Good day, and welcome to the Evolution Petroleum Q1 Fiscal Year 2023 Earnings Release Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Ryan Stash, Evolution's Chief Financial Officer. Please go ahead.
Thank you, and good afternoon, everyone. Welcome to our earnings call for the Q1 of fiscal 2023. Joining me today is Kelly Loyd, a recently named President and Chief Executive Officer and a member of our board of directors. After I cover the forward-looking statements, Kelly will review key highlights along with our operational results. I will then return to provide a more detailed financial review, and then Kelly will provide some closing comments before we open it up and 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. As detailed numbers are readily available to everyone in yesterday's earnings release, this call will primarily focus on our strategy as well as key operational and financial results and how these affect us moving forward. Please note that this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available by going to the company's website. With that, I will turn the call over to Kelly.
Thank you, Ryan. Good afternoon, everyone, and thanks for joining us for today's call. Before I begin my prepared remarks, I'd like to thank the board for naming me President and CEO. I've gotten to know the full team here at Evolution very well since I was named the interim CEO in June, and I'm truly excited to lead this talented group of professionals as we move forward and continue to make progress towards and ultimately achieving our long-term goals. I am fully committed and aligned with the board in executing the company's strategy of disciplined financial management and accretive capital allocation with a goal of maximizing total shareholder returns.
I look forward to leading Evolution in this next chapter. The Q1 marked a solid start to fiscal 2023. I wanna thank all of our team members for their continued hard work and dedication. We're pleased with our overall results for the period, which was highlighted by another period of strong free cash flow generation, which we used to fund operations, capital spending, shareholder dividends, and to reduce a significant amount of debt. We made a commitment to continue to pay down borrowings on our credit facility, and we delivered on that commitment by reducing debt by $9 million, a decrease of more than 40% since June 13th.
Our strong cash flow generated during the Q1 was also used to fund the payment of our quarterly cash dividend of $0.12 per common share, which was 20% higher than the $0.10 per share that was paid during the Q4 of fiscal 2022. Our board declared a cash dividend for the Q2 of fiscal 2023 of $0.12 per share. This will mark the 37th consecutive quarterly cash dividend paid by the company since we began this return of capital program in December 2013. There are very few small-cap E&P companies who can say they have consistently paid a dividend for that length of time throughout several tumultuous commodity price cycles.
We are proud to say that over the past nine years, Evolution has paid over $90 million or $2.73 per share back to our shareholders. We have strong, long-life, and low-decline assets that will continue to support a sustainable quarterly dividend for the immediate and long term, benefiting our shareholders with a steady return of capital. Maintaining and ultimately growing the payment of a quarterly cash dividend remains a top priority.
In further support of our shareholders, on September 8th, our board authorized a share repurchase program of up to 25 million of our common stock through December 31st, 2024. Turning now to operations. In the Q1 of fiscal 2023, we produced 7,598 net BOE per day, which was 2% higher than the 7,451 net BOE per day that we produced in the Q4 of fiscal 2022. The Q1 benefited from higher natural gas and NGL production as well as higher natural gas pricing. This was offset by lower oil and NGL pricing versus the Q4 of fiscal 2022.
Having said that, we have been encouraged to see an upward trend in oil and NGL pricing recently, which will support additional cash generation in the Q2 of fiscal 2023. Looking at our Q1 results in more detail. Net production at Jonah Field for the Q1 was 181 MBOE or 1,967 BOE per day. This included 958 million cubic feet of natural gas or 88% natural gas. The Jonah Field is our most recent acquisition and, similar to our other assets, is highlighted by long life and low decline reserves that generate significant cash flow. In addition, the transaction also provides access to attractive Western markets where we continue to see favorable natural gas pricing.
Q1 net production for our Williston Basin properties increased to 45 MBOE or 489 BOE per day, of which approximately 82% was oil. We continue to work closely with the operator, Foundation Energy Management, on high-grading expensive workovers, recompletes, and sidetrack drilling opportunities. In addition, technical evaluations remain underway to assess our Pronghorn and Three Forks drilling locations. Net production for our Barnett Shale properties for the Q1 increased 8% to 329 MBOE, or 3,576 BOE per day, of which approximately 77% was natural gas.
This is a result of Diversified Energy's capital workover program, which has been very active since becoming operator 11 months ago. Hamilton Dome Field net production increased slightly to 38 MBOE or 413 BOE per day. We will continue to support the operator, Merit Energy, in their efforts to restore production at previously shut-in wells, adjust water injection locations and volumes, and execute on other targeted maintenance projects.
