Good afternoon, ladies and gentlemen, and welcome to the Evolution Petroleum April 2022 investor call. At this time, all participants have been placed on a listen-only mode, but we will open the floor for your questions and comments after the presentation. If you'd like to enter the queue at any time, you may press star one on your telephone keypad. It is now my pleasure to turn the floor over to your host, Ryan Stash. Sir, the floor is yours.
Thank you, Tom, and good afternoon, everyone, and welcome to Evolution Petroleum's April 2022 investor update call. I am Ryan Stash, Chief Financial Officer, and joining me today is Jason Brown, our President and Chief Executive Officer. After I cover some forward-looking statements, I'll provide some opening remarks and discuss some very positive recent business updates, including the closing of our Jonah field acquisition.
I'll then turn it over to Jason to provide some additional details on these updates before we take your questions. Please note that any statements and information provided today are time sensitive and may not be accurate at a later date. Our discussion today will contain forward-looking statements of management's beliefs and assumptions based on currently available information. These forward-looking statements are subject to risks and uncertainties that are listed and described in our filings with the SEC.
Actual results may differ materially from those expected. I would also refer you to an updated presentation that we posted to our website under the Investors section. We may refer to some of these slides during this discussion. Please note that this call is being recorded. If you wish to listen to a replay of today's call, it will be available by going to the company's website or via recorded replay until May 6, 2022.
Now, as we put out in our press release this past Monday, we closed on the Jonah field acquisition this past Friday, April 1st. The total purchase price before adjustments was $27.5 million. This is $1.9 million lower than the announced acquisition price of $29.4 million, as the operator, Jonah Energy, chose to exercise a preferential purchase right on a small number of the wells.
We ended up paying $26.2 million on April first, which was net of preliminary purchase price adjustments and a $1.5 million deposit paid when we signed the PSA in February. The acquisition was funded with a draw of $17 million under our revolving credit facility and cash on hand. That brings our total borrowings to $37 million and results in pro forma leverage that is well under our target of 1x debt to EBITDA.
As a reminder, last month, we announced that we increased the borrowing base under the credit facility to $50 million. I should note that the asset value could support quite a bit more than our current borrowing base, but given our expected near-term capital needs, low leverage, and strong free cash flow generation, we feel that the $50 million facility size is currently more than sufficient.
We also entered into hedges as required by our credit facility for 25% of the expected natural gas production for the Jonah field acquisition for the next 12 months. We were able to take advantage of current strong natural gas prices and lock in attractive prices with costless collars that allow us to maintain exposure to further price upside.
Finally, we successfully completed the financial audit and pro forma financial information for the Williston Basin acquisition as required by the SEC and filed a Form 8-K on March thirtieth. Now, with that, I'll turn the call over to Jason to talk some more about why we're so excited about these two acquisitions and give some updates on our other assets as we recently held our annual working interest owners meetings. Jason?
Sure. Thank you, Ryan. Thanks, everyone, for joining us today. We've been pretty busy and very excited about things happening here at Evolution Petroleum. It's a wild time in oil and gas. It has been for the last couple years, and we went through the hard times together, and now we're reaping some of the benefits, and we're thrilled for your continued support. As Ryan mentioned, we put a presentation out on the website, and I'm gonna refer to several of the slides. So if you have the opportunity, it'd be good to go grab it now. If not, you can listen later in a transcript and refer to them.
The first thing I was gonna do is look at slide three, and I just kinda wanna give you a feel for what we've been up to, what we've been able to complete and accomplish in the last few weeks and kinda where we're going with basically a snapshot of what it does for us. If you look at slide three, this is just kind of an overview.
You've seen this before, but we're using this pro forma. Now we generally don't give guidance, and we don't feel like we're doing that now, but we're giving you the best we got in terms of what we feel like our best estimates are right now. Things like the upside locations in the Williston for instance, aren't part of our official reserve report because we only do that once a year.
We gave you our best in terms of our company projections of what we think we'll receive for that at the end of the year, what we anticipate to try to communicate that over to our investors for your decisions. Right now, the stock's doing pretty well. It's kinda hanging in north of $7, which is great. That's about a 5.6% yield. We were able to pay our dividend and move that up to $0.10 a quarter. That happened just last week. It was a big milestone for us, an accomplishment to get back to $0.10 a quarter.
As Ryan said, our debt momentarily has eased up to $37 million, but we'll start making progress on that very quickly. I think probably $4 million or $5 million reduction even in the month of April or somewhere in that ballpark. This is something that we sort of stretched up a bit to give, but even at that point, we've talked about being less than one turn or one net debt divided by adjusted EBITDA being less than one, and I think we're maxing out somewhere around 0.6, so well under our target.
If you look at four, that's a nice slide four, to be able to just kinda go through basically the last few weeks, what we've been able to do. Ryan mentioned several of these. Obviously, we closed the Jonah acquisition on April 1st. That was last Friday. It will be factored into our audited financials in our 10-K, it being closed in the fourth quarter. We'll have production starting as of February first, which is the effective date, that will come in the form of post-closing adjustments.
