Vitesse Energy, Inc. (NYSE:VTS) Q1 2024 Earnings Call Transcript

Vitesse Energy, Inc. (NYSE:VTS) Q1 2024 Earnings Call Transcript May 7, 2024

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Operator: Greetings. Welcome to the Vitesse Energy’s First Quarter Earnings 2024 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Ben Messier, Director, Investor Relations and Business Development. Thank you. You may begin.

Ben Messier: Good morning and thank you for joining. Today, we will be discussing our financial and operating results for the first quarter of 2024, which we released yesterday after market close. You can access our earnings release and presentation in the Investor Relations section of our website. We will file our Form 10-Q within upcoming days. I am joined here this morning by Vitesse’s Chairman and CEO, Bob Gerrity; our President, Brian Cree; and our CFO, Jimmy Henderson. Our agenda for today’s call is as follows: Bob will provide some opening remarks on the quarter; after Bob, Brian will give you an operations update including some additional information on the recently announced near-term development acquisitions. Then Jimmy will review our first quarter financial results and updated production and CapEx guidance.

After the conclusion of our prepared remarks, the executive team will be available to answer any questions. Before we begin, let’s cover our Safe Harbor language. Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to the risks and uncertainties, some of which are beyond our control that could cause actual results to be materially different from the expectations contemplated by these forward-looking statements. Those risks include, among others, matters that we have described in our earnings release and periodic filings. We disclaim any obligation to update these forward-looking statements, except as maybe required by applicable securities laws.

During our conference call, we may discuss certain non-GAAP financial measures, including adjusted net income, net debt, adjusted EBITDA, net debt-to-adjusted EBITDA ratio and free cash flow. Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued yesterday. Now, I will turn the call over to our Chairman and CEO, Bob Gerrity.

Bob Gerrity: Thank you, Ben. Good morning everyone, and thanks for you are participating in today’s first quarter 2024 earnings call. Management at Vitesse is committed to the dividend as a vehicle to return capital to our stockholders. To sustain this return of capital strategy, we must have a very economic return on capital invested. We continue to spend capital in a dividend supportive manner, which led us to raise production and CapEx guidance for 2024. We are sharing the fruits of this labor with our stockholders by increasing our second quarter fixed cash dividend to $0.525 per share to be paid in June, an increase of 5% over the first quarter dividend. This is really a harvest of the really economic deals we have done starting in the second half of last year and continuing into this year.

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Q&A Session

We continue to look at near-term development deals and larger asset acquisitions that would bolster our dividend. So far this year, deal flow has been healthy, as Brian will describe, we have agreed to acquire additional self sourced, highly economic interest that will allow us to invest over $40 million of CapEx incremental to our original projection. When we find these highly economic acquisitions, we will take them down. We do not have a fixed budget. It’s all opportunistic. We will continue to pursue all of these opportunities that meet our strict economic parameters. Before I turn it over to Brian, I just want to compliment everyone on our team at Vitesse. We are all rowing the boat in harmony. We bust our ass every day to allocate capital in a way that supports our dividend, which is really the dividend belongs to our shareholders.

So with that, I’ll turn it over to our President, business partner, Brian Cree.

Brian Cree: Thanks, Bob, and good morning to everyone and thanks for participating on today’s call. In the first quarter, we had production of 12,557 barrels of oil equivalent per day. As previously mentioned in our February earnings call, production was negatively impacted by the severe weather event in North Dakota in January as many of the wells were offline for more than a week. Despite this event, we are increasing our 2024 production and CapEx guidance, as a result of the additional acquisition activity that Bob mentioned. We continue to find highly economic opportunities to invest capital through our acquisition pipeline that we have developed over the past 10 plus years. The majority of these near-term development acquisitions are more traditional in nature than those closed during the second half of 2023.

