Kolibri Global Energy Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the Colibri Global Energy Second Quarter 2024 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Also, this call may contain forward looking statements regarding Colibri's strategic plans, anticipated production, capital expenditures, exit rates and cash flows, reserves and other estimates and forecasts.

Operator

Forward looking information is subject to risks and uncertainties and actual results will vary from the forward looking statements. This call may include future oriented financial information and financial outlook information, which Colibri discloses in order to provide readers a more complete perspective on Colibri's potential future operations and such information may not be appropriate for other purposes. For a description of the assumptions on which such forward looking information is based on and the applicable risks of uncertainties in Colibri's policy for updating such statements. We direct you to Colibri's most recent annual information form and management discussion and analysis from the period under discussion, as well as Calibri's most recent corporate presentation, all of which are available under Calibri's website. I would now like to turn the conference over to Mr.

Operator

Wolf Regner. Please go ahead, sir.

Speaker 1

Thank you, and thank you everyone for joining us today. With me on today's call is Gary Johnson, our Chief Financial Officer. We released our 2024 Q2 report yesterday and we'll assume you've had a chance to look over the report. We're very pleased with the accomplishments we've achieved this quarter, strong financial results, continued progress on development program, solid production from the field. Our line of credit was increased to $50,000,000 with Bank of Oklahoma.

Speaker 1

Earlier this month, we also announced that drilling began on the first of our 3 longer lateral wells, the Alicia Vernet two-eleven-3H will be followed by the 4H and the 5H. I want to take this opportunity to thank everyone in the company who has worked so hard to grow the company. And with that, I'd like to turn the call over to Gary to discuss our financial results.

Speaker 2

Thanks, Wolf, and thanks, everyone, for turning the call. I'm just going to go over a few highlights of the 2nd quarter and year to date results, and then we can take questions at the end of the call. All amounts are in U. S. Dollars unless otherwise stated.

Speaker 2

As Wolfgang mentioned, the earnings release went out yesterday and we are very pleased with the results. We had significant increases in production, revenue and adjusted EBITDA compared to the prior year. So I'll start by going over the 2nd quarter. Average production was up 30 percent to 3,128 Boe per day compared to 2,415 Boe per day in the prior year quarter. The increase is due to production from

Speaker 1

the wells that were drilled and completed over the past 12 months.

Speaker 2

The production mix for the Q2 was 74% oil, which was slightly below the 75% oil mix from the prior quarter, which shows that our field isn't getting significantly more gassy over time. Adjusted EBITDA was $10,000,000 compared to $7,600,000 in the prior year quarter, which was an increase of 31% due to the higher production and higher prices, which were up about 7%. Net revenue increased 38% to $13,900,000 compared to $10,100,000 in the prior year quarter due to higher production and prices. Our net back from operations increased slightly to $40.40 per BOE compared to $39.56 per BOE in the prior year quarter. And this was due to higher average prices for the quarter, which were mostly offset by higher operating expense per BOE due to adjusted true ups, reworks and higher water hauling costs.

Speaker 2

Net income was 4,100,000 dollars and basic EPS was $0.11 per share in the 2nd quarter compared to $4,300,000 and $0.12 per share in the prior 2nd quarter. The slight decrease was due to $1,500,000 of deferred income tax expense in the Q2 of 2024, as well as higher operating and G and A costs, which offset the higher production and prices for the quarter. Now move on to the year to date June results. Average production for year to date June was up 15% to 3,216 BOE per day compared to 2,803 in the prior year period. And again, the increase was due

Speaker 1

to production from the wells that were drilled over the last 12 months.

Speaker 2

The production mix for the 1st 6 months of 'twenty 4 was 74% oil compared to 76% in the prior year period. Adjusted EBITDA was $20,400,000 compared to $19,000,000 in the prior year period, which was an increase of 7% due to the higher production and higher prices, which were up slightly up 1%. Net revenue increased 15% to $28,100,000 compared to $24,400,000 in the prior year period due to higher production and prices. Net back from operations decreased to $39.66 per BOE compared to $42.07 per BOE in the prior year period. This was due to higher operating expenses per BOE due to the dusted true ups as well as reworks and water hauling costs.

