Evolution Petroleum Corporation (EPM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Evolution Petroleum April 2022 Investor Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Ryan Stash. Sir, the floor is yours.

Thank you, Tom, and good afternoon, everyone, and welcome to Evolution Petroleum's April 2022 Investor Update Call. I'm Ryan Stash, Chief Financial Officer. And joining me today is Jason Brown, our President and Chief Executive Officer. After I cover some forward-looking statements, I'll provide some opening remarks and discuss some very positive recent business updates, including the closing of our Jonah Field acquisition. I'll then turn it over to Jason to provide some additional details on these updates before we take your questions. Please note that any statements and information provided today are time-sensitive and may not be accurate at a later date. Our discussion today will contain forward-looking statements of management's beliefs and assumptions based on currently available information. These forward-looking statements are subject to risks and uncertainties that are listed and described in our filings with the SEC. Actual results may differ materially from those expected. I would also refer you to an updated presentation that we posted to our website under the Investors section. We may refer to some of these slides during this discussion. Please note that this call is being recorded. If you wish to listen to a replay of today's call, it'll be available by going to the company's website or via recorded replay until May 6, 2022. Now as we put out in our press release this past Monday, we closed on the Jonah Field acquisition this past Friday, April 1. The total purchase price before adjustments was $27.5 million. This is $1.9 million lower than the announced acquisition price of $29.4 million as the operator, Jonah Energy, chose to exercise the preferential purchase right on a small number of the wells. We ended up paying $26.2 million on April 1, which was net of preliminary purchase price adjustments and a $1.5 million deposit paid when we signed the PSA in February. The acquisition was funded with a draw of $17 million under our revolving credit facility and cash on hand. That brings our total borrowings to $37 million and resulted in pro forma leverage that is well under our target of 1x debt to EBITDA. As a reminder, last month, we announced that we increased the borrowing base under the credit facility to $50 million. I should note that the asset value could support quite a bit more than our current borrowing base, but given our expected near-term capital needs, low leverage and strong free cash flow generation, we feel that the $50 million facility size is currently more than sufficient. We also entered into hedges as required by our credit facility, 25% of the expected natural gas production for the Jonah Field acquisition for the next 12 months. We were able to take advantage of current strong natural gas prices and lock in attractive prices with costless collars that allow us to maintain exposure to further price upside. Finally, we successfully completed the financial audit and pro forma financial information for the Williston Basin acquisition as required by the SEC and filed a Form 8-K on March 30. Now with that, I'll turn the call over to Jason to talk some more about why we are so excited about these 2 acquisitions and give some updates on our other assets as we recently held our annual working interest owners' meetings. Jason?

