STR (2021 - Q4)

Good morning, and thank you for attending today's Brigham Minerals Fourth Quarter 2021 Earnings Conference Call. My name is Austin, and I'll be the moderator for today. [Operator Instructions] I would now like to pass the conference over to our host, Jacob Sexton with Brigham Minerals. Jacob, go ahead. Jacob Se

Thank you, operator, and good morning, everyone. Welcome to the Brigham Minerals Fourth Quarter and Year-end 2021 Earnings Conference Call. Joining us today are Bud Brigham, Founder and Executive Chairman; Rob Roosa, 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, contain forward-looking statements, and we refer you to our earnings release for a detailed discussion of these forward-looking statements and the associated risks. In addition, during this call, we make references to certain non-GAAP financial measures. Reconciliations to applicable GAAP measures can also be found in our earnings release. We have a new investor presentation titled Fourth Quarter 2021 Investor Presentation available for download on our website, www.brighamminerals.com. We recommend downloading the presentation in the event we refer to it during the conference call. Lastly, as a reminder in today's call is being webcast and is accessible through the audio link on our IR website. I would like to now turn the call over to Bud Brigham, Founder and Executive Chairman.

Thank you, Jacob, and thanks to everyone for joining us on our fourth quarter and year-end 2021 earnings conference call. First and foremost, I want to thank the entire Brigham Minerals team for their tremendous effort during 2021. I will briefly summarize some of the accomplishments that they made possible. First, related to our full year 2021 operating results, we will have distributed over $1.50 per share to our stockholders with the fourth quarter 2021 dividend announced last night. Of course, that amount is inclusive of both our base dividend which we introduced in the second quarter of 2021 and our variable dividend. In addition, yesterday, we announced we will be increasing our first quarter 2022 base dividend by 14% to $0.16 per share per quarter or $0.64 per share over the year. As always, our dividends are subject to further board approval. Second, during 2021, we deployed approximately $150 million in acquisition capital and executed upon our largest deal today totaling approximately $ 9.8 million in the DJ Basin. Third, we also initiated our portfolio optimization efforts and have closed 4 transactions to date totaling $21 million, with our most recent divestiture closing in January of this year for $7 million related to the sale of Merge assets. Our divestments continue to complement our retained cash flow. And as a result, we internally funded all of our fourth quarter ground game mineral acquisitions. Fourth and last, we have grown our activity wells in inventory during the year by approximately 65% to 12.9 net locations, which represents a company record and sets us up for a very strong 2022. When you look back in this totality, 2021 checked an enormous number of boxes. And I'm extremely proud of our team and want to thank each of them for their efforts. Importantly, these efforts are supported by the significant tailwinds with respect to the macro and the improvement in commodity pricing that we've seen across the entire energy structure, oil, NGLs and natural gas. On our year-end 2020 conference call in February of last year, I indicated that super major activity or the lack thereof, particularly the lack of long lead time, high CapEx, major international projects, as well as the independent unprecedented E&P capital discipline and the monetary intervention by government all combined to put us on the precipice of a market capable of generating substantial returns for those optimally positioned. That has happened. Further on our November conference call, I spoke to questions from both Stifel and RBC regarding my introductory comments in which I indicated that the current cycle is different from any cycle that I've experienced during my 36-year career. I want to clearly indicate that I still believe we are in the early stages of an energy super cycle, a more extended cycle in some ways similar to that of the 1970s. The messaging we are hearing from the super majors and independents has not changed over the current earnings season. Super majors have indicated that they have the ability to increase Permian volumes, but on a corporate-wide basis, their volumes are flat to sometimes lower. Independents have continued to point to constrained 2022 capital spend. Further, demand is increasing, and the IEA has finally come to grips with demand in excess of 100 million barrels per day. OPEC is unable to fulfill their increasing production quotas, and I look to be 700,000 to 900,000 barrels short of their guidance. Much will follow on the shoulders of U.S. shale. However, here in the U.S., the DUC inventory levels are alarming. Since the peak of DUC inventories in the summer of 2020, DUCs across all basins have decreased 50% from 8,900 to 4,500, and Permian DUCs have decreased 60% from 3,600 to less than 1,400. If you continue to forecast the average drawdown in Permian DUCs of $125 per month since December of 2020 and project that same pace into the future, we have less than 1 year of Permian DUC inventory on the books. The shales are bare. That and the other factors compounded together tell us very clearly that prices are headed higher. As I said, much is expected of U.S. shale, particularly the Permian Basin and U.S. shale can deliver over time that it will require a significant acceleration in activity. Very fortunately, Brigham is positioned to capture significant value at the right place and the right time over both the longer term, but also in the near term, with the previously mentioned company record 12.9 net activity well currently in inventory. Again, I want to thank all our employees for their efforts. And with that, I will turn the call over to Rob.

