EONR - AMEX

Good day, everyone, and welcome to the EON Resources Inc. Announces First Quarter 2025 Earnings Call on Thursday, May 22, 2025. At this time, all participants have been placed on a listen-only mode. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Michael Porter. Sir, the floor is yours.

Thank you, Matthew. Good afternoon, ladies and gentlemen, and welcome to the EON Resources first quarter earnings call. This call comes under the forward-looking statements rules of the Private Securities Litigation Reform Act of 1995, that involves risks and uncertainties that could cause, effect, result and to differ materially from what is expected words, such as expect, believe, anticipate, et cetera. Such forward-looking statements, but in the absence of these words does not mean that a statement is not forward-looking. Such forward-looking statements relate to future events or future results. Any results and changes that are material, the company's expectations are disclosed in the company's documents filed from time-to-time with EDGAR and with the Securities and Exchange Commission. And without further ado, I'd like to introduce Dante to you. Dante, the floor is yours.

Thank you, Mike. All of you, thank you for dialing in. It's a warm day in Houston here in the afternoon. I just got my air conditioner fixed, so I'm in a very nice way to be speaking with each of you. We just spoke to all of you 30-days ago for our year-end financial results. So, the focus of this call is what's happened in Q1. And I'm going to do this as a good, bad, good sandwich here. So, the good, of course, is we've got this wonderful asset. We all believe in it. This management team is committed to making this thing much bigger, much more profitable than it is today. And we've made a lot of progress on the things we mentioned a month ago, advancing the financing to retire all of our senior debt and our seller debt. We'll talk a little bit about that. We've made great advances to find a driller that will bring money and drill, and we put this out on our website. 50 San Andres horizontal wells. And I was delighted to hear that one of our potential drilling partners said, oh, no. It's not 50. It's 90. And these are big wells. These are big wells. We're talking about 400 plus barrels a day per well. So, those kind of jump way up to the top of the list of the good. On the bad side, in the last quarter, oil prices have been down. Our stock has been down. Our debt has stayed about the same. We continue to pay down our debt, but we still have high debt. We don't make money each month, but we've been reducing our costs to cut the amount of loss that we have each month. That's kind of a good story out of a bad story. And we are short of capital. We need to invest more money than we are in the field, but right now, our priority is just pay our bills. So, a lot of our cash goes to that. So, onto the slide that you have is Slide 1. We're trending in the right direction. If you compare what we did year-end last year to what we did in Q1, we lowered our cost, and we lowered our loss per quarter. I'm figuring and if you cut through all the, I'll say, the accounting rules and get to our cash loss per month, we're close to probably $400,000 right now as a run rate that we need to find, either through increased production or increased cost. I mean, sorry, reduced cost or increased production. There. Now, I got it right. And that's almost twice as good as it was, this time last year. And a lot of these cuts were responding to lower commodity pricing, even though we're hedged. We're hedged at 70% plus, meaning we get $70 a barrel, even if today, oil prices are $55 or $60 or $62 or whatever they are, we get $70. The financing to retire our big debt is worth talking about. So that's occupying most of my time and a lot of our team's time. So we met with Enstream in Dallas this past week. We're on-track to get the financing needed to retire our senior debt. So we've reported that to our bank and the timing to get that all taken care of is end of June, middle of July, and that's about the best forecast I can give for that. Part of the Enstream financing is to also give us $9.5 million to do workovers. And I previously mentioned we have 45 workovers approved. It's a mixed bag of injectors and producers. We are a waterflood producing field, which means we need producers that are completed in our waterflood zone, which right now, the Seven Rivers is our dominant zone. At the same time, we need water injectors injecting water in those same zones. So you're going to hear Jesse when he gets on talking about that. In parallel with that, we accelerated our search for a drilling partner and we've got 1 LOI in hand, and we expect additional ones to come in. But the format of these things is a little bit of a leasehold payment a sharing of production and a sharing of drilling costs. And we are looking for an experienced driller familiar with the formation in our area. And I'm delighted to report, we've got keen interest in that regard. And this is where we're going to make the big move to the upside. I already mentioned that New Mexico's state OCD has approved 45 workovers for us. That's a milestone. So that gives us a big backlog of work to do once the funding is in place. I'm also delighted to report that our asset stimulations, a new formulation cooked up by Jesse Allen, our VP of Ops has doubled and tripled production. Now we -- we've done this before where we did simple asset. It doubled and tripled production, but it was short lived. So we had to go back to the drawing board to find a better formulation that would hold up. So in conclusion, I believe all this hard work that hasn't put money in the bank for us yet has positioned us for launch. And as we continue to do these workovers and refine our formulas for sand fracs, for acid jobs, for drilling, I believe we're in terrific position to take off in Q3 and Q4 of this year. With that, for the details, I'm going to turn it over first to Mitch Trotter.

