PHX Minerals Inc

NYSE:PHX

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and thank you for attending today's PHX Minerals September 30, 2023 Quarter End Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.I would now like to turn the call over to Rob Fink with FNK IR. Please go ahead.

[Rob Fink]

Thank you, operator. Hosting the call today are Chad Stephens, President and Chief Executive Officer; Ralph D'Amico, Senior Vice President and Chief Financial Officer; Danielle Mezo, Vice President of Engineering. The earnings press release that was issued yesterday after the close is also posted on PHX's Investor Relations website.Before I turn the call over to Chad, I'd like to remind everyone that during today's call and during the Q&A session, management may make forward-looking statements regarding expected revenues, earnings, future plans, opportunities and other expectations of the company. These estimates and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those expressed or implied on the call. These risks are detailed in PHX Minerals' most recent annual report on Form 10-K. As such, may be amended or supplemented by subsequent quarterly reports on Form 10-Q or other reports filed with the Securities and Exchange Commission.The statements made during this call are based upon information known to PHX as of today, November 9, 2023, and the company does not intend to update these forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.With all that said, I'd like to now turn the call over to Chad. Chad, the call is yours.

[Chad Stephens, executive]

Thanks, Rob, and thanks to all of you on this call for participating in PHX's September 30, 2023 quarterly conference call. We appreciate your interest in the company.The sequential improvement in our financial results and the continued strengthening of our portfolio reflect the steady normalization of the natural gas macro environment, which has recovered from historically low prices. Since early this spring, we have continued to express our rationale for projected improvement in the natural gas supply/demand macro and price.Just over the last few weeks, the 12-month strip price has shown steady improvement. Recent volatility in natural gas prices reflects realized versus forecasted weather, which indicates one of the warmest Novembers since 1950. However, underlying fundamentals, including weekly EIA storage data shows a tight or undersupplied market on a weather-adjusted basis.Demand for natural gas from the power grid continues to increase on a year-over-year basis and new LNG facilities construction appears to be on schedule. As we draw closer to the commissioning of these additional LNG facilities, we believe it will drive improvement in sentiment as well as prices in mid- to late 2024. LNG export will be a significant demand driver in 2024 and 2025, and we believe that Haynesville will be the primary source to feed these LNG facilities. I believe this improving environment bodes well for our business in future quarters.During the third quarter, PHX continued to experience robust activity on our minerals, specifically in the SCOOP play of Oklahoma where Continental and other operators appear to have started full field development of the Springboard III play with 4 rigs currently operating there. We have consistently talked about this play being a catalyst for PHX. And while we are still in the early stages of development, the results to date have exceeded our expectations.Our Haynesville minerals also continue to be actively developed, and we are encouraged about our current well-in-progress inventory, which Danielle will talk about in a moment, which is as high as it has ever been and will continue to drive production growth in the coming quarters. We remain confident in meeting the updated 2023 production forecast we communicated last quarter, which represents year-over-year annual growth rate for royalty production exceeding 20%.Additionally, we expect calendar 2024 royalty production growth to be similar to what we have achieved over the last few years. This reflects the benefits of the strategy we implemented when I took over as full-time CEO in spite of periods of challenging commodity prices. We will provide more detailed guidance in early 2024.With our strong margins, PHX continues to generate significant cash flow. This allows us to maintain ample liquidity as well as fund our mineral acquisition program. Given the strength of our business, the Board of Directors has approved a 33% increase in our fixed dividend rate to $0.03 per share per quarter. This is the fourth dividend increase since 2020 and represents an aggregate increase of 200% from the 2020 rate.At this point, I'd like to turn the call over to Danielle to provide a quick operational overview and then to Ralph to discuss the financials.

