Q1 2023 Evolution Petroleum Corp Earnings Call
Good day and welcome to the evolution petroleum first quarter fiscal year 'twenty 'twenty three earnings release call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note.
This event is being recorded I would now like to turn the conference over to Mr. Ryan Stash Evolutions Chief Financial Officer. Please go ahead.
Thank you and good afternoon, everyone welcome to our earnings call for the first quarter of fiscal 2023, joining me today is Kelly Loyd, our recently named President and Chief Executive Officer, and a member of our board of directors. After I cover the forward looking statements Kelly will review key highlights along with her opt.
<unk> results I will then return to provide a more detailed financial review and then Kelly will provide some closing comments before we open it up and take your questions.
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 actual results may differ materially from those expected.
As detailed numbers are readily available to everyone. In Yesterdays earnings release. This call will primarily focus on our strategy as well as key operational and financial results and how these affect US moving forward. Please note that this conference call is being recorded if you wish to listen to a webcast replay of today's call. It will be available by going to the <unk>.
Company's website with that I will turn the call over to Kelly.
Thank you Ryan.
Good afternoon, everyone and thanks for joining us for today's call before I begin my prepared remarks I'd like to thank the board for naming me President and CEO I've gotten to know the full team here at evolution very well since I was named the interim CEO in June and I'm truly excited to lead this talented group of professionals as we.
Move forward and continue to make progress towards and ultimately achieving our long term goals I'm fully committed and aligned with the board in executing the company's strategy of disciplined financial management and accretive capital allocation with a goal of maximizing total shareholder returns I look forward to leading evolution in this new.
Next chapter.
The first quarter marked a solid start to fiscal 2023 I want to thank all of our team members for their continued hard work and dedication were pleased with our overall results for the period, which was highlighted by another period of strong free cash flow generation, which we used to fund operations capital spending sure.
Alder dividends and to reduce a significant amount of debt. We made a commitment to continue to pay down borrowings on our credit facility and we delivered on that commitment by reducing debt by $9 million a decrease of more than 40% since June 30th.
Our strong cash flow generated during the first quarter was also used to fund the payment of our quarterly cash dividend of 12 cents per common share, which was 20% higher than the 10 cents per share that was paid during the fourth quarter of fiscal 2022.
Our board declared a cash dividend for the second quarter of fiscal 2023 of 12 cents per share. This will mark the 37th consecutive quarterly cash dividend paid by the company. Since we began this return of capital program. In December 2013, there are very few small cap E&P companies, who can say they have consists.
<unk> paid a dividend for that length of time throughout several tumultuous commodity price cycles.
We are proud to say that over the past nine years evolution has paid over $90 million or $2 73 per share back to our shareholders.
We have strong long life and low decline assets that will continue to support a sustainable quarterly dividend for the immediate and long term benefiting our shareholders with a steady return of capital maintaining and ultimately growing the payment of a quarterly cash dividend remains a top priority.
In further support of our shareholders on September eight our board authorized a share repurchase program of up to 25 million of our common stock through December 31 2024.
Turning now to operations.
In the first quarter of fiscal 2023, we produced 7598 net Boe per day, which was 2% higher than the 7451 net Boe per day that we produced in the fourth quarter of fiscal 2020 to.
The first quarter benefited from higher natural gas and NGL production as well as higher natural gas pricing. This was offset by lower oil and NGL pricing versus the fourth quarter of fiscal 'twenty. Two having said that we have been encouraged to see an upward trend in oil and NGL pricing recently, which will support additional cash.
Generation in the second quarter of fiscal 2023.
Looking at our first quarter results in more detail.
Net production at Jonah field for the first quarter was 181 M. B O E or 1967 BOE per day. This included 958 million cubic feet of natural gas or 88% natural gas.
The field is our most recent acquisition and similar to our other assets is highlighted by long life low decline reserves that generate significant cash flow.
In addition, the transaction also provides access to attractive western markets, where we continue to see favorable natural gas pricing.
First quarter net production for our Williston Basin properties increased to 45 N V. O E. R 489, Boe per day of which approximately 82% was oil.
We continue to work closely with the operator Foundation energy management on high grading expense, Workovers, Recompete and sidetrack drilling opportunities.
In addition, technical evaluations remain underway to assess our pronghorn and three forks drilling locations.
Net production for our Barnett shale properties for the first quarter increased 8% to 300 and twenty-nine M. B O E or 3576 Boe per day of which approximately 77% was natural gas.
This is a result of diversified Energy's capital Workover program, which has been very active since becoming operator 11 months ago.
Hamilton Dome field net production increased slightly to 38 M. B O E. R 413 BOE per day, we will continue to support the operator merit energy and their efforts to restore production at previously shut in wells adjust water injection locations and volumes and.
