Vitesse Energy Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 12 speakers on the call.

Operator

Greetings. Welcome A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Ben Messier, Director, Investor Relations and Business Development. Thank you.

Operator

You may begin.

Speaker 1

Good morning and thank you for joining. Today, we will be discussing our financial and operating results for the Q1 of 2024, which we released yesterday after market close. You can access our earnings release and presentation in the Investor Relations section of our website. We will file our Form 10 Q within the upcoming days. I'm joined here this morning by Vitesse's Chairman and CEO, Bob Garrity our President, Brian Cree and our CFO, Jimmy Henderson.

Speaker 1

Our agenda for today's call is as follows: Bob will provide some opening remarks on the quarter. After Bob, Brian will give you an operations update, including some additional information on the recently announced near term development acquisitions. Then Jimmy will review our Q1 financial results and updated production and CapEx guidance. After the conclusion of our prepared remarks, the executive team will be available to answer any questions. Before we begin, let's cover our Safe Harbor language.

Speaker 1

Please be advised that our remarks today, including the answers to your questions, may include forward looking statements within the meaning of the Private Securities Litigation Reform Act. These forward looking statements are subject to the risks and uncertainties, some of which are beyond our control, that could cause actual results to be materially different from the expectations contemplated by these forward looking statements. Those risks include, among others, matters that we have described in our earnings release and periodic filings. We disclaim any obligation to update these forward looking statements, except as may be required by applicable securities laws. During our conference call, we may discuss certain non GAAP financial measures, including adjusted net income, net debt, adjusted EBITDA, net debt to adjusted EBITDA ratio and free cash flow.

Speaker 1

Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued yesterday. Now, I'll turn the call over to our Chairman and CEO, Bob Garrity.

Speaker 2

Thank you, Ben. Good morning, everyone, and thanks for your participating in today's Q1 2024 earnings call. Management at Vitesse is committed to the dividend as a vehicle to return capital to our stockholders. To sustain this return of capital strategy, we must have a very economic return on capital invested. We continue to spend capital in a dividend supportive manner, which led us to raise production and CapEx guidance for 2024.

Speaker 2

We are sharing the fruits of this labor with our stockholders by increasing our 2nd quarter fixed cash dividend to $0.525 per share to be paid in June, an increase of 5% over the Q1 dividend. This is really a harvest of the really economic deals we have done starting in the second half of last year and continuing into this year. We continue to look at near term development deals and larger asset acquisitions that would bolster our dividend. So far this year, deal flow has been healthy. As Brian will describe, we have agreed to acquire additional self sourced highly economic interest that will allow us to invest over $40,000,000 of CapEx incremental to our original projection.

Speaker 2

When we find these highly economic acquisitions, we will take them down. We do not have a fixed budget. It's all opportunistic. We will continue to pursue all of these opportunities as that meet our strict economic parameters. Before I turn it over to Brian, I just want to compliment everyone on our team at Vitesse.

Speaker 2

We are all rowing the boat in harmony. We bust our ass every day to allocate capital in a way that supports our dividend, which is really the dividend belongs to our shareholders. So with that, I'll turn it over to our President, Business Partner, Brian Cree.

Speaker 3

Thanks, Bob, and good morning to everyone and thanks for participating on today's call. In the Q1, we had production of 12,500 and 57 barrels of oil equivalent per day. As previously mentioned in our February earnings call, production was negatively impacted by the severe weather event in North Dakota in January as many of the wells were offline for more than a week. Despite this event, we are increasing our 2024 production and CapEx guidance as a result of the additional acquisition activity that Bob mentioned. We continue to find highly economic opportunities to invest capital through our acquisition pipeline that we have developed over the past 10 plus years.

Speaker 3

The majority of these near term development acquisitions are more traditional in nature than those closed during the second half of twenty 23. Thus, the drilling and completion activity will occur over the summer and fall with production not likely until the Q4 and into 2025. As of March 31, we had 5.9 net wells that were either drilling or in the completing phase and another 10.6 net wells that had been permitted for development by our operators. Through the 1st 4 months of 2024, we've experienced an increase in planned development on our existing assets in addition to the recent near term development acquisition activity. We're excited about these trends, which are expected to enhance our return on capital invested over the course of this year and into next.

