Q4 2026 Evolution Petroleum Corp Earnings Call
Speaker #1: Event is being recorded. At this time, I would like to turn the conference over to Brandi Hudson, Director of Investor Relations. Please go ahead.
Speaker #2: Thank you. Welcome to Evolution Petroleum's fiscal Q4 2026 earnings call. I'm joined today by Kelly Loyd, President and Chief Executive Officer, Mark Bunch, Chief Operating Officer, and Ryan Stash, Senior Vice President, Chief Financial Officer, and Treasurer.
Speaker #2: We released our fiscal Q4 and Q2 2026 financial results after the market closed yesterday. Please refer to our earnings press release for additional information containing these results.
Speaker #2: You can access our earnings release in the Investors section of our website. Please note that any statements and information provided in today's call speak only as of today's date, September 16, and any time sensitive information may not be accurate at a later date.
Speaker #2: 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 the risks, assumptions, and uncertainties as described in our SEC filings.
Speaker #2: Actual results may differ materially from those expected. We undertake no obligation to update any forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income.
Speaker #2: Reconciliations to the most directly comparable GAAP measures are included in our earnings release. Kelly will begin with opening remarks, followed by Mark with an operational update, and then Ryan will review the financial results.
Speaker #2: After our prepared comments, the management team will open the call for questions. As a reminder, this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available on the Investor section of our website.
Speaker #2: With that, I will turn the call over to Kelly.
Speaker #1: Thank you, Brandi. And good morning, everyone. As we look back at fiscal 2026, I want to put the year into perspective and talk about what we're building at Evolution.
Speaker #1: Over the past several years, we have deliberately broadened the business across assets, commodities, and operating partners. Those investments are shaping Evolution into a more diversified energy company with multiple complementary engines.
Speaker #1: Our legacy-long life non-operated producing assets, meaningful working interest positions, across several proved undeveloped and longer-term opportunities, and our growing mineral and royalty portfolio. Throughout that process, we have focused on the durability of cash flow and how much capital must go back into the assets to sustain them.
Speaker #1: Getting that balance right allows us to return cash to shareholders while continuing to invest in the future of the company. Our objective is to build greater value per share from across the entire portfolio.
Speaker #1: Good morning, and welcome to the Evolution Petroleum fourth quarter and fiscal year 2026 earnings release conference call. All participants are in a listen-only mode. Please also note today's event is being recorded.
Speaker #1: This year, we made considerable progress toward that objective. Our minerals and royalty portfolio became a more important part of the business. We continue to invest in selectively in our working interest assets and we maintained our commitment to returning cash to shareholders.
Speaker #1: At this time, I would like to turn the conference over to Brandi Hudson, Director of Investor Relations. Please go ahead.
Speaker #2: Thank you. Welcome to Evolution Petroleum's fiscal Q4 2026 earnings call. I'm joined today by Kelly Loyd, President and Chief Executive Officer, Mark Bunch, Chief Operating Officer, and Ryan Stash, Senior Vice President, Chief Financial Officer, and Treasurer.
Speaker #1: We also finished the year with a meaningful improvement in performance in the Q4, providing solid momentum as we enter into fiscal Q4 deserves particular attention because it demonstrated the recovery that we told you to expect on our last call.
Speaker #2: We released our fiscal fourth quarter and full year 2026 financial results after the market closed yesterday. Please refer to our earnings press release for additional information containing these results.
Speaker #1: Many of the temporary items that weighed on Q3 results rolled off. Production increased, and operating costs per barrel improved. Together with stronger oil and NGL realizations, those improvements drove a 20% sequential increase in revenue and more than doubled adjusted EBITDA.
Speaker #2: You can access our earnings release in the Investor section of our website. Please note that any statements and information provided in today's call speak only as of today's date, September 16, and that information may not be accurate at a later date.
Speaker #1: We achieved that recovery even as natural gas pricing remained a headwind. What stands out to me is the portfolio's ability to absorb that pressure with stronger liquids pricing and improved operations across several properties.
Speaker #2: 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 the risks, assumptions, and uncertainties as described in our SEC filings.
Speaker #1: Helping offset that weakness in gas. This resilience reflects the deliberate work we have done to diversify Evolution's sources of production and cash flow. This quarter also brought the reversal in unrealized hedge losses that we highlighted in May.
Speaker #2: Actual results may differ materially from those expected. We undertake no obligation to update any forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures including adjusted EBITDA and adjusted net income.
Speaker #1: Ryan will walk through the financial impact, but my broader point from our last call remains the same. Higher prices on the production we are selling is a good thing.
Speaker #2: Reconciliations to the most directly comparable GAAP measures are included in our earnings release. Kelly will begin with opening remarks followed by Mark with an operational update and then Ryan will review the financial results.
Speaker #1: We hedge a portion of our production to protect cash flow and support our capital commitments while retaining exposure to higher prices on our unhedged volumes.
Speaker #2: After our prepared comments, the management team will open the call for questions. As a reminder, this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available on the Investor section of our website.
Speaker #1: In Q4, our realized oil price before hedge settlements increased 49% year over year to $90.74 per barrel while our entirely unhedged NGLs realized 32.49 per barrel up 27%.
Speaker #2: With that, I will turn the call over to Kelly.
Speaker #1: Thank you, Brandi. And good morning, everyone. As we look back at fiscal 2026, I want to put the year into perspective and talk about what we're building at Evolution.
Speaker #1: Hedge settlements offset part of the oil price benefit, but our unhedged production allowed us to participate in the stronger market. That is the balance we seek between protecting cash flow and preserving upside for full year, we dealt with operating interruptions and periods of unfavorable regional pricing and those challenges affected our financial results.
Speaker #1: Over the past several years, we have deliberately broadened the business across assets, commodities, and operating partners. Those investments are shaping Evolution into a more diversified energy company with multiple complementary engines.
Speaker #1: Our legacy long-life, non-operated producing assets, meaningful working interest positions across several proved undeveloped and longer-term opportunities, and our growing mineral and royalty portfolio. Throughout that process, we have focused on the durability of cash flow and how much capital must go back into the assets to sustain them.
Speaker #1: At the same time, average production was 7,077 BOE per day, slightly above 7,074 BOE per day in fiscal 2025 as acquisitions and development activity helped offset natural declines and downtime.
Speaker #1: Getting that balance right allows us to return cash to shareholders while continuing to invest in the future of the company. Our objective is to build greater value per share from across the entire portfolio.
Speaker #1: Underpinning that stability is the continued renewal of our asset base. We produced approximately 2.6 million barrels of oil equivalent during the year and ended up with 27.2 million barrels of oil equivalent improved reserves.
Speaker #1: This year, we made considerable progress toward that objective. Our minerals and royalty portfolio became a more important part of the business. We continued investing selectively in our working interest assets, and we maintained our commitment to returning cash to shareholders.
Speaker #1: Slightly above where we started. For a company like ours with a strong commitment to issuing dividends, maintaining that reserve base remains an essential part of the job.
Speaker #1: That brings me to our minerals and royalty strategy and the role we expect it to play in Evolution's next stage of growth. Subsequent to the end of the fiscal year, we took another step in building our mineral and royalty business with our approximately 16 million dollar acquisition in the core of the Permian Midland Basin.
Speaker #1: We also finished the year with a meaningful improvement in performance in the fourth quarter, providing solid momentum as we enter into fiscal 2027. The fourth quarter deserves particular attention because it demonstrated the recovery that we told you to expect on our last call.
Speaker #1: The transaction added approximately 3,420 net royalty acres and over 200 BOE per day of current production across Reagan, Upton, Glasgow, Midland, and Martin counties in Texas.