Thanks, Dante. Hello, I'm Mitch Trotter, the CFO. Welcome the newcomers and those that we've talked to in the past. We thank you for attending today. In this call, I'll give you some insights in the Q1 results main takeaways from Q1 are 2 things: Cost reductions are starting to materialize, efforts to clean up the balance sheet continue. On the cost reduction side, G&A cost reduction will be discussed on a later slide. The LOE, the leasehold -- the field expenses have dropped to $683,000 per month in Q1. This is down from what we were talking about last year where it ranged from $700 to $750 per month averages. Another area of reduction is interest expense has dropped $165,000 for the quarter, and that's due to note conversions in our efforts to clean up our balance sheet. Now I want to hit on something else. The income statement, you look at it, it's all over the place. And that's part of what Dante was saying. It's due to noncash items that don't really reflect the running of the business. So in past calls, we've drilled down to all the puts and takes of these items. Those items are properly recorded, but with when you strip them away, you can see a little bit more insight into the actual business. And there are 2 running the business numbers that's hard for you to see, but I'd like to see them. The first one is income from operations, which I've talked to you about in the past. And this is simply the cash-driven revenues less the field-related expenses. And this is before G&A and all the other costs. We continue since day 1 to have consistent income from operations in the $1.8 million range per quarter. That's the good news, and it's still there, maybe a slight uptick. The second is kind of new to this call, and I'm calling it the ongoing business income or loss. And then is the income from operations less than -- or just talked about less the G&A, excluding all the noncash equity-based type costs. And less, of course, interest expense. The -- and if you remove all the rest of those noncash items, Q1 was a loss of $1.2 million after the interest expense. Last year, the loss was running more like $1.5 million per quarter average across a year. This is a $300,000 approved improvement, and that's driven back to cost reductions, and you'll hear a little bit more about that in the G&A. So let's get on with it and let's go to the revenue side, please. Next slide. As you can see, production remained stable for this quarter again. There was an uptick in oil revenue due to fluctuations in the market price oil. Dante noted, we know market price for the last couple of months has been up and down and all around. Good news is 70% of our oil is hedged at $70 a barrel. This mitigates these market fluctuations. And we've got our head position at this level all the way through the end of 2025. Last item I want to note on the revenue slide, though, is the gas revenues are up $50,000 for the quarter, and that's due to the higher price of gas. So let's go to the next slide, please. And I showed this slide on production impacts last call. I was not planning to include it but the slide did stimulate a lot of good discussion in the Q&A. So I've left the slide in the deck, which I'm sure, got from the website and for reference to help you understand some of the business better. And if needed, we're going to talk -- if needed in the Q&A, I may refer back to it, but I'm not going to talk about it at this point in time. What I want to do is go to the G&A slide, the next slide, please. Now we have a plan, and we've stated to reduce G&A costs across the entire year, and some reductions have started in Q1. First, salaries and fees decreased by $225,000 in Q1 over last year or this is approximately $1 million a year run rate for the year. Second area Q1, professional fees, legal, audit, consulting, they're slightly down from last year's average per quarter. A significant portion of these stem from acquisition filings, complicated instruments, balance sheet, settlement agreements, trailing legal matters. We do expect these to drop off dramatically after Q2. Third area cost reduction is the insurance costs are down 25 -- excuse me, $75,000 per quarter, and that's just due to renewal rates that we've negotiated. So let's move on to the balance sheet, please. Next slide. I'm not going to spend a whole lot of time here, but I do want to mention the company has made and is continuing to make improvements to the balance sheet. As I reported before, the FPA liability went away in Q4 of last year. Now we'll discuss some other Q1 improvements, but I'm going to do that all the equity slide. So let's flip to the debt structure slide. There's really nothing new here. So it's there for your reference, I don't want to go ahead and move forward to the equity slide, please. Okay. Now there are a couple of changes in equity as we clean up the balance sheet. First, there is no more Class B common stock. It's all Class A common stock, so that messiness is gone. The number of warrants outstanding, they have dropped a couple of million with our exchanges to long-term convertible notes. Correspondingly, the warrant liability has also dropped by $1.6 million from the balance sheet. Now next slide, please. Just like the production impact slide. I showed it on the last call. It wasn't going to include it, but it did stimulate a lot of good discussions, so people wanted to review it. So I've left it in there for to help you understand our business better. Again, in Q&A, I can may refer back to it, but it's there in the deck for you to look at. So for the financial section, starting to wrap it up, I want to repeat. We have a key focus on reducing costs, which have started to materialize and efforts to clean up the balance sheet continues and will continue in the future. So now I'll move it on to Jesse to review operations. Thank you.

