KGEI - NASDAQ

Good day, and welcome to the Kolibri Global Energy Inc. Third Quarter Earnings Call. [Operator Instructions] 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. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Wolf Regener, President and CEO. Please go ahead.

Thank you very much, and thank you, everyone, for joining us today. With me on today's call is also: Gary Johnson, our CFO. We released our 2023 third quarter report last night, and I'll assume you've all had a chance to look over the report. We're really pleased with the accomplishment we achieved this quarter. We've had strong financial results and continued progress on our development program, and I want to thank everyone in the company who has worked so hard to grow the company quarter after quarter. With that, I want to turn it over to Gary to discuss our financial results. Go ahead, Gary.

All right. Thanks, Wolf, and thanks, everyone, for joining the call. So I'd like to go over a few highlights of the quarter and the September year-to-date results, and then we can also take questions at the end of the call. And all amounts are in U.S. dollars unless otherwise stated, so I'll go ahead and start with the third quarter. As you can see from the earnings release last night, our financial results continue to improve quarter-over-quarter. Average production was up 61% to 2,737 BOE per day compared to 1,702 BOE per day in the prior year. The increase was due to the 3 wells added at the end of 2022 and the 3 wells added in June of this year, partially offset by some temporary production declines caused by our gathering system operator and also wells shut-in during completion operations. Adjusted EBITDA was $9.5 million compared to $6.9 million in the prior year, which was an increase of 39% due to the higher production, which was partially offset by lower prices, which were down about 20%. Revenue was up 29% to $12.7 million in the quarter, again due to the higher production, partially offset by lower prices. Net income for the quarter was $2.3 million and basic earnings per share was $0.07 compared to $9.3 million and $0.26 per share in the prior year quarter. And that decrease was due to a more than $7 million swing in our noncash unrealized mark-to-market adjustments on our hedges between this quarter and the third quarter of last year. We had a $2.6 million unrealized loss on hedges in this quarter versus a $4.7 million unrealized gain on hedges in the prior year third quarter. Average prices were down about 20% for the quarter, and this price decrease led to a decline in our net backs from operations to $43.28 per BOE compared to $55.16 per BOE in the prior year quarter. Net backs including the impact of hedges, were $41.65 per BOE in Q3 compared to $49.69 per BOE last year, which was a decrease of 16%. Operating expense was $7.34 per BOE for the quarter compared to $7.77 per BOE in the prior year third quarter, which was a decrease of 6%. And our operating expense for the quarter did trend higher compared to the previous quarters in 2023 as the third quarter included prior period costs, which our gathering system operator had underbilled as well as additional water disposal costs from wells adjacent to our new wells. So, we do expect operating costs to adjust down at the previous quarter's level on a go-forward basis. In October, our credit facility was redetermined at the same $40 million borrowing base. As part of the redetermination, we now have greater flexibility in cash distributions, which would allow us to potentially return capital to shareholders in the future. And we're also able to scale back the minimum term of our required hedging contracts. Our net debt at the end of the quarter was $23.3 million. Now I'm going to move on to the September year-to-date results. Average production was up 78% to 2,780 BOE per day compared to 1,563 BOE per day in the prior year. Adjusted EBITDA was up 57% to $28.6 million compared to $18.3 million in 2022 due to the higher production, partially offset by lower prices of 26%. Net revenue was up 34% to $37.2 million compared to $27.8 million in the prior year, again due to the higher production, partially offset by lower prices. Net income was $14.5 million, with basic earnings per share of $0.41 compared to $13.9 million with basic EPS of $0.39 in the prior year. Average prices decreased by about 26%, which again led to a decline in our net back from operations to $42.48 per BOE compared to $57.05 per BOE last year, which was a decrease of 26%, which was in line with the price decrease. Net backs, including the impact of hedges, were $41 even per BOE compared to $48.50 per BOE last year, which was a decrease of 15%. Operating expense was $6.47 per BOE for the year-to-date September period compared to $8.17 per BOE in the prior year period, which was a decrease of 21%. And I did also want to point out some of the efficiencies we're experiencing in our field operations. Both our Barnes 7-4 and 7-5 wells at an average cost of approximately $6 million per well. And our latest 3 Emery wells were drilled at an average time of 11 days each, which is a significant improvement from the 20-day time frame expectation we had at the beginning of the year. We are expecting a continued increase in our cash flow in the fourth quarter as the 2 Barnes wells will begin production for the entire quarter with the 3 Emery wells expected to our production in early December. And with that, I'll hand it back to Wolf.

