Kolibri Global Energy Inc
TSX:KEI
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Kolibri Global Energy Inc
Earnings Call Analysis
Summary
Q2-2024
In the second quarter of 2024, Kolibri Global Energy reported a 30% increase in average production to 3,128 BOE per day. Revenue rose by 38% to $13.9 million, while adjusted EBITDA jumped 31% to $10 million. Despite these gains, net income slightly decreased to $4.1 million due to higher operating expenses and deferred tax expenses. For the year-to-date period, production increased by 15%, and net revenue grew by 15% to $28.1 million. The company's line of credit was increased to $50 million, reflecting financial stability and future growth potential.
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Good day, and welcome to the Kolibri Global Energy Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. Also, this call may contain forward-looking statements regarding Kolibri's strategic plans, anticipated production, capital expenditures, exit rates and cash flows, reserves and other estimates and forecasts.
Forward-looking information is subject to risks and uncertainties, and actual results will vary from the forward-looking statements. This call may include future-oriented financial information and financial outlook information, which Kolibri discloses in order to provide readers with a more complete perspective on Kolibri's potential future operations and such information may not be appropriate for other purposes.
For a description of the assumptions on which such forward-looking information is based on and the applicable risk of uncertainties and Kolibri's policy for updating such statements. We direct you to Kolibri's most recent annual information form and management discussion and analysis from the period under discussion, as well as Kolibri's most recent corporate presentation, all of which are available under Kolibri's website. I would now like to turn the conference over to Mr. Wolf Regener. Please go ahead, sir.
Thank you, and thank you, everyone, for joining us today. With me on today's call is Gary Johnson, our Chief Financial Officer. We released our 2024 second quarter report yesterday, and will assume you've had a chance to look over the report. We're very pleased with the accomplishments we have achieved this quarter, strong financial results, continued progress on development program, solid production from the field.
Our line of credit was increased to $50 million with Bank of Oklahoma. Earlier this month, we also announced that drilling began on the first of our 3 longer lateral wells. The Alicia Renee 2-11-3H, will be followed by the 4H and the 5H. I want to take this opportunity to thank everyone in the company who has worked so hard to grow the company.
And with that, I'd like to turn the call over to Gary to discuss our financial results.
Thanks, Wolf, and thanks, everyone, for joining the call. I'm just going to go over a few highlights of the second quarter and year-to-date results, and then we can take questions at the end of the call. All amounts are in U.S. dollars unless otherwise stated.
As Wolf mentioned, the earnings release went out yesterday, and we're very pleased with the results. We had significant increases in production, revenue and adjusted EBITDA compared to the prior year.
So I'll start by going over the second quarter. Average production was up 30% to 3,128 BOE per day, compared to 2,415 BOE per day in the prior year quarter. The increase is due to production from the wells that were drilled and completed over the past 12 months. The production mix for the second quarter was 74% oil which was slightly below the 75% oil mix from the prior year quarter, which shows that our field is it getting significantly more gassy over time.
Adjusted EBITDA was $10 million compared to $7.6 million in the prior year quarter, which was an increase of 31% due to the higher production and higher prices, which were up about 7%. Net revenue increased 38% to $13.9 million compared to $10.1 million in the prior year quarter due to higher production and prices.
Our net back from operations increased slightly to $40.40 per BOE compared to $39.56 per BOE in the prior year quarter. And this was due to higher average prices for the quarter. which were mostly offset by higher operating expenses per BOE due to adjustment true-up, free works and higher water hauling costs.
Net income was $4.1 million and basic EPS was $0.11 per share in the second quarter compared to $4.3 million and $0.12 per share in the prior year second quarter. The slight decrease was due to $1.5 million of deferred income tax expense in the second quarter of 2024 as well as higher operating and G&A costs, which offset the higher production and prices for the quarter.
So I'm going to move on to the year-to-date June results. Average production for year-to-date June was up 15% to 3,216 BOE per day compared to 2,803 BOE per day in the prior year period. And again, the increase was due to production from the wells that were drilled over the last 12 months. The production mix for the first 6 months of '24 was 74% oil compared to 76% in the prior year period.
Adjusted EBITDA was $20.4 million compared to $19 million in the prior year period, which was an increase of 7% due to the higher production and higher prices, which were up slightly to -- up 1%. Net revenue increased 15% to $28.1 million compared to $24.4 million in the prior year period due to higher production and prices.
Net back from operations decreased to $39.66 per BOE compared with $42.07 per BOE in the prior year period. This was due to higher operating expenses per BOE due to adjusted true-ups as well as reworks and water hauling costs.
