Q3 2024 EON Resources Inc Earnings Call
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Bye-bye.
Bye.
Speaker Change: Yes, sir. Good afternoon, ladies and gentlemen, and welcome to our conference call for the third quarter.
Speaker Change: We will make a presentation and then we will open it up for questions.
Speaker Change: I've got to get some legal things out of the way first. This call includes forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995.
That involves risk and uncertainties that could cause actual results.
Speaker Change: to differ materially from what is expected. Words such as expect, believe, anticipate, intend, estimate, plan, possible, should, and variations in similar words and expressions.
Speaker Change: We're not intended to identify such forward-looking statements, but in the absence of these words does not mean that a statement is not forward-looking.
Speaker Change: The company's expectations are disclosed in the company's document filed from time to time on EDGAR with the Securities and Exchange Commission.
Speaker Change: Before I turn the call over to Dante, let me just say that any shareholder who has not voted for the upcoming annual meeting, please vote. And if you have any questions, just give me a holler, and I will be more than happy to walk you through the whole thing. Dante, good afternoon. The call is yours.
Speaker Change: Yeah, thank you, Mike. I'm Dante Caravaggio, President and CEO. I'm pleased to be here with each of you. Like most of you, I hope, I'm a shareholder in this company. It's public record how many shares I own. And I just have to start with saying I think we're a
Speaker Change: an incredibly good bargain at this level. I'm going to start this off with some opening remarks.
Speaker Change: I encourage all of you to talk to us either through this forum or send us notes direct. I'll give an overview of the field.
Speaker Change: I'm going to give you the plan for us to achieve 2,000 barrels a day in 2025, and now that we've been a public company for a year, I'll make a few observations by looking in the rearview mirror.
Speaker Change: So, the first thing I'm going to highlight is Q3 was a good quarter. We had record revenues of $7.4 million and record operating income of $1.9 million. But I'm also going to say most of that
Delta is due to Mitch's hedging.
Speaker Change: and Jesse's Efficient Operations, and they're going to go into detail on both. And it's not necessarily a good thing when you make money on hedging because some of that is non-cash. In our case, a lot of it is non-cash, and I just want to be straight with all of you.
Speaker Change: Looking forward, we have step-changing actions ongoing now to position us for a great 2025. Our key focus being workovers.
Speaker Change: Our plan in work overs is to do 50 a year and add about 1,000 barrels a day a year. That's going to consume us in 2025 and 2026.
Speaker Change: We have just started on three high-potential workovers. Jesse will talk about that. It's part of a 50-well package that will drag, you know, much of the way through 2025.
Speaker Change: Mitch will discuss recent events that improves our balance sheet and equity position.
Speaker Change: The oil field, I'm going to review with you some of the particulars of the field. The most exciting part of this field is that we're in the Permian, we're pure Permian play, and we have a billion barrels of oil under our 14,000 acres.
So, currently we've got roughly $15 million of proven reserves.
Speaker Change: We published a press release a number of months ago that said we believe there's 50 million in recoverable reserves and all the data that we've got since then says that number is low.
Speaker Change: The zones that are in our mineral rights, which are down to 4,000 feet, under those 14,000 acres.
Speaker Change: include the Yates, the Seven Rivers, the Queen, the Greyberg, and the San Andreas. And you can see those on the right side in the middle of that table on the right side of your slide there. Our focus areas are really the Seven Rivers and the San Andreas.
Speaker Change: We are doing a test in these first three wells in the Yates that we're very interested to see how it goes. We are mostly an oil play, 85% of our revenues.
comes from oil we make a little gas
We have 550 wells.
Speaker Change: And, we have 95 active water flood patterns. The nice thing about a water flood is that it gives you sustainability of that oil producing rate. Meaning, you don't get a spike up and a spike down, which is the typical type curve.
Speaker Change: production decline you'd get from, I'll say, a normal Permian fracked well.
Speaker Change: With that, I'm going to move to our path to 2,000 barrels a day.
Speaker Change: So, just leave it on this slide, Amina. The first thing we did since buying the property is infrastructure hardening. We had to replace 14 flow lines.
Speaker Change: 50 downhole pumps, 2 expensive horizontal water injection pumps, we did 75 acid jobs and we did major electrical upgrades. All those things allowed us to
Speaker Change: I'll say B, at a sustainable thousand barrels a day, which we're bouncing around. Then we've done a lot of engineering with reservoir engineering and geologists and petro
Physicists.
