here, and then a lot of people have alluded to this is just the uplift in terms of scale. Although these companies are large, its the pioneer of coal just that further improve level of scale in my mind provides additional cushion, additional buffer such that, you know, when there are down cycles, like we've experienced here -- this year as it relates to COVID, and then the OPEC+ disagreement that happened that it just give incremental cushion. They can feel better about maintaining rigs and frac leads in basins. And so, as I see it, you know the peaks and troughs that will have with respect to either fracs fleets or rigs becomes much lower in terms of the highs and the lows.

And so, you know, what we saw here was, you know, post-February kind of a 70% reduction in rigs, almost a 90-plus percent reduction in frac fleets is that you'll see a much more consistent rig and practically deployments such that you won't have these massive peaks and troughs, the amplitudes of the wave will be much less. And so that makes me feel good, and right now you're starting to see really nice reaction to some of our operators in terms of bringing rigs back to the field. If you look kind of in the basements, we monitor, you had about 150 rigs running at the low point. Now we're kind of in the mid to upper 170s. And that's with ExxonMobil having reduced their rig count in the Delaware Basin from 26 to 10 rigs, so offsetting that you've seen a really nice increase in rigs. And so in many instances in particular, as it relates to us, we're seeing some really nice response by operators.

Just yesterday, we saw that OXY now has three rigs running in the Delaware Basin, which is very much a positive for us. One of the rig that showed up yesterday is now in our silvertip area drilling for us. He has OXY now running two rigs in the DJ Basin, again, very much positive. Other positive that I saw was Cimarex picking up a rig and deploying that to the stack, where they haven't had a rig since September of 2019. Devon's now talking about deploying rigs to the stack as a result of the Dow JV. So I just think that it gives incrementally operators a lot more comfort, much more running room, flexibility, as it relates to being able to maintain grades and frac fleets in the field, primarily as it relates to scale.

And so to me, and also it gives you leverage as it relates to your negotiating power with service providers, enhancing your ability to reduce cost, I think, a huge positive for us as we've digested and gone through the different materials here, in the third quarter are the significant 10-plus percent reductions that we're seeing cost operator to point sub $600 per foot, DNC costs, which you know, at the end of the day, with operators talking about their capital budgets, meaning with reduced costs, you can do more with less. And so I think at the end of the day, what becomes important to us is brick and minerals is the number of wells that are drilled by each operator each and every quarter. And so we see that and many operator points these reductions and coffee structural in nature, enhances our ability to see an uplift in terms of rigs and frac fleet. So, Brian, sorry, it's a rather long winded answer. But you know, I think it's an important one that, I think a lot of it just relates to scale, comfort, being able to deploy rates in the field consistently over time, and you feel much better about that, with that improve scale.

Blake Williams -- Chief Financial Officer

Hey, Rob, I might just add the sample file that we already see that, we already see that with, for example, majors that they're more stable through the troughs, whereas, the independence that don't have the scale, and the balance sheets really tend to really shutdown that activity. It's just a more stable to the troughs and benefit from that the stronger balance sheets and the figures associated with that scale.

Brian Singer -- Goldman Sachs & Company. -- Analyst

Great, thank you. And then my follow-up is with regards to the balance sheet, you talked about one and a half to two turns net debt to EBIT is your tolerance level, I wonder given the volatility that we see in commodity prices, A, if you view that at a certain price deck or price range; and B, to the degrees you take on take on debt to help fund more acquisitions? What your thought process is on hedging?

Blake Williams -- Chief Financial Officer

Yeah, sure. This is Blake. So I think I'll answer in reverse order there. On hedging, we do believe those two go hand in hand so we're currently unhedged, we're obviously encouraged by the by the macro backdrop and do offer our investors direct exposure to the commodity, but we do believe that as a part of that policy, that we have to keep a prudent balance sheet. And obviously, we've done that, as we've talked about today and in the past. So I think as we start to layer in more debt will start to look at it more and more as you think about some of the improvements we've seen the gas curve, it might make sense to add some winter edges on for example. But as far as going into your initial question on the one and a half to two times, we're -- we obviously run sensitivities on our capital needs and our capital structure all the time. I would say that that Governor's kind of a, LQA basis, maybe looking back a little bit more and then sensing it was forward curve and some downside scenarios.

So we, sort of, we believe, I've said this in the past, the only way to screw up is mineral store is open leverage. So that's kind of top of mind for us is, as we make sure that that's always in check.

