Q4 2021 Evolution Petroleum Corp Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the evolution Petroleum fiscal year end 2021 earnings release conference call. All lines have been placed on a listen only mode and the floor will be opened for questions and comments following the presentation.
You should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a live operator at this time. It is my pleasure to turn the floor over to your host Ryan Bash, Sir the floor is yours.
Thank you I appreciate it and good afternoon, everyone and welcome to evolution Petroleum's earnings call for our fourth quarter and fiscal year end 2021.
Joining us today on the call are Jason Brown, President and Chief Executive Officer, and myself, Brian Stash, Chief Financial Officer for evolution Petroleum.
After I cover the forward looking statements Jason will review key highlights along with operational results then I'll return to provide a more in depth financial review and Jason will then add some closing comments before we take your questions. If you wish if you wish to listen to a replay of today's call. It will be available shortly by going to the company's website or via recorded replay.
Until December 13th 2021 please.
Please note that any statements and information provided today are time sensitive and may not be accurate at a later date. Our discussion today will contain forward looking statements of management's beliefs and assumptions based on currently available information. These forward looking statements are subject to risks and uncertainties that are listed and described in our filings with the SEC.
Results may differ materially from those expected.
Since detailed numbers are.
Readily available to everyone in Yesterdays earnings release.
This call will primarily focus on evolution strategy as well as key operational and financial results and how these affect evolution moving forward.
Please note that this conference call is being recorded now let me turn the call over to Jason.
Thank you Ryan.
Good afternoon, everyone and thanks for joining us today on evolutions fourth quarter of fiscal 2021 earnings call.
This past year has been an extraordinary one for evolution with a backdrop of low commodity prices in our primary operator going through bankruptcy restructuring early in our fiscal year.
To a swift recovery in prices and a substantial acquisition in the second half of our fiscal year I am pleased with the resilience and the dedication of our team.
Although we're very happy to see commodity prices return to even pre pandemic levels with.
We do believe the volatility still remains going forward and are cautiously optimistic.
Continued uncertainty of global markets.
We were able to take advantage of and.
Diversify our commodity footprint and materially increase our exposure to natural gas through the acquisition.
Thanks Yale.
This accretive acquisition, what it does for our company and shareholders moving forward.
As I've stated before we are interested in and continually evaluate both oil and natural gas deals.
And I'm pleased that we were able to add these natural gas reserves to our portfolio.
During the past years challenges, we maintained our commitment to returning meaningful value to our shareholders.
Through a consistent dividend program.
Increased our first quarter fiscal 2022.
Seven five cents per share of common stock payable.
Payable in September of 2021.
This decision is in line with what we've previously stated and.
And it's supported by a continuing improvement in commodity prices and the additional cash flows generated by the Barnett shale acquisition.
Including the first quarter dividend will be paid on September 30 to shareholders of record as of September 20th.
Evolution will have paid out over $77 million.
Or $36.0 per share.
Back to shareholders as cash dividends.
Since 2013.
Maintaining and ultimately growing our common stock dividend, along with achieving disciplined growth through accretive acquisitions.
Our key priorities moving forward.
As we look to fiscal 2022, I'm very excited about the trajectory of evolution in the fiscal fourth quarter. Our production grew to 4378 net Boe per day.
Which is an increase of about 156% over the prior quarter.
Due to the production benefit of the Barnett shale acquisition that closed in May even though it only contributed for 55 days of the quarter.
We generated $11.0 million and adjusted EBITDA in the fourth quarter, almost doubling the $7.0 million, we generated in the third quarter.
Our year end proved reserves increased 129% to $27.0 million Boe.
As well.
Although both Delhi in Hamilton Dome had positive reserve revisions net of production.
The increase was due to the acquisition of the non operated interested in the Barnett shale. It added 48, six bcf of natural gas.
Just under 5 million barrels of natural gas liquids and a small amount of oil.
That's a little over 13, <unk> Boe of long life reserves, which is a substantial out of extended support to our dividend program.
The SEC pricing used our year end was $121.0 per barrel and $48.0
Per btu of gas Youll note, that's quite a bit below the current commodity pricing.
Proved SEC reserves for the year ended 630.
2021 consisted of approximately 65% of liquids, that's about 36% crude and 29% NGL.
And 35% natural gas at fiscal year end approximately 92% of proved reserves were classified as proved developed producing.