Speaker 2

Net income was $7,400,000 and basic EPS was $0.21 per share in year to date June 'twenty four period compared to $12,200,000 or $0.34 per basic share in the prior year period. The decrease was due to $2,500,000 of deferred income tax expense that was recorded in 'twenty four and an unrealized gain of $2,100,000 from commodity contracts that was recognized in the prior year period. And I also just want to point out, like we mentioned, our credit facility was redetermined in the 2nd quarter and our borrowing base was increased from $40,000,000 to $50,000,000 which was a 25% increase. This gives us more flexibility in managing our working capital going forward. And it also demonstrates the value of the field.

Speaker 2

And with that, I'll hand it back to Wolf.

Speaker 3

Thanks, Kerry.

Speaker 1

You can tell from our results over the last few years, we've had some excellent growth. Revenue and cash flow growing, keeping our leverage low and executing well in the field. We always strive for constant improvement and the drilling cost improvement, completion improvements we've had and the fact we're now drilling the longer laterals are great examples of Our analysis proved to be correct as the nickel wells came in performing well. Our analysis proved to be correct as the nickel wells came in performing well. As for the stock price, we are taking steps to try and reduce what we believe is the valuation gap.

Speaker 1

Last year, we uplifted to Nasdaq to give U. S. Investors easier access, which also allows the U. S. Brokers to recommend our shares.

Speaker 1

We are increasing our marketing plans to make more people aware of our stories so that the market will hopefully recognize the company's value that we believe. Summer is over soon and we have a nice catalyst coming up for these new longer laterals coming along. So we'll increase our marketing focusing mainly on the U. S. Also, while the Board has not approved a share buyback program yet, we are working on putting everything in place so that a buyback could be approved by the Board.

Speaker 1

Our plan is to continue to build and grow company value, and we appreciate everyone being on the call today. This concludes the formal part of our presentation. We would be pleased to answer any questions you may now have.

Operator

We will now begin the question and answer session. And the first question will come from John White with Roth Capital. Please go ahead.

Speaker 4

Good morning and congratulations on a nice quarter. Thank you, John. Remind me again how many 1.5 mile laterals have you drilled?

Speaker 1

We have not drilled any so far. So these will be the first 3 that we are doing here.

Speaker 4

Okay. Did you have to get a bigger drilling rig than you had been using?

Speaker 1

We did get a slightly different rig than we had before. It's not substantially different, but a little bit better quality, I'll say, in order to handle this. And we've made enough improvements over the years where we've been drilling well better, having more control, changing some things around. And that's really the reason that we feel very comfortable with going to the longer laterals now in the field versus just drilling the mile long laterals.

Speaker 4

Okay. Thanks for that. And which of the Renee wells will be fracked first?

Speaker 1

We'll do all 3 of them actually at the same time. So it'll be continuous process literally drilling, doing 1 on the first one, 1 on the second one, 1 on the third one. So a 3 well zipper frac, if you may.

Speaker 4

Okay. And you want to give a preliminary date for when the fracs will occur?

Speaker 1

I'm hoping early in Q4. That will be obviously hopefully drilling continues going well so far. So hopefully that continues to go so well. And then on the completion side of things, it will be a little subject to frac crew availability, but it looks like it's pretty good availability for early in the Q4. So we're pushing for as early as we can.

Speaker 4

And no difficulties finding services?

Speaker 1

No, we've had some good bids coming in and we will be selecting those services here in the next day or so actually. Okay.

Speaker 4

And you said the fracs will be end of the Q4?

Speaker 2

In the beginning of Q4, yes, early. Beginning?

Speaker 1

Yes.

Operator

The next question will come from Andrew Litvin with Edison Investment Research. Please go ahead.

Speaker 5

Good morning or good afternoon. Thank you for the opportunity to ask questions. So the first question on the gas and NGL pricing in the Q2. So the prices were actually quite lower than or visibly lower than benchmarks. And I think kind of similar situation happened in last year as well in the Q2.