Brian Singer -- Goldman Sachs & Company. -- Analyst

Thank you

Blake Williams -- Chief Financial Officer

Thanks, Brian. Appreciate it.

Operator

Our next question comes from Derrick Whitfield with Stifel. Please go ahead.

Derrick Whitfield -- Stifel -- Analyst

Hey, good morning all and great update.

Bud Brigham -- Founder And Chairman

Thanks, Derrick. Appreciate it.

Derrick Whitfield -- Stifel -- Analyst

Perhaps for Bud or Rob. Your acquisition strategies historically focused on all your plays. But bill, your technical team and evaluation process applies to all trends. In light of the increasingly constructed gas macro pricing environment? How motivated if at all are you pursuing gas opportunities within or outside of your focus basin to amplify your production first on in festival approach?

Rob Roosa -- Chief Executive Officer

Yeah, I'll start off, Derek. And then Bud will take in later on. But you know, I do think, you know, having a diversified portfolio such that we do have offers upside to gas. So I think you know, when you think about Brigham Minerals, and there's a really nice summary of our portfolio on Page 8 of the investor presentation that we updated and put out yesterday evening on a base and by basin, basis, in terms of what our assets look like, you know, I think there is significant gas exposure already embedded within our portfolio.

So if you're looking at the staff play, roughly 42% of our production, there is gas used with the DJ basin, that's 40% gas. So we do have gas embedded within our portfolio. I think also, when you think about the Delaware basin, the western side of the basin is gassy. We do have exposure there, if you think and then think about as you move east in particular, as you get into block four, and then into Ward County there, there's kind of a gassy or area there that we do have exposure to so you know, I'd say one that we do have exposure with the gas within the portfolio. And we're as I mentioned in my earlier comments to Brian, as relates to the uplift and operator activity, we're already starting to see and hear some activity in the gas place start to ramp up when you think about Cimarex running their first race in September of 19. Devon now talking about ramping up their activity and stack because of the Dow JV and then seeing increased gas or you know, performance as relates to gas continental last night talked about deploying incremental capital to the Gasser plays.

And so we are seeing that, I would say, you know, we've talked many times about, you know, having that exposure to gas through still being in liquids or three source plays, we're still hopeful that and we're still evaluating a lot of deals in the Eagle Ford. I would tell you that, you know, if you think about the gas plays as relates to Appalachia, and in that area, we did work on that several years ago, there were just some inherent issues there that not as connected to the ground game, you know, whether you're in or out of the unit, even if you buy a mineral interest because of how irregularly shaped those units can be. And whether or not you know, part of the interest you have is spoilage. It's also a much more complicated environment in terms of title verification, and being able to run the title and feel good about what you're buying. And so all kind of that consistently pushes us to, you know, the Delaware basin skewed stack DJ basins, Williston Basins, and then layering on the Eagle Ford, hopefully at some point here in the near future.

And so, you know, I think there is nice gas exposure within the portfolio. And, you know, one of the things that Blake and I have talked about as we continue to monitor the draws here and go through the winter season, you know, is you know, when we get to a point do we want to start hedging some of those gas volumes. So that's something that we'll be looking at, by Blake, anything else to add

Blake Williams -- Chief Financial Officer

No. I think you covered it pretty well, thank you.

Rob Roosa -- Chief Executive Officer

Yeah, good. Go ahead, boy.

Blake Williams -- Chief Financial Officer

Nothing bad.

Derrick Whitfield -- Stifel -- Analyst

Okay, sorry about that. And then kind of stand on the ground game acquisition, thought process and referenced page 10. Your recent acquisitions have certainly been attractively priced relative to historical measures. In your prepared comments I think you guys noted several opportunities that are in process. More broadly, how would you characterize the competitive landscape, both in deal flow and competitors at the table, and your ability to source similar opportunities as the ones you've highlighted in Q3, and Q4, as you look out into next year?

Bud Brigham -- Founder And Chairman

So yeah, great question and appreciate, you know, you pointing to the increased levels of acquisitions. You know, first and foremost, I want to just reiterate that the key for us has been always will be to be very disciplined in our underwriting process. It does no good for you to get out over your skis and enter into deals lean in too far with service so well, over the past seven years, haven't built this company to be very disciplined, underwriting deals consistently. Being very diligent in our processes, for multisection you comes in each of those sections have worked up separately, because valuations are quite different on a section by section basis.