And 8% is proved undeveloped.
Turning to our operational highlights adult high in Hamilton Dome, we continue to have good activity in both areas and are seeing field work in new projects pick up due to the uptick in commodity prices.
Our operating partner Delhi returned to conformance projects in early 2021 net production at Delhi in the current quarter was 121911 Boe.
Approximately $62.0 Boe per day.
At a 3% increase over the prior quarter.
Purchase volumes were up following a pipeline repair and the operator completed several performance project as we discussed last quarter. It will take a while for there to recover the reservoir pressure and production loss.
Following the Sidoti purchase pipeline failure last year, but we are starting to see a trend in the right direction and are pleased with the attention and capital support the Delhi is getting in 2021.
And Hamilton Dome, we saw a quarter over quarter increase in production of 4% to.
The 36453 barrels or revenue 400 barrels a day.
Primarily driven by the reactivation of wells that were shut in during the last.
Quarter during fiscal 2021 in response to commodity prices.
Operator <unk>.
And the number of wells at present, all wells that were shut in substantially all wells that were shut in due to the volatility in pricing have been returned to production.
We're very impressed by merits responsiveness.
And the pricing challenge that they faced over the last year.
Net production in the Barnett shale for the fourth quarter of fiscal 2021.
240000 Boe.
Which represents approximately 55 days of production.
As we closed on the acquisition of the first week of May.
$107.0 Boe per day based on 55 days of production.
I would like to note that Blackbird operating the primary operator in the Barnett shale sold their interest to diversified energy in July of 2021, we will be able to provide more detail on the expected future capital and operational plans of the Barnett.
Once diversified has finalized their plans upon completion of the transition period.
We feel that this is an exciting time for evolution and we build as we build size and scale through accretive acquisitions.
While continuing to deliver strong operational and financial results to support our dividend.
With that I'll now turn the call back over to Ryan to run through some of our financial highlights.
Then I'll wrap up the call by speaking briefly about our strategy.
The outlook on the M&A landscape.
Thanks, Jason I'll now share some more details regarding our financial results for the fourth quarter and fiscal year ended June 32021, please refer to our press release from yesterday afternoon for additional information and details, but some of our key highlights included.
As Jason had earlier mentioned, we increased our 30, we increased our 30 <unk> consecutive quarterly dividend to be paid September $37 five per share, which is a 50% increase over the prior quarter. We also paid our 30 <unk> consecutive quarterly cash dividend on June 30th at <unk> <unk> per share, which was a 67% <unk>.
Kris from the third quarter of fiscal 2021.
In May we closed on the acquisition of the non operated liquids rich natural gas.
<unk> and working interest in the Barnett shale for $21.0 million, which is net of preliminary purchase price adjustments.
We expect these final purchase price adjustments to occur in October.
As Jason also mentioned adjusted EBITDA increased about 50% in the fiscal fourth quarter to $11.0 million again, primarily driven by production from the Barnett shale acquisition as well as strong commodity pricing.
Total revenues increased approximately 80% over the prior quarter to $20.0 million.
Also we funded all operations development, Capex and dividends out of operating cash flow and we maintained our strong balance sheet with zero net debt and $8.0 million of cash on hand at June 30 of 2021.
We ended our fiscal year with a $30 million borrowing base. This however does not yet include any impacts for our Barnett acquisition and we are currently working with our lender to re determine the borrowing base to include the reserves from the Barnett acquisition and incorporate our year end reserves from Delhi in Hamilton Dome.
This combination of $8.0 million of cash on hand, and $26 million of availability under the revolver at our current borrowing base gives us total liquidity of $34.0 million as of June 30.
Because of the Barnett shale acquisition, its overall impact to our results I'm going to focus more on the current quarter results is there a much better indicator of our financial strength and capabilities moving forward.
As I mentioned in the approximately 80% increase in total revenues for the quarter to $20.0 million from $12.0 million in the prior quarter, primarily due to that.
56% increase in production.
<unk> 4878 Boe per day, driven again by the Barnett shale acquisition, but also coupled with a 16% increase in realized oil prices, which averaged $92.0 per barrel for the fourth quarter of fiscal 'twenty one.
Our lease operating expenses increased to $13.0 million in the fourth quarter compared to $9.0 million in the prior quarter. This increase is driven by the Barnett shale acquisition and also increased cotwo costs due to higher <unk> injection volumes and increase oil prices as a reminder, the purchase cost of Cotwo is directly tied to oil price.