Speaker #1: Many of the temporary items that weighed on third quarter results rolled off. Production increased, and operating costs per barrel improved. Together with stronger oil and NGL realizations, those improvements drove a 20% sequential increase in revenue and more than doubled adjusted EBITDA.
Speaker #1: It increases our exposure to high-margin current production. As operators in one of the country's most active basins continue to develop the acreage, the acquisition also provides capex-free upside to both near-term and long-term field-level production growth.
Speaker #1: We achieved that recovery even as natural gas pricing remained a headwind. What stands out to me is the portfolio's ability to absorb that pressure with stronger liquids pricing and improved operations across several properties.
Speaker #1: We believe this is the kind of investment that can strengthen Evolution's earning power over time. As operators develop additional wells, we benefit from new production and cash flow without funding the drilling and completion costs ourselves.
Speaker #1: Helping offset that weakness in gas. This resilience reflects the deliberate work we have done to diversify Evolution's sources of production and cash flow. This quarter also brought the reversal in unrealized hedge losses that we highlighted in May.
Speaker #1: Building on the positions we established in the Scoop Stack and Louisiana during fiscal 2026, the Permian Minerals acquisition adds another durable capital-light source of growth and cash flow generation.
Speaker #1: Ryan will walk through the financial impact, but my broader point from our last call remains the same. Higher prices on the production we are selling is a good thing.
Speaker #1: With respect to our working interest assets, we believe they will continue to provide an established production base and opportunities to create value through workovers, production enhancements, and selective development.
Speaker #1: We hedge a portion of our production to protect cash flow and support our capital commitments while retaining exposure to higher prices on our unhedged volumes.
Speaker #1: In Q4, our realized oil price before hedge settlements increased 49% year over year to $90.74 per barrel while our entirely unhedged NGLs realized $32.49 per barrel up 27%.
Speaker #1: Alongside those assets, a growing royalty contribution gives us a better balance between cash flow that requires ongoing reinvestment and cash flow that benefits from development funded by others.
Speaker #1: We believe that combination strengthens our ability to sustain shareholder returns across commodity cycles. The next step is for the investments we have made to contribute more fully.
Speaker #1: Hedge settlements offset part of the oil price benefit but our unhedged production allowed us to participate in the stronger market. That is the balance we seek between protecting cash flow and preserving upside for shareholders.
Speaker #1: That will build its operators bring additional wells online in fiscal 2027. We are encouraged by the activity underway in Oklahoma and Louisiana and we will be watching that progress closely as we move through the year.
Speaker #1: Looking at the full year, we dealt with operating interruptions and periods of unfavorable regional pricing and those challenges affected our financial results. At the same time, average production was 7,077 BOE per day slightly above 7,074 BOE per day in fiscal 2025 as acquisitions and development activity helped offset natural declines in downtime.
Speaker #1: Mark will provide more details on the development activity across the portfolio. A quick word on how we see the market from here. On oil, our outlook for demand remains steady as she goes and the Q4 showed how stronger prices can benefit our cash generation.
Speaker #1: On natural gas, we continue to see a constructive longer-term demand outlook as LNG export capacity expands and power demand grows, including from data centers.
Speaker #1: Underpinning that stability is the continued renewal of our asset base. We produced approximately 2.6 million barrels of oil equivalent during the year and ended up with 27.2 million barrels of oil equivalent improved reserves.
Speaker #1: The challenge for us has been translating that broader demand picture into prices at the field level. Where regional differentials have weighed on realizations. As those differentials normalize, we expect better pricing across our affected gas assets providing another potential source of improvement in the next few quarters.
Speaker #1: Slightly above where we started. For a company like ours, with a strong commitment to issuing dividends, maintaining that reserve base remains an essential part of the job.
Speaker #1: That brings me to our minerals and royalty strategy and the role we expected to play in Evolution's next stage of growth. Subsequent to the end of the fiscal year, we took another step in building our mineral and royalty business with our approximately 16 million dollar acquisition in the core of the Permian Midland Basin.
Speaker #1: As we look forward to fiscal 2027, our capital allocation strategy is unchanged. We will continue to capture the contribution from the investments we have already made work with our operating partners to maintain reliable base production and direct additional capital toward opportunities with the most attractive returns.
Speaker #1: The transaction added approximately 3,420 net royalty acres and over 200 BOE per day of current production across Reagan, Upton, Glascock, Midland, and Martin counties in Texas.
Speaker #1: At the same time, we will continue evaluating acquisitions with the same discipline, including how they are financed and what they mean for existing shareholders.
Speaker #1: Our dividend remains central to those decisions. The board's latest declaration maintains the quarterly dividend at 12 cents per share for fiscal Q1, 2027, and will mark our 52nd consecutive quarterly payment.
Speaker #1: It increases our exposure to high margin current production. As operators in one of the country's most active basins continue to develop the acreage, the acquisition also provides capex-free upside to both near-term and long-term field-level production growth.
Speaker #1: Since December, 2013, we have returned approximately 151.7 million or $4.53 per share to shareholders in common stock dividends. As I have said before, we set the dividend at a level that we believe can be sustained for multiple years given our strong outlook and the diversified platform we are building.
Speaker #1: We believe this is the kind of investment that can strengthen Evolution's earning power over time. As operators develop additional wells, we benefit from new production and cash flow without funding the drilling and completion costs ourselves.
Speaker #1: Building on the positions we established in the Scoop Stack and Louisiana during fiscal 2026, the Permian Minerals acquisition adds another durable capitalized source of growth and cash flow generation.
Speaker #1: We enter fiscal 2027 with a broader portfolio and more opportunities to build on that record. Our focus is now on translating the investments we have made into stronger cash generation while maintaining the balance sheet and capital discipline that underpin long-term value per share.
Speaker #1: With respect to our working interest assets, we believe they will continue to provide an established production base and opportunities to create value through workovers, production enhancements, and selective development.
Speaker #1: With that, I'll turn the call over to Mark.
Speaker #2: Thanks, Kelly. Good morning, everyone. I'll focus my remarks on key operational highlights from the quarter and on what we see across the portfolio heading into fiscal 2027.
Speaker #1: Alongside those assets, a growing royalty contribution gives us a better balance between cash flow that requires ongoing reinvestment and cash flow that benefits from development funded by others.
Speaker #2: I encourage the listeners to review our earnings press release and filings for additional details across our asset base. Overall, operating performance improved during the Q4 as several of the issues we described in May rolled off as expected and contributions from our recent investments continued to build.
Speaker #1: We believe that combination strengthens our ability to sustain shareholder returns across commodity cycles. The next step is for the investments we have made to contribute more fully.
Speaker #1: That will build as operators bring additional wells online in fiscal 2027. We are encouraged by the activity underway in Oklahoma and Louisiana, and we will be watching that progress closely as we move through the year.
Speaker #2: Turning to individual assets, the Scoop Stack, which is a clear bright spot for the year, fiscal Q4 production averaged 1,275 BOE per day, up approximately 14% from the prior year quarter.
Speaker #1: Mark will provide more details on the development activity across the portfolio. A quick word on how we see the market from here. On oil, our outlook for demand remains steady as she goes and the fourth quarter showed how stronger prices can benefit our cash generation.
Speaker #2: While per unit lease operating costs declined to $10.33 per BOE from $11.05. That combination, production up, unit costs down, reflects the growing contribution from our mineral and royalty interests layered on top of the working interest base.
Speaker #1: On natural gas, we continue to see a constructive longer-term demand outlook as LNG export capacity expands and power demand grows, including from data centers.
Speaker #2: Third-party operators remain active around our acreage. Across our combined Scoop Stack portfolio, operators brought online 31 gross wells during fiscal 2026. As of July, '31, our interests have grown to 725 gross producing wells, 36 gross proved undeveloped locations, or in various stages of drilling and completion.