Speaker 5

So is it like a recurring pattern that the pricing are weaker in the Q2 and then we see some recovery? So what's your kind of your expectations roughly?

Speaker 1

So a little bit of that is some of the adjustments that we had, but that was mainly in the 4th quarter in the Q1, excuse me, versus the Q2. The way our gas sales work is all of our gas when we produce it is what I'll refer to as wet gas. And so that's sold into the gathering system that XTO runs and they sell and market our natural gas and the NGL for us. We get the same pricing that they get. They go to multiple different outlets, so it does vary a bit.

Speaker 1

Sometimes it's a little lower and other times we've had gas prices that were higher than that. So in the end, it kind of works out that it averages out. But I haven't looked at what the actual reason is nor given Exxon's size, I don't think we could really figure out what they're doing in certain quarters. So it's a little bit of a black box for us unfortunately.

Speaker 5

Okay, I understand. All right, thank you. And the second question on just a follow-up on the new wells with longer laterals. Is it possible to give some color and like quantify at least roughly what the improvements in economics might be from these wells?

Speaker 1

We'll see what the economic improvements are. What we're hoping for is that generally on the mile and a half laterals, you'd like a foot by foot productivity increase. We would hope that we can get a full 1.5 times increase over what we were hoping for on a single mile lateral. But we're actually budgeting like a 1.35 increase just to be conservative and hoping for the best that it's actually a little higher than that.

Speaker 5

I understand. So we're talking about production at the moment, right? So 1.35 increase?

Speaker 1

Yes. Over the first part.

Speaker 5

Okay. Cool. Thank you. And just one more question, quick one. So you drilled one well at the end of last year, the well in well, but you haven't completed it yet.

Speaker 5

Are you planning to complete it later this year or what's the end

Speaker 1

of We actually have 2 DUCs, both of the well and wells, but no, those will probably be pushed off till next year. We'd like to drill some other wells right around there. With the good results we had with the Nickel Hill, we decided that to stay over in that area and drill the next three wells. And then when we come back over to the BLM region, we'll drill a few more wells around that, that will also hopefully be longer laterals and then complete all those at the same time.

Speaker 5

Okay, I understand. Sorry, just one more follow-up, very quick one. In terms of the natural gas and NGL processing costs related to prior year. So you still some incurring some costs in the Q2. So to what extent these costs are going to occur like in the subsequent quarters as well?

Speaker 5

So is there any visibility?

Speaker 1

As far as are you getting the adjustments that are coming in?

Speaker 2

Yes, the adjustments. Yes, I mean, we don't expect any more. I mean, we don't know of any more. I mean, those are adjustments that come, but we're not aware of any more that are coming, to answer your question.

Operator

The next question will come from Kiernan Lynch, Investor. Please go ahead.

Speaker 3

Hi, guys. Great quarter. Just wanted to touch base on 2 things. You touched on the first one a bit already. The 2 docks you're sitting on, I think they're mile long wells.

Speaker 3

You mentioned that you might go back to that location and drill longer wells. Can you extend the DUC's length or are you kind of locked in at a mile?

Speaker 1

You know what, I think we get too skinny if we try to go out of that. So our current plan is to leave them as 1 mile and then have the offsetting wells that are drilling here in the area of the mile and a half.

Speaker 3

Okay. And just thinking sort of for timing on those wells is sometime in 25 Q1 or Q2 or something like that or?

Speaker 1

Yes, we haven't put together our budget or forecast for the Board to approve yet for next year. So again, we'll balance out where we are cash flow wise, what we're doing with other things like share buybacks and things like that. And then what the timing is of drilling those wells, drilling the next wells.

Speaker 3

Okay. And I guess my second question is, did you bring on a new Director of Engineering recently? Is that right?

Speaker 1

We did. We did. Dan Simpson came on here a while ago. He's been helping us in the background for a while, helping us with some reservoir engineering and things like that already. He's been part of the company now officially for 5 months, but he had been doing some consulting for us for a number of years.

Speaker 3

Understood. And I take it that it's Dan Simpson's view that the 1.5 mile is appropriate and that's kind of where this extended lateral lengths decisions came from or is that?