Net production at Delhi Field increased slightly to 106 MBOE or approximately 1,153 BOE per day. Denbury is the operator at Delhi Field, and they are continuing to perform conformance workovers and upgrades to the facilities. Before I turn the call over to Ryan, I'd like to point out that we recently posted our 2022 Corporate Sustainability Report to our website, which details our commitment to high quality, transparent, and comprehensive ESG efforts and disclosures. I am proud of our employees' commitment to sustainability and our board's hands-on oversight, which is demonstrated by the board's newly formed Sustainability Committee.
Environmental stewardship, sound corporate governance, and contributing positively to our employees and the communities where we work are cornerstones of our culture. We invite you to review our report to learn more about our sustainability efforts and our plans to continue to work with our third-party operators who share our core values and are committed to being good environmental stewards as we responsibly produce our energy resources together. With that, I will now turn the call over to Ryan to discuss our financial highlights.
Thanks, Kelly. As mentioned earlier, please refer to our press release from yesterday afternoon for additional information concerning our Q1 fiscal 2023 results. My comments today will primarily focus on financial highlights and comparative results between the Q1 of fiscal 2023 and the Q4 of fiscal 2022. A key highlight of the Q1 was our continued solid generation of adjusted EBITDA, which included $17 million during the period. Adjusted EBITDA was $24.33 on a per BOE basis. During the Q1, we continued to fund our operations, development capital expenditures, and dividends out of operating cash flow, while also paying down $9 million in debt.
Supported by our solid operational and cash flow outlook, we paid an increased dividend of $0.12 per share in the Q1 and declared a dividend of $0.12 per share for the Q2 of fiscal 2023, payable on December 30th to shareholders of record as of December 15th. We clearly recognize the strategic importance of returning value to our shareholders and remain focused on the continuity of this program. As Kelly discussed, in September, our board authorized a share repurchase program of up to $25 million through December 31st, 2024.
We expect to fund the repurchase program with working capital and operating cash flows and do not expect to incur any debt. We view the repurchase program as a tax-efficient means to enhance our returns to our shareholders. One of the key reasons that we have been able to execute on our long-term program to provide a consistent return of capital to our shareholders over the past nine years is due to our conservative financial management. As such, we remain squarely focused on ensuring we maintain a strong balance sheet.
As of September 30th, 2022, we had $10.7 million of cash and cash equivalents, working capital of $6.5 million, and debt of $12.3 million. We grew our liquidity to $48.5 million, a 31% increase since the end of the Q4. As Kelly discussed, we were pleased to pay down $9 million of debt in the Q1. Since the end of the quarter, we have paid down an additional $7.5 million and expect to pay down the remaining balance by the end of the calendar year. We did not enter into any additional hedges beyond what was previously disclosed in our last quarterly filing, and we remain below the threshold in our credit facility that requires us to add any incremental hedges.
Looking at the Q1 financials in more detail. Our total revenue of $39.8 million was 5% lower than the Q4 due to a combination of factors, including lower oil revenue due to 2% lower sales volumes and a 16% decrease in realized pricing. Lower NGL revenue, which was primarily due to a 16% decrease in realized pricing. The reduction in oil and NGL revenue was partially offset by a 7% increase in natural gas revenue, primarily due to a 3% higher sales volume and a 4% increase in realized natural gas pricing. The result was an average realized price per BOE decrease of 8% to $56.93.
Lease operating expenses increased from $17.3 million in the Q4 to $19.1 million in the Q1. On a per BOE basis, lease operating expenses were $27.35 for the Q1, compared to $25.47 in the Q4. Primarily contributing to the increase was higher gathering, transportation, and other expenses in the Barnett Shale associated with increased production volumes and commodity pricing, as well as changes in estimates from prior periods.
Contributing to the increase was higher workover expense in the Williston Basin. Partially offsetting the overall increase in lease operating costs was lower CO2 costs at Delhi Field associated with a decrease in crude oil prices from the prior quarter. As a reminder, our CO2 costs at Delhi Field are directly impacted by the price of oil. Therefore, lower oil prices result in lower CO2 costs. General and administrative expenses increased to $2.5 million from $1.6 million in the Q4. The current quarter included a little more than $300,000 in non-recurring transaction and severance costs. Also, the prior quarter was positively impacted by a $1.2 million reduction in non-cash stock-based compensation related to the forfeiture of unvested shares.
Net income for the Q1 was $10.7 million, or $0.32 per diluted share, versus $14.9 million or $0.44 per diluted share in the Q4. Contributing to the sequential decrease was lower overall commodity prices and higher lease operating and general administrative expenses for the reasons I previously discussed. Adjusted net income for the Q1 was $10.1 million or $0.30 per diluted share, versus $15.1 million or $0.44 per diluted share in the Q4. During the Q1, we invested $1 million in development and maintenance capital expenditures. For fiscal 2023, we continue to expect total development capital expenditures of $6.5 million-$9.5 million.