Sure. Thank you, Ryan. Thanks, everyone, for joining us today. We've been pretty busy and very excited about things happening here at Evolution Petroleum. It's a wild time in oil and gas. It has been for the last couple of years and we went through the hard times together. And now we're reaping some of the benefits and we're thrilled for your continued support. As Ryan mentioned, we put a presentation out on the website, and I'm going to refer to several of the slides. So if you have the opportunity, it would be good to go grab it now. And if not, you can listen later in a transcript and refer to them. The first thing I was going to do is look at Slide 3, and I just kind of want to give you a feel for what we've been up to, what we've been able to complete and accomplish in the last few weeks and kind of where we're going, but basically a snapshot of what it does for us. If you look at Slide 3, this is just kind of an overview. You've seen this before. But we're using this pro forma, and we generally don't give guidance, and we don't feel like we're doing that now, but we're giving you the best we got in terms of what we feel like our best estimates are right now. Things like the upside locations in the Williston for instance, aren't part of our official reserve report because we only do that once a year, but we give you our best in terms of our company projections of what we think will receive for that at the end of the year, what we anticipate to try to communicate that over -- to our investors for your decision. Right now, the stock is doing pretty well. It's kind of hanging north of $7, which is great. That's about a 5.6% yield. We were able to pay our dividend and move that up to $0.10 a quarter. That happened just last week. It was a big milestone for us and accomplishment to get back to $0.10 a quarter. As Ryan said, our debt momentarily is eased up to $37 million, but we'll start making progress on that very quickly, I think, probably $4 million, $5 million reduction even in the month of April or somewhere in that ballpark. So this is something that we sort of stretched up a bit to give. But even at that point, we've talked about being less than 1 churn or 1 net debt divided by adjusted EBITDA being less than 1. I think we're maxing out somewhere around 0.6, so well under our target. If you look at 4, that's the next slide, Slide 4, to be able to just kind of go through. Basically, the last few weeks, what we've been able to do. And Ryan mentioned several of these. Obviously, we closed the Jonah acquisition on April 1. That was last Friday. It will be feathered into our audited financials in our K being closed in the fourth quarter. But we'll have production starting as of February 1, which is the effective date that will come in the form of post-closing adjustments. Ryan mentioned a few of the preliminary adjustments, but we'll continue to have post-closing adjustments to account for all of that revenue received prior to ownership on April 1. We completed our financial audit and pro forma financials. That's a great accomplishment. I always feel great getting through those and I think it's important for us to be in compliance, and the team has done a really great job going through all those things. I was very happy to get back to our annual shareholders meetings with our operators. It's an important part of our business and our relationship with them. We'll get a little more into that, but we were able to go out and get in person for the first time in a couple of years, and that was important. We have several new people on the team. Some of those companies have new people on the team and it's good to build those relationships. They're important. As Ryan mentioned, we put in some more hedges as required by the bank, but the collateral base is to the point that I'm not sure that we would have to extend those out. We'll know a little bit more about that around the Q. But I think we're getting past any more requirements, which is great. The hedges are in pretty good place. And as I mentioned, we paid our 34th consecutive dividend on 3/31. So going over to Slide 5. I wanted to give you a clear look at -- there was a small pref exercise. Jonah actually had the right to pref a larger chunk. I think up to about 45% of the acquisition. They chose just in that 29N 108W and Section 25. I chose to pref a couple of sections. And I'm not sure why, but very happy that that's all they did. So it's about 5% of what the deal and as Ryan mentioned, that lowered the purchase price for about $1.9 million and we were happy about that. So very thrilled with this asset. As you can see on Slide 5, we put in the marketing direction. This is going out of Opal through Ruby and the Northwest Pipeline. We also have ability to go to Kern River. The western directions are receiving just a tremendous premium right now, and that's not something that we baked into our acquisition. Pricing, we were more flat to Henry Hub and they're receiving quite a big premium. It's been that way for a while. We didn't bank on it, as I said, in our valuation, but we've considered that kind of upside as there's probably not additional drilling or workover -- some light workover opportunities, but really the upside is probably going to be on price, and we think that's going to be substantial and a big value for our shareholders. Flipping over to Slide 6, you can see the progression. I think it's important to note here, we wanted to try to normalize this to give a clear picture on what these recent acquisitions have done. So the latest that we have filed in terms of production and financials is as of 12/31. So we compare these recent 2 transactions, both Foundation and Jonah, as if we had held them in the first half of our fiscal '22. So July 1 through 12/31. And so all of those are kind of apples-to-apples as if. So when you look at Jonah, that we say average 2,141 BOE per day. Right now, we think as of April 1, that's probably about 2,015, so just a little bit lower. The 2,141 really represents an average daily through the first half of our fiscal '22 to have a relative comparison of what the uplift does for us. I hope that makes sense. Currently, right now, we think it's making about 10.7 million cubic feet a day of gas and about 120 barrels of NGLs and right in the 112 barrels of oil, is what it's comprised of right now, it's just about 12.2 million cubic feet a day in CFE. One other note on this, again, with the spirit of trying to give you a basic feel for where we are. The first 3 here in Denbury, the Merit and the Diversified, those are all SEC real reserves as of our 630, so they are last year-end. The Williston Basin and the Jonah are our company reserves. So those will be filtered into our year-end reserves in a couple of months. We'll do -- we'll start that process on July 1. But we anticipate -- so the 37.3 MMBOE number over in the far-right column, that's kind of where we think that we are in proved reserves. It will be close to that, but that's not an official SEC number that's got some company engineered. Again, we think it's pretty close. Slide 7, it's more of an illustrative just to show the ramp-up. Again, we're not kind of giving forward projections or guidance. But we do think it's substantial, the amount of growth that we've been able to make in. So I really want to spend some time on Slide 8 because that's really where we feel like we are at this point. I think you've seen this, we released this in our spring presentation, but we've added a -- this donut chart here for revenue -- percentage commodity revenue. We always kind of struggle because we think about commodity in terms of value that it creates. And if you look at our pure production as a percent, we look pretty gassy, almost 62% gas. But the gas doesn't trade if -- quite at a premium of oil does, and we think in terms of value there. So we've added that donut of a pro forma on an annualized revenue basis, it's more about a 50-50 split between gas and oil with NGLs making up the difference. So that's the way we think in terms of, again, everything that we have, filtering down the free cash flow per share. It's all driven by the value that it's creating. So once again, on this slide, it shows some step changes for our company. Diversification of commodity. We've seen in the news, the way it moves, different commodities have peak value and we have exposure to all of those. We're pretty bullish on gas right now, but oil is running pretty strong. I have a diversity of operator so that we're not pinched on any 1 operator deciding to do things in our area or do things in other or if they win go through some type of financial difficulty. Diversity of geography, if there's a freeze in one location or a hurricane in location -- in another location, we're not all dependent on one single area. And then finally, this diversity of reservoir category. Most of the things we brought in the past are pretty heavy PDP, and that's still the majority of our component, but we've got these PUDs now that we can go out and drill and do some conservative development and placing capital at a higher rate of return, which we think is very additive, particularly as prices get higher and higher, it becomes more