Speaker 3

Our oil differential in the Q1 was greater than it has been historically, which we expect to improve as the Trans Mountain pipeline expansion comes online in Canada reported to have occurred earlier this month. We have continued to add oil hedges during the year and we now have swaps in place through the end of 2020 5. At the midpoint of our revised guidance for 2024, we have approximately 60% of our remaining oil production hedged at above $78 per barrel and a portion of our 2025 oil production hedged at above $74 a barrel. Thanks for your time. Now I'll turn it over to our CFO, Jimmy Henderson, to review our financial highlights.

Speaker 4

Thanks, Brian and Bob. Appreciate the introduction. Good morning, everyone. I wanted to highlight a few financial results from the Q1. And as always, I'll assume you can refer to our earnings release and our upcoming 10 Q for further details.

Speaker 4

As Brian mentioned, our production for the quarter was approximately 12,500 BOE per day for the 71% oil cut. Our production was affected by extreme winter conditions in January, but thanks to the great work by our operators, we quickly recovered. Just can't say enough about the men and women out there that are getting the job done day in and day out in North Dakota. Lease operating expenses were also negatively impacted by the severe weather event in addition to continued elevated workover For the quarter, adjusted EBITDA was $39,100,000 and adjusted net income was 10,200,000 GAAP net income was a loss of $2,200,000 with that difference being primarily attributable to the unrealized non cash hedging loss due to the increase in oil prices in the quarter. Cash CapEx and acquisition costs for the quarter were $32,200,000 which included costs paid related to acquisitions made earlier in 2023.

Speaker 4

As a reminder, our CapEx can be variable from quarter to quarter depending on activity levels and acquisition opportunities. During the first quarter, 332,840 shares of Vitesse's common stock were retired after being exchanged for $6,900,000 of tax withholding relating to vesting of restricted stock units. This transaction occurred at a price of $20.85 which is about 8% below our current stock price at least yesterday's stock price. While this effectively functions as a share buyback, it does not decrease our repurchasing power under our $60,000,000 share buyback authorization. We funded 1st quarter CapEx and the share retirement with operating cash flows and draws on the credit facility.

Speaker 4

Debt at the end of the quarter was $98,000,000 resulting in a leverage ratio of just 0.6 times on a trailing 12 month EBITDA basis. The elected commitments on our credit facility currently stand at 2 $10,000,000 but we expect them to increase to $245,000,000 when we complete our semi annual redetermination in the next couple of weeks. As previously mentioned, we are increasing our original 20 24 annual guidance due to the recently acquired or agreed to be acquired near term development assets in North Dakota. These acquisitions are anticipated to result in over $40,000,000 of incremental capital expenditures and are expected to provide material increases to production and cash flows primarily late 2024 and end of 2025. Our expected production for 2024 now ranges from 13,000 to 14,000 BOE per day with a 67% to 71% oil cut and we have increased our 2024 capital expenditures guidance range, which now stands at $130,000,000 to $150,000,000 Please note that our oil and natural gas production as well as our CapEx varies from quarter to quarter based on new wells coming online and other operational matters that happen.

Speaker 4

Commensurate with this increased activity, the Board has approved an increase in our dividend to $0.525 per share, which demonstrates our confidence in the accretive nature of these investments. With that, let me turn the call over to the operator for Q and A.

Operator

Thank you. We will now be conducting a question and answer Our first questions come from the line of John White with ROTH Capital Partners. Please proceed with your questions.

Speaker 5

Good morning. Can you hear me okay?

Speaker 4

Absolutely. Good morning, John.

Speaker 5

Good morning. Could we get a little more detail on the acquisitions like what counties are they predominantly located? How much existing production is being acquired? And any comments on the undrilled inventory?

Speaker 3

Absolutely, John. This is Brian. I'll take a first crack at that and let anyone add in if they want. But these are different than what we did last fall. Last fall, many of the acquisitions that we completed were more very developed in terms of the timing of when those wells were going to come online.

Speaker 3

They were wells that were DUCs at the time or were just shortly ready to come on. These are more kind of traditional in nature. They span the entire basin, some in Williams, Mackenzie. But they're with operators that we have a lot of confidence in. But these are wells that are going to get drilled over the summer and the fall.

Speaker 3

And so there's really no production coming with these unlike the last

Speaker 6

time where we had a lot of wells that were just about ready to start producing. These will start producing kind of like

Speaker 3

I said fall sometime into the 4th quarter. Standpoint, again, with some of our favorite operators, in the Q4. And so they're a little bit different in nature than what we did last year, but very economic from our standpoint, again, with some of our favorite operators in areas of the field that we have a lot of confidence in. They are higher working interest wells. Typically, our average working interest is in that 3% if you look at our entire portfolio.

