Vitesse - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered strong sequential growth with production up 27% q/q to 18,950 Boe/d and Adjusted EBITDA rising to $61.1M; results were supported by a $24M legal settlement and expanded hedging, while 2025 guidance was reaffirmed at 15–17k Boe/d and $80–$110M capex.
• GAAP revenue was $81.8M; including realized hedge gains, “revenue incl. hedges” was ~$87.0M; GAAP diluted EPS was $0.60. Versus S&P Global consensus, VTS posted broad beats on revenue and EPS in Q2 (see Estimates Context).
• Management resolved a multi-year dispute with a key operator, received $24M cash, moved to take virtually all gas in kind, and executed long-term gas gathering/processing agreements—improving forward realizations and reducing G&A run-rate noise from legal expenses.
• Catalysts: execution on accretive acquisitions (near-term development and larger “chunkier” non-op assets), visibility on H2 activity/curtailments, and hedging support for the dividend maintained at $0.5625 per quarter ($2.25 annualized).

What Went Well and What Went Wrong

What Went Well

• Production increased 27% q/q to 18,950 Boe/d, driven by the full integration of the Lucero assets and organic activity; oil mix was 65%.
• Legal dispute resolved: $24M cash payment recorded, gas taken in kind, and long-term agreements signed—management cited ~$2.5–3.0M run-rate improvement vs historical basis in H1 as a guidepost; “we successfully settled a multiyear lawsuit…entered long term gas gathering, processing and marketing agreements”.
• Enhanced hedge book: ~71% of remaining 2025 oil hedged at ~$69.83/bbl and ~49% of 2025 gas hedged with ~$3.73 floor collars; extended oil hedges through 2026, supporting dividend stability.

What Went Wrong

• LOE per Boe rose to $11.38 (vs $10.28 in Q1), reflecting field work and operated asset integration; management noted some LOE spend lifted Q2 volumes but intends to normalize the operated properties’ cost base.
• G&A optics noisy: reported G&A was $0.18/boe in Q2 due to offsetting previously expensed litigation costs; normalized G&A was ~$3.47/boe, with management expecting leverage to reduce G&A per Boe as scale grows.
• Guidance held steady despite a strong Q2, implying potential H2 moderation from timing/curtailments; management cited basin activity dynamics and chose not to adjust the range upward yet.

Transcript

Speaker 4

Welcome to the Vitesse Energy second 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 that this conference is being recorded. I will now turn the conference over to the Director of Investor Relations and Business Development at Vitesse, Ben Messier. Thank you. You may begin.

Speaker 1

Good morning, everyone, and thanks for joining. Today, we will be discussing our financial and operating results for the second quarter of 2025. Our 10-Q earnings were released yesterday after market close, and an updated investor presentation can be found on the Vitesse website. I'm joined this morning by our Chairman and CEO, Bob Gerrity, 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.

Speaker 4

Thank you, Ben, and good morning, everyone. The second quarter demonstrated the resilience of our asset and the discipline of our team. I want to thank our team members for the awesome job they continue to do. Importantly, we are positioned to deliver in a subdued oil price market while remaining well-prepared for when prices strengthen. During the second quarter of 2025, we fully integrated the Lucero Energy Corp assets and certain employees into Vitesse Energy, with the accretive impact apparent in our financial metrics and balance sheet. The asset is performing as expected, and we are realizing better G&A synergies than we underwrote. The operated leg to our strategy provides another lever that we can pull at our discretion.

We successfully settled a multi-year lawsuit with one of our key operating partners, which resulted in a one-time cash payment, as well as entering into long-term gas gathering, processing, and marketing agreements. Kudos to our team for their diligent efforts in seeing this through. We continue to invest capital selectively while generating excess free cash flow that was used to reduce debt. We allocate capital based on our returns-driven hierarchy, as noted in our investor presentation posted on our website. We're not held to a fixed capital budget. As I have said before, in addition to our organic drilling, we are always looking at both near-term development deals and larger asset acquisitions that will support the dividend. These deals must meet our strict return hurdles. Additional hedges were added in the quarter to take advantage of increased oil prices, and we will continue to make decisions that bolster the dividend.