difficult to buy things or heavy PDP just because the prices become pretty untenable. So with that, let's just a little bit at the Williston Basin on Slide 9 will just be a bit of an orientation slide. Just off to the east of us in Billings there, Whiting and Continental have been drilling. We've got some AFEs coming back from them, not for us to participate in, but things that they've been drilling. We're hearing the costs are somewhere in the $6.5 million range. Those have been easing up a little -- or increasing a little bit with certain levels of the supply chain, but we think that's probably still somewhere in the $7 million range per well. If you flip over to Slide 10, that outlines what kind of value we think is nestled in this acreage. Again, these are company engineers. We believe about 156 of these locations with qualified SEC PUD locations. But we, of course, aren't going to commit that amount of capital and that's sort of an old way of doing business with other companies. To stay within cash flow, we think more in the 50 MMBoe range, which would be about 10 MMBoe a year for the next 5 years you have the 5-year rule to qualify as an SEC PUD. But the quality of a lot of these PUDs or these locations would be PUD and we think even the probable ones are PUD-like in terms of the quality of the rock. So a tremendous amount of value that's there. We're only -- we think at year-end, probably just the 50 MMBoe is what we will go for. So we -- that 37 million proved barrels, we think, is going to be pretty close, but there's potential here for even a double on all of that with our overall company with what we have in the ground up there. Slide 11, let's talk about the operators. We took the entire team up to Dallas, and we were able to meet with Merit and with Diversified and with Foundation we'd already had a meeting with Delhi at Denbury earlier in the month. But let's start with Merit. We really like those guys. There's good news out of Hamilton Dome is that their marketing group has been able to free up more -- there's a few -- a couple of new pipelines that have able -- can enable some connection and movement of getting some of that product down on WTI off of WCS, which is positive and will be for better pricing. We haven't -- we don't have insight into quantifying that just yet, but that's going to be on the way. The other thing is that WCS has kind of tightened up a bit. So the prices there, which were kind of in a net back to us, somewhere in the [ 12 ] to 13 range under WTI is closer to the 10 to 11, maybe even 9. And we feel like that's going to be probably good through -- maybe through the calendar year, at least through the summer. So that's positive news out of Ham Dome. The other thing is we've talked many times about Merit and how solid they are as an operator. They're getting out in front of some emissions. So they're doing some consolidating, some tank batteries and beginning the vapor recovery system. Feels like that a lot of times are grandfathered into some areas, but we are very supportive of them being proactive, particularly for BLM land. So they're on top of that, and we're supportive. Diversified has done very, very well. It was great to meet that team. They've got a -- they're really excited about getting out there. I think they've already executed 25 workovers. And basically, what that means is we were anticipating it being somewhere in the 7% to 8% decline just generally on PDP. I think they've arrested 5% of that already, and there's been a 5% uplift to our net production based off the work they've done in just this first quarter. So we're just thrilled with the work they've done. And these are low-hanging fruit. This is -- things that are $15,000, $20,000, $30,000 that they're executing and they're under budget. And we're thrilled with them. We get a little more CapEx insight here that's on the presentation. So Ham Dome we expect through the first half of fiscal '23, $1.2 million. Barnett, I think about $0.5 million remaining kind of through the calendar year or through our first half of fiscal '23. Foundation, Foundation was great. We spent about 5 or 6 hours with them. The team got to hang out with them and we got to sort of start looking at what their geologic and reservoir work is done on the assets we've been doing our own. And I didn't know how that would be. And I was very, very pleased that it was very cooperative and homogenous like -- harmony is the word I'm reaching for. Everybody got along, everybody was excited about, I guess, good old-fashioned oil and gas and getting out there and doing some development work. They've identified a few workovers, some low-hanging fruit in terms of Bakken recompletes on behind pipes from some vertical wells. Also, if you're Red River and [indiscernible] some people call the [indiscernible] some behind pipes there that are offsetting other production. So things that we think are or kind of quick wins. And so we greenlit those. We expect those to start maybe sometime in June and be executed in June, July. So I think all in, by the end of the year or the first half of our fiscal year, somewhere in the $2 million range of CapEx to be expected out there. So went very well. We're doing our assessment of the Three Forks and the Pronghorn that's going to happen over the next few months. And they are currently kind of looking through what it's going to take to be able to get the supply chain. So there's been rumors of lots of delays there, but actually, we -- I think that they could get a rig, and it might not be as bad as in some other areas of the country where things are a little more congested. Finally, on Delhi, we had some real positive news and I wanted to take just a little bit extra time to talk about that. We normally wouldn't go this granular, but on Slide 12, I say in retail, it's all about location, location, location. And out here in the CO2, it's all about pressure, pressure, pressure. So normally wouldn't go this granular about showing you a heat exchanger and getting into the technical, but there's been such a significant portion of the story out here at Delhi that we're just absolutely thrilled. It's good to see some real movement from Denbury on spending some capital in Delhi. So these heat exchangers, we have kind of few problems and it's been a little bit of a goldilocks. It's either too hot or too cold. We have problems out there. So let me just briefly explain what's happening. When the gas is produced out of the reservoir, the gas is expanding, and that makes everything super cold. It's the same thing that happens in your car with Freon, the gas expands and it's super cold and you blow air and that's what makes cold air in your car. That's what happens when we produce gas, everything gets really, really cold. So in the winter months, if there's a freeze or it gets below 40 or 35 degrees outside, on top of that natural cooling that's coming from the gas expanding, then we have anhydrites that fall out and they start clogging up the NGL plant and they can cause downtime. So that's the lower right-hand chart where you have a freeze and suddenly you're down and that caused us big production delay. Now on the other side, when we take the CO2 and we compress it to be able to pump it back down, whenever you take gas and you compress it, it makes it really hot. It's the exact opposite of gas expanding cooling, gas compressing heats up. And when gas heats up, it becomes less dense. And we need the density because the density makes it heavier and that's what allows us to put it away into the reservoir. So you've probably seen on some of our calls before that in August and September, July, the warmer months, we have to lower CO2 injection because we have a miscibility issue and we can't put away enough CO2. That's because it's too warm. So what they're wanting to do here is basically use the cooling to cool down some of the hot and the hot to warm up some of the cool. So that's what these 3 heat exchangers are doing. It should make everything a whole lot better. It should enable us to put a lot more CO2 away at lower temperatures, which will enable us not to have to dial back CO2 injection in the summer and decreased downtime. So you can see that we're very excited about this. It's going to cost us a little bit of money. We expect that to be about $1.2 million for that. There's some updated CapEx for you. All right, so finally, on 13, just kind of an update on where we are here. Again, you can see the debt less than 1. I think that's about 0.6. One thing to note that we're still around the 50% margin. We're pretty proud that the G&A is getting thin and thin in terms of spread across more barrels, which is more value for all of our shareholders. So some significant movements and good results, I think probably we're most proud of the lower left-hand corner of 33.6 million shares that kind of growth without having a tremendous amount of share dilution. I think the last couple of slides are self-explanatory. We're very happy to pay our extra dividend. But I think with that, let's go ahead and turn it over to questions. Just stop me talking when we can answer some questions for you guys. Operator, if you'll open up the line for questions.

