REPX(REPX) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net equivalent production increased by 35% to 9.1 MBoe/d for the three months ended June 30, 2021, compared to the same period in 2020, and by 10% quarter-over-quarter compared to the fiscal second quarter of 2021 [10] - Generated cash flow from continuing operations of $58.8 million for the nine months ended June 30, 2021, with a reported net loss of $21.5 million for the three months ended June 30, 2021, which included $35 million in non-cash unrealized losses on derivatives [11] - Cash costs per BOE reduced by 7% quarter-over-quarter, with a cash margin of $35.11 per BOE before derivative settlements and $25.80 per BOE after derivative settlements [11] - Exited the quarter with $6.9 million in cash and $97.5 million drawn on the credit facility, which was reduced to $62 million in July [13] Business Line Data and Key Metrics Changes - Brought online seven gross 4.8 net horizontal wells and drilled one gross one net vertical injection well during the quarter, in line with budgeted guidance [14] - Accelerated development of the Enhanced Oil Recovery (EOR) project, which now includes 12 vertical injection wells in the 960-acre project area [14] Market Data and Key Metrics Changes - The company anticipates capital expenditures before acquisitions for fiscal fourth quarter 2021 to be approximately $20 million to $26 million, with additional capital spent related to the EOR project [19] Company Strategy and Development Direction - The company aims to grow production and dividends while adhering to a capital allocation framework of approximately 60% to 65% of expected EBITDA for normal development activities [25][26] - The EOR project will initially use natural CO2 due to its availability and reliability, with plans to switch to anthropogenic CO2 as sources become available [17] - The company is exploring carbon capture, utilization, and sequestration (CCUS) opportunities, which could synergize with its core upstream business [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the best fiscal year performance in history across numerous operational and financial metrics, despite stock price volatility [9] - The company is monitoring potential changes to federal tax incentives and regulations that could impact CCUS projects [18] - Management believes that the U.S. is well-positioned for CCUS due to its significant geological storage capacity [75] Other Important Information - The company completed a $47 million net capital raise in July, securing funding for the acceleration of the EOR project and increasing its estimated trading float by 77% [12] - The latest dividend announced was $0.28 per share, representing a 5.8% annualized yield based on the closing price of $19.27 per share on August 6 [13] Q&A Session Summary Question: Discussion on capital allocation and free cash flow - Management indicated that approximately 60% to 65% of expected EBITDA will be allocated to development activities, allowing for growth and dividend increases [25][26] Question: Operational activity and drilling plans - Management expects increased activity in fiscal Q4, particularly related to the EOR project, while core upstream business activity will remain consistent with fiscal Q3 [30] Question: Hedging strategy and future plans - The company continues to monitor its hedge book and feels well-positioned with a fair amount of business protected while maintaining exposure to upside [31] Question: Timeline for anthropogenic CO2 arrangements - Management indicated that simpler projects could be implemented within a year, while larger, more complex projects may take several years [36][39] Question: Power and utility access for EOR project - Management confirmed sufficient power infrastructure is in place for the EOR project, with potential plans to generate power from gas supply in the future [40] Question: Interest from ESG investors - Management acknowledged the potential to attract ESG investors by linking hydrocarbon supply with lower emissions and carbon capture initiatives [71][77]