Speaker 3

These are working interests that are north of 20%. And so they're deals that we've been working for a long time and just luckily they came together in April and we're able to move forward with them.

Speaker 5

Okay, great. And Bob used the term self sourced. Does that mean this was not a bid situation?

Speaker 3

Yes. The operators will come out to several different companies. These were not like investment banking bid processes or anything else. So these are this is just kind of part of our pipeline. We've been doing this for, like I said, over 10 years.

Speaker 3

We've developed relationships with all the different operators and sellers of this

Operator

and it is a process where we have

Speaker 3

to put in an offer. So unlike maybe the deal we did last year with Marathon, where it was more negotiated, but these are still deals that have very few eyes on them from the operators. They send them out to their kind of their favorite potential buyers and we go from there.

Speaker 5

Thanks again. And net acreage involved?

Operator

Most of these are

Speaker 3

wellbore deals. So there's not really much additional new acreage. This is all wells that are really wellbore AFEs that are being drilled over the course of the summer.

Speaker 5

Thanks a lot for the extra detail.

Speaker 7

You're welcome.

Operator

Thank you. Our next questions come from the line of Michael Swartz with Jefferies. Please proceed with your questions.

Speaker 8

Hi, guys. Congrats on the acquisition. My first question is, given that these wells are going to be tilling at the end of the year, how should we be thinking about production CapEx in 2025?

Speaker 4

Yes, it's a little early, Michael. We'll be thinking about giving any guidance of any sort for 2025. Clearly, we're confident to tell with increasing the dividend that will increase production and cash flow as we exit 'twenty four into 'twenty five. And so I think you should see be pretty happy with the change year over year. But we don't want to get too far ahead of ourselves, but we think we can although it's not our objective necessarily, I think you will see some production growth as we go into next year.

Speaker 4

And then I think you think about CapEx sort of returning to a maintenance mode as we go into 2025.

Speaker 8

Makes sense. I completely understand that it's early. So I just also want to ask about the decision to raise the dividend. From your comments, it sounds like it's tied to kind of deals and this kind

Speaker 9

of growth you're

Speaker 8

seeing. What do we need to see to grow the dividend further? Is there kind of any metrics that we should be thinking about after that?

Speaker 2

Well, it's really a function of the economics of our drilling. We're capital allocators. And when we can allocate capital in a way that gives us a very high rate of return, well, we're going to return that money to the shareholders. So, that can happen in a lot of different ways. If we continue to find the deals we're finding in the last 9 months, that's very constructive to the dividend.

Speaker 2

Obviously, we hedge those acquisitions to the degree that we can and stable oil price will certainly be supportive to the dividend. But Michael, this is what we live for. And so the calculus of this is very dense. Ben, you want to add something to that?

Speaker 1

Yes. Hi, Michael. Yes, we like to think about our dividend coverage in a flat production environment really. So when we set this dividend level, we're thinking about sort of the maintenance mode CapEx level of call it $90,000,000 to hold production flat in the mid to high 13 MBOE per day range. So if you look at our business model in that environment, we're generating more than enough operating cash flow at current commodity prices.

Speaker 1

The current conservatively cover the dividend and the maintenance CapEx, And so we look at that and feel really good about where we are from a dividend standpoint. And then as Bob said, we've been lucky enough to find really attractive acquisitions since we've spun off, that have allowed us to grow production more than maybe we originally thought we could And we're happy to draw our RBL to fund those. We're still 0.6 times levered. We have we're 40% drawn on our revolving credit facility. So a ton of capacity there to drive growth at these really attractive rates of return.

Speaker 1

And it obviously comes with the short term hit of more CapEx, but that's to the benefit of longer term production and free cash flow growth. So we're not as concerned about the optics of looking like we're covering the dividend in the short term, because we know that having more free cash flow over the next 30 years is in the end that's for the dividend. So that's some of the calculus that goes into how we set it and when we raise it really.

Speaker 8

Sounds good.

Speaker 2

Makes a

Speaker 8

lot of sense for me. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Steven Richardson with Evercore ISI. Please proceed with your questions.

Speaker 10

Hi, good morning. I was wondering if you could talk a little bit appreciate the comments in the prepared remarks about the in process wells and permitted wells. Could you talk a little bit about what you're seeing in terms of operator activity on your lands, particularly relative how you guided earlier in the year and how things were playing out, just acknowledging that you had weather impacts in Q1. But could you just talk about what you're seeing from the operators at this point?

