Kolibri Global Energy - Q2 2024
August 14, 2024
Transcript
Operator (participant)
Good day, and welcome to the Kolibri Global Energy second quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone, and to withdraw your question, please press star, then two. Please note this event is being recorded. Also, this call may contain forward-looking statements regarding Kolibri's strategic plans, anticipated production, capital expenditures, exit rates and cash flows, reserves, and other estimates and forecasts. 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 Kolibri discloses in order to provide readers with a more complete perspective on Kolibri'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 risk of uncertainties in Kolibri, Kolibri's policy for updating such statements, we direct you to Kolibri's most recent annual information form and management discussion and analysis from the period under discussion, as well as Kolibri's most recent corporate presentation, all of which are available under Kolibri's website. I would now like to turn the conference over to Mr. Wolf Regener. Please go ahead, sir.
Wolf Regener (CEO)
Thank you. And thank you, everyone, for joining us today. With me on today's call is Gary Johnson, our CFO. We released our 2024 second quarter 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 million with Bank of Oklahoma. Earlier this month, we also announced that drilling began on the first of our three longer lateral wells. The Alicia Renee 2-11-3H 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.
With that, I'd like to turn the call over to Gary to discuss our financial results.
Gary Johnson (CFO)
Thanks, Wolf, and thanks, everyone, for joining the call. I'm just going to go over a few highlights of the second 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. As Wolf mentioned, the earnings release went out yesterday, and we're very pleased with the results. We had significant increases in production, revenue, and Adjusted EBITDA compared to the prior year. I'll start by going over the second quarter. Average production was up 30% to 3,128 BOE per day, compared to 2,415 in the prior year quarter. The increase is due to production from the wells that were drilled and completed over the past 12 months.
The production mix for the second quarter 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 million, compared to $7.6 million 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 $13.9 million, compared to $10.1 million in the prior quarter, due to higher production and prices. Our netback from operations increased slightly to $40.40 per BOE, compared to $39.56 per BOE in the prior year quarter.
This was due to higher average prices for the quarter, which were mostly offset by higher operating expenses per BOE due to adjusted true-ups, reworks, and higher water hauling costs. Net income was $4.1 million, and basic EPS was $0.11 per share in the second quarter, compared to $4.3 million and $0.12 per share in the prior second quarter. The slight decrease was due to $1.5 million of deferred income tax expense in the second quarter of 2024, as well as higher operating and G&A costs, which offset the higher production and prices for the quarter. I'll 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 to production from the wells that were drilled over the last 12 months. The production mix for the first six months of 2024 was 74% oil, compared to 76% in the prior year period. Adjusted EBITDA was $20.4 million, compared to $19 million in the prior year period, which was an increase of 7% due to the higher production and higher prices, which were up slightly to 1%. Net revenue increased 15% to $28.1 million, compared to $24.4 million in the prior year period, due to higher production and prices. Netback from operations decreased to $39.66/BOE, compared to $42.07/BOE in the prior year period.
This was due to higher operating expenses per BOE due to adjusted true-ups as well as reworks and water hauling costs. Net income was $7.4 million, and basic EPS was $0.21 per share in year-to-date June 2024 period, compared to $12.2 million or $0.34 per basic share in the prior period. The decrease was due to $2.5 million of deferred income tax expense that was recorded in 2024, and an unrealized gain of $2.1 million from commodity contracts that was recognized in the prior year period. And I'd also just want to point out, like we've mentioned, our credit facility was redetermined in the second quarter, and our borrowing base was increased from $40 million-$50 million, 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. With that, I'll hand it back to Wolf.
Wolf Regener (CEO)
Thanks, Gary. As 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 improvements, completion improvements we've had, and the fact we're now drilling the longer laterals are great examples of that. We've also made efforts to increase reserves further. We stepped out where we felt we could add proved reserves in locations that were listed as possible in our last reserve report. Our analysis proved to be correct, as the Nickel Hill wells came in performing well. As for the stock price, we are taking steps to try and reduce what we believe is a valuation gap.
