Cavvy Energy Ltd.

Good day, ladies and gentlemen, and welcome to the CABI Energy Third Quarter 2025 Financial Results Conference Call. Please be advised that today's proceedings are being recorded. Following the presentation, we will conduct a question and answer session. If you have a question and you're viewing on the webcast, please use the Ask a Question button in the top right-hand corner to type your question at any time during the presentation. If you are participating via telephone, and would like to ask a question, please dial star 11 at any time. You will then be in the queue for the question and answer session at the end of the call. I would now like to turn the meeting over to Mr. Dallas McConnell, Vice President, Corporate Finance. Please go ahead, Mr. McConnell.

Thanks very much, Daniel, and good morning, everyone. I would like to welcome you to CAVI Energy's third quarter 2025 conference call. With me today are our President and Chief Executive Officer, Darcy Redding, Chief Financial Officer, Adam Gray, Chief Operating Officer, John Emery, and Chief Commercial Officer, Paul Kunkel. Darcy and Adam will begin today with a review of our operating and financial results and certain other company developments. Following prepared remarks, we will turn the call over to the conference coordinator for your questions. Before Darcy begins, I would like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by CAVI with the Canadian Cert Securities Regulators on cdarplus.ca. With that, I will now turn the call over to our President and CEO, Darcy, who will provide more detail on our performance last quarter, along with recent corporate developments.

Thank you, Dallas, and thank you everyone for your interest in CAVI Energy and in our third quarter 2025 results. I'm extremely pleased with our solid performance in the quarter. The ongoing focus on successful execution of our strategic plan continues to bear fruit, even with the additional pressure of an oppressively low natural gas price in the quarter. I'm also very excited to share the details of a new sulfur sales forward pricing agreement for 2026, which was disclosed in our news release after the close of markets yesterday. We believe this pricing agreement materially reduces revenue risks for the company in 2026, providing even greater certainty towards meeting our strategic objectives, most notably debt reduction. Before we get to that, however, I'd like to take a brief moment to remind everyone of the compelling reasons to invest in CaviEnergies. CAVI's low-decline production capability of 33,000 BOE per day, consisting of approximately 85% natural gas when our shut-in dry gas is included, is supported by extensive owned infrastructure, highlighted by our three operated natural gas processing facilities that have both deep-cut natural gas liquids and sulfur recovery. These processing plants have almost a half BCF per day of raw gas processing capacity in aggregate, with the ability to accommodate CAVI volume growth, regional facility consolidation, and custom processing of third-party raw natural gas production. We've achieved tremendous success lowering our operating cost structure and growing our third-party processing business by taking advantage of the opportunities created by our extensive infrastructure ownership. With the deep expertise and track record of our management team and board of directors and our highly supportive major shareholder, we are poised to deliver and anticipate additional success as we maintain focus on the execution of our strategic plan. Calendar year 2025 has been a year of transition where we have completed our strategic pivot to focus on improving the cost structure and efficiency of the business, growing our gathering and processing business, repaying our debt, and preparing for significant cash flow improvement with the year-end expiry of our current fixed price sulfur contract. We have entrenched a new culture of resiliency, innovation, high performance, and excellence in our organization. I'd like to refer to everything we have accomplished to date as our first phase of our strategic plan. As we transition to our second phase, We will continue to maintain a mindset of continuous improvement on our accomplishments to date. We are excited to begin implementing phase two of our strategic plan in 2026. Phase two will see a notable emphasis on accelerating deleveraging and positioning CAVI for sustaining and ultimately growing our asset base with the objective of driving growth in per share value and investor returns. In phase two, we anticipate firming up plans for replenishing and growing our asset base through our extensive drilling inventory of over 300 identified locations and by identifying potential acquisition targets. We look forward to sharing more information with our investors as we further advance our phase two strategy. We're also pleased to have recently participated as a presenter at an industry investor conference in Calgary, where