On other targeted maintenance projects.
Net production at Delhi field increased slightly to 106 M. B O E or approximately 1153 BOE per day, then buries the operator at Delhi field, and they're continuing to perform conformance workovers and upgrades to their facilities.
Before I turn the call over to Ryan I'd like to point out that we recently posted our 2022 corporate sustainability report or a website, which details our commitment to high quality transparent and comprehensive ESG efforts and disclosures I'm proud of our employees' commitment to sustainability and our board's hands on.
Oversight, which is demonstrated by the board's newly formed sustainability Committee.
Environmental stewardship sound corporate governance, and contributing positively to our employees and the communities, where we work are cornerstones of our culture.
We invite you to review our report to learn more about our sustainability efforts and our plans to continue to work with our third party operators, who share our core values and are committed to being good environmental stewards as we responsibly produce our energy resources together.
With that I will now turn the call over to Ryan to discuss our financial highlights.
Thanks, Kelly as mentioned earlier, please refer to our press release from yesterday afternoon for additional information concerning our first quarter fiscal 2023 results. My comments today will primarily focus on financial highlights and comparative results between the first quarter of fiscal 2023, and the fourth quarter of fiscal 2022.
A key highlight of the first quarter was our continued solid generation of adjusted EBITDA, which included $17 million during the period adjusted.
Adjusted EBITDA was $24.33 on a per BOE basis. During the first quarter. We continued to fund our operations development capital expenditures and dividends out of operating cash flow, while also paying down $9 million of debt.
Supported by our solid operational and cash flow outlook, we paid an increased dividend of <unk> 12 per share in the first quarter and declared a dividend of <unk> 12 per share for the second quarter of fiscal 2023 payable on December 30 to shareholders of record as of December 15th we clearly recognize the strategic importance of returning value to our <unk>.
Shareholders and remained focus on the continuity of this program.
As Kelly discussed in September our board authorized a share repurchase program of up to $25 million through December 31, 2024, we expect to fund the repurchase program with working capital and operating cash flows and do not expect to incur any debt. We view the repurchase program as a tax efficient means to enhance our returns to our shareholders.
One of the key reasons that we have been able to execute on our long term program to provide a consistent return of capital to our shareholders over the past nine years is due to our conservative financial management.
Such we remain squarely focused on ensuring we maintain a strong balance sheet as of September 32022, we had $10 $7 million of cash and cash equivalents working capital of $6 5 million and debt of $12 3 million. We grew our liquidity to $48 5 million or 31% increase since the end of the fourth quarter.
As Kelly discussed we were pleased to pay down $9 million of debt in the first quarter. Since the end of the quarter, we have paid down an additional $7.5 million and expect to pay down the remaining balance by the end of the calendar year we.
We did not enter into any additional hedges beyond what was previously disclosed in our last quarterly filing and we remain below the threshold in our credit facility that requires us to add any incremental hedges.
Looking at the first quarter financials in more detail.
Our total revenue of $39 8 million was 5% lower than the fourth quarter due to a combination of factors including.
Lower oil revenue due to 2% lower sales volumes and a 16% decrease in realized pricing lower NGL revenue, which was primarily due to a 16% decrease in realized pricing.
The reduction in oil and NGL revenue was partially offset by 7% increase in natural gas revenue, primarily due to a 3% higher sales volume and a 4% increase in realized natural gas pricing.
The result was an average realized price per BOE, a decrease of 8% to $56 93.
Lease operating expenses increased from $17 3 million in the fourth quarter to $19 1 million in the first quarter on a per BOE basis lease operating expenses were $27 35 for the first quarter compared to $25 47 in the fourth quarter.
Primarily contributing to the increase was higher gathering transportation and other expenses in the Barnett shale associated with increased production volumes and commodity pricing as well as changes in estimates from prior periods also contributing to the increase was higher workover expense in the Williston basin, partially offsetting the overall increase in lease operating cost.
<unk> was lower C O two cost of Delhi field associated with a decrease in crude oil prices from the prior quarter. As a reminder, our C. O two cost of Delhi field are directly impacted by the price of oil therefore, lower oil prices resulted in lower C O two cost <unk>.
General and administrative expenses increased to $2 5 million from $1 6 million in the fourth quarter.
Current quarter included a little more than 300000, and nonrecurring transaction and severance costs also the prior quarter was positively impacted by $1 $2 million reduction in noncash stock based compensation related to the forfeiture of Unvested shares.
Net income for the first quarter was $10 7 million or <unk> 32 per diluted share versus $14 9 million or <unk> 44 cents per diluted share in the fourth quarter contributing to the sequential decrease was lower overall commodity prices and higher lease operating and general and administrative expenses for the reasons I previously discussed adjusted.