So first and foremost, one of our shareholders, if you'll rest assured that we're undertaking those discipline processes throughout, I would say that in terms of overall deal flow, we're seeing a tremendous amount of deal flow. If anything, or deal teams are busier now than they ever have. And that really mentioned this in our August call really seemed to start to ramp up in July -- after 4 of July. What I would say is, is that the competition today isn't necessarily with other mineral companies, but in often instances, we refer to kind of reservation price. And that's the sellers willingness to park with those minerals. And so you know, where I would have said that, historically, we might have had a 10% or so success rate, in terms of the deals we've evaluated and been able to find and close those deals, we're probably more in a 5% to 10% success rate. But large amount of that change, or volatility or reduction in success relates to just kind of that reservation price on the part of the seller. And so our, our game plan is to just be very active in terms of getting out there, nailing, calling, working with brokers, etc, such that you know, that deal flow is that an ever increasing number, and that we prosecute those deals are responsive get deal offers out to people expeditiously such that we're still able to see a good amount of closures on a dollar basis.

I think it is important to point out that your point as relates to the metrics here, looking better than they have in the past, because I see this as very equivalent to what the operators are doing in terms of reducing their per well costs, when you think about us kind of being at that 67% of the cost. So prior amounts that we've seen. And if you think of kind of a $30 million, $35 million run rate, if you look at that, that's pretty much equivalent to kind of the $50 million per quarter run rate we were operating at the past. So you know, much the same is what the offer is doing, doing more with less we're seeing kind of an equivalent addition to our portfolios in terms of net well, locations added at even at these lower prices, because of what we're able to achieve here with a different environment is our key is just to structure our teams such that we're able to be able to handle that ever increasing deal flow and being responsive to the seller.

Rob Roosa -- Chief Executive Officer

Real quick, I mean, we have seen so many of these cycles. And this is why we've positioned our company like we have I mean, this is the sweep cycle. It is particularly so in this cycle professors less capital, there's a dose of capital in the industry. So it's much less competitive than prior cycles. That is when we acquire interest, as you pointed out at the lowest cost, while prices will be rising from the unsustainable levels. So these are these are going to be as I have been in our prior cycles, the most accretive acquisitions that will make us a company.

Derrick Whitfield -- Stifel -- Analyst

Thanks Rob. Its very helpful, guys. And great update again.

Blake Williams -- Chief Financial Officer

Thanks appreciate there.

Operator

Our next question comes from Fuze Hammond with Siemens Energy. Please go ahead.

Fuze Hammond -- Siemens Energy -- Analyst

Good morning and thanks for taking my questions and congrats on the success of the ground game. On the ground game and just an acquisitions in general. Just curious what do you target as far as how much inventory of minerals do you want to have? Is there a certain amount of years that you'd like to see? And essentially beside capital, what defines the ceiling on your appetite for acquisitions?

Rob Roosa -- Chief Executive Officer

You know, peers, I think one of the key things for us is being able to point to transactions that are accretive. Immediately, I would say immediately being kind of an 18 month period, relative to our yield that we trade at. Also important is just the overall IRR of a project. So I think the beauty of it that we have as we think about our deals is that we can amalgamate a number of deals together within any one quarter and synthetically create deals that, that meet those overall metrics. And so you know, we're always targeting making sure we're yield accretive, NAV accretive. And we're able to do that by mixing together perhaps a more PDP, heavy deal or a more duck heavy deal with an undeveloped deal. And so throughout the quarter, we're constantly monitoring each and every deal that's been signed up, monitoring those various metrics and seeing how we want to synthetically create an overall portfolio of deals such that it meets all these criteria. So I think that's the terrific part for us is that we're able to do that pretty efficiently.

Effectively, we've really refined these processes over the past 18 months of having non-public. In the past we would probably have been on the more undeveloped side given, the longer runway, now today obviously we're trying to meet the near-term cash flow yield hurdles. And so, but the great part is, we're just seeing such increased levels of deal flow. We're able to then kind of mix all these deals together. But as it comes down to always is that making sure we're very disciplined in those processes, because I can't just iterate that enough that our deal teams approach each and every deal, the same way such that at the end of the day, when we've integrated a deal for the quarter, we know exactly what we bought, we feel good about what we paid, we feel good about those dollar per net location costs. So, there are number of, numerous numbers of things that we're looking at each and every quarter in terms of deals and trying to bring those together.

