Q3 2021 Riley Exploration Permian Inc Earnings Call

August 13, 2021

Yeah.

Operator 2: Good day, and thank you for standing by. Welcome to the Riley Exploration Permian's Fiscal Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Philip Riley. Please go ahead.

Operator: Good day, and thank you for standing by. Welcome to the Riley Exploration Permian's Fiscal Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Philip Riley. Please go ahead.

Good day, and thank you for standing by and welcome to the rally Premier's fiscal third quarter 'twenty, One earnings conference call at this time.

All participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.

I would now like to hand, the conference over to your Speaker today Philip Rally. Please go ahead.

Philip Riley: Thank you, Pasha, and good morning, everyone. Welcome to Riley Permian's Fiscal Q3 Earnings Conference Call. Participating on the call today are Bobby Riley's Chairman and CEO, Kevin Riley's President, Mike Rugan, Riley's CFO, and myself, Philip Riley, Executive Vice President of Strategy. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements. We'll also be referencing certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. Additional information on the risk factors that could cause results to differ is available in the company's SEC filings.

Thank you Pasha and good morning, everyone welcome to Riley permits fiscal third quarter earnings Conference call.

Bidding on the call today are Bobby Reilly, Chairman and CEO, Kevin Riley Riley President, Mike Brueggen, Reilly, CFO and myself, Philip Reilly Executive Vice President of strategy. As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal Securities laws. These statements are subject to the <unk>.

Risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements.

We'll also be referencing certain non-GAAP measures the reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.

Additional information on the risk factors that could cause results to differ is available in the company's SEC filings for cautionary statement about forward looking statements can be found in our investor presentation on our website I will.

Philip Riley: A full cautionary statement about forward-looking statements can be found in our investor presentation on our website. I'll now turn the call over to Mr. Bobby Riley, Chairman and CEO.

Now I'll turn the call over to Mr. Bobby Reilly, Chairman and CEO.

Bobby Riley: Thank you, Philip. Good morning, and thank you for joining us today on the call. My comments this morning will focus on key highlights for the quarter ending 30 June 2021, which is our Q3 fiscal quarter. I remind everyone that we are a 10-1 to 9-30 reporting company. This is our second earnings call as a public company. Riley Exploration - Permian, LLC, through a reverse merger on 26 February 2021, entered the public markets. Riley again performed strongly in this Q3. Unlike many E&P companies today, we continue to grow across a number of measures for another consecutive year, including in production, cash flow, and dividends. At the same time, we continue to remain adhered to our capital discipline and capital allocation structure. Kevin will be providing details of the quarterly and nine months financial and operations update shortly.

Thank you Philip.

Good morning, and thank you for joining us today on the call my.

My comments. This morning will focus on key highlights for the quarter ending June 32021, which is our third fiscal quarter I'll remind everyone that we are a 10, one to 930 reporting company.

This is our second earnings call as a public company Riley exploration Permian LLC through a reverse merger on February 26, 2021 entered the public markets.

Riley again performed strongly in this third quarter.

Bobby Riley: Unlike many E&P companies today, we continue to grow across a number of measures for another consecutive year, including in production, cash flow, and dividends. At the same time, we continue to remain adhered to our capital discipline and capital allocation structure. Kevin will be providing details of the quarterly and nine months financial and operations update shortly.

Unlike many E&P companies today, we continue to grow across a number of measures for another consecutive year, including in production cash flow and dividends at the same time, we continue to remain adhered to our capital discipline and capital allocation structure.

Kevin will be providing details of the quarterly and nine months financial and operations update shortly.

Bobby Riley: We continue to progress on the implementation of our EOR project on a 960-acre tract in the Champions Acre position. As previously stated, our ultimate goal is to utilize anthropogenic CO2 when available. Initially, water production should begin in early calendar year 2022, with natural CO2 to follow in early summer. By making the tie-in to the CO2 pipeline network, we have created the required link to be able to offload any available anthropogenic CO2 from the market directly to our properties. We continue to evaluate opportunities to capture anthropogenic CO2 within this pipeline network. As Kevin will elaborate, we continue to pay our quarterly dividends as part of our capital allocation structure. I'll now turn the call over to Kevin to review the operational and financial results of the quarter.

We continue to progress on the implementation of our E. O R project on a 960 acre track into champions acre position.

As previously stated our ultimate goal is to utilize anthropogenic cotwo when available.

Initially water production should begin in early calendar year 2022, with natural <unk> to follow in early summer.

By making the tie in to the C. O. Two pipeline network. We have created the required link to be able to offload any available ACO to from the market directly to our properties we.

We continue to evaluate opportunities to capture ACO to within this pipeline network.

As Kevin will elaborate we continue to pay our quarterly dividends as part of our capital allocation structure.

I'll now turn the call over to Kevin to review, the operational and financial results of the court.

Kevin Riley: Thank you, Bobby, and good morning to everyone. As Bobby mentioned, I plan to review the operational and financial results for the quarter ending 30 June 2021. The quality of our assets, combined with the strong financial position of the company, allow for continued growth while maintaining capital discipline. While the stock prices are often volatile and behave unpredictably, our execution is on track for the company's best fiscal year performance in history across numerous operational and financial performance metrics, including the continued quarterly dividends. Now getting into the results for fiscal Q3 and year-to-date 2021. We increased our total net equivalent production by 35% to 9.1 MBOE per day for the three months ended 30 June as compared to the same period in 2020, or by 10% quarter over quarter compared to fiscal Q2 of 2021.

