Vitesse - Q1 2024

Transcript

Operator (participant)

Greetings. Welcome to the Vitesse Energy First Quarter 2024 earnings call. At this time, all participants are on a listen-only mode. The 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. You may begin.

Ben Messier (Director of Investor Relations and Business Development)

Good morning, and thank you for joining. Today, we will be discussing our financial and operating results for the first quarter 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 Gerrity, our President, Brian Cree, and our CFO, Jimmy Henderson. 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 first quarter financial results in 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. 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 and 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.

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 Gerrity.

Bob Gerrity (Chairman and CEO)

Thank you, Ben. Good morning, everyone, and thanks for your participating in today's first quarter 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. We are sharing the fruits of this labor with our stockholders by increasing our second quarter fixed cash dividend to $0.525 per share to be paid in June, an increase of 5% over the first quarter 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 continued 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 million of CapEx incremental to our original projection. 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. 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.

With that, I'll turn it over to our President, business partner, Brian Cree.

Brian Cree (President)

Thanks, Bob, and good morning to everyone, and thanks for participating on today's call. In the first quarter, we had production of 12,557 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+ years. The majority of these near-term development acquisitions are more traditional in nature than those closed during the second half of 2023.

Thus, the drilling and completion activity will occur over the summer and fall, with production not likely until the fourth quarter 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 first four 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.... Our oil differential in the first quarter 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 2025. 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.

Jimmy Henderson (CFO)

Thanks, Brian and Bob. Appreciate the introduction. Good morning, everyone. I wanted to highlight a few financial results from the first quarter, and as always, I'll assume you can refer to our earnings release and our upcoming 10-Q for further details. As Brian mentioned, our production for the quarter was approximately 12,500 BOE per day, with a 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 expense, coming in at $11.8 million for the quarter, or $10.32 per BOE. For the quarter, Adjusted EBITDA was $39.1 million, and Adjusted Net Income was $10.2 million. GAAP net income was a loss of $2.2 million, 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 $32.2 million, which included costs paid related to acquisitions made earlier in 2023. 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 $6.9 million 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 million share buyback authorization. We funded first quarter CapEx and the share retirement with operating cash flows and draws on the credit facility. Debt at the end of the quarter was $98 million, resulting in a leverage ratio of just 0.6x on a trailing twelve-month EBITDA basis.

The elected commitments on our credit facility currently stand at $210 million, but we expect them to increase to $245 million when we complete our semiannual redetermination in the next couple of weeks. As previously mentioned, we are increasing our original 2024 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 million of incremental capital expenditures and are expected to provide material increases to production and cash flows, primarily late 2024 and into 2025. Our expected production for 2024 now ranges from 13,000-14,000 BOE per day, with a 67%-71% oil cut, and we have increased our 2024 capital expenditures guidance range, which now stands at $130-$150 million.

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. 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 a Q&A.

Operator (participant)

Thank you. We will now be conducting the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of John White with Roth Capital Partners. Please proceed with your questions.

John White (Analyst)

Good morning. Can you hear me okay?

Jimmy Henderson (CFO)

Absolutely. Morning, John.

John White (Analyst)

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?

Brian Cree (President)

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

So there's really no production coming with these, unlike the last time, where we had a lot of wells that were just about ready to start producing. These will, these will start producing, you know, kind of, like I said, fall, sometime into the fourth quarter. And so they're, they're a little bit different in nature than what we did last year, but, but very economic from our standpoint, again, with, with some of our favorite operators, in areas of the field that, that we have a lot of confidence in. They are higher working interest wells. Typically, you know, our average working interest is in that 3% if you look at our entire portfolio. These are working interests that are, you know, 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.

John White (Analyst)

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

Brian Cree (President)

Yeah. The operators will, you know, 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. We've developed relationships with all the different operators and sellers of this, and you know, it is a process where we have 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 favorite potential buyers, and we go from there.

John White (Analyst)

Thanks again. And net acreage involved?

Brian Cree (President)

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

John White (Analyst)

Thanks a lot for the extra detail.

Brian Cree (President)

You're welcome.

Operator (participant)

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

Michael Schwartz (Analyst)

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

Bob Gerrity (Chairman and CEO)

Yeah, it's a little, little early, Michael, to be thinking about giving any guidance of any sort for 2025. But clearly, we're confident, as you can tell, with increasing the dividend, that we'll increase production and cash flow as we exit 2024 into 2025. And so I think you should see, you know, 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, you know... Although it's not our objective necessarily, to I think you will see some production growth as we go into next year. And then I think you think about CapEx sort of returning to a maintenance mode as, as we go into 2025.