Speaker #1: The challenge for us has been translating that broader demand picture into prices at the field level. Where regional differentials have weighed on realizations. As those differentials normalize, we expect better pricing across our affected gas assets providing another potential source of improvement in the next few quarters.
Speaker #2: And more than 360 additional gross locations. During the Q4, we also divested non-core, non-producing Scoop Stack mineral acreage for approximately $3.1 million. Enabling us to monetize longer-dated development opportunities while retaining acreage with near-term cash flow potential.
Speaker #1: As we look forward to fiscal 2027, our capital allocation strategy is unchanged. We will continue to capture the contribution from the investments we have already made work with our operating partners to maintain reliable base production and direct additional capital toward opportunities with the most attractive returns.
Speaker #2: In Louisiana, operator activity across our Haynesville and Bozier positions continues to progress. With wells moving through drilling and completion and into production. We continue to add to this position through bolt-on acquisitions, and we expect the contribution from these royalty assets to keep building through fiscal 2027 and beyond as operator development activity converts our inventory of locations into producing wells.
Speaker #1: At the same time, we will continue evaluating acquisitions with the same discipline including how they are financed and what they mean for existing shareholders.
Speaker #1: Our dividend remains central to those decisions. The board's latest declaration maintains the quarterly dividend at 12 cents per share for fiscal Q1, 2027 and will mark our 52nd consecutive quarterly payment.
Speaker #1: Since December, 2013, we have returned approximately 151.7 million or $4.53 per share to shareholders in common stock dividends. As I've said before, we set the dividend at a level that we believe can be sustained for multiple years given our strong outlook and the diversified platform we are building.
Speaker #2: As of July, '31, the portfolio included approximately 90 gross producing wells, 16 wells in various stages of drilling or completion, 35 pre-permitted wells, and over 60 additional gross locations.
Speaker #2: At Shabroo, full-year production increased meaningfully averaging approximately 260 BOE per day in fiscal 2026 compared to approximately 175 BOE per day in fiscal 2025.
Speaker #1: We enter fiscal 2027 with a broader portfolio and more opportunities to build on that record. Our focus is now on translating the investments we have made into stronger cash generation while maintaining the balance sheet and capital discipline that underpin long-term value per share.
Speaker #2: Reflecting the full-year contribution from wells previously brought online. Q4 production was lower year over year, but this comparison really just reflects the initial flush of production from new wells brought online in fiscal Q4, 2025.
Speaker #2: We also completed the rod pump conversion program discussed on our last call. With all seven producing wells converted by June 30th. Looking ahead, we have permits enhanced for the next six well development program.
Speaker #1: With that, I'll turn the call over to Mark.
Speaker #2: Thanks, Kelly. Good morning, everyone. I'll focus my remarks on key operational highlights from the quarter and on what we see across the portfolio heading into fiscal 2027.
Speaker #2: And our working with our partner to determine the timing of drilling. At TexMex, operating performance began to improve during the Q4 as the extensive work over program progressed.
Speaker #2: I encourage the listeners to review our earnings press release and filings for additional details across our asset base. Overall, operating performance improved during the fourth quarter as several of the issues we described in May rolled off as expected and contributions from our recent investments continued to build.
Speaker #2: The program was not completed until July, and we expect production to continue increasing and operating expenses to normalize going forward. The operator continues to identify opportunities to restore and enhance production from the existing well base.
Speaker #2: Turning to individual assets, it's good stack, which was a clear bright spot for the year. Fiscal Q4 production averaged 1,275 BOE per day up approximately 14% from the prior year quarter.
Speaker #2: And we expect the TexMex assets to remain an important and growing contributor to cash flow in fiscal 2027 and beyond. As those efforts continue.
Speaker #2: While per unit lease operating costs declined in $10.33 per BOE from $11.05. That combination, production up, unit costs down reflects the growing contribution from our mineral and royalty interests layered on top of the working interest base.
Speaker #2: Across our legacy assets, Delhi, Jonah, Barnett, Williston, and Hamilton Dome, the focus remains on maintaining base production improving operating reliability and pursuing selective work over opportunities rather than deploying significant new development capital.
Speaker #2: Third-party operators remain active around our acreage. Across our combined Scoop Stack portfolio, operators brought online 31 gross wells during fiscal 2026. As of July, '31, our interests have grown to $725 gross producing wells 36 gross proved undeveloped locations or in various stages of drilling and completion.
Speaker #2: Operational issues that affected several of those properties earlier in fiscal 2026 improved as the year advanced. At Jonah, regional gas differentials have improved meaningfully.
Speaker #2: That improvement should support better realizations from our West Coast exposed gas as we move into fiscal 2027. With that, I'll turn it over to Ryan.
Speaker #2: And more than 360 additional gross locations. During the fourth quarter, we also divested non-core, non-producing Scoop Stack mineral acreage for approximately $3.1 million. Enabling us to monetize longer dated development opportunities while retaining acreage with near-term cash flow potential.
Speaker #3: Thank you, Mark. And good morning, everyone. As Brandi mentioned earlier, we issued our earnings release yesterday, which contains more information on our results. For today, I'd like to go through our fiscal Q4 financial highlights.
Speaker #3: In fiscal Q4, production averaged 6,901 BOE per day up 3% sequentially and down 4% year over year. The lower year over year production was due to flush production associated with new wells that came online in Shabroo.
Speaker #2: In Louisiana, operator activity across our Haynesville and Bozier positions continues to progress. With wells moving through drilling and completion and into production. We continue to add to this position through bolt-on acquisitions and we expect the contribution from these royalty assets to keep building through fiscal 2027 and beyond as operator development activity converts our inventory of locations into producing wells.
Speaker #3: Along with natural declines and our other fields. Total revenues were $24.2 million, up 20% sequentially, and 15% year over year. The sequential improvement reflected higher realized oil and NGL prices.
Speaker #2: As of July, '31, the portfolio included approximately 90 gross producing wells 16 wells in various stages of drilling or completion 35 pre-permitted wells and over 60 additional gross locations.
Speaker #3: Increased production and the roll-off of the prior period transportation adjustment at Delhi. Compared to the year ago quarter, average realized prices before hedge settlements increased 20%, more than offsetting the decline in production.
Speaker #2: At Shabroo, full-year production increased meaningfully averaging approximately 260 BOE per day in fiscal 2026 compared to approximately 175 BOE per day in fiscal 2025.
Speaker #3: Net income for the quarter was $4.6 million, or $0.13 per diluted share, compared to a net loss of $8.9 million in fiscal Q3 and net income of $3.4 million, or $0.10 per diluted share in the year ago period.
Speaker #2: Reflecting the full-year contribution from wells previously brought online. Fourth quarter production was lower year over year, but this comparison really just reflects the initial flush of production from new wells brought online in fiscal Q4 2025.
Speaker #3: As Kelly discussed, the quarter included a $5.8 million unrealized gain on derivative contracts compared to a $7.6 million unrealized loss in fiscal Q3. Excluding selected items, adjusted net loss narrowed to $0.6 million, from $2.9 million sequentially, compared to adjusted net income of $1.1 million a year ago.
Speaker #2: We also completed the rod pump conversion program discussed on our last call. With all seven producing wells converted by June 30th. Looking ahead, we have permits in hand for the next six well development program.
Speaker #3: Adjusted EBITDA more than doubled sequentially to $6.5 million, from $3.1 million reflecting stronger oil and NGL pricing across the portfolio, the cessation of winter weather impacts, contributions from our recently acquired Louisiana royalties, and improved performance at Delhi where production increased and operating costs declined.
