EON Resources Inc. Class A

2025. At this time, all participants have been placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we'll open the floor for your questions and comments after the presentation. If you're listening on webcast, you can submit a question by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your question. 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 Reformed Act of 1995 that involves risks and uncertainties that could cause, affect, 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 Series 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 Andreas 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 goods. 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 priorities just pay our bills. So a lot of our cash goes to that. So on to the slide that you have is slide one. 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 costs 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 is the run rate that we need to find, either through increased production or increased costs. 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 percent, 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 OnStream 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 on-stream 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 water flood producing field, which means we need producers that are completed in our water flood 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 gonna 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 one 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 State OCD has approved Forty-five 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 acid stimulations, a new formulation cooked up by Jesse Allen, our VP of Ops, has doubled and tripled production. Now, we've done this before where we did simple acid. 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 fracks, 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 into Q1 results. The main takeaways from Q1 are two things. Cost reductions are starting to materialize. efforts to clean up the balance sheet continue. On the cost reduction side, G&A cost reductions 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 $700,000 to $750,000 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 non-cash items that don't really reflect the running of the business anymore. So in past calls, we've drilled down to all the puts and takes of these items. Those items are properly recorded, but when you strip them away, you can see a little bit more insight into the actual business. And there are two running the business numbers that's hard for you to see, but I like to see them. The first one is income from operations, which I've talked to 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 one 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 loss. And it is the income loss. from operations less than, we've just talked about less than G&A, excluding all the non-cash equity-based type costs, and less, of course, interest expense. If you remove all the rest of those non-cash items, Q1 was a loss of $1.2 million after the interest expense. Last year, the loss increased. was running more like 1.5 million per quarter average across the year. This is a 300K improvement, and that's driven by the 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 slide, please. Next slide. As you can see, production remains stable for this quarter again. There was an uptick in oil revenue due to the 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 hedge position at this level all the way through the end of 2025. Last item I want to do note on the revenue slide, though, is the gas revenues are up 50K 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 a slide in the deck, which I'm sure got from the website, and it's 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 Q&A slide. Next slide, please. Now, we have a plan, we've stated, to reduce Q&A costs across the entire year. and some reductions have started in Q1. First, the salaries and fees decreased by $225,000 in Q1 over last year, or this is approximately a million-dollar-a-year run rate per year. Second area, Q1, professional fees, legal, audit, consulting, they're slightly down from last year's average per quarter. Now, a significant portion of these stem from Acquisition filings, complicated instruments, balance sheets, settlement agreements, you know, trailing legal matters. We do expect these to drop off dramatically after Q2. Third area cost reduction is the insurance costs are down 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. 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 on the equity slide. So, let's flip to the debt structure slide. Now, there's really nothing new here. So it's there for your reference. I 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 by a couple of million with our exchanges to long-term convertible notes. Correspondingly, The warrant liability is also dropped by $1.6 million from the balance sheet. Now, next slide, please. Now, just like the production impact slide, I showed it on the last call. I wasn't going to include it, but it did stimulate a lot of good discussion, so people wanted to review it. So, I've left it in there for help to help you understand our business better. Again, in Q&A, I 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 want to move it on to Jesse to review operations. Thank you.

Yes, thank you, Mitch. I'm 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 just want to jog 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 of 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-serviced work-over rig that we ran throughout the year. And we were able to stabilize production in the 925 to 950-barrel oil-per-day range. 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, flowline repairs, electrical repairs, purchased 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 one, we're 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 not cause us operational problems having to pull down hole pumps, et cetera. So that's been successful. And the first couple wells, one came in a little over 20 barrels all 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 two wells we did. And as a matter of fact, we are doing two additional jobs today. And so there'll be some news the next time that I'm 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.

Dante, are you there?

