Q2 2023 Evolution Petroleum Corporation Inc Earnings Call
Yes.
[music].
Good day, everyone and welcome to the evolution petroleum second quarter fiscal year 2023 earnings release conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please also note today's event is being recorded.
At this time I would like to turn the floor over to Ryan <unk> Chief Financial Officer. Please go ahead.
Thank you and good afternoon, everyone welcome to our earnings call for the second quarter of fiscal 2023, joining me today is Kelly Loyd, our 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 our operational results I will then.
<unk> returned 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 yesterday's earning 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 Companys website with that I'll turn the call over to Kelly.
Thank you Ryan and good afternoon, everyone and thanks for joining us on today's call. Our results in the second quarter of fiscal 2023 were solid and continued to demonstrate our assets' ability to generate strong free cash flow, we used our cash flow to once again bond operations.
We used it on capital spending and shareholder dividends. In addition, I am pleased to report that we've delivered on our commitment to eliminate our remaining debt position. During the period. We have now fully integrated multiple acquisitions paid off our debt and are generating meaningful free cash flow to fund our strategic objectives.
Of course, none of this would have been possible without the hard work of our team I want to thank all of our team members for their continued dedication and strong execution as we remain focused on driving near and long term value for shareholders.
During the second quarter, we paid a cash dividend of 12 cents per common share. This was 60% higher than the same period for fiscal 2022, which we view as a clear indicator of the growth and strength of our business. Our board recently declared a cash dividend for the third quarter of fiscal 2023.
<unk> of 12 cents per share this will mark the 38th consecutive quarterly cash dividend paid by the company. Since we began our return of capital program in December of 2013.
Since the inception of the program, we have returned more than $94 million or $2 85 per share of capital to shareholders as.
As we've discussed in the past there are very few small cap E&P companies that can say they have consistently paid a dividend for that length of time throughout several tumultuous commodity price cycles. We believe this reinforces the strategic view our board takes as we prudently grow the business through the targeted.
Acquisition of solid long life, and low decline assets that will continue to support it.
Sustainable quarterly dividend for the immediate and long term insured maintaining and ultimately growing the payment of a quarterly cash dividend remains front and center for our board and management team.
Turning now to operations second quarter fiscal 2023 production of 7250 net BOE per day was down around 5% from the 7598 net Boe per day for the first quarter of fiscal 2023 in large part this was due to downtime associated.
With the severe winter storms, we experienced and to a lesser extent some temporary compression issues and some downtime in the Barnett associated with offset operator activity as of now and barring any future extreme weather circumstances operations are back on track.
Looking at our second quarter results in more detail.
Net production of Jonah field for the second quarter was 1902 Boe per day slightly impacting production levels in the second quarter was the decision to maximize natural gas production, thus, reducing NGL recoveries during the period to capitalize on relatively higher natural gas prices, which averaged.
$11 per Mcf for the quarter. The Jonah field is our most recent acquisition and we remain pleased with its performance.
Similar to our other assets the field is highlighted by long life low decline reserves that generate significant cash flow. In addition, the asset base provides access to attractive western markets.
Second quarter net production for our Williston Basin was quite flat to the first quarter at 489 Boe per day of which approximately 76% was oil the Williston basin oil production was impacted by the winter storms during the quarter. However, this was offset by the reactivation of the one oak.
Gas pipeline, we were pleased to see the one oak gas pipeline come back online in late September for the first time since our acquisition. This has led to increased optionality for natural gas and NGL sales.
In early January we along with the operator Foundation Energy management began operations on one of our Bakken re completions and continue to work closely with them on high grading opportunities in the field such as expense Workovers additional re completions and sidetrack drilling opportunities.
Also technical evaluation to remain underway to assess our pronghorn and three forks drilling locations net.
Net production for the Barnett shale for the second quarter was 3304 Boe per day of which approximately 76% was natural gas.
As discussed previously impacting sequential production volumes were severe winter storms temporary issues at select compression stations and certain offset operator activities all of which have been addressed.
Hamilton Dome field net production was substantially flat for the second quarter at 413 BOE per day, we 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 execute on other targeted maintenance project.