Speaker #2: And our working with our partner to determine the timing of drilling. At TexMex, operating performance began to improve during the fourth quarter as the extensive workover program progressed.
Speaker #2: The program was not completed until July, and we expect production to continue increasing and operating expenses to normalize going forward. The operator continues to identify opportunities to restore and enhance production from the existing well base.
Speaker #3: Those improvements helped offset continued particularly at Jonah. Compared to the prior year quarter, adjusted EBITDA declined from $8.6 million primarily due to benefits received in the prior year period in our Barnett Shell asset as a result of the joint venture audit.
Speaker #2: And we expect the TexMex assets to remain an important and growing contributor to cash flow in fiscal 2027 and beyond. As those efforts continue.
Speaker #3: Lease operating costs increased $12.8 million compared to $11.4 million in the year ago quarter. As you just mentioned, the prior year period included a $1.9 million credit from the operator of our Barnett Shell properties related to a joint venture audit.
Speaker #2: Across our legacy assets, Delhi, Jonah, Barnett, Williston, and Hamilton Dome, the focus remains on maintaining base production improving operating reliability and pursuing selective workover opportunities rather than deploying significant new development capital.
Speaker #3: On a per unit basis, after adjusting the prior year period for that credit, LOE was $20.35 per BOE compared to $20.25 per BOE a year ago.
Speaker #2: Operational issues that affected several of those properties earlier in fiscal 2026 improved as the year advanced. At Jonah, regional gas differentials have improved meaningfully.
Speaker #3: LOE per BOE improved approximately 5% sequentially, from $21.49 in fiscal Q3. On the hedging front, we have continued to add hedges to comply with our credit facility covenants.
Speaker #2: That improvement should support better realizations from our West Coast-exposed gas as we move into fiscal 2027. With that, I'll turn it over to Ryan.
Speaker #3: Thank you, Mark. And good morning, everyone. As Brandi mentioned earlier, we issued our earnings release yesterday, which contains more information on our results. For today, I'd like to go through our fiscal fourth quarter financial highlights.
Speaker #3: Our ongoing goal remains to reduce downside commodity price risk and protect cash flow for our shareholder return strategy while preserving the maximum potential upside.
Speaker #3: This strategy can result in realized and unrealized losses on our hedges in some periods, but benefit us in other periods and will provide more predictable and stable cash flows over time.
Speaker #3: In fiscal Q4, production averaged 6,901 BOE per day, up 3% sequentially and down 4% year over year. The lower year-over-year production was due to flush production associated with new wells that came online in Shabroo.
Speaker #3: Turning to the balance sheet, cash on hand totaled $6.1 million at June 30th, up from $2.6 million at March 31st. Borrowings under our credit facility remain unchanged during the quarter at $56.5 million, with $0.8 million in letters of credit outstanding and a weighted average interest rate of 6.69%.
Speaker #3: Along with natural declines in our other fields. Total revenues were $24.2 million, up 20% sequentially and 15% year over year. The sequential improvement reflected higher realized oil and NGL prices.
Speaker #3: Total liquidity at June 30th, including cash and available borrowing capacity, was approximately $13.9 million. We generated $6.8 million in operating cash flow during the quarter compared to $3.5 million in fiscal Q3.
Speaker #3: Increased production and the roll-off of the prior period transportation adjustment at Delhi. Compared to the year-ago quarter, average realized prices before hedge settlements increased 20%, more than offsetting the decline in production.
Speaker #3: Capital expenditures were $1.4 million, and we invested an additional $1.7 million in mineral acquisitions. We also received approximately $3.1 million from the sale of non-core scoop stack mineral acreage, as Mark mentioned earlier.
Speaker #3: Net income for the quarter was $4.6 million or $0.13 per diluted share compared to a net loss of $8.9 million in fiscal Q3 and net income of $3.4 million or $0.10 per diluted share in the year ago period.
Speaker #3: And $1 million of net proceeds from shares sold under our at-the-market program. For the full year, operating cash flow was $23.6 million, compared to $33.1 million in fiscal 2025, with a decline primarily reflecting working capital maintenance.
Speaker #3: As Kelly discussed, the quarter included a 5.8 million unrealized gain on derivative contracts compared to a 7.6 million unrealized loss in fiscal Q3. Excluding selected items, adjusted net loss narrowed to $0.6 million from $2.9 million sequentially compared to adjusted net income of $1.1 million a year ago.
Speaker #3: Subsequent to quarter end, we completed the Permian Midland Basin Minerals acquisition using proceeds from our common stock offering and borrowings under the credit facility.
Speaker #3: Following those transactions, as of August 20th, total liquidity was approximately $19 million. That liquidity includes a temporary increase in our borrowing base from $65 million to $73 million, effective through October 20th, unless redetermined earlier.
Speaker #3: Adjusted EBITDA more than doubled sequentially to $6.5 million from $3.1 million, reflecting stronger oil and NGL pricing across the portfolio, the cessation of winter weather impacts, contributions from our recently acquired Louisiana royalties, and improved performance at Delhi, where production increased and operating costs declined.
Speaker #3: We currently anticipate our fall borrowing base redetermination to occur on or about October 1st. During the quarter, we paid $4.3 million in common stock dividends, bringing total dividend payments for fiscal 2026 to $16.9 million.
Speaker #3: Those improvements helped offset continued weakness in natural gas realizations, particularly at Jonah. Compared to the prior year quarter, adjusted EBITDA declined from $8.6 million, primarily due to benefits received in the prior year period in our Barnett Shale asset as a result of a joint venture audit.
Speaker #3: The board has declared a quarterly dividend of $0.12 per share for fiscal Q1, 2027, payable September 30th to shareholders of record on September 21st, marking our 52nd consecutive quarterly payment.
Speaker #3: As we move into fiscal 2027, our financial priorities remain focused on maintaining liquidity to execute on our strategic growth plans, while managing leverage and deploying capital where we expect attractive returns per share.
Speaker #3: Lease operating costs increased to $12.8 million compared to $11.4 million in the year-ago quarter. As you just mentioned, the prior-year period included a $1.9 million credit from the operator of our Barnett Shale properties related to a joint venture audit.
Speaker #3: The improvements in fourth quarter cash generation and the growing contribution from our recent investments support our ability to pursue those opportunities while continuing to return capital to shareholders.
Speaker #3: On a per-unit basis, after adjusting the prior-year period for that credit, LOE was $20.35 per BOE, compared to $20.25 per BOE a year ago.
Speaker #3: I will now hand it back over to Kelly for closing comments.
Speaker #1: Thanks, Ryan. To sum it up, fiscal 2026 tested our portfolio. And the portfolio passed. We navigated operating disruptions and pricing headwinds, held annual production steady, replaced the reserves we produced, and maintained our dividend.
Speaker #1: We also continued investing in the business and delivered much of the fourth quarter recovery that we had anticipated. Looking ahead, we have a lot to be excited about.
Speaker #3: LOE per BOE energy while preserving the maximum potential upside. This strategy can result in realized and unrealized losses on our hedges in some periods but benefit us in other periods and will provide March 31st.
Speaker #1: Development across our working interest in royalty positions together with the Permian Minerals acquisition gives us opportunities to strengthen cash generation in fiscal 2027. We've put capital to work, and we look forward to seeing those investments begin to fully contribute in the coming year and beyond.
Speaker #1: With that, I'll turn it over to the operator to begin the Q&A session. Thank you all very much.
Speaker #3: Borrowings under our credit facility remain unchanged during the quarter at $56.5 million with $0.8 million in letters of credit outstanding and a weighted average interest rate of 6.69%.
Speaker #2: Thank you. We will now begin the question and answer session. Do you ask a question, you may press star. Then one on your touchstone phone.
Speaker #2: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star and then two.
