This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good morning everyone and welcome to the HNR Acquisition Corps first quarter ended March 31, 2024 financial results. At this time all participants are in a listen only mode and we will open for questions following the presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Michael Porter, who is Director of Public Relations. Michael, over to you.
spk02: Thank you, Jenny. Good morning, everybody, and welcome to our first quarter earnings call. Before we start the call, I'd like to introduce Dante Averetti, who is President and CEO, Mitch Trotter, I'm sorry, President and CEO, Mitch Trotter, who is CFO, and Jesse Allen, who is Vice President of Operations. The forward-looking statements have to be read, and then we'll get to the formal part of our presentation. The information included in this conference call forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995 that involves risk and uncertainties that could cause actual results to differ materially from what is expected. Words such as expects, believes, anticipates, intends, estimates, seeks, et cetera, and variations in similar words and expressions are intended to identify such forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Such statements differ related to the future events and future results based on current available information and reflect the company management's current beliefs. All the information for the Qs, the Ks, and all our documentations are listed on EDGAR and at the Security Exchange Commission's website. Without further ado, I'd like to introduce you all to Dante, our President and CEO. Good morning, Dante. Good morning, Mike. Thank you.
spk04: Welcome and thank you to all our participants. Thank you for all joining us this morning. I'd like to just start with a statement about the role of management in our board. We all work for the shareholders, which means we work for for all those shareholders that are on the call today and those prospective investors to give you a superior rate of return on your investment here. And that includes all of us that have invested in this, which is all of the board and all of the management team. We are all major investors in this endeavor. So we've put up our hard earned money to make this a big success. We also work for all our employees, and we'd like to give a shout out to those in the field, especially David O'Brien, who runs our New Mexico operations. And we want to ensure that everyone returns home safely every evening. To this point, I'm proud to report that we've had no injuries since assuming operations on November 15th of 23. So you should have in front of you our first slide, which is the My comments, and I'm going to explain first the diagram to the right, which shows our original oil in place. And myself, I'm a registered petroleum engineer, and I'll do this one time and not do this on every earnings call, but I'll do this this one time. The big oval there that looks like a pizza pie represents the total volume of oil that's in place underground within our our four main producing zones. And as you can see there, very little has been produced to date. So the previous recovery is the dark blue. The other lighter shaded colors represent our proven reserves, our additional reserves from adding perforations, additional reserves from infield drilling, and so on. And I'm just going to give you a tiny story because our chairman loves this, but The largest oil field in the world is the South Gawar Field in Saudi Arabia. It has something on the order of 170 billion barrels of oil in place. It produces today something close to 4 million barrels a day, and it's been doing that for some time. So that field has produced to date 85 billion barrels out of 170 billion barrels in place. We have just under a billion barrels in place. It's a water flood. The South Gowar Field is a water flood. We're a carbonate. The South Gowar Field is a carbonate. And our goal is to have a tremendous recovery, something on the order of 15%, 10% to 15%. The South Gowar Field has already exceeded 50% in a carbonate under a water flood. We're a carbonate under a water flood. The main zone of focus for us is the Seven Rivers Zone. You're going to hear all about that from Jesse when he gets up. And we have another prospective zone that could double, triple, quadruple our recoverable reserves in the San Andreas. You're going to hear about that as well. So that's it for that pie chart. Now you know what it means. And you know that it tells the story of future upside potential for our company. The quarter one that just finished had mixed results. We made 5.2 million in cash revenues, although we had 5.9 million in mostly non-cash and one-time costs. This depressed earnings. You're going to hear about that in a little bit. Prior to the purchase, you're going to see our decline curve was coming down from 1,400 to 1,000. And we couldn't do anything about it because it was under the previous owner's control. Now that we own it, effective November 15th, we've invested money in the field to arrest that decline, holding at about 1,000 barrels a day. And now we're reversing that decline and heading upward. You're going to hear all about workovers. You're going to hear about how we finance these workovers. And that's really our story. It's the goal to increase production over the next two to three years from 1,000 to 3,000 barrels a day. We did go to New York and visit with a lot of you, and we appreciate the time you folks spent with us. We came away with a very good feeling that we've got very interested investors that are are happy to help us, that understand the oil business, and we're grateful. We had some advice given to us that we'll follow, which is to be transparent and forthright about what we see, what's coming up, speak candidly, share often, and in return, we believe we'll have a high degree of interest. So that's New York. We just had a lot of fun there. We appreciated the New York Stock Exchange tour and the fun of being a public company. So increasing production is my main topic here. And there