Net income for the first quarter was $10 1 million or <unk> 30 per diluted share versus $15 1 million or <unk> 44 cents per diluted share in the fourth quarter.
During the first quarter, we invested $1 million in development and maintenance capital expenditures for fiscal 2023, we continue to expect total development capital expenditures of $6 5 million to $90 5 million. This estimate includes upgrades to the Delhi field Central facility Workovers at Hamilton Dome field, the Barnett shale.
And the Jonah field.
And sidetrack drilling opportunities in low risk development projects in the Williston basin, excluding the development of the pronghorn and three forks locations.
As in the past our spending outlook may change, depending on conversations with our operating partners commodity pricing and other considerations. So with that I will turn the call back over to Kelly for his closing remarks.
Thanks, Ryan we are clearly seeing the benefits afforded by the two acquisitions, we completed in the second half of fiscal 2022, which have provided evolution with a much larger and diversified asset base, both geographically and by commodity mix.
The cash flow from these two acquisitions has exceeded our expectations from the time of purchase.
These two immediately accretive transactions follow our proven acquisition playbook executed over the past three years with the overall combination providing enhanced diversification of our product mix and reserve categories across an expanded geographic footprint in multiple key U S onshore plays.
We continue to survey the market for opportunistic acquisitions that align with our company's growth strategy.
The intrinsic value of our enhanced sales mix was on full display in the first quarter as higher natural gas production and pricing, we're able to significantly offset the impact of lower oil prices compared to the fourth quarter of fiscal 2022.
Our enhanced asset base provides for significant cash flow generation that further supports our well established shareholder capital return program provides a visible source of funding for future targeted strategic growth opportunities and places us in a strong position as we move through fiscal 2023.
Our steadfast commitment to maintain a conservative balance sheet and to remain disciplined in our management of capital puts us in a strong position to continue to execute our strategic plan focused on maximizing total shareholder returns and optimizing every dollar that we invest.
Our board remains staunchly committed to maintaining and as appropriate increasing our dividend payout over the long term, we clearly recognize the tangible value of providing our shareholders with a consistent and substantive cash return on their investment we truly appreciate their support of our ongoing efforts.
As part of our comprehensive shareholder return strategy. We were also pleased to recently put in place and meaningful share repurchase program that allows us to opportunistically repurchase our shares from time to time through the open market transactions.
Privately negotiated transactions or by other means in accordance with federal Securities laws.
We will continue to pursue initiatives designed to maximize total shareholder return by optimizing the value of every dollar we invest on a risk adjusted basis, depending on where we are in the cycle. Our approach of building a targeted asset base of PDP reserves capable of supporting cash payments to shareholders has served us well over the past decade.
And we will continue to benefit our shareholders for many years to come.
As in the past, we will continue to closely evaluate and execute on targeted acquisition opportunities that are immediately accretive and provide long term established production strategically expand our base of assets and do not result in material dilution.
Any transaction must also clearly support our longstanding thesis of providing a significant total return for our shareholders.
We look forward to capitalizing on additional opportunities to profitably grow the business, while continuing to provide our shareholders with a meaningful and tangible return on their investment through our proven and consistent strategy of squarely focusing on the needs of our shareholders with that we are ready to take questions operator.
Please open the line for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Jonathan Shaffer from Northland Capital markets. Please go ahead.
Hey, guys. Thanks for taking the questions.
I wanted to start off by asking them for just some more details on the lease operating expenses kind of the other you know other eloise excluding the C O two injection in Arab alarm taxes, So Ryan talk through.
Some of what drove the increases higher gathering transportation.
In the Barnett shale.
I guess I'd be curious to get some more details because I tend to think of natural gas production Austin skewing alloys, lower on a kind of a b AOI basis.
And then.
Commodity pricing.
I understand that the C. O two contract is linked to the price of oil, but you know sort of excluding that it seems like there is still a sense that commodity pricing impacted although he was like in the Barnett shale. So just curious if you can give us some kind of more specifics on what was going on there.
Yeah, no happy to Don.
Thanks for your support and thanks for the question.
Yes, so for the Barnett shale.
And there is a little bit in the marketing contract itself that has a component that is tied to natural gas or the Katy hub. So there's a piece of it that is tied to that as prices go up but the other thing Thats, obviously going on as you know we've seen some inflation at the field level, there as well and so if you think about the Barnett.
And being no not player too we've got actual cost that come in about two months in arrears. So really what's going on in this quarter is what I call. Some catch up expenses from prior quarters as we've seen this increase in commodity prices, which does impact the gathering cost a little bit and also some of the field level costs.
It really I think going forward, what we would think and hope to see is that cost to level out a little bit you know in the next in the coming quarter. So we think currently we kind of think somewhere around the kind of 20 to $25 per barrel range. We think is a more normalized number.
