Vitesse - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered an EPS beat vs S&P Global consensus but a revenue and EBITDA miss; Primary EPS normalized came in at $0.23 vs $0.18 consensus, while revenue was $60.4M vs $65.1M and EBITDA $36.4M vs $39.6M, reflecting commodity volatility and elevated G&A from acquisition and litigation costs. Values retrieved from S&P Global.
• Production averaged 14,971 Boe/d (+16% q/q), at the top end of guidance; management reaffirmed a fixed dividend at an annual rate of $2.25 per share, highlighting capital return durability.
• 2025 guidance was revised: CapEx midpoint cut ~32%, production midpoint reduced ~9%, and range widened; Vitesse deferred completion of 2 gross (1.9 net) operated DUCs and walked away from ~$20M of planned acquisitions given pricing dynamics.
• Strategic catalyst: Lucero acquisition closed March 7, 2025, expanding operated optionality and a larger development pipeline; management emphasized flexibility to pivot spending, pursue “chunky” deals, and protect the dividend amid volatile oil prices.

What Went Well and What Went Wrong

What Went Well

• Production and cash generation: Q1 production of 14,971 Boe/d was at the top end of guidance and +16% q/q; adjusted EBITDA was $39.9M and adjusted net income $8.0M, supporting dividend coverage.
• Operated optionality post-Lucero: Closing Lucero added operated wells and permitted locations; management can “toggle” activity and defer completions to optimize returns.
• Hedging discipline: ~61% of remaining 2025 oil hedged at $70.75/bbl and ~30% of 2025 gas hedged at a $3.73/MMBtu floor; added 2026 hedges and initiated NGL hedges to increase cash flow certainty.

Selected management quotes:

• “Our low leverage, disciplined hedging strategy, and foundational asset base provide us the flexibility to navigate market volatility.” — CEO Bob Gerrity.
• “We proactively decided to defer the completion of these drilled but uncompleted wells due to recent commodity price volatility.” — President Brian Cree.

What Went Wrong

• Revenue/EBITDA miss vs consensus: Despite company-reported total revenue of $66.2M, S&P Global “Revenue” actual tracked at $60.4M vs $65.1M consensus; EBITDA $36.4M vs $39.6M, reflecting price headwinds and timing. Values retrieved from S&P Global.
• Elevated G&A: Q1 G&A was $12.1M ($9.00/Boe), including $4.6M one-time Lucero costs and ~$1.6M litigation spend; excluding these, G&A was $4.38/Boe, indicating temporary pressure.
• Price mix headwind: Average realized oil price before hedging declined 9% y/y to $64.18/bbl, while combined realized price per Boe fell 8–9% y/y; LOE increased 17% y/y in absolute terms (flat per Boe).

Transcript

Operator (participant)

Greetings and welcome to the Vitesse Energy's first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to the Director, Investor Relations and Business Development at Vitesse, Ben Messier. 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 2025 and revised annual guidance. Our 10-Q and earnings were released yesterday after market close, and an updated investor presentation can be found on the Vitesse website. I'm joined here this morning by Bob Gerrity, Vitesse's Chairman and CEO, our President, Brian Cree, and our CFO, Jimmy Henderson. Before we begin, please be reminded that this call may contain estimates, projections, and other forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. Please review our earnings release and risk factors discussed in our filings with the SEC for additional information.

In addition, today's discussion may reference non-GAAP financial measures. For reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-Q and earnings release. Now, I will turn the call over to Vitesse's Chairman and CEO, Bob Gerrity.

Bob Gerrity (Chairman and CEO)

Thanks, Ben, and good morning, everyone. Thank you for participating in today's earnings call. The first quarter of 2025 was a step change for Vitesse with the acquisition of Lucero. This operating leg gives us additional affirmative decision-making ability and further control over our capital spending. We can now toggle our activity in a new way. This complements our already dynamic business model, which allows us to adapt quickly to the changing macro environment. Our business plan, which includes our long-duration asset, low leverage, and disciplined hedging strategy, positions us not only to withstand but to be opportunistic during market disruptions. The oil and gas industry is highly cyclical. Sometimes it's best to expand the asset, and other times it is better to be highly disciplined and prudent with our spending.