Michael Schwartz (Analyst)

Makes sense. I completely understand that it's early. So I just also wanted to ask about, you know, the decision to raise the dividend. From your comments, it sounds like it's tied to kind of deals and this kind of growth you're seeing. What do we need to see to grow the dividend further? Is there kind of any metrics that we should be thinking about for that?

Bob Gerrity (Chairman and CEO)

Well, it's really a function of the economics of our drilling. We're, you know, 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 nine months, that's very constructive to the dividend. 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?

Ben Messier (Director of Investor Relations and Business Development)

Yeah. Hi, Michael. Yeah, 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, you know, sort of a maintenance mode, CapEx level of, call it $90 million 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 to 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. You know, we're still 0.6 times levered. We have, you know, 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. And, you know-

... 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. And so we're not as concerned about the optics of, you know, 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 dividends. So, that- that's some of the calculus that goes into how we set it and, and when we raise it, really.

Michael Schwartz (Analyst)

Sounds good. Makes a lot of sense to me. Thank you, guys.

Operator (participant)

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

Stephen Richardson (Analyst)

Hi, good morning. I was wondering if you could talk a little bit. I appreciate the comments in the prepared remarks about the in-process wells and permitted wells. If you could talk a little bit about what you're seeing in terms of operator activity on your lands, particularly relative to, you know, how you guided earlier in the year and how things are 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?

Brian Cree (President)

Sure, Stephen, this is Brian. You know, we kind of mentioned, I made a quick comment on it, is that we're seeing a little bit of accelerated activity on our on our asset. Typically, we think about $40 million-$50 million a year of kind of organic CapEx. That's what we've talked about in the past. You know, it's early in the year still, but we're actually seeing you know, an accelerated pace. We've received more AFEs in the first four months of the year that puts us on a pace for to you know, exceed that $40 million-$50 million. 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. We've seen, you know, 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 yeah, it's, you know, 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. We think the three-mile laterals, we know the operators are all very excited about the three-mile laterals. We have confidence in their ability to pull those together and see those as being more economic than the two-mile.

You know, time will tell exactly how those play out. But, the combination of all of that, you know, just gives us a higher level of excitement about 2024 than we had at the beginning of the year.

Stephen Richardson (Analyst)

Great. Maybe, Brian, while I've got you as well, on the acquisitions, could you appreciate that the activity on these wellbores is gonna be in the back part of the year? You know, based on your risking and appreciate that you don't have full visibility, but as you looked at it, 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?

Brian Cree (President)

You know, based on our underwriting, Stephen, we definitely expect all of these wells to be on at some point in time in the fourth quarter. But as you know, it's just, it's hard to tell for sure. That's how we've modeled them. You know, we modeled things last fall when we made those acquisitions with production coming on a little slower. So, you know, I think we do a pretty good job in our underwriting in terms of estimating timing. But as Jimmy mentioned, it's not in our control. It is in the control of the operators. But again, these are operators that we have confidence in, and I think they'll meet our timelines.

Stephen Richardson (Analyst)

Okay. Last one for me, if I could squeeze it in, was just on just following up on, 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, you know, or where you're comfortable taking that, considering you know, 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.

Jimmy Henderson (CFO)

Yeah, I'll jump in here. This is Jimmy. Yeah, I think we've always said that we're gonna remain under, certainly under one times levered, and I think we're confident that we'll remain there, with these opportunities, the ability to further invest. I don't really see much increase from where we're at today, you know, 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.

Stephen Richardson (Analyst)

Great. Thanks a lot.

Operator (participant)

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

Jeff Grampp (Analyst)

Morning, guys. Was curious with the near-term development acquisition market, obviously, really, 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, you know, 2023 or whatever reference period you'd like?

Brian Cree (President)

... Yeah, Jeff, this is Brian. I'll jump in again. You know, the market remains, you know, very robust at this point in time. We see a lot of deals. We still evaluate a lot of deals. You know, as we've said in the past, our hit rate is probably 10% for these. But I think, you know, for us, when you look at those higher working interest opportunities, we've, 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, you know, those in the $1 million or $2 million deal range with smaller working interests. So yeah, we've, we've, we've tried to take advantage of that. And again, it's always very lumpy, right? I mean, we see a lot of deals.