are a lot of things we can do to improve earnings. Increasing production is one of them. Cost control, engineering, improved maintenance, improved safety. financial engineering all those topics come into play but right now i'm focusing on increasing production and my first bullet is stabilizing production was critical because we inherited a declining field not because of field performance as much as due to mechanical failure of pipe and downhole pumps so we'll talk about that we think that we're in good shape to to tackle most of that, and it's reflected in the production, which is now leveled out to 1,000. The steps that we're taking to increase production, first of all, we have to find more working capital. We're short, and we've got many options to increase our working capital. The number one choice for us of working capital is the ground. to just simply increase production, which increases revenue, which increases working capital. However, the rate of our increased free cash flow is not to our liking, so we're going to talk about that in this call. We have mapped out and done the engineering for 70 workovers. We've identified production increases. from these 70 workovers from 400 to 800 barrels a day and we'll go into that detail the the last bullet under steps to increase production what goes hand in hand with that is proving reserves the formula to prove reserves is is prescribed by our third party engineer for the most part it's adding perforations stimulating new zones, and then demonstrating with production from these wells what is possible. And then after some period of proven production, we're granted an increase in our proven, developed, producing reserves, which is our measure of, I'll say, future life. Today, we have 15 million in proven reserves. Our intent is to increase that to $50 million over the next six months. So in summary, Q1, mixed, disappointing, but with good explanation. Q2 will be much improved. Q3 and Q4, much improved beyond that. So with that, I'm going to pass it over to Mitch Trotter, our CFO, to give you the financial details. Mitch?
spk05: Great. Thanks, Dante. Again, I'm Mitch Trotter, the CFO, and I see many of you on the call that were on our last earnings call and many I met in New York last week. So I want to thank everybody for continued interest and support. As noted on our last call or on the 10K earnings call, the Q1 term was tight and we filed as expected when we expected. And now we're back to normal. closing of months on the normal schedule. So we're back over the hurdles of all the complexities of 10K. Also, as noted in the previous calls, the predecessor, the prior quarters that you see in our financials, the prior years, they're not comparable to HNRA because we only took over the last six weeks of 2023. So eventually, two or three quarters out, we'll have much more comparables. But in the meantime, it's not really comparable to us. Now, as Dante kind of alluded to, we're kind of through the discovery phase of reviewing what we got in the field and the wells and also the oil reserves, as he showed on the graph. And I'll restate the condition of the field was below expectations, but the potential for higher reserves is much higher than We were expecting so we are very optimistic about the long-term growth and future of this company We will take further questions when we get to the Q&A and if somebody needs a lot more detailed questions We will gladly reach out to us and gladly set up a one-on-one conversation. We've done that before So on the Q1 overall As Dante noted, we've stabilized production after the decline in pre-acquisition production from the pre-acquisition condition. We did spend about $1.2 million on extra repairs and maintenance, getting the field back into good working order. And we do expect some of this to stay elevated over the next quarter or two, but declining in the amount as the excess repair and maintenance will shift more into CapEx, which will go into producing parts of the field. So while we do expect a continued spend, we do expect that to be mitigated with the increase to production. I will, going from here, I'll touch on slides with revenues, expenses, and cash flows. So advance to the cash revenue slide, please. And on that, we have As we know, we had about 5.2 million of cash generated from our revenues now reflects about 3233 in our q1 but that's because of a $2 million gap non cash hit from the derivatives and. Basically, what it does is this gap entry is it takes our two years of hedging which you can see down at the bottom. and it pulls it all the way back to March 31st of this year, and what would it take us to buy the whole thing out, produces the liability. So when you see on the P&L a hit, in reality it's a good thing of day-to-day cash collections because that means oil prices went up, and therefore from the last quarter, which means our – unhedged oil is producing more cash because we've got everything locked in for 60%, 50% over the next two years of $70 or greater, which is a great level for our company to be. So it reflects, it does the other part. Now, if you analyze it all, while we have 60% hedged for 2024, because of the collars, only 30% was impacted in Q1 and probably Q2 until oil gets up over 85 and it's running, you know, the 80 plus or minus two right now. So, so really only 30%. So 70% is floating with the higher rates. Okay. So let's go ahead and go on to the next slide. We'll talk about the costs that have hit. You know, we had a loss of, you know, uh, 5.3 million as reflected in the K1, excuse me, 10Q. And with that, we had 5.9 million that Dante alluded to of costs that really are in there that I need to explain when we analyze. And they all make sense in the grand scheme of things. There's 4.4 of non-cash gap driven entry expenses. and that is on the left, and in a minute I'll talk about the 1.5 of additional cash expenses above where we expect it to be, but it's producing results. So of the 4.4, the 2 million of hedges I've already described, there's 574,000 of fees that were paid in stock that's buried in the G&A, and that's a good thing