Thanks, Bud. I also want to thank our employees for their outstanding effort during 2021, which has uniquely set us up to deliver for our shareholders in 2022. Our team is hitting on all cylinders, acquisitions, portfolio optimizations as well as asset activity levels all of which are anticipated to generate significant full year production and cash flow growth. On the acquisition front, during the fourth quarter, we deployed approximately $104 million in capital, including closing on our largest transaction to date in the DJ Basin. As we've discussed in the past, a large deal needs to check multiple boxes in terms of being accretive to near-term cash flow as well as to net asset value. Our DJ Basin transaction, which encompasses approximately 8,400 net royalty acres largely in the Greater Wattenberg area, delivers both as production from this transaction alone is anticipated to be additive to 2022 to the tune of 1,100 to 1,200 barrels of oil equivalent per day and this deal added approximately 2.6 net locations to our activity well inventory that will benefit us over the next 12 to 24 months. Our acquisition momentum has carried over into the first quarter of 2022 with the announcement on February 10 of our largest Midland Basin transaction to date totaling approximately $32 million and encompassing 1,800 net royalty acres. Our Midland Basin transaction is anticipated to add approximately 225 to 275 barrels of oil equivalent per day to our 2022 production volumes with incremental locations largely be developed by Pioneer and Endeavor. Importantly, in both our DJ and Midland Basin acquisitions, we're able to utilize our equity as consideration and therefore, minimize the impact of these transactions to our balance sheet. We are currently seeing increased levels of ground game deal flow and anticipate deploying an incremental $10 million per quarter of ground game capital with our full year 2022 mineral acquisition capital budget totaling $60 million to $80 million, inclusive of our Midland Basin transaction. On portfolio optimization, the team continues to opportunistically find buyers for packages of our Oklahoma position, and we now have closed on 4 separate divestiture transactions totaling $21 million. Recently, we entered into a transaction to divest acreage in the Merge for approximately $7 million, which closed last month. All told, over the 4 transactions, we divested an estimated 110 barrels of oil equivalent production per day and have generated proceeds of $21 million, almost entirely redeploying the capital to our Permian Basin ground game since initiating our divestiture efforts in the second quarter of 2021. This is clearly an example of outstanding capital allocation by our team and will generate substantial long-term value for our shareholders. Looking ahead, we continue to actively engage with potential buyers on divestitures and are actively attempting to hit my previously stated goal of 1 divestiture transaction per quarter. Turning to our asset activity. Our net activity well inventory, which represents the combination of our drilled but uncompleted inventory locations or DUCs in or for permits were a record 12.9 net locations at year-end with 7.2 of those net locations in the Permian Basin, which also represents a record level of Permian activity level. Drilling down, our net DUCs in inventory at the end of the fourth quarter grew by 23% to 7.4 net locations up from 6 net locations in the third quarter. Organic drilling activity, with gross spuds on our minerals up 20% to over 200 wells spud during the quarter as well as our DJ acquisition through our DUC inventory. We anticipate that Pioneer, PDC, Chevron, ExxonMobil and Diamondback will convert the majority of our DUC inventory. Our permit inventory increased by over 30% to 5.5 net locations during the fourth quarter as a result of both organic permitting by our operators as well as permits acquired through our DJ acquisition. As a reminder, we anticipate that DUC will be contributory to our production volumes and cash flow over the next 12 months and permits over the next 12 to 24 months. Given our net activity well inventory, we are set up for a very compelling 2022. First, we are guiding to a full year 2022 production range of 11,300 to 12,000 barrels of oil equivalent per day or a midpoint of 11,650 barrels of oil equivalent per day with a 50% oil cut, which represents year-over-year growth of greater than 25%. We also anticipate subject to further board approval, increasing our base dividend during 2022 to $0.64 per share over the year or $0.16 per share per quarter, which represents a 14% increase to our base dividend. The continued maturation of our mineral portfolio as measured by PDP reserves per share as well as the successful integration of our DJ Basin acquisition underpins our confidence that we have a stable and cash flow base that can very comfortably be supported in the increase to our annual base dividend. Of course, subject to market conditions and Board approval, we also layer on top of our base dividend, our variable dividend component during 2022. And I'll now turn the call over to Blake, so he can summarize for you our financial performance. Blake?