Ryan mentioned a few of the preliminary adjustments, but we'll continue to have post-closing adjustments to account for all of that revenue received prior to ownership on April first. We completed our financial audit and pro forma financials. That's a great accomplishment. Always feels great getting through those, and I think it's important for us to be in compliance, and the team's done a really great job going through all those things. I was very happy to get back to our annual shareholders meetings with our operators.
It's an important part of our business and our relationship with them. We'll get a little more into that, but we were able to go out and get in person for the first time in a couple years, and that was important. We had several new people on the team. Some of those companies have new people on the team, and it's good to build those relationships.
They're important. As Ryan mentioned, we put in some more hedges as required by the bank, but the collateral base is to the point that I'm not sure that we would have to extend those out. We'll know a little bit more about that around the Q, but I think we're getting past any more requirements, which is great. The hedges are in pretty good place.
As I mentioned, we paid our 34th consecutive dividend on 3/31. Going over to slide five, I wanted to give you a clear look at. There was a small pre-emptive exercise. Jonah actually had the right to preempt a larger chunk, I think up to about 45% of the acquisition. They chose just in that, 29 north, 108 west, and section 25.
They chose to preempt a couple sections, and not sure why, but very happy that that's all they did. It's about 5% of what the deal, and as Ryan mentioned, that lowered the purchase price by about $1.9 million, and we were happy about that. Very thrilled with this asset. As you can see on slide 5, we put in the marketing direction.
This is going out of Opal through Ruby in the Northwest Pipeline. We also have ability to go to Kern River. The western directions are receiving just a tremendous premium right now, and that's not something that we baked into our acquisition pricing. We were more flat to Henry Hub, and they're receiving quite a big premium. It's been that way for a while.
We didn't bank on it, as I said, in our valuation, but we've considered that kind of upside as there's probably not additional drilling or workover. Some light workover opportunities, but really, the upside's probably gonna be on price, and we think that's gonna be substantial and a big value for our shareholders. Flipping over to slide six, you can see the progression.
I think it's important to note here, we wanted to try to normalize this to give a clear picture on what these recent acquisitions have done. The latest that we have filed in terms of production and financials is as of 12/31. We compare these recent two transactions, both Foundation and Jonah, as if we had held them in the first half of our fiscal 2022, so July 1st through 12/31. All of those are kind of apples to apples as if. When you look at Jonah that we say average 41 BOE per day right now, we think as of April 1, that's probably about 2,015, so just a little bit lower.
The 2141 really represents an average daily through the first half of our fiscal 2022 to have a relative comparison of what the uplift does for us. I hope that makes sense. Currently, right now, we think it's making about 10.7 million cubic feet a day of gas and about 120 barrels of NGLs. Right in the 112 barrels of oil is what it's comprised of right now, which is about 12.2 million cubic feet a day Mcfe. One other note on this, again, with the spirit of trying to give you a basic feel for where we are, the first three here in Denbury, the Merit, and the Diversified, those are all SEC real reserves as of our 6/30, so they're our last year-end.
The Williston Basin and the Jonah are our company reserves. Those will be factored into our year-end reserves in a couple months. We'll start that process on July first. We anticipate. The 37.3 number over on the far right column, that's kinda what we think that we are in proved reserves. It'll be close to that, but that's not an official SEC number.
That's got some company engineered. Again, we think it's pretty close. Slide seven. It's more of an illustrative just to show the ramp up. Again, we're not kinda giving forward projections or guidance, but do think it's substantial, the amount of growth that we've been able to make. I really want to spend some time on slide eight because that's really where we feel like we are at this point.
I think you've seen this. We released this in our spring presentation. We've added this donut chart here for revenue percentage commodity revenue. We always kind of struggle 'cause we think about commodity in terms of value that it creates, and if you look at our pure production as a percent, we look pretty gassy, almost 62% gas.
Gas doesn't trade as quite as a premium as oil does, and we think in terms of value there. We've added that donut of a pro forma on an annualized revenue basis. It's more about a 50/50 split between gas and oil with NGLs making up the difference. That's the way we think in terms of everything that we have filtering down to free cash flow per share.
It's all driven by the value that it's creating. Once again, on this slide, it shows some step changes for our companies. Diversification of commodity, we've seen in the news the way it moves. Different commodities have peak value, and we have exposure to all of those. We're pretty bullish on gas right now, but oil's running pretty strong.
Have a diversity of operator so that we're not pinched on any one operator deciding to do things in our area or do things in other, or if they go through some type of financial difficulty. Diversity of geography. If there's a freeze in one location or hurricane location, in another location, we're not all dependent on one single area. Finally, this diversity of reservoir category.
Most of the things we've bought in the past are pretty heavy PDP, and that's still the majority of our component. We've got these PUDs now that we can go out and drill and do some conservative development and place some capital at a higher rate of return, which we think is very additive.
Particularly as prices get higher and higher, it becomes more difficult to buy things that are heavy PDP just because the prices become pretty untenable. With that, let's look just a little bit at the Williston Basin. Slide nine will just be a bit of an orientation slide. Just off to the east of us in Billings there, Whiting and Continental have been drilling.