This estimate includes upgrades to the Delhi Field Central Facility, workovers at Hamilton Dome Field, the Barnett Shale, and the Jonah Field, and sidetrack drilling opportunities and low-risk development projects in the Williston Basin, excluding the development of the Pronghorn and Three Forks locations. As in the past, our spending outlook may change depending on conversations with our operating partners, commodity pricing, and other considerations. With that, I will turn the call back over to Kelly for his closing remarks.
Thanks, Ryan. We are clearly seeing the benefits afforded by the two acquisitions we completed in the second half of fiscal 2022, which have provided Evolution with a much larger and diversified asset base, both geographically and by commodity mix. The cash flow from these two acquisitions has exceeded our expectations from the time of purchase. These two immediately accretive transactions follow our proven acquisition playbook executed over the past three years, with the overall combination providing enhanced diversification of our product mix and reserve categories across an expanded geographic footprint in multiple key U.S. onshore plays.
We continue to survey the market for opportunistic acquisitions that align with our company's growth strategy. The intrinsic value of our enhanced sales mix was on full display in the Q1 as higher natural gas production and pricing were able to significantly offset the impact of lower oil prices compared to the Q4 of fiscal 2022. Our enhanced asset base provides for significant cash flow generation that further supports our well-established shareholder capital return program, provides a visible source of funding for future targeted strategic growth opportunities, and places us in a strong position as we move through fiscal 2023.
Our steadfast commitment to maintain a conservative balance sheet and to remain disciplined in our management of capital puts us in a strong position to continue to execute our strategic plan focused on maximizing total shareholder returns and optimizing every dollar that we invest. Our board remains staunchly committed to maintaining and, as appropriate, increasing our dividend payout over the long term. We clearly recognize the tangible value of providing our shareholders with a consistent and substantive cash return on their investment.
We truly appreciate their support of our ongoing efforts. As part of our comprehensive shareholder return strategy, we were also pleased to recently put in place a meaningful share repurchase program that allows us to opportunistically repurchase our shares from time to time through the open market transactions, privately negotiated transactions, or by other means in accordance with federal securities laws. We will continue to pursue initiatives designed to maximize total shareholder return by optimizing the value of every dollar we invest on a risk-adjusted basis, depending on where we are in the cycle.
Our approach of building a targeted asset base of PDP reserves capable of supporting cash payments to shareholders has served us well over the past decade and will continue to benefit our shareholders for many years to come. As in the past, we will continue to closely evaluate and execute on targeted acquisition opportunities that are immediately accretive, provide long-term established production, strategically expand our base of assets, and do not result in material dilution. Any transaction must also clearly support our long-standing thesis of providing a significant total return for our shareholders.
We look forward to capitalizing on additional opportunities to profitably grow the business while continuing to provide our shareholders with a meaningful and tangible return on their investment through our proven and consistent strategy of squarely focusing on the needs of our shareholders. With that, we are ready to take questions. Operator, please open the line for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Donovan Schafer from Northland Capital Markets. Please go ahead.
Hey guys, thanks for taking the questions. I wanna start off by asking for just some more details on the lease operating expenses, kind of the other, you know, other LOEs excluding the CO2 injection and ad valorem taxes. Ryan talked through, you know, some of what drove the increases, higher gathering transportation in the Barnett Shale. I guess I'd be curious to get some more details because I tend to think of natural gas production often skewing LOEs lower on kind of a BOE basis.
You know, commodity pricing. I understand that the CO2 contract is linked to the price of oil. You know, sort of excluding that, it seems like there was still a sense that commodity pricing impacted, you know, LOEs like in the Barnett Shale. Just curious if you can give some kind of more specifics on what was going on there?
Yeah, no, happy to, Donovan, and thanks for your support, and thanks for the question. Yeah, so for the Barnett Shale, you know, there is a little bit in the marketing contract itself that has a component that's tied to natural gas, so the Katy Hub. So there's a piece of it that is tied to that as prices go up, but the other thing that's obviously going on is, you know, we've seen some inflation at the field level there as well. If you think about the Barnett, you know, and being a non-op player too, we've got actual costs that come in about two months in arrears.
Really what's going on in this quarter is what I call some catch-up expenses from kind of prior quarters as we've seen this increase in commodity prices, which does impact the gathering costs a little bit, and also some of the field level costs. Really, I think going forward, what we would think and hope to see is that cost to level out a little bit, you know, in the next and coming quarters. You know, currently we kinda think somewhere around the kinda $20-$25 per barrel range, we think is a more normalized number, for the Barnett kinda going forward.
Okay. That makes sense. That's helpful.
Yeah.