[Danielle Mezo, executive]

Thanks, Chad, and good morning to everyone participating on the call. For our September 30, 2023 quarter, total corporate production increased 2% from the prior sequential quarter to 2,348 Mmcfe. 80% of our quarterly production volumes were natural gas, which aligns with our long-term position that natural gas is the key transition fuel for a sustainable energy future. Oil represented 12% of production volumes and NGL represented 8%.Quarterly royalty production increased 3% sequentially to 2,073 Mmcfe. Compared to the same quarter last year, royalty volume has increased by 13% and 26% for the trailing 4 quarters. The volume growth over the last 12 months is a result of the successful execution of our mineral acquisition program.It is important to note that as a mineral holder, we do not control timing on well development. So there can be some volatility on a quarter-to-quarter basis and volumes associated with our business model are better evaluated on a rolling 12-month basis.Our total corporate volumes were down 9% year-over-year, which is due to the sale of our nonop working interest assets in early 2023. On the working interest side, production volumes declined 7% sequentially to 275 Mmcfe in the September 30, 2023 quarter, as a result of natural decline and some wells being worked over by the operators. Note that we are not participating in new working interest wells, so working interest volumes will continue to decrease relative to our total volumes and become less relevant to the business.Royalty volumes represented 88% of total production during our September 30, 2023 quarter. As recently as calendar year 2021, royalty volumes were only 45% of our total volume. As we have grown our royalty volumes and divested at our nonop working interest, the quality of our asset base is enhanced with improving margins, which Ralph will talk about shortly. As we have high graded our asset base, this provides a much stronger collateral base with which to support our bank credit facility.During the quarter ended September 30, third-party operators active on our mineral acreage converted 71 gross or 0.155 net wells in progress or WIP to producing wells compared to 81 gross or 0.3 net wells converted to PDP in the quarter ended June 30. The majority of new wells brought online are located in the Haynesville and SCOOP. At the same time, our inventory of wells in progress on our minerals, which includes DUC, wells being drilled and permits filed, increased to 278 gross or 1.1 net wells, an all-time high compared to the 272 gross or 0.91 net wells reported as of June 30.The continued track record of well conversions and replenishment of the inventory of wells in progress shows the repeatability of our business strategy. Additionally, we have mineral interest under a deep inventory of approximately 2,000 gross undrilled locations that will continue to feed this WIP activity. In addition to our WIP, we regularly monitor third-party operator rig activities in our focus areas and observed 14 rigs present on PHX Minerals' acreage as of October 9. Additionally, we had 56 rigs active within 2.5 miles of PHX ownership.In summary, we continue to see steady development in both our legacy and recently acquired mineral assets, which should lead to annually increasing royalty volume.Now I will turn the call to Ralph to discuss financials.

[Raphael D'Amico, executive]

Thanks, Danielle, and thank you to everyone for being on the call today. Natural gas oil and NGL sales revenues increased 23% on a sequential quarter basis to a total of $8.9 million. Breaking down this number further, royalty sales revenues increased 27% to $7.9 million due to a 3% increase in royalty production volumes and 23% higher realized commodity prices. Working interest sales revenues increased 1% to $1 million as a result of lower production volumes and 8% higher realized commodity prices.Realized natural gas prices averaged $2.40 per Mcf, 25% higher than the prior sequential quarter. Realized oil prices averaged $78.48 per barrel, 6% higher. And NGLs averaged $20.35 per barrel, 8% higher. Realized hedge gains for the quarter were $603,000. For the quarter, approximately 46% of our natural gas, 35% of our oil and none of our NGL production volumes were hedged at average prices of $3.26 and $74.92, respectively.Approximately 42% of our anticipated remaining calendar 2023 natural gas production has downside protection at approximately $3.35 per Mcf. On the oil side, approximately 41% of our anticipated production has downside protection at approximately $71.16 per barrel. Most of our natural gas hedges are structured as costless collars, which means that we also have upside on these volumes closer to $6 range. Our current hedge position is available in our most recently filed 10-Q.Total transportation, gathering and marketing expenses decreased 23% on a sequential quarter basis to $694,000 and decreased 23% on a per Mcfe basis to $0.30 per Mcf, primarily because of higher Haynesville volumes as a percentage of total volumes, which have lower associated transportation costs and where we have a meaningful number of cost-free leases.Production taxes decreased 16% on a sequential quarter-over-quarter basis to approximately $388,000 due to higher production in Louisiana, which applies its tax rate to production volumes and not revenues. LOE associated with our legacy nonoperated working interest wells increased 32% on a sequential quarter basis to $414,000. We continue to have discussions with operators of our legacy working interest assets regarding escalating operating costs and overhead charges.Cash G&A was down 10% to $2.24 million compared to the prior sequential quarter. On a per Mcfe basis, G&A decreased by 11%. We continue to focus on the cost side of the business and expect that the per G&A costs will continue to decrease going forward as we grow production and scale the business while maintaining absolute cash G&A in line with recent quarters.Adjusted EBITDA was $6.3 million in our quarter ended September 30, 2023, as compared to $4.1 million in the June 30, 2023 quarter. I'd also like to point out that our EBITDA margins are higher than they have been in at least the last 5 years as we continue to show success in our minerals only strategy, and we expect margins to continue to expand as we scale up the business.DD&A was down 9% to $2 million compared to the prior sequential quarter. Net income for the quarter was $1.9 million or $0.05 per share compared to a net loss of $40,000 or effectively $0 per share for the prior sequential quarter.We had total debt of $30.75 million as of September 30 compared to $23.75 million as of June 30 as we partially funded our previously announced acquisition package totaling $13.4 million in September with cash on hand and debt. Our debt to trailing 12-month EBITDA was 1.31x at September 30, 2023. Additionally, during our regularly scheduled borrowing base redetermination, our bank group increased our advance rate from $45 million to $50 million.Lastly, I'd like to remind everyone about our previously announced change to a calendar year fiscal year. As such, our next earnings report will be for the full year ended December 31, 2023, which will be released in early March 2024.With that, I'd like to turn the call over for Chad for some final remarks.