from a standpoint instead of paying cash, we did stock in an agreed amount in lieu of cash for fees for instruments and agreements. There's also down below the line, the warrant liability gets evaluated, the FPA liability gets evaluated each quarter, and that's just the change in the derivative calculation for those type items. And there's also a little over $800,000 of debt discount amortization, which the debt discount was booked as part of the opening balance sheet, the purchase entry, and therefore it's being amortized off. So that's the non-cash impacts, the major ones. And then on the other side to the right, we have the $1.5 million of additional cash expenses. And 1.2 I've already talked about, the repair and maintenance above and beyond our normal baseline level, and we've done a lot of analytics of it, really went to some of the items that Jesse will talk about. And it's not recurring in the grand scheme of things. It will decline, and a lot of those type costs, our spend level is normal, but it will go into capex as it goes to producing more oil. which is what we need. And there was also in GNA about 350K of additional professional fees from a pretty healthy budget. But for those who were on the 10K, the annuals, the 10K had a lot of complexities with taxes and the FBA and warrants and especially, again, the taxes and And then there's S1 and all that. So it was a very heavy quarter for being right out of the gate of being a public company. And that'll start to settle down as we go forward. So I thought I'd bring that out. All right, let's go to my last slide, which is really want to touch base on the cash flows and our sources that Dante alluded to. And I'm not going to go into the detail of the cash flow statement. It's in our queue. But we had $1.5 million from operating activities. So it was positive and out of the field. We had investing activities where of about a million, there were a couple things into that. But, you know, part of it, not all the spin was repair and maintenance. We did CapEx towards producing activities. which is part of what stabilized the production in the field that Jesse will talk about. And of course, we serviced our debt adequately, and the financing activities reflect that. Now, as Dante alluded to, we really have three things. We have working capital, we have debt service, and we have CapEx, and we need sources for that. And currently, We are moving along. We have cash generated by operations and production increases and that will self fund a lot of this. We also discussed it and discussed it in the past. We have instruments in place to be able to cover our needs. But those items that doesn't start become effective until late June beginning of July time frame is our expectation. So we are. and we think it's responsible, always reviewing an ongoing, what's our capital stack? What's a potential funding as a supplement of what we have in place? And today, I would have to say, we can take on some debt within a responsible level of debt service and amount, keeping it properly balanced with equity, and equity probably not in favor at the moment until the stock gets up back to our expectations. Uh, and a lot of other expectations is what's appropriate now. So that's kind of where we are. I, uh, we'll probably get some Q and a glad to take it. And in the meantime, let's move on to Jesse on the field.
spk06: Thank you, Mitch. Uh, again, my name's Jesse Allen. I am the vice president of operations and, um, My first comment is my focus is to increase production. But before I get into the details of that, I wanted to, if you'll look at that chart there on the right, that is our daily oil production, and it goes back to May 2022, and production at that time was just about 1,400 barrels of oil per day. And as you can see, the red line there is when we took over operations and you can see a steady decline there. And as Dante and Mitch have mentioned, that was mainly due to the previous operator just not spending any money on maintenance and repairs. And so when we took over, we immediately put a work, contracted a work over rig and started returning idle wells to production doing maintenance and repairs as needed. And so you can see after the red line and in the first quarter here, our production has lined out and stabilized at just under 1,000 barrels of oil per day. So again, my focus is to increase production. So how are we going to do that? I'm sure that's of great interest, of course, to our investors. And the way we'll do that is first by optimization of our producing wells. And what that means is Over the course of the previous 18 months, as wells went off production, they weren't either immediately returned to production or they were allowed to remain down. So with that work over rig we contracted, we have started returning those wells to production. And as a result, it's leveled out and stabilized our daily oil and gas rates. What we'll also do is the optimization of our injection wells. As has been mentioned, We are water flooding the Seven Rivers formation. So let me direct your attention to our geologic section. That's the chart underneath the production curve. And you can see the HNRA zones that we're interested in. Of course, the blue one there is the Seven Rivers. And below that is the Queen, the Grayburg, and the St. Andrews. And as I continue with my comments, The Queen, Grayburg, and St. Andrews is the 34 million barrels of additional potential that our third-party engineering group had identified, and that's where we'll pick up those additional reserves. And so as far as optimization of the injection wells, when we took over, there were several, several of our injection wells that had been shut in due to They had failed their mechanical integrity test or their MIT. And so we ended up at the end of the first quarter here contracting a second work over rig to strictly return those injection wells, repair them, get them tested, and return to injection. And that's what we're in the process of doing now. I can't overemphasize the importance of getting water in the ground in seven rivers, optimizing the