Our objective is to invest money at the highest rates of return possible, which allows us to return capital to our shareholders through all cycles. Reflecting the durability of our asset and business model, last week our board reaffirmed our dividend at an annual rate of $2.25 per share. I will now hand the call over to our President, Brian Cree, to discuss our operations.

Brian Cree (President)

Good morning, everyone, and thanks, Bob. Production for the quarter averaged just under 15,000 bbl of oil equivalent per day, which was at the top end of our first quarter expectations of 14,000 bbl-15,000 bbl of oil equivalent per day. Production increased by 16% from the fourth quarter of 2024. As of March 31st, 2025, we had 25 net wells in our development pipeline, including 9.5 net wells that were either drilling or completing, and another 15.5 net locations that had been permitted for development. The overall pipeline is higher than ever, primarily as a result of our acquisition of Lucero. The pipeline includes 1.9 net wells that are waiting on completion at our discretion. We proactively decided to defer the completion of these drilled but uncompleted wells due to recent commodity price volatility.

Additionally, we chose not to close on $20 million of acquisitions in early April that were included in our original 2025 guidance. To mitigate the impact of commodity price volatility, for the remainder of 2025, we have approximately 61% of our oil production hedged at a weighted average price of $70.75 per bbl, and 30% of remaining 2025 natural gas production hedged at a weighted average floor of $3.73 per MMBTU, both percentages based on the midpoint of our updated guidance. Additionally, we have over 2,500 bbl per day and 12,700 MMBTU per day of our 2026 oil and natural gas production hedged at roughly $67 per bbl and through a costless collar of $3.72 by $5 per MMBTU. Last week, we added NGL hedges to the streams that trade attractively relative to recent averages. Thanks for your time. Now, I'll turn the call over to our CFO, Jimmy Henderson.

Jimmy Henderson (CFO)

Thanks, Brian. Good morning, everyone. I wanted to highlight just a few items from our financial results for the first quarter of 2025. Please refer to our earnings release and 10-Q, which we filed last night for any further details. Our production for the quarter was 14,971 BOE per day with a 68% oil cut. For the quarter, adjusted EBITDA was $39.9 million, and adjusted net income was $8 million, with GAAP net income of $2.7 million. You can see that reconciliation in our press release that we put out last night. Cash CapEx, including acquisition costs for the quarter, were $30.4 million. These costs were all funded within our operating cash flows. At the end of the first quarter, we had total debt of $117 million and net debt to adjusted annualized EBITDA of 0.7 times.

We are revising guidance for 2025 in response to current commodity price volatility to preserve returns and maintain financial flexibility. We now anticipate production in the range of 15,000 BOE-17,000 BOE per day for the full year, with an anticipated oil cut of 64%-68%. Cash CapEx for the year is anticipated to be $80 million-$110 million, still weighted towards the first half of the year. This wider guidance reflects a 32% reduction in CapEx based on the midpoints, with only a 9% decline in production. We will remain adaptable in navigating volatile markets to protect long-term shareholder returns and value. In the event that the commodity market firms or we see the expected repricing of assets and costs, we are in a position to quickly react. Lastly, again, I want to thank everyone for their hard work in closing the Lucero transaction.

We are very eager to see what we can all achieve together. With that, let me turn the call over to the operator for Q&A.

Operator (participant)

Thank you. We will now be conducting a 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 pull for questions. Thank you. Our first question comes from the line of Jeff Grampp with Northland Capital Markets. Please proceed.

Jeff Grampp (Managing Director and Senior Research Analyst)

Morning, all. I wanted to start first on the guidance front of things, obviously acknowledging you guys have a little bit wider range than we had previously. Can you give us a little more detail on what drives things towards the higher end versus the lower end? What are the main factors there? Is it primarily, would you say, I guess, timing of wells and inventory, or what other factors should we kind of keep an eye on that could drive you one end versus another? Thanks.

