Q1 2023 Vitesse Energy Inc Earnings Call
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Greetings and welcome to the Vitesse energy first quarter 2023 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Please note that this conference is being recorded.
I will now turn the conference over to MS Yang Director Investor Relations.
You may begin.
Good morning, and thank you for joining today, we will be discussing our financial and operating results for the first quarter of 2023, which we released yesterday after market close you can access our earnings release and presentation on our Investor Relations website, and our Form 10-Q as filed with the SEC yesterday.
I'm joined here this morning, with the test as chairman and CEO , Bob guarantee our President, Brian Cree and CFO , David Macaskill, our agenda for today's call is as follows Bob will provide opening remarks on the quarter. After Bob David will review, our Q1 2023 financial results. After the conclusion of our prepared remarks, the executive team.
Available to answer your questions, but before we begin let's cover our safe Harbor language. Please be advised that our remarks today, including the answers to your questions may include forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to the risks and uncertainties some of which are beyond our control that could cause actual results to be materially different from the expectations contemplated by these forward looking statements. Those risks include among others matters that we have described in our earnings release.
We disclaim any obligation to update these forward looking statements, except as may be required by applicable securities laws. During our conference call. We may discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income.
Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued yesterday now I will turn the call over to our chairman and CEO Bob guarantee.
I want to thank Ben for his work in the quarter.
Communicating with analysts and in new investors and prospective investors he's done a great job. He understands the model and represents the tests very well. So thanks, Ben So good morning, everybody and thanks for participating the first quarter of 2023 went according to plan.
We completed our spin off from Jefferies acquired the tests oil and now operate as a fully integrated independent public company. We paid our first quarterly dividend of <unk> 50 cents, a share modestly increased our production and reduce debt.
The test is focused on returning capital to stockholders.
The quarterly dividend is at the top bar return space.
Capital allocation strategy.
Our asset generates significant cash flow and includes a deep inventory of more than 20 years of economic drilling locations.
The conversion of undeveloped inventory to producing wells is key to our business model.
Organic drilling coupled with near term development acquisitions in the first quarter will continue to support our cash flow profile.
So let me turn this over to Dave from Costco, Brian Cree, which who is our president and will normally.
Our prepared remarks is actually in North Dakota, This week and hopefully will join us.
In the Q&A, but he won't have a formal remarks.
So now today, but Costco and congrats to Dave and his accounting staff for.
A terrific reporting a section in the K and the Q, so Dave with that a Pat on the back of Gulfport Buddy.
Thanks, Bob and good morning, everyone I'll give a quick overview of our financial performance for the first quarter of 2023.
Ported a GAAP net loss of $47 8 million, reflecting $77 4 million of charges all of which are one time or nonrecurring in nature associated with the spin off. These charges include again, a onetime noncash income tax expense of $44.
$1 million related to a change in corporate tax status as we moved from an LLC to a C Corp.
And acceleration of $26 8 million of noncash equity based compensation expense and $6 5 million of transaction costs that were included in our G&A expense all spin related costs have now been run through our income statement.
Adjusted net income for the quarter was $15 6 million using our statutory income tax rate of 23, 4% adjusted.
Adjusted EBITDA was $40 1 million, an increase of 6% over the prior quarter.
Our first quarter production was up 20% from the first quarter of 2022 totaling 11524 Boe per day with oil representing 67% of production and 87% of our total revenue.
Total revenue, including the effects of our realized hedges was $59 million compared to $52 million for the first quarter of 2022, despite a 20% drop in <unk> oil prices and a 42% drop in gas price.
Lease operating expense in the first quarter increased 17% compared to the first quarter of 2022 on a per Boe basis.
As we saw many operators allocate more capital to work overs on existing wells.
Cash G&A of $10 9 million again included $6 5 million of spin related costs.
Capital spending for Q1, 2023 was slightly above maintenance levels. As we spent $22 7 million on development Capex due to an acceleration of development activity from one of our operators.
At the end of the first quarter, we had $45 million drawn on our credit facility down 8 million from $53 million at the time of our spin off we recently completed our spring borrowing base Redetermination, which resulted in a decrease of our borrowing base from 265 million to 240.