[Chad Stephens, executive]

Thanks, Ralph. As I commented in my opening remarks, we are very pleased with our achievements over the last year and the momentum it provides us moving into 2024. We have good current rig activity on and around our mineral position in both the SCOOP and Haynesville. Our royalty volume growth remains on trend for double-digit production growth in 2024, and we continue to generate good acquisition deal flow.Additionally, with our trending growth in operating cash flow, our Board of Directors approved a 33% increase in our dividend of $0.03 per quarter, and our bank group increased our borrowing base from $45 million to $50 million. I think these 2 important events highlight our quality asset base and sustainability of our business model.The company continues to make notable progress only through the hard work of our dedicated employees and the keen wisdom provided by our Board. So in closing, I thank them for their efforts. We do look forward to keeping you updated. This concludes the prepared remarks portion of the call.Operator, please open up the queue for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Derrick Whitfield with Stifel.

[Derrick Whitfield, analyst]

For my first question, I wanted to focus on your growth outlook with the understanding that you'll offer firm 2024 guidance next quarter. Could you help frame your trajectory given the strength you experienced this quarter in oil growth and the flattish to improving WIP inventory that you have in the Anadarko and Haynesville regions, respectively?

[Chad Stephens, executive]

Ralph, do you want to talk about that?

[Raphael D'Amico, executive]

Yes. I mean, I think, Derrick, I think it's all -- we have that level of confidence given the well in progress inventory, right? I mean you continue to see active development and with 1.1 wells in progress on a net basis, right? And you continue to see new permits being filed on us on our minerals every week that we monitor it. I think it's a pretty good assumption that those wells should be coming online over the next, I guess, 12 to 14 months through the end of 2024.And based on that -- on just that amount of wells in progress, we think we can achieve the same growth rate as we have over the last few years. Clearly, that can be accelerated, right, if there is additional rig activity coming online as well. So we'll provide some more guidance, some more specific numbers as Chad mentioned early in 2024.

[Chad Stephens, executive]

Derrick, this is Chad. As I've said in my prepared remarks, we're seeing that double-digit, greater than 20% year-over-year growth with all of the rig activity, the DUCs and the WIPs. The oil you're referring to was really specifically related to some Bakken wells that were completed. There's been some increased activity up there. But more than that was some of these wells that we continue to talk about. The Continental is completed in the Springboard III area that have a higher oil component to it, and we're really excited about the performance of those -- the early performance of those wells.

[Derrick Whitfield, analyst]

That's great. And for my follow-up, I wanted to ask for your perspective on the M&A landscape in your focused markets. As you guys are likely aware, Sitio announced yesterday a PSA for an asset package in the Anadarko and Appalachian Basin is sold for approximately 9x EBITDA on our numbers. While definitely a positive read-through from a valuation perspective for you, it would appear the environment is getting a bit more competitive in your areas or those basins. Could you share your thoughts on that transaction and what you're seeing on the competitive landscape side?