Thank you Bobby and good morning to everyone as.

As Bobby mentioned I plan to review the operational financial results for the quarter ending June 32021.

The quality of our assets combined with a strong financial position of the company allow for continued growth while maintaining capital discipline.

While the stock prices are often volatile and behave unpredictably our execution is on track for the company's best fiscal year performance in history across numerous operational and financial performance metrics, including the continued quarterly dividends.

Now getting into the results for fiscal Q3 and year to date 2021.

We increased our total net equivalent production by 35% to nine one Boe per day for the three months ended June 30, as compared to the same period in 2020 or by 10% quarter over quarter compared to fiscal second quarter of 2021.

Kevin Riley: We generated cash flow from continuing operations of $58.8 million for the nine months ended 30 June. We reported a net loss of $21.5 million for the three months ending 30 June 2021, with income from operations of $19.3 million for the same period. The net loss included $35 million in non-cash unrealized losses on derivatives as a result of the change in oil price. Additionally, we reduced our cash costs per BOE by 7% quarter-over-quarter and realized a cash margin of $35.11 per BOE before derivative settlements or $25.80 per BOE after derivative settlements. The cash capital expenditures before acquisitions of $40.1 million for the nine months ending 30 June, which corresponds to 61% of our adjusted EBITDAX.

We generated cash flow from continuing operations of $58.8 million for the nine months ended June 30th reported a net loss of $21.5 million for the three months ended June 32021 with income from operations of $19.3 million for the same period.

The net loss included $35 million of noncash unrealized losses on derivatives as a result of the change in oil price.

Additionally, we reduced our cash cost per Boe by 7% quarter over quarter and realize the cash margin of $35.11 per Boe.

For derivative settlements are $25.80 per Boe.

After derivative settlements.

The cash capital expenditures before acquisitions of $40.1 million for the nine months ended June 30th.

Which corresponds to 61% of our adjusted EBITDAX.

Kevin Riley: We generated free cash flow of $18.8 million for the nine months ending 30 June 2024, and we completed a $47 million net capital raise in July with the issuance of 1.67 million shares, which secured the funding for the acceleration of our enhanced oil recovery project and increased our estimated trading float by 77%. We exited the quarter with $6.9 million in cash and $97.5 million drawn on our credit facility, and subsequent to the quarter ending, we reduced our credit facility borrowings to $62 million in July. We announced our latest dividend subsequent to the fiscal Q3 of $0.28 per share or $5.5 million in total, which was paid on 6 August 2024.

We generated free cash flow of $18.8 million for the nine months ended June 30th.

We completed a $47 million net capital raise in July with the issuance of $1.6.7 million shares which secured the funding for the acceleration of our enhanced oil recovery project in.

And increased our estimated trading float by 77%.

We exited the quarter was $6.9 million in cash and $97.5 million drawn on our credit facility and subsequent to the quarter ending we reduced our credit facility borrowings to $62 million in July.

We announced our latest dividend subsequent to the fiscal third quarter of <unk> 28 per share or $5.5 million in total which was paid on August six the current dividend implies a five 8% annualized yield.

Kevin Riley: The current dividend applies a 5.8% annualized yield based on the August 6 closing price of $19.27 per share. During the quarter, Riley Permian brought online 7 gross, 4.8 net horizontal wells and drilled 1 gross, 1 net vertical injection well in line with our budgeted guidance previously disclosed. The company has accelerated development of its EOR project, which now include 12 vertical injection wells in our 960-acre project area. The drilling rig for the vertical injection wells has been contracted and is scheduled to arrive during September. The company will conduct drilling, casing, and logging operations on the injection wells through the end of 2021. Water and gas line infrastructure has been ordered, and we anticipate installation during Q4 2021 and Q1 2022.

Based on the August six closing price of $19.27 per share.

During the quarter Riley Permian brought online seven gross four eight net horizontal wells and drilled one gross one net vertical injection well.

In line with our budgeted guidance previously disclosed.

The company has accelerated development of its EUR project, which now include 12 vertical injection wells in our 960 acre project area. The.

The drilling rig for the vertical injection wells has been contracted and is scheduled to arrive during September.

The company will conduct drilling casing and logging operations on the injection wells through the end of calendar year 2021 water and gas line infrastructure has been ordered and we anticipate installation during the calendar fourth quarter of 2021 and calendar first quarter 2022.

Kevin Riley: The physical infrastructure connection to the CO2 pipeline source, commonly called a tap, has a turnaround time of 6 to 9 months due to the specialty nature of the product and supply chain constraints. Based on current estimates, we anticipate initiating water injection for the project during calendar Q2 2022, which will continue for several months, such that the slower timing of the CO2 tap may not impact our planned development schedule. After the reservoir is sufficiently repressurized and the CO2 tap has been installed, we plan to initiate a combination of CO2 and water injection. With regard to choice of CO2 and procurement, the EOR project will begin using natural CO2, given the ease of availability, reliability, and price. The company is currently finalizing customary agreements with a reputable counterparty for both supply of CO2 product and for the CO2 tap connection.

The physical infrastructure connection to the <unk> pipeline source, commonly called a cat has a turnaround time of six to nine months due to the specialty nature of the product and supply chain constraints.

Based on current estimates.

We anticipate initiating water injection for the project during calendar second quarter, 2022, which will continue for several months.