rate, put in water where it's needed. We've seen as these injection wells have been down over the course of the first quarter, it has affected the water float operation. And so as we repair those and get them back on injection, we expect to see some uptick in production as a result of that activity. And finally, as has been mentioned, the repairs and maintenance, we also have some infrastructure upgrades that's associated with those repairs and maintenance, and I'll talk a little bit about that toward the end of my comments here. So, major future activities. Of course, we're targeting Seven Rivers workovers, and that's where we'll end up recompleting some of those wells that are currently in the Queen, the Gray-Bergen, and St. Anders, and coming up to the Seven Rivers, perforating, stimulating, and putting on production. We have a nine to 10 wells that we've targeted as really good candidates. And we'll prioritize those and do the first four or five and test some of the new ideas I have about perforating and stimulating these wells. Second is the workovers to exploit the potential reserves that's in those legacy zones that I've talked about, the Queen, the Grayburg, and the St. Andrews. And we've targeted probably 40 to 50 of those And we're prioritizing those. And those are a little bit more complicated in that we'll be adding perfs in intervals that already have some perforations in some of the other zones. These are the bypass and overlooked pay that our third-party engineers identified. And so finally, the infrastructure upgrades. When we took over, we had quite a few wells that were idle just because Their flow lines over the course of time had developed multiple leaks or had become plugged, sand, paraffin, whatever. And so those wells were shut in. We have now purchased a three-inch poly pipe, and we're in the process of replacing those lines. And so here within the next several weeks to months, we'll be returning 10 to 15 wells that are currently capable of producing, except we have to replace the flow lines. That's one of the infrastructure projects. The second infrastructure project is the replacement of one of our water injection trunk lines there in our Skelly unit, which is one of our leases there that's part of our legacy water flood. We have purchased the pipe. We're awaiting delivery. be able to get that water flood reactivated here in the not-too-distant future. And finally, on our Russell Turner water station, which is one of our other water injection facilities that we're using to flood the seven rivers, we need to do some upgrade work there, transformers, lightning protection, and so we'll be doing that here in the not-too-distant future also. So with that, obviously, there will be some questions. I anticipate some questions. So At this point in time, I turn it back over to our CEO, Dante.
spk00: Oops. Did we lose Dante? Dante, are you hearing us?
spk04: Okay, I'm on. I'm sorry. I was on mute. My bad. I'm going to summarize what I hope are the takeaways from the last three presenters. Item number one, we sent everybody safe. Since we bought the property, everybody went home safe. We continue to focus on safety. That's my top priority. Item two, we bought the right asset. We are a pure Permian water flood play. Lots of things about this particular part of the Permian and our water flood make us unique. For one, it's a mature field drilled up with a lot of Passover zoned, meaning the Grayburg was the primary area focused by our predecessor owners. We're not focused there. We're focused on the Seven Rivers and the San Andreas formations, which have plenty of reserves to the point where We're targeting $50 million in recoverable reserves to be proven over the next 12 months. We are meeting our debt requirements and we have a strong hedge position locking us in at $70 a barrel. Mitch talked a bit about that. It was on his slides. We feel like hedging above $70 is a good thing and we've done it. We're hedged this year at 60% at $70, 50% of production in 2025 at $70. So it gives us insulation from oil price swings. Q1 and Q2 were impacted by acquisition costs and a poorer field condition than we anticipated. However, we're about out of that phase. We're now working to increase production, and you can see it in the curves. We're quite bullish on Q3 and Q4. We're stating a number of 1,400, but I assure you the number that we're talking when we're not on these calls is much higher. The current actions, the takeaways of what we're really doing, we've got 70 workovers that have been detailed in terms of what are we doing, where are the procedures, how are we going to stimulate them, and we've got two rigs running. hoping we can go to three rigs. All that contributes to increased production while we maintain and manage down our debt. We're following the science and lessons learned. A lot of what that means is a close examination of what's worked and what hasn't worked in the past. And we do believe we've got the winning formula. We have so many successes to report. if we were to go through the details of the past and recent past. The water flood, I guess I failed to mention that largest water flood in the world. I was a project manager for Parsons Corporation on the second expansion of that field back in the 90s, so I feel competent to talk about water floods in a carbonate, and that's what we're doing right here. I'm in my water, I guess you could say. So we have promising results, which means of the patterns completed, and we have something like 95 patterns completed, we see very good results. It's young. It's early. And we've got another 150 patterns to go in the seven rivers. By analogy, we have something like the same number of patterns, or 250 patterns, to go into San Andreas as we prove up reserves there. So my closing remark, we believe the share price will follow earnings, and earnings will follow production. And of course, we have to do everything else correctly. But that's where we're at. And our focus today was to talk to you about what we're doing about production. So with that, I'm going to turn it back over to Mike, please.