Speaker 1

Yes, I mean, he's definitely a believer in the longer laterals as well. I think in the past, we've looked at it before as well. And really what it came down to is the way we were drilling wells in the past and we didn't have the learnings yet that we did, that we didn't quite have the ability to smoothly feel very comfortable drilling longer laterals than the mile, because we do have some structure here in the field. So it's not quite as straightforward as some other areas. But we do feel comfortable with how things are going and you can see from some of my presentations earlier, how much faster we're drilling wells and along with that also was a lot more precision as well.

Speaker 1

And so with those combination of things, we felt very comfortable that we can go to mile and a half laterals or even 2 mile laterals. And when we pick either mile and a half or 2 mile laterals, that's really based on the geology out here. So any kind of restrictions we have with potential faults or where we have acreage where we say, look, we can put if we have 3 miles from north to south, we're going to say, look, we'll drill 2 mile and a half laterals versus drilling a 2 mile and a 1 mile lateral, right? So those are the kind of decisions that we have. So, yes, now he's all in favor of it.

Speaker 1

The economics look really good. So hopefully we're getting a big bump to our economics when we drill these longer laterals. And yes, these have been a great addition to the team. So we're happy to have them.

Speaker 3

And I guess, just for the future comment about deciding if you have 3 miles going between 2, 1.5 miles, have you reconsidered the field development approach given that you're moving to 1.5 miles? And I mean, you need to drill on, see some results, but how does the field development plan evolve given where you're going with the lateral length, whether it's 1.5, maybe even 2 in the future. Have you thought that through a better?

Speaker 1

Yes, we have. I mean, a, our reserve report this next year should be a whole lot different just because we're going to level and so convert them to doing a mile and a half to 2 mile lateral in the field in general. And so we are still working through exactly which ones we do first, where we go in the field and laying out the complete field development program. That's the next step here over the next couple of months. But we've kind of sketched out where we believe a mile and a half lateral where 2 mile laterals in a couple of places that we still need 1 mile lateral just to fill in some gaps.

Speaker 3

And when do you think it would be appropriate to share that field development plan with the broader investment community? Is that like a 6 month or 12 month down the road or is that sooner?

Speaker 1

I think it's most appropriate to do that once Netherlands will sign up on everything as well, just because it is they are the 3rd party that everyone will be looking to anyway. So we can have our thoughts, but our reserve report will be what influences that as well.

Speaker 3

Okay. And I guess final question here, if these longer laterals are successful, is there a broader acreage subset that is applicable because of the improved economics of the longer laterals or?

Speaker 1

The potential for sure. We do have some longer laterals that we're pushing into like probable and possible areas in our internal look at it. And so we'll just have to see how that all works out, right. So first up here, we see what kind of numbers we get out of this. I'm hoping, like I said, we get a 1.5 times increase when we drill these, that would be fantastic even though we're budgeting for a little less.

Speaker 1

And then we'll just run economics and that will depend on where prices are as well, right? Assuming prices kind of hang on this range, which is works for us. But the higher they go, the more we can step out to areas that have a little higher risk and maybe we're concerned about a little lower productivity that's on the possible side of some of those reserves.

Speaker 3

Well, perfect. Well, thank you so much for answering my questions. Great job, guys.

Speaker 1

Thank you very much. Appreciate you listening and your questions.

Operator

The next question will come from Garret King with Truffle Houn Capital. Please go ahead.

Speaker 6

Hi. Could you talk about the thought process that you go through when deciding whether to allocate capital towards growing production versus share repurchases?

Speaker 1

Sure. I mean, let me qualify this by this will be my opinion, not necessarily the entire Board, but I'll seek for myself and then because the Board hasn't made a decision on anything yet officially. But we do believe that our shares are undervalued. And so we do want to allocate some amount of funds toward share buybacks. We will have some limitations on that because it's based on volume as well and what the exchange approves us for.