But despite these increases production cost per Boe decreased 17% to $19 <unk> compared to the prior quarter.
General and administrative expenses were one 8 million, which was consistent with the prior quarter.
And net income for the quarter also nearly doubled to $4.0 million or <unk> <unk> per diluted share compared to $3.0 million or <unk> <unk> per diluted share in the previous quarter.
Again, primarily due to the increase in income from operations related to the Barnett shale.
For the three months ended June 32021, we invested $20.0 million in capital expenditures consisting of $16 million for the acquisition of the Barnett shale assets, which as I remind you is net of a $5.0 million deposit that we paid in the prior quarter and we also spent 400000 at Delhi for field capital maintenance.
Based on discussions with with Delhi in Hamilton Dome operators, we do expect to continue conformance workover projects and will likely incur additional maintenance capex as oil prices remained strong.
As Jason mentioned, the majority of the volumes at Hamilton Dome or substantial majority I should say at Hamilton dome shut in during the low oil price conditions. During calendar year 2020 has been restored and any future reactivation will be considered depending on economics.
For fiscal year 2022 based on discussions with the operators the company's total capital expenditures for Delhi in Hamilton Dome are expected to be in the range of one $1 million to $2 million, primarily consisting of conformance workover and maintenance capital projects again as Jason had mentioned our capital spending program has not yet been established for the Barnett shale due to the <unk>.
<unk> sale by Blackbird operating to diversified.
Working capital decreased $14.0 million from the prior quarter to $16.0 million and this decrease is primarily attributed to the Barnett shale acquisition, which I had mentioned before had a purchase price of $21.0 million net of preliminary purchase price adjustments.
This now concludes the financial review of results and operations and with that I will turn it back over to Jason for his final remarks.
Thank you Ryan.
Our reserves and production are not the only additions this year, we've grown as an organization as well.
Added a control controller, Michael got off to the team as well as the senior financial analysts guarantee Jensen.
As Rob Schultz, our Chief Accounting Officer retired after nine years of service.
We are very grateful to him for his effort and helping the team transition through the year end and 10-K process.
To be impressed with our team at evolution.
I'm feeling encouraged and excited for the year ahead, as we begin to evaluate new opportunities for accretive growth.
And sustainable development.
We worked hard to build meaningful relationships with our operating partners.
And have already begun fostering a dialogue with diversified energy.
It was in the transition process of assuming the majority of operations for our Barnett assets.
We are in communication at several levels within the organization is appropriate for operational and financial processes, and Brian and I've been pleased with responsiveness responsiveness of their upper management through several conversations as they get further into their assumption of responsibilities will be able to give a little more insight as the capital spending plans.
We believe that to be limited to minor workovers and returned to production type activities at this point.
We remain focused on generating cash flow, returning cash to our shareholders through dividends and evaluating accretive acquisitions.
That helped profitability and sustainability.
<unk> evolution.
We are seeing an influx of marketed and negotiated transactions lately and are optimistic that we will be able to build upon the successful Barnett.
<unk> acquisition with additional assets over the next fiscal year.
I believe that we've proven our ability to source and vet and successfully transact on various opportunities that support this strategy and evidenced by our Barnett shale acquisition. This acquisition was a significant step for our company to grow in size and scale.
We remain focused on adding shareholder value.
Finally, we're excited about the future and believe the evolution is very well positioned to grow and return meaningful cash value to shareholders. We will continue to focus on assets that bolster our cash flow in the short term.
Without specific biases any commodities, we will look to take advantage of our strong financial position and add additional assets that will further grow and diversify the company.
Thank you for your continued support and interest in evolution.
With that I think we're ready to take some questions. Operator, please open up the line.
Four questions.
Thank you the floor is now open for questions.
You do have a question. Please press star one on your telephone keypad at this time questions will be taken in the order. They will receive if at any time. Your question has been answered you can't remove yourself from the queue by pressing one again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time our first.
Question comes from John White with Roth Capital. Please state your question.
Good afternoon, guys. Congratulations on the very nice results.
Hey, John Thank you. Thanks for the notes as well we appreciate those.
Of course.
The press release said <unk> injections at Delhi.
$82 million a day.
Do you think we'll see that increase over the next quarter or two.