Speaker 3

Sure, Stephen. This is Brian. We kind of mentioned, I've made a quick comment on it is that we're seeing a little bit of accelerated activity on our asset. Typically, we think about $40,000,000 to $50,000,000 a year of kind of organic CapEx. That's what we've talked about in the past.

Speaker 3

It's early in the year still, but we're actually seeing an accelerated pace. We've received more AFEs in the 1st 4 months of the year that puts us on a pace for to exceed that $40,000,000 to $50,000,000 So we like that. We've seen more 3 mile laterals. Clearly, the operators are moving toward the 3 mile laterals whenever they can. So we've seen more of that in terms of our development.

Speaker 3

We've seen quite a few refracs this year, probably on a pace that exceeds what we saw in 2023 and closer to where we were in 2022. So we're excited about that. We think the operators continue to look at that refrac activity. But yes, it's we've seen an accelerated pace that we're not sure that that will continue. We're excited about it at this point in time.

Speaker 3

We think the 3 mile laterals, we know the operators are all very excited about the 3 mile laterals. We have confidence in their ability to pull those together and see those as being more economic than the 2 mile. Time will tell exactly how those play out. But the combination of all of that just gives us a higher level of excitement about 2024 than we had at the beginning of the year.

Speaker 10

Great. Maybe Brian, while I've got you as well on the acquisitions, could you appreciate that the activity on these wellbores is going to be in the back part of the year? One, based on your risking and appreciate that you don't have full visibility, but as you looked at it is will you have production contribution from all these wellbores by year end? Like will it be in the exit rate? Or is it does it trickle into Q1, Q2 of next year as you kind of looked at it and risked it?

Speaker 3

Based on for underwriting, Stephen, we definitely expect all of these wells to be on at some point in time in Q4. But as you know, it's hard to tell for sure. That's how we've modeled them. We modeled things last fall when we made those acquisitions with production coming on a little slower. So I think we do a pretty good job in our underwriting in terms of estimating timing.

Speaker 3

But as Jimmy mentioned, it's not in our timelines.

Speaker 10

Okay. Last one for me, if I could squeeze it in, was just on just following up on Ben's previous comment on kind of thinking about the financial resources of the company in terms of and the reinvestment opportunity set. So if you think about that 0.6x levered, can you just remind us where you're happy or where you're comfortable taking that considering depending on how you look at it, this is probably a little bit above kind of mid cycle oil price, but at least for most investors. So like where are you willing to take that considering if the opportunity set continues to present itself? Thanks.

Speaker 4

Yes, I'll jump in here. This is Jimmy. Yes, I think we've always said that we're going to remain under certainly under one times and I think we're confident that we'll remain there with these opportunities, ability to further invest. I don't really seeing much increase from where we're at today as we're getting contribution from the acquisitions that we did late last year for the remainder of the year and then these acquisitions kick in. So I think we're in a really comfortable position from a leverage standpoint and a liquidity standpoint given really within our current resources.

Speaker 7

Great. Thanks a lot.

Operator

Thank you. Our next questions come from the line of Jeff Grampp with Alliance Global Partners. Please proceed with your questions.

Speaker 1

Good morning, guys. I was curious with the near term development acquisition market, obviously really active here so far. Is that just a function of those being higher working interests? If you guys were to look at it maybe on a, I don't know, gross deal basis, are things pretty consistent? Or how might you guys characterize kind of current market dynamics versus say 2023 or whatever reference period you'd like?

Speaker 3

Yes, Jeff, this is Brian. I'll jump in again. The market remains very robust at this point in time. We see a lot of deals. We still evaluate a lot of deals.

Speaker 3

As we said in the past, our hit rate is probably 10% for these. But I think for us, when you look at those higher working interest opportunities, we've had a little more success there. There's probably a lot less competition when you're talking about those kind of dollars versus those in the $1,000,000 or $2,000,000 deal range with smaller working interest. So yes, we've tried to take advantage of that. And again, it's always very lumpy, right?

Speaker 3

I mean, we see a lot of deals. In the Q1, we bid a lot of things and nothing really came to fruition. And then all of a sudden some things come together. So it's just it's a timeline that we have to work through these, working with the various operators, the various sellers to make sure that we really understand what's going on and bid these at the hurdle rates that we find very attractive. The one thing I will say is just to add to your question is, while that pipeline is really good, when oil prices get higher from our standpoint, it actually makes it a little more difficult to close some of these because I think others will get a little more optimistic.