<unk> 5 million due to lower commodity prices.
Our electric elected commitments of 170 million did not change.
We still have substantial liquidity available on our credit facility, even with a slight borrowing base reduction as a reminder, wells Fargo Bank is the administrator of our credit facility.
From an operations standpoint, we had seven two net wells that were either drilling or in the completing phase and another 10 wells that have been permitted for development by our operators as of March 31.
At the end of last week, there were 42 rigs drilling in the Williston basin with more than 50% of the rigs on acreage what's the tests owns an interest in.
With respect to guidance, we reaffirm our previously issued 2023 annual guidance.
With that I'll turn the call over to the operator for Q&A. Thanks, Dave.
Thank you at this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Thank you and our first question is from Steve Richardson with Evercore ISI. Please proceed with your question.
Yeah, Hi, this is Chris Baker on for Steve Good morning, guys.
Hi, Chris.
Bob Our first question is for you I'm, just hoping you could talk about the M&A landscape, what you're currently seeing in terms of the opportunity set I guess, both on the small scale side as well as larger deals.
You know, Chris we've been doing this for 10 years and there is a certain rhythm to the deal flow.
And I can't say that it's more or less than it has been over the last couple of years, we have a vibrant.
Flow of near term drilling, especially in the Bakken.
But I can't say, it's a substantially higher.
Then it has been in the past there are some bigger deals.
Being chopped around.
We look at everything Chris and again we.
We will not do we'd love to do a bigger deal, but will not do a bigger deal unless it's supportive or expansive to our dividend.
That's great. Thanks, and you know just as a follow up great to see the tests, having some significant exposure to our rigs running in the Bakken anything you can share in terms of operator behavior.
And maybe any leading edge trends, you're seeing on the oilfield services cost side of the equation would be great. Thanks.
Chris last year, we did see a single digit.
Rise and drilling and completion costs.
Not from every operator, but from about half of the operators.
We've seen that now come back off.
And we're actually seeing lower average drilling completion costs now than we did a year ago. So that trend is is encouraging we.
We do like the independence Grayson mill and <unk> have done a very good job.
And the wells that they've drilled again, they're a little bit outside of what people formally called the core but their economics are very attractive.
So.
Nothing.
I'm sorry, one other quick thing is continental is the most active operator up there and they have stepped out of where they have traditionally drilled.
And have gotten very good results. So we're we think continental going private it's been a good good.
Good good move so we're happy about that Chris.
Great appreciate the color guys.
Thanks, Chris.
Thank you. Our next question is from Jonathan Schaffer with Northland Capital markets. Please proceed with your question.
Hey, guys. Thanks for taking my questions and congratulations on the the boring quarter essentially.
They're in line with what you know, what I'm, saying and doing what you say you're going to do and just kind of being in line with that and consistent on all of that so that's.
That's great.
No. That's that's kind of intention so that's.
That's good I want to stay stick with this theme just you know on kind of.
What the last questioner was asking about.
Pat you had mentioned cracking in continental moving kind of outside the core.
Is there some other companies reported last week talked about yeah like tier two wells performing in line with tier one wells.
So I'd like to see if we can just get an update on that you've got the deeper I'm going to get the words wrong, but I think you call. It like deeper denser Wyatt or like the deeper depths are wider as he says that you know you guys and you're in a prior companies you you succeeded on in the D J basin.
And now you're trying to do that in the Williston.
Are we seeing can you kind of isolate each one because you know it seems like a deeper maybe isn't quite as relevant in this kind of basin, but yeah. It is it more are you seeing more improvements on the denser side or the wider side or all of it I'm just kind of any granularity.
And incremental Nuggets in what you're saying in terms of like well productivity and what's what's driving it.
Yeah, Great question Donovan.
So the original thesis when my wife, and I started with Oh, our work map on our kitchen table was that the Bakken would get deeper denser cheaper better expanded.
And what that means is a deeper.
