Kolibri Global Energy Inc

TSX:KEI

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and welcome to the Kolibri Global Energy's Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. I advise participants that this conference is being recorded today, November 13, 2024. This call will be available on the company's website at www.kolibrienergy.com. Here is a disclaimer. This call may include forward-looking information 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 and the applicable risks and uncertainties and Kolibri's policy for updating such statements, we direct you to Kolibri's most recent annual information form and management's discussion and analysis for the period under discussion as well as the Kolibri's most recent corporate presentation, all of which are available on Kolibri's website.

Listeners should not place undue reliance on forward-looking information. Kolibri undertakes no obligation to update any forward-looking, future-oriented financial or financial outlook information other than as required by applicable law. I would now like to turn the conference over to Mr. Wolf Regener, the President and CEO of Kolibri Global Energy, Inc. Please go ahead, sir.

[Wolf E. Regener, executive]

Thank you, Megan, and thanks, everyone, for joining us today. With me on today's call is Gary Johnson, our Chief Financial Officer. We released our 2024 third quarter report yesterday, and we'll assume you've had a chance to look over the report. We are very pleased with the accomplishments we've achieved so far. We've had a solid quarter with strong financial results, solid production from the field, successful and under budget drilling of the first 3 longer lateral wells, Alicia Renee 2-11-3H, 4H, and 5H. We drilled these wells in 14 days, which was faster than the forecast, as our 1-mile laterals we were drilling in 12 days.

That led to our post-quarter results from those same wells which we put out yesterday morning, where those 3 wells are making over 2,800 BOE a day currently. So bottom line is things are going very well. And with that, I'll turn the call over to Gary to discuss our financial results.

[Gary W. Johnson, executive]

Thanks, Wolf, and thanks to everyone for joining the call. I'm going to go over a few highlights for the quarter and the September year-to-date results, and then we can take questions at the end. All amounts are in U.S. dollars unless otherwise stated. I'll start with the third quarter results. Average production was up 11% to 3,032 BOE per day compared to 2,737 in the prior year quarter. The increase was due to production from the wells that were drilled over the last 12 months. Adjusted EBITDA reached $10.1 million compared to $9.5 million in the prior year quarter, which was an increase of 6% due to the higher production, partially offset by lower prices, which were down 9%.

Revenue was up 2% to $13.9 million in the quarter, again, due to higher production, partially offset by lower prices. Net income for the quarter was $5.1 million, basic EPS being $0.14 per share, which was an increase of 118% compared to $2.3 million or $0.07 per share in the prior year quarter. The increase was due to higher revenue and a $3.9 million swing in the noncash unrealized mark-to-market adjustments on our hedges between Q3 '24 and the third quarter of last year.

This was partially offset by higher income tax expense. Average prices decreased by about 9% for the quarter, and this price decrease led to a 8% decline in our netbacks and operations to $40.01 per BOE compared to $43.28 in the prior year quarter. Netbacks including the impact of hedges, were $39.95 per BOE compared to $41.65, which was a decrease of 4%. Operating expense for the quarter was $6.63 per BOE for the quarter compared to $7.34 per BOE in the prior year third quarter, which was a decrease of 10% due to higher production, which lowered our fixed cost per barrel.

Now moving on to the year-to-date September results. Average production was up 13% to 3,154 BOE per day compared to 2,780 in the prior year. Adjusted EBITDA was up 7% to $30.5 million compared to $28.6 million due to the higher production, partially offset by lower prices. Net revenue was up 11% to $41.2 million in the year-to-date '24 compared to $37.2 million in the prior year due to higher production, partially offset by lower prices up 2%. Net income was $12.5 million with basic EPS of $0.35 per share, which compares to $14.5 million and an EPS of $0.41 per share last year. And that's as higher income tax, operating and G&A expense offset the increase in revenue.

Netbacks from operations decreased 6% to $39.78 per BOE compared to $42.48 last year due to lower average prices and higher OpEx. Netbacks, including the impact of hedges, were $39.09 per BOE compared to $41, which was a decrease of 5%. Operating expense was $7.84 per BOE for the year-to-date September compared to $6.47 in the prior year period, which was an increase of 21%. This was due to adjustment true-ups and higher water hauling costs in the first half of the year.