We've got some AFEs coming back from them, not for us to participate in, but things that they've been drilling. We're hearing the costs are somewhere in the $6.5 million range. Those have been easing up a little or increasing a little bit with certain levels of the supply chain. We think that's probably still somewhere in the $7 million range per well.
If you slip over to slide 10, that outlines what kind of value we think is nestled in this acreage. Again, these are company engineers. We believe about 156 of these locations would qualify as SEC PUD locations. We, of course, aren't going to commit that amount of capital, and that's sort of an old way of doing business with other companies.
To stay within cash flow, we think more in the 50 range, which would be about 10 a year for the next five years. You have the five year rule to qualify as an SEC PUD. The quality of a lot of these PUDs or these locations would be PUD, and we think even the probable ones are PUD-like in terms of the quality of the rock.
A tremendous amount of value that's there. We think at year-end, probably just these 50 is what we will go for. That 37 million proved barrels, we think is gonna be pretty close. You know, there's potential here for even a double on all of that with our overall company, with what we have in the ground up there. Slide 11, let's talk about the operators.
We took the entire team up to Dallas, and we were able to meet with Merit and with Diversified and with Foundation. We'd already had a meeting with Delhi at Denbury earlier in the month. Let's start with Merit. We really like those guys. This good news out of Hamilton Dome is that their marketing group has been able to free up more.
There's a couple new pipelines that have enabled some connection and movement of getting some of that product down on WTI off of WCS, which is positive and will be for better pricing. We don't have insight into quantifying that just yet, but that's gonna be on the way. The other thing is that WCS has kind of tightened up a bit.
That's the prices there, which were kind of in a net back to us somewhere in the $12-$13 range under WTI, is closer to the $10-$11, maybe even $9. We feel like that's gonna be probably good through, maybe through the calendar year, at least through the summer. That's positive news out of Hamilton Dome. The other thing is we've talked many times about Merit and how solid they are as an operator.
They're getting out in front of some emissions, so they're doing some consolidating some tank batteries and beginning a vapor recovery system. Feels like that a lot of times they're grandfathered into some areas, but we are very supportive of them being proactive, particularly for BLM land. They're on top of that, and we're supportive.
Diversified has done very, very well. It was great to meet that team. They're really excited about getting out there. I think they've already executed 25 workovers. Basically what that means is we were anticipating it being somewhere in the 7%-8% decline, just generally on PDP. I think they've arrested 5% of that already, and there's been a 5% uplift to our net production based off the work they've done in just this first quarter.
We're just thrilled with the work they've done. These are low-hanging fruit. This is, you know, things that are $15,000, $20,000, $30,000 that they're executing, and they're under budget. We're thrilled with them. We get a little more CapEx insight here that's on the presentation.
Hamilton Dome, we expect through the first half of FY 2023, $1.2 million. Barnett, I think about half a million bucks remaining kinda through the calendar year or through our first half of FY 2023. Foundation. Foundation was great. We spent about five or six hours with them. The team got to hang out with them, and we got to sort of start looking at what their geologic and reservoir work is done on the assets.
We've been doing our own. I didn't know how that would be, and I was very, very pleased that it was very cooperative and homogeneous like harmonious is the word I'm reaching for. Everybody got along, everybody was excited about, I guess, doing good old-fashioned oil and gas, and getting out there and doing some development work.
They've identified a few workovers, some low-hanging fruit in terms of Bakken recompletes on behind pipes from some vertical wells. Also, a few Red River and Bird Bear. Some people call the Bird Bear Nisku. Some behind pipes there that they're offsetting other production. Things that we think are kinda quick wins. We greenlit those.
We expect those to start maybe sometime in June and be executed June, July. I think all in by the end of the year or the first half of our fiscal year, somewhere in the $2 million range of CapEx to be expected out there. Went very well. We're doing our assessment of the Three Forks and the Pronghorn. That's gonna happen over the next few months.
They are currently kinda looking through what it's gonna take to be able to get the supply chain. There's been rumors of lots of delays there, but actually I think that they could get a rig, and it might not be as bad as in some other areas of the country where things are a little more congested. Finally, on Delhi, we have some real positive news and wanted to take just a little bit extra time to talk about that. We normally wouldn't go this granular, but on slide 12, they say in retail it's all about location, location. Out here in the CO2, it's all about pressure, pressure.
Normally wouldn't go this granular about showing you a heat exchanger and getting into the technical, but it's been such a significant portion of the story out here at Delhi that we're just absolutely thrilled. It's good to see some real movement from Denbury on spending some capital in Delhi. These heat exchangers, we have kinda two problems, and Delhi's been a little bit of a Goldilocks.
It's either too hot or too cold. We have problems out there. Let me just briefly explain what's happening. When the gas is produced out of the reservoir, the gas is expanding, and that makes everything super cold. It's the same thing that happens in your car with Freon.