[Operator Instructions] And the first question is coming from John White from ROTH Capital.

Jason and Ryan, very nice presentation. Congratulations on that. As we've talked about -- we've discussed this a lot, Evolution compared to the vast majority of other publicly traded E&P companies is very different, a very different company. You're not really a shale company, you're not a growth by the drill bit company. And I get calls from investors commenting on your very successful track record over the last couple of years of putting together these acquisitions and diversifying the asset base and diversifying the commodity mix. And they keep saying, how do they do it? How do they do it? And I think -- and correct me if I'm wrong because I'm not a merger and acquisition expert. But I think one of the keys to your execution is the structure of the merger and acquisition market for deals under $50 million to $75 million. In other words, I think once you drop below $100 million in deal value, there's a lot of sellers, but there's not that many buyers. And there's a lot of want to be buyers that can't get financing, but you guys show up with money in hand. Do you think that, that's a good explanation. And if it is, do you want to talk a little bit more about the structure of that market in that size range?

Yes. Actually, thank you for that question. I like the first half of it, it was extremely complementary. So I think for those kind of words, John. I couldn't have summed that up better actually. The sub-$100 million and particularly, sub-$50 million used to be completely dominated by the private equity backed portfolio companies, many of which those are now having assets that are getting long in the tooth, and they're really more looking to sell and liquidate funds that have been out there for quite a while. So something like Jonah Field, just not a lot of people coming and beating down the door to get into a non-opposition in Jonah Field. Most people want to operate. So it's a real strategic advantage. And in a company like Northern who is a non-op -- it plays in that non-op space as a competitor as well. Something like Jonah just doesn't move the needle for them. So we're having some success because there are some things that really are value for our shareholders that, again, there's a lot of people that would like those that don't have the money and the ones that have the money, it's either too small for them or it's not the right timing in terms of their fund.

Yes. No, I mean, just to add, I mean, I agree with Jason, John, you said it great. Just from our experience and the deals that we've won, I think we mentioned this before. I mean we haven't been the high bidder in those deals, and it's really been a virtue to your point we have the money. We have a track record and we can close on good terms for the sellers. And so they're willing to take prices maybe before they would have liked. I can tell you, the Jonah folks over at Exaro, which have been great to work with. They there was a private equity-backed situation that they had to sell, and I think they would have loved to have kept it. But we're being the beneficiary of those types of funds winding down as well in those assets coming to market.