Speaker Change: And that's to look at these wells and determine what's the best way to develop the field. I hate to mention this, but the way we got those records, it was in 450 different boxes, so it's a little bit of sifting through for needles in a haystack, but these guys came up with some fantastic revelations.
Speaker Change: And the end result is we've got 50 workovers ready to go. We're doing three right now. We have an artificial intelligence app in development for the field that will increase our uptime and reduce our lease operating expense.
Speaker Change: That's been beta tested and should be rolled out, we hope, at the end of this month.
Bye. Bye.
Speaker Change: The real secret to the future and to making 2,000 barrels a day is workovers.
Speaker Change: Workover is in the Seven Rivers and San Andreas, and we don't know yet if the Yates is going to be good or not, but we're testing it.
Speaker Change: These workovers from all of our engineering work tell us they'll do 35 barrels a day each.
at a cost of $150,000 each.
And that's about half what our predecessor owner was spending.
Speaker Change: The capex per year we're going to need is around $7.5 million per year to generate this additional 1,000 barrels a day of sustainable production. That's really our business plan for 2025.
Speaker Change: 2026 is going to look much the same with a little bit of drilling, and we're starting now to look at drilling locations.
So we are a
Speaker Change: water flood but we do rely upon fracturing and so we're not we're not really looking in 25 to do drill baby drill it's
It's low-cost, work-over, baby, low-cost, work-over, baby.
Speaker Change: So, that would be our theme in 2025. However, in 2026, I won't say that we won't move toward a drill-baby-drill scenario, but drilling is very expensive. A vertical well is about $1 million, a horizontal well is about $3 million, and then these workovers, as I mentioned, are $150,000.
Speaker Change: So, we're going to go with this thing kind of slow and low cost to get there. With that, I'm going to turn it over to Mitch.
Speaker Change: Thank you, Dante. Hello, I'm Mitch Trotter. I'm the CFO. We have talked to many of you on these past earnings calls and on an individual basis. So I want to thank you all for attending today.
Speaker Change: In this call, I will be giving insights into the Q3 results and a little bit of operations. And then later, I'll turn it over to Jesse to drill down into operations.
Speaker Change: Before I get into the presentation and the slides, I first want to say the accounting team and the auditors did a really good job of getting the 10-Q ready, and they were actually ready to file early.
Speaker Change: But we decided to delay by a day, and that was for a good reason, a pending subsequent event.
Speaker Change: And that's where we settled with the FPA provider. And the details are disclosed in the 10-Q subsequent event so you'd have it, but just a few highlights is it removes the future potential of 3 million shares.
Speaker Change: It removes a $5.6 million liability that's on the balance sheet. Now that goes away at the end of the year. And the provider did receive some restricted shares, so they really can't sell them or anything for a good six months.
Speaker Change: So when I get into the deck, I will hit the top side results.
Speaker Change: Now we'll go to the revenue and non-cash expenses and then equity and debt structures, all similar to what I've done in the past. But if you need a deeper dive, please reach out to Mike Porter and he'll schedule a one-on-one. Many of you all have done that in the past.
Speaker Change: So, with that, I want to go to the slide on.
income summary, statement summary.
Speaker Change: So a couple items in this slide before we just drill it down into more into the revenues and non-cash items.
Speaker Change: But most notably, and Dante alluded to that, we will break even at the operating income after corporate G&A, excluding the non-cash hedging derivatives we'll talk about in a minute.
Speaker Change: For the first time, the first two quarters from day one, we've always had positive earnings from the field, but never enough to cover the corporate G&A until this quarter. So that's good news. We had said that in the past, we would get there and we did.
Speaker Change: Now, GNA cost, it's a prop 30K a month, we're running now at 7.45 a month.
Speaker Change: And our typical G&A is very similar to a public company that 45% are employee related. 35% relates to professional fees, 15% to insurance and 5% other.
The other major line item is lease operating expenses, which...
Average.
Speaker Change: $765,000 per month back in Q1, but for the last six months, we've been running at a very good level of $700K per month.
Speaker Change: This is what we expect to sustain in the short term.
Speaker Change: We are focused on driving it down to $650K a month.
Speaker Change: That will be over the midterm and that is a sustainable level with some development. Now the long-term, the LOE will be driven up proportionally related to the future development of the field. So we're in really good shape, I think, with the LOE.
So next slide on the revenues please.
Now, the revenues.
Without the non-cash.
Speaker Change: hedging is $5 million plus a quarter, and we've been consistently doing that. The oil production, gas in production, which Jesse and the field team stabilize, has remained fairly constant. In Q3, the oil prices popped up about average of $4 across Q3.