I'm curious, for you know, trying to follow. I've written before, you guys are kind of. I like that you try to hedge as little as possible. It kinda makes you guys, I think, an interesting vehicle for someone who's wanting to have that commodity price exposure, but also sort of like almost like a prudent sort of portfolio management. But that does make you know me think a lot about pricing. You talked about the West Coast exposure through Jonah Field. That's obviously a positive development, but just in general, curious if you have any kind of nuggets on the outlook for natural gas pricing, you know, both West and also, you know, Gulf Coast or whatever markets you sell into.
If you kinda have an outlook, I guess, sort of for the winter. Then similar thing on the oil side, because I know you're selling crude to the refiners, and the refiners, you know, it's not like you're selling finished refined product. It seems like with what's going on in Europe and kind of the Northeast and there have been some reports about tight inventories for diesel, those are all sort of middle distillates. I don't know. Does Delhi, being a product that, you know, sells at a premium, does that skew towards middle distillates? And does that benefit flow through? Or does that all just get captured by the refiners?
Yeah. Hey, Donovan. Thanks. I would say specifically with regard to the Delhi, right? We get paid that due to where our crude is located, and also the type of crude that it is. That would already be made up for in the price we receive at the purchase, if that makes sense.
Yeah. I mean, really, the impact's gonna be more for just LLS pricing, and how that translates to WTI. You know, there are some transportation charges that are relatively fixed in there. For the most part, you know, as LLS moves, which as you know is sort of driven by Brent and, you know-
Mm-hmm
Kind of how the international markets are, that's really what's gonna impact Delhi specifically. You know, I would say in the other area.
You don't see spread changes from like product, you know, based on changes in refined products, you know, dynamic there? They don't have a historical...
It could be eventually, right? That would be a longer term thing.
Okay. Okay.
Yeah.
Yeah. The only thing, and this is just kind of reaching out there, I mean, obviously on the NGL barrel, right? Some of the heavier components that we have in Delhi, if those are used for blending or whatnot, they could see some uplift and benefit there, but that's not gonna be a big, big driver of our cash flows.
Okay. Okay.
And, and so f or the natural gas, yeah.
Go ahead.
Yeah, I was gonna say, to go to the natural gas front, obviously you've seen storage catch up to well, almost catch up to. It seems like we're gonna be there pretty quickly to a year ago and middle of the five-year average range. When that happens, current, you know, gas prices become more of a call on the next two weeks weather. It's really gonna be more volatile than it has been in the past year or so, in line with norms of past years.
Over the last year or so, when you're trading at a significant discount, there was considerable tightness. Currently at this exact moment, it's not as tight as it has been. That isn't to say a couple of weeks worth of, you know, you give it a two to four weeks of really cold winter, I think we get back into a deficit situation. Yeah, I think you're gonna see some near-term volatility on natural gas prices for sure.
Okay.
Yeah, just to answer it on basis, you know, obviously, Houston Ship Channel has struggled a little bit here recently, just given kind of the Permian production coming online. Now we hope that'll sort of-
Yeah
Even out. You know, on the West Coast, so Northwest Pipeline, you know, the actual, if you're looking at kind of the differentials going forward, I mean, those actually look pretty good, right? For this winter at least and early next year. We're kind of hopeful that we're gonna continue to see strong pricing out of Jonah.
Okay, great.
Hey, Donovan, I just wanted to backtrack for half a second. Back to the LOE. I know Ryan walked you through the Barnett. You know, on the Williston, there was, you know, the Williston LOE was a little elevated this quarter as well. We don't expect it to run at those levels going forward. A lot of what was done, our operator, we had workovers there, where, you know, you'll see a lot of operators just, you know, pull the string and replace the one piece of tubing, you know, a couple joints or whatever that have issues, and then you'll see them have to go back more often and do it again.
What we did, you know, with Foundation is we did a very thorough job of completing these. The effect of this upfront LOE in the Williston should allow us to have fewer workovers for a longer period of time going forward. We pushed a little bit of that cost forward into this quarter, but that should have longer term benefits as well.
On sort of CapEx, I mean, this kind of ties in with workovers. When I think about workovers in Barnett or Williston or something like that, you know, you're really trying to sort of stem the decline rate and, you know, maybe there's been a mechanical failure down hole or something like that that necessitates it. But in something like the, I can't remember, I think Hamilton Dome is waterflood. I can't remember if Jonah Field is waterflood too. But in those ones, you know, if you come in and do a workover, you could. It depends on what you're doing, but you could get maybe a more sustained actual uplift. Same thing, you know, in Delhi.
The cap of the $6.5 million-$9.5 million capital expenditures in those more, you know, traditional like non-shale plays that you're investing in, is any of that more like something that could add some incremental production, or is it, broadly speaking, largely just flattening out the declines?