Okay. Yes, we just -- we get a lot of -- I think your business model is so simple that the only part that is not really understood as well as it could be is the structure of the M&A market. So I appreciate that detail, and thank you for agreeing with my analysis. And I'll pass it on, but I'll come back with a follow-up.

Your next question is coming from David Lock from Old Mammoth Investments.

So a quick detailed question. Could you spend a couple of seconds on differentials in LOEs in the last 2 acquisitions?

Sure. let's see. I think Jonah, I'd say on an Mcf basis, all in processing and LOE, you're going to be about $1.70 about $0.90 of that is going to be LOE and $0.78-or-so in processing and transportation, all that sort of thing. The diffs I'd tell you what we ran in our projection is kind of flat on Henry Hub, but -- and what are they right now, $0.60 over?

Yes. So the interesting thing about Jonah and we'll actually obviously get as we continue to own it, we'll have more data and get to know a little bit better. But there's about 60% of the field in Jonah is kind of older legacy wells that has higher BTU gas that's not being processed. So we get a pretty big uplift on that production. And then you combine it with the attractive differentials in the Northwest Pipeline given the dynamics in California and going to the west right now. So yes, Jason is right. I mean as we're looking at, let's call it, for 2021, we were seeing kind of an average differential over both summer and winter of about almost $1 higher than Henry Hub, and that's by virtue of the differentials from Northwest Pipeline plus the uplift. I think you've seen the forward market has gotten a little softer for differentials everywhere. So to Jason's point, we were modeling conservatively lower than that, maybe around $0.50 or $0.60. But we are getting a pretty healthy uplift by both of those factors. On the NGL side, which is much -- for Jonah, which is much less in gas, but it still provides real revenue. We're about 55% of WTI for the NGLs at Jonah and it's got a heavier barrel than we do in the Barnett. So we're getting a little bit more uplift there. And oil, which, again, isn't nearly impactful as gas, but there is a little bit of condensate and oil out at Jonah and that's about $0.92 to $1 below WTI.

Yes. Then David, for the Williston on oil, we're about all in about $5 under WTI. It's just the best way to run the numbers there. And the gas is about $0.80 under Henry Hub and NGL is about 60%. It's a pretty heavy barrel, 60% of WTI. We have some...

Yes, what are the LOEs look like there, roughly?

LOE and Williston is going to be just right around $18 a barrel, BOE. And well, I already gave you the Jonah, about $1.70.

And how old are those wells. They're presumably way past the big part of the decline. So I mean, what are you looking at for decline curves for the...

Jonah right now is about 10 MMBOE. It's kind of sub-10 MMBOE. So -- we expect that to get the terminal decline in the next year or 2. We think that turns out somewhere in the 6 MMBOE to 7 MMBOE. So that's ably where they are in the life. Williston -- those are fairly new, but I think all in, it's about 11 MMBOE at this point, and we expect that to probably be in the 6% kind of terminal. So I think the newest well out there in the Williston is 3 years -- 3 years old. So to give you a frame of reference.

Yes, that helps. So just one more quick thing then. I rough math says you're making $200,000 to $250,000 a day at current prices that pays off the debt pretty fast. You used the word untenable a few minutes ago to describe PDP acquisitions in the current price environment. So just sort of curious about what your strategy is going forward as it relates to the acquisitions and maybe keeping some dry powder for a rainy day under what circumstances you'd raise the dividend, et cetera?

All good questions. Let me start with -- let me start with the debt. This is the first time we've had -- and we don't consider it a substantial amount of debt, about 0.6 of debt over EBITDA. But it's the first time we've had that amount of debt. And so I think it's important for our board and our shareholders to kind of see us start getting all the revenue in and start seeing debt go down pretty quickly. And so I think everyone is going to feel a bit better with that. It's definitely going to apply cash going to that. But again, it's going -- really -- it's coming in fast right now. And yes, we'll pay down on current track record or on current projection we would pay down in less than a year, I think. So that's a very nice job to figure out what to do with that capital coming in. In terms of the M&A market, you got to have your oar in the water paddling at all times. We don't get out of the water because you run in opportunities. So in situations -- the last couple that we've bought, we've bought them in we feel like a tremendous discount. We think there's some reasons for that, that we have some advantages of people to sell to us when there's not a market for other natural buyers. And so we -- even in a high price environment, again, the curve is backward dated. It is coming up over the last 6 weeks. 6 weeks ago, we saw $100 oil, but the 5 years out, the curve was down below $60. Now that curve is up around -- in the fifth year is up around $67. So the back end of the curve is starting to creep up. That makes the average of the first -- over the next 5 years sort of in the mid-$80s where it was in kind of the mid-$70s before. So things are getting more expensive in terms of just the 5-year strip. If you look trailing 3 years, 5 years, 7 years, 10 years, the average oil price is right around $57, $58. So you start becoming even less and less discounts that you're willing to pay. So I still think there's hope, and it's not untenable now, but we have a path for when it started to become untenable that we can put capital in other places. In terms of raising the dividend, I think we are very happy to get back to the $0.10 a quarter that right now is about a 5.4% yield. I don't think we're interested in getting a super high yield. You start getting 10% or 12%, and that's not a realistic number. I think it was important for us to get to that milestone at pre-pandemic levels that it was at $0.10 for, what, 3 or 4 years before that. So I think that we would like to stay there for a while, and focus on trying to grow either through the drill bit or some more acquisitions.