Fuze Hammond -- Siemens Energy -- Analyst

Thanks, Rob. That's helpful. And then my follow-up, what is the attributes about Brigham diversification among various basins, which can certainly be helpful, if there's a problem in a basin or capital gets dramatically allocated away from a basin. But clearly in the environment we're in right now, like you're focusing, your efforts on acquisitions in the Permian, and producers are centered on the Permian. Does it make sense to maybe get rid of some of the minerals and some of the other basins and focus even more on the Permian? Or is there just not really much of a market for recycling capital and selling minerals?

Rob Roosa -- Chief Executive Officer

I think when we are always monitoring the portfolio and trying to identify, is there a way that we can achieve good results in terms of potential divestiture and then being able to redirect that capital, to perhaps higher performing areas. So, that's one of the key metrics that we're always looking at, I would say, sometimes assets are out of favor. And it's better to hold and live and fight for another day. And perhaps into the future, those assets, you know, the thought proxies, the feelings toward those areas, rebounds. And then, later next year, maybe mid-year, next year, he never looked at it activities rebounded, there's then the opportunity to divest an area and redirect that capital to an area, we like press a little bit better. So, that's something that, we're always constantly looking at much like the capital allocation decisions that we mentioned in our transcript, it's just something that we're always monitoring, making sure we're trying to make those optimal decisions for our shareholders across a number of different spectrums.

So, I would say that to the extent an opportunity presents itself to divest and redirect that capital to a different area. Yeah, we undertake that that effort and try to make that happen. It's just I think, we've probably got a little bit of a runway ahead of us where, we can, we're seeing the rigs and frack free to respond, it's probably beneficial to wait, a couple, three more quarters to see that continue before doing anything. And so, I think the great part is, as Blake mentioned, we have significant liquidity in place, we have been disciplined and we're still able to distribute, 95 plus percent of our distributable cash flow bonus and still able to return capital to shareholders expeditiously. And so all those things I feel good about, oftentimes, it's just better to be patience be ready and strike while the iron is hot.

Fuze Hammond -- Siemens Energy -- Analyst

Right. Thanks, Rob.

Rob Roosa -- Chief Executive Officer

Thanks for your appreciate it.

Operator

Our next question comes from John Freeman with Raymond James. Please go ahead.

John Freeman -- Raymond James -- Analyst

Good morning, guys.

Rob Roosa -- Chief Executive Officer

Good morning, John. Thanks for joining.

John Freeman -- Raymond James -- Analyst

Absolutely, so I know that in the past, I've obviously you telegraphed for quite a while the long-term sort of payout ratio, you want to get to about 75% to 80% level and obviously, this quarter being kind of first step in that direction. And I think right now, all of us are sort of just assuming kind of that kind of a 5% reduction payout to each quarter to get you to about that that level long-term run rate a year from now, but maybe you can just remind everybody, sort of what potentially could either cause that to accelerate or either or take longer, just depending on the environment, just some of the metrics that you're looking at to keep taking that that path down to get to that long term target.

Rob Roosa -- Chief Executive Officer

Yeah. Sure. Thanks, john. So we're going to always consider, the macro trends as well as what our capital needs for the business are. We're discussing how much capital they retain and when do we keep stepping that down? So, we'll be looking at prices, we'll be looking at looking at dead path to dividend amounts. We'd like it to continue, continue to grow. And so with that said, we do have a desire to invest our cash flow back in our business as we've talked about in the past, I think are they mentioned on this call, we think that we can compound value right now really well in the trough of the cycle by buying deals for cash. So, we'll step down over time down to that payout ratio, but just kind of always making sure that we're taking all variables into account.

Blake Williams -- Chief Financial Officer

Yeah. John, I think important point for me. And just to reiterate, again, as we as we did multiple times, during the earlier parts of the comments at the start which just 14% of our cash flow we were able to reinvest that and utilize that to help with ground game acquisitions. I think that's a huge differentiator for us allows us to compound value. If you think about the early history of the company and our great relationship with our private equity guys, Warburg Pine Brook in Yorktown, all the cash flow that was generated as a part of portfolio, we reinvested back in the business and we're able to really compound value continue to buy assets. So I see us as directionally going that way.

Rob Roosa -- Chief Executive Officer

I do think, though as Blake mentioned that this is more of kind of an art than a science. And that's why also, during the earlier comments indicated, we'd be looking to go to that 75% to 80% payout ratio over kind of a three to six quarter period, because deals you want to be cognizant of the environment that we're in the macro, etc. and so, we understand how important the distribution is to shareholder. So again, being very disciplined, diligent, thoughtful in our processes, as we think about future distributions, we'll be very careful and be make sure we take into account all these different factors as much as we do with deals.