Last year, we uplisted to Nasdaq to give U.S. investors easier access, which also allows for U.S. brokers to recommend our shares. We are increasing our marketing plans to make more people aware of our story, so the market will hopefully recognize the company's value that we believe in. Summer is over soon, and we have a nice catalyst coming up with 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, excuse me, we are working on putting everything in place so that a buyback could be approved by the board. 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 (participant)
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press stars and two. At this time, we'll pause momentarily to assemble our roster. The first question will come from John White with Roth Capital. Please go ahead.
John White (Senior Research Analyst)
Good morning, and, congratulations on a nice quarter.
Wolf Regener (CEO)
Thank you, John.
Gary Johnson (CFO)
Thank you.
John White (Senior Research Analyst)
Remind me again, how many 1.5-mile laterals have you drilled?
Wolf Regener (CEO)
We have not drilled any so far, so these will be the first three that we are doing here.
John White (Senior Research Analyst)
Okay. Did you have to get a bigger drilling rig than you had been using?
Wolf Regener (CEO)
We did get a slightly different rig than we had before. It's not substantially different, but a little, 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.
John White (Senior Research Analyst)
Okay, thanks for that. Which of the Renee wells will be fracked first?
Wolf Regener (CEO)
We'll do all three of them actually at the same time. So it'll be a continuous process, literally drilling, doing one on the first one, one on the second one, and one on the third one. So, a three-well zipper frac, if you may.
John White (Senior Research Analyst)
Okay. And you want to give a preliminary date for when the fracs will occur?
Wolf Regener (CEO)
I'm hoping early in the fourth quarter. That'll be obviously... Hopefully, drilling continues. It's going well so far, so hopefully that continues to go so well. And, then on the completion side of things, it'll be a little subject to, frac crew availability, but it looks like it's pretty good availability for early, in the fourth quarter, in the fourth quarter. So we're pushing for as early as we can.
John White (Senior Research Analyst)
And no difficulties finding services?
Wolf Regener (CEO)
No, we've had some good bids coming in, and we will be selecting those services here in the next day or so, actually.
John White (Senior Research Analyst)
Okay. And you said, the fracs will be end of the fourth quarter?
Wolf Regener (CEO)
In the beginning of the fourth quarter. Yeah, early.
John White (Senior Research Analyst)
Beginning?
Wolf Regener (CEO)
Yes.
John White (Senior Research Analyst)
Okay, thanks for that detail. I appreciate it, and I'll pass it back to the operator.
Wolf Regener (CEO)
Sounds good. Thank you, John. Appreciate it.
Operator (participant)
The next question will come from Andrey Litvin with Edison Investment Research. Please go ahead.
Andrey Litvin (Research Analyst)
Good morning, or good afternoon, and thank you for the opportunity to ask questions. The first question on the gas and NGL pricing in the second quarter. The prices were actually quite lower than, obviously lower than benchmarks. I think the kind of similar situation happened in last year as well in the second quarter. Is it like a recurring pattern, that the pricing are weaker in the second quarter and then we see some recovery? What's your kind of, your expectations for that?
Wolf Regener (CEO)
So a little bit of that is some of the adjustments that we had, but that was mainly in the fourth quarter than in the first quarter, excuse me, versus the second quarter. 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. 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.
Andrey Litvin (Research Analyst)
Mm-hmm.
Wolf Regener (CEO)
-what they're doing in certain quarters. So it's, it's a little bit of a black box for us, unfortunately.
Andrey Litvin (Research Analyst)
Okay, I understand. All right. Thank you. And the second question on, just to follow up on the new wells with longer laterals.
Wolf Regener (CEO)
Mm-hmm. Yeah.
Andrey Litvin (Research Analyst)
Is it possible to give some color and, like, quantify, at least roughly, what the improvements in economics might be from these wells?
Wolf Regener (CEO)
You know, we'll see what the economic improvements are. What we're hoping for is that generally on the 1.5-mile laterals, you know, 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 1-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.
Andrey Litvin (Research Analyst)
Mm-hmm. I understand. So we're talking about production at the moment, right? So 1.3 point-
Wolf Regener (CEO)
Right.
Andrey Litvin (Research Analyst)
1, 1.35 increase.
Wolf Regener (CEO)
Yeah.
Andrey Litvin (Research Analyst)
Okay.
Wolf Regener (CEO)
Yeah, over, over the first part. Yep. Sorry.