In the first quarter, we bid on a lot of things and nothing really came to fruition. And then all of a sudden, you know, 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, you know, to add to your question is, while that pipeline is really good, when oil prices get higher, you know, 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.

We typically will underwrite these at a price deck that is below strip. So when prices get a little higher, it becomes a little more difficult for us. So really, that $70-$75 range seems to be a great range for us, where, you know, kind of our underwriting does very well on against the competition.

Jeff Grampp (Analyst)

That's really helpful. I appreciate that. And, maybe a question for, for Jimmy. Hedges bumped up nicely, especially, first part of 2025. Should we expect more, more volumes there, perhaps as these new acquisitions come online? Or, how are you guys thinking about the, the hedge book here, especially in the context of the increased dividend?

Jimmy Henderson (CFO)

Yeah, definitely. Obviously, hedging is a key component of our dividend decision-making and, you know, protecting the cash flows so that we can continue to make these investments going forward. So yeah, you'll definitely see volumes added to 2025 as we move forward. We have a couple of things working against us. Obviously, the degradation 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 of under our credit agreement. 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 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 in ability to do that, but we can push it as far as we can.

Jeff Grampp (Analyst)

Understood. Appreciate those comments. Thanks, guys.

Jimmy Henderson (CFO)

Yeah.

Operator (participant)

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

Jeff Robertson (Analyst)

Thank you. Good morning. Bob or Brian, a question on Luminous. 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?

Brian Cree (President)

Absolutely, Jeff. Luminous gets more vibrant every day. Everybody has a relationship to Luminous and you know, we're developing some AI capacity. Everybody does AI, well, we can do it with Luminous as well. 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 Luminous. Everybody enjoys it, and it just, we call it democratized, is that everybody in the organization, whether they're a revenue clerk, whether they're a landman engineer or in the finance department, learns from Luminous every day. And it's a great question. We're thrilled with it. We had an hour-and-a-half meeting yesterday about other developments that we're looking forward to with Luminous.

It's an important part of our company, and it gets better and develops every day.

Jeff Robertson (Analyst)

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 Vitesse's runway is?

Jimmy Henderson (CFO)

Yeah, I'd say that, that the dividend decision is an output, I guess, from what goes into Luminous. So, Luminous, 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.

Jeff Robertson (Analyst)

Thank you.

Operator (participant)

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

Donovan Schafer (Analyst)

Hey, guys, thanks for taking the questions. So my first question is just if we can get an update on kind of the original, you know, 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, you know, maybe answer that sort of separately, if it's a separate thing or, you know, if the opportunity presents itself, does this tie in with the $40 million CapEx increase? You know, are there things you can point to where some of these specific opportunities themselves tie to, you know, either tighter infill drilling or maybe with a three-mile lateral, it allows you to step out a little bit further?

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

Bob Gerrity (Chairman and CEO)

Yeah. Hi, Donovan. This is Bob. The deeper, denser, 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. 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, you know, at a cost-efficient basis, it's meaningless. And the costs in the field have certainly stabilized, if not gone down a little bit.

But you're right, the field has expanded, and we're getting tier one economics on a map that not that many years ago was considered tier three. 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.

Donovan Schafer (Analyst)

Okay, great. And then, as another question, so, I know I'm kind of putting Jimmy on the spot here, so, well, I should almost, you know, in a perfect situation, I'd have him leave the room or something. But, you know, he joined a few quarters ago.

Bob Gerrity (Chairman and CEO)

I'll pause there.

Donovan Schafer (Analyst)

I know. It's a bit odd, but you know, he joined a few quarters back, you know, and I did make a point of going through, like, sort of his LinkedIn profile and his, you know, bio from other companies he's been involved in. And you know, Jim's experience, not to toot his horn, but it was very relevant, and I thought it was quite impressive. And particularly, you know, 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, you know, an update, like, is. I think when Jimmy first joined, I thought, gee whiz, you know, maybe this means there's gonna be some amazing, incredible package or something that gets put together.

And, you know, a deal's only, you know, you don't do deals for their own, 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, you know, has Jimmy been an important part of, like, making the decision of, okay, we're gonna focus a bit there instead of, like, like, you know, 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. Just anything, Jimmy, you could speak to it, but I'd also just be more interested broadly, just from the other guys, you know, a sense of the role and how that ties in.