Thank you, Rob. Our daily production for the quarter was 9,170 barrels of oil equivalent per day, up 1% sequentially and our oil cut increased slightly to 51%. Our portfolio generated record royalty revenue of $47 million for the quarter, up 16% sequentially due to a 15% improvement in realized pricing. Realized pricing for the quarter came in at $55.76 per BOE. Individually, realized pricing per barrel of oil was $75.87. Realized gas was $5.28 per Mcf and realized NGLs was $38.92 per barrel of NGL. As anticipated, NGL prices have increased substantially during the back half of 2021 and came in at 51% of our WTI realizations. We also collected roughly $625,000 in lease bonus during the fourth quarter. Net income for the quarter was just under $22 million. Record adjusted EBITDA for the quarter was $39.6 million, and adjusted EBITDA, excluding lease bonus was $39 million, which was up 13% sequentially. On costs, gathering, transportation and marketing expenses were $1.9 million or $2.20 per BOE. As many operators have commented, we have seen GTM tick up as of late and expect that trend to continue given the current environment. Severance and as valorem taxes were $2.8 million or 6% and of mineral and royalty revenue and in line with historical levels. Cash G&A expense was $3.4 million. Our full year cash G&A expense ended up below the low end of our revised guidance. which was a testament to our relentless focus on cost control. Looking ahead to 2022, our royalty business model is highly advantaged and that our platform is highly scalable and also allows us to withstand cost inflation better than most, and therefore, capture more margin as commodity prices rise. This is evidenced by a 17% reduction in the midpoint of our 2022 guidance of G&A per BOE relative to our 2021 levels. Moving to our balance sheet. Our leverage and liquidity profile remained highly favorable after the close of our DJ transaction. Our continued corporate commitment to disciplined capital allocation as we pursue highly accretive acquisition opportunities should further enhance our financial position. We exited the quarter with $21 million of cash and $93 million drawn on our revolving credit facility for net debt of $73 million, which results in leverage of 0.5x net debt to last quarter annualized adjusted EBITDA. Further, with our recent Oklahoma divestiture, coupled with our retained cash, we are well positioned to continue to play offense on ground game acquisition opportunities ahead of us, all while protecting the balance sheet and prioritizing the dividend. I will now turn the call back over to Rob to wrap things up.

Again, we appreciate you joining our fourth quarter and year-end 2021 conference call. As I've indicated, I believe Brigham Minerals is uniquely positioned to excel in 2022, given our acquisition momentum, optimization efforts and activity well inventory. Operator, I'll now turn the call back over to you to begin the question-and-answer portion of our conference call.

[Operator Instructions] Our first question is from Derrick Whitfield of Stifel.

Congrats on your year-end updates. Absolutely. Regarding your 2022 production guidance, could you broadly speak to the amount of production you're assuming for the year associated with the ground game success? I suspect the majority is associated with the Midland acquisition.