Additionally, in the quarter, we an merit began upgrading facilities to proactively reduce emissions throughout the field.
Second quarter net production at Delhi Field was approximately 1100 31 Boe per day Danbury, the operator of Delhi took steps to minimize the severe weather impacts which resulted in only minor downtime during the second quarter. Despite the storms.
They are continuing to perform conformance workovers and upgrades to the facilities with that I'll 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 second quarter fiscal 2023 results. My comments today will primarily focus on financial highlights and comparative results between the second and first quarter of fiscal 2023, a key highlight of the second quarter was our continued solid <unk>.
Generation of cash flow, including adjusted EBITDA of $16 4 million. This was $24 66 on a per BOE basis, which was an increase from the first quarter. We have now generated $33 5 million in adjusted EBITDA for the first two quarters of fiscal 2023 as Kelly discussed during the second quarter, we continued to <unk>.
And our operations development capital expenditures and dividends out of operating cash flow. While also repaying all of our remaining debt supported by our continued strong operational and cash flow outlook. We paid a dividend of 12 <unk> per share in the second quarter and declared a dividend of <unk> 12 per share for the third quarter of fiscal 2023 payable on.
On March 31 to shareholders of record as of March 15th our cash dividend program has and will continue to be a top priority as we clearly recognized the strategic importance of returning value to our shareholders.
During the second quarter, we enhanced our already strong balance sheet delivering on our commitment to paying off our debt in the second quarter, we eliminated our remaining debt position of $12 $3 million, our borrowing base remained at $50 million and we had cash and cash equivalents of $3 7 million and working capital of $2 9 million.
As of December 31, 2022, the result was growth in our liquidity to $53 7 million or 45% increase for only six months ago. This is a direct result of our targeted and immediately accretive acquisitions over the past couple of years as well as our continued focus on cost control, we are ideally positioned for the <unk>.
<unk> execution of targeted future growth opportunities that meet our strategic vision.
As a result of eliminating our outstanding debt position. We are not currently required to maintain any hedges on our production and our existing hedge positions are set to expire next month.
Looking at the second quarter financials in more detail. Our total revenue of $33 7 million was 15% lower than the first quarter due to a combination of factors, including lower oil revenue associated with 1% lower sales volumes and a 13% decrease in realized pricing lower natural gas revenue due to a 5%.
Decrease in sales volumes, and 8% lower realized pricing despite declines of almost 30% in Henry hub pricing.
Decreased NGL revenue due to 8% lower sales volumes and a 27% decrease in realized pricing. The result was an average realized price per BOE, a decrease of 11% to $50.49.
Lease operating expenses decreased 21% quarter over quarter to $15 million in the second quarter on a per BOE basis lease operating expenses were $22 55 for the second quarter compared to $27.35 in the first quarter <unk>.
Primarily contributing to the decrease in LOE, where changes in estimates for prior periods and reduced <unk> and production taxes due to lower revenues in the current period.
Also contributing to the decrease was lower workover expense in the Williston basin and reduce C. O two cost at Delhi field associated with the decrease in crude oil prices from the prior quarter. As a reminder, our C. O two cost at Delhi field are directly impacted by the price of oil therefore, lower oil prices resulted in lower C O two costs.
General and administrative expenses were $2 6 million for the second quarter versus $2 5 million for the first quarter.
The slight sequential increase was primarily due to higher noncash stock based compensation in the second quarter that was partially offset by lower professional services fees compared to the first quarter. The end result is that on a cash basis second quarter G&A was essentially flat with the first quarter.
Net income for the second quarter was $10 4 million or <unk> 31 cents per diluted share versus $10 7 million or <unk> 32 per diluted share in the first quarter. Adjusted net income for the second quarter was $9 6 million or <unk> 28 per diluted share versus 10 million or <unk> 30 per diluted share in the first quarter.
During the second quarter, we invested $1 1 million in development and maintenance capital expenditures for fiscal 2023, we continue to expect total development capital expenditures of $6 5 million to $9 $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 Pronghorn and three forks locations, we expect capital spending on our existing properties. We're continuing to be met from cash flows from operations and current working capital.
Of course, our spending outlook may change, depending on conversations with our operating partners commodity pricing and other considerations.