Thanks, Gary. As you can all tell, we've come quite away in the last 2 years. Revenue and cash flow are growing, keeping our leverage low and executing well in the field. Other production up 61% over third quarter 2022 and our EBITDA of $9.5 million, up 39% from third quarter last year. We're making great strides, and that's even with a bit lower prices than they were last year. And I can't emphasize enough about our great team. We started the year expecting our well cost to be $7.2 million and then have our first 3 pad come in at an average well cost of $6.5 million, and our latest 2 pad come in with an average well cost of $6 million each. We're always striving for constant improvement, and this is a shining example of that. We're building and growing company value, and we're looking forward to continue to do so. So this concludes the formal part of our presentation, and we'll be happy to answer any questions you have now.

[Operator Instructions] Today's first question comes from John White with ROTH Capital.

Thank you, operator, and good morning, everybody. Congratulations on the nice quarterly results. And I believe you just said the Emery 17-4H has not started producing yet. Is that right?

You're right. Hi, John. Yes. So the Emery 13; 3, 4 and 5 aren't on production yet, we'll start for extra stimulating those here within the next week or so. And so, they're expected to come on in early December, all 3 at the same time.

Do you want to talk about how the T-zone looked on the electric logs?

Yes. No electric logs, but on the mud logs because we don't bother running electric logs anymore out here. But on the mud logs, everything looks great. Everything came in as expected and looks very consistent as it does in most of the field, frankly. So we're quite confident with it. Remember, I know you know, but for everyone else that's on the call, we had drilled and participated in over 40 wells, drilling down to the Woodford. So we drilled through all these intervals back in those days all across this field, and saw that it was very consistent across the whole field. So as long as our guys steer the wells well, which they've been doing and keeping it in zone and doing a great job on the fracs, we expect to have some really good wells.

Okay. Well, you must be encouraged because you've got another T-zone well included in the 3-well pads scheduled for December?

Correct. Yes, we feel confident in the T-zone that it's coming along, can't guarantee anything, obviously, at any point in time, but it is an oil and gas business, but everything is coming together the right way where it looks like the T-zone will be productive across the whole field or across that main part of the field, I should say. When we step out further, then we'll test it out there as well. But over the core area that we've been developing, and we feel so confident in where all the proved reserves are in the Caney, we feel good about the T-zone. And hopefully, Netherland, Sewell will appreciate that as well.

Yes. Very encouraging. On the subject of return of capital to shareholders, is it too early to discuss whether you're leaning toward share buyback or a dividend?

Yes. So that's an option for us. Obviously, if the share price is way too low, where we don't think it's up where it should be, then my recommendation to our Board would be to do some share buybacks. And if the share price is trending up higher, where dividends make more sense, then it would be more in the dividend side of things. But the nice part is with our cash flow increasing and hopefully continuing to increase, over this next year, we have those options to decide. And with the change in the bank line, allowing us to actually return capital to shareholders and do other things with the money. So, that helps and that clears that path because we weren't able to do that before this reserved redetermination that we had.

Okay. Well, thanks for that. And I'll turn the call back over to the operator.

Thanks, John. Appreciate it.

Thank you. [Operator Instructions] Seeing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Wolf Regener for any closing remarks.

I just wanted to say thank you to everyone who's joined on the call today. We will post a replay of it and -- on the website when we get it here in a couple of days. But thank you very much, everyone. Take care.