Petrus Resources Q1 2024 Earnings Report

Petrus Resources EPS Results

• Actual EPS: -C$0.04
• Consensus EPS: C$0.03
• Beat/Miss: Missed by -C$0.07
• One Year Ago EPS: N/A

Petrus Resources Revenue Results

• Actual Revenue: $28.04 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Petrus Resources Announcement Details

• Quarter: Q1 2024
• Date: 5/8/2024
• Time: N/A
• Conference Call Date: Thursday, May 9, 2024
• Conference Call Time: 11:00AM ET

Petrus Resources (TSE:PRQ) Ltd is a company that is engaged in the acquisition, development, exploration, and exploitation of energy business assets. The company receives maximum revenue from oil and natural gas. The company's core operating areas are Ferrier, Central Alberta, and the Rocky Mountain foothills.

Petrus Resources Q1 2024 Earnings Call Transcript

Key Takeaways

• Q1 results delivered cash flow of just over $16 million—flat quarter-over-quarter—with production up 3% thanks to new North Farrier wells, marking the first QoQ output increase since Q1 2023.
• The company invested $12.3 million in capital, drilling 10 gross (5.3 net) wells; estimated production from 2.3 net non-operated wells is slated for Q2 and from three operated wells for Q3.
• Petrus held debt at one times cash flow, introduced a regular $0.01 per share monthly dividend (totaling $3.7 million), and repurchased 345,600 shares via its buy-back program.
• Approximately 45% of the 2024 production is hedged at roughly $2.94/GJ for natural gas and CAD 97/bbl for oil, with 25% of 2025 volumes also secured at favorable price levels.
• With robust oil and NGL prices and anticipated gas price recovery later this year, management remains flexible to ramp up capital spending or pursue accretive acquisitions if market conditions warrant.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Petrus Resources First Quarter 2024 results call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I will now hand the conference over to your speaker today. Ken Gray, you may begin.

[Ken Gray, CEO at Petrus Resources]

Thanks for joining Petrus Resources conference call to discuss our 2024 Q1 results. Provide an update on current activities and answer any questions you may have. My name is Ken Gray, and I am the CEO of Petrus. I am joined here by our executive team of Mathew Wong, our CFO; Matt Skanderup, our COO; and Lindsay Hatcher, our VP Commercial and Corporate Development. Q1 was a strong quarter for the company. We held cash flow flat quarter over quarter at just over CAD 16 million, and production was up 3%, almost entirely due to increased oil production. This was our first increase in production from the previous quarter since Q1 2023 and is the result of the new wells drilled in our North Ferrier area that were completed late in 2023 and had a full quarter of runtime in Q1 2024.

[Ken Gray, CEO at Petrus Resources]

Our cash costs were up from the prior quarter, but this was due to one-time adjustments that lowered OPEX and G&A in Q4. In the absence of those adjustments, costs were actually relatively flat. Debt was held constant at our target of 1x cash flow. We spent CAD 12.3 million in capital in the quarter, 90% of which was directed to drilling and completion activities. We drilled 10 gross, 5.3 net wells in the quarter. Of these, 7 gross, or 2.3 net wells, were completed and on production by the end of the quarter. Completion operations on the 3 gross, 3 net operated wells are tentatively scheduled for June. It should be noted that none of the production in Q1 is associated with these Q1 capital investments.

[Ken Gray, CEO at Petrus Resources]

We expect to see production adds from the 2.3 net non-operated wells in Q2, and we won't see production from our 3 operated wells until Q3. In January, we instituted our regular dividend of CAD 0.01 per month. Through these monthly dividends, we paid out CAD 3.7 million to shareholders in the quarter. We also repurchased 345,600 shares as part of our NCIB program. Currently, production sits at just over 9,800 BOE a day. We plan to return to the 2024 capital program following spring breakup. As mentioned, we have tentatively scheduled the completions for the 3 operated wells drilled last quarter for June and are planning to resume drilling in July. Oil and NGL pricing is relatively strong right now, but summer gas prices look quite weak.

[Ken Gray, CEO at Petrus Resources]

However, winter gas can currently be hedged at CAD 3 a gigajoule, so gas pricing is expected to markedly improve later this year and into 2025. As always, we will remain flexible with our capital program to maximize returns in this volatile pricing environment. With that, I'll open the floor to questions. Thanks for calling in and for your continued interest and support of Petrus.

[Operator]

Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Josef Schachter with Schachter. Your line is open.

[Josef Schachter, President at Schachter]

Good morning, Ken and team. I have three questions. In the mix of business, how much are you doing in North Ferrier versus Central Ferrier, and how do you see that moving throughout 2024?

[Ken Gray, CEO at Petrus Resources]

Thanks for calling in, Josef. In our mix of business, I think what we've got scheduled right now for drilling is primarily in Core Ferrier. We did drill in North Ferrier late in 2023, and those wells came on production at the end of 2023. But for now, the three wells that we have yet to complete, those are in Core Ferrier, and the additional drilling that we have scheduled for the rest of the year is in Core Ferrier. So we don't have anything scheduled for North Ferrier for the remainder of this year.