Speaker Change: three from the past, so you'll see that's the highest revenue, non-cash as well, I mean cash revenues we've had. But then hedging impact, I need to drill down a little bit into that.
It goes up and down. It's non-cash.
Speaker Change: The Q1, if you all remember, was a $2 million hit.
Speaker Change: That's because oil prices increased from $72 at the beginning of the quarter to $83 at the end. And then Q2 was flat because oil stayed pretty much the same price at the beginning and the end. Now Q3, we get the huge pickup of the $2 million range, $1.9.
Speaker Change: Oil prices went down to $70 at the end of September, September 30th.
Speaker Change: So, as I've said in the past, non-cash impact looks bad when prices increase, but looks good when oil prices drop, which is opposite of where you want the cash to be.
Speaker Change: With that, if oil prices drop dramatically from where they are, which is running in the 70 range, plus or minus its time, we are responsibly hedged to protect the company from a cash perspective.
Speaker Change: We have 70% hedged over and all over $70 that go through the end of 2025. So we think we're in the proper position there.
Speaker Change: Now I'd like to flip forward on the slide to the non-cash expenses and drill down a little bit into that. I do this every quarter so you get a better understanding of our financials.
Speaker Change: The numbers on the right have every quarter, just like they are in the 10 Qs, and I gave you six reference numbers.
The first one, hedging derivative, we've already discussed.
The second one, GNA by quarter.
Speaker Change: Buried in down there is non-cash expenses relating to payments in stock. And by quarter, the expense was $574, $360, and $260 respectively over the three quarters. And these are all on existing type agreements.
Speaker Change: The payments will enhance the company's cash position and our balance sheet position.
Speaker Change: It's good that it's in there. It's a hit, but it's not clear. You can't see it. And then when you get down to below the line, you can see about everything else.
The warrant liability is the same as before.
It just goes up and down by price.
Speaker Change: The forward purchase agreement, number four, as I mentioned earlier, and so did Dante, we terminated the agreement, so all of this, everything reverses back out into Q4, and the not-in-cash impact will flow through Q4 from the removal of the 5.6 from the balance sheet.
Speaker Change: And then the last ones, the financing cost amortization, that's the same as before. It's all from the financing acquisition back November a year ago. And the gain from extinguishing my liabilities, that was a Q2 event, so I'm not going to go into that.
With that, let's go forward to the equity slide, please.
I'll just hit on a couple things real quick.
Of course, equity is always an interest to this group.
Speaker Change: The common stock at the end of the quarter was 7.0 million Class A shares.
and 1.4 million Class B shares. Now the Class B.
Speaker Change: Pretty much the same except for no economic rights, voting rights only, they convert at any time, one for one to class A.
So I mentioned them in the same pile.
Speaker Change: Preferred stock, no real change, there's really none at the parent company level, but we talk about them. Because there's at the subsidiary level, there's the same 15 million preferred units.
Speaker Change: which is buried in the minority interest line of the balance sheet. So you don't see it, but everything else is as it was. Warrants still no change from the past.
Speaker Change: It's basically everything exercises at $11.50, and we're not in a position, obviously, for people to be exercising a lot. But let's flip to the debt slide.
Speaker Change: Really? Again, there's not a whole lot different than we've talked about in the past. The only change is the RBL continues to be paid down based on the amortization schedule, and we're now at $25 million from the original $28.
Speaker Change: And the seller note private loans, they're all the same that we've discussed before and they've been on the balance sheet for a while.
Speaker Change: So, with that, I'd like to hand it off to Jesse Allen to go through the operations overview.
Thank you.
Speaker Change: Yes, thank you Mitch. Good afternoon. This is Jesse Allen. I'm VP of operations at
Speaker Change: for LH operating and today what I'm going to talk about, I'll talk a little bit about safety.
Speaker Change: I'll talk a little bit about our actions to increase production, and then, of course, our actions to reduce costs. They all work in tandem together. So first on safety there.
Speaker Change: Since we've taken over operations back in November of 2023, we've had no reportable incidents.
Speaker Change: Our field operations team is focused on working safely and I've always told them that I want you to come to work in the morning safely and then work all day safely and then go home and be at home at night in safety. So there is a focus on safety.
Let's go to that next slide, please.
Bye.
So actions to increase production.
Speaker Change: With my team, reservoir engineer and well log analyst, petrophysicist, and of course myself, we're following the science.
Speaker Change: to analyze all our producing wells. And so what does that mean? That means, as Dante alluded to, we went into the old paper files, and there's a wealth of data and information in there that we were able to take advantage of.