Yes. I mean I think -- the one thing I would add to that is that we're obviously highly focused on shareholder returns. And so we look at per share metrics for everything we do. And part of our job and what we're going to be doing with the board here, I'm sure the upcoming kind of board meeting for our next quarter is -- I'm sure you're seeing the same thing we are when you look out where prices are, we're going to build a substantial amount of cash. And so our job is going to be to figure out how to maximize value, whether it's acquisitions, whether it's through the drill bit, whether it's other shareholder returns via dividend, share buyback. I think all of that is sort of on the table for us to really maximize value.

[Operator Instructions] And the next question is coming from Robert Carlson from Janney Montgomery Scott.

I'm looking at your chart on pound Slide 6. And the bottom line, based on what the average acquisition cost was to where we are today. I mean it's -- I just want to say congratulations because it looks like you've built up considerable value here. In the last call, you answered pretty much my questions about the dividends and the debt which is priorities, et cetera, et cetera. But I just want to say thanks, but it looks like you're doing a great job to keep it going.

Thank you. That's a good point on the -- that bottom line. We added that this time because it kind of lets you know what the price environment, that's the average of the next 5 years or the 5-year strip at that time. And so on the last call, I was just saying that even 6, 8 weeks ago, if you look on the Williston Basin when we announced that, the average over the next 5 years was $68 and now it's up to $82. So we have been seeing the back end of that curve start to rise up, which is going to make us be even more selective on acquisitions.

And the next question is a follow-up from John White from ROTH Capital.

I had previously disqualified myself as a merger and acquisition expert and now I'll disqualify myself as an attorney. And pointing to Slide 11, it looks like the language you're using would not really fall in the category -- regarding CapEx, it looks like the language you're using would not fall in the category of guidance. But the expected CapEx numbers that you have here looks to show a very low CapEx program through the first half of fiscal 2023. Is that the right way to look at those -- that slide?

It is, and we were careful to say expected because they have indicated that's the plan right now, but we're not the operator. So we don't have 100% control over that CapEx, which would make it more in terms of guidance. But we also -- like you've known on your past and calls past, we try to give you the best information that we have for your models and whatnot. I anticipate any real or substantial CapEx is -- would be in drilling, and that probably is going to be after the first -- in calendar '23. So after the first year. So we're kind of just looking this is through the end of the calendar year or the first half of our fiscal '23. And that's the nature of the assets we bought -- it's a low amount of kind of workovers and out of cash flow sort of thing. And even the drilling, we would keep within cash flow as well. But John, we're working pretty hard to find some locations. And I think that's the natural next step for us as deal prices become probably a little bit too much in terms of value is to put the bit to work after the first of the year.

We'll keep slipping those logs.

There you go.

On the Jonah gas markets, can you -- can you provide a little extra commentary on the strength of those West Coast natural gas markets?

Well, I don't want to get people confused with the uplift on the dip that's related to NGLs. But we've been -- we think that there's -- if you just look at straight gas, it's not interfered with, with NGL or an uplift on price or dip because of NGL. We think probably there's a bankable kind of $0.16 above Henry Hub, somewhere in the $0.16 to $0.20 above Henry Hub for the next 12 to 18 months. We think it probably extends beyond that, but that's our best guess at this point, John. I don't know what would you say on that?

Yes. No, look, I think we use as a risk management ARM to help us out with hedging and get their views on kind of forward pricing and there's a print and Jonah specifically for Northwest Pipeline, I mean there's a pretty clear summer winter difference, right? Whereas John, looking at the strip right now, for this upcoming winter, you're seeing the basis out there for as high as almost $1 over Henry Hub in the winter. In the summer, you're seeing anywhere from $0.30 to $0.40 discount. Now I think what ARM has told us is they feel like the back end of the curve is probably too conservative just given the dynamics out there and the fact that there's just not a lot of gas being produced, right? There's not a lot of wells being drilled. There's been a lot of rigs that have dropped in the D-J Basin, which was one of the areas that was producing gas. And combine that with -- California has had some pretty dry sort of kind of winters here, and snowpack is a big driver of hydroelectric power, which obviously impacts gas pricing in California. And so all those dynamics, I think we feel pretty good about where prices were the at least near to medium-term outlook is for prices even versus where you might see in the strip.