Blake Williams -- Chief Financial Officer

And I might just add briefly. In my view, this is a perfect time for us to be doing that, stepping down, and we were coming out of a trough with unsustainable low or process and unsustainable low activity. And it's time to be transitioning toward, 75%, 80% payout, because we expect. And I'm very optimistic that given the unsustainability of prices and activity to make worldwide demand that a normal life and we're going to see a picked again prices, which will enable us to continue to grow our distributions.

John Freeman -- Raymond James -- Analyst

That's great. Appreciate the color. And then just my one follow-up question was the least bonus that we all see this quarter, was that concentrated heavily in any one area?

Rob Roosa -- Chief Executive Officer

John, I don't want to directly point to any one area, because we're constantly evaluating potentially leasing minerals again to operator. So don't want to point to any one area because I think competitively we want to make sure we're extracting the most lease bonus, putting in place in most favorable terms and in terms of our leases, meaning few clauses, etc. drilling commitments, cost free leases. And so, don't want to directly point to any one area. But I would say that, when we do put a lease out there, it's very competitively bid. We know exactly who's operators are in what areas and so -- and who might be most interested in those minerals. So we're running very competitive processes in those areas. And hesitated to defer because, I think there's going to be incremental opportunities in the future. So I don't want to give away too much.

But, much the same as kind of the earlier questions regarding potentially divesting assets, I see this as we can really achieve some of that optionality here by being very patient, very disciplined in our processes as it relates to leasing our minerals again. So, for competitive purposes really don't want to give away too much. But rest assured that we're doing everything possible to extract as much value as possible each and every time we lease or minerals again.

John Freeman -- Raymond James -- Analyst

That makes sense. I appreciate all the info guys. Well done. Nice quarter.

Rob Roosa -- Chief Executive Officer

Thanks, John. Appreciate you joining today.

Blake Williams -- Chief Financial Officer

Yeah. Thank you, John.

Operator

Our next question comes from Leo P. Mariani with KeyBanc. Please go ahead.

Leo P. Mariani -- KeyBanc -- Analyst

Hey, guys. Just wanted to follow-up along your production here for the quarter. Obviously, there's been significant shedding by the industry most notably in 2Q but also some 3Q, just trying to get a sense if you guys were to kind of back out all the shedding that you saw. Were you able to see any organic sequential production growth between third quarter and second quarter?

Rob Roosa -- Chief Executive Officer

Yeah, we were. So certainly I think, the way that we characterize the shut-ins as they came back throughout the quarter they weren't all back online July 1. But they should be back in full force for the fourth quarter. We did have conversions that we that Rob already spoke about nice conversions across the portfolio. So we did see some organic ads that helps push our production higher, beyond just the shut-ins volumes coming back for sure.

Blake Williams -- Chief Financial Officer

Yeah, in particular, Leo, I point to within the Williston basin had some nice additions by continental. So this is above and beyond then bringing back online either shut-in or curtail volumes had some nice wells brought online by them. On their step Alicia and ramp pads. So some really nice activity kind of in the Williams County area, pretty proximate to the position that the old Brigham exploration company had there, just a little bit east of that. But some really nice wells brought online there for so nice organic activity force there.

Leo P. Mariani -- KeyBanc -- Analyst

Okay. That's helpful. And I guess, just to kind of carry that forward a little bit, obviously, with activity starting to pick back up, as you get pointed out in Brigham premium inventory, is it pretty reasonable, that we should expect to see sequential production growth again in the fourth quarter and then again, into early next year, as well, as you guys look at the landscape?

Rob Roosa -- Chief Executive Officer

I think one of the key things for us is just -- we being in a non-operated in essence, position is we can't control the timing of when wells come online production or even when they're fracked, and then ultimately, when an operator turns those wells online to production. And so I think we've got to be more cautious, instead, we've kind of talked about this approach of, how we talked about volumes over kind of the next six months period. Because you could have an operator differ a well during brought online to the second three months of a six month period or a wealth brought online toward the end of the quarter and therefore, maybe not as impactful. You're seeing a lot of operators reference that here this year with a speaking to you about a wells brought online in fourth quarter.