I had the opportunity to tell our story to a standing room only audience. We are looking for more opportunities like this, and I'd be thrilled to meet those interested in our story at these events. We are proud of our accomplishments so far, but much work remains. We are excited about the opportunities ahead, and I look forward to connecting with existing and new investors in the future. Getting back to the immediate matters at hand, I'd like to now focus on our accomplishments in the third quarter. Overall, our original expectations were for a relatively soft third quarter with seasonally weak natural gas prices reigning in our expectations. Overall, however, we are pleased with a solid quarter that showed ongoing improvements in our business, including growth in our raw gas processing business, higher gas plant utilization, lower costs and improving netbacks as a result. Net operating income of nearly $31 million was strongly supported by commodity hedging gains of nearly $28 million in the quarter. This was largely on the basis of our 110,000 gigajoules per day of gas sales hedged at $3.32 per gigajoule, offsetting an average unhedged realized ACO gas price in the quarter, of a paltry 65 cents per gigajoule. Production of just under 24,000 BOE per day reflected the ongoing shut-in of wells in west-central Alberta, northern Alberta, and northeast British Columbia, representing an aggregate shut-in volume of approximately 9,500 BOE per day. This 9,500 BOE per day is dry gas producing to third-party-owned and operated processing facilities with high operating costs. CAVI is obligated to pay third-party processing fees on the vast majority of this production, with the corresponding processing fees reflective of these high operating costs. Most of this volume has been shut in since approximately mid-2024, with the northern Alberta and northeast BC volumes producing sporadically since that time, but they remain shut in today. We are currently evaluating the restart of Northeast BC production since sustained gas prices of just under $2 per gigajoule may prompt us to do so. However, the high cost structure at the third-party facilities makes the restart of the West Central and Northern Alberta volumes highly unlikely until at least the end of calendar 2026. Processed raw third-party gas volumes averaged 136 million cubic feet per day in the quarter, representing a 105% increase in volume and an 87% increase in revenue as compared to the same quarter in 2024. I'll speak to the continued growth of our processing business in a minute, but this growth is only possible because of our ownership in our three major industrial sites at Waterton, Jumping Pound, and Carolines. We believe these sites will continue providing opportunities to grow our processing business while having the potential to accommodate new energy-based opportunities in the mid and long term. In our last quarterly results call, we suggested that our full year 2025 net operating income guidance was anticipated to be closer to the high end of our guidance range. Given our continued strong results, We have increased our net operating income and net back guidance for 2025, and Adam will provide a few details on this revised guidance in a few moments. And for my last highlight, I am very excited about our new 2026 sulfur pricing agreement. We executed this agreement subsequent to the end of the third quarter, and I'll provide a few details at the conclusion of the next slide, which updates our ongoing success in growing our third-party processing business. I'd like to direct your attention now towards the chart in the upper left and the chart in the lower right of this slide, because these really speak to the growth in our third party raw gas processing. The chart in the upper left shows the improvement in the revenue derived from third party volumes. We have increased revenue in each of the last five quarters, culminating in revenue exceeding $10 million in the third quarter of this year. On a full-year 2025 basis, this third-party derived revenue is anticipated to contribute over 15% of the company's total revenue, so it has become and will remain an important revenue source into the future. The chart in the lower right provides a similar view, but on the basis of raw gas volume rather than revenue, and shows additional detail by illustrating the volumes processed at each of our three primary facilities, again showing growth over five consecutive quarters. This chart also shows that our Caroline gas plant handled approximately 60% of the third-party volume in the third quarter, while our jumping pound facility handled about one-third. We will continue providing updates on this part of our business in future quarters, since it remains a cornerstone of our strategic objectives. As we move to my last discussion item before I hand the floor to Adam, I want to take a moment to refresh a key message that we've communicated several times in previous quarterly results discussions and conference