Speaker 3

We And so when prices get a little higher, it becomes a little more difficult for us. So really that $70 to $75 range seems to be a great range for us where kind of our underwriting does very well on against the competition.

Speaker 1

That's really helpful. I appreciate that. And maybe a question for Jimmy, hedges bumped up nicely, especially 1st part of 'twenty five. Should we expect more volumes there perhaps as these new acquisitions come online? Or how are you guys thinking about the hedge book here, especially in the context of the increased dividend?

Speaker 4

Yes, definitely. Obviously hedging is a key component of our dividend decision making and protecting the cash flow so that we can continue to make these investments going forward. So you'll definitely see volumes added to 2025 as we move forward. We have a couple of things working against us, obviously the backwardation of the market, so we got to be patient and kind of let that wave move forward. At the same time, we're only allowed to hedge a certain percentage under our credit agreement.

Speaker 4

So as we move forward in time, we are able to continue to fill that bucket. So we've tried to methodically push ahead on hedging and these acquisitions as they come on online add to that PDP level so that we can enter into transactions to support those. So we always try to have a little bit of room versus our limits, so that we can support acquisitions as we do them, but somewhat limited and really do that, but we can push it as far as we can.

Speaker 1

Understood. Appreciate those comments. Thanks guys.

Operator

Thank you. Our next questions come from the line of Jeff Robertson with Water Tower Research. Please proceed with your questions.

Speaker 11

Thanks and good morning. Bob or Brian, a question on Luminess. Are you able to adapt that system as you see consolidation in the basin and assets change hands from one operator to another to help you identify acquisition opportunities to target?

Speaker 2

Absolutely, Jeff. Luminous gets more vibrant every day. Everybody has a relationship to Luminous. And some we're developing some AI capacity. Everybody does AI or we can do it with Luminus as well.

Speaker 2

And it's amazing the amount of information you can get when you've got over 15,000 wells loaded into your system. So we do rely on Luminess. Everybody enjoys it. And it just we call it democratize is that everybody in the organization, whether they're a revenue clerk, whether they're a land man, engineer or in the finance department, learns from Luminess every day. And it's a great question.

Speaker 2

We're thrilled with it. We had an hour and a half meeting yesterday about other developments that we're looking forward to with Luminess. So, it's an important part of our company and it gets better and develops every day.

Speaker 11

And does the ability to understand not only your asset base, but what's going on in the basin and where opportunities lie. Does that factor into the decision to raise the dividend in the context of understanding what the Tesla's runway is?

Speaker 4

Yes, I'd say that the dividend decision is an output, I guess, from what goes into Luminess. So Luminess, certainly, as Bob spoke, allows us to analyze these opportunities and make smart investments, which of course drives the ability to increase the dividend. So kind of an indirect output to that, but certainly is supportive.

Speaker 7

Thank you.

Operator

Thank you. Our next questions come from the line of Donovan Shafer with Northland Capital Markets. Please proceed with your questions.

Speaker 7

Hi, guys. Thanks for taking the questions. So my first question is just if we can get an update on kind of the original deeper, denser, expanded thesis that I know you guys had when you created this company to kind of repeat what had been done before in the DJ Basin. But also if we can connect, I guess, maybe answer that sort of separately if it's a separate thing or if the opportunity presents itself, does this tie in with the $40,000,000 CapEx increase? Are there things you can point to where some of these specific opportunities themselves tie to either tighter infill drilling or maybe with a 3 mile lateral, it allows you to step out a little bit further.

Speaker 7

I know you guys are probably not taking risks on totally virgin step out, but maybe infill drilling wells have been derisked because of more recent successful step outs or things along those lines. Just anything just the general update and then if it actually is in any way sort of highlighted or demonstrated with these opportunities?

Speaker 2

Yes. Hi, Donovan. This is Bob. The deeper dancer, cheaper, better expanded concept that we had was really just about the field over the course of time becoming more economic. We saw that in the DJ and we're seeing it in hyperspeed in the Bakken.

Speaker 2

It just seems that every well that's being drilled is more economic than its offset well simply because technology improves every day. And so this is really when we look at the Bakken, we look at the Bakken through the lens of technology. And it's amazing what has happened out in the field. Of course, technology, unless it's at a cost efficient basis, it's meaningless. And the costs in the field have certainly stabilized, if not gone down a little bit.