And then, our petrophysicist.
Bye-bye.
Really.
Speaker Change: Tremendous well log analyst, has done a lot of work in the Permian Basin, understands the Permian Basin and the petrophysics there, and so as a result, we've got a real advantage there in the analysis of our wells. And also, as Dante had mentioned, we have just started three workovers, three workovers that were a result of all this work.
Speaker Change: Hopefully, by the end of this month, we'll have those wells on test and have some really positive results to report.
Thank you.
Speaker Change: Also, as part of this analysis, we ended up identifying some stringers within the seven rivers that were not included in the original COB.
Speaker Change: So that's another very positive item that at the end of the day, once we do the testing, we'll increase our reserves.
Speaker Change: On top of that, we have done some chemical-slash-acid treatments on some of our wells that have had some positive results, and we'll continue to do that. We're cleaning up near-well bore damage.
Speaker Change: maybe some scale, calcium carbonate scale, other oil field scales that result, and then even change in wettability near wellbore with some chemicals that
Speaker Change: also help increase the rate of production from each of the wells that are treated.
Speaker Change: We do continue to do an upgrade on our infrastructure, which means replacing some flow lines that were in need of repair.
Speaker Change: additional upgrades on our water injection facilities. We've replaced several of our horizontal pumps that we use to inject water in the water flood. We've done some electrical upgrades.
Speaker Change: that helped keep our wells on production. We upgraded several transformers, one especially on one of the water stations that did not allow us to inject water at capacity, which we are now doing.
Speaker Change: Further, here in the not-too-distant future, we'll begin doing that workover program.
Speaker Change: three that we've started. There's an additional 45 to 50 that we have in the queue and we'll begin to start doing those once we get some results on this first three. And then further along
Speaker Change: We will start concentrating our efforts on the water flood, analyzing our injection wells, and starting to convert.
Speaker Change: old, legacy injection wells to the Seven Rivers water flood. That's kind of our second wave of analysis that myself, our reservoir engineer, and our well log analyst petrophysicist will start to do.
[inaudible]
Let's go to the next slide, please.
Speaker Change: Finally, as part of our efforts to improve profitability, which we've had several press releases concerning just that, as I've mentioned, we've upgraded flowlines, returned some wells to production that had been off.
And in doing so...
Speaker Change: We reduce some of our operating expense by about $30,000 per month and what that really entails is
if we've got good, competent.
Speaker Change: flowlines with integrity, then you don't have resulting spills that require cleanup.
Speaker Change: So, that's where the improved OPEX comes from, our improved operating expense.
Speaker Change: And then, in conjunction with being able to do all these workovers, we want to be able to test these wells. And so, we've...
Speaker Change: We upgraded our satellite test stations, changed back pressure valves where needed, made sure valves were operating correctly, and then, as I mentioned in the previous quarter, we bought some portable well test units that we can move to individual wells.
Speaker Change: And that'll help us in analyzing just how the profitability that we're seeing from the work that we're doing.
Speaker Change: And Dante did mention our AI app that we'll be initiating that will help our lease operators be much more efficient in their daily routine.
Speaker Change: We actually have the team coming out the first week in December to initiate that app, which each of our lease operators will then begin to use.
And finally, we've been able to internalize equipment.
Speaker Change: As an example is the hot oil unit that we purchased there in the second quarter.
And that's it.
Speaker Change: In and of itself, we reduce our operating expense about $10,000 to $30,000 per month. Just instead of third-partying that, we now have our own hot oil unit and our operator for that hot oil unit.
Speaker Change: And finally, as a result of all the work, the science that we've been following, we've been able to reduce our work over cost in the range of $75,000 to $100,000 over the work that was being done previously.
Speaker Change: That can only improve our economics and only improve, at the end of the day, our profitability.
Speaker Change: So, with that, I turn it back over to Mike Porter for some Q&A and to entertain all your questions.
Thank you for your time.
Mike, are you there? Hello, Mike.
Mike's on mute.
Speaker Change: This is Mitch. I see some questions on the website, so I'm just going to answer a couple of those that are obviously mine.
Speaker Change: The first one is from Sandy, explain why hedging is non-cash.
Speaker Change: Most of the hedging is non-cash, there's obviously some each month where...
we either
Bye.
Speaker Change: owe the hedging company a little bit because it's outside of the hedged amount and sometimes it's below and they cut us a check. And that settled up right away. But the majority of it is based on the derivative pricing, a gap, where they take oil price at the day of the
of the quarter.