So we'll just have to monitor it, I think, what makes us feel really good about how we're dialoguing with you is much the same as what we had at the end of the second quarter, where we had 33% or so of our DUCs treated. We're entering here in the fourth quarter with 30% of our DUCs treated. So I think, we feel good about that, we feel good about the fact that a lot of the DUCs are located in the Permian Basin. We feel good about the fact that, if you look at our DUC is largely encompassed by ExxonMobil, Chevron, Shell, Continental, PDC, and others. So people that are getting active back -- getting back in the field, fracking wells, turning those wells online to production. So, I think, you know, we just want to be cautious because we don't control when welcome online. So that naturally leads us to kind of point to more of a six month guidance period than a near-term, quarter-to-quarter period because activity can fluctuate.

Leo P. Mariani -- KeyBanc -- Analyst

Okay, that's helpful. Thanks, guys.

Rob Roosa -- Chief Executive Officer

Thank you, appreciate you joining.

Operator

Our next question comes from TJ Schultz with RBC capital markets. Please go ahead.

TJ Schultz -- RBC capital markets -- Analyst

Good morning. So I think the lockup from the September Sunday has expired at this point. So can you just comment on your view of the intention of the remaining original owners that still have meaningful positions? And then I also hear the comments on acquisitions, often the best stock economics on capital allocation, but given your stock repurchase on that last secondary, how should we think about capital allocation moving forward as you consider acquisitions plus any potential levers you may have on repurchases? Thanks.

Rob Roosa -- Chief Executive Officer

Yes, sure. Appreciate you joining TJ. So just a couple of thoughts and then we'll let Blake join in. But I think as it relates to the stock repurchases, we did you kind of the September offering as a unique opportunity to get in there and buy a block at the point that we felt like that that deal did provide our acquisition provided good metrics. I think, in my comments, we indicated that we're going to continue to monitor the situation. So we will be very thoughtful as we move over the next six to 12 months, and continually evaluate acquisitions versus other potential opportunities.

So, rest assured, we're continually monitoring that. I think, as relates to the private equity sponsors that we've had that obviously, alluded to this earlier, if you've had a terrific relationship with they're a much lesser percentage of the ownership of the overall company now. I think it's 17%, 18% ownership. And so I think we feel really good that, they're a much lesser percentage of the company, therefore, there's much more float out there, there's much more liquidity. And so, I can't comment as to, where intentions going forward. Obviously, they're very independent as a relates to that, but I would point to you directly then being much less a percentage of the company and therefore being much less impactful into the future in terms of any action they do take or don't take.

Blake Williams -- Chief Financial Officer

Yeah, the sponsors, I mean, they have piggyback rides, and they did the fees this last secondary offering that we had. So just to reiterate, Ross points. I mean, I think, on the buyback front, certainly we think our stock is too cheap relative to the underlying assets. But I think that we're very excited about the private and public art that we're able to capture to the ground game. So, we've wanted to push our capital that way, as we're, really seeing some attractive opportunities on that front.

TJ Schultz -- RBC capital markets -- Analyst

Okay, got it. Thanks. Just quickly on the unreleased bonus, is the past board to retain lease bonus revenue to help fund acquisitions versus included as part of the payout? Or just how will you make that decision going forward? Thanks.

Blake Williams -- Chief Financial Officer

Yeah, thanks, TJ. I think, much as it relates to kind of the comments earlier, it's kind of more of an art and a science. And so we're gonna be just overall cognizant of the overall environment. And I think, he great part is we have a lot of optionality going forward. For us in terms of, adjusting the payout ratio, including excluding lease bonus, so there's a number of toggles that we can take to, be productive, and, monitor the distribution going forward. And so, I think, as Blake mentioned, we're just seen some really nice opportunities here. In the third quarter as it related to ground game acquisitions, the ability to really put in place some highly creative acquisitions, and this quarter in particular allowed us to retain that leased bones to help fund that those acquisitions and in essence, fund 14% of our deals that we did in third quarter.

So, again, there's a lot of dialogue that goes along with our board of directors each and every quarter as it relates to the dividend and planning. And so again, rest assured that, all those discussions are being had as it relates to you modifying the payout ratio, including excluding lease bonus, so I know not being very definitive, but there's a number of different levers that we have as it relates to optionality and how we look at it each and every quarter independently. So I think the great part is, is that we were provided a lot of optionality a lot of flexibility as we think about the dividend going forward.

TJ Schultz -- RBC capital markets -- Analyst

Okay. Thanks guys.

Operator

Our next question comes from Kyle May with Capital One Securities. Please go ahead.

Kyle May -- Capital One Securities -- Analyst

Good morning, guys. Were to follow-up on your comments about the Eagle Ford and see if you could talk more about your interest there and how you're thinking about potentially entering the base?

