Empire Petroleum Corp (NYSE:EP) Q2 2022 Earnings Conference Call August 16, 2022 11:00 AM ET
Company Participants
Stephanie Prince – ProActive Capital Group
Thomas Pritchard – CEO, Secretary & Director
Michael Morrisett – President, Treasurer & Director
Eugene Sweeney – COO
Conference Call Participants
Operator
Good day, and welcome to the Empire Petroleum Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded.
I would now like to turn the conference over to Stephanie Prince of PCG Advisory. Please go ahead.
Stephanie Prince
Thank you, NJ, and thank you to everyone joining us today. Empire Petroleum released their second quarter financial results early this morning, if you don’t have a copy of the press release, please go to the company’s website at empirepetroleumcorp.com and click on the News and Press Releases in the Investor Relations section.
With me on the call today are Tommy Pritchard, CEO and Board Director; and Mike Morrisett, President and Board Director. Also on the call are Eugene Sweeney, COO; and Angela Baker, Chief Accounting Officer. Tommy will begin the call with an introduction to Empire Petroleum, along with some opening remarks. Mike will then provide a financial review of the second quarter before opening the call for questions.
Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. Please note that various remarks that may be made on this conference call about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may vary materially from those indicated by these forward-looking statements, as a result of various important factors, including those discussed in the company’s filings with the SEC. The company assumes no obligation to update the information contained in this conference call.
I would now like to turn the call over to Tommy Pritchard, Tommy?
Thomas Pritchard
Yes. Thanks, Stephanie. Welcome, everybody, thank you for your interest in Empire. Since this is our first ever call, I thought it might be a good idea to step back for a second, tell you guys’ kind of how we got here. And then, of course, we’re available after the call that filling everybody in, and I also will direct you to our website where you guys can download our most recent presentation and previous presentations.
But we — Empire has been a public entity for — since the mid-80’s, Mike and I took over back in 2018, and we focused on buying, producing predeveloped-producing properties. At that time, the stock traded on the OTCQB Exchange. And we bought our first properties at the end of 2018 in Louisiana followed that up in 2019 where we were successful bidders for a private equity bank North Dakota, Montana properties from EnergyQuest.
And in 2020, we added the Fort Trinidad Field of Texas, so it had us operating in Texas for the first time. And in 2021, we added this transformative New Mexico acquisition, when we bought the iconic Eunice Monument and our Arrowhead Grayburg field from Exxon or XTO, and with the help of our largest shareholder, the Energy Evolution Fund.
And then that brings us to 2022, where we uplisted on the New York Stock Exchange American became a member of the Russell 3000 and 2000, and we’ll talk about our record second quarter here. So obviously, there’s much more to the story than that, but you guys can take a look at our website for previous presentations, and we’ll be happy at field calls after this call or whenever you guys would like to comment to us.
So let me share with you our record results for the second quarter. As you can tell, we’re pretty fired up about these results. The results are a direct reflection of our ability to execute on our core strategy controlling operating costs. And while we have consistent production and the ability to add scalable assets.
During the quarter, Empire benefited from strong production and obviously, higher realized oil and gas prices. And the result was a record-setting revenue and net income. Revenue increased 26% over our first quarter. In fact, when you combine both quarters, Empire’s revenue was higher than all of last years or any previous year at $29.5 million.
Our net income combined for the 2 quarters is $9.5 million and our EBITDA is over $13 million. Our total debt remains low at 8.2%, while our cash position has closed the quarter out at 12.4%. Empire sales volume was 195,000 BOE almost doubling the same quarter of last year, which we reported when work back at last year. This doubling shows what a transformative acquisition, coupled with a focused eye on production and costs, we do for a company like Empire.
At the end of our second quarter, Empire kicked off its Priority Well program and our Starbucks field in Bottineau County, North Dakota. The plan is projected to cost $10 million and target strong increases in production and reserves. Early phase work will start at the end of the second quarter, and we saw our team restimulating current completions in the field.
They field-wide they focused on water pressure conformance in the waterflood, injecting several times of previous injection rates and thereby increasing reservoir pressures and what we’ve seen in our early results are showing terrific response and adding to our production.