Last week, our board declared our third quarter dividend at an annual rate of $2.25 per share. I will now hand the call over to our President, my partner, Brian Cree, to discuss our operations.

Speaker 2

Thanks, Bob. Good morning, everyone, and thank you for joining today's call. Production for the quarter averaged just under 19,000 barrels of oil equivalent per day, which was an increase of 27% from the first quarter. This brings our year-to-date production to just under 17,000 barrels of oil equivalent per day. As of June 30, 2025, we had 23 net wells in our development pipeline, including 7.9 net wells that were either drilling or completing, and another 15.1 net locations that had been permitted for development. As Bob touched on, during the quarter, we resolved pending litigation with one of our largest operators related to post-production revenue deductions. We received a one-time cash payment of $24 million, which was recorded to revenue and to offset litigation costs previously expensed.

In addition to the one-time cash payment, we have elected to take virtually all of our gas production in kind from this operator's wells and simultaneously entered into long-term gas gathering, processing, and marketing agreements with the operator and its affiliates. We capitalized on increased oil prices during the quarter by adding oil hedges at price levels that support our dividend. For 2025, we have approximately 71% of our remaining oil production hedged at a weighted average price of $69.83 per barrel and nearly half of the remaining 2025 natural gas production hedged with attractively priced collars at a weighted average floor of $3.73 and ceiling of $5.85 per MMBTU, both percentages based on the midpoint of our guidance.

Additionally, we have over 3,300 barrels per day and 12,700 MMBTU per day of our 2026 oil and natural gas production hedged at $66.43 per barrel and through a costless collar of $3.72 by $4.99 per MMBTU. In the first quarter of 2027, we have over 8,800 MMBTU per day of natural gas production hedged with a $4 floor by $5.68 collar. Additionally, we have over 207,000 barrels of NGL production hedged in the second half of 2025 and 2026 at $23.61 per barrel. Thanks for your time. Now, I will turn the call over to our CFO, Jimmy Henderson.

Speaker 4

Thanks, Brian. Good morning, everyone. I just want to highlight a few items from our financial results for the second quarter of 2025. You can refer to our earnings release and 10-Q, which were filed last night for further details. With the Lucero Energy Corp assets fully integrated, our production for the quarter was 18,950 BOE per day with a 65% oil cut. For the quarter, adjusted EBITDA was $61.1 million, adjusted net income was $18.4 million, and GAAP net income was $24.7 million. All of these figures include the effect of the legal settlement, as we've discussed earlier. You can see the reconciliation in our press release filed last night. Cash CapEx and acquisition costs for the quarter were $35.7 million, which was almost entirely organic as we had minimal acquisition costs during the quarter.

These costs were funded within our operating cash flows, and excess cash flow was used to pay down debt. During the second quarter, we decreased our total debt to $106 million, giving us net debt to an adjusted annualized EBITDA of just 0.4 times. Our annual guidance for 2025 has not changed. We anticipate production in the range of 15,000 to 17,000 BOE per day for the full year, with an anticipated oil cut of 64% to 68%. Cash CapEx for the year is now anticipated to be $80 million to $110 million, weighted towards the first half of the year. With that, let me turn the call over to the operator for Q&A.

Speaker 3

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. Our first question today comes from Jeff Grampp of Northland Capital Markets. Please proceed with your question.

Morning, guys. Thanks for the time.

Speaker 2

Hey, Jeff.

Wanted to, first question on the production side of things. You guys had pretty nice performance in Q2. Guidance for the full year was maintained, which I guess kind of implies a fairly decent decline in production in the second half of the year. I know activity levels in the basin have slowed down, so not too surprising, but just hoping to get a little more increased clarity on kind of what your guys' production expectations are for the remainder of the year. Thanks.