Net income was $7.4 million and basic EPS was $0.21 per share in year-to-date June '24 period compared to $12.2 million or $0.34 per basic share in the prior year period. The decrease was due to $2.5 million of deferred income tax expense that was recorded in '24 and an unrealized gain of $2.1 million from -- unrealized gain of $2.1 million from commodity contracts that was recognized in the prior year period.
And I also just want to point out like we mentioned our credit facility was redetermined in the second quarter, and our borrowing base was increased from $40 million to $50 million, which was a 25% increase. This gives us more flexibility in managing our working capital going forward. and it also demonstrates the value of the field.
And with that, I'll hand it back to Wolf.
Thanks, Gary. As you can tell from our results over the last few years, we've had some excellent growth. Revenue and cash flow growing, keeping our leverage low and executing well in the field. We always strive for constant improvement in the drilling cost improvements, completion improvements we've had and the fact we're now drilling the longer laterals are great examples of that.
We've also made efforts to increase reserves further. We stepped out where we felt we could add proved reserves and locations that were listed as possible in our last reserve report. Our analysis proved to be correct as the Nickel Hill wells came in performing well.
As for the stock price, we are taking steps to try and reduce what we believe is a valuation gap. Last year, we uplifted to NASDAQ to give U.S. investors easier access, which also allows U.S. brokers to recommend our shares. We are increasing our marketing plans to make more people aware of our story so that the market will hopefully recognize the company's value that we believe upon.
Summer is over soon, and we have a nice catalyst coming up for these new longer laterals coming along. So we'll increase our marketing, focusing mainly on the U.S. Also, while the Board has not approved a share back back program yet -- a share buyback program yet, excuse me, we are working on putting everything in place so that a buyback could be approved by the Board.
Our plan is to continue to build and grow company value, and we appreciate everyone being on the call today. This concludes the formal part of our presentation. We would be pleased to answer any questions you may now have.
[Operator Instructions]. The first question will come from John White with ROTH Capital.
Congratulations on a nice quarter. Remind me again, how many 1.5-mile laterals have you drilled?
We have not drilled any so far. So these will be the first 3 that we are doing here.
Okay. Did you have to get a bigger drilling rig than you had been using?
We did get a slightly different rig than we had before, it's not substantially different, but a little bit better quality [ of that ] in order to handle this. And we've made enough improvements over the years where we've been drilling wells better, having more control, changing them things around and that's really the reason that we feel very comfortable with going to the longer laterals now in the field versus just drilling the my long laterals.
Okay. And which of the Renee wells will be fracked first?
We'll do all 3 of them actually at the same time. So it will be a continuous process, literally early doing 1 on the first one, 1 on the second one, 1 on the third one. So a 3-well zipper frac, if you may.
Okay. And you want to give a preliminary date for when the fracs will occur?
I'm hoping early in the fourth quarter. It will be, obviously, hopefully, drilling continues going well so far. So hopefully, that continues to go so well. And then on the completion side of things, it will be little subject to frac crew availability, but it looks like it's pretty good availability for early in the fourth quarter that we're pushing for as early as we can.
And no difficulties finding services?
No. We've had some good bids coming in, and we will be selecting those services here in the next day or so, actually.
Okay. And you said the fracs will be end of the fourth quarter.
In the beginning of the fourth quarter. Yes, early.
Beginning?
Yes.
Okay. I appreciate it, and I'll pass it back to the operator.
The next question will come from Andrey Litvin with Edison Investment Research.
So the first question on the gas and NGL pricing in the second quarter. So the prices were actually quite lower than, obviously lower than benchmarks. And I think kind of similar station that happened in last year as well in the second quarter. So is it like a recurring pattern that the pricing are weaker in the second quarter and then we see some recovery. So what's your kind of your expectations roughly?
So a little bit of that is some of the adjustments that we had, but that was mainly in the fourth quarter than in the first quarter, excuse me, versus the second quarter. The way our gas sales work is all of our gas when we produce it what I'll refer to as wet gas. And so that's sold into the gathering system that XTO runs, and they sell and market our natural gas and the NGL for us.
We get the same pricing that they get they go to multiple different outlets, so it does vary a bit. Sometimes it's a little lower. And other times, we've had gas prices that were higher than that. So in the end, it kind of works out that it averages out. But I haven't looked at what the actual reason is nor given Exxon's size, I don't think we could really figure out what they're doing in certain quarters. So it's a little bit of a black box for us, unfortunately.
Okay, I understand. All right. And the second question on -- just a follow-up on the new wells with longer laterals. Is it possible to give some color like quantify at least roughly, what the improvements in economics might be from these wells?