spk02: Thank you, Dante. Denny, I'd like to now open it up for questions, please.
spk01: Thank you very much. At this time, we'll be conducting our question and answer session. If you would like to ask a question on the phone line, you may press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Also, if anyone wishes to ask a question on the webcast, you can do by clicking in the bottom left of your screen, typing in your question and hitting submit. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Todd Felt of Aegis Financial. Todd, your line is live.
spk03: I appreciate you taking my questions. The $2 million hedging derivative charge that you had, is that hedging gain or loss going to be something that occurs every quarter based on the price of oil moving up and down, or is that just something that will happen the first quarter of each year as you hedge out production for that year?
spk05: Good question. It does go up and down every quarter. That is, I guess, one place that the predecessor is relevant to it. The oil rose dramatically in Q1. That's why the amount was such high. And if you look back at theirs, it fluctuates 100,000 or two up and down each quarter. So, yes, that will be ongoing. If oil drops a little bit, it'll be a positive number. If oil goes up a little bit, so... A big negative is good. We don't want a big positive because that means oil is dropped off. So hopefully that answered your question, Todd. Thank you.
spk03: Yeah. So and then just to follow up, I appreciate your comments on not wanting to raise cash via equity at these low levels. Is there a timetable on when you need to get some cash raised in order to meet all these projects and maintenance demands? Are you looking to do this in the next year? 30 days, 60, can you go 120 days without raising cash? What's kind of the timetable?
spk05: Well, obviously a very good question. We want the cash to be able to accelerate production. So we can maintain where we are, but we definitely want it to be able to increase. And I would see in the next 30 to 60 days would be a reasonable timeframe of what we're looking. Obviously, the ELOC goes into play start in January in the 60-day range. But this is a supplement to that. So it won't be like, oh, now we've got that. Because that will help and we'll work with that with volumes and price. But we fully expect to use a lot of that as the price justifies. But that also, we're very sensitive to downward pressure, as you alluded to at the beginning. So it's a proper balance of against debt and equity and stock price and protecting all the investors, which we all are, at least all the management team is. So hopefully that answers your question, but that's our expectation.
spk03: Thanks. Final quick question. Sure. Final quick question on your proven reserves. I know the, your, your research from partner cap, you know, they had a, level of, I think, $291 million that they listed in there. And obviously those include some of the reserves that don't yet qualify as proven, probably in the San Andreas. And you had about $94 million on the balance sheet. Do you plan on updating those reserves every quarter as the studies come in and they meet the standards to be listed as proven?
spk05: So basically I'll say yes and no on that. The first off the 281 or 291 of the PV 10 is only the seven rivers. So any of the additional 34, which is Dante and Jesse described, which is more like in the San Andreas area, that would be above and beyond that, because that goes from additional probable to proven. So normally we would just update once a year, uh, the, uh, copper port, the reserve report. But if we've got proven reserves and we get something flipped and it increases the proven reserves, we will definitely have a rerun of that and produce and, of course, we'll publish it. So that will be in the future. And as Dante described the process, it's a lot of steps that can take six to nine months to complete. So I'd like to be. releasing that when we get it. But otherwise, it'll be the end of the year. Thank you very much. Thank you.
spk01: Thank you very much. Your next question is coming from Chris Recuso of Partner Capital Group. Chris, your line is live.