Just speaking to just the overall buildup of 2022 production, as I see it, basically starting 2022 with fourth quarter production volumes roughly 9,200 barrels a day, then we're layering on to that, the DJ transaction at about 1,150 barrels a day at the midpoint, adding then further the Midland Basin transaction, which we anticipate adding 250 barrels a day. So then you're at a run rate of about 10,600 barrels a day, and then that's relative to our 11,650 barrel a day guidance. And so when we look at that, then obviously, you have a decline the incremental barrels. But I think as I mentioned in the call, and Bud mentioned, we're set up extremely well from the viewpoint of DUCs and the activity that's going to contribute to production in 2022. So when I look at the 7.4% net DUCs that we had in inventory at the end of the year and looking at on average, a 77% conversion rate at DUCs during the year that were on hand when you start a year. So that's looking at DUC conversions in 2019, 2020 and 2021. And that kind of leads you to around 5.7, 5.8 net DUCs being converted during the year. And so when you look at that on a quarterly basis, that's about 1.4 net DUCs converted per quarter. So when you look at that, that's roughly 2x the level of DUCs that we had converted during the entirety of last year. So again, we think we're very favorably set up. That's going to drive that production growth and really drive that incremental 1,000 to 1,100 barrels a day. So when I then look at the ground game, the buildup of that, there's probably about 150 barrels -- 125 to 150 barrels of production associated with ground game acquisitions. When you think about the $40 million of incremental ground game that we've talked about deploying throughout the year, you think about that being then deployed at the midpoint, you then factor in crude oil pricing from the fourth quarter and then the yields that we anticipate generating. So I think there's a lot of upside potentially there with respect to 2022 volumes to the extent the acquisition team outperforms. And I'd also point to the fact that there's very little permitting activity in our 2022 roll-up of our asset. And so I think there's upside to that. Obviously, we want to be conservative over -- under promise, over deliver is always the key. And so that's how we've kind of thought about the roll up or the buildup of 2022 production volumes.

That's great detail, Rob. I would normally ask a macro question this early in the call, but given the importance of it, as we stare at our screens today, I'll certainly take the bait on what Bud mentioned earlier. Bud, I would certainly hear your macro commentary and concerns on current DUC levels. I would also add that what we're seeing in supply chain and personnel tightness in the lower 48 than the current independent return of capital mandate really further complicates the U.S. response. In your view, kind of setting aside return of capital, how many rigs could we realistically add based on your sense of the operating conditions across your focus basins?

Yes. Thank you. Let me first -- get our sense on overnight, the events, I just want to say, first and foremost, our thoughts and prayers are with the people of Ukraine. I do think a lot of responsibility on a go-forward basis falls on U.S. shale. It's unfortunate in -- the political and cultural biases, have really restricted capital flows to our industry, and we're living with the consequences of that now with the high energy process, which, unfortunately, is very regressive and negatively impacts support in the working class the most, but also in terms of national security, very detrimental handed a lot of leverage over to Russia and directly in other respects to China. So it is a real concern on a go-forward basis. I mean in terms of our industry and this company, particularly, it's such a constructive macro setup for us. And we have a great opportunity to generate substantial cash flows and returns for our investors. But we also do feel a substantial -- real responsibility in our industry to step up because we -- for the sake of national security and security worldwide for the -- and also, it's lost on a lot of people that environmentally, we produce our hydrocarbons here more cleanly and safely than any of these other countries do around the world. So we feel a real responsibility. I am concerned about, particularly given the supply chain disruptions about our industries and the labor shortages. I'm very concerned about our industry's overall ability to step up and ramp up significantly. It's going to take some time. It's not going to be 6 months or even a year. I think it's going to take several years. So I can't answer your question bottoms up. I haven't looked at the model and the data on the rigs that can be put to work. But I do take labor and materials, whether it's pipe, steel. And as you know, we're having the sand supply is being out -- is not sufficient. Currently, there's real supply challenges for our industry to materially step up. So I don't know that I'll provide you a lot of comfort there. I am very confident that over time, our industry will respond, but that is also contingent, as I mentioned at the start on capital flowing to our industry. And I think that's absolutely imperative.

Great response, Bud, and I appreciate the color you could provide. And certainly, not a bad time to be a minerals company with the lack of inflationary pressures that you guys will see relative to some of your E&P operators.

No, you're exactly right about that. I do want to amplify what Rob said. It is significant that our DUC inventory grew so significantly on a net basis to us, while the Permian and the country's DUC inventory declined by over 50%. That's a direct indication of the quality of the mineral asset that this company has put together that we have the minerals of the operators prioritized to get out and develop and to convert into production and cash flow.