The gas expands, and it's super cold, and you blow air across it, and that's what makes cold air in your car. That's what happens when we produce gas. Everything gets really, really cold. In the winter months, if there's a freeze or it gets, you know, below 40 or 35 degrees outside, on top of that natural cooling that's coming from the gas expanding, then we have hydrates that fall out, and they start clogging up the NGL plant, and they can cause downtime.
That's the lower right-hand chart, where you have a freeze and suddenly you're down, and that causes big production delays. Now, on the other side, when we take the CO2 and we compress it to be able to pump it back down, whenever you take gas and you compress it makes it really hot.
It's the exact opposite of gas expanding, cooling. Gas compressing heats up. When gas heats up, it becomes less dense. We need the density because the density makes it heavier, and that's what allows us to put it away into the reservoir. You've probably seen on some of our calls before that in July, August and September, the warmer months, we have to lower CO2 injection because we have a miscibility issue, and we can't put away enough CO2.
That's because it's too warm. What they're wanting to do here is basically use the cooling to cool down some of the hot and the hot to warm up some of the cool. That's what these three heat exchangers are doing. It should make everything a whole lot better.
It should enable us to put a lot more CO2 away at lower temperatures, which will enable us not to have to dial back CO2 injection in the summer and decrease downtime. You can see that we're very excited about this. It's gonna cost us a little bit of money. We expect that to be about $1.2 million for that. There's some updated CapEx for you.
All right. Finally, on 13, just kind of an update of where we are here. Again, you can see the debt less than one. I think that's about 0.6. One thing to note that we're still around a 50% margin. We're pretty proud that the G&A is getting thin in terms of spread across more barrels, which is more value for all of our shareholders.
Some significant movements and good results. I think probably we're most proud of the lower left-hand corner of 33.6 million shares, that kind of growth without having a tremendous amount of share dilution. I think the last couple slides are self-explanatory. We're very happy to pay our extra dividend. I think with that, let's go ahead and turn it over to questions. Let's stop me talking and let me begin to answer some questions for you guys. Operator, if you'll open up the line for questions.
Certainly. Ladies and gentlemen, the floor is now open for questions. If you would like to enter the queue to ask a question at this time, you may press star one on your telephone keypad to enter the queue. Once again, ladies and gentlemen, that'll be star one on your telephone keypad to enter the queue. Should you wish to exit the queue, you may also press star two. Please hold a moment while we poll for questions. The first question is coming from John White from Roth Capital Partners. John, your line is live. Please go ahead.
Thank you, operator. Jason and Ryan, very nice presentation. Congratulations on that.
Thank you.
Uh-
Thanks, John.
You know, as we've talked about, we've discussed this a lot. Evolution compared to the vast majority of other publicly traded E&P companies is very different, a very different company. You're not really a shale company. You're not a growth by the drill bit company.
You know, I get calls from investors commenting on your very successful track record over the last couple of years of putting together these acquisitions and diversifying the asset base and diversifying the commodity mix, and they keep saying, "How do they do it? How do they do it?" I think, and correct me if I'm wrong 'cause I'm not a merger and acquisition expert, but I think one of the keys to your execution is the structure of the merger and acquisition market for deals under $50 million-$75 million.
In other words, I think once you drop below $100 million in deal value, there's a lot of sellers, but there's not that many buyers. And there's a lot of wanna-be buyers that can't get financing, but you guys show up with money in hand. Do you think that that's a good explanation? And if it is, you wanna talk a little bit more about the structure of that market in that size range?
Yeah. Actually, thank you for that question. It was. I like the first half of it. It was extremely complimentary, so thanks for those kind words, John. I couldn't have summed that up better actually. The sub 100, and particularly sub 50, used to be completely dominated by the private equity-backed portfolio companies, many of which those are now having assets that are getting long in the tooth, and they're really more looking to sell and liquidate funds that have been out there for quite a while.
You know, something like Jonah Field, there's just not a lot of people coming and beating down the door to get into a non-op position in Jonah Field. Most people wanna operate, so it's a real strategic advantage. In a company like Northern, who is a non-op, it plays in that non-op space as a competitor as well. Something like Jonah just doesn't move the needle for them.
We're having some success because there's some things that really add value for our shareholders that again there's a lot of people that would like those but don't have the money. The ones that have the money, it's either too small for them or it's not the right timing in terms of their fund.
Yeah. No, I mean, just to add, I mean, it's. I agree with Jason. John, I mean, you said it great. You know, just from our experience in the deals that we've won, I think we mentioned this before, I mean, we haven't been the high bidder in those deals, and it's really been a virtue, to your point. We have the money, we have a track record, and we can close on good terms for the sellers, and so they're willing to take prices maybe before they would've liked.
You know, I can tell you know, the Jonah folks over at Exaro, which has been great to work with, you know, they were in a private equity backed situation that they had to sell, and I think they would've loved to have kept it. You know, we're being the beneficiary of those types of funds winding down as well and those assets coming to market.
Okay. Yeah, I think your business model is so simple that the only part that is not really understood as well as it could be is the structure of the M&A market. I appreciate that detail, and thank you for agreeing with my analysis. I'll pass it on, but I'll come back with a follow-up.