In the second quarter, Empire closed on its successful proceed of the land a Madison Unit also in Bottineau County. This unit is the other half of the land of field that we didn’t operate or own and the acquisition added to our production. But more importantly, it adds to our growing priority well list for 2023 and beyond.
The field was originally calculated to contain nearly 15 million barrels in place, combined with 15 million barrels in place and combine that with Starbucks, that exposes Empire to over 40 million barrels in just those 2 deals alone. And we have several other deals in North Dakota that have similar characteristics.
Our capital spend program is still on track. And even though we haven’t provided guidance, we’ve picked up the pace. We look forward to continued results from this in the second half of 2022.
Looking forward into the third quarter, our operations will continue at Starbuck as we lateral sidetrack that to 7 wells utilizing a coiled tubing drilling unit. These sidetracks are designed to expose more wellbore to productive zones. Empire will also drill up to 4 new vertical wells in the field. Of course, we’ll continue to upgrade surface facilities as we move along for better operational efficiencies.
Now I’d like to turn the call over to Mike to discuss our financial results.
Michael Morrisett
Thanks, Tommy, and good morning and afternoon, everyone. My comments today will primarily focus on selected financial data and quarterly results compared to 2022, Q1 and, in some cases, the same period a year ago. For a more detailed discussion of our financials, please see our second quarter 10-Q we filed yesterday with the SEC, and our earnings press release this morning.
Looking at our statement of operations. Revenue from oil, natural gas and natural gas liquids was $16.5 million for the second quarter compared to $13 million for 2022 Q1. This is up from $4.9 million in the 2021 comparable period. Our operating expenses in Q2 were $5.5 million, which was a slight increase from Q1 of $5.2 million.
So altogether, our net income for the quarter was $5.5 million up from $3.6 million in Q1 2022. And just to point out that a year ago for the same period, we had a net loss of $5.3 million. As the majority of our production is from oil, the average oil prices received for second quarter production realized to $109 per barrel versus $91 per barrel in the first quarter of 2022.
So regarding our cash position. We started out 2022 with $3.7 million. And at the end of this quarter, we had $12.4 million. During the second quarter and in July, our outstanding legacy warrants have been 100% exercised at $2 per share. This resulted in an increase of just over 1.5 million common shares issued and $3.4 million of cash inflow. Currently now, we have approximately 21.6 million common shares outstanding with insiders owning almost 50%. I’m happy to report that in the second quarter, we earned $0.27 per share, $0.24 fully diluted and that was up from $0.18, $0.15 fully diluted in 2022 Q1.
As a company and operating strategy, we’re not really big on debt. We have a small RBL, about $7 million with CrossFirst here in Tulsa. It’s collateralized only by our assets in North Dakota, Montana and Louisiana. We paid down $300,000 per quarter. We are unhedged at the moment, except for a few puts to facilitate our RBL covenant. Our current and future capital spend is to facilitate increased production at a low cost per barrel. This was accomplished organically with assets we already own.
As Tommy mentioned, we are currently on a field in North Dakota that will be about a $10 million spend. Our goal is to bring on new production at less than $10,000 per barrel and, in some cases, much less.
In the second quarter, we also purchased the other half of the Landa field in North Dakota for $1.4 million paid for with cash on hand and this is 1 of our many 2023 projects.
Around the time of being included in the Russell indexes, we initiated an ATM with Raymond James. Given our strong position — given our strong cash position and anticipated future cash flow at this point and in time, we really don’t foresee utilizing the ATM at these current price levels of our stock.
As we just recently uplisted to the NYSE American, we’re focused on increasing liquidity. We look forward to meeting more investors in an effort to broaden our shareholder base.
And with that, I’ll turn it back over to Tommy to wrap up the call and move us on to Q&A.
Thomas Pritchard
Yes. Thanks, Mike. As you heard from Mike and me our 2022 second quarter results demonstrate our emphasis on predeveloped assets with upside large held-by-production acreage and low debt levels. We expect that going forward, we expect production, operating cash flow and net income will continue to grow throughout the remainder of 2022, assuming the existing price environment continues. Complementing these efforts are our ongoing capital expenditures drill program and initiatives to drive efficiencies in our operating cost structure.