Yes. Thank you, Mitch. I am Jesse Allen, the VP of Operations. And today, I will briefly discuss some of the highlights of 2024. Some of them are very important and I just want to jogged everybody's memory on those. But more importantly, I'll talk about what we're doing currently in Q1 of 2025 to increase our production. So first, though, I want to start with safety. For 2024 and into our first quarter 2025, we've had no reportable incidents. So our field operating personnel are doing an excellent job their daily work routine, noting any possible near misses, et cetera, and so on. So they're doing a great job there. So for 2024, when we took over the operations of the Grayburg-Jackson field, the daily production was in a free fall. So we had to stabilize that production, and we were able to do that with a well service workover rig that we ran throughout the year. And we were able to stabilize production in the 925 to 950-barrel oil per day range. But -- and so that was a good thing. And we continue those efforts, of course. And then in order to stabilize that production, we did several upgrades throughout the field, flow line repairs, electrical repairs, purchase some key equipment that helped us reduce LOE. And so that's a good segue into the LOE, which both Mitch and Dante have mentioned, at the beginning of 2024, we were in the $780,000 range, $750,000 to $780,000 slowly, we were able to reduce it to $700,000 per month for our lease operating expense. And currently here in quarter 1 were at $683,000 per month. So let's move on to the more important stuff. So next slide, please. What are we going to do to increase production? And we've already initiated several programs and concentrating our effort on doing that. We did several sand frac treatments using low-temperature resin-coated sand, which will help keep the sand in place. And that causes operational problems, having to pull downhole pumps, et cetera. So that's been successful. And the first couple of wells, 1 came in a little over 20 barrels of oil a day and the other one, we're still in the process of testing. In addition, we've initiated an acid treatment program new formulation, a little bit larger jobs to sustain the production. And as Dante mentioned, we basically doubled and tripled production on the first 2 wells we did. And as a matter of fact, we are doing 2 additional jobs today. And so there'll be some news the next time that I'm on, on those wells that we acidize. In addition, we always have a continuing effort of bringing down -- producing wells and down injection wells back online. And so that effort continues. We're contemplating adding another rig to accelerate that program. And then finally, the really big highlight is going to be our horizontal drilling program in the San Andres. As Dante said, our own analysis, which, of course, is on our website, we indicated we had 50 locations. But as one of our partners who looked over the data, they feel like it's more like 90. And that's mainly because there's additional intervals within the San Andres that have potential. So there's just different intervals within that San Andres that we're going to be able to exploit thus the reason for increased potential well count of horizontal wells. So with that, I'll turn it back over to you, Dante, for the wrap up. Are you there?

I'm here. I apologize. I was -- sorry about that. Guys, I'm giving our walkaway points our takeaway points from this quarter. We're positioned for big time debt reduction. This includes the RBL is standing close to $20 million. And also includes a seller note that stands close to $18 million, $19 million. We're going to retire both those in the next quarter, along with the preferred shares that are also standing in our capital stack. All 3 of those are going to go away. We're going to have workover badness next quarter because we've already got a solid backlog of approved workovers. This is going to increase our water injection going to increase our oil production. The last quarter of this year, we're going to have -- I'm just going to say we're going to be going great guns in drilling preparation, not drilling but drilling preparation, Q1 of next year in '26, we should be drilling up to 6 wells, 3 to 6 wells. We're also going to be doing some low-cost acquisitions, which we can't help ourselves because of these low oil prices, frankly, our phone is ringing. So even though our stock is quite low, we can do some very, very low-cost acquisitions that will be accretive to our stock and we're in the midst of looking at 2. So when will the stock ever go up, you're going to ask. And I've got my family and friends in the stock and they're asking me, how low can it go? And I told them, as of today, it can't go any lower than $0.37. So -- but I believe that the stock is really attractive. I mean it at a much higher price, I'm more optimistic now than ever. And with the upside that I just mentioned, I just can't help feeling very optimistic on our future. With that, I'm going to turn it back over to Mike Porter and our Q&A, please.

Matt, would you give them any instructions, please?

[Operator Instructions] That concludes our dial-in Q&A. [Operator Instructions] I will now turn the call over to Michael Porter for remaining questions.

Thank you, Matt. guys, the first question that came over the Internet is can you give us some color on your gas operations and what you think the future in gas will be for the company?