Originally the Bakken with just developed as the Bakken, we thought that the three forks would be productive at some point that came to be so it was deeper denser. We bought most of our inventory based on economics for four Bakken wells only per D. S. You now.
<unk>.
Since 2010 up to about 2017 to 2018.
Operators experimented with putting a lot of more well into each D. S U.
That didn't necessarily.
Our result in the best Economics.
So they've backed off of that heavy number and relied on improvements in frac technology. So anywhere from six to eight wells per <unk> is now the standard and we're recovering.
Tremendous amount more.
Oil at a beach D S U than we were over the last 10 years.
The cheaper is that the wells are.
You know as infrastructure would be built out the wells would become more economic.
That has happened.
Better the E <unk> in the Bakken almost on a daily basin basis.
Get better you got to remember the Bakken is such an incredibly incredibly tight rock. If you can increase your recoveries by just two or 3%.
And then that is highly economic so technology developed slowly, but it continues to evolve and everyday we see better wells than we saw before.
So we're very encouraged that over the course of time Frac technology will continue to improve recoveries.
We don't we look at tier two to tier one, but what we really look at is the economics.
Sometimes if you take a look at what would be considered a tier four.
Area four.
That tier four is considered just on an EUR basis, well the drilling cost in that area by that operator is lower than some of the stuff in the tier two or tier one locations and therefore that economics are actually better. So you got to you have to.
To differentiate between tier one and tier two economics and tier four or tier five economics. So we do this all the time the field is constantly changing and we think for the better.
I am sorry about the long answer, but that's really core to what we do.
Okay, No that's great and then.
Kind of following up on that I want to talk about re fracs are a little bit because I think you know you could you can.
Argue that that would tie into the same kind of she says and you you talked about recovery rates.
So when you talk about you know the the huge improvement in economics from just improving that a couple of percentage points.
Yeah, correct me if I'm wrong on this.
If you go back Tonight Petroleum engineering days, but you're framing that probably in terms of like figuring out okay. What's the total what's the total oil in place and this sort of Cuba.
You kind of model out some cube of reservoir area and a lot of times, you know you're only recovering something less than you know in the shale play, maybe 10% or potentially less and so so you're talking about going from pik.
Pick numbers like a 10% going to a 12% that's more of like a even though it's 2% on those terms, it's a 20% increase in volume.
Who would you look at the old Wells you know the Bakken is an old old basin kind of at this point.
Certainly compared to the shale type development in places like the Permian.
So it's you know probably now a point or it's going to hit it it's going to be one of the earlier basins shale basins versus others, where it starts to become a sensible with all the advances in technology. So are you do you have a sense of like you know some of the early wells being able to go back and say gosh. Yeah. We think this is really.
Uh huh.
6% recovery and given all the changes that we've done.
You know with with our technology, and Frac designs, and everything and being able to go back and say well. We were really only you know in zone for a third of the Wellbore.
Third of the lateral and the other two thirds of the lateral weren't even landed properly.
You know can you give us a sense of what potentials youre seeing there and actually I mean, if you do another recovery numbers I actually it would be really curious where you think they were in the beginning and where they are today and what what the.
The implied amount you could come back and recover with Refracts.
Right on so Donovan.
I don't think anybody in fact I'm sure no one really knows the initial recovery rate, but you know in our shop, we do ascribe to that 9% to 10% in initial recovery.
Percentage. So that's it's not far off I'm looking at a map at our conference room right now that has identified all wells.
That we believe will be re fracs.
And it is shocking.
How many wells are perspective to be refract, and it's all over the basin remember the field was developed maniacally talked a hold it by production in from 2008 to 2012 all of those wells.
<unk>, our perspective to be refract from 2012 until they move from gel to slick water all of those wells are perspective to be refract a.
We've seen a threefold increase in the last six months.
Operator, starting to re Frac wells.
We believe that that refract technology is.
It's really new and there it's a we're not sure if the the refract technology, it's going to improve faster than dander fracturing technology, but the costs will certainly come down I will the last thing I'll say about re fracs is.
Look the economics of a re frac are extraordinary theyre. The best economics, we have out in the field one of the negatives for an operator to re Frac is it you really need to shut in the rest of the D. S. U. So your production in that D. S. You will initially go down so.