Andrey Litvin (Research Analyst)
Okay, cool. Thank you. And just, just one more question, quick one. So you drilled one well at the end of last year, the Velin well, but you haven't completed it yet. Are you planning to complete it later this year, or what's, what's the end of this?
Wolf Regener (CEO)
The actual, we actually have two DUCs, both the Velin 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 these next three wells. And then when we come back over to the Velin region, we'll drill a few more wells around that, that'll also hopefully be longer laterals, and then complete all those at the same time.
Andrey Litvin (Research Analyst)
Okay, understood. Sorry, just one more follow-up. Very quick one.
Wolf Regener (CEO)
Mm-hmm.
Andrey Litvin (Research Analyst)
On terms of-
Wolf Regener (CEO)
Yep
Andrey Litvin (Research Analyst)
... the natural gas and the NGL processing costs related to prior years, so you're still incurring some costs in the second quarter. To what extent are these costs going to reoccur, like, in the subsequent quarters as well? So is there any visibility?
Wolf Regener (CEO)
As far as... Oh, you mean the adjustments that are coming?
Gary Johnson (CFO)
Yeah, the adjustments.
Wolf Regener (CEO)
Mm-hmm.
Gary Johnson (CFO)
Yeah, but 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, if that's your question.
Andrey Litvin (Research Analyst)
Mm-hmm. Okay, I understand. Okay, thank you very much. Thank you.
Operator (participant)
The next question will come from Kieran Lynch, investor. Please go ahead.
Speaker 6
Hi, guys. Great quarter. Just wanted to touch base on two things. You touched on the first one a bit already. The two DUCs that you're sitting on, I think they're mile-long wells.
Wolf Regener (CEO)
Correct.
Speaker 6
You know, 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?
Wolf Regener (CEO)
You know what? I think we get too skinny if we try to go out of that. So our current plan is just leave them as one mile and then have the offsetting wells that we're drilling here in the area be a mile and a half.
Speaker 6
Okay. And just thinking for timing on those wells is sometime in 2025, Q1 or Q2, or something like that, or?
Wolf Regener (CEO)
Yeah, 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 set of wells.
Speaker 6
Okay.
Wolf Regener (CEO)
But-
Speaker 6
Okay.
Wolf Regener (CEO)
Yeah.
Speaker 6
I guess my second question is, did you bring on a new director of engineering recently? Is that right?
Wolf Regener (CEO)
We, 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 five months, but he's been doing some consulting for us for a number of years.
Speaker 6
Understood. 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 length decision came from? Or is that-
Wolf Regener (CEO)
Yeah, I mean, he's definitely a believer in the longer laterals as well. I think in the past, you know, we've looked at it before as well.
Mm-hmm.
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 this 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, you know, 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 6
Sure.
Wolf Regener (CEO)
So with those combination of things, we felt very comfortable we can go to 1.5-mile laterals or even 2-mile laterals. And when we pick either 1.5-mile 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 gonna say, look, we'll drill 2.5-mile lateral versus drilling a 2-mile and a 1-mile lateral, right? So those, those are the kind of decisions that we have. So yeah, no, he's all in favor of it. The economics look really good, so hopefully we're getting a big bump to our economics when we drill these longer laterals.
And yeah, he's been a great addition to the team, so we're happy to, happy to have him.
Speaker 6
And I, I guess, you know, just for your comment about deciding if you have three miles going between, you know, two, one and a half mile, have you reconsidered the field development approach, given that you're moving to one and a half miles? And, I mean, you'll need to drill them, see some results, but, you know, how does the field development plan evolve, given where you're going with the lateral length, whether it's one and a half, maybe even to two in the future? Have you thought that through a bit, or?
Wolf Regener (CEO)
Yeah, we have. I mean, you know, our reserve report this next year should be a whole lot different, just because we're gonna Netherland, Sewell will convert them to doing a 1.5- 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 on the field and laying out the complete field development program. That's the next step here over the next couple months. But, it's kind of sketched out where we believe a 1.5-mile lateral, we're a 2-mile lateral in a couple places, but we still need 1-mile laterals just to fill in some gaps.
Speaker 6
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?