[Chad Stephens, executive]

Yes. We had actually looked at some of those assets. They originally came from the old Brigham Minerals organization that merged in to become Sitio. And after that merger, we had done some unsolicited discussions around that and just couldn't come to a valuation. What was paid was much richer than we could justify. So good for Sitio for getting that price. They were good assets. But at that price, it was difficult for us to make a decent return.So I think that demonstrates, one, we're out there in the marketplace in the relevant deal flow, but we're also -- we use our technical analysis and our financial analysis to be disciplined about what we're buying and the economic returns that we're trying to get for our shareholders.

[Raphael D'Amico, executive]

Yes, Derrick, I would just add also that sort of the -- as we call it, our bread and butter on the smaller acquisitions that we try to aggregate the deal flow there is continues to be very robust. And I think that our view is that we sort of have our pick of the litter effectively. There is enough deals where we can be very methodical and disciplined and achieve the best risk-adjusted returns as possible by following the same process that we have over the last going on 4 years now.

[Operator]

Our next question comes from the line of Charles Meade with Johnson Rice.

[Charles Meade, analyst]

I wanted to ask about the -- a bit more detail on those Continental wells that I think you referred to just a moment ago. And specifically, I think it's Slide 23 of your updated presentation. You've got, I think, pads 3 and 4 are 2 different core bit pads that were drilled by Continental. And it looks to me like the wells, I believe, to the north were targeting the Sycamore section. And to the south, they were targeting the Woodford section.So my question is this. First, would you characterize how pleased or -- how pleased you are with those results? And then the second question is whether the choice of the Sycamore versus the Woodford is either/or sort of thing like pick one target? Or is it a -- can you do both? In other words, is there a potential down the line for kind of to stack Sycamore in the south and add a Woodford to the north?

[Chad Stephens, executive]

Charles, good question. I'm going to let our reservoir engineer, Danielle, answer that question as she tracks the well results and the performance pretty closely. Danielle?

[Danielle Mezo, executive]

Yes. Thank you, Charles. So yes, we're very pleased with Continental's results. This has been an excellent test of concept for them. So far, we've seen on the production side, outperformance to our original type curve. We've seen that these zones coproduce very well together. It is definitely not an either/or situation. We fully expect that they will co-produce and wine rack those 2 layers. This is an extremely thick section in this part of the SCOOP play, and we do expect that there are multiple benches.You can see that there's a schematic on Page 24 of our corporate presentation as well. Just the thickness here would allow them to do 2 benches in each of those zones as well. So beyond this test, we would expect future tests to even stack that further and have even further recovery down the road. So yes, we're very pleased with the results of that test, and we expect them to fully take that development model and start walking it across the field there.

[Charles Meade, analyst]

Well, so that's a lot of upside then. And Ralph, maybe this might be for you, if you took the earlier [ from ] M&A question. I wonder if you could characterize for us, I guess, the baseline or the conventional wisdom is that when we see volatility in commodity prices, it's harder to get deals done because it's harder to get -- there's just less of a chance to get buyers' expectations and sellers' expectations to overlap. But I wonder if you could comment on whether you're seeing that and whether that's a dynamic more generally that is valid in the kinds of deals you guys are trying to do?

[Raphael D'Amico, executive]

I mean -- to an extent, I mean, I would agree with that. But I think that when -- if you look at our average deal size and the deals that we did in September, what that basically shows is, again, there is a lot of running room, a lot of deal flow that we look at even when there is volatility. I think if gas prices are moving, let's hypothetically just use between $3 and $3.50, even if it's a whipsawing $3, $4, whatever it may be, at that price, there's still the ability to go find pretty good opportunities where sellers' expectations are reasonable.I think it's when gas prices get -- like we saw in spring, right? When you get substantially below $3, I think the mineral holders effectively go, there's very little holding cost to us just waiting for a recovery in prices. And then they choose not to transact, which is exactly what we experienced and we were patient, and then we executed on a great set of deals in September. But I think it continues to be true that for every dollar of acquisitions that we make, we probably look and pass at an additional $3 to $4 worth of acquisitions.Some of that is we don't like the asset profile. Some of it is pricing. Some of it is a combination of both. But where we sit here today, even with what you've seen in gas prices over the last couple of weeks, it's -- to us, it's still a buyer's market.