For the Barnett kind of going forward.
Okay that makes sense that's helpful.
And then I'm curious for you I was trying to follow.
Before you guys are kind of.
I like that you try to hedge as little as possible. It kind of makes you guys. I think are interesting vehicles for someone who's wanting to have that commodity price exposure, but also sort of like almost like a prudent sort of.
Portfolio management.
So but that does that the hedging that does make you think a lot about pricing.
And you always got you talked about the west coast exposure through Jonah field. That's obviously a positive development, but just in general curious if you have any kind of nuggets on the outlook for natural gas pricing.
Yeah, both West and also you know Gulf coast or whatever markets you sell into have you see.
So you kind of have an outlook I guess sort of for the winter and then similar thing on the oil side because.
I know, you're selling accrue to the refiners and the refiners.
You know you're not it's not like they're selling.
Finished refined product, but it seems like with with what's gone on in Europe , and kind of the northeast and theirs.
There've been some reports about it.
Tight inventories for diesel and those are all sort of middle Distillates I don't know Geez does Delhi.
Being a product that sells at a premium.
Does that.
Does that skew towards the middle of this splits and does that benefit flow through or does that all just get captured by the refiners.
Yeah, Hey, Doug Thanks.
I would say specifically with regard to the Delhi right.
We get paid that due to where our crude is located.
And also the type of crude that is so that that would already be made up for in the price. We received at the purchase if that makes sense.
Yeah, I mean, it really the impact is going to be more gorgeous LLS pricing.
And how that translates to W. P. I know that there are some transportation charges that are relatively fixed in there for that.
The most part L O news, which as you know is sort of driven by Brent and you know kind of how the international markets are naturally that's going to impact ally specifically.
Yeah, I would say in the other.
See you don't see spread changes spread changes.
From light product.
Based on changes in refined products.
No they don't.
Okay.
Be it could be eventually right, but that would be a longer term thing.
Okay, Okay yeah.
Yeah, the only thing and this is just kind of.
Rates are out there I mean, obviously on the NGL barrel right. Some of the heavier components that we have in Delhi. If those are used for blending or whatnot. They could see some uplift in benefit there, but that's not going to be a big big driver of our cashless.
Okay. Okay got it and then so then that natural gas yet.
Yeah, just going to say to go to the natural gas front.
Obviously, you've seen storage a catch up to well almost catch up to it seems like we're gonna be there pretty quickly to year ago and middle of the five year average range.
And when that happens.
Current you know gas prices become more of a call on the next two weeks whether.
And so it's really going to be more volatile than it has been in the past.
Past year, or so and in line with norms of past years, but over the last year or so when you're trading at a significant discount there was considerable tightness and currently at this exact moment, it's not as tight as it has been that isn't to say a couple of weeks' worth of or you know you can give it a two to four weeks of really cold winter.
I think we get back into a deficit situations. So.
Yeah, I think youre going to see some near term volatility on natural gas prices for sure.
Okay.
On basis, you know, obviously Houston ship channel has had struggled a little bit here recently, just given kind of the Permian production coming online now we hope that also have been out on the west coast Northwest pipeline.
The actual if you're looking at kind of in the differentials going forward I mean, those actually look pretty good right for this winter at least in early next year. So we're kind of hopeful that we're going to continue to see strong pricing out of China.
Okay great.
Kevin I, just wanted to backtrack for half a second so back to the L O.
I know Ryan walked you through the Barnett.
Yeah on the Williston There was you know the Williston L. O. He was a little elevated this quarter as well, we don't expect it to run at those levels going forward a lot of what was done our operator, we had workovers, there where youll see a lot of operators just.
Pull the string and replace the one piece of tubing.
A couple of joints or whatever that have issues.
And then you'll see them have to go back more often and do it again, what we did with foundation as we we did a very thorough job of completing these so the effect of this upfront LOE in the Williston should allow us to have fewer workovers for a longer period of time going forward. So we pushed.
A little bit of that cost forward into this quarter, but that should have longer term benefits as well.
Okay. Okay.
And then on sort of <unk>.
Capex I mean, this kind of ties in with Workovers when I when I think about workovers in the Barnett or williston or something like that.
Yeah, you're really trying to sort of stem the decline rate and maybe theres been a mechanical failure downhole or something like that.
Substitutes are but in something like the eye.
I can't remember I think Hamilton Dome is waterflood I can't remember if Jonah field this waterflood to them, but in those ones. Yeah. If you come in and do a workover.
It could.
It depends on what you're doing but you could get maybe a more sustained actual uplift.
And same thing yeah in Delhi, and so the cap of the $6 5 million to $9 5 million.
Capital expenditures in those more traditional like non shale play.