Wolf Regener (CEO)
I think it's most appropriate to do that once Netherland, Sewell signs off on everything as well, just because it is... They are the third party that everyone will be looking to anyway. So, you know, we can have our thoughts, but, our reserve report will be what influences that as well.
Speaker 6
Okay. And I guess final question here, you know, if these longer laterals are successful, is there a broader acreage subset that is applicable because of the, you know, improved economics of the longer laterals or?
Wolf Regener (CEO)
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 step will be to see what kind of numbers we get out of this. I'm hoping, like I said, we get a 1.5x increase, when we drill these. That would be fantastic, even though we're budgeting for a little less. Then we'll just run economics, and it'll depend on, you know, where prices are as well, right? I'm assuming prices kind of hang in this range, which works for us.
But the higher we 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 6
Well, perfect. Well, thank you so much for answering my questions. Great job, guys.
Wolf Regener (CEO)
Thank you very much. Appreciate you listening and your questions.
Operator (participant)
The next question will come from Garrett King with Truffle Hound Capital. Please go ahead.
Garrett King (Research Analyst)
Hi. Could you talk about the thought process that you go through when deciding whether to allocate capital towards growing production versus share repurchases?
Wolf Regener (CEO)
Sure. I mean, let me qualify this by this will be my opinion, not necessarily the entire board, but I'll speak for myself and, 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. So we'll, when you see a press release from us, eventually, after the board hopefully approves everything, you'll see what those numbers are that we'll 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, that's a bit of a fluid situation. You know, 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.
Garrett King (Research Analyst)
Got it. And is it something as simple as just having, you know, an NPV on the wells that you're drilling, you know, an NPV on what you think the stock, or, you know, earnings will be, and you just run it at, you know, the strip or pick an oil price, and then just kind of choose whatever the highest return is?
Wolf Regener (CEO)
Well, 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 P/R 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, you know, buying back some more shares as well, in addition to exactly what you described.
Garrett King (Research Analyst)
Got it. Okay. And could you just describe your hedging strategy, just in general?
Wolf Regener (CEO)
Sure. So, hedging strategy, what we've been trying to do, so the bank has us do a certain number of hedges 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 costless collars to, you know, have the lower end in the $60-$65 dollar range to protect us from a, you know, sudden downside that's unexpected, but yet keeping the upper end of the collar open as far as possible so we can float with, with the, oil price. So that's-
Garrett King (Research Analyst)
Approximately what percentage of your production, you know, does the bank require for the next year and a half?
Wolf Regener (CEO)
Gary, do you have that handy?
Gary Johnson (CFO)
Well, it depends on our utilization of the debt compared to... But I think it's, currently, it's 50%.
Wolf Regener (CEO)
Yeah, it's 50% of the, of where we are currently on a debt basis for the first year, and then, it might be ... Let me pull that up.
Operator (participant)
Again, if you have a question-
Wolf Regener (CEO)
It floats between—I was going to say, it floats between 50% and 75%, depending on our debt utilization, and then the year, next year out is lower, or the next half year, I should say. We moved that down from having to hedge two years down to a year and a half.
Garrett King (Research Analyst)
Got it. Okay. And, you know, in terms of M&A, I mean, it sounds like you guys haven't really been talking about anything, and obviously, you know, 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, or more currently just focused on growing organically?
Wolf Regener (CEO)
Well, we're growing organically, but we're definitely looking for other projects as well, right? So, you know, in this business, you have to be open to all aspects, whether that's, you know, 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, then we can do a deal. And if it's not, you know, 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. In the same breath, you know, anytime somebody comes along and wants to pick it up, and give us the right price that our shareholders will go for, we're open to that as well.
Garrett King (Research Analyst)
Excellent. Okay. Thank you very much.
Wolf Regener (CEO)
Absolutely.
Operator (participant)
Again, if you have a question, please press star then one. This will conclude our question and answer session. I would like to turn the conference back over to Mr. Wolf Regener for any closing remarks. Please go ahead, sir.
Wolf Regener (CEO)
Just thank you very much for everyone being on here and participating. Great questions, and everyone else for listening. We're going to strive to keep reducing that valuation gap and keep doing a good job in the field and growing the company. Thank you, everyone, for your support.