And Derrick, obviously, to your point on inflation, we get asked the question a lot, E&Ps versus mineral companies and further besides your point as to lack of exposure related to inflation, I think there's also a tremendous benefit to owning in mineral companies such as ours where there's diversification amongst operators. So diversifying a way of risk from any one operator in totality. And so when I look at the operators that are going to be developing our position, you have over 30% of our position that's going to be developed by Oxy, Conoco, Chevron, Pioneer. So some of the very top-tier operators are going to be drilling our position for us into the future, highly diversified in that. And so it really, I think, takes a lot of risk exposure off to potential shareholders when you have such strong diversification amongst operators.

Our next question is from Chris Baker of Credit Suisse.

I was hoping you guys could talk just a bit about the benefits of scale for the business. Now that you've delivered a very clearly accretive DJ acquisition, do you see room for a larger-scale deal that's perhaps more modestly accretive, but helps increase the scale and liquidity of the business?

Chris, thanks for that question. We definitely think that there's opportunity for improving the liquidity float and scale of the company by layering on an incrementally larger transaction relative to just the highly favorable DJ transaction that we closed in December. And so I think some of that is coming out through the G&A update that we provided to you guys last night. When you look at us being able to via the incorporation of the DJ deal being able to lower our per barrel G&A cost by 17% in 2022 relative to 2021, that very importantly points to real improvement of the scale of the company by layering in incremental acquisitions. We built the team such that -- and we've talked about this in the past, such that we're able to prosecute both larger opportunities as well as ground game opportunities and be it very efficient. We -- my estimation have never been more efficient in terms of deal evaluation and us being able to put through a large number of deals, both large deals and ground game deals and have evaluations to potential sellers very quickly. So I'm very proud of what the team has been able to accomplish there. And so I think we're continuing to very actively work opportunities that are of scale and still the goal is and one of the primary reasons for going public all along back in April of '19 was to consolidate the industry. So you'll see us undertake every effort to continue that thesis and try to capture larger deals.

That's great. And then just a bigger picture question. Can you talk just a bit about how the disciplined acquisition strategy shows up in terms of financial performance or how you kind of frame that up? Perhaps in terms of like a ROCE or similar metric that you think is the best yardstick to measure the cumulative performance of the acquisition program?

Yes, Chris, I'll start off and then we'll hand it off to Blake because we've had a lot of internal dialogue regarding the appropriate financial metrics to use. But just at a very high level, obviously, that flows through to production volumes, most readily apparent to shareholders. And so when I think about what we're able to provide greater than 25% improvement in production volumes in 2022 relative to 2021. That's an obvious clear indicator as to the quality of the portfolio, the quality of the acquisitions that we're layering on, being able to really drive production volumes up and how does that happen? That happens initially through the quality assets that are added that add DUCs, add permits, the inventory. So when you look at our roughly 28% increase in activity well inventory, roughly about 2.8 net locations, 2.6 of those were via the DJ acquisition and other acquisitions during the quarter. And so that's really going to help drive 2022 production volumes. So from my high-level overview, that's the clear indicator is that you're seeing outperformance as it relates to production volumes when we do layer on larger transactions.

Yes. I think further to that, we're looking at obviously yield, and that's not just the next 12 months, that's a multiyear metric that we grade ourselves on. We look at PDP reserves per share. So that's kind of -- we've introduced that with the base dividend. So on Page 5 of our investor presentation that we posted, you can see that we've been continually increasing reserves per share, PDP reserves per share. The decline rate has also been moderating. So that's allowed us to point to an increase in our base dividend starting in the first quarter of 2022. We're also looking at longer-dated inventory as well. And so the ability to add high-quality inventory that will sustain that dividend and our payout ratio over time.

Our next question is from TJ Schultz of RBC.

Just looking at Slide 4 in your deck on the implied yields at different oil prices, is there any interest in adding oil hedges at these levels?

Yes. I think on hedging, obviously, we're currently unhedged. And obviously, as we've been talking about on this call, encouraged by the macro backdrop. With that said, we obviously do offer investors direct exposure to the commodity. So as we've said in quarters past, as part of our hedging policy, we believe in keeping a prudent balance sheet and have really done that since IPO. So certainly, we'll potentially look to layer on hedges if we take out term debt if we want to ensure some downside protection for equity holders. But as we think about it right now, we have to couple those 2 together, and we've got a pretty low debt balance. So we'll obviously continue to look at it with the Board, and it's a topic of conversation each quarter. But right now, our policy is to remain unhedged with that conservative balance sheet.