The timing of re Fracs is very difficult to ascertain a there is one operator that has proposed re fracking five wells in one D S. Hugh we.
We have not seen the results from that I cant say it that's a good thing or a bad thing, but refracts will be a wildly economic future and the Bakken.
Okay, and then just one last question to follow up on that.
Is it with the re Fracs is your sense that it's kind of a like a broad based a uniformed potential in this what I mean.
Remember that as you can imagine a case, where sort of entire vintages or entire year's yesterday, yes every well drilled from 2014 to 2017 or something when it was done it this way at the scale and so that entire you know that a whole bundle of psus or whatever.
That'd be one perspective, another perspective would be well.
No you you didn't have as good a well control early on I don't think as many companies were doing like the gamma Ray you cannot put a gambling sector on the back of the bed and so you know today, you know M. I N zone or am I not in real time as you're drilling the lateral and you know that wasn't the case before but now you have so much well control you even if you didn't get that read.
The first time, you can probably should go back in and actually come up with those conclusions. After the fact now so maybe you're not it's not why does the uniform. It's maybe you know kind of rolling the dice each time and it's more like you could go back and look and say Oh, you know one in six of those dice rolls early on as badly.
Out of zone, and so maybe we would even lead gorilla because we just don't even think this thing is.
Lateral was even there or even really you know.
That type of thing versus this much broader just uniform everywhere or is it more one more or the other maybe a mix of both and it's more the latter case, where refracts to start first before migrating to more uniform.
Yeah. It's a good question and there is no perfect answer for that wells drilled between 2008 in 2011, often where out of zone.
You're absolutely right about that whether or not you can go in and re frac that well.
That is mildly out its own or not I don't know and that I don't think has been proven.
Yet.
You got to remember that the Bakken is such a closed unit that.
That you have in the Bakken, we have a halo effect.
When you are.
Re frac or Frac, a well and a D S U.
The parent wells actually.
Have their production increased.
So again it is a different basin and I think that you know the where you re frac.
The intensity you re frac it all needs to be worked out and it needs to be bespoke to each different D. S. Schuh, both as you said by vintage.
And by an initial frac technique. So again you know.
When you re frac well you often.
Increased production in the surrounding wells. So it's a it's a different it's a different beast, it's very tight.
Hmm, Yeah, and you know I can kind of feel like almost like unprecedented levels of data for going back to an area like that so.
Lot of engineers, a lot of things.
A lot of there's a lot of fascinating analysis stuff that goes into it okay.
Okay, well I'm going to leave it at that and I'll take the rest of my questions offline or follow up with you guys, but yeah. Congratulations on the quarter and I will second what you said about that he's been doing great.
Thanks, and I'll I'll reaffirm what you said is we try very hard to be boring. So thanks for that comment so thanks Donna.
Yeah.
Yeah.
Thank you. Our next question is from Benoit burn with Jefferies. Please proceed with your question.
Hey, good morning, Bob.
And I don't know if brian's on but.
Good morning.
I'd love to go back to.
The M&A market for just a second and I'm kind of wondering whether.
You said kind of the deal flow is the same but whether with the lack of capital out there for the space.
You get more opportunities going forward and then maybe on the back of that whether you would ever go out of base and going forward as well.
Yes. So good questions questions. We ponder every day, we would definitely go out of basin, we've got a little interest in the powder River basin.
Mostly in the mud rocks, which we've done well with we think the powder is perspective, it's just too expensive now.
For us to do anything meaningful there.
We are managing some assets for Jefferies in the AR and the Eagle Ford, we like the Eagle Ford very much Oh, we think that's a perspective, we do not see a lot of deal flow in the Eagle Ford.
We do have a fair position in the D J.
Loved the D. J have done extremely well there, but we don't think that that is something that we're able to get much scaled with we look at two or three days, a well well proposals a day in the Permian.
And it.
Can't really compete to what we're seeing in the Bakken So wide open for the Permian, we have some organizational experience in the Permian, but it right now the bread and butter in the Bakken is still a is still the best we see so so that's going outside of <unk>.