Yes. Let me field that one, guys, if I could. So first off, gas prices have behaved much better than oil prices, and our gas revenue is up. So we're happy about that, and it's a very good question because we're looking at gas. We're looking at gas opportunities and I'll just say we're looking at gas opportunities in the U.S., and we're also looking at unconventional gas. We like the specialty gas where the price of gas is much higher than I'll say, Permian gas. So just as a for example, helium costs closer to $400, $500 per Mcf if we can pick up a property or a plant that generates a helium revenue line, we're then tapping into deep, I'll call it, deep value for our company. The gas we get and sell to kinetics out there, that's our midstream provider that bought out Durango, we don't get a whole lot for that gas. So if we can monetize that gas that we produce, which is about 900 Mcf per day by either doing a data center, bitcoin mining or one of those things. And we're investigating it now, but we don't know how to do it yet. So we're looking at help from others, we'd be very excited to do that. But at the moment, we are enjoying a little more income because the gas prices for just, I'll say, methane loaded with C2, C3, C4 and C5 is on the upswing, just the opposite of oil and gas. Let me ask -- pull my team if they have anything they want to add to that. Jesse or Mitch.

I'm fine in that regard.

Okay. We'll go back to you then, Mike.

The next question is how is your relationship with Chevron?

I'll field that one, too. All of us when we first bought this property, we wanted to make sure we had a good relationship with Durango and Chevron they're really our client because they buy the gas, now kinetics and Mitch and I -- sorry, Mitch and I and Jesse all have had chats with Chevron as well as with kinetics. And I'd like to say our relationship is excellent. In the case of Chevron, they've said, if you quadruple, your oil production, we'll take it all. So at the moment, we don't see any issues there. In the case of kinetics, the Permian is a wash and gas. So we have to be very careful, and we're curtailed about 20% of our gas production in a rolling curtailment because the midstream guys have to catch up to what the producers are producing. So they have a big gas plant due to come online. I think the end of this year, Jesse, you're more familiar with that. When would their next trains come on that would relieve some of this.

Should be the end of July is what they've indicated. But I'm taking that with a grain of salt because they keep pushing it, but hopefully, the end of July.

Yes, the date slipped. Okay, that's the best answer we can give you there. Back to you, Mike.

Okay. The next question, hang on, it's coming over right now. Would the entire deal with oncore, will it close in June? Or can you do it in pieces?

It looks like it's going to be an all at once. And the latest I've got is we were trying to hold a June 23rd date. And it's complicated because we're involving the bank, the seller, a very large investor that is the backer for Enstream. And I believe to be safe for this audience, I'd say we'll get it done by the end of July. Although we're pushing like hell to get it done in June. And that's the best I can guidance I can give. It's not that the funding is there, the funding is there. The issue is getting all the paperwork together to everyone's satisfaction. It's a complicated transaction.

Mitch, this question is for you. Can you explain to me exactly how the hedging program operates? And do you make any money off of it?

Sure. Well, first off, the hedging program that we have is our hedges are swaps where we basically have gone in and our range is a little over $70, actually are 3 or 4 hedges blocks that are between $70.10 and $70.50, where would ever and their 15,000 barrels per month hedged, which is 70% of our production. And no matter what the oil price sells market is at $60, we collect the $10 at the end of the month, actually the 25th of the month. And if it's $80, we got to give the $10 back. And the rest of it, the other 30% new production floats with market. So it's pretty simple. We don't have collars and all that. Now we may in the future, but a little bit more complicated. We actually had that at the beginning of last year, collars and staff. But we're not paying for hedges just to get it to 1 number. We're locking in hedge price. We're not in the business of a hedge bond. We de-risk mitigate our risk by doing that and it's set up to cover our basic loan needs and basic operating expenses. I hope that answers the question. Back to you, Mike.

Dante, the question is, can you give us your thoughts on the oil and gas business in '25? And how do you feel about what's been going on worldwide?