Thanks for those macro comments, Ryan. And it was a pleasant surprise to see in the Barnett Shale, 25 workovers already. Those Diversified Energy boys, they really hit step their wagons and got after it, didn't they?

Yes. This is like their lead guy there is getting Danny. Like there's a Danny shaped hole in the wall. They just didn't -- they just blew right through it. Some of those are workovers. Some of those are return to sales, but they just got with it. I think all in net to us, it's about just under 800 Mcf a day uplift, which is a nice kind of flattening for the -- basically, they've eliminated the decline for this first year, which is great.

The next question is coming from Zach [indiscernible] from [indiscernible] .

Jason, Ryan, thanks for holding this call. This is a little bit off topic from the other questions. But I'm curious where we stand with maybe being able to participate in some of these carbon capture projects. Denbury has made a lot of announcements here of late. I imagine that's probably more on your Delhi field where you guys potentially participate? And then maybe talk through if that is an option for you or if it is something you're looking at, what it could potentially mean for you, maybe from a savings standpoint with what you spent on CO2 annual basis?

We are definitely having some discussions with them, and we've mentioned that the way that, that works is we would have to have Delhi go through the process to make it a certified capture or carbon sequestering field. And that's a process that Denbury has now completed with 2 or 3 of their fields already. So now they know what they're doing in terms of that regulatory process and whatnot. So I believe that, that's going to start that hasn't started yet with them, but I believe that's going to start at some point. So until that happens, and that's -- I think that's kind of a 90-day 90- to 120-day process. So we wouldn't be looking at anything happening before the fall probably. And the way that looks down, there are several things that have been thrown out, but nothing -- we haven't really got kinetic on any sort of actual details until it's not really any point until we know that it's -- it's something that's going to qualify. They would allow at that point, it becomes kind of a fungible deal where you can take CO2 anywhere on their line. And in terms of the deal we would cut with Denbury, we're not sure yet. So it's just a little early, but we're definitely working on that with them. So I don't know better answer for you at this point.

No, it seems like a pretty interesting opportunity if it does move forward. So figure out that.

The next question is a follow-up from David Lock from Old Mammoth Investments.

If I did my math right, you identified about $5.5 million of CapEx on Slide 11. That's n-t that it makes a whole lot of difference. You didn't spend a ton in the first quarter, I imagine. But is that a 9-month number?

Yes, that's kind of what we're expecting from here on out. So there was a little bit that was spend -- not a lot though mostly the cheap workovers in the Barnett.

So is that enough to keep production flat-ish or -- what do you think a CapEx number to arrest any declines would be?

Well, I'm just kind of -- I'm looking at the thing here. I would say the Williston, yes, we would think that those workovers there that they're doing this 3 or 4 or 5 projects would flatten that out and actually hopefully increase that a little bit. Barnett has done a really great job of flattening that out to hold it flat. Delhi, we're starting to see a turnover really a lessening of the decline and we'd like to see that start to increase. This this project won't actually be fully functional and implemented in online and so probably the first of the year. So we're not going to see a big impact from that. And Hamilton Dome, it's already on about a 1% decline. So I don't think there's -- that's probably not going to shift that. So flat-ish, I think, is probably you could get there.

Okay. And on the Foundation and Bakken stuff, to the extent that you guys decide to start drilling there with your partner, but -- would that be sort of like a program where you'd have a rig putting holes in the ground for 1 year? Or are we talking about just couple of locations and then move on and see how that does and reevaluate?

Well, we've already got some locations that are built up there. That's not going to completely drive the decision, but we're trying to high-grade some locations where we think our best shot is -- and it probably doesn't make sense to do 1 well. So probably there would be somewhere of a 3 to 5 well pad where we -- generally up there in the wintertime, you start drilling in the October, November range and drill through the winter and then frac it all sometime in the spring when everything thaws. So we'd like to get a bit running maybe towards the end of the year.

Okay. And just -- so -- and you guys are, what, about 1/3 of that?

That's right, about 30% of that.

If you did 3 or 4 wells, that means sort of net to you, it would be kind of 8 well roughly?

Well, the max we do is a 5-well pad, and that's about $35 million, 8 for about 30% of that. One of the $10 million, $10-11 million, $10 million that's us. But I'd say on the first one, we probably wouldn't go with the full 5 wells we might do 3. Economies of scale when you start doing more than 1 -- set of 1 at a time if that makes sense.

And the next question is a follow-up from Robert Carlson from Janney Montgomery Scott.

Could you talk a little about the ability to do deals with the prices where they are? And just a second question, the possibility or your thoughts on adding hedges to lock in profits to lock in prices at the current levels over higher level?