Yeah. I would say, broadly speaking, it's flattening out the decline. We do have some, you know, recompletion opportunities, and specifically in the Barnett, there were some wells that were shut in that they brought back online, and they've been working through that program. Some of it is potential to add incremental production or really put old production back up to where it was as much as anything. You know, recomplete to new zones would be additional potential reserves. Then we do have a few of those projects on the books.
Okay. Then for, you know, capital allocation, between, you know, paying down debts, dividends, buybacks, you know, you kinda have a lot of options at your disposal. I'm curious if you can give some framework. You know, the dividend is gonna be steady and growing, but, you know, there's the question there about at what point or kind of what decision framework do you use to make the decision, okay, here, now is the right time for us to increase it. Or alternatively, you know, again, because a lot of options, you can turn to the buyback program and then with that one, you know, what framework are you using? Is it kind of a PV-10 on strip value or something, you know, per share?
Like, what are the frameworks that you're using when you look at, you know, okay, when do we increase the dividend? Okay, when do we pull the trigger on a buyback for where the share price is at? And when do we instead, you know, turn things on in the sort of where you have upside levers in the Williston and try and do drilling or something there? What are your mental sort of frameworks?
Okay, sure. Yeah, I mean, to read it, you've got dividends, you've got potential acquisitions, you've got share repurchases, you've got drilling, you've got debt repayment, right? Those are all uses of capital. I'll just tell you this, it's very dynamic, and we look at it quite often, and we make our decision based on what we think at that time and for the near term going forward that we care to project to, what we think is the highest return and the best use of the investor's dollar. That can change quickly. Yeah, I mean, Donovan, it is complex and there's lots of capital projects competing for dollars, and we just try to make the best decision, the most accretive decision we can at that time. I'd be tough to give you any sort of specific metrics on that at this point.
Okay. All right. Go ahead.
I was gonna say, I will say on the dividend, again, every time we've raised it, we have been able to hold it there at that elevated level or raise it for at least four quarters. Raising the dividend is not something we take lightly. It's something when we do it means something.
Yeah. I mean, it's from a buyback. Just real quick, Donovan. From a buyback/acquisition standpoint, right? I mean, it's almost, you know, obviously we're always gonna be looking at acquisitions and we do think that, you know, we're hopeful at least that we're gonna be into a market here where it's gonna be attractive for acquisitions for us. We wanna balance having the liquidity and ability to do an acquisition, right? With also returning capital to shareholders. You know, from a buyback standpoint, we think about, well, we could either buy our own shares or we could go buy something in the market. We're sort of evaluating. It's kind of dynamic, right? We're evaluating what do we think we can get in the market versus what should we buy our shares for. While Kelly said it's not, you know.
Sure.
We're certainly gonna look at the intrinsic value of our shares, but it's more than just that as a factor.
Right. I mean, maybe if I restate it, the thinking might be, hypothetically, if your shares came down in some significant amount, you could look at it and say, Well, gee, that looks far too low, and, you know, it's an attractive return to shareholders for us to buy back shares. But then you might find yourself in a situation where it's like, you know, by not buying back shares in a situation like that, it might also give us more ability to make a very savvy opportunistic acquisition. You know, the trade-off of pre-committing to, okay, here's the price where we're gonna do buybacks.
If you pre-commit to that, it kinda ties your hands in terms of, you know, 'cause you're gonna be seeing things in terms of what's happening, where private transactions are happening, and having conversations around M&A, and so you'll have some sense about where things are trending there. Maybe the trend and opportunity there is even more attractive, and it allows you to do something even on kind of a bigger scale. Is that right?
Yes. That is definitely a true statement. That's how we look at it. We weigh them very regularly and, you know, you've seen our decisions over time, and they lean in different directions over time.
Yeah. Okay. That makes sense. The last kinda line of questioning here is just kind of. I'm gonna hone in on Delhi Field, even though again I know that's not. You have so many other assets now. I think. If you feel like this applies to some other assets, let me know, and feel free to elaborate on that. When I think of the Delhi Field, it's the one that really stands out as an example of something that, you know, has like these entities, additional phases, all of these sorts of potential initiatives. There's the heat exchanger you guys are adding.
There's just sort of like a lot of incremental ways to come at that one. Of course, Delhi is the one to say, Hey, we think we wanna start trying to do this now. We wanna start trying to do that now. I'm curious if there's been any incremental conversations with the operator there about their becoming interested somehow in some new phase, initiative, program, Delhi, it could be Jonah, Hamilton? Yeah, anything there going on?
Okay. I'll speak to Delhi. We have regular conversations with the team at Denbury, and I've been encouraged. They sort of have a renewed sense of vigor to the asset. I don't know if it's just the personnel or if it's something corporate, but I do think that they are. They've been really doing a great job with their conformance work, and I think they're committed to that. They've also mentioned other projects that they want to go forward with there.