Such that the slower timing of the <unk> may not impact our planned development schedule.

Kevin Riley: After the reservoir is sufficiently repressurized and the CO2 tap has been installed, we plan to initiate a combination of CO2 and water injection. With regard to choice of CO2 and procurement, the EOR project will begin using natural CO2, given the ease of availability, reliability, and price. The company is currently finalizing customary agreements with a reputable counterparty for both supply of CO2 product and for the CO2 tap connection.

After the reservoir sufficiently re pressurized and the Sidoti Hasnt been installed we plan to initiate a combination of cotwo and water injection.

With regard to choice of Sidoti and procurement.

Our project will begin using natural <unk>, given the ease of availability reliability and price the.

The company is currently finalizing customary agreements with a reputable counterparty for both supply of Sidoti product and for the <unk> tap connections.

Kevin Riley: We maintain the optionality to potentially switch to using anthropogenic CO2 with this or subsequent project areas as sources become available at attractive economics. With the CO2 tap installed, Riley Permian will have access to a wider network of CO2 pipelines, creating flexibility for sourcing CO2, including the anthropogenic potential. The company continues to investigate numerous anthropogenic source possibilities in conjunction with carbon capture, utilization, and sequestration efforts, including ongoing discussions with several counterparties. At the same time, we are monitoring potential changes to the federal tax incentives and other regulations currently being discussed at the national and Texas state levels. We continue to believe that a possible CCUS project, with Riley Permian participating as a developer, has the potential to be an attractive opportunity by itself, as well as a synergistic opportunity with our core upstream business.

We maintain the optionality to potentially switch to using anthropogenic cotwo with this or subsequent project areas as sources become available at attractive economics.

With the Sidoti <unk> install.

Holly Permian will have access to a wider network of Sidoti pipelines, creating flexibility for sourcing seo to including the anthropogenic potential.

The company continues to investigate numerous anthropogenic sources possibilities in conjunction with carbon capture utilization and sequestration efforts, including ongoing discussions with several counterparties.

At the same time, we are monitoring potential changes to the federal tax incentives and other regulations currently being discussed with the national and Texas State levels.

We continue to believe that a possible cc U S project with Riley Permian participating as a developer.

<unk> has the potential potential to be an attractive opportunity by itself as well as a synergistic opportunity with our core upstream business.

Kevin Riley: Based on the current market conditions and the acceleration of our EOR program, the company forecasts fiscal Q4 2021 capital expenditures before acquisitions of approximately $20 to 26 million. Separately, certain drilling and completion capital expenditures are now forecasted to be invested during the fiscal Q4 of 2021. With that, I will turn the call back over to Bobby for closing remarks.

Based on the current market conditions and the acceleration of our IRR program. The company forecast fiscal fourth quarter 2021 capital expenditures before acquisitions Approx.

Approximately 20% to $26 million.

Separately certain drilling and completion capital expenditures are now forecasted to be invested during the fiscal fourth quarter 2021.

That I will turn the call back over to Bobby for closing remarks.

Bobby Riley: In closing, our past quarter was exceptionally busy and productive. We generated operating cash flow, free cash flow, and paid dividends. Our objective remains to continue to grow within the capital allocation framework that we've laid out. Thank you again for your time today. Operator, you may open it up for questions at this time.

In closing.

Our past quarter was an exceptionally busy and productive.

We generated operating cash flow free cash flow and paid dividends.

Our objective remains to continue to grow within the capital allocation framework that we've laid out.

Thank you again for your time today.

Operator, you may open it up for questions at this time.

Operator 2: Our first question is from the line of Neal Dingmann with Truist Securities.

Ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster again that timeline.

Operator: Our first question is from the line of Neal Dingmann with Truist Securities.

And our first question is from the line of Neal Dingmann with <unk> Securities.

Kevin Riley: Hi.

Neal Dingmann: Good morning, guys, and very nice quarter. Bobby, just something, my first question is just something you just mentioned on just the capital allocation. By our numbers, you get likely some nice free cash flow ahead. Can you talk just a little bit about, you're already paying a very strong dividend, obviously based on today's price. Could you talk about, you mentioned the capital allocation, your thoughts, you and Kevin going forward, just with the free cash flow. It sounds like the plan's pretty well set, but would you take some of that excess capital for even more shareholder return? Would you use it for more growth? Could you just talk about sort of capital allocation a little bit more?

Good morning, guys and very nice quarter.

Just something my first question is just something you just mentioned on just the capital allocation, but our numbers you guys licensed some nice free cash flow ahead can you talk just a little bit about you're already paying a very strong dividend. Obviously based on today's price you talked about you mentioned the capital allocation your thoughts you and Kevin going forward just wood.

The free cash flow it sounds like the plan is pretty well set.

Would you take some of that excess capital for even even more shareholder return would you use it for more growth could you just talk about sort of capital allocation a little bit more.

Kevin Riley: Neal, you know, we laid out the capital allocation based upon, you know, roughly 60% to 65% of our expected EBITDA to go toward our normal development activities, which does allow for growth. You know, the EOR capital that we're spending is basically, you know, using the capital that we made in the raise that we did this last month. You know, I believe we made statements that our goal is to grow our production and grow our dividend. And so that is what we have, you know, in our internal model. To say exactly how much, I don't know if I have that number down, but it is our objective to grow both our production and our dividend.

Neil.

We've laid out the capital allocation based upon roughly 60% to 65% of our expected EBITDA to go toward a higher.