Speaker Change: And then take it against our hedging numbers all the way through the end of the hedge. So the various monthly hedges, which go all the way to 2025.
Speaker Change: Calculate is, if for some reason we decided to terminate all our hedging agreements, that's what we owe the hedging company. So it's a non-cash.
Speaker Change: expense and the predominance of these numbers. I personally would like to be able to split it between the cash portion and a non-cash portion so you could see it.
Speaker Change: The gap, the SEC, consistently all driven by the big four said, no, you have to lump it. So, hopefully that answers your question.
Speaker Change: And then I'm going to see if Mike's on. Let's take it back over. Yeah, Mitch, the next question is what is the company's plan to decrease operating costs?
Speaker Change: Okay, yeah, let's go so let Jesse or Dante go. Yeah, let me try to build it. You know when we got the thing
Speaker Change: The operating cost frankly surprised us and we it had to be our top priority so we spent
Speaker Change: in 24, almost 3 million working just on that. And to bring down the cost, the AI initiative could reduce the number of folks required in the field, and the way it works is
Speaker Change: You know, you get an alert that this well is down versus driving up and down across the field to find which well is down.
Speaker Change: Right now, we think even without reducing force, we save money because we're increasing the uptime. That's the AI contribution.
Speaker Change: There were so many lines out there that were leaking, you end up with a double whammy. If you have a spill, you have to clean up the spill, you have to report the spill, so we invested in replacing flow lines that had a history of leaking.
Speaker Change: and you had to solve that. Then you had pumps that were breaking down. We did some experimentation about what's the best pump to put down hole and what's the best pump and sizing to inject water.
Speaker Change: So, we're now a year later and $3 million afterward, and our lease operating expenses is getting close to an acceptable range, but we're not done yet. Jesse, do you want to add anything to that?
Jesse Allen: No, Dante, you did a great job, and I think part of that is that we've got very experienced field operations folks that are very focused on.
Jesse Allen: keeping our expenses down and monitoring what's going on with our wells. So that's part of it too, is just paying more attention to your wells and having a little more focus on keeping them on production.
Peace.
Speaker Change: Mitch, I have two equity questions. The first is, can you explain what is going on with the 424B3 filings with the additional shares and warrants that are now showing up as of the third quarter?
Speaker Change: Let's see, I believe 9.3 new Class A shares and .5 Class B shares outstanding as per the 10-Q from 930.
Let me answer one at a time here.
Speaker Change: First off, the follow-on S1 registration was always planned, and in the 1.8 actually has
Speaker Change: The significant number of their shares were already included in the, but we had to register, I believe.
Speaker Change: There's a big chunk that's relating to settlements paid in shares. We also paid a lot of payables in shares, so that was non-cash that then in turn improved our balance sheet.
Speaker Change: and reducing our payables. Same thing with the 1.2 million warrants. It was solely for our largest
Speaker Change: payable vendor supplier, where we did that to be able to eliminate a significant payable from our books, and we may pay in cash and not use it, so that's there as a backstop.
Bye.
It sounds like you
Bye-bye.
Okay, yes, after the...
Speaker Change: The primary difference in the second question is and the question is I believe there's 4.3 million shares and 500,000 shares of Class B outstanding as of the 15th and the reason for the difference is
Speaker Change: I'd said that the class A's and B's could be converted to common to A's. So the million four class B's, 900,000 were flipped into the A category. So that's why you see that.
Speaker Change: And part of the other is some of the lock usage, which is already embedded in the numbers and some of the other shares I've already discussed. So.
Speaker Change: I will go back to you I don't know if you've got any on the call line but I'll give it to you. Okay can you discuss can you discuss financial course
Speaker Change: costs, and sources of funds, and possibly extent of equity dilution. Two, can you summarize both positive and negative surprise since the acquisition close?
Speaker Change: And, what major concerns going forward on oil prices do you take in order to break even and price assumption for your 25 and 26 planning?" And then he said, congratulations on your progress.
Okay, three questions in there.
Speaker Change: The financing costs and sources of fund, well, the financing costs, the amortization comes from the cost of closing, the financing costs for the RBL and everything else back in November. So that's the financing cost.
sources of funds.
is
As we've always planned, we have the use of
Speaker Change: Our common stock purchase agreement, which is all registered, and we use that at a very low level, so it doesn't have a huge impact on our equity dilution. We do use, as stated before, some of our equity to pay down payables or protect our payables position.