Rob Roosa -- Chief Executive Officer

Yeah, I think the Eagle Ford is a tremendous play. In particular there's some operators that you can follow that still have pretty undeveloped units. In particular, some of these operators are beginning now to co-develop the upper and lower Eagle Ford together, and these operators, relate to some of our earlier discussions, do you have the scale to continue drilling and so, I think our entry into the Eagle Ford will probably be here in the beginning kind of on a ground game basis, with the singles and doubles, looking for triples, etc. into the future.

And so that's something we're doing but, as I've indicated, being very disciplined in our underwriting, when we do look at transactions. So we are monitoring and working out Eagle Ford deals, but I'm highly encouraged as to what we're seeing there if you look at the Eagle Ford in particular, and it's a basin that we monitor, probably more so than anywhere you've seen kind of a rapid increase in recruits going forward almost a doubling of the rig fleet there in the Eagle Ford. So you are seeing a positive response from operators in terms of their ability to rapidly ramp up and deploy capital to the area.

So we are looking at Eagle Ford favorably and definitely want to get our ground game up and running there and to buy asset so encouraged about the Eagle Ford.

Kyle May -- Capital One Securities -- Analyst

Got it. That's very helpful. And also on slide 10 of the presentation, it shows the dollar amount to location increasing in the fourth quarter versus the third quarter. Can you talk a little bit more about what's driving the change. Just trying to get a feel of this is market driven or composition of the well there anymore?

Rob Roosa -- Chief Executive Officer

Yeah. So Kyle, I think if you look at page 10, one of the key data points we try to include. So if you're looking at the upper right part of that slide and see third quarter acquisitions, and that's it $4.2 million on in the third quarter. And so that 5% that's next to it relates to ducks and permits. If you look at the fourth quarter acquisitions, the dollar for net location costs was $5.9 million. That 19% next to it relates to the composition of ducks and permits during the quarter or thus far we've experienced during the quarter. So you can see, you have almost four times more visibility as it relates to you, either wells that will be turned in line soon permits that will be drilled. And so when you think about how we model transactions in workup, each and every section improve visibility as a relates to ducks and permits, does drive higher pricing. In essence, it's a much less riskier proposition.

And so, you know, less risky situations obviously increase the pricing. And so that's then the reason for us, including the dollar per net location, but then also indicating to everyone to know what the composition of ducks and permits are for that synthetic blend of deals that we brought together for the quarter either thus far when a quarter is closed, because then I think it gives our investors and research analysts the ability to understand you know, how contributory those deals are going to be to the company over kind of that next 12 months to 18 month period, which obviously is very important to all of you all.

Kyle May -- Capital One Securities -- Analyst

Got it. That's very helpful. Rob, appreciate the additional color. Thanks.

Rob Roosa -- Chief Executive Officer

Yeah, thanks. I appreciate you joining.

Operator

Our last question comes from Chris Baker with Credit Suisse. Please go ahead.

Chris Baker -- Credit Suisse -- Analyst

Yeah. Thanks for squeezing in. Most of my questions have been asked, but just wanted to follow up on some of the comments you made earlier around needing to see rigs increase. Should we see production held flat next year? Just curious where you see that shaking out in terms of maybe completions year over year in the Permian?

Rob Roosa -- Chief Executive Officer

Yes, sorry. Chris. It kind of broke up there a little bit for me anyway, could you repeat the question? Sorry about that.

Chris Baker -- Credit Suisse -- Analyst

Take me out of my headphones. Yeah, I was just-I was saying that most of my questions have been asked, but just wanted to follow up on the earlier comments around needing to see an increase in rigs and crews next year for production to remain flat. And I was just curious, if you had any sort of directional color, you could share in terms of where that might shake out in terms of, you know, gross completions in the Permian, year-over-year?

Rob Roosa -- Chief Executive Officer

I do think, given that flat, keep flat dialog relative to the fourth quarter that operators alluding to, you know, I think, you know, a lot of people will have written about, you know, it's going to take a pretty rapid increase in raise and frack crews to keep volumes flat, I think, you know, what a lot of people are struggling with is, how many rigs or frac rig does that take, because the cost part of the equation is changing, so rapidly, but I think rapidly in our favor. So again, it gets get back to the do more with less. And, you know, I think we're going to be encouraged as you look forward to 2021, and the potential for operators to ramp-up their activity on our asset.