Players that you're investing in is any of that.
More like something that could that could add some incremental production or is it broadly speaking largely just flattening out the declines.
Yeah. So.
I'd say broadly speaking, it's it's flattening of the decline, but we do have some re completion opportunities.
And specifically in the Barnett there were some wells that were shut in that they brought back online and they've been working through that program. So some of it has a potential to add incremental production or really put old production back up to where it was as much as anything, but a recompete and new zones would be <unk>.
Additional potential reserves and there are we do have a few of those projects on the books.
Yeah.
Okay, and then for you know capital allocation.
Between paying down debt dividends buybacks.
Yeah, you kind of have a lot of.
Options at your disposal.
I'm curious if you can give some.
Framework, you know the the dividend is going to be steady and growing.
But.
Yeah. The question there about.
What point or kind of what decision framework do you use to make the decision. Okay. Now is the right time for us to increase our or Alternatively, yeah again, because all kind of a lot of options you can turn to the buyback program and then without one you know what framework are you using.
It kind of a.
PV 10 on strip value or something.
Per share.
What are the frameworks that you're using when you look at it yeah. Okay. When do we increase the dividend okay. When do we pull the trigger on a buyback for where the share prices that and when do we instead you know.
Turn things on and the sort of where you have upside levers in the Williston and trying to drilling or something of that what are your mental sort of frameworks.
Okay sure so yeah I mean.
You've got dividends, you've got potential acquisitions, you've got share repurchases, you've got drilling you've got debt repayment right. Those are all uses of capital.
And.
I'll just tell you this.
It's very dynamic and we look at it.
[laughter] quite often.
And we make our decision based on.
What do we think at that time and for the near term going forward that we you know.
Care to project to what do we think it's the highest return and the best use of the investor's dollar and and that can change quickly.
But yeah, I mean down I mean, it is complex and there's lots of capital projects competing for dollars and we just try to make the best decision. The most accretive decision we can at that time so it.
It would be tough to give you any sort of specific metrics on that at this point.
Okay.
Alright, and then just my last quick go ahead yeah.
I was going to say I will say on the dividend.
Again every time, we've raised it we have been able to hold it there at that elevated level or raise it for at least four quarters. So so raising the dividend is not something we take lightly it or something.
When we do it it means something.
Yeah, and I mean, it's from a from a buyback just real quick from a buybacks last acquisition standpoint, right I mean, it's almost <unk>.
Obviously, we're always going to be looking at acquisitions and we do think that we're hopeful at least that we're going to be in a market here, where it can be attractive for acquisitions for us. So we want to balance having the liquidity and ability to do an acquisition right with also returning capital to shareholders.
From about from a buyback standpoint, we think of that while we can either buy our own shares and we'd go buy something in the market. So we're sort of a valley. It's kind of it's kind of dynamic right. We're evaluating what do we think we can get in the market versus what should we buy our shares for so al Kelly said, it's not we certainly don't look at the intrinsic value of our shares where they're more it's more than just that as a factor.
Right and I mean, maybe if I restate it the thinking might be.
Hypothetically if your shares came down and some significant amount you could look at it and say well Gee that looks.
That looks far too low and you know, it's an attractive return to shareholders for us to buy back shares, but then you might find yourself in a situation where as that but.
Having yeah, but by not buying back shares in a situation like that and might also give us more.
More ability to make a a very savvy opportunistic acquisition.
And so you know the the trade off of pre committing to okay, Here's the price, where we're going to do.
Buybacks, if you'd pre commit to that it kind of ties your hands.
In terms of you know because youre going to be saying things and.
In terms of what's happening where private transactions are happening and having conversations around M&A and so you'll have some sense about where things are trending there and so maybe the trend and opportunity. There is even more attractive and it allows you to do something even on kind of a bigger scale does that.
Is that right. Yes that is that is definitely a true statement that that's how we look at it and and we weigh them.
Very regularly and.
You've seen our decisions overtime and they lean in different directions over time yeah.
Okay that makes sense and then the last kind of line of questioning here is just.
I'm Gonna I'm Gonna hunting on Delhi field, even though again I know that's not you have so many other assets now, but I think and and so if you feel like the supplies and some other assets let me know.
And feel free to elaborate on that but when I think of the Delhi field. It's the one that really stands out as an example of something that.
You know has like these and give us additional phases.
All of these sorts of potential initiatives, there's the heat exchanger.
We're adding.
I'm, just sort of like a lot of incremental ways to come at that one and of course Delhi is the one to say Hey, we think we want to start trying to do that now and we want to start trying to do that now, but I'm curious if there's.
Then any incremental conversations and the operator thereabouts, they're they're becoming interested somehow in some new phase initiative program.
Delhi could be Jonah Hamilton.