After repaying our outstanding debt and upon emerging from blackout, we entered into a rule <unk> one share repurchase plan in December that authorized up to $5 million buybacks subject to limitations on trading volume and stock price. The plan is effective through June 30th and can be extended or renewed by the board. The plan also.
It had a 30 day cooling off period. So there were no repurchases made until January we plan to provide an update on our buyback activity and our third quarter 10-Q to be filed in May I.
I will now turn the call back over to Kelly for his closing remarks.
Thanks Ryan.
We continue to benefit from the targeted acquisitions that we've completed over the past few years, including two in just the last 12 months.
As a result, we enjoy a larger and more geographically diverse asset base and commodity mix. This provides us with a solid platform for significant cash flow generation that we will continue to use to support and enhance our well established shareholder capital return program.
Our shareholders expect a consistent and meaningful cash return on their investment and we remain committed to maintaining and as appropriate increasing our dividend payout over time.
Another component of our capital return strategy is the share repurchase program that we put in place and began making purchases through after having fully repaid our revolving credit facility at the end of the second quarter.
This provides the optionality to opportunistically repurchase our shares from time to time through open market transactions privately negotiated transactions or by other means in accordance with federal Securities laws.
As in the past, we will maintain a conservative balance sheet and remain disciplined in our management of capital as we fully recognized the cyclicality of our business.
Our ongoing commitment to remaining fiscally prudent was evidenced by our prompt pay down of our debt position. Following the closing of our most recent acquisitions.
We are well positioned to execute on targeted high rate of return and immediately accretive growth opportunities as appropriate we will continue to execute our strategic plan focused on maximizing total shareholder returns and optimizing every dollar that we invest.
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 will continue to benefit our shareholders for many years to come.
As we've discussed in the past, we will closely evaluate and only execute on targeted acquisition opportunities that are immediately accretive provide long life established production strategically expand our base of assets and do not result in material dilution any transaction must also clearly some.
<unk>, our longstanding thesis that providing a significant total shareholder return for our shareholders.
With that we are ready to take questions operator.
Ladies and gentlemen at this time, we'll begin the question and answer session.
Ask a question you May press Star and then one using a touchtone telephone.
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Momentarily to assemble the roster.
And our first question today comes from John White from Roth Capital. Please go ahead with your question.
Good afternoon, gentlemen, very nice results this quarter.
Thanks, Jonathan.
Kelly are you settling into your CEO chair.
It's yes is the answer again with the outstanding team we have here at <unk>.
Made a good smooth transition. So I appreciate you asking me that.
On the Capex.
Is.
The press release.
Ryan.
Reiterated provides a range of $6 5 million to 95.
And then easily blayne, what's that capital spending is going to be directed.
And then there is a great.
And the remainder of that.
Where it does not include any capex for that.
More than three forks locations in the world.
Could you give us a ballpark.
Idea of digital magnet.
Canada.
Well might add to the physical 2023.
Sure.
It all depends on.
The pricing in there and one of the reasons.
We've been really going back and forth on this pricing in that part of the World has moved a lot and it's moved up and that we're starting to see it easily but.
Yes, so it's kind of a range per well are fully completed well.
Look I don't want to give an exact number but I can say.
Just to be say anywhere from seven $5 million to $10 million.
That's on an eight eights basis right eight eight right.
Working in locations you know every location is different.
So some of my size, 50% some of them, maybe more like 30%, where the ultimate location go so.
So youre, saying that would change the top end of the range from nine five and.
Yeah.
Yes, I'm, saying you would add another depending on the working interest right.
Gross seven and a half to 10 million per well that would assume that we would drill and complete the well this fiscal year, John right. So I mean that would <unk>.
Because it requires discussion.
That's right.
Yes.
But.
Sure.
So again.
That's sort of the concept and it depends on every location is a different sort of working interest you've got you have prices moving around significantly for the service side of things and part of the world and you've got permitting process timing.
All of those sort of issues to play with but there is not a per well basis and I think we've advertised before somewhere in that and it was a broad range, but we don't want to get too specific at this time.
I would note that perfectly acceptable and I understand.
What's the status of 70 locations have wells been proposed by the operator that you in A&P.