Brian Cree (President)

Hey, Jeff, this is Brian. I'll take the first crack at that and let Bob and Jimmy jump in if they feel like it. Obviously, one of the key items is going to be the timing of the completion of our DUCs. Obviously, from our standpoint, we have deferred those. We're very much driven by rates of return, and we'll continue to watch both the prices that we might receive and completion costs. That will certainly dictate when we decide to complete those wells. That will have an impact on the lower versus the higher part of our range in production. The other aspect of that is we'll continue to look at acquisitions. We did back away from some acquisitions that we were planning to do at the beginning of April as prices started to go down a little bit in March.

We did try to renegotiate those acquisitions, but we were unsuccessful. It does not mean that we will not be very, very active in the acquisition market over the course of this year. If we find things that meet our hurdle rates of return, we are going to jump on them all day. Those are two things. Look, we are still waiting to see how the rest of our operators handle the decline in oil prices. Timing of wells coming online is certainly an impact. With a lot of that uncertainty, we just decided that it would be more prudent to widen the range of our guidance.

Bob Gerrity (Chairman and CEO)

Yeah, Jeff, this is Bob. Just to add briefly to what Brian said, before Liberation Day and the Saudi decision to add extra barrels, we had seen a meaningful decrease in the cost of AFEs from our operators. We have not really seen another readjustment. We're only a month into that, but we're encouraged by that trend. With our data, we can see a lot of what's going on in the field almost real time. We're eager to look at the trend, and we're ready to spend money.

Jeff Grampp (Managing Director and Senior Research Analyst)

Great. I appreciate all those details. For my follow-up, more of kind of a capital allocation question. The stock's kind of at levels we haven't seen since you guys first came public. Dividend yield's in double digits. You could almost make an argument that buybacks are actually accretive to leverage in the long term. I'm just wondering, to what extent do buybacks make sense for you guys in the context of, albeit, lower operating cash flow? Also, just to what extent you can execute buybacks given any limitations on the credit facility? Thanks.

Jimmy Henderson (CFO)

Yeah, I'll take a shot at that, Jeff. I think from the beginning, our focus has been on the fixed dividend and setting it at a price that can be maintained. These commodity prices do not leave a lot of room for continuing our capital investment plus buying back shares in the market. Certainly, we get the gist of that question, and we're always looking at that and comparing buying back shares as compared to reinvesting in assets and the cash flow that that generates to support the dividend. It all goes into the mix in our capital allocation, certainly.

Bob Gerrity (Chairman and CEO)

Yeah, Jeff, this is Bob. We're investors, and we want to invest money where it gets the biggest rate of return. We look at this all the time, whether it's making an acquisition, buying AFEs, investing in AFEs, or buying our own stock. It's a dynamic process. We do have room to buy back in our shares, but we're trying to always look at where we're going to make the most amount of money.

Jeff Grampp (Managing Director and Senior Research Analyst)

Understood. All right. Thank you guys for the time.

Bob Gerrity (Chairman and CEO)

Thanks, Jeff.

Operator (participant)

Thank you. Our next question comes from the line of Emma Schwartz with Jefferies. Please proceed.

Emma Schwartz (Energy Equity Research Senior Associate)

Hi Vitesse team. Thanks for taking my question today. I think the updated 2025 guidance makes a lot of sense in the current macro environment and enhances the resiliency of the business. Could you provide more details on your willingness to flex the balance sheet to maintain the dividend? Is there limitations on the credit facility that we should know about?

Bob Gerrity (Chairman and CEO)

No [limit]. Hi Emma, this is Bob. We're not restricted at all with our credit facility. Our product is our dividend. We feel very confident in our ability to pay the dividend in this pricing environment. It is a decision that we make pretty much on a quarterly basis. Our product is our dividend. We do everything we can to support the dividend and make the decisions to be able to grow the dividend. Jimmy, you want to add to that?