Thanks, John.
Thank you. Your next question is coming from David Locke from Old Mammoth Investments. David, your line is live. Please go ahead.
Hey, guys. How you doing today?
Hey, Dave.
Good.
A quick detail question. Could you spend a couple of seconds on differentials and LOEs in the last two acquisitions?
Sure. Let's see. I think, Jonah, I'd say on the Mcfe basis, all in, processing and LOE, you're gonna be about $1.70. About $0.90 of that is gonna be LOE and 78 cents or so in processing and transportation, all that sort of thing. The diffs, I tell you what, we ran in our projections kind of flat on Henry Hub, but. Man, what are they right now? $0.60 over.
Yeah. The interesting thing about Jonah, and we'll actually obviously get as we continue to own it, we'll have more data and get to know a little better. You know, there's about 60% of the field in Jonah is kinda older legacy wells that has higher BTU gas that's not being processed. We get a pretty big uplift on that production, and then you combine it with, you know, the attractive differentials in the Northwest Pipeline, given the dynamics in California and going to the west right now. Yeah, Jason's right.
I mean, as we're looking at, you know, let's call it for 2021, we were seeing kind of an average differential over both summer and winter of about almost $1 higher than Henry Hub, and that's by virtue of the differentials from Northwest Pipeline plus the uplift. I think you've seen the forward market has gotten a little softer for differentials everywhere. To Jason's point, we were modeling conservatively lower than that, maybe around $0.50 or $0.60. We are getting a pretty healthy uplift by both of those factors. On the NGL side, which is much for Jonah, which is much less than gas, but it still provides real revenue.
You know, we're about 55% of WTI for the NGLs at Jonah, and that's, it's got a heavier barrel than we do in the Barnett, so we're getting a little bit more uplift there. Oil, which again isn't nearly as impactful as gas, but there is a little bit of condensate and oil out in Jonah, and that's about $0.92-$1 below WTI.
Yeah. David Locke, for the Williston on oil, we're about all in about $5 under WTI. It's just the best way to run the numbers there. The gas is about $0.80 under Henry Hub, and NGL is about 60%. It's a pretty heavy barrel, 60% of WTI.
Okay.
Do we have some LOE?
What do the LOEs look like there, roughly?
LOE in Williston is gonna be just right around $18 a barrel, BOE. Well, I already gave you the Jonah, about $1.70.
Um, and-
MCF.
How old are those wells? Are they presumably way past the big part of the decline? I mean, what are you looking at for decline curves for the-
Well, Jonah right now is about 10%. It's gonna sub 10%. We expect that to get to terminal decline in the next year or two. You know, we think that terms out somewhere in the 6-7%, so that tells you where they are in their life. Williston, those are fairly new, but I think all in it's about 11% at this point. We expect that to probably be in the 6% kind of terminal. The newest well out there in the Williston is about 3 years old. Does that give you a frame of reference?
Yeah, that helps. Just one more quick thing then. Rough math says you're making $200,000-$250,000 a day at current prices. That pays off the debt pretty fast. You used the word untenable a few minutes ago to describe PDP acquisitions in the current price environment. I'm just sorta curious about what your strategy is going forward as it relates to acquisitions and maybe keeping some dry powder for a rainy day, under what circumstances you'd raise the dividend, et cetera.
Yeah. All good questions. Let me start with the debt. This is the first time we've had, and we don't consider it a substantial amount of debt, you know, about 0.6 of debt over EBITDA. But it's the first time we've had that amount of debt. I think it's important for our board and our shareholders to kinda see us start getting all the revenue in and start seeing that go down pretty quickly. I think everyone's gonna feel a bit better with that. It's definitely going to apply cash going to that. But again, it's coming in fast right now. Yeah, we'll pay down on current track or on current projection, we would pay down in less than a year, I think.
That's Ryan and I's job to figure out what to do with that capital coming in. In terms of the M&A market, you gotta have your oar in the water paddling at all times. We don't get out of the water because you run into opportunities. In situations, the last couple that we've bought, we've bought them in at what we feel like a tremendous discount.
We think there's some reasons for that we have some advantages of people to sell to us when there's not a market for other natural buyers. Even in a high price environment, again, the curve is backwardated. It is coming up over the last six weeks. You know, six weeks ago, we saw $100 oil, but five years out, the curve was down below $60.
Now that curve is up around the, in the fifth year is up around 67. The back end of the curve is starting to creep up. That makes the average over the next five years, sort of in the mid-80s where it was in kind of the mid-70s before. Things are getting more expensive in terms of just the five-year strip. If you look trailing three years, five years, seven years, 10 years, the average oil price is right around $57, $58. You start becoming even less and less discounts that you're willing to pay. I still think there's hope, and it's not untenable now, but we have a path for when it starts to become untenable, that we can put capital in other places.