Anything there going on.
Okay, So I'll speak to Delhi.
We have regular conversations with the team at Danbury, and I've been encouraged where they sort of have a renewed sense of vigor to the asset.
I don't know if it's if it's just the personnel.
Or if it's something corporate but I do think that they are they've been really doing a great job with their conformance work and I think they're committed to that and they've also mentioned other projects that.
That they want to go forward with their and and I think I think they're they're excited about Delhi.
Just like we are now it's a small piece of their overall portfolio. So I doubt that youll hear them talking about it on their corporate presentation very much but.
I do think the asset team believes they have a really good asset there in that there's more that can be done with it so.
I hope that gives you some yes.
Yeah, we have.
You know I don't want to.
Say anything along those lines, but I do think you are considering various options and and there.
Cited to enhance the project and have been doing a really good job on the performance side.
Okay Yeah.
Yeah, I know I think kind of in the shale world when people look at stacked pay in the Bakken or whatever a three forks and.
And say Oh, you know in some ways some of us can almost be like free money in a sense. If you. If you bought it with one layer in mind, then you find out another one's economic.
And then that can seem really appealing, but I think you know.
My sense of under my understanding is that that's kind of always been the case with all of these conventional all the conventional stuff to especially as you go through secondary and tertiary recovery in multiple different phases and so.
Sometimes those require more programmatic yeah upfront capital commitment like you can't just do those types of things one while at a time.
Hum.
You know or at least it has to be planned and thought through and scheduled ahead of time, where you're like well it would be one while this month and then another well. This month this spot in this location and so you can't just stop and go on it and so it has to be a higher sustained commodity price for some stretch of time and outlook for it to sort of.
To get that capital by it but if we're in that kind of environment are headed in that way. That's just be interesting is to use additional and they're not technically layers in this context that they kind of have that quality.
It becomes interesting so I appreciate the commentary I'm sure I'll be asking you guys about that at other points in the future.
Hey, How's it going out on that feel free, but otherwise I'll I'll take the rest of my questions offline, but a good job on the quarter guys. Thanks.
Yeah. Thanks, Thomas Yeah, I really appreciate it and happy to happy to follow up with you further to help yet so.
Yes.
The next question comes from John White from Roth Capital. Please go ahead.
Good afternoon, everybody and Kelly I'd like to offer my congratulations on your recent appointment as CEO .
Thank you John I really appreciate that.
You've been on the board a number of years. So you know the company very well and you've got your own successful track record within the industry. So I'm glad to see it.
Well terrific Yeah, we're a lick it was a it was a the opportunity to work with this I mean truly talented team of professionals here and and continue working with the board from a different capacity.
It's terrific. So yes. Thank you very much I really am excited it's a it's a wonderful spot.
Okay, I may be a little late and noticing this but in your September presentation on slide five.
Under the heading of return of capital.
There's a line a bullet point special dividend I believe that's a new addition to that.
The presentation is that right.
Yeah, and and honestly that was it.
It's something we've talked about at the board level, we have not pulled the trigger on doing it but it is in our calculus of what's the best way to return capital to shareholders in the most effective way that we'll have hopefully a longer term lasting effect. It was definitely one of the options we consider.
And I suppose that might be employed.
If things are quiet on the acquisition and Capex front.
And and give you the the.
<unk> to pay a special dividend.
Yeah, I would I would say along those lines are there would be a number of factors that have to take place, but for sure thinking along those lines that would be the kinds of things that would make that more attractive.
Okay, well the press release and the comments today were very detailed so I don't have any further questions and I'll I'll pass it on.
Well, great John Yeah. Thanks, Thanks for calling I really really do appreciate it always enjoy talking to you yeah. Thanks John .
The next question comes from Jeff Robertson from Water Tower Research. Please go ahead.
Thank you Kelly or Ryan can you talk about the six $5 million to $95 million capital program that you referenced for fiscal 'twenty three.
And how that might impact production as you progress through the rest of this year.
The rest of the fiscal year.
Sure.
I would say for the most part that will be.
To keep production at levels consistent with our reserve report, we may see a.
A few sort of.
Chances to bump it on some projects along the line.
And hold some of the production flat, but I mean, that's really where that number came from the mid point of that.
It is just to sort of match, what we've already planned out so I think the corporate decline.
That we have it doesn't really change that we have chances to do a couple of re completions.
We have chances to do some sidetracked, but those would be sort of incremental but for the most part it.
Steady as she goes in there.
Yes, I mean, I wouldn't telling Curt.
Yeah, sorry, I, just I know, we've gotten the question on kind of maintenance capital everyone's trying to figure out right.
I wouldn't expect this program to be a true maintenance capital program to keep production flat, but we would hope that it would add some production certainly potentially in the Williston right with some drilling we could see a little bit of increase there.