I think they're excited about Delhi just like we are. You know, it's a small piece of their overall portfolio, so I doubt that you'll hear them talking about it on their, you know, corporate presentation very much. I do think the asset team believes they have a really good asset there and that there's more that can be done with it. I hope that gives you some
Okay. Yeah.
I, you know.
Yeah.
Until we have a firm, you know, [inaudible], I don't wanna, you know, say anything.
Sure
Along those lines. I do think.
Yeah
They're considering various options and they're, you know, excited to enhance the project and have been doing a really good job on the conformance side, so.
Okay. Yeah, I know, I think kind of in the shale world, you know, people look at Stacked Pay, you know, in the Bakken or whatever at Three Forks and say, Oh, you know, in some ways, some of this can almost be like free money in a sense. If you, if you bought it with one layer in mind and you find out another one's economic, then that can seem really appealing. I think, you know, my understanding is that that's kinda always been the case with all these conventional, all the conventional stuff too, and especially as you go through secondary and tertiary recovery and multiple different phases. Sometimes those require more programmatic, you know, upfront capital commitment. Like, you can't just do those types of things one well at a time.
You know, or at least it has to be planned and thought through and scheduled ahead of time, where you're like, well, it'll be one well this month and then another well this month in this spot, in this location. You can't just stop and go on it. It has to be a higher sustained commodity price for some stretch of time and outlook for it to sort of get that capital buy-in. If we're in that kind of environment or headed in that way, you know, it'd just be interesting if these additional. I mean, they're not technically layers in this context, but they kinda have that quality that becomes interesting. I appreciate your commentary. I'm sure I'll be asking you guys about that at other points in the future.
If there's anything else you wanna add on that, feel free, but otherwise, I'll take the rest of my questions offline. Yeah, good job on the quarter, guys. Thanks.
Yeah. Thanks, Donovan. Yeah, really appreciate it. Happy to follow up with you further, to help you out, so.
The next question comes from John White from Roth Capital Partners. Please go ahead.
Good afternoon, everybody. Kelly, I'd like to offer my congratulations on your recent appointment as CEO.
Thank you, John. I really appreciate that.
Well, you've been on the board a number of years, so you know the company very well. You've got your own successful track record within the industry, so I'm glad to see it.
Well, terrific. The opportunity to work with this, I mean, truly talented team of professionals here and continue working with the board from a different capacity, it's terrific. Yeah, thank you very much. I really am excited. It's a wonderful spot.
Well, good. I may be a little late in noticing this, but in your September presentation on slide five, under the heading Return of Capital, there's a line, a bullet point, special dividends. I believe that's a new addition to the presentation. Is that right?
Yeah. Honestly, it's something we've talked about at the board level. We have not pulled the trigger on doing it, but it is in our calculus of what's the best way to return capital to shareholders in the most effective way that will have, hopefully, a longer-term lasting effect. It was definitely one of the options we considered.
I suppose that might be employed if things are quiet on the acquisition and CapEx front and give you the flexibility to pay a special dividend?
Yeah, I would say along those lines. There would be a number of factors that have to take place. For sure, thinking along those lines, that would be the kinds of things that would make that more attractive.
Okay. Well, the press release and the comments today were very detailed, so I don't have any further questions, and I'll pass it on.
Well, great, John. Yeah, thanks for calling. I really do appreciate it. Always enjoy talking to you.
Yep. Thanks, John.
The next question comes from Jeff Robertson from Water Tower Research. Please go ahead.
Thank you. Kelly or Ryan, can you talk about the $6.5 million-$9.5 million capital program that you referenced for fiscal 2023, and how that might impact production as you progress through the rest of this year or rest of fiscal year?
Sure. I would say for the most part, that will be to keep production at levels consistent with our reserve report. We may see a few sort of chances to bump it on some projects along the line, and hold some of the production flat. I mean, that's really where that number came from, the midpoint of that. It is just to sort of match what we've already planned out. I think it. The corporate decline that we have, it doesn't really change that. We have chances to do a couple recompletions. We have chances to do some sidetracks. Those would be sort of incremental. For the most part, it's sort of steady as she goes in there.
Yeah, I mean, I wouldn't think.
Kelly.
Yeah, sorry. I just. You know, I know we've gotten the question on kind of maintenance capital everyone's trying to figure out, right? I mean, I wouldn't expect this program to be a true, quote, "maintenance capital program" to keep production flat. You know, we would hope that it would add some production, certainly potentially in the Williston, right? With some drilling, we could see a little bit of an increase there. The other areas just maybe stem the decline a little bit.
Yeah. Like in the Jonah, there's some central compression facilities going in that'll help. That'll help us much with cost as anything else, just like in Delhi with the heat exchanger could help improve OpEx, you know, lower LOE. It's not all production. Some of it affects cost as well.
Are some of those costs workovers and will flow through the LOE line, or are they true capital costs?