Speaker #3: Total liquidity at June 30th, including cash and available borrowing capacity, was approximately $13.9 million. We invested an additional $1.7 million in mineral acquisitions.
Speaker #2: At this time, I'll pause momentarily to assemble the roster. The first question will come from Jeff Gramp with Northland Capital Markets. Please go ahead.
Speaker #3: We also received approximately $3.1 million from the sale of non-core Scoopstack mineral acreage, as Mark mentioned earlier, and $1 million of net proceeds from shares sold under our at-the-market program.
Speaker #4: Morning, guys. Hey, Jeff. Maybe for Ryan, on the borrowing base increase, can you explain the dynamics there with it being temporary? What necessitated that given it sounds like you're only a couple of weeks away from getting a more formal redetermination process?
Speaker #4: Just want to kind of understand the mechanics and process there. Thanks.
Speaker #3: Yeah. So, Jeff, no, I appreciate it. It was honestly it was part of our liquidity plan for the acquisition, too. I mean, obviously, we wanted to do the deal we wanted to have flexibility to fund it either way, mid-first was able to look at the borrowing base and give us an additional amount.
Speaker #3: For the full year, operating cash flow was $3 million effective through October 20th unless redetermined earlier. We currently anticipate our fall borrowing base redetermination to occur on or about October 1st.
Speaker #3: For the interim period until they actually redetermined the entire borrowing base, it was really just to provide us additional liquidity and flexibility. Really, for the acquisition, because that increase was tied to kind of the amount of the acquisition.
Speaker #3: During the quarter, we paid $4.3 million in Common Stock dividends bringing total dividend payments for fiscal 2026 to $16.9 million. The board has declared a quarterly dividend of $0.12 per share for fiscal Q1, 2027, payable September 30th to Shellholders of Record on September 21st.
Speaker #4: Gotcha. Okay. That's super helpful. And then for my follow-up, just I guess kind of bigger picture across the asset base, given obviously the oil market changes week to week, but any signs of increased activity across the asset base as a result of the price appreciation?
Speaker #4: I mean, it looks like you guys have some permits or maybe considering with the operator at Chavariz some new drills? Is that an area that could see some increased capital allocation in the upcoming fiscal year, or any other areas worth noting across the asset base would be interesting?
Speaker #1: Hey, Jeff. Yeah, this is Kelly. So I'll let Ryan speak to a couple of the areas. But with Chavariz, I mean, I'll say that we are very much interested in moving forward with drilling.
Speaker #1: And we're just working with the operator on timing for those. So more news to come on that as we get further down the line with timing.
Speaker #3: Yeah. And then on the Permian Minerals, we obviously are watching it pretty closely. I think we said maybe seven rigs were running the last time that's actually ticked up one to eight rigs running right now.
Speaker #3: And we've seen kind of steady permitting activity among the bigger operators. Obviously, Exxon, as we've mentioned, being the largest, they're continuing to add permits, and they're like I said, they're running about five rigs right now throughout our acreage.
Speaker #3: Double Legal has been drilling pretty actively here recently and actually in the last call it two or three weeks, we saw a patchy file probably about a dozen permits in Upton County.
Speaker #3: So hopefully, they'll get working on that piece too. So obviously, the activity level we've been pleased with.
Speaker #1: And then to follow up.
Speaker #4: Sounds great.
Speaker #1: On the Hainesville, we continue to see some nice activity there as well. And we're converting wells into PDP there.
Speaker #4: All right. Appreciate the overview and the update. Thanks, guys. I'll pop back into you.
Speaker #1: Thanks.
Speaker #2: The next question will come from Nicholas Pope with Roth Capital. Please go ahead.
Speaker #5: Good morning, everyone.
Speaker #1: Good morning.
Speaker #6: Hey, Nick.
Speaker #5: I'm going to have a good segue from the last question you were just talking about Hainesville. You've seen some of these smaller acquisitions of the royalty side, the y'all have done here over the last year.
Speaker #5: Curious what the opportunity set might look like, what that maybe even broader than that too, like looking at what the potential kind of this ground game type leasing and purchasing of minerals y'all have been doing, what that landscape looks like, what y'all think about the opportunity set right now.
Speaker #1: Yeah, perfect, Nick. We still think, again, this are neat deals. They're interesting. And they are deals that are not marketed, right? They're sort of scrapped together from the ground up.
Speaker #1: And we're still seeing opportunities there. We're excited about the prospects of those going forward. Now, are you going to have some beautifully polished large chunky thing?
Speaker #1: Maybe, right? But those tend to get sort of competed over and bid for and all that. And if we can find one, like we did in the Permian, where it's really just negotiated transaction where we're all parties are happy, then absolutely, we'd be interested in that.
Speaker #3: We have a lot to be excited about. Development across our working interest and royalty positions, together with the Permian Minerals acquisition, gives us opportunity. It looks like you guys have some permits or may be considering, with the operator at Chavarice, some new drills. Is that an area that could see some increased capital allocation in the upcoming period?
Speaker #1: But for now, the sort of onesies and twosies, that we're picking up and we're seeing convert sort of, frankly, ahead of our schedule, when we got them, we do think there's opportunities to keep going there.
Speaker #1: to work with our partners on finding more of those, so. And then sorry, Nick, just one more thing. I neglected to mention the Scoop Stack.
Speaker #1: Listen, the activity in that part of the world is up. I mean, I think it's about eight years excuse me, eight more rigs year over year this year versus last year.
Speaker #1: And so we're seeing some nice activity there. We're having our minerals and royalties there start to convert into more wells being drilled. And we're excited about some of the opportunities we're seeing on the working interest side there as well, so.
Speaker #5: That's great, Kelly. I'm curious. I mean, it seems like there's a fair amount of bigger activity operator changes in the midcon. I mean, you're all seeing that on the operator side, like change in hands.
Speaker #5: And I guess, how does that how might that affect kind of the viewpoint if some of these assets change hands and bigger transactions?
Speaker #1: So we have seen this is Kelly again. We have definitely seen some consolidation. And just I don't know, sort of anecdotally, if you buy a new toy, you kind of want to play with it, right?
Speaker #1: So these guys that are taking over assets, have some really good locations to drill. And we're starting to see some activity there. Mark, yeah.
Speaker #3: We've had we've had a lot of activity in up there with across all the operators. It's so we're expecting like at higher prices, that it's even going to it's going to get better.
Speaker #3: I mean, and they'll just shift into more of the oily area, the window on the Scoop Stack.
Speaker #1: And yeah, bigger companies with bigger balance sheets, we certainly aren't complaining about that. More of a chance to put capital to work. And like I said, those are small, right?
Speaker #1: Two to four percent working interest kind of stuff. If it's very well within our capex plans. And then obviously, the mineral side, man, please drill away.
Speaker #2: These are neat deals—they're interesting. And they are deals that are not marketed, right? They're sort of scrapped together from the ground up, and we're still seeing opportunities there.
Speaker #5: Got it. And I know you're having really given guidance, and I know it's a difficult thing looking at kind of with the non-op acreage and royalties.
Speaker #2: We're excited about the prospects of those going forward. Now, are you going to have some beautifully polished large chunky thing? Maybe, right? But those tend to get sort of competed over and bid for and all that.
Speaker #5: But as you look at capex, any idea where things might be heading kind of on a run rate basis right now? It seems like things have been very moderate in terms of capex spend the last several quarters, last year.
Speaker #2: And if we can find one like we did in the Permian, where it's really just a negotiated transaction where all parties are happy, then absolutely we'd be interested in that.
Speaker #5: I'm curious if y'all have any visibility on what that might look like over the next year.
Speaker #3: I mean, so we put out our budget, Nick, kind of another kind of four to six million is what we put kind of for our fiscal '27.