Yes, Dave we actually just had our operational call with.
And Barry this morning.
Call in the past August and September generally the warmer months, where there are limited in terms of admissibility of how much COC they can put away in.
Passengers, they've even dropped to below that 82, so holding at the 82 level, we were pretty pleased with that.
I think that we'll be able to kick up once temperatures break a little bit I think they are anticipating in October being able to pick it up in the Ninety's and maybe as much as 100 Mcf a day I think that the goal is to try to get it close to the 100 million Mark.
Is there a substantial part of the winter.
Again to try to make up some of that reservoir pressure loss that we've talked about.
Yes.
Yes said benign.
The buyer of Black Weird diversified energy.
I would guess you are pretty pleased with them I took a look at there.
<unk> mutation.
Operate a large number of wells and then it looks like they have a significant footprint in the Appalachia area. So I would guess there they've got experience operating a lot of natural gas Hello.
They do they also have a central position in East Texas.
Natural gas is we're saying low cost operator.
We've talked to Brad Verizon idea their COO and.
Trying to get a feel for what type of projects that we'd be looking at.
There are quite a few drilling locations out there and a gas prices, where they are now although we didnt underwrite. This thing I think we underwrote it on kind of $72.0 gas two somewhere around there was substantially over that at this point a lot of those locations would be justifiable, but I think they're emo and frankly ours as well he said invest he doesn't like to do.
Anything that didn't have more than about a six month payout. So they think in terms of payout, which is great thats. What we think of in terms of as well. It's real money that is going to return back to you and then contribute to cash flow. So we think pretty aligned there I think will be limited to that sort of activity before theres any rigs that are standing up. So this is going to be workover and returned to production.
Thanks.
Okay sounds good.
I'll pass it on.
Thanks, John Thanks, Sean.
Okay. Our next question comes from David Lock. Please state your question.
Hey, guys how are you doing.
Jason Congrats on the congrats on the Barnett deal.
You Might've, just bottoms take natural gas.
So the classic.
The question I have asked David to get a win every now and then.
Hey, we've been waiting 15 years right.
Okay.
So.
You said you had been seeing more deals recently so was.
I was curious just directionally, how sort of asks have responded.
In the last few months to the improvements in commodity prices and then relatedly.
Could you just talk about how you evaluate using.
Capital on external acquisitions as opposed to just buying back your own assets with an extremely cheap stock price.
Yes.
Good good question. So let me, let me start kind of from the last going forward in terms of the buybacks were pretty thinly traded right now I think the vast majority of our owners our shareholders are long term holders and LOE.
I will turn it over.
So.
I think Bob Gibson.
We think we're undervalued at this point, but we also think that.
Wed like to get some more shares out there and grow through some scale. So I think we've done some buyback programs in the past that have been more of a defensive.
Because we are thinly traded it didn't take very many shares to kind of arrest some.
Near term volatility in the market.
Looking at growth through accretive acquisitions, and so to that end the deals that we've been seeing lately.
The as bid has been tightening a little bit I think said another way, if maybe a little more reasonable.
In the sense that when prices were low we felt like.
That might be an opportunity to get deals done, but nobody really wanted to take the mark down at this point, we're seeing people that.
Our <unk>.
Reasonable to take kind of what the current projections are in terms of strip and are different by acquisition pricing.
I'm thinking that it's going to double or triple again, when prices were down in the low forties, nobody really wanted to take the hit hoping that prices are getting back into <unk> and even though there's some speculating and prices are going to go to 80 or whatever.
Most people are pretty happy to take the Mark and the thing that's been attractive to us as people.
Looking to do something for a little bit of equity and a little bit of cash, which we have the option of doing so they can participate a little bit.
All of them to do something in a way that.
Give them some potential to participate on any more upside.
So lots of opportunities that are coming our way like I said and negotiated which is which is nice.
Yeah.
Alright have any thoughts on that yes, I mean.
The only thing I would add just to adjacent set on.
When you mentioned buybacks, we sort of think about it as shareholder return right return of capital to shareholders. So we certainly consider the dividend as part of that and we're continually evaluated at the board level, whether or not it makes sense to pay a dividend or to buy back shares.
As I mentioned, certainly, giving the float higher is a big focus of ours and we do think that that our share is undervalued, but we're continually having those conversations you can definitely expect us to have shareholder kind of return of capital kind of forefront in our mind.