And then other areas just maybe stemmed the decline a little bit yeah, and silicon and the Jonah theres, some central compression facilities going in and that'll that'll help that will help.
To help as much of a cost us anything else just like in Delhi with the heat exchanger.
Could help improve opex lower low so it's not all production some of it is FX costs as well.
Or are some of those costs are workovers that will flow through the yellow line or are they true capital costs.
These would be capital, yes, I think we will see a problem.
As with history, where policy a mix of that Jeff obviously, we make a determination when we get the F E.
If its a capital or expense workover, but we'll probably see in Mexico.
Kelly on the Williston have you all.
How far along are you in your technical.
And the engineering evaluation of the inventory on the pronghorn and three forks to start.
Deciding whether or not some of those wells might fit into your capital program and I guess foundation for that matter.
In 2023.
Okay. So you you said, it's kind of like Youre running youre going down a road and so to answer how far along are you.
We're not to the end, yet Oh, I'll say that we're still evaluating it obviously prices change.
Change both on the input and on the cost side.
And the output side.
So it's it's dynamic and we are doing.
Basin wide study <unk> geographic model.
There's a lot of work going into it and I would say, where we're not at a point.
Nor foundation, where we're ready to say, we're going to go forward with this program at this level right now or at a different level right now so.
I mean, yeah listen where.
We're working with foundation and we're moving the ball forward, we're just not there yet and I wish I could give you a more specific answer on timing, but Ah.
I can just tell you we've done a lot.
We've looked at a lot, but there's still more to do.
And anyway, I hope that helps.
It does last question on capital allocation the revolver balance I think at the end of <unk>.
There was probably around 12 and a half million dollars.
Having come down $9 million in the quarter can you just talk about how that debt repayment on the revolver competes are compares for your uses of capital with.
The share repurchase authorization and the dividend.
Yeah, So yeah I think.
Kind of put this out in our prepared comments in the press release, So we paid down another $75 million after the quarter end so.
Currently were just under 5 million sort of drawn and expect to have that gone.
Towards the end of this kind of calendar year right.
What we've been consistent on the share repurchase is to say that we were.
Want to have our debt paid off before you can really look at a share buyback and so that's obviously, our debt's going to be paid out soon to where we would start really looking at potentially using the program depending on as we talked about earlier right with Donovan just depending on how the board and how we feel about kind of the outlook for M&A versus kind of where our stock is trading.
Now for the dividend.
You know I'd say, that's a little independent right of kind of the debt pay down right. We've always made a priority of paying down the debt and we're pretty much done so that really hasnt impacted how we think about necessarily raising the dividend if we sort of felt like.
It felt like the outlook warranted us raising the dividend with a little bit of debt drawn we would fail to do that so I don't think I wouldn't want people to think that look we're not going to raise the dividend on last week.
Pay down our debt and vice versa. Once we pay down our debt, we're going to raise the dividend right, it's kind of a dynamic.
Outlook that we do every quarter and given sort of the volatility in pricing right is something that they look at even more often than that.
Thank you.
Thanks, Jeff.
Okay. If you have a question. Please press Star then one.
Our next question comes from John Bair from ascend wealth Advisors. Please go ahead.
Thank you.
Cause the congratulations to Kelly when your appointment.
Thank you really appreciate yep yep.
I have.
Quite a number of questions, but given the time constraints here al.
Try to take them offline, but a couple of quick ones.
Kind of we've talked a lot about.
The payoff of the debt and so forth. So at the end of this calendar year would probably be debt free.
And.
And your hedges will be rolling off pretty quickly.
So my question is have you with regards to the dividend.
Talk about that have you considered the idea of a variable like so many other companies have.
<unk> initiated as opposed to say a one time special dividend if that were.
Deemed appropriate.
Yes.
We have we have considered a variable.
And.
At this point in time.
The board and I consider a consistent dividend to really add more value to shareholders.
Well I mean, you have if you had a base I mean, when when they talk about a variable.
You know from what I've seen.
The companies have a a a.
Our fixed base dividend and then the variable component is based on cash flow or whatever.
And so.
So in that context, I say, okay, you're happier your base dividend right now 12 cents quarter and then you know.
Decide on.
How much additional of your cash flow you might want to pay out as a variable.
That kind of.
Okay I understand what you mean, rather than just stay at a true variable you pay out X percent of your right right right understand.
Yeah, we've considered that for sure.
And it's something we will continue to consider.
You also have to keep in mind.
We have an asset base.
That given the right parameters.
We can find acquisitions that can grow to it in a meaningfully meaningful way without.
Having to take on a whole lot of debt.
So on the acquisition front for the right acquisition, that's always going to be something we want to have in mind. So.