These would be capital.
Yeah. I think we'll see probably as with history, we'll probably see a mix of that. Jeff, obviously, you know, we make a determination when we get the AFEs to, you know, if it's a capital or expense workover, but we'll probably see a mix of both.
Kelly, on the Williston, how far along are you in your technical and engineering evaluation of the inventory on the Pronghorn and Three Forks to start deciding whether or not some of those wells might fit into your capital program, and I guess Foundation for that matter, in 2023?
Okay. It's kinda like you're going down a road. To answer how far along are you, we're not to the end yet. I'll say that. We're still evaluating. Obviously, prices change both on the input and on the cost side, and the output side. It's dynamic, and we are doing, you know, basin-wide study, 3-D geographic model. There is a lot of work going into it.
I would say we're not at a point, or nor Foundation, where we're ready to say we're gonna go forward with this program at this level right now or at a different level right now. I mean, yeah, listen, we're working with Foundation and we're moving the ball forward. We're just not there yet. I wish I could give you a more specific answer on timing, but I can just say we've done a lot. We've looked at a lot, but there's still more to do. And anyway, I hope that helps.
It does. Last question on capital allocation. The revolver balance, I think, at the end of the quarter was probably around $12.5 million, having come down $9 million in the quarter. Can you just talk about how debt repayment on the revolver competes or compares for your uses of capital with the share repurchase authorization and the dividend?
Yeah, I think we, you know, we kind of put this out in our prepared comments and press release. We paid down another $7.5 million after the quarter end. Currently we're just under $5 million sort of drawn and expect to have that drawn, you know, towards the end of this kind of calendar year, right? I think what we've been consistent on the share repurchase is to say that, you know, we wanna have our debt paid off before we really look at a share buyback.
You know, that's obviously our debt's gonna be paid off soon to where we would start really looking at potentially using the program, depending on, as we talked about earlier, right, with Donovan, just depending on how the board and how we feel about kind of the outlook for M&A versus kind of where our stock is trading. Now, for the dividend, you know, I'd say that's a little independent, right, of kind of the debt pay down, right? We've always made a priority of paying down the debt, and we're pretty much done.
That really hasn't impacted how we think about necessarily raising the dividend. You know, if we sort of felt like, you know, or if the board felt like the outlook warranted us raising the dividend with a little bit of debt drawn, we would still do that. I don't think I wouldn't want people to think that, look, we're not gonna raise a dividend unless we, you know, pay down all our debt, and vice versa. Once we pay down all our debt, we're going to raise a dividend, right? It's kind of a dynamic outlook that we do, you know, every quarter and given sort of the volatility in pricing, right, is something that we may look at even more often than that.
Thank you.
Thanks, Jeff.
Again, if you have a question, please press star then one. Our next question comes from John Bair from Ascend Wealth Advisors . Please go ahead.
Thank you. I'd like to echo the congratulations to Kelly on your appointment.
Thank you. Really appreciate it.
I have quite a number of questions, but given the time constraints here, I'll try to take them offline. A couple of quick ones. Kind of, we've talked a lot about the payoff of the debt and so forth. At the end of this calendar year, it'll probably be debt-free and your hedges will be rolling off pretty quickly. My question is, with regards to the dividend, a lot of talk about that. Have you considered the idea of the variable like so many other companies have initiated as opposed to, say, a one-time special dividend if that were deemed appropriate?
Yes. We have considered a variable. At this point in time, you know, the board and I consider a consistent dividend to really add more value to shareholders.
Well, I mean, you have a if you had a base, I mean, when they talk about a variable, you know, from what I've seen, the companies have a fixed base dividend, and then the variable component is, you know, based on cash flow or whatever. So in that context, let's say, okay, you have your base dividend right now at $0.12 a quarter, and then, you know, decide on how much additional of your cash flow you might wanna pay out as a variable? you know, that kind of concept.
Okay. I understand what you mean.
Yeah.
Just a true variable, you pay out X% of your cash, whatever it is.
Right. Right. Right.
Understood. Yeah, we've considered that for sure. It's something we will continue to consider. You also have to keep in mind, I mean, we have an asset base that given the right parameters, we can find acquisitions that can grow to it in a meaningful way without having to take on a lot of debt. On the acquisition front, for the right acquisition, that's always gonna be something we wanna have in mind. We don't always wanna do it with all debt. I mean, look, if we have some cash on hand, that helps as well, so.
Sure.
Yeah. I would say, John, I mean, you know, it's from a dividend standpoint. We've done a lot of work and analysis on this, you know. We mentioned, and John White brought up the question on special dividend. It's certainly something that is kind of a tool in the toolbox, if you will. You know, in our opinion, in my opinion too, you don't get a lot of value for just a one-time special dividend that's not recurring. If, you know, to your point, if you wanted to look at a variable dividend based on a percent of cash flow, you probably, and I think you would get a little more credit to the market. But what you don't see very often is, you know, small-cap companies employing that strategy.