Speaker #2: But for now, the sort of onesies and twosies that we're picking up, and we're seeing convert frankly ahead of our schedule when we got them, we do think there are opportunities to keep going there.
Speaker #3: Now, yeah, we'll say that that doesn't yet include any capex potential in Chevroon. As Kelly mentioned, we're kind of working with Fidesco there to figure out the timing on that so that budget could change.
Speaker #2: And we're excited about continuing to work with our partners on finding more of those, so... And then, sorry Nick, just one more thing. I neglected to mention the Scoop Stack.
Speaker #3: We have assumed some activity in Scoop Stack with that four to six million, but it could certainly accelerate more. Then we thought, and in fact, I think we actually have we do have quite a bit of capital already, I think, in AFEs in the Scoop Stack area that has been nice to see.
Speaker #2: Listen, the activity in that part of the world. World is up. I mean, I think it's about eight years excuse me, eight more rigs year over year this year versus last year.
Speaker #3: And that budget does include that. So really, the big swing is probably going to be mostly in Chevroon depending on the timing for those wells.
Speaker #5: Got it. I appreciate it. Appreciate the time. Thanks, y'all.
Speaker #1: Yeah. And not just the time, but also the amount, right, is it going to be three wells? Not sure, but yeah.
Speaker #5: Appreciate it.
Speaker #2: The next question will come from Jeff Robertson with Water Tower Research. Please go ahead.
Speaker #4: I'm getting that.
Speaker #1: Thank you. Kelly, you showed in the August slide deck a slide showing that pro forma cash flow from royalty mineral interest would have been about 20% of first nine months fiscal '26 cash flow.
Speaker #1: Do you have a goal in mind of how big you would like to see that side of the business get? Or is it all opportunistic in terms of incremental capital versus royalties and non-op working interest?
Speaker #2: So yeah, I mean, that's a very good question. I would say, look, ideally, sure, you want that to be a bigger piece because they're they trade anywhere from rule of thumb.
Speaker #2: And so, our Over assets have some really good locations to drill, and we're starting to see some activity there. Mark, yeah.
Speaker #2: And when we run the numbers on it, they're kind of worth anywhere depending on the commodity, depending on how much drilling gets done. But two to four plus times on a per barrel or per BOE basis.
Speaker #3: We've had we've had a lot of activity in up there with across all the operators. It's so we're expecting at higher prices that it's even going to it's going to get better.
Speaker #2: So if you can buy those or continue to acquire those at multiples that are similar to what you could acquire or drill on with working interest stuff, then you want that to go higher.
Speaker #3: I mean, they’ll just shift into more of the oily area, the window on the Scoop Stack.
Speaker #2: And bigger companies with bigger balance sheets we certainly aren't complaining about that. More of a chance to put capital to work. And like I said, those are small, right?
Speaker #2: However, we still see some very, very nice returns on some of the working interest stuff. So I would say the answer is it's going to be opportunistic for now.
Speaker #2: Two to four percent working interest kind of stuff fits very well within our capex plans. And then, obviously, the mineral side—man, please, drill away.
Speaker #2: For sure. As we keep seeing deals that are highly accretive, we're going to put capital to that.
Speaker #1: Got it. And I know you're having really given guidance and I know it's a difficult thing looking at kind of with the non-op acreage and royalties.
Speaker #1: To be clear, Kelly, your approach to the mineral business is on minerals that are currently or will be producing soon as evidenced by the non-core Scoop Stack sale as opposed to just warehousing royalty interest.
Speaker #1: But as you look at capex, any idea where things might be heading, kind of on a run-rate basis right now? It seems like things have been very moderate in terms of capex spend the last several quarters, last year.
Speaker #1: Is that the right way to think about it?
Speaker #2: Absolutely. Right. And that was an interesting one. So when we made our Scoop Stack minerals acquisition, what, a little over a year ago now, we put value on the PDP and on a number of locations that we felt might be drilled in the relatively near future.
Speaker #1: I'm curious if y'all have any visibility on what that might look like over the next year.
Speaker #2: I mean, so we put out our budget, Nick, kind of another kind of four to six million is what we put kind of for our fiscal 27.
Speaker #2: Now, we'll say that that doesn't yet include any CapEx potential in Chavarine. As Kelly mentioned, we're kind of working with Fidesco there to figure out the timing on that, so that budget could change.
Speaker #2: And we had a bunch of other acreage that I do think has a chance to be very attractive for somebody else so they longer-term horizon but the ability to high-grade that, right, put that money back into something that'll be more accretive near term is something that's always out there and happy to move dollars forward on similar multiples.
Speaker #2: We have assumed some activity in Scoop Stack with that four to six million, but it could certainly accelerate more. Then we thought and in fact, I think we actually have we do have quite a bit of capital already, I think, in AFEs in the Scoop Stack area that has been nice to see.
Speaker #2: So and.
Speaker #1: And if I could ask two quick questions for Mark. Do you have a number in mind for an AFE for a Chevroon development well in this environment, Mark?
Speaker #2: And that budget does include that. So really the big swing is probably going to be mostly in Chavarine depending on the timing for those wells.
Speaker #3: Yeah. Yeah. The ones we're running with right now, and this is a preliminary number, it's about 3.6 to 3.9 million dollars.
Speaker #1: Got it. I appreciate it. Appreciate the time. Thanks, y'all.
Speaker #2: Yeah. And not just the time, but also the amount, right? Is it going to be three wells? Not sure, but yeah.
Speaker #1: And then secondly, Mark, it's been hot in North Texas since the end of July. Are you seeing any impacts on production in the Barnett Shale?
Speaker #1: Appreciate it. The next question will come from Jeff Robertson with Water Tower Research. Please go ahead.
Speaker #3: No. Actually, everything seems to be running quite well.
Speaker #4: I'm getting that.
Speaker #5: Thank you. Kelly, you showed in the August slide deck slide showing that proforma cash flow from royalty mineral interest would have been about 20% of first nine months fiscal 26 cash flow.
Speaker #1: Okay. Thank you.
Speaker #3: Thank you, Jeff.
Speaker #2: The next question will come from Poe Fratt with Alliance Global Partners. Please go ahead.
Speaker #6: Hi. Good morning. Kelly, you mentioned that you put out some guidance for capex. Have you put out guidance for production and or I'm sorry, LOE for 2027?
Speaker #5: Do you have a goal in mind of how big you would like to see that side of the business get? Or is it all opportunistic in terms of incremental capital versus royalties and non-op working interest?
Speaker #2: So yeah, I mean, that's a very good question. I would say look, ideally, sure, you want that to be a bigger piece because they're they trade anywhere from rule of thumb.
Speaker #3: No, Poe. And that's I could say we'd kind of like to be frank. Being non-op and now non-op in mineral and royalty, we just don't often get enough visibility that we'd be able to put something out.
Speaker #2: And when we run the numbers on it, they're kind of worth anywhere depending on the commodity, depending on how much drilling gets done. But two to four plus times on a per barrel or per BOE basis.
Speaker #3: We'd be comfortable with, so.
Speaker #6: Just to sort of frame it, though, when you look at the fourth quarter run rate, you're going to have Midland come on. You're going to have more activity with Scoop Stack.
Speaker #2: So, if you can buy those or continue to acquire those at multiples that are similar to what you could acquire or drill on with working interest stuff, then you want that to go higher.
Speaker #6: Tex-Mex is still improving. Chevroon is sort of a wild card because of what's going on with the DevCo, right? And then the other ones are sort of in maintenance mode, right?
Speaker #2: However, we still see some very, very nice returns on some of the working interest stuff. So I would say the answer is it's going to be opportunistic for now.