Speaker Change: And then we are always looking at sources of funds from one of the three categories, debt,
Speaker Change: equity and production sharing and you know and each one have their pluses and minuses and we take our time and evaluate it you know it's always a balancing act we
like for equity dilution of possible amounts we
Speaker Change: We're being responsible in the levels in which we're doing it, and the same thing with debt and the other.
Speaker Change: We go into each one, we have long discussions, and we'll deal with that each one as they come up. But everything has got the investor in mind, the company in mind.
And obviously they're shareholders.
Speaker Change: So, when we make those decisions, we do it in the best interest for all stakeholders the best we can.
Speaker Change: Next question is, what are your plans to maximize revenues and increased revenue streams?
Well, it's a production.
Yeah, I'll mention that.
Speaker Change: Our mission is not to borrow money, not to raise it in equity, and not to production share if we can.
Speaker Change: The problem is, we need to get the production of the field up to at least $1,500 to generate enough free cash flow to probably do what we wish.
Speaker Change: So, near-term, until I think we hit 2,000 barrels a day.
We like the option of production sharing.
Speaker Change: It doesn't dilute the stock, it doesn't increase the debt, but we want to get that kind of financing without a perpetual override attached to it. We found a few parties that are interested in doing that.
Speaker Change: So, the plan is, you know, right now, as you mentioned, we want to do 50 workovers a year at 150,000 barrels a day, $150,000 each.
We
We think we can hit 1,000.
Speaker Change: We think we can hit 1,000 barrels a day in a sustained way and then do it again in 26.
Speaker Change: So, 25 is lining up pretty good. The engineering's caught up. We struggled to get all the data together and go through it.
And our office in Houston is.
filled with logs on the wall and maps and
Speaker Change: We're actually doing the science that I'd say is comparable to a billion-dollar company.
Speaker Change: Yet, we're a very small company, but the skill set of our reservoir and geologists are tremendous.
Speaker Change: So, anyway, we've got a backlog of workovers to do as those workovers run dry, which would take us into 2027. We have to look at new wells to drill, and we're at 40-acre spacing. If we went down to 10 or 20-acre spacing, we could double the well count. If we went to horizontal wells...
Speaker Change: We figure we've got 100 of those we could do, but those are $3 million each.
Speaker Change: We don't have the desire to raise $300 million right now, but we may dabble and raise $10 million to do a three-well package, and we're looking at that.
Speaker Change: Right now, the plan to answer your question succinctly is to increase 1,000 barrels a day in 2025 and another 1,000 barrels a day in 2026. Let me go to Jesse and see if he wants to add something to that.
Jesse Allen: Not really, Dante, you're doing a tremendous job recapping, and of course you and I stay in such close contact, what comes out of your mouth basically comes out of my mouth, and what comes out of my mouth comes out of your mouth. So yeah, we're both on the same page in that regard.
guard.
Speaker Change: We're a small team, we're a small company, Jesse and I really do talk five, six times a day.
Speaker Change: He lives an hour and a half from the field and we're blessed that he's here.
Speaker Change: Not too many people live in Eddy County, New Mexico, but he keeps his sanity by going over there to Texas Tech football games.
Bye. Bye.
Thank you.
Speaker Change: Mitch, let me ask you the next question. The question is, it seems like salaries are very low. Are employees all full time?
Speaker Change: Yeah, okay, so first I'll thank them for asking the question with the chairman on the board that telling them that our salaries are low.
Speaker Change: We only have five employees that are not in the field. The field employees are in the LOE, the lease operating expenses.
Speaker Change: They are charged there, and that's actually a balance of full-time employees and contract employees depending on the tasks, but we've structured ourselves, and all five of us have salaries that are...
Speaker Change: It's lower than we've done in the past, but it's commensurate with.
Speaker Change: what we want to gain in the long term. We are into building up an infrastructure, a great big overhead structure, so we've got an excellent accounting firm that does all our record-keeping and our reserve stuff and everything else.
and Petroledger, and we use various
Speaker Change: legal groups and everything else, and consultants that Jesse talks about, they're on a consulting basis.
Speaker Change: And so we're not building permanent infrastructure. That's the purpose of how we've structured it, so.
Speaker Change: It's called a Forward Purchase Agreement and that is where a provider would buy
stock
after
The
Speaker Change: Redemption period is in place so it's for purchase agreement and where they would buy it and hold them so that we could tap into those shares.
immediately after the close to generate cash under certain requirements.
Speaker Change: And then the second half of that is where they could actually buy shares in the future under their agreement.
Speaker Change: but it's not quite the same because it's a much longer term.