So as far as new Pronghorn, three forks wells no. We're working with them closely they have not proposed any was there.
Have.
They have proposed <unk> on.
The re completions in the Bakken uphold vertical re completions and some old Bakken wells and we've actually recently begun one.
<unk>.
And the other part the other thing we're talking about.
We've spoken about the burgers or niche SKU.
In the past.
Dan.
I mean, John Thats going away and it's all jumbled together, they all have their own pros and cons and they have their cost associated with them and expected results and risk and so youre putting them all in there working together coming up with at this time, what makes the most sense to do right now.
<unk>.
On the front, what jumped to the head of the line and we're excited about it is the re completion.
Paul vertical well.
Was drilled deeper than the Bakken coming up one completing it there so that that those programs had jumped to the front of the line.
All the variables into the mix. So that's what we're focusing on with the operator right now yes.
Yes, we can get some production growth in the sidetrack.
And the re completion.
Okay, well, thanks for all that detail and putting some numbers around it I really appreciate it and I'll pass it on to the operator.
Okay I appreciate your time and your interest as always John Thanks.
And our next question comes from Adam and Schafer from Northland Capital. Please go ahead with that.
Hi, guys congratulations on the quarter.
I wanted to start off.
Yeah, I want to start off by talking about the average daily production decline of about.
5% quarter over quarter.
I just wanted to go through the causes of that I know you discussed on the call but.
So.
And kind of a little bit of my thinking kind of just running at values. So you know oil was down just 1%, while gas and Ngls were down much more at 5% and 8% respectively.
In my mind that kind of squares with my understanding of how I think natural gas, sometimes can be impacted more because of sort of pressure changes that have an impact on liquids can fallout and freeze.
So sometimes I think back in some ways almost counter intuitively be more vulnerable or oil and then of course, there's the compressor down in the Barnett.
So I.
I guess the first question is just in my right about the general impact of freezing weather with oil versus ly.
Like flowing.
I know operations are hard no matter, what I tried to drill a new well in terms of flowing my accurate on that in terms of oil versus gas.
And then the follow up there would just be you would production had been up quarter over quarter or just flat without any of these sorts of disruptions the weather and the compressor.
Would it have been up if you could kind of quantify like what kind of path you are on and if we should expect things to buy back next quarter, absolutely I would get a production bumper.
So I'll talk a little bit about the first part of your question in general oil is liquids right and they have a tendency to be able to freeze.
However, it depends on where you are like our operator foundation.
In the Williston, they're very used to and very good at handling and winter rising the wells now with the biggest impact there on the oil side honestly was if you get three feet of snow you can't drive down the road to get to the well right, so but as far as their equipment goes they've done a great job of winterized. So it wasn't affected.
Too much and in Delhi.
Yeah, there were some problems in Delhi as we alluded to in the first quarter. So the fact that we're flat if somebody is recovering the issues in the first quarter, we did have to shut down because.
Things were using there a little bit in the Delhi side, So I would actually argue.
<unk> oil, which is liquids is more susceptible to.
The freezing storms, but everything you can.
Fraser Valley, you know when you get storms that bad and everything.
It can impact anything youre doing.
Okay. That's helpful and on the sort of if you can quantify or ballpark just that's it.
Ben would we have seen increases this quarter based on just kind of the path you're on if we didn't get the weather or the compressors shut down.
Should we see that.
Should we see a bounce back next quarter with things cleared up in the.
The compressor coming back online just trying to kind of get a normalized idea of how to think about production going forward.
Yes.
So I'm not going to I don't want to say too much as far as going forward now looking backwards.
What I can say is it.
Overall, the net impact was about 5%.
We have a corporate decline rate is.
Lower than 5% per quarter so.
Yes, I think you can kind of understand the impact there I don't want to get too specific and I don't want to give guidance, but we were <unk>.
Lower than when we ought to have been.
<unk> of these things.
For sure, yes, it's hard to say dominant.
Okay.
That was as you can probably see the most of the impact quarter to quarter hard to say.
Any degree of.
Certainly where we would have been if <unk> hadn't occurred right. We certainly would've been closer to last quarter than we are today, but it is on decline and diversified.