Speaker 2

But you're right, the field has expanded and we're getting Tier 1 economics on a map that not that many years ago was considered Tier 3. So, we love the position we have in the Bakken. It does get better every day and we're excited to find out what's next.

Speaker 7

Okay, great. And then as another question, so I know I'm kind of putting Jimmy on the spot here. So well or I may I should almost in a perfect situation that have him leave the room or something. But

Speaker 4

he joined a few quarters ago.

Speaker 8

It's a bit odd,

Speaker 7

but he joined a few quarters back and I did make a point of going through like sort of his LinkedIn profile and his bio from other companies he's been involved in and Jim's experience not to his horn, but it was very relevant and I thought it was quite impressive and particularly there was a strong focus in the Bakken and also sort of the Rockies more generally, probably a pretty thick Rolodex there as well. And so I'm just kind of curious if we can get an update like is I think when Jimmy first joined, I thought, gee whiz, maybe this means there's going to be some amazing incredible package or something that gets put together. And deals only you don't do deals for their own sake, right? So instead, we've gotten this sort of acceleration of these near term drilling development program opportunities. And so I'm just kind of curious, has Jimmy been an important part of like making the decision of, okay, we're going to focus a bit there instead of, yes, like kind of maybe what John White was hinting at with like large acreage accumulations like kind of gaming it out and like working that Rolodex and getting the higher working interest.

Speaker 7

Just anything, Jimmy, you could speak to it, but I'd also just be more interested broadly from the other guys, a sense of the role and how that ties in.

Speaker 2

Yes, you nailed it, Donovan. Bringing Jimmy on was a win in every way for Vitesse. Jimmy's experience is unparalleled. And just having that knowledge and scar tissue to understand what works and what doesn't work, it's invaluable. You don't learn it in a book.

Speaker 2

You just learn it by the hard knocks of experience. Jimmy was a perfect fit for Brian and I. Came in and it was as if we were partners for a long time. You can call him the accelerator. And I think it is fair to give Jimmy a lot of credit for us being able to source additional deals.

Speaker 2

So Jimmy, are you sweating yet or

Speaker 4

Okay, enough of that. I like to as much as I would like to take credit for the ability to do what we've done so far in the last few months, it is really a testament to the team that has been assembled here and as well as things we've talked about Luminos and it's really a culmination of all those things that has been developed over the years of of existence for this company. And I really appreciate all the comments, but I'm just here to be able to take advantage advantage of what's already been built and keep it moving forward. But I really appreciate the thoughts.

Speaker 7

Okay. And of course you guys, if you have anything really negative to say, you can just call and tell me later offline. But so then just my one last question is just that the dividend is sort of stress testing that. I have to imagine even the presenting it to the Board, for example, to get their approval on raising the dividend. I would assume you do some kind of stress testing, but if you can just confirm that and maybe what type of parameters, how you've got a lot of hedging in place for the next year.

Speaker 7

So do you say, assuming a $60 oil, how long can we

Speaker 2

how many

Speaker 7

years or months or what are kind of some of the parameters that you've done to stress test and backstop that?

Speaker 4

Yes, Don, this is Jimmy. I can take the first cut and let you guys jump in. Yes, certainly, I mean the strip itself kind of provides a pretty good litmus test to the way that it's backward dated and we look at can we maintain this coverage ratio for the dividend even with debt degradation and what would happen if we go further than that and knowing that there's a lot of things you have to adjust in the model in a lower for longer type scenario, costs tend to go down, etcetera. So, we do get confidence, we're able to maintain the level of dividend in most scenarios and then we can make adjustments to support as best we can for a period of time. So yes, we definitely run multiple scenarios and probably like most oil and gas companies kind of a flattish price that we are a little more confident in, and then the strip and then something lower even than that.

Speaker 4

Brian, you stepped in. You've done a lot more than I have.

Speaker 2

Yes. This is Bob. I'll just have a brief comment. And the dividend and is very obviously, it's what we live for. It's important to understand and we'll we've seen it, when the price of oil goes down, activity goes down.

Speaker 2

So when activity goes down, our CapEx goes down. So that you can't just fix a when you're doing the stress test, you just can't fix everything. You have to realize that if the price of oil goes down to $50 the activity level will go down accordingly. So the key measure for us is what Ben said earlier, is that our maintenance CapEx is around $90,000,000 So that is a real critical number for us. So above that is where we become additional capital allocators.