[Operator]

[Operator Instructions] Our next question comes from the line of Jeff Grampp with Alliance Global Partners.

[Jeffrey Grampp, analyst]

A question on the -- a capital allocation question for you guys. So the dividend increase was nice to see as part of the capital return program. So wondering how you guys think about kind of the optimal balance of dividend growth in kind of the long term versus having sufficient capital to fund the acquisition pipeline and scaling the business, which is obviously still the core part of the business as well.

[Chad Stephens, executive]

So I'll let Ralph get into the specific detail of capital allocation. But I think at the highest level, as we came into this year, we were working on the sale of some of our material nonop working interest assets. And we've been doing that over the last 2 or 3 years, selling nonop working interest assets and redeploying the proceeds into these 2 core areas in which we're focused, the SCOOP and the Haynesville. And until we kind of got rid of those material assets, we were selling volumes and cash flow and redeploying into higher-margin assets, which will be driving our volumes and cash flow in the coming years.It was difficult for us to meaningfully allocate capital toward an increasing dividend. But now that we've divested of a material amount of our nonop working interest assets and we're looking into 2024 and our royalty volume growth there, and it represents, as Danielle alluded to, 90% or greater, we feel a lot better about what our cash flow is going to be. We're not going to be divesting of any material assets. So it gives us a whole lot more confidence and conviction around allocating a higher portion of our free cash flow, operating cash flow toward a dividend. So I'm going to let Ralph kind of give his thoughts around what we're doing there.

[Raphael D'Amico, executive]

Yes, I think that's right. I mean, I think it all is -- now that the transformation for lack of a better term, right, of the company is complete, there is a lot better visibility in terms of future cash flows. And just as a reminder, right, the dividends -- our dividend policy has really been based on a fixed dividend, right? So we want to make sure that, that dividend is safe and sound regardless of commodity prices and regardless of whatever cycles you may be going. And so, now that the working interest is effectively out the door, I think there is -- it's that much easier.Clearly, every quarter, when we discuss with the Board, the dividend, one of the questions is, can the acquisitions generate a high enough rate of return where it makes sense to deploy that capital towards acquisitions versus return of capital, right? And it's a balance. So this increase doesn't mean that the acquisition deal flow isn't good. It just means that we're -- again, we're trying to find that balance.But if the -- much like in the spring, right, if the M&A market slows down for whatever reason, we're not going to force it. We're going to create more liquidity, pay down debt and consider, again, more return of capital over time in that scenario as well if the acquisition market with good returns aren't there. So it's something that we think about and discuss with the Board on a quarterly basis. We're very thorough. We've been consistent in the past, and I think that's what we're going to keep doing going forward.

[Jeffrey Grampp, analyst]

Great. That makes a lot of sense. I appreciate that. And my follow-up at the risk of being a dead horse on another acquisition question, I'll nonetheless go to that topic. So it seems like during the quarter, the acquisitions we're pretty spot on with the transactions that you guys announced back in August. So I guess it would seem to imply that the rest of the quarter was a bit quieter for you guys. The commentary on the call today seems very optimistic about deal flow and kind of future potential opportunities.So just wondering to kind of, I guess, reconcile those 2 thoughts. Is that just a function of kind of where things are in the deal flow funnel in terms of what's kind of under discussions? Or just hoping to peel that onion back a little bit more to understand what's going on, on the acquisition side.

[Raphael D'Amico, executive]

There is an array of deals in various different stages, right? Some that -- some have been closed since the quarter end. Some are under PSA. Some are evaluating as we speak, right? And it all adds up to they're all in different stages, right? And so none of them on the -- by themselves are necessarily material and deserves sort of their own press release. But I would say this quarter is not unlike the last quarter.It's -- we're seeing good activity. We're capitalizing on it. And it's certainly a better quarter on the M&A front, on the acquisition front relative to what the spring time looks like is how we would characterize it. As we get closer to the end of the year, I'm sure that we'll discuss that as a group in more detail.

[Chad Stephens, executive]

Yes. Jeff, just to follow-up on that, I'm encouraged. We've just here in the last week, have closed, I think it's 3 deals in the $0.5 million to $800,000 range. And as Ralph said, there's no point in doing a press release on every one of those. Just -- they didn't really don't do anything for us. So I'm pleased with the activity and the stuff that's in the queue.