Normal development activities, which does allow for growth.

The capital that we're spending is basically used.

Using the capital that we made in the call.

In the raise that we did this last month.

I believe we've made statements that.

Our goal is to grow our production and grow our dividend.

And so that is what we have and our internal long but.

Exactly how much I don't know if I have that number down but it is our objective to grow both our production and our dividend.

Philip Riley: Not necessarily growing the allocation percentage, but on an absolute amount, we are looking to grow that.

Not necessarily growing the allocation percentage, but on an absolute amount we are looking to grow that.

Neal Dingmann: Absolutely. Good clarification. Got it. Then secondly, could you just talk about, just on more of the traditional business, maybe Kevin, maybe give us some operational view. I think it was kind of 4 odd wells. I know obviously the plan will be a bit lumpy, but could you talk about two things there? Just activity-wise, do you anticipate just being kind of next. I know you've got Q4 guide out, and I'm not asking for, you know, guide for 2022 calendar yet, but just kind of on the plan, two things. One, will you stay in the same region drilling-wise? And two, do you anticipate just the growth to be kind of along the level that we just saw in the most recent quarter?

Absolutely good clarification got it got it and then secondly could you just talk about just on more of the traditional business maybe Kevin.

Maybe give us some operational you I think it was.

Four odd wells I know, obviously, the play will be a bit lumpy, but could you talk about two things they are just.

Activity Wise do you anticipate just being kind of mix because I know you've got <unk> guide out I'm not asking.

Guidance for it.

'twenty two calendar, yet, but just kind of on the planned two things one when you stay in the same region drilling wise and two do you anticipate.

Just the growth to be kind of along the level that we just saw in the most recent quarter I mean or I should say activity to be on the same level that we just saw in the recent quarter.

Neal Dingmann: I mean, or I should say activity to be on that same level that we just saw in the recent quarter.

Kevin Riley: I would say, are you talking about for fiscal Q4? Sorry, it's a little bit unclear.

I would say are you talking about for fiscal Q4, <unk> is a little bit.

Neal Dingmann: That's exactly right, Kevin.

Unclear.

Right.

Kevin Riley: Yeah. Fiscal Q4, I'd say there'd be a little bit more activity, you know, specifically as it relates to CapEx and funding of the CO2 project. You know, initially we're having to pay for the CO2 tap, which we have to pay for up front, in addition to procurement of materials for the water and CO2 injection lines, which have already been ordered, and the material for the WAG units. Activity-wise for our ordinary core upstream business, I would say is going to be in line with what we saw in fiscal Q3, but there will be additional capital spent as it relates to the EOR project.

Yeah, So fiscal Q4, I'd say there'll be a little bit more activity.

Specifically as it relates to Capex and funding.

<unk> is the Cotwo.

Project initially, we're having to pay for.

The <unk> tap, which we have to pay for upfront. In addition to procurement of materials for the water and Cotwo injection lines of which have already been ordered and the material for the wag units. So.

Activity wise for our ordinary core upstream business I would say is going to be in line with what we saw in fiscal Q3, but there will be additional capital spend as it relates to the.

Our project.

Neal Dingmann: Very good. Just lastly, I think I know the answer to this, but you guys continue to have very nice conservative balance sheet. Hedging wise, just going forward, any change to those plans, or can you just talk about what the thoughts around that for Bobby or Kevin?

Very good and then.

Just just lastly might take I know the answer this but you guys continue to have great.

Nice conservative balance sheet hedging wise, just going forward any change those plans or can you just talk about what the thought.

That's around that for Bobby or Kevin.

Kevin Riley: We continue to monitor our hedge book as things roll off. We feel like we're in a pretty good position right now, which you've got a fair amount of the business protected going forward, but we also have the exposure to upside. We will continue to layer on, but nothing substantial.

We continue to monitor our hedge book as things roll off.

We feel like we're in a pretty good position right now with what you've got.

A fair amount of business protected going forward, but we also have some exposure to upside.

We will continue to layer on.

But nothing substantial.

Neal Dingmann: Very good. Again, nice quarter, and nice call. Thanks, guys.

Very good again nice quarter and nice call. Thanks, guys.

Kevin Riley: Thank you.

Thank you.

Yes.

Operator 2: Ladies and gentlemen, as a reminder, if you want to ask a question, please press star followed by the number one on your telephone keypad. Your next question is from the line of Noel Parks with Tuohy Brothers.

Operator: Ladies and gentlemen, as a reminder, if you want to ask a question, please press star followed by the number one on your telephone keypad. Your next question is from the line of Noel Parks with Tuohy Brothers.

Ladies and gentlemen, as a reminder, if you want to ask a question. Please press star followed by the number one on your telephone keypad.

Next question is from the line of Noel Parks with Tuohy brothers.

Noel Parks: Morning.

Good morning.

Kevin Riley: Good morning.

Philip Riley: Morning, Noel.

Good morning Noel.

Noel Parks: Thanks. I had a couple questions. You know, as you get closer to the point where you're gonna have arrangements for anthropogenic CO2, you mentioned you're talking with potential counterparties. Can you just kinda give a sense of, I'm thinking in terms of timeframe for, say, the simplest, most straightforward sort of project that you might be able to arrange? And then what's at the other end of the spectrum, for a particularly large scale or complex project? Are we talking about, you know, single digit years for something simple or are we and, you know, like five years or more for something complex? Just to give a sense of, you know, what might be available and how long it might take to implement.