And we don't always want to do with all that I mean, if look if we have some cash on hand that helps as well so.
Sure Yeah, I would say John I mean, you know it's from a dividend standpoint, we've done a lot of work and analysis on this.
We mentioned and John John Whiteboard question on special dividend is certainly something that it's kind of a tool in the toolbox. If you will but you know.
In our opinion and my opinion too we don't you don't get a lot of value for just a onetime special dividend that's that's not recurring.
But to your point if you wanted to look at a variable dividend based on a percent of cash flow you, probably and I think you would get a little more credit to the market, but what you don't see very often is small cap companies employing that strategy that people that have done that variable strategy our pioneer diamondback.
If you look at a really large large producers that effectively.
We have what I would say cash that they don't know what to do with.
They've got a buyback program in place at database dividend the market doesn't really want them to go out and buy.
Additional properties and so they have this they don't want to build up a cash balance of variable dividend for them makes a lot of sense for us we do want to reserve some cash and cash flow to be able to be opportunistic and grow the asset base via acquisition.
To further way Ryan, saying for those guys I mean, it's sort of the law of big numbers right for them to be able to use that portion of cash flow, which is above the base to go make an acquisition.
It's hard to find something big enough and meaningful enough to really make a difference whereas for us.
We can find sort of onesies and twosies kind of acquisitions that do make a difference for us so.
Fair enough.
Kind of going back to some of this capex and and lease operating expenses and so forth.
Given the the the big.
A question and effort on reducing.
You know.
Greenhouse gas emissions and so forth how much.
Of your operating expenses or are you seeing a lot of need or.
Attention being paid towards equipment being put on.
These producing.
Well heads and so forth that is requiring new.
New equipment to.
To help mitigate.
Leakage and and so forth is that a meaningful part of that.
Your.
Ongoing operating expenses.
I would say for the for the most part no I mean look historically.
I know that.
Energy companies get a bad rap, but I mean, most of the time most companies are not venting and theyre trying not to flare.
And we're in.
Places, where if we make gas we want to sell it right. So no sure.
So yes.
If we had some huge wells that were making oil and a bunch of associated gas and you can't really sell the gas well what do you do right. That's a that's a dilemma that.
We're trying not to get ourselves in and for those guys. It might be a meaningful cost that they have to do something.
Extraordinary to capture that and not waste, but.
Look we've had some equipment obviously have to go in but it's just sort of normal course stuff. So I wouldnt I don't think Theres really been anything extraordinary no I mean, I would just add so if you look kind of just a couple of examples for you. So for Jonah for instance, they're big on what they call responsibly sourced gas.
Luckily, we actually bought the asset after they put any equipment in that needed that so we haven't really seen any capital.
Any other way that we see ongoing as is.
Really minimal that's more of a capital expense, which we didn't have to put up on the Barnett we talked a diversified I mean, they are looking at things like you know solar powered compressors, but.
There's nothing that we've seen from a from a large sort of capital expansion I would hope that anything they put in like for instance, a floral park compressor you'd see some savings on the electricity side.
So I.
I would say in general, we're not seeing a big push or impact to our financials for that yeah. Yeah.
Yeah I.
I think it's a fallacy that anybody thinks that.
Any size the oil and gas company would want a flare gasoline that's burning money theyre not right I mean.
But I guess, what I was trying to get at more was you know monitoring you know is there any.
Like either regulatory wise or from an operational standpoint.
Me either older older fields, maybe older equipment, and so forth that you know you're having to.
Put some new equipment on to to monitor that kind of stuff right.
Okay sure no I understand.
Yes, I would say theres really nothing substantially new or different.
I hope that helps definitely.
At Delhi, Seattle, they're trying to get that certified as carbon sequestration field right.
Or front of sort of the.
Cc U S movement here and like I mentioned, John has already put in a lot of the monitoring.
Equipment.
In the Barnett I think like I say diversified is going to replacing that as it's needed.
Some of the wells are.
Of them have been drilled you know call it 10, or so years ago, but by you know a lot of oil and gas standards are not incredibly old. So I mean, I think they are really potentially just looking at replacing things as it comes out sure.
Okay, well I have I have more questions, but I'll I'll arrange to get with you offline. Thanks a lot.
Listen great. Thanks for the call and we'll be happy to touch base with you anytime you like.
I'll be in Houston actually in the next week or so so.
Make great dropdown okay.
Great. Thank.
Thank you.
Thank you.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Kelly Boyd for any closing remarks.
Thank you Jason.
Thanks, again for everyone for taking the time to listen and participate in today's call. We really do appreciate your continued support of our efforts as always please feel free to contact us if you have any additional questions.
We look forward to formally speaking again, when we report our second quarter for fiscal 2023 in February Thanks again.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.
[music].