Bob Gerrity (Chairman and CEO)

Yep, you nailed it, Donovan. Bringing Jimmy on was a win in every way for the test. You know, 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. You just learn it by the hard knocks of experience. Jimmy was a perfect fit for Brian and I. He came in, and it was as if we were partners for a long time. You know, 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. So, Jimmy, are you sweating yet or?

Jimmy Henderson (CFO)

Okay, enough of that. You know, 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, and as well as things we've talked about, Luminous and the... You know, it's, it's really a culmination of all those things that has been developed over the years of existence for this company. You know, I, I really appreciate all the comments, but I'm just here to be able to take advantage of what's already been built and keep it moving forward. But I really appreciate the thoughts.

Donovan Schafer (Analyst)

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 with the dividend and sort of stress testing that. I have to imagine, you know, even, you know, presenting 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 kinda confirm that and maybe what type of parameters, you know, how, you know, you've got a lot of hedging in place for the next year. So do you say, you know, assuming a $60 oil, how long can we,

Jimmy Henderson (CFO)

Sure.

Donovan Schafer (Analyst)

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

Jimmy Henderson (CFO)

Yeah, Donovan, this is Jimmy, and I can take the first cut and let you guys jump in. But, yeah, certainly, I mean, the strip itself kind of provides a pretty good litmus test to the way that it's backwardated, and we look at can we maintain this coverage ratio for the dividend, even with that backwardation? And, what would happen if we go further than that? And, you know, 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, et cetera. 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 yeah, we definitely run multiple scenarios and probably like most oil and gas companies, kind of a flat, flattish price that we are a little more confident in than the strip and then something lower even than that. Brian, you step in. You've done a lot more than I have.

Bob Gerrity (Chairman and CEO)

Yeah, this is Bob. I'll just have a brief comment. And the dividend, and it is very obviously, it's what we live for. It's important to understand, and we'll, you know, we've seen it, when the price of oil goes down, activity goes down. So when activity goes down, our CapEx goes down. So that, you know, you can't just fix a. When you're doing a stress test, you just can't fix everything. You have to realize that if the price, 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 million. So that is a real critical number for us. So above that is, where we become additional capital allocators.

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

Brian Cree (President)

The only thing that I would really add there, Donovan, is again, that's one of the reasons that Vitesse has always tried to keep that leverage low.

Bob Gerrity (Chairman and CEO)

Yep.

Brian Cree (President)

Right? I mean, it just provides us some flexibility. Not that we wanna 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 obviously is very important to us. We've talked about it a lot. But look, if oil prices went down for a long period of time, we would have to adjust and look at everything. But clearly, that extra debt capacity is something that factors into our calculation.

Bob Gerrity (Chairman and CEO)

Yep.

Donovan Schafer (Analyst)

Okay, very helpful. Thank you, guys.

Bob Gerrity (Chairman and CEO)

Thanks, Donovan.

Donovan Schafer (Analyst)

I'll pass it on.

Operator (participant)

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

Noel Parks (Analyst)

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

Brian Cree (President)

Yeah, I mean, we constantly see, you know, new family offices come in. There's, you know, 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. You know, that, along with consolidation, is something that's exciting to us. I mean, it's always good to see, you know, the consolidation in the basin, you know, operators taking on the best of what each side has looked at. And so, you know, from a pure non-op standpoint, there's always, you know, 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-op space.

Bob Gerrity (Chairman and CEO)

Yeah, this is Bob. It's hard to buy your way into the Bakken. It's really tightly held and has been for seven or eight years. We could never reconstruct the 50-some-odd thousand acres we have. We bought it at a very low cost per acre.

Noel Parks (Analyst)

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

Brian Cree (President)

Yeah, 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 gonna look at it, and that we're gonna be able to close. And you know, 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.

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

Noel Parks (Analyst)

Great. Thanks a lot.

Bob Gerrity (Chairman and CEO)

Sure. Thanks, Noel.

Jimmy Henderson (CFO)

Thanks, Noel.

Operator (participant)

Thank you. There are no further questions at this time. I would now like to hand the call back over to Bob Gerrity for closing remarks.

Bob Gerrity (Chairman and CEO)

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 three months. Thank you. Bye-bye.

Operator (participant)

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