[Operator]

Our next question comes from the line of Donovan Schafer with Northland Capital Markets.

[Donovan Schafer, analyst]

Congratulations on the results and the dividend raise. I want to first ask, so with the dividend increase, as you've mentioned, it's a very serious commitment for you guys. It's intended to be fixed, but you need to be certain you can underwrite that over a long period of time.Was there -- so I guess what I'm wondering is your decision to do the increase this quarter, was it primarily just based on the legacy business before the $13 million in acquisitions and the ones you've done since then, that being accretive and positive in nature and the solid economics and all that behind that? Was it -- could it be done and underwritten, which is where it was before? Or do you feel like you can do it now in part because of the strength of those acquisitions? Or was it a combination of both? Just trying to understand if there's a relationship there.

[Chad Stephens, executive]

Yes, it's really, as I alluded to a minute ago, we had not done increased dividends earlier because we are divesting of nonop working interest, volumes and cash flow associated with material nonop working interest assets. Today, our royalty volumes represent 90%. This time last year, it was about 65% to 70%. So we sold off and we knew we were going to be selling those assets. So with that divestiture overhang, it was hard to have conviction around allocating a certain percentage of our cash flow toward a dividend when we knew we were going to be selling some of that cash flow.But now we've successfully, a, sold the non-op working interest assets; and b, redeploy those proceeds through this year in some pretty high-quality assets that we're pretty certain we can see through public data and what's going on in the ground that the wells we've bought into are going to be completed kind of as we speak, going into the December, January time frame, and they're going to really be adding to our volumes and cash flows, which gave us real conviction around between no longer having a divestiture overhang and good quality assets being developed as we speak, to increase the percent of cash flow allocated toward the dividend. Ralph, you want to add to that?

[Raphael D'Amico, executive]

No, I think that's right. It's a balance. It's hard to say -- you can't just -- it's not just one thing, right? So it's a combination of all of those factors together. I don't think it's a good exercise to go back and say, what if something else had happened, what would the dividend have been.

[Donovan Schafer, analyst]

Sure. Well, so maybe to think through kind of the relationships and the linkages, I think maybe I'll rephrase it based on what Chad said. So it seems like it's more -- those acquisitions were part of -- and I think you included this in the release, that was part of an overall indication that you're returning into more of a growth orientation, now that you've almost completed the swapping in the -- swap out in the portfolio of working interest production or royalty production, that achievement allows you to then focus on deploying capital in the way that grows production.And then in turn, that's kind of how you plan to be going forward, reinvesting a certain amount -- growing a certain amount of royalty production while at the same time, positions you to raise the dividend. Is that kind of [indiscernible] those linkages slow?

[Chad Stephens, executive]

That's why we continue to highlight our royalty production volume growth because historically, we also had the nonop working interest piece that combined made up our total corporate volumes. And in Danielle's notes today, we highlighted the fact that our year-over-year corporate volumes were down 9% because we had sold a material amount of our nonop working interest assets, but our royalty volume is continuing to grow and will now be the main story instead of having to reconcile royalty volume growth versus total corporate.So that's -- it's the royalty volumes that have continued over the last 3 years compounded annual growth rate as we show in our Investor Relations slide deck of over 20%. And that's where the business is focused, not nonop working interest. So now that that's gone, and we're focused on this 20-plus percent royalty volume growth, we have real conviction around allocating a bigger piece of that cash flow from those volumes into a dividend.

[Donovan Schafer, analyst]

Got it. Okay. Understood. And then as a follow-up, and this is sort of a little bit of just a housekeeping modeling question. But with the SCOOP becoming a larger part of the production mix, how should we be thinking about the mix of oil and natural gas as we head into 2024? And also the trend on transportation costs with the impact from the Haynesville, should we expect transportation costs to keep falling on a Mcf basis in '24? Or it is -- are we just kind of at a new run rate here?