calls. CABI's unique asset base means that we are a significant producer of elemental sulfur, with sulfur derived from the extraction and conversion of the hydrogen sulfide present in the raw gas resource that is in place throughout much of our geological asset base. Since CAVI's purchase of the Waterton Jumping Pound and Caroline assets in 2019, the company has been contractually obligated to sell up to 90% of our recovered sulfur to a third party at a realized price of six Canadian dollars per metric ton. This contract reaches the end of its term and fully expires on December 31st, 2025, which is now less than two calendar months away. Similar to crude oil, natural gas, and other commodities, sulfur pricing can at times be volatile and sometimes highly so. The chart in the lower right of this slide is one we have often shown And it illustrates this sulfur price volatility over the past 15 years since 2010. One of the most recent examples of volatility occurred in 2022, precipitated by the Russian invasion of Ukraine and the subsequent pricing volatility, similar to many other traded commodities. Sulfur pricing spiked to approximately 500 US dollars per metric ton. only to crash very quickly by 2023 to less than US$100 per metric ton. Because a true hedging market for sulfur is not available as it exists for the primary hydrocarbon commodities, we've been investigating options for some time now that could help manage the risk of this volatility within the context of what remains a highly attractive upside revenue opportunity when our current sulfur sales contract expires on December 31st. We are very excited that our work has culminated in this week's execution of a forward sulfur pricing agreement effective January 1st, 2026 for the calendar year 2026. Under the terms of this agreement, our counterparty will purchase one-third of our sulfur sales at a fixed price of $225 per metric ton, and one-third within a collared structure, with a floor of $205 per metric ton, and a cap of $250 per metric ton. The remaining one-third of sulfur sales will fetch the Vancouver FOB spot market price, which is currently approximately $315 per metric ton. These prices are subject to the customary deductions for transportation and marketing, which are conservatively estimated at $70 per metric ton. We expect to incur additional operating expense related to sulfur processing and forming of approximately $10 per metric ton, bringing our expected break-even cost on sulfur sales to approximately $80 per metric ton in aggregate. It is noteworthy that this one-year structured price agreement provides sulfur sales pricing substantially higher than the FOB Vancouver 15-year historical average of US$135 per metric ton. The pricing agreement will provide substantial protection from pricing volatility and therefore material cash flow protection in 2026, while preserving the ability to meaningfully participate in the spot sulfur market. This price certainty will assist significantly in our operational plans and debt reduction goals. Our operational plans in 2026 include a planned maintenance turnaround at the Caroline Gas Plant in the third quarter. Referencing now the matrix in the lower left of this slide, we have illustrated the one-year sulfur sales revenue generated under the terms of this agreement at various combinations of FOB Vancouver spot pricing and company sulfur production. As an illustrative example, in the third quarter of 2025, the company produced 1,120 metric tons per day of sulfur, the majority of which received the contractual realized price of six Canadian dollars per metric ton. Under the terms of this agreement and effective January 1st, our sulfur sales, when the FOB Vancouver spot price is $300 US per metric ton, would generate approximately $76 million of after royalty net revenue. At the current sulfur contract rates, This sulfur production generates approximately $10 million of after-royalty revenue. The obvious conclusion in this illustrative example is that, under these assumptions of FOB Vancouver spot pricing, approximately $66 million incremental of after-royalty net revenue will be generated in one year under the new contractual agreement. At larger sulfur sales volumes, in line with the company's full capability of approximately 1,500 metric tons per day of sulfur, the matrix illustrates that potential exists for even larger increments of revenue from our sulfur sales. We are extremely pleased with the positive impacts this agreement will generate for our business in 2026 and beyond, and I am confident the matrix and the example I have walked through provides the required insight, but we are happy to answer questions at the end of this call if additional clarity is desired. At this time, I would like to invite Adam Gray, Chief Financial Officer, to elaborate on our third quarter operating and financial results and provide a few details on our debt, liquidity, current commodity hedge position, and our updated corporate guidance.