I had a.

Couple of questions.

Okay.

Get closer to the point where youre.

Youre going to have arrangements for anthropogenic cotwo.

You mentioned, you're talking with potential Counterparties can you kind of give us a sense of I'm thinking in terms of timeframe for say the simplest most straightforward sort of projects that you might be able to arrange.

And then what about the other end of the spectrum.

For a particularly large scale or complex project.

Are we talking about.

Single digit years for something simple or are we in.

Five years or more for something complex just to give a sense of.

What might be available and then how long it might take to implement.

Philip Riley: Yeah, sure. Noel, this is Philip. I can try to address that. You know, an example of a simpler one is gonna be some kind of industrial facility that's nearby in the region and nearby that existing CO2 pipeline network, where you're not building a pipeline connection of, you know, 50 miles or so. Lots of different types of industrial facilities in the region. Without going into specific ones, those are examples. I think definitely our objective is to be in the single years, yes. The idea is just to get something that works for everyone. As we alluded to in the press release, the mandates or the credit at the federal level are a little bit fluid right now.

Yeah sure Noah this is Philip I can try to address that.

An example of a simpler one is gonna be.

Some kind of industrial facility, that's nearby in the region and nearby that existing C O two pipeline network.

There you're not building.

Connection pipeline connection.

50 miles or so.

Lots of different types of industrial facilities in the region.

And so without going into specific ones.

Those are examples and I think definitely our objective is to be in this single years, yes.

Just to get something that works for everyone.

As we alluded to in the press release.

The.

The mandates or the the credit at the federal level or a little bit fluid right now you've got these two competing bill.

Philip Riley: You've got these two competing bills in Congress, 1 trillion and 3.5 trillion. They're talking about different levels of incentives being contemplated for that or even something new. I think as those remain a little fluid, people are watching and waiting, and so it'll be helpful to get some clarity there. You know, on a bigger project, I think there's different options that could potentially one day include something greenfield. We like the idea of maybe partnering with a larger industrial facility if there's something even greener and cleaner to build. That's a bit more speculative, and I guess years off. I think I'd focus you more on the, you know, the nearby existing industrial facilities that are gonna be pretty quick and easy to tie into.

Bills in Congress trillion in three and a half a trillion, they're talking about different levels of incentives.

Being contemplated for that or even something.

You can do so I think as those remain a little fluid people are watching and waiting.

And so it will be helpful to get some clarity there.

On a bigger project.

<unk>.

I think there's different options that could potentially one day include something something greenfield.

We like the idea of maybe partnering with a larger industrial facility if theres something.

Even greener and cleaner to build.

But that's a bit more speculative.

I guess yourself, so I think I'd I'd focus you more on this.

The nearby existing.

Industrial facilities that are going to be pretty quick and easy to tie into.

Noel Parks: Great. Thanks. You know, for your EOR project, I'm just curious, do you have sufficient power or utility access on the site, you know, substations with capacity, or is that gonna be something you're gonna have to address as you ramp up and, you know, install, you know, facilities and so forth?

Great Thanks and.

For.

Our project just curious do you have sufficient power utility access the site.

Substations with capacity or is that going to be something youre going to have to address as you as you ramp up and install.

And so forth.

Bobby Riley: No, I believe at this time we have sufficient infrastructure from the power standpoint. We'll also look as we build this out to where we would, you know, at some point we may even generate some power ourselves with our gas supply. Right now we're at the site that we're building the gathering facility and the injection facilities, we have previously brought underground power to that facility. I think we're good to go from that standpoint.

I believe at this time, we have sufficient infrastructure from a power standpoint, but.

But we all also look as we build this out to where we at some point may even gen.

Generate some power.

On ourselves with ourselves with our gas supply, but right now we are at the site that we're building the <unk>.

The gathering facility in the injection Jackson facilities now we have previously brought underground power to that facility. So I think we're good to go from that standpoint.

Noel Parks: Great. Just the last one for me. In the nearby fields that have done legacy EOR projects, were those mostly similar to yours projects that alternated CO2 and water WAG-type projects? Is that the method used elsewhere?

Great and just a last one for me in the nearby fields that have have done legacy <unk>.

<unk> projects.

Those mostly are similar to yours.

Projects that alternative.

<unk> wallet water wag type projects is that the message used elsewhere, yes, yes.

Bobby Riley: Yes. Yeah. That's the most common method used in the area, in the San Andres formation that we're involved. It just assists in diversion of the CO2 so that the water kind of forms a block so that the CO2 will migrate and contact additional rock instead of finding a straight pathway through. That's it. It's a common practice.

Yes, that's the most common method used in the area.

In the San Andres formation that were involved and just and just assist and.

The version of the <unk>, so that the water kind of forms of blocks of the cotwo.

Migrate and contacts.

Additional rock instead of finding a straight pathway through so it's common practice.

Noel Parks: Great. Thanks. That's all for me.

Great Thanks, well for me.

Operator 2: Your next question is from the line of Thomas Landstreet with N3L Capital.

Operator: Your next question is from the line of Thomas Landstreet with N3L Capital.

Your next question is from the line of Thomas Main Street with <unk> capital.

Thomas Landstreet: Good morning, gentlemen. Thank you for taking my question. Even though the two bills in Congress, there's not a lot of clarity there, and the 45Q credits aren't really defined, that's true, right?

Good morning, gentlemen, thank you for taking.

<unk>.