Speaker #6: Is that sort of a good way to frame it?
Speaker #3: Yeah. I think that that's a decent way to frame it. And so the conclusion from what you just said is we are excited about '27.
Speaker #2: For sure. As we keep seeing deals that are highly accretive, we're going to put capital to that.
Speaker #3: We think we're going to see with a bigger contribution for the mineral side, with improvements along the way at Tex-Mex, and some of the other initiatives we have, we're excited about the opportunity and we believe we ought to start move forward.
Speaker #5: To be clear, Kelly, your approach to the mineral business is focused on minerals that are currently producing or will be producing soon, as evidenced by the non-core Scoop Stack sale, as opposed to just warehousing royalty interest.
Speaker #5: Is that the right way to think about it?
Speaker #2: Absolutely. Right. And that was an interesting one. So, when we made our Scoop Stack minerals acquisition, what, a little over a year ago now, we put value on the PDP and on a number of locations that we felt might be drilled in the relatively near future.
Speaker #3: Or at least even better lifting costs as we move forward. We can't control price, right? Yeah. I mean, yeah, I would just add, Poe.
Speaker #3: I mean, you saw on the fourth quarter, we are right around $20 per BOE, right, for the whole asset. So we would, as Kelly mentioned, we would think that would go down a little bit over time, like as minerals is contributing more.
Speaker #2: And we had a bunch of other acreage that I do think has a chance to be very attractive for somebody else. So they longer-term horizon.
Speaker #6: Understood. And then can we just looking at what you did in the March quarter, you had mentioned in that last call just a couple of issues and I'd like to just clarify a couple of those.
Speaker #2: But the ability to high-grade that—right?—put that money back into something that'll be more accretive near-term is something that's always out there, and we're happy to move dollars forward on similar multiples.
Speaker #6: One, on Scoop Stack, it said that you had talked about catching up on some of the data just because on the non-op wells and are you current on that data?
Speaker #6: Is the fourth quarter a good run rate or base rate? Or do you still need time to catch up on some of the data there?
Speaker #3: Well, yeah, that's an interesting question. And I think the thing as wells get put on in Oklahoma, in particular, they have it's a multi-month period before you actually necessarily know anything.
Speaker #2: So yeah.
Speaker #5: And if I could ask two quick.
Speaker #3: Now, it's—and this is a preliminary number—it's about $3.6 to $3.9 million.
Speaker #5: And then secondly, Mark, it's been hot in North Texas since the end of July. Are you seeing any impacts on production in the Barnett Shale?
Speaker #3: So I would say we're caught up on the stuff we knew then, but we've had more wells convert and so we're always going to be sort of chasing data on some of that stuff as we go.
Speaker #3: No. Actually, everything seems to be running quite well.
Speaker #5: Okay. Thank you.
Speaker #3: Yeah, I would say in general, we probably have a better feel for what's coming online in the working interest side, right, because we actually have to get AFEs.
Speaker #2: Thank you, Jeff.
Speaker #1: The next question will come from Poe Fratt with Alliance Global Partners. Please go ahead.
Speaker #3: So we're able to see kind of when that's coming on. But on the mineral side, we're obviously just looking on public data sources and we don't always have the best intelligence on when wells would come on.
Speaker #6: Hi. Good morning. Kelly, you mentioned that you put out some guidance for capex. Have you put out guidance for production and or I'm sorry, LOE for 2027?
Speaker #3: And to Kelly's point, they don't the operators don't have to put us in pay immediately. And so in the mineral side, we may see a bit more lag as far as production that we get to accrue versus when it comes on.
Speaker #2: No, Poe. And that's—I could say we'd kind of like to be frank. Being non-op, and now non-op in mineral and royalty, we just don't often get enough visibility that we'd be able to put something out.
Speaker #6: But I thought I heard you say before that you're encouraged by signs that activity is picking up on the mineral side, in Scoop Stack.
Speaker #2: We'd be comfortable with, so.
Speaker #6: Just to sort of frame it, though, when you look at the fourth quarter run rate, you're going to have Midland come on. You're going to have more activity with SCOOP/STACK.
Speaker #3: Yes. I mean, I think that's a true statement. Look, when you just look at where rigs are, where our acreage is, and all that, yes, absolutely.
Speaker #6: And then on Delhi, you talked about the surprise that you got with the transportation contract. Any comment on potentially getting a what's the word for it?
Speaker #6: Tex-Mex is still improving. Chavarine is sort of a wild card because of what's going on with the PDEBCO, right? And then the other ones are sort of in maintenance mode, right?
Speaker #6: Is that sort of a good way to frame it?
Speaker #6: Any kind of relief on that? And then also, where do you stand on CO2 purchases? What's the operator telling you there? And what does the cost structure and production profile look on Delhi in 2027?
Speaker #2: Yeah. I think that that's a decent way to frame it. And so the conclusion from what you just said is we are excited about '27.
Speaker #2: We think we're going to see with a bigger contribution for the mineral side, with improvements along the way at Tex-Mex, and some of the other initiatives we have, we're excited about the opportunity and we believe we ought to start seeing even better margins as we move forward.
Speaker #3: Okay. Let's see. There's a lot of parts to that. So on the contract, right, so what we're past is the catch-up for the previous period, right?
Speaker #3: So going forward, it's not going to have anything like that because that included damn near a year of catch-up, right? So and look, we expect that between us and the operator there, we'll strive to get the best contract we can to sell our product for as much as we can.
Speaker #2: Or at least even better lifting costs as we move forward. We can't control price, right?
Speaker #3: Yeah. I mean, yeah, I would just add, Poe. I mean, you saw in the fourth quarter we were right around $20 per BOE. Right?
Speaker #3: For the whole asset. So we would, as Kelly mentioned, we would think that would go down a little bit over time. As minerals is contributing more.
Speaker #3: And I think recently, it trades and a lot of times more in line Ryan, Craig, if I'm wrong, with Louisiana Light Suite. And that has been now, at premium, and so the contract, what it's selling for is looking pretty good at the moment.
Speaker #6: Understood. And then can we just looking at what you did in the March quarter, you had mentioned in that last call just a couple of issues.
Speaker #6: And I'd like to just clarify a couple of those. One, on Scoop Stack, it said that you had talked about catching up on some of the data just because on the non-op wells and are you current on that data?
Speaker #5: We actually got a premium to WTI in the fourth quarter at Delhi. Some of that was the LLS differential, like Kelly said. Some of it is the way that just the they call it a WTI role, which is trying to get trade month synced up with calendar month.
Speaker #6: Is the fourth quarter a good run rate or base rate, or do you still need time to catch up on some of the data there?
Speaker #5: And when you have prices increase like that, you can get benefits. So overall, though, yeah, I mean, we feel comfortable about the differentials from Delhi in general.
Speaker #2: Well, yeah, that's an interesting question. And I think the thing is, as wells get put on in Oklahoma in particular, there's a multi-month period before you actually necessarily know anything.
Speaker #5: As it relates to our broader portfolio.
Speaker #3: And then on the CO2 side of the world, we're not going to they're not purchasing any more CO2 and there are no plans right now to do that.
Speaker #2: So I would say we're caught up on the stuff we knew then, but we've had more wells convert and so we're always going to be sort of chasing data on some of that stuff as we go.
Speaker #3: We think there's plenty of CO2 generated from the gas stream that comes out of the ground that we put back in. So it's more of a maintaining a reservoir pressure there, which Exxon says they're doing.
Speaker #3: Yeah. I would say in general, we probably have a better feel for what's coming online in the working interest side, right? Because we actually have to get AFEs.
Speaker #3: And then what was the other part of the question that you asked, Poe? Because there was about four questions.