I'd also like to mention in October, our credit facility was redetermined at the same $50 million borrowing base, and our net debt at the end of the quarter was $29.1 million, and we had $90 million of available borrowing capacity. And as you probably saw in the press release yesterday, starting in October, we started repurchasing shares under our normal course issuer bid share buyback program. So far, we have repurchased about 104,000 shares, and our plan is to continue to repurchase additional shares to enhance shareholder value.

And as you also saw in the news release yesterday, the 3 Alicia Renee wells are performing very well in the early stages, so we're expecting a significant increase in our cash flow as we head into the fourth quarter.

And with that, I'll hand it back to Wolf.

[Wolf E. Regener, executive]

Thanks, Gary. As I stated and Gary went over another solid quarter. When you look back over the last few years, the company has had quite the growth. Revenue and cash flow have grown a lot all while keeping our leverage low and our team has been executing extremely well. Our striving for constant improvement has been paying off as well. The drilling times and cost improvements have been huge. We've also had numerous completion improvements. And now with the longer laterals, it should lead to even more economic wells. For our year-end reserve report, we're looking to hopefully having more proved reserves as the wells we've drilled this year were mainly possible locations on last year's reserve report.

And hopefully, our NPV increases as well due to the longer laterals being more economic. That, of course, is in our third-party reservoir engineering firm's hands and not in ours. As to the stock price, hopefully, the stock price will increase to reduce the valuation gap between our market cap and the proved reserve value as people see how well we're executing as we make more people aware of our story and also the significance of what we believe will be the even better economics of these longer lateral wells is fully understood by investors.

In addition, as Gary mentioned, our returning capital to shareholders in the form of share buybacks that we started recently, which we're intending to continue should also help. Our plan is to continue to build and grow company value, and keep executing the way we've been executing.

This concludes the formal part of our presentation, and we'll be pleased to answer any questions that you now may have.

[Operator]

[Operator Instructions] The first question comes from John White with ROTH Capital.

[John White, analyst]

Congratulations on a solid quarter, and congratulations on these very strong Renee wells. With these Renee wells, has that altered your plans for drilling in the fourth quarter? Is there any planned drilling for the fourth quarter? Or are you going to sit back and monitor these wells for a quarter or 2.

[Wolf E. Regener, executive]

Yes. So we won't be drilling anything else in fourth quarter. We do take steps in general in the field where we're prepping numerous locations, so we have different places where we can go in a timely manner. So we are prepping things for 2025, but there won't be any physical drilling in 2024 still. But yes.

[John White, analyst]

Okay. Well, very positive developments with your recent drilling success.

[Wolf E. Regener, executive]

Thank you, John, yes, we feel the same way. We are very pleased with what we saw or what's happened so far.

[Operator]

The next question comes from Kyle May with Sidoti.

[Andrew Louis DeAngelis, analyst]

This is actually Andrew DeAngelis on for Kyle, who's traveling right now. But just wanted to ask, is there anything notable or surprising that you've learned from the 3 1.5-mile lateral wells that you've drilled to date.

[Wolf E. Regener, executive]

I guess not surprising, but kind of what we're hoping for is that drilling these 1.5 mile laterals would be even more economic on a cost basis than we anticipated. The fact that we were able to add 50% of lateral with only 2 extra days of drilling makes a huge difference on the costs. So that was pleasantly encountered by us, and we were hoping we could do well, but it was even better than what we were hoping we would do.

And everything actually went pretty smoothly. When you increase the lateral, you have some -- little bit of additional risks but everything was planned out well and everything went smoothly. So that's about -- the only, I wouldn't call it a surprise, but I'm very pleased with how it all went.

[Andrew Louis DeAngelis, analyst]

Did you disclose the average cost of these wells...?

[Wolf E. Regener, executive]

We did not yet. We're still getting the actual hard costs in. We have field estimates, et cetera. That's why I can say we're under budget, but I didn't want to put a number on it until we make sure we have everything accounted for, and we can give an accurate number out. But I'm pleased with what I'm seeing on the numbers that they are definitely under budget.

[Andrew Louis DeAngelis, analyst]

Understood. And then just relative to your full year guidance. Now that you have these in flow back, is there any bias within current guidance that you're able to share?

[Wolf E. Regener, executive]

No, we haven't decided -- we haven't proposed anything to the Board yet, and the Board hasn't approved yet. We'll be doing that here in the near future. And then once we have that, then we'll announce what we're doing for 2025. What I'd like to say is that our intent for management is to present something to the Board that includes some additional growth, but also includes some continuation of returning capital to shareholders.