Yes, I'll start with the second one first. I think it's going to be a big discussion for our May board meeting is do we want to step in and take out some more hedges? Right now, we've done the minimum that the bank requires. We don't feel like they're going to require any more. We've met that requirement, and we're pretty happy with the hedges we got. But with hedging, you're kind of always wrong, you should have put in more or less. But historically, anytime you start getting north of $100 a barrel, it just is not sustainable for a long period of time. We might be in a paradigm shift now. It's hard to know. We're probably pretty long-term bullish on gas just because it's easier for oil to be transported and moved around to where it's needed. With gas to go where it's needed, there's a lot of infrastructure that has to happen. So like right now, if we could all send gas over to Europe, we just make a ton of money, but you just physically need so much infrastructure, new LNG plants and all that sort of thing, it's a lot harder to move. So we think long-term guess, we're pretty bullish on it. So I don't know. It's going to be a rigorous debate and we might -- I wouldn't mind putting in some more hedges, but that's going to be up to the board to decide.

Yes. I mean I would say just structurally though, we're very pro on the collar side for both oil and gas just to keep that upside. I mean historically, the company, given that it's been unhedged been more of a call on commodity price. And given that we started to take on some debt now as we've sort of talked to you guys in the past and because the banks required, we put on some hedges to protect the downside, but we've done that through collars. So you protect the downside, but you retain some of the upside. So if we did decide to put more, I would think there would be those structures as well.

So you guys have done a great job so far.

Thank you. In terms of M&A, I'm actually still pretty hopeful. We're still seeing quite a bit of deal flow and what you're seeing right now are failed deals. So as Ryan said before, in several situations, we haven't been the high bid, but you have sophisticated sellers that know if they try to go out there with the higher bid, he doesn't have the financing, it's going to just end in tears and they're going to come back 4 months later to try to put together a deal anyway. So they made the correct decision to go with a little less money, but the surety of close. We're seeing quite a few deals that are just not getting done and they're failed and they're coming back again. So it's those types of situations that we're in just a phenomenal position because now no is an acceptable answer. We've shored up our bases. We've got coverage for our -- we spread our G&A over a bunch more barrels. So we've got G&A coverage and we feel like support of our dividend through the next decade, so we can be pretty picky, but that still allows us to be strategic. So I think there's some situations out there that we might be able to take advantage of.

Yes. I mean I think generally, too, you're still seeing -- there's still private equity sellers and they're still distressed that investors out there for some of the post-bankruptcy publics that are going to be 4 sellers to some extent. We benefited from that. And I still believe that you're going to continue to see that. So you could have some sellers that are going to be more price takers, right? And I think what we've seen in our market is with the backward-dated strip, people aren't going to take the net, the spot price and run that forward, right? We're going to take some discount to kind of the strip and run a more reasonable commodity price. So I'm with Jason, and I'm hopeful that there can still be transactions out there that we can find.

Could you talk a little about your -- the composition of the company, the number of employees you have, et cetera?

Sure. We've really been growing. We're up to 7 people now. We brought on new controller, I'm very happy as she brought in a senior financial analysts she's worked with for years. But -- so our financial group. Tell him about that.

Yes. No. I mean so we've -- as Jason mentioned, we're up to 7 employees. Now we are -- we do have an outsourcing model, which we're actually constantly evaluating. So we outsource a portion of our accounting to P2, But we have -- we hired a controller, as Jason mentioned, senior financial analyst. We're hiring another Director of Financial Reporting to start next week. So we're certainly getting that group in great shape, and I'm really excited about it. And we'll evaluate potentially bringing more accounting things in-house with that team. But we like to leverage kind of the nice thing, and I think you probably heard the Northern guys who follow them talk about this. I mean the nice thing that we have in a non-op model is you can really leverage the G&A. And there's a lot of back-office functions that we don't need to have being a nonoperator that we're able to be much, much leaner on the G&A side.

And there are no further questions in queue at this time. And I would now like to pass the floor back to Jason Brown and Ryan Stash for closing comments.

Yes, sure. Thank you. We just sure appreciate all your support and these questions. The team has been working really hard and we're very proud of what we have been able to accomplish, and we're thankful that you're along with the ride. I will say that we've been on kind of an IR push. I went out to ROTH conference in really good meetings, one-on-ones went to Howard Weil. It's good to get these back in person again, which is great. We did a non-deal road show in Atlanta. And over the next couple of weeks, we're going to be back in Florida on a non-deal roadshow and then California and also up in Seattle and Washington. And all of that's really to kind of get the message out of what we put together and we're eyeing that Russell 2000. We were in it before and got bumped out last year because of all the specs, raised the market cap. I think the measurement date is May 6. So can help ourselves crank some more stuff. we're -- we think that's where we belong. We think we're a Russell 2000 company. If we don't get in there this year, it's not the end of the world, but we've been putting on the full court press to get there. But -- with that, we'll conclude. Thanks again. We're -- Ryan and I are happy at any time to set up a call and meeting, and we look forward to giving you an update in the first of May on our third quarter call. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.