We'll see what the economic improvements are. What we're hoping for is that generally on the 1.5-mile laterals you'd like a foot-by-foot productivity increase. We would hope that we can get a full 1.5x increase over what we were hoping for on a single-mile lateral, but we're actually budgeting like a 1.35x increase just to be conservative and hoping for the best that it's actually a little higher than that.
Understand we're talking about production at the moment, right? 1.35x increase?
Yes, over the first part. Yes. That's correct.
Okay. Cool. And just one more question, a quick one. So you drilled 1 well at the end of last year [ in the BLM ] well, but you haven't completed it yet. Are you planning to complete it later this year? Or what's the...
The actual -- we actually have 2 DUCs, both on [ BLM ] wells. But no, we -- those will probably be pushed off until next year. We'd like to drill some other wells right around there. with the good results we had with the Nickel Hill, we decided that to stay over in that area and drill the next 3 wells. And then when we come back over to the [ BLM ] region, we'll drill a few more wells around that, that will also hopefully be longer laterals and then complete all those at the same time.
Okay. I understand. Sorry, just 1 more follow-up. A very quick one. In terms of the natural gas and NGL processing costs related to prior year. So you're still incurring some costs in the second quarter. So to what extent these costs are going to occur like in the subsequent quarters as well. So is there any visibility yet?
As far as -- or you mean the adjustments that have coming?
Yes, the adjustments.
Yes, we don't expect any more. I mean we don't know anymore. I mean those are adjustments that come, but we're not aware of any more that are coming to answer your question.
Next question will come from [indiscernible] investor.
Great quarter. Just wanted to touch base on 2 things. You touched on the first one a bit already. The 2 DUCs that you're sitting on, I think they're mile-long wells. You mentioned that you might go back to that location and drill longer wells. Can you extend the DUCs length? Or are you kind of locked in at a mile?
You know what, I think we get too skinny if we try to go out of that. So our current plan is to leave them as 1 mile and then have the offsetting wells that we're drilling here in the area of 1.5 miles.
Okay. And this thinking sort of for timing on those wells is sometime in '25, Q1 or Q2 or something like that? Or...
Yes. We haven't put together our budget or forecast for the Board to approve yet for next year. So again, we'll balance out where we are cash flow wise, what we're doing with other things like share buybacks and things like that and then what the timing is of drilling those wells, drilling the next set of wells. But...
And I guess my second question is, did you bring on a new Director of Engineering recently? Is that right?
We did. We did. Dan Simpson came on here a while ago. He's been helping us on -- in the background for a while helping us with some reservoir engineering and things like that already. It's been part of the company now officially for 5 months that he had been doing some consulting for us for a number of years.
Understood. And I take it that it's Dan Simpson's view that the 1.5 mile is appropriate, and that's kind of where this extended lateral length decisions came from? Or is that...
Yes. I mean he's definitely a believer in the longer laterals as well. I think in the past, we've looked at it before as well. And really, what it came down to is the way we were drilling wells in the past, and we didn't have the learnings yet that we did that we didn't quite have the ability to smoothly feel very comfortable drilling longer laterals than the mile because we do have some structure here in the field. So it's not quite as straightforward as some other areas.
But we do feel comfortable with how things are going, and you can see from some of my presentations earlier, how much faster we're drilling wells and along with that also was a lot more precision as well. And so with those combination of things we felt very comfortable, we can go to 1.5-mile laterals or even 2-mile laterals. And when we pick either 1.5-mile or 2-mile laterals, that's really based on the geology out here. So any kind of restrictions we have with potential faults or where we have acreage, where we say, look, we can put -- if we have 3 miles from north to south, we're going to say, look, we'll drill 2 1.5-mile laterals versus drilling a 2-mile and 1-mile lateral, right? So those are the kind of decisions that we have.
So yes, now teams all in favor of it, the economics look really good. So hopefully, we're getting a big bump to our economics when we drill these longer laterals. Yes, he has been a great addition to the team. So we're happy to have him.
And I guess, just further your comment about deciding if you have 3 miles going between 2 1.5 miles, have you reconsidered the field development approach given that you're moving to 1.5 miles and I mean you need to drill them, see some results. But how does the field development plan evolve given where you're going with the lateral length, whether it's 1.5 miles maybe even to 2 miles in the future. Have you thought that through a bit? Or...
Yes, we have. I mean, a, our reserve report this next year should be a whole lot different just because we're going to also convert them to 1.5 miles to 2-mile lateral in the field in general. And so we are still working through exactly which ones we do first, where we go in the field and laying out the complete field development program. That's the next step here over the next couple of months, but we've been sketched out where we believe 1.5-mile lateral or 2-mile laterals in a couple of places, but we still need 1 mile laterals just to fill in some gaps.