In terms of raising the dividend, I think we are very happy to get back to the $0.10 a quarter. That right now is about a 5.4% yield. I don't think we're interested in getting a super high yield. You know, you start getting 10% or 12% and that's not a realistic number. I think it was important for us to get to that milestone of pre-pandemic levels, that it was at $0.10 for, what, three or four years before that. I think that we would like to stay there for a while and focus on trying to grow either through the drill bit or some more acquisitions.
Yeah, I mean, you know, I think, you know, one thing I would add to that is that we're obviously, you know, highly focused on, you know, shareholder returns. You know, we look at per share metrics for everything we do. You know, part of our job and what we're gonna be doing, you know, with the board here, I'm sure at the upcoming kind of board meeting for our next quarter is you know, I'm sure you're seeing the same thing we are when you look out where prices are, you know, we're gonna build substantial amount of cash, and so our job is gonna be to figure out how to maximize value, whether it's acquisitions, whether it's through the drill bit, whether it's other shareholder returns via dividend, share buyback. I think all of that is sort of on the table for us to really maximize value.
All right. Thanks, guys. I'll stop monopolizing time for now and at least get back in.
Thanks, David.
Thank you. As a reminder, ladies and gentlemen, anybody who would like to join the queue may press star one on your telephone keypad to enter the queue to ask a question. The next question is coming from Robert Carlson from Janney Montgomery Scott. Robert, your line is live. Please go ahead.
Yeah, thanks for taking these calls. I'm looking at your chart on slide six. The bottom line, based on what the average acquisition cost was to where we are today, I mean, I just wanna say congratulations 'cause it looks like you've built up, you know, considerable value here. In the last call, you know, you answered pretty much my questions about the dividends and the debt, which is its priorities, et cetera, et cetera. I just wanna say thanks. Looks like you're doing a great job, so keep it going.
Oh, thank you. That's a good point on that bottom line. We added that this time because it kinda lets you know what the price environment, that's the average of the next five years or the five-year strip at that time. On the last call, I was just saying that even six, eight weeks ago, if you look on the Williston Basin when we announced that, the average of the next five years was $68, and now it's up to $82. We have been seeing the back end of that curve start to rise up, which is going to make us be even more selective on acquisitions.
Thank you.
Yep.
Thank you. The next question is a follow-up from John White from Roth Capital. John, your line is live. Please go ahead.
Thank you, operator. I previously disqualified myself as a merger and acquisition expert, and now I'll disqualify myself as an attorney. Pointing to slide 11, it looks like the language you're using would not really fall in the category. Regarding CapEx, it looks like the language you're using would not really fall in the category of guidance, but the expected CapEx numbers that you have here looks to show a very low CapEx program through the first half of fiscal 2023. Is that the right way to look at that slide?
It is, and we were careful to say expected because they have indicated that's the plan right now. We're not the operator, so we don't have 100% control over that CapEx, which would make it more in terms of guidance. We also, like you've known on years past and calls past, we try to give you the best information that we have for your models and whatnot. I anticipate any real or substantial CapEx would be in drilling, and that probably is going to be after the first of in calendar 2023, so after the first of the year. We're kind of just looking, this is due to the end of the calendar year or the first half of our fiscal 2023.
That's the nature of the assets we buy. It's a low amount of kind of workovers and out-of-cash flow sort of thing. Even the drilling, we would keep within cash flow as well. John, we're working pretty hard to find some locations, and I think that's the natural next step for us as deal prices become probably a little bit too much in terms of value, is to put the bit to work after the first of the year.
Well, keep flipping those logs.
Yeah. There you go.
On the Jonah gas markets, can you provide a little extra commentary on the strength of those West Coast natural gas markets?
Well, I don't wanna get people confused with the uplift on the diff or that's related to NGLs. We think that there's if you just look at straight gas, it's not interfered with NGL or an uplift on price or diff because of NGL. We think probably there's a bankable kind of $0.16 above Henry Hub, somewhere in the $0.16-$0.20 above Henry Hub for the next 12-18 months. We think it probably extends beyond that, but that's our best guess at this point, John. What would you say on that?
Yeah, no, look, I think, you know, we use as a risk management arm to help us out with hedging and get their views on kind of forward pricing. You know, there's Jonah specifically for Northwest Pipeline, I mean, there's a pretty clear summer/winter difference, right? Whereas, you know, I'm looking at the strip right now, you know, for this upcoming winter, you're seeing, you know, the basis out there for as high as almost $1 over Henry Hub in the winter. You know, in the summer, you're seeing, you know, anywhere from $0.30-$0.40 discounts.
Now, I think what ARM has told us is they feel like the back end of the curve is probably too conservative, just given the dynamics out there and the fact that there's just not a lot of gas being produced, right? There's not a lot of wells being drilled. You know, there's been a lot of rigs have dropped in the DJ Basin, which was one of the areas that was producing gas.
You know, combine that with, you know, California's had some pretty dry sort of kind of winters here, and snowpack is a big driver of hydroelectric power, which obviously impacts gas pricing in California. All those dynamics, I think we feel pretty good about where the at least near to medium-term outlook is for prices even versus where you might see in the strip.