Yes.
Okay, and if I could just ask an unrelated follow up which is.
Again after a 15 year bear market I think a lot of people are looking at the natural gas strip, and saying well Hello, I'll take $54.0
So what's the current thinking and strategy on hedging.
And what if anything would make that change.
That's also something that we talk about every board meeting we're constantly watching it we don't like to hedge and right now I think youll find them a lot of operators are struggling to try to how to present their numbers to the public and both net income and EBITDA because they want to show if we didn't have the hedges on.
We'd be making so much more money very few of them because they're so largely levered and by extension has to be largely hedged are not receiving the benefit of these high prices right. Now we are unhedged and so we're receiving all of that.
It hurts on the downside, we've only put into hedges in our in our history ones in 2014, when everything collapsed and the other one is the short term.
In April of 2020 that expired last December.
Sure.
We look at it but David it's still pretty backward dated.
And we'd like to be an option the call option on commodity and I think with zero debt, we feel like we're in a pretty good position to do that we start taking on a little bit of leverage there might be a small amount but.
I think generally the posture of the board is that.
We're not going to be speculative thats kind of other traders business and leisure share pretty fast if thats not your expertise.
Our expertise is trying to make accretive acquisitions and so it will probably stay in that and.
In that fairway.
Yes, I mean, I think to Jason's point, I mean, you mentioned gas and when the curve is so backward dated right now that certainly we don't think it makes sense to go out a number of years and hedging, but like Jason said, if we took on some additional leverage make an acquisition we might look to hedge a portion of that through the period. We think it will take to pay off the debt right just to kind of preserve the ban.
Once sheet because thats obviously.
Big selling point for us and something that the board and Jason I'll focus on a lot. So we might look at that in the short term or a short run sort of hedging scenario. If we took on some debt.
Okay. Thanks, and just one more quick one.
And maybe it's in the proxy, but I haven't seen it.
How do you guys get paid vis vis sort of share price appreciation and dividends growth of the business et cetera.
Well clearly not enough I guess is the answer to that.
Okay.
I think on our long term.
<unk>.
I think it is last year, our <unk> was designed 50% through M&A.
Board felt like a strategic acquisition was the most important thing to us and I think in hindsight, that's what we delivered and Theyre happy where we're at on that I think there was some part of earnings per share, 25% and 25% discretionary.
<unk> is the <unk>.
So one third kind of time vesting.
Third and then two thirds.
Based on a CSR compare to our peer group.
And Thats an interesting.
Situation, there because finding peers like us that are E&P that deliver dividend.
We're fairly low beta there's very few companies that have don't have any debt.
Eight years of consistent dividends and.
And so what you find there is some of our peer group, we're kind of in the middle of a lot of them underneath this went bankrupt and.
Some of them above us in this last year to have a higher beta with the reserve. So that's kind of a mixed bag anyway, but.
Essentially it's a quartile thing in terms of percentage of our shares that vest.
And the one thing on the.
So the long short of it on just on the proxy so right. So we have 120 days after the end of our fiscal year. So by the end of October we will have filed our proxy for our upcoming annual shareholder meeting, which will be in kind of early December so that will have the our fiscal year 'twenty to <unk>.
<unk> as adopted by the board.
I will say one more thing about that and that was what it was last year on the <unk>. The board has made a pretty big commitments, so as management to summer to commitment to ESG.
And as I stated in the Entercom presentation, I sort of ignorantly, a year ago thought that ESG was the health and safety environmental safety, but of course, it's not we're coming out with our inaugural what they call CSR.
Corporate sustainability report and the governance and nominating committee has advised the.
Comp Committee to include ESG is one of our markers as a component of our Orion IVF tips and the entire company and so compensate comp committee has done that we haven't we haven't come out exactly with what that is but it will probably somewhere in the 10% of our of our bonus dependent on some ESG hurdles.
The board's commitment and focus to ESG.
The consumer or that corporate sustainability report.
Youll see in the website that we just rolled out with the sustainability section and we're trying to be responsible.
But not like overreact, too where non operator, so some of the things that we don't have any control over and so.
So we're focused on it and we will have that report out somewhere around the proxy time or is that in late October that's right will soon.
So.
Alright, well sorry for.
Monopolizing the call ill turn it over thanks for your time.
Okay.
Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad at this time. Our next question comes from John Bair. Please state your question.
Thank you.
Good afternoon, Jason and Brian Hey.
Hey, John for the dividend. Thank you for the dividend increase always nice.
Question on are you seeing any tighter spreads between.
The oil prices you're receiving.
Him down versus Wty was that Canadian West Canadian select.
And also.
You're getting pretty good spot prices than for the July production.
And interesting thing that's happened go ahead go ahead.
Go ahead.
Yes.
Well, you're welcome for the dividend.
We appreciate our shareholders and May I talked to the significant portion of that I think that you were one of them as well.
Most of which.
We're pleased that we cut the dividend, even though everybody really likes the dividend per reserve, our cash balance, which we did in may of 2020.
But it's of course, our hope too.
To get that back to some levels I'm not sure that we're going to prudently do that and I think you've seen that.
Board be able to do that go from two five cents up to three and then three to five and now $5 to $7.05 now Im not sure that we'll go back to 10 anytime soon.
We're going to be prudent about that.
Okay.
So that was very pleasing I think.
Okay.
Board made a good excellent decision theyre getting onto pricing we've seen.
Kind of a different thing in both of those areas Hamilton Dome has tightened and has been.
Very.
Pretty consistent.
In an unusual way normally.
It blows out in the winter and then tightens in the summer.
And we saw it to be pretty consistent around the 10% to $11 range, we generally get a bonus of around a buck and a half to two bucks off of that so we've been getting sub 10 differentials in Wyoming, which we've been very happy about.
Uh huh.
In Delhi, it's been the opposite.
Rent is still a premium to <unk>, but not near the premium as it was last year. So just.
Just for a point of reference last year and the SEC report, we have the trailing 12 months at a $66.0 over.
So.
That's our net realized price so that means we have $43.0, which is the transportation cost at it.
It claims so roughly.
So then it would be $66.0 $340. So that means that Brent was about $5 averaging over at <unk> and that's what it's been in years past.
This year, it's been closer to I think the trailing 12 months with an average of two Bucks Thunder.
Although we've seen that pricing improve over the last four or five months and we feel like going forward, it's going to be closer to $16.0 under.
That would actually be $42.0 over and Thats.
What Brent is trading so whatever Brent is trading over <unk>.
Subtract $43.0, and that's pretty darn close to what we're getting at.
Delhi does that makes sense, John Yep, Yep, Yep I feel like.
Yes.
We feel like the tightening we feel like that tightened spread at Hamilton dome.
Probably you'll see that we're hoping through through 'twenty two.
Yes.
And then as far as Barnett.
Okay.
I don't know how much of a discount if youre getting there over these.
Spot prices I think yesterday I saw.
525 or so.
Tober.
Yes, so the <unk>.
Sure must most most of that or.
Yes. So obviously, we are marketing ours under Blackberry now diversified right its going to market on our behalf and they have a longer term contract is tied to Houston chip, but it is tied to sort of first day of the month FERC index. So if you see a big movement in pricing throughout the month, you may not benefit as much but for the most.
On a month to month basis as prices have gone up.
We will obviously benefit for the Houston ship channel pricing, which is generally right around if not a little bit better than Henry hub.
Okay.
And one last question.
Have you had any impact weather related impact to operations given.
The last months of ugly weather down there.
So we've talked to has been very about that either had.
Okay.
A couple of wells.
There's a couple of years they were lying we shut in for a couple of days, but there was no damage to the field and the field itself didn't shut down the plant that shut down or anything like that so.
Very very very minor.
Alright, thats good to hear very good.
Good quarter and congrats.
Nice timing on the purchase.
Look forward to seeing what you come up with next.
Thank you Sir I appreciate it.
Take care.
Okay. Our next question comes from Paul Hackett. Please state your question.
Yeah.
Sure.
So I was one of the new investors in May.
You had met on a tour.
And so I just wanted to.
I understand when you were negotiating with Tokyo.
For the Warner acquisition I assume you were doing your due diligence or under blackbirds.
Pro forma assumptions.
How soon will you know or be able to dovetail what your expectations are with the new operator.
And what it what could it be you know positive or negative or in other words, how do you get.
Read through on that relative to what I assume you did pretty extensively prior to that acquisition or did you know at the time that they were.
We're going to sell their stake.
Blackberry.
Yes, we did it was kind of in parallel.
Behind our process.