Yes. I think layering on top of Blake's comments, the obvious apparent point at which we might look at hedging is obviously a question earlier regarding larger-scale opportunities if we were to integrate a larger scale opportunity, you'd likely see us hedge out some of those volumes in the near term to help lock in some of that accretion. So I think that's one obvious point at which we potentially could look at hedging going forward. And to the extent you take on additional debt to do so.

Okay. Makes sense. And then just on the acquisition outlook, clearly, you've had success here recently, but just at a high level, going forward, if we think about $100 oil, does that make it easier or harder to find deals for you versus what you've been seeing in the past 6 months, maybe just early from the standpoint of where seller expectations may be.

TJ, we've bifurcated the acquisition market into 2 different markets, as we talked about in the past, larger deals as well as the ground game deals. And so on the larger deal front, I think these higher crude oil prices probably work in our favor in terms of working -- having entities that are backed by other groups looking to potentially divest, create liquidity and then flow those funds down to their investors. So I think from that perspective, higher oil prices helps when we think about that deal flow. I think at the ground game transactions, it definitely -- once we kind of broached that $80 marker last year, that, in essence, made it more difficult to capitalize on ground game acquisitions. And so interestingly, we are seeing a higher number of ground game acquisitions of late, coming in, coming in organically as well as from third parties. And so makes me feel good that we can capitalize on those. It's always been a numbers game when we think about acquisitions in terms of my point earlier in terms of being able to cycle a lot of deals through the system and evaluate those, because it has been incrementally harder to acquire deals given the run-up in crude oil prices. So from my perspective, it's imperative that we're staffed up such that we can process a lot of deals through the system so we can still have success with respect to ground game acquisitions because I still think that there's some really highly attractive deals that we're able to capitalize on like you saw with the Echo deal being able to add with inventory under Endeavor and Pioneer. And then when you look at the ground game acquisitions that we're able to acquire in the fourth quarter, 60% of those acquisitions were under ExxonMobil and Pioneer as well. And so there's plentiful opportunity to acquire under very strong operators that are going to drive activity wells into the future. And so we're very excited about being able to process those deals through the system and continue to acquire both on the ground gain front as well as to try to capture those larger opportunities.

Our next question is from Jeanine Wai of Barclays.

Our first question is maybe just touching base on the payout. You paid out 80% in Q4 '21. You guided 75% to 80% for '22. And given where the strip is now today and your previous comment on larger deal opportunities, are you biased towards maybe the lower end of the 75% to 80% range in order to accumulate cash for acquisition dry powder?

Yes. Certainly, we still plan to, as you said, pay out the 75% to 80% of discretionary cash flow without the lease bonus. We'll obviously continue to prioritize the dividend and balance sheet management. Certainly, with oil prices at these levels where with our EBITDA margin, $0.85 of every dollar goes straight to the bottom line. We, as you point out, have plenty of flexibility to manage all of those objectives. So funding acquisition opportunities and increasing dividend and then obviously, our debt balance as well. So sort of indirectly answering, yes, we have ample flexibility to manage all of those.

Okay. Yes. Sounds good. On our numbers, even if you went to 75%, given where pricing is, you could still increase the dividend per share every quarter. So I think that's more what matters. Okay. And then maybe jumping to the portfolio. Can you provide some color on the potential for further portfolio optimization?

Jeanine, thanks for asking that question. I do think once we implemented the portfolio optimizations in the second half of last year, you've seen the obvious benefit of that between the cash that you mentioned that's retained for ground game acquisitions in addition to the portfolio optimizations. As Bud mentioned, here in the fourth quarter, we're able to fully fund the ground game acquisition budget. So I think that's a huge benefit to shareholders. And so we have been very successful, 4 deals that we've closed thus far, totaling about $21 million in divestiture proceeds. And with those we've only reduced our production volumes and estimated 110 barrels a day of production in 2022 related to those deals. So largely divesting undeveloped opportunities and then shifting those opportunities to the ground game, in particular, in the Permian that I mentioned here in the fourth quarter, buying largely in the Midland Basin under ExxonMobil and Pioneer. And so I think there's ready opportunities to continue to execute on divestitures. And what I mentioned in my opening comments, really challenging the team to undertake one of those deals a quarter. You look at the overall net royalty acre position. There's about 20,000 acres in the SCOOP/STACK plays. That's obviously the most apparent area in which we could continue to divest and redeploy that capital to the Permian or potentially the DJ or North Dakota. And so I think there's a lot of opportunities to continue on with smaller or potentially larger deals into the future. So the team is actively working on all those opportunities.