Thanks for those macro comments, Ryan. It was a pleasant surprise to see in the Barnett Shale, 25 workovers already. Those Diversified Energy boys, they really hitched up their wagons and got after it, didn't they?
Yeah. This is like their lead guy there is a guy named Danny. There's a Danny-shaped hole in the wall, and they just didn't. They just went, blew right through it. Some of those are workovers, some of those are return to sales, but they just got with it. I think all in, net to us, it's about just our 800 Mcf a day uplift, which is a nice kind of flattening for the. Basically, they've eliminated the decline for this first year, which is great.
Thanks very much. I'll pass it.
Yep. Thanks, John.
Thank you. The next question is coming from Zach Dankrats from DRZ. Zach, your line is live. Please go ahead.
Hey, Jason. Hey, Ryan. Thanks for holding this call. This is a little bit off topic from the other questions, but I'm curious where we stand with maybe being able to participate in some of these carbon capture projects. You know, Denbury's made a lot of announcements here of late. I imagine that's probably more on your Delhi field where you guys could potentially participate. Then maybe talk through if that is an option for you or if it is something you're looking at, what it could potentially mean for you, maybe from a savings standpoint with what you spend on CO2 on annual basis.
We are definitely having some discussions with them, and we've mentioned that the way that that works is we would have to have Denbury go through the process to make it a certified carbon capture or carbon sequestering field. That's a process that Denbury has now completed with two or three of their fields already.
Now they know what they're doing and in terms of that, the regulatory process and whatnot. I believe that that's going to start. That hasn't started yet with them, but I believe that's going to start at some point. Until that happens, and that's, they think that's kind of a 90 to 120 day process, so we wouldn't be looking at anything happening before the fall, probably.
The way that looks down, there are several things that have been thrown out, but nothing. We haven't really got kinetic on any sort of actual details until. There's not really any point until we know that it's something that's going to qualify. They would allow at that point, it becomes kind of a fungible deal where you can take CO2 anywhere on their line. In terms of the deal we would cut with Denbury, we're not sure yet. It's just a little early, but we're definitely working on that with them.
Thank you.
Sorry, I don't have a better answer for you at this point.
Yeah, no, it seems like a pretty interesting opportunity if it does move forward. Figure I'd ask.
Yep.
Thank you. The next question is follow-up from David Locke from Old Mammoth Investments. David, your line is live. Please go ahead.
Hey, guys, again. If I did my math right, you identified about five and a half million dollars of CapEx on slide 11. That's not that it makes a whole lot of difference. You didn't spend a ton in the first quarter, I imagine. Is that a nine month number?
Yeah, that's kinda what we're expecting from here on out. There was a little bit that was spent. Not a lot, though. Mostly those cheap workovers in the Barnett.
Is that enough to keep production flat-ish? Or what do you think a CapEx number to arrest any declines would be?
Well, I'm just kinda looking at the thing here. I would say the Williston, yeah, we would think that those workovers there, that they're doing these three or four or five projects would flatten that out and actually hopefully increase that a little bit. Barnett's done a really great job of flattening that out to hold it flat. Delhi, you know, we're starting to see a turnover really of a lessening of the decline, and we'd like to see that start to increase.
This project won't actually be fully functional and implemented online until probably the first of the year, so we're not gonna see a big impact from that. In Hamilton Dome, it's already on about a 1% decline, so I don't think it's probably going to shift that. Flattish, I think is probably the best you could get there.
Okay. On the Foundation and Bakken stuff, to the extent that you guys decide to start drilling there with your partner, but would that be sort of like a program where you'd have a rig putting holes in the ground for a year? Or are we talking about just couple of locations and then move on and see how that does and reevaluate?
Well, we've already got some locations that are built up there. That's not gonna completely drive the decision, but we're trying to high-grade some locations where we think our best shot is. It probably doesn't make sense to do one well, so probably there would be somewhere of a three to five well pad. Generally up there in the wintertime, you start drilling in the October-November range and drill through the winter and then frack it all sometime in the spring when everything thaws. We'd like to get a rig running maybe towards the end of the year.
Okay. You guys are what? About a third of that?
About right. About 30%.
If you did three or four wells, that means sorta net to you, it would be kind of a well, roughly?
Well, the max we'd do is a five well pad, and that's about $35 million eight eighths. For about 30% of that, you know.
All right.
Somewhere in the $10 million-$11 million. That's us. But, I'd say on the first one, we probably wouldn't go with the full five wells. We might do three.
All right. Thanks much, Jason.
Economies of scale when you start doing more than one, instead of one at a time. Does that make sense? Yep.
Thank you. The next question is a follow-up from Robert Carlson, from Janney Montgomery Scott. Robert, your line is live. Please go ahead.
Yeah. Thanks again. Could you talk a little about the ability to do deals with the prices where they are? Just a second question, the possibility or your thoughts on adding hedges to lock in profits or lock in prices at the current levels over higher or.
Yeah. I'll start with the second one first. I think it's gonna be a big discussion for our May board meeting, do we wanna step in and take out some more hedges? Right now, we've done the minimum that the bank requires. We don't feel like they're gonna require any more. We've met that requirement, and we're pretty happy with the hedges we got.