So even though the two bills in Congress, there's not a lot of clarity there and the 45 Q credits are real defined that's true right.

They are different.

Philip Riley: They are defined. I mean, are you saying in the new builds we have the existing credits that are out there?

Are you seeing in the new builds we have.

Thomas Landstreet: Well, I guess my question is, and forgive me for any ignorance here. Obviously you have a great deal of confidence in the opportunity with the you know, sequestration opportunity. Just wondering what your model is for those credits. For instance, how much could they add to your revenues, your opportunity? Is there anything out there that you have or others have where we could somewhat quantify a best case, maybe medium case on those credits and the opportunity there? Is that a fair question?

The existing I guess I guess my question is and forgive me for Andy ignorance here. So.

Obviously, you have a great deal of confidence in the opportunity with the.

Sorry.

Sequestration opportunity and.

Just wondering what your model is for those credits for instance, how much could they add to your.

Revenue was your opportunity have you done is there anything out there that you have or others have where we could somewhat quantify a best case, maybe medium case on those credits and the opportunity there is that a.

Fair question.

Philip Riley: Yeah. The credit values are publicly available. You can-

Yes, the credit values are publicly available.

You can.

Thomas Landstreet: Oh.

Philip Riley: At the federal level, or lawyers have summaries of those out there. For example, it's often referenced, the $35 credit. For a $35 per ton, in a couple of years, and for that EOR and then $50 for permanent sequestration for the same year. You can look at

At the federal level or lawyers.

Summaries of those out there for example, it's often referenced the $35 credit for a $35 per ton.

And a couple of years.

For that.

Or and then $50 for permanent sequestration to the same year.

Thomas Landstreet: That's 35 per what again, please?

And look at our <unk> 35 per watt again please.

Thomas Landstreet: That's 35 per what again, please?

Philip Riley: That's per ton.

That's per ton.

Thomas Landstreet: Okay.

Philip Riley: Of CO2.

Okay.

Thomas Landstreet: Okay.

Two.

Philip Riley: You to translate that to an MCF, you divide it by about 19.25. So it comes out to, you know, somewhere in the $1.80 range.

Okay.

To translate that to an mcf divided by about $19 two five.

So it comes out.

Somewhere in the dollars 80 range.

Thomas Landstreet: Okay.

Hum.

Philip Riley: There's a few ways to think about it, but, you know, we've got the upstream side that we're trying to ensure good economics. You've got CO2 as a cost component of your OpEx.

There's a few ways to think about it but we've got the upstream side that we're trying to ensure.

Good economics.

So you've got some seo to us.

The cost component of your Opex.

Thomas Landstreet: Yes.

Philip Riley: On the other side, what we're talking about with the credits is, you know, you can think about it a few ways. It could be a potential offset. It's potentially revenue there. From the CCUS point of view, you have to be able to monetize those credits. For that, you need to be either currently a taxpayer, or your partner needs to be a taxpayer, or there's other ways to monetize it. We've talked about this on the last call. There's tax equity financing options and such. One of the items being discussed and pushed for at the national level is to make that direct pay, which is another way of saying, you know, you don't have to be a taxpayer to get the credit.

And then on on.

On the other side, what we're talking about with the credits is.

That you can think about it a few ways it could be a potential offset.

Right.

It's potentially revenue there.

From the <unk> point of view.

You have to be able to monetize those credits and so for that you need to be either.

Currently a taxpayer or.

Your partner needs to be a taxpayer or theres other ways to monetize it we've talked about this on the last call Theres tax equity financing options and such but one of the items being discussed and pushed for at the national level is to make that direct pay which is another way of saying.

Don't have to be a taxpayer.

Philip Riley: It's just a direct pay of the credit.

The credit you can it's just a direct pay credit.

Thomas Landstreet: Okay.

Okay.

And so one other thing I'd clarify for you that the credits are available for FERC, a 12 year period.

Philip Riley: One other thing I'd clarify for you that the credits are available for a 12-year period. Like I said, those are available. You can, you know, do a little bit of math, and you multiply it by amount of cubic feet per day you think you'll be using. We've talked about this project using up to 15 million cubic feet a day of CO2. You can see what that math implies for a 12-year period. You know, you look at solar and wind, those PTCs, ITCs have been extended a number of times over the years. We're not assuming that in any kind of base case, but you know, it may be reasonable also that those type of credits get extended at some point.

And so.

Like I said those are available you can do a little bit of math and you can multiply it by.

Cubic feet per day, you think youll be using we've.

We've talked about this projects using up to 15 million a day cubic feet of seal it too.

And you can see what that math implies for a 12 year period.

You know you look at solar and wind those PTC and <unk> teams have been extended a number of times.

Over the years, we're not assuming that in any kind of base case, but.

It may be reasonable also that those type of credits get extended at some point.

Thomas Landstreet: Okay. I did just find, by the way, the tax credits. I can go do that math. Then you've got that, and that's exciting to you and worth the investment. Gravy or added to that are the two bills in Congress. Can you give any sort of explanation of the nature of those two bills, and then I might hunt them down, kind of get a sense of what those do on top of the 45Q credit is.

Okay.

Just fine by the way the tax credits for.

Okay. So I can go through that math and then so you've got that and that's exciting to you and worst worthy investment.

Gravy or added to that are the two bills in Congress can you give any sort of.

Explanation of the nature of those two bills and then I might hunkered down kind of get a sense of what those do on top of the 45 <unk> credit is.