Speaker 2

Our rate of return of that maintenance CapEx is the highest we've got. So for us to spend more money than $90,000,000 a year, it's going to have to be very, very attractive. So we think about all the time, Donovan. Brian, would you add?

Speaker 3

The only thing that I would really add there, Donovan, is again, that's one of the reasons that, that Pitesse has always tried to keep that leverage low, right? I mean, it just it provides us some flexibility. Not that we want to use debt to pay the dividend, but if oil prices were to decline on a short term basis, we feel like that extra capacity there to allow us to keep that fixed dividend is something that we're that obviously is very important to us. We've talked about it a lot. And but look, if oil prices went down for a long period of time, we would have to adjust and look at everything.

Speaker 3

But clearly, that extra debt capacity is something that factors into our calculation.

Speaker 7

Okay, very helpful. Thank you, guys.

Operator

Thanks,

Speaker 7

Doug. I'll pass it on.

Operator

Thank you. Our next questions come from the line of Noel Parks with Tuohy Brothers. Please proceed with your questions.

Speaker 9

Hi, good morning. Just had a couple. I was interested when with the continued era of capital efficiency, there's a lot to recommend the non operated model, just how diversified you are across many operators and so forth. And I'm wondering, have you seen any signs of any new entrants of other non ops looking to get active in the Bakken or your other basins?

Speaker 3

Yes. I mean, we constantly see new family offices come in. There's been some transactions so far this year, where there's been new entrants into the Bakken and there's some other operators that are looking to sell their assets. That along with consolidation is something that's exciting to us. I mean, it's always good to see the consolidation in the basin, operators taking on the best of what each side has looked at.

Speaker 3

And so from a pure op standpoint, there's always for smaller deals, we see a little more competition. But again, I think from what we've been able to accomplish so far this year, those larger deals, I don't think we've really seen any new entrants from the non

Speaker 2

ops space? This is Bob. It's hard to buy your way into the Bakken. It's really tightly held and has been for 7 or 8 years. We could never reconstruct the 50 some odd 1,000 acres we have.

Speaker 2

We bought it at a very low cost per acre.

Speaker 9

Got you. Thanks. That's a helpful consideration. And I'm just curious, as far as well, you described that a number of deals just sort of came together last month. And in terms of interacting with potential sellers, do they tend to be more price sensitive?

Speaker 9

Or are they more time sensitive, just looking to get these interests sold and just looking for sort of whatever price will meet their thresholds?

Speaker 3

Yes. I mean, I think for the sellers, price is always something that's important to them. But at the same time, I think they just the history most of them have had with us, They have trust that they can move forward with a transaction that we're going to look at it and that we're going to be able to close. And a lot of times these guys will get AFEs in. They then have 30 days from which to make a decision and they're trying to move these AFEs a lot of times within that 30 days.

Speaker 3

So having somebody to deal with that they have the confidence that they can get it done, will close, that is not going to back out on them in the last minute, it's going to provide them a reasonable offer. I think that all plays into it.

Operator

There are no further questions at this time. I would now like to hand the call back over to Bob

Speaker 6

Garrity for closing

Speaker 2

remarks. Thank you all for the time you've spent with us this morning. If you had any follow-up questions, Ben Messier does a great job of filling in the cracks here. So look forward to seeing everybody or talking to you in 3 months. Thank you.

Speaker 2

Bye bye.

Operator

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.

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Key Takeaways

  • Increased 2Q dividend by 5% to $0.525 per share, reflecting the company’s focus on returning capital from highly economic investments.
  • Raised 2024 production guidance to 13,000–14,000 BOE per day (67–71% oil cut) and boosted CapEx guidance to $130–150 million, driven by new development acquisitions.
  • Agreed to near-term development acquisitions adding over $40 million of incremental CapEx, with high working interests (>20%) and expected first production in Q4 2024.
  • Reported Q1 results of 12,500 BOE per day (71% oil), adjusted EBITDA of $39.1 million, and maintained a net leverage of 0.6× with $98 million of debt.
  • Secured hedges on ~60% of 2024 oil production at >$78/​barrel and added 2025 coverage at >$74, while anticipating improving differentials as the Trans Mountain expansion comes online.
AI Generated. May Contain Errors.
Earnings Conference Call
Vitesse Energy Q1 2024
00:00 / 00:00