Vital Energy, Inc.

Good day, ladies and gentlemen, and welcome to the Vital Energy Inc. second quarter 2024 earnings conference call. My name is Dee, and I will be your conference operator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session after the financial and operations report. As a reminder, this conference is being recorded for replay purposes. It is now my pleasure to introduce Mr. Ron Hagut, Vice President, Investor Relations. You may proceed, sir.

Thank you, and good morning. Joining me today are Jason Paget, President and Chief Executive Officer, Brian Limmerman, Executive Vice President and Chief Financial Officer, Katie Hill, Senior Vice President, Chief Operating Officer, as well as additional members of our management team. During today's call, we'll be banking forward-looking statements. These statements, including those describing our beliefs, goals, expectations, forecasts, and assumptions, are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results may differ from these forward-looking statements for a variety of reasons, many of which are beyond our control. In addition, we will be making reference to non-GAAP financial measures, Reconciliations to gap financial measures are included in the press release and presentation we issued yesterday afternoon. The press release and presentation can be accessed on our website at www.vitalenergy.com. I'll now turn the call over to Jason Paget, President and Chief Executive Officer.

Good morning, and thank you for joining us today. Vital Energy remains focused on maximizing free cash flow by integrating our recent acquisitions, adding low break-even inventory, and maintaining a strong capital structure. Our team continued the trend of strong production results during the second quarter. Total production and oil production set company records as packages turned in line during the quarter in both the Midland and Delaware basins are exceeding expectations. Strong production helped drive free cash flow of $45 million for the quarter, which we used to reduce debt. We are increasing our full-year 2024 total production guidance midpoint to 129,000 barrels of oil equivalent per day to incorporate both outperformance of our current operations and for our acquisition of Point Energy Partners, which is expected to close at the end of the third quarter. We are also increasing our full year 2024 oil production guidance, raising the midpoint to 60,000 barrels of oil equivalent per day due to the outperformance of wells in the Delaware Basin and Howard County, as well as expected fourth quarter volumes from the point acquisition. Turning to capital, investments in the quarter were almost $30 million below the midpoint of our guidance range. This was primarily based on activity timing, and we expect these dollars to shift to the third quarter. The full year, we have adjusted our capital investment midpoint to $845 million from the previous midpoint of $800 million, incorporating the expected fourth quarter capital per point. For the quarter, operating expenses were higher than projected at $966 per BOE. In our May call, we shared the LOE on the acquired assets was higher than expected due to the increased water production and H2S after close. Since May, we have reduced our run rate by nearly $4 million per month, which was accomplished by shutting in on economical wells, improving chemical spend across both basins, and applying new power generation capabilities in the Midland. This, along with additional optimization efforts, led to exiting Q2 at approximately 895 per BOE. While Q1 and Q2 costs were driven higher due to delayed billing throughout the acquisition transition process, we crossed over the peak in April and subsequently reduced run rate throughout the quarter. We expect second half LOE to remain around 895 per BOE on our base business inclusive of lower production volumes for the third quarter. In the fourth quarter, we expect total company LOE to increase to around 935 per BOE when the point acquisition closes. We are intensely focused on optimizing operations and creating additional value from our acquired properties. We have been successful in lowering capital costs and improving productivity in the Delaware Basin. Since closing our initial acquisition in the basin, we have recognized capital cost reductions of 12% and believe we have line of sight to another 5% reduction in the future. Our strategy of widening spacing versus the previous operator continues to deliver productivity gains on our southern Delaware position further enhancing capital efficiency. Over the past five years, our acquisition strategy has significantly bolstered our oil-weighted inventory, now providing approximately 10 years of development at our current pace. Recently, we have taken further steps to enhance our portfolio of low break-even locations through both organic growth and the strategic acquisition of point energy. This organic growth has been primarily driven by the successful implementation of long lateral horseshoe wells across our leasehold. By developing these wells in the Midland and Delaware Basin, we've converted 84 short lateral locations into 42 long lateral horseshoes, reducing the break even to below $50 for 30 of these locations. Additionally, We've identified and added 77 new long lateral horseshoe locations to our inventory that were previously excluded due to the economics of short laterals. In our ongoing efforts to strengthen our inventory, we have initiated a testing program in the Barnett formation, recognizing an opportunity to add more low-cost locations. The associated activities capital expenditures and production have been fully integrated into our updated capital and production guidance. We anticipate sharing further details on this promising development in the coming months. Moreover, we are closely monitoring the performance of our recently turned in line Wolf Camp C wells, which were placed on ESP after two months of free flow. The early results are promising. And we look forward to providing more information on this potential inventory as we gather additional production data. Thanks to these organic inventory additions and our acquisition of point energy assets which expand our scale and sub $50 breakeven inventory our portfolio is now deeper and more resilient than ever before. Maintaining a strong capital structure is key to executing our long-term value proposition and free cash flow generation capabilities. Our strong balance sheet and liquidity position facilitated the purchase of point on our credit facility, driving significant per share accretion for our shareholders. To support debt repayment related to the acquisition, We added approximately 9 million barrels of oil hedges in 2025 and now have more than 15 million barrels hedged in 2025 at almost $75 per barrel. National energy is exceptionally well positioned for the future. Our strategy is focused on building durability in both well economics and our capacity to deliver free cash flow through volatile oil price cycles. We have built scale in both the Midland and Delaware basins We have demonstrated great progress and improving operations in both basins and are pursuing multiple new initiatives to improve both our capital costs and operating expenses. We have built a decade of oil weighted inventory, 45% of which breaks even below $50 per barrel. We have a strong capital structure with no term debt maturities until 2029. In short, We are well equipped to deliver long-term value creation and sustained free cash flow generation for years to come. Operator, please open the line for questions.