Philip Riley: Yeah. I'll do a disservice if I try to summarize the what's in $4.5 trillion worth of.

Yeah, I'll I'll do a disservice, if I try to summarize.

What's in the $4 five trillion dollars worth it.

Thomas Landstreet: Okay.

Okay.

Philip Riley: What I'd say in general is that they're working in general. Some of it is more infrastructure related, and some of it is more social type spending and such. I guess what I'd say is the key components that those in the CCUS industry are looking for include potentially an increase of the credit by some amount. So not just, say, the $35, but in increasing it to some amount, whether that be $50 a ton, $60, some amount. That's one. Another one would be direct pay.

What I'd say in general is that there.

Sure.

They're working in general some of it is is more infrastructure related and some of it is more social type spending and such.

Sure.

But I guess, what I'd say is that the key components that those in the <unk> industry are looking for include.

Potentially an increase of the credit by some amount so not just the $35, but an increasing it to some amount whether that'd be $50 a ton $60 some amount that.

That's one another one would be direct pay.

Thomas Landstreet: Okay.

Philip Riley: Like we just talked about with the tax status.

Okay like we just talked about what the what the tax guidance and then.

Thomas Landstreet: Yeah.

Philip Riley: There's a number of other measures there.

There's a number of other measures there.

Thomas Landstreet: Okay.

Philip Riley: That, you know, people are just looking for improvements effectively.

People are just looking for improvements effectively.

But at this point.

Thomas Landstreet: Okay. All right. Thank you very much for that.

Alright, and thank you very much for that.

Philip Riley: Yeah. Thank you for your question.

Thank you for your question.

Operator 2: As a reminder, ladies and gentlemen, to ask a question, please press star followed by the number one on your telephone keypad. We do have a follow-up question from the line of Thomas Landstreet with N3L Capital.

Operator: As a reminder, ladies and gentlemen, to ask a question, please press star followed by the number one on your telephone keypad. We do have a follow-up question from the line of Thomas Landstreet with N3L Capital.

As a reminder, ladies and gentlemen to ask a question. Please press star followed by the number one on your telephone keypad.

We do have a follow up question from the line of Thomas Land Street with <unk> capital.

Thomas Landstreet: Hey, it's me again. Sorry. I'm a relatively new owner, by the way. Thank you. Just curious what you've obviously got a lot of ESG investors out there that are loathe to invest in hydrocarbons, unfortunately. This may attract their attention, when you are able to, you know, sequester carbon, et cetera. I'm curious what your thoughts are about that. One, is that part of your motivation? Two, are you getting any feedback from investors that are, I'd say, restricted to the ESG type of investing, any interest? Just kinda curious about what the opportunity there is to attract a new set of investors along those lines, if you don't mind.

Hey, It's me again sorry.

And the and I am a relatively new owner by the way. Thank you.

The just curious what.

You've obviously got a lot of ESG investors out there that.

Our LOE to invest in hydrocarbons. Unfortunately, but this may attract their attention.

When you are able to sequester carbon et cetera. So.

I'm curious what your thoughts are about that one is that is.

Is that part of your motivation to.

Are you getting any feedback from investors that are.

Say restricted to the ESG.

BSG type of investing any interest.

Just kind of curious about what.

<unk> opportunity there is to attract a new set of investors along those lines. If you don't mind.

Philip Riley: Yeah, sure. You know, in general, we've got a couple ideas and strategies there. You know, first and foremost, we're an oil and gas company, and our goal there is to position ourselves low on the supply cost curve. We believe the planet's gonna need hydrocarbons for decades to come, and we wanna be a provider of low cost supply there. We're a small player, obviously, on the global scale, but we wanna be a low cost supplier. At the same time, clearly the countries across the planet are asking for lower emissions, lower CO2 and such. If you can somehow link those two together, you can be a supplier of hydrocarbons that the world still needs. You know, President Biden just asked OPEC to pump a lot more oil, right?

Yes sure.

And generally we've got.

Couple of.

Ideas and strategies, there first and foremost, we're an oil and gas company.

And our goal there is to.

Position ourselves LOE on the supply cost curve, we believe the plan it is going to need hydrocarbons for.

Decades to come.

And we.

We want to be a provider of low cost supply there.

Small player obviously on the global scale, but we wanted to be a low cost supplier.

At the same time clearly the.

Countries across the planet are asking for lower emissions lower cotwo and such.

And so if you can somehow link those two together you can be a supplier of hydrocarbons that the world still needs.

Biden, just asked OPEC to pump a lot more oil right.

Philip Riley: At the same time, he's negotiating a green stimulus bill. He's asking the Middle East to produce more oil. Well, if we can do that in a cleaner way and produce a lower carbon barrel, maybe a no carbon barrel, then we think that helps too. Maybe it's not only trying to do the right thing, but it's potentially a differentiating product. We're talking about a commodity product here, but maybe we live in a world one day where it's potentially differentiated if you can create a low carbon, sometimes referred to as a blue, you know, a blue barrel of oil. I think that's

At the same time he is negotiating a.

Green stimulus bill he's asking the middle east to produce more oil well, if we can do that.

In a cleaner way and produce a lower carbon barrel.

Maybe it's a no carbon barrel then we think that helps too.

Maybe it is not only doing trying to do the right thing, but it's it's potentially a differentiating product.

We're talking about a commodity product here, but maybe we live in a world one day, where it's a potentially differentiated if you can create it.