Speaker 1

So when you see a press release from us eventually after the board hopefully approves everything, you'll see what those numbers are that will be maxed out at. And then after that, the decision will be, okay, so we can allocate this much money towards share buybacks. We can allocate this much money to, let's say, paying down debt and this much money to drilling more wells. And that's a bit of a fluid situation. Oil prices stay at this range, then it probably makes sense to drill wells, just keeping debt in a reasonable level where we just use it to manage our working capital.

Speaker 6

Got it. And is it something as simple as just having NPV on the wells that you're drilling, an NPV on what you think the stock earnings will be and you just run it at the strip or pick an oil price and then just kind of choose whatever the highest return is?

Speaker 1

And then likewise, I mean, if you look at us compared to a number of other publicly traded companies that are in our size, I think we're trading at a pretty large discount on our versus our proved reserves, right? So we feel like as we develop more reserves, then that valuation gap will shrink. But if we're so far off on that valuation gap, then that leans more toward buying back some more shares as well in addition to exactly what you described.

Speaker 6

Got it. Okay. And could you just describe your hedging strategy just in general?

Speaker 1

Sure. So hedging strategy, what we've been trying to do, so the bank has us do a certain number of hedges that are that go out about a year and a half. And so every quarter we have to add another quarter's worth of reserves. With the forward strip being down, what we've been trying to do is put in place some cost of collars to have the lower end in the $60, $65 range to protect us from a sudden downside that's unexpected, but yet keeping the upper end of the collar open as far as possible so we can float with the oil price. So that's

Speaker 6

And approximately what percentage of your production does the bank acquire for the next year and a half?

Speaker 1

Gary, do you have that handy?

Speaker 2

It depends on our utilization of the debt compared to but I think it's

Speaker 1

currently it's 50%? Yes, it's 50% of where we are currently on a debt basis for the 1st year and then that might be let me pull that up.

Operator

Again, if you have a question

Speaker 1

It floats between I was going to say it floats between 50% 75% depending on our debt utilization and then the next year out is lower or the next half year, I should say. We moved that down from having to hedge 2 years down to 1.5 years.

Speaker 6

Got it. Okay. And in terms of M and A, I mean, it sounds like you guys haven't really been talking about anything. And obviously, doing something with equity like doesn't seem like a great idea given the valuation. But I mean, is that something you guys are focused on or more currently just focused on growing organically?

Speaker 1

We're growing organically, but we're definitely looking for other projects as well, So in this business, you have to be open to all aspects, whether that's if we can find something that fits into our valuation and let's say a private guy that wants to fit into our valuation no matter where the stock price is trading and you can do a deal. And if it's not in that realm and they're looking at our stock price only versus our valuation of our property, then that's hard to make it accretive. And so you're not going to be doing anything. And if somebody comes on and wants to pick it up, give us the right price that our shareholders will go for, we're open to that as well.

Speaker 6

Excellent. Okay. Thank you very much.

Speaker 1

Absolutely.

Operator

And this will conclude our question and answer session. I would like to turn the conference back over to Mr. Wolf Reagner for any closing remarks. Please go ahead, sir.

Speaker 1

Just thank you very much for everyone being on here and participating. Great question and everyone else for listening. And we're going to strive to keep reducing that valuation gap and keep doing a good job in the field and growing the company. So thank you everyone for your support.

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Key Takeaways

  • Colibri delivered 30% year-over-year production growth in Q2 to 3,128 Boe/d, with an oil mix of 74%.
  • Net revenue rose 38% to $13.9 million and adjusted EBITDA climbed 31% to $10 million, though Q2 net income was modestly down at $4.1 million ($0.11/share) due to deferred tax impacts.
  • The company’s credit facility was upsized by 25% to a $50 million borrowing base, enhancing liquidity and underscoring the field’s demonstrated value.
  • Drilling commenced on three inaugural 1.5-mile lateral wells (Alicia Vernet 2-11-3H plus two more) with a targeted 1.35× productivity uplift and “zipper” fracs planned for early Q4.
  • Management is pursuing a strategy to narrow the valuation gap through expanded U.S. marketing and has prepped a share buyback plan pending Board approval.
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Earnings Conference Call
Kolibri Global Energy Q2 2024
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