Diversified has done a great job reactivating wells.
But at this point they've reacted most of what they are probably going to Intel and we're probably going to expect to see some decline going forward, but we would certainly hope that there would be some bump to your point next quarter from this quarter with some of these issues have been rectified assuming nothing else crops up right as you know can add.
Okay. Okay.
That's helpful and then I'd like to dig a little bit deeper into the production costs.
Yeah from my perspective that was kind of a major driver behind the EBITDA would be.
I think.
Can we talk through that some more and help me think about how to model it going forward. So.
One one of the key things look like.
I understand.
AD valorem and all of that stuff, but.
The biggest driver you said was the change in estimates from prior periods and I think in the past you've said that has to do with a lag and commodity price changes.
And that impact on Eloise something like if you're consuming gas on site to drive the compressors or something like that then of course that quote.
Costs are going to be tied very closely to commodity prices and then it sort of a billing cycle thing that creates the lag.
Is it a pretty straightforward one quarter lag where I could do you know if I did say like a correlation analysis right.
Yes commodity prices, but it did a one quarter lag versus forecasting.
That.
Hone in on a good prediction there would that kind of leads me to stress that not.
Not really one quarter, but with very easy right. So I mean, a lot of the costs we have talked.
Talk about the current accident.
Some of them, where we tend to see we've seen more variability here.
Most of our cost a lot of yellow and gathering right and we get billed on a two month lag for that so it's really not one month to month.
And there is impact there from commodity prices.
And processing side and so as we've seen as I mentioned last quarter as we've seen prices go up that does filter through in our estimates and updated throughout and so while we had a negative impact this past quarter, we had an artificial positive impact in this quarter in the Barnett and reporting around $8, a barrel and can see.
See in our press release for this quarter on LOE for the Barnett I think last quarter I said, a range of 20% to 25 and I don't think Thats a good range for the Barnett.
Some of that obviously as you've mentioned it depends on pricing and that pricing is lower at certainly at the lower end of that range than the higher but I still think that 10% to $25 a barrel for the Barnett is probably a good longer term way to model that and on the other areas we've seen.
Those have been pretty consistent really if you look on the other areas.
Area to area with the exceptions for the Williston, having some less workover activity this quarter, which we saw a little bit of drop in that area, specifically and if you recall Donovan last quarter, we spoke to Williston.
Foundation was doing a really good job of pulling strings completely and changing amount getting ahead of the curve, which should have the effective keeping them on loans and having less downtime. So we frontloaded some of that lower workover costs at Boston.
Last quarter and I can see the effect of it this quarter.
Hi.
And then last question and ill hop back in the queue, but.
Thank you pay it off the debts and.
You know you've got the buyback.
Also means that all things considered it means you're in a great position to be considering or more actively looking at deals as a possibility.
Where can you get the cheapest barrels and maybe that means buying back your own shares but yeah.
That also means comparing against what opportunities are out there. So how actively are you guys looking at deals right now.
Are they more in the form of.
As potential asset purchases or things, where you're looking at maybe.
Picking up an entire company.
Okay. So.
You can.
The answer in a theoretical answer is we're open to whatever is the best deal and what makes the most sense at that time.
Honest answer for what we've actually had.
Doug into has been more acquisitions.
Yes.
And that's not for any reason look over the past week.
We consider all sorts of deals and what's the most accretive and what's going to be the best return for our shareholders.
In the last few months, what we've had we've been able to.
Go meet with people about has been more as I said, because thats just happens to be the case, we're not opposed to that.
And I'll just say.
Acquisition front.
Yes.
We're competitively looking.
All the time for acquisitions, and I don't want to get too into the weeds on expected pricing and all that.
But I think I've said this before and you've seen it the last couple of quarters no deal is better than a bad deal.
And sellers had been pricing in high Frontload pricing forever when the curves were severely backward dated.
These scripts start to change.
And I think we're going to have fairly quickly be able to see sellers expectations see if they move as well.
I can't say.
I can say that we're somewhere along the commodity price curve.
Certainly with natural gas I think we're a lot further.
Then we were a couple of months ago. So.
We're starting to.
Have been.