Just given what we've seen here, in the last, six weeks or so, you know, in particular, I'd highlight again, kind of oxy, having rapidly increased the rate is running in loving county in particular, there at three rigs right now, and just yesterday added the rigs to the silvertip area. Even wins in the Delaware basin, you're starting to see the private operators add back rigs, you're seeing on-core and Jetta add rigs. And so you know, and then you're starting to see people add rigs to suit stacks. So I'm encouraged that, you know, as we've always talked about, the key for us is to have a good gross acreage footprint within a basin. Because that gross acreage footprint, if it's widespread enough, and there is an increasing level of activity within the basins, that inherently means that you're going to have a higher probability of those rigs, and frankly, hitting your position because of that tremendous gross acreage footprint.

So I'm encouraged that as we move throughout 2021, when you think about the rates that are going to be deployed in 2021, and moving forward, you're going to see some nice improvement in the gross and net floods in our acreage as these operators ramp up that activity, I think, you know, it's just too early to call, what that rig and frankly, activity levels might be for 2021. Just because there are so many moving pieces for these operators and how much of their cost improvements are structurally related to temporary, that being said, I do think a lot of people are pointing to 60%, 70% of the improvement across being structural. So it looks very positive for the industry in general. And so, you know, I'm encouraged that you're going to see some nice response to raise them practically in 2021, and then, you know, as a result of our good gross acres footprint spread that been beneficial to us.

Blake Williams -- Chief Financial Officer

I can add just briefly and I don't, you know, don't have the modeling in front of us that when you when you look at, you know, in the big picture, what happened with this substantial drop off in wave and completion in '20, that's going to be more apparent. And you see it in the model, in '21 in terms of the decline rate. And so it really sets up, in my view, a very, very bullish scenario for activity and orders. As Bob said earlier, in order, in order to know for Bob supply to meet the demand here, at some point, you're going to take a meaningful uplift in activity. And given it our minerals located in the Premier acreage, the best of the best days, you're going to be the first area that the roofs are going to move to so it sets up very well for us in 21.

Rob Roosa -- Chief Executive Officer

Yes, I think the only thing I would add that one trend that we're seeing is we're seeing a spacing and a lot of operators are starting to talk about spacing in the lower price environments. So, I think that's, that's actually going to be upside relative to how we have even how we have analyzed our own portfolio and continue to analyze acquisitions given that we've never leaned in, over the years, and the number of locations that we're underwriting to, so as offers sort of converge, but you know, end up with, with lower results than we have assumed I think that's just upside for us going into '21.

Blake Williams -- Chief Financial Officer

Yet, in particular, you know, you think about operators directionally pointing to quote, co development of XY, upper wolfcamp, etc, that whole zone there, you're going to get much more efficient development, much more recoverable reserves produced from these DSUs into the future. So I'm particularly encouraged, like, if you were to look at, you know, how WPS here is recently talked about their development of their areas, and, you know, click as far as tremendous. And so, you know, he's really going to take the reins there at Devin and really lead them going forward.

And so, you know, I think, you know, as you think about their development plans for, you know, all the different zones are seeing in particular, you know, the third bone line through the A, you're going to see some tremendous results there as those wells are co developed and brought online and in at the end of the day, see much better total EUR on a DSU by DSU basis by these operators thrilling kind of the 12 plus wells at once relative to the single one offs that we've seen in the past.

Chris Baker -- Credit Suisse -- Analyst

Great.. Thanks, guys. Appreciate the update.

Blake Williams -- Chief Financial Officer

Thanks. Appreciate you joining us.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Robert Seth or any closing remarks.

Rob Roosa -- Chief Executive Officer

Yeah, again, you know, we appreciate you joining us on third quarter conference call this morning. Looking forward to getting back with you guys on the phone. After that when we post our fourth quarter results anticipate that that's going to be you know, late February of next year. So in the interim, take care and thanks again for joining us. Appreciate your time.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Jacob Sexton -- Manager of Finance and Investor Relations

Bud Brigham -- Founder And Chairman

Rob Roosa -- Chief Executive Officer

Blake Williams -- Chief Financial Officer

Brian Singer -- Goldman Sachs & Company. -- Analyst

Derrick Whitfield -- Stifel -- Analyst

Fuze Hammond -- Siemens Energy -- Analyst

John Freeman -- Raymond James -- Analyst

Leo P. Mariani -- KeyBanc -- Analyst

TJ Schultz -- RBC capital markets -- Analyst

Kyle May -- Capital One Securities -- Analyst

Chris Baker -- Credit Suisse -- Analyst

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