Petrus Resources Ltd.

Good day, and thank you for standing by. Welcome to the Petrus Resources second quarter 2024 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To answer your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Ken. Please go ahead.

Welcome to Petrus Resources 2024 Q2 Earnings Call. My name is Ken Gray, and I am the CEO of Petrus. I'm joined here by our executive team of Matthew Wong, our CFO, Matt Scandrup, COO, and Lindsay Hatcher, VP Commercial and Corporate Development. The most notable thing to me in our Q2 results is the fact that we have held production relatively flat for the past 12 months, despite reducing our capital program in response to low gas prices. Production in Q2 averaged 9,471 DOE per day. It included production added from 2.3 net wells drilled in Q1 and brought on right at the end of that quarter. We did shut in about 200 BOE per day of production for economic reasons and had some turnarounds in maintenance in June, which negatively impacted production. Also of note in Q2, cash costs were down 17% from Q1. Some of this is due to increased gathering and processing fees from third parties generated by the north area pipeline we completed in late 2023. Cash flow came in at $10.6 million for the quarter. We distributed $3.7 million of it in dividends to our shareholders and spent $6.9 million in capital, primarily on completing the three operated wells we drilled back in January. Those wells were brought on production in late July, and current production is a little north of 10,000 BOE per day. We continue to prudently manage our cash flow to ensure we can comfortably pay out our dividend to our shareholders. Our current plan now is to resume drilling in September with a limited program and to maintain our debt at current levels. With that, I'll open the floor to questions.

Thank you. As a reminder, if you'd like to ask a question, please press star 11 on your telephone. We ask as well that you wait for your name and company to be announced before you proceed with your question. One moment. Our first question today comes from Joseph. Scatter of sir, your line is open.

Good morning, Ken. Good morning, team. A couple questions. First on production, you mentioned that production now is 10,000. And, you know, for the first half, we're looking at, you know, a number, I think you said 9,700 for the first half. Why aren't you tightening your average annual production from that 910 to 9,400, 9,800? Is there any reason why you're keeping that wide number? Sorry, could you repeat that, Joseph? My pleasure. The production, as you mentioned just in your commentary, was 10,000 BOEs a day when you brought on those additional wells in July. You still got a pretty wide number for the year of 9,000 to 10,000 BOEs a day. I'm just wondering why you wouldn't have tightened that up. That's my first question. Thank you.

Well, again, I think when we put that guidance out there We You know, it's hard. We put a pretty wide range on it. You're right You know, and I think that's reflective of the fact that You know, we have a fairly volatile business here, you know with respect to pricing so We kind of didn't want to promise more than we could deliver necessarily. We wanted to sort of let people know that this is where we're going to end up. And I think it is where we're going to end up. We're definitely going to end the year in that range. But it gave us plenty of room to sort of manage our capital no matter what might have come about. We've averaged 9,600, just a little more for the first half of the year, as we noted. We're sitting a little over 10,000 right now, so you're right about that. Where we finish the year depends on a lot of things. We don't have a lot of capital planned for the rest of the year, so we're not going to be bringing on a whole lot more At least that's the plan right now. So we expect maybe things to drop a little bit sort of towards Q4. But again, it's price dependent, cash flow dependent. We try to be very flexible with our capital program. And we have the ability to be very flexible. We don't have any firm commitments with regards to capital, so we can manage that depending on economic conditions. And that's what we're doing. So we have a very low kind of gas price right now. Doesn't make a lot of sense to drill a whole bunch of wells right now. We've got a couple more here that we've plan to do in the second half. And beyond that, we're just going to kind of see where we go. So I think the guidance is still valid. We're going to end up in that 9,000 to 10,000 range. But I think we're a little bit ahead of even where we thought we'd be right now, given the cuts in capital. Who knows? I'm hoping we sort of end up at the high end of that range.

Next question for me. CapEx so far was $19 million. You have a range of $40 to $50. Should we be thinking more at the lower end of that, given your commentary about not spending very much in the second half? Yeah.

We're going to be, you know, our current plans are we're going to be below that $40. You know, things sort of continue the way we've got them modeled out right now. So yeah, we're at the low range or even below what we're doing there. We're just trying to be very prudent managing our cash flow. You know, we're going to keep our spending within cash flow. We're going to pay our dividend, keep our debt levels reasonable. So that's kind of the plan going forward. Yeah, so we will be on that low end if things sort of continue the way we're projecting right now.

And then the last one then for me, if you are spending at the lower end and there's cash flow, free funds flow after the dividend and CapEx, would you use that to knock down the debt level?

It will be used to bring down debt. you know, unless we start to see an improvement in gas prices and an improvement in economic conditions. And in that case, we could put it into more drilling. We certainly have, you know, a number of wells and projects in the inventory that are just ready to go. So, you know, that, again, is just a kind of a strategic decision depending on, you know, what we see going forward and what we think are good investments. But for now, I would say, you know, safe to say that we would be using any additional cash flow to bring down debt.

Super. That's it for me. Thank you for taking my questions.

Thanks, Joseph.

Thank you. If you would like to ask a question, please press star 11 on your telephone. And at this time, there are no more questions in the queue. I'll turn the call back over to Ken for closing remarks. Please go ahead.

Well, thanks, everybody, for tuning in. You know, I'd just like to emphasize a couple things here before we end the call. Like we talked about, we do have a very flexible capital program. and approach. I think in this volatile business with gas prices as up and down as they are, you need to be flexible and we've stressed that. So I think it's important to note that we don't have a lot of capital commitments that we can manage our capital spend within cash flow, continue to pay our dividends And we think that's the right approach, and that's what we're going to continue doing. The flexibility, I think, is a real advantage that we have. I think it's not every company is as flexible as we are and is willing to adjust their capital to current market conditions. So we think that's a strength that we have. Another thing I'd like to just point out quickly is that our corporate decline has actually come down somewhat. And that lower decline rate means that we need less capital to sort of maintain our production, which I think is an important thing to note. We did a lot of drilling. in 2022-23, invested a lot of money. You know, that production came on. We had quite a bit of production growth. That production is now maturing somewhat, and the declines have come down on that. So that our corporate decline has dropped from about 30% to, you know, just over 20% right now. And what that means is we just need less capital to maintain production, to replace that... production that goes down from natural decline rates. So I think that's important to note as well. It just requires less capital, and so that's what we're seeing here. We're investing less capital, but we're able to maintain our production and continue to pay that dividend even in this low gas price environment. So I think that's kind of important to note. The other thing that I mentioned earlier and that we want to sort of emphasize again is we put a lot of money into building a pipeline to North Barrier, which we brought into operation the end of 2023. This was a large investment that allowed us to begin development of our lands north of the river, but it was also an infrastructure asset that is starting to generate significant fees for us as partners and third-party producers pay us to use that line to access processing at our 2225 gas plant. Those transportation and processing fees are included in operating expenses, and we're a significant factor in bringing down our operating expenses to a low 496 per VOE this past quarter, which was 20% lower than we saw in Q1. Low operating costs are very important, especially in this low price environment. And we have one of the lowest cost structures out there and we're continuously working to bring down our costs and keep our costs down. So this is just an example of that and how that pipeline is contributing to those lower operating costs. So just wanted to point that out as well. Thank you, everybody, for tuning in, and we'll talk to you next quarter.

Thank you all for joining today's conference call. This does conclude the meeting. You may all disconnect.