[Andrew Louis DeAngelis, analyst]

And then just last 1 for me before I jump back in queue. Relative to the buyback, can you remind us of your capacity? And will that further buybacks come out of cash flow? Or would you be willing to take on additional leverage in order to buy back shares here?

[Wolf E. Regener, executive]

Yes. Our deal with the bank, actually it has to come out of cash flow. So it will basically be -- it will be coming out of cash flow for sure. And Gary, do you have that number? Off top of my head, was it 1.7 million shares?

[Gary W. Johnson, executive]

Yes, [ 1.75 ] million maximum shares repurchased.

[Operator]

Our next question comes from Alan [indiscernible].

[Unknown Analyst]

Congratulations on some very strong wells. I think what's most notable to me, and I'd like you to comment, Wolf, is your overall cost now to develop the field relative to what was estimated in the previous reserve reports. What would you estimate that cost savings to be?

[Wolf E. Regener, executive]

First of all, Alan, good to hear from you. So we haven't put a number on it yet because I don't -- we haven't put out the actual hard numbers yet. But it will definitely be less because as you saw how quickly we drilled those 1.5-mile laterals versus 1-mile lateral. So basically, with every 2.5-mile laterals, we don't have to pay for a third well. And the cost of drilling that incremental amount on the first well is obviously a lot less than drilling a half well on its own.

So overall, it should be significant in cost savings for developing the field as a whole. And that's where we'll work with Netherland, Sewell, our third-party engineering firm to say, hey, look, here's still -- could be the same reserves that we're getting out of the ground for that area and that as we can do it with far fewer wells and cost-wise should be significantly less on a whole basis. So it should definitely improve our economics, and it's a great way of looking at it by saying how much is it for the full field for development. But it should be significant, and I'll be looking forward to seeing what those numbers work out to be when we settle all that with Netherland, Sewell.

[Unknown Analyst]

Okay. One follow-on question, if you don't mind, Wolf. In terms of EUR for these 1.5-mile laterals, were there any -- did you keep the same frac interval, and are you expecting a better EUR very well? And basically, what's you expected drainage per section? Do you think that improves?

[Wolf E. Regener, executive]

I think what we're anticipating and hoping for is that for -- on a per foot basis, we're getting a similar EUR. We did change some things a little bit. We tweaked a little bit on our completions where we think we got a little even better completion going on this one than we did in our previous ones, but overall kept a lot of things the same. We try to only change one thing at a time to know if it works or not. But the early results definitely indicate that we potentially will have a more effective frac. But at the worst case, I think that we're looking at having our EURs go up proportionately by the extra lateral length that we have in these wells. And maybe we'll get lucky, but we won't know that for a couple of 3 months here on flowback if we -- if the tweak that we did in our completions help the EUR as well even further.

[Unknown Analyst]

Right. And so in terms of your published type curves that you have, is there anything that you can guide as to that you would think you're now representative or more representative than in the past.

[Wolf E. Regener, executive]

So on the 1.5-mile laterals, we're going to have to see a little bit. That's what I was saying to people also on the flowbacks. It's like how is it going to clean up further from here. And we're a little bit unknown because it is a longer lateral, so you're reaching further out on the flowbacks. These wells have been very strong, in general, on the initial side of things, stronger than we've had in some of our other wells.

So it's a little early to say what the decline curves are going to be on these until I get some more data just because it is longer. If it was a mile longer lateral, I would have much more confidence in it. In general, we've had -- on our 1-mile long laterals, we were about 60% declines in the first year, about 30% in the second and then you get out to a terminal decline is what we're assuming of about 8% [indiscernible]. So that's kind of guidance. But like I said, we're looking forward to these. They look strong. We're still flowing up casing on these and no tubing, and it looks like we're going to be flowing up casing for a while, which is not what our typical wells have been doing out here. Normally, we have tubing running in with the gas lift that starts within 4 to 6 weeks, and these looks like it's going to last longer, but we'll see.

[Unknown Analyst]

Well, it's very encouraging. Again, congratulations on some great wells and a good quarter, and thanks for all of your efforts.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Wolf Regener for any closing remarks.

[Wolf E. Regener, executive]

Just nothing big here to add that we didn't cover. But thank you, everyone, very much for listening in and joining us here today. And I hope everyone has a great rest of their day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.