In fact, when we looked at.
We're not really an operated company, although we looked at potentially making a run at that.
Diversified has been pretty aggressive.
I would say more qualitative at this point than quantitative.
And the qualitative nature of it is that blackbird, although very competent operator.
They got handed these assets through a combination of several smash COSE.
<unk>, which is our back end private equity.
I had gone through a number of companies. This was originally from Bluestone company John Redmond is crew.
So I think theres some nature of this the Blackberry, Maine.
Focus was in the Permian and.
Again, really sharp guidance, but I get the feeling qualitatively that they had this the kind of shepherd over until prices stabilized enough for them <unk> to be able to send it out the door, which they did.
Diversified is coming into these assets once complete different.
Purpose and underwriting and plan and capital structure they are publicly traded.
More like us in terms of the long term.
To give a dividend like there the way they develop assets are more like us. So I think qualitatively, we're pretty excited theyre going to focus on squeezing value out of it we're going to benefit from that.
Brian.
Yes, yes, absolutely.
Absolutely I mean, we as Jay.
Listen mentioned.
With Blackberry inheriting the assets, while Jason like Jason said, they're a good operator, and we could see and looking at the data they've done some nice things on the cost side. They hadn't really looked at much upside at all returning wells to production or doing any workovers, whereas diversified has done a lot of that and so that was actually one of the things when we looked at the deal that.
Got us a little bit excited is knowing that you had an operator that got handed an asset that's going to sell it to someone who really wants to work. It. So that that was part of the thing that we looked at.
Okay Alright.
Thank you very much.
Thanks, Paul.
Okay. Our next question comes from David Lock. Please state your question.
Hey, guys, just a quick Delhi follow up.
How far below peak is that producing right now and.
Is there any likelihood of it getting back there and what would the timeframe be.
I'd say, we're a couple of thoughts.
30%, 30% below peak.
And the likelihood of getting back there.
Probably will not be for.
A few years and I would probably say at this point.
Probably not all the way back there I think the peak with somewhere around 7000 barrels a day of oil.
A couple of reasons for that one we've had the lack of <unk> during the nine month periods, we dropped some reservoir pressure.
John asked before about COPD levels.
Going to over inject.
Inject.
Inject more than we have in the past to sort of make up some of that reservoir pressure, we think thats, probably as I've stated before kind of an 18 to 24 month build just takes a while what youre continuing to pull out of oil to overcome that.
Sure that you're producing plus makeup that we lost so I think that that's probably around a rest of the decline, but we also have in play the test site five which is a further expansion of that area that fifth phase.
And that's not that's been put off for two years that was supposed to start.
This past spring they put that off at least at least a couple of years oil prices coming back up may bring that in a little sooner, we don't know, but we're.
We're not planning on that before 2023 that would have a drilling program at around 12 to 13 wells and and what we've seen in the past with our different faiths programs. This is a substantial kind of arc so that over a three year period these sort of average.
Higher so I think we have a chance to get.
North of.
Certainly north of where we are now and substantially higher.
Don't know that we're back into peak levels that.
That we saw.
Two or three years ago.
That's my best guess at this point.
A lot of variables there.
Okay again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad. Our next question comes from Stefan <unk>. Please state your question.
Hey, guys.
I was just wondering if there's any continuing dialog with Tokyo gas and those remaining stranded assets leftover in the Barnett I know there was maybe about $5 million left.
Yes.
We definitely are in touch with those guys were actually still going through our post closing settlement that will settle up here in October.
I think our intention there was to see if there was some sort of resolution to the dispute there.
The party city.
Put that on hold and they.
I believe they filed a complaint against the operator, but the operator diversified didnt see it was a problem and closed over that so.
I think we're on pause to not get involved.
Until that.
Just some sort of resolution.
The other thing is we didn't agree on a set price to it so prices of <unk>.
Come up pretty significantly I think probably we're not really planning on that at this point.
Okay alright, thank you.
And it looks like that was the final question.
Excellent.
Yes.
Okay well. Thank you for your participation today, please feel free to contact us if you have any other questions.
We appreciate the continued support of our shareholders and look forward to providing everyone with further updates on our business and potential targeted growth opportunities.
On our next earnings conference call in November.
Thank you.
Thank you. This concludes today's conference call. Thank you for your participation you may disconnect. Your lines at this time and have a great day.
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