Yeah, Jeff, this is Brian. I'll take the first crack at that, and anyone can add in. Yeah, we kept our guidance the same for the year. Obviously, our second quarter numbers were real strong. We liked them. From that standpoint, we did have some wells that got turned on a little sooner than we had expected. We are constantly watching the amount of organic CapEx that we're seeing. We're very encouraged by the AFE activity that we've seen, with oil prices in the mid-sixties. We're pretty happy to see a lot more AFE activity than we were seeing earlier in the year, actually. We're not quite at the levels we were last year from an AFE activity, but certainly above the levels we've seen on average over the last few years.

That's something that we're encouraged by, but at this point in time, just with the visibility that we have, we've decided to keep those estimates in terms of the second half production right in line with where we were earlier.

Okay. Thanks for that, Brian. For my follow-up on the acquisition side of things, I know that at least looking at the cash flow statement, the kind of ground game acquisition side of the business has been a little bit slower. I know you guys have been seemingly pretty bullish the last couple of calls on acquisition deal flow overall, both for small and larger deals. Just hoping to get an update on what you guys kind of view as the pipeline for acquisitions, both for ground game and larger deals.

Speaker 4

Yeah, Jeff, I'll take a cut at that. This is Jimmy. Yeah, definitely, you know, we've seen, as Brian said, with the organic side, we've seen pretty robust activity. We've seen quite a bit into the pipeline on NTD or near-term development, just nothing that's really achieved our hurdles that we have. We just haven't felt the inclination to change our hurdle rate and accept lower returns to do some of these things. We just kind of feel pretty comfortable about where we're at. We continue to look at bigger, chunkier deals, and we got a lot of things that we're analyzing and really scrutinizing. As we've always said, as Bob said earlier in the prepared remarks, we have pretty strenuous requirements when we look at these things.

We're very optimistic given the number of opportunities that are out there, but continue to be cautiously optimistic that something will get to the finish line.

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

Thanks, Jeff.

Speaker 3

The next question is from Poe Fratt of Alliance Global Partners. Please proceed with your question.

Hey, good morning. Just to follow up on the guidance question, if you could just help me understand the chances that you're going to hit the low end of the guidance, that would be helpful. What would have to happen to see 15,000 BOE per day for the year? I mean, it seems like an outlier example, but if you could just help me understand the low end of the guidance, that'd be helpful.

Speaker 4

Yeah, Paul, this is Jimmy. Thanks for the question. Obviously, the low end of the guidance is pretty minimal chance that it's going to hit that level. I think Brian described it pretty well. We're excited about the second quarter. There were some things that came pulled forward from the second half into the quarter. We're comfortable. We've got great momentum going into the second half. We're pretty excited, but we're not quite to the point where we wanted to adjust that up.

Speaker 2

Yeah, Paul, I would just add quickly to that, that, you know, even in the second quarter, we did see some operators in the basin curtail production. Realistically, to get to that lower end of the range, I think you'd have to see a pretty good drop in the price of oil, and you'd have to see operators start to curtail production.

Okay. That's really helpful. Can we just talk about the cost structure a little bit? It looked like LOE was up, quarter to quarter, on a BOE basis. I'd like to understand what your run rate on G&A is. Obviously, the settlement had an impact there, but on your reported G&A, if you could just help me understand sort of those two factors going forward, that would be helpful.

Yeah, I'll take the first crack on LOE and let Jimmy handle the G&A question. On our LOE, we closed the transaction and the acquisition of Lucero. There were some things that we wanted to do out in the field in that first three, four months of getting those operations under our belt. We did a few things. I think you can also see that some of those additional LOE costs probably drove our production a little higher in the second quarter also. Those two kind of offset each other a little bit, but it was just really getting the operator properties into the format that we wanted them to be in.