Our next question is from Kyle May of Capital One Securities.

Maybe to start, Rob, following up on your last comments, can you talk about the, I guess, the opportunity for maybe larger divestitures in the SCOOP and STACK?

I think there's always the opportunity to the extent there is a buyer out there that's indicating a willingness to take down a larger position. It's something that we'd evaluate. Obviously, Blake and the finance team will undertake that evaluation and understand whether any offer on a larger transaction makes sense relative to our intrinsic valuation that we have in-house. And so that's critical. Obviously, the same methodology where we're disciplined in our underwriting of acquisition side. We're also highly disciplined on the divestiture side. And so any deal that we enter into, obviously has to make sense from a finance perspective. And so that's the underlying principle in which we operate. And so you could see us roll out smaller deals such as kind of 700 to maybe 1,000 acres that we've done thus far or if there's a compelling larger opportunity that makes sense financially, you could see us undertake that as well. And so those are all evaluations that we're undertaking and actively managing as we look ahead into 2022 and looking at potentially getting much closer to fully funding the 2022 ground game budget between the retained cash flow and divestiture opportunities.

Okay. That makes sense. And also based on the guidance, it seems you're gathering transportation and marketing expenses per BOE is stepping up year-over-year. And Blake, you kind of alluded to this in some of your earlier comments. But just wondering if you could talk more about the changes there and what factors could lead to potentially one end or the other of your guidance range?

Yes. I think with the current inflationary environment, we just wanted to make sure we had enough cushion in that guidance. We've obviously seen GTM increase slightly, really starting back in Q4 of 2020. It's higher in certain areas like the Williston and Oklahoma. And I think a lot of that is -- as we've seen the increases are coming from compression and marketing on the gas side. So I think especially as we're looking at divestiture opportunities in Oklahoma that helps out there as we're selling off sort of lower margin properties from a GTM perspective. At the end of the day, though, with $95 oil, $100 oil, the GTM is just really not affecting our bottom line all that much. As I was commenting before, at this point, our EBITDA margins headed towards 85%. So it's -- most of our expenses just aren't going to move the needle. But I think certainly, you could -- we've set it up to capture any potential cost inflation that would be there.

[Operator Instructions] Our next question is from Steven Dechert of KeyBanc.

Just one question from me. I just want to see if you guys could give some more color on the cadence of production here in 2022?

A lot of it obviously depends upon the rate at which DUCs are brought online. And so we'll have to monitor and evaluate that as we go into 2022. But I think it could be more front-half weighted as we think about DUCs and how operators are bringing those online as to what we're seeing. But obviously, one of the keys for us is just the revenue recognition process that Blake's talked about in the past on calls. And so we're conservative with respect to that and not recording production to the income statement until we have either checks from the operator or clear evidence of those Wells being turned online via the state reporting websites and having full months of production. So obviously, that's something that our reservoir engineering team evaluates each and every month as we look at our accruals. And so a lot of it just depends upon which -- the cadence at which operators bring online those DUCs production. And so sometimes DUCs are fracked and are less sitting for a bit. And so the cadence -- operator cadence will largely drive the flow at which the production hits 2022, but it looks like it potentially could be more front-half weighted as it stands today.

That concludes our Q&A portion of the call. So I would now like to pass the conference back to management team for any closing remarks.

Again, I appreciate everybody joining our fourth quarter 2021 conference call and look forward to updating you on the first quarter of 2022 here in early May. Thanks again for joining.

That concludes the Brigham Minerals Fourth Quarter 2021 Earnings Conference Call. Thank you for your participation. You may now disconnect.