But we're digging in as much as ever on the acquisition front.
Okay makes sense I'll take I'll hop back in the queue.
And our next question comes from John Bair from ascend wealth Advisors. Please go ahead with your question.
Thank you.
Afternoon, happy new year to you.
Thanks, John .
Yeah.
Brian .
So I have a couple of questions number one.
Rather interesting pricing that you got from Jonah.
Production and just wondering if.
Those elevated prices for gas are still.
Out there or has that come down with the overall.
And gas prices.
Yes.
It's interesting right. So when we bought the property I wouldn't say, we predicted what we could've predicted what happened, but we were bullish on California, and kind of pricing in the west and the winter sort of held through to an extreme nature. Ryan. If you know if you follow California, whether it's been a very cold.
Maybe unusually cold winter out there and with kind of the energy policies in the state there sure natural gas and you get these phenomenons in the winter that we saw here in December we actually saw it and we've seen it in January as well a little bit.
Here and some in February prices are coming down a little bit but.
I would say, it's definitely surpassed our expectations I think we are hopeful that we would see this winter premium.
Which we had seen in the historical data we reviewed when we bought the assets just not to this extent. So it's hard to say what are we going to see is again, it's certainly possible for abnormally cold winters, but whether its going to be a big driver of that along with hydroelectric power and lots of other variables, but we certainly been really pleased this winter.
So basically the pricing tightness there.
Spread versus Henry hub is still world.
A pretty pretty big spread there right.
Yes.
Okay.
In other words.
Your press release, you said you were getting like $11 per Mcf for gas right.
So for the time after the court.
Yes.
So it's still kind of up in that range, obviously, probably not exactly but.
Is that is that a fair statement.
Operation.
Okay. So I don't want to give too too much I will say.
Factually there have been days this quarter we received.
Gas prices that we're at least in that range of about that.
I think at all.
It's been if you follow.
Look we sell a lot of kind of parallel right of the tailgate. There. So if you follow the daily pricing, yes. It was high in January it has come down a little bit in February right until at a premium to Henry hub, but its certainly come down. So we're hopeful we don't know how this quarter is going to and we're hopeful we'll have strong pricing again this quarter, but we're only we're not even halfway through this.
Korea.
And John I don't want to say anything that sort of falls into the political spectrum. So I'm not going to comment on why <unk> is in the situation. It is but I can say, yes, clearly there is insufficient natural gas being delivered to California is all the routes are maxed out and yet theres still record high prices.
Yes.
Yeah. That's fine you don't have to go.
I'm with you on that.
And in that end of it so.
As far as the.
Two burk bear wells you've mentioned.
Tracks are those testing new geographical areas like new units or.
Is it more kind of infill type.
So the bird bear itself and this is something we're continuing to do work on and the question is is it a conventional play is it a non conventional play.
Or is it just very chopped up and so you need to make sure you go out and counter some variety along the way.
And.
The answer is yes. They are both infill and yes. They are both new it depends on how small the drainage pocket is that youre going into and you may encounter several of these across the wellbore. So.
Okay.
Let's put it this way from a close ology perspective, there theyre close okay.
Okay.
And then I think.
I kind of missed this but you mentioned on the vertical re completions.
Are these new zones within.
The wellbore, so right or not that's correct yes.
These opportunities.
Sure.
Several of them.
As we'd like but there are.
Lisa.
Were they were drilled deeper and bypassed.
Bakken <unk> and so you go up and put a.
Big single vertical will stay back on it.
And then the.
<unk>.
The pronghorn and three forks, if those were to come up with you.
Possibly tap into your.
Credit facility, if the dollars were.
More than what you had cash on hand or would you work it out of cash flow or kind of what's your what's your thoughts on that.
I mean, it's kind of more really more of a working capital right decision I think we wouldn't drill the well unless we thought that we're going to be cash flow positive right. So obviously, you're incurring cost upfront but.
Given that where we are now debt free and we have good cash flow certainly we would hopefully to do amount of out of cash flow.
And it will just depend on where we are in the cycle from a working capital standpoint, but let's.
Let's say I'm not going to borrow long term capital to drill the wells right.
I didn't mean to imply.
It was more.