[Josef Schachter, President at Schachter]

Okay. In terms of operating expenses, your volumes are down versus Q1 of 2023, and yet your operating expenses net were CAD 6.76 a barrel versus CAD 7.26. Can you talk about the inputs there that helped you get those costs down, especially with the volumes lower on a unit basis?

[Ken Gray, CEO at Petrus Resources]

Yeah, the volumes are slightly lower, I guess, but we're constantly trying to reduce our OPEX, and I think we can actually even get those OPEX numbers down a little bit. We do offset OPEX with fees, and we have more third-party gas coming into the plant now and through our North Ferrier pipeline, so that should help offset some of those costs. Some of the basic costs, like electricity, is a big cost for us, and that's come down a little bit here. I think our carbon tax expense, because we've increased production, our intensity has actually improved, and so carbon tax should be lower this year. So that's helped.

[Ken Gray, CEO at Petrus Resources]

Then just overall, I think the fact that we've got fewer wells that we're bringing on, those wells have some increased costs when we bring them on initially, and then that sort of goes away over time, and we're starting to see that effect as well. So all those things kind of come together to lower our OPEX, and we're continuing to work to keep that low because we think that's quite important for us to generate good cash flow. And I give credit to Matt and to the guys in the field for their work in constantly trying to improve OPEX and our operations in general.

[Josef Schachter, President at Schachter]

Super. And the last one for me is you had a hedging gain in the quarter, and you've historically done well with your hedging program. Have you booked much into 2025? And as you mentioned, you can hedge north of $3. What's your status now, and what do you think is an appropriate amount to have heading into the latter part of this year with a 2025 hedge book?

[Josef Schachter, President at Schachter]

So for the balance of 2024, we are approximately 45% hedged, and that natural gas price is just around CAD 3. I think it's CAD 2.94. And for oil, we're at about CAD 97 a barrel. For the coming 12 months, we are similarly hedged, so it's about 45% as well. Those numbers are a little bit higher, the hedge prices for gas, because we have a winter contract in there. It's a little over CAD 3. I want to say it's in the CAD 3.20 range for gas and a little bit lower on oil because there is some backwardation in the curve there, so it's around CAD 96 or CAD 96.50, somewhere in that range. And then for months 13-24, we are 25% hedged.

[Josef Schachter, President at Schachter]

I don't know the prices that we're hedged, the average prices, off the top of my head, but I can certainly get that information to you, Josef.

[Josef Schachter, President at Schachter]

Super. Thanks very much for answering my question. That covers everything I had. Thank you.

[Josef Schachter, President at Schachter]

Thanks for calling.

[Operator]

I'm not showing any further questions at this time. I'd like to turn the call back over to Ken.

[Ken Gray, CEO at Petrus Resources]

Yeah, thanks. We've had a couple of questions over the last month or so since our last call that maybe we'll address here as well. First of all, one of the questions people have been asking is, if commodity prices improve through the year, do we think we would increase capital spending and go back into growth mode? And I'd say the short answer to that is yes. We've got some tremendous opportunities both in Core Ferrier and in North Ferrier. The pipeline that we put into North Ferrier allows us to develop that along our own timeline. We're not constrained by anything there. We've already got these things in the pipeline, if you will, scheduled for later 2025 and beyond, and we can bring those forward fairly quickly if the environment, the pricing environment, changes. So yeah, we would certainly look at going back into growth mode.

[Ken Gray, CEO at Petrus Resources]

I think 2022 kind of showed our ability to ramp up and to grow fairly substantially and quickly when and if the environment is right for it. We do have that ability. I do think that we're going to see some better prices here going forward. Despite the current weakness in natural gas prices that we kind of are expecting over this summer, the fundamentals look fairly good for later this year and going into 2025. Demand, both industrial and for electrical generation, is increasing, and we've got additional LNG export coming on. All of those things, I think, will combine to improve natural gas prices. Oil and NGL prices are already fairly strong, so we do see things increasing, and we are in a position to ramp up when and if it makes sense.

[Ken Gray, CEO at Petrus Resources]

Another question that we've had is, are we looking at any acquisitions right now? Do we think that there's going to be some good opportunities for acquisitions in this kind of low natural gas price environment? First, I'd say that we're pretty happy where we're at. We think we can generate good value for our shareholders with what we currently have and with where we're at size-wise. We're paying a fairly good dividend right now, and we have the ability to grow organically, so we're not under any pressure to make acquisitions to try to improve or generate value for our shareholders. We feel we can do that with what we have right now. But having said that, we do think there's going to be some opportunities for accretive acquisitions this year.

[Ken Gray, CEO at Petrus Resources]

Low prices can expose companies that have taken on more risk, and Petrus, with our fairly strong financial position, we're poised to take advantage of that. So we have been and will continue to look at all the opportunities that are out there, especially in our Core Ferrier area and generally in the Deep Basin. We like that area. It generates great returns. So yes, we are looking at things, and if we can find something that makes sense and generates values for our shareholders, we'll certainly pursue it aggressively. I think that's about it for what we have today. So thanks, everyone, for calling in or listening after the fact, and thank you again for your support of Petrus.

[Operator]

Well, ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.

Participants

Executives

• Ken Gray, CEO

Analysts

• Josef Schachter, President at Schachter