Jimmy Henderson (CFO)

Yeah, I would say that there are provisions in the credit facility that at some point would limit the ability to.

Bob Gerrity (Chairman and CEO)

Sure.

Jimmy Henderson (CFO)

At current levels, and that certainly plays into our capital allocation to make sure that we've got plenty of buffer room underneath that. I think that's what Bob's speaking to, that we're in good shape on that front right now, and we're comfortable with our capital allocation.

Emma Schwartz (Energy Equity Research Senior Associate)

Yeah, that's great to hear. As a second question, I wanted to ask on the Lucero acquisition, how have the assets been performing now that the deal is closed? I know it's non-op, but are there any potential synergies or learnings that you've gained from Lucero?

Brian Cree (President)

Sure. This is Brian. I would say that the integration of the Lucero assets is going exactly how we would have expected them. The assets are performing just as we had underwritten them. We'll continue to work in terms of using our non-op portfolio to enhance potentially the value of the operated portfolio. One of the advantages that we have with such a large non-op portfolio is the ability to trade back and forth with other companies that could very well enhance the undeveloped locations that we have on the operated side.

Emma Schwartz (Energy Equity Research Senior Associate)

That's great to hear. Thank you so much.

Bob Gerrity (Chairman and CEO)

Thanks, Emma.

Operator (participant)

Thank you. Our next question comes from the line of Noel Parks with Tuohy Brothers. Please proceed.

Noel Parks (Managing Director)

Hi, good morning. I just took a couple of things. I'm just a little curious as far as what you've been seeing with, I mean, in this early stage with operator behavior. I think so many of the companies out there, and I guess particularly if you're seeing any effects in the AFEs or the quality of AFEs you're seeing, just because generally balance sheets are pretty good and capital discipline notwithstanding, companies do seem to have a good bit of flexibility on their programs and their maintenance drilling. Just any early signs from your producing partners so far?

Brian Cree (President)

Yeah, this is Brian. I'll start with this and let others add in. Certainly from the quality aspect of our AFEs, we're really not seeing a change. I would say that we're starting to see more and more four-mi laterals. It's an interesting development that's ongoing as all of the operators are looking to enhance their capital efficiency, and we are seeing more four-mi laterals. As Bob mentioned earlier, we have seen some decline in AFE costs. Our two-mi laterals between the first quarter and the fourth quarter of last year declined about 5%, and the AFE costs on our three-mi laterals during that same timeframe went down by about 8%. Again, though, the quality, we're not really seeing any change in that. Operators are continuing to develop wells, and rig count was closer to 35 at the end of the first quarter. It's declined a little bit.

I think as all of the operators, and we're seeing a lot of people report earnings now and talk about their guidance, I think everyone is taking a prudent perspective to the remainder of the year.

Noel Parks (Managing Director)

Great. Thanks a lot. I guess just wondering, and this is sort of an ongoing strategic question, in the event we see sort of a sustained pullback in the commodity, there are a number of companies in other basins that have probably gotten a bit more extended on their balance sheet through cash acquisitions than they might have expected, just given where the oil strips have been. I wonder if you were either getting inquiries from or had ideas about other basins that you might be looking at if we're headed into sort of an unusual point in the cycle.

Bob Gerrity (Chairman and CEO)

Yeah. Thanks, Noel. This is Bob. Interestingly enough, we have been getting inbounds from companies that we were surprised that I think we're seeing more stress out there, a lot of it from the private companies than I think a lot of people anticipate. This is also one of the reasons why we took the measures with our CapEx to bolster our balance sheet to be in a position to find a nice fat pitch. Again, we are looking at other basins as we have for the last couple of years, and we're trying to be greedy and just try to pick off the one that is most economic. It is an interesting time, and there's a lot of discussion here about what opportunity set we would see if the price of oil went to $50 and stayed there through the rest of this year.

That would be a situation where we wouldn't necessarily relish, but we were in a position to take advantage of.