spk07: Good morning, gentlemen. Can you hear me? Make sure I'm unmuted. Yes, we can. Okay, good. Good morning. I have various questions. Richard Gosselin, Can, can you give us some guidance as to where you think production might what you think production might look like. Let's say by the end of this year, first quarter next year. Richard Gosselin, Is it safe to assume that that the conservative goal is about 1400 barrels per day or is it, is it something above that, that would be the first question. The second question, which I think is the really dispositive one. is have you guys completed what you would consider to be a thorough an entirely thorough or complete survey of your plant and equipment whereby you will not have any additional nasty surprises vis-a-vis the state of some of the wells and some of the pipes so to speak and I guess an adjunct question to that is can you give us a sense of what your cost profile will look like in the next quarter or two while you're working through these unanticipated cost overruns. Is it fair for us to just essentially assume flat cost profiles into the next quarter in terms of these repairs, or are they going to start trending down? And then at the risk of testing your patients, one last question is, Do I understand correctly the mechanics of the derivatives that you have established today? And that is effectively it's an inflection point of around $85 per barrel. Above or below that is where you get losses or gains. Is that net-net a distilled understanding of your current derivative contracts?
spk05: Thank you. So, Dante, let me answer the cost and the derivative thing and then let you talk about the other. So obviously on cost forecast, uh, hard dollars, uh, we're not making projections, but as I stated, we expect the spin level, especially as, and it may go up a little bit with the extra pull over rig, but a lot of that will correspond and go into CapEx versus the lift operating or the lease operating expenses or the lift costs. So that mix, I don't know, but. that mix will improve over the next couple of quarters as less expense, more capex. And on the derivatives, the hedging, most of our hedging is, all of our hedging is $70 or greater for all of this year and next year. And there are collars that go to 70 to 91 for half the year and 70 to 85, 50, I believe, for the second half of the year. The derivative calculation liability that hits the P&L is based on whatever the oil price is that day compared to the change oil price it was. So March 31st oil price versus June 30th oil price If it's flat, there'll be no impact. If it goes up a little bit, it'll be a little negative. If it goes down a little bit, of course, it'll be a little positive. And that's based on the change. And then it compares. So if it is, let's just say it goes up to 95, then the colors go into play. But if it stays between basically the 70 and 85, 86 range, where it is right now, The change from swaps to collars does not really impact the formula. It's really just the change. I hope I answered that question so you understood it. If not, let me know, but let me go ahead and let Dante address the 1400 level and the in the review of the field. And I think that we hit all your questions with that. Go ahead, Don.
spk04: Yeah, so we expect 50 to 75 barrels a day increase every month. That's our expectation. If you work that out, we should be north of 1,400 at the end of the year. And frankly, we discussed internally, do we say by year end we're at 1,400 or do we say by Q4 we're at 1,400? But Ken Bacon- It's our goal to certainly to exceed that we're going at the fastest rate we can, with the working capital that we have. Ken Bacon- And and and we're we're prioritizing those activities that increase production over those activities that don't unless it's required due to being saved or due to some other reason now in a water flood normally the response time between. injecting water and seeing the production increase at the producer takes a while, but this field behaves pretty quick. So we have a high priority to get all the injectors to work. And the injectors cost us an average of $20,000 to work over per well, where a producer costs us close to $100,000 to work over, which involves stimulating, and changing out the pump. And so that's what we're looking at in front of us. Did I answer your questions?
spk05: He wanted to know about the field condition. Oh, that's right.
spk04: So here's what we see. We think the worst is behind us. It doesn't mean that quarter two isn't going to see some repairs. We kind of see... Q2 having a hangover with some of the same, but not to the extent that we did in Q1. And then we see Q3 and Q4 being pretty clean. You know, it is an old field. We are going to have some line leaks. But just to give you a little bit of color here, if a line had 17 holes pop in it or 17 line breaks in the last, 12 months, we're replacing the line, the whole line. We're not patching the next hole, which is just expensive. You also run the risk of a cleanup. And where you inject water, the water is treated as a contaminant. So we don't want any spills. We want to make sure everything's working in good order. So we've done that with, you know, and we're doing that now. It will certainly carry through Q2 to a lesser extent. than Q1, and that's why in our notes we said we're very bullish on Q3 and Q4, but Q2 will have some of the same impacts as Q1. Got it.
spk07: Understood. Thank you. Thank you.
spk01: Thank you very much. Just a reminder there, if anyone does have any remaining questions, you can press star 1 on your phone keypad to join the queue or type your question into the left side of your screen on the webcast and hit submit.
spk02: I'm not seeing any further questions come into queue I will now hand back over to Michael for any other comments or any other questions he may have thank you thank you everybody for listening to our call if you have any other further questions please contact me at nine seven three eight six five nine three five seven and I will arrange for the team to give you a call back have a great day Thank you very much.
spk01: Thank you all.
spk02: Thank you all.
spk01: Bye-bye. Thank you very much. This does conclude today's conference. You may now disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Disclaimer