And now we’d like to open it up to question and answers.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question today comes from [indiscernible] of MLM Capital Management.
Unidentified Analyst
I’d like to congratulate you guys on a great quarter, but I’d also like to ask when you’re going to have an investment bank follow you guys in research to give some kind of a signal on whether they like it or buy, sell, hold, whatever. Do you see anything in the near future?
Thomas Pritchard
Yes. David, that’s a great story. That’s a good question that we’d love to be able to answer. However, Mike and I both came from the financial community, times are a lot different than when we were in the business, but we continue to do that.
And we hope, if we keep putting up numbers like we put up and our stock keeps performs accordingly that folks will work their way into putting us into their rotation. But for right now, I don’t have any real comments on anybody picking us up any time soon.
Operator
[Operator Instructions]. The next question today comes from George Mickelson from Dakota [ph].
Unidentified Analyst
Congratulations on the quarter, certainly nice numbers. I got 2 or 3 questions for you if you have a moment. First question is, you talked about the Starbucks field and you’re talking about an increase in production by year-end. Can you give me any more detailed description of what kind of targeted increase you’re looking for?
Thomas Pritchard
Yes. I’ll start off and then we can — this is Tommy. I’ll start off and we can both Eugene on the line as our COO in charge of that project. This field was unitized back in the, I think it was 2008. It’s a water drive, two waterfloods, two different formations. And through the years, folks really didn’t just hit the existing wells and they injected a minor amount of fluid into the formation. It really didn’t create any kind of pressure performance for there.
We looked at this and said, “Boy, this is — these are 2 formations at 3,000-foot depth. We can add more to that and add more wells in the ground and create a better pressure water drive throughout the field and make a difference in production. But rather than me drawing on about this, let me — let me let Eugene in there because Eugene scripted this whole 4-phase project for the enhancement of the Starbucks field. And Eugene, what could you add to that?
Eugene Sweeney
Thanks, Tommy. Yes, George, to answer that question, we’re targeting at least a 500-barrel a day increase. That’s our daily production target and to double the reserves count on that. We’re — like I said, we’re looking at that as a conservative target. We’re thinking we’re going to come in quite a bit better, but that’s our baseline.
Unidentified Analyst
And you’re looking for that by year-end or.
Eugene Sweeney
By year-end, that’s right.
Thomas Pritchard
And George, we put together a presentation for folks to look at after the call and a little bit of detail on the Starbucks enhancement program is in the few slides on that. So direct you to that.
Unidentified Analyst
Do you have any goal of what you’re hoping your total barrels production will be by year-end? I know you’re around 2,000, I believe it’s around 2,000 a day now. Are you shooting for 3,000, 4,000, sticking at 2,000? Do you have any goal in mind?
Thomas Pritchard
I think we started the year — while we don’t provide guidance, we started the year kicking around where we’d like to be. And we would like to have our production double this year — year-over-year from 2,000 to 4,000. I’m not saying we’re getting — we’re for sure going to get there, but hopefully, we’ll be well on the way to getting there.
And — and it all depends on how we’re able to — how the Starbucks field reacts to what we’re doing to it and what — how quickly we can get services out there and how it held — it all operates. So as of right now, we’re on target to at least gather what Eugene is focused on. And we’d be real disappointed if we didn’t get that.
Unidentified Analyst
Got you. Last question. Just curious, any additional acquisitions in your pipeline? Anything you’re looking at in the future that you can talk about?
Thomas Pritchard
We always have a real full pipeline of acquisitions, whether it’d be something we we’ve proactively gone after or that is in the market. The problem is right now is that bid off are spread between what the sellers are anticipating in $90 to $100 oil and what we’re willing to pay is pretty wide. So if we can find some good bolt-on acquisitions like the Landa acquisition or something like that, we’ll definitely participate.
Operator
Seeing no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Tommy Pritchard for any closing remarks.
Thomas Pritchard
Yes. Thank you, operator. Look, to sum this up, first of all, thank you for your questions. We’re very excited about the future and our opportunities in our existing portfolio of assets. We’re going to remain focused on keeping our costs low and allocating our capital to the highest return projects.
And I thank all of you for joining today, and we’re excited we will continue to work hard for our shareholders. That you have a good day.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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