Short term Bob Yeah, Yeah, Okay, and last question I don't want to philosophically.
I really don't want to borrow money to drill wells and so right right got it.
Last question there was a recent article in the journal about kind of highlighting Danbury and the fact, they had the C O two pipelines.
And we talked about it a little bit.
A few months back and.
I was just wondering if theres been any progress in that utilization is that pipeline system to gather industrial C O two gases and so forth.
And if so would that how might that benefit.
<unk>.
Evolution.
Industrial.
Producers are of that.
Were to utilize the pipeline.
That help help you all how would that affect the contract.
That you have with the oil prices and the use of C O two.
So.
Interesting, yes, it does.
People ask.
If they get the Green pipeline certified and you have a tap on the green pipeline are you going to be able to get carbon credits.
And I'll, then honestly I don't know the answer to that.
We have some smart people looking into it but I think there are sort of waiting for more guidance from the governmental types, but as far as we're taking I always get this worked around and through Morphic, rather so new as <unk> created from.
Big machinery complexes and all of that man made Cotwo, if you take that and put that in the green pipeline and we can get some of it.
Allocated to Delhi versus the other fields, then I would assume it's probably going to come at a cheaper cost then.
What we're getting from.
<unk> done various Jackson dome.
Film projects, So I guess, where I was.
Kind of going with that and the bigger picture is that would that helped lower the overall cost for <unk>.
<unk> operations in other words would you be able to capitalize on that would it cause re.
The negotiation of the contract or whatever.
That you're in right now given that you are paying.
Yeah.
Yes, two cost based on that price of oil barrels and so forth.
Right.
It's <unk>.
Potentially as the answer but we're not we're not at that.
If there's a way for.
Where are we in Danbury two okay.
A better contract that benefits both parties.
I am sure we both be up for it but at this point.
We're not far enough along to speculate right.
Okay very good thanks, a lot appreciate the questions keep keep one.
Keep on producing.
Alright, Thanks John .
We do appreciate your continued interest so.
Thanks, a lot for.
Thanks, Joe.
Once again, if you would like to ask a question. Please press star and then one to withdraw your question you May press Star and two.
Our next question comes from Jeff Robertson from Water Tower Research. Please go ahead with your question.
Thank you good afternoon Kelly.
You mentioned you mentioned when you were discussing acquisitions some of the impact of pricing volatility can.
Can you provide any real color on what impacts the drop in natural gas prices over the last six months is having on.
Buyer or some sorry seller expectations and also is it having any impact on the types of properties that youre seeing in the market.
So yes, good question and I think the answer is I mean, this run down has really been in fairly rapid.
And.
It's what we're going to see at least this is my expectation.
Youll see some of that sellers expectations start to move more in line with the if you recall they were extremely backward dated rates so sellers.
Generally wanted to get the high front month, and keep that flat forever and sell it to you on that kind of a quote unquote strip.
Whereas conservative prudent buyer, you're going to have to use a discount to the actual strip. So now that we've come.
Back, where the front and the back or a lot closer to equal.
I think youre going to see starting to come to realization that this is the real price theyre going to get.
We expect to see some movement, there and that it will.
We expect it to be helpful from a buyers perspective.
And as far as types of deals come into the market.
Not particularly I think I think we will.
Again, we had a production response to high prices I think we're going to see a production response to low prices.
There's always a lag.
So I think.
<unk>.
The months or whatever time period that we're going to be down there I think we will have some.
New assets in the market and we will have some real opportunities.
Secondly on your on Jonah and the Barnett are you seeing much from the operators as far as.
What their plans are for let's just say the next the rest of your fiscal year.
Over and over.
Projects to enhance production or have they slowed workover activity or.
But some things on that.
Otherwise might do in mothballs, just given where prices have fallen too.
Yes, I mean, I think from the Barnett specifically right. So they are pretty much reactivated most of what what they had on their what their lyft was when they bought the assets. So at this point Theyre more just fixing things as it comes up.
Sure.
So I don't know if were going to see any more proactive.
Patients there.
I think John is probably pretty similar I mean, there weren't a lot of reactivation to begin with they were one recompete that I think they I think they did finish that but theres really not a lot of other activity at least in our in our portion of the acreage that we own in Jonah that they've sort of hinted so yes.