With hedging, you're kind of always wrong. You wish you would've put in more or less. Historically, anytime you start getting north of $100 a barrel, it just is not sustainable for a long period of time. We might be in a paradigm shift now. It's hard to know. We're probably pretty long-term bullish on gas just because it's easier for oil to be transported and moved around to where it's needed.
With gas to go where it's needed, there's a lot of infrastructure that has to happen. Like right now, if we could all send gas over to Europe, we'd just make a ton of money, but you just physically need so much infrastructure, new LNG plants and all that sort of thing. It's a lot harder to move. We think long-term gas, we're pretty bullish on. I don't know. That's gonna be a rigorous debate, and we might. I wouldn't mind putting in some more hedges, but that's gonna be up to the board to decide.
Yeah. I mean, I would say just structurally, though, you know, we're very pro on the collar side for both oil and gas.
Good point.
Just to keep that upside, right? I mean, historically, the company, given that it's been unhedged, been more of a call on commodity price and, you know, given that we've started to take on some debt now as we've sort of talked to you guys in the past, and because the banks require, we've gone some hedges to protect the downside. But we've done that through collars. You know, you protect the downside, but you retain some of the upside. So if we did decide to put more, I would think that would be those, that structure as well.
In terms of
You guys have done a great job so far.
Oh, thank you. In terms of M&A, I'm actually still pretty hopeful. We're still seeing quite a bit of deal flow and what you're seeing right now are failed deals. As Ryan said before, in several situations, we haven't been the high bid, but you have sophisticated sellers that know if they try to go out there with the high bid, he doesn't have the financing, it's gonna just end in tears, and they're gonna come back four months later to try to put together a deal anyway. They made the correct decision to go with a little less money, but a surety of close. We're seeing quite a few deals that are just not getting done, and they're failed, and they're coming back again.
It's those types of situations that we're in just a phenomenal position. Now no is an acceptable answer. We've shored up our bases. We've spread our G&A over a bunch more barrels, so we've got G&A coverage, and we feel like support of our dividends through the next decade, so we can be pretty picky. That still allows us to be strategic. I think there's some situations out there that we might be able to take advantage of.
Yeah, I mean, I think.
Thank you.
Generally too, you're still seeing there's still private equity sellers, and there's still distressed debt investors out there for some of the post-bankruptcy publics that, you know, are gonna be forced sellers to some extent. You know, we benefited from that, and I still believe that you're gonna continue to see that.
You could have some sellers that, you know, are gonna be more price takers, right? And I think what we've seen in our market is with the backwardated strip, you know, people aren't going to take the spot price and run that forward, right? You know, they were gonna take some discount to kind of the strip and run a more reasonable commodity price. I'm with Jason, and I'm hopeful that there can still be transactions out there that we can find.
Could you talk a little about the composition of the company, the number of employees you have, et cetera?
Sure. We've really been growing. We're up to seven people now. We brought on a new controller, very happy. She brought on a senior financial analyst, and she's worked with three years. Our financial group, you can talk to, tell him about that.
Yeah, no. I mean, as Jason mentioned, we're up to seven employees now. We have an outsourcing model, which we're actually you know constantly evaluating, so we outsource a portion of our accounting to P2. You know, we hired a controller, as Jason mentioned, a senior financial analyst. We're hiring another director of financial reporting to start next week, so we're certainly getting that group in great shape, and
I'm really excited about it. We'll evaluate potentially bringing you know more accounting things in-house with that team. You know, we like to leverage the nice thing, and I think you probably heard the Northern guys if you followed them talk about this.
I mean, the nice thing that we have in a non-op model is you can really leverage the G&A. You know, there's a lot of back office functions that we don't need to have being a non-operator, that we're able to be much, much leaner on the G&A side.
Thank you.
Well.
Thank you. There are no further questions in queue at this time. I would now like to pass the floor back to Jason Brown and Ryan Stash for closing comments.
Yeah, sure. Thank you. We just sure appreciate all your support and these questions. The team's been working really hard, and we're very proud of what we've been able to accomplish, and we're thankful that you're along with the ride. I will say that we've been on kind of an IR push. I went out to ROTH Conference and had really good meetings, one-on-ones with the Howard Weil.
It's good to get these back in person again, which is great. We did a non-deal roadshow in Atlanta, and over the next couple weeks, we're gonna be back in Florida on a non-deal roadshow and in California and also up in Seattle and Washington. All of that's really to kinda get the message out of what we've put together.
We're eyeing that Russell 2000. We were in it before and got bumped out last year because of all the SPACs, raised the market cap. I think the measurement date is May 6, so you can help us out by buying some more stock. We're, you know, we think that's where we belong. We think we're a Russell 2000 company.
If we don't get in there this year, that's not the end of the world, but we've been putting on the full court press to get there. With that, we'll conclude. Thanks again. Ryan and I are happy at any time to set up a call and meeting, and we look forward to giving you an update in May 1 on our third quarter call. Thank you.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.