Noel Parks (Managing Director)

Great. Exactly sort of the thing I was wondering about. Thanks a lot.

Operator (participant)

Thank you. Our next question comes from the line of Poe Fratt with Alliance Global Partners. Please proceed.

Poe Fratt (Equity Research Analyst)

Hey, good morning. Noel just hit the outside the bonking question, but can you highlight on the range of CapEx that you have $80 million-$110 million? And can you just talk a little more about whether there are still acquisitions built in there? I think last call you quantified acquisitions at $20 million. Those fell off just because of market conditions. But how much is built into the budget right now for acquisitions?

Brian Cree (President)

Part of the reason, Poe, we have such a wide range is because we want the flexibility to make acquisitions if they're attractive. We're underwriting about $10 million of base case acquisitions currently, but in past years, we've gotten a little bit closer to $30 million. If good opportunities come across our desk at rates of return that we can't turn down, which has been the scenario the last few years, you can see that number go higher, and that's why we built in a little bit more cushion on the upside on that CapEx there. As everyone mentioned earlier, we turned down a $20 million acquisition that we tried to renegotiate, but we saw prices drop. That acquisition didn't meet our return hurdles. That is a big contributing factor to why we reduced production and CapEx from our prior guidance.

Bob Gerrity (Chairman and CEO)

Poe, this is Bob. You can take a look at our revised guidance and conclude that they cleared the decks of everything that's not super economical, and they're looking to load it back up with stuff that's economic that works in the $50-$60 oil price environment. Look, we're in a position with our capital structure to move very quickly to make other acquisitions, which is what our plan is. It's just we don't have that built into our guidance at this point.

Poe Fratt (Equity Research Analyst)

Sounds good. Thanks, Bob. You commented, Bob, last quarter on the call last quarter about seeing chunkier assets, larger transactions. I assume that part of that was implying what was going on with the acquisition for $20 million that fell off. Are you seeing over the last month or call it six weeks chunkier acquisitions, or has that sort of ebbed as people more batten down the hatches and sort of try to wait it out?

Bob Gerrity (Chairman and CEO)

Good question. It is chunky time. You take a look at the Lucero acquisition we did. It was good for Lucero shareholders, good for the Vitesse shareholders. We like that as a template, that's something that works for both parties. We are very busy in our deal shop, and we like the chunky acquisitions. Do not be surprised if we revise the guidance in the future because we are looking. We are definitely looking. A lot of opportunities happen at $55 oil, and we are in a position to take advantage of it.

Poe Fratt (Equity Research Analyst)

Great. That's helpful. If I could squeeze one more, G&A expense was up because of the Lucero acquisition. I think you quantified it at $4.6 million. That added, it looks like, just about $3.50 to your G&A per BOE in the quarter. Can you give me an idea of how G&A is going to run per BOE for the rest of the year?

Jimmy Henderson (CFO)

Yeah, Poe, this is Jimmy. Yeah, I think kind of that $4 range per BOE is a pretty good run rate for us. In addition to those acquisition costs, we disclosed that we also had some litigation costs where we're the plaintiff, and so that's coming to fruition now. That should drop off here in the future.

Poe Fratt (Equity Research Analyst)

Jimmy, was that $1.6 million on litigation? Did I read that correctly?

Jimmy Henderson (CFO)

Yeah, in the quarter, that's correct.

Poe Fratt (Equity Research Analyst)

Will there be any in the second quarter? Because I think there's a June trial date there.

Jimmy Henderson (CFO)

Yes, certainly. The trial date looming. There'll certainly be some more in the second quarter.

Poe Fratt (Equity Research Analyst)

Okay, great. That's helpful. Thank you so much.

Jimmy Henderson (CFO)

Thanks, Poe.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to pass the call back over to Bob for any closing remarks.

Bob Gerrity (Chairman and CEO)

Thank you. Thanks, everyone, for joining. Those were a great set of questions from our analysts, which we always appreciate. If you have any other questions, please feel free to contact Ben directly. Thank you. We'll see you next quarter.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.