We haven't heard a lot that prices other than like I said for the Barnett.
No longer proactively reactivate spent a lot of impact yet and so.
In the first quarter did some sort of consolidating of compression but.
That's already been done so.
The benefits of that now.
I don't know that they have a whole lot else other normal kind of wear and tear.
Okay.
Thank you for taking my questions.
Yes, Jeff I really appreciate it.
And our next question is a follow up from Jonathan Shaffer from Northland Capital. Please go ahead with your follow up.
Hey, guys.
I'll just do two more quick ones. The first one is just.
For the natural gas pricing west of the Rockies are there any kinds of.
Lags at all in terms of revenue recognition.
We're following that spread and try and anticipate each quarter based on how that data is relative to Henry hub and everything is there like.
There is a price blow out near the tail end of December does that spill over at all in terms of and into the next quarter.
That last week or something or is it a pretty cut and dry.
It all falls in whatever you look up in terms of spot pricing.
That kind of lines up one to one.
Yeah, a couple of things right.
The way that we market our gas went online.
The areas that we sell probably.
Majority of it on what they call inside FERC, if youre familiar with that.
Yeah.
For pricing.
So a lot of the pricing gets set actually at the beginning of the month, but unless you subscribe to platts in the publication of our Yeti Bloomberg, it's kind of hard to find that pricing necessarily.
If it does get sold at that the remainder is sold on a daily basis, So you're going to take the average month that we're going to we're going to sell over the whole month and that portion of it less than half is sold on a daily basis. So it's a little bit.
As to the price. So in your example, if you had a run up in prices at the end of December we would see some of the benefit that in December for the daily pricing, but not as much from.
What we call the base load volume, we sold but it began in January with a run up right, obviously that would benefit us in January from that extra month pricing if that makes sense.
Okay. Yeah, that's that doesn't that's interesting and then the last is just.
I feel a need to kind of check in on the conventional assets in adulthood, Jonah and Hamilton.
When you're in a sort of sustained higher price environment, you know I know gas has come down a lot but a.
A lot of times, the operators will sort of circle back around and think we're asking ourselves how can we and we.
Turning this up somehow to another level or another phase or.
Or anything like that and so I know, there's the heat exchange project at all but just has there been any sort of incremental conversations or incremental interest in them.
Yeah doing other types of initial phases or investments or things in those fields.
Maybe not a decision yet, but just increased interest in like Hey, we might want to do that.
Let's see so.
Yes.
It's a really good question I'm thinking one of the <unk>.
Answer in mind, but it's not really a choice we made in the Williston the one oak pipeline coming on.
<unk> has really been helpful with natural gas and NGL sales and this is.
We're just starting to see the benefit of that.
<unk> really been on the whole time, we've owned it so.
That's not really a capex spread.
It was down now it's not so we will see some benefit there.
Hamilton Dome.
Yes.
Marriott has done a great job.
Adjusting their production and injection rates.
And going from there and they've been able to keep that that pretty flat. So.
It's not just sort of one big thing, let's do it constantly adjusting and moving intending to think so.
It's kind of a never ending I think we've seen really good benefits from that.
In Delhi, Yeah, I mean, here's the biggest thing at Delhi that we're pushing for is getting test site five back on right. So.
That's one.
We think economically it for sure is the <unk>.
Very good economic project that merits being on the books so.
That would be the impact honestly.
Heat exchanger.
But.
A lot of barrels okay. That's fine.
Well, yes, that's kind of the type of thing I was thinking about so that's some great color. Thank you very much and I will.
Take the rest offline thanks guys.
Great. Thanks, again gentlemen.
And ladies and gentlemen at this time in showing no additional questions.
Like to turn the conference call back over to Kelly for any closing remarks.
Great. Thank you and thanks again to everyone for taking the time.
Listen and participate in today's call as always please contact us if you have any additional questions. We appreciate your continued support and look forward to updating you on our ongoing efforts. When we report our third quarter results in May have a good day.
Ladies and gentlemen that does conclude today's conference call. We do thank you for joining you may now disconnect your lines.