The people that have done that variable strategy are Pioneer, Diamondback, Devon. You're looking at really large producers that effectively have, you know, what I would say, cash that they don't know what to do with. You know, they've got a buyback program in place. They've got a base dividend. The market doesn't really want them to go out and buy additional properties. They have this, they don't wanna build up a cash balance, so a variable dividend for them makes a lot of sense. You know, for us, you know, we do wanna reserve some cash and cash flow to be able to be opportunistic and grow the asset base via acquisition.
Yeah, I mean, to further what Ryan's saying, for those guys, I mean, it's sort of the law of big numbers, right?
Yeah.
For them to be able to use that portion of cash flow, which is above the base, to go make an acquisition, it's just, it's hard to find something big enough and meaningful enough to really make a difference. Whereas for us, we can find sort of onesies and twosies kinda acquisitions that do make a difference for us, so.
Okay. Fair enough. Kinda going back to some of this CapEx and lease operating expenses and so forth. Given the big push and effort on reducing, you know, greenhouse gas emissions and so forth, how much of your operating expenses or are you seeing a lot of need or attention being paid towards equipment being put on these producing well heads and so forth, that it is requiring new equipment to help mitigate, you know, leakage and so forth? Is that a meaningful part of your, you know, ongoing operating expenses?
I would say for the most part, no. I mean, look, historically, I know that energy companies get a bad rap, but I mean, most of the time, most companies are not venting, and they're trying not to flare. We're in places where, you know, if we make gas, we wanna sell it, right?
Oh, sure.
Yeah, I mean, again, if we had some huge wells that were making oil and a bunch of associated gas, and you can't really sell the gas, well, what do you do, right? That's a dilemma that we're trying not to get ourselves in. For those guys, it might be a meaningful cost that they have to do something extraordinary to capture that and not waste. Look, we've had some equipment obviously have to go in, but you know, it's just sorta normal course stuff. I don't think there's really been anything extraordinary.
No, I mean, I would just add, so if you look kind of just a couple of examples for you. For Jonah, for instance, you know, they're big on what they call responsibly sourced gas. You know, luckily, we actually bought the asset after they put any equipment in that needed that, so we haven't really seen any capital. You know, any LOE that we see ongoing is really minimal. It's more of a capital expense, which we didn't have to, you know, put up.
You know, in the Barnett, we talked to Diversified. I mean, they are looking at things like, you know, solar powered compressors, but, you know, there's nothing that we've seen from a large sort of capital expense. I would hope that anything they put in, like a, for instance, a solar powered compressor, you'd see some savings on the electricity side, right? I would say in general, we're not seeing a big push or impact to our financials for that.
Yeah, I think it's a fallacy that anybody thinks that any sized oil and gas company would wanna flare gas. I mean, it's burning money if they're not.
Right.
Right? I mean, but my I guess what I was trying to get at more was, you know, monitoring, you know, is there any, you know, either regulatory-wise or from an operational standpoint, maybe older fields, maybe older equipment and so forth, that, you know, you're having to, you know, put some new equipment on to monitor that kind of stuff, but.
Okay, sure. No, I understand. Yeah, I would say there's really nothing substantially new or different.
Yeah.
I hope that helps.
Yeah.
Yeah.
I mean, luckily, right, look at, you know, Delhi Field, you know, they're trying to get that certified as a carbon sequestration field, right?
Right. Mm-hmm. Mm-hmm.
That's probably forefront of sort of the, you know, CCUS movement here. Like I mentioned, Jonah's already put in a lot of the monitoring equipment. You know, in the Barnett, I think, like you said, Diversified, you know, is gonna replace things as it's needed. You know, some of the wells are, you know, some of them have been drilled, you know, call it 10 or so years ago, but by, you know, a lot of oil and gas standards are not incredibly old. I mean, I think they're really potentially just looking at replacing things as it comes up.
Sure. Okay, well, I have more questions, but I'll arrange to get with you offline then. Thanks a lot.
Sure. Yeah, listen, great. Thanks for the call. We'll be happy to touch base with you anytime you like.
Yeah, I'll be in Houston actually in the next week or so.
Sure. Great.
May drop in. Okay. See you.
Yeah. Be great.
Thank you.
Thank you.
There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Kelly Loyd for any closing remarks.
Thank you, Jason. Thanks again for everyone for taking the time to listen and participate in today's call. We really do appreciate your continued support of our efforts. As always, please feel free to contact us if you have any additional questions. We look forward to formally speaking again when we report our Q2 for fiscal 2023 in February. Thanks again.
Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.