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01/10 18:20
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals several concerning factors: a decline in realized oil prices both before and after hedges, a reduced EBITDAX margin, and a higher debt level. The Q&A session highlights management's lack of clarity on funding and economic impacts, raising uncertainty. Despite some positive production growth, the overall sentiment is negative due to financial declines and vague guidance.
Free Cash Flow Generated significant free cash flow for the first half of the year.
Net Production Declined marginally from 1.41 million to 1.38 million barrels of oil quarter-over-quarter in Q2, but increased 3% compared to the same quarter last year. Barrel of oil equivalent production is up 1% quarter-over-quarter and up 14% compared to same quarter last year from 1.94 million to 2.22 million barrels of oil equivalent.
Average Daily Net Production 15,200 barrels of oil per day and 24,400 barrels of oil equivalent per day for the second quarter of 2025.
Upstream LOE per BOE Down 3.7% over 2024 average for the first 2 quarters of 2025.
Cash Flow from Operations $33.6 million, lower quarter-over-quarter primarily from price and changes in working capital.
Realized Oil Prices Before Hedges Fell 11% quarter-over-quarter or 22% year-over-year.
Realized Oil Prices After Hedges Fell 7% quarter-over-quarter or 14% year-over-year.
Combined LOE and Cash G&A per BOE Decreased by 5% to 7% as compared to the same period 1 and 2 years ago.
Adjusted EBITDAX Margin 66%, down modestly from 71% 1 year ago.
Reinvestment Rate Reinvested 54% of cash flow from operations before working capital into upstream CapEx during the quarter or only 41% for the 6 months year-to-date compared to 47% for the same period in 2024.
Debt $284 million at quarter end, driven primarily by normalized net working capital changes and funding the deposit for the Silverback acquisition.
Midstream and power generation projects: Advancing projects to enhance gas and oil flow assurance and support access to a stable power supply.
Silverback Exploration acquisition: Increased Yeso trend footprint to 30,000 net acres, 98% held by production, offering substantial undeveloped potential for future growth.
Yeso trend expansion: Acquisition of Silverback Exploration increased footprint and potential for future growth.
Safety metrics: Achieved a total recordable incident rate of 0 and 97% safe days in Q2 2025.
Drilling efficiency: Set multiple records in Yoakum County, including longest lateral drilled and fastest spud to TD, reducing total average drilling cost per lateral foot by 15% compared to 2024.
Production: Net production declined marginally quarter-over-quarter but increased 3% year-over-year. Barrel of oil equivalent production rose 14% year-over-year.
Cost management: Average upstream LOE per BOE down 3.7% over 2024 average. Combined LOE and cash G&A per BOE decreased by 5% to 7% compared to prior years.
Capital allocation: Reinvested 54% of cash flow from operations into upstream CapEx, reflecting a disciplined response to lower oil prices.
Growth strategy: Positioning for 21% oil production growth and 27% total equivalent production growth from Q2 to Q4 2025, supported by Silverback acquisition and midstream investments.
Oil Price Volatility: Lower oil prices have led to reduced development activity and CapEx, impacting cash flow and production volumes.
Infrastructure Challenges: Unreliable natural gas processing in New Mexico caused shut-in wells and deferred oil production, affecting revenue.
Gas Takeaway Constraints: Constraints with the current midstream partner in New Mexico led to deferred oil volumes and production delays.
Tariff Impacts: Higher pipe pricing due to tariffs increased costs during drilling campaigns.
Debt Levels: Increased debt levels due to the Silverback acquisition and working capital needs, raising financial leverage.
Operational Costs: Higher per-unit costs associated with undeveloped Silverback assets and midstream OpEx skewing upstream cost metrics.
Regulatory Environment: New Mexico's zero-flaring policy creates operational risks when gas disruptions occur, impacting oil production.
Economic Uncertainty: Cautious macroeconomic outlook due to potential OPEC supply increases and market absorption challenges.
Production Growth: The company expects fourth-quarter midpoint oil production to reach mid 18,000 barrels per day and over 30,000 barrels per day for total equivalent, representing a 21% growth in oil production and 27% growth in total equivalent production from Q2 to Q4 2025.
Capital Expenditure Adjustments: The company has increased its capital budget modestly, adding back drilling and completion activities, including 10 gross new drills and completing an additional 2.5 net wells. This adjustment aims to maintain an inventory of drilled but uncompleted wells (DUCs) for flexibility in 2026.
Midstream and Power Investments: The company is advancing its midstream and power projects, with additional compressors scheduled to arrive in late Q4 2025 and in-service dates for power projects starting in 2026. These investments aim to enhance reliability and scalability.
Silverback Acquisition Synergies: The integration of Silverback assets is expected to yield cost savings of 5% to 15% for regularly used services and improve project economics by leveraging existing infrastructure and increasing net interest in development locations.
Debt and Financial Flexibility: The company forecasts modest debt paydown in the fall of 2025 at $65 WTI, with leverage expected to be in the range of 1.3x to 1.4x adjusted EBITDAX on a pro forma combined basis.
Market Outlook and Hedging: The company remains cautious about macroeconomic conditions, monitoring OPEC supply and market absorption. It has added hedges for the next 18 months to mitigate price volatility.
The selected topic was not discussed during the call.
The earnings call reveals strong production growth and strategic investments, like the Silverback acquisition and midstream projects, which are expected to enhance flexibility and scalability. Despite a slight increase in LOE and a decrease in EBITDAX margin, the company maintains solid cash flow and debt levels. The Q&A section highlights management's focus on capital allocation and strategic flexibility, with positive analyst sentiment. The overall outlook, including optimistic production and financial strategies, suggests a positive stock price movement.
The earnings call reveals several concerning factors: a decline in realized oil prices both before and after hedges, a reduced EBITDAX margin, and a higher debt level. The Q&A session highlights management's lack of clarity on funding and economic impacts, raising uncertainty. Despite some positive production growth, the overall sentiment is negative due to financial declines and vague guidance.
The earnings call presents a positive outlook with increased oil production, improved operational efficiency, and significant debt reduction. The commitment to dividends and strategic investments in growth initiatives indicate strong financial health. Although some uncertainties were noted in the Q&A, particularly regarding the ERCOT effort and midstream project, the overall sentiment remains positive due to the company's proactive approach to infrastructure development and cost management. The positive market conditions and expected revenue from gas sales further support a favorable stock price reaction.
The earnings call presents mixed signals. Positive aspects include strong free cash flow growth, debt reduction, and increased dividends. However, concerns arise from regulatory risks, supply chain challenges, and a 24% drop in net income. The Q&A section reveals management's reluctance to provide guidance for 2025, adding uncertainty. Despite positive shareholder returns, the lack of guidance and economic pressures suggest a neutral stock price movement in the next two weeks.
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