The basin, we have seen on the larger hundred a 500 million dollar deals we have seen more flow.
And I would love to do one of those deals if it would be supportive of our dividend.
Most of those deals are.
Right now priced so that they're not that attractive to us again, we're not looking for scale.
We're greedy as it comes to looking for something that would bolster the dividend.
That makes sense.
I just also wanted to go back to.
The 42% of rigs operating on the acreage I know it was mentioned earlier, but can you just tell me, whether that's higher or lower than in the past and then that seems like an awful high run rate for the inventory and just.
Does that tell us about the inventory quality is it is it because it's pushing out into tier two and tier three acreage.
Yeah, it's a little bit of that that is true and that's higher the 40, 50% of rigs running on our acreage that's higher than normal.
But it's not that out of line, we average about Dave about a third by one third about one third of all the rigs running in the Bakken are on our acreage and that's because we're like the Bakken ETF right. We got well we have acreage all over everywhere. So.
Yeah, I think that's a you know your conclusion that the briggs or spreading out pretty good yeah, we would agree with that.
Okay, Awesome and I have one more.
Can you just talk about the Capex run rate going forward I mean, as you get the re fracs and you've got some inflation in there.
But how do you see that for over maybe over the course of the rest of the year.
Yeah. It is.
It's very lumpy Lloyd.
Would love to say that we're gonna be able to.
Replicate what we did in the first quarter each of the quarters, but we can't.
You know, it's we're not in control of that that is a negative being the non op and.
If we have similar.
Capex in Q2, maybe we will change our guidance, but at this point, it's too premature.
But I got to tell you.
We are very excited about the capex that we had in the first quarter and again a more capex is a very good sign for us because we're very disciplined in what we drill and remember the lag between Capex and production is roughly a year are less than that on.
<unk>, but.
We know that Capex.
That's great and I appreciate all the commentary on the Bakken productivity. It's interesting. So thank you very much. Thank.
Thank you Lloyd.
Yeah.
Thank you. Our next question is from Jeff Gramm with.
Please proceed with your question.
Yeah.
Hi, Bob and team thanks for the time Uh Huh.
Good morning.
Philosophical question for you Bob Obviously, you guys have a super clean balance sheet.
You were turning a lot of capital to shareholders through the dividend.
Oil prices are being a bit volatile here in the near term. How are you guys thinking about allocating capital to ground game opportunities does that is that kind of constrained to organic free cash flow or would you guys periodically.
Use the balance sheet. If you saw some good opportunities come across your desk.
Yes, we would use the balance sheet, Jeff no doubt about it but again you know.
We do you know where specialists, especially in the in the Bakken So our hurdle rates for the Wellbore interests, we buy are pretty high.
So you know we buy whenever we can.
It's not limited by budget, it's limited by opportunity and economics.
So philosophically, we'd love you know if you see our Capex go up that's a good thing we would use our balance sheet if.
If we saw an extraordinary opportunity.
But not just to grow did did that answer your question, Jeff I can be more philosophical if you want.
No that was perfect I appreciate it.
And just a smaller a housekeeping modeling side, you mentioned, Delaware was a bit elevated due to some some workovers.
Any sense of where that kind of levels out or how we should think about LOE going forward is Q1, a bit of an aberration on the high side or any commentary there would be helpful.
Great.
Dave to answer that one okay, Hey, Jeff. This is Dave from Costco I think what we saw is a.
A lot of work over activity in Q1.
I think going forward, we will see that level off we didn't right in that $8 50 to $9 per Boe.
So a range of low <unk> going forward.
A lot of that dip.
Depending on the season right, there's seasonality in that first quarter, obviously as it gets warm or things will get cheaper to operate.
Understood perfect very helpful. Thanks for the time guys.
Alright, Thanks, Jeff.
Well that's it for now we really appreciate you guys listening in and please reach out to ban if you've got a M.
Any further questions and we.
We're going to go back to being boring. So thanks, everybody bye bye.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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Mhm.
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Yes.
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