Speaker Change: We really didn't end up having the shares at close that we wanted to, and only the $3 billion trailing, and that's what we got rid of. The $3 million trailing doesn't help us, and it certainly doesn't help Investor Bay. So that's what the Poor Purchase Agreement is like.
So I'll go back to you, Mike.
Mike Porter: Okay I have just two more questions and then we'll go to the phone. How do you foresee the automatic conversion of preferred units impacting shareholder equity in the near future?
Mike Porter: Well, it won't be the near future, it would be, um.
Mike Porter: And just right at a year from now, so and it's all based on it's it's automatic conversion based on stock price at the time There is no
Mike Porter: cash requirement to the company. That doesn't mean we don't have the ability to buy it back at some price in between now and then, but so there isn't a near-term impact whatsoever.
It's a year out.
Speaker Change: And the last part of it is are there plans to diversify the asset base or invest in alternative energy resources to mitigate future risk?
Well, we are a, um...
Speaker Change: public company not just for this property and and the long-term because
Speaker Change: We have an infrastructure, but we're not building an infrastructure, but we have a cost structure that's a public company so that we can grow the company. We've always said it.
Speaker Change: We keep having people bring stuff to the table and say, are you interested in buying? We look at a lot of deals.
Speaker Change: Yeah, we will diversify. We're an energy company. Obviously, our current sweet spot in being able to
Fault on is in the
Speaker Change: in the Permian Basin, but we will look at other different types of energy to eventually diversify the company, but not through this one property.
Some people do Bitcoin mining with their gas.
Speaker Change: There's also lithium in our water. The problem with all those things, they take energy from the management team to bracket it up. It always sounds nice at the beginning, and then it just gets into a maze of details. Our focus really is cut our costs.
Improve the balance sheet.
I approve the earnings.
Speaker Change: And we get to a spot where, you know, frankly, we can relax a little bit and we're not going to be relaxed.
until we're above 1,500 barrels a day.
Speaker Change: So, then we could look at those other things in earnest, but they're coming across all the time. We're watching our offset operator competitors, what they're doing. Some are doing compressed gas, and then trucking it. That's a novel idea.
Yeah
Speaker Change: You know, anything you can do to get a better, realize a better,
Speaker Change: margin from the gas is really a lot of opportunity there. We do make a little bit of money handling water for our neighbors because we're a water flood and others dispose of it or just need to do something with it. So we're trying to get a production kick by injecting water.
Speaker Change: We're probably at about the capacity that we can handle, so there's not a lot more room there, but we recycle the water, and we also have
The most
Speaker Change: A profitable alternative energy source for us is something that we do with the gas, like generate power and use the power to run the field.
Speaker Change: run a great computer to look for Bitcoin, especially since the new administration wants to, you know, make America Bitcoin center.
Mitch Trotter: Okay, Mitch, there one more question came in. The question is, I get BPD improved sequentially from 718 to 854, but just to compare to this 1.4 K growth BPD target number for some time in 25.
Speaker Change: Where are we on a gross BPD in the third quarter? Has this changed from the end of the quarter to today? What's the target for the fourth quarter?
Yeah, so let me break down- Go ahead, Dante.
Dante Caravaggio: Yeah, the acronyms are barrel per day, so the person's asking barrels of oil per day. We're behind where we hoped we wanted to be. We wanted to finish the year at really...
1250 BNM, 1400 in that range, 1250 to 1400.
Dante Caravaggio: For a while, we thought the acid jobs we were doing were going to lift us.
Dante Caravaggio: The only way I can say it is we got overzealous. We had tremendous success doing six acid jobs a week.
and then we went to 25 a week.
Dante Caravaggio: sediment, paraffin, and things breaking loose out of the well, that we had to stop that. And we'll resume that.
but I think we're a quarter behind.
in hitting the targets that we...
set for ourselves earlier in the year?
We're
Dante Caravaggio: We want to finish next year at $2,000. We want to get to $1,250 as quick as we can. It's not impossible for this year. We're hanging our hat on a lot to hope these workovers go. Then, of course, we have to fund this. When we have a good story, it makes it easier to raise the capital needed to do this.
I think that's my rambling for that.
Speaker Change: Yeah, let me add just also part of the question, Dante, is.
Dante Caravaggio: Where were we in Q3? We pretty much were right at a thousand or just below in gross per day.
Dante Caravaggio: And I think since then we've hit up a little bit, upwards as high as $1,100.