And when do you think it would be appropriate to share that field development plan with the broader investment community. Is that like a 6-month or 12-month down the road? Or is that sooner.
I think that -- I think it's most appropriate to do that once the Netherland, Sewell signs off on everything as well just because it is -- they are the third party that everyone would be looking to anyway. So we can have our thoughts but our reserve report will be what influences that as well.
Okay. And I guess final question here. If these longer laterals are successful, is there a broader acreage subset that is applicable because of the improved economics of the longer laterals? Or...
The potential for sure. We do have some longer laterals that we're pushing into, like probable and possible areas in our internal look at it. And so we'll just have to see how that all works out, right? So, first up would be see what kind of numbers we get out of this. I'm hoping, like I said, we get a 1.5x increase when we drill these, that would be fantastic, even though we're budgeting for a little less. And then we'll just run economics.
I mean it will depend on where prices are as well, right? Assuming price is going to hang in this range, which works for us. But the higher they go, the more we can step out to areas that have a little higher risk and maybe we're concerned about a little lower productivity that's on the possible side of some of those reserves.
Well, perfect. Great job, guys.
Thank you very much. Appreciate you listening on your questions.
The n question will come from Garrett King with Truffle Hound Capital.
Hi. Could you talk about the thought process that you go through when deciding whether to allocate capital towards growing production versus share repurchases?
Sure. I mean it's really qualified this by this will be in my opinion, that's not necessarily the entire Board. But I'll speak for myself and because the Board hasn't made a decision on anything yet officially. But we do believe that our shares are undervalued. And so we do want to allocate some amount of funds toward share buybacks. We will have some limitations on that because it's based on volume as well and what the exchange approves us for.
So we'll -- when you see a press release from us eventually after the Board hopefully approves everything, you'll see what those numbers are that will be maxed out at. And then after that, the decision will be, okay, so we can allocate this much money towards share buybacks. We can allocate this much money to paying down debt and this much money to drilling more wells.
And that's a bit of a fluid situation oil prices stay at this range, then probably makes sense to drill wells, yet keeping debt in a reasonable level where we just use it to manage our working capital.
Got it. And is it something as simple as just having an NPV on the wells that you're drilling. An NPV on what you think the stock earnings will be and you just run it at the strip or pick an oil price and then just kind of choose whatever the highest return is.
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And then likewise, I mean, if you look at us compared to a number of other publicly traded companies that are in our size, I think we're trading at a pretty large discount on our -- versus our proved reserves, right? So we feel like as we develop more reserves, then that valuation gap will shrink. But if we're so far off on that valuation gap and that leans more towards buying back some more shares as well in addition to exactly what you described.
Got it. Okay. And could you just describe your hedging strategy just in general?
Sure. So hedging strategy, what we've been trying to do. So the bank has us do a certain number of hedges that are -- that go out about 1.5 years. And so every quarter, we have to add another quarter's worth of reserves. With the forward strip being down, what we've been trying to do is put in place some cost with collars to have the lower end in the $60, $65 range to protect us from a sudden downside, that's unexpected, but yet keeping the upper end of the collar open as far as possible so we can float with the oil price.
And approximately what percentage of your production does the back require for the next 1.5 years?
I mean, Gary, do you have that handy?
And what depends on our utilization of the debt compared to -- but I think it's, currently, it's 50%.
Yes, it's 50% of the where we are currently on a debt basis for the first year. And then that might be talk about up.
I was going to say it's close to between 50% and 75% depending on their debt utilization and then the next year out is lower for the next half year, I should say. We moved that downturn having to hedge 2 years down to 1.5 years.
Got it. Okay. And In terms of M&A, I mean, it sounds like you guys haven't really been talking about anything. And obviously, doing something with equity like it doesn't seem like a great idea given the valuation. But I mean, is that something you guys are focused on? Or more currently just focused on growing organically?
We're growing organically, but we're definitely looking for other projects as well, right? So in this business, you have to be open to all aspects, whether that's -- if we can find something that fits into our valuation and, let's say, a private guy wants to fit into our evaluation no matter where the stock price is trading, and you can do a deal and if it's not in that realm and they're looking at our stock price only versus our valuation of our property then that's hard to make it accretive, and so you're not going to be doing [indiscernible] somebody comes along and wants to pick at us and give us the right price that our shareholders will go for, we're open to that as well.
Excellent.
Absolutely.
[Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Wolf Regener for any closing remarks. Please go ahead, sir.
Thank you very, very much for everyone being on here and participating. Great questions, and everyone else for listening, and we're going to strive to keep reducing that valuation gap and keep doing a good job in the field and growing the company. So thank you, everyone, for your support.
This concludes our conference call for today. Thank you for attending today's presentation. You may now disconnect.