Thus, the drilling and completion activity will occur over the summer and fall, with production not likely until the fourth quarter and into 2025. As of March 31, we had 5.9 net wells that were either drilling or in the completing phase and another 10.6 net wells that had been permitted for development by our operators. Through the first four months of 2024, we’ve experienced an increase in planned development on our existing assets in addition to the recent near term development acquisition activity. We’re excited about these trends, which are expected to enhance our return on capital invested over the course of this year and into next. Our oil differential in the first quarter was greater than it has been historically, which we expect to improve as the Trans Mountain pipeline expansion comes online in Canada, reported to have occurred earlier this month.

We have continued to add oil hedges during the year and we now have swaps in place through the end of 2025. At the midpoint of our revised guidance for 2024, we have approximately 60% of our remaining oil production hedged at above $78 per barrel and a portion of our 2025 oil production hedged at above $74 of barrel. Thanks for your time. Now, I’ll turn it over to our CFO, Jimmy Henderson to review our financial highlights.

Jimmy Henderson: Thanks, Brian and Bob, appreciate the introduction. Good morning everyone. I wanted to highlight a few financial results from the first quarter and as always, I’ll assume you can refer to our earnings release and our upcoming 10-Q for further details. As Brian mentioned, our production for the quarter was approximately 12,500 Boe per day with a 71% oil cut. Our production was affected by extreme winter conditions in January, but thanks to the great work by our operators we quickly recovered. Just can’t say enough about the men and women out there that are getting the job done day-in and day-out in North Dakota. Lease operating expenses were also negatively impacted by the severe weather event in addition to continued elevated workover expense coming in at $11.8 million for the quarter, or $10.32 per Boe.

For the quarter, adjusted EBITDA was $39.1 million and adjusted net income was $10.2 million. GAAP net income was a loss of $2.2 million, with that difference being primarily attributable to the unrealized noncash hedging loss due to the increase in oil prices in the quarter. Cash CapEx and acquisition costs for the quarter were $32.2 million, which included costs paid related to acquisitions made earlier in 2023. As a reminder, our CapEx can be variable from quarter-to-quarter depending on activity levels and acquisition opportunities. During the first quarter, 332,840 shares of Vitesse’s common stock were retired after being exchanged for $6.9 million of tax withholding related to vesting of restricted stock units. This transaction occurred at a price of $20.85, which is about 8% below our current stock price, yesterday’s stock price.

While this effectively functions as a share buyback, it does not decrease our repurchasing power under our $60 million share buyback authorization. We funded first quarter CapEx and the share of retirement with operating cash flows and draws on the credit facility. Debt at the end of the quarter was $98 million, resulting in a leverage ratio of just 0.6 times on a trailing 12-month EBITDA basis. The elected commitments on our credit facility currently stand at $210 million, but we expect them to increase to $245 million when we complete our semiannual redetermination in the next couple of weeks. As previously mentioned, we are increasing our original 2024 annual guidance due to the recently acquired or agreed to be acquired near-term development assets in North Dakota.

These acquisitions are anticipated to result in over $40 million of incremental capital expenditures and are expected to provide material increases to production and cash flows, primarily late 2024 and into 2025. Our expected production for 2024 now ranges from 13,000 to 14,000 Boe per day with a 67% to 71% oil cut, and we have increased our 2024 capital expenditures guidance range, which now stands at $130 million to $150 million. Please note that our oil and natural gas production, as well as our CapEx varies from quarter to quarter based on new wells coming online and other operational matters that happen. Commensurate with this increased activity, the board has approved an increase in our dividend to $0.525 per share, which demonstrates our confidence in the accretive nature of these investments.

With that, let me turn the call over to the operator for a Q&A.

Operator: Thank you. [Operator Instructions] Our first questions come from the line of John White with ROTH Capital Partners. Please proceed with your questions.

John White: Good morning. Can you hear me okay?

Bob Gerrity: Absolutely. Morning, John.

John White: Good. Good morning. Could we get a little more detail on the acquisitions, like what counties are they predominantly located? How much existing production is being acquired and any comments on the undrilled inventory?