[Raphael D'Amico, executive]

Donovan, I think on the split between oil and gas, right, I mean, around that 80% because the -- even though the SCOOP is growing, the Haynesville is growing as well, right? So -- and the Haynesville is a bigger piece today. So it doesn't have to grow as much to mitigate -- oil can grow. But if the Haynesville is growing at a faster clip than the SCOOP, given its size, right, you're probably -- plus or minus a couple of percentage points, you're going to be around that 80% split being natural gas.And as far as your other questions on a per unit metric, I think it's the same. We're going to provide more granular guidance as we get into early 2024. But even in the Haynesville, there is -- not every lease is a cost-free lease, right? We have some leases that are cost bearing leases, right? So it's not going to go to 0, right? Is it going to stabilize around where it is today or fluctuate a couple of percentage points one way or the other depending on how many cost-free leases versus cost-bearing leases on any given quarter come online? Yes.It's -- there's going to be a little bit of variability, but none of it is going to be -- none of it should be a drastic increase. The decrease that you see from 2022 to 2023 is really just a reflection of having the mineral -- the minerals having better economics than any of the working interest did, right? The higher per unit metrics that you see in prior quarters were really associated with the working interest. So I hope that helps.

[Donovan Schafer, analyst]

Okay. No, it does. And if I can squeeze in just one last one on just kind of zooming out at a more macro natural gas price, supply/demand level. Do you have any thoughts -- I mean, the rig count has definitely come down in some of the gas-focused basins, but at the same time, we're still getting strong production in the oil-rich basins and there's associated gas coming from that.I mean I think the EIA even had like one of its daily blog post or something on that, talking about gee, we're getting these natural gas production increases in the Permian. And people aren't there drilling Permian to produce gas, they're going after it for the oil, but they get the gas with it.So I don't know, just do you have any thoughts? And are there may be regional differences to highlight if it depresses prices in the Permian at all? How much of that would propagate to Henry Hub or places where you sell your gas?

[Chad Stephens, executive]

Well, yes, you saw it just about 10 days ago, there was one weather forecast that flipped, maybe sometime last week. And natural gas prices, they were up at like $3.50 front month, was up at like $3.50, maybe a little bit above that, $3.55. And the weather forecast flipped to warmer and the price just collapsed over a 2- or 3-day trading period. And today, it's down -- back down to right around, I think, $3. So a dramatic drop, and it's all weather related.When you look at the EIA storage data, and it comes out this morning, I haven't had a chance to look at my phone because of the call here, what the storage number is today. But the over the last 3 weeks, I think it is, the EIA storage number suggests that we're -- supply and demand is tight, that there's not enough, we're short supply were it not for a warmer-than-normal 14-day forecast. What happens after that 14-day period and really when winter sets in, in early December? Who knows? These days, weather is a wildcard and El Nino is a wild card. So it's hard for us to forecast what prices are going to be.But to your comment about, there is more natural gas -- associated gas coming from the Permian, but it's later in '24. There's several Kinder Morgan and Energy Transfer have a pipeline that's being built as we speak early this summer flaring out in the Permian Basin, went back up to some of the highest flaring volumes in the history of the Permian Basin. And I had read some articles. I thought that the Railroad Commission and even ExxonMobil and Chevron were trying to publicly shame these operators in to stop the flaring practices from an environmental perspective. But because of the amount of wells being completed, associated gas from those wells and no takeaway capacity, they were the flaring the volume.So it's hard to know exactly what the number is going to be once the Kinder Morgan and Energy Transfer line is in service, but that will be in mid- to late '24, and that's right when ExxonMobil's LNG export facility comes into service. And then in first quarter '25, Sempra's LNG export facility comes into service. And so the timing of the associated gas coming from the Permian could probably keep the market balanced, weather adjusted.We have a normal winter -- exit winter into spring at a normal kind of storage number if the gas price should stay at $3 or above. We have a warmer-than-normal winter for the rest of the winter, all bets are off. Who knows?

[Operator]

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Stephens for any final comments.

[Chad Stephens, executive]

Again, I'd like to thank our employees and shareholders for their continued support. I'd also like to note that Ralph and I will continue to expand our investor marketing activities over the coming weeks and months through a series of non-deal roadshows and conference presentations aimed at expanding investor awareness. If you would be interested in meeting, please don't hesitate to reach out to myself, Ralph or the folks at FNK IR. We look forward to hosting our next call in early March to discuss our full calendar 2023 year-end results. Thank you. Have a good day.

[Operator]

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.