Speaker Change: but sustaining just, I think, just now just over 1,000. I'm not 100% certain Jesse can answer that. Yeah, I think the question was using net numbers, Mitch. Yeah, but then he switched to gross. They switched to gross. Okay, oh, fair enough, fair enough. Yeah, because that's how we report. So anyway, that's where we are, and it all relates to what Bob did.
So.
So, back to you.
Speaker Change: Okay, thank you. Amina, just to make sure that there are no other questions on the telephone, hit star 5 and we'll get you plugged in right away.
Speaker Change: All right. We are waiting to see if there are any questions via the phone. Again, please dial star 5 to ask a question. We'll pause for a moment now to allow the audience the opportunity to press star 5 on their phone.
Amina, there just aren't any.
There are not. No, there are no questions.
via the telephone line.
Speaker Change: So, maybe we could do a wrap. Can I do a couple of statements on a wrap, and of course, if somebody wants to star-five us, I'll stop and they can chime in.
Speaker Change: All of us in the management team are shareholders, so we don't like it. The way I view it is, the shareholders are going to make us fight and earn it, so we are doing our best to cut costs, increase production, and I have faith that the markets will reward us. I think the show very good numbers is going to be in Q1 and Q2, so I was hoping we would have a stunning Q4, but I think it's going to slip on us to Q1.
Thank you.
Dante Caravaggio: Sorry, Dante, we did receive a question via the telephone line. Okay, there we go. Fire it off. So, caller whose phone number ends in 0985, please say your name and your company and proceed with your question.
Dante Caravaggio: Hi, everyone. It's Jesse Sobelson. I'm with Deboro Capital. Pleasure to be on the call with you guys, and thanks for taking my questions. I am curious on the operational point here. You know, it's understandable that
Dante Caravaggio: You know, as you guys are investing in this business and learning the asset that there's a little volatility in where the targets are going to be. And I do think that there's some definitive upside from an operational standpoint, once things get going, you know, regardless of the timeline here. I am curious, you know, we talked about maybe.
Speaker Change: a greater than 2,000 barrels per oil by maybe the end of next year. I know we're getting a little bit ahead of our skis here with maybe getting to that 1,250 to 1,400 numbers sometime in 2025. Is the 2,000 still on the table for the end of next year, or is that something that we might need to look out to 2026 for?
They should get us there, they should get us there.
Speaker Change: You know, the first 25 or so got us 100 plus barrels a day, and the next ...
A 50 didn't get us much.
Speaker Change: So, we're still going through that data to make sure we get it just right. But I think it's within reach, easy, to say December of 2025, we're north of 2,000 barrels a day. The water injection will be going, more patterns will be completed.
Speaker Change: You'll have a glimpse of this, as Jesse said, I hope, early next month as we report on how these first three went. These are representative, I think, of how the next 50 will go.
Speaker Change: Yeah, it definitely sounds like there is some overzealousness with the asset jobs, but that the workovers are a very clear potential for upside to benefit the PPT number in the medium term here.
We agree.
Great, thanks for taking my question.
Speaker Change: Okay, any more? If there's not any more, this dovetails into, you know, the theme of 25 and 26 is low-cost workover, baby, low-cost workovers. You know, we're not really a...
Speaker Change: focused on drilling although we have to plan and frankly we're going to take advantage of the new administration to try to permit a hundred maybe even two hundred wells because you know that that could sail through especially where eighty percent of our leases are BLM.
Speaker Change: So, you've got a frat king in there as the energy secretary under Trump. We might as well get all this stuff on the board. So that's going to really be something. But near term, we're not going there, but we're preparing for it.
Bye.
Speaker Change: The business plan for 2025 is going to be mostly the same as 2026. I think it will be markedly different in 2027.
Speaker Change: Horizontal wells do good. Now, I think we're gonna have a few.
Speaker Change: you know, maybe three or four wells in 25, horizontally and vertically, you know, maybe up to 10.
Speaker Change: Then, that'll shape our development plan in years forward. Right now, it's easy to say, do work overs. We're going to take advantage of the 550 wellbores that are already there. We already bought them.
Speaker Change: As far as debt, we don't like debt either. We think right now, near-term, the best way to go is by doing profit-sharing, where somebody gets a prescribed dollar-on-dollar return with no perpetual override remaining.
Speaker Change: so that we regain 100% of all revenues. So that's kind of it for me. Unless there's more comments, I'll turn it back over to Mike and Amina.
Speaker Change: Let me just thank everybody for being on the call. If you have any other questions, you can contact me at any time and enjoy your afternoon. Thank you very much. Bye-bye.
Thanks, everybody.