I'm here. I was on mute. I apologize. Sorry about that. Guys, I'm giving our walkaway points, our takeaway points from this quarter. We're positioned for big-time debt reduction. You know, this includes the RBL. It's standing close to $20 million and also includes a seller note that stands close to $18, $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 three of those are going to go away. We're going to have workover madness 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 – You know, 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 six wells, three to six 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 two. So when will this 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 37 cents. But I believe that the stock is really attractive today. I'm in 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 the instructions, please?

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then re-enter the queue. Once again, if you have any questions or comments, please press star 1 on your phone.

Please hold while we poll for questions. Thank you.

Once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Please hold Wallypole for questions.

Thank you.

That concludes our dial-in Q&A. For those listening on the webcast, you can submit a question at this time by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your question. I'll 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?

Yeah, 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 it's a very good question because we're looking at gas we're looking at gas opportunities and uh you know i'll just i'll just say we're looking at gas opportunities in the u.s and we're also looking at unconventional gas we we like the specialty gas where the price of gas is much higher than i'll say permian gas So, you know, just as a, for example, helium costs closer to $400 or $500 per MCF. If we can pick up a property or 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 is 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, poll my team, if they have anything they want to add to that. Jesse or Mitch?

No, I'm fine. Well, let's see. I'm fine in that regard, yep.

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

Okay. The next question is, how was your relationship with Chevron?

I'll field that one too. All of us, when we first bought this property, 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 washing 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.

Yeah, the dates slip. 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 Encore, will it close in June or can you do it in pieces?

It looks like it's going to be an all, 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 onstream. 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 guidance I can give. It's not that the funding's not there. The funding is there. The issue is getting all the paperwork together to everyone's satisfaction. It's a complicated transaction.

Thank you. 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. We're We basically have gone in, and our range is a little over $70. Actually, there are three or four hedges blocks that are between $70.10 and $70.50, where whatever, and there's 15,000 barrels per month hedged, which is 70% of our production. And no matter what the oil price sells or market is, if it's at $60,000, we collect the $10 at the end of the month, actually the 25th of the month. If it's $80, we've got to give the $10 back. The rest of it, the other 30% new production, floats with market. That'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 stuff, but We're not paying for hedges just to get it to one number. We're locking in hedge price. We're not in the business of a hedge fund. We de-risk, mitigate our risk by doing that, and it's set up to cover our basic loan needs and basic operating expenses. So I hope that answered the question. Back to you, Mike.

Thank you. 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, yeah. There's a lot of opinions on that. You know, 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'll readjust our focus to be just workovers, which are lower capital costs 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 oh, there's one 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 $70. Low 60s. And I'm just basing that on my own insight on, you know, 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. You know, their largest oil field, the South Kavar field that I worked on is a water flood. And it's a carbonate water flood. 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.

Thank you. Jesse, next to the last question, do you see an opportunity for you guys as far as the rig count going down where 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 yeah now typically as an operating company we don't want to have that additional liability of a 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 we purchasing our own rig if we end up doing anything with the rig. It'll be a work over 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 work over rig or two. I hope that answers the question.

Thank you. Mitch, 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 things. Obviously, Jesse hit on some lease operating expenses, field expenses, as he gets that order 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, you know, we already started and we expect that to be a full million reduction this year over last year. And the legal professional fees will be dropping, as I said, after Q2. You know, if we do some of these acquisitions, those will obviously, they'll be expenditures, but they may or may not be, you know, capitalized as far as acquisition costs and amortized. So those are the areas, 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 will not increase our core base G&A. Obviously, you have an acquisition that has its own insurance costs for that operation. We may – We're not going to add staff or a whole bunch of stuff. We can leverage our accounting firms or the payroll provider or legal firms. So we're looking to spread the cost of the GNAs 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 thank you. 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.

Yeah, 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 other level. And we're talking about achieving what the analyst said, that we should be a $4 or $5 stock. To get there, we've 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 one. Step two is we've 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, you know, stand up and 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 in 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.

Certainly. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.