Wow, yes. The there's a lot of opinions on that. For us, the mines that put together the New York strip oil pricing is probably the best collection of mines. But my own observation, and I've been in this field a long time since I got out of school in '79, the Permian, I do believe has peaked. You're seeing the rig count falling off at these oil prices. We have an unusually good Permian rock. I don't believe that we're going to be phased, even if oil prices are in the low 60s or high 50s. Certainly, if we're in the low 50s, that will readjust our focus to be just workovers, which are lower capital cost and faster payouts. But I think the world can't produce 100 million barrels a day infinitely and the world continues to increase in demand. So my own belief is we're going to trade in this it's pretty easy to say, 60 to kind of 80 range, and we're at the bottom of that range. And if we go below 60, it won't be for long because you'll see the drilling rigs all dry up. And right now, more production is coming out of the Permian than any other oil field. So if the Permian continues to drop, and every new well drilled, almost everywhere in the world, it's almost like this other than there's 1 field off of Northern South America that's doing quite well. But other than that, every new well does worse than the previous well. So if we drill a new Permian well, it does worse than the older good Permian wells a decade ago or 20 years ago. So we're going to fight that. We're going to fight that and drill better wells. We're going to have better workovers. And we're going to enjoy, we believe, $70 a barrel. And as oil goes up and it will go over $70, we'll look to hedge the 26 production at $70 again. So I think $70 is a fair price. It's going to go up and down from there. But I think, generally, it's going to level out around $70. And I'm bucking the trend with that statement because New York strip pricing is forecasting low 60s. And I'm just basing that on my own insight on people can't easily just turn the spigots up to make oil come out. It just doesn't work like that. And that includes Saudi Arabia. The largest oilfield, the South Ghawar field that I worked on is a waterflood. And it's a carbonate waterflood. I would trade that carbonate for our carbonate, but it just reflects that we're dealing with a finite resource and that finite resource is going to eventually run out. So I'll turn it back over to you, Mike.

Jesse, next to the last question, do you see an opportunity for you guys as far as the rig count going down while you'll be able to get rigs at a cheaper price? And would you buy a rig rather than rent it or lease it?

I assume they're talking about a drilling rig and -- so yes, now typically, as an operating company, we don't want to have that additional liability of drilling rig. And so we will -- but right now, it is a good market to go out and get a drilling rig at a fair market value or fair market daily rig rate. So I don't anticipate repurchasing our own rig. If we end up doing anything with the rig, it will be a workover rig and a little less liability there. And so to answer that question, I'm saying rig rates are good right now based on the information talking to consultants and other operators out there, and so don't anticipate buying our own drilling rig, but there could be the potential for us to buy a workover rig or 2. I hope that answers the question.

Next, the last question. Good job on cost controls. How do you look at 2025, especially with the industry under pressure? And do you think that you can bring your costs down somewhat lower?

Yes. We certainly are looking at a couple of things. Obviously, Jesse, you hit on some lease operating expenses, field expenses as it gets that were line in, that will drop 30,000 a month. The insurance costs are what they are, but we may be able to drive those down. The labor and fees we already started, and we expect that to be a full $1 million reduction this year over last year. And the legal, professional fees will be dropping. And as I said after Q2, we do for these acquisitions, those will obviously there'll be expenditures but they may or may not be capitalized as far as acquisition costs and then amortized. But -- so those are the areas of the biggest areas that we have. We don't have a whole bunch of buildings and stuff around. We have a really nice small engineering design center. But we don't have a lot of -- we're not into a lot of big excessive stuff. We don't have a whole lot of staff. We outsource it at very good reasonable rates. So we're fairly lean and mean as it is, and these acquisitions would not increase our core base G&A. Obviously, you have an acquisition, it has its own insurance cost for that operation. We may -- we're not going to add staff for a whole bunch stuff. We can leverage our accounting firms or the payroll provider or legal firms. So we're not -- we're looking to spread the cost of the G&A across multiple growth opportunities this year and you said this year. But obviously, the future years, that's what we're designed to do. So I think hopefully, I answered that person's question. So I'll go back to you, Mike.

Thank you. If anybody else has any questions, please feel free to give me a call, and I'll arrange for one of the management people to call you. Dante, that's the end of the questions. I'm turning the meeting back over to you.

Yes, I'm just going to repeat the takeaways, guys. We put a theme on this discussion that we're ready for launch and really the foundation to take this company to a whole another level. And we're talking about achieving what the analysts said that we should be a $4 or $5 stock. To get there, we got to get our balance sheet in order, and that's by retiring debt retiring these preferred shares, retiring the seller note. That's kind of step 1. Step 2 is we got to get the production way higher than where it is. Near term, it's going to be done with workovers. Longer term, it's going to be done with drilling. And then smart hedging, which we're already doing, smart cost control, which we're already doing. We're going to continue that focus so that we think that by Q3 and Q4, our shareholders can finally stand up in cheer. Right now, we're just grateful for all of you for sticking it out with us because we know this is painful. It's painful for us and the management team to see this stock down at this level, and we are doing everything behind the scenes to position this thing to take off. So with that, I thank all of you for dialing-in. Look forward to talking to you again soon. And if you have questions, we're very accessible. You can reach out to Mike, you can call us. We're happy to just tell you everything we're doing. So with that, I turn it back over to Mike and Matt.

Matt, you can finish off the meeting.