Speaker 4

Yeah, Paul, on G&A, obviously, it's kind of hard to get a run rate given all the things that we've had running through there over the last few quarters with legal costs as well as costs related to the Lucero acquisition. I think if you make the adjustment based on what is in there this quarter with the legal, the reimbursement on the legal costs, we're sort of in the mid-threes per BOE. I think we firmly believe that that will continue to decline as we scale up. We'll have a lot of left with our existing team, and not a lot of adds on the G&A side as production scales up over time. I think you continue to see that ramp down.

Okay. Yeah, I should have congratulated you on the settlement. You know, big cash payment, obviously, but more importantly, going forward, can you help me understand the implications of taking your gas in kind? Also, can you give me an appreciation for how the gas gathering, processing, and marketing agreements compare to what you've been paying historically?

Yeah, Paul, this is Jimmy again. Yeah, so that, obviously, they're better than what they were before. We have a bespoke, contractual situation now with the operator and their affiliates to move our gas primarily. It's definitely expected to be better going forward. I think, just to give you a little guidepost, if we look at, say, the first half, we probably would have seen an improvement in the $2.5-$3 million range for the first half of the year. That kind of gives you an idea of what we expect to see as a run rate going forward.

Great. Bob, in the last conference call, you did talk about chunkier assets that might be available. Has have those, and it sounds like you're optimistic that something might happen over the second half of the year. Have you actually passed or declined on any deals that are dead right now, or is the acquisition pipeline still fairly active?

Speaker 0

Yeah, thanks for the question, Poe. This is Bob. I will say that since we've been in business for 12 years, this is by far the most amount of deal flow we have ever seen in the bigger, chunkier realm. We have also been able to add, as the industry consolidates, we're able to add an engineer and an ops guy to our evaluation team, and they're completely busy. Again, especially now that the transaction and the legal process is over, we are spending a lot of time looking at deals. We have very high hurdles. It's got to be dividend-supportive or accretive. It's difficult to find that, but believe me, we would love to get one when we can. We've got a war room that's very busy. We'd love to do a deal. Thankfully, our underlying asset is performing very well.

Anything we do, we are very sensitive not to dilute that performance. We're hunting.

Perfect. Thank you.

Thanks, Paul.

Speaker 3

The next question is from Noel Parks of Tuohy Brothers. Please proceed with your question.

Hi, good morning. I apologize if you already touched on this, but I just wonder if you've gotten any sense from the finally completed Hess transaction with Chevron, if over time you're going to see any sort of changes to their planned activity levels up there and whether you think that would have the possibility of changing sort of the dynamics of maybe Bakken consolidation and so forth.

Speaker 0

Yeah, this is Bob. I'll take a first crack at that. We don't know the specific plans that Chevron has for the Bakken, but we've got a paradigm to work with because Chevron came in and made a big purchase in the DJ, and we really are encouraged by how they've performed with Noble. If that's any indication, we're very much looking forward to Chevron taking control of the Hess asset. The Hess asset up there is fantastic. We are encouraged that Chevron will actually increase the activity, but that's speculation though.

Fair enough. I guess I feel like there is still a little bit of a lag in market perception around the status of inventory in the Bakken, remaining inventory, and what is and still can be achieved through technical efficiency. Maybe even we're hearing more about that as far as downhole monitoring and AI and advanced technologies and so forth. Do you see any opportunities for maybe a little bit greater awareness of the opportunity that still exists up there in the Bakken?

Speaker 2

This is Brian. I can talk to it first and let others add in. The capital efficiency that we're seeing, it just continues to improve in the Bakken. We're just very excited about what we see each month in terms of the three-mile laterals. Now we're seeing a lot more four-mile laterals, refracts. There's just so many things going on in the Bakken that we think continues to make that field more and more productive over time and certainly from a capital efficiency standpoint.

Great, thanks a lot.

Speaker 0

Thanks, Joel.

Speaker 3

This now concludes our question and answer session. I would like to turn the floor back over to Bob Gerrity for closing comments.

Speaker 0

We'd like to thank everyone for their continued support. Please reach out to Ben if you have any specific questions, and we look forward to talking to everybody again in three months. Thank you.

Speaker 3

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines and have a wonderful day.