Speaker #3: So we're able to see kind of when that's coming on. But on the mineral side, we're obviously just looking on public data sources and we don't always have the best intelligence on when wells would come on.
Speaker #6: No, I think it was trying to ask if there's any rebate or any way to potentially mitigate that catch-up. I think you had talked about in the last call, potentially trying to get some kind of.
Speaker #3: And to Kelly's point, they don't the operators don't have to put us in pay immediately. And so in the mineral side, we may see a bit more lag as far as production that we get to accrue versus when it comes on.
Speaker #3: Yeah, yeah, yeah. So I think I so what you're referring to is we would have the opportunity to take our production in kind and find a competing contract and at certain times, it makes sense.
Speaker #6: But I thought I heard you say before that you're encouraged by signs that activity is picking up on the mineral side, in Scoop Stack.
Speaker #2: Yes. I think that's a true statement. Look, when you just look at where rigs are, where our acreage is, and all that, yes, absolutely.
Speaker #3: I mean, just however, the way things are going right now, I think the contract we have there is at the moment anyway, pretty competitive, so.
Speaker #6: And then on Delhi, you talked about the surprise that you got with the transportation contract, any comment on potentially getting a what's the word for it?
Speaker #6: Sounds good. And then just if I can squeeze one last one in, you sold assets in April, three and a half, generated a little more of a 3 million any potential asset sales going forward, looking into the rest of 2027?
Speaker #6: Any kind of relief on that? And then also, where do you stand on CO2 purchases? What's the operator telling you there? And what does the cost structure and production profile look on Delhi in 2027?
Speaker #3: Yeah. So just let's put a fine point on that. Those were non-producing assets that we essentially had valued at not being put on for several years to come.
Speaker #2: Okay, let's see. There's a lot of parts to that. So, on the contract, right, what we're past is the catch-up for the previous period, right?
Speaker #3: And so they have value to the right sort of person with a longer-term hold and no need to have them necessarily. Convert super quickly.
Speaker #2: So going forward, it's not going to have anything like that because that included damn near a year of catch-up, right? So and look, we expect that between us and the operator there, we'll strive to get the best contract we can to sell our product for as much as we can.
Speaker #3: So if that situation, if we find an area like that where we can high-grade the portfolio and move some of that capital into more near-term expected production, that's something we will always consider.
Speaker #3: So I hope that answers your question.
Speaker #6: Yes, it sounds like sort of the herd is cold and you're going forward with what you have now.
Speaker #2: And I think, recently, it trades a lot of times more in line—Ryan, correct me if I’m wrong—with Louisiana Light Sweet. And that has been at a premium now, so the contracts and what it’s selling for is looking pretty good at the moment.
Speaker #3: Yeah, and what it I mean, it really does make that acquisition of the Scoop Stack minerals on the stuff that we really value near-term and even better acquisition.
Speaker #6: Thank you.
Speaker #3: We actually got a premium to WTI in the fourth quarter at Delhi. Some of that was the LLS differential, like Kelly said. Some of it is the way that just, they call it a WTI roll, which is trying to get trade month synced up with calendar month.
Speaker #3: Thank you.
Speaker #1: The next question will come from Sergey Piguree with Freedom Finance. Please go ahead.
Speaker #7: Hi, everyone, and thank you for taking my question.
Speaker #3: Hi, Sergey.
Speaker #3: And when you have price increases like that, you can get benefits. So overall, though, yeah, I mean, we feel comfortable about the differentials from Delhi in general.
Speaker #7: Yeah. Hi. What we've seen recently on natural gas prices is actually higher differentials to Henry Hub and quite low Henry Hub prices. So when do you think and maybe you already said differentials can normalize and when do you think this additional demand from data centers, LNG, can drive benchmark higher?
Speaker #3: As it relates to our broader portfolio.
Speaker #2: And then on the CO2 side of the world, we're not going to—they're not purchasing any more CO2, and there are no plans right now to do that.
Speaker #2: We think there's plenty of CO2 generated from the gas stream that comes out of the ground that we put back in. So it's more of a maintaining a reservoir pressure there, which Exxon says they're doing.
Speaker #5: Yeah. So hey, Sergey, this is Ryan. On the differentials, a lot of what you saw, weakness, and especially in the fourth quarter was on the West Coast.
Speaker #5: We kind of talked about it being a really, really warm winter and stores being unusually high on the West Coast. We have seen it actually be more of a warm summer now in some of that storage has been worked off.
Speaker #5: So differentials have gotten much, much better on the West Coast. Maybe not quite back to historical standards, but they're looking a lot better than they were in the last quarter.
Speaker #2: And
Speaker #5: So we've already seen the improvement there. I would say in the Barnett and other areas, differentials have kind of been within historical norms. On the Henry Hub side, we are fairly well hedged at prices that are above the strip right now.
Speaker #5: So we are protected on Henry Hub there and Kelly can give you his two cents too on just the pricing in general, but I do think that you have seen some weakness in Henry Hub due to additional production.
Speaker #5: Some of the Permian production coming through to the Gulf Coast with the new pipeline. So obviously, that's weighed a little bit on the Henry Hub pricing, but and also the other big one being that it's actually the we think that the price is kind of anticipating a warm winter right now.
Speaker #5: You've got people worried about this super El Niño going on. And so a lot of the pricing is already assuming that the winter is very warm.
Speaker #3: Yeah, Sergey, I agree with Ryan on that wholeheartedly, but I tell you what, we are excited about the prospects of the non-weather-related incremental demand that we see coming on over the near and medium-term as significant drivers that are, like I said, completely outside of weather.
Speaker #3: Weather's always going to matter, and I think Ryan's right. The current sort of strip is anticipating a warm winter. If that doesn't turn out, I think you'll see a big move.
Speaker #3: If it does, I think it's kind of already priced in. And then again, as we go forward, over the next two, three, four, five years, and you see LNG growing very significantly.
Speaker #3: You see more power growth, right? Just the call on power itself is often estimated to be pretty staggering. And if you just hold natural gases sort of current percentage of that incremental power growth, there's a whole bunch of new demand for natural gas that will just be its piece of the power growth.
Speaker #3: And that, again, that's excluding any increase in natural gases portion of that. So I do think and again, you're seeing more exports to Mexico.
Speaker #3: Lots of things pulling on US sort of demand and potentially bringing it elsewhere and should put a strengthening under the market over the time.
Speaker #3: But in the meantime, if you have a super warm winter, it's going to put a sort of cap on current pricing.
Speaker #7: Yes, for sure. Thank you. Thank you very much.
Speaker #3: Thank you.
Speaker #1: The next question is a follow-up from Jeff Robertson of Water Tower Research. Please go ahead.
Speaker #8: Thank you. Ryan, just to follow up to the question regarding the RBL, did the 73 million dollar temporary increase or the 8 million dollar actually temporary increase, did that include the reserves in the Midland acquisition and based on year-end 2026 reserve report?
Speaker #5: Yeah, effectively, I mean, that's what the additional capacity was for is the engineered reserve report on the Midland side. Now, obviously, when we do our full re-determination in a couple of weeks here, it'll use our year-end reserve report for all of our assets, right, to kind of look at that again.
Speaker #5: But that's the way to think about it is the incremental 8 million was effectively driven by the Midland minerals.
Speaker #8: Thank you.
Speaker #3: Again, really probably only relates to the PDP side of that, I would think.
Speaker #5: That's right.
Speaker #3: Yeah.
Speaker #1: This concludes our question and answer session. I would like to turn the conference back over to Mr. Kelly Lloyd for any closing remarks.
Speaker #3: As always, we want to thank you all for taking your time to join us here and we welcome you to follow up if you need any clarification on anything we said.
Speaker #3: Thank you very much.