Our low carbon sometimes referred to as a blue.

Blue barrel of oil.

So is there anything thats.

Thomas Landstreet: Oh, yeah, sorry. Go on. I apologize.

Sorry.

Apologize.

Philip Riley: That's you know kind of a high level view of some of the initiatives. You know, we do see carbon capture, clearly a lot of excitement around there. We see it as a natural complement to the EOR and such. People love to talk about the carbon capture side of it, but sometimes overlook the fact that you need what we call a sink. We believe that our properties in particular create a great sink. Yeah, because of the pipeline network, some of our subsurface qualities and so forth. You know, at a high level, observers believe the US is really well positioned because I think there's statistics out there that suggest the US holds two-thirds of the world's geologic storage.

That's.

Kind of a high level view.

Some of the initiatives, we do see carbon capture clearly a lot of excitement around there. So we see it as a natural complement to the EUR and such.

People love to talk about the capture.

Carbon capture side of it but sometimes overlook the fact that you need what we call a thing.

And we believe that our properties in particular.

Create a great zinc.

Yes, because of the pipeline network some of our subsurface qualities and so forth at a high level.

A lot of observers believe the U S is really well positioned because.

I think there are statistics out there that suggests the U S holds two thirds of the worlds.

Geologic storage.

Philip Riley: Well, some of that they're referring to is just the you know, empty saline formations. That's a harder economic proposition when you're not creating any economic value. You're just putting you know, the molecules in a space. We think the EOR can be interesting because you're doing that. You're not totally reliant on the subsidy. You're also creating economic value on the EOR side. You know, to finish this up, and sorry, I did a long answer, but you know, you asked about the ESG investors. We're certainly open to that. You know, they typically are not gonna target an oil and gas company, but I think certain groups try to make exceptions and do appreciate efforts like we and others are making.

That they are referring to is just the.

MTS saline.

Formations and that's a harder economic proposition when you're not creating any economic value and you're just putting.

The molecules.

In our space.

We think the EUR it can be interesting because youre doing that youre not totally reliant on the subsidy you're also creating economic.

<unk> value on the EUR side.

To finish this up and I'm, sorry, and as long answer, but you asked about the ESG investors.

Alright.

We're certainly open to that.

They.

Typically youre not going to.

Target, an oil and gas company, but I think certain groups try to make exceptions and do.

Appreciate efforts like we and others are making and so.

Philip Riley: We'll obviously do what we can to try to be friendly with those folks.

Well, obviously do what we can to try to be pretty much those folks.

Thomas Landstreet: Okay. Then finally, I know that there are some, a couple of other companies that are seeking to do what you're doing, which of course is to use anthropogenic CO2. I would assume some of them are a little more advanced. Can you give me any color on how those are going and how those are working? Or is there a place I could go look at research that?

Okay, and then finally I know that there are some a couple of other companies that are <unk>.

Seeking to do what you're doing which of course is to use and serologic.

Two.

I would assume some of them are a little more advanced can you give me any color on.

How those are going and how those are working or is there a place I could go look look at.

Research path.

Philip Riley: Yeah, look, the other companies doing this, there's a handful. ExxonMobil's been talking about this on the sequestration side. For permanent sequestration, they talked about doing it under the Houston Ship Channel. Oxy has been talking about this for probably a couple years now. They are a bit of an analog for us in that they are directly across the fence line with one of their biggest EOR projects that's in the Wasson Field. They're trying to couple that with different forms of anthropogenic, including direct air capture. That's a noble endeavor, but can be challenging with the economics. I guess the third one I'd mention is Denbury, focused more on the Gulf Coast. They've been in the EOR business for a long time.

Yeah I looked at the other companies doing this.

There's a handful.

Exxonmobil has been talking about this.

On the sequestration side for permanent sequestration, they talked about doing it under the Houston ship channel.

Oxy has been.

Talking about this for probably a couple of years now they are.

A bit of an analog for us and that they are directly across the fence line with one of their biggest EUR projects.

That's in the Washington field.

And Theyre trying to couple that with <unk>.

Different forms of fans, Virginia, including direct air capture.

That's a noble endeavor, but it can be challenging with the economics.

And then I guess the third one I mentioned is denburg.

His focus more on the Gulf coast, they've been in the <unk> business for a long time.

Philip Riley: That's focused, like I said, more on the Gulf Coast. Those are usually older type legacy fields that you're trying to, you know, squeeze the last bits of oil out versus a less developed field like-

That's focused like I said more on the Gulf Coast those are usually older.

Legacy fields that Youre trying to.

Squeezed the last bits of oil out versus.

Unless developed field like yes, that's a good comparable okay. That's what I was looking for I really appreciate that.

Thomas Landstreet: Yeah. Okay. That's a good comparable. Okay. That's what I was looking for. I really appreciate that.

Philip Riley: You're welcome. Thanks for the questions.

You're welcome thanks for the questions sure.

Thomas Landstreet: Sure. Sure.

Operator 2: Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Again, that's star one if you would like to ask a question. At this time, there are no further questions. I thank you for participating in today's conference call and ask that you now disconnect your lines.

Ladies and.

Operator: Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Again, that's star one if you would like to ask a question. At this time, there are no further questions. I thank you for participating in today's conference call and ask that you now disconnect your lines.

Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Again, Thats Star one if you would like to ask a question.

At this time there are